Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

March 27, 2008 16:38 ET

Martinrea International Inc. Releases December 31, 2007 Annual Results: Year Over Year Growth in a Competitive Market

TORONTO, ONTARIO--(Marketwire - March 27, 2008) - 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, 2007 and its fourth quarter ended December 31, 2007. Martinrea currently employs approximately 7,100 skilled and motivated people in 30 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 consolidated 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, 2007 totaled $2.002 billion as compared to $871.5 million for the year ended December 31, 2006, an increase of 129.8%. Revenues for the year ended December 31, 2007 have increased from the prior year comparables primarily due to revenues resulting from the acquisition of TKB, as well as the launch of new organic programs, takeover programs and increased tooling revenues. The increase in revenues 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 $16.1 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.

The Company's revenues for the fourth quarter of 2007 of $462.5 million were higher than revenues for the fourth quarter of 2006 of $299.4 million primarily due to the inclusion of revenues from the purchase of the TKB operations for a full quarter in 2007. Revenues in the fourth quarter of 2007 were offset by a decrease in tooling revenues of $20 million compared to the fourth quarter of 2006 and additionally by a $12.9 million reduction from the translation of U.S. dollar denominated revenues.

Revenues for the fourth quarter of 2007 were $462.5 million as compared to $476.2 million in the third quarter of 2007. The reduction in revenues was due to lower production volumes of customers and the appreciation in the Canadian dollar versus the U.S. dollar in the fourth quarter of 2007 in comparison to third quarter of 2007 that impacted the translation of U.S. dollar denominated revenues.

Gross margin percentage for the year ended December 31, 2007 was 12.8% as compared to 16.8% for the year ended December 31, 2006. Gross margin percentage for the year ended December 31, 2007 has decreased in comparison to the prior year due to the inclusion of TKB operations that had lower margins than the divisions owned by the Company before the TKB purchase in 2006, pricing pressure from the customer and unutilized capacity. The Company will work to improve gross margin percentage through continuation of its efficiency programs, the utilization of capacity, incremental new work from customers and the rationalization of operating facilities as necessary.

Gross margin percentage of 12.6% for the fourth quarter of 2007 is lower than the 13.6% margin percentage for the fourth quarter of 2006 primarily due to the inclusion of TKB financial results for a full quarter in 2007. In the fourth quarter of 2006 only one month of the TKB operations was included in the financial results. The Company expects to improve gross margin through new efficiency programs, the utilization of available capacity and the rationalization of operating facilities as necessary.

Gross margin percentage of 12.6% for the fourth quarter of 2007 is lower than 13.9% margin for the third quarter of 2007 primarily because of unfavourable gross margin product mix from reduced production volumes in the fourth quarter of 2007 as compared to third quarter of 2007, unfavourable product launch costs of approximately $4.3 million in the fourth quarter at one Company facility and the inclusion of a gain in the third quarter of 2007 from a one-time pension curtailment of approximately $1.7 million.

Net earnings for the year ended December 31, 2007 were approximately $60.5 million versus a $38.3 million result for the year ended December 31, 2006, an increase of 57.9% year over year. The earnings per share for the year was $0.92 ($0.90 on a diluted basis) as compared to the prior year of $0.63 ($0.62 on a diluted basis).

The increase in net earnings from the prior year comparable is primarily attributable to increased revenues from new program launches and TKB operations. Net earnings also increased due to the continued improvement of the Company's operations. The appreciation of the Canadian dollar versus the U.S. dollar during the course of 2007 had a minimal impact on the translation of U.S. dollar 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's divisions that are denominated in U.S. dollars.

Net earnings for the fourth quarter of 2007 were $11.3 million and $0.16 per share on a basic and fully diluted basis. Net earnings in the fourth quarter of 2006 were $8.7 million and $0.13 on a basic and fully diluted basis. The improvement in net earnings and earnings per share in the fourth quarter of 2007 as compared to the fourth quarter of 2006 is attributable to the contribution of the TKB operations acquired and the continuing operational improvements being made by the Company.

Net earnings for the fourth quarter of 2007 were $11.3 million and $0.16 per share on a basic and fully diluted basis as compared to $14.9 million and $0.23 per share on a basic and fully diluted basis in the third quarter of 2007. The reduction in net earnings and earnings per share in the fourth quarter of 2007 as compared to the third quarter of 2007 was primarily attributable to closing costs related to one Company facility, poor product mix in the fourth quarter as compared to third quarter and launch costs at one Company facility that exceeded budgeted amounts.

In its earnings press release dated November 13, 2007, the Company had projected earnings per share for the fourth quarter of 2007 of $0.18 to $0.21. The Company did not achieve its projected earnings per share for the fourth quarter of 2007 due to closing costs of a Company facility of approximately $1.7 million and launch costs at one Company facility that exceeded projected levels by approximately $2.0 million. The Company has now completed the closure of the one facility and does not expect any significant additional costs. The Company is also applying all necessary resources to resolve the production launch issues in its facility.

Capital expenditures for the year ended December 31, 2007 totaled $83.5 million compared to $68.4 million for the year ended December 31, 2006. The increase in capital expenditures in 2007 as compared to 2006 relates primarily to the completion of the Company's new facility in Mexico, the installation of presses in the Company's Hermosillo, Mexico facility and the installation of presses in the Company's Tupelo, Mississippi facility. Press installations were necessary to reduce freight costs and improve competitiveness for future programs.

Capital expenditures in the fourth quarter of 2007 of $24.3 million were slightly higher than capital expenditures of $21.9 million in the fourth quarter of 2006 because of new program capital. In the fourth quarter of 2007 capital expenditures increased by $7.8 million to $24.3 million from $16.5 million in the third quarter of 2007 due to the timing of capital expenditures. Capital expenditures for 2007 of $83.5 million exceeded the Company's guidance of $70 million primarily due to acceleration of 2008 capital expenditures to 2007 to accommodate program timing, additional capital to accommodate new programs and capital needed to upgrade production facilities acquired from TKB.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "I am extremely pleased with the outstanding year we had in 2007. We achieved record revenue, our best profits ever, and continuing improvements in our operations, all despite a very tough automotive supplier environment. I want to thank all our people for their tremendous dedication and enthusiasm in 2007. Martinrea is a company of achievers, from the shop floor to our entrepreneurs who manage our plants. Our people are the key to succeeding, to thriving, in this tough market. We continued to make progress in our operations in 2007 especially as we integrated operations previously acquired. We continue to emphasize quality in everything we do, as we aim to establish a higher standard, a state of the art standard. We want to make the term "quality" synonymous with the name "Martinrea". And we continued in 2007 to embrace new technologies and improvements to older technologies. Technology remains a differentiator and a key to our success."

"We are encouraged by the new business opportunities we are seeing also," Mr. Jaekel added. "Despite the downturn in the industry, our people continue to market constantly, and in 2008 to date we have won $80 million of incremental business launching in 2009 and 2010, including approximately $3 million of new metallic business on Ford's new Transit and an additional $18 million on the next generation of Ford's Super Duty pick-up. We were awarded our first metal forming contract of approximately $3.5 million with Boshoko, a Toyota keiretsu, and a Toyota vendor quote that will hopefully lead to further opportunities. New work from Bombardier, totalling $4 million, while not automotive, utilizes our skill sets. Our machines do not care where the work comes from. In addition, we won metal forming and fluid management awards totalling $14 million on the next generation Chrysler Grand Cherokee."

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "The Company's financial performance continues to improve, and improved again in 2007. The strength of our operations and financial performance in 2007 assisted us in improving our financial position. We have a strong balance sheet today with cash on the balance sheet and a low level of debt. Our financial position improves the Company's ability to finance future investments, or acquisitions where needed. I am pleased with our financial position today, our cash flow is good, and our capital providers who have supported us whenever there is a need. And this is a strength given the state of our industry."

Mr. Orlando added, "As a result of new securities rules effective at year end and in the context of an increasingly unpredictable automotive environment we are discontinuing our practice of giving specific quarterly revenue and earnings guidance. We will continue to be very open in our views about the industry, our company and our business, but on a more qualitative basis. Given the lower volumes in the industry we are seeing, the lower volumes on specific platforms on which we have product, and the effects of the American Axle strike which has reduced our production of product on many programs, as well as the year over year change in our exchange rate, our revenues for Q1 2008 will be lower than for Q1 2007 by a significant amount. Similarly, earnings levels will be down. January was a weak month, February was better, but March has not been a good month particularly because of the impact of the American Axle strike. As we have stated, throughput is very important to our business model, and when throughput declines, earnings are hurt."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "In addition to our strong financial results in 2007, we increased our manufacturing footprint in Mexico, the southern U.S. and Michigan. Our Estampados facility in Mexico is now operational; we have expanded capacity in Tupelo, Mississippi and Springfield, Tennessee; our new Manchester, Michigan facility has combined operations from other plants; and we announced and are now ramping up a facility in Slovakia. In general, we continue to improve our management teams and our operations. We also continued to win new business with a variety of customers. Our largest customers in terms of volume are General Motors, Ford, Chrysler and Nissan, but we are increasing our customer base, both in automotive and non-automotive areas."

Mr. Wildeboer added: "We have described the automotive industry many times as a perpetual storm, where many suppliers are suffering or dying. It seems to us that 2007 was a year in which the first part of the year was a very good one for the industry, for both customers and suppliers. In many cases production was up and the outlook seemed relatively healthy also. In the second half of 2007, and carrying on into 2008, the picture for our industry has gotten significantly worse. The automotive industry is highly cyclical and dependant on, among other factors, consumer spending and general economic conditions. Consumer spending and economic conditions worsened overall in North America in late 2007 and still in 2008, especially in the United States, our largest market, leading to reduced industry sales and production volumes. Increased crude oil and energy prices have contributed to the reduction of North American demand for automotive products, both in general and on customer platforms (especially light trucks) in which we have significant product. As a result, our second half of 2007 production, revenues and profits were less than in the first half of the year. We foresee that 2008 will be a difficult year for the automotive industry as well. The stresses of our industry have in the past created many opportunities for us, that we have tried to capitalize upon, and we have had success in doing so, through applying our strategies. We continue to believe that the long term outlook of our industry is stable with many opportunities for suppliers who are innovative, cost effective and build great products. People will continue to buy vehicles in North America, our customers will continue to make them, and suppliers will continue to make parts for them, so the market is and will continue to be there. If we can be the best at what we do, we will win work, both new work directly from customers and takeover work from suppliers who die. And, we believe, new customers will want us to work for them and with them."

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 except as required by law.

A conference call to discuss those results will be held on Friday March 28, 2008 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 - 3256860#). The rebroadcast will be available until Friday April 11, 2008.



MARTINREA INTERNATIONAL INC.
Consolidated Balance Sheets

December 31, 2007 and 2006
(in thousands of dollars)

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2007 2006
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Assets

Current assets:
Cash and cash equivalents $ 48,008 $ 63,496
Accounts receivable 276,104 328,571
Other receivables 19,663 16,673
Inventories 168,878 181,689
Prepaid expenses and deposits 3,670 8,083
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516,323 598,512

Future income tax assets 36,938 42,325
Investment - 1,540
Capital assets 378,064 371,843
Goodwill 230,558 230,558
Intangible assets 25,233 29,333
Other long-term assets 132,288 154,508

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$ 1,319,404 $ 1,428,619
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 268,521 $ 364,214
Income taxes payable 17,691 11,332
Future income tax liabilities - 9,842
Current portion of long-term debt 18,590 29,263
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304,802 414,651

Long-term debt 81,028 192,379
Pension and other post-retirement benefits 191,326 233,965
Future income tax liabilities 19,418 16,063
Non-controlling interest 1,364 1,228

Shareholders' equity:
Share capital 629,052 493,358
Notes receivable for share capital (2,700) (6,750)
Contributed surplus 29,337 25,632
Accumulated other comprehensive loss (65,277) (12,496)
Retained earnings 131,054 70,589
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721,466 570,333

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$ 1,319,404 $ 1,428,619
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On behalf of the Board:

Fred Jaekel, Director
----------------------

Robert Wildeboer, Director
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MARTINREA INTERNATIONAL INC.
Consolidated Statements of Earnings

For the years ended December 31, 2007 and 2006
(in thousands of dollars, except per share amounts)

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2007 2006
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Sales $ 2,002,461 $ 871,506

Cost of sales 1,746,896 724,723
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Gross profit 255,565 146,783

Expenses:
Selling, general and administrative 108,198 57,376
Foreign exchange loss (gain) 4,643 (3,386)
Amortization of capital assets 44,273 32,206
Amortization of intangible assets 4,354 3,683
Interest on long-term debt 14,113 4,935
Other interest expense (income), net (2,755) (330)
Gain on disposal of capital assets (2,157) (1,438)
Gain on sale of investment in Hy-Drive
Technologies Ltd. (2,205) (5,755)
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168,464 87,291
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Earnings before income taxes and
non-controlling interest 87,101 59,492

Income taxes (recovery):
Current 30,204 24,639
Future (3,704) (3,715)
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26,500 20,924

Earnings before non-controlling interest 60,601 38,568

Non-controlling interest 136 282
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Net earnings 60,465 38,286
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Earnings per common share:
Basic $ 0.92 $ 0.63
Diluted 0.90 0.62

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MARTINREA INTERNATIONAL INC.
Consolidated Statements of Comprehensive Income

For the years ended December 31, 2007 and 2006
(in thousands of dollars, except per share amounts)

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2007 2006
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Net earnings $ 60,465 $ 38,286

Other comprehensive income , net of tax :
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Unrealized gains (losses) on translation of
financial statements of self-sustaining
operations (52,781) 3,966

Unrealized loss up to the date of disposal
on assets-available for sale, net of income
tax of $18 (87) -

Reclassification adjustment for gains on
assets-available for sale transferred to
net earnings in the current period, net of
income tax of $376 (1,829) -

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Other comprehensive income (loss) (54,697) 3,966

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Comprehensive Income $ 5,768 $ 42,252
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MARTINREA INTERNATIONAL INC.
ConsolidatedStatementsofChangesinShareholders'Equity

For the years ended December 31, 2007 and 2006
(in thousands of dollars, except per share amounts)
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Accumu-
lated
Notes other
receivable Contri- compre-
Share for share buted hensive Retained
capital capital surplus income Earnings Total
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Balances,
December
31, 2005 $ 439,061 $ (15,750) $ 25,339 $ (16,462) $ 32,303 $ 464,491

Net
earnings - - - - 38,286 38,286

Share
issue in
public
offering
(net of
share
issue
costs
of $2,512
and future
tax
recovery
of $857) 52,345 - - - - 52,345

Compen-
sation
expense
related
to options - - 293 - - 293

Exercise of
employee
options 1,952 - - - - 1,952

Repayment
of note
receivable
for share
capital - 9,000 - - - 9,000

Other
compre-
hensive
income - - - 3,966 - 3,966
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Balances,
December
31, 2006 493,358 (6,750) 25,632 (12,496) 70,589 570,333
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Change in
accounting
policies
( 1,916 1,916

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As restated,
January
1,2007 493,358 (6,750) 25,632 (10,580) 70,589 572,249
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Net
earnings - - - - 60,465 60,465

Share
issue in
private
placement
(net of
share
issue costs
of $5,365
and future
tax
recovery of
$1718) 123,228 - - - - 123,228

Exercise of
employee
options and
warrants 12,466 - (2,649) - - 9,817

Compensation
expense
related
to options - - 6,354 - - 6,354

Repayment
of note
receivable
for share
capital - 4,050 - - - 4,050

Other
Compre-
hensive
income - - - (54,697) - (54,697)

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Balances,
December
31, 2007 $ 629,052 $ (2,700) $ 29,337 $ (65,277) $ 131,054 $ 721,466
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MARTINREA INTERNATIONAL INC.
Consolidated Statements of Cash Flows

For the years ended December 31, 2007 and 2006
(in thousands of dollars, except per share amounts)

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2007 2006
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Cash provided by (used in):

Operating activities:
Net earnings $ 60,465 $ 38,286
Items not involving cash:
Amortization of capital assets 44,273 32,206
Amortization of intangible assets 4,354 3,683
Amortization - Financing costs 428 -
Future income taxes (3,704) (3,715)
Non-controlling interest 136 282
Gain on disposal of capital assets (2,157) (1,438)
Gain on sale of investment in Hy-Drive
Technologies Ltd. (2,205) (5,755)
Stock-based compensation 6,354 293
Pension and other post-employment benefits 6,322 204
Contribution made to pension and other
post-employment benefits (22,613) -
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91,653 64,046

Changes in non-cash working capital items:
Accounts receivable 30,706 (24,722)
Other receivables (5,092) (11,662)
Inventories 1,240 (1,652)
Prepaid expenses and deposits 4,413 (481)
Accounts payable and accrued liabilities (81,345) (3,706)
Income taxes payable 7,334 12,699
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48,909 34,522
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Financing activities:
Issue of share capital (net of share
issuance costs) 121,510 51,488
Repayment of notes receivable for
share capital 4,050 9,000
Exercise of warrants and employee options 9,817 1,952
Increase in long-term debt 15,028 195,397
Financing costs on new long-term debt - (2,098)
Repayment of long-term debt (135,305) (43,059)
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15,100 212,680
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Investing activities:
Acquisition of ThyssenKrupp Budd
(net of cash acquired, and
acquisition costs) (944) (103,631)
Acquisition of Depco International Inc.
(net of cash acquired) - (20,240)
Investment in Hy-Drive Technologies Ltd. - (2,540)
Purchase of capital assets (83,475) (68,389)
Proceeds on disposal of capital assets 7,276 1,879
Proceeds on disposal of investment in
Hy-Drive Technologies Ltd. 3,745 7,590
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(73,398) (185,331)
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Effect of exchange rate changes on cash
and cash equivalents (6,099) (434)
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Increase / (Decrease) in cash and
cash equivalents (15,488) 61,437

Cash and cash equivalents, beginning of year 63,496 2,059

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Cash and cash equivalents:
Cash 24,321 34,435
Money market funds 23,687 29,061
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Cash and cash equivalents, end of year $ 48,008 $ 63,496
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Supplemental cash flow information:
Cash paid for interest, net $ 10,478 $ 4,116
Cash paid for income taxes, net $ 23,509 $ 10,190


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Contact Information

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