Donald James Walker - Chief Executive Officer and Director Vincent J. Galifi - Chief Financial Officer and Executive Vice President Louis Tonelli - Vice President of Investor Relations.

John Murphy - BofA Merrill Lynch, Research Division Peter Sklar - BMO Capital Markets Canada Ravi Shanker - Morgan Stanley, Research Division Steven Arthur - RBC Capital Markets, LLC, Research Division Brett D.

Hoselton - KeyBanc Capital Markets Inc., Research Division Patrick Nolan - Deutsche Bank AG, Research Division Richard Michael Kwas - Wells Fargo Securities, LLC, Research Division Brian Morrison - TD Securities Equity Research David Tyerman - Canaccord Genuity, Research Division Samik Chatterjee - JP Morgan Chase & Co, Research Division Itay Michaeli - Citigroup Inc, Research Division Colin Langan - UBS Investment Bank, Research Division Richard J.

Hilgert - Morningstar Inc., Research Division.

Ladies and gentlemen, thank you for standing by, and welcome to the Magna International Second Quarter 2014 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, August 8, 2014. It is now my pleasure to introduce Don Walker, Chief Executive Officer at Magna International. Please go ahead, Mr.

Walker..

Thank you. Good morning, everybody, and welcome to our Second Quarter 2014 Conference Call. Joining 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 second quarter ended June 30, 2014.

We issued a press release this morning for the quarter. You'll 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 information or 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.

Q2 was another strong quarter for Magna. Each segment reported improved adjusted EBIT and EBIT percentages relative to the second quarter of last year. In North America, we reported higher sales and adjusted EBIT of 10.5% for the quarter, compared to 10% x E-Car in Q2 of 2013.

In Europe, we reported our 10th consecutive quarter of improved year-over-year adjusted EBIT, at $125 million or 3.3% of sales. We're generally pleased with our progress in improving European operations and results, although we have recently incurred significant unanticipated launch costs at a certain interiors facilities in the U.K.

In Asia, we're benefiting from the launch of new facilities and business. We reported adjusted EBIT of $42 million or 8.6% in Q2. And the Rest of World, which is substantially South America, we have reduced the run rate of our losses, despite lower sales in South America. Our Q2 EBIT loss was $11 million compared to $17 million in Q2 of 2013.

We received 2 notable awards from our customers recently. Our powertrain business was one of the small group of suppliers to receive Volkswagen's top supplier award, the Volkswagen Group Award, for playing a key role in Volkswagen's global growth.

And one of our metalforming operations has received a Fiat Qualitas Award for achievements in quality, innovation, competitiveness and service in support of Fiat in South America. We've highlighted through news releases in recent months, some of our activities are helping our customers meet their need for improved fuel economy.

We're in current production in North America, with a first all-thermoplastic, fully recyclable liftgate module for the 2014 Nissan Rogue. The full liftgate assembly is 30% lighter than comparable stamped steel systems. And we have launched a modular liftgate using composite structures in Europe, with a European customer.

The other with Ford, we have unveiled a multi-material lightweight vehicle structure concept that uses advanced material solutions to achieve a nearly 25% weight reduction in the vehicle body, compared to the current production vehicle. The concept is based on the production version of the 2013 Ford Fusion.

The concept reduces weight on the Fusion to that of a 2013 Ford Fiesta, making the 2 vehicle segments lighter. The concept vehicle is part of the U.S. Department of Energy's lightweight vehicle project portfolio, addressing future CAFE legislation.

And lastly, our all-wheel-drive system on the Mercedes-Benz GLA, which was jointly developed with Daimler, features a highly integrated design that results in approximately 10% lower mass and lower CO2 emissions, making this a benchmark for all-wheel-drive systems.

These are just a few of the many activities across Magna that are addressing key industry trends. With that, I'll pass the call over to Vince Galifi..

Thank you, Don, and good morning, everyone. I would like to review our financial results for the second quarter ended June 30, 2014. Please note, all figures discussed today are in U.S. dollars.

The slide package accompanying our call today includes a reconciliation of certain key financial statement lines, between reported results and results excluding unusual items.

In the second quarter of 2014, we recorded restructuring entirely related to our European exteriors and interiors business, which reduced pretax income by $11 million, net income attributable to Magna by $10 million and EPS by $0.05 in the second quarter of 2014. There were no unusual items recorded in the second quarter of 2013.

The following quarterly earnings discussion excludes the impact of unusual items. In the second quarter, our consolidated sales increased 6% relative to the second quarter of 2013 to $9.5 billion.

North American production sales increased 10% in the second quarter to $4.7 billion, largely reflecting a 3% increase in vehicle production to 4.4 million units and the launch of new programs. These factors were partially offset by the weakening of the Canadian dollar against the U.S.

dollar, lower production on certain existing programs and net customer price concessions. European production sales increased 4% from the comparable quarter, while European vehicle production increased 2%, to 5.3 million units. In addition, the increase is a result of the strengthening of the euro against the U.S. dollar and the launch of new programs.

These factors were partially offset by a decline in content on certain programs, in particular, the MINI Cooper, on which we lost interior assembly business and the Mercedes-Benz C-Class; lower production volumes in certain existing programs; and net customer price concession.

Asian production sales increased 23%, or $74 million, to $402 million over the comparable quarter, primarily as a result of higher production volumes in certain existing programs and the launch of new programs, primarily in China. This was partially offset by net customer price concessions.

Rest of World production sales declined 33% or $81 million to $163 million for the second quarter, primarily as a result of lower production volumes on certain programs and the weakening of the Argentine peso and Brazilian real against the U.S. dollar. These factors were partially offset by net customer price increases.

Complete vehicle assembly volumes declined 11% from the comparable quarter, and assembly sales declined slightly to $793 million. A decrease in assembly volumes for the MINI Paceman was largely offset by the strengthening of the euro against the U.S. dollar and an increase in assembly volumes in the Mercedes-Benz G-Class and MINI Countryman.

In summary, consolidated sales, excluding tooling, engineering and other sales, increased approximately 7% or $538 million in the second quarter. The increase reflects higher production sales in North America, Europe and Asia, partially offset by lower production sales in our Rest of World segment and lower complete vehicle assembly sales.

Tooling, engineering and other sales declined 5% or $36 million from the comparable quarter to $697 million. Gross margin in the quarter increased to 13.8%, compared to 13% in the second quarter of 2013. Among other items, gross margin was impacted by costs related to a fire during Q2 of this year at our facilities in North America.

Magna's consolidated SG&A as a percent of sales was 4.6% in the second quarter of 2014, which was in line with Q2 of 2013.

SG&A increased $23 million to $433 million in the second quarter of 2014, primarily due to higher labor and other costs to support the growth of sales, higher incentive compensation, the impact of translation and increased cost of new facilities.

Our operating margin percentage was 7.4% in the second quarter of 2014 compared to 6.5% in the second quarter of 2013, excluding E-Car amortization from last year. This increase substantially relates to the higher gross margin and lower depreciation percentages.

Note that as of the end of fiscal 2013, the intangibles related to the E-Car acquisition were fully amortized. In the second quarter of this year, our effective tax rate increased to 26% from 24.1% in the comparable quarter of 2013. The increase was mainly the result of favorable audit settlements recorded in the second quarter of 2013.

Net income attributable to Magna increased $105 million to $520 million for the second quarter of 2014, compared to $415 million in the comparable quarter. Diluted earnings per share increased 33% to $2.37, a new record, compared to $1.78 in the second quarter of 2013.

Diluted earnings per share were negatively impacted by $0.13 in the second quarter of 2013, as a result of the amortization of E-Car intangibles. The increase in diluted earnings per share was the 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 was primarily due to the repurchase and cancellation of common shares pursuant to our normal course issuer bids, partially offset by an increase in the number of diluted options outstanding, as a result of an increase in the trading price of our stock and the issue of common shares related to the exercise of stock options.

I will now review our cash flows and investment activities. During the second quarter of 2014, we generated $748 million cash from operations prior to changes in noncash operating assets and liabilities and invested $148 million in noncash operating assets and liabilities.

For the quarter, investment activities amounted to $432 million, comprised of $384 million in fixed assets and a $48 million increase in investments and other assets. Our balance sheet remains strong, with $658 million in cash net of debt as of June 30, 2014. We also have an additional $2.2 billion in unused credit available to us.

We disposed back in January that our board and management are committed to utilizing our balance sheet. In the second quarter, we continued to demonstrate this commitment through our share buyback program, repurchasing 5.7 million common shares. Subsequent to the second quarter, we bought back an additional 1.5 million common shares.

In total, we have repurchased $975 million worth of Magna shares this year under our current normal course issuer bid, which terminates this November. 7.6 million shares remained outstanding under the current bid. And in June, we issued $750 million of 10-year fixed-rate senior notes at 3.625%.

These actions are important steps to us reaching our adjusted EBITDA to adjusted debt target range of 1 to 1.5x, together with a reduction in our cash balances by the end of 2015. Now I'm going to pass the call over to Louis..

Thanks, Vince, and good morning, everyone. I'll review our updated 2014 full year outlook. I will 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 expect 2014 North American light vehicle production to be approximately 16.9 million units, up about 100,000 units from the -- our May outlook. In addition, the Canadian dollar has strengthened modestly against the U.S. dollar since our last outlook.

In Europe, we expect 2014 total European light vehicle production to be approximately 19.8 million units, higher than the 19.5 million units from our previous outlook. We are now assuming a slightly lower euro relative to our previous outlook.

The increased North American and European vehicle production, together with the higher expected Canadian dollar, partially offset by the weaker euro, all relative to our previous outlook, are the biggest drivers of the increased expected production sales in these regions.

Our production sales ranges in Asia and Rest of World are unchanged from our previous outlook. As a result of the higher production sales ranges in North America and Europe, and our higher assembly sales range, our total sales for 2014 are now expected to be between $35.6 billion and $37.3 billion.

At the low end of this range, we would exceed last year's record sales. We now expect our consolidated operating margin percentage to be in the high 6% range, up from the mid- to high-6% range in our previous outlook.

For the full year 2014, we expect fixed assets spending to be approximately $1.4 billion, our effective tax rate to be approximately 24.5% and restructuring costs, which are entirely related to our exteriors and interiors European operations to be approximately $75 million before tax, all consistent with our May outlook.

This concludes our formal remarks. Thanks for your attention. We'd be pleased to answer any of your questions..

[Operator Instructions] Our first question from the line of John Murphy from Bank of America Merrill Lynch..

First, just a first question on the operating margin guidance in the high 6% range. That's great. That is very strong, but when we look at what you've done so far in the first half of the year at about 7.1%, it does indicate some level of deterioration through the second half of the year.

I'm just curious what concerns you have out there, or that's just seasonality?.

John, we don't have any concerns. It's pure seasonality if you look at kind of second half implied production sales, when you look through sort of the midpoint of our guidance. And production sales in the first half of this year, the second half is going to be lower than the first half.

And when you factor in that lower sales, they're not going to translate at a average operating margin but probably at a higher margin, detrimental margin. The numbers kind of make sense, so it's seasonality, nothing that's giving us concern in the second half of this year..

Okay. And then a second question also around margins in Asia. There was a big step up to 8.6%.

What's going on there? And is that the kind of number we should be expecting in the near future? And is there opportunity to go significantly higher, as your capacity utilization in Asia improves?.

Well, again, John, I think you need to think about seasonality. What benefited us in the second quarter is the pull-through in additional sales, in particular, at our new facilities as we ramp up. As we look at Asia, in particular, and we think about overall margins, last year, we were at 5% overall.

We're going to be up in 2013, but as we continue to ramp up the new facilities, we look to kind of 2016 and we look at a full year run rate, we're expecting margins in the range of kind of 8.75 to 9.75.

Whether that gets little higher, or a little lower, it's going to depend on how quickly these facilities come on, the extent of new business awards, the extent of investment for new facilities. So we're positive about what we see in Asia.

We've been investing in a substantial way, in particular, in China, and we're starting to see the benefits of our investments as expected..

Okay. And then just lastly, on capital allocation. Again, so I mean, obviously there's a lot of things moving in the market right now as far as asset sales and bids.

I'm just curious if you've changed your view on where, ultimately, capital might be allocated, post your aggressive buyback now, and if you might get more aggressive on sort of purchasing other assets out there in the market and what you might consider looking at?.

Really, haven't changed what we're focused on. We continue to look at acquisitions. Capital, we've given the outlook in the range. That's something that's not going to change too much.

If we can find the right acquisition and we were looking at lot, various sizes, some smaller, some medium size, so we're not going to be more aggressive just for the sake of being more aggressive, but that's still our preference. If we -- capital, we've given the guidance. That's the #1 priority. M&A would be #2, and we've got excess cash.

And given, we would want the balance sheet to get to. So to the extent we don't spend the money on the first 2, then we'll be looking the continued buyback..

And John, if you look at the kind of our target capital ratios, the 1 to 1.5x, if you look at the end of June range, you've got total deployable capital to get to kind of 1x range of the 1.4 or $3 billion or 1.5 range.

There is just plenty of capacity on the balance sheet to continue with the buyback, and if the right opportunity comes, then pull that through acquisitions. So we're very fortunate we got that flexibility, and we're putting our balance sheet to work..

And then just -- I'm sorry, just one last one.

Is there any insurance recovery on that $25 million for the fire in the quarter, potentially, in the third quarter? Or is that cash out the door?.

The approximately, $25 million we talked about, actually had a small insurance recovery already factored into that, John. We're expecting to recover more from the insurance company. That may fall into kind of Q3, Q4, even Q1 of next year, but we do expect to recover a substantial part of that $25 million..

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

Just, sorry, on the fire issue again, is any of the disruption going to carry over into Q3? And the $25 million cost, does that kind of capture kind of the total cost of the company, including loss production, as well as direct costs?.

Yes, Peter, that is -- that's basically everything. So we had a fire in our wax, and I won't be giving you all the details, but it wasn't a significant amount of damage to the plant, but we couldn't ship the frames, obviously, the waxing them, so we were shipping product all over the place. So a lot of it was logistics.

We got through it, great assistance, by the way, from our customer, General Motors and helping us get through it. But that was pretty -- that's essentially all done in Q2, and they'll be -- we don't anticipate anything in the future. The plant's back up and running full -- full capacity..

Peter, there may be really minor amounts dripping into Q3, as you kind of look at some of the last-minute items, but it's really going to be very insignificant, if anything, in the third quarter..

Okay. And the other thing I wanted to ask about is your North American margin was particularly strong. As I recall, on the Q1 call, you discussed that there were a number of North American facilities that were incurring unanticipated ramp costs.

So I'm just wondering as those issues wind their way out, did that contribute to the improvement in the Q2 margin above and beyond seasonality? And in terms of those underperforming plants that you referred to last quarter, they largely worked their way out? Or is there still more work to be done in the coming quarters?.

We had talked about, I believe it is 3 plants, again there were in our interior segment. They're all related to launches, and there we had charged in Q1. We had a similar amount of charged in Q2, and it'll be declining in Q3 and Q4, but we are still seeing some launch costs that were above what we anticipated, some launch efficiencies.

So I think that they'll pretty well through them by the end of this year, but it the -- it didn't have any positive impact on the margins we saw coming through..

Peter, as we kind of look through sequentially on the quarter in North America, kind of the pluses and minuses, and when you look at things such as launch costs or commodity costs or new facility costs, there are really -- they ramped at close to 0. It really, really insignificant.

The biggest contributor was just increased slogs, pull-through on that and it -- likely mix of business as well, what sells. But it's incremental margins on additional sales..

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

So there's been a question on the Rest of the World margins, and then a question on North American margins, so I think I'll ask about Europe. Is your -- is 2Q European margins sequentially step up versus to Q1, but this time it went down. You'd referenced unusual launch costs in the quarter.

Can you give us some more color there, and how that looks over the next couple of quarters?.

Ravi, when you look sequentially and we're 3.4% in on a normalized -- or operating margin in Q1 and we're 3.3% in Q2, so roughly the same, on essentially identical sales. The difference, I would say, from Q1 to Q2 is additional unanticipated costs at our certain interiors facilities in the U.K. And the costs were more substantial in Q2 versus Q1.

That had a negative impact on overall reported European margins. As you kind of look through the balance of this year, our anticipation is that those additional costs are going to decline, but they won't be eliminated by the end of this year. Kind of looking at 2015 before we get into some normal-type operations.

The facilities we're talking about in the U.K. are ramping up and launching a substantial amount of business and the costs we're incurring were just more than what we had anticipated and budgeted for..

Got it. And just stepping back a little bit. I mean, we're seeing a really robust North American cycle, maybe hitting 17 million sold in the odd months. We're looking at almost 17 million production for the year.

Where do you guys see the North American cycle going? I mean, are you concerned about a peak at all or in any deterioration, like in the quality of production or sales? Or do you think the OEMs still have very robust schedules and it's green lights everywhere?.

It's hard to say. There's nothing that seems to be driving production beyond what the market is absorbing. Who knows what's going to happen to interest rates? Our view is that interest rates will remain low. If there's some economic shock or some political shock somewhere, it can always have an impact on the economy.

But if you look at inventory levels and incentives and pent-up demand and you can look at different analysis in there, it seems to be real. So hopefully, we'll continue to see a robust production number, based on what the demand is in sales..

Part of the production increase, obviously, is capacity additions in North America that have been transplanted from other markets, so that's certainly helping the production side, but, yes, those are strong, agreed..

Great. Just last couple of follow-ups for Vince. One is on the tax rate. You held your guidance for the year at 24.5%, despite a slightly elevated tax rate in this quarter.

Does that mean you'll be doing below that 24.5% run rate for the second half? And also, on the buyback, you need to kind of step up your pace quite meaningfully to get to your NCIB target or the authorization by November.

Do you have confidence that you'll be able to complete it, barring M&A or something else that comes up?.

Well, just in terms of the tax rates, we're holding [ph] our guidance at approximately 24.5%. We're at about 26% for the first half of the year, so we are anticipating that the rates going to step down in the second half. Part of that is due to income mix.

Part of that is due to the timing of some tax benefits that we're expecting to be able to book in the second half of this year. With respect to the buyback, we have 20 million shares that we're authorized, and that bid expires in November of this year.

And if you look at, not only what we bought in quarter but what we purchased subsequent to the quarter, we got about 7.9 million shares that we can still buy under the bid.

If you think about the timing that we've got, we got roughly 3 months and we purchased 6.9 million for the last 3 months, so I think we've got enough days available to complete that buyback, subject to other things that may be going on..

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

Just one further clarification on your 2014 outlook. I'm looking at 2000 -- sorry, looking at North America production volumes increasing by about $100,000, but production revenue by about $500 million. Now I assume part of that's currency, but it also seems to imply an increase in overall content levels in North America.

Any other color behind that, if there's specific customers or programs that are contributing more?.

I think, actually, second half content versus first half content is going down slightly, and it's a little bit of mix there..

So the $500 million increase then is primarily, a function of currency?.

It's volumes and it's currency..

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

I wanted to touch on margins a little bit to begin with. So it sounds like, excluding E-Car, that North American margins on a year-over-year basis, the primary driver of the improvement was just increased revenue on increased production.

Is that a fair assessment?.

Year-over-year?.

Yes, I apologize, it's year-over-year..

Let me just -- that's correct..

What, did you say, that's correct? I apologize..

Yes, that's right..

Okay.

So my question then is, as I kind of look out over the next year, 2 years or 3 years, if I'm anticipating that production is going to continue to increase, what might prevent you from continuing to get maybe similar operating leverage on that increased production, increased revenue and so forth? In other words, in the past, you kind of talked about margins kind of stagnating or plateauing in that, let's say, 10% range or something along those lines.

Could it possibly go beyond that?.

Brett, when you think about kind of over the next couple of years, we are adding additional capacity in North America to deal with additional sales. So as you add on capacity, you're adding on at average margins as opposed to incremental margin.

So is there's a possibility that we could top the 10% range? I think that's a possibility, depending where the sales are and what we do on our world class manufacturing efforts to improve efficiencies and throughput. The possibility -- there's a whole bunch of moving parts, just programs coming in, programs going out, just price gets back.

There's new facilities coming on, but I wouldn't rule it out, that we could exceed the top end of that range..

Okay. And then switching gears and thinking about Europe. It sounds like the U.K. facility was a particular headwind on margins on a year-over-year basis, as well as a bit on a sequential basis. If you were to kind of characterize the primary puts and takes for the European margins, again, it seems like the U.K. is at the top of the list.

Were there any other material drivers? I mean, I understand. I can read your list. You've got a long list of the put and takes here, but I'm asking you to kind of prioritize and maybe quantify, possibly, the major puts and takes..

When you look at the kind of whether you're looking at it sequentially or you're looking at it year-over-year, we talked about Europe that -- and we have significant sort of improvements in 2013, and we still expect -- we haven't got to 2016 to get to about 4.25%, 4.75% overall margins in Europe, and we're on track on that.

But we did say that '13 was probably little better than what we had anticipated in terms of improvement, and we continue to expect margins in Europe to be better in '14 versus '13, but it might not be completely linear. So as I look at Q2, the most significant thing that impacted margins, in a negative way, would've been our U.K.

operations on the interior side..

Yes overall, things in Europe are continuing to go as we wanted, other than this extra cost and the significant launch -- amount of business we're launching there. So I think the answer to your question is, really nothing unusual. And we're -- I'm pleased with what we're doing. I think our reputation with the customers continues to improve.

We're getting more interest and winning more business, so overall pleased with Europe. And I think we'll still hit the numbers we talked about, from a margin standpoint..

Keep in mind, there's pretty significant seasonality, second half to first half, particularly in European volumes and sales..

Okay, very good. And then finally, just in your share repurchase and your leverage targets. My understanding is that you hope to achieve those leverage targets by the end of 2015.

Is my understanding, correct? And do you still anticipate achieving that target?.

Yes, Brett, our -- the targets that we've set is by the end of 2015 to get to the 1 to 1.5x range, and our expectations are that we're going to be in that range. Again, remember, to get there, what that implies is, one, we're going to have take on some more debt. At some point, we'll go back to the margin. We raised $750 million last quarter.

And the cash that we have on the balance sheet at Q2, we have about $1 billion more than what we need to run the business -- we need about $750 million plus or minus, to run the business. Cash balances are high obviously, because of the debt issue and from the cash we're generating.

So those 2 things will be -- we'd get a little bit of debt, reduce our cash balances to the levels we require, we should be able to get to our target range. And we'll get there. Just to make it clear, Brett, it'll be, most likely, a combination of investing in the business, whether it's capital or acquisitions and buybacks.

I'm assuming it's all going to be buybacks..

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

It's actually Pat Nolan on for Rod. I wanted to ask the M&A question a different way, Don. There seems to be some pretty good amount of interest in this space right now, on the M&A front. Have you thought at all about -- I know at one point you're thinking about going through kind of a portfolio analysis and seeing which business make sense to stay in.

Is there any rationale to think about pruning some of the businesses that maybe don't make sense to be with the company long term, why those interests in the M&A front today?.

Yes. We continue to be high priority with the management team and the board as to what our long-term product strategy should be and where we're positioning ourself. We just did, actually, one small divestiture in the last quarter. It was about $150 million in sales. It was an SMC business that was all in North America.

Always, roughly a breakeven business, so we don't [ph] -- it was -- sold it for roughly what the book value was. So we're continuing to -- we don't have any rush to sell things off.

If we believe we can have, we're creating value by running the business and improving margins, but we do continue to look at how we're going to be in the top 1, 2, 3 in all of our product areas globally, which would be based on footprint, competitiveness, technology, et cetera, et cetera.

Our preference would be to take the product lines we're in and make sure we're global and we're successful. But we're the most diversified from a product standpoint now, and we're not opposed to changing our product offerings to our customers, if it makes sense.

And if we focused more on where we're getting the best creation of value, that makes sense to be -- to continue to look at pruning the odd area.

As far as acquisitions, we would prefer to be buying things and expanding our business obviously, rather than selling it, but I think you can expect to see us continue the analysis and the executions we talked about in the past..

That's helpful. And if I could just sneak in just one housekeeping question.

Louis, can you give us the FX impact in North America in the quarter and the FX impact in Europe in the quarter on revenue?.

Actually, negative $105 million in production sales in North America and positive $105 million in Europe in production sales quarter-over-quarter..

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

Just a quick question on North America margin. Just with Q2 production mix being pretty favorable, Vince, your discussion around potentially exceeding the 10% rate longer term, does that assume a more stable production mix? Obviously, truck mix was favorable, very favorable in Q2, just want to get some clarification around that..

Rich, the question was that -- Brett asked a question whether it's possible or whether it could be over the top end of the range, and what I said is, as production continues to grow and we add capacity, that additional capacity is mostly going to come in at average margins, depending on which business unit it is.

But to the extent that we can add incremental sales to the existing businesses, then we should be generating margins that possibly are higher than average margins. So when you sum it all up, it could be possible that we exceed the top end of the range.

But as we're looking at 3 years, Don and I are comfortable with that kind of the 9.5% to 10% range is kind of a normal type range. I mean, there are peers that could go above that. There's peers that might go below that. But overall, that's a reasonable sort of target for us to have in a company for North America..

We're going through our business plan cycle as well and depending on what we do with our products, if we do sell a business or -- and we're adding a number of new plants also in North America, so well, we can update if we believe the guidance is going to change, what Vince just said, we can update that in the fall..

Perfect.

So it sounds like you have a kind of a stable mix in there and nothing overly aggressive either way?.

No. It doesn't imply sort of major shift in segment mix, no..

Our next question is from the line of Brian Morrison with TD Securities..

Just looking at the South America or Rest of World, there's a little internal debate last quarter on the ability to cut the losses in half this year. And it looks like you've had some ongoing progress this quarter.

So Vince, can you just update us on where you stand on achieving this target? And potentially any outlook on returning to breakeven? And then just secondly, on that front, with the lower production volumes year-to-date, it looks like some pretty decent sequential growth to achieve the revenue target for the year.

So perhaps, can you talk about what's driving that?.

I mean, just in terms of kind of losses for the year, we're tracking a little bit better than our budgets in South America, as well as our efforts are throughout the organization in our South America operations. So we're seeing some improvements from an operations standpoint.

We had benefited for some of the price increases that we've had, that came in last year and some of them kicked in early this year. So I think getting into that, half of the losses we had last year -- this year, I think is still in the striking range, but we've still got 6 months ago.

It's still pretty volatile from an inflationary standpoint, and we're still trying to go after, recovery of commodity costs with our customers. Just risk in achieving that, but I think it's possible. With respect to kind of revenue, I think we're up a little bit in terms of where we thought we would be, from a budget perspective.

And there's 2 reasons for that. One is just FX, and the other is a little less volumes in certain and programs. When you look kind of at the rest of the year, giving our guidance, sort of our best view at this point in time, again given foreign exchange rates, given what may happen to volumes, that could move overall revenues up or down a little bit..

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

Vince, could you repeat the Asian margin target you had?.

Sure. So we talked about, David, by 2016, that we should get into the 8.75% to 9.75% range..

Okay. And that's up, I think, from your old guidance quite a bit.

What's changed?.

Well, no. All we did was we decoupled Rest of World, Asia and Rest of World used to be combined, so we used to say approximately 3/4 of North American level. But when we broke it out, we gave more details on the Asian chunk, which was about 8 3/4 quarters..

Okay. And could you talk to the seasonality? I'm not really familiar with the seasonality in Asia. How seasonal is it? You mentioned Q2 was helped by seasonality.

Is it very similar to North America and Europe? Or is there some differences?.

I'd look at, David, more closely. There is certainly a seasonality, sort of first half and second half in terms of sales. So -- but I'm not sure in terms of when shutdowns happens. I think, I can that find that out. I haven't gotten of those..

Okay. Fair enough. Then just on -- you have highlighted a couple of wins, and one of them was -- interesting was the Fusion.

I guess, the question is, does this actually turn into new business for you? Or is this more a demonstration of stuff that's going to happen piecemeal here and there and generally help the metal business over time?.

Yes, it's not a win. It was a demonstration vehicle where we believe, working with Ford, and that's the U.S. Government as well.

What would be the optimum application of technology in a vehicle and that was the size of the vehicle we used, just to say where would you use aluminum? Where would you use other high strength steels or boron or whatever? So it doesn't give us any business.

I believe that we're better than any other metal-forming supplier in the world, quite frankly, as far as understanding technology, application of technology joining.

So it's more, just showing what's possible and working with our customers to try and work on future platforms way upfront to try and make sure that they're -- we're offering them the best technology to get the best buy. Again, it's more advanced engineering work than it were at this point in time..

And the station of capability..

All right. Okay, fair enough.

And then lastly, the MINI Cooper interior loss, what is involved there? And what happened?.

We used to do the complete integrated interior along with assembly, and basically what happened was that BMW took that in-house, so we've maintained a lot of the core components, but we've lost the assembly business. So it's high sales, low margin, but that's obviously impacted our sales level pretty significant.

It's about 200 -- $225 million annually..

And we've talked about, I think, 1 year ago. That actually is the same plant where we won other contents, so hopefully, from a margin standpoint or from a ROCE [ph], which is what we look at, we can still be quite successful.

That is the plant, though, that is launching a lot of new business, so the sales in that plant will actually be going to up quite significantly over the next couple of years..

Our next question is from the line of Ryan Brinkman with JPMorgan..

This is Samik here, on behalf of Ryan Brinkman. So my first question was primarily on your revenue and guidance, which you're raising by $700 million at the midpoint.

Was it your prior guidance? And I just wanted to simplistically get a sense of how much of that relates to 2Q sort of performing better than your expectation? And how much of that is basically a better outlook for 3Q and 4Q?.

It's a bit of a combination. I mean, we did sort of exceed the numbers in Q2, even on volumes, so some of -- it's a bit of both, strengthening in the back half and a pretty strong Q2..

And then some of the offsets, there are some positives as a result of the Canadian dollar strengthening a little bit versus the U.S. dollar, offset by a little bit of weakening in the euro versus the U.S. dollar..

Okay, okay. So the next thing that I wanted to touch upon is primarily on the restructuring you were mentioning early on the call, but is primarily, sort of focused on your European business.

Based on where European volume stands right now and what your outlook is for the industry production, do you think you need to engage in further restructuring in that business?.

Yes. So the restructuring costs relate to our exteriors, solely to our exteriors and interiors group in Europe. It's not throughout Europe. It's something that we've been sort of focused on for the last couple of years.

But I think once we get through 2014, I think there's still going to be some costs for booking in 2015, but they're going to be -- our current expectation is it going to be substantially less than what we're going to be booking in 2014.

A lot of what you book in 1 year versus another, it depends on when you can recognize that liability from an accounting perspective.

It may not necessarily mean when we're doing the restructuring, because some of the things that we've already booked and accrued for, from an accounting perspective, the restructuring activity are going to be taking place over the next couple of years at the plant.

There's a timing difference between booking something and actually doing the restructuring..

We're still pretty well, exactly on target where we thought we would for this year. And as Vince says, we will continue to have bits and pieces of restructuring in all segments around the world, but the bulk of the restructuring we had identified in Europe is well underway. And at the end of this year, we'll have not a lot of left..

Okay, okay. Great. Just lastly, a quick question.

I'm just trying to get a sense of what you're seeing in terms of summer shutdowns in both North America and Europe and whether that impacts 3Q comparisons year-over-year at all?.

Sorry, I missed the....

The summer shutdowns in both North America and Europe and whether that will impact year-over-year comparisons in 3Q at all?.

Nothing out of the ordinary. I don't think it changes that much of the -- the direction of volumes is not that different from what we've seen in the past..

Our next question is from the line of Itay Michaeli from Citigroup..

Just a big-picture question on revenue. I know in January, you outlined an outlook for 2016 for about $3.6 billion of growth in production revenue from 2014. I think your 2014 production guidance, production revenue of sales now is about $1.2 billion above where it was back in January.

I'd mind that only maybe half of that's tied to just the production volumes.

Is it fair to say that you're running ahead of that kind of $3.6 billion target for 2016 for the production sales?.

Well, the $3.6 billion becomes stale, because it's you look at change in sales, given volumes that are already assumed in the plans. We give our volume expectations for '14 and '16. So if you assume that '16 is going to continue to grow or outgrow our plan the way '14 has, then you may be right, but it's really difficult to say.

We'll have to sort of see where we are in January and update that guidance, but it is a point in time, based on the volumes..

Sure, that's helpful. And then just on the North American margins, you talked about adding some capacity as you go on.

Can you talk about what business segments particularly are going to be adding the most capacity in North America in the next couple of years?.

It's a real mix of class, our various businesses. We've got -- going in a lot of details, we've got interiors plant, lighting plant, aluminum casting plant, stamping plant, Asia plant. But it's really -- I'm just going by memory off the top of my head, but those are greenfields. We've also got some other specific plant expansions.

So it's really -- it's not in one specific area..

Okay, great. It's diverse. Great. And just got lastly, and I apologize if I missed this before, Don, but did you quantify the U.K.

launch costs in the second quarter? Then maybe also what you're expecting any residual impact there to be in the second half of the year?.

We haven't quantified it. It will come down slightly in Q3, in Q4 from where it was in Q2, but we're still going through the details. I guess, we have a plan, but we just haven't got into the details. We haven't publicly announced the details of the losses, or what it's going to be going forward.

It should be less going forward, but it will still be an issue in Q3..

Our next question is from the line of Colin Langan from UBS..

Any -- can you just clarify, first, the $25 million in costs associated with the fire, that was not pulled out as a onetime item? Or was that a special item....

No, it wasn't pulled out as a onetime item. So think about the unusual items, they're only in Europe. The $25 million was included in our cost of sales and operating margin..

Okay. And any thoughts why that onetime? It seems like an unusual event, the fire, there..

Yes. We kind of look at unusual as being kind of restructuring. It's got a gain, a substantial gain on the sale of something. We just viewed that as regular operating income. As we get insurance proceeds, it's going to come in on the other side. It was big enough that we thought we just disclose it as a significant item, but not an unusual item..

That's how we define unusual is, really. We try to stay pretty strict on that..

Okay. And we were -- you're talking earlier about M&A.

I mean, can you clarify again what your product areas would be the most focused on in terms of acquisition? Where you're seeing sort of the biggest opportunities in those product areas?.

We haven't really laid it out in a lot of detail, but if you look at our core product areas, we have many of them, where powertrain's growing area. We're interested in electronics in a number of different areas. We've got strength in there now. We're very strong in the stamping area. We probably need to do a lot of acquisitions to grow our footprint.

We're already global, but if something would come up there that was of interest, either geographically, customer-wise or footprint, we'd look at it.

Exterior business, we're already -- we're taking mirrors and enclosures, but if somebody -- if there was a good opportunity -- so it's really across-the-board, in the areas that we feel are going to be long-term product areas for us.

A lot of what we're looking at, quite frankly, are smaller technology companies, but we are -- we have our eyes open in a few other bigger areas..

And what about, I mean, there's always a lot of chatter around seating. And your -- you mentioned earlier, you like to be a top 1 to 3 player. And I think you're a bit later on that.

Is that an area that you would consider acquisitions in or not?.

Yes, we would consider. Seating's a good business for us. We're much smaller than some of our competitors, but we are seeing, and we continue to see, growth there. And we have very good technologies there, so it would really depends on how big it is. What's the footprint? We have to do an analysis in there, so that we wouldn't rule it out either..

Okay. And then just one last one and again, so having those on the strategic front. You had recent transactions in interiors with JCI doing a JV and discount selling their business.

I mean, has that changed your view of this segment? Or has that even changed the interest from a strategic perspective in this segment?.

Hasn't really changed our view on interiors. Interiors continues to be a very difficult business. It is a key part of the vehicle. It's a key differentiator. It's very important to our customers. However, not very many people make much money in it. Launches can be difficult, based on different materials and it's -- they're complicated products.

So it's an area we have, publicly, said we struggled with from a profitability standpoint, so we're continuing to look at what's happening, what the key players doing? I don't think it changes the view of the industry on interiors as being an important area and very financially, challenging.

And I don't see any major changes out there, at this particular point, as far as a major consolidation. It's just sort of changing players..

And our last question today is from Richard Hilgert from Morningstar..

All of my questions, really, have been asked. The one thing that I did want to explore a little bit with you guys, weight reduction for Magna, it is a big deal and global architectures.

With increasing legislation, the 2025 CAFE standard coming up here in the U.S., the CO2 legislation in Europe, the -- your automaker customers are going to be looking for better ways to bring down the latest vehicles to improve the fuel efficiency.

And what I'm wondering is, with your expertise in this area, are you running into much debate with your customers on what would be the appropriate things to reduce engineering-wise and physics-wise and what inappropriate things would be to do with the vehicle? And how are you differentiating and coming up with ways to approach this differently than your competitors?.

Yes, I can't really comment what the competitors are doing, but I can tell you what we're doing. We've got a lot of products which are big, heavy products in the vehicle.

There's big opportunities for weight reduction in the body, in the exterior components, the powertrains for sure, seating, you look at the structure of the seating, so a lot -- if you added the weight of all of our products, there's big opportunities there.

And there's huge interest with advanced engineering on all of our customer's parts to say what can we do that will -- they're always looking for cost reductions, which will continue to be a priority. Weight reduction is a big one. You can look at drag efficiencies in the powertrain system as well, because that will also help with the CO2 emission.

So we are doing -- I'm very pleased with what we're doing on the innovation front. It's one of our 3 big priorities, and I'm happy for the progress we're making. I'm also very happy, we have restructured ourselves. We've got one coordinated approach to our customers at the engineering level and advanced engineering level.

We're having some really good discussions, and there's -- so I don't know what other suppliers may be doing, but we've got some really interesting ideas.

And there's a lot of interest on all the cars' makers, as you say, for looking at what they can do in the advanced vehicles, especially the global platform, so they can really leverage the application of the ideas. So it's an ongoing discussion, and it's not all based on price.

It's based on safety, new attributes that the end-consumer wants, weight reduction. It's a combination of things. But there is a lot of open discussion and appetite by our customers to really take a look at what's available..

And with that, speakers, we have no further questions at this time. I'll return the call back to you. You may continue with your closing remarks..

Well, I appreciate everybody dialing in today. We've had a good first half of 2014. We expect continued strong performance through the remainder of the year. We still have some work to do. I'm really pleased with the progress we're making in world-class manufacturing and innovation.

We're still having some launch issues, but I guess, we can expect it unfortunately, when we we're so big and we're operating around the world, but quite pleased with the progress we've made. So again, thanks for calling in and joining us today..

Ladies and gentlemen, this does conclude the conference call for today. We thank you, all, for your participation today. Have a great weekend, everyone..