Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

March 23, 2010 17:14 ET

Martinrea International Inc. Releases December 31, 2009 Annual Results

TORONTO, ONTARIO--(Marketwire - March 23, 2010) - Martinrea International Inc. (TSX:MRE), a leader in the production of quality metal parts, assemblies and modules and fluid management systems focused primarily on the automotive sector, announced today the release of its financial results for the fiscal year and its fourth quarter ended December 31, 2009. Martinrea currently employs approximately 5,600 skilled and motivated people in 31 plants in Canada, the United States, Mexico, and Europe.

The Company reports its financial results in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). However, the Company has included certain non-GAAP financial measures and ratios in this press release that the Company believes will provide useful information in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to the other financial measures determined in accordance with Canadian GAAP. Non-GAAP measures referred to in the press release include "adjusted net earnings", "adjusted net loss", "adjusted earnings per share on a basic and diluted basis" and "adjusted loss per share on a basic and diluted basis" and are defined in the Table A, B and C sections of this press release under Adjustments to Net Income. All amounts in this press release are in Canadian dollars, unless otherwise stated; and all tabular amounts are in thousands of Canadian dollars, except earnings per share and number of shares.

REVENUE

  Year ended December 31    
  2009 2008 Change % Change
 
Revenue 1,138,140 1,557,021 (418,881) (26.9%)

2009 to 2008 comparison

Revenue for the year ended December 31, 2009 decreased by $418.9 million or 26.9% from the prior year comparable primarily due to lower volumes on North American light vehicle platforms, the absence of revenue relating to the GMT 360 frame program produced in the Kitchener Frame facility that ended during the fourth quarter of 2008 that totaled $121.7 million in 2008, and a decrease in tooling revenue of $56.9 million partially offset by the depreciation of the Canadian dollar versus the U.S. dollar resulting in a higher translated U.S. dollar denominated revenue of approximately $60.9 million.

Fourth Quarter 2009 to Fourth Quarter 2008 comparison

The Company's revenue for the fourth quarter of 2009 of $396.0 million was higher than revenue for the fourth quarter of 2008 of $356.9 million by $39.1 million primarily due to improved production volumes in North American light vehicle platforms and additional revenue earned as a result of the acquisition of certain equipment and two facilities from SKD Automotive Group. The revenue improvement of $39.1 million would have been higher had it not been impacted by the termination of the GMT 360 frame program that ended in the fourth quarter of 2008, which contributed $35.5 million in revenue in the fourth quarter of 2008. This increase in revenue was offset by a tooling revenue decline of $26.7 million as compared to the fourth quarter of 2008 and a reduction in the translation of U.S. dollar denominated revenue of approximately $29.9 million.

Fourth Quarter 2009 to Third Quarter 2009 comparison

The Company's revenue for the fourth quarter of 2009 of $396.0 million increased by $102.2 million or 34.8% as compared to the revenue of the third quarter of 2009 of $293.8 million, due mainly to improved production volumes. This increase would have been further enhanced had it not been offset by the strengthening of the Canadian dollar versus the U.S. dollar, which reduced revenue by $10.7 million, and a decline in tooling revenue of $13.6 million.

GROSS MARGIN

  Year ended December 31    
  2009 2008 Change % Change
 
Gross margin 75,101 127,294 (52,193) (41.0%)
% of revenue 6.6% 8.2%    

2009 to 2008 comparison

The gross margin percentage of 6.6% for the year ended December 31, 2009 decreased by 1.6% compared to the prior year of 8.2%. Excluding the one-time items explained in Table A under Adjustments to Net Income which relate primarily to the closure of the Kitchener Frame facility, curtailment gains on post employment benefits, development costs related to the SKD Automotive Group acquisition which were all recorded in 2009, and certain developmental costs and supplier insolvency costs which were recorded in 2008, the gross margin percentage for the year ended December 31, 2009 was 7.5% as compared to 8.7% for the year ended December 31, 2008.

The gross margin percentage reduction was primarily due to under-absorption of manufacturing overheads as a result of low production volumes, changes in product mix and continuous pricing pressures from customers that continue to be a normal part of the North American automotive parts industry.

Fourth Quarter 2009 to Fourth Quarter 2008 comparison

The gross margin percentage for the fourth quarter of 2009 of 7.2% increased by 3.1% from the prior year comparable as a result of one-time costs and better absorption of manufacturing overheads due to increased production volumes. Excluding the one-time items explained in Table B under Adjustments to Net Income, the gross margin for the fourth quarter of 2009 increased by 2.9% as compared to the same period in the prior year. The one-time items relate primarily to the closure of the Kitchener Frame facility and development costs related to the SKD Automotive Group acquisition, which were all recorded in the fourth quarter of 2009, and certain developmental costs and supplier insolvency costs which were recorded in the fourth quarter of 2008. The increase in gross margin percentage was mainly due to better absorption of manufacturing overheads as a result of increased production volumes.

Fourth Quarter 2009 to Third Quarter 2009 comparison

The gross margin percentage of 7.2% for the fourth quarter of 2009 decreased by 1.9% as compared to the third quarter of 2009 gross margin percentage of 9.1%. Excluding the one-time items primarily related to the closure of the Kitchener Frame facility and development costs related to the SKD Automotive Group acquisition as explained in Table C under Adjustments to Net Income, the gross margin percentage for the fourth quarter of 2009 decreased by 0.8% to 9.1% as compared to 9.9% in the third quarter of 2009.

The decline in the gross margin percentage in the fourth quarter of 2009 compared to the third quarter of 2009 was primarily due to the retraining of employees who returned to work after long lay-off periods and other production related ramp-up costs and inefficiencies that were experienced at several of the Company's divisions.

ADJUSTMENTS TO NET INCOME

As a result of the economic recession in North America that caused significant production reduction by customers in 2008 and 2009 and a number of industry-related developments and risks described under Risks and Uncertainties in the Company's Management Discussion and Analysis dated March 23, 2010 for the fiscal year ended December 31, 2009, and the continued rationalization of the Company's manufacturing facilities, the Company recorded a number of unusual items and other items primarily during the fourth quarter of 2008 and the whole of the financial year ended December 31, 2009. The Company believes that it is useful to set out in detail these unusual and other items as they are non-recurring and thus the Company's financial results for the years ended December 31, 2009 and December 31, 2008 may not be indicative of future results.

TABLE A

  Year ended December 31  
  2009 2008 Change
       
NET LOSS (PER CANADIAN GAAP) (A) (24,940) (261,088) 236,148
 
Add back - Unusual Items:      
       
Goodwill Impairment (1) - 230,558 (230,558)
 
Property, Plant and Equipment Impairment (2) 7,322 17,733 (10,411)
       
Intangible Asset Impairment (3) 287 836 (549)
       
Employee Related Severance Costs (4) 8,430 37,445 (29,015)
       
Other Restructuring Costs (5) 5,185 12,777 (7,592)
 
Other Restructuring Costs – Kitchener period costs recorded as cost of sales (5) 6,460 - 6,460
 
Other Restructuring Costs – Kitchener period costs recorded as SG&A expenses (5) 1,335 - 1,335
       
Supplier Insolvency Costs (6) - 3,372 ( 3,372)
       
Deferred Financing Costs (7) - 1,243 (1,243)
 
Add back - Other Items:      
       
Development Costs (8) 7,111 5,797 1,314
       
Valuation Allowance on Future Tax Assets (9) 1,241 2,100 (859)
       
Post Employment Benefit Curtailment (10) (3,700) - (3,700)
       
Gain on Sale of Land (11) (3,963) - (3,963)
       
Settlement of Customer Contracts (12) 900 - 900
 
TOTAL UNUSUAL AND OTHER ITEMS BEFORE      
TAX 30,608 311,861 (281,253)
       
Tax Impact of above items (9,859) (26,533) 16,674
 
TOTAL UNUSUAL AND OTHER ITEMS AFTERTAX (B) 20,749 285,328 (264,579)
 
ADJUSTED NET EARNINGS / (LOSS) (NONCANADIAN GAAP) (A + B) (4,191) 24,240 (28,431)
 
Number of Shares Outstanding – Basic ('000) 77,797 71,826  
       
Adjusted Basic Earnings / (Loss) Per Share (0.05) 0.34  
       
Number of Shares Outstanding – Diluted ('000) 78,426 72,508  
       
Adjusted Diluted Earnings / (Loss) Per Share (0.05) 0.33  

TABLE B

  For the quarter ended  
  December 31  
  2009 2008 Change
       
NET LOSS (PER CANADIAN GAAP) (A) (5,378) (286,520) 281,142
 
Add back - Unusual Items:      
       
Goodwill Impairment (1) - 230,558 (230,558)
 
Property, Plant & Equipment Impairment (2) 7,322 17,733 (10,411)
       
Intangible Asset Impairment (3) 287 836 (549)
       
Employee Related Severance Costs (4) 349 37,445 (37,096)
       
Other Restructuring Costs (5) 459 12,777 (12,318)
 
Other Restructuring Costs – Kitchener period costs recorded as cost of sales (5) 1,774 - 1,774
       
Other Restructuring Costs – Kitchener period costs recorded as SG&A expenses (5) 102 - 102
       
Supplier Insolvency Costs (6) - 3,372 (3,372)
       
Deferred Financing Costs (7) - 1,243 (1,243)
 
Add back - Other Items:      
       
Development Costs (8) 5,358 5,797 (439)
       
Valuation Allowance on Future Tax Assets (9) 1,241 2,100 (859)
       
Settlement of Customer Contracts (12) 900 - 900
 
TOTAL UNUSUAL AND OTHER ITEMSBEFORE TAX 17,792 311,861 (294,069)
       
Tax impact of above items (4,413) (26,533) 22,120
 
TOTAL UNUSUAL AND OTHER ITEMSAFTER TAX (B) 13,379 285,328 (271,949)
 
ADJUSTED NET EARNINGS / (LOSS) (NONCANADIAN GAAP) (A + B) 8,001 (1,192) 9,193
 
Number of Shares Outstanding – Basic ('000) 83,326 71,826  
       
Adjusted Basic Earnings / (Loss) Per Share 0.10 (0.02)  
       
Number of Shares Outstanding – Diluted ('000) 84,107 72,426  
       
Adjusted Diluted Earnings / (Loss) Per Share 0.10 (0.02)  

TABLE C

  For the quarter ended  
 
  December 31, September 30,  
  2009 2009 Change
       
NET EARNINGS/(LOSS) (PER CANADIAN GAAP) (A) (5,378) 717 (6,095)
 
Add back - Unusual Items:      
       
Property, Plant & Equipment Impairment (2) 7,322 - 7,322
       
Intangible Asset Impairment (3) 287 - 287
       
Employee Related Severance Costs (4) 349 439 (90)
       
Other Restructuring Costs (5) 459 803 (344)
 
Other Restructuring Costs – Kitchener period costs recorded as cost of sales (5) 1,774 1,114 660
       
Other Restructuring Costs – Kitchener period costs recorded as SG&A expenses (5) 102 104 (2)
 
Add back - Other Items:      
       
Development Costs (8) 5,358 1,131 4,227
       
Valuation Allowance on Future Tax Assets (9) 1,241 - 1,241
       
Settlement of Customer Contracts (12) 900 - 900
 
TOTAL UNUSUAL AND OTHER ITEMSBEFORE TAX 17,792 3,591 14,201
       
Tax impact of above items (4,413) (1,221) (3,192)
 
TOTAL UNUSUAL AND OTHER ITEMSAFTER TAX (B) 13,379 2,370 11,009
 
ADJUSTED NET EARNINGS (NONCANADIAN GAAP) (A + B) 8,001 3,087 4,914
 
Number of Shares Outstanding – Basic ('000) 83,326 83,326  
       
Adjusted Basic Earnings Per Share 0.10 0.04  
 
Number of Shares Outstanding – Diluted ('000) 84,107 84,014  
       
Adjusted Diluted Earnings Per Share 0.10 0.04  

(1) Goodwill Impairment

During the fourth quarter of 2008, as part of the annual goodwill impairment assessment, the Company determined that the carrying value of goodwill was impaired as a result of significant and sustained decline in the market capitalization of the Company, the deteriorating macro environment directly impacting the automotive industry and the accelerated and significant decline in production volumes during the fourth quarter of 2008. The goodwill as stated on the balance sheet had resulted from two acquisitions made by the Company in 2002, when market valuations were higher than at the fourth quarter of 2008.

The assessment involved using a combination of valuation approaches including a market capitalization approach, a multiples approach and a discounted cash flow approach. The market capitalization approach uses the Company's publicly traded stock price to determine the fair value. The multiples approach uses comparable market multiples to arrive at a fair value and the discounted cash flow method uses revenue and expense projections and risk- adjusted discount rates. The process of determining fair value is subjective and requires management to exercise a significant amount of judgment in determining future growth rates, discount rates and other factors. Management concluded that impairment had occurred, and consequently the Company wrote off the entire carrying value of goodwill through a charge to the consolidated statement of operations in the amount of $230.6 million. The goodwill impairment charge is non-cash in nature and does not affect the Company's liquidity, cash flows from operating activities, compliance with debt covenants and is not reflective of the Company's ability to generate future profits and cash flows.

(2) Property, Plant and Equipment ("PP&E") Impairment

During the fourth quarter of 2008 and 2009, the Company determined that the carrying value of certain PP&E was impaired as a result of the accelerated and significant decline in production volumes of North American light vehicle platforms and excess available capacity at certain Company facilities.

As a result of its review, the Company assessed the recoverability of PP&E by determining whether the carrying value of such assets can be recovered through undiscounted future cash flows. As the undiscounted future cash flows were less than the carrying amount, the excess of the carrying amount over the estimated fair value was recorded as an impairment charge to the consolidated statement of operations of $7.3 million (2008 - $17.7 million). The PP&E impairment charge is non-cash in nature.

(3) Intangible Asset Impairment

During the fourth quarter of 2008 and 2009, the Company determined that the carrying amount of certain intangible assets was impaired as a result of the deteriorating macro environment directly impacting the automotive industry.
As a result, the Company assessed the recoverability of intangible assets by determining whether the carrying amount of such assets can be recovered through undiscounted future cash flows. As the undiscounted future cash flows were less than the carrying amount, the excess of the carrying amount over the estimated fair value was recorded as an impairment charge to the consolidated statement of operations of $0.8 million and $0.3 million for intangible assets for 2008 and 2009 respectively. The intangible asset impairment charge is non-cash in nature.

(4) Employee Related Severance Costs

During the fourth quarter of 2008, the Company's Kitchener Frame facility was notified by its customer that there would be a termination of the existing program as of December 23, 2008 resulting in production of the Kitchener Frame facility's key products to end on that date. As a result of this notice, the Company completed its closure plan for the Kitchener Frame facility and the Kitchener Frame facility's production operations ceased on December 31, 2008. The Company incurred a significant amount of severance costs relating to the closure of the Kitchener Frame facility, which were accrued in accordance with the applicable accounting standards in the fourth quarter of 2008. In addition, severance costs were also incurred at other facilities as a result of the closure of a facility in the U.K., the right sizing of the Company's Windsor, Ontario and Shelbyville, Kentucky facilities and the accrual of costs related to the scheduled closure of another Canadian facility in 2009 which were also recorded in the fourth quarter of 2008.

Further, in the second quarter of 2009, the Company negotiated a buy-down and a buy-out agreement with employees of its Shelbyville division and incurred a settlement amount of $8.4 million to restructure the future salary and benefits of such employees. The agreement reduced the future salary and benefits of such employees and also provided a buy-out opportunity to the employees. This expense was, along with other severance expense recorded for right sizing other divisions, partially offset by a reversal of a severance accrual associated with the Kitchener Frame facility recorded in 2008, all of which resulted in a net expense of employee- related severance costs at $8.4 million in Table A and $0.3 million in Table B and C under Adjustments to Net Income.

(5) Other Restructuring Costs

In response to the significant decline in volumes beginning in 2008, lower future forecasted volumes and to realign its operations, the Company undertook certain initiatives to prepare for a profitable and sustainable future. In so doing, certain restructuring costs were incurred during the fourth quarter of 2008 and the entire financial year of 2009. These initiatives included strict cost reduction measures across the entire organization, consolidation of certain facilities, closing of the Kitchener Frame facility, the rationalization of excess capacity at certain facilities by moving equipment and programs between facilities and other cash preservation measures.

The Company expensed total restructuring costs of $71.6 million (combining this item with Employee Related Severance Costs in Item 4 above) of which $50.2 million was expensed during the fourth quarter of 2008 and the balance of $21.4 million was recorded in 2009 as outlined in Note 7 of the consolidated financial statements for the year ended December 31, 2009.

As at December 31, 2009, $0.7 million of the total restructuring and employee related severance costs recorded in the fourth quarter of 2008 and the entire financial year of 2009 were included in accounts payable and accrued liabilities.

Certain operational and ongoing costs relating to the Kitchener Frame facility have not been accrued, consistent with prior quarters and are expensed as incurred in accordance with Canadian GAAP. Management estimates the remaining operational costs relating to the Kitchener Frame facility to be approximately $1.0 million to $3.0 million depending on the final sale date of the facility.

(6) Supplier Insolvency Costs

During 2008, a significant tooling supplier on one of the Company's global programs terminated operations prior to the completion of the tooling program. As a result of the supplier's insolvency, certain unplanned costs were incurred to release product, tooling and dies from tooling suppliers as well as transportation costs in the amount of $3.4 million. These additional costs were required to ensure the timely completion of the global program. Costs of a similar nature may be incurred in the future as key suppliers struggle with lower production volumes and the current economic environment, although it is not possible to estimate these costs at this time. The Company continues to evaluate both customers and suppliers on a regular basis to determine the risk and reduce the extent of these costs.

(7) Deferred Financing Costs

The balance of deferred financing costs of approximately $1.2 million was written off in the fourth quarter of 2008 due to the amendment of lending arrangements entered into by the Company on December 31, 2008 which qualified as debt extinguishment in accordance with Canadian GAAP.

(8) Development Costs

Development costs in the nature of product testing, employee training and other operational inefficiencies during the product launch period are expensed in accordance with Canadian GAAP and the Company's accounting policies. As a result of the uncertainty surrounding precise future production volumes, developmental costs of approximately $5.8 million were expensed as incurred in the year and quarter ending December 31, 2008.

Furthermore, the Company incurred approximately $7.1 million in 2009 in relation to development costs for takeover business from SKD Automotive Group, out of which $5.4 million and $1.1 million were expensed in the fourth and third quarters of 2009 respectively.

(9) Valuation Allowance on Future Tax Assets

During 2009, the Company's valuation allowance increased by $1.2 million against future tax assets before the impact of foreign exchange. The valuation allowance increase in the U.S. and Mexico on non-capital losses was partially offset by a reduction in the Canadian and European valuation allowance primarily against non-capital losses. The valuation allowance at December 31, 2009 includes $8.9 million of U.S. non-capital loss carry forwards, $4.9 million of European non-capital loss carry forwards, $2.8 million of Mexican non-capital loss carry forwards and $1.9 million of Canadian future tax assets relating primarily to capital losses.

(10) Post Employment Benefit Curtailment Gain

The Company recognized a curtailment gain of $3.7 million in the second quarter of 2009 as a result of the restructuring of benefits of the employees of its Shelbyville division and continuing restructuring at its Windsor division leading to curtailment of future benefits under the post employment benefit plan.

(11) Gain on Sale of Land

In the first quarter of 2009, the Company sold a piece of land and recorded a gain of approximately $4.0 million.

(12) Settlement of Customer Contracts

During the fourth quarter of 2009, the Company reached a settlement with a Russian customer which was in the process of restructuring operations. As a result of the customer restructuring and the cancellation of the customer contract, net expenses of approximately $0.9 million were incurred during the fourth quarter of 2009.

NET LOSS

  Year ended December 31    
  2009 2008 Change % Change
 
Net Loss (24,940) (261,088) 236,148 90.5%
Loss per common share        
  Basic (0.32) (3.64)    
  Diluted (0.32) (3.64)    

2009 to 2008 comparison

The net loss for the year ended December 31, 2009 of $24.9 million decreased by $236.2 million from $261.1 million which was recorded for the year ended December 31, 2008, as a result of the decrease in significant one-time items of $264.6 million as explained in Table A under Adjustments to Net Income.

Adjusted net loss for the year ended December 31, 2009 was $4.2 million or $0.05 adjusted loss per share, on a basic and diluted basis, as calculated in Table A under Adjustments to Net Income as compared to adjusted net earnings for the year ended December 31, 2008 of $24.2 million or adjusted earnings per share of $0.34 and $0.33 on a basic and diluted basis respectively. The reduction of adjusted net earnings and adjusted earnings per share in 2009 as compared to 2008 is primarily on account of a $418.9 million revenue reduction in 2009 as compared to 2008 and the deterioration of gross margin percentage discussed above in 2009 as compared to 2008.

Fourth Quarter 2009 to Fourth Quarter 2008 comparison

The net loss for the fourth quarter of 2009 of $5.4 million decreased by $281.1 million from a net loss of $286.5 million in the fourth quarter of 2008 primarily on account of much higher one-time items as described in Table B under Adjustments to Net Income. Excluding one-time items, the adjusted net earnings in the fourth quarter of 2009 improved to $8.0 million or $0.10 per share, on a basic and diluted basis, in comparison to adjusted net loss of $1.2 million or $0.02 loss per share, on a basic and diluted basis, in the fourth quarter of 2008.

The increase in adjusted net earnings in the fourth quarter of 2009 as compared to the fourth quarter of 2008 was primarily attributable to a 11% increase in revenue and better absorption of manufacturing overheads resulting in better margins in the fourth quarter of 2009 as compared to the fourth quarter of 2008.

Fourth Quarter 2009 to Third Quarter 2009 comparison

The net loss for the fourth quarter of 2009 of $5.4 million was lower than net earnings of $0.7 million in the third quarter of 2009 largely due to higher one-time costs of $11.0 million in the fourth quarter of 2009 as compared to the third quarter of 2009 as described in Table C under Adjustments to Net Income.

Excluding the one-time costs, the adjusted net earnings for the fourth quarter of 2009 increased to $8.0 million or $0.10 earnings per share, on a basic and diluted basis, as compared to adjusted net earnings for the third quarter of 2009 of $3.1 million or $0.04 per share, on a basic and diluted basis.

The increase in adjusted earnings in the fourth quarter of 2009 as compared to the third quarter of 2009 was mainly as a consequence of a 34.8% improvement in revenue between the two quarters.

CAPITAL EXPENDITURES

2009 to 2008 comparison

Capital expenditures for the year ended December 31, 2009 declined to $51.4 million from $66.4 million for the year ended December 31, 2008. Capital expenditures for the year ended December 31, 2009 included approximately $12.8 million relating to the acquisition of equipment from SKD Automotive Group. Excluding these assets acquired from SKD Automotive Group, the Company incurred capital expenditures of $38.6 million for the year ended December 31, 2009 relating to new programs. The reduction in capital expenditures of $27.8 million, net of the acquisition of equipment from SKD Automotive Group, is largely driven by management's initiative to reduce capital spending in view of reduced production volumes, the emphasis on re-using existing equipment particularly from the Kitchener Frame facility where possible, and the delay in capital expenditures without impacting product launches.

Fourth Quarter 2009 to Fourth Quarter 2008 comparison

In the fourth quarter of 2009, capital expenditures decreased by $7.3 million to $16.6 million from $23.9 million in the fourth quarter of 2008. The capital expenditures incurred in the fourth quarter of 2009 have decreased due to lower levels of activity related to program capital for new and existing programs.

Fourth Quarter 2009 to Third Quarter 2009 comparison

Capital expenditures increased by $6.5 million from $10.1 million in the third quarter of 2009 as compared to $16.6 million in the fourth quarter of 2009 mainly on account of timing of capital expenditures and progress payments to suppliers.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "We have described the automotive industry many times over the years as a perpetual storm, where many suppliers are suffering or dying. That was never more true than in 2009, when not only did the supply base experience huge stress, but so did the entire industry, including our customers, two of which went through bankruptcy processes in order to restructure. While the year came in like a gale force hurricane, it actually ended with some stability and a feeling in the industry that we may have turned the corner. Overall, and not surprisingly, we experienced much lower revenues in 2009 than in 2008, when the automotive and economic crises took hold, than in 2007, when overall sales and production numbers were much higher than last year. Our revenues approximated $1.14 billion, including tooling, reflecting the lower volumes. However, we did see quarterly incremental revenue growth quarter by quarter, with our fourth quarter revenue being our strongest with revenue of about $396 million, including tooling, which was up significantly from both the 2008 quarterly comparative and the third quarter of 2009. The stronger revenues reflected a growth in industry volumes and the impact of takeover business acquired earlier in the year primarily from our acquisition of SKD assets."

Mr. Jaekel added: "The industry crisis gave us an opportunity to expand our customer base and win new mandates. In 2009 we added Honda, Fiat and Hyundai as customers, and won new product mandates from Nissan, Chrysler, Ford, GM and Toyota as well. In addition to work obtained in the SKD transactions and product mandates previously announced, I am pleased to report that in the fourth quarter of 2009 we were awarded a number of product mandates totaling approximately $140 million in annualized sales when launched based on estimated volumes, including: Ford metallic assemblies of $55 million for 2012, Ford fuel and brake assemblies of $50 million for 2013, an additional $22 million of FIAT500 metallic assemblies for 2011, General Motors fuel fillers and vapour lines of $10 million for 2012, and incremental Volkswagen metallic assemblies for 2011 of $3 million. So, despite the turmoil in the industry, there was ample opportunity to build up a pipeline for the future in 2009, and the combination of the SKD takeover work, the new business awards, and some other takeover work made 2009 a very good year to obtain new business.

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "In 2009 the Company survived the economic and automotive crisis by managing its operations in a prudent manner. Operating expenses were reduced as needed to reflect volume reductions and many divisions learned how to reduce expenses permanently through the adoption of more efficient manufacturing

approaches and the encouragement of multi-tasking among employees. The Company continues to evaluate all operating divisions to ensure they remain competitive. In situations where divisions are not competitive all attempts are made to right size operations before a decision is made to sell, close or consolidate operations. As a result of the Company plan to right size operations a number of unusual items and other items were recorded in 2009 that are discussed in detail in our press release and filed documents."

Mr. Orlando continued: "Revenue in the fourth quarter of 2009 was the best quarterly performance of 2009 as the economic recovery began to take hold and customer production volumes increased. The growth in production and the effective restart of the supply base in the fourth quarter of 2009 has created some operational stresses at many suppliers, and we have experienced that as well in some of our divisions. As employees return to work after a long lay-off some retraining needs to occur and thus inefficiency arises and the gross margin percentage declines. This situation was clearly evident as the gross margin percentage in the fourth quarter of 2009 was lower than the third quarter of 2009 even though production volumes increased. The Company is working through these inefficiencies and the impact on the first quarter of 2010 should be lower than the fourth quarter of 2009. As a result the Company expects gross margin to improve in the first quarter of 2010 relative to the fourth quarter of 2009. The Company is well positioned to grow earnings and cash flow in 2010. In the fourth quarter of 2009 the Company had adjusted net income before unusual and other items of $0.10 per share on a basic and diluted basis. The Company expects net earnings to continue growing in 2010 provided current customer production volumes remain stable."

Rob Wildeboer, Martinrea's Executive Chairman stated: "In many ways we ended 2009 not only as a survivor of the automotive crisis, but as a consolidator in the industry, as evidenced by our year end book of business and expanded customer profile at a time when a number of suppliers have shrunk their business or exited the industry. We also ended the year not only with a great deal of valuable experience gained in dealing with a crisis, but with a healthy working capital position of $167 million, including approximately $23 million in cash. Our balance sheet remains strong. Our long term debt levels at the end of 2009 are less than they were at the beginning of the year. We have sufficient bank lines in place for our purposes. On the operational side, while our operations in Kitchener closed down as announced in 2008, in 2009 we added plants in the Mexico City area, in Jonesville Michigan, in Canada and in Slovakia, and proceeded with facility expansion plans in Tennessee, Mississippi and Mexico. We are poised to be where our customers need us to be."

Mr. Wildeboer added: "The outlook for our industry remains challenging in the near term, and recovery of the overall North American market will take time. We should see higher volumes in 2010 than in 2009, and are seeing that so far this year. We believe there will be growth also in 2011 and 2012, although it is uncertain, from our perspective, when and whether we will reach the volumes that existed in the early part of the decade. Higher volumes, resulting in higher throughput, can add to margins and profitability once the product is launched. We believe opportunities will continue to exist for innovative and cost effective suppliers who have survived the automotive crisis, and we will continue to see opportunities for new work and takeover business."

The common shares of Martinrea trade on The Toronto Stock Exchange under the symbol "MRE".

Special Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of applicable Canadian securities laws including statements related to the Company's expectations as to the launching of new metal forming and fluid systems programs, continued consolidation of automotive suppliers, anticipated growth in the automotive industry, the opportunity to increase sales, broad geographic penetration, increased relationships with intermediary suppliers, the nature and duration of the economic recession to the continuation of monitoring, managing and rationalization of expenses, the Company's expectation regarding the financing of future capital expenditures, the Company's views of the likelihood of tooling and component part supplier default, the Company's views on the long term outlook of the automotive industry, and the Company's ability to capitalize on opportunities in the automotive industry as well as other forward-looking statements. The words "continue", "expect", "anticipate", "estimate", "may", "will", "should", "views", "intend", "believe", "plan" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances. Many factors could cause the Company's actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors, some of which are discussed in detail under "Risks and Uncertainties" in the Company's Management Discussion and Analysis dated March 23, 2010 for the fiscal year ended December 31, 2009 and which are also discussed in the Company's Annual Information Form for the fiscal year ended December 31, 2009 and other public filings which can be found at www.sedar.com:

  • North American and global economic conditions;
  • the highly cyclical nature of the automotive industry and the industry's dependence on consumer spending and general economic conditions;
  • the Company's dependence on a limited number of significant customers, which have experienced and may continue to face severe financial challenges;
  • financial viability of suppliers;
  • Martinrea's reliance on suppliers for components and the risk that suppliers will not be able to supply components on a timely basis or in sufficient quantities;
  • competition;
  • the increasing pressure on the Company to absorb costs related to product design and development, engineering, program management, prototypes, validation and tooling;
  • increased pricing of raw materials;
  • outsourcing and in-sourcing trends;
  • competition with low cost countries;
  • the risk of increased costs associated with product warranty and recalls together with the associated liability;
  • the Company's ability to enhance operations and manufacturing techniques;
  • dependence on key personnel;
  • limited financial resources;
  • risks associated with the integration of acquisitions;
  • costs associated with rationalization of production facilities;
  • the potential volatility of the Company's share price;
  • changes in governmental regulations or laws including any changes to the North American Free Trade Agreement;
  • labour disputes;
  • litigation;
  • currency risk;
  • fluctuations in operating results;
  • internal controls over financial reporting and disclosure controls and procedures;
  • environmental regulation;
  • under-funding of pension plans; and
  • the cost of post-employment benefits.

These factors should be considered carefully, and readers should not place undue reliance on the Company's forward-looking statements. The Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

A conference call to discuss those results will be held on Wednesday, March 24, 2010 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 340-8018 or toll free (866) 223-7781. Please call 10 minutes prior to the start of the conference call.

If you have any teleconferencing questions, please call Andre La Rosa at (416) 749-0314.

There will also be a rebroadcast of the call available by dialing (416) 695-5800 or toll free number (800) 408-3053 (conference id – 1543855#). The rebroadcast will be available until April 8, 2010.

MARTINREA INTERNATIONAL INC.
Consolidated Balance Sheets

December 31, 2009 and 2008 (in thousands of dollars)

     
  2009 2008
 
Assets    
 
  Current assets:    
  Cash and cash equivalents $ 22,769 $ 60,965
  Accounts receivable 221,591 213,575
  Other receivables 7,380 7,637
  Income tax recoverable 13,369 16,035
  Inventories (note 3) 136,050 132,084
  Prepaid expenses and deposits 4,389 5,131
  405,548 435,427
 
Future income tax assets (note 12) 64,379 55,651
Property, plant and equipment (note 4) 395,855 428,979
Intangible assets (note 5) 18,315 20,502
Other long-term assets (note 6) 199,666 152,027
 
  $ 1,083,763 $ 1,092,586
 
Liabilities and Shareholders' Equity    
 
Current liabilities:    
  Accounts payable and accrued liabilities $ 224,097 $ 228,553
  Current portion of long-term debt (note 9) 14,845 20,428
  238,942 248,981
 
Long-term debt (note 9) 72,555 101,364
Pension and other post-retirement benefits (notes 10 and 11) 237,239 201,155
Future income tax liabilities (note 12) 30,824 22,789
Non-controlling interest 1,259 1,218
 
Shareholders' equity:    
  Share capital (note 13) 683,057 629,052
  Notes receivable for share capital (note 13) (2,700) (2,700)
  Contributed surplus (note 14) 37,402 34,478
  Accumulated other comprehensive loss (59,336) (13,212)
  Accumulated deficit (155,479) (130,539)
  502,944 517,079
Guarantees and commitments (note 20)    
 
  $ 1,083,763 $ 1,092,586

See accompanying notes to consolidated financial statements.

On behalf of the Board:  
   
"Fred Jaekel" Director
   
"Robert Wildeboer" Director

MARTINREA INTERNATIONAL INC.
Consolidated Statements of Operations

For the years ended December 31, 2009 and 2008
(in thousands of dollars, except per share amounts)

     
  2009 2008
 
Sales $ 1,138,140 $ 1,557,021
 
Cost of sales (excluding amortization of property, plant and equipment) 1,016,917 1,387,009
Amortization of property, plant and equipment (production) 46,122 42,718
Total cost of sales 1,063,039 1,429,727
Gross profit 75,101 127,294
 
Expenses:    
  Selling, general and administrative 74,136 85,202
  Foreign exchange loss 7,342 2,174
  Amortization of property, plant and equipment (non-production) 2,897 3,443
  Amortization of intangible assets (note 5) 4,703 4,403
  Impairment charge on goodwill, intangible assets and plant and equipment (notes 4 and 5) 7,609 249,127
  Restructuring costs (note 7) 13,615 50,222
  Interest on long-term debt 5,305 7,665
  Other interest income, net (376) (1,047)
  Gain on disposal of property, plant and equipment (3,677) (492)
  111,554 400,697
 
Loss before income taxes and non-controlling interest  (36,453)  (273,403)
 
Income taxes (recovery) (note 12):    
  Current (6,808) (2,649)
  Future (4,576) (9,519)
  (11,384) (12,168)
 
Loss before non-controlling interest (25,069) (261,235)
 
Non-controlling interest (129) (147)
Net loss $ (24,940) $ (261,088)
 
Loss per common share (note 15):    
  Basic $ (0.32) $ (3.64)
  Diluted (0.32) (3.64)
 
     
See accompanying notes to consolidated financial statements.

MARTINREA INTERNATIONAL INC.
Consolidated Statements of Comprehensive Income (Loss)

For the years ended December 31, 2009 and 2008
(in thousands of dollars)

     
  2009 2008
 
Net loss $ (24,940) $ (261,088)
     
Other comprehensive income / (loss), net of tax:    
     
Unrealized gain / (loss) on translation of financial statements of self-sustaining operations (46,124) 52,065
Other comprehensive income / (loss) (46,124) 52,065
     
Comprehensive loss $ (71,064) $ (209,023)
 
See accompanying notes to consolidated financial statements.

MARTINREA INTERNATIONAL INC.
Consolidated Statements of Changes in Shareholders' Equity

For the years ended December 31, 2009 and 2008
(in thousands of dollars)

  Share capital Notes receivable for share capital Contributed surplus Accumulated other comprehensive loss Accumulated deficit Total
             
Balances, December 31, 2007 629,052 (2,700) 29,337 (65,277) 130,549 720,961
             
Net loss - - - - (261,088) (261,088)
             
Compensation expense related to stock options - - 5,141 - - 5,141
             
Other comprehensive income - - - 52,065 - 52,065
             
Balances, December 31, 2008 629,052 (2,700) 34,478 (13,212) (130,539) 517,079
             
Net loss - - - - (24,940) (24,940)
             
Shares issued in private placement (net of share issue costs of $2,486 and future tax recovery of $716) 54,005 - - - - 54,005
             
Compensation expense related to stock options - - 2,924 - - 2,924
             
Other comprehensive loss - - - (46,124) - (46,124)
 
Balances, December 31, 2009 $ 683,057 $ (2,700) $ 37,402 $ (59,336) $ (155,479) $ 502,944

See accompanying notes to consolidated financial statements.

MARTINREA INTERNATIONAL INC.
Consolidated Statements of Cash Flows

For the years ended December 31, 2009 and 2008
(in thousands of dollars)

     
  2009 2008
 
Cash provided by (used in):    
 
Operating activities:    
  Net loss $ (24,940) $ (261,088)
  Items not involving cash:    
    Amortization of property, plant and equipment 49,019 46,161
    Amortization of intangible assets (note 5) 4,703 4,403
    Impairment charge on goodwill, intangible assets and plant and equipment (notes 4 and 5) 7,609 249,127
    Amortization of deferred financing costs 237 1,672
    Unrealized losses on foreign exchange forward contracts 67 1,286
    Future income taxes (4,576) (9,519)
    Non-controlling interest (129) (147)
    Gain on disposal of property, plant and equipment (3,677) (492)
    Stock-based compensation 2,924 5,141
    Pension and other post-employment benefits 5,200 5,052
  Contribution made to pension and other post-employment benefits (12,778) (20,013)
  23,659 21,583
  Changes in non-cash working capital items:    
    Accounts receivable (24,296) 89,462
    Other receivables (238) 3,898
    Inventories (9,452) 40,796
    Prepaid expenses and deposits 742 (1,461)
    Accounts payable and accrued liabilities (1,015) (58,892)
    Income taxes payable / recoverable 6,915 (39,549)
  (3,685) 55,837
 
Financing activities:    
  Issue of share capital (net of share issuance costs) (note 13) 54,005 -
  Increase in long-term debt 29,503 36,265
  Repayment of long-term debt (62,030) (18,995)
  21,478 17,270
 
Investing activities:    
  Acquisition of SKD Automotive Group (net of acquisition costs) (note 2) (4,267) -
  Purchase of property, plant and equipment (51,413) (66,402)
  Proceeds on disposal of property, plant and equipment 6,072 1,207
  (49,608) (65,195)
 
Effect of foreign exchange rate changes on cash and cash equivalents (6,381) 5,045
 
Increase / (decrease) in cash and cash equivalents (38,196) 12,957
 
Cash and cash equivalents, beginning of year 60,965 48,008
 
Cash and cash equivalents:    
  Cash 22,769 37,113
  Money market funds - 23,852
Cash and cash equivalents, end of year $ 22,769 $ 60,965
Supplemental cash flow information:    
  Cash paid for interest, net $ 4,440 $ 4,547
  Cash paid (received) for income taxes, net $ (8,670) $ 23,161
 
See accompanying notes to consolidated financial statements.

Contact Information

  • Martinrea International Inc.
    Nick Orlando
    President and Chief Financial Officer
    (416) 749-0314
    (905) 264-2937 (FAX)