Magna International Inc. (MGA) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter and Year-end 2012 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Friday, March 1, 2013. I would now like to turn the conference over to Mr. Don Walker, Chief Executive Officer. Please go ahead.

Thank you. Good morning, everybody, and welcome to our Fourth Quarter and Year-end 2012 Conference Call. Joining me today is Vince Galifi, our Chief Financial Officer; and Louis Tonelli, Vice President of Investor Relations. Yesterday, our Board of Directors met and approved our financial results for the fourth quarter and the year ended December 31, 2012, and we've 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 on 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. Overall, I'm very pleased with the results for 2012. It's our best-ever sales and our best-ever operating EPS for a full year. North America continues to perform well and put up strong numbers, and I would expect to be able to continue our strong performance going forward in North America. In Europe, excluding unusual items, we were profitable in each of the 4 quarters of 2012. We made some good progress in improving our results at our underperforming operations in Europe as well. We announced some restructuring this past quarter, and we will see further restructuring actions over the next couple of years. I expect the restructuring actions we are taking and will continue to take in Europe, together with our focus on world-class manufacturing initiatives and the launch of a number of new facilities, will yield further improvements to our operating results in the future. The Rest of the World segment for us is a key focus area. We posted a loss overall in that segment in 2012. With lots going on, most significant regions in our Rest of World segment are China and South America. We have been investing pretty heavily in China. We're launching a lot of new divisions. The results overall are profitable even despite heavy investments in new facilities, and our progress in China is about what we had expected it. In South America, we're still working through some issues here, especially in a couple of our operations in Argentina. We expect to see a return to profitability in 2013 in our Rest of World segment as a whole. In 2012, we put a record amount of cash resources to use through investments in capital expenditures, other assets and acquisitions, which totaled $1.9 billion for the year. Fixed asset spending was at an all-time high, just under USD 1.3 billion. A significant amount of that capital was invested in growing regions. And over the past 2 years, approximately 30% of our capital spending has gone into regions outside of our traditional markets of North America and Western Europe. Expanding our footprint in new regions is an ongoing priority for us. We also invested $525 million in acquisitions to enhance our capabilities. Specifically, the acquisitions of ixetic, BDW and E-Car provide important technologies that will enhance our ability to support our customers' needs for improved fuel economy. All in all, I believe we've done a good job in investing last year to create shareholder value. We also paid dividends amounting to $252 million in aggregate and, yesterday, further increased our quarterly dividend per share to $0.32, which is a new record level for us. Lastly, we have a normal course issuer bid outstanding that allows us to purchase up to 12 million shares prior to November of this year. This gives us the flexibility to utilize the balance sheet, when prudent, to buy back our own stock. With that, I'll turn the call over to Vince Galifi.

Thanks, Don, and good morning, everyone. I would like to review our financial results for the fourth quarter and year ended December 31, 2012. Please note that all figures discussed today will be in U.S. dollars. The slide package accompanying our call this morning includes a reconciliation of certain key financial statement lines between reported results and results excluding other income and expense items. In the fourth quarter of 2012, we reported a remeasurement gain arising from the acquisition of the remaining 50% interest in STT. Recall that STT is a manufacturer of automotive pumps based in North America. This increased operating income by $35 million, net income by $35 million and diluted earnings per share by $0.15. Also in the fourth quarter of 2012, we recorded restructuring and impairment charges substantially all related to our European business. These reduced operating income by $80 million, net income by $76 million and diluted EPS by $0.33. Lastly, we recorded a release of an income tax valuation allowance, which resulted in an increase of net income by $89 million and diluted EPS by $0.38. In the fourth quarter of 2011, we recorded impairment charges to revise the estimated loss on disposal of our carpet business sold in the third quarter of 2011. We took a charge related to the insolvency of Saab. We received proceeds pursuant to an insurance claim and recorded a release of an income tax valuation allowance. These items together reduced operating income by $33 million, increased net income by $46 million and increased diluted EPS by $0.19. The following quarterly earnings discussion excludes the impact of the Other Income and Expense items. In the fourth quarter, consolidated sales increased 11% relative to the fourth quarter of 2011 to $8 billion. North American production sales increased 12% in the fourth quarter to $3.9 billion, largely reflecting a 12% increase in vehicle production to 3.8 million units. In addition, the increase is a result of the launch of new programs, the strengthening of the Canadian dollar against the U.S. dollar and acquisitions completed during or subsequent to the fourth quarter 2011. Largely offsetting these were programs that ended production during or subsequent to the fourth quarter of 2011, a decline in content on certain programs and net customer price concessions subsequent to the fourth quarter of 2011. European production sales increased 2% from the comparable quarter while Western European vehicle production declined 8% to 3.1 million units. For the quarter, the launch of new programs and acquisitions completed during or subsequent to the fourth quarter of 2011, including BDW, the carpet business and ixetic, were partially offset by lower production volumes on certain existing programs, the weakening of the euro against the U.S. dollar and net customer price concessions subsequent to the fourth quarter of 2011. Rest of World production sales of $521 million increased 35% or $135 million over the comparable quarter, primarily as a result of new programs launching in China and Brazil during or subsequent to the fourth quarter of 2011; acquisitions completed during or subsequent to the fourth quarter of 2011, including ThyssenKrupp Brazil; and an increase in content on certain programs. These factors were partially offset by the net weakening of foreign currencies against the U.S. dollar, including the Brazilian real. Complete vehicle assembly volumes increased 5% from the comparable quarter, and assembly sales increased 12%, $72 million, to just under $700 million. The increase largely reflects an increase in assembly volumes for the Mercedes-Benz G-Class and MINI Countryman and the launch of the MINI Paceman in the fourth quarter of 2012. These factors were partially offset by the end of production of the Aston Martin Rapide in the second quarter of 2012 at our Magna Steyr facility in Austria, the weakening of the euro against the U.S. dollar and lower assembly volumes for the Peugeot RCZ. In summary, consolidated sales, excluding tooling sales, increased approximately 10% or $665 million in the fourth quarter. The primary reasons for this increase are higher production sales in North America, Europe and Rest of the World and higher complete vehicle assembly sales. Tooling, engineering and other sales increased 19% or $117 million from the prior year to $728 million. The net increase related to sales on a number of programs, partially offset by the weakening of the euro against the U.S. dollar. Gross margin in the quarter increased to 12.4% compared to 11.5% in the fourth quarter of 2011. The increase in gross margin percentage was substantially due to productivity and efficiency improvements at certain facilities and lower cost incurred in preparation for upcoming launches. These items were partially offset by operational inefficiencies and other costs at certain facilities, increased pre-operating costs incurred at new facilities, the net effect of the disposition during the fourth quarter of 2011 and subsequent acquisition in June 2012 of carpet operations, the increase of tooling sales that have low or no margins, higher warranty costs and net customer price concessions subsequent to the fourth quarter of 2011. Magna's consolidated SG&A as a percentage of sales was 5.1% in the fourth quarter of 2012, essentially in line with the 5% in the fourth quarter of 2011. We incurred increased expenditures in SG&A due to acquisitions that were completed during or subsequent to the fourth quarter of 2011, including ixetic, BDW, E-Car and the carpet business; increased costs incurred at new facilities; higher labor, including wage increases at certain operations and other costs to support the growth of sales; and higher incentive compensation. Our operating margin percentage was 4.8% in the fourth quarter of 2012 compared to 4.5% in the fourth quarter of 2011. Remember that our quarterly EBIT includes $39 million of amortization associated with the E-Car transaction, or $31 million after tax. This amounts to 0.5% on the operating margin percentage for the quarter. Excluding the amortization, our Q4 operating margin percentage would be 5.3% compared to the 4.5% last year. Our higher gross margin percentage and higher equity income percentage were partially offset by the higher percent of sales for SG&A, depreciation and interest expense. Our effective tax rate increased to 21.8% for the fourth quarter of 2012 compared to 18.2% in the fourth quarter of 2011. The increase primarily relates to a reduction in utilization of unbenefited losses in the U.S. Net income attributable to Magna increased $37 million to $303 million for the fourth quarter of 2012 compared to $266 million at comparable quarter. Diluted EPS were $1.29 compared to $1.13 in the fourth quarter of 2011. Diluted earnings per share were negatively impacted by $0.13 as a result of the amortization of E-Car intangibles. Excluding the E-Car amortization, diluted earnings per share would have been $1.42. The increase in diluted earnings per share is a result of an increase in net income attributable to Magna and a decrease in the weighted average number of diluted shares outstanding during the quarter. The decrease in the weighted average number of diluted shares outstanding is primarily due to the repurchase and cancellation of common shares pursuant to our normal course issuer bids. Let me now review our cash flows and investment activities. During the fourth quarter of 2012, we generated $514 million in cash from operations prior to changes in noncash operating assets and liabilities and $559 million noncash operating assets and liabilities. For the quarter, investment activities amounted to $949 million, comprised of $475 million (sic) [$478 million] in fixed assets, $446 million on the purchase of subsidiaries and a $25 million increase in investments and other assets. Yesterday, our Board of Directors declared a quarterly dividend of $0.32 per share with respect to our common shares. This dividend, which is an increase of 16% over the Q3 dividend, is payable on March 27 to shareholders of record on March 13, 2013. Our balance sheet remains strong, with $1.1 billion in cash net of debt as of December 31, 2012. We also have an additional $2.1 billion in unused credit available to us. At this point, I'm going to pass the call over to Louis.

Thanks, Vince. Good morning, everyone. I will review our updated 2013 full year outlook. I'll only provide a summary of our outlook since we covered the details of 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 15.8 million units compared to 15.3 million units in our January outlook. You should be aware that the vast majority of the increased volume comes from Asian-based OEMs. We expect 2013 Western European light vehicle production to be approximately 11.9 million units, down slightly from the 12 million units in our January outlook. The increase in North American vehicle production is expected to lead to increased sales in North America. In Europe, despite the modest volume decline, a higher euro, relative to the previous outlook, is expected to contribute to higher European production sales and complete vehicle assembly sales compared to our previous outlook. As a result, we expect total sales to be in the range of $32 billion to $33.4 billion compared to $31.3 billion to $32.7 billion from our January outlook. At the low end of this range, it would represent the 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-5% range, in line with our previous outlook. We continue to expect our effective tax rate to be approximately 24.5%. And for the full year 2013, we continue to expect fixed asset spending to be approximately $1.4 billion. That concludes our formal remarks. Thanks for your attention today. We'd be happy to answer your questions.

[Operator Instructions] Our first question is from the line of Peter Sklar with Nesbitt Burns.

Don, your North American operating profit looked particularly strong. I just wonder if you could talk a little bit about the results and if there was anything noteworthy in the operations during the quarter.

Not in particular. I mean, they're about what we were expecting. We've still actually got some launch challenges and some underperforming divisions in North America. So there's always pluses and minuses, but overall, I'd say it was pretty well in line where we expected.

Peter, when you look at sort of Q4 North America, partially sort of Q3 to Q4, the only unusual item which we've talked about is the E-Car amortization, which was a $39 million hit to operating income. But other than that, the launch costs were relatively flat, our commodity cost is a little bit of a tailwind, new facility costs were pretty well positioned with the prior year. So it was just additional sales, sequentially resulting in additional profitability and mix and all -- a couple of other things that impact operating margins.

Okay. And on the -- just moving to the European restructuring. You mentioned that the restructuring is going to occur over a 2-year period. Can you talk a little bit more about the type of activities you're going to be undertaking? Is it closing plants or consolidating plants or relocating your footprint? Is there any more flavor you can add to that?

We're basically continuing what we've been doing in the past. We will have some plant consolidations, I guess, you'd call it. And a lot of that depends on the amount of business we're winning, but also if there's customers that are closing plants and we have to react to it as well. So I would say we have been working on moving our footprint, either by building new facilities or shifting production to lower-cost regions. But a lot of our plants over there are very good plants and very profitable. So most of the restructuring work is in our exterior, interior business on the continent. So it would be -- there's nothing vastly different to what we've seen in the past year or so, and I would expect to just continue to do it. And it'll probably happen over the long haul, but I'd say the heavy lifting in the restructuring hopefully will be done in '13 and '14.

And will the restructuring result in lower revenues for Magna in Europe than they might otherwise be? I guess what I'm really driving at, are you -- is there certain programs that you're giving up?

No. For the most part, for the last 1.5 years, as you know, we had some difficulty in some programs that were underquoted or we haven't been able to receive the increases in our purchase order amounts based on factors that have happened out in raw material, et cetera. So the things we're dealing with are pretty well, as we noted. We're not buying business. But I don't think a lot of people over in Europe are buying business. The market's gone down. So I think the -- for the most part, there's really nothing new than we've been doing in the past. We're -- we have said we're not aggressively going after sales there, especially in our interior, exterior business, but we're still continuing to win business in some areas. In other areas, we're not giving up contracts, but if the customer won't give us what is reasonable from a market test standpoint, then obviously, we'd give the contract back.

Okay. And lastly, Vince, just on the normal course issuer bid. There have been periods over the last couple of years where Magna has been quite active on its normal course issuer bid. I've noticed you've gone quiet over the last number of months. Is there anything you can add about that?

Yes, sure, Peter. Just over the last couple of months, we've been in blackout, all right? Because once you get into the end of December, we're not allowed to buy any stock in the months of January and February. We announced the NCIB, the most recent one, in November. And in sort of mid-November and partly in December, we purchased a total of 400,000 shares. All I can tell you is that we've gone out and applied to purchase back up to 12 million shares, and we've purchased 400,000. And we're going to look at the opportunities we have, whether it's capital or acquisitions, and look at ways to return the rest of capital to shareholders through buybacks. Another way we're returning capital to shareholders is through a pretty healthy increase in our dividend, which we announced yesterday -- or this morning, I should say. Peter, I just wanted to add a little bit more color to our thoughts, give a response on -- to the Europe production sales longer-term. During our January presentation to [indiscernible], we gave guidance not only for '13 but where we thought production sales would be between sort of the end of '13 to '15. Then we were actually projecting that overall production sales will begin with a 10%. Certainly, we have growth of about $2.2 billion. And Europe was going to be down about 10% of that $2.2 billion, so a couple of hundred million dollars plus or minus. And part of that is, as we're looking at what we're doing with our plants and we're focusing on profitable business, there's some business that we're just not going to continue to do. So that, it has been reflected in our guidance that we gave in January.

So is this business -- does this mean just business that's rolling off that you're -- as it matures and you're just not pursuing it because you're not getting the customer pricing that you feel is suitable? It's not clear to me what this business is that's rolling off.

Yes, Peter, you remember what we talked about sort of over the last couple of years in terms of trying to deal with some of the issues we had in Europe. And we said we're going to certainly tackle operating inefficiencies, and we've been doing that with success and we're going to continue to do that. We'll look at hopefully getting some price increases from our customers, and we've been successful in certain areas to get some pricing relief. In other areas, we just said we're going to have to wait for the business to come to an end for us to improve overall operations. So what you're seeing is part of an overall strategy, some of the business we're just not going to go after again.

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

It's actually Pat Nolan on for Rod. A couple of questions, just first on the European production guidance. So if I understand your comments, you're basically saying that's all the change in the euro. What's the current euro assumption versus the previous one?

I think we were -- right now, we're about at -- it's pretty low on current rates. I mean, we'd love to do some kind of $1.33. And I think we were at $1.27 when we gave the forecast in our guidance in January.

Okay. And can you help us think about if there's any significant items we need to think about as far as the cadence of margins and revenues throughout the year? I know you have a big product turnover in North America around midyear. But just how we should think about kind of how the revenue and margins play out throughout 2013?

Yes, I -- the only cover -- color I can really give you, in our business, most suppliers -- the first half of the year typically is -- from a profitability standpoint, is stronger than the second half. We understand that July is kind of a shutdown and December is a shutdown. We don't think the trend is going to be significantly different this year. The only thing I want to add is that, as we look at this, the cadence of production, whether that's North America or Western Europe, is -- I'd say this year is slightly more skewed to the back half of 2013 compared to 2012. So -- and that'll have an impact to kind of where revenues are recorded, in which quarter, where profits are earned. But probably, that's the best way to think about it.

And is the margin improvement in Europe pretty steady throughout the year? Or are there certain kind of either kind of cost reductions or contracts that roll off throughout the year that we'll see as kind of steps?

Yes, I mean, I think you need to think through the seasonality of our outlet [ph] business quarter-to-quarter. You've got that impacting you and you've got operating improvements, and we've got some restructuring that we're doing, and we have lots of negotiations to do there on the labor front. So it all depends when that all sort of comes together and what quarter that impact us. I think that's really getting a little bit too precise for us. I think, when you step back and think about where we're going to be in Europe, what we've talked about is for the next 3 to 4 years to steadily improve operating margins. And you may have a step function of one part versus the other, but I think you've got to think about this longer-term and sort of trending up as opposed to quarter-to-quarter.

Okay. If I could just sneak in one housekeeping, could you give us the currency impact on revenue in the quarter for both European production sales and assembly sales?

Yes, I'll do that. I -- North America, the revenue impact of currency is 45 million positive. And in Europe, it was 81 million negative.

And that's Q4 to Q4.

Q4 to Q4.

Any impact on assembly?

That would be baked into the European number.

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

Just following up on the seasonality. So in the past, you have sort of been 60-40 first half, second half, with Europe being back-end loaded, and certainly other suppliers have said the same thing, as well as forecasters. Should we see a more even balance this year in terms of EPS first half, second half, 50-50?

Yes, I wouldn't say it's normally 60-40. It's a lot tighter than that. It's going to be -- at least on the volume side. We're not talking about EPS. But on the volume side, it's going to be a little bit -- a little more balanced between Q1 -- first half, second half.

Okay. And then secondly, at the Detroit Auto Show, you talked about a general review of the company and trying to figure out the businesses that you were leaders in and the ones that you likely wouldn't be. Could you just update us on the plans for that in 2013 and the types of milestones we should be watching for?

Yes, we spend a lot of time with the board reviewing our product strategy. And we're trying to take a global view of the products and a long-term view, but I don't want to talk specifics because, obviously, we need to come to a conclusion and it's always very -- we have to be very precise with our employees and our customers if we're going to do something. But we have identified internally where we see some priorities from a product standpoint and some other areas where we're more me-too. We've been spending a lot of time looking at our technology, and we're putting bigger emphasis on investing in product and process innovations. So I think it'd be fair to say, by -- as we move through the years and by year end, hopefully we can give a lot more color as to where we're focusing our long-term capital, M&A activities, innovation activities. In the areas where we're not going to be as strong, then we'd look to either partner with somebody else or potentially divest of operations. But I can't give you any more detail, obviously, until we are ready to announce things.

And without, obviously, commenting on the specific groups or areas, I mean, when you look at the business overall, is this like a pruning of 2% or 3% of the total business? Or could this be 10% or greater of the revenue? How do you think about that?

It really depends on where we end up and whether we do joint ventures with somebody or whether we decide to acquire or sell things. I would look at it initially as more pruning. I'm not going to give you a percentage of sales, but our overall objectives are, obviously, to be one of the leaders in technology and also to be big globally. If you look at our sales in Rest of World, we're growing rapidly but we need to get a step change there. So in the areas where we're strong in products, if we can do some acquisitions to get us bigger faster, that would be a good combination to do with continued greenfield expenditures. I don't think you're going to see, this year, a huge change in the way Magna looks, but we have lots and lots of product lines. We don't talk about them all because it varies in the segments, but I would say we'll continue to fine-tune our product offerings. When we sit down with our customers, we're not talking about 35 or 40 product areas, we'd be talking about 35 going down to 30 and maybe down to 25, but hopefully much stronger in those areas.

Great. Congrats on the dividend increase. Nice to see.

Our next question is from the line of Brett Hoselton from KeyBanc.

I was looking at your 2013 outlook. I had a few questions here. My first question was -- the most significant increase in your sales guidance is in Europe. And obviously, you've touched on your Western European production forecast. And so I'm wondering, is that FX-driven, or Eastern and Central European driven? What's the, let's say, not necessarily a disconnect, but what's the reason for that?

It's all FX-driven in Europe, offset by a little bit on the volumes coming off of 100,000 units. Europe is FX.

And there's the increase in sales guidance. I mean, typically you would get some operating leverage or something along those lines, but given it's FX, it may not be there. Did it increase or decrease your optimism about achieving your mid-5% margin expectation?

We're -- it hasn't had an impact [indiscernible] negative of the themes [ph]. Our view is the same regardless of the changes in overall sales assumptions. Remember, so Europe, as Louis talked about, is pretty well all FX. In North America, even though production volumes are up, a good part of it is with the Asians. So the impact on sales, when you look at our guidance, we moved up the bottom and the top end of our guidance in North America by $100 million. But when you add all that up, we're just as confident of the mid-5%s today as we were at the Detroit Auto Show.

Okay. And as I compare your full year 2012 results, I mean, your sales were up about 7% in 2012 versus '11. Your margins, you had a nice improvement, about 50 basis points excluding E-Car. As I kind of take that into 2013, you're looking for another 6% increase in sales, so a fairly comparable increase in sales. It sounds like you're hoping to see some improvement in Europe again. It seems like, in the -- a mid-5%, 5.5% would be about a 20-basis-point improvement. That just seems like a number that you should easily achieve in 2013. Is there some -- any particular headwinds in 2013 that are unique versus 2012, outside of E-Car amortization, that would cause you to maybe be a little bit more challenged in 2013 relative to 2012?

I mean, if you sort of look at 2013, and I'd look at kind of launch costs, probably, year-over-year relatively flat, and we're going to get some headwinds with respect to -- actually, these sort of costs are helping a little bit. Dry costs, we're expecting flattish. So when we look at overall sort of mid-5%, what we're expecting in all of that is a continued improvement in operating margins in Europe and some improvements in operating margin in the rest of the world. Remember, mid-5% is not an exact 5.5%. It's mid-5%, so there's range there too, as well, on it.

It's the business peaking [ph] in North America and Europe that's going to have an impact on consolidated margin. The increase in higher tooling sales is going to have an impact on consolidated margins, but [indiscernible] impact margins, notwithstanding what we've said about the improvements in the various segments.

We've got lots of things going on. So I think, once we get a few months behind us, we'll have a better idea of what we think sales are going to be, production sales and specific volumes, so we can give an update next quarter where we think -- if we think we can do better than that from a margin perspective.

Our next question is from the line of Neil Forster with Scotia Capital.

I just want to take the margin question from a different angle. If we exclude the E-Car amortization in Q4 in North America, the EBIT margin is about 10% in what's typically a seasonally weaker quarter. Was there anything that took place in Q4 that would suggest that you shouldn't extrapolate that result moving forward? Because it would seem that, if you can extrapolate that scenario, and given that the first half is typically stronger than the second half, then there could be some upside to your margin guidance.

Neil, we've talked about kind of, when you think longer-term in North America, kind of 9% to 10% EBIT margins. We're at that level and excluding the E-Car amortization in the fourth quarter. We were below that in the third quarter of 2012. So the cyclicality quarter by quarter is going to have an impact. Product mix can have an impact. There's a whole bunch of moving pieces. So again, I think 9% to 10% longer-term is where we'd like to sort of be in North America.

You have to be careful extrapolate that, then say -- I mean, mix can have a -- product mix can have a big impact on the overall margin.

Okay, and was product mix particularly strong in Q4?

Sorry, what was that?

Was the product mix particularly strong in Q4, North America?

That's -- I mean, it was just a good quarter in -- all in all. But as Vince said, in Q3 we had -- we were lower on about the some level of sales, a little higher in Q4 but not -- only modest, modestly higher. So in any given quarter, there's lots of puts and takes that can have an impact on the overall margin.

Okay. And when you talked about seasonality of production being more back-half weighted this year, just wanted to clarify, were you specifically talking about Europe? Or was that your view for total production?

It actually applies in both North America and Europe. And I wouldn't overplay it. I wouldn't say it's massive. It's slightly more back-half loaded relative to last -- relative to 2012 in both North America and Western Europe.

Great. And then just maybe if you could give us a little more color in terms of what the issues are in South America, where you stand with them right now. And what's the expected cadence in terms of the improvement into the black in 2013?

We made 3 acquisitions. Two of them were quite a while ago, 2 of them were seating operations. And a number of the seating operations are in Argentina. So we've had some issues, quite frankly, overall, Brazil. We've had some specific issues trying to get parts across the border just because of some backlog that everybody was facing. So that had a negative impact on us. There's a high inflation in Argentina. There's been a lot of issues to deal with there. We've had difficulties in the waterfronts, including negotiations because of the inflation with our employees, whether our customers want to reimburse us for that, which has typically been the case. But they have been -- it's been difficult getting the negotiations complete, so that's also been a challenge. The -- so we've got the recent acquisition we made at the metalforming operations in ThyssenKrupp. We've had some launch issues there, but we were also launching a number of our own plants. Partly because of getting parts across the border, we've had some real inefficiencies there. So we've got a team of people on top of that. Longer-term, I would expect that our operations in Brazil will be good operations. I don't expect to see a big improvement in our Argentinian operations, but that's a much smaller area. So we've had a significant challenge in 2012. Definitely turning in the right direction in 2013. We're not breaking out our margins in South America versus China, as an example. So I still think we're going to have a challenge in '13. I'm hoping, by the time we get into '14, we're in better shape. So long term, we would expect to continue to increase. However, I'd want to digest what we've got there before we get more aggressive in making more acquisitions in Brazil or Argentina. It's a combination of startups, some inefficiencies, some currency issues, some negotiations with the customers. And we're definitely making headway, but we're not anywhere near where I'd to see us get to yet. It's all -- from a modeling standpoint, all we said is we still think we can get the Rest of World margins to about 3/4 of the North American margins in the medium-term, medium-term being sort of 3 to 4 years out, depending on how much new business we're taking on, and new launches.

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

I just wanted to talk about use of your cash. You've got quite a bit. You've had a lot for a really long time. And my impression is that you want to deploy this. I was wondering if you could talk about time frames that you think you might be able to deploy it. Or are we -- should we count on having $1 billion, $1.5 billion on the balance sheet for a very prolonged period of time?

David, with -- a lot of interesting discussions at the board meeting yesterday and a lot at our planning meeting last year. I think the general consensus amongst management and the board members is we want to put the cash to use. So yes, we are increasing our dividend. We're looking at our share buyback program. In an ideal world, we would like to take the cash we've got and what we think we're going to be generating and put it to active use. So as we're looking at fine-tuning our product portfolio, we are looking at where are the opportunities. We know we've got priorities about where we want to grow. Obviously, in the Rest of World segment, specifically over in Asia, that's where the market's growing. So if we -- if you look at our net cash position, which is approximately $1 billion, if we can put that to use, as well as the cash we expect to generate this year, then I am fully supportive of that. The rest of the management team is, and the board is as well. So I don't want to go ahead and make an acquisition for the sake of making an acquisition, but we've got a very high focus on growing this year. At some point in time, even in Europe, we're down -- at some point in time, Europe will rebound, so there might be some opportunities to get some more reasonably priced companies that have good technology or are a good fit with us. So if you look at the last couple of years, we've been heavily focused on restructuring activities, specifically over in Europe to get to profitability or simply make good headway there. We've got a major push the last 1.5 years, 2 years in world-class manufacturing. I think we're making good headway there. We still have a ways to go. We're focusing very heavily on innovation. And now, I'd say it's a corporate priority. I've turned my view, and I think the group presidents have as well, on how do we streamline our product portfolios we talked about earlier and make some acquisitions that make sense. We made a couple last year. We're looking at a lot. And I'm not going to talk to both you about what we're going to do, obviously, until we get something complete. But it's a high priority. We don't want to be sitting on $1 billion of cash just to be sitting on $1 billion of cash.

So Don, do you think that it's possible to deploy this cash effectively through these growth priorities? Or is it pretty tough? I mean, if you want to make these things accretive from return on invested capital existing WACC, I got to believe that's somewhat difficult given what's out there and that you're competing against private equity and so on.

Well, I don't think we want to do an acquisition for the sake of doing an acquisition, for sure. I mean, we don't want to do something that's going to be massively diluted -- dilutive to us. But I think, in the past, we've done a pretty good job of identifying opportunities. I haven't seen a lot of private equity competition, right, recently in the market for acquisitions. I think we have seen China's -- some money from China and maybe India coming in, so that's an area where we've got to look at [ph] a gain. It's pretty hard to tell until you get something done. I think there's going to be opportunities for some good acquisitions that make sense financially, as well. I think the long-term, the car companies still want to have suppliers that are more and more global. They want to have suppliers that have healthy balance sheets, have good technologies. And there's going to continue to be consolidations. So if you look at the macro trends, it means there should be opportunities for the big, big global suppliers to continue to consolidate companies.

Dave, I just wanted to point out, if you think about our strategy even in 2012 and the whole year '11 versus -- '12 versus '11, when I look at '11 and I look at the capital and investments in other assets, even purchase of subsidiaries, we wrote a check of about $1.5 billion in total. In 2012, that's $2 billion, so that's incrementally $500 million. So to the extent that we continue that trend, over the next year or so, you'll continue to see our cash balances being employed in our business.

Right, although your cash balance hasn't gone down, so, so far...

CapEx has been down, as has investment in the business, right?

No, no, I know, but your cash balance hasn't gone down even though you've increased. So...

Yes, we have the ability to do more.

Yes, I know. I understand. I'll leave that. Just a question on equity income. I'm trying to get a gauge on what should I be thinking for equity income when I'm modeling this thing?

Okay, just give me a second to turn to that, my backup on that. David, do you have another question while I look for this?

Yes, sure. The MINI production. What is the status of that? It was going to move to what sounded like next year, and is that the case, or is it being decided?

Well, no, no, no. MINI production is not moving to next year. We have the MINI Countryman into end of 2016...

2016.

To 2017. Okay, next generation of those vehicles is still to be determined.

Okay, okay. So the press reports are wrong, then?

Well, I think the press reports are talking about it potentially moving. That's -- they're talking about when it comes up -- comes due for renewals. So that's way out there in the future. So we have a pretty good idea of between the RCZ, the G-Class, when they run out the Countryman, the Paceman. And what we're trying to do is a level loading in our plant over there, so we're having lots of discussions to make sure we're going to be able to back-fill, at an appropriate level, our garage [ph] plant. And also, we're trying to look at whether it makes sense, if we take an extra production, do we just open up a new facility. We've continued to look at that, and we'll keep you posted if we -- pending results there. But we're looking at long-term loading of the plants so we don't have too much or too little.

Right. In terms of -- there are certainly discussions about MINI production. It may not necessarily be Countryman, but certainly MINI production and using other sources, but it isn't necessarily the business that we currently have.

Okay. Because the press reports, and this dates back a little bit, was that it was coming out of you guys, but it doesn't sound like it is, so that's fine. The last question I had was just on restructuring. It's something that's another $150 million this year, and I'm getting impression it's going to continue into 2014. At some point, does this start to drop away, or is -- I know restructuring is something you do all the time, but should I be building some number in every year as a kind of normal level?

I would expect the $150 million we talked about is our best guess to what we're going to be doing. Obviously, the timing of the restructuring depends on when we come to a conclusion, when we announce things. I -- we've done a lot of restructuring in the past year. We're going to do a lot more in Europe, primarily in the exterior, interior division, and that's primarily on the -- in Western Europe on the continent. I would expect that number to start tailing down. We've got very specific plants we're try to deal with to get them back to profitability and get them to the right size. So we're always going to have some restructuring. And we continue to have restructuring which we don't talk about. It's bits and pieces in North America as well. So we'll continue to have that, both in North America and in Europe, but the bulk of it will be in 2013 and some of it may go into '14.

David, we've identified about $200 million of restructuring charges, of which $55 million we recognized in the accounts Q4. And that, I would say, is substantially all Europe. $150 million, which we're not allowed to book yet it because it doesn't meet the accounting requirements, but we've talked about that. That is all in Europe. It's substantially all in our exterior and interiors group, which is an area that we've been focusing on for some time. And that's our best guess of where we're going to be from sort of the heavy lifting. In terms of the 150 that's booked, I think that's going to be 2013. I think some of the cash related to that will trickle into 2014. Our expectation is, once we get through the 150 and the 55s from this year, that it's normal course business, but we'll fine-tune our manufacturing footprint globally, including Europe. But that's just normal-type operations.

Right, so this is pretty much it.

Yes, that's the perfect caveat [ph]. I just want to get back to you on equity income. When you look at sort of what we reported full year on the equity income lines, it was $151 million in 2012. If you back out E-Car, which we're no longer equity accounting, and you back out STT, which we now are consolidating, our run rate is about $185 million for 2012.

2013, you mean, or that's the 2012 number excluding STT and E-Car?

Right, correct. But that's a good proxy to help you model for a [indiscernible].

Our next question is from the line of David Lim with Wells Fargo.

Just have a couple of questions here. So all the investing that's going on in China, can you give us color about that new business? Is it in powertrain, interiors, seating?

Most of the business, we're launching right now. We've got a lot of business in our cause [ph] points to the metal stamping group. We've got a big plant going up in our powertrain. And then we've got sort of bits and pieces in some other areas, in some electronics and seating, a little bit in our interiors group. We had a joint venture in our exteriors group, so we're launching that as well in the [indiscernible]. No?

No. The biggest chunk, as I've talked about, is in our metal group and our powertrain group.

Got you, so metal group and powertrain group. Now just on your guidance. The guidance mentions mid-5% pretax margin. Now if we include the E-Car amortization, does that mean that the guidance is more like a low-5% margin target?

Well, the amortization of E-Car in 2013 is $158 million. That's an exact number. Wherever your starting point is, take away another...

Just back it out, okay. And then the 24.5% tax, that does include E-Car?

Yes, it does. Yes.

Our next question is from the line of Chris Ceraso with Crédit Suisse. Robert Moffatt - Crédit Suisse AG, Research Division: Guys, it's actually Rob Moffatt filling in for Chris. I was wondering if we could come back to the European restructuring and the trajectory. Did the lower production levels in the first half of the year kind of give you an opportunity to accelerate some of that restructuring?

I definitely looked at it from the first half to the second half. It's certainly lower production over in Europe, overall, compared to where we might have thought it might be 2 or 3 years ago. We did a very low level. It certainly helps us to deal with the issues. We still have to go through all of the same steps, but if you're not running your plants full-out, it makes it a lot easier for you to build banks or whatever else. So that helps.

But remember, in terms of what we talked about in Detroit and what were our current views on Europe, we've brought down production volumes 100,000 in 2013, so it's really insignificant. But our guidance in Detroit was based on production that was pretty consistent to where we are today. So it's not going to have any significant change in what our view was. I think that, in terms of timing, it's going to be really trying to deal with the number of negotiations that have to take place to do the restructuring for it. And it's just a vast amount of where things may happen, but that could push around the year, it could be accelerated, it could be pushed out, but it's not with the impact based on our production views today. Robert Moffatt - Crédit Suisse AG, Research Division: Okay. And can you tell me a little bit about what you guys are seeing today in Europe in terms of the production schedules? I know, last quarter, we saw some delays and choppiness. Is that continuing? Or are they kind of smoothing out? And have there been any changes to launch activity in 2013?

No change to launch activity. And something really significant to report on the schedules, the schedules are basically baked into our first half production estimates. And as Vince said, they didn't change that much, so. Robert Moffatt - Crédit Suisse AG, Research Division: Okay. And one last one, if I can, on ROW. In terms of getting back to profitability for '13, and specifically as it relates to South America, how much of that is in your control versus kind of external forces that need to work in your favor?

Well, I can't give you a percentage. I would say the, obviously, currency issues, the inflation issues aren't in our control. But assuming we know roughly where they're going to be, then the actions are -- we've got to take in starts [ph] and figure out what we're going to do. And some of it depends on negotiations with customers, which is always -- you'd say it's outside of our control. But it's our responsibility to get those done as well. So we have a lot of efficiencies and launches, we've just got to execute. So a lot of it is in our control. Now if something happens that's drastically different than what we expect from inflation, currencies, then we'll have to deal with it, for core volumes.

Well, let me just add that -- in terms of what's going on here. In terms of rest of the world '13 versus '12, we have been investing heavily in new facilities for a number of years. We're going to continue to invest in the Rest of World. When we look at new facility costs '13 versus '12 in that segment, new facility costs are expected to be lower. So that's a part of something in our control. We are expecting sales in this region to increase pretty significantly on a percentage basis from '12 to '13. Again, the investments in these facilities are going to start to generate some sales, which will -- and we'll see some of that additional sales revenue flow to the bottom line. So I would say that's in our control. So we're seeing lots of improvements in our Asia Pacific area, primarily China. And we're expecting the loss that we've incurred in South America to be reduced in 2013, but all in all, it will be profitable in the Rest of World segment.

Our next question is from the line of Justin Wu with GMP Securities.

Just my first question is on your product groups. Certainly, you mentioned some of the challenges you've seen, some of your interiors and exteriors businesses, but I was wondering if you can comment on some of the segments or product groups where you're seeing perhaps better margin and more growth.

Well, the exteriors and interior margin we're talking about is primarily in our European segment and primarily in Western Europe, so we have operations in emerging markets in Eastern Europe and in the U.K., so we've got a mixed bag. So we have other operations in the interior, exterior business that are doing quite well and making very good returns on their invested capital. We don't talk -- we don't break out the margins by product area, but I would say, for the most part, we see pretty good results across the board. We have pockets of issues around. But if we have a business unit that will long -- is underachieving, or long-term we think will underachieve, then we'll it's a business that we would have to deal with. But overall, we're seeing pretty consistent results across the board, across most product areas. Now we've identified a few areas within our product areas, like sunvisors has been a challenging one, as an example, and the 2 others are smaller-product areas. For the most part, our major product areas are all comparable in their returns.

Okay. And I know you guys don't talk about backlog, but I mean, based on, I guess, a previous question and answer, would it be safe to say that powertrain and the metalforming businesses are probably some of your stronger operations and where you're seeing the most growth?

Well, we've talked about, I guess, we have part [indiscernible] backlog on a consolidated basis, not by region. We don't necessarily book backlog by product area. And overall, and from the end of '13 to the end of '15, we're expecting overall production sales to grow by about $2.2 billion. I take it that number is moving up based on business awards we received as we've put the business line together, but that's where we're working, but if -- at January. And we'll update this again as we get through our business processes through 2013, so we'll update that number formally in January 2014.

Okay. And just my second question is on Europe. Given the difficult environment, I guess, financially for some of your competitors, are you guys seeing much in terms of takeover work opportunity there in the near term?

I haven't -- I'm aware of some, but I haven't seen a lot, neither in -- not really in any segment particularly, not like it was back in the downturn days.

Okay. And just my last question is for Vince. What's -- can you give us what your tax-affected number is for E-Car amortization in the fourth quarter?

[indiscernible]

The E-Car amortization?

The amortization, yes.

$31 million is the after-tax number.

So it's $4 million would have to go on [indiscernible].

$8 million tax.

Sorry. Correct, $8 million on $39 million.

Our final question is a follow-up from the line of David Tyerman of Canaccord Genuity.

Yes. I just wanted to make sure I got one thing right. Don, did you say that you were hoping to get the Rest of World margins to North American -- 3/4 of North American levels in 3 to 4 years?

That's correct, David. Okay, if anybody else has questions, [indiscernible] line too long, you can always get ahold of Louis Tonelli. I'd like to thank everybody for joining us today. Overall, I'm pretty pleased with what's happened in 2012. We still have lots of opportunities and lots of challenges ahead of us, but I'm looking forward to a strong year in 2013. Appreciate everybody's time. 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. Have a great day, everyone.