Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

March 30, 2009 17:59 ET

Martinrea International Inc. Releases December 31, 2008 Annual Results Adjusting to a Difficult Automotive Environment

TORONTO, ONTARIO--(Marketwire - March 30, 2009) - Martinrea International Inc. (TSX:MRE), a leader in the production of quality metal parts, assemblies and modules and fluid management systems focused primarily on the automotive sector, announced today the release of its financial results for the fiscal year and its fourth quarter ended December 31, 2008. Martinrea currently employs approximately 4,400 skilled and motivated people in 30 plants in Canada, the United States, Mexico, and Europe.



REVENUE

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Year ended December 31
----------------------

%
2008 2007 Change Change
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Revenue 1,557,021 2,002,461 (445,440) (22.2%)
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Revenue for the year ended December 31, 2008 has decreased from the prior year by 22.2% primarily due to significant production reduction by customers in North American light vehicle platforms as a result of the North American economic recession, an appreciation of the Canadian dollar versus the U.S. dollar in 2008 which resulted in a reduction in the translation of U.S. dollar denominated revenues of approximately $11.8 million and customer pricing pressures that continue to be a normal part of the North American automotive parts industry. Tooling sales relating to new program launches increased by $1.2 million during 2008.

The Company's revenue for the fourth quarter of 2008 of $356.9 million was lower than revenue for the fourth quarter of 2007 of $462.5 million by $105.6 million primarily due to the significant reduction in volumes in North American light vehicle platforms experienced during the fourth quarter of 2008, especially related to light trucks. This decrease was offset, in part, by a decline in the Canadian dollar versus the U.S. dollar in the fourth quarter of 2008 in comparison to fourth quarter of 2007 which increased the translation of U.S. dollar denominated revenues by $39.3 million. Tooling revenues increased by $30.6 million in the fourth quarter of 2008 as compared to fourth quarter of 2007.

Revenue for the fourth quarter of 2008 of $356.9 million was $1.4 million higher than the $355.5 million in revenue for the third quarter of 2008. The increase in revenues is primarily due to tooling revenue increases of $31.8 million in the fourth quarter of 2008 as compared to the third quarter of 2008, that were offset by production reductions by customers as a result of the North American economic recession. Excluding the increase in tooling revenue for the fourth quarter of 2008 as compared to the third quarter of 2008 production revenue decreased by $30.4 million. This reduction in production revenue is consistent with volume reductions by customers in fourth quarter of 2008 as compared to the third quarter of 2008.



GROSS MARGIN

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Year ended December 31
----------------------
2008 2007 Change % Change
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Gross Margin 127,294 218,685 (91,391) (41.8%)
% of revenues 8.2% 10.9%
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Due to the adoption of the new CICA Handbook Section 3031, Inventories, in 2008 the amortization of property, plant and equipment ("PP&E") that are directly related to production have been reclassified to cost of sales. The comparative amounts for 2007 have also been reclassified to conform to the current year's presentation.

Gross margin percentage of 8.2% for the year ended December 31, 2008 has decreased by 2.7% compared to the prior year of 10.9%. The gross margin percentage reduction is primarily due to under absorption of manufacturing overhead as a result of low production volumes, change in product mix resulting in significant reductions in the light truck and sport utility platforms, an increase in tooling revenues with no associated margin and continuous pricing pressures from customers that continue to be a normal part of the North American automotive parts industry.

Gross margin percentage of 4.1% for the fourth quarter of 2008 decreased by 6.6% from the 10.7% gross margin percentage for the fourth quarter of 2007. The gross margin percentage reduction of 6.6% was primarily due to under absorption of manufacturing overhead as a result of low production volumes, change in product mix resulting in significant reductions in the light truck and sport utility platforms, an increase in tooling revenues with no associated margin, continuous pricing pressures from customers that continue to be a normal part of the North American automotive parts industry, and $7.5 million in relation to developmental and supplier insolvency costs as discussed below in Adjustments to Net Income which negatively impacted the gross margin in the fourth quarter of 2008 by 2.1%.

Gross margin percentage of 4.1% for the fourth quarter of 2008 has decreased by 4.1% from 8.2% gross margin percentage for the third quarter of 2008. The gross margin percentage reduction of 4.1% was due to under absorption of manufacturing overhead as a result of low production volumes, change in product mix resulting in significant reductions in the light truck and sport utility platforms, an increase in tooling revenues with no associated margin and continuous pricing pressures from customers that continue to be a normal part of the North American automotive parts industry.

The Company will continue its efficiency programs, the utilization of available capacity and the rationalization of operating facilities as necessary.

ADJUSTMENTS TO NET INCOME

As a result of the economic recession in North America that has caused significant production reduction by customers and a number of industry-related developments, and the rationalization of the Company's manufacturing facilities, the Company recorded a number of unusual items and other items, primarily in the fourth quarter of 2008. The Company believes that it is useful to set out in detail these unusual and other items as they are non-recurring and thus the Company's financial results for 2008 may not be indicative of future results.

The Company reports its financial results in accordance with Canadian GAAP. However, the Company has included certain non-GAAP financial measures and ratios in this analysis that the Company believes will provide useful information in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to the other financial measures determined in accordance with Canadian GAAP. Non-GAAP measures referred to in the analysis include "adjusted net earnings", "adjusted net loss", "adjusted earnings per share on a basic and diluted basis" and "adjusted loss per share on a basic and diluted basis" and are as defined in the Table A and B sections below.



TABLE A

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Year ended December
31
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2008 2007 Change
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NET EARNINGS (PER CANADIAN GAAP) (A) (261,088) 60,465 (321,553)

Unusual Items:

Goodwill Impairment(1) 230,558 - 230,558

Property, Plant and Equipment Impairment(2) 17,733 3,958 13,775

Intangible Asset Impairment(3) 836 - 836

Employee Related Severance Costs(4) 37,445 - 37,445

Restructuring Costs(5) 12,777 - 12,777

Supplier Insolvency Costs(6) 3,372 - 3,372

Deferred Financing Costs(7) 1,243 - 1,243

Other Items:

Development Costs (8) 5,797 - 5,797

Valuation allowance on future tax assets (9) 2,100 - 2,100
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TOTAL UNUSUAL AND OTHER ITEMS
BEFORE TAX 311,861 3,958 307,903

Tax Impact of above items (26,533) (1,428) (25,105)
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TOTAL UNUSUAL AND OTHER ITEMS
AFTER TAX (B) 285,328 2,530 282,798

ADJUSTED NET EARNINGS (NON
CANADIAN GAAP) (A+B) 24,240 62,995

Number of Shares Outstanding
- Basic ('000) 71,826 65,617

Adjusted Basic Earnings Per Share 0.34 0.96

Number of Shares Outstanding
- Diluted ('000) 72,508 67,302

Adjusted Diluted Earnings Per Share 0.33 0.94
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TABLE B

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For the quarter ended
December 31
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2008 2007 Change
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NET EARNINGS (PER CANADIAN GAAP) (A) (286,520) 11,322 (297,842)

Unusual Items:

Goodwill Impairment(1) 230,558 - 230,558

Property, Plant & Equipment Impairment(2) 17,733 1,358 16,375

Intangible Asset Impairment(3) 836 - 836

Employee Related Severance Costs(4) 37,445 - 37,445

Restructuring Costs(5) 12,777 - 12,777

Supplier Insolvency Costs(6) 3,372 - 3,372

Deferred Financing Costs(7) 1,243 - 1,243

Other Items:

Development Costs(8) 5,797 - 5,797

Valuation Allowance on Future
Tax Assets(9) 2,100 - 2,100
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TOTAL UNUSUAL AND OTHER ITEMS
BEFORE TAX 311,861 1,358 310,503

Tax impact of above items (26,533) (490) (26,043)
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TOTAL UNUSUAL AND OTHER ITEMS
AFTER TAX (B) 285,328 868 284,460

ADJUSTED NET EARNINGS (NON
CANADIAN GAAP) (A+B) (1,192) 12,190

Number of Shares Outstanding
- Basic ('000) 71,826 70,456

Adjusted Basic Earnings Per Share (0.02) 0.17

Number of Shares Outstanding
- Diluted ('000) 72,426 72,035

Adjusted Diluted Earnings Per Share (0.02) 0.17
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(1) Goodwill Impairment

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

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

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

During the fourth quarter of 2008, the Company determined that the carrying value of certain PP&E was impaired as a result of the deteriorating macro environment directly impacting the automotive industry, the accelerated and significant decline in production volumes during the fourth quarter of 2008 and excess available capacity at certain Company facilities.

As a result of its review, the Company assessed the recoverability of PP&E by determining whether the carrying value of such assets can be recovered through undiscounted future cash flows. As the undiscounted future cash flows was less than the carrying amount, the excess of the carrying amount over the estimated fair value was recorded as an impairment charge to the consolidated statement of operations of $17.7 million (2007 - $4.0 million). The PP&E impairment charge is non-cash in nature.

(3) Intangible Asset Impairment

During the fourth quarter of 2008, the Company determined that the carrying amount of certain intangible assets was impaired as a result of the deteriorating macro environment directly impacting the automotive industry.

As a result, the Company assessed the recoverability of intangible assets by determining whether the carrying amount of such assets can be recovered through undiscounted future cash flows. As the undiscounted future cash flows was less than the carrying amount, the excess of the carrying amount over the estimated fair value was recorded as an impairment charge to the consolidated statement of operations of $0.8 million for intangible assets. The intangible asset impairment charge is non-cash in nature.

(4) Employee Related Severance Costs

On April 23, 2008, Kitchener Frame Limited ("KFL"), a subsidiary of the Company, informed its employees of the impending plant closure of the Kitchener facility. The closure date of the plant was expected to occur on April 23, 2009, with an option of the manufacturing operations being extended until approximately July 2010, pending the extension of a contract from one of its customers. However during the fourth quarter of 2008, Martinrea was notified by its customer that there would be no extension of the contract and that the customer would terminate the existing program as of December 23, 2008 and therefore production of KFL's key products would end on that date. As a result of this notice, the Company completed its closure plan for KFL and KFL's production operations ceased on December 31, 2008. The complete wind up is scheduled to be completed by April 2009. Accordingly the Company incurred a significant amount of severance costs relating to the closure of KFL which were accrued in accordance with the applicable accounting standards in the fourth quarter of 2008.

In addition, severance costs were also incurred at other facilities as a result of the closure of a facility in the UK, and the right-sizing of the Company's Windsor, Ontario and Shelbyville, Kentucky facilities and the accrual of costs related to the scheduled closure of another Canadian facility in 2009.

(5) Restructuring Costs

In response to the significant decline in volumes in the fourth quarter of 2008, lower future forecasted volumes and to realign its operations the Company has taken certain initiatives to prepare for a profitable and sustainable future. In so doing, certain restructuring costs of $12.8 million were incurred during the fourth quarter of 2008. These initiatives include strict cost reduction measures across the entire organization, consolidation of certain facilities, closing of the KFL facility in Kitchener as discussed in "Employee Related Severance Costs" above, the rationalization of excess capacity at certain facilities by moving equipment and programs between facilities and other cash preservation measures.

The Company will incur total restructuring costs of $62.0 to $65.0 million (combining this Item 5 with "Employee Related Severance Costs" in Item 4 above) of which $50.2 million was expensed during 2008 and the remaining amount of $11.8 to 14.8 million will be incurred during 2009 as some costs did not meet the recognition criteria stipulated by GAAP for expense recognition in 2008.

(6) Supplier Insolvency Costs

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

The Company continues to evaluate both customers and suppliers on a regular basis to determine the risk and reduce the extent of these costs.

(7) Deferred Financing Costs

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

(8) Development Costs

In accordance with Canadian GAAP and the Company's accounting policies, development costs including design engineering, design testing and product prototyping are expensed in the year in which they are incurred. Developmental costs are expensed in the year incurred, unless such costs meet the criteria under GAAP for deferral and amortization. As a result of the uncertainty surrounding precise future production volumes, developmental costs of approximately $5.8 million were expensed as incurred in the current year and quarter December 31, 2008.

(9) Valuation Allowance on Future Tax Assets

During 2008, the Company's valuation allowance increased by $2.1 million against future tax assets in Europe and Mexico and was partially offset by a reduction in the Canadian valuation allowance on pensions. The valuation allowance at December 31, 2008 includes $11.3 million of European non-capital loss carry forwards, $2.6 million of Mexican future tax assets and $3.9 million of Canadian future tax assets relating primarily to unrealized capital losses and pension liabilities.



NET EARNINGS / (LOSS)

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Year ended December 31
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2008 2007 Change
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Net earnings / (Loss) (261,088) 60,465 (321,553)
Earnings per common share
Basic (3.64) 0.92 (4.56)
Diluted (3.64) 0.90 (4.54)
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The net loss for 2008 of $261.1 million as compared to net earnings of $60.5 million in 2007 was primarily attributable to a $445.4 million revenue reduction in 2008 as a consequence of the North American economic recession that has impacted customer volumes, the deterioration of gross margin percentage discussed above in 2008 as compared to 2007, and the adjustments to net income as discussed earlier in Table A.

Adjusted net earnings for 2008 as calculated in Table A are $24.2 million or $0.34 adjusted earnings per share on a basic and $0.33 adjusted earnings per share on a diluted basis in 2008 as compared to adjusted net earnings for 2007 of $63.0 million or adjusted earnings per share of $0.96 on a basic and $0.94 on a diluted basis. The reduction of adjusted net earnings and adjusted earnings per share in 2008 as compared to 2007 is primarily on account of a $445.4 million revenue reduction in 2008 as compared to 2007 and the deterioration of gross margin percentage discussed above in 2008 as compared to 2007.

A net loss of $286.5 million or a loss per share of $3.99 on a basic and diluted basis was realized for the fourth quarter of 2008 as compared to net earnings of $11.3 million or earnings per share of $0.16 on a basic and diluted basis in the fourth quarter of 2007 primarily due to $105.6 million revenue reduction in fourth quarter of 2008 as compared to fourth quarter of 2007, deterioration of gross margin percentage as discussed above for the fourth quarter of 2008 as compared to the fourth quarter of 2007 and the adjustments to net income as discussed earlier in Table B.

The adjusted net loss as calculated in Table B of $1.2 million or $0.02 adjusted loss per share on a basic and diluted basis was realized in the fourth quarter of 2008 as compared to adjusted net earnings for the fourth quarter of 2007 of $12.2 million or adjusted earnings per share of $0.17 on a basic and diluted basis primarily due to a $105.6 million revenue reduction in the fourth quarter of 2008 as compared to the fourth quarter of 2007 and the deterioration of gross margin percentage as discussed above for the fourth quarter of 2008 as compared to the fourth quarter of 2007.

The net loss realized for the fourth quarter of 2008 of $286.5 million or loss per share of $3.99 on a basic and diluted basis as compared to net earnings of $4.2 million or earnings per share of $0.06 on a basic and diluted basis in the third quarter of 2008 was primarily attributable to a $30.4 million production revenue reduction in 2008 as a consequence of the North American economic recession that has impacted customer volumes, the deterioration of gross margin percentage discussed above in the fourth quarter of 2008 as compared to third quarter of 2008, and the adjustments to net income as discussed earlier in Table B.

Adjusted net loss as calculated in Table B would have been $1.2 million or $0.02 adjusted loss per share on a basic and diluted basis in the fourth quarter of 2008 as compared to third quarter of 2008 net earnings of $4.2 million or earnings per share of $0.06 on a basic and diluted basis primarily due to a $30.4 million production revenue reduction in fourth quarter of 2008 as compared to the third quarter of 2008 and the deterioration of gross margin percentage as discussed above for the fourth quarter of 2008 as compared to the third quarter of 2007.

CAPITAL EXPENDITURES

Capital expenditures for the year ended December 31, 2008 totaled $66.4 million compared to $83.5 million for the year ended December 31, 2007. The reduction of capital expenditures in 2008 is part of Company initiatives to reduce capital spending and delay capital expenditures where possible without delaying product launches. The capital expenditures relate to new program launches such as the new Ajax facility and press shops established in Tupelo and Hermosillo. The Company is actively recycling equipment currently owned by the Company to reduce capital spending where possible.

Capital expenditures in the fourth quarter of 2008 of $23.9 million were marginally lower than capital expenditures in the fourth quarter of 2007 of $24.3 million because of new program capital and are completely dependent on the milestones reached and timing of product launches.

The 2008 fourth quarter capital expenditures of $23.9 million are greater than the $17.7 million spent during the third quarter of 2008.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "We have described the automotive industry many times as a perpetual storm, where many suppliers are suffering or dying. The year 2008 came in like a mild shower, and ended like a gale force hurricane. Overall we experienced declining revenues and lower volumes in 2008 as the global credit and economic crisis in general and the severe contraction of the North American, and global, automotive industry in particular took hold, especially in the second half of the year. Revenues approximated $1.56 billion, including tooling, reflecting lower production volumes. We remained profitable in each of the first three quarters of 2008, but generated a net loss in the fourth quarter of 2008, as we recorded impairment charges on goodwill; recorded an impairment of property, plant and equipment; recognized certain restructuring charges connected with the acquisition of the ThyssenKrupp Budd operations in 2006, and particularly related to the closure of the Kitchener Frame plant announced in the fourth quarter of 2008; and recognized certain other restructuring charges and asset impairment charges reflecting a decline in value of some long-lived assets. These amounts were substantial, but also are non-operational and non-recurring."

Mr. Jaekel added: "Despite many of the challenges in the automotive industry and in industrial operations in North America in 2008, we continued to win new mandates from customers, and grew our customer base in other areas. In the fourth quarter of 2008, we won both some new work and takeover work. New awards included various stampings from Ford, GM and Nissan across a range of mainly small and mid-size car platforms totalling approximately $21 million commencing in 2011; some hot stamping work from Chrysler relating to door beams for its LD program, totalling approximately $6 million commencing in 2011; fuel and brake lines for the new GM Volt of approximately $18 million commencing in 2010; and brake lines for the Volkswagen Jetta commencing in 2011. In addition we were awarded some significant takeover work as a result of the shrinkage of the supplier base, both from consolidation of suppliers by our customers and from competitors going out of business. In the fourth quarter of 2008, we were awarded approximately $39 million annualized in takeover business, commencing in 2010, by GM and Ford, involving a variety of stampings from GM on its light truck and Chevy Aveo programs and a significant amount of fuel filler work from GM on various platforms and Ford in respect of the Crown Victoria. In total, using projected volumes, and in this environment actual volumes may vary, we were awarded a total of approximately $91 million in the fourth quarter, with approximately $58 million commencing in 2010 and $33 million commencing in 2011."

"Despite the downturn in the industry, our people continue to market constantly, and we have won some very nice new work in 2009 to date, including most significantly takeover business involving the purchase of assets, in the United States and Mexico, from the SKD group," Mr. Jaekel continued. "SKD is a metal former, with plants just outside Mexico City and in Jonesville, Michigan. We bought the assets of both these plants for a total of US $10 million, including the land, the building and all the equipment. The Jonesville facility is a large one, of approximately 450,000 square feet, and is our first stamping facility in Michigan, an area where we need more capacity to service our customers. We intend to grow our metal forming business in Michigan. The Mexico facility is smaller, but it gives us a foothold in the Mexico City area; our plants to date have been in the north and western parts of Mexico. SKD customers also resourced their work to us and supported the transaction. In Jonesville, the largest customers are Honda, Ford and Chrysler, and in Mexico customers include General Motors, Chrysler and Volkswagen. Although volumes in the industry are currently down, annualized revenues of these two plants were approximately $100 million in 2008. We are very pleased with the acquisition of these assets and the business from our customers. First, it is great adding Honda to our customer base. We hope to grow with them. Second, as noted the locations are good for us. Third, this transaction again shows that there are opportunities in difficult times to acquire assets or business, at very reasonable prices, and to provide solutions to our customers. I want to extend a warm welcome to the people who have joined us."

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "The current automotive crisis has been difficult but the Company is well prepared to manage through these difficult economic times operationally and financially. The Company is accustomed to expanding and contracting operations to meet customer volumes due to its continuing efforts to eliminate bureaucracy, promote personnel multitasking, constant attention to operational efficiencies, re-use of existing plant and equipment and the elimination of plants on a timely basis that are or will no longer be required to satisfy customer needs."

Mr. Orlando continued: "In the fourth quarter of 2008 the Company made significant personnel reductions on a permanent and temporary basis in order to anticipate the customer volume reductions in December 2008 and extending into the first quarter of 2009. Many of the Company plants and engineering offices were temporarily closed in December 2008 and the temporary shut-downs were continued into 2009. All non-essential expenditures were eliminated. As a result of these cost minimization efforts the adjusted net loss before unusual and other items for the fourth quarter of 2008 was $1.2 million or a $0.02 adjusted loss per share on a basic and diluted basis. It is important to note that the Company's operations were cash flow positive in the fourth quarter of 2008 before unusual and other items. In addition the 2009 cash requirement in regard to the $311.9 million of unusual and other items recorded is only $38.6 million and this relates to total restructuring costs of the Company. In order to complete the current restructuring plan the Company will also have to accrue and pay an additional $12 to $15 million in restructuring costs in 2009 that could not be accrued at December 31, 2008 because they did not meet the expense recognition criteria stipulated by Canadian generally accepted accounting principles. Thus the total restructuring cost cash requirement in 2009 will range from $51 million to $54 million. This amount can be comfortably satisfied by available working capital plus the sale proceeds from the planned disposition of the Kitchener plant, land and building."

Mr. Orlando added: "Financially the Company ended the year with a healthy working capital position of $187 million including $61 million in cash. This healthy financial position is proving to be a great competitive advantage in winning new work and buying new business assets. The $187 million of available financial capacity plus approximately $103 million in bank lines will give the Company approximately $290 million of financial capacity to withstand the current economic downturn, pay for the completion of its restructuring plan and to make key well priced investments such as the two SKD plants purchased that will help to diversify our customer base and grow the business in the months and years to come."

Mr. Orlando further stated: "In the first quarter of 2009 Company revenue will range from $195 million to $215 million which is significantly below the $434 million in revenue in the first quarter of 2008, primarily because of the large decrease in customer production volumes. As a result of the lower revenues the Company's operations will not be profitable in the first quarter of 2009, but the cash outflow from operations excluding restructuring costs should not exceed $4 million in the first quarter of 2009. In February 2009 Company revenues began to increase as compared to January 2009 and March 2009 revenues exceeded those of February 2009. The Company is anticipating higher production volumes in the second quarter, and thus higher revenues."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "While 2008 was a difficult year for the industry, 2009 is expected to be even worse overall. 2009 is expected to include massive industry restructuring in North America and globally, involving a number of OEMs and auto suppliers. Some of the Company's traditional customers are currently at risk of insolvency if government financial assistance is not given.

Notwithstanding any government assistance that has been or may be extended to major customers, such customers may seek bankruptcy protection in order to restructure their business and operations. Since OEMs rely on a highly interdependent network of suppliers, an OEM bankruptcy, absent measures to ensure continued timely payment for shipments from suppliers, could have a "domino effect", causing multiple supplier bankruptcies and thus the complete seizure of the automotive industry for a prolonged period of time. Let me be clear about our thoughts on payments to suppliers. From our perspective, the key issue is that our receivables be paid, on time, by our customers. This need to be paid on a timely basis, on normal commercial terms, occurs whether or not one of our customers files for bankruptcy, and that is the position we have consistently taken ourselves, through our collaborations with the Ontario, federal and even US governments personally or through the industry associations that we are very involved in. We think that position is reflected in the government's approach to financial assistance. Minister Clement and the federal government has stated, publicly, that suppliers need to be paid according to normal commercial terms. In Canada, that is a condition of any financing offered to GM or Chrysler, and of potential assistance to anyone else. In the US, the government and our industry have looked at issues such as accelerated payment, receivables insurance and government factoring through the TARP plan. All reflect the fundamental reality that the automotive industry could collapse, not if an OEM files pursuant to a structured insolvency plan, for example, but if the supply base does not get paid. In fact, from our perspective, a restructuring, in or out of bankruptcy, that results in a stronger customer base for the long term, is a good thing. We want healthy customers."

"We believe that the long term outlook of the automotive industry overall is very challenging in the near term, and recovery of the overall North America market will take time," Mr. Wildeboer added. "However, while there are many challenges, opportunities will exist for innovative and cost effective suppliers who build great products in the short, medium, and longer term, and who survive current automotive and economic crises. Growth at the supplier level will occur as OEMs reduce the number of Tier 1 suppliers, continue to outsource product, and provide opportunities for new work and takeover business. We believe that 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. We believe people will continue to buy vehicles and suppliers will be required to manufacture the product and our capabilities provide us with the ability to capitalize on a broad range of opportunities. We have always tried to capitalize upon opportunities, and we have had success in doing so, through applying our strategies. We did this in the past, we did this in 2008, and we will do this in 2009 and beyond. We have the people to do it. And, we think we remain strong financially to take advantage of opportunities."

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

This press release contains forward-looking statements within the meaning of applicable Canadian Securities laws including statements relating to: the Company's efficiency programs, capacity utilization, continuous improvement, and rationalization of operating facilities; automotive industry outlook and future vehicle production; plant closures, asset transfers and sales, the timing and quantum of severance and termination benefit obligations; future restructuring efforts, goodwill and intangible asset impairment; acquisition opportunities; new business awards; automotive industry consolidation; and the Company's pursuit of its business strategies. The words "expect", "anticipate", "estimate", "may", "will", "should", "intend", "believe", "plan" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances. Many factors could cause the Company's actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, those risks and uncertainties as set out under the heading "Risks and Uncertainties" in the Company's Management's Discussion and Analysis dated March 30, 2009 and those risks and uncertainties as set forth in the Company's Annual Information Form and other public filings which can be found at www.sedar.com. Actual results may differ materially from those currently anticipated. Except as required by law, 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. These factors should be considered carefully, and readers should not place undue reliance on the Company's forward-looking statements.

A conference call to discuss those results will be held on Tuesday March 31, 2009 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 - 8238588#). The rebroadcast will be available until Friday April 10, 2009.



MARTINREA INTERNATIONAL INC.
Consolidated Balance Sheets

December 31, 2008 and 2007
(in thousands of dollars)

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2008 2007
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Assets

Current assets:
Cash and cash equivalents $ 60,965 $ 48,008
Accounts receivable 213,575 285,123
Other receivables 7,637 10,644
Income tax recoverable 16,035 -
Inventories (note 3) 132,084 168,878
Prepaid expenses and deposits 5,131 3,670
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435,427 516,323

Future income tax assets (note 13) 55,651 36,938
Property, plant and equipment (note 5) 428,979 378,064
Goodwill (note 6) - 230,558
Intangible assets (note 6) 20,502 25,233
Other long-term assets (note 7) 116,239 132,288
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$ 1,056,798 $1,319,404
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 228,553 $ 268,521
Income taxes payable - 17,691
Current portion of long-term debt (note 10) 20,428 18,590
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248,981 304,802

Long-term debt (note 10) 101,364 81,028
Pension and other post-retirement
benefits (notes 11 and 12) 165,367 191,326
Future income tax liabilities (note 13) 22,789 19,418
Non-controlling interest 1,218 1,364

Shareholders' equity:
Share capital (note 14) 629,052 629,052
Notes receivable for share capital (note 14) (2,700) (2,700)
Contributed surplus (note 15) 34,478 29,337
Accumulated other comprehensive loss (13,212) (65,277)
Retained earnings (deficit) (130,539) 131,054
---------------------------------------------------------------------------
517,079 721,466
Guarantees and commitments (note 21)
Subsequent events (note 22)
----------------------------------------------------------------------------
$ 1,056,798 $1,319,404
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

On behalf of the Board:

"Fred Jaekel" Director

"Robert Wildeboer" Director



MARTINREA INTERNATIONAL INC.
Consolidated Statements of Operations

For the years ended December 31, 2008 and 2007
(in thousands of dollars, except per share amounts)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------

Sales $ 1,557,021 $ 2,002,461

Cost of sales (excluding amortization of property,
plant and equipment) 1,387,009 1,746,896
Amortization of property, plant and equipment
(production) (note 5) 42,718 36,880
----------------------------------------------------------------------------
Total cost of sales 1,429,727 1,783,776
----------------------------------------------------------------------------

Gross profit 127,294 218,685

Expenses:
Selling, general and administrative 85,202 108,198
Foreign exchange loss 2,174 4,643
Amortization of property, plant and equipment
(non-production) (note 5) 3,443 3,435
Amortization of intangible assets (note 6) 4,403 4,354
Impairment charge on goodwill, intangible assets
and plant and equipment (note 5 and 6) 249,127 3,958
Restructuring costs (note 8) 50,222 -
Interest on long-term debt 7,665 14,113
Other interest income, net (1,047) (2,755)
Gain on disposal of property, plant and equipment (492) (2,157)
Gain on sale of investment in Hy-Drive
Technologies Ltd. (note 4) - (2,205)
----------------------------------------------------------------------------
400,697 131,584
----------------------------------------------------------------------------

Earnings (loss) before income taxes and
non-controlling interest (273,403) 87,101

Income taxes (recovery) (note 13):
Current (2,649) 30,204
Future (9,519) (3,704)
----------------------------------------------------------------------------
(12,168) 26,500

Earnings (loss) before non-controlling interest (261,235) 60,601

Non-controlling interest (147) 136
----------------------------------------------------------------------------
Net earnings (loss) $ (261,088) $ 60,465
----------------------------------------------------------------------------

Earnings (loss) per common share (note 16):
Basic $ (3.64) $ 0.92
Diluted (3.64) 0.90

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

See accompanying notes to consolidated financial statements.



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

For the years ended December 31, 2008 and 2007
(in thousands of dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------

Net earnings (loss) $ (261,088) $ 60,465

Other comprehensive income, net of tax:

Unrealized gain / (loss) on translation of financial
statements of self-sustaining operations 52,065 (52,781)

Unrealized loss up to the date of disposal on assets
available for sale, net of income tax of $0 (2007 -
$18) - (87)

Reclassification adjustment for gains on assets
available for sale transferred to net earnings, net
of income tax of $0 (2007 - $376) - (1,829)
----------------------------------------------------------------------------
Other comprehensive income / (loss) 52,065 (54,697)
----------------------------------------------------------------------------
Comprehensive income / (loss) $ (209,023) $ 5,768
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



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

For the years ended December 31, 2008 and 2007
(in thousands of dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes Accum-
receiv- ulated
able other
for Contri- compre-
Share share buted hensive Retained
capital capital Surplus income Earnings Total
----------------------------------------------------------------------------
Balances,
December 31, 2006 493,358 (6,750) 25,632 (12,496) 70,589 570,333
Change in accounting
policies (note 1(v)) - - - 1,916 - 1,916
----------------------------------------------------------------------------
As restated,
January 1, 2007 493,358 (6,750) 25,632 (10,580) 70,589 572,249
Net earnings - - - - 60,465 60,465
Share issue in
private placement
(net of share issue
costs of $5,365 and
future tax recovery
of $1,718) 123,228 - - - - 123,228
Exercise of employee
options and
warrants 12,466 - (2,649) - - 9,817
Compensation expense
related to stock
options - - 6,354 - - 6,354
Repayment of note
receivable for
share capital - 4,050 - - - 4,050
Other comprehensive
loss - - - (54,697) - (54,697)
----------------------------------------------------------------------------
Balances,
December 31, 2007 629,052 (2,700) 29,337 (65,277) 131,054 721,466
Change in
accounting
policies
(note 1 (v)) - - - - (505) (505)
----------------------------------------------------------------------------
As restated,
January 1, 2008 629,052 (2,700) 29,337 (65,277) 130,549 720,961
Net loss - - - - (261,088)(261,088)
Compensation expense
related to
stock options - - 5,141 - - 5,141
Other comprehensive
income - - - 52,065 - 52,065
----------------------------------------------------------------------------
Balances,
December 31, 2008 $629,052 $(2,700) $34,478 $(13,212)$(130,539)$517,079
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



MARTINREA INTERNATIONAL INC.
Consolidated Statements of Cash Flows

For the years ended December 31, 2008 and 2007
(in thousands of dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------

Cash provided by (used in):

Operating activities:
Net earnings (loss) $ (261,088) $ 60,465
Items not involving cash:
Amortization of property, plant and equipment
(note 5) 46,161 40,315
Amortization of intangible assets (note 6) 4,403 4,354
Impairment charge on goodwill, intangible assets
and plant and equipment (note 5 and 6) 249,127 3,958
Amortization of deferred financing costs 1,672 428
Unrealized foreign exchange forward contracts 1,286 51
Future income taxes (9,519) (3,704)
Non-controlling interest (147) 136
Gain on disposal of property, plant and equipment (492) (2,157)
Gain on sale of investment in Hy-Drive Technologies
Ltd. (note 4) - (2,205)
Stock-based compensation 5,141 6,354
Pension and other post-employment benefits 5,052 6,322
Contribution made to pension and other
post-employment benefits (20,013) (22,613)
----------------------------------------------------------------------------
21,583 91,704

Changes in non-cash working capital items:
Accounts receivable 89,462 30,706
Other receivables 3,898 (5,092)
Inventories 40,796 1,240
Prepaid expenses and deposits (1,461) 4,413
Accounts payable and accrued liabilities (58,892) (81,396)
Income taxes payable / recoverable (39,549) 7,334
----------------------------------------------------------------------------
55,837 48,909
----------------------------------------------------------------------------

Financing activities:
Issue of share capital (net of share issuance costs)
(note 14) - 121,510
Repayment of notes receivable for share capital - 4,050
Exercise of warrants and employee options - 9,817
Increase in long-term debt 36,265 15,028
Repayment of long-term debt (18,995) (135,305)
----------------------------------------------------------------------------
17,270 15,100
----------------------------------------------------------------------------

Investing activities:
Finalization of ThyssenKrupp Budd acquisition (net
of cash acquired, and acquisition costs) - (944)
Purchase of property, plant and equipment (66,402) (83,475)
Proceeds on disposal of property, plant and
equipment 1,207 7,276
Proceeds on disposal of investment in Hy-Drive
Technologies Ltd. (note 4) - 3,745
----------------------------------------------------------------------------
(65,195) (73,398)
----------------------------------------------------------------------------

Effect of foreign exchange rate changes on cash and
cash equivalents 5,045 (6,099)

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

Increase / (decrease) in cash and cash equivalents 12,957 (15,488)

Cash and cash equivalents, beginning of year 48,008 63,496

----------------------------------------------------------------------------
Cash and cash equivalents:
Cash 37,113 24,321
Money market funds 23,852 23,687
----------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 60,965 $ 48,008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information:
Cash paid for interest, net $ 4,547 $ 10,478
Cash paid for income taxes, net $ 23,161 $ 23,509

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

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)