Linamar Corporation
TSX : LNR

Linamar Corporation

August 10, 2005 16:00 ET

Linamar Announces Second Quarter Results Strong Performance Despite Automotive Trend

GUELPH, ONTARIO--(CCNMatthews - Aug. 10, 2005) - Linamar Corporation (TSX:LNR) ("Linamar" or "the company"), a global supplier who designs, develops and manufactures precision machined components, modules and systems for engine, transmission, chassis and industrial applications primarily for the North American, European and Asia Pacific automotive marketplace, today announced its financial results for the second quarter ended June 30, 2005.

(CDN dollars in thousands except per share figures)



Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $

Sales 578,805 460,626 1,108,279 891,223
Gross Margin 77,790 63,913 141,276 122,600
Operating Earnings(1) 51,875 40,292 91,567 76,683
Earnings from Continuing
Operations 29,757 24,621 52,162 46,351
---------------------------------------------------------------------
Diluted Earnings per Share from
Continuing Operations 0.42 0.35 0.73 0.65
Diluted Earnings per Share 0.42 0.32 0.73 0.61
---------------------------------------------------------------------


Second Quarter Operating Highlights

Second quarter sales increased by 25.7% or $118.2 million to $578.8 million, compared to $460.6 million in the same quarter last year. The second quarter contributed to a strong six months year to date where sales increased $217.1 million or 24.4% to $1,108.3 million from $891.2 million in 2004. The second quarter sales increase was lead by continued strong growth in North American Automotive Systems, related to both light vehicles, and medium and heavy trucks, the ramp up of new programs launched in recent periods (net of programs ending), and volume increases on other new and established programs. Second quarter sales for the Industrial segment increased 51.8% to $85.9 million, compared to $56.6 million in the same quarter 2004, as sales of Skyjack Inc. ("Skyjack") products continue to increase driven by customer demand volume increases. Europe segment sales have improved 13.6% to $39.8 million over the second quarter of 2004. Geographically and operationally, the Asia Pacific segment has been segregated from the Canadian and North American Automotive Systems segment during the quarter. This segment is currently experiencing losses as it incurs costs related to the commencement of operations.



Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $

Gross margin 77,790 63,913 141,276 122,600
Selling, general and
administrative 25,915 23,621 49,709 45,917
---------------------------------------------------------------------
Operating earnings 51,875 40,292 91,567 76,683
---------------------------------------------------------------------


Under Canadian generally accepted accounting principles ("GAAP"), this financial measure does not have a standardized meaning and, therefore is unlikely to be comparable to similar measures presented by other issuers.

The effect of the stronger Canadian dollar compared with the U.S. dollar in the first half of 2005 versus the first half of 2004 reduced automotive sales by $45.1 million ($25.3 million for the second quarter). Sales would have otherwise increased by 31.2% for the quarter and 29.4% year to date.

Operating earnings in the second quarter increased by 28.5% to $51.8 million, compared to $40.3 million for the same period last year. The company's operating earnings grew by $14.9 million or 19.4% for the first six months compared with 2004. Geographically, the improvement is attributed to growth in both the automotive and industrial businesses. Gross margin declined slightly due to changes in product mix and the effect of new automotive program launches yet to achieve full operational efficiency.

The operational segments also showed substantial growth in operating earnings. The growth is attributed to the volume increases in the North American Automotive Systems segment, while the Europe segment swung to an operating profit on sales increases for products with lower material content. The Industrial segment's earnings continue to expand, reaching $12.2 million for the quarter.

Earnings from continuing operations for the quarter were $29.8 million or 5.1% of sales compared to $24.6 million or 5.3% representing a 21.1% increase year over year. Year to date earnings from continuing operations were $52.2 million or 4.7% versus $46.4 million or 5.2% in 2004. The increased earnings can be attributed to increasing sales dollars and stable selling, general and administrative costs. In contrast, earnings growth was impacted by higher interest costs, and a slightly higher tax rate.

North American content per vehicle for the first quarter grew by 25.0% to $95.64 per vehicle compared to $76.49 for the same quarter in the prior year. European content per vehicle for the quarter decreased by 3.7% to $7.15 per vehicle compared to $7.43 for the same quarter in the prior year.

A more detailed discussion of the consolidated results for the quarter ended June 30, 2005, is contained in the Management Discussion and Analysis ("MD&A") following the separately released annual consolidated financial statements.

Dividends

The Board of Directors today declared a dividend of $0.06 per share on the common shares of the company, payable on or after September 15, 2005 to shareholders of record on August 26, 2005.

Outlook

During the next few years, Linamar anticipates continued growth in both sales and earnings. The company is expecting to launch new programs as well as see existing programs achieve their anticipated levels of production such that growth in content per vehicle for 2005 is forecasted at 15-20% in North America, and 0-5% in Europe due to a change in estimated production volumes. Asia Pacific expects to report a content component by the end of 2005 which will experience multiple increases for a few years thereafter while facilities continue to ramp up.

Sales growth projections are based on program launches which include transmission business (such as differential cases for DCX, Visteon, and Eaton, WK transmission carriers and differential cases, Ford/GM 6R and 6F transmission components, other transmission carriers, as well as output and coupler shafts), engines business (such as V10 cylinder heads, 3.7L crankshafts, 4.0L, 3.5L, 3.9L and Gen IV and NG6 camshafts, 6.1L engine block, 3.5L V6 heads, blocks and camshafts), chassis business (Visteon gear hub and wheel housing), and continued strength in the industrial products category. Linamar also supplies the medium and heavy truck markets. In 2004, these markets recovered significantly, with expectations for continued strength in 2005 and beyond but softening possibly in 2007.

Earnings growth expectations are based on launch and sales ramp-ups of the programs noted as well as maturity in other programs where efficiencies of production are achieved and maintained. The earnings expectation also assumes that the progress made in the past several years in Mexico will be maintained, and, long term performance will show improvement with the exception of 2005 where Linamar de Mexico S.A. de C.V. is being affected by GM shutdowns and other launch delays. Earnings growth anticipates that LAT will launch and ramp up its camshaft and cylinder head & block programs turning that business from losses in 2004 and 2005 to profitable performance beginning in 2006. The remaining European business based in Hungary will steadily grow in both sales and earnings as programs with Denso Corporation and Delphi (common rails and hydraulic manifolds), Bosch (pump housing) and Honeywell (turbo housings) take effect in the automotive sectors. The industrial and agricultural business will also show some growth. Other Linamar Hungary product areas remain difficult to forecast and predict because markets can be affected by the presence or lack of government subsidies available to purchasers (i.e. agriculture), the success of customer products in very competitive markets (i.e. construction equipment) or market acceptance of new customer technologies (i.e. ATI Inc. vehicle track systems).

In the company's industrial products business, which is comprised of Linamar's Skyjack operations, the market remains highly competitive. The construction equipment market rebounded in 2004 and the expectation is that the market will remain strong through 2005 and beyond, provided current economic conditions continue. In 2004, strong sales growth for Skyjack occurred not only in North America but also in the United Kingdom and the rest of Europe. Performance by market is very difficult to predict. The significant increase in Skyjack sales in 2004 over 2003 is expected to continue through 2005 as the market will remain strong although growth will increase at a slower rate. Growth is also dependent upon the re-introduction of booms expected in 2006 as well as possibly other related products and penetration into other Asia and European markets not already served.

Overall, these expectations assume consistent levels of North American and European automobile production, no unforeseen changes in the existing business base, and are subject to overall economic conditions and world political events and factors. As well, in 2005, Linamar will continue to realize the benefits provided by the Linamar Production System. The system is based on lean manufacturing principles found in the Toyota Motor Corporation's Production System.

Linamar believes that its strategy to focus on the engine, transmission and chassis components of the automobile represents a significant opportunity for growth as products in these applications are expected to be the next major area of outsourcing by the OEMs over the next 10 to 20 years. Other aspects of the vehicles such as interiors, seating, and structural components have already experienced greater levels of outsourcing. In addition, management believes future trends include more involvement by suppliers in component and module design, a move towards global vehicle platforms and supply base consolidation.

The company believes that it is uniquely positioned with its core competencies in precision machining and manufacturing processes, and its range of precision machined and assembled automotive and non-automotive products. To build on this strong business base, Linamar intends to continue to develop the organization and its capabilities by enhancing its existing expertise to produce every machined component in the vehicle. Linamar's strategy is to establish and develop a market leadership position in key components and assemblies, enhancing its design, development and testing expertise, and researching opportunities in product and process innovation.

A key factor in Linamar's future growth strategy is the effect of economic fluctuations in the automotive industry and specifically vehicles produced for the markets in which Linamar participates. Variations in these factors can have a significant impact on the industry and Linamar.

The stronger Canadian dollar has the impact of lowering sales and to the extent that the company purchases material or supplies in U.S. dollars, this effect is substantially reduced. Equipment is also purchased in U.S. dollars; when the Canadian dollar strengthens, the equipment cost is reduced as is depreciation over future years. Since Linamar's business is capital intensive, U.S. dollar purchases have a notable positive impact on earnings. The company also employs a hedging strategy for net U.S. dollar positive cash flow.

Risk and Uncertainties (forward looking statements)

Certain information provided by Linamar in these unaudited interim financial statements, Management's Discussion and Analysis ("MD&A") and other documents published throughout the year that are not recitation of historical facts may constitute forward looking statements. The words "estimate", "believe", "expect" and similar expressions are intended to identify forward-looking statements. Persons reading this report are cautioned that such statements are only predictions and the actual events or results may differ materially. In evaluating such forward-looking statements, readers should specifically consider the various factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements.

Such forward-looking information may involve important risks and uncertainties that could materially alter results in the future from those expressed or implied in any forward-looking statements made by, or on behalf of, Linamar.

Some risks and uncertainties may cause results to differ from current expectations. The factors which are expected to have the greatest impact on Linamar include but are not limited to (in the various economies in which Linamar operates): the extent of OEM outsourcing, industry cyclicality, trade and labour disruptions, pricing concessions and cost absorptions, delays in program launches, the company's dependence on certain engine and transmission programs and major OEM customers, currency exposure, and technological developments by Linamar's competitors.

A large proportion of the company's sales are denominated in U.S. dollars and the company also purchases a significant amount of raw materials, supplies and equipment in U.S. dollars. The strengthening of the Canadian dollar has the potential to have a negative impact on financial results. The company has employed a hedging strategy to attempt to mitigate the impact but cannot be completely assured that the entire exchange effect has been offset.

As a result of current levels of consumer spending on automobiles, the OEMs are constantly facing volume challenges which are reflected in the results of Linamar through reduced volumes on some existing programs. The OEMs do, however, continue to outsource, although not at expected levels, which allows Linamar to expand and diversify its product base.

Other factors and risks and uncertainties that cause results to differ from current expectations discussed in this MD&A include, but are not limited to: fluctuations in interest rates, environmental emission and safety regulations, governmental, environmental and regulatory policies, and changes in the competitive environment in which Linamar operates. Linamar 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.

Frank Hasenfratz Linda Hasenfratz

Chairman of the Board Chief Executive Officer

Guelph, Ontario

August 10, 2005



LINAMAR CORPORATION
CONSOLIDATED BALANCE SHEETS
As at June 30, 2005 with comparatives as at December 31, 2004
(Unaudited)
(in thousands of dollars)

June 30 December 31
2005 2004
---------------------------------------------------------------------
$ $
ASSETS
Current Assets
Cash 19,845 25,508
Accounts receivable 445,892 359,356
Inventories 179,621 193,839
Prepaid expenses 7,959 6,889
Current portion of other long-term assets 4,116 3,722
Current portion of long-term receivables 2,898 3,772
Future income taxes 1,556 3,141
Current assets - discontinued operations 2,617 2,962
---------------------------------------------------------------------
664,504 599,189

Other Long-Term Assets 6,745 6,690
Long-term Receivables 6,555 10,490
Goodwill and Other Intangible Assets 33,789 33,719
Property, Plant and Equipment 809,628 796,410
Property, Plant and Equipment
- Discontinued Operations 1,755 1,833
Future Income Taxes - Discontinued
Operations 600 605
---------------------------------------------------------------------
1,523,576 1,448,936
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES
Current Liabilities
Unpresented cheques 34,186 12,997
Short-term bank borrowings 59,185 50,919
Accounts payable and accrued liabilities 308,116 305,161
Income taxes payable 10,431 3,360
Current portion of long-term debt 11,876 7,038
Current portion of deferred gain 4,561 9,206
Current liabilities - discontinued
operations 2,365 2,090
---------------------------------------------------------------------
430,720 390,771

Long-Term Debt 299,276 308,151
Future Income Taxes 25,402 27,094
Non-Controlling Interests 28,707 30,316
---------------------------------------------------------------------
784,105 756,332
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital Stock 103,493 103,173
Retained Earnings 669,450 625,764
Contributed Surplus (note 2) 31 78
Cumulative Translation Adjustment (33,503) (36,411)
---------------------------------------------------------------------
739,471 692,604
---------------------------------------------------------------------
1,523,576 1,448,936
---------------------------------------------------------------------
---------------------------------------------------------------------

On behalf of the Board of Directors:


Frank Hasenfratz Linda Hasenfratz
Chairman of the Board Director


LINAMAR CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
For the six months ended June 30, 2005 and June 30, 2004 (Unaudited)
(in thousands of dollars,
except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $
(Restated (Restated
- Note 5) - Note 5)

Sales 578,805 460,626 1,108,279 891,223

Cost of Sales 467,812 368,466 900,739 712,416
Amortization 33,203 28,247 66,264 56,207
---------------------------------------------------------------------

Gross Margin 77,790 63,913 141,276 122,600
---------------------------------------------------------------------

Selling, general and
administrative 25,915 23,621 49,709 45,917
---------------------------------------------------------------------

Earnings Before the Following: 51,875 40,292 91,567 76,683
---------------------------------------------------------------------

Interest on long-term debt (4,240) (1,693) (8,221) (3,418)
Other interest expense (808) (1,466) (1,295) (2,752)
Interest earned 98 144 514 412
Dilution loss - - - (248)
Other income 305 58 396 474
---------------------------------------------------------------------
47,230 37,335 82,961 71,151
---------------------------------------------------------------------
Provision for Income Taxes
Current 15,586 10,355 28,173 17,070
Future 470 1,445 742 6,448
---------------------------------------------------------------------
16,056 11,800 28,915 23,518
---------------------------------------------------------------------
31,174 25,535 54,046 47,633
Non-Controlling Interests 1,417 914 1,884 1,282
---------------------------------------------------------------------

Earnings from Continuing
Operations 29,757 24,621 52,162 46,351

Results of Discontinued
Operations (note 5) - (1,546) - (3,035)
---------------------------------------------------------------------

Net Earnings for the Period 29,757 23,075 52,162 43,316
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic Earnings per Share from
Continuing Operations (note 6) 0.42 0.35 0.74 0.66
---------------------------------------------------------------------

Diluted Earnings per Share from
Continuing Operations (note 6) 0.42 0.35 0.73 0.65
---------------------------------------------------------------------

Basic Earnings per Share (note 6) 0.42 0.32 0.74 0.61
---------------------------------------------------------------------

Diluted Earnings per Share (note 6) 0.42 0.32 0.73 0.61
---------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the six months ended June 30, 2005 and June 30, 2004
(Unaudited)
(in thousands of dollars)
Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $

Balance - Beginning of Period 643,931 561,965 625,764 544,589

Stock based compensation (note 2) - - - (41)
---------------------------------------------------------------------

Balance - As restated (note 2) 643,931 561,965 625,764 544,548

Net Earnings for the Period 29,757 23,075 52,162 43,316
Dividends (4,238) (2,824) (8,476) (5,648)
---------------------------------------------------------------------

Balance - End of Period 669,450 582,216 669,450 582,216
---------------------------------------------------------------------
---------------------------------------------------------------------


LINAMAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2005 and June 30, 2004 (Unaudited)
(in thousands of dollars)

Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
Cash Provided By (Used In) $ $
(Restated (Restated
- Note 5) - Note 5)
Operating Activities
Earnings from continuing
operations 29,757 24,621 52,162 46,351
Non-cash charges (credits) to
earnings:
Amortization of property, plant
and equipment 33,203 28,247 66,264 56,207
Amortization of other intangible
assets 159 - 159 -
Future income taxes net of
unrealized exchange loss 470 1,445 742 6,448
Non-controlling interests 1,417 914 1,884 1,282
Unrealized exchange loss (gain)
on debt 105 580 280 (769)
Amortization of deferred exchange
gain (2,312) (5,957) (4,645) (9,349)
Loss on disposal of property,
plant and equipment 100 227 205 504
Other 389 180 737 334
---------------------------------------------------------------------
63,288 50,257 117,788 101,008

Changes in non-cash working
capital:
Increase in accounts
receivable (19,944) (30,762) (92,571) (66,175)
Decrease (increase) in
inventories 3,414 (20,788) 16,361 (13,748)
Increase in prepaid expenses (616) (109) (1,199) (1,240)
Increase in income taxes payable 8,053 3,776 6,744 101
Increase in accounts payable
and accrued liabilities 10,874 30,336 18,129 42,611
---------------------------------------------------------------------
65,069 32,710 65,252 62,557
Deferred gain - - - 2,785
---------------------------------------------------------------------
Cash flow - continuing operations 65,069 32,710 65,252 65,342
Cash flow - discontinued
operations 417 479 703 (282)
---------------------------------------------------------------------
65,486 33,189 65,955 65,060
---------------------------------------------------------------------

Financing Activities
Proceeds from (repayment of)
short-term bank borrowings (24,373) 23,635 5,692 38,519
Proceeds from long-term debt 276 5,549 334 7,770
Repayment of long-term debt (2,170) (3,783) (3,610) (8,612)
Proceeds from common share
issuance 240 - 273 -
Dividends to shareholders (4,238) (2,824) (8,476) (5,648)
---------------------------------------------------------------------
(30,265) 22,577 (5,787) 32,029
---------------------------------------------------------------------

Investing Activities
Payments for purchase of property,
plant and equipment (50,202) (65,983) (96,303) (128,242)
Proceeds on disposal of property,
plant and equipment 3,265 542 5,156 664
Investment by minority
shareholders - - - 3,738
Investment in other long-term
assets (171) (1,230) (621) (1,903)
Decrease (increase) of investment
in long-term receivables 5,938 (784) 4,809 (11,113)
Other - 324 - 8
Discontinued operations - 23 - -
---------------------------------------------------------------------
(41,170) (67,108) (86,959) (136,848)
---------------------------------------------------------------------
(5,949) (11,342) (26,791) (39,759)

Effect of Translation Adjustment (11) 67 (61) 457
---------------------------------------------------------------------
Decrease in Cash Position (5,960) (11,275) (26,852) (39,302)
Cash Position - Beginning of
Period (8,381) 1,303 12,511 29,330
---------------------------------------------------------------------
Cash Position - End of Period (14,341) (9,972) (14,341) (9,972)
---------------------------------------------------------------------
---------------------------------------------------------------------

Comprised of:
Cash 19,845 20,051 19,845 20,051
Unpresented cheques (34,186) (30,023) (34,186) (30,023)
---------------------------------------------------------------------
(14,341) (9,972) (14,341) (9,972)
---------------------------------------------------------------------
---------------------------------------------------------------------


LINAMAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended June 30, 2005 and June 30, 2004 (Unaudited)

1. Management prepared these interim consolidated financial statements in accordance with Canadian Generally Accepted Accounting Principles using the historical cost basis of accounting and approximation and estimates based on professional judgments. These interim consolidated financial statements contain all adjustments that management believes are necessary for a fair presentation of the company's financial position, results of operations and changes in cash flows. These interim consolidated financial statements should be used in conjunction with the company's most recent annual consolidated financial statements. These interim consolidated financial statements and the notes thereto have not been reviewed by the company's external auditors, pursuant to a review engagement applying review standards set out in the Canadian Institute of Chartered Accountants ("CICA") Handbook. During the second quarter, the company began to amortize to earnings, a customer contract which is an intangible asset subject to amortization and the policy has been modified as follows:



Intangible assets that are subject to amortization, which currently
consist entirely of customer contracts, are assessed for impairment
whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. Any impairment is recorded
as a separate charge against earnings and a reduction of the
carrying value of the intangible asset. These assets are amortized
over the remaining term of the related customer contract on a
straight line basis. If the underlying contract is extended then
the amortization period is reassessed. The term of amortization for
each asset is reviewed annually.


Also, during the second quarter the company has adopted the policy of amortizing a new class of equipment asset on a straight line basis over ten years, and as such the Property, Plant and Equipment policy has been modified to include these assets.

2. Stock Based Compensation (in thousands of dollars)

Beginning January 1, 2004 the company adopted revised CICA 3870 retroactively and chose not to restate prior periods as permitted under the revised section. The effect of the restatement was the setup of contributed surplus in the amount of $78 for the fair value of options granted after January 1, 2002 and a reduction in the balance of opening retained earnings by $41 as the cumulative effect of the change on prior periods for the amount that would have been expensed. For the three and six months ended June 30, 2005, $4 for the quarter and $8 year to date was recorded as the compensation cost.

3. Financial Instruments

At June 30, 2005, the company was committed to a series of monthly forward and zero cost option contracts to sell U.S. dollars. As these forward and zero cost option contracts qualify for accounting as cash flow hedges, the unrealized gains and losses are deferred and recognized in the same period as the sales which generate the cash flows.

The company was also committed to a forward contract to buy Euros that qualifies for accounting as a cash flow hedge. As a cash flow hedge, the unrealized gains and loses are deferred and recognized in the same period as the capital expenditure which generates the cash flows.

The company was also committed to a series of monthly forward exchange contracts to sell or buy British pounds, Euros, and two U.S. dollar long-dated forwards. As these forward exchange contracts qualify for accounting as fair value hedges, they are marked to current exchange rates to offset the exchange gains and losses on the underlying hedged items.

All forward and zero cost option contracts mature in the future as noted below. The company has continued to place forward contracts after the quarter end.



Average Average
Year Amount Hedged - Sell (Buy) Exchange Trigger
Rate Rate
---------------------------------------------------------------------

2005 USD $2,000,000 for Canadian dollars 1.2529
2005 USD $18,000,000 for Canadian dollars 1.2733 1.3892
2006 USD $104,000,000 for Canadian dollars 1.2335 1.3517
2009 USD $(80,000,000) with Canadian dollars 1.3029
2014 USD $(40,000,000) with Canadian dollars 1.3535

2005 EUR EUR 4,000,000 for Canadian dollars 1.6037
2005 EUR EUR (1,350,000) with Canadian dollars 1.5113

2005 GBP Pound Sterling 5,131,000 for Canadian dollars 2.2786
2005 GBP Pound Sterling 1,000,000 for Canadian dollars 2.2230 2.3275


4. Segmented Sales and Earnings Information (Continuing Operations in thousands of dollars)

During the first quarter of 2005 the company formed the Asia Pacific operating group. During the second quarter, this group has been segregated from the North American Automotive Systems segment as management believes this information would be useful to the readers of the consolidated financial statements. Accordingly, the company has restated segmented information for prior periods.

Three of the company's six operating groups, Transmission, Engine, and Chassis are aggregated into the North American Automotive Systems segment. Substantially all automotive revenue for this group is derived from sales to major North American manufacturers. Europe and Asia Pacific stand alone as segments and are primarily in the automotive business.

During 2004, the Industrial group, which is primarily comprised of the self-propelled scissor lift platform business, became a quantified reportable segment. The corporate headquarters and other small operating entities are now reported in the North American Automotive Systems segment. The company has restated segmented information for prior periods.



Geographic For the three months For the six months
ended June 30, 2005 ended June 30, 2005
---------------------------------------------------------------------
Sales to Inter- Sales to Inter-
external segment Operating external segment Operating
customers sales earnings customers sales earnings
(loss) (loss)
$ $ $ $ $ $

Canada 439,812 2,079 42,809 853,117 3,788 79,161

United States 47,380 5,869 6,446 90,493 8,045 10,781

Asia Pacific - - (909) 262 - (1,213)

Mexico 35,075 - 591 66,262 - (393)

Europe 56,538 2,349 2,938 98,145 5,232 3,231
---------------------------------------------------------------------

Total 578,805 51,875 1,108,279 91,567
---------------------------------------------------------------------


For the three months For the six months
ended June 30, 2004 ended June 30, 2004
---------------------------------------------------------------------
Sales to Inter- Sales to Inter-
external segment Operating external segment Operating
customers sales earnings customers sales earnings
(loss) (loss)
$ $ $ $ $ $

Canada 344,928 1,180 35,493 672,901 1,789 66,401

United States 36,863 1,816 1,494 74,223 3,535 5,476

Asia Pacific - - - - - -

Mexico 33,222 - 1,256 61,687 - 2,476

Europe 45,613 1,919 2,049 82,412 3,838 2,330
---------------------------------------------------------------------

Total 460,626 40,292 891,223 76,683
---------------------------------------------------------------------


Operational For the three months For the six months
ended June 30, 2005 ended June 30, 2005
---------------------------------------------------------------------
Sales to Inter- Sales to Inter-
external segment Operating external segment Operating
customers sales earnings customers sales earnings
(loss) (loss)
$ $ $ $ $ $

N.A. Automotive
Systems 453,042 4,388 37,897 883,445 7,777 71,791

Europe 39,831 2,349 2,700 73,690 5,232 2,437

Asia Pacific - - (909) 262 - (1,213)

Industrial 85,932 157 12,187 150,882 363 18,552
---------------------------------------------------------------------

Total 578,805 51,875 1,108,279 91,567
---------------------------------------------------------------------


For the three months For the six months
ended June 30, 2004 ended June 30, 2004
---------------------------------------------------------------------
Sales to Inter- Sales to Inter-
external segment Operating external segment Operating
customers sales earnings customers sales earnings
(loss) (loss)
$ $ $ $ $ $
N.A. Automotive
Systems 368,946 2,700 32,088 716,621 4,652 64,397

Europe 35,068 1,919 (66) 66,182 3,838 (1,318)

Asia Pacific - - - - - -

Industrial 56,612 206 8,270 108,420 258 13,604
---------------------------------------------------------------------

Total 460,626 40,292 891,223 76,683
---------------------------------------------------------------------


5. Discontinued operations (in millions of dollars)

In August 2004, the company completed the sale of its 50% joint venture in Weslin Industries Inc. ("Weslin"), a casting and machining facility located in Oroszlany, Hungary to Wescast Industries Inc. in exchange for cash consideration of $53.8 million.

As per the CICA Handbook Section 3475, the company has restated its consolidated statement of earnings results and consolidated statements of cash flows for the periods prior to the sale by moving the operations of the Weslin joint venture from continuing operations to discontinued operations. The company was part of the Europe segment for both the geographic and operational groups.

6. Earnings Per Share (in thousands of dollars except for per share figures)



Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $
(Restated - (Restated -
Note 5) Note 5)

Earnings from Continuing
Operations 29,757 24,621 52,162 46,351
---------------------------------------------------------------------

Net Earnings for the
Period 29,757 23,075 52,162 43,316
---------------------------------------------------------------------

Weighted average
common shares 70,636,080 70,603,476 70,632,133 70,603,476
Incremental shares from
assumed conversion of
stock options 359,905 240,204 355,324 220,117
---------------------------------------------------------------------

Adjusted weighted
average shares for
diluted earnings
per share 70,995,985 70,843,680 70,987,457 70,823,593
---------------------------------------------------------------------

Earnings Per Share from
Continuing Operations
Basic 0.42 0.35 0.74 0.66
Diluted 0.42 0.35 0.73 0.65
Earnings Per
Share from Net
Earnings
Basic 0.42 0.32 0.74 0.61
Diluted 0.42 0.32 0.73 0.61


Earnings per share are calculated using the weighted daily average number of shares outstanding during the period.

The number of outstanding shares is 70,651,476 (June 30, 2004 - 70,603,476).

7. Related Party Transactions (in thousands of dollars)

Included in the purchase of property, plant and equipment are the construction of buildings, building additions and building improvements in the aggregate amount of $1,906 by a company owned by the spouse of a director. Included in cost of sales, are maintenance costs of $446 by the same company. Included in cost of sales, are lease costs of $149 related to property leased from a company owned by two directors.

These transactions have been recorded at the exchange amount.

8. Pension Costs (in thousands of dollars)

The company has various contributory and non-contributory defined contribution pension plans which cover most employees. Current service pension costs are charged to earnings as they accrue. The following was expensed during the quarter:



Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $

Government sponsored 5,464 4,437 10,319 8,398
Company sponsored 2,085 1,969 4,301 3,915
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9. Foreign Exchange (in thousands of dollars)

Included as part of selling, general and administrative expenses is a
gain (loss) resulting from foreign exchange as follows:


Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $
(Restated - (Restated -
Note 5) Note 5)

Foreign Exchange Gain (Loss) (413) 113 (592) 1,071
---------------------------------------------------------------------


10. Guarantees (in thousands of dollars)

Under a portfolio purchase agreement signed in the prior year, the company sells certain long-term receivables. Although title is transferred and no entitlement or obligated repurchase agreement is in place before maturity, the company remains exposed to certain risks of default on the amount of proceeds from receivables under securitization less recourse in the form of property, plant and equipment. The company has a maximum potential future payment of $18,763 over various terms of 3 to 5 years. The company has estimated recourse, in the form of property, plant and equipment, to recover a portion of the defaulted balances in the amount of $14,180.

The company has guaranteed the lease payments of Eagle Manufacturing LLC, a joint venture, for the full term of the lease which ends in 2010. The company is receiving a guarantee fee during the lease term. As at the quarter end the maximum potential amount of future payments is $13,457 over the remaining lease term.

The company has various other guarantees for a maximum potential future payment of $986 over various terms of 4 to 5 years. The company has estimated recourse, in the form of property, plant and equipment, to recover a portion of the guarantee payable from customers if balances remain unpaid in the amount of $455.

11. Contingent Liabilities and Commitments (in thousands of dollars)

The company is involved in certain lawsuits and claims. Management believes that adequate provisions have been recorded in the accounts. Although it is not possible to estimate the potential costs and losses, if any, management is of the opinion that there will not be any significant additional liability other than amounts already provided for in these financial statements.

As at June 30, 2005, outstanding commitments for capital expenditures under purchase orders and contracts amounted to approximately $107,136.

12. Comparative Figures

Certain comparative figures have been reclassified in accordance with the current quarter's presentation (see notes 4 and 5).


(1) "Operating earnings", as used by the chief operating decision makers and management, monitors the performance of the business specifically at the segmented level. Operating earnings is calculated by the company as gross margin less selling, general and administrative expenses and equity loss.

Contact Information

  • Linamar Corporation
    Linda Hasenfratz or Keith Wettlaufer
    (519) 836-7550