Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

August 08, 2006 16:10 ET

Martinrea International Inc. Releases June 30, 2006 Second Quarter Results Record Revenues and Earnings

TORONTO, ONTARIO--(CCNMatthews - Aug. 8, 2006) - 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 second quarter ended June 30, 2006.

Revenues for the quarter ended June 30, 2006 totaled $204.3 million as compared to $170.1 million for the quarter ended June 30, 2005. Revenues for the quarter ended June 30, 2006 have increased from the prior year comparables primarily due to the launch of new programs such as the new metallic gas tank for the Ford Fusion that launched in August 2005, the fuel and brake bundle for the GM Impala that launched in July 2005, the hydroformed engine cradle and metallic assemblies for the new Cadillac DTS and Buick Lucerne that launched in the second half of 2005, the brake lines for GM's SUV line, metallic take-over programs, and the inclusion of the revenues of the Company's new metal forming facility, Rollstar Metal Forming in Brampton, Ontario, acquired by way of purchasing substantially all the assets of Depco International Inc. in May 2006. 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 $7.6 million. 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 second quarter of 2006 of $204.3 million were higher than revenues in the first quarter of 2006 of $193.7 million, primarily due to the inclusion of the revenues of Rollstar Metal Forming acquired in May 2006, increased volumes on the brake lines for GM's SUV line and increased tooling sales.

Gross margin percentage for the quarter ended June 30, 2006 was 18.9% as compared to 17.0% in the second quarter of 2005. Gross margin percentage for the quarter ended June 30, 2006 has increased in comparison to the prior year second quarter due 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 this year 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.

Gross margin percentage for the second quarter of 2006 of 18.9% has increased in comparison to the first quarter of 2006 of 18.7% due to a change in product mix quarter over quarter, and the continued emphasis on productivity improvements within the Company.

Net earnings for the quarter ended June 30, 2006 were approximately $11.9 million as compared to $6.1 million for the quarter ended June 30, 2005. The earnings per share for the quarter were $0.20 on a basic and $0.19 on a diluted basis, as compared to the 2005 second quarter comparable of $0.11 per share (on both a basic and diluted basis). The increase in net earnings from the prior year quarter comparable is primarily attributable to increased revenues, improved gross margin reflecting better utilization of the Company's assets and the successful launching of several new programs, and the net effect of one-time items amounting to $0.6 million. These one-time items include a gain on the Company's investment in Hy-Drive Technologies Ltd. of $2.9 million and a capital impairment charge of $2.8 million, discussed below.

Net earnings of $11.9 million and diluted earnings per share of $0.19 for the second quarter of 2006 increased as compared to net earnings of $10.2 million and diluted earnings per share of $0.18 for the first quarter of 2006. This increase is due primarily to increased revenues, the inclusion of the earnings of Rollstar Metal Forming acquired in May 2006 and the net effect of one-time items amounting to $0.6 million, discussed above. Excluding the effects of one-time items, the Company's adjusted basic earnings per share in the second quarter of 2006 would have been $0.19, and the adjusted diluted earnings per share would have been at $0.18, which is consistent with the first quarter of 2006. Net income of $11.9 million for the second quarter of 2006 was $1.1 million higher than net income of $10.2 million in the first quarter of 2006, when the net effect of the one-time items discussed above is removed (and adjusted net income would have been $11.3 million). Although net income in the second quarter of 2006 was higher than in the first quarter, diluted earnings per share remained at $0.18 per share as a result of the dilution caused by the 6 million shares issued in a public offering in April 2006, for gross proceeds of $54 million. If the share issuance had not occurred, diluted earnings per share from Company operations would have been $0.21 for the quarter. 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 such as Rollstar Metal Forming or equipment, where these assets provide a strategic fit with the Company's objective of prudent but profitable growth.

The Company's net earnings for the quarter ended June 30, 2006 were impacted by several one-time events. On May 9, 2006, the Company disposed of one million shares of Hy-Drive Technologies, with a cost of $0.8 million, for proceeds of $3.7 million, resulting in a gross capital gain of $2.9 million. Part of these proceeds were used to exercise 1.6 million warrants in Hy-Drive resulting in an additional investment in Hy-Drive of $1.8 million in exchange for 1.6 million common shares of Hy-Drive.

Amortization expense was $10.1 million for the quarter ended June 30, 2006 as compared to $6.9 million for the quarter ended June 30, 2005. Amortization expense for the quarter ended June 30, 2006 is higher than the quarter ended June 30, 2005 due to the amortization of capital assets previously purchased that are now production ready, the amortization relating to Rollstar Metal Forming and the write-down of approximately $2.8 million in capital assets. The write-down relates primarily to the impairment of the land and building of the Company's Bishop Circle Assembly division, which the Company acquired as part of its acquisition of Pilot Industries Inc. in December 2002. The Company has decided to sell the land and building in order to move to a larger facility which will accommodate the organic growth of this division. As such, the Company determined that an impairment charge was appropriate. The impairment charge was determined by comparing the carrying amount of the land and building to its fair value. The fair value of the land and building was determined via reference to quoted market prices. In the absence of the impairment charge, amortization expense would have been $7.3 million.

Amortization expense for the quarter ended June 30, 2006 is higher than amortization expense for the first quarter of 2006 of $7.2 million due to the impairment of capital assets, noted above, and the inclusion of Rollstar Metal Forming effective May 12, 2006.

Selling, general and administrative expenses for the quarter ended June 30, 2006 were $12.9 million, or 6.3% of revenues, compared to $11.9 million, or 7.0% of revenues, for the quarter ended June 30, 2005. Selling, general and administrative expenses for the quarter ended June 30, 2006 increased compared to the prior year comparable due to increases in compensation costs and increases in engineering expenses. On a percentage basis, the decrease in the percentage for the second quarter ended 2006 versus the prior year comparable is primarily due to the increase in revenues quarter over quarter. As the Company's revenues grow these expenses as a percentage of revenues are expected to decrease. The corporate infrastructure that the Company has established can accommodate significant future revenue growth. Selling, general and administrative expenses for the second quarter of 2006 of $12.9 million have increased from $12.0 million for the first quarter of 2006 primarily due to the inclusion of Rollstar Metal Forming starting in May 2006 and the reclassification of certain costs.

Capital expenditures for the quarter ended June 30, 2006 totaled $18.2 million versus $9.2 million for the quarter ended June 30, 2005 and $8.0 million for the quarter ended March 31, 2006. Capital expenditures relate primarily to new program assembly equipment being put in place for programs that have launched, as well as assets acquired to accommodate future growth.

The Company's financial condition remains strong given the continuing profitability of its operations and its prospects for growth and new program launches, as well as its strong balance sheet.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "The progress our Company has made in the second quarter has been excellent. We have continued to improve our revenues and profits on a year over year and quarter over quarter basis. Profitability has also improved. In the first half of 2006, we have earned more than we earned in all of 2005, as we fill our plants, increase our throughput and service our customers. All this despite facing the challenges of the automotive sector which, as we have been saying for some time, creates opportunities for us and for our people. I believe that we will continue our momentum with our customers and 2006 will be a great year for our Company".

Mr. Jaekel added, "I am pleased to report that our acquisition of the assets of Depco International in the second quarter has gone very well. Our new division, now called Rollstar Metal Forming, is already working well as part of the Martinrea family. The integration process has gone smoothly, and we have received a very positive response from our customers and, as predicted, the acquisition will be accretive to our earnings going forward. During the second quarter of 2006 the Company was awarded $49 million of new business consisting of $33 million in metallic assemblies and $16 million of fluid management parts for GM's new family of minivans scheduled for September 2008. A key award in the second quarter is yet another engine cradle and this time it represents Martinrea's first engine cradle for Daimler Chrysler. The engine cradle award will be for the new Pacifica scheduled for launch in July 2008. This award is a further indicator of Martinrea's growing maturity and ability to grow organically. Also included in the new business award is $24 million in business (GMT 900 and Cadillac CTS) that was previously awarded by the customer to Union Stampings, a metal forming supplier that has recently encountered financial difficulty. This new business will launch in July 2007 and will go onto our existing facilities in Canada, United States and our new Mexican facility. I want to thank all our people for their good work this quarter".

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "The Company's financial performance continues to improve on a comparative basis and quarter to quarter. Our second quarter financial performance was very good. As a result of good cash flow from operations, cash from the recent share issue, credit facilities and a strong balance sheet, the Company can continue to grow revenues and net earnings. Martinrea's growth will come from incremental organic business and opportunities to purchase new facilities. In order to accommodate this future growth, Martinrea is undertaking selected investments that will increase planned expenditures in 2006 from $35 million to $47 million. These expenditures include two used 2000 ton large bed transfer presses, a new 170,000 square foot building for our fluid management business in Michigan and other assets required for new and pending business awards."

Nick Orlando added: "In the third quarter of 2006, the Company estimates that revenues will range from $155 million to $170 million. Earnings per share for the third quarter of 2006 will range from $0.09 to $0.12 per share on a basic and fully diluted basis. Earnings performance on a year over year comparison basis is expected to improve. A comparison of revenues year over year requires a much closer review in order to clearly assess the progress being made by the Company. Revenues for the third quarter of 2006 will be reduced by $20 million as compared to the comparable 2005 quarter due to lower tooling sales, appreciation of the Canadian dollar that impacts the translation of U.S. dollar denominated revenues and the closure of the Netherlands division. This reduction of revenues from the prior year will be offset in the third quarter of 2006 by revenues from new business launched in the last 12 months and the revenues from the recently acquired Rollstar Metal Forming. In order to compare revenues and earnings for the third quarter of 2006 to the previous two quarters of 2006 the traditional two week July customer summer shutdown must be considered. The third quarter of 2006 will also be impacted by an additional shut down week on many new car platforms as customers manage their new car inventory. We anticipate that revenues and earnings in the fourth quarter of 2006 will significantly exceed those of the third quarter."

Rob Wildeboer, Martinrea's Chairman, stated: "The long term outlook of our industry continues to provide us with many opportunities. Suppliers who are innovative, cost effective and build great products will be able to win business and capitalize on opportunities in what seems to be a perpetual storm in many parts of our industry. Our entrepreneurial and decentralized structure, and the fact that we run the Company on a lean basis, allows us to quote competitively, win business and take advantage of opportunities. There continue to be many opportunities in our industry, whether to win new programs, obtain takeover work, or to purchase assets or companies at competitive prices. In the second quarter Martinrea did all of these things. Our financial strength and stability remains a competitive asset for us as we bid for work, and gives us a strong base to pursue the right kinds of growth opportunities for our Company."

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 these results will be held on Wednesday, August 9, 2006 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 (800) 408-3053 (conference id - 3195000#). The rebroadcast will be available until Friday, August 18, 2006.



MARTINREA INTERNATIONAL INC.
Interim Consolidated Balance Sheets

As at June 30, 2006 (unaudited) with
comparative figures for December 31, 2005
(in thousands of dollars)

------------------------------------------------------------------------
------------------------------------------------------------------------
June 30, December 31,
2006 2005
------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents $ 19,736 $ 2,059
Accounts receivable 136,512 114,134
Other receivables 7,383 4,690
Income taxes recoverable - 1,367
Inventories (note 4) 73,588 54,303
Prepaid expenses and deposits 5,382 2,903
------------------------------------------------------------------------
242,601 179,456

Future income tax assets 16,558 16,195
Investment (note 3) 1,780 835
Capital assets (note 5) 241,152 228,283
Goodwill (note 2) 230,558 230,558
Intangible assets (note 6) 25,092 24,034

------------------------------------------------------------------------
$ 757,741 $ 679,361
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable and accrued liabilities $ 127,634 $ 120,252
Income taxes payable 4,315 -
Current portion of long-term debt (note 7) 12,888 18,260
------------------------------------------------------------------------
144,837 138,512

Long-term debt (note 7) 53,841 53,365

Future income tax liabilities 22,112 22,047

Non-controlling interest 1,076 946

Shareholders' equity:
Share capital (note 8) 491,456 439,061
Notes receivable for share capital (note 8) (15,750) (15,750)
Contributed Surplus 25,447 25,339
Cumulative translation adjustment (19,693) (16,462)
Retained earnings 54,415 32,303
------------------------------------------------------------------------
535,875 464,491

Guarantees (note 10)

------------------------------------------------------------------------
$ 757,741 $ 679,361
------------------------------------------------------------------------
------------------------------------------------------------------------

On behalf of the Board:
"Fred Jaekel" Director
"Robert Wildeboer" Director


MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Earnings and Retained Earnings

Three and six months ended June 30, 2006 and 2005 (unaudited)
(in thousands of dollars - except per share amounts)

------------------------------------------------------------------------
------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
------------------------------------------------------------------------

Sales $ 204,318 $ 170,139 $ 398,006 $ 323,126

Cost of sales 165,667 141,221 323,161 267,695
------------------------------------------------------------------------
Gross profit 38,651 28,918 74,845 55,431

Expenses:
Selling, general and
administrative 12,901 11,915 24,873 22,264
Foreign exchange 7 (537) (83) (286)
Amortization - capital
assets (note 5) 9,220 5,994 15,511 11,716
Amortization -
intangible assets
(note 6) 902 865 1,768 1,731
Interest on long term
debt 816 1,039 1,735 2,180
Other interest expense
(income), net (249) 200 (100) 564
(Gain) loss on disposal
of capital assets 41 (17) 8 (69)
Gain on sale of
investment in Hy-Drive
Technologies Ltd. (2,896) 0 (2,896) -
------------------------------------------------------------------------
20,742 19,459 40,816 38,100
------------------------------------------------------------------------

Earnings before income
taxes and
non-controlling
interest 17,909 9,459 34,029 17,331

Income taxes
Current 5,088 3,990 10,980 6,402
Future 840 (724) 807 (347)
------------------------------------------------------------------------
5,928 3,266 11,787 6,055

Earnings before
non-controlling
interest 11,981 6,193 22,242 11,276

Non-controlling interest 66 81 130 101
------------------------------------------------------------------------

Net earnings $ 11,915 $ 6,112 $ 22,112 $ 11,175

Retained earnings,
beginning of period 42,500 17,183 32,303 12,120

------------------------------------------------------------------------
Retained earnings, end
of period $ 54,415 $ 23,295 $ 54,415 $ 23,295
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per common
share (note 9)

Basic $ 0.20 $ 0.11 $ 0.38 $ 0.20
Diluted $ 0.19 $ 0.11 $ 0.37 $ 0.19

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


MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Cash Flows

Three and six months ended June 30, 2006 and 2005 (unaudited)
(in thousands of dollars)

------------------------------------------------------------------------
------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
------------------------------------------------------------------------

Cash provided by (used
in):

Operating activities:
Net earnings $ 11,915 $ 6,112 $ 22,112 $ 11,175
Items not requiring
cash:
Amortization - capital
assets (note 5) 9,220 5,994 15,511 11,716
Amortization -
intangible assets
(note 6) 902 865 1,768 1,731
Future income taxes (265) (724) (298) (347)
Non-controlling
interest 66 81 130 101
(Gain) loss on
disposal of capital
assets 41 (17) 8 (69)
Gain on sale of
investment in
Hy-Drive
Technologies Ltd. (2,896) - (2,896) -
Stock-based
compensation 58 113 108 221
------------------------------------------------------------------------
19,041 12,424 36,443 24,528

Changes in non-cash
working capital items:
Accounts receivable (1,238) (6,385) (14,899) (8,675)
Other receivables (1,376) 377 (2,372) 605
Income taxes 464 3,151 5,682 5,835
Inventories (3,390) (3,035) (13,427) (2,342)
Prepaid expenses and
deposits 1,035 409 (320) 184
Accounts payable and
accrued liabilities (5,613) 10,381 4,148 13,455
------------------------------------------------------------------------
8,923 17,322 15,255 33,590
------------------------------------------------------------------------

Financing activities:
Issue of share capital
(net of share issuance
costs) 52,395 - 52,395 -
Increase in long-term
debt 5,441 4,408 6,000 14,576
Repayment of long-term
debt (3,264) (4,018) (10,564) (8,034)
Decrease in bank
indebtedness (5,765) (8,313) - (7,679)
------------------------------------------------------------------------
48,807 (7,923) 47,831 (1,137)
------------------------------------------------------------------------

Investing activities:
Acquisition of Corydon
Manufacturing LLC - - - (15,209)
Acquisition of Depco
International Inc.
(net of cash acquired) (20,239) - (20,239) -
Investment in Hy-Drive
Technologies Ltd. (1,780) - (1,780) (835)
Purchase of capital
assets (18,226) (9,195) (26,192) (16,311)
Proceeds on disposal of
capital assets 102 15 148 73
Proceeds on disposal of
investment in Hy-Drive
Technologies Ltd. 3,731 - 3,731 -
------------------------------------------------------------------------
(36,412) (9,180) (44,332) (32,282)
------------------------------------------------------------------------

Effect of exchange rate
changes on cash and
cash equivalents (1,582) (219) (1,077) (171)
------------------------------------------------------------------------

Increase in cash and
cash equivalents 19,736 - 17,677 -

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

------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ 19,736 $ - $ 19,736 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplemental cash flow
information:
Cash paid for
interest, net $ 685 $ 1,177 $ 1,703 $ 2,682
Cash paid for income
taxes, net $ 4,737 $ 1,055 $ 5,209 $ 1,763

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


Contact Information

  • Martinrea International Inc.
    Nick Orlando
    President and Chief Financial Officer
    (416) 749-0314
    (905) 264-2937 (FAX)
    30 Aviva Park Drive
    Vaughan, Ontario, L4L 9C7