Linda Hasenfratz – CEO Roger Fulton – General Counsel Dale Schneider – CFO

Mark Neville – Scotiabank Justin Wu – GMP Securities Peter Sklar – BMO Capital Markets Todd Coupland – CIBC World Markets Unidentified Company Representative David Tyerman – Canaccord Genuity

Thank you. Good afternoon, everyone, and welcome to our third quarter conference call.

Joining me this afternoon are members of my executive team, Jim Jarrell, Mark Stoddart, Roger Fulton, and Dale Schneider, the members of our corporate and finance teams and other guests. Before I begin, our General Counsel, Roger Fulton, will make a brief statement regarding forward-looking statements provided on this call.

Roger?

Thank you, Linda. Certain information regarding Linamar discussed in this teleconference, including management’s assessment of the company’s future plans and operations may constitute forward-looking statements.

This information is based on current expectations that are subject to significant risks and uncertainties that are difficult to predict. Actual results may differ materially from those anticipated in the forward-looking statements due to factors, such as customer demand and timing of buying decisions, product mix, competitive products and pricing pressure.

In addition, uncertainties and difficulties in domestic and foreign financial markets and economies could adversely affect demand from customers. These factors, as well as general economic and political conditions, may in turn have a material adverse effect on the company’s financial results.

The company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those reflected in the forward-looking statements. Linda?

Thanks, Roger. I’ll start off with sales, earnings, and content.

Sales for the quarter were $1.021 billion, up 14% from Q3 last year for another solid quarter of double-digit growth for Linamar. Earnings saw another fantastic level of growth in the quarter with net earnings up 53% over a year ago, to $79.4 million or a $1.23 per share.

Net earnings as a percent of sales in Q3 were 7.8%, extending once again our trends of margin enhancement over prior year, and exceptionally strong result for Q3 normally a softer quarter, thanks to strong performance in both, the Powertrain/Driveline and the Industrial segments. We continue to run at the top-end of our normal margin range of 5% to 7%, with seasonal highs and lows between 4% and 8%, thanks to continued control of launch costs, great results from lean initiatives, a strong performance of Skyjack and a favorable mix of business in both segments.

Given the very strong performance in Q3, it is reasonable to expect that we will be somewhat above that range of 5% to 7% for the full-year on 2014, likely in the 7% to 7.5% range. Expect 2015 to dial back somewhat from 2014 performance to the 6.75% to 7.25% range due to the impact of the minority interest portion of Seissenschmidt earnings, which we expect to see close by early next year.

Coupled with the sales growth I have detailed below, this should result in Linamar again achieving double-digit earnings growth, both this year and next year as targeted. We continue to feel positive about the staying power of margin performance in both of our segments.

Our outlook for both segments is more positive than it has been in the past. We are revising margin expectations for the Powertrain/Driveline segment to 7% to 10% and for the Industrial segment to 12% to 16%.

Earnings growth continues to drive a solid performance and return on capital deployed and return on equity, reaching 22.6% and 20.5% respectively, a fantastic results in excess of our 20% goal. It’s great to see the consistent performance in this important area for our shareholders.

We continue to see a positive level of cash flow, notwithstanding the fact that we closed an acquisition in the quarter and we are starting to invest more meaningful in capital for new programs. Strong earnings performance allowed us to further reduce net debt levels, now $335 million, reflecting excellent levels of leverage and an extremely strong balance sheet.

Plans for our building levels of cash and debt availability, include continued investment and future growth through both, Greenfield and acquisitive opportunities. CapEx in the quarter was $67.3 million or 6.6% of sales.

We expect to see this continue to build over the next several quarters, given the heavy level of new business wins we are seeing. 2014 CapEx given the late start to the year will be somewhat less than our normal rate of 8% to 10%, but do expect 2015 CapEx to be back in that range.

In North America, content per vehicle for the quarter was $127.50, down 2% compared to last year. Our Q3 automotive sales in North America were up 5.7% over Q3 a year ago reaching $550 million compared to $521 million last year, at a market that was up 8% in production volumes.

Market production growth was strong due to a couple of very large increases in production for OEMs we have limited business with at the moment, which negatively impacted content. In Europe, content per vehicle for the quarter was $20.69, up 33% from last year.

We have a solid book of new business launching in the region, which is helping to drive content growth. Vehicle production levels were 4.5 million units in the quarter, down slightly from Q3 last year.

Sales increased 33% compared to last year to reach $94 million. We continue to believe that recovery in Europe will be very slow and gradual over the next several years.

That said, growth in Europe continues to be a priority for us, given the size of the market and the shifting outsourcing strategies we’re seeing in the regions. Business in hand in Europe, including our recently announced pending acquisition of Seissenschmidt, is expected to grow more than 3x our 2013 footprint in the region over the next four years, which should continue to drive meaningful content for us.

In Asia Pacific, content per vehicle for the quarter was $6.58, up 14.6% from Q3 2013 levels, reflective of continued launches in our Wuxi plant. Vehicle production levels were 10.8 million units in the quarter, up 4.5% from Q3 2013, which resulted in Q3 automotive sales in Asia Pacific up 19.8% compared to last year to a total of 71 million.

In Asia, our sales are growing at more than 4x to market growth levels, and booked business will see sales grow more than double their 2013 level in the next four years. Other sales were up 26% in the quarter at $306 million, compared to $243 million last year, due to strong growth at Skyjack, as well as increases in our off-highway and energy sector sales.

Turning to market outlook for our global vehicle business, we’re looking at about 3.4% growth globally this year. For 2014, industry experts are predicting growth in light-vehicle volumes in North America, with more moderate growth in Asia and Europe, to 17 million, 24.9 million and 20 million vehicles respectively, up 5.2%, 4.5% and 2.4% over last year.

Next year is expected to generate continued moderate growth in North America and Asia, with Europe looking fairly flat, growth is expected at 2.5%, 4.1% and 1.6%, respectively. Industry experts are predicting strong growth in on-highway medium-heavy truck volume this year in North America, expected up 15.1%, but a small decline in Asia, expected down 0.3%, and Europe up 1.4%.

Next year is expected to generate growth in North America and Europe at 10.9%, 9% growth respectively, and a decline in Asia expected to be down 7.8%. Off highway medium-duty and heavy-duty volumes are predicted to grow moderately this year in North America and in Europe, up 2.6% and 4.1%, with a little better growth in Asia, expected up 5.5%.

And next year is expected to grow moderately on a global basis at 3%, 2.6%, and 3.6% in North America, Europe and Asia respectively. Turning to the access market, outlook in the industry continues to be positive.

2014 continues to be strong year for the aerial work platform industry, as rental companies invest in equipments, and most rental companies are predicting steady growth into 2015 as well. The North American and European markets continue to grow with the European market expected to show stronger growth in 2015.

Skyjack is certainly already seeing the benefit of the growth in Europe, with our European sales doubling last year’s level in the third quarter and year-to-date. Skyjack’s strategy continues to be global expansion and product line expansion to drive market share in all products and regions.

Our target is to double Skyjack’s total 2013 sales levels by 2020. Industry experts’ global market predictions for 2014 and 2015 market growth are for 5% to 10% growth.

Turning to new business, we had a fantastic quarter of wins as we continue to take advantage of several new transmission and engine platform changes in the coming years. Before reviewing the highlights of the wins, I’ll recap where we are on launching business.

First, look for ramping volumes on launching transmission platforms to reach 15% to 25% of mature volumes. These programs will peak at more than $1.75 billion in sales.

Sales last year were $250 million, and 2015 should see growth of another 40% to 50%. Since last quarter, we shifted $35 million of business from launch to production.

Look for ramping volumes on launching engine platforms should reach 25% to 35% of mature volumes. These programs will peak at more than $800 million in sales.

2013 sales were $100 million and 2015 should see growth of another 70% to 80%. Since last quarter, we shifted $170 million of business from launch to production in the engine side.

Look for ramping volumes on launching driveline platforms should reach 20% to 30% of mature levels. These programs will peak at nearly $750 million in sales.

2013 sales were about $70 million, and 2015 should see sales at least double from 2014 levels. Since last quarter, we shifted about $115 million of business from launch to production.

Finally, look for increases in volumes on our energy and industrial business launches, as we work towards our peak sales of $20 million, which we will basically be at next year. To summarize our launches, we have a grand total of a 179 programs launching, representing more than $3.3 billion.

Depending on industry volumes, programs currently in launch will add total of another $350 million to $450 million in sales to 2014 and another $450 million to $550 million in 2015. Skyjack should see continued growth at somewhat better than market growth levels in 2014, as our market share penetration continues.

Temper that growth with the loss of business that naturally ends each year, noting to expect something less than our normal range of 5% to 10% this year and somewhere around the middle of that range for 2015, as well as normal productivity gets back to get an estimate for sales of both years. Clearly, given the level of launches and market conditions, we’re expecting to again see solid sales growth at Linamar this year and next.

We target double-digit top and bottom line growth each year at Linamar and feel very confident in our ability to deliver such results, based on launching business and expected margin performance. As noted, we had another great quarter in new business wins and continue to quote a strong book of business opportunities.

I’ll highlight a few of the more strategic wins. First, we had a huge quarter in wins for gear programs here in North America.

We picked up two very significant programs, one for Mexico and the other for our campus in North Carolina, worth in aggregate more than $200 million in annual sales. The North Carolina program will necessitate establishment of a separate dedicated gear manufacturing facility on our existing campus.

We’ll renovate an existing building for this purpose and already have a team in place working on that to get ready for pick-ups [ph] throughout the next year. Low volume ramp in the plant will start in 2016.

The Mexican job will fit in an existing facility and start production in 2017. These jobs are very strategic for us as the gear market is large and very opportunistic and more than $25 billion of market potential.

These wins solidify Linamar as a global leader in gear manufacturing. We saw continued penetration in the large 5C market with wins for both passenger car camshafts and commercial vehicle connecting rods that together are worth more than $50 million in annual sales.

We saw continued business wins in the nine-speed transmission programs with another $50 million of business wins there. And finally, we continue to penetrate the European market with another couple of wins there worth more than $20 million in annual sales.

And of course we also announced during the quarter, two acquisitions in the forging business, which will be an important part of driving our growth in the future. For those of you who may have missed our announcement, a reminder that we’ve acquired 100% of the business of Carolina Forge Company, now renamed Linamar Forge Carolina or LFC, located in Wilson, North Carolina and look to complete the acquisition at 66% of the business of Seissenschmidt AG or SEI, headquartered in Germany with operations in Germany, Hungary and a small operation in the U.S.

by year-end or early next year. The aggregate sales of the two entities are expected to be close to $450 million, with 85% of that revenue coming from SEI.

We feel these acquisitions solidify several key strategic advantages for us, such as process diversification, optimized design and costs for our customers, light-weighting in fuel efficiency, global leadership in gears and disassemblies, customer diversification, and of course, deep intense strength and critical mass in Europe. These business wins and acquisitions continue to do a great job of filling in levels of book to business for us in the outer years.

At this point, we are looking at $5.8 billion in booked business for 2018, based on current industry volume forecast layered with new business wins and acquisitions and adjusted for business leaving. It’s very exciting to see this type of secured growth for us in the mid-term.

With that, I’m going to turn it over to Dale, to lead us through a more in-depth financial review. Dale?

Thank you, Linda, and good afternoon, everyone. As Linda noted, Q3 was another solid quarter for sales and earnings growth, with sales reaching over $1 billion, which resulted in strong net earning margins of 7.8%.

For the quarter, sales were $1.02 billion, which represents an increase of 14.3% or $127.4 million over the third quarter of 2013. Operating earnings were $109.8 million for the quarter, up $36.3 million or 49.4% over Q3 2013.

Net earnings increased by 52.7% from the third quarter 2013, to reach $79.4 million. Our net earnings per share for the quarter increased $0.43 or 53.8% from the third quarter of 2013 to reach $1.23 in the quarter.

Included in net earnings for the quarter was a foreign exchange loss of $0.8 million, which was a result of $1.4 million loss caused by the revaluation of our operating balances, being partially offset by a $600,000 gain as a result of the revaluation of our financing expenses. The net FX loss in the quarter was not significant enough to impact the EPS in the quarter.

From a business segment perspective, the loss on the revaluation of our operating balances of $1.4 million in Q3 was a result of a $2 million loss in Powertrain/Driveline and a $600,000 million gain in the Industrial segment. Further looking at the segment.

Sales in our Powertrain/Driveline business increased from the third quarter of 2013 by 11.3% to reach $852.3 million in the quarter. The growth is a result of sales increases in all three operating regions due to the significant number of programs we launched, the increased volumes of mature programs and the increased volumes on our commercial vehicle and power generation products, with additional increases in Europe, as a result of the sales from our new German assembling camshaft business.

On the operating earning side, Powertrain/Driveline earned $82.4 million for the quarter, up 24.8% from the third quarter 2013. The increase in our operating earnings is mainly the result of the increase in volumes, the favorable sales mix towards highly capital intensive programs and the productivity and efficiency improvements achieved in the quarter, which were partially offset by increased management and sales costs supporting the growth.

If we remove any foreign exchange gains and losses from the operating earnings for Powertrain/Driveline, would have been $84.8 million for the quarter, compared to $67 million in the third quarter 2013, which represents a 26% improvement. Turning to the industrial segment.

Sales were up $40.8 million in the third quarter of 2014 or 32% compared to the same quarter of 2013. This increase is mainly result of; the increased demand in Europe and North America in the access market, scissor lift market share growth in Europe and boom market share growth in North America.

Industrial segment’s operating earnings were $27.4 million in the quarter. This improvement of $19.9 million represents an increase of over 265% from Q3 2013.

The improvement can be primarily attributed to the increase in demand in the quarter, the productivity efficiency improvements made during the quarter, being partially offset by increased management and sales costs supporting the growth. Removing any foreign exchange gains and losses, the operating earnings for the Industrial segment would have been $26.8 million for the quarter, compared to $9.8 million in the third quarter of 2013, which represents 174% improvement in operating earnings.

Returning to the overall Linamar results, the company’s gross margin came in at 16.4% for the third quarter, and up from the third quarter of 2013 levels of 13.7%. Gross margin in the third quarter of 2014 increased due to the higher sales volumes on both mature and launching programs, the higher margins due to the favorable sales mix towards highly capitalized programs and the productivity and efficiency improvements.

COGS amortization expense for the third quarter was up $4 million from the third quarter of 2013. COGS amortization as a percent of sales decreased to 5.8% in the quarter from 6.2% in the third quarter of 2013.

The decrease in amortization as percent of sales is mainly attributed to the higher utilization of our assets as a result of the increased volumes. Selling, general and administration costs increased to $56.1 million from the third quarter of 2013 levels of $45.5 million.

On a percent of sales basis, the third quarter of 2014 has increased to 5.5% in comparison to the third quarter of 2013 levels of 5.1%. The increase on a dollar basis is mainly the result of management and sales costs that are supporting our growth, and as a result of additional costs from our new and expanded facilities.

Financing costs have decreased by $2.3 million versus the third quarter of 2013. This decrease is mainly due to the lower debt levels, lower borrowing rates, as a result of both the credit facility being amended in Q2 of last year and the improved covenants since Q3 last year, higher interest rates on long-term AR and a favorable foreign exchange impact from the coupon payments hedges associated with the private placement notes.

Additionally, the consolidated effect of interest rate was 5.4% in comparison to 4.5% in Q3 2013, after removing the impact of the ineffective interest rate swap that ended in Q4 2013. The effective interest rate has increased as a result of the private placement notes having a heavier weighting on the debt level, as the company continues to delever its balance sheet.

It is expected going forward that the effective interest rate will be at levels consistent with the Q3 2014. The effective tax rate for the third quarter 2014 was 24.2%, compared to 21.4% in the third quarter of 2013.

Effective tax rate for Q3 is higher mainly due to a lower level of valuation allowance reversals in Q3 2013 versus Q3 2014, related to certain Canadian and German operations, and a less favorable mix in our foreign tax rates in Q3, 2014, compared to Q3, 2013. We are expecting the effective tax rate for 2014 to be in the range of 24% to 25%.

Linamar’s cash position was $115.2 million on September 30, 2014 in comparison to $117.4 million on September 30, 2013. The third quarter of 2014 provided a $147 million in cash from operating activities and created $74.7 million in free cash flow.

Non-cash working capital improvements from the third quarter of 2013 level of 11.1% to 9.9% of annualized sales in the third quarter of 2014. Debt to capitalization improved to 22.8% in Q3, 2014 from 34.8% in Q3, 2013.

We are pleased to see that debt to cap has continued its improvement trend to remain well within our target of 35%, despite the acquisition of Carolina Forge. Net debt to EBITDA also improved significantly to 0.5x in the third quarter of 2014, from 1.09x in Q3 2013.

The deleveraging of our balance sheet has resulted in the amounts of our available credit on our syndicated revolving credit facility to increase to $613 million at the end of the quarter. To recap, Linamar enjoyed a terrific quarter with strong sales growth, earnings growth and free cash flow, which has given rise to a record third quarter for both sales and earnings.

Q3 sales were up 14.3% to reach more than $1 billion in the quarter, the strong sales from both, program launches and mature programs, led to solid earnings performance in both segments, which resulted in net earnings improving by 52.7% and EPS improving by 53.8% in the quarter. The third quarter continues with the pattern of earnings growth outpacing sales growth that has been demonstrated over the last couple of years.

The margin expansion in the quarter has resulted in further improvements on our return on capital employed which hit 22.6% in the quarter. That concludes my commentary, and I’d like to open it up to questions.

Hi, good evening. Another great quarter, so congratulations on that.

So we’re just trying to get better understanding of what is happening at Skyjack. You talked about market share gains, you mentioned doubling sales in Europe this year.

We’ve seen it’s been I think six consecutive quarters of growth in the range of 25%. When does that start to moderate, do we see this type of growth for a few more quarters?

There is clearly a lot of leverage here, so just trying to get an idea how to model this.

Yes. For sure, the industrial segment is performing extremely well.

And I think what you’re really seeing is as, first of all, it’s mix of the products, but in a big way, it’s about just growing sales, doing a better job of absorbing overhead. So as we continue to ramp-up our product launches, as we continue to gain market share in booms – as an example, we grew market share and we grew our unit sales of booms 4x the level that the market grow on a global basis last quarter.

So we’re rapidly growing our boom business, and that’s driving sales growth quite strongly. So we absolutely continue – we plan to continue to grow at an above-market level.

And that will help us to continue to do a good job of pumping out our stronger margins. I think the 12% to 15% is a good estimate for overall year.

So obviously there is going to be highs and lows during the year, but I think that level is a pretty good estimate going forward. Obviously, we’re going to have to add to costs and we do add to cost in terms of product development and the sales and marketing team to execute on this global and product expansion strategy.

So there is going to be cost catch-up there. So I don’t think you should expect to see massive continued improvement on the margin side.

I think we’ve done a pretty good job of that, but we certainly do expect to continue to grow the business. Market is growing at 5% to 10%, and we are definitely targeting at growing above that.

And as I mentioned, we’re targeting doubling Skyjack sales from last year within the next five, six years.

Okay. So the margin guidance at 12% to 16% Industrial, 7% to 10% Powertrain, that’s not a 2014 number.

That’s sort of looking out a few years, correct?

That is looking – yes, it’s this year, but it’s looking out into the future as well.

Okay. And maybe just one more question I guess.

On the book of business, the $5.8 billion, that includes the acquisitions that you just announced this quarter?

That’s right.

So how much longer do you have to add to this number? Is it another year, another year and a half?

Well, that’s a 2018 figure, so we should still be winning business in 2016 that would hit 2018. So we’ve got a fair bit of a runway on that.

Okay, so at least a year and a half. I guess over the last year and a half, how much business have you booked or how much business have you won?

I’m just trying to get a feel for where this could go.

Well, new business wins can range anywhere from $600 million to $1 billion in the year. In the last couple of years we’ve been hitting up the high-end of that range, because there has been a lot of opportunities around us.

Okay. That’s very helpful.

And congratulations to you too, Linda, great award, great accomplishment.

Thank you. Team effort.

Good afternoon. Just I wanted to follow-on Mark’s question on the Industrial margins because that was a pretty remarkable margin performance in what is traditionally a very seasonally weak quarter for Skyjack.

We saw that on a seasonality, the drop in sequential revenue, call it 24%. So I think many of us would have assumed a much bigger drop on margins given that.

You kind of explained a little bit in terms of mix. I was wondering if you can comment on two things.

One was pricing. And secondly, I’ve never though this business was really pieces of relatively low-fixed cost, fixed overhead business.

I didn’t realize that you guys would have that kind of operating leverage within that business. So if you can comment on that, please?

Yes. So you’re right, the level of sales drop may have suggested that earnings would come down a little bit more than they did.

This business, the Skyjack business and its segment is very mixed sensitive. So depending on the customers and the products that they are selling in that quarter, you can see the margins move around a fair a bit.

So bottom line is, we had a little bit more positive of a mix. We had a small exchange pick-up, it was $0.5 million, so it didn’t affect it significantly, but there is that piece as well.

Okay. So it sounds like it was more of a mix impact then, but obviously the higher volumes in Europe as such helped with absorbing some overhead.

I guess heading into the fourth quarter, I was just kind of curious how we should think about that business. Traditionally, fourth quarter is even weaker than Q3 for Skyjack?

Yes, you absolutely should expect the fourth quarter to be weaker.

Okay, great. And I was wondering if you can give us just a quick update on the Seissenschmidt due diligence.

How that’s going, and if there is anything that made that deal more complicated that required the closing take longer?

Any European deal seems to have a little bit more complex due diligence than other deals. There is a lot of regulatory hurdles and time that’s required to get through that.

So it’s probably a little bit less about due diligence and little bit more about clearing all the regulatory pieces. So I think we’re on track.

We should have the deal closed by, we think early next year. Early to mid-January is sort of our target.

So I feel like we’re pretty much on track for that.

Yes, from a due diligence perspective, there is really no stoppage or anything, it’s just more the regulatory approvals that we’re still working through and papering the deal.

Okay, great. Thanks very much.

Sorry back on Skyjack again. So you have the two plants, and you did talk about capacity utilization and climbing capacity utilization absorbing costs.

So do you think there was a disproportionate amount of the strength from the Skyjack business, I don’t know what you call it, the Plant 2, not the old plant but the new plant where you do the, I believe the telehandlers and the booms?

Well, certainly we’re seeing boom sales growing quickly. There is no doubt about that.

I don’t know that it would be disproportionately focused towards that.

No, I don’t think so. Maybe just a couple of comments, I think capacity utilization, volume helps significantly.

We’ve had focused on the boom launches for about a year now. So certainly some cost reduction initiatives have really taken focus.

So I think those two things have really helped over the last 12-month period to see margin on a new product line. And then the volume increases with the new product lines with new booms are also starting to increase the revenue side, and that’s why we see that trend continuing.

Okay. But am I right that the Plant 1 does the scissors, and Plant 2 does the booms and the telehandlers?

Yes.

Okay.

Well, there is scissors being done at Plant 2 as well that…

Rough-terrain.

Okay.

Yes. But yes one plant is more allocated to rough-terrain scissors and telehandlers and then the other is the smaller scissors.

Okay. And then I just wanted to make sure I heard you correctly in terms of the product lines you’re seeing in terms of sales.

You’re seeing a lot of strength in Europe in scissors and you’re seeing a lot of growth in booms in North America. Is that what you said earlier on the call?

Actually we’re growing in booms on a global basis. We’re selling more strongly in North America and we have a broader customer base there.

So the growth is pretty strong there, but we also saw some very good increases in boom sales outside of North America as well. So the global picture, if I look at the global increase in units sold of booms in the overall market and units of booms that we sold, we’re selling about 4x the level of the market growth.

Our unit sales growth is 4x the level of the market unit sales growth.

Okay. And where did you see the strength in scissors?

I believe you were talking about [indiscernible] Europe?

Yes, in Europe. We grew in North America as well.

We’re growing in North America as well, but have seen some really solid growth in Europe, in particular. So we grew at I think 2.7x or almost 3x the level of the market in Europe in scissors.

Okay. And just want to switch topics.

I’m just wondering why you raised your margin guidance in both of the businesses. Is it because of the experience you had during the quarter, the business is just running better than you anticipated, or are you seeing some things in the future that are going to drive margin higher?

Both. So increased confidence based on strong performance and a more positive outlook going forward as well.

We felt it was appropriate to make the adjustments to better encompass where we think results will be over the next several years.

Okay. And then lastly, I just wanted to talk to you about ramp costs.

On the last call, you indicated that you do expect more ramp costs in 2015 versus ‘14, but they’re not really going to be substantially more, and I know you have this big ramp-up as you’re leading to in 2017 in the nine and 10 speed transmission. So I am just wondering if you could layout how ramp costs are going to build in terms of timeline, any insights you can give us into magnitude, and as you know that these ramp phases have caused some volatility in quarterly earnings performance in the past.

Yes, they have. However I’ll just remind you that when that happened back in 2010, 2011 timeframe, it was also related to the volume of launches, as well as the current level of business.

So proportionately we were launching a significant amount in proportion to the level of sales that we had. So although we’re seeing a lot of launches in the pipeline, the denominator of that equation is much bigger.

So our ability to absorb that in those launch costs as a percent of sales are not expected to spike the way they did back in 2010 to 2011. So we don’t think that – at least for next year, it doesn’t look to be making a material – having a material impact as a percent of sales in terms of the impact on the margins.

We’re feeling more positive about that than we did a couple of quarters ago. It looks like things are looking quite steady really.

Okay. And sorry, just one last question.

So this new program you have in Arden and the second plant that you’re developing for the gears. I saw there was a local news article that said you’re putting in $115 million of capital into that plant, which seems extraordinarily high.

Can you just talk about, is that article correct or is that wrong?

Yes. No, the article is correct.

Now that investment is over the next several years, so that’s not all happening necessarily at once. But as I mentioned, this is a significant program.

We’re talking about close to $200 million in sales. So that’s between the two programs but the majority of it is in the North Carolina plant.

So it shouldn’t surprise me that there is a large amount of capital involved in that, especially for gears which are highly capital intensive.

All right. Okay.

Thanks for your comments.

Good evening, everyone, and let me offer my congratulations on the quarter. If I could start with Industrial.

Just wanted to get your commentary on, some of your peers have been talking about a more competitive marketplace. I assume they are referring to you in terms of your share gains, but it doesn’t seem to be coming at the expense of your own margins.

Would you agree with that assessment of the market?

We’re certainly in a competitive market and we’re gaining market share because of our product is, I think superior product in regards to scissors and booms, and our distribution has grown and we’ve been able to outpace competitors, but our pricing is competitive, we’re not undercutting our prices in the market. We’re competing neck-and-neck against our competitors.

And I would add to that, that I think margins were negatively impacted by, as we were launching the booms and when volumes are low, you’re just not going to see the kind of margin performance that you will when volumes grow. So as we add volume by picking up that market share, we’re just improving margins not giving them away.

No, I’m asking – and your new margin target is actually consistent with other competitors in the market. You were targeting 15%.

So, in a way I guess one could say you – I don’t know if you’re underperforming, but you definitely were below that 15% target that some of your competitors had out there. The utilization was asked before, but I am just wondering, can you actually tell us in Industrial or Skyjack, what your utilization rate is?

And what would cause you to actually have to expand capacity?

We feel that the two plants that we have can absorb the $1 billion target that I referenced in my comments.

Okay. In terms of the automotive side, if I could, talk about that for a second.

So your updated EBIT target of 7% to 10%. Would that also include Seissenschmidt?

Yes.

Okay. And to this launch cost point, what do you think you’re doing differently now, which has allowed you to execute better?

You’re obviously launching a lot of new programs. You’ve even seen some of your much bigger competitors stumble on launch costs this year when – in prior quarters, they had been blowing operating margin goals out of the water as well.

What do you think is allowing you to do that? Are there better controls in place that weren’t there before a couple of years ago?

Maybe just talk about some of the things you’ve been doing at Linamar?

Yes, I would say two things. First of all, I would just remind you again about the proportionate amount of launches.

So we had an enormous amount of launch on a much smaller business base. So you see the impacts of that much more clearly than you will with the same or even higher amount of business with a much larger business base.

So just keep that in mind. But secondly, I would say that we have tightened up our systems in how we’re tracking launches and driving great accountability and great teamwork in terms of approaching launches and that’s a system we implemented probably two…

2.5, three years ago.

Three years ago. And have been, I think instrumental in helping us to really have a good hand on what’s going on in terms of the launches and helping someone out of things that are starting to look like there is a concern.

I would add one more thing too. Some of the launches are uplifts.

So starting something new is more difficult in a launch than if you’re already running 4,000 a day of a car and adding another 1,000 a day. It typically is easier launch to do.

So we’ve been through some of those uplifts in the industry in the last 12 months to 24 months.

So it also adds if you look at the timeframe back coming out of the 2009, we were doing a lot of accelerated launches. So we normally launch over the year plus timeframe, we’re doing more like six months.

So the costs are getting compressive in a smaller time period.

So when you think about your book of business over the next, let’s say three or four years, do you see accelerated launches in that book or is it going to be more measured, like you’re starting to see over the last year or so?

I think it’s more measured. A lot of the programs that were, sort of carry-on programs that we’re very familiar with.

So we’re changing as we are talking as an example nine, 10 speed. A lot of the components we’re doing on six-speed are the same into the nine, 10s.

So those carry-ons would be consistent with what we’re doing today. So it makes the technical launch easier and more efficient.

Okay, great. Thanks for the color.

Appreciate it.

Yes. First question is on the CapEx.

So, I was just wondering, how much we should see in terms of ramp-up per quarter. Are we going over $100 million or can you give us some idea?

Well, I mentioned for this year, that we’re going to be a little bit under the 8% to 10% of sales, but next year we will be back in into that range. And I don’t think it’s terribly lumpy.

If you apply that fairly evenly across the year, I think that’s probably pretty realistic.

Okay. Second question is on the minority interest at Seissenschmidt.

Can you give us an idea of how large you expect that to be next year roughly?

Yes. Well, we’re buying 66% of Seissenschmidt.

Right. But how much will that translate into in millions of dollars of minority interest ballpark?

Well, I would have to give you my specific earnings estimate for Seissenschmidt for next year, which I haven’t done. I’ve given you an idea actually on our last call of what the kind of sales level is, and the kind of EBITDA margins.

So I think you can work into it.

Okay. Fair enough.

The last question I had is just on the foreign exchange. Obviously the Canadian dollar has weakened quite a bit.

Is this helping to much degree do you think right now, because presumably your Canadian value added is helping a fair bit there.

Yes. As you know, we’re pretty much naturally hedged.

So we have a fair amount of Canadian dollar revenue, and at the same time, a high degree of U.S. dollar costs.

So we’re close to be naturally hedged, it’s not always perfect. In different areas of the business, we act differently.

So for Skyjack, a low Canadian dollar is better because they are selling in U.S. dollars, but for other plants, they are selling in Canadian dollars, it’s not too good, right.

So you know that you don’t see a lot of FX impact us overall for us. So we don’t see that changing in the future.

That’s correct. It’s really going down to – from our point of view, as like Linda said, we’re very close to being naturally hedged.

We do have some exposures that fluctuate from quarter-to-quarter depending on sales levels and the seasonality, but generally as you’ve seen, it’s pretty small impact to our bottom line.

Right. Just to clarify on that.

When you say you’re naturally hedged, are you talking expense items or are you talking all-in, including the capital items?

Generally, we’re talking about the operating. So you’re talking about the sales and expenses, but even on the balance sheet side, it’s not that material.

Okay. That’s fine.

Okay, that’s all I have. Thank you.

Okay, great. Well, to conclude this evening, I would like to leave you with three key messages.

First, it’s great to see continued outstanding industry leading sales and earnings growth this quarter, driving continued strong margin performance. Secondly, we’re thrilled with an amazing quarter of new business wins, notably the significant new business in gears, camshaft connecting rods and nine and 10-speed transmission programs.

And finally, it’s great to see meaningful progress on our vertical integration strategies with our recent forging acquisition, key to growth and target our product such as the gears. Thanks very much and have a good evening.