Magna International Inc. (MGA) Q1 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Magna International First Quarter 2013 Results Call. [Operator Instructions] As a reminder, this conference is being recorded Friday, May 10, 2013. I would now like to turn the conference over to Don Walker, Chief Executive Officer. Please go ahead, sir.

Thank you. Good afternoon, everybody, and welcome to our First Quarter 2013 Conference Call. With me today is Vince Galifi, Chief Financial Officer; and Louis Tonelli, Vice President, Investor Relations. Yesterday, our Board of Directors met and approved our financial results for the first quarter ended March 31, 2013. We issued a press release this morning for the quarter. You will find the press release, today's conference call webcast, our updated quarterly financial review and the slide presentation to go along with the call all in the 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. Since many of you have listened in or been at the shareholders meeting that we held earlier today, I'm going to keep my comments short to allow more time for question-and-answer. Overall, I'm satisfied with our Q1 financial results, a record quarter in total sales and earnings. Production sales in every segment increased year-over-year. And excluding the $39 million amortization in our North American results associated with the E-Car transaction, every segment reported improved EBIT as well. We believe our North American EBIT margin percentage will continue to be strong, remaining in the 9% to 10% range, excluding the E-Car amortization. We continue to expect improved EBIT in Europe this year despite the decline in overall volumes in Europe. And we continue to believe we will be profitable in our Rest of World segment in 2013. This reflects…

Thanks, Don, and good afternoon, everyone. I'd like to review our financial results for the first quarter ended March 31, 2013. Please note, all figures discussed today will be in U.S. dollars. The slide package accompanying our call this afternoon includes a reconciliation of certain key financial statement lines between reported results and results excluding Other Income and Expense items. In the first quarter of 2013, we recorded net restructuring charges, all related to our European business. These reduced operating income and net income by $6 million and diluted EPS by $0.02. The following quarterly earnings discussion excludes the impact of these charges. You should note that beginning this quarter, we are reporting total European light vehicle production volumes rather than simply Western European volumes. This will apply both to actuals, including comparatives, and to our outlook. We are making this change because our business in Eastern Europe continues to grow and because we believe the reporting of Eastern European volumes has improved recently. In the first quarter, consolidated sales increased 9% relative to the first quarter of 2012 to $8.4 billion. North American production sales increased 3% in the first quarter to $4 billion, reflecting in part a 1% increase in vehicle production to 4 million units. In addition, the increase is a result of the launch of new programs and acquisitions completed during or subsequent to the first quarter of 2012. Partially offsetting these were lower production volumes on certain existing programs, programs that ended production during or subsequent to the first quarter of 2012, a decline on content on certain programs, the weakening of the Canadian dollar against the U.S. dollar and net customer price concession subsequent to the first quarter of 2012. European production sales increased 5% from the comparable quarter, while European vehicle production declined…

Thanks, Vince. Good afternoon, everyone. I will review our updated 2013 full year outlook. I will only provide a summary of our outlook since we covered the details in our revised outlook in our press release. With respect to our vehicle production expectations, we now expect 2013 North American light vehicle production to be approximately 15.9 million units compared to 15.8 million units in our March outlook. Vince indicated that we will now disclose production for total Europe rather than just Western Europe. We expect 2013 total European light vehicle production to be approximately 18.4 million units, also in line with our March outlook. Both our March outlook and today's outlook include light vehicle production of 11.9 million units in Western Europe and 6.5 million units in Eastern Europe. The increased North America vehicle production is expected to lead to increased sales in North America. In Europe, despite no change to our volume assumptions, a lower euro relative to our previous outlook is expected to contribute to slightly lower European production sales compared to the March outlook. Our complete vehicle assembly sales expectations have increased, reflecting higher production volumes at Magna Steyr, partially offset by the impact of the lower euro. As a result, we expect total sales to be in the range of $32.6 billion to $34 billion compared to $32 billion to $33.4 billion from our March outlook. At the low end of the range, this would represent record sales for Magna. We expect our consolidated operating margin percentage, excluding $158 million of amortization of intangibles related to the acquisition of E-Car, to be in the mid- to high-5% range, up from our previous outlook of margin in the mid-5% range. We expect our effective tax rate to be approximately 24%, down from 24.5% in our most -- March outlook, mainly as a result of the lower-than-anticipated first quarter tax rate. And for the full year 2013, we continue to expect fixed asset spending to be approximately $1.4 billion. Let me give you an update on our expected restructuring costs for 2013. We've previously communicated that we intended to incur approximately $150 million of restructuring in 2013, subject to when we could record the cost for accounting purposes. Our current view is that we expect to incur approximately $100 million in 2013. Part of the change is timing. Part of the change was an anticipated closure of a facility, which -- in which we recently achieved better customer pricing, and so we won't be closing the facility. And the remainder reflects better negotiated restructuring settlements than previously expected. That concludes our formal remarks. Thanks for your attention today. We'd be pleased to answer your questions.

[Operator Instructions] Our first question comes from the line of Chris Ceraso with Crédit Suisse. Christopher J. Ceraso - Crédit Suisse AG, Research Division: So just a few things to cover here. First, you talked about the SG&A and the fact that it was down pretty nicely year-over-year. I'm not sure if I heard what you said to expect there on a go-forward basis. Do you have any comments about the sustainability of SG&A at this level?

Yes, no, I actually did specifically comment on SG&A. Our comment was on operating margin, which takes into account SG&A, D&A as well as gross margins. So what benefited us this quarter on the SG&A line was a recovery on asset-backed commercial paper. There was a legal settlement, and we received about $10 million. So that impacted SG&A in a positive way in the quarter. Offsetting that, there was a bunch of other items but not necessarily in the SG&A line. And for example, we took a provision for some assets that we had on our balance sheet related to Fisker, and most of that hit was on the equity line. And we had some other items. So all in all, from a P&L perspective, the asset-backed commercial paper win was offset, but particularly on the SG&A line, SG&A was lower because of the recovery on asset-backed commercial paper. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Okay, so probably not sustainable, quite so low as a percent of sales.

We're still expecting to be fairly low. I mean, in the first half of the year, typically, you have higher sales and your percentage of sales tends to be a little bit lower. And it goes a little bit higher in the back half because your -- of the seasonality. But still reflecting pretty low SG&A in total percentage of sales for the year. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Okay. And then maybe a bigger picture question. There's obviously been a lot of discussion in the market about the yen, and a lot of that is focused on the OEMs and pricing and so forth, but I think some of the more difficult questions to answer seem to be around implication for suppliers. And given that you're so big and broad and have business with most, if not all, global OEMs, what are you seeing competitively against Japanese suppliers? Are they starting to use the -- their currency to their advantage, maybe being a little bit more competitive with customers? What's your expectation about the competitiveness of your Japanese suppliers that you compete with?

I haven't seen anything yet, but I wouldn't necessarily know the details, so nothing that I have been made aware of. For the most part, if we're competing, it's typically with the people who are in the same geographic regions than us. So I'm sure there's some cases, I guess, for some of it to be produced in Japan where the currency would give them an advantage. But I can't really think about at the top of my head. A lot of what we compete would be relatively local competitors. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Okay. So you don't typically run up against a component that was sourced out of Japan into Europe or North America?

I can't think of a lot, to tell you the truth. I'm sure there are some but I don't really -- I haven't really heard much, if I tell you the truth.

Our next question comes from the line of John Murphy with Bank of America Merrill Lynch.

Maybe if I could ask the Japanese question from a different angle. I mean, the Honda Accord sounds like it was an important launch for you guys here in the first quarter in North America. I'm just curious what content you have on that vehicle and if this is really kind of a pretty strong foothold that you're developing with Honda that might expand over time.

Look, John, the Honda Accord is a program where we're still going to have below-average content, but the point is that whereas these [ph] kind of have $100, $75 in a lot of the Japanese vehicles, on the Accord, we're getting close to $350 or $400. So we have driver assistance; so a camera system so we have the inside and outside mirror. We have some energy management systems in exteriors and interiors. And we have some business on the staffing side. In particular, we have hot content [ph] [indiscernible] which is incremental.

But it does signify a pretty significant step forward with Honda then, right?

Definitely. Certainly in percentage terms, it's a nice movement. That's why we're calling those others whereas we see it's pretty small. We're creeping up in terms of the amount of contents on some of those vehicles.

Okay, then. And second question, on Europe. The margins are progressing reasonably nicely, at least in the first quarter of this year. Was there anything that was unique in this quarter? Or does north of 2% sound like a reasonable assumption? Or at 2% plus for the remainder of the year seem reasonable for Europe, with potential upside in the out years?

Yes, well, I'm looking through kind of Europe. Are you looking at sort of Q4 to Q1, John, or Q1 to Q1? What are you looking at...

Yes, I mean, year-over-year, there wasn't that big an improvement. But in the second half of the year, obviously, the margins were particularly weak. And it seems like we've had a pretty good bounce back here. So I'm just trying to understand what that implies for the remainder of the year.

Yes. I think, just consistent with what we've saying is that, over the next kind of 3 to 4 years, we're expecting steady progression in European margins. And they should get to both -- half of where North American margins are. Quarter-to-quarter is a little bit more difficult to sort of talk about. If you think about the seasonality of the business, you come into a summer slowdown, you come into a Christmas shutdown, there will be some impact. But we're pleased with what we see in Europe. Obviously, we want it to the faster but we've got plans in place and the guys are meeting their targets. So we're confident that, for next several years, we'll continue to see improvement in European margins.

There was nothing really surprising up or down in the quarter. When Vince says we're then getting to half of the North American markets, we're talking over our planning periods, like 2015, '16 time periods, so we're still pretty on track what we've been talking about in the past.

Okay, that's helpful. And then just lastly, on the BDW acquisition, the bulk of the customers there are obviously the German manufacturers. But aluminum castings, it sounds like it's something that's taking hold or might be a hot topic with some of your other customers. Is there the ability to repurpose the technology and the products that you are doing over there in Europe for the Germans to here in North America, some of the Detroit 3 or around the world it other automakers?

Yes, they have a number of customers. Land Rover is a big customer of theirs. We've actually got some other product that goes into -- we're Tier 2, so some pretty Tier 2, so some pretty good product there. So for sure, that product is -- can be replicated. It's high capital, like any you would expect in casting, but then you've got to price for it, obviously. But we're seeing a lot of interest as you have more use of aluminum in vehicles and especially with the casted [indiscernible] parts. So yes, that's -- for sure, that's one of the reasoning why we'll see some growth opportunities there.

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

It's Pat Nolan on for Rod Lache. I had 2 questions. First, I want to follow up on your commentary about pricing. At least on the gross margin line, it looks like -- when I kinda do -- when we do the work, there's no change in production, it looks like pricing pressure has picked up a bit. Are you seeing that in the market? Or is that just you're seeing really no change versus what we've historically seen as far as pricing?

Well, pricing pressure is always picking up. I don't think I've ever seen a time, other than when -- the great chaos in '08 and '09 when the producers were trying to survive and get parts out the door. But I would say we're -- we continue to see pricing pressure, not much of a change at -- as far as the financial results, Vince? It's...

Yes, I think, Pat, when you -- if you look at the 2 markets, in North America, go back to Q4, operating margin on a normalized basis was 9%. In the first quarter, x E-Car, it was about 9.7% on EBIT...

E-Car's [indiscernible].

E-Car's in there. And when you look through some of the items that are impacting us quarter-over-quarter in North America, there's the -- we're benefiting a little bit from launch costs and new facility cost, a little bit of a headwind in commodity costs and from warranty costs. But all in all, it just seems pretty kind of normal flow, there's nothing there on the pricing side that's sticking out. In Europe, and if I look at the same sort of roll, it's got some positive impact on launch costs, headwinds on commodity costs, a little bit of tailwinds on warranty costs and new facility cost, but everything else seems to be in order. So it's not pricing that's impacting our results in any unusual way.

And if I can ask you about your outlook for Europe. We're hearing there've been a few automakers actually adding back shifts, particularly in Germany. When you look for a European production and mix for the balance of the year, are the headwinds getting better for you? Or are things pretty much playing out as you have planned going into the year?

Yes, I think, Pat, when you look at kind of our February outlook for production sales in Europe, we were -- the range was $9.4 billion to $9.7 billion. Our current range is $9.3 billion to $9.6 billion, so we're down about $100 million top end and bottom end. And that's certainly due to foreign exchange so that, in terms of where we thought we were going to be back in February and where we think we're going to be today, nothing's changed in any material way.

But what we -- but even going back to February, we were expecting all in all for the year just to have our biggest customers, the German 3, to outperform the overall change in the market. So I think, to the extent that it was pretty much in line with the market in the first quarter, it should be pretty decent for us in the remainder of the year.

Got it. If I could just sneak in one last one. What was the FX impact in North America in the quarter on revenue?

Yes, we're just looking at -- it was $10 million negative in North America and $10 million positive in Europe and $5 million -- well, it's actually $15 million, $10 million in production sales and $5 million in assembly sales for Europe.

Our next question comes from the line of Rich Kwas with Wells Fargo.

Just got a question on gross margins, following up. When you look out the rest of the year, you were down year-over-year in the first quarter. I understand the assembly mix is a headwind, but -- and tooling. When you look at the rest of the year, you raised the assembly volumes a bit, so I assume that's going to continue to be a bit of a headwind, but how about with new launches particularly with some of your Detroit 3-based customers? Is that going to be a meaningful headwind as you look through the next couple of quarters on the gross margin line?

I think, when you look at the, sort of just launch costs kind of through the balance of the year, overall, we're expecting to be flattish in kind of the balance of this year compared to the balance of last year, so it's not a big sort of swing. And what I think is going to help us on the gross margin line is a reduction in new facility costs compared to the prior year. That's going to be the sort of -- the biggest factor then is the product mix. Assembly sales and tooling [indiscernible] reported margins.

Okay. And then on E-Car, what's the update in terms of the losses there and what you are running? Because I know that was -- you'd made some improvements second half of last year where it was losing less money. And what's the cadence of that right now?

[indiscernible] What we've done with our E-Car business that we acquired is we actually start up business and sales on a number of different business units, so part of it is sitting in Steyr part proceeding [ph] and Steyr crane [ph], with a small piece [indiscernible] corporate. It's been integrated at the other business units so we don't have visibility to [indiscernible] E-Car was and the overheads and then take it down [ph] [indiscernible]. I don't have that exact number.

I would guess their number has come down. But we're launching a big program in Europe so we still have launch costs to incur in there. We're doing some R&Ds. That's still -- that'll be hitting out bottom line. And the Ford Focus program is now into production, but the production is lower than what we had thought, so the loss would have come down but it still wouldn't be in breakeven levels yet...

Okay. And then just, Vince, on share repurchases. Should we assume that when you said you're going to get this done by November when it expires, but should we think about that cadence kind of similar to how you generate cash?

No, I think no, not necessarily. I think what you need to think through is kind of, by the end of November, what I'll utilize entirely, that limit that we have is for 10 million shares that we can continue to buy. The timing of it is going to depend on the group market conditions. It might not be at all tied to how we generate cash. The biggest thing for us on cash in the quarter, which will come back a little further along the year, is working capital. We had a substantial investment on working capital in the quarter, which we have every first quarter. But by the time they get to Q4, a big chuck of that's going to come back. So I just view that as temporary and not necessarily based on our share repurchases on the cash we generate in any quarter.

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

So just to clarify on Rich's question on share repurchases. It -- if I understood what you said correctly, and I apologize, I just got distracted a little bit, it sounds like what you're saying is your goal is to complete the $12 million share repurchase authorization by November. Am I -- did I hear that correctly?

That's correct.

Okay. Is there a possibility that you could actually upsize that, certainly the balance sheet, to do that?

It's always a possibility, right? We're going to have to -- if that were the case, we'd have to reapply to the exchanges to increase our limit. So that's a possibility.

A lot of it will depend on what we have for use of cash. We know roughly where we're going to be for capital. It may change but in the year, what we see going to 2014, what we see in the M&A front, we had a long discussion about this, so we just wanted to make sure that people understood that we were committed to repurchasing those shares. So things may change through the year if we want to do more, but it's -- we'll reassess it as we get close to the full repurchase and see where we are.

And I wanted to ask you a little bit about European margins. And first, my understanding from what you said in the past is that you hope, over the next 3 to 4 years, to see a fairly steady improvement in margins. And x Steyr, you'd like to get up to maybe about half the level that -- half of where North America is, which North America is kind of running around 9% or 10%, x the amortization. So a kind of 4% or 5% margins over the next 3 to 4 years, x Steyr, and that's kind of my impression. And my first question is obviously, is that correct? And so feel free to correct me if I'm wrong, but the real question is this: You've got to -- you've been closing plants here, and I can see how that's going to improve your margins. It already has done so. But what's the plan in kind of year number 2 or year number 3 or year number 4 that's potentially going to drive that improvement? Or are we going to continue to see restructuring dollars, closing plants, that sort of thing? Or do we switch to something else that allows you to continue to drive that margin improvement?

A combination of a number of things. Some of it will be restructuring. That'll be the bulk of it this year and next year. We did have some underpriced products, so we're either going to get repricing in that or ask our customers to resource it until all those products run out. We had a number of facility launches, so we'll be getting to those facility launches. And we have a number of plants that are already very, very good over there. They're good in technology, good in manufacturing. We have a big program underway, world-class manufacturing, and a lot it is just going to be getting cost of quality down across the board. And that's why it's basically coming in. We said 1 year ago, 1.5 years ago we'd do it over about a 5-year time period, and we're pretty well on track. So it's a number of moving parts.

Okay, excellent. And then finally, just on the rest of the world margins. My impression there is, kind of in that similar time frame, 3 to 4 years, you would hope to get into that 75%, give or take, of North America margins. And I'm -- you've got China ramping up. And then, I guess you're basically trying to fix your operations in South America. Is that the general sense that we should have on Rest of World?

Yes, I guess a couple of things are going on in South America as, one, we're focusing on some operational inefficiencies, but we also are launching some new business and new facilities. So as the business ramps up, we should see some improvements in South America. And as business ramps up in China, particularly in China with margin improvement. Having said all that, to the extent that we continue to accelerate our growth in the Rest of World segment, in particularly, places like China and India, that may delay us getting to that sort of 3 quarters number that we we've about. And so it's a good story-bad story. The more growth we have the longer it's going to take us to get to more acceptable margins on a consolidated basis in that region. And Brett, I just wanted to -- you said this twice, I just want to come back to it: You keep on saying hope in Europe and hope in rest of the world. It's not hope. We actually have plans in place that we got traction and were tracking to those plans. So it's not hope. We're going to get there.

One additional thing. In South America, Vince said we do have some new plants going up. We got some operational efficiencies, and then we're getting our arms around those. Argentina and specifically, it is a very difficult environment in Argentina: high inflation, high wage rates. And we basically need to get the recovery from a couple of our customers we haven't been able to get to yet -- get them yet, so we ought to have to get that, which will be a repricing, to take into account the change in our input cost. Or we will have to get out those contracts 1 or 2. So it's a combination of a number of things going down in South America.

I'm sorry, I didn't mean to imply that you didn't have a plan.

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

I had a few housekeeping questions to follow up on. Does the European remarketing change between Eastern Europe and Western Europe have any impact on the margin trajectory in either Europe or rest of the world going forward?

No, because it doesn't change sales, it's just changing the volume. So it would change that we are computing content vehicle, that would be reset, but it has nothing to do with our sales at all.

I mean, nothing to do with our segment reporting.

No. Just volumes, just how we report volumes, that's all.

Understood, understood. And the tax rate was significantly lower than your full year guidance in the first quarter, which would imply a rate of about 26% for the rest of the year or which sounded much higher than your full year rate. Does that sound about right? Or do you think that the rest of the year will be fairly consistent with that 24% number?

I think, overall, when we get through the course of the year, we'll be about -- feel 24%. It might be a little shy of 24%, but approximately 24%. Again, it depends on income mix throughout the rest of the year. But think about 24%, slightly below that, for the full year. And you can back into Q2, Q3 and Q4, accordingly.

And just finally, I think you had a couple of plant disruptions in the first quarter and the second quarter, a couple of plant fires, I think. Can you talk about whether they had an impact in 1Q and maybe 2Q?

Yes, with the -- the one you may be referring to hit the news was a transformer panel that exploded because a grease fitting let go. I think that was -- that's the latest root cause. So it wasn't a big fire. So that didn't really have any impact, if that's what you're referring to. That was a couple of weeks ago. We did have a couple of significant launch disruptions in the quarter. We're through those. We're still having some inefficiencies, but at least we got the product flowing to our customers. So we did a couple of -- we did have a couple of operating issues, one in North American segment and one in the European segment, which we're dealing with. I'm not -- I presume those are the ones you're to.

Right. And so you are past those now?

Yes. I mean in terms of kind of the plant that we had that grease fitting that gave, we're back to full production. We've been cleared to, by all the authorities, to move forward on production. And the most important thing is we're happy that our employees are all safe.

Our next question comes from the line of Todd Coupland with CIBC World Markets.

I was wondering, with European outperformance versus the market, what would that have looked like on an organic basis, so if we exclude the acquisition contribution?

I think, when you look at the acquisitions -- I'm just flipping to the page, Todd, here in my notes. So we're -- Europe, last year, we're about $2.3 billion. Production sales were just over $2.4 billion this year. $164 million of the change was due to the acquisition. So if you net that out, we're essentially flat.

Yes. But still, significant outperformance relative to volumes in that region.

Right, right.

And that's due obviously to the reasons you mentioned, in part content growth. Can you highlight a couple of the key vehicles where you've been growing content, to just give us some color around that?

In Europe, specifically?

It's -- specifically in Europe, yes.

Yes. Well, I think, when you look at the some of the growth on content, for example, the Cuca [ph] program, fed over a lot [ph] content, the [indiscernible] to have additional content on that. There's the transit program, as an example, where content year-over-year has been picking up.

Mercedes-Benz CLA, we have content under the new program. Higher content on the Jetta. Higher content on the ŠKODA Octavia. Those are kind of big drivers.

Right. And one follow-up, if I could, on North America. So for the first 4 months of the year, we've seen terrific pick-up truck volume and a little bit slower car volume. How do you guys think about that? I mean, obviously, housing starts has -- it is helping a lot in pick-up trucks. But below housing starts, do you feel that the North American market is starting to flatten out a bit? Just your thoughts on that would be helpful.

Honestly, Todd, I haven't looked that closely at them, the segment stuff. More reason is I'm not really in the a position to -- let me have a look at the numbers there, and I can get back to you on that one.

Our next question comes from the line of Peter Sklar with BMO Capital Markets.

On your guidance revision, you took your guidance up for operating margin notwithstanding that you have higher anticipated assembly sales, which I believe dilute the margin. So you're anticipating -- obviously anticipating some good margin improvement in your core auto parts operations. Can you talk a little bit where that's coming from? Is Europe doing better than you expect? Or is it come in other regions or other businesses?

Peter, I -- we look at our forecast, and even though we may have not changed volumes overall for Europe, it's a bottoms-up forecast. We look at mix. So a part of it is mix, part of it's better traction and operating performance. It's just that there's a whole bunch of things, and sum it up across the company. We're comfortable moving up operating margin for 2013 versus our outlook in February.

Okay. Another question is, the $10 million that you recovered on the asset-backed commercial paper, that's the amount you recovered, but what would be the gain that you recorded for financial reporting purposes?

There is -- on asset-backed commercial paper, there's actually 2 items, Peter. We have an asset on our balance sheet that we look at at the end of every quarter, and we revalue that to fair market value. So we've got a $3 million gain related to the revaluation of the paper we hold on our books. We've been having revaluations for a number of quarters, $2 million or $3 million each and every quarter. So on a comparable basis, it's significant, the difference. But particularly in the quarter, we actually received some cash from some legal proceedings that were taking place on asset-backed commercial paper, which is about $10 million. So that was the cash we received, and that's been booked to SG&A.

But is that all -- but is -- that's the cash received, but is that a -- is that the gain...

We had no -- we -- remember, there was no cost associated with that, so the cash was the gain.

Okay, I understand. And then you mentioned as well, just kind of sorting through these unusual items, you also had a -- you mentioned something earlier in the call, Vince, I think you took a charge related to Fisker, did you say?

Yes. Peter, so if you're going to ask me about the asset-backed commercial paper, I commented on that. The earlier color I gave related to just P&L in general is, yes, we did have the $10 million gain on the legal proceeds we received on asset-backed commercial paper. But we -- in the course of the quarter, there's a number of things that are positive and negative. We also had some negative items in the quarter which we didn't spell as -- in particular in our MD&A. The biggest item was some provisions we took against some Fisker receivables and Fisker inventories. And then there were some small items. So when I add all that up, the $10 million gain on asset-backed commercial paper is pretty well offset with the $10 million of other items. So all in all, our P&L wasn't impacted positively or negatively from these other items. It did have an impact on particular line items, in particular SG&A and equity income...

And Don, if I could just ask you one last question. I don't know if you noticed, you were quoted in a newswire article about a week ago. The newswire article addressed the restructuring activities Magna anticipates doing. And the article kind of talked more about restructuring in the U.S. and that Steyr, as opposed to your European auto parts operations, is where I thought the bulk of the restructuring is going to take place. So is there any change in the restructuring strategy? Or is it still going to be largely in your European auto parts operations?

No, I definitely noticed it and I don't know where it came from, quite frankly, because what I said -- the question was about how much restructuring are we doing in Europe. I explained what we're doing there. And what I said was ongoing restructure in the auto parts industry is kind of common, and we have been doing ongoing restructuring in North America as well because if -- an assembly plant closes if you do something, whatever. And so we're not doing anything other than what we talked about previously. We're not doing any major restructure in North America. And then there was a question about Steyr. And again, I don't know where was sort of -- nothing's changed in what we talked about previously in Steyr or North America.

Our next question is from the line of Ryan Brinkman with JPMorgan. Ryan Brinkman - JP Morgan Chase & Co, Research Division: Can you maybe just talk about the glide path to stronger margins in the Rest of World operations? Is there a specific quarter or maybe even year that you were thinking about, when it comes, that you can leverage some of the growth-related investments that you've been making in emerging markets?

Yes, I think it's going to be pretty steady over the next 3 to 4 years in terms of our Rest of World segment. As you know, we were overall negative in 2012. For 2013, we're expecting overall profitability to be pretty well flat, not positive or not negative, kind of neutral, in terms of profits and starting in 2014. But in terms of how that comes out by quarter, I don't have the data with me. As you're launching new facilities and you're launching programs, sometimes they're going to accelerate, sometimes they get delayed. And we're more focused on kind of the what happens in the course of the year, as opposed to what happens in a particular quarter.

I'll just a little bit. If you look at North and -- if you look at South America, we did 3 acquisitions there, so I think we can get back to profitability. In Brazil, we do have a plan there. The situation in Argentina, as I said earlier, is more difficult because there are going to have be some pricing leap or unloading some contracts because of the inflation that's happening down there. So our growth really is focused on China. We're going to digest what we have in Brazil. I want to get that back to profitability. And then we will look at continuing to grow to get profitability growth. There's not a big target area until we can get back into profitability. China is going to be a big focus for us going forward, it has been. So it really depends on how fast we win new business; when we put up new plants, whether we do it greenfield, through acquisitions. So that's a bit more difficult to predict. But we have said and still pretty comfortable we can get to North American type margins in China. So through -- again, it'll be dependent on getting a couple of these big plants we're launching up and running. Ryan Brinkman - JP Morgan Chase & Co, Research Division: And then maybe just to zero-in on North America, that obviously your results there are very good, your margins are very good and in line with your long-term outlook. But if we were to adjust your 1Q results that are higher to account for the E-Car amortization, then it would seem that your earnings rose about $15 million on an underlying basis year-over-year on a $209 million revenue rise for roughly 7% or so incrementals, which may be just a little bit less than what we have supposed, had we known you'd report that strong revenue. Can you just talk a little bit about your operating leverage in North America and maybe what might be reasonable to expect going forward?

I think the guidance we gave in the past is still accurate, 9% and 10%. It depends on so many moving factors. We did have a launch hiccup in Q1. That would have had some impact, but I don't think you can really read a trend line in Q1 based on what you're saying we need to pull through margins we had. Ryan Brinkman - JP Morgan Chase & Co, Research Division: Okay. And then just last question here. I think we got some more information in the Q&A here that -- to help explain the very strong Europe revenue, that basically FX helped, I think, $10 million and then acquisitions was something like 1.64 or so. And then I guess the rest is just attributable to the product launches that you have in the slide deck. So how to think about the cadence of launches as the year progresses, does it help you more or less in the quarters as the year finishes?

Yes, Ryan, I'll have to do a little bit of work and figure out how those -- or investigate a launch effect specifically on the rest of the year. I -- my recollection is just fairly steady through the year. But I'll do some thinking there and get back to you.

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

Yes, one question on the assembly. The sales seems to have ticked up. Is this a new level with the Paceman? Or is this like a temporary thing where you are launching something and it'll settle back a bit?

Well, the Paceman's been pretty strong. Both the Countryman and the Paceman's been pretty strong. And we have upped our volumes expectations for the rest of the year, and the bulk of that is BMW warfare [ph].

The only thing to add is foreign exchange is going the other way, too, David.

We have the foreign exchange going the other way, yes.

All right, okay. And then just a question: the buyback. It sounds like you're pretty committed to trying to get it done. I was just wondering if you could put in context use of capital in terms of buyback versus M&A or anything else at this point in time. Because it sounds like the focus is on buyback at this point.

We really can't give any more detail. We're expecting capital to come in 1.3, 1.4. That's pretty well known because things don't change that much unless you have, like, pushed off the next year. You can pretty well tell what our dividend is going to be. If you look at what we've talked about, over $600 million for the share buyback. M&A is -- we can't really predict it because we're working on a lot of different things. Does it come here first or not. So that comes pretty lumpy, so that's pretty hard to predict.

And David, the way I'd sort of think about it is we got the $1.9 billion in our business last year between fixed assets and acquisitions. And we generated lots of cash. Our net cash balance didn't change at all in 2012. If you look at 2013, with improved operating results, our cash generation is going to be higher. So we have room in there owing [ph] to do buybacks. It's got a very strong balance sheet. But also we'll use our balance sheet if the right opportunity came up to make an acquisition as well. So I think we've got ample room to do all of that if the right opportunity presents itself.

Would you consider increasing the dividend payout ratio at all?

David, we've talked about sort of dividends. And our view is that we'd like to move the dividend up on a regular basis. Regular basis is kind of the end of the year. When we have -- when we get 2013 behind us, we would completed our business plans. And we -- at that point in time, we can reassess the dividend rate and whether it makes sense to move it up and by how much to move it up. But I wouldn't count on sort of resetting the dividend over the course of the year.

No, I'm not suggesting that, Vince, but you have the 20% requirement in your constitution. You pretty much followed it. Would you ever consider moving beyond that given the greater maturity of the company?

I think we're beyond that in 2012, David. And the 20%, remember, is just the minimum.

Yes, it's not something we're considering right now. I mean, ultimately, if we do the share buyback -- we did have our dividend policy. We'd like to put the cash towards to grow the company profitability. It's something -- if we kind of we can do it, we can consider anything. But we're -- it's not being discussed right now.

Our next question comes from the line of Itay Michaeli with Citigroup.

Just a question on the guidance and the cadence. In the past couple of years, the Q1 operating margin was actually a little bit above the full year. It looks like, this year, maybe Q1 will be flat or are even lower than the full year. Can you talk about what's sort of different this year? What's going better in the business in the next 3 quarters relative to Q1?

Just remember that the margin guidance we gave is excluding the amortization of E-Car. And if you take that Q1 numbers and you back out the E-Car amount, we're at -- we're actually at 6%. So -- and we're seeing mid- to high-5% range, so we actually are above the Q1, where we expect to be for the year.

Okay, so you're comparing that to that. Okay, that's helpful, that clarifies that. And then just on CapEx, the Q1 spending, a little bit light relative to the full year. It sounds like there's maybe a timing issue there. And I mean, Vince, how do you think about CapEx going forward? You talked before about capital deployment, but how should we think about your CapEx relative to the business you're winning? Should we think of that as a percentage of sales perhaps beyond 2013?

Itay, I think, when you look at capital, traditionally, our capital ramps up near the end of the year, tied to product launches, which have kind of been sort of July-August time frame, and Christmas shutdown. So you'll see capital typically ramp up as we move to the balance of the year.

Yes. And I think that we don't have a target for percentage of sales, quite frankly, because we do bottom-up plans so people have opportunity to invest capital. We've been hitting our return thresholds and will approve the capital. So I think if you're looking at the model, I would keep it at $1.4 billion to $1.3 billion over the next few years.

Our final question comes from the line of Neil Forster with Scotia Capital.

My first question was just a clarification in terms of your margin expectations in Europe. It was said earlier in the call that you expect to be at half the level of North America, excluding Steyr, so I just wanted to double check that. And if that's the case, how does Steyr change the overall picture? So what would the expectations be for Europe including Steyr?

Be lower.

So yes, just to your very first question, just to clarify, what we talked about is, over the next 3 to 4 years, which is our planning period, we expect to be -- our margins in Europe are expected to be about half of where they are in North America. So North America is kind of 9 to 10, so Europe, x Steyr, is kind of 4.5 to 5. Magna Steyr, we talked about just for a very long time. Its margins are below Magna's overall margin. Magna Steyr purchased a lot of components on some of the vehicles and charges a fee for doing that. So a reasonable return on capital, but from a margin perspective, it's volume of Magna overall. So it will have a negative impact on...

Right. And I'm just trying to get a sense in terms of how meaningful that impact would be.

Appreciate that. It's...

On the margins, you're trying to get an -- hard to tell because it depends what our sales are going to be. And the sales in Steyr, depending on what business we get, can go way up or way down, because we account the sales on the full price of the vehicle. But I don't know how we...

Okay. So it can swing meaningfully one way or the other, depending on what happens at Steyr over the next few years.

Yes.

Okay. My second question was kind of a broad strategic question on Europe. I'm just wondering in terms of what you expect your footprint in Europe to look like over the next 5 to 10 years. You've talked before in terms of the restructuring, not wanting to be everything to everyone, exiting certain businesses. So I'm wondering what that business will look like longer term and if you could compare and contrast it to your North American footprint.

Well, North American footprint is growing basically in the southern states, primarily in the southern states. And in Mexico, we continue to grow. Canada, we're probably not going to add more facilities. It'd already cover the place geographically. But we do have some -- as we win contracts, we are adding more facilities in North America, even in the north. If you look at Europe, I think that the production levels in England seem to be pretty stable and we expect them to stay there, so our footprint in England will probably be pretty consistent. We don't have too many plants in Spain or France or Belgium. So if you look at where plants are, we've got a number of plants in Austria and we have a lot of plants in Germany. So most of the expansion will -- ought to be in the existing plants or in Russia, Poland, Romania, Turkey. So if you look at most of our expansions right now, that's where most of the plants are going up. And some of the real -- losing -- big losing divisions have been in Germany, in exterior, interior division. So we might see some change there, but it's not drastic. It'll be a slow progression to plants becoming more efficient and continuing business or building-in in lower-cost regions. But that's over a long period of time.

Okay. I guess what I'm driving at is what the product portfolio will look like in Europe and if and how that differs just to North America.

We talked a little bit about this at the annual meeting today. Ultimately, we're looking at all the products, and most of the products would be considered a global product. So they may not be sourced globally, so there's always an exception to the rule, but we're trying to look at what -- where do we have competitive advantages in our product offering or manufacturing processes in each of our groups. Where do we see a pull from the customers? We're going to have to be global in those, in the areas where we can't make reasonable margins or making lots we have to fix some or get out of them. So we're not saying publicly and we haven't come to a conclusion, quite frankly, on all the product areas, anyway. But over time, we would probably streamline our product offerings and make we're in a very powerful position globally in the ones that we stay in long term and ones where we don't think we are in that position where we're either going to have to buy somebody, merge with somebody, do a joint venture, or if we can't, then we'd have to look at ex-ing those businesses. So it's better [ph] that we got our focus on but really not announced them because, whatever we do has an impact on employees, have impact on customers. But we want to be -- make sure that the products will in long term were very healthy.

And would you see anything on as big a scale as perhaps exiting a complete division? Or would it be more subdivisions of certain...

It -- yes, I don't really want to comment on -- it starts a lot of speculation. But if -- we typically look at products as a business unit. So if we do something, it would probably be on a global basis. And not all of our product lines are global.

Okay, and then on the M&A side, there is -- it seems that there are some sizable assets out there right now, but perhaps some of them, at least, not the right strategic fit for you guys. So I'm just wondering what you're seeing in terms of the landscape of potential companies that you could go out and make a run for. And geographically, where are they located? Is there more in Europe? Are you seeing some opportunities for distressed purchases or distressed suppliers there? And kind of what is that pipeline looking like?

There are some distressed companies out there. If Europe stays in a downturn for a longer period of time. I think we're going to see more companies get in financial difficulty. Ideally, we're looking for an acquisition that is strategic in product, has some technology, and we're obviously very careful about what they're going to have for a footprint. So the more you get some ideal acquisition, the more it's going to cost. We want to make sure we can get reasonable returns on it. If we get something that doesn't hit one of those, and then obviously, we would expect to buy it at a cheaper price. There's not a glut of companies on the market right now, but I think general expectations on valuation are in reasonable levels, so we're looking at a lot of different things but we don't want to do an acquisition for the sake of an acquisition. We have a strong balance sheet so we can do them. We want to make sure we do the right ones.

Mr. Walker, we have no further questions this time, so I'll turn the call back to you.

Okay, thanks, everybody, for joining us today, and for those who also took the time to look -- watch our annual general meeting. I think we've had a good start to 2013. We expect to continue our strong performance in the remainder of the year. It'd be interesting to see what happens with the economy, but we're going to keep focused on the priorities we've got and look at our long-term strategies. So thanks very much.

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.