Magna International Inc (MGA) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and year end 2011 results conference call.

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

Afterwards we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded Thursday February 23, 2012.

I would now like to turn the conference over to Don Walker, Chief Executive Officer, Magna International.

Please go ahead, sir.

Thank you.

Hello everyone and welcome to our fourth quarter and year end 2011 conference call.

Joining me today are Vince Galifi, Chief Financial Officer and Louis Tonelli, Vice President Investor Relations.

Earlier today our Board approved our financial results for the fourth quarter and year ended December 31, 2011 and at the close of markets we issued our press release.

Our apologies for not leaving much time between the release of the results and the call.

The timing of our Board meeting and other commitments necessitate this timing.

You'll find the press release for today's conference call, webcast, our updated quarterly financial review and the slide presentation to go along with the call at our Investor Relations section of our website at www.magna.com.

Before we get started, just a reminder, the discussion today may contain forward-looking statements within the meaning of applicable securities legislation.

Such statements involve certain risks, assumptions and uncertainties, which may cause the Company's actual or future results and performance to be materially different from those expressed or implied in these statements.

Please refer to today's press release for a complete description of our Safe Harbor Disclaimer.

I will start with a recap of 2011 and look forward.

Vince will elaborate on our quarterly results and Louis will end with our updated 2012 outlook.

2011 was another eventful year at Magna, we reported record sales, record earnings and record normalized earnings per share.

All despite vehicle production volumes in our two largest markets, North America and Western Europe, that remain well below their historical peak levels.

Looking at our results by segment, we're pleased overall with our performance in North America.

We generated strong results once again in 2011.

Europe was a disappointment in 2011.

Our results came in below our expectations even after normalizing for other expense items.

In particular, our exteriors and interiors business generated a significant loss in 2011.

However, our results were better sequentially in Europe in Q4 of 2011 and we expect further improvements through 2012.

Outside of North America and Europe we have a huge amount of activity going on including numerous new facilities in progress or plant.

The cost of getting the new plants up and running hampered our results in 2011 and continue to do so in 2012.

Production sales in our Rest of World segment grew 61% in 2011 and despite the new facility costs, Rest of World remained profitable in 2011.

We have been active but prudent on the acquisition front, using cash resources to acquire technologies that complement our existing business, to expand our footprint in new regions and to further consolidate our position in certain product areas.

Our acquisitions of Grenville Castings in North America and BDW in Europe provide us with low-pressure and high-pressure die casting technologies, our acquisition of ThyssenKrupp Brazil expands our global metalforming footprint, giving us a strong position from which to grow in South America.

We also purchased selective business and/or assets of Continental Plastics, a small, high strength extrusion stamping facility in Germany and a bus and light rail seating company, which enabled us to expand our business and further support our customers.

In addition, during 2011 we established two new joint ventures with local suppliers in China in order to strengthen our relationship with certain Chinese OEMs.

Our MCC Wuhu Exteriors joint venture will supply injection molded and painted products to Chery Automobile.

Our Changsha Cosma automotive joint venture will supply major body and chassis components and structural assemblies starting with components for Guangzhou Automotive Fiat program.

We also put our cash to use to repurchase our shares.

We bought 8 million of our common shares, the entire allotment, under a normal course issuer bid that expired this past November.

Our Board authorized another normal course issuer bid to purchase up to 12 million common shares.

This new bid expires in November of this year.

Under the current bid we repurchased 3.2 million shares in November and December of 2011.

Lastly, with respect to use of cash, in February of 2011 our Board approved a record dividend of $0.25 in respect of the fourth quarter of 2010; a level that we maintained throughout 2011.

Consistent with our stated objective of maintaining a stable dividend that grows over time, today our Board approved a dividend of $0.275 per share in respect of the fourth quarter of 2011.

This represents a new record level and a 10% increase over the previous dividend rate.

Looking forward, we expect additional growth in global vehicle production in 2012.

We anticipate improved production in North America this year driven particularly by strong growth in the Asian-based OEMs.

Western European production is expected to decline, primarily driven by the economic uncertainties that currently exist in Europe.

We are highly focused on continued improvement of our underperforming operations, the successful development and launch of the new facilities around the world, the ongoing use of our balance sheet to further invest in our business and further diversifying our sales by region, customer and vehicle segment.

Our key priorities, as I have stated over the past little while, bringing all of our facilities up to world class manufacturing levels, continue to focus in innovation in order to support our customers and win new business, and enhancement of our people development process to ensure we have strong leaders to manage our operations around the world.

With that, I will pass the call over to Vince.

Thanks, Don.

And good afternoon, everyone.

I will review our most recent financial results for 2011.

Please note that all figures discussed today are in US dollars.

First, just as a reminder, that starting last quarter, we modified our disclosure somewhat adding an other expense income line to the income statement to capture any unusual items that impact our results.

Adding this line keeps costs of goods sold, depreciation and amortization and SG&A and operating income clean of such items.

The slide package accompanying our call this afternoon includes a reconciliation of certain key financial statement lines between reported results and results excluding other expense and the US valuation allowance for the fourth quarters and years ended December 31, 2011 and 2010.

We had four items in other expense in Q4 2011 and two in Q4 2010.

In the fourth quarter of 2011, we reported impairment charges, we revised the estimated loss on disposal of our non-core carpet business sold in the third quarter of 2011, we took a charge related to the insolvency of Saab and we received proceeds pursuant to an insurance claim.

These items together reduced pretax income by $33 million, net income by $32 million and diluted earnings per share by $0.14.

In addition, in the fourth quarter of 2011, previously established valuation allowances against certain deferred tax assets in the US were released, which resulted in a $78 million decrease in income tax expense.

In the fourth quarter of 2010, other expense included impairment charges and restructuring charges, which reduced pretax income by $31 million, net income by $27 million and diluted earnings per share by $0.11.

The following quarterly earnings discussion excludes the impact of other expense income in the US valuation allowance adjustment.

In Q4 of 2011, consolidated sales increased 13% relative to the fourth quarter of 2010 to $7.3 billion.

North American production sales increased 17% in the fourth quarter of 2011 to $3.5 billion, while North American vehicle production increased 15% to 3.4 million units.

The increase is primarily a result of the launch of new programs during or subsequent to the fourth quarter of 2010, higher production volumes in certain existing programs, growth in sales for nontraditional markets, acquisitions completed during or subsequent to the fourth quarter of 2010, an increase in content on certain programs and improved pricing on certain programs.

Partially offsetting these were programs that ended production during or subsequent to the fourth quarter of 2010, a decrease in content on certain programs, a decrease in reported US dollar sales due to the weakening of the Canadian dollar against the US dollar, and net customer price concessions subsequent to the fourth quarter of 2010.

European production sales increased $266 million or 14% to approximately $2.2 billion from the comparable quarter, while Western European vehicle production decreased 4% to 3.4 million units.

Factors contributing to the increase in European production sales include the launch of new programs during or subsequent to the fourth quarter of 2010, growth in sales for nontraditional markets, acquisitions completed during or subsequent to the fourth quarter of 2010 and improved pricing on certain programs.

These factors were partially offset by the disposition of our non-core carpet business during the third quarter of 2011, a reduction in reported US dollar sales as a result of the weakening of the euro and Polish currency against the US dollar and net customer price concessions subsequent to the fourth quarter of 2010.

Our Rest of World production sales increased 56% or $139 million to $386 million in Q4 2011, primarily as a result of acquisitions completed during or subsequent to the fourth quarter of 2010, including Resil and Pabsa and the launch of new programs during or subsequent to the fourth quarter of 2010 in China and Brazil.

Complete vehicle assembly sales increased 3% to $625 million for the fourth quarter of 2011, compared to $608 million for the fourth quarter of 2010, while assembly volumes increased 19% or almost 5,000 units.

The increase largely reflects sales related to an increase in assembly volumes for the MINI Countryman and Mercedes-Benz G class.

These were partially offset by a decrease in assembly volumes for the Peugeot RCZ, and the Aston Martin Rapide, and a decrease in reported US dollar sales as a result of the weakening of the euro against the US dollar.

Note that currently all complete vehicle assembly programs are accounted for on a fully constant basis.

In summary, consolidated sales excluding tooling sales increased approximately 16%, or $926 million in the fourth quarter.

The primary reasons for this increase are the higher production sales in all regions and increased assembly sales.

Tooling, engineering and other sales declined to $611 million for the fourth quarter of 2011.

For the full year 2011, total sales were a record $28.7 billion, that's up 23% from 2010.

Gross margin as a percentage of total sales was 11.6% for the fourth quarter of 2011, in line with the fourth quarter of 2010.

Factors that contributed to a higher gross margin as a percentage of sales included the elimination of launch cost at our complete vehicle assembly operations, productivity and efficiency improvements at certain facilities, the disposition of our underperforming non-core carpet business in third quarter of 2011, lower warranty costs and improved pricing on certain programs.

Factors that offset these included -- operational inefficiencies and other costs at certain facilities, in particular, certain exteriors and interior systems facilities in Europe; pre operating costs incurred at new facilities; higher launch costs; an increase in complete vehicle assembly sales, which have a higher material content than our consolidated average; and net customer price concessions subsequent to the fourth quarter of 2010.

Magna's consolidated SG&A as a percentage of sales was 5.1% in the fourth quarter of 2011 compared to 5.2% in Q4 2010.

The 5.1% for the fourth quarter of 2011 was modestly higher than the 4.9% in the third quarter of 2011 largely due to higher incentives and other compensation.

Our operating margin percentage increased to 4.5% in the fourth quarter of 2011 from 4% in the fourth quarter of 2010.

Our effective tax rate was 18.2% for the fourth quarter of 2011 compared to 3.5% in the fourth quarter of 2010.

The increase reflects a relatively higher proportion of losses not benefited in Q4 2011, largely related to losses in Europe.

In comparison, Q4 2010 included a relatively large proportion of income in the US, where tax losses were available for use and were not benefited.

Net income attributed to Magna increased $20 million to a record $266 million for the fourth quarter 2011, compared to $246 million in the comparable quarter.

Diluted EPS were a record $1.13 compared to $1.00 in the fourth quarter of 2010.

The increase in diluted earnings per share is a result of the increase in net income and the decrease in the weighted average number of diluted shares outstanding during the quarter.

The decrease in the weighted average number of diluted shares outstanding was predominantly due to the repurchase and cancellation of common shares pursuant to our normal course issuer bid.

For the full year 2011, diluted EPS were a record $4.53, up 4% from the previous record in 2010.

Next, I'd like to comment on our segments, comparing the fourth quarter of 2011 to the third quarter of 2011 and in each case excluding other expense and income items.

In North America, excluding foreign exchange, production sales increased approximately $140 million, which led to an increase in EBIT.

In addition to the impact of the higher sales, we incurred lower warranty and commodity costs, offsetting these were higher new facility and launch costs.

All in all, we were pleased with the 9.1% EBIT margin in North America.

In Europe, production and assembly sales increased by about $215 million sequentially excluding currency translation.

Pull through on the higher sales, further sequential improvement in the two remaining significant underperforming exteriors and interiors operations and lower commodity, warranty, and new facility costs all contributed to better sequential results in Europe.

The two significant underperforming exteriors and interiors operations that lost $37 million in the third quarter lost $21 million in the fourth quarter.

These were partially offset by higher launch costs and other items.

We expect continued improvements in 2012 in the two significant underperforming exteriors, interiors facilities and we are highly focused on making improvements elsewhere in Europe.

I will now review our cash flows and investment activities.

During the fourth quarter of 2011, we generated $467 million in cash from operations prior to changes in non-cash operating assets and liabilities and another $295 million in non-cash operating assets and liabilities.

For the quarter, investment activities amounted to $685 million, comprised of $528 million in fixed assets, $101 million to purchase subsidiaries, and a $56 million increase in investments and other assets.

Our Board of Directors today increased the quarterly dividend to $0.275 per share with respect to our common shares.

This is another record dividend rate for us.

The dividend is payable on March 23 to shareholders of record on March 12, 2012.

Our balance sheet remains strong with $1.1 billion in cash, net of debt as of December 31, 2011.

We also have an additional $2.1 billion in unused credit available to us.

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

Thanks, Vince.

Good afternoon, everyone.

I will review our updated 2012 outlook.

We have increased our vehicle production expectations slightly in North America as compared to our view in early January.

We now expect 2012 North American vehicle production to be approximately 13.8 million units compared to 13.6 million units in our January outlook.

Our expected 2012 European [vehicle] production is unchanged at approximately 13 million units.

As a result we have modestly increased our North American production sales expectation to between $13.4 billion and $13.9 billion for '12, compared to our previous range of $13.2 billion to $13.7 billion.

European production sales are expected in the range of $8.4 billion to $8.7 billion unchanged from our previous outlook.

Rest Of World production sales are expected to be in the range of $2 billion to $2.3 billion unchanged from our previous outlook and our complete vehicle assembly sales range is also unchanged at $2.3 billion to $2.6 billion.

We now expect total sales to be in the range of $28 billion to $29.5 billion.

This compares to our previous outlook of $27.8 billion to $29.3 billion.

Once again, the increase relates entirely to the increase in North American vehicle production and the resulting change in North American production sales.

We expect our consolidated operating margin percentage to be approximately 5%, in line with the outlook provided in January.

Our effective tax rate is unchanged at approximately 26%, and our full year 2012 expectations for fixed asset spending is in the range of $1.3 billion to $1.5 billion, unchanged from January.

This concludes our formal remarks, thanks for your attention today, we'd be pleased to answer your questions.

(Operator Instructions)

And our first question comes from the line of Peter Sklar with BMO Capital Markets.

Please proceed.

Thanks very much.

On a couple of your operating segments I'm just wondering if you could provide some commentary.

I noticed that E-Car generated a lower loss, just wondering if that is due to the revenues you're finally realizing on the Ford program or if there is other favorable issues?

And secondly, I noticed that your corporate category went from earnings to a $12 million loss.

Peter, it's Don, I'll answer the E-Car questions.

The E-Car, the Ford program that we just started launching now so we haven't gotten any revenues from that program.

It is a combination of a number of things.

Continuing to get it improved efficiencies over there, reduce overhead.

However, we're also winning some more business and we're going to get the expense with that as well.

So, there's a -- it's pretty well in line with what we had thought, but there's a lot of moving pieces in there.

With respect to the corporate segment, Peter, you're referring Q4 to Q3 presumably, sequentially?

Yes, I think in Q4 it went to a $12 million loss.

Yes, it went Q3 was $27 million of earnings, and Q4 was a $12 million loss, if I'm reading it right.

Yes, excluding E-Car.

Oh, excluding E-Car.

Okay, I guess with E-Car, let me take that into account.

We went from, I believe, $7 million of income in Q3, Peter, to $25 million loss in Q4, so that difference on a normalization of $25 million quarter to quarter.

There's two significant impacts there.

The biggest there is foreign exchange.

Just a movement in the rates resulted in additional SG&A at the corporate of $8 million.

Then there's additional incentive compensation, based on the higher level of profitability and then there is just a bunch of ins and outs that aggregate to the difference but the two biggest pieces are FX and incentive costs.

Okay and also, Vince, do you have a -- I can't quite tell, what was your tax rate in the fourth-quarter earnings before all of the unusual items?

So, you're looking at what is our normalized tax rate?

Not projected, but what was your normalized tax rate in the quarter?

It was 18.2%, Peter.

Okay, and I'm just wondering if you could just talk about the outlook in 2012 versus 2011 in terms of commodity headwinds and ramp costs?

Sure, in terms of the launch costs on a global basis, we're expecting launch costs in 2012 to be less than 2011, so positive to income.

But by segment it is going to be different.

We see some -- year-over-year positive in North America but a drag in Europe and rest of the world based on the programs that are launching but overall positive.

We are launching a number of new facilities, we have been launching new facilities for a while now, so on a consolidated basis we're going to continue to have increased new facility expenses in 2012 versus 2011 and again as we get to 2013, that is going to reverse.

But again, by segment it is different.

Again, North America we should see some positive impact and profitability.

There will be fewer new facility costs in North America in 2012 versus 2011, but in Europe and the rest of world, based on the (inaudible) underway, there's going to be headwind both in those regions on a (inaudible) cost standpoint.

Acquisitions and divestitures should be positive in each region and global year-over-year and we're expecting some improvement on the under performers in each region.

Commodity costs, our current view, which consists some of what we talked about in January, is flattish but there's more movement in oil prices so who knows where that's going to end up.

But our current view, based on the latest information we've got is flat year-over-year.

And depreciation will be negative as a result of additional capital we're spending or have spent in 2011 and we'll continue to spend in 2012.

And then mix will probably, on a global basis, be negative due to profitability.

But overall, we are expecting improvement year-over-year and in particular, with focus we have on Europe, and Don made some formal comments on that.

We continue to expect improvement as the year progresses in 2012 versus 2011.

Okay, thanks very much.

And our next question comes from the line of John Murphy from Bank of America Merrill Lynch.

Please proceed.

Hi, guys.

This is actually John Lovallo on for John Murphy, how are you?

Not too bad.

Good.

Just a couple of questions for you here.

Certain suppliers are speaking of a potential second wave of kind of a lower tier supply constraints from Thailand.

Are you guys hearing anything about or seeing anything along those lines?

I haven't heard anything that is impacting us, maybe it is the electronic suppliers.

I haven't heard anything.

Okay, great.

Second question is, there seems like there is potentially some fairly sizable interior assets out there possibly for sale both in Europe and North America, is this something that you guys would consider?

Just one clarity in the previous question, when I said there's no impact on SI had nothing from Thailand on Magna.

I have heard that there is potential impact to a couple of customers but I can't really speak intelligently on that.

Sure thing, that's fair.

In regards to, actually, we've just done some more restructuring inside the Company and we're trying to position ourselves so that we have got the right team in place to really focus on three priorities of world class manufacturing innovation and very tactical.

Those have created a chief strategy officer role and part of we're looking at, quite frankly, is what is our product strategy going forward, what's our customer strategy and geographic strategy, as well as, a number of other issues.

Part of that analysis is we are looking at various product areas and I will take interiors because that's what you asked, as to what our strategy would be.

We struggled in North America, we've turned North America round but we are struggling in the interiors exteriors segment specifically in Western Europe.

So, our appetite to continue to pour money into that is very low.

However, as part of our strategy review -- as we look at different commodities, there's a lot of weak players or people getting out of it and we're having our customers ask us if we would participate by taking over some tier II suppliers, if we would look at some consolidation opportunities.

So, on interiors, it has been a major change over the last little while.

I think there is probably going to be some more consolidation, as well as other product areas.

So, we've got an open mind as to where we can create value and right now that is an area that we are taking a close look at to see what our long-term strategy is going to be.

Great.

Thanks very much, guys.

Our next question comes from the line of Mike Williams with CIBC World Markets.

Please proceed.

Great, thank you.

I just wanted to touch on the guidance in North America.

I know at the Detroit auto show you give a little more detail on some of the assumptions in North America.

Detroit traded down about 3% and pick-up, SUVs had GM down maybe 9%, is that still roughly the assumptions you are using?

Roughly, Mike.

We've actually moved volumes up a little bit, as you know.

Part of that includes increasing our GMT 900 volumes a little bit so we are a little bit more drastic in terms of the decline year-over-year.

We're still down in our expectations, but less than where before.

Generally, the rest of it -- the rest of the growth is in line for what we have in January.

All right, and then just moving on to Europe.

It sounds like the underperforming divisions are still improving going into next year.

Just wondering about the rest of your business, I would assume your business with the German OEMs going into the first quarter is still moving pretty well.

What about some of your exposure to say Opal, Renault, Fiat could you -- are you seeing major headwinds going into the first quarter?

Or do you think you are managing volumes and the costs there pretty reasonably?

At the margin, Mike, those are negative for us but we have very little business with those, we have some business, but not a lot of business with those customers so I don't expect a major impact on our business.

So, the underperforming facilities seem to be getting better and the rest of your business, call it the German OEMs, is still moving along reasonably well?

That's fair.

Okay, thank you.

Our next question comes from the line of Steve Arthur with RBC Dominion Securities.

Please proceed.

Yes, thank you.

I guess just following up on that question.

You mentioned improvement in the problem plants.

Is that something they can get resolved, those two specifically, by the end of the year?

Is that a 2013 thing?

And I guess more broadly when you put it all together are you still comfortable with Europe as a whole reaching breakeven in 2012?

Yes, the two facilities we talked about will continue to get better over the year, that is our planning horizon.

But they're still going to be negative even by the end of the year.

I think we're looking at, haven't done a deep dive where we're going to be in 2013, but it will be beyond the end of 2012 before we get them back to breakeven, the two facilities.

Steve, just in terms of where we see Europe, we do expect overall Europe to be positive not negative in 2012.

As I mentioned before, we do have some headwinds on new facility costs, launch costs, but when you factor in the improvement to underperformers and other items, we do expect to be in the black in Europe in 2012.

Okay thanks for clarifying that.

Just on North America, production volumes moving higher, although largely it sounds like the Japanese manufactures accounting for that.

Margins in North America, something like 9.2, 9.3 as your wrapped up last year.

With higher volumes can you see a material bump in that margin would you expect or roughly flat?

We moved that, if you look at the range on production sales we moved about $200 million.

And you look at our overall consolidated sales I think what we say our operating margin is so approximately 5%.

I think that will capture any movement, any incremental margin that we're going to generate in North America from the higher sales.

Okay, fair enough.

This final question, just in the philosophy around the share buyback is very regressive with that for the past couple of quarters and still something approaching $9 million under the NCIB.

The shares are also higher.

Any plans on continuing those repurchases or is there a threshold at which you'll do so?

(inaudible) is open until November of 2012 so the factors that we're going to consider on whether or how active we are with the NCIB is going to be opportunities that we save and whether we believe that the stock is undervalued, that will have an impact on how active we are throughout the balance of this year on a normal (inaudible) bid.

And part of our decision we had a long discussion about dividends and buy back at the Board level, I think part of our decision will be how successful we're going to be in making acquisitions.

We already have a pretty good idea where the capital's going to come in for the year as well, so a number of moving factors so we're still open -- depending on (inaudible) says and what we think the valuation is.

Okay, thanks very much.

I'll pass the line.

Our next question comes from the line of Pat Nolan with Deutsche Bank.

Please proceed.

Good evening, everyone.

Just a couple questions.

I apologize if they're a little all over the place.

On Europe, just a follow up on these additional price-downs that impacted you in the quarter.

Could you just expand on what exactly occurred there and is there any risk for that occurring again next year?

What impact that typically in our business, our long-term arrangements with our customers on the contractual price reduction or price give backs and that has been a regular ongoing item for us and other suppliers.

So if you go back almost, I guess in every other quarter in our MD&A, we'll talk about net price give backs impacting obviously sales and being a negative same count.

Some of the offsets obviously are going to be the pricing improvement on certain areas some of that maybe through for commodity relief and so on.

But that is ongoing.

So there is nothing different than your contractual price notes?

(multiple speakers) Okay.

On the GM truck exposure, could you just remind us what is your content per vehicle on the GMT 900 platform?

It's about $1,500.

Just as you look out to 2012 when you think about the cash generation of the Company, the midpoint of your range, kind of flattish to slightly up revenue.

Do you think you'll be able to claw back some on the working capital line or do you expect that to be kind of flattish in 2012?

Sales being flat is going to be plus or minus flatish.

Part of that is going to depend on tooling and tooling receivables and when they are collected because that is not as punctual as production receivables, but it will still be flat, should be relatively flat.

And lastly on Europe, these higher --

Please keep in mind, Pat, we get these huge payments in, we may get a $100 million payment, and whether it comes in on December 30 or January 2, will impact working capital but other than that it should be relatively flat.

Last question on Europe.

The higher launch costs, year-over-year, are they pretty consistent throughout the year or are they more weighted to the first half for the second half?

I'm just trying to think if there's going to be some lumpiness in the European profitability target?

You know, Pat, I don't have that information in front of me.

I'm not really sure, Pat, so I'm not going to answer yes on that.

Okay.

I will follow up off the call, thanks.

Our next question comes from the line of David Tyerman with Canaccord Genuity.

Please proceed.

Yes, good evening gentlemen.

Just wanted to follow up on the North American margin, so it sounds like most of the factors are going to be positive here.

Is there room for margins to move up much from the level that you had in 2011, that was pretty high?

David, there are a couple of negative factors that I did mention, I was just running through items that are going to impact even plus or minus, certainly with the additional capital that we've been employing in the business that's going to be a negative.

When we put our business plan together we did a deep dive on our major programs and mix that was a negative to us.

When you add it all up, what we had talked about is North America being flattish year-over-year from an operating margin standpoint.

Okay, that's good to know.

And then, just on M&A, I was wondering if you could expand on the comments.

I think Don said something about sounds like there's some interesting possibilities in interiors area with consolidation.

Perhaps there's other areas, I was just wondering what you see out there, is it a good set of opportunities?

Is it difficult to get up acquisitions at the prices you want?

And then just related to that, I believe you guys have always said you wanted the acquisitions to be accretive and I was wondering if you could shed some light on what you mean by that in terms of, do you mean just simply deploying the cash and getting more than 1%?

Or do you mean return on invested capital greater than WAC?

Does that calculation include synergies and is there a timeframe that you would generally put on it like within two years or right out of the bat -- right out of the chute as you get the deals?

I will answer the first question.

I think if anything we may see more opportunities coming up in Europe because I think a lot of the people in Europe are worried about what happens to the economy and a lot of other factors over there.

So, if anybody's thinking about potentially selling, it would probably be more motivated to do it.

I do think long-term we're going to continue to see consolidation just generally in the industry for all of the reasons we talked about before.

Going to go to platforms, you have people to play here.

We are looking at a number of different things, I would say that no more or less that we have traditionally been looking at, but there are a lot of opportunities out there and I suspect we will continue to make some acquisitions.

I don't want to talk about what we are going to do or the size, but I suspect given our balance sheet and given that the amount of activity we're looking at we'll continue to make some acquisitions going forward.

I will let Vince answer the second part.

David, in terms of how we look at acquisitions, we've got cash in the bank, so any activity that generates some positive income will be accretive from an earnings per share standpoint.

That is not the way we look at, at things.

For us to be accretive we've going to have a return that is going to be greater than our cost of capital and that to me would be an accretive transaction.

So, we're looking typically at an acquisition on a DCF perspective.

We certainly from our perspective we're looking at something, we'll consider synergies that we can bring to the table obviously we do not want to pay for our synergies it is something that we certainly have take into account coming up with an overall analysis and valuation of an acquisition.

So, when you look at it that way from a DCF perspective, is it accretive from and EPS perspective of one or two years?

That really depends on whether it is generating profits on day one or it takes a year or two to generate some profit.

It really depends on the acquisition.

Are they launching new programs and technology and so on.

Longer term it will be accretive because we are targeting acquisitions that would generate a return greater than our cost of capital.

That's good to hear and that's helpful.

Just to clarify on the weighted average cost of capital.

What sort of number do you guys think of for yourselves?

Well, in which region, David?

So, you do it regional?

[multiple speakers]

We're going to use different, rates depending on the region and we're going to take into account a number of factors including political risk, and a whole bunch of other things.

So, I think when you look at a North American watt, we're probably in the range of 10% to 11%.

There's different ways to look at it, you know that?

Yes.

Okay, that's helpful, thank you.

Our next question comes from the line of Brett Hoselton with Keybanc.

Please proceed.

Good evening, Don, Vince, Louis.

[multiple speakers] Louis I was hoping you could be a little bit more specific on your outlook for GNT 900 production in 2012.

If I recall correctly, and I may be mistaken here, at the auto show you are thinking down 9% for the year, sounds like you are better, can you maybe be more specific give us a number?

About 5% now.

Is there any update on the anti-trust investigations in the tooling area that you might be able to provide whether in terms of timing or potential impact or anything along those lines?

I really don't want to say too much other than we're cooperating fully with the DOJ and their investigation.

We do not know how long it's going to take before they complete their investigation but we're fully cooperating.

That's fair enough.

Thank you very much gentlemen.

Thank you.

Our next question comes from the line of Chris Ceraso with Credit Suisse.

Please proceed.

Thanks, good evening.

Good evening.

A couple of items, I don't know if you have cut it this way before, but do you have an idea of how much new business came on in the quarter net of business that rolled off, not just growth and revenue from volume but you had a pretty big growth year-over-year, how much of that was new business?

We are looking at it by segment it's more difficult to do in the rest of the world.

Look at what business launch, what balances out and sort of what changes are (inaudible) be moving up or be moving down for a number of reasons.

When you look at North America, I don't have the sequentially, but I have it from Q4 2010 to Q4 2011.

Ex volume changes, ex acquisitions, ex FX and ex diversified markets are probably about $150 million of net incremental business in North America.

Actually I do have it as well for Q4 to Q3 sequentially, is about $50 million and in Europe I guess Q4 is about -- just over $100 million, from last year to this year and about $60 million sequentially Q3 to Q4.

In terms of rest of world that becomes a little bit more challenging because of all of the places that we are growing in.

That's really helpful.

How about from acquisitions you rattled off a few of them how much of those contributed to revenue?

In North America, what are you looking for sequentially or you looking at year-over-year, Chris?

Either one.

Sequentially North America was relatively flat and in Europe sequentially was flat as well.

Okay, on the tax rate you mentioned you relieve some of the valuation allowance in the quarter that gave you a gain on that line.

Is this something that you're going to dribble out a piece at a time or will there be a large item at one point?

We have a valuation allowance, the biggest chunk today is in Europe.

We still have a little bit left in the US.

It's going to be a little bit more challenging to get over some of those losses and credits but the biggest chunk relates to Europe.

So under the accounting rules we're going to have to have a period of profitability before we can reestablish that asset on the books.

So, I think at least for 2012, that we're going to generate income in some of the jurisdiction that we've lost money, that will have positive impact on the tax point.

Okay so you've kind of gone through the North America stuff, now you have to be profitable for a period before you release Europe.

Did I get that right?

Yes at that point we'll get to heard of time, there'll be a chunk coming in to income at that point in time with respect to those losses in Europe.

The tax rate in Q4 was quite a bit lower than your forward-looking guidance of 26, is that because the valuation allowance change wasn't until the end of the quarter?

The valuation allowance change was December 31.

Okay, and then just one last one, was there any inventory build of components on your part?

We've seen this with a couple of other suppliers, especially those tied to the T900 that had to build some extra stock, was there any that going on, did that help your numbers in the quarter?

Not that I'm aware of.

There are building extra stock for what?

Extra stock of components, whether in your case it would be frames, building extra frames above and beyond how many units GM built in terms of actual trucks?

Chris, I guess the one measure that I look at it is inventory turns -- like a production inventory turns -- and production inventory turns increased it in Q4.

If we would've been building stock, our inventory turns would have been going down.

Is it a consolidated number?

I'm not aware of anything.

Okay, that's helpful.

Thank you very much.

And we have a follow-up question from the line of Peter Sklar with BMO Capital Markets.

Please proceed.

Vince, I'm a little confused on that question I had about the normalized tax rate for the quarter.

What you said was 18.2% but then when you answered the previous questions you brought up the tax valuation allowances and attributing it to the tax rate, I thought that was an unusual item?

Let me just clarify that, Peter.

I think Chris was asking whether -- the way I interpreted the question was were we still having a benefit of US loss of property being on the balance sheet in Q4.

So, from 18.2%, and we said approximately 26% for next year, a big part of that is because our US tax losses are now, will be on the balance sheet.

We put those assets on the balance sheet on December 31.

So, for the full quarter, income in the United States that we recorded wasn't subject to income taxes.

So, that had the impact of lowering or keeping our tax rate lower in Q4.

If we would have reversed the valuation allowance at the beginning of the quarter, our tax rate would have been higher in Q4 and the release of the valuation allowance would have been smaller.

That's how that works.

So, the release of the valuation allowance, at the beginning of the quarter, would have been larger and our income tax expense would have been higher because we released it at the end of the quarter, the valuation allowance release was lower and our tax rate, similar to what we had in Q1 and Q2 and Q3, with US losses not being subject to income tax.

I hope that clarifies.

I'm not a tax expert but I think what you're saying is that the release of the valuation allowance results in increasing your tax rate in that particular jurisdiction going forward.

Is that true?

Going forward, beginning January -- or beginning the first quarter of 2012.

So, I think what you're saying is, in the US you did not release the tax allowances until the end of the quarter which kept your tax rate low.

Correct.

So you had earnings, you had taxable earnings in the US then?

Yes.

Okay, I got it.

Thank you.

Our next question comes from the line of Ravi Shanker with Morgan Stanley.

Please proceed.

Thanks, good evening, guys.

Just following up on an earlier question, I haven't heard you guys talk about improved pricing in your slides before and you did refer to commodity pass throughs, which would be more contractual in nature.

So, I'm just wondering if you have anything unusual going on in the quarter or were these commodity pass throughs something new?

I think it is just a better reflection of what happens in our business.

As you know, I'll give you an example, our customer resale programs for steel.

Depending on the customer, part of that recovery is through the revenue line, so in theory you have improved pricing, you may have a change in commodity costs, but to be accurate in all of the ins and outs, we needed to disclose some improved pricing.

So that is an example of something.

It's been there historically, we just got better disclosure (multiple speakers)

Got it.

Also you said you average (inaudible) is about $1,500 on the GMT 900.

Did the (inaudible) comment on it, do anticipate any change with the [K2 XX] because there is some talk about the new truck being considerably lighter and having much more sophisticated stamping of other companies there.

Our process on the new vehicle is roughly in line with the current vehicle.

Got it, thanks.

Our next question is a follow-up question from the line of Mike Williams with CIBC World Markets.

Please proceed.

Thank you.

Another follow-up question on the tax and maybe you covered it already.

Do have a sense of your cash tax rate in 2012?

Mike, I do.

I don't have it handy.

Nothing that we have talked about in the past, just the bigger things to keep in mind.

We're going to -- because we set up, we reverse the valuation allowance for a big chunk of our US losses, we're going to still be able to benefit from tax losses so we'll be generating income in the US and that won't all be subject to cash taxes and I'm not sure what all of the other reasons involve.

So your cash tax rate should be a decent amount lower than your book tax rate?

In the United States.

I am not sure from a timing different standpoint where we said in Canada, and Europe to the extent that we generate income depending again on which jurisdiction we have losses or to shelter.

So, I'm not sure where it all adds up.

Okay and then I just want to follow up on an earlier question related to FX in your corporate segment, you said the hit was about $8 million.

I assume that is just a one-time hit, there is no permanent increase in your corporate -- your SG&A expense related to FX, is that right?

What the FX relates to, in the course of just running the business, we're going to have payables and receivables and you're going to translate those at a month-end rate, you settle those later on and you have transactions sort of income or exposure just from settling these foreign amounts off.

And when you look at it year-over -- period over period, we had an $8 million increase in SG&A as a result of foreign currency transaction but that's hit and miss it to be positive one quarter could be negative the other quarter.

Right.

Okay, that's what I thought.

And then, just one last question on your CapEx, obviously, ramping up this your and your expansions rest of world segment.

Do you have a sense of what the maintenance CapEx for the Company is just so we can try and split apart growth CapEx apart from running the business.

And then secondly, how long are these growth initiatives probably going to take.

Are these building big footprints in South America and Asia or do you think they will stay at these levels for quite a few years?

I don't have the numbers on top of my head, I would say I am guessing here, but depreciation is probably pretty good guess at what we would spend typically but you can scale it up or down depending on what is going on.

As far as the year is concerned, we can always defer some things.

I would say that we're not giving outlook on capital.

2012 is pretty heavy capital year, depends on how much business we continue to win.

I think it might come down a little bit going forward but it depends on how much we win.

(multiple speakers)

Michael depends on a level of acquisition activity as well, because sometimes we may make an acquisition and that replaces capital as we're buying an existing business with capacity.

So, it's really going to depend, acquisition to opportunities and so on.

Okay, that's fair.

Thank you.

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

Okay, and our last question comes from the line of Itay Michaeli with Citigroup.

Please proceed.

Great.

Thank you.

Good evening.

Just a couple of follow up questions.

You talked about the P 900 production assumption down 5% for 2012, can you remind us what your total Detroit three North America production assumption is for the year?

We are down about 2%-ish in 2012 versus 2011.

Down 2%, great.

And then just on the margin outlook for 2012, can you maybe give us a little bit more help in terms of how we should think about SG&A for the year as well as R&D spending for the total Company?

Sorry, SG&A and R&D spending?

Yes.

We haven't given that much color on operating lines on our income statement.

The guidance is based on overall operating margin and that's going to be impacted by SG&A depreciation and margin.

I'd rather not get into that level of detail.

Can you comment on what R&D was in 2011, do have that?

It's absolutely hard to identify what R&D is, the hardest measure we have for R&D is when we file a tax return because it is acclaimed for R&D incentives.

That, I would say last year was about $500 million, but until we don't file our tax return, I'm not going to know for sure and there is R&D taken on every day in our plans that we do not capture on our tax returns so it is pretty great number when you try to quantify it.

Right, okay.

That was helpful.

Thanks so much.

Okay, well thanks everybody for joining us today.

Sorry we got the information out late.

So, we've had ups and downs during 2011, but all in all a positive year.

We look forward to making progress in a number of fronts moving forward in 2012.

Thanks for calling in and everybody have a great evening.

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