Magna International, Inc. (MGA)

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Magna International, Inc. (MGA)

Q3 2007 Earnings Call

November 6, 2007, 8:00 AM ET


Donald J. Walker - Co-CEO

Vincent J. Galifi - Executive Vice-President and CFO

Louis Tonelli - VP of IR

Mark Hogan - President


John Murphy - Merrill Lynch

Fadi Chamoun - UBS Warburg

Chris Ceraso - Credit Suisse First Boston

Peter Sklar - BMO Capital Markets

Ranjit Unnithan - J.P. Morgan

Michael Willemse - CIBC World Markets

Richard Kwas - Wachovia Securities

David Tyerman - Scotia Capital Markets

Nick Morton - RBC Dominion Securities

Patrick Archambault - Goldman Sachs



Ladies and gentlemen, thank you... for standing by. Welcome to the Third 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, Tuesday, November 06, 2007.

I would now like to turn the conference over to Mr. Don Walker, Co-CEO. Please go ahead.

Donald J. Walker - Co-Chief Executive Officer

Thank you. Good morning and welcome to third quarter 2007 conference call. Joining me today are Vince Galifi, our Executive Vice President and CFO; Louis Tonelli, Vice President of Investor Relations; and from Detroit and will be available to answer any questions during the Q&A period is Mark Hogan, Magna's President.

Yesterday, our Board of Directors met and approved our financial results for the third quarter ended September 30, 2007. Our board also declared a quarterly dividend of $0.36 per share payable on December 14 to shareholders of record on November 30, 2007.

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

This morning, I will start with some thoughts on the third quarter and then update you on recent activities and then to review our financial results for the quarter and discuss our outlook for 2007.

Upon completion of our formal remarks, we will be answered... 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 or 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.

Industry remains difficult particularly in North America where light vehicle production volumes are expected to end the year down for a fifth year in a row. Nevertheless, there continues to be growth in light vehicle production globally and we position ourselves to capitalize on the growth opportunities. Those companies will remain focused and disciplined with strong engineering and efforts on technological advancement, industry can still be rewarding.

All in all, we are pleased with the results of the third quarter. Excluding foreign exchange, we still reported sales growth year-over-year as we continue to launch some significant new programs in North America and Europe. And a number of our business units continue to post solid results and we are working hard to address the businesses that are not performing to our expectations.

In September, we completed the previously disclosed transaction with Russian machines. We indirectly issued 20 million Magna Class A shares to Russian machines and shortly afterwards completed substantial issuer bid under which we repurchased 11.9 million Class A shares. We previously disclosed our intention upon completion of these transactions to conduct a normal course issuer bid to not eliminate the equity dilution that remained following the substantial issuer bid.

To that end, subject to regulatory approval, our board yesterday approved a normal course issuer bid to repurchase up to 9.5 million Class A shares with the bid to commence on or both November 12 and terminate in November of the next year.

I would also like to bring you up-to-date on our activities in Russia. With respect to our traditional customers, we are currently coding business with Nissan, General Motors and Ford in the St. Petersburg region and Volkswagen and Renault in the Moscow region. The coding activity covers a number of product, the most significant being stamping, seeding, exterior and interior plastic parts and power train components.

With the Gaz Group, Magna continues to work closely with this customer to support the launch of the JR41, the former Sebring vehicle scheduled for next year. A number of our operating units are participating in this support function with Magna Steyr taking the lead position on behalf of Magna. Our Cosma unit is supporting Gaz on the stamping side and will stamp parts on the program within its current capacity in Europe until the stampings can be localized. And Decoma has been awarded the front and rear fascias on the JR41 program.

With respect to AvtoVaz and their newly developed platform or C-Segment vehicles, a number of operating units of Magna are currently negotiating for future business. The potential exists for us to have significant content on the platform. We expect to complete these negotiations in the coming months. Magna Steyr has been working with AvtoVaz in the ensuing development of the vehicle on this platform. AvtoVaz announced in May a letter of intent to form a joint venture to jointly produce the new family of C-Segment vehicles in a newly built production facility.

Under a letter of intent, the forming of joint venture was conditional upon the completion of a feasibility study to assess the attractiveness of this concept.

Following the completion of the feasibility study, AvtoVaz will proceed on their own with Magna Steyr and AvtoVaz working on a contractual basis. The primary reasons for this decision with the existence of capacity in AvtoVaz to produce the vehicles and the short timeline prior to launch in order to construct a new assembly facility. We remain excited about the growth opportunities in Russia and plan to provide the investment community with quarterly updates of our progress there.

Last month we announced the signing of an agreement with the Canadian autoworkers known as the framework of fairness or FFA. The agreement represents a new labor model that among other thing preserves the key components of Magna Steyr Enterprise System. The details of the FFA will be introduced to employees in Magna's Canadian manufacturing divisions over a period of several years. These employees will have the opportunity to vote on a secret ballot basis whether they want to approve a new contract under the terms of the FFA and Join the CWA. If the majority workers in the facility vote favored then the plant will be covered by the new Magna CAW National Director Agreement.

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