Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

November 13, 2007 16:01 ET

Martinrea International Inc. Releases Third Quarter Results Record Third Quarter Revenues and Earnings

TORONTO, ONTARIO--(Marketwire - Nov. 13, 2007) - 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 quarter ended September 30, 2007. Martinrea currently employs approximately 7,100 skilled and motivated people in 30 plants in Canada, the United States, Mexico, and the United Kingdom. The Company completed two acquisitions in 2006, namely, the acquisition of the assets of Depco International Inc., now Rollstar Metal Forming, on May 12, 2006 and the North American automotive body and chassis operations of ThyssenKrupp Budd Company ("TKB") on December 1, 2006 and the financial position and results from those acquisitions have been included in the Company's financial statements from the relevant acquisition dates. Year over year and quarter over quarter comparisons are not directly comparable.

Revenue for the third quarter ended September 30, 2007 totaled $476.2 million as compared to $174.1 million for the third quarter ended September 30, 2006, an increase of 173.5%. The increase was primarily due to the inclusion of revenues from the acquisition of the TKB facilities, the launch of new organic programs, such as the new GMT900 pick-up truck, during the fourth quarter of 2006, takeover programs and an increase in tooling revenues of $17.1 million. The increase in revenues was offset by continuing pricing pressure from customers which is a normal part of the North American automotive parts industry and a 7.5% appreciation in the Canadian dollar versus the U.S. dollar in the third quarter of 2007 as compared to the third quarter in 2006 that impacted the translation of U.S. dollar denominated revenues.

Revenue for the third quarter of 2007 was $476.2 million as compared to $537.9 million for the second quarter of 2007. The decrease in revenues in the third quarter of 2007 as compared to the second quarter of 2007 was primarily due to the traditional July customer shutdown, reduced production volumes on most customer truck and sports utility vehicle platforms and a 5% appreciation in the Canadian dollar versus the U.S. dollar in the third quarter of 2007 in comparison to the second quarter of 2007 that impacted the translation of U.S. dollar denominated revenues.

The Company has approximately 54% of its revenues denominated in U.S. dollars at the current time. The Canadian dollar appreciation, as discussed above, reduced revenue by $5 million in the third quarter of 2007 as compared to the third quarter of 2006 and reduced revenues by $12.7 million in the third quarter of 2007 as compared to the second quarter of 2007.

Gross margin percentage for the quarter ended September 30, 2007 was 13.9% as compared to 18.0% for the quarter ended September 30, 2006. Gross margin percentage for the third quarter of 2007 has decreased in comparison to the third quarter of 2006 primarily due to the inclusion of the TKB facilities acquired on December 1, 2006. The acquired TKB facilities have gross margins that are below those of the facilities owned by the Company before the acquisition date. The Company anticipates an improvement in the gross margin as the newly acquired plants implement operational improvements such as the in-sourcing of metal stampings currently being purchased from third parties, the right-sizing of operations and the award of new work to fill available capacity. The Company will continue its efficiency programs in all facilities as it continually tries to offset the price reductions granted to customers and increasing operational costs through cost reductions in the Company's manufacturing processes and materials purchased.

Gross margin percentage of 13.9% for the third quarter of 2007 is higher than the 12.9% gross margin percentage in the second quarter of 2007 primarily due to the implementation of operational improvements, in-sourcing of metal stampings and a $1.7 million pre-tax reduction in pension expense resulting from curtailments of a benefit plan causing a favourable impact on the gross margin percentage of 0.4 % in the period.

Net earnings in the third quarter of 2007 increased to $15.0 million as compared to $7.5 million in the third quarter of 2006. The earnings per share for the third quarter of 2007 was $0.23 on a basic and fully diluted basis as compared to earnings per share in the third quarter of 2006 of $0.12 on a basic and fully diluted basis. The increase in net earnings and earnings per share is primarily attributable to the net earnings accretion arising from the acquisition of the TKB operations, the launch of incremental business and continuing operational improvements. Net earnings in the third quarter of 2007 as compared to the third quarter of 2006 was impacted by a foreign exchange loss of $1.3 million that was primarily attributable to the net U.S. dollar asset exposure in the Company's Canadian operations and higher stock option compensation expenses of approximately $3.7 million partially offset by a gain on curtailment in a benefit plan of $1.2 million net after tax.

Net earnings in the third quarter of 2007 were $15.0 million and earnings per share was $0.23 on a basic and fully diluted basis as compared to net earnings of $19.5 million for the second quarter of 2007 and earnings per share of $0.30 on a basic and fully diluted basis. The reduction of the net earnings in the third quarter of 2007 as compared to the second quarter of 2007 is primarily due to lower customer production volumes on account of traditional July shutdowns and higher stock option compensation expenses of $3.2 million. In addition net earnings in third quarter of 2007 included a gain on curtailment in a benefit plan of $1.2 million net after tax.

Capital expenditures in the third quarter of 2007 totaled $16.5 million as compared to $20.3 million for the third quarter of 2006. The capital expenditures in the third quarter of 2007 are primarily attributable to program capital and the purchase of equipment for new stamping facilities being established by the Company in Tupelo, Mississippi and Hermosillo, Mexico.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "I am pleased with our third quarter financial performance, as revenues and profits reflected our best third quarter in our history to date. Revenues and profits were in the ranges we previously indicated, despite some uncertainty in the quarter caused by a short strike at General Motors, which thankfully resulted in only a very small disruption of operations, a rising Canadian dollar, and some production declines on key platforms. Our operations continue to strengthen on a plant by plant basis, as we continue to make improvements wherever possible. Over the past year, we have added some people, from the TK Budd acquisition and from elsewhere, at all levels of the organization who are helping to make us a better company, along with those who have been with us since our early days. Our approach of having and developing great people, giving them the tools to function properly, and ensuring we are located in the right places for our customers, will continue to be implemented to strengthen Martinrea going forward. We continue to see opportunities with our customers, and we are quoting a number of programs from existing, and also new potential, customers."

Mr. Jaekel added: "The Company is continuing its organic growth. During the third quarter of 2007 the Company was awarded new business totaling approximately $36 million, the majority of which is fluid systems work. The Company has also been awarded new business in Europe that will lead to the establishment in 2008 of the Company's first greenfield plant in Slovakia to manufacture fuel fillers for General Motors' new small car platform. We are very excited by this opportunity due to the number of automobile manufacturers establishing operations in Eastern Europe. The Company intends to establish a competitive world class operation. The Company is also developing new products that are based on technological enhancements to existing products. New products that have already begun generating new booked business include the fuel filler capless unit, jounce hose assemblies, new fuel and brake hoses and further development of hot stamping to name a few."

Nick Orlando, Martinrea's President and Chief Financial officer, stated: "The Company has made great strides in 2007 developing both operational and financial maturity. This growing maturity will allow the Company to grow in a very troubled economic environment. The third quarter of 2007 is the beginning of a cycle in our industry of impending change that will reshape the parts manufacturing industry. Vehicle volumes are declining and this will pressure many of our highly debt levered competitors to either sell or close businesses. The Company has been prepared to deal with a wide variety of business opportunities. The Company's operations continue to improve as reflected by the increase in gross margin. Creating capacity from existing equipment is a priority. This additional capacity will give the Company the ability to take over work from competitors on an immediate basis."

Mr. Orlando added: "Revenue in the third quarter of 2007 declined as compared to the second quarter of 2007 due to the traditional July shutdown and reductions in the production volumes on most customer truck and sports utility vehicle platforms. In addition our customers announced reductions for the fourth quarter of 2007 and for 2008. In the short term the Company will rationalize operations and where necessary plant consolidations will be undertaken. On a longer term basis the Company will grow revenues and fill available capacity by continued canvassing of existing customers and a continued emphasis on new customers. The Company will market existing product offerings along with its new products. In the fourth quarter of 2007 the Company estimates that revenues will range from $440 million to $460 million. This revenue projection reflects the lower production schedules announced by our customers as they adjust inventories for declining sales. The Company expects that earnings per share for the fourth quarter of 2007 will range from $0.18 to $0.21 per share on a basic and fully diluted basis. The Company's capital expenditures for the 2007 year are estimated to reach the previously disclosed level of $70 million."

Rob Wildeboer, Martinrea's Executive Chairman, added: "Martinrea continues to develop as a best in class automotive supplier. We are much stronger than we were a year ago, we believe, and we will continue to improve our performance over time. For the past six years our industry has been extremely challenging, and the supply base has been subjected to enormous pressure to provide increasingly complex products and services at more competitive prices. We see that continuing for some time, in all areas of our product offerings. Just as we have been able to take advantage of opportunities presented by a difficult operating environment in the past, we see opportunities ahead also. The fact remains that our customer base, both existing and new, needs strong, healthy, competitive, creative solutions providers. We see opportunities to quote new business, for takeover work, and to acquire assets or businesses, where prudent and profitable to do so. The Company is also prepared to acquire troubled businesses that offer value creation opportunities. The Company's management team continues with its day to day improvements of current operations, but the team now has time to consider other opportunities as the integration of the TK facilities will be substantially complete in the next four months. We see opportunities in new markets also, whether they be automotive or non automotive manufacturing. Our strong balance sheet, strengthened by our recent equity issue and our strong capacity for debt if needed, will allow us to take advantage of the right opportunities. Given the strong Canadian dollar as compared to the U.S. dollar, we anticipate most of our opportunities and growth will be in the United States and Mexico over the short term at least, and we are very well positioned to utilize our strong presence in those areas to advantage."

A conference call to discuss those results will be held on Wednesday, November 14, 2007 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 - 3240327#). The rebroadcast will be available until Wednesday, November 28, 2007.

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.



MARTINREA INTERNATIONAL INC.
Interim Consolidated Balance Sheets

As at September 30, 2007 (unaudited) with comparative figures for
December 31, 2006 (in thousands of dollars)

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September 30, December 31,
2007 2006
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Assets

Current assets:
Cash and cash equivalents $ 9,641 $ 63,496
Accounts receivable 369,148 328,571
Other receivables 19,651 16,673
Future Income tax asset - -
Inventories (note 3) 166,077 181,689
Prepaid expenses and deposits 8,501 8,083
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573,018 598,512

Future income tax assets 34,261 42,325
Investment (note 4) - 1,540
Capital assets (note 5) 359,450 371,843
Goodwill 230,557 230,558
Intangible assets (note 6) 25,717 29,333
Note receivable (note 7) 137,516 154,508

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$ 1,360,519 $ 1,428,619
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 329,956 $ 364,214
Income taxes payable 11,836 11,332
Future income tax liabilities 3,577 9,842
Current portion of long-term debt (note 8) 30,825 29,263
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376,194 414,651

Long-term debt (note 8) 172,108 192,379
Pension & other post-retirement benefits 201,192 233,965
Future income tax liabilities 18,977 16,063
Non-controlling interest 1,302 1,228

Shareholders' equity:
Share capital (note 9) 502,899 493,358
Notes receivable for share capital (note 9) (2,700) (6,750)
Contributed Surplus (note 10) 30,072 25,632
Accumulated other comprehensive income
(note 11) (59,257) -
Cumulative translation adjustment - (12,496)
Retained earnings 119,732 70,589
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590,746 570,333
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Guarantees (note 14)

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$ 1,360,519 $ 1,428,619
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On behalf of the Board:

"Fred Jaekel" Director
------------------------------
"Robert Wildeboer" Director
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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Earnings and Retained Earnings

Three and nine months ended September 30, 2007 and 2006 (unaudited)
(in thousands of dollars - except per share amounts)

---------------------------------------------------------------------------
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Three months ended Six months ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------------

Sales $ 476,212 $ 174,120 $ 1,539,912 $ 572,126

Cost of sales 410,067 142,800 1,342,635 465,961
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Gross profit 66,145 31,320 197,277 106,165

Expenses:
Selling,
general and
administrative 28,792 11,738 80,563 36,611
Foreign exchange 1,912 (121) 4,246 (204)
Amortization -
capital assets
(note 5) 10,002 9,699 32,580 25,210
Amortization -
intangible assets
(note 6) 1,083 977 3,296 2,745
Interest on long
term debt 3,517 1,042 10,426 2,777
Other interest
expense
(income),net (348) (431) (1,286) (531)
(Gain) loss on
disposal of
capital assets (329) (1,466) (1,765) (1,458)
Gain on sale
of investment
in Hy-Drive
Technologies Ltd. - (1,820) (2,205) (4,716)
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44,629 19,618 125,855 60,434

Earnings before
income taxes and
non-controlling
interest 21,516 11,702 71,422 45,731

Income taxes
Current 4,794 4,712 17,491 15,692
Future 1,767 (606) 4,713 201
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6,561 4,106 22,204 15,893

Earnings before
non-controlling
interest 14,955 7,596 49,218 29,838

Non-controlling
interest (12) 79 75 209
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Net earnings $ 14,967 $ 7,517 $ 49,143 $ 29,629

Retained
earnings,
beginning
of period 104,765 54,415 70,589 32,303

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Retained
earnings,
end of period $ 119,732 $ 61,932 $ 119,732 $ 61,932
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Earnings per
common share
(note 9)

Basic $ 0.23 $ 0.12 $ 0.77 $ 0.50
Diluted $ 0.23 $ 0.12 $ 0.75 $ 0.48

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

Nine months ended September 30, 2007 (unaudited)
(in thousands of dollars)





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Share Notes receivable Contributed
capital for share capital Surplus
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Balance, December 31, 2006 $ 493,358 $ (6,750) $ 25,632

Exercise of employee options 9,541 - -

Compensation expense related
to options - - 4,440

Change in accounting policies
(note 1, 11) - - -

Repayment of note receivable
for share capital 4,050

Comprehensive income
Net earnings - - -
Other comprehensive income
Unrealized loss on translation
of financial statements of
self-sustaining foreign
operations - - -
Unrealized loss up to the
date of disposal on
assets-available-for-sale,
net of income tax of $18 - - -
Reclassification adjustment
for gains on assets-
available-for-sale
transferred to net
earnings in the current
period, net of income
tax of $376 - - -
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Total comprehensive income - - -

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Balance, September 30, 2007 $ 502,899 $ (2,700) $ 30,072
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See accompanying notes to consolidated financial statements.




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Accumulated other Cumulative
comprehensive Translation Retained
income Adjustment Earnings Total
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Balance, December
31, 2006 $ - $ (12,496) $ 70,589 $ 570,333

Exercise of employee
options - - 9,541

Compensation expense
related to options - - 4,440

Change in accounting
policies (note 1, 11) (10,580) 12,496 - 1,916

Repayment of note
receivable for
share capital 4,050

Comprehensive
income
Net earnings - - 49,143 49,143
Other comprehensive
income
Unrealized loss on
translation of
financial statements
of self-sustaining
foreign operations (46,761) - - (46,761)
Unrealized loss up to
the date of disposal
on assets-available-
for-sale, net of
income tax of $18 (87) - - (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) - - (1,829)
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Total comprehensive income (48,677) - 49,143 466

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Balance, September 30, 2007 $(59,257) $ - $ 119,732 $ 590,746
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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Cash Flows

Three and nine months ended September 30, 2007 and 2006 (unaudited)
(in thousands of dollars)

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Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
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Cash provided
by (used in):

Operating
activities:
Net earnings $ 14,967 $ 7,517 $ 49,143 $ 29,629
Adjustments
to reconcile
earnings from
continuing
operations
to cash flows
from operating
activities:
Amortization -
capital
assets
(note 5) 10,002 9,699 32,580 25,210
Amortization -
intangible
assets
(note 6) 1,083 977 3,296 2,745
Future
income
taxes 1,767 (683) 4,713 (981)
Non-controlling
interest (13) 79 74 209
(Gain) loss on
disposal of
capital assets (329) (1,466) (1,765) (1,458)
Gain on sale
of investment
in Hy-Drive
Technologies Ltd. - (1,820) (2,205) (4,716)
Stock-based
compensation 3,799 73 4,440 181
Pension & other
post employment
benefits 491 - 5,069 -
Cash
contribution
made to pension
and other post
employment (3,497) - (16,911) -
Other 108 - 322 -
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28,378 14,376 78,756 50,819

Changes in
non-cash
working
capital
items:
Accounts
receivable (33,552) 6,598 (66,801) (8,301)
Other
receivables 979 (7,504) (4,817) (9,876)
Income taxes 2,400 3,681 504 9,363
Inventories (7,235) (7,755) 5,195 (21,182)
Prepaid
expenses
and
deposits 694 (2,836) (418) (3,156)
Accounts
payable and
accrued
liabilities 30,244 (3,607) (6,468) 541
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21,908 2,953 5,951 18,208
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Financing
activities:
Exercise of
warrants and
employee
options 159 - 9,541 -
Issue of share
capital (net
of share
issuance costs) - - - 52,395
Repayment of
note receivable
for share capital - - 4,050 -
Increase in
long-term debt 2,840 575 3,382 6,575
Repayment of
long-term debt (6,753) (3,389) (20,418) (13,953)
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(3,754) (2,814) (3,445) 45,017
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Investing
activities:
Acquisition of
Depco
International
Inc. (net of
cash acquired) - - - (20,239)
Investment in
Hy-Drive
Technologies
Ltd. - (760) - (2,540)
Purchase
of capital
assets (16,479) (20,304) (59,206) (46,496)
Proceeds on
disposal of
capital assets 5,069 1,578 8,061 1,726
Proceeds on
disposal of
investment in
Hy-Drive
Technologies
Ltd. - 2,300 3,745 6,031
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(11,410) (17,186) (47,400) (61,518)
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Effect of
exchange rate
changes on
cash and cash
equivalents (3,068) 43 (8,961) (1,034)
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Increase in
cash and cash
equivalents 3,676 (17,004) (53,855) 673

Cash and cash
equivalents,
beginning
of period 5,965 19,736 63,496 2,059

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Cash and cash
equivalents,
end of period $ 9,641 $ 2,732 $ 9,641 $ 2,732
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Supplemental
cash flow
information:
Cash paid for
interest, net $ 3,408 $ 687 $ 8,980 $ 2,390
Cash paid for
income taxes,
net $ 5,120 $ 941 $ 20,171 $ 6,150

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Contact Information

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