Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

November 13, 2008 16:02 ET

Martinrea International Inc. Releases Third Quarter 2008 Results: Positive Returns in a Difficult Automotive Market

TORONTO, ONTARIO--(Marketwire - Nov. 13, 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 third quarter ended September 30, 2008. Martinrea currently employs approximately 6,200 skilled and motivated people in 30 plants in Canada, the United States, Mexico, and the United Kingdom.

Revenues for the quarter ended September 30, 2008 totaled $355.5 million as compared to $476.2 million for the quarter ended September 30, 2007. Revenues for the third quarter ended September 30, 2008 have decreased by 25.4% from the prior year comparables primarily due to lower volumes on North American light vehicle platforms, particularly truck and large sport utility platforms, a decrease of tooling revenues of $14.2 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 $0.5 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 revenues for the third quarter of 2008 of $355.5 million were 13.5% lower than the revenue of the second quarter of 2008 of $410.9 million primarily due to the reduced volumes on North American light vehicle platforms especially related to trucks, offset in part by a $5.5 million increase from the translation of U.S. dollar denominated revenues into Canadian dollars. Tooling revenues decreased by $6.8 million compared to the second quarter of 2008.

Gross margin percentage for the quarter ended September 30, 2008 was 11.5% as compared to 13.9% for the quarter ended September 30, 2007. Gross margin percentage for the third quarter of 2008 has decreased from the prior year comparables due to change in product mix and under-absorption of manufacturing overheads resulting from lower production volumes. 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 11.5% for the third quarter of 2008 is lower than the 12.9% gross margin percentage for the second quarter of 2008 primarily due to change in product mix and under-absorption of manufacturing overheads resulting from lower production volumes as compared to the second 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 September 30, 2008 were approximately $4.2 million versus a $15.0 million result for the quarter ended September 30, 2007, a decrease of 72% year over year. The earnings per share for the quarter was $0.06 on a basic and diluted basis as compared to the prior year of $0.23 on a basic and a diluted basis. The decrease in net earnings from the prior year is primarily attributable to a 25.4% decline in revenues as a result of a general downturn in automotive industry sales and reduced production volumes on North American light vehicle platforms generally, and truck and large sport utility platforms in particular.

Net earnings for the third quarter of 2008 were $4.2 million and $0.06 per share on a basic and fully diluted basis. Net earnings in the second quarter of 2008 were $11.3 million and $0.16 per share on a basic and fully diluted basis. The decrease in net earnings and earnings per share in the third quarter of 2008 as compared to the second quarter of 2008 is primarily attributable to a 13.5% drop in revenues as a result of a general downturn in the automotive industry and reduced production volumes.

In the third quarter of 2008, capital expenditures increased by $1.2 million to $17.7 million from $16.5 million in the third quarter of 2007. The capital expenditures incurred in the third quarter of 2008 are attributable to program capital for new and existing programs.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "I am pleased with our third quarter performance in the face of an extremely challenging economy and automotive environment. Although our financial performance in terms of revenues and profits was down on a year over year basis, our profitability and positive cash flow in today's market is a reflection of our operational efficiency and continuous improvement. Companies are being forced to be lean and creative in this environment, but for us we simply continue to focus on the same things, taking unnecessary cost out, process enhancement, training our people, and, of course, serving our customers who need good and stable suppliers more than ever. As we know volumes are way down and thus so are revenues and profits as throughput decreases. But we continue to quote and win new work. In the quarter and in the few weeks since we have won incremental work totaling approximately $132 million including the following awards: global compact stampings for GM ($44 million approx.); the next generation Ford C- 1 Platform (Focus and Escape) engine cradle (approx. $18 million); welded metallic assemblies on the new Nissan commercial van commencing 2010 with new business of $23 million; the next generation Jeep front end reinforcement through a Tier 1 supplier (approx. $15 million); other metallic business awards of $5 million, GM Epsilon takeover compact fluid products of $25 million and a variety of other work including small but important first orders with Paccar and Cummins Engine, and fuel filler work shipping to emerging market countries. This is a healthy level of new business and I want to thank all our people for their hard work and dedication in making this possible."

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "The Company's financial performance was positive in our third quarter, despite abnormal industry slowdowns. We expect that fourth quarter vehicle production in North America will be similar to or lower than the third quarter of 2008. Next year looks to be challenging also. But we are well-positioned financially."

Mr. Orlando added, "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 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, in 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, it is anticipated that KFL's production operations will end by December 31, 2008. 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 as plans are finalized. The Company anticipates that the Kitchener facility's land and building will be sold in due course. The Company is still in the process of compiling a detailed facility closure plan and is reviewing various aspects of the closure. 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 is closed on December 23, 2008 and 1,214 employees are terminated in accordance with the provisions of their employment contracts. This severance liability has not been accrued in the Company's financial statements since the notification from the customer of the termination of the contract resulting in the closure of KFL occurred subsequent to the end of third quarter of 2008. The Company does not have a detailed closure plan finalized as yet. There will be additional restructuring and closure costs relating to, amongst other things, removal of equipment, once management completes the closure plan of the Kitchener facility. The costs of closing the facility may be offset by proceeds from the future sale of land and building."

Mr. Orlando added, "In the fourth quarter, we are considering some other restructuring to deal with the stresses in our industry and the greatly reduced production volumes. We hope to have most of our rationalization completed by year end. Further, as we approach our year end we will complete our annual impairment analysis, and we anticipate that, given the conditions in the market, the results of that review will result in charges to intangible assets such as goodwill."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "Our industry is under extreme pressure, as customers and suppliers alike try to deal with the credit crisis, a slower economy and greatly reduced volumes. We are actively supporting our customers and our governments as they search for ways to revive the auto industry. Meanwhile, we continue to maintain a strong competitive position operationally and financially. Our balance sheet remains strong, we have low debt levels and profitability in operations and good cash flow supports our ability to support our customers and 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. The pressures in our industry have in the past created many opportunities for us, that we have tried to capitalize upon, and we have had success in doing so, through applying our strategies. We continue to believe that the long term outlook of our industry will produce many opportunities for suppliers who are innovative, cost effective and build great products. 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 key is to work through the challenges - there will be a consolidation in this industry."

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 November 12, 2008 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 Friday November 14, 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 - 3274791#). The rebroadcast will be available until Friday November 28, 2008.



MARTINREA INTERNATIONAL INC.
Interim Consolidated Balance Sheets

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

---------------------------------------------------------------------------
---------------------------------------------------------------------------
September 30, December 31,
2008 2007
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Assets

Current assets:
Cash and cash equivalents $ 37,138 $ 48,008
Accounts receivable 236,523 276,104
Other receivables 7,246 19,663
Inventories (note 3) 164,742 168,878
Prepaid expenses and deposits 6,527 3,670
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452,176 516,323

Future income tax assets 43,871 36,938
Capital assets (note 5) 403,127 378,064
Goodwill 230,558 230,558
Intangible assets (note 6) 22,019 25,233
Note receivable (note 7) 126,097 132,288
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$ 1,277,848 $ 1,319,404
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 205,387 $ 268,521
Income taxes payable 3,555 17,691
Current portion of long-term debt (note 8) 19,322 18,590
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228,264 304,802

Long-term debt (note 8) 83,922 81,028
Pension and other post-retirement benefits 177,534 191,326
Future income tax liabilities 25,311 19,418
Non-controlling interest 1,359 1,364

Shareholders' equity:
Share capital (note 9) 629,052 629,052
Notes receivable for share capital (note 9) (2,700) (2,700)
Contributed Surplus (note 10) 33,369 29,337
Accumulated other comprehensive income (54,244) (65,277)
Retained earnings 155,981 131,054
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761,458 721,466

Guarantees (note 13)

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$ 1,277,848 $ 1,319,404
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See accompanying notes to interim consolidated financial statements.


On behalf of the Board:

"Fred Jaekel" Director
-----------------------------
"Robert Wildeboer" Director
-----------------------------



MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Earnings

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

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
---------------------------------------------------------------------------

Sales $ 355,481 $ 476,212 $1,200,169 $1,539,912

Cost of sales 314,555 410,067 1,056,854 1,342,635
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Gross profit 40,926 66,145 143,315 197,277

Expenses:
Selling, general and
administrative 22,358 28,792 67,637 80,563
Foreign exchange (gain) loss (1,233) 1,912 (1,580) 4,246
Amortization of capital assets
(note 5) 12,722 10,002 33,206 32,580
Amortization of intangible
assets (note 6) 1,099 1,083 3,294 3,296
Interest on long term debt 1,488 3,517 5,344 10,426
Other interest income, net (539) (348) (1,898) (1,286)
Gain on disposal of capital
assets (332) (329) (322) (1,765)
Gain on sale of investment in
Hy-Drive Technologies Ltd.
(note 4) - - - (2,205)
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35,563 44,629 105,681 125,855
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Earnings before income taxes
and non-controlling interest 5,363 21,516 37,634 71,422

Income taxes:
Current 3,433 4,794 12,037 17,491
Future (2,229) 1,767 170 4,713
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1,204 6,561 12,207 22,204

Earnings before non-controlling
interest 4,159 14,955 25,427 49,218

Non-controlling interest (29) (12) (5) 75
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Net earnings $ 4,188 $ 14,967 $ 25,432 $ 49,143
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Earnings per common share
(note 11)

Basic $ 0.06 $ 0.23 $ 0.35 $ 0.77
Diluted $ 0.06 $ 0.23 $ 0.35 $ 0.75

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See accompanying notes to interim consolidated financial statements.



MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Comprehensive Income

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

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
---------------------------------------------------------------------------

Net earnings $ 4,188 $ 14,967 $ 25,432 $ 49,143

Other comprehensive income,
net of tax :

Unrealized gains (losses) on
translation of financial
statements of self-sustaining
operations 4,222 (20,739) 11,033 (46,761)

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 4,222 (20,739) 11,033 (48,677)

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Comprehensive Income (loss)
for the period $ 8,410 $ (5,772) $ 36,465 $ 466
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See accompanying notes to interim consolidated financial statements.



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

As at September 30, 2008 (unaudited) with comparative figures for
December 31, 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
----------------------------------------------------------------------------
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 stock
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 (note 1 and 3) - - - - (505) (505)

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

As restated, January
1, 2008 629,052 (2,700) 29,337 (65,277) 130,549 720,961

Net earnings for the
period - - - - 25,432 25,432

Compensation expense
related to stock
options - - 4,032 - - 4,032

Other comprehensive
income - - - 11,033 - 11,033

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Balance, September
30, 2008 $629,052 $(2,700) $33,369 $(54,244) $155,981 $761,458
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See accompanying notes to interim consolidated financial statements.



MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Cash Flows

Three and nine months ended September 30, 2008 and 2007 (unaudited)
(in thousands of dollars)

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---------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
---------------------------------------------------------------------------

Cash provided by (used in):

Operating activities:
Net earnings $ 4,188 $ 14,967 $ 25,432 $ 49,143
Adjustments to reconcile
earnings from continuing
operations to cash flows
from operating activities:
Amortization of capital
assets (note 5) 12,722 10,002 33,206 32,580
Amortization of intangible
assets (note 6) 1,099 1,083 3,294 3,296
Amortization of financing
costs 108 108 322 322
Future income taxes (2,229) 1,767 170 4,713
Non-controlling interest (29) (13) (5) 74
Gain on disposal of capital
assets (332) (329) (322) (1,765)
Gain on sale of investment
in Hy-Drive Technologies
Ltd. (note 4) - - - (2,205)
Stock-based compensation 2,051 3,799 4,032 4,440
Pension and other post
employment benefits 1,934 491 5,801 5,069
Cash contribution made to
pension and other post
employment benefits (4,723) (3,497) (13,955) (16,911)
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14,789 28,378 57,975 78,756

Changes in non-cash working
capital items:
Accounts receivable 23,680 (33,552) 41,672 (66,801)
Other receivables (3,214) 979 12,505 (4,817)
Income taxes (1,075) 2,400 (15,346) 504
Inventories (19,482) (7,235) (2,169) 5,195
Prepaid expenses and deposits (2,517) 694 (2,857) (418)
Accounts payable and accrued
liabilities (5,524) 30,244 (65,292) (6,468)
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6,657 21,908 26,488 5,951
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Financing activities:
Exercise of warrants and
employee options - 159 - 9,541
Repayment of note receivable
for share capital - - - 4,050
Increase in long-term debt 15,000 2,840 16,263 3,382
Repayment of long-term debt (4,778) (6,753) (13,402) (20,418)
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10,222 (3,754) 2,861 (3,445)
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Investing activities:
Purchase of capital assets (17,699) (16,479) (42,479) (59,206)
Proceeds on disposal of
capital assets 758 5,069 1,070 8,061
Proceeds on disposal of
investment in Hy-Drive
Technologies Ltd. (note 4) - - - 3,745
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(16,941) (11,410) (41,409) (47,400)
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Effect of exchange rate
changes on cash and cash
equivalents 1,240 (3,068) 1,190 (8,961)
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Increase (decrease) in cash
and cash equivalents 1,178 3,676 (10,870) (53,855)

Cash and cash equivalents,
beginning of period 35,960 5,965 48,008 63,496

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Cash and cash equivalents,
end of period $ 37,138 $ 9,641 $ 37,138 $ 9,641
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Supplemental cash flow
information:
Cash paid for interest, net $ 936 $ 3,408 $ 3,677 $ 8,980
Cash paid for income taxes,
net $ 438 $ 5,120 $ 29,500 $ 20,171

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See accompanying notes to interim consolidated financial statements.


Contact Information

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