Magna International, Inc. (MGA)

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Wall Street Breakfast

Magna International, Inc. (MGA)
Q2 2007 Earnings Call
August 9, 2007, 8:00 AM ET


Donald J. Walker - Co-CEO
Vincent J. Galifi - EVP and CFO
Mark T. Hogan - President
Jeffrey O. Palmer - EVP


Christopher Ceraso - Credit Suisse
John Murphy - Merrill Lynch
Peter Sklar - BMO Nesbitt Burns
Fadi Chamoun - UBS Warburg
Richard Kwas - Wachovia Securities
Unidentified Analyst - Banc of America
David Tyerman - Scotia Capital Market
Nicholas Morton - RBC Capital Markets
Patrick Archambault - Goldman Sachs
Brett Hoselton - Keybanc Capital Markets



Welcome to the Magna International Incorporated Second Quarter 2007 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded, Thursday, August 9, 2007.

I would now like to turn the conference over to Mr. Don Walker Co-Chief Executive Officer. Please go ahead, sir.

Donald J. Walker - Co-Chief Executive Officer

Thank you. Good morning and welcome to our second quarter 2007 conference call. Joining me today are Vincent Galifi our Executive Vice President and CFO, Louis Tonelli, Vice President of Investor Relations, and Mark Hogan, President. Mark is in Traverse City and will have to drop off the call in order to give a speech which is scheduled for 9 AM this morning.

Yesterday, our board of directors met and approved our financial results for the second quarter ended June 30, 2007. A board also increased our quarterly dividend to $0.36 per share payable of September 14, '07 to shareholders of record on August 31. I will have more on that about dividend increase in a minute.

We issued a press release earlier this morning for the second quarter of 2007. You will the find the press release. Today's conference call webcast and a slide presentation to go along with the call all in the Investor Relations section of our website at

This morning, I will start with some thoughts in the second quarter and then discuss our dividend policy. Finally, I will briefly comment on the proposed transaction with Russian Machines, and some of our initiatives in Russia. Vince will then review our financial results for the quarter and discuss the outlook for 2007. Upon completion of our formal remarks we will be pleased to answer any questions.

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 our future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release and attached MD&A for a complete description of our Safe Harbor disclaimer.

I would like to start by saying we are pleased with the results for the second quarter particularly given the challenges that continue to exist in the North American automotive markets. While we still have significant work to do significant improvements in certain underperforming businesses, we have benefited from some of our recent restructuring actions and from our efforts to improve some of our underperformers.

Many of the businesses we continue to perform well and we have been able to launch on many new programs without major issues, which have contributed to our results. However, we will remain cautious about the automotive industry particularly in North America. The seasonally adjusted annual rate of our U.S. auto sales has been well below the 16 million units for the past two months and the inventory levels, which had been below normal this spring, as a result of production cuts in the first half of 2007, are now creeping back up relative to normal, particularly for certain of our high content vehicles.

Depending on how sales progress through the coming months, this weakness may have implications on production in the second half of 2007. Many of our largest customers in North America continue to lose market share in a fiercely competitive marketplace and exert pressure on the near supplies base to reduce costs.

Next, I would like to discuss our dividend policy. The dividend policy in our corporate constitution entitles Magna shareholders to dividends equal to 10% of Magna after tax profits for any financial year and on average at least 20% of Magna's after tax profits on a rolling three year basis. Magna has complied with this requirement since 1992 and intends to continue to fully comply with this requirement.

In April, consistent with our dividend policy, we put in place a dividend formula which maintained a constant dividend amount in each of the first three quarters based on the prior year's results. And provided for an adjustment in the fourth quarter to achieve 20% payout of after tax profits for the year. We heard from a number of shareholders regarding our dividend policy and discussions at the board and management level continues about the different formula.

Yesterday, the board rescinded the previously announced dividend formula and re-established a quarterly dividend in line with our past practices. In light of this decision, and considering our financial results for the six month period ended June 30, 2007, we raised our quarterly dividend to $0.36 from the $0.24 that was declared in respect to the first quarter of 2007. The board reserves the right to further modify the dividend at any time and for any reason subject to the requirements of the corporate constitution, particularly in response to financial operating or any relevant circumstances.

Finally, I would like to bring you up date on the status of our proposed transaction involving Russian Machines investment in Magna. Our management information circular and proxy statement was mailed to shareholders last week, and our specialist shareholders meeting is scheduled for Tuesday, August 28. The circular provides detailed information about the transaction. That includes the discussion of our intention to complete, subject to the approval of the plan of arrangement. A substantial issuer bid to purchase up to $20 million of our class A shares at an aggregate price of not more than $1.5-$1.4 billion and the amount received from Russian Machines in connection with this transaction.

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