Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

August 14, 2008 16:26 ET

Martinrea International Inc. Releases Second Quarter 2008 Results: Positive Returns in a Challenging Automotive Market

TORONTO, ONTARIO--(Marketwire - Aug. 14, 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 its second quarter ended June 30, 2008. Martinrea currently employs approximately 7,100 skilled and motivated people in 30 plants in Canada, the United States, Mexico, and the United Kingdom.

Revenues for the quarter ended June 30, 2008 totaled $410.9 million as compared to $537.9 million for the quarter ended June 30, 2007, a decrease of 23.6%. Revenues for the second quarter ended June 30, 2008 have decreased from the prior year comparables primarily due to lower volumes on North American truck and large sport utility platforms, the impact of the American Axle strike which ended in May 2008, a decrease of tooling revenues of $10.8 million, and an 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 $17.3 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.

The Company's revenue for the second quarter of 2008 of $410.9 million was lower than the revenue of the first quarter of 2008 of $433.8 million primarily due to the impact of the American Axle strike, the reduced volumes on North American truck platforms especially related to trucks, offset in part by a $1.4 million increase from the translation of U.S. dollar denominated revenues into Canadian dollars. Tooling revenue decreased by $6.3 million compared to the first quarter of 2008.

Gross margin percentage for the quarter ended June 30, 2008 was 12.9% as compared to 12.9% for the quarter ended June 30, 2007. Gross margin percentage for the second quarter of 2008 has remained consistent with the gross margin percentage for the second quarter of 2007 despite a drop in revenues in the second quarter of 2008 as compared to the second quarter of 2007. The reduction of gross margin percentage normally associated with a revenue reduction was offset by gross margin percentage enhancement from the realization of cumulative operational improvements to the Company's former ThyssenKrupp Budd facilities and the in-sourcing of metal stampings from third parties over the 19 month period the Company has owned the TKB facilities. 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 12.9 % for the second quarter of 2008 is higher than the 11.4% gross margin percentage for the first quarter of 2008 primarily due to the reduction of unfavourable product launch costs at one of the Company's facilities and a change in product mix in the second quarter of 2008 as compared to the first quarter of 2008. The Company will continue its efficiency programs, the utilization of available capacity and the rationalization of operating facilities as necessary.

Net earnings for the quarter ended June 30, 2008 were approximately $11.3 million versus a $19.5 million result for the quarter ended June 30, 2007, a decrease of 41.9% year over year. The earnings per share for the quarter was $0.16 on a basic and diluted basis as compared to the prior year of $0.30 on a basic and a diluted basis. The decrease in net earnings from the prior year is primarily attributable to lower revenues as a result of a general downturn in the automotive industry, the impact of the American Axle strike and reduced volumes on North American truck and large sport utility platforms.

Net earnings for the second quarter of 2008 were $11.3 million and $0.16 per share on a basic and fully diluted basis. Net earnings in the first quarter of 2008 were $9.9 million and $0.14 on a basic and fully diluted basis. The increase in net earnings and earnings per share in the second quarter of 2008 as compared to the first quarter of 2008 is primarily attributable to the reduction of unfavourable product launch costs at one of the Company's facilities and a change in product mix.

In the second quarter of 2008, capital expenditures decreased by $17.0 million to $11.8 million from $28.8 million in the second quarter of 2007. The capital expenditures incurred in the second quarter of 2008 are attributable to program capital for new and existing programs.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "I am very pleased with our second quarter performance in the face of a very difficult economy and automotive environment. Although our financial performance in terms of revenues and profits was down, our profitability in today's market is a reflection of our operational efficiency and continuous improvement. We have been working hard in all our plants to develop our decentralized and entrepreneurial business model, focusing on lean manufacturing and continuous improvement. We continue to improve even in these difficult times for our industry. While volumes and production are down on our existing platforms, we continue to quote work. In addition to replacement work we have won, we are quoting new business and winning some incremental work, including some takeover fuel and brake lines on GM's Epsilon I program of approximately $20 million, a non-automotive metallic project from Lennox related to air conditioning units of approximately $11 million, and other business of approximately $4 million. This $35 million in new incremental business is in addition to the approximately $80 million announced after our first quarter."

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "The Company's financial performance was positive in our second quarter and in our first half of 2008, despite industry slowdowns generally and in particular the effects of the American Axle strike which idled many production lines and, in the case of our Kitchener Frame subsidiary, the whole facility. The strike ended in May. While revenues were down, consistent with lower volumes throughout the industry, gross margin improved from last quarter, bank debt was reduced and our cash position increased. Our lean operating structure and our ability to adjust rapidly has allowed us to reduce costs to the extent possible."

Mr. Orlando added, "We are, at some point, going to have to recognize a financial impact relating to the closure of Kitchener Frame. On April 23, 2008, Kitchener Frame Limited, a subsidiary of the Company, informed its employees of the impending plant closure of the Kitchener facility. The closure date of the plant is expected to occur on April 23, 2009, however the manufacturing operations could be extended until approximately July 2010, pending the extension of a contract from one of its customers. Currently, there are no plans to operate this plant beyond July 2010. The customer's extension of the contract is undeterminable at this time. By the time of closure, it is expected that all of the employees at this facility will be terminated and all manufacturing capital assets along with any active production work will be moved to other manufacturing facilities of the Company. A decision on the future use or ultimate disposal of the Kitchener facility's land and building has still not been made and will be decided at a later date based on various factors including the real estate market conditions existing at the time of the closure. The Company is still in the process of compiling a detailed facility closure plan and is reviewing various aspects of the closure including the possibility of an extension from one of its customers. The severance and termination benefits associated with this closure is estimated by the Company to be in the range of $ 24 to $28 million assuming the facility was closed on April 23, 2009 and 1,214 employees were terminated in accordance with the provisions of their employment contracts. This possible severance liability has not been accrued in the Company's financial statements since the closure of the plant is not sufficiently certain and significant changes to the plan of termination may be likely. There could be additional closure costs once management completes the closure plan of the Kitchener facility. The costs of closing the facility may be offset by proceeds from the sale of land and building."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "We continue to focus on maintaining a strong competitive position operationally and financially. Our strong balance sheet, low debt levels and profitability improves our ability to finance future investments or growth by acquisition. We continue to review opportunities, and we intend to act when prudent to do so, in line with our long term objectives. Some opportunities are automotive, and some are not automotive but can utilize our skill sets and expertise. The stresses of our industry are having an effect on the supply base, and customers, increasingly in our view, are looking at the strong financial and operational capability of suppliers when making decisions. The pressures in our industry also 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. That includes growth by acquisition. As for the current turmoil in the industry, volumes and conditions will improve at some point, leaving well-positioned suppliers opportunities to win work, and grow revenues and profits."

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

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

A conference call to discuss those results will be held on Friday August 15, 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 - 3268185#). The rebroadcast will be available until Friday August 28, 2008.



MARTINREA INTERNATIONAL INC.
Interim Consolidated Balance Sheets

As at June 30, 2008 (unaudited) with comparative figures for December 31,
2007
(in thousands of dollars)

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June 30, December 31,
2008 2007
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Assets

Current assets:
Cash and cash equivalents $ 35,960 $ 48,008
Accounts receivable 260,203 276,104
Other receivables 4,032 19,663
Inventories 145,260 168,878
Prepaid expenses and deposits 4,010 3,670
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449,465 516,323

Future income tax assets 39,894 36,938
Capital assets 395,011 378,064
Goodwill 230,558 230,558
Intangible assets 23,076 25,233
Note receivable 129,355 132,288

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$ 1,267,359 $ 1,319,404
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 210,911 $ 268,521
Income taxes payable 4,733 17,691
Current portion of long-term debt 20,324 18,590
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235,968 304,802

Long-term debt 72,090 81,028
Pension and other post-retirement benefits 183,457 191,326
Future income tax liabilities 23,460 19,418
Non-controlling interest 1,387 1,364

Shareholders' equity:
Share capital 629,052 629,052
Notes receivable for share capital (2,700) (2,700)
Contributed Surplus 31,318 29,337
Accumulated other comprehensive income (58,466) (65,277)
Retained earnings 151,793 131,054
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750,997 721,466

Guarantees

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$ 1,267,359 $ 1,319,404
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"Fred Jaekel" Director
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"Robert Wildeboer" Director
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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Earnings

Three and six months ended June 30, 2008 and 2007 (unaudited)
(in thousands of dollars - except per share amounts)

---------------------------------------------------------------------------
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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
---------------------------------------------------------------------------

Sales $ 410,861 $ 537,924 $ 844,688 $ 1,063,700

Cost of sales 357,728 468,748 742,299 932,568
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Gross profit 53,133 69,176 102,389 131,132

Expenses:
Selling, general and
administrative 22,104 25,580 45,279 51,771
Foreign exchange loss
(gain) 497 1,726 (347) 2,334
Amortization of capital
assets 10,603 10,710 20,484 22,578
Amortization of
intangible assets 1,160 1,087 2,195 2,213
Interest on long term debt 1,762 3,048 3,856 6,909
Other interest income, net (396) (564) (1,359) (938)
(Gain) loss on disposal
of capital assets 13 (1,253) 10 (1,436)
Gain on sale of
investment in Hy-Drive
Technologies Ltd. - - - (2,205)
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35,743 40,334 70,118 81,226
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Earnings before income
taxes and non-controlling
interest 17,390 28,842 32,271 49,906

Income taxes:
Current 4,498 8,076 8,604 12,697
Future 1,545 1,205 2,399 2,946
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6,043 9,281 11,003 15,643

Earnings before
non-controlling interest 11,347 19,561 21,268 34,263

Non-controlling interest 9 43 24 87
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Net earnings $ 11,338 $ 19,518 $ 21,244 $ 34,176
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Earnings per common share

Basic $ 0.16 $ 0.30 $ 0.30 $ 0.53
Diluted $ 0.16 $ 0.30 $ 0.29 $ 0.52

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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Comprehensive Income

Three and six months ended June 30, 2008 and 2007 (unaudited)
(in thousands of dollars, except per share amounts)

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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
---------------------------------------------------------------------------

Net earnings $ 11,338 $ 19,518 $ 21,244 $ 34,176

Other comprehensive income,
net of tax :

Unrealized gains (losses) on
translation of financial
statements of
self-sustaining operations (3,023) (22,503) 6,811 (26,022)

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) for the period (3,023) (22,503) 6,811 (27,938)

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Comprehensive Income (loss)
for the period $ 8,315 $ (2,985) $ 28,055 $ 6,238
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MARTINREA INTERNATIONAL INC.
Consolidated Statements of Changes in Shareholders' Equity

As at June 30, 2008 (unaudited) with comparative figures for
December 31, 2007
(in thousands of dollars)


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accum-
ulated
other
Notes Contri- compre-
Share receiv- buted hensive Retained
capital able Surplus income Earnings Total
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Balance, January
1, 2007 $493,358 $(6,750) $25,632 $(10,580) $70,589 $572,249

Net earnings for
the period - - - - 60,465 60,465

Share issue in private
placements (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 options - - 6,354 - - 6,354

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

Other comprehensive
income - - - (54,697) - (54,697)
------------------------------------------------------

Balance, December 31,
2007 (as previously
reported) $629,052 $(2,700) $29,337 $(65,277) $131,054 $721,466

Change in accounting
policy - - - - (505) (505)
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As restated, January
1, 2008 629,052 (2,700) 29,337 (65,277) 130,549 720,961

Net earnings for the
period - - - - 21,244 21,244

Compensation expense
related to options - - 1,981 - - 1,981

Other comprehensive
income - - - 6,811 - 6,811

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Balance, June 30,
2008 $629,052 $(2,700) $31,318 $(58,466) $151,793 $750,997
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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Cash Flows

Three and six months ended June 30, 2008 and 2007 (unaudited)
(in thousands of dollars)

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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
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Cash provided by (used in):

Operating activities:
Net earnings $ 11,338 $ 19,518 $ 21,244 $ 34,176
Adjustments to reconcile
earnings from continuing
operations to cash flows
from operating activities:
Amortization of capital
assets 10,603 10,710 20,484 22,578
Amortization of
intangible assets 1,160 1,087 2,195 2,213
Amortization of financing
costs 107 107 214 214
Future income taxes 1,545 1,205 2,399 2,946
Non-controlling interest 8 43 23 87
(Gain) loss on disposal
of capital assets 13 (1,253) 10 (1,436)
Gain on sale of investment
in Hy-Drive Technologies
Ltd. - - - (2,205)
Stock-based compensation 1,109 596 1,981 641
Pension and other post
employment benefits 1,737 2,018 3,867 4,578
Cash contribution made to
pension and other post
employment benefits (5,375) (8,974) (9,232) (13,414)
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22,245 25,057 43,185 50,378

Changes in non-cash
working capital items:
Accounts receivable 27,143 (24,989) 17,992 (33,249)
Other receivables 9,685 (503) 15,719 (5,797)
Income taxes 8,802 (2,492) (14,271) (1,896)
Inventories 17,440 10,876 17,313 12,430
Prepaid expenses and
deposits (188) (2,203) (340) (1,112)
Accounts payable and
accrued liabilities (49,071) (21,726) (59,768) (36,711)
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36,056 (15,980) 19,830 (15,957)
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Financing activities:
Exercise of warrants and
employee options - 9,372 - 9,382
Repayment of note
receivable for share
capital - 4,050 - 4,050
Increase in long-term debt - 542 1,263 542
Repayment of long-term
debt (4,691) (6,818) (8,624) (13,665)
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(4,691) 7,146 (7,361) 309
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Investing activities:
Purchase of capital assets (11,811) (28,787) (24,780) (42,727)
Proceeds on disposal of
capital assets 290 2,737 312 2,992
Proceeds on disposal of
investment in Hy-Drive
Technologies Ltd. - - - 3,745
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(11,521) (26,050) (24,468) (35,990)
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Effect of exchange rate
changes on cash and cash
equivalents (1,064) (4,795) (49) (5,893)
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Increase (decrease) in
cash and cash equivalents 18,780 (39,679) (12,048) (57,531)

Cash and cash equivalents,
beginning of period 17,180 45,644 48,008 63,496

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Cash and cash equivalents,
end of period $35,960 $5,965 $35,960 $5,965
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Supplemental cash flow
information:
Cash paid for interest, net $ 1,182 $ 2,086 $ 2,741 $ 5,572
Cash paid for income taxes,
net $ 4,286 $ 10,473 $ 29,062 $ 15,051

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Contact Information

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