Martinrea International Inc.

Martinrea International Inc.

March 14, 2005 18:35 ET

Martinrea International Inc.-Releases December 31, 2004 Annual Results: Growing an International Automotive Parts Manufacturer


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: MARTINREA INTERNATIONAL INC.

TSX SYMBOL: MRE

MARCH 14, 2005 - 18:35 ET

Martinrea International Inc.-Releases December 31,
2004 Annual Results: Growing an International
Automotive Parts Manufacturer

TORONTO, ONTARIO--(CCNMatthews - March 14, 2005) - 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 ended December 31, 2004 and its
fourth quarter ended December 31, 2004.

Revenues for the year ended December 31, 2004 totaled $582.7 million as
compared to $608.1 million for the year ended December 31, 2003.
Revenues in the year have decreased by $25.4 million from the prior year
comparable due to lower prototype and tooling revenues. Tooling revenues
totaled $32.4 million in 2004 as compared to $57.4 million in 2003. The
reduction in tooling revenue is attributable to the number and nature of
programs launched in the previous year versus the current year. The
appreciation of the Canadian dollar versus the U.S. dollar also impacted
sales by approximately $18.5 million. These factors were offset in part
by increased production revenues pertaining primarily to the Daimler
Chrysler new LX program (300C, Magnum), a full year production of the
Ford V229 program (Freestar), a full year production of the Company's
participation in GM's GMT800 pick-up program (Silverado, Sierra), the
launch of GM's GMX365/367 program (W-car), metallic takeover business
and other new programs.

The Company's revenues for the fourth quarter of 2004 of $149.9 million
were $22.8 million lower than the fourth quarter of 2003 of $172.7
million. The reduction in revenues is primarily due to lower tooling
sales of $15.9 million versus the prior year, and the appreciation of
the Canadian dollar versus the U.S. dollar that impacted the translation
of the Company's US dollar denominated revenues. The Company's revenues
for the fourth quarter of 2004 exceeded third quarter of 2004 revenues
of $125.3 million by $24.6 million primarily due to higher vehicle
production by the Company's customers.

Gross margin percentage for the year ended December 31, 2004 was 16.1%
as compared to 15.2% for the year ended December 31, 2003. The overall
increase in gross margin percentage was due to productivity improvements
and lower launch costs. These improvements have been offset in part by
lower production levels, continuing price reductions to automotive
customers and steel surcharges on part of the Company's steel purchases
not on customer steel resale programs. The Company has not been able to
offset the price reductions to customers or the steel surcharges in
their entirety. At the current time approximately 25% of the Company's
steel purchases are subject to steel surcharges. The Company has been
successfully negotiating price increases with many customers not on
steel resale programs in order to reduce the Company's exposure to
existing material increases.

Gross margin percentage for the fourth quarter ended December 31, 2004
was 16.6% as compared to 13.9% in the fourth quarter ended December 31,
2003. The increase in gross margin from the prior year is attributable
to lower launch costs in the current year. The Company anticipates
continued gross margin improvement over time as sales volumes increase
and new incremental programs continue to fill available production
capacity. The improvement of gross margin is evident from a comparison
of the fourth quarter of 2004 gross margin of 16.6% versus 15.9% in the
third quarter of 2004.

Net earnings for the year ended December 31, 2004 were approximately
$11.0 million versus a $15.4 million result for the year ended December
31, 2003. The earnings per share for the year was $0.20 ($0.19 on a
diluted basis) as compared to the prior year of $0.28 ($0.27 on a
diluted basis). Net earnings for the year ended December 31, 2004 were
lower than the prior year comparable even though a gross margin
percentage increase occurred. The decline in profitability versus the
prior year is attributable to foreign exchange gains of $1.9 million
after tax realized in the prior year that did not reoccur in 2004,
higher engineering costs related to an increase in the number of
engineers in the Company's Detroit metal forming engineering centre of
approximately $0.6 million after tax and the remainder is attributable
to higher amortization on production ready assets in 2004, where
capacity was not fully utilized.

Net earnings for the quarter ended December 31, 2004 were approximately
$2.2 million or $0.04 per share ($0.03 on a diluted basis) versus a
similar result of $2.3 million, (or $0.04 per share on a basic and
diluted basis) for the quarter ended December 31, 2003. The reduction of
net earnings resulting from lower revenues in the fourth quarter of 2004
versus the fourth quarter of 2003 was primarily offset by improved gross
margins.

Net earnings for the fourth quarter ended December 31, 2004 of $2.2
million was $1.2 million higher than the third quarter of 2004 net
earnings of $1.0 million. The benefit of improved gross margin in the
fourth quarter of 2004 versus the third quarter of 2004 was offset in
part by write downs of redundant assets totaling $0.7 million after tax
resulting from the closure of the Company's Claireville location in 2004
and a year-end adjustment of $0.3 million after tax to reflect the
adoption of a new accounting standard that impacts upon the recognition
of rent expense on leased premises. Net earnings in the fourth quarter
of 2004 were also impacted by foreign exchange fluctuations. The
Company's changing product mix from new launches and the growing
profitability of the Company's foreign operations have created a
scenario where net earnings is now impacted by foreign exchange
fluctuations. In the fourth quarter of 2004 net earnings were reduced by
$0.6 million as a result of the appreciation of the Canadian dollar
versus US dollar during the fourth quarter of 2004.

Fred Jaekel, Martinrea's President and Chief Executive Officer, stated:
"Although the 2004 fiscal year has been challenging given the
difficulties of the automotive sector, Martinrea has established some
momentum with our customers and our people geared to achieving prudent,
profitable growth. We ended 2004 with an improved quarter from an
earnings perspective from the previous quarter, and our fourth quarter
revenues were higher than we anticipated at the end of our third
quarter. I think this is a good basis for an improved 2005."

Mr. Jaekel added: "I am very pleased with the progress in our
operations. We are improving our people and processes division by
division, consistently. We need to continuously improve to take
advantage of the many opportunities in our business, in order to satisfy
the needs of our customers. We are building our reputation with our
customers, and they are rewarding us with opportunities for new work and
for takeover business. As previously announced, we acquired a metal
forming plant in Corydon, Indiana, our first such facility in the United
States, a very good strategic move that was supported by one of our
largest customers, General Motors. The fact that such a move can be
taken with strong customer support strengthens my view that Martinrea is
becoming a supplier of choice for our customers. I am also encouraged by
our technology related opportunities. We are improving many of our
manufacturing processes with technology developed both in house and
obtained for our use. We are working with innovative coatings, improved
product components and better processes. Our recently announced
initiative with Hy Drive Technologies is also very exciting to us, as we
apply our expertise to developing a hydrogen generating system for the
automotive market. The Hy Drive hydrogen generating system is in my view
one of the best solutions to air pollution on the market today and has
high potential to help our customers meet their objectives to develop
more fuel efficient and environmentally friendly vehicles. The industry
needs strong suppliers, which are focused on being innovative, lean,
efficient and financially healthy. We have become such a supplier, and
that is going to become more evident this year and next."

Nick Orlando, Martinrea's Executive Vice-President and Chief Financial
Officer, stated: "In 2004 the Company has taken many positive steps to
ensure the long-term profitability and strengthening of financial
resources that will allow the Company to grow in the future despite a
very competitive business environment. Revenues will continue to grow as
the Company launches new products and gross margin which has improved to
16.6% in the fourth quarter of 2004 will continue to rise as the Company
fills capacity. In the fourth quarter of 2004 bank indebtedness declined
and long-term debt is being repaid as a result of improving cash flow
from operations and improved working capital management. Capital
expenditures in 2005 will range from $24 to $28 million and any new
capital commitments will be limited to new incremental programs. The
major investments on manufacturing infrastructure in the last three
years are beginning to yield returns. These are clear signals of a
growing financial maturity. This improving financial position will give
the Company the opportunity to consider new business opportunities that
many of our heavily indebted competitors will not be able to undertake."

Nick Orlando added: "In the first quarter of 2005, the Company estimates
that revenues will range from $146 million to $155 million and will
exceed revenues of $145 million from the first quarter of 2004. Revenues
will remain stable in the first quarter of 2005 despite the lower
vehicle production by our customers, price reductions to customers and
the reduction of revenues from the translation of US dollar revenues as
a result of the strengthening Canadian dollar. The Company has been able
to increase revenues through metallic takeover work that was won during
the last three months and new work launched in the third quarter of
2004. The Company expects revenues to continue increasing given the
launch of three new programs in the third quarter of 2005 that together
account for $74 million on an annualized basis once full production is
achieved. The programs are the metal gas tank for the Ford Fusion that
amounts to revenues of $36 million, the hydroformed engine cradle for
GM's Buick Lucerne and Cadillac DTS that amounts to $22 million and the
fuel and brake lines for GM's new Impala that amounts to $16 million.
Revenues will also increase in the three remaining quarters of 2005 due
to the acquisition of the Company's first metal forming facility in the
United States that was purchased on February 17, 2005. Revenues from the
new facility should exceed $US 40 million in 2005. The incremental
business discussed above will be accretive to net earnings. The Company
expects gross margin to increase from 16.6% in the fourth quarter of
2004 to approximately 17% in the first quarter of 2005. The improving
gross margin is attributable to lower launch costs, the benefits of
integrating operations in 2004 and production efficiencies. The Company
estimates that basic earnings per share will range from $0.08 per share
to $0.10 per share in the first quarter of 2005."

Rob Wildeboer, Martinrea's Chairman, stated: "We are much stronger as a
company than we were a year ago. We have over 3,300 employees now, and
they are our greatest strength. They are consistently improving, and
improving our company in the process, and we at Martinrea can feel the
momentum and the spirit of the Company growing. Over the past three
years, we have been extremely focused on implementing an entrepreneurial
and decentralized structure over a range of predecessor organizations,
and that takes a lot of time and work, but the ultimate result is that
the Company becomes very much less dependent on any individual and
stronger as a firm. Our entrepreneurial spirit is I believe making us
stronger than many of our competitors in a very difficult environment.
Despite the challenges of the industry, we have achieved some
significant highlights in 2004 and 2005 to date, which in addition to
our financial results include the following:

- The Company's book of business has increased. Many program awards
previously announced have yet to come into production, but in addition
to those programs, which include the GMT 222/272 hydroformed engine
cradle, the Ford CD338 tank and the GMT 900 fuel and brake lines, the
Company has won significant new takeover business and the business
associated with the acquisition of a new plant in Corydon Indiana. Based
on anticipated production volumes, revenues in 2005 will significantly
exceed those in 2004.

- The Company's 2004 launches went smoothly and programs to be launched
in 2005 and 2006 are proceeding smoothly.

- The Company has continued to rationalize its production capacity and
facilities. Significant capital expenditures have given the Company some
state of the art production facilities and product lines, particularly
in its Atlas Fluid Systems group and its Hydroform Solutions facility.
State of the art facilities give the Company competitive advantage and
the ability to improve productivity. In 2003 two fluid systems plants
were closed in Michigan and the Company sold its Claireville facility in
2004; meanwhile, the Company has added a facility to its Atlas Fluid
Systems group (now two facilities), leased an additional facility close
to its Alfield metal forming plant to handle extra production, and
purchased a metal forming facility in Indiana, all representing future
growth.

We look forward to many highlights in the coming year."

The Company also indicated that its annual meeting would again be held
at its own facilities at Hydroform Solutions in May, giving its
shareholders the opportunity to see improvements at the facility and
meet with management in the plant.

The Company further stated that Erich Genseberger, formerly the Chief
Operating Officer, has departed the Company. The Company indicated it
has no present intention to fill this position.

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

A conference call to discuss those results will be held on Tuesday March
15, 2005 at 8:00 a.m. (Toronto time) which can be accessed by dialing
(416) 405-9328 or toll free (866) 387-6216. Please call 10 minutes prior
to the start of the conference all. There will also be a rebroadcast of
the call available by dialing (416) 695-5800 or toll free number (800)
408-3053 (conference id - 3143968#). The rebroadcast will be available
until Friday March 25, 2005.

This press release contains forward-looking statements based on
assumptions, uncertainties and management's best estimates of future
events. When used herein, words such as "intend" and similar expressions
are intended to identify forward-looking statements. Forward-looking
statements are based on assumptions by and information available to the
Company. Investors are cautioned that such forward-looking statements
involve risks and uncertainties. Important factors that could cause
actual results to differ materially from those expressed or implied by
such forward-looking statements include such risks and factors as are
detailed from time to time in the Company's periodic reports filed with
the Ontario Securities Commission and other regulatory authorities.
Actual results may differ materially from those currently anticipated.
The Company has no intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.



MARTINREA INTERNATIONAL INC.
Consolidated Balance Sheets

As at December 31, 2004 with comparative figures for December 31,
2003
(in thousands of dollars)

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2004 2003
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Assets

Current assets:
Accounts receivable 84,695 102,923
Other receivables 5,709 7,893
Income taxes recoverable 2,756 6,570
Inventories (note 2) 40,949 49,980
Prepaid expenses and deposits 7,804 4,388
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141,913 171,754

Future income tax asset (note 7) 19,132 18,560
Capital assets (note 3 and 6) 218,576 212,388
Goodwill (note 1(g)) 230,558 230,558
Intangible assets (note 1(h) and 4) 27,496 30,958

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$ 637,675 $ 664,218
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Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 5) $ 10,525 $ 16,567
Accounts payable and accrued liabilities 88,089 110,674
Current portion of long-term debt
(note 6) 15,362 15,967
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113,976 143,208

Long-term debt (note 6) 55,327 62,437

Future income tax liability (note 7) 18,563 15,500

Non-controlling interest 698 400

Shareholders' equity:
Share capital (note 8) 444,047 444,014
Notes receivable for share capital
(note 8) (15,750) (15,750)
Contributed Surplus (note 9) 19,668 -
Cumulative translation adjustment (10,974) (6,254)
Retained earnings 12,120 20,663
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449,111 442,673
Guarantees and Commitments (note 14)
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$ 637,675 $ 664,218
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See accompanying notes to the 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, 2004 and 2003
(in thousands of dollars - except per share amounts)

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2004 2003
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Sales $ 582,744 $ 608,139

Cost of sales 488,672 515,449
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Gross profit 94,072 92,690

Expenses:
Selling, administrative and general 43,555 42,571
Foreign exchange 256 (2,658)
Amortization - capital assets (note 3) 23,093 18,043
Amortization - intangible assets (note 4) 3,462 3,462
Interest on long term debt 4,848 5,182
Other interest expense (income), net 1,042 884
Loss on disposal of capital assets 168 670
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76,424 68,154
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Earnings before income taxes and
non-controlling interest 17,648 24,536

Income taxes (note 7)
Current 3,896 732
Future 2,491 8,464
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6,387 9,196

Earnings before non-controlling interest 11,261 15,340

Non-controlling interest 298 (67)
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Net earnings $ 10,963 $ 15,407
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Earnings per common share (note 10)

Basic $ 0.20 $ 0.28
Diluted $ 0.19 $ 0.27

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Retained earnings, beginning of year $ 20,663 $ 5,256

Adjustment to reflect change in
accounting for stock-based
compensation (notes 1(i) and 9) (19,506) -
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Retained earnings as restated,
beginning of year 1,157 5,256

Net earnings 10,963 15,407

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Retained earnings, end of year $ 12,120 $ 20,663
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See accompanying notes to the consolidated financial statements.



MARTINREA INTERNATIONAL INC.
Consolidated Statements of Cash Flows

For the years ended December 31, 2004 and 2003
(in thousands of dollars)

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2004 2003
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Cash provided by (used in):

Operating activities:
Net earnings $ 10,963 $ 15,407
Items not requiring cash:
Amortization - capital assets (note 3) 23,093 18,043
Amortization - intangible assets (note 4) 3,462 3,462
Future income taxes 2,491 8,464
Non-controlling interest 298 (67)
Loss on disposal of capital assets 168 670
Stock-based compensation 162 -
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40,637 45,979
Changes in non-cash working capital
items:
Accounts and other receivables 20,412 (41,266)
Accounts payable and accrued liabilities (22,585) 3,321
Income taxes recoverable 3,814 777
Inventories 9,031 6,902
Prepaid expenses and deposits (3,416) (88)
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47,893 15,625
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Financing activities:
Issue of share capital (net of issue costs) 33 427
Increase in long-term debt 15,792 63,662
Repayment of long-term debt (23,319) (61,299)
Increase/(decrease) in bank indebtedness (6,042) 16,567
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(13,536) 19,357
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Investing activities:
Purchase of capital assets (37,798) (55,487)
Proceeds on disposal of capital assets 5,039 5,253
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(32,759) (50,234)
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Effect of exchange rate changes on
cash and cash equivalents (1,598) (5,453)
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Decrease in cash and cash equivalents - (20,705)

Cash and cash equivalents, beginning
of year - 20,705

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Cash and cash equivalents, end of year $ - $ -
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Supplemental cash flow information:
Cash paid for interest, net $ 5,890 $ 6,059
Cash paid (refunded) for income taxes 571 (2,268)

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See accompanying notes to the consolidated financial statements.



MARTINREA INTERNATIONAL INC.
Notes to Consolidated Financial Statements

For the years ended December 31, 2004 and 2003
(in thousands of dollars)


The Company was incorporated under the Ontario Business Corporations Act
on February 10, 1987. It designs, engineers, manufactures and sells
quality metal parts, assemblies and fluid management systems and is
focused on the automotive sector.

Note 1: Summary of significant accounting policies:

(a) Basis of Presentation:

The consolidated financial statements of Martinrea International Inc.
("Martinrea") have been prepared in accordance with Canadian generally
accepted accounting principles.

(b) Principles of consolidation:

These consolidated financial statements include the accounts of the
Company and those of its subsidiaries. The results of subsidiaries are
consolidated from their respective dates of acquisition. All
inter-company transactions and balances have been eliminated on
consolidation.

(c) Revenue recognition:

Revenue from the sale of manufactured products is recognized when
measurable, upon shipment to, or receipt by customers (depending on
contractual terms) and acceptance by customers. Appropriate provisions
are made to reflect all related risks and rewards pertaining to such
transactions. Revenue from fixed tooling contracts is recognized using
the completed contract method.

(d) Inventories:

Inventories are valued at the lower of cost and replacement cost for raw
materials, and lower of cost and net realizable value for work in
progress, tooling work in progress and finished goods, with cost being
determined substantially on a first-in, first-out basis. In determining
the net realizable value, the Company considers factors such as yield,
turnover, expected future demand and past experience. Cost includes the
cost of materials plus direct labour and the applicable share of
manufacturing overhead, excluding the amortization of manufacturing and
stamping equipment.

(e) Capital assets:

Capital assets are recorded at cost net of related investment tax
credits, less accumulated amortization. Interest costs relating to
major capital expenditures are capitalized when interest costs are
incurred before the capital asset is placed into productive use.
Amortization is provided for over the estimated useful lives of the
capital assets at the following rates and bases:



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Basis Rate
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Building and improvements Declining balance 4%
Leasehold improvements Straight line Lease term
Manufacturing equipment Declining balance 15%
Stamping equipment Straight line 7-10%
Tooling and fixtures Straight line Life of program
Motor and delivery vehicles Declining balance 30%
Office and computer equipment Declining balance 20%
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Amortization of construction in progress does not commence until the
related assets are placed into productive use.

Capital assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If
the carrying amount of an asset exceeds its estimated future cash flows,
an impairment charge is recognized for the amount by which the carrying
amount of the asset exceeds the fair value of the asset.

(f) Research and development costs:

Research costs, including costs of market research and new product
prototyping during the marketing stage, are expensed in the year in
which they are incurred. Development costs are expensed in the year
incurred, unless such costs meet the criteria under Canadian generally
accepted accounting principles for deferral and amortization. No amounts
have been capitalized in the past two years.

(g) Goodwill

Goodwill is the residual amount that results when the purchase price of
an acquired business exceeds the sum of the amounts allocated to the
assets acquired, less liabilities assumed, based on their fair values.
Goodwill is allocated as of the date of the business combination to the
Company's reporting units that are expected to benefit from the
synergies of the business combination. Goodwill is not amortized and is
tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset might be impaired. The
impairment test is carried out in two steps. In the first step, the
carrying amount of the reporting unit is compared with its fair value.
When the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not to be impaired and the
second step of the impairment test is unnecessary. The second step is
carried out when the carrying amount of a reporting unit exceeds its
fair value, in which case the implied fair value of the reporting unit's
goodwill is compared with its carrying amount to measure the amount of
the impairment loss, if any. The implied fair value of goodwill is
determined in the same manner as the value of goodwill is determined in
a business combination described above by allocating the fair value of
the reporting unit in a manner similar to a purchase allocation. When
the carrying amount of reporting unit goodwill exceeds the implied fair
value of the goodwill, an impairment loss is recognized in an amount
equal to the excess and is presented as a separate line item in the
statement of earnings before extraordinary items and discontinued
operations. The Company completed the annual impairment assessment and
no impairment loss has been recorded in the year ended December 31, 2004.

(h) Intangible assets

The Company's intangible assets are comprised of customer contracts
acquired in acquisitions and have a definite life. The Company
regularly evaluates existing intangible assets including estimates of
remaining useful lives.

Customer contracts are amortized over their estimated economic life of
approximately 10 years on a pro-rata basis consistent with the relative
contract value initially established.

(i) Stock based compensation

In October 2003, the Canadian Institute of Chartered Accountants amended
Section 3870 "Stock-based compensation and Other Stock-based Payments",
requiring the use of the fair value-based method to account for employee
stock options beginning January 1, 2004. Under the fair value method,
compensation cost is measured at the fair value at the date of grant and
is expensed over the award's vesting period. In accordance with one of
the transitional options under amended Section 3870, the Company has
retroactively applied the fair value based method to all employee stock
options granted on or after January 1, 2002. Prior periods have not been
restated and an adjustment was made to the opening balance of retained
earnings in the current period to reflect the cumulative effect of the
change on prior periods. The effect of retroactively adopting the fair
value based method is to decrease retained earnings by $19,506 and to
increase contributed surplus by $19,506 as at December 31, 2003.
Compensation expense in 2004 amounted to $162, relating primarily to the
amortization of options previously granted.

(j) Foreign currency translation:

The monetary assets and liabilities of the Company which are denominated
in foreign currencies are translated at the year end exchange rate.
Revenues and expenses denominated in foreign currencies are translated
at rates of exchange prevailing on transaction dates, with any exchange
gain or loss being recorded in current earnings. The accounts of the
Company's self-sustaining foreign subsidiaries are translated using the
current rate method, whereby assets and liabilities are translated using
the year-end exchange rates and revenues and expenses are translated at
average exchange rates for the year. The resulting unrealized exchange
gains and losses are deferred and recorded as a separate component of
shareholders' equity.

(k) Financial instruments:

The Company utilizes certain financial instruments, principally interest
rate swap contracts and forward currency exchange contracts to manage
the risk associated with fluctuations in interest rates and currency
exchange rates. The Company's policy is not to utilize financial
instruments for trading or speculative purposes. Interest rate swap
contracts are used to reduce the impact of fluctuating interest rates on
the Company's long-term debt. These swap agreements require the periodic
exchange of payments without the exchange of the notional principal
amount on which the payments are based. Forward currency exchange
contracts are used to reduce the impact of fluctuating exchange rates on
the Company's purchases of materials and equipment.

Payments and receipts under interest rate swap contracts are recognized
as adjustments to interest expense on long-term debt. Gains and losses
on forward foreign exchange contracts are reflected in the consolidated
financial statements in the same period as the hedged item. In the event
that a hedged item is sold or cancelled prior to the termination of the
related hedging item, any unrealized gain or loss on the hedging item is
immediately recognized in income.

(l) Future income taxes:

The Company applies the asset and liability method whereby future tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Future income tax assets and liabilities are measured using
enacted or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
be recovered or settled. The effect on future income tax assets and
liabilities of a change in tax laws and rates is recognized in income in
the period that includes the enactment date.

The ultimate realization of future income tax assets is dependent upon
the generation of future taxable income during the period in which the
temporary differences and loss carryforwards become deductible. Future
tax assets are evaluated and if their realizability is not "more likely
than not", a valuation allowance is provided.

(m) Earnings per share:

Basic earnings per share are computed by dividing net earnings by the
weighted average number of shares outstanding during the reporting
period. Diluted earnings per share are computed similar to basic
earnings per share, except that the weighted average number of shares
outstanding are increased to include additional shares from the assumed
exercise of stock options and warrants, if dilutive. The number of
additional shares are calculated by assuming that outstanding stock
options were exercised and that the proceeds from such exercises were
used to acquire shares of common stock at the average market price
during the reporting period.

(n) Use of estimates:

The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenue and expenses during the period. Actual results could differ from
those estimates and assumptions. Significant areas requiring the use of
management estimates include the net realizable values of inventories,
the fair value of goodwill and the determination of impairment thereon,
the economic lives of intangible assets, recoverability of future income
tax assets, the determination of fair values of financial instruments,
as well as the determination of stock based compensation.

(o) Hedging relationships

In November 2001, the CICA issued Accounting Guideline 13, "Hedging
Relationships" ("AcG 13"). AcG 13 established new criteria for hedge
accounting effective for the Company's 2004 fiscal year. The Company
reassessed all hedging relationships to determine whether the criteria
were met and has applied the new guidance on a prospective basis. To
qualify for hedge accounting, the hedging relationship must be
appropriately documented at the inception of the hedge and there must be
reasonable assurance, both at the inception and throughout the term of
the hedge, that the hedging relationship will be effective.
Effectiveness requires a high degree of correlation of changes in fair
values or cash flows between the hedged item and the hedge. Management
has documented these hedge relationships where applicable in accordance
with the guidance commencing January 1, 2004.

(p) Asset retirement obligations

Effective January 1, 2004, the Company adopted the new CICA accounting
standard for asset retirement obligations ("Section 3110"). The standard
addressed the recognition and measurement of legal obligations
associated with the retirement of property and equipment when those
obligations result from the acquisitions, construction, development or
normal operation of the asset. This standard is effective on a
retroactive basis with restatement of prior periods. The standard
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value is added
to the carrying amount of the associated asset. Following the initial
recognition of an asset retirement obligation, the carrying amount of
the obligation is increased for the passage of time and adjusted for
revisions to the amount or timing of the underlying cash flows needed to
settle the obligation. The cost is amortized into income subsequently on
the same basis as the related asset. The impact of the adoption of this
new standard in the year ended December 31, 2004 is not significant to
the Company's financial statements.

(q) Guarantees

Effective for the year ended December 31, 2004, the Company adopted
Accounting Guideline 14, "Disclosure of Guarantees", issued by the CICA
in February 2003. This guideline expands on previously issued accounting
guidance and requires additional disclosure by a guarantor in its
financial statements. This guideline defines a guarantee to be a
contract (including indemnity) that contingently requires the Company to
make payments to the guaranteed party based on: (i) changes in an
underlying interest rate, foreign exchange rate, equity or commodity
instrument, index or other variable, that is related to an asset,
liability or an equity security of the counterparty, (ii) failure of
another party to perform under an obligating agreement or (iii) failure
of a third party to pay indebtedness when due. See note 14.

(r) Generally Accepted Accounting Principles

Effective January 1, 2004, the CICA issued Handbook Section 1100,
"Generally Accepted Accounting Principles" ("GAAP"). The recommendations
in this section clarify the hierarchy of GAAP and codify the sources of
GAAP to more clearly establish the authority of GAAP outside the CICA
Handbook. As a result, the Company changed its method of recording
rental expense relating to its leased properties.

The Company has adopted the straight-line method of recognizing rental
expense whereby the total amount of rental expense to be paid for all
leases is accounted for on a straight-line basis over the term of the
related leases. Previously the Company recorded the rental expense as
it was paid. The difference between the rental expense recognized and
the amount contractually due under the lease agreements is set up as a
liability. The Company included an additional $500 in rental expense for
the year ended December 31, 2004 as a result of this new policy.

(s) Prior period comparatives:

Certain prior period comparatives have been reclassified to conform with
the basis of presentation adopted in the current year.



---------------------------------------------------------------------
---------------------------------------------------------------------
Note 2: Inventories
---------------------------------------------------------------------
---------------------------------------------------------------------

2004 2003
---------------------------------------------------------------------

Raw materials $ 18,160 $ 22,939
Work in progress 8,590 7,852
Finished goods 8,539 10,113
Tooling work in progress 5,660 9,076

---------------------------------------------------------------------
$ 40,949 $ 49,980
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 3: Capital assets

---------------------------------------------------------------------
---------------------------------------------------------------------
At December 31, 2004: Accumulated Net book
Cost Amortization Value
---------------------------------------------------------------------

Land $ 8,228 $ - $ 8,228
Buildings and improvements 40,673 7,598 33,075
Leasehold improvements 11,198 4,127 7,071
Manufacturing equipment 213,251 99,613 113,638
Metal forming equipment 35,795 6,200 29,595
Tooling and fixtures 14,812 5,162 9,650
Motor and delivery vehicles 1,389 1,177 212
Office and computer equipment 16,189 12,023 4,166
Construction in progress 12,941 - 12,941

---------------------------------------------------------------------
$ 354,476 $ 135,900 $ 218,576
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
At December 31, 2003: Accumulated Net book
Cost Amortization Value
---------------------------------------------------------------------

Land $ 9,069 $ - $ 9,069
Buildings and improvements 44,524 7,992 36,532
Leasehold improvements 8,487 3,426 5,061
Manufacturing equipment 196,299 90,785 105,514
Stamping equipment 33,679 4,104 29,575
Tooling and fixtures 12,996 4,188 8,808
Motor and delivery vehicles 1,398 1,203 195
Office and computer equipment 16,550 10,864 5,686
Construction in progress 11,948 - 11,948

---------------------------------------------------------------------
$ 334,950 $ 122,562 $ 212,388
---------------------------------------------------------------------
---------------------------------------------------------------------

Assets included in construction in progress are expected to be placed
into productive use during 2005. Construction in progress consists
of equipment under construction of $12,941 (2003 - $11,948).

Note 4: Intangible Assets

---------------------------------------------------------------------
---------------------------------------------------------------------

2004 2003
---------------------------------------------------------------------

Customer contracts $ 34,620 $ 34,620
Accumulated amortization 7,124 3,662

---------------------------------------------------------------------
$ 27,496 $ 30,958
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 5: Bank Indebtedness

The Company has available a $50 million operating line of credit, with
an interest rate ranging from bankers acceptance plus 1.5% to 2.5% on
Canadian dollar amounts, and prime to prime plus 1.5% on U.S. dollar
amounts, depending on the Company's funded debt to earnings before
interest, taxes, and amortization ratio. The operating line of credit
also entails registered general security agreements and a first charge
on the assets of the Company. The indenture requires the maintenance of
certain financial ratios.

The $50 million line of credit is comprised of a $38 million revolving
credit line, a $5 million Canadian dollar swing line, and a $5 million
USD swing line.



Note 6: Long-term debt
---------------------------------------------------------------------
---------------------------------------------------------------------

2004 2003
---------------------------------------------------------------------
Three year commercial term loan secured by a
registered general security agreement and a first
charge on the assets of all the Company's material
subsidiaries, with interest payable at a fixed rate
of 5.67% (2003 - 5.17%) on $24,375 (2003 - $30,000)
and at a floating rate of bankers acceptance (BA)
plus 1.5% to 2.5% on Canadian dollar amounts, and
prime to prime plus 1.5% on U.S. dollar amounts on
the remaining amount. The floating rate varies
depending on the Company's funded debt to earnings
before interest, taxes, and amortization ratio. As
at December 31, 2004, the floating rate was at
4.62% (2003 - 4.2%). The actual rate payable will be
dependent upon certain financial ratios. On August
14, 2004, the Company amended its original credit
agreement dated June 27, 2003. Under the amended
agreement, the three year commercial term loan was
reduced by $10 million, with a corresponding
increase in the Company's line of credit.
Commencing September 30, 2004, equal quarterly
payments were reduced to $2,000 from $3,750, with
full repayment of all outstanding amounts on the
maturity date of June 30, 2006. The term loan
requires the maintenance of certain financial
ratios. $ 42,000 $ 60,000

Fixed rate equipment loans with interest thereon
payable monthly with fixed rates ranging from
4.5% to 8% per annum, payable in aggregate
monthly payments of $126 (principal and
interest) and maturing April 2005 to August
2007. These loans are secured by the underlying
equipment. 1,085 2,745

US dollar equipment loans in the amount of $309 US
with interest thereon payable monthly with fixed
rates of 4.5% per annum, payable in aggregate
monthly payments of $15 US (principal and
interest), and maturing in June 2006. These loans
are secured by the underlying equipment. 372 693

US dollar equipment loans in the amount of $5,884
US with semi annual principal and interest
payments, fixed rates of 5.8% to 6.2% per annum,
payable in aggregate semi-annual principle
payments of $654 US, maturing from January 2005
to May 2009. These loans are secured by the
underlying equipment. 7,442 9,325

Note payable on the purchase of SCS International
Inc. with interest thereon payable annually at
3% per annum and semi-annual payments of $500 to
July 2005. 1,000 2,000

Four to seven year equipment loans with interest
thereon payable monthly at a floating rate of BA
plus 2.25%, with a one-time option to fix the
variable rate, and maturing from March 2009 to
April 2011. Interest on advances made before
commencement of the loan is calculated at prime
plus 1.75%. The actual rate payable will be
dependent upon certain financial rates. These
loans are secured by the underlying equipment. 18,790 3,641
---------------------------------------------------------------------
70,689 78,404

Less current portion 15,362 15,967
---------------------------------------------------------------------
$ 55,327 $ 62,437
---------------------------------------------------------------------
---------------------------------------------------------------------


Future minimum annual payments required are as follows:
2005 $ 15,362
2006 39,632
2007 5,446
2008 5,431
2009 3,489
Thereafter 1,329
---------------------------------------------------------------------
$ 70,689
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 7: Income taxes

(a) Income taxes attributable to earnings differs from the amounts
computed by applying statutory rates to pretax income as a result
of the items listed in the following table.

---------------------------------------------------------------------
---------------------------------------------------------------------

2004 2003
---------------------------------------------------------------------

Basic statutory rates applied to
earnings before income taxes $ 6,374 $ 8,985
Increase (decrease) in income taxes
resulting from:
Tax rate changes - 99
Intangibles 1,181 1,147
Manufacturing and processing
profits deduction (353) (647)
Large corporations tax 463 243
Decrease due to deductible expenses
incurred in foreign jurisdictions (1,291) (985)
Other 13 354

---------------------------------------------------------------------
Income taxes $ 6,387 $ 9,196
---------------------------------------------------------------------
---------------------------------------------------------------------

(b) The tax effects of temporary differences that give rise to
significant portions of future income tax assets and future
income tax liabilities are presented below:

---------------------------------------------------------------------
---------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------

Future income tax assets:
Share issue costs $ 2,105 $ 3,193
Stock appreciation rights 216 368
Investment tax credits 636 1,444
Provincial minimum tax 1,230 1,686
Non-capital loss carryforwards 25,099 21,064
Reserves 4,159 4,958
---------------------------------------------------------------------
33,445 32,713
Valuation allowance (14,313) (14,153)
---------------------------------------------------------------------
Total future income tax assets 19,132 18,560

Future income tax liabilities:
Capital assets (18,563) (15,500)

---------------------------------------------------------------------
Net future income tax asset $ 569 $ 3,060
---------------------------------------------------------------------
---------------------------------------------------------------------


The ultimate realization of the future income tax assets is dependent
upon the generation of future taxable income during the periods in which
the temporary differences become deductible.

The valuation allowance for future taxes as at December 31, 2004 was
$14,313 (2003 - $14,153). The increase in the valuation allowance is due
to exchange differences on tax loss carryforwards relating to the
Company's division in the Netherlands. In assessing the realizability of
future tax assets, management considers whether it is more likely than
not that some portion or all of the future tax assets will be realized.
The ultimate realization of future tax assets is dependent upon the
generation of future taxable income during the periods in which these
temporary differences and loss carry forwards are deductible.

(c) The Company has accumulated approximately $73.3 million in
non-capital tax losses that are available to reduce taxable income in
future years. If unused these losses will expire as follows:



---------------------------------------------------------------------
---------------------------------------------------------------------
Year Amount
---------------------------------------------------------------------
2009 4,044
2010 16,104
2011 14,996
2020 3,310
Indefinite 34,869
---------------------------------------------------------------------
73,323
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 8: Share Capital

---------------------------------------------------------------------
---------------------------------------------------------------------
Number Amount
---------------------------------------------------------------------
Common Shares

Authorized - unlimited number of common
shares

Issued and outstanding:
Balance, December 31, 2002 57,690,226 $ 437,434
Issued on exercise of employee options 95,050 427
Share issue costs (net of future
tax recovery of $4) (11)
---------------------------------------------------------------------
Balance, December 31, 2003 57,785,276 $ 437,850
---------------------------------------------------------------------

Issued on Director's compensation 5,075 $ 33
---------------------------------------------------------------------
Balance, December 31, 2004 57,790,351 $ 437,883
---------------------------------------------------------------------

Warrants

Issued and outstanding:
---------------------------------------------------------------------
Balance, December 31, 2003 and 2004 3,533,333 $ 6,164
---------------------------------------------------------------------

Share Capital, December 31, 2004 $ 444,047
---------------------------------------------------------------------
---------------------------------------------------------------------


Notes receivable for share capital

Notes receivable represents 10 year, non-interest bearing notes issued
to three senior officers in 2001 and 2002 in order to enable them to
acquire an aggregate of 2,500,000 shares of the Company at a price of
$4.50 and $9.00 per common share. These notes are secured by the
acquired common shares and have been included as a component of
shareholder's equity for presentation purposes.

Warrants

As part of a private placement on December 12, 2002, the Company sold
10,000,000 subscription receipts at a price of $8.00 per subscription
receipt, resulting in aggregate gross proceeds of $80 million. Each
subscription receipt entitled the holder to subscribe for one common
share of the Company and one-third of a common share purchase warrant (a
"warrant"), without payment of any consideration in addition to the
issue price of such subscription receipt. Each whole warrant entitles
the holder to subscribe for one common share of the Company for a period
of three years from the date of issue at a subscription price of $10.00
per share.

On April 29, 2002, the Company issued 200,000 warrants to its financial
advisors. Each warrant will entitle the holder to purchase one common
share of the Company at a price of $11.85 on or before April 29, 2007.

Stock options

The Company has one stock option plan for key employees. Under the plan,
the Company may grant options to its key employees for up to 4,762,000
shares of common stock. The Company has, in the past, also granted
options to officers and employees of Rea and Pilot in connection with
the acquisitions thereof. Such options were granted outside the stock
option plan. Under the plan, the exercise price of each option equals
the market price of the Company's stock on the date of grant and the
options have a maximum term of 10 years. Options are granted throughout
the year and vest between 0 and 4 years

The following summary sets out the activity in outstanding common share
purchase options:



---------------------------------------------------------------------
---------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------
Options Weighted Options Weighted
average average
exercise exercise
price price
---------------------------------------------------------------------
Beginning of year 4,194,000 $ 9.54 4,561,550 $ 9.61
Granted 30,000 6.34 334,000 7.43
Exercised - - (95,050) 4.49
Cancelled (120,000) 8.00 (606,500) 9.71

---------------------------------------------------------------------
End of year 4,104,000 $ 9.56 4,194,000 $ 9.54
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
Options exercisable,
end of year 4,051,500 $ 9.68 3,942,750 $ 9.65
---------------------------------------------------------------------
---------------------------------------------------------------------

The following is a summary of common share purchase options issued
and outstanding under the Company's stock option plan:

---------------------------------------------------------------------
---------------------------------------------------------------------
Range of exercise Number outstanding Date of Expiry Vesting
price per share at December 31, grant period
2004
---------------------------------------------------------------------

4.50 -5.50 130,000 2001 2011 Fully vested
6.34 30,000 2004 2014 Fully vested
7.00 - 8.60 621,500 2001 - 2011 -
2003 2013 Fully vested
7.50 - 8.00 52,500 2002 - 2012 -
2003 2013 1 to 4 years
10.35 50,000 2002 2012 Fully vested
10.00 2,225,000 2002 2012 Fully vested
10.00 490,000 2002 2005 Fully vested
11.00 50,000 1998 2005 Fully vested
11.00 - 12.00 455,000 1998 - 2008 -
2002 2012 Fully vested

---------------------------------------------------------------------
4,104,000
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 9: Contributed Surplus

Contributed surplus represents the use of the fair value-based method
for stock-based compensation arrangements. The Company recorded an
adjustment of $19,506 on January 1, 2004 to reflect the adoption of CICA
Handbook section 3870 as described in note 1(i) and expensed a further
$162 during 2004 to reflect current year compensation expense, as
derived using the Black-Scholes option valuation model.

The table below shows the assumptions used in determining stock based
compensation expense under the Black-Scholes option pricing model:



---------------------------------------------------------------------
---------------------------------------------------------------------

Assumptions 2004 2003
---------------------------------------------------------------------

Risk fee interest rate 4.5% 4.00%
Expected life (years) 4 4
Expected volatility 25% 25%
Weighted average fair value of options
granted 1.73 $ 1.96
---------------------------------------------------------------------


The Black-Scholes option valuation model used by the Company to
determine fair values was developed for use in estimating the fair value
of freely traded options, which are fully transferable and have no
vesting restrictions. The Company's stock options are not transferable,
cannot be traded and are subject to vesting restrictions and exercise
restrictions under the Company's black-out policy which would tend to
reduce the fair value of the Company's stock options. Changes to
subjective input assumptions used in the model can cause a significant
variation in the estimate of the fair value of the options.

Note 10: Earnings per common share

Basic and diluted earnings per common share have been calculated using
the weighted average and maximum dilutive number of shares, using the
treasury stock method.



---------------------------------------------------------------------
---------------------------------------------------------------------
2004 2003
Weighed average Per common Weighed average Per common
number of share number of share
common shares amount common shares amount
---------------------------------------------------------------------

Basic 55,287,841 $ 0.20 55,262,104 $ 0.28

Effect of dilutive
securities
-Shares secured by
notes receivable 2,500,000 0.01 2,500,000 0.01
-Stock options 19,743 - 44,583 -
-Warrants - - - -
---------------------------------------------------------------------
2,519,743 $ 0.01 2,544,583 $ 0.01
---------------------------------------------------------------------

Diluted 57,807,584 $ 0.19 57,806,687 $ 0.27
---------------------------------------------------------------------
---------------------------------------------------------------------

The dilutive effect of stock options and warrants excludes the effect
of 3,974,000 (2003 - 3,930,000) options whose strike price is higher
than the average market price for the period, as they are
anti-dilutive.


Note 11: Financial instruments:

(a) Fair values of financial instruments:

The fair values of accounts receivable, other receivables, deposits,
bank indebtedness, accounts payable and accrued liabilities as recorded
in the consolidated balance sheets approximate their carrying amounts
due to the short-term maturities of these instruments.

The fair value of the note payable on the purchase of SCS International
Inc. is not readily determinable. The Company does not have plans to
sell this financial instrument to a third party and will realize or
settle it in the normal course of business. No quoted market prices
exists for this instrument because it is not traded in an active and
liquid market and, accordingly, the fair value is not readily
determinable.

The Company has entered into interest rate swap agreements to manage its
interest rate exposure on floating rate debt. As at December 31, 2004,
the Company has $24,375 (2003 - $30,000) of floating rate bank debt
swapped against fixed rate debt with an interest rate of 3.67% (2003 -
3.67%), plus applicable stamping fees. This agreement expires on June
30, 2006. The fair value of all long term debt approximates its carrying
value as the terms and conditions of the borrowing arrangements are
comparable to current market terms and conditions for similar loans.
Fair value has been calculated using the future cash flows (principal
and interest) of the actual outstanding debt instruments, discounted at
current market rates available to the Company for the same or similar
instruments.

Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.

(b) Derivative financial instruments:

The Company utilizes forward foreign exchange contracts and interest
rate swaps to reduce exposure to fluctuations in foreign currency
exchange rates and interest rates. The Company does not purchase or hold
derivative financial instruments for speculative purposes.

As at December 31, 2004, the Company has committed to purchase a total
of US$6,408 at an average exchange rate of 1.29 and a total of 800 Euros
at an average exchange rate of 1.57, with maturity dates ranging from
January 2005 to April 2008. At December 31, 2004, unrecognized losses
totaled $503 (2003 - $315).

(c) Interest rate risk:

The Company has interest bearing loans on which general interest rate
fluctuations apply. Part of this risk has been mitigated through
interest rate contracts on $24,375 of the Company's term debt.

(d) Concentration of credit risk:

The Company primarily sells to the North American automotive industry.
The exposure to credit risk associated with the non-performance of these
customers can be directly impacted by a decline in economic conditions
which would impair the customers' ability to satisfy their obligations
to the Company. In order to reduce this economic risk, the Company has
credit procedures in place whereby analyses are performed to control the
granting of credit to any high risk customer. The Company believes that
there is no significant risk associated with the collection of these
amounts.

(e) Foreign currency risk:

The Company undertakes revenue and purchase transactions in foreign
currencies, and therefore is subject to gains and losses due to
fluctuations in foreign currency exchange rates. A portion of this risk
has been mitigated through foreign exchange contracts, as described in
(b) above.

Note 12: Related party transactions

During 2004, the Company paid rent of US$1,039 (2003 - $1,039) relating
to leased premises for two divisions acquired as part of the purchase of
Pilot Industries Inc. on December 31, 2002. Both of these divisions were
subsequently closed. These premises are co-owned by an employee of the
Company. Refer also to note 14.

During 2003, the Company repaid the mortgage payable to a relative of
the President of the Company, used to complete the purchase of Pilot
Industries Inc. on December 31, 2002.



Note 13: Segmented information:

The Company focuses its operations on the production of goods for
the automotive industry.

Revenues by geographic region are summarized as follows:
---------------------------------------------------------------------
---------------------------------------------------------------------
Year ended, December 31, 2004 Canada US Other Total

Canada 158,711 $ 187,220 $ 10,152 356,083

Export sales:
US 16,726 113,279 3,694 133,699
Other 162 62,024 30,776 92,962

---------------------------------------------------------------------
175,599 362,523 $ 44,622 $ 582,744
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
---------------------------------------------------------------------
Year ended, December 31, 2003 Canada US Other Total
---------------------------------------------------------------------

Canada 120,740 $ 214,209 $ 14,574 349,523

Export sales:
US 19,366 149,187 677 169,230
Other - 46,830 42,556 89,386

---------------------------------------------------------------------
140,106 410,226 $ 57,807 $ 608,139
---------------------------------------------------------------------
---------------------------------------------------------------------

Approximately 68% (2003 - 60%) of the Company's revenues are derived
from four (2003 - four) customers.

Assets by geographic region are summarized as follows:

---------------------------------------------------------------------
---------------------------------------------------------------------
At December 31, 2004: Current Capital Goodwill and Total
assets Assets Other assets
---------------------------------------------------------------------

Canada 84,788 167,310 192,349 $ 444,447
US 35,783 27,091 58,118 120,992
Mexico 12,636 14,293 14,499 41,428
Europe 8,706 9,882 12,220 30,808

---------------------------------------------------------------------
$ 141,913 $ 218,576 $ 277,186 $ 637,675
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
---------------------------------------------------------------------
At December 31, 2003: Current Capital Goodwill and Total
assets Assets Other assets
---------------------------------------------------------------------
Canada $ 119,371 $ 161,608 $ 198,541 $ 479,520
US 32,742 30,238 56,615 119,595
Mexico 12,846 9,878 13,856 36,580
Europe 6,795 10,664 11,064 28,523

---------------------------------------------------------------------
$ 171,754 $ 212,388 $ 280,076 $ 664,218
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 14: Guarantees and Commitments

The Company leases manufacturing premises, office equipment, vehicles
and facilities under long term operating leases. The aggregate minimum
annual lease payments are as follows:



---------------------------------------------------------------------
---------------------------------------------------------------------

2005 $ 6,381
2006 6,113
2007 5,768
2008 4,513
2009 4,051
Thereafter 8,295

---------------------------------------------------------------------
$ 35,121
---------------------------------------------------------------------
---------------------------------------------------------------------


Of the above amount US$3,400 are under an arrangement with a company in
which an employee of the Company's U.S. subsidiary has a financial
interest. These leases were negotiated prior to the acquisition of Pilot
Industries Inc. by the Company and are at fair market value.

As at December 31, 2004, the Company has two letters of credit
outstanding for a total of $1,550 (2003 - $720). These letters of credit
were issued to the City of Brampton to guarantee various projects.

Commitments in capital expenditures totaled $679 as at December 31, 2004
(2003 - $190).

The Company also entered into foreign exchange contracts to purchase US
$6,408, with maturity dates ranging from January 2005 to April 2008 and
800 Euros, with maturity dates ranging from January 2005 to June 2005.
Total settlement value amounts to approximately $9,492.

The Company is a guarantor under a tool financing program. The tool
financing program involves a third party that provides tooling suppliers
with financing subject to a Company guarantee. Payments from the third
party to the tooling supplier are approved by the Company prior to the
funds being advanced. The amounts loaned to tooling suppliers through
this financing arrangement do not appear on the Company's balance sheet.
At December 31, 2004, the amount of program financing was $11.9 million.
The maximum amount of undiscounted future payments the Company could be
required to make under the guarantee is $11.9 million. The Company would
be required to perform under the guarantee in cases where a tooling
supplier could not meet its obligation to the third party. Since the
amount advanced to the tooling supplier is required to be repaid
generally when the Company receives reimbursement from the final
customer, and at this point the Company will in turn repay the tooling
supplier, the Company views the likelihood of tooling supplier default
as remote. Moreover, if such an instance were to occur, the Company
would obtain the tool inventory as collateral. The term of the guarantee
will vary from program to program, but typically ranges between 6-18
months.

From time to time, the Company is involved in various claims, legal
proceedings, and complaints arising in the course of business. The
Company cannot determine whether these claims, legal proceedings, and
complaints will, individually or collectively, have a material adverse
effect on the business, results of operations and financial condition of
the Company.

Note 15: Subsequent Event

On February 17, 2005, the Company completed the acquisition of the
assets of a metal forming plant in Corydon, Indiana for approximately
US$9,200 plus the assumption of operating leases with an outstanding
obligation to maturity of approximately US$1,600. The purchase price was
funded through a combination of asset-based financing and cash. The
assets purchased include the land and the building, and all equipment
necessary for the production of the programs at the facility.

Subsequent to year end, the Company entered into lease agreements
totalling approximately $346 per annum, which relate primarily to
additional leased premises for two of the Company's divisions.

MANAGEMENT DISCUSSION AND ANALYSIS

OF OPERATING RESULTS AND FINANCIAL POSITION

For the Year ended December 31, 2004

The following discussion and analysis should be read together with the
Company's unaudited consolidated financial statements for the year ended
December 31, 2004 and the accompanying notes.

Overview

Martinrea International Inc. ("Martinrea" or the "Company") is a leader
in the production of quality metal parts, assemblies and modules and
fluid management systems focused primarily on the automotive sector.
Martinrea currently employs over 3,000 skilled and motivated people in
18 plants in Canada, the United States, Mexico, the Netherlands and the
United Kingdom.

Martinrea's objective is to develop a state-of-the-art international
fluid systems and metal forming business that will continue to be and
further become a key supplier in the automotive industry. Growth will be
prudent, profitable and based on innovation. The backbone of this future
growth is the development of talented people. The significant
development of the Company the last three years has reflected this
business strategy. The profitability of the Company in the last three
years indicate the beginning of the fulfillment of this strategy.

Results of Operations

Revenues for the year ended December 31, 2004 totaled $582.7 million as
compared to $608.1 million for the year ended December 31, 2003.
Revenues in the year have decreased by $25.4 million from the prior year
comparable due to lower prototype and tooling revenues. Tooling revenues
totaled $32.4 million in 2004 as compared to $57.4 million in 2003. The
reduction in tooling revenue is attributable to the number and nature of
programs launched in the previous year versus the current year. The
appreciation of the Canadian dollar versus the U.S. dollar also impacted
sales by approximately $18.5 million. These factors were offset in part
by increased production revenues pertaining primarily to the Daimler
Chrysler new LX program (300C, Magnum), a full year production of the
Ford V229 program (Freestar), a full year production of the Company's
participation in GM's GMT800 pick-up program (Silverado, Sierra), the
launch of GM's GMX365/367 program (W-car), metallic takeover business
and other new programs.

The Company's revenues for the fourth quarter of 2004 of $149.9 million
were $22.8 million lower than the fourth quarter of 2003 of $172.7
million. The reduction in revenues is primarily due to lower tooling
sales of $15.9 million versus the prior year, and the appreciation of
the Canadian dollar versus the U.S. dollar that impacted the translation
of the Company's US dollar denominated revenues. The Company's revenues
for the fourth quarter of 2004 exceeded third quarter of 2004 revenues
of $125.3 million by $24.6 million primarily due to higher vehicle
production by the Company's customers.

Gross margin percentage for the year ended December 31, 2004 was 16.1%
as compared to 15.2% for the year ended December 31, 2003. The overall
increase in gross margin percentage was due to productivity improvements
and lower launch costs. These improvements have been offset in part by
lower production levels, continuing price reductions to automotive
customers and steel surcharges on part of the Company's steel purchases
not on customer steel resale programs. The Company has not been able to
offset the price reductions to customers or the steel surcharges in
their entirety. At the current time approximately 25% of the Company's
steel purchases are subject to steel surcharges. The Company has been
successfully negotiating price increases with many customers not on
steel resale programs in order to reduce the Company's exposure to
existing material increases.

Gross margin percentage for the fourth quarter ended December 31, 2004
was 16.6% as compared to 13.9% in the fourth quarter ended December 31,
2003. The increase in gross margin from the prior year is attributable
to lower launch costs in the current year. The Company anticipates
continued gross margin improvement over time as sales volumes increase
and new incremental programs continue to fill available production
capacity. The improvement of gross margin is evident from a comparison
of the fourth quarter of 2004 gross margin of 16.6% versus 15.9% in the
third quarter of 2004.

Net earnings for the year ended December 31, 2004 were approximately
$11.0 million versus a $15.4 million result for the year ended December
31, 2003. The earnings per share for the year was $0.20 ($0.19 on a
diluted basis) as compared to the prior year of $0.28 ($0.27 on a
diluted basis). Net earnings for the year ended December 31, 2004 were
lower than the prior year comparable even though a gross margin
percentage increase occurred. The decline in profitability versus the
prior year is attributable to foreign exchange gains of $1.9 million
after tax realized in the prior year that did not reoccur in 2004,
higher engineering costs related to an increase in the number of
engineers in the Company's Detroit metal forming engineering centre of
approximately $0.6 million after tax and the remainder is attributable
to higher amortization on production ready assets in 2004, where
capacity was not fully utilized.

Net earnings for the quarter ended December 31, 2004 were approximately
$2.2 million or $0.04 per share ($0.03 on a diluted basis) versus a
similar result of $2.3 million, (or $0.04 per share on a basic and
diluted basis) for the quarter ended December 31, 2003. The reduction of
net earnings resulting from lower revenues in the fourth quarter of 2004
versus the fourth quarter of 2003 was primarily offset by improved gross
margins.

Net earnings for the fourth quarter ended December 31, 2004 of $2.2
million was $1.2 million higher than the third quarter of 2004 net
earnings of $1.0 million. The benefit of improved gross margin in the
fourth quarter of 2004 versus the third quarter of 2004 was offset in
part by write downs of redundant assets totaling $0.7 million after tax
resulting from the closure of the Company's Claireville location in 2004
and a year-end adjustment of $0.3 million after tax to reflect the
adoption of a new accounting standard that impacts upon the recognition
of rent expense on leased premises. Net earnings in the fourth quarter
of 2004 were also impacted by foreign exchange fluctuations. The
Company's changing product mix from new launches and the growing
profitability of the Company's foreign operations have created a
scenario where net earnings is now impacted by foreign exchange
fluctuations. In the fourth quarter of 2004 net earnings were reduced by
$0.6 million as a result of the appreciation of the Canadian dollar
versus US dollar during the fourth quarter of 2004.

Amortization expense was $26.6 million for the year ended December 31,
2004 versus $21.5 million for the year ended December 31, 2003. The
increase in amortization from the comparable period is attributable to
amortization of capital assets previously purchased that are now
production ready, most notably a full year amortization of Hydroform
Solution's metal forming presses and building expansion.

Selling, general and administrative expenses for the year ended December
31, 2004 were $43.6 million, or 7.5% of revenues, compared to $42.6
million, or 7.0% of revenues, for the year ended December 31, 2003. The
increase from the prior year is primarily attributable to the need for
additional sales engineering resources that are required for the Company
to compete in larger metallic assemblies. The increase in selling,
general and administrative expenses on a percentage basis has gone up in
2004 versus 2003 due to lower revenues discussed above.

Selling, general and administrative expenses for the fourth quarter of
2004 totaled $12.7 million or 8.4% of revenues as compared to $12.8
million for the fourth quarter of 2003 or 7.4% of revenues. The actual
expenditures in the fourth quarter of 2004 are consistent with the
comparable period, but on a percentage basis the increase in the
percentage for the fourth quarter of 2004 versus the prior year
comparable is due to the lower revenues discussed above. The increase in
the sales, general and administrative expenses in the fourth quarter of
2004 versus the third quarter of 2004 of $2.8 million is due to the
write-down of redundant assets from the closure of the Company's
Claireville location of $1.1 million and the timing of engineering
expenditures.

Capital expenditures for the year ended December 31, 2004 totaled $37.8
million compared to $55.5 million for the comparable year ended December
31, 2003. Capital expenditures were slightly higher than the Company's
projection of $35 million due to incremental capital on metallic
takeover business and the acceleration of capital expenditures in order
to meet customer timing requirements on launches. Expenditures in the
fourth quarter of 2004 were $7.6 million vs. $14.9 million in the fourth
quarter of 2003. Capital expenditures in 2004 related primarily to
program capital. During 2005, the Company plans to spend approximately
$24 to $28 million on new program capital to be employed in its existing
North American and operations.



Selected Quarterly Information

Dec 31-04 Sept 30-04 June 30-04 Mar 31-04
---------------------------------------------------------------------

Sales $149,913 $125,286 $162,328 $145,217
Gross Margin 24,925 19,941 27,115 22,091

Selling, general &
administrative 12,683 9,867 10,679 10,326

Interest 1,605 1,383 1,602 1,310
Net earnings 2,174 971 5,134 2,684

Earnings per share:

-Basic 0.04 0.02 0.09 0.05
-Diluted 0.03 0.02 0.09 0.05

Weighted average
number of common
shares outstanding:

-Basic 55,290,351 55,290,351 55,285,332 55,285,276
-Diluted 57,792,921 57,808,939 57,815,669 57,822,805


Dec 31-03 Sept 30-03 June 30-03 Mar 31-03
---------------------------------------------------------------------

Sales $172,708 $141,423 $142,823 $151,185
Gross Margin 23,989 22,491 22,692 23,518

Selling, general &
administrative 12,794 9,122 9,940 10,715

Interest 1,148 1,314 1,771 1,793
Net earnings 2,265 4,171 4,519 4,452

Earnings per share:

-Basic 0.04 0.08 0.08 0.08
-Diluted 0.04 0.07 0.08 0.08

Weighted average
number of common
shares outstanding:

-Basic 55,285,276 55,285,276 55,274,699 55,201,995
-Diluted 57,848,926 57,848,926 57,821,935 57,778,044


Liquidity, Capital Resources, and Off Balance Sheet Financing

The Company's financial condition remains strong given the continuing
profitability of its operations and its prospects for growth and new
program launches. The Company's growing financial maturity is reflected
in its ability to increase its level and variety of debt financing for
new investments. The increase in financing alternatives is primarily due
to its increasing cash flow from operations and its ability to absorb
new business by utilizing existing capacity.

During the third quarter of 2004 the Company improved its credit
arrangements with its banking syndicate. The updated banking agreement
provided the Company with $96 million of financing that consisted of a
$50 million revolving credit facility and a $46 million long-term
facility. At the time of amendment, the credit facilities were reduced
from the previous $100 million as a result of the Company's repayment of
$4 million of long term debt. The previous banking agreement consisted
of a $40 million revolving credit facility and a $60 million long-term
facility. The term to maturity and interest rate schedule remain
unchanged and the new banking arrangement has improved the Company's
cash flow by reducing the yearly repayment of long-term debt from $15
million to $8 million. The new banking arrangement also improves the
Company's ability to finance future investments relating to new programs
by allowing increased access to alternative sources of debt.

The Company is a guarantor under certain tooling financing programs
negotiated in 2004 that provide direct financing for specific programs.
The tool financing program involves a third party that provides tooling
suppliers with financing subject to a Company guarantee. The amounts
loaned to tooling suppliers through this financing arrangement do not
appear on the Company's balance sheet. At December 31, 2004 the amount
of program financing is $11.9 million.

The Company has also entered into asset backed financing arrangements
for program capital that total $18.8 million at December 31, 2004. The
loans are repayable over the related production part program life which
is generally four or five years.

The Company's bank indebtedness of approximately $10.5 million at
December 31, 2004 has decreased relative to the $16.6 million at
December 31, 2003 due to increasing cash flow from operations, the
positive impact resulting from the implementation of the new tool
financing program in 2004, the collection of tooling receivables and
improved working capital management. The bank indebtedness at December
31, 2004 of $10.5 million has decreased relative to the $25.7 million at
September 30, 2004 due to increasing cash flow from operations, the
payment of tooling receivables by customers on programs ready for
production that were previously funded by the Company's bank operating
lines, and improved working capital management.

The Company had a strong balance sheet as at December 31, 2004, with
shareholders equity of $449.1 million, as compared to $442.6 million as
at December 31, 2003. The Company's working capital of $27.9 million
should be sufficient to cover anticipated cash needs together with
internally generated cash flow and financing facilities in place. As at
December 31, 2004, Martinrea's ratio of current assets to current
liabilities was 1.2:1, which is consistent with the prior year.

As a result of growth and ongoing expansion programs, the Company
anticipates that capital expenditures will amount to approximately $24
to $28 million in 2005 based on the current business plan. Such amounts
will be financed by increasing cash flow from operations, utilization of
operating lines, asset based financing facilities, and management of
working capital.

Acquisition of Corydon Manufacturing LLC

On February 17, 2005, the Company completed the acquisition of Corydon
Manufacturing LLC ("Corydon"), for a purchase price of approximately
US$9.2 million plus the assumption of operating leases with an
outstanding obligation to maturity of approximately US$1.6 million. The
purchase price was funded through a combination of asset-based financing
and cash. The Corydon facility is located in Indiana, and manufactures
underbody assemblies called spiders and rails, which are assembled on
the Saturn Vue, Chevrolet Equinox and Pontiac Torrent (Cami). This
purchase provides the Company with metal forming capabilities in the
United States, which in turn provides flexibility in dealing with
foreign exchange fluctuations, competitive advantage with regards to
transportation to customers in the central United States, and greater
opportunities on metal forming takeover work in the United States.

The financial position and results of Corydon Manufacturing LLC have not
been included in the Company's December 31, 2004 financial statements.

Risks and Uncertainties

The Company is exposed to a number of risks and uncertainties that could
impact future results. The nature of the Company's business, especially
in the automotive sector, means that it is affected by general economic
conditions and competitive factors, both domestic and from foreign
sources. The Company operates in a capital intensive business
environment and therefore needs to be financially able to purchase new
equipment and technology on a timely basis. The Company has a strong
balance sheet and, to ensure future tooling and capital requirements are
satisfied, the Company has negotiated capital equipment financing
facilities to supplement cash flow generation from Company operations.

The automotive industry is currently an extremely challenging business
characterized by rapid technological change, frequent new product
introductions and customer pricing pressures. The ability of the Company
to compete successfully will depend in large measure on its ability to
maintain a technically competent workforce and to adapt to technological
changes and advances in the industry, including providing for the
continued compatibility of its products with evolving industry standards
and protocols.

The Company has acquired and anticipates that it may continue to acquire
complementary businesses, technologies or products. The benefit to the
Company of these acquisitions is highly dependent on the Company's
ability to integrate the acquired businesses and their technologies,
employees and products. Any failure to successfully integrate businesses
or failure of the businesses to benefit the Company could have a
material adverse effect on the Company's business and results of
operations.

The success of the Company is also dependent on a variety of risk
factors, which could materially and adversely affect Martinrea's future
operating results including, but not limited to:

- the dependence upon a few large customers such that cancellation of a
significant order or a loss of a major customer would reduce the
Company's revenues;

- the high level of competition in the industry, and the fact that some
of Martinrea's competitors have significant financial or other resources;

- the cyclicality of the automotive industry and other risks inherent to
the automotive industry;

- the pressure to absorb additional costs from the customer and the
pressure of price reduction programs typical in the automotive industry,
which have become increasingly intense over the past several years;

- production volumes on vehicle platforms may vary to reflect consumer
demand, and the Company's revenues per platform are highly dependent on
such platform volumes;

- the dependence of the Company's success on the services of a number of
the members of its senior management. The experience and talents of
these individuals will be a significant factor in the Company's
continued success and growth. The loss of one or more of these
individuals without adequate replacement measures could have a material
adverse effect on the Company's operations and business prospects;

- risks relating to product warranty, recall and liability;

- uncertainty of financing a capital intensive business should the
Company seek additional equity or debt financing;

- changes in the regulatory environment;

- ongoing health and labour relations issues;

- currency and interest rate risks; and

- increases in the price of raw materials upon which the Company is
directly or indirectly dependent, including electricity, oil and steel,
although most of the Company's steel requirements are purchased from its
original equipment manufacturing customers, thus reducing the direct
exposure to steel prices.

For a more detailed discussion of some of these factors, and a broader
description of the Company's business, reference is made to the
disclosure regarding Martinrea's operations and the risks and
uncertainties facing the Company set forth in the Company's Annual
Information Form and other public filings which can be found at
www.SEDAR.com.

Disclosure of Outstanding Share Data

As at March 14, 2005 the Company had 57,790,351 common shares
outstanding. The Company's common shares constitute its only class of
voting securities. As at March 14, 2005, options and warrants
exercisable to acquire 7,297,333 common shares were outstanding.


Contractual Obligations and Off Balance Sheet Financing

At December 31, 2004, the Company had contractual obligations requiring
annual payments as follows (all figures in thousands):



---------------------------------------------------------------------
Less 1-2 2-3 3-4 4-5 There- Total
than 1 years years years years after
year
---------------------------------------------------------------------
Operating
leases with
third parties $6,381 $6,113 $5,768 $4,513 $4,051 $8,295 $35,121
---------------------------------------------------------------------
Long-term debt 15,362 39,632 5,446 5,431 3,489 1,329 70,689
---------------------------------------------------------------------
Purchase
obligations
(i) 18,994 7,360 132 ---- ---- ---- 26,486
---------------------------------------------------------------------
Total
contractual
obligations $40,737 $53,105 $11,346 $9,944 $7,540 $9,624 $132,296
---------------------------------------------------------------------


(i) The Company had no purchase obligations other than those related to
inventory, services, tooling and fixed assets in the ordinary course of
business.

The Company utilizes certain financial instruments, principally interest
rate swap contracts and forward currency exchange contracts to manage
the risk associated with fluctuations in interest rates and currency
exchange rates. The Company's policy is not to utilize financial
instruments for trading or speculative purposes. Interest rate swap
contracts are used to reduce the impact of fluctuating interest rates on
the Company's long-term debt. These swap agreements require the periodic
exchange of payments without the exchange of the notional principal
amount on which the payments are based. Forward currency exchange
contracts are used to reduce the impact of fluctuating exchange rates on
the Company's purchases of materials and equipment. Payments and
receipts under interest rate swap contracts are recognized as
adjustments to interest expense on long-term debt. Gains and losses on
forward foreign exchange contracts are reflected in the consolidated
financial statements in the same period as the hedged item. In the event
that a hedged item is sold or cancelled prior to the termination of the
related hedging item, any unrealized gain or loss on the hedging item is
immediately recognized in income.

As at December 31, 2004, the Company has committed to purchase a total
of US$6,408 at an average exchange rate of 1.29 and a total of 800 Euros
at an average exchange rate of 1.57 with maturity dates ranging from
January 2005 to April 2008. At December 31, 2004, unrecognized losses
totaled $503 (2003-$315).

The Company has negotiated tool financing facilities that will provide
direct financing for specific programs. The tool financing program
involves a third party that provides tooling suppliers with financing
subject to a Company guarantee. Payments from the third party to the
tooling supplier are approved by the Company prior to the funds being
advanced. The amounts loaned to tooling suppliers through this financing
arrangement do not appear on the Company's balance sheet. At December
31, 2004, the amount of program financing was $11.9 million. The maximum
amount of undiscounted future payments the Company could be required to
make under the guarantee is $11.9 million. The Company would be required
to perform under the guarantee in cases where a tooling supplier could
not meet its obligation to the third party. Since the amount advanced to
the tooling supplier is required to be repaid generally when the Company
receives reimbursement from the final customer, and at this point the
Company will in turn repay the tooling supplier, the Company views the
likelihood of tooling supplier default as remote. Moreover, if such an
instance were to occur, the Company would obtain the tool inventory as
collateral. The term of the guarantee will vary from program to program,
but typically ranges between 6-18 months.

Related Parties

During 2004, the Company paid rent of $US 1.0 million relating to leased
premises for two divisions acquired as part of the purchase of Pilot
Industries Inc. on December 31, 2002. Both of these divisions were
closed as part of the Company's integration process, with production
transferred to other facilities. These premises are owned in part by an
employee of the Company. These leases were negotiated prior to the
acquisition of Pilot Industries Inc. by the Company and are at fair
market value.

Critical Accounting Policies

The Company's discussion and analysis of its results of operations and
financial position is based upon the consolidated interim financial
statements, which have been prepared in accordance with Canadian GAAP.
The preparation of the interim consolidated financial statements
requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and the
related disclosure of contingent assets and liabilities. The Company's
management bases its estimates on historical experience and various
other assumptions that are believed to be reasonable in the
circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities. On an ongoing basis,
management evaluates these estimates. However, actual results may differ
from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of
the consolidated interim financial statements of the Company. Management
has discussed the development and selection of the following critical
accounting policies with the Audit Committee of the Board of Directors
and the Audit Committee has reviewed its disclosure relating to critical
accounting policies in this MD&A.

Revenue Recognition on Separately Priced Tooling Contracts

Revenues from separately priced tooling contracts are recognized on a
completed contract basis. The completed contract method recognizes
revenue and cost of sales upon completion of the tooling project, which
is typically defined as the PPAP (customer acceptance) date. Under such
contracts, the related receivables could be paid in full upon completion
of the contract, or in installments.

Revenues and cost of sales from separately priced tooling contracts are
presented on a gross basis in the consolidated statements of income.

Tooling contract prices are generally fixed; however, price changes,
change orders and program cancellations may affect the ultimate amount
of revenue recorded with respect to a contract. Contract costs are
estimated at the time of signing the contract and are reviewed at each
reporting date. Adjustments to the original estimates of total contract
costs are often required as work progresses under the contract and as
experience is gained, even though the scope of the work under the
contract may not change. When the current estimates of total contract
revenue and total contract costs indicate a loss, a provision for the
entire loss on the contract is made. Factors that are considered in
arriving at the forecasted loss on a contract include, amongst others,
cost over-runs, non-reimbursable costs, change orders and potential
price changes.

The Company expenses all costs as incurred related to the design and
development of moulds, dies and other tools that it will not own and
that will be used in, and reimbursed as part of the piece-price amount
for, subsequent related parts production unless the supply agreement
provides the Company with a contractual guarantee for reimbursement of
costs or the non-cancelable right to use the moulds, dies and other
tools during the supply agreement, in which case the costs are
capitalized and amortized straight line over the life of the related
program.

Impairment of Goodwill, Intangibles and Other Long-lived Assets

Goodwill and indefinite life intangibles are subject to an annual
impairment test or more frequently when an event or circumstance occurs
that more likely than not reduces the fair value of a reporting unit or
indefinite life intangible below its carrying value.

Management evaluates fixed assets and other long-lived assets for
impairment using a two step process whenever indicators of impairment
exist. Indicators of impairment include prolonged operating losses or a
decision to dispose of, or otherwise change the use of, an existing
fixed or other long-lived asset. If the sum of the future cash flows
expected to result from the asset, undiscounted and without interest
charges, is less than the reported value of the asset, asset impairment
must be recognized in the financial statements. The amount of impairment
to be recognized is calculated by subtracting the fair value of the
asset from the reported value of the asset.

Management believes that accounting estimates related to goodwill,
intangible and other long-lived asset impairment assessments are
"critical accounting estimates" because: (i) they are subject to
significant measurement uncertainty and are susceptible to change as
management is required to make forward-looking assumptions regarding the
impact of improvement plans on current operations, in-sourcing and other
new business opportunities, program price and cost assumptions on
current and future business, the timing of new program launches and
future forecasted production volumes; and (ii) any resulting impairment
loss could have a material impact on consolidated net income and on the
amount of assets reported on the Company's consolidated balance sheet.

Future Income Tax Assets

At December 31, 2004, the Company had recorded future tax assets (net of
related valuation allowances) in respect of loss carry forwards and
other deductible temporary differences of $19.1 million. The future tax
assets in respect of loss carry forwards relate primarily to the
Company's Canadian and European operations.

The Company evaluates yearly the realization of its future tax assets by
assessing the valuation allowance and by adjusting the amount of such
allowance, if necessary. The factors used to assess the likelihood of
realization are a forecast of future taxable income and available tax
planning strategies that could be implemented to realize the future tax
assets. The Company has, and continues to use, tax planning strategies
to realize future tax assets in order to avoid the potential loss of
benefits.

At December 31, 2004, the Company had gross income tax loss carry
forwards of approximately $73.3 million, of which $41.5 million relate
to operations in Canada and the Netherlands, the tax benefits of which
have not been recognized in the Company's consolidated financial
statements. Of the total unrecognized losses, $38.9 million expire
during 2009-2020 and the remainder have no expiry date. If operations
improve to profitable levels in these jurisdictions, and such
improvements are sustained for a prolonged period of time, the Company's
net earnings will benefit from these loss carryforward pools.

Stock-based Compensation

The Black-Scholes option valuation model was used by the Company to
determine fair values of options granted during the year. The
Black-Scholes model was developed for use in estimating the fair value
of freely traded options, which are fully transferable and have no
vesting restrictions. The Company's stock options are not transferable,
cannot be traded and are subject to vesting restrictions and exercise
restrictions under the Company's black-out policy which would tend to
reduce the fair value of the Company's stock options. Changes to
subjective input assumptions used in the model can cause a significant
variation in the estimate of the fair value of the options. During 2004,
the Company used the following assumptions to determine the stock-based
compensation expense under the Black-Scholes option pricing model: risk
free interest rate - 4.5%, expected life - 4 years and expected
volatility - 25%.

Changes in Accounting Policies

Revenue Arrangements with Multiple Deliverables

The CICA recently issued Emerging Issues Committee Abstract No. 142,
"Revenue Arrangements with Multiple Deliverables". These abstracts
provide guidance on accounting by a vendor for arrangements involving
multiple deliverables. They specifically address how a vendor determines
whether an arrangement involving multiple deliverables contains more
than one unit of accounting and they also address how consideration
should be measured and allocated to the separate units of accounting in
the arrangement. These abstracts are effective for revenue arrangements
entered into by the Company on or after January 1, 2004. The Company has
determined that the application of this abstract has not resulted in a
change in revenue recognition practices.

Asset Retirement Obligations

In 2003, the CICA issued Handbook Section 3110, "Asset Retirement
Obligations" which is effective for fiscal years beginning on or after
January 1, 2004. The standard establishes recognition, measurement and
disclosure standards applicable to legal obligations associated with the
retirement of property, plant and equipment that results from its
acquisition, construction, development or normal operations. The Company
has assessed the effect of this new standard and has determined that it
had no significant impact on the financial statements of the Company.

Stock-based Compensation

In October 2003, the CICA reissued Section 3870 "Stock-based
Compensation and Other Stock-based Payments", requiring the use of the
fair value-based method for all transactions where goods and services
are received in exchange for stock-based compensation and other
stock-based payments. The change in Section 3870 is applicable for all
years beginning on or after January 1, 2004. During 2004, the Company
began to account for employee stock options that are settled by the
issuance of common shares using the fair value-based method, resulting
in compensation expense of $0.2 million being recorded during this
period. An adjustment of $19.5 million was made to opening retained
earnings on January 1, 2004 to reflect the adoption of this new standard.

Generally Accepted Accounting Principles

In 2003 the CICA issued Handbook Section 1100 "Generally Accepted
Accounting Principles". This section establishes standards for financial
reporting in accordance with Canadian GAAP, and describes what
constitutes Canadian GAAP and its sources. This section also provides
guidance on sources to consult when selecting accounting policies and
determining appropriate disclosures when the primary sources of Canadian
GAAP are silent. This standard was effective for the Company's 2004
fiscal year. The adoption of this standard resulted in $0.5 million of
additional rent expense that will reverse gradually over time in
concurrence with the life of the leases. In 2005, the Company expects
approximately an additional $1.1 million in expenses due to the adoption
of this new standard.

Hedging relationships

In November 2001, the CICA issued Accounting Guideline 13, "Hedging
Relationships" ("AcG 13"). AcG 13 established new criteria for hedge
accounting effective for the Company's 2004 fiscal year. The Company
reassessed all hedging relationships to determine whether the criteria
were met and has applied the new guidance on a prospective basis. To
qualify for hedge accounting, the hedging relationship must be
appropriately documented in the inception of the hedge and there must be
reasonable assurance, both at the inception and throughout the term of
the hedge, that the hedging relationship will be effective.
Effectiveness requires a high degree of correlation of changes in fair
values or cash flows between the hedged item and the hedge. Management
has documented these hedge relationships where applicable in accordance
with the guidance commencing January 1, 2004.

Guarantees

Effective for the year ended December 31, 2004, the Company adopted
Accounting Guideline 14, "Disclosure of Guarantees", issued by the CICA
in February 2003. This guideline expands on previously issued accounting
guidance and requires additional disclosure by a guarantor in its
financial statements. This guideline defines a guarantee to be a
contract (including indemnity) that contingently requires the Company to
make payments to the guaranteed party based on: (i) changes in an
underlying interest rate, foreign exchange rate, equity or commodity
instrument, index or other variable, that is related to an asset,
liability or an equity security of the counterparty, (ii) failure of
another party to perform under an obligating agreement or (iii) failure
of a third party to pay indebtedness when due.

Selected Annual Information

Martinrea's financial year ended December 31, 2002 was a year of
significant growth for the Company and building a base for its future.
The Company acquired Rea International Inc. ("Rea") in April 2002 and
Pilot Industries Inc. ("Pilot") in December 2002. As a result of the
acquisitions, revenues for the year ended December 31, 2002 increased
significantly over the prior year comparable. Martinrea's employees grew
in number from approximately 350 to over 3,000 people. Manufacturing
space grew from approximately 400,000 square feet to approximately
2,000,000 square feet. The Company expanded from four plants in the
Toronto area to 18 plants internationally, with operations and sales
offices in many countries. Upon completing the acquisitions the Company
created one of the largest fluid management systems groups in North
America. The Company also increased its organic new business. During
2002 Martinrea continued construction of world-class stamping and metal
forming facilities. The Company achieved Tier 1 supplier status to major
automotive companies.

The financial results of the Company for the year ended December 31,
2002 include the operating results of Rea after the date of acquisition
on April 29, 2002, as well as the Company's former Royal Laser
operations. The operating results of Pilot were not included, as Pilot
was acquired on December 31, 2002. The assets and liabilities of both
Rea and Pilot were included in the December 31, 2002 financial
statements.

The Rea and Pilot acquisitions and the related financings resulted in
significant changes to the operations of the Company. The Rea
acquisition gave the Company the ability to develop complete fuel and
fluid delivery systems combined with the Company's structural metal
forming capabilities. In the Company's view, the future of the
automotive industry includes the development of space frames that are
functional and not just structural. The Rea acquisition gave the Company
the opportunity to provide engineered fluid management for better weight
distribution and utilization within future automotive structures, thus
eliminating some of the present fluid reservoirs, further reducing
weight and cost to customers. The Pilot acquisition on December 31, 2002
provided the Company with an expanded and complementary customer base, a
broader geographic presence, a greater share of the fluid management
systems market, a broadened technology base, and access to an excellent
employee group. In addition, the acquisition accelerated some
initiatives and developed significant new product areas, such as the
manufacturing of fuel tanks.

Revenues for the year ended December 31, 2003 totaled $608.1 million as
compared to $222.0 million for the year ended December 31, 2002.
Revenues increased from the prior year comparables primarily due to the
inclusion of the Rea and Pilot operations for the entire year of 2003
and increased revenues from the 2003 launch of new programs such as GMT
800 Pick-up fuel bundles, V229 (Ford Freestar) seat frames, metal
stamping and assemblies for Epsilon (Malibu, Grand-Am) and Saturn
(Saturn Vue and Ion) platforms, fuel fillers for Jaguar and bus frames
for Orion Bus. Revenues attributable to new programs totaled $67 million
in 2003. Revenues for the year ended December 31, 2004 totaled $582.7
million. The revenue comparison of 2004 versus 2003 is discussed above.

Net earnings for the year ended December 31, 2003 were approximately
$15.4 million versus a break-even result for the year ended December 31,
2002. The earnings per share for the year was $0.28 ($0.27 on a fully
diluted basis), versus a breakeven result in the prior year. The
increases in net earnings from the prior year comparables are primarily
attributable to the inclusion of net earnings from the operations
acquired as part of the Rea and Pilot acquisitions. The net earnings
comparison of 2004 versus 2003 is discussed above.

No dividends were declared in the above periods, given the investments
in tooling and capital required to support the Company's growth during
this timeframe.


The following table sets forth selected information from the Company's
consolidated financial statements for the years ended December 31, 2004,
December 31, 2003 and December 31, 2002.



Fiscal Period Ended
(in thousands of Canadian Dollars, except per share amounts)
2004 2003 2002
---------------------------------------------------------------------
Sales $582,744 $608,139 $221,956
---------------------------------------------------------------------
Earnings from continuing
operations $ 17,648 $ 24,536 $ 949
---------------------------------------------------------------------
Net income $ 10,963 $ 15,407 $ 10
---------------------------------------------------------------------
Net earning per share
Basic $ 0.20 $ 0.28 $ 0.00
Diluted 0.19 $ 0.27 $ 0.00
---------------------------------------------------------------------
Total assets $637,675 $664,218 $622,195
---------------------------------------------------------------------
Total long-term interest
bearing debt $ 55,327 $ 62,437 $ 38,420
---------------------------------------------------------------------
Dividends declared nil nil nil
---------------------------------------------------------------------


Outlook

The automotive industry is an extremely challenging business,
characterized at the OEM level by intense competition for market share,
rebates to consumers, declining automotive profits at North American
OEM's, and drives for quality and profits, and characterized at the
supplier level by price reductions, increasing quality standards, higher
input prices (at least recently) and a declining number of qualified
suppliers. The Company believes that the long term outlook of the
automotive industry is good, albeit with many challenges, and that many
opportunities will exist for innovative and cost effective suppliers who
build great products. Growth at the supplier level will occur as OEM's
reduce the number of Tier 1 suppliers, continue to outsource product,
and provide opportunities for new work and takeover business. Given the
Company's stage of its growth, an industry slow-down or consolidation
can be viewed as a strategic opportunity to win additional business from
competitors producing fluid management systems or metal formed products.
The Company also believes that its capabilities provide it with the
ability to capitalize on a broad range of opportunities. In 2003 the
Company streamlined operations, managed the integration of acquisitions
to create efficiencies, strengthened product offerings, took advantage
of technological capabilities and created more profitability. The
Company built on this in 2004, building a base for the future. The
Company aims to continue this successful strategy in 2005 and beyond
with a view to increasing revenues and profits.

Forward-Looking Information

In various places in Management's Discussion and Analysis and in other
sections of this document, management's expectations regarding future
performance of Martinrea was discussed. These "forward-looking"
statements are based on currently available competitive, financial and
economic data and operating plans but are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or assumed future results of operations or financial position
of Martinrea, as well as statements preceded by, followed by, or that
include the words "believes", "expects", "anticipates", "estimates",
"projects", "intends", "should" or similar expressions. Important
factors, in addition to those discussed in this document, could affect
the future results of Martinrea and could cause those results to differ
materially from those expressed in any forward looking statements.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Martinrea International Inc.
    Nick Orlando
    Executive VP and Chief Financial Officer
    (416) 749-0314
    (905) 264-2937 (FAX)