Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

March 29, 2007 16:12 ET

Martinrea International Inc. Releases December 31, 2006 Annual Results: Year Over Year Growth In a Competitive Market

TORONTO, ONTARIO--(CCNMatthews - March 29, 2007) - 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, 2006 and its fourth quarter ended December 31, 2006. Martinrea currently employs approximately 7,000 skilled and motivated people in 32 plants in Canada, the United States, Mexico, and the United Kingdom. The Company completed two acquisitions in 2006, namely the acquisition of the assets of Depco International Inc., now Rollstar Metal Forming, on May 12, 2006 and the North American automotive body and chassis operations of ThyssenKrupp Budd Company ("TKB") on December 1, 2006 and the financial position and results from those acquisitions have been included in the Company's financial statements from the relevant acquisition dates. Given the size of the TKB acquisition in particular, the comparisons of quarterly and annual financial results with the previous fiscal period are affected by the high level of TKB revenues and expenses and the lower gross margins of TKB operations as compared to the former Martinrea operations. Year over year and quarter over quarter comparisons are not directly comparable.

Revenues for the year ended December 31, 2006 totaled $871.5 million as compared to $669.8 million for the year ended December 31, 2005, an increase of 30.1%. Revenues for the year ended December 31, 2006 have increased from the prior year comparables primarily due to $128 million of sales resulting from the acquisition of TKB and Rollstar, the launch of new organic programs such as the new GMT900 pick-up that launched during the fourth quarter of 2006, full volume on the GMT900 SUV and takeover programs. The increase in revenues from new programs was offset by the appreciation of the Canadian dollar versus the U.S. dollar resulting in a reduction in the translation of U.S. dollar denominated revenues of approximately $20.4 million, and lower volumes on some existing customer platforms. Incremental production sales were also offset by customer pricing pressures that continue to be a normal part of the North American automotive parts industry. Production revenues are expected to continue to rise as new programs mature and launches are completed.

The Company's revenues for the fourth quarter of 2006 of $299.4 million were higher than revenues for the fourth quarter of 2005 of $185.2 million primarily due to the revenues from the purchase of TKB and Rollstar totaling $109.0 million. In addition revenues in the fourth quarter of 2006 increased due to incremental tooling revenues of $12 million compared to the fourth quarter of 2005. The revenue increases in the fourth quarter were offset by a $2.5 million reduction from the translation of U.S. dollar denominated revenues and $4.3 million from lower customer production volumes in the fourth quarter of 2006 compared to the fourth quarter of 2005. The reduction in revenues in the fourth quarter of 2006 compared to the fourth quarter of 2005 is attributable to the cancellation of the Ford Freestar in 2006 that reduced revenues by $4 million in the fourth quarter of 2006. Lower production volumes in the fourth quarter of 2006 were experienced on a number of platforms as compared to the fourth quarter of 2005, but the impact was offset by incremental takeover business awarded to the Company. This new business helped to alleviate the impact of lower production volumes.

Gross margin percentage for the year ended December 31, 2006 was 16.8% as compared to 17.1% for the year ended December 31, 2005. Gross margin percentage for the year ended December 31, 2006 has decreased in comparison to the prior year due to inclusion of TKB operations in the last month of 2006. Excluding TKB operations Martinrea's gross margin would have been 18.3% for the year ended December 31, 2006. This is a significant increase from the prior year that is attributable to the closure of an unprofitable plant in the Netherlands in the fourth quarter of 2005, divisional reorganizations of two Canadian plants that were undertaken in 2005, ongoing cost reduction plans and the successful launching of new programs in 2006 that have helped to fill available capacity. These improvements have helped offset margin erosion from contractual price reductions with customers and higher costs for materials such as steel which are not on customer resale programs. The Company anticipates a significant improvement in the gross margin of the TKB operations in 2007 from the gross margin achieved in 2006. The Company will accelerate implementation of its efficiency programs in the TKB facilities and increase the utilization of capacity from the in-source of components currently purchased externally by the TKB plants and incremental new work from customers.

Gross margin percentage of 13.6% for the fourth quarter of 2006 is lower than the 17.3% margin percentage for the fourth quarter of 2005 primarily due to the inclusion of TKB financial results. The TKB operations in December 2006 were impacted by significant reductions in production volumes on major programs such as the Ford Explorer. The Company expects to improve the gross margin through new efficiency programs in the TKB plants and the utilization of available capacity.

Net earnings for the year ended December 31, 2006 were approximately $38.3 million versus a $20.2 million result for the year ended December 31, 2005, an increase of 89.7% year over year. The earnings per share for the year was $0.63 ($0.62 on a diluted basis) as compared to the prior year of $0.36 ($0.35 on a diluted basis).

The increase in net earnings from the prior year comparable is primarily attributable to increased revenues, improved gross margin (excluding the impact of the TKB operations in December) reflecting better utilization of the Company's assets and the successful launching of several new programs. The appreciation of the Canadian dollar versus the U.S. dollar during the course of 2006 had no impact on the translation of U.S. denominated net earnings since purchases by the Company's Canadian plants of U.S. dollar denominated components more than offset the translation effect of the net earnings of Company divisions that are denominated in U.S. dollars.

The net earnings of the Company arising from the Rollstar and TKB operations included in the net earnings for 2006 was $0.2 million. The net earnings from Rollstar offset the operational loss and interest expense arising from the TKB operations for the month of December 2006. Traditionally in the automotive industry December revenues are impacted by the Christmas holiday season.

Net earnings in the current year were also affected by one-time items that increased net earnings by $0.7 million or $0.01 per share on a basic and fully diluted basis. These one-time items include a gain on the disposition of part of the Company's share investment in Hy-Drive Technologies Ltd. in the amount of $5.8 million and a $1.4 million gain on the sale of the Company's facility in the Netherlands (this division was closed by the Company in the fourth quarter of 2005). These amounts were offset by a capital impairment charge of $6.1 million, relating primarily to the writedown of assets at two of the Company's facilities that will be rationalized as part of the Company's plan to maximize capacity of existing of new facilities. As such, the Company determined that its impairment charge was appropriate for the related equipment, land and buildings. The impairment charges were determined by comparing the carrying amount of the impaired assets to their fair value. The fair value of the impaired capital assets was determined by reference to quoted market prices.

In April 2006, the Company issued six million shares as part of a public offering. The Company anticipates that the share issuance will increase shareholder value over time by providing the Company with the ability to move quickly on opportunities to purchase new facilities or equipment, where these assets provide a strategic fit with the Company's objective of prudent but profitable growth. Excluding the effect of the share issuance and one-time items discussed above adjusted basic and diluted earnings per share for the year would have been $0.67 and $0.65 respectively.

Net earnings for the fourth quarter of 2006 were $8.7 million. The net earnings in the fourth quarter of 2006 include $0.7 million arising from the sale of Hy-Drive shares in the quarter. Excluding the gain on the Hy-Drive shares adjusted net earnings for the fourth quarter of 2006 would have been $8.0 million. Net earnings in the fourth quarter of 2005 were $4.5 million after one-time costs totaling $2.4 million. In absence of the one-time costs in the fourth quarter of 2005 adjusted net earnings for the fourth quarter of 2005 would have been $6.9 million. The improvement in net earnings before one-time items in the fourth quarter of 2006 as compared to the fourth quarter of 2005 is attributable to the continuing operational improvements being made by the Company even though revenues from non acquired operations decreased by $4.3 million as discussed above.

Earnings per share in the fourth quarter of 2006 was $0.13 per share on a basic and fully diluted basis in comparison to fourth quarter of 2005 earnings per share of $0.08 per share basic and $0.07 per share fully diluted. In order to compare to the prior year one must take into account the Company's share issuance of six million shares in 2006 and one time items. Adjusted earnings per share in the fourth quarter of 2006 excluding the one-time items and the 2006 share issuance would have been approximately $0.14 per share on a basic and fully diluted basis. Adjusted earnings per share in the fourth quarter of 2005 excluding one-time items would have been $0.12 on a basic and fully diluted basis. The improvement in earnings per share in the fourth quarter of 2006 compared to the fourth quarter of 2005 is attributable to the operational improvements made by the Company.

Adjusted net earnings and adjusted earnings per share have do not have a standardized meaning prescribed by GAAP and thus are not comparable to similar measures presented by other issuers. Readers are encouraged to consider these adjusted measures in the context of the Company's GAAP results.

Capital expenditures for the year ended December 31, 2006 totaled $68.4 million compared to $29.7 million for the year ended December 31, 2005. The increase in capital expenditures in 2006 compared to 2005 relates primarily to the Company's new facility in Mexico which required an investment of $16.2 million to accommodate the current business plan. In addition $8.6 million was spent on a new facility that was purchased in the United States to accommodate the consolidation of two existing Company plants and new incremental business and $0.9 million relates to capital invested in the TKB facilities in the month of December 2006. The remaining capital was invested to accommodate new business awards. In the second half of 2006 takeover business from troubled suppliers created the need for capital not previously budgeted by the Company. Due to the Company's financial position, the investment to accommodate the new business on short notice made the new business award possible.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "I am extremely pleased with the outstanding year we had in 2006. We achieved record revenue, our best profits ever, and continuing improvements in our operations, all despite a very tough automotive supplier environment. We continued our record of prudent and profitable growth also, in different ways: through winning new business and takeover work, or by making careful and well planned complementary acquisitions. We completed two of these acquisitions in 2006-Depco International, which we call Rollstar Metal Forming, and the North American body and chassis operations of ThyssenKrupp Budd. Sometimes, for us, it is better and cheaper to buy than build, and that is what I believe we did here. I want to thank all our people for their tremendous dedication and enthusiasm in 2006, and welcome all the new people who joined us. We now have about 7000 people working to create a great automotive supplier, who know, I think, that job security and growth depends on our ability to perform well always for our customers. That is the way we will succeed and thrive in this competitive industry."

Mr. Jaekel added: "We continue to make progress in our operations, as we continue to improve people and processes division by division, consistently. This includes both the plants we acquired in 2006, and our existing plants. I am pleased to say the integration process with respect to the former TKB plants is going well. We are introducing our decentralized approach to operations, where every plant develops its own economy, where every general manager should be and is an owner and an entrepreneur. We have been coaching these operations accordingly, strengthening our plants, working with the general managers, and overall I am encouraged by the improvements we have seen to date. We also are utilizing some of the great assets we acquired to advantage, making improvements where needed, to improve cycle times, automation where useful, and so on. All of this continuous improvement in our divisions will continue to make us more competitive."

"We are encouraged by the new business opportunities we are seeing also," Mr. Jaekel added. "In the past several months, I am pleased to announce we have won new business awards in excess of $70 million on an annualized basis, most of which will launch in 2009 or 2010. These awards include the front and rear cradles for the new Camaro to be produced by General Motors in Oshawa; our first metal fuel tank from General Motors for its heavy duty trucks; and new metal work from Ford, DaimlerChrysler and Nissan, our other three largest customers. We anticipate growing our business over time with all four of these great customers, as well as growing business with other customers. I also want to note we signed an agreement with Ford where we will be supplying our proprietary capless fuel filler to Ford on a variety of platforms-this is an example of developing and providing a leading edge product to a customer that we are proud of."

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "The Company's financial performance continues to improve, and improved again in 2006. The strength of our operations and financial performance in 2006 assisted us in financing our acquisitions and our growth. We have a strong balance sheet today with cash on the balance sheet, a reasonable level of debt, and a $100 million operating facility that we have not utilized but have available. Our financial position improves the Company's ability to finance future investments where needed. I am pleased with our financial position today, our cash flow which is good, and our capital providers who have supported us whenever there is a need.

In the first quarter of 2007 the Company estimates that revenues will range from $520 million to $540 million, and that earnings per share for the first quarter of 2007 will range from $0.20 to $0.23 per share on a basic and fully diluted basis. The Company's integration plan continues and net earnings are expected to continue improving in the second quarter of 2007 provided customer volumes remain stable. The TKB facilities purchased on December 1, 2006 will be accretive to net earnings in the first quarter of 2007. The Company's capital expenditures for the 2007 year are estimated at $70 million and amortization for the 2007 year is estimated to be $46 million."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "Our Company continues to strengthen year over year, and the development of our people continues to support our objective to be the best automotive parts supplier in the world in what we do. Our entrepreneurial and decentralized structure remains an article of faith throughout our organization, and our entrepreneurial spirit continues to make us stronger than many of our competitors. We are also seeing many opportunities in 2007, and we intend to take advantage of those that make sense to us. There are many changes and challenges in our industry, but these bring opportunities, whether to buy equipment, other assets, takeover work or even businesses. In 2006 we showed our ability to capitalize on those opportunities. In addition to our financial results and the success of our many launches, we achieved some significant highlights in 2006, including the following:

- On December 1, 2006, we completed the acquisition of the North American body and chassis operations of TKB, significantly increasing our metalforming business and making us one of the metal forming leaders in North America. This acquisition broadened our capability and expanded our capacity, as we acquired Class A body stamping operations, metallic welded assembly plants, additional hydroforming capacity, hot metal stamping capability, automotive sheet metal stamping operations and the module assembly of a wide variety of chassis component parts. While there are many benefits to the transaction, three of the most notable are:

i) broadening of our customer base with new Nissan work as well as additional Daimler Chrysler, Ford and General Motors work;

ii) the acquisition of new capabilities in Class A body stamping, hot stamping, and module assembly; and

iii) growth of a manufacturing presence in a number of southern states including Tennessee, Mississippi and Kentucky.

- In May, we acquired the assets of Depco International (now Rollstar Metal Forming), which increased our rollforming skill sets and complemented some of our existing operations in the United States. Rollstar has been performing well for us.

- We opened new facilities, sometimes rationalizing older facilities to increase our efficiencies. In that regard, we opened a new facility (Estampados) in Ramos Arizpe, Mexico, our first Mexican stamping plant; we opened a new fluid systems facility in Manchester, Michigan which will consolidate our previous business in Bishop Circle and Clare; and in general, continued to improve our operations and management teams.

- We continued to win significant new business with a variety of customers. We have room to grow, and have grown, our business with General Motors, Ford and Daimler Chrysler, who will continue, in our view, to be critical customers in North America in future. We have added Nissan as a significant customer, and we will continue to grow our customer base."

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

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.

A conference call to discuss those results will be held on Friday March 30, 2007 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 340-2216 or toll free (866) 898-9626. Please call 10 minutes prior to the start of the conference call.

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

There will also be a rebroadcast of the call available by dialing (416) 695-5800 or toll free number (800) 408-3053 (conference id - 3218374#). The rebroadcast will be available until Sunday April 8, 2007.



MARTINREA INTERNATIONAL INC.
Consolidated Balance Sheets

December 31, 2006 and 2005
(in thousands of dollars)

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2006 2005
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Assets

Current assets:
Cash and cash equivalents $ 63,496 $ 2,059
Accounts receivable 328,571 114,134
Other receivables 16,673 4,690
Income taxes recoverable - 1,367
Inventories (note 3) 181,689 54,303
Prepaid expenses and deposits 8,083 2,855
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598,512 179,408

Future income tax assets (note 12) 42,325 16,195
Investment (note 4) 1,540 835
Capital assets (note 5) 371,843 228,283
Goodwill 230,558 230,558
Intangible assets (note 6) 29,333 24,034
Other long-term assets (note 7) 156,606 48

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$ 1,430,717 $ 679,361
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 364,214 $ 120,252
Income taxes payable 11,332 -
Future income tax liabilities (note 12) 9,842 -
Current portion of long-term debt (note 9) 29,263 18,260
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414,651 138,512

Long-term debt (note 9) 194,477 53,365
Pension & other post-employment benefits (notes 10
and 11) 233,965 -
Future income tax liabilities (note 12) 16,063 22,047
Non-controlling interest 1,228 946

Shareholders' equity:
Share capital (note 13) 493,358 439,061
Notes receivable for share capital (note 13) (6,750) (15,750)
Contributed surplus (note 14) 25,632 25,339
Cumulative translation adjustment (12,496) (16,462)
Retained earnings 70,589 32,303
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570,333 464,491

Guarantees (note 19)

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$ 1,430,717 $ 679,361
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See accompanying notes to consolidated financial statements.

On behalf of the Board:

"Fred Jaekel" Director
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"Robert Wildeboer" Director
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MARTINREA INTERNATIONAL INC.
Consolidated Statements of Earnings and Retained Earnings

For the years ended December 31, 2006 and 2005
(in thousands of dollars, except per share amounts)

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2006 2005
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Sales $ 871,506 $ 669,758

Cost of sales 724,723 555,197
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Gross profit 146,783 114,561

Expenses:
Selling, general and administrative 57,376 46,955
Foreign exchange loss (gain) (3,386) 100
Amortization of capital assets (note 5) 32,206 25,504
Amortization of intangible assets (note 6) 3,683 3,462
Interest on long-term debt 4,935 3,990
Other interest expense (income), net (330) 1,520
Gain on disposal of capital assets (1,438) (17)
Gain on sale of investment in Hy-Drive
Technologies Ltd. (note 4) (5,755) -
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87,291 81,514
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Earnings before income taxes and
non-controlling interest 59,492 33,047

Income taxes:
Current 24,639 6,194
Future (3,715) 6,421
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20,924 12,615

Earnings before non-controlling interest 38,568 20,432

Non-controlling interest 282 249
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Net earnings 38,286 20,183

Retained earnings, beginning of year 32,303 12,120

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Retained earnings, end of year $ 70,589 $ 32,303
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Earnings per common share (note 15):
Basic $ 0.63 $ 0.36
Diluted 0.62 0.35

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See accompanying notes to consolidated financial statements.



MARTINREA INTERNATIONAL INC.
Consolidated Statements of Cash Flows

For the years ended December 31, 2006 and 2005
(in thousands of dollars)

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2006 2005
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Cash provided by (used in):

Operating activities:
Net earnings $ 38,286 $ 20,183
Items not requiring cash:
Amortization of capital assets (note 5) 32,206 25,504
Amortization of intangible assets (note 6) 3,683 3,462
Future income taxes (3,715) 6,421
Non-controlling interest 282 249
Gain on disposal of capital assets (1,438) (17)
Gain on sale of investment in Hy-Drive
Technologies Ltd. (5,755) -
Stock-based compensation 293 671
Other assets and pension & other post
employment benefits 204 -
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64,046 56,473

Changes in non-cash working capital items:
Accounts receivable (24,722) (29,439)
Other receivables (11,662) 1,019
Income taxes 12,699 1,389
Inventories (1,652) (9,952)
Prepaid expenses and deposits (481) 5,314
Accounts payable and accrued liabilities (3,706) 32,163
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34,522 56,967
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Financing activities:
Issue of share capital (net of share
issuance costs) (note 13) 51,488 -
Repayment of notes receivable
for share capital 9,000 -
Exercise of employee options 1,952 14
Increase in long-term debt 195,397 17,801
Financing costs on new long-term debt (2,098) -
Repayment of long-term debt (43,059) (16,223)
Decrease in bank indebtedness - (10,525)
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212,680 (8,933)
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Investing activities:
Acquisition of ThyssenKrupp Budd (net of
cash acquired, and acquisition costs) (103,631) -
Acquisition of Corydon Manufacturing LLC - (15,209)
Acquisition of Depco International Inc.
(net of cash acquired) (20,240) -
Investment in Hy-Drive Technologies Ltd. (2,540) (835)
Purchase of capital assets (68,389) (29,739)
Proceeds on disposal of capital assets 1,879 2,209
Proceeds on disposal of investment in
Hy-Drive Technologies Ltd. 7,590 -
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(185,331) (43,574)
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Effect of exchange rate changes on cash
and cash equivalents (434) (2,401)
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Increase in cash and cash equivalents 61,437 2,059

Cash and cash equivalents, beginning of year 2,059 -

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Cash and cash equivalents:
Cash 34,435 (1,793)
Money market funds 29,061 3,852
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Cash and cash equivalents, end of year $ 63,496 $ 2,059
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Supplemental cash flow information:
Cash paid for interest, net $ 4,116 $ 5,585
Cash paid for income taxes, net $ 10,190 $ 6,153

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See accompanying notes to consolidated financial statements.


Contact Information

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