Magna International Inc (MGA) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

And welcome to the Magna International Incorporated fourth quarter 2006 results. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded Tuesday, February 27th, 2007.

It is now my pleasure to turn the conference over to Mr. Don Walker, Co-CEO.

Please go ahead sir.

Thank you, good morning, and welcome to our fourth quarter 2006 conference call.

Joining me today are Mark Hogan, Magna's President, Vince Galifi, Executive Vice President and Chief Financial Officer, and Louis Tonelli, Vice President Investor Relations.

We issued a press release early this morning for the fourth quarter.

You will find the press release, today's conference call webcast, and a slide presentation to go along with the call all in the investor relation section of our website at www.magna.com.

This morning, I will briefly give you our view of 2006 as well as some thoughts in our future.

Mark will discuss industry production and our progress with Asian-based OEMs.

And Vince will take you through the financials, our 2007 outlook, and our dividend.

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

Before we get started, just a reminder, this presentation contains forward looking statements within the meaning of applicable Securities Legislation, our actual results could be materially different from those expressed or implied in these forward looking statements.

We have considered and applied certain risks, uncertainties, assumptions in making these forward looking statements which are discussed in detail in today's press release and attached MD&A, including by reference most recent to our annual information form and annual report on Form 40F, please refer to these documents to fully understand these risks, uncertainties and assumptions.

Our release this morning included our financial results for the fourth quarter and 12 months ended December 2006.

Vince will take you through the specifics, but I want to start by saying that our Management team is extremely disappointed with our results.

Clearly 2006 was another top year for the industry and for Magna.

Production declined again in both North America and Europe to levels not seen in many years.

In North America, some of our largest customers experienced significant declines.

A difficult industry environment has had a direct impact on our results and our manufacturing footprint, and we've been taken actions particularly over the last couple of years to ensure that our footprint is globally competitive.

Our actions have resulted in a number of restructuring charges and other items that have been reflected in our results.

These results also reflect the substantial underperformance in our interiors businesses in North America and Europe, and operating inefficiencies and other costs and other businesses including our powertrain unit in North America.

We have previously addressed many of the reasons for the underperformance, as well as some of the steps we are taking to improve operations in those units.

I won't elaborate on those again.

Some of the fixes are quick, others are expected to take some time to result in improvement.

However, you should know that turning around an underperformers is one of our highest priorities.

Given the industry environment -- sorry the difficult industry environment and our reduced profitability we are scrutinizing all cash outflows and maintaining a highly disciplined approach in all areas of the business, including the allocation of capital and quoting new business.

We continue to assess the competitiveness and viability of our facilities, particularly as our customers continue to review their own capacity needs.

Additional restructuring may be needed, however we have improved our competitive footprint over the past two years.

I should note that many of our business units around the world continue to experience strong performance, despite significant difficult industry conditions.

And some of our underperforming units have made great strides in improving their operations despite significant industry headwinds.

Next I want to comment on some of our successes in the past year.

We continue to expand our presence outside of North America and Western Europe nearly doubling rest of the world productions sales since 2004.

We've added a number of new production facilities in new regions which include Asia, Eastern Europe, and Africa.

We've also continued to increase our percentage of production sales to Asian-based OEMs to 6% in 2006 and have been partnering with some of their key suppliers to further enhance our relationship with them.

As an example, we expect our 41% interest in Shin Young Metal made during 2006 to provide us with opportunities for new business with Hyundai in Korea and elsewhere in the world.

Magna Steyr demonstrated its prominence in 2006 with record assembly volumes of 248,000 units.

Last June, JD Power awarded their Graz Austria facility with a gold plant quality award in Europe.

The award recognizes that this facility produces vehicles with the fewest number of defects among European assembly facilities.

This is the first time an award has been given to an automotive supplier.

Also in 2006, Magna Steyr collaborated with Chrysler by successfully launching and operating the paint shop facility in their Toledo supplier park which produces the popular Jeep Wrangler 2 and 4-door.

This builds in our relationship with Chrysler in producing complete vehicles and strengthens Magna Steyr's capabilities in North America.

Lastly, six of our operating divisions were given Ford's World Excellence Awards for exemplary performance.

The six awards were the most given to any one supplier of the total of 60 presented to Ford suppliers globally.

These accomplishments demonstrate our strength and abilities to assist our customers around the world.

Lastly, I want to give you a longer term view looking past the current turmoil in the industry.

We believe we have a strong position in the industry considering our broad capabilities, our footprint, our balance sheet, our business culture, and our emphasis on innovation technology.

Add to these assets are recent investment in new markets and the steps we're taking to diversify our customer base and we believe we are positioned to continue to be one of the most successful among the global automotive supply base going forward.

With that, I'd like to pass the call over to Mark Hogan, our President.

Thanks very much, Don.

As Don noted 2006 production volumes in North America and Western Europe declined again from the prior year.

And for certain of our largest customers in North America, over production in the first half of the year along with somewhat weak sales and share declines led to an inventory correction in the second half of 2006.

That correction has continued to some extent into this year and we expect relatively weak production during the first half of 2007.

I noted in our third quarter conference call how the big three took the brunt of the Q3 production declines in North America and that in particular big three trucks excluding CUVs were the hardest hit.

GM and Ford saw more of the same in the fourth quarter with overall production down 8% in North America.

GM and Ford production were down 13% and 23% respectively.

And GM and Ford truck production excluding CUVs were down 17% and 39% respectively.

CUV production was actually up 10% in the fourth quarter, including 3% for the big three.

We have above average Magna content in SUVs, Minivans and pickup trucks, particularly for the big three.

And Ford and GM's production declines created negative mix in our content growth again in the fourth quarter.

However, we also benefited and should continue to benefit from the growth in the CUV segment.

As we have significant content on some of the CUVs currently launching, which include's GM Lambda platform, the new BMW X5, the Suzuki XL7, the Ford Edge.

Later this year Ford's new Escape will launch and we have significant content on both the current and upcoming model.

For a while now, we talked about the ongoing shifts in vehicle segments.

In particular, SUVs and Minivans have given way to CUVs and that's expected to continue.

However, pickup trucks are expected to remain a strong segment.

In 2006, the pickup segment lost some share, partially related to fuel prices and lower housing sales in the U.S., and partially due to the average age of the models in the segment.

However, the next couple of years should be strong for pickups.

This year GM's segment-leading and completely redesigned full sized pickups are here, as are Ford SuperDuty pickups.

We have significant incremental content on both those programs.

And Toyota's also launched the new Tundra, which is out this year.

Next year Ford will launch the new F-150 and Chrysler will launch a new Ram pickup, and once again we have incremental content on both of these programs.

Lastly, I want to say that I'm pleased with our progress in Asia and with Asian-based OEMs.

As Don mentioned, we have been able to win new business with the Asian-based OEMs and increase our relative percentage of production sales to them.

Developing our agent business and strengthening our relationship with Asian-based OEMs has been a key focus of mine over the past couple of years.

Progress in this region doesn't happen over night, we knew that at the outset.

But I'm confident that we are gaining momentum in this area.

Our ongoing emphasis on gaining content on successful vehicles, especially given declining market share by some of our largest customers, along with continued diversification of our customer base and of our geographical sales are key elements to ensure continued growth.

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

Vince?

Thanks, Mark.

And good morning, everyone.

I will specifically discuss our fourth quarter of 2006, please note that our press release and attached MD&A issued this morning also provide a full description of our full year 2006 results from our operations and financial position.

Just as a reminder, all figures are in U.S. dollars.

There were a number of unusual items included in our fourth quarter results.

Appendix A in the slide package accompanying our call today includes the reconciliation on certain key financial statement lines between reported results and results excluding unusual items for Q4 2006 and Q4 2005.

In the fourth quarter of 2006, we recorded unusual items related to restructuring and impairment charges, which resulted in a $91 million reduction in operating income, an $80 million reduction in net income, and a $0.73 reduction in diluted earnings per share.

Unusual items in the fourth quarter of 2005 resulted in $157 million reduction in operating income and $119 million decrease in net income or $1.07 per share.

The following fourth quarter earnings discussions exclude the impact of unusual items from both 2006 and 2005.

Before I get into the details, I will provide a high level summary of the quarter-over-quarter variance in our results by segments.

There are always a number of pluses and minuses in a quarter, and our MD&A provides some detail on these.

I will now focus on some of the major items impacting results.

Overall, sales were up 9% on a consolidated basis and EBIT was down 55%.

In North America, the key drivers for $167 million decline in EBIT with a substantial underperformance of our interiors business, operating inefficiencies, and other costs to certain-- other underperforming facilities, particularly facilities in our powertrain business, costs associated with the cancellation of the Ford Freestar program, the accrual of the minimum required payment under our profit sharing program, and lost contributions on reduced sales driven by the production cuts Mark described earlier.

These were partially offset by margins earned on new programs that launched in 2005 and 2006, and operational improvements at certain divisions.

In Europe, the key drivers of our overall $7 million growth in EBIT were additional contribution associated with higher production and vehicle assembly sales and improvements at certain underperforming divisions.

Note that contribution margins on production sales in Europe are currently lower than in North America and contribution margin on assembly sales particularly on full cost assembly programs are significantly lower than our production sales.

Largely offsetting these items in Europe was a substantial underperformance of our European interiors business.

I would now like to review in detail our financial results for the fourth quarter ended December 31st, 2006.

As I mentioned previously, in the fourth quarter consolidated sales increased 9% to $6.4 billion.

This higher sales level reflects increases in our European and rest of world production sales, vehicle assembly sales and tooling and other sales partially offset by a reduction in North American production sales.

North American production sales declined by 3% in the fourth quarter to $2.9 billion.

This was a result of an 8% decline in North American vehicle production, partially offset by a 5% increase in North American content.

The launch of new programs, increased production and or content on vehicles including the Ford Fusion and the BMW's X4, the strengthening of the Canadian dollar against the U.S. dollar, and the acquisition of CTS in February 2006 all benefited the content growth.

New launches contributed to content growth quarter-over-quarter, include GM's new full-size pickups and SUVs, the Dodge Nitro and Caliber, the Jeep Wrangler, the Ford Edge, the Chrysler Sebring, and Dodge Avenger, the Chrysler Aspen, and the Mercedes GL-Class.

However, largely offsetting these were high content programs that experienced lower volumes and or content including the Ford Freestar, Explorer and F-Series, the Chrysler Minivan, the Chrysler LX, the Cadillac CTS and STS, and the GM mid-sized utilities.

Programs that ended production during or subsequent to the fourth quarter of 2005 an incremental OEM price concessions also negatively impacted North American content.

European production sales grew to $1.5 billion, representing an increase of 21% over the comparable quarter.

This was despite a 2% decline in European production volumes to just under 4 million units.

This was the result of a 24% increase in European content to $378.

The strengthening of the Euro and British Pound against the U.S. dollar, the launch of the MINI Cooper, Honda Civic, BMW 3-Series, Peugeot 207, and the Land Rover Freelander 2, the acquisition of CTS, increased productions and or contents on vehicles including the BMW X3, the Jaguar S-Type, and the XJ Series all contributed to content growth in Europe.

These positive contributors were partially offset by programs that experienced lower volumes and or content in the fourth quarter of 2006, including the Chrysler Voyager, the smart City Coupe, Mercedes A-class, the Nissan Micra, and the Volvo V70, as well as incremental OEM price concessions and the sale of certain underperforming division during 2006.

Rest of World production sales increased 65% to $79 million, largely due to increased production of sales in China and Korea, the strengthening of the Korean Won against the US dollar, increased sales at closure system facility in Brazil, the acquisition of a mirrors facility in South Africa, and the ramp-up of production at new facilities in China.

Complete vehicle assembly sales increased 19% or $195 million to approximately $1.2 billion.

Primarily as a result of a 9% increase in programs accounted for on a full cost basis, particularly the BMW X3, the strengthening of the Euro against the U.S. dollar, the launch of the Jeep Commander earlier this year, and higher volumes for the Chrysler 300, which launched in the second quarter of 2005.

These were partially offset by decline in production for the Jeep Grand Cherokee, the Mercedes E-Class 4MATIC and the Chrysler Voyager.

Tooling, engineering, and other sales were $657 million for the quarter, that's up 23% from $533 million in the comparable period.

Some of the programs for which we recorded tooling, engineering, and other sales in the fourth quarter were GM's next generation, full-size SUVs and pickups, the MINI Cooper, the Ford Edge, the Saturn VUE, a new Chrysler CUV program, the Dodge Caliber, and the Mercedes C-Class.

Programs driving tooling revenues in the fourth quarter of 2005 included the BMW X5, GM's next generation full-sized SUVs and pickups, and the Jeep Wangler.

The strengthening of the Euro, British Pound, and Canadian dollar each against the U.S. dollar benefited tooling, engineering, and other sales in the fourth quarter of 2006.

Gross margin as a percentage of sales in the quarter was 10.7% compared to 13.1% in the fourth quarter of 2005.

The decrease in gross margin as a percent of sales was primarily the result of substantial underperformance at most of our interiors facilities, operational inefficiencies and other costs at certain underperforming facilities, costs associated with the cancellation of the Ford Freestar program, the accrual of the minimum required payment under our profit sharing program, lower margins as a result of a decrease in production volume for certain programs, incremental customer price concessions, and an increased level of tooling and other sales would generate little or no margin.

These factors were partially offset by productivity and efficiency improvements at certain divisions, price reductions from our suppliers, and incremental gross margin earned on program launches.

Magna's consolidated SG&A as a percentage of sales increased to 5.5% for the fourth quarter of 2006 compared to 4.9% for Q4 2005.

Costs associated with the cancellation of the Ford Freestar program, costs incurred at certain underperforming divisions, the loss of sale of the facility, the write down of fixed assets, and the accrual of the minimum required payment under our profit sharing programs were key drivers of this increase.

As a result of the lower growth margin percentage, higher depreciation and higher SG&A as a percent of sales, our operating margin percentage decreased from 4.8% in the fourth quarter of 2005 to 2.1% in Q4 2006.

Our effective tax rate declined to 18.5% in the quarter from 28.6% in the fourth quarter of 2005, largely due to the mix of earnings and in part to U.S.

R&D tax credits related to full year 2006, which were claimed in the fourth quarter as a result of a tax law that was newly enacted in December.

Net income was $109 million in the quarter compared to $202 million in the fourth quarter of 2005.

The decrease reflects the decline in operating income, offset partially by lower income taxes relative to the fourth quarter of 2005.

Diluted earnings per share were $0.99 compared to $1.82 in the comparable quarter in 2005, reflecting the decrease in net income as previously discussed, partially offset by decrease in the weighted average number diluted shares outstanding during the quarter.

I will now review our cash flows and investment activities.

During the fourth quarter of 2006, we generated $324 million in cash from operations prior to changes in noncash operating assets and liabilities and generated $474 million in noncash operating assets and liabilities.

The improvement in noncash operating assets and liabilities, primarily reflects the reduction in North American production receivables due mainly to the timing of receipts at year end and seasonably low sales late in the year relative to the third quarter.

For the quarter, investment activities amounted to $320 million, comprising of approximately $249 million in fixed assets, a $41 million increase in investments and other assets and $30 million to purchase the factories.

Next, I'd like to turn to our 2007 full year outlook.

We have revised down our production expectations in both North America and Europe.

Based on our current view, light vehicle production is expected to be 15.4 million units in North America and 15.5 million units in Europe.

Content per vehicle is unchanged from our previous outlook issued in January in the range of $770 to $800 for North America and in the range of $375 to $400 for Europe.

We expect complete vehicle assembly sales to be between $3.5 billion and $3.8 billion, up slightly from our previous outlook.

Total sales are unchanged from our previous outlook in the range of $22.9 billion and $24.2 billion for 2007.

And we have reduced our spending estimate for fixed assets from our previous outlook to the range of $800 million to $850 million.

Our Board yesterday declared a quarterly dividend of $0.19 per share payable on March 23rd, 2007 to shareholders of record on March 13th, 2007.

This represents a 50% reduction from our previous dividend rate.

Given the difficult automotive environment in 2006, we believe that it's prudent to review all uses of cash with an eye to maintaining our strong financial position in light of continuing industry challenges.

Our forward decision to adjust our dividends as a result of our profitability reflects this view.

Notwithstanding the adjustment of dividends, we will continue to meet the minimum dividend distribution required under our corporate constitution.

This concludes our formal remarks.

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

[OPERATOR INSTRUCTIONS] And our first question is from the line of Mr. John Murphy of Merrill Lynch.

Please go ahead, sir.

Good morning, guys.

Good morning, John.

Just a question on the interiors system here.

I mean given the stress that you're seeing and everybody else in the industry is seeing in that segment, I mean might this be an opportunity for a rationalization or potentially the divestiture into one of these consolidators?

And also, conversely, is this an opportune time to buy into some of these distressed assets that are sort of more up your core competency of structural parts?

Yes, it's Don.

I think everybody knows the [inaudible] industry, the interiors business, the instrument panes, the door panel,overhead, that part of the interiors, has been in very difficult shape the last couple of years.

And certainly there's a lot of people who are going through a restructuring process right now and some of them probably won't emerge from restructuring, and so there'll be an asset sale.

Right now there's-- it's difficult to know where it's all going to end up.

There's overcapacity.

Three or four years ago it was the place to be.

I think we had a lot new entrance come in " very aggressively."

Relative live easy to put some of the capability and to produce the parts equipment, we buy [injectionable] and equipment.

And then when the raw material prices largely driven by the price of oil, went up and the customer not being willing to absorb that, it's driven everybody into a very difficult situation.

So it's a combination of very aggressive pricing, which makes it even worse by the increase in raw material.

So when we're looking at the industry, there's a couple of different options.

I think a lot of capacity probably needs to come out low overhead spread amongst higher production in the plants to get back to profitability.

And in many cases we're going to have get more realistic prices based on the cost of raw materials.

If you look at the typical life cycle of an interior being three to four years, then we can -- the industry can read price based on appropriate input, so the margin should eventually get back to normal.

However, just to answer your question specifically, our focus has been to try and figure out how to improve the losing operations.

We have -- we're doing some consolidation ourselves.

We have been watching industry with quite a bit of interest.

I think the idea of getting critical mass and having leverage over the customer to increase pricing is a flawed model when there's overcapacity out there because they can just move the business around.

So we haven't ruled out anything at this point in time, we're following it with a lot of interest.

I think it's a different situation in North America than in Europe.

I think there's some issues in England we're specifically dealing with.

But the situation in North America is I'd say more difficult one.

I think people aren't very healthy in Europe either, but it's not the same mess of an industry over there, although it is difficult.

Too early to tell what we're going to do, we are following it, it's probably-- would be an opportunity to do some consolidation.

It would be an opportunity if we wanted to throw our business in with somebody else, we haven't come to a conclusion.

We're just going to see what happens I think over the next six to eight months it'd be clearer, whether anybody can make sense and make money in this business.

I though maybe just ask that slightly differently.

I mean given the opportunity to consolidate and the opportunities out there that are in your core competence of metal forming and structural parts, I mean would your capital both financial and human capital be better spent or generate a higher return for shareholders if you focussed on that core-- on that which is what the Company has been built on as opposed to interiors which is sort of a lesser competency?

Simple answer is yes.

We're not pouring a lot of new capital into the interior business, we're being very careful what we quote, if it requires capital and what the margins are liable to be.

We have-- I think we mentioned earlier in a previous call, one of our biggest priorities this year is looking at our product strategy and our geographic strategy and our customer strategy.

And right now given the results, obviously we're not pouring a lot of new cash in the interiors business.

It just isn't-- unless the business model changes, it's not an area we're going to put money into.

And just the second question on the location of your cash, I mean given that you have $1.9 billion in gross cash on the balance sheet, is there something where there's-- what's the allocation of cash between the U.S. and-- or North America and Europe?

Is there something going on there that you need to cut the dividend because of the location they can?

John, it's Vince.

Just to point out our cash balances did increase substantially in the fourth quarter.

A big part of that was due to our working capital reduction, which is primarily question of receivables at the end of the year.

And as I look forward to 2007, I expect that big working capital generation is going to reverse and we're going to invest some money in working capitals.

So our accrued normalized cash balances are lower than the $1.8 to $1.9 billion that you referred to.

The [inaudible] dividends didn't reflect at all where our cash flows in the organization.

When the Board considered the -- our results for the third quarter as well as the fourth quarter, there have been two tough quarters in a row and given the industry environment, the Board made a decision to cut back the dividend.

At this time given the state of the industry, we think it's prudent to conserve cash in all areas.

As Don talked about capital expenditures, discretionary expenditures, we're also looking at other up close such as the dividend.

Okay.

And then just lastly, as you guys are looking at acquisitions, generally out there.

Not saying you're doing anything in the near term, but clearly you're getting a good look into everything that's being put on the block.

I mean how you seeing valuations generally shaping up?

You think they're rich or there-- are assets out there that you might be able to buy at the right price?

Well, there's a ton of activity going on out there as you know.

I think valuations a couple years ago were clearly too high in many areas.

Our strategy has been to either buy something that has the specific technology we want or if we can get it to some new customers.

I would say from valuation range, the expectation of people has gone down.

Electronics may be slightly the exception there.

But given the turmoil in the industry, and the uncertainly in volumes going forward, even at lower valuations, I'm still not convinced there's a lot of great acquisitions to be had out there.

After having said that, we're still looking at everything.

Because if you can get something at $0.10 on the $1 we'd rather you picking it up than some new player coming in or some financial player to try to flip it and make a profit.

So we are watching carefully, I think valuations are down and will stay down.

However, buying something cheap, if you can't make money on it, nobody's going to thank us for that either.

John, I just wanted to add that there are a number of acquisition opportunities out there.

But in a lot of cases what's available is a big block of assets and we have a more specific and targeted acquisition strategy.

So we might be looking at specific assets and they may not necessarily be available, you got to buy an entire package, which we might not have interest in.

And just one last question.

The content for vehicle, Louis, on the Lambda platform versus the GMT 360--?

We're about $1,900 on the whole Lambda platform, John.

We're about $600 on the mid-sized SUVs.

Thank you very much.

Thank you.

Thank you very much.

And our next question is from the line of Mr. Ron Lache of Deutsche Bank.

Please go ahead with your question.

Good morning, everybody.

Can you hear me?

Yes, go ahead.

Can you just talk about your strategies, specifically these reports that you might be interested in acquiring an auto maker?

Typically auto makers don't like to own suppliers, so why wouldn't the reverse involve strategic risk?

Yes, let me [inaudible], well certainly there's been a lot of speculation in the paper, I see more articles in the paper again today, coming from England.

Naturally the future of all of our major customers is of concern to us.

So we're a key supplier to Chrysler, as you know, we're a key supplier to many other OEM around the world.

And we would consider any alternatives to help [inaudible] when we can to ensure their success.

And we are following what's going on with Chrysler with interest as we have a lot of stake.

And I think everybody in the industry is probably following it with a lot of interest.

Our long standing policy as a public company is not to comment on rumors.

So I'm not going to comment on it.

If we-- if and when we had something to report, we would report it.

I think in general to answer your question in both -- there's changing relationships all over the world in the automotive industry.

You're very familiar with the [inaudible] relationship between many of the Japanese-based OEMs and their supply base, they've been very successful in gaining content without their customers.

And I think as long as customers know you're keeping up a fire wall inside, if you're competitive with good technology and competitive pricing and quality and delivery, they're not in a position to say well, we don't really like you because of some other relationship.

They're going to wherever they can get the best service from.

Would a supplier have the relationship in OEM?

If you look at what's happening on the combination of cooperation in engines, hybrid vehicles, people potentially assembling vehicles for each other, this is a very tough industry, I think people are looking for any sort of competitive advantage or any business advantage.

Obviously I think if we make a decision on anything, we're going to make sure we're doing it for the right considerations and we're not going to upset our customers.

But without commenting specifically on Chrysler, the world is changing and I think everybody needs to look at more competitive ways to do business, which is company, suppliers, labor organizations, and I think it's an open discussion on a lot of topics, including Chrysler right now.

Is it partially a defensive consideration that the these strategic alternatives being considered by your customer in some scenarios might turn out to not be so favorable for Magna?

Well if anything happens with any of our key customers, something drastic happens, we'd want to take a look at it.

I would hope that anything that happens would be of benefit to us.

Because I think we're competitive and we've got a lot of good technology.

However we're a big supplier, so there's also downside risk depending on what happens.

And the best thing for the industry is to have -- certain the supply industries to have healthy customers.

So the more difficult that they get into more market share they lose, the more pressure they're under, we feel the brunt of that pressure coming to us.

So, could something happen that would be negative to us?

Sure it depends what ends up happening.

That's why we want to follow it closely.

Right, it's Mark.

In addition Magna's strategic thrust is more proactive than defensive.

We continue to be forward-thinking and, I think one of the more strategic tier 1s.

And so I characterize our look at these opportunities as being proactive.

Would you say that the thinking behind the dividend cut it was also in part related to, I guess building some dry powder to become more proactive in some of these situations?

Or was it purely defensive and looking out at the outlook for cash flow?

It's really a defensive and being in a position to continue to build our balance sheet our cash reserves to take advantage of opportunities in the industry whether they're acquisition opportunities, new programs with customers, or on the defensive side if the industry continues to struggle, we'll have the balance sheet to continue to operate and survive and come out of this with a fairly good balance sheet and opportunities to grow.

One last one for me.

Can you quantify the drag from the interior business on you guys and how that roughly would break down between North America and Europe?

The-- well I won't talk specifically about the numbers.

All I can say is both in North America and Europe, the interiors business was a substantial drive in 2006.

It is our number one priority in terms of underperformance.

There was substantial losses in both jurisdictions.

Okay thank you.

Thank you very much.

And our next question comes from the line of Mr. Jon Rogers of CitiGroup.

Please go ahead with your question.

Yes.

Good morning.

Good morning, Jon.

Good morning, Jon.

Just some more color on the interiors business, Vince.

As you look at that, I mean is there something beyond your control have to happen in order to make that business profitable?

Again I mean do your customers have to give you some pricing relief?

Do oil prices have to come in beyond where they've already come in?

Or can you fix it on your own?

I'd say a combination of everything, a combination of what you just mentioned plus time because nobody can sustain a business in a losing position.

I think we're going to see some capacity taken out of the industry just because it can't survive.

So hopefully there'll be a bit of consolidation.

We are launching a lot of new business now.

So there's also cost associated with the launch of those programs.

Unfortunately, if you're a large supplier and you either misquote, which can happen and it does happen, we've had some examples of that, because some of the programs we do in the interiors are extremely complex.

You can imagine engineering, developing a complete cockpit door panels with a lot of bought in components, a lot of electronics, a lot of development, they're tied into vehicle systems.

So if you misquote, the customers are very reluctant to help us out.

If raw materials go up, they're very reluctant to help us out.

If we have sub-suppliers go bankrupt, put a gun to our head, because they've gone out of business, that are customers don't want to help because they see us as a large supplier.

So you pretty well have to wait out the cycle of the production.

We can do as much as we can to improve operations and we do have a lot of launch and we had some operating inefficiencies we're working hard at that's in our control.

Raw materials, who knows what's going to happen with raw materials.

We don't anticipate it's going to go a lot higher, but we're already paying a lot more for a lot of the material than we quoted.

And as I said earlier, as the programs come up for rebidding, we'll quote, obviously for acceptable margins.

So I think part of it's in our control, part of its out of our control.

The car companies have to have interiors, the interior of the vehicle has got a lot of content.

The interior of a vehicle will differentiate a vehicle in the eyes of the consumer, so it's a very important.

I don't see any of the car companies in-sourcing the business.

So I think long term somebody can make money, but it's not an easy fix.

And I think we're just going to keep on working through it.

We'll get better in 2007, I'm confident than we did in 2006, but as Vince said that it was a pretty big drag right now and we're working hard on it.

Jon, it's Vince.

Just to add, when you look at interiors, North America and Europe in the quarter specifically, there was some noncash charges, there was some asset write off, so we closed our books for the end of the year we looked at some of the current values, so those assets were written off, so hopefully that's not going to be a recurring cost.

We've also had a number of other sort of accounting cleanups in the quarter.

So from an accounting perspective and noncash perspective, we should see some improvement going forward.

And we can get some improvement on the operational side, that should be positive for '07.

Okay, and then just maybe one longer term strategic question.

You've talked a lot about potential acquisitions and historically, Magna's been a very conservative Company with respect to the balance sheet.

I mean is it fair to say that if you're going to maintain a net cash position regardless of where your acquisition strategy takes you?

I mean-- or are we going to -- is there a potential for you to lever up the balance sheet to make an acquisition?

Jon, I think as where we are today we don't feel comfortable levering up the balance sheet given the industry turmoil and what we're see-- what we've seen in the industry over the last couple quarters over the last year.

We'd rather have some cash in the balance sheet.

If we make an acquisition, we want to have the cash on hand to be able to finance a transaction.

Can't talk about what will happen in two or three years, or from a year and a half depending on what happened to the industry.

Maybe we take our some debt, but at this point in time, there's no intention of leveraging up the balance sheet.

Okay.

Thank you very much, Vince.

Thank you very much.

And our next question is from the line of Patrick Archambault of Goldman Sachs.

Please go ahead with your question.

Hi, good morning, guys.

Morning, Pat.

Just one last one on the interiors.

In terms of -- I guess you're seeing as programs come up for bid, clearly you're quoting on them at profitable levels today.

So I guess the implication there is clearly just as we just wait it out and these become a higher proportion of your sales you could get back to historical margins.

I mean can you tell us just with that alone where we might be in the three to four year program cycle that you typically associate with those contracts?

Boy, I don't think there's any easy answer to that, because every program balance at a different time.

We've got some programs that are balancing out and we're not taking on the replacement business because we couldn't get good enough margins.

We've got some we're getting replacement business at better margins, but they're-- we're going through a bunch of launches right now.

So it's a moving target.

If I took a snapshot from today to three years out, you would hope that the people that have gone under because of very low pricing to try and build up an order bank to sell-- to flip the company at a profit, I think we're going to see less and less of that.

So I think we're going to have more intelligent quotes coming from more capable suppliers.

Whereas three years ago everybody seemed to think that the, the holy grail was getting in the interiors business.

I'd say nobody thinks that anymore.

So I would think in three years from now, it should be a relatively healthy business with the normal we'd expect in the automotive parts business.

But I think it's going to take at least a couple more years before we get that position.

Unfortunately if the price of oil shoots up again in two years, we might be sitting in the exact same position.

And a lot of the discussions we're having is how much risk we're willing to take on going forward in this business.

And it's been pointed out if we don't win replacement business, then we start having layoffs and running off assets.

So there's a fine line between what we want to do and what we don't want to do.

Okay.

Yes.

I guess are you -- when you're quoting on programs acceptable margins, do you generally have price escalators into those new contracts in case you do see another substantial rise in resins?

Typically not.

In the case of stamping, many customers are on it's called steel resale, they'll buy the raw material, which takes that out of the equation, not in all cases, but some cases.

Many of the OEMs have been saying that they'd like us to get on the resin resale, which would certainly mitigate the increases.

It's not as clean cut with resins as it is with steel.

But that's a possibility.

At the end of the day, though if the business model goes -- you put the capital up, we'll buy, we'll do all the engineering, we'll buy all the components, we'll tell you what the markups are, we'll tell you what the freight is, then the question is is there any point even in doing that sort of business?

So I don't think anything real major will change in the interiors business.

In a couple of areas we shooting ship parts, they buy the resin or [inaudible] for us.

And I wouldn't say many customers will also look at it in hardship cases and will give us relief, but it's a long hard discussion, typically.

Okay.

I guess one of the things that is clearly impacting you hugely here is just negative fixed cost absorption in the U.S. or in North America.

What is your ability to address some of that excess capacity utilization this year?

Particularly in light of an environment where you guys see sales declining?

Well, I think couple of options.

If we can get takeover business and put in existing assets from failing suppliers, that certainly helps immediately.

We're still pursuing a lot of that.

We haven't seen a material amount of takeover business, which I think is unfortunate.

A big part of that is because of the laws when a company goes into restructuring, the car companies would love to move the business, however they can't, their hands are tied.

It may take two or three years, and then quite often whoever emerges out of the bankruptcy proceeding has cut a deal with the car companies to give them price increases and they buy the assets cheap so they keep the business.

So unfortunately we haven't seen a lot of opportunity for major takeover work.

The other thing we have been doing is continuing to adjust our footprint so if the number of vehicles that are sold by our key customers declined or they take capacity out, then the industry has to align with that and that's where you see some of our restructuring charges and downsizing charges.

And if the industry continues to decline or the market share of our key customers do, then we'll have, to like every other supplier, adjust our internal capacity.

And typically, by buying up four or five companies, which is a question asked earlier, you can do it, but then you've got four or five weak companies and if somebody's willing to take-- bite the bullet and have a huge write off and downsize, you have a healthy business going forward in theory.

However, that's pretty costly way to do things.

So if that might be kind of a challenge for you, what do you see as the main drivers of the operating improvement as we go into '07?

In the interiors business?

No I'm sorry, just broadly for the whole Company.

Because I think the capacity utilization issue is something that I assume is happening sort of everywhere, right, in North America?

Yes.

Pat, let me try to answer that for you.

When you think about sort of operating margins, '06 to '07, I'll just give you some color, because we haven't given any specific guidance.

Don certainly has talked about our main focus is looking at underperforming operations.

And trying to reduce as much as possible restructuring costs.

So when you think about year-over-year, for successful making some improvements there, that should be a positive.

We did talk about, Mark and I have a number of launches that taking place, or have taken place in '06 and the upcoming launches in '07.

Again as these programs launch, we generate revenue, we should generate some margin.

We have been incurring launch costs in '06 to support these program launches.

We've talked about negative mix and how that's hurt us with the SUVs and the pickups, more so SUVs declining.

We have substantial growth in constant on the Chrysler [utility] vehicle segment.

So as our sales mix changes to CUVs, that should be better year-over-year.

A couple of accounting sort of matters that impact operating margin really don't impact at all level of the profitability, but our assembly sales are going to be down in '07.

We talked about assembly sales margins being lower than Magna's overall margins.

So as assembly sales are lower, margins on just on a numbers basis moves up.

And tooling sales are expected to be a little lower in '07, so that'll have a positive impact on margin.

Some of the negatives is lower volume of the truck programs.

And pricing concessions we continue to be faced with price to match from our customers.

We're working hard to offset that through [VAV] activities, supplier price reduction, so that could be an overall negative.

So there's pluses and minuses, hopefully at the end of the day we end up with a plus and not with a minus as we end up with 2007.

Okay.

Great.

Thank you.

Just last one, housekeeping.

Can you tell us what the value of the tax credit was in the fourth quarter?

Pat it wasn't that-- it was the $4 or $5 million overall on the tax line, I think when you look at our overall tax rate, the biggest impact was just mix of earnings.

We didn't have a lot of earnings where we earned the income, when were in a lower tax jurisdiction.

Great.

Okay.

All right.

Thank you, guys.

Thank you very much.

And our next question comes from the line of Ron Tadross of Banc of America.

Please go ahead, sir.

Good morning, guys.

Good morning, Ron.

Just on, one on the dividend and one on the interiors.

On the dividend, I believe it says in your corporate constitution that you target an average 20% payout ratio.

Is that right?

And would that imply EPS in the $4 range for the next year or two?

That's the first question.

Ron, it's Vince, I'll answer that question.

Actually the corporate constitution has a couple of tests which are related to the dividend.

The first test is that we have to distribute at least 10% of net income to shareholders, so the 10% test.

The second -- and that's an annual test.

The second test is on a three year rolling average basis that we need to distribute at least 20% of net income.

So when you run through the numbers and you look at where we are for 2006 on a three year rolling average basis, we're substantially above the 20% threshold.

So there is -- there is room to reduce the dividends and continue to be on side with the corporate constitution.

Ron, I wouldn't make sort of reference to sort of what's the dividend rate's going to be and what that means for earnings.

As I talked about earlier in the call, we are ahead in terms of the corporate constitution requirements.

We've had two tough quarters.

The industry is challenging, and we think it's prudent to conserve cash at this point in time.

All right so I mean, just to-- I don't want to be nitpicky on this, Vince, but the average-- it says on average in the corporate constitution 20%, it does-- and the 10%, I understand is a minimum, but you're saying that it's the 20% really is a minimum?

It's a minimum over a three year period.

So that's right it's a rolling three year average.

Okay, so should we take a dividend cut?

I mean is it possible that you could cut one quarter and then go back to a more -- higher -- significantly higher rate in another quarter?

Ron, everything is possible.

But just keep in mind with a $0.19 dividend we have substantial room to continue to pay at that level throughout 2007 even if earnings rebounded by a substantial rate.

There's a lot of room on the three year 20% rolling average cut.

Okay.

The other question is on the interior business.

Are you guys seeing the contract prices getting better?

And if you were to paint the scenario where oil does not go up, could you see the-- those margins in that business getting back to a more normal level by early next decade?

Yes, and hope it happens before early next decade, although I guess it's only three years away.

The-- I think most of your suppliers now are quoting intelligent margins.

I think everybody's still fairly tight.

The one thing that would be a bit of a concern is if, if a lot of these suppliers are out there, write everything off and are bought by somebody at $0.10 on the $1 than obviously they can quote fairly aggressively because they don't have the depreciation they have to handle in the piece price.

However the negative side for them is when you buy something that that's messed up you typically have lost all your good management, so they have difficulty launching.

So I think right now as we're quoting for a business in 2009/2010, for the most part people are putting in more accurate pricing based on current economics.

And assuming the current economics stay, then I would hope for the time we roll into some of the new contracts then it'll be back to normalized pricing.

Okay.

And just on that topic, could we begin to see this benefit in '08?

Or could it be '07?

I mean when did you start repricing these contracts?

Ongoing, I would say we're going to see some improvement in '07 in our interiors business, I'm confident of that just by the internal things we're doing.

We still have a lot of contract, which we have some difficult pricing on.

And some of them are sort of in launch now, but some of them are-- will be stationed out over the next year, as well.

So it'll be a combination.

There's no real step change, it's relatively gradual 'til that turn of business turns over.

All right.

Thanks a lot, guys.

Thank you very much.

And our next question comes from the line of Mr. Brett Hoselton of Keybanc.

Please go ahead with your question.

Good morning, gentlemen.

Morning.

Don, I think this might be a question for either you or Mark.

As you look out over the next five years, 10 years, something along those lines.

I mean over the past 10 years, I've watched you go from being a component supplier to a module supplier, to now you're assembling vehicles.

As you look out over the next five to 10 years, how do you see that continuing to evolve?

You're clearly lets say taking on more and more responsibility from the auto maker.

And in addition to that, what capabilities do you think that you as a Company really need to grow or improve to actually evolve with that?

Everything goes in cycles in the industry.

And we have moved from components to modules and in some case, I think we went too far, specifically where car companies are asking us to do the complete interiors.

So we put a lot of effort, hired a lot of people to develop interiors and then after the fact they look at it and say well, that was fine what you did, however I could buy this part here and this part here.

And it didn't really-- we didn't get any return, in fact we were negatively impacted specifically in the interiors area for doing all the work up front.

So I think in that case, we're probably going to have to be going back to more smaller components rather than complete interiors, for some OEMs.

Other OEMs will have a different business model, it maybe more risk sharing.

I would say as a general trend on the parts supplier of our business, innovation is where you make money.

We're going to continue to focus on innovative products.

Hopefully that can be a win for the customers, the end consumer and ourselves.

If they're commodity based and we probably will slowly get out of those.

If you look where we're spending more capital, and were we're spending most of our development, it's on more complex products and modules, and places like powertrain, were looking at electronics.

So I think we will continue to have a mix of components.

We'll have a mix of modules wherever we can get the best return on our investment.

I don't think there's sometimes a short term trends where auto makers will bring parts back inside.

But it's usually for labor considerations, but the long term I don't think we'll see that.

So I think they will continue to outsource more modules because they want to have more flexibility in assembly plants.

So we'll see-- hopefully we'll see growth in components in modules, certainly engineering program management is a key skill.

We'll have to have them keep on going.

When it gets into something bigger than a logical chunk of a module you ship into one piece in the assembly plant.

I don't know if we'll continue to do that by complete interiors, as I said.

The assembly vehicles, we're the best in the world, in my opinion.

I think we're going to continue to see outsourcing of niche vehicles, I think that's that business model that'll grow.

It's a high barrier of entry, and so a lot of [capital] to put up a new plant.

But I think over the long term we'll continue to see more contract assembly work being done outside in various regions, and as new car companies [finance] their new markets, I think that'll be a growing business for us.

However, it's-- you simply see that in chunks and it's pretty high capital.

Do you see ultimately, as you think about niche vehicles, but-- I mean do you ultimately see the ability for some entity to supply maybe common architectures to multiple auto makers?

Do you see that as a realistic possibility?

When you say common architecture, we're doing a lot of that now where we'll do an engine cradle globally or anything that you would consider to be architecture that is not unique to a vehicle.

I think you're actually going to see opportunities for latches for maybe retractable hard tops run across multiple, not only multiple platforms, but multiple customers.

Well I mean I guess what I'm thinking is, is as we think about platforms, we've seen platform consolidation take place at multiple auto makers within those auto makers.

However, what I'm wondering is do you see it possible that we're going to see platform sharing across distinct auto makers?

Beyond like a Nissan and Renault who own each other?

Is it General Motors and Ford potentially going to evolve to the point that General Motors and Ford use a similar architecture for let's say a C-car?

I don't think you're going to see that right away, Brett.

But I could foresee architecture sharing when it comes to new propulsion systems.

Because those tend to have a radical impact on the architecture and the powertrain.

So in the foreseeable future, you could possibly see architecture sharing when it comes to hybrids and advance propulsion systems.

And Vince, just question for you.

As you think about the 240 basis point decline in margins on a quarter-over-quarter basis, is it possible that you could say, look, half of that is due to the interiors business?

Or can you bucket it amongst those seven or eight different categories that you've given to us?

Are you asking about Q3 to Q4 or Q4 to Q4?

Year-over-year.

Year-over-year.

When you look at the margin decline year-over-year, the -- we talked about the cancellation charges on the Freestar.

We've also talked about the pop-up for the profit sharing program.

That's about 50 basis -- 0.5% of 50 basis points.

So that's quite substantial on its own.

The other items that are impacting us are warranty, you'll see the warranty note in our financials as well as insurers.

And insurers is a big impact year-over-year.

Gentlemen thank you very much.

Thank you very much.

And our next question comes from the line of Mr. Nick Morton of RBC [inaudible] Securities.

Please go ahead with your question.

Good morning.

I wondered if you could talk a little bit about about the state of the industry in Europe.

And in particular, your plans for Steyr.

I think we're probably seeing a bit more turmoil in the automotive supply industry right now in North America than in Europe.

Europe's gone through some tough times over the past several years.

I think the market share decline of our biggest customers in North America's having a bigger impact than us, particularly.

Be interesting to see what happens over in Europe in the next five to10 years, but who knows.

On the assembly side, we've got -- we had a record year for number of vehicles.

It's like any other business, we-- it's capacity driven.

I think we've got a very good reputation and we just continue to look for opportunities and our challenge will be to, like every other area of the business where we have some capital, to make sure we keep it going full capacity.

We've got a lot of opportunities we continue to pursue.

And I think long term that should continue to be a very healthy business.

Do you think Europe's more promising long run than North America?

Or do you have a view there?

Well, I would say in the past for us, specifically, our margins in North America have typically been higher, but we have a lot of green field operation to where we had very strong Management, very strong reputation.

Europe we grew through a number of acquisitions.

I think we've got a very strong Management team in Europe.

A lot of the acquisitions that we bought that were underperforming, we've made some good headway there.

Pricing is just difficult in Europe as it is in North America.

So I think we see questions in the past will Europe ever get the same margins as we have or profitabilities that we have in North America?

And we've always said there's no fundamental reason why you can't.

And I still feel the same way.

In some business units we're doing very well in Europe and some others we're struggling and same in North America.

What about on the acquisition front?

And that'll be my last question.

In Europe, there's, I think a couple of companies up for sale right now.

How do you view that?

Well we-- there's more than a couple I think up for sale everywhere, given the state of the industry.

We're continuing to look at it, but we have nothing to report on right now.

Great.

Thanks very much.

We'll just take a few more questions if there are some, then we'll cut it off.

Not a problem.

And our next question is from the line of Mr. Peter Sklar of Nesbitt Burns.

Please go ahead, sir.

On the charges you incurred during the quarter related to the, I guess at the end of production of the Ford Freestar, are the-- will those charges be limited to the fourth quarter, or will some of it carry on into the 2007 quarters?

And also can you give us an idea of the magnitude of the charges or the expenses you incurred?

Peter, the charges related to the Freestar come to an end in the fourth quarter.

So we won't see any of those in the first quarter or beyond the first quarter.

With respect to the magnitude of the charge, I coupled it with the profit sharing pop-up to the 0.5% on overall margin.

I don't want to get into specifics as we're currently with discussions with Ford on trying to recover some costs, some revenue from them to offset the costs we've incurred.

So you're saying that the Freestar combined with the profit share accrual --

That's about 0.5%

Out of your gross margin year-over-year?

Right.

Okay.

The other thing, could you explain a little bit more about what this minimum compensation accrual is?

And does it-- does this relate to Management compensation or compensation for all employees?

It actually relates to compensation for North American employees.

If you go back over time, we had a defined benefit pension plan at Magna.

And in 2005, we converted substantially all of the defined benefit pension plan participants into a defined contribution pension plan.

As part of that switch over, we committed to make a minimum contribution.

The contribution for the defined -- the contribution pension plan comes out of the employee's deferred profit sharing plan.

So to the extent that the deferred profit sharing payments are below a certain threshold, when given the profitability predictably in the third and fourth quarter, we're below the threshold so we have to top it out so our employees on the [inaudible] floor that are members of the defined contribution pension plan.

Peter, as it relates to profit participators, Magna and substantially all of our compensation [inaudible] with profitability organization.

So the Executive Management team is certainly feeling personally the impact of the reduction profitability.

There's no top up and no adjustment to our compensation.

And for Senior Management compensation, do you-- is it derived before these charges or after these charges?

After these charges.

Right.

Okay.

It's pretax.

So it's pretax post --

[inaudible] financials.

And lastly, I believe the number of shares has declined quarter-over-quarter?

Fully diluted share count.

Did you buy back any stock or is that related to where the level of your stock price is?

No we didn't buy back any stock.

What it relates to, Peter, if you recall Tacoma had issued some diventures [inaudible] $100 million.

Only [inaudible] became Magna diventures.

The diventures based on our earnings were anti-dilutive, so it impacted the number of shares outstanding on a diluted basis.

Okay.

That's all I have, thank you.

Thank you very much.

And our next question is from the line of Mr. David Tyerman of Scotia Capital Markets.

Please go ahead.

Good morning.

There's a note there that the E-Class-- on the E-Class program you received a payment, was that in Q4?

Yes, David, as part of the overall of that program, we trued up what we were going to [inaudible] by Mercedes, and as you recall, the complete vehicle assembly programs are priced in a different model than our regular production programs.

Right.

All part of that contract.

Can you give us an idea of the size?

David, I'm not going to give you an exact number, but it certainly did add to overall profitability in the quarter.

Okay.

Would it make an EPS difference that is in the pennies?

Or-- just trying to gauge how much improvement you got out of this.

It's certainly in the pennies.

Okay.

Low end of the pennies.

Okay.

Fair enough.

North American and content per vehicle, your guidance is the top end of your guidance range for '07 is the Q4 number.

Do you have programs rolling off or is it that you expect lower volumes on average for the year for some of the key vehicles?

Why is it that you don't have any growth basically in the CPV guidance?

We do have standard influence, we do have launches obviously in that, there's one right now, one's starting in 2007 that are going to increase content.

But mix is still working against us.

Okay.

If you're going from Q4, and particularly you got pricing that kicks in starting in the new year, obviously, we have the Freestar, which is a big program for us and we talked about it rolling off at the end of the 2006.

Right.

That's going to be negative for us in 2007.

So it's more of the same, right?

It's launch activity offset by mix and obviously the free cut program and pricing.

Okay fair enough.

Just on the Steyr you've got, it sounds like Voyager is rolling off, is that correct?

End of-- the end of '07, David.

End of '07.

Can you give us an idea of the volumes there?

Is it 20/30,000 units?

Is in that range.

Okay.

And X3, is there anything to report on that?

David, at this time, there's nothing to report on.

As we've mentioned in previous calls, BMW's looking at a whole number of opportunities, there-- a final decision hasn't been made yet, but it certainly, it could be that BMW will build a program in house.

Right.

But there's no [inaudible] decision has been made at this time.

Okay.

Fair enough.

And then finally, your D&A bounced up a lot in the quarter, is this a new run rate or was there something unusual in there?

David, there were some unusual items in D&A.

There was some-- as we went through our overall analysis of balance sheets [inaudible] there was some successes, write offs that impacted depreciation.

The-- there was some Freestar cancellation comp, and part of that was in D&A.

So there's just some unusual items in the quarter.

Higher than normal, but not a run rate.

So would the run rate be closer to 200 then, really?

Depending on overall currency, that's probably a better way to look at it.

Okay.

Okay.

Great.

Thanks very much.

Thank you.

And our next question comes from the line of Michael Willemse of CIBC World Markets.

Please go ahead, sir.

Thank you.

Vince, just on David's question, the-- some fixed asset write off.

Was that included-- was that itemized as an unusual item?

Or was that not in your unusual items?

It's not in the unusual items.

Okay.

Also, content per vehicle on the new F-150 for '08 and the Ram pickup verses the prior platforms, do you have that?

Sorry, what was the-- I haven't got that, Mike, I can get back to you on that.

Okay.

And also earlier, Vince, you listed a number of factors impacting margins in 2007 verses 2006.

And you didn't mention launch costs.

Should we assume that launch costs should be about the same in '07 verses fourth quarter?

Mike, we-- best determine what that launch costs and impact of '06 and '07, and it really is difficult to quantify.

And when you're starting a brand new facility, it's pretty straightforward, you can see what the costs are.

But we have launches in the number of existing facilities, and I don't have a very clean number, so I'm not really sure whether it's positive or negative year-over-year.

Hard to measure.

Okay.

And just the last question.

There's a lot of talk on the call about margin pressure in the interiors business.

And on the report it seems like in the powertrain business there's some margin pressure there.

Just wondering what the margins are looking like in some of your other businesses, metal forming, the mirrors division, Tacoma, just give a comment on where they are verses your target levels?

Well, they're never high enough, Mike, I always want to be higher.

I think I'd rather focus on something else rather than margins.

And our focus is really return on funds deployed.

And over the last couple of quarters, specifically our return on funds deployed even on a normalized basis has been coming down.

So I'd say overall the Company isn't where we want it to be and our focus is to do a couple things, increase our earnings, which will improve return on funds deployed, and minimize the capital we have to form the business, whether that's working capital or capital expenditures.

Okay.

Thank you.

Operator, we'll take one more question, please.

Not a problem.

And our last question is from the line of Mr. Jonathan Steinmetz of Morgan Stanley.

Please go ahead with your question.

Thanks good morning, everyone.

Good morning, Jonathan.

Two questions here, one housekeeping and then one more on the dividend if you can handle it.

On the housekeeping, on the warranty side, your expense in footnote 4 was 28 verses 20, it seems like this has been moving around a lot.

Can you just comment on why this was up year-on-year and why we're sort of seeing so much volatility in the expense side of this line item?

Well I think when we had the-- you look at 28 verses 20, I don't call that a substantial movement at all.

It just depends on our outlook on what warranty cost may be.

I think the bigger substantial movement was from the third quarter to the fourth quarter.

If you recall in the third quarter, there was a revaluation of warranty accruals and our accrual actually went down.

We bought some-- created some income in the third quarter.

So there's a big push toward the fourth quarter.

And the big change in the third quarter is we received more recent information from our customer.

And we put the accrual in the balance sheet and we we're able to reduce that accrual.

But fourth quarter, I think it's normal ongoing operation in our assessment of warranty exposure.

Okay.

And on the dividend, I mean you clearly have the cash on the balance sheet to pay it at the level where it was.

I don't think anyone expects that you wouldn't generate the cash flow to be able to pay it.

And you would seem to have a lot of funds available at relatively attractive rates if you were to ever need them.

So can you just talk about, is there a specific investment out there without necessarily commenting on what it is that's causing you to want to hoard cash?

Or is it more a policy of conservatism, and you just want to keep a lot of dry powder?

It's the latter of the two that you mentioned.

As I talked about in my comments, the-- given the industry environment and the two tough quarters we had in a row.

And our focus on cash conservation, the Board made the decision to cut the dividend by 50%.

Okay.

And I guess the logical follow-on there would be that we could be at this level for quite awhile then if this is sort of your posture on a long-term view of the industry?

We'll take it one quarter at a time, Jonathan.

All right.

Thank you very much.

Okay.

Appreciate everybody calling in today.

Obviously it's a interesting time in the industry.

We believe the industry will be tough again in 2007 despite some setbacks of underperforming businesses in 2006.

We're diligently working to improve them, take a lot of positive steps.

And we firmly believe we're in a-- we are positioning our Company for long term success in the industry.

Thanks again for calling in and enjoy the rest of your day.

Thank you.

Thank you very much.

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