Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

November 08, 2010 17:02 ET

Martinrea International Inc.: Solid Third Quarter Operationally and Financially and Commencement of Normal Course Issuer Bid

TORONTO, ONTARIO--(Marketwire - Nov. 8, 2010) - 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 third quarter ended September 30, 2010. Martinrea also announced that it is commencing a normal course issuer bid for up to 4,196,800 common shares of the Company, representing approximately up to 5% of Martinrea's issued and outstanding common shares. Martinrea currently employs approximately 7,000 skilled and motivated people in 31 plants in Canada, the United States, Mexico and Slovakia. All amounts in this press release are in Canadian dollars, unless otherwise stated; and all tabular amounts are in thousands of Canadian dollars, except earnings per share and number of shares.

THIRD QUARTER RESULTS

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



REVENUE

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Three months ended
------------------------------
September 30, September 30, %
2010 2009 Change Change
----------------------------------------------------------------------------

Revenue 395,087 293,786 101,301 34.5%
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Third Quarter 2010 to Third Quarter 2009 comparison

The Company's revenue for the third quarter of 2010 of $395.1 million was higher than revenue for the third quarter of 2009 of $293.8 million by $101.3 million or 34.5% primarily due to improved production volumes in North American light vehicle platforms in the third quarter of 2010 as compared to the same period in 2009. This increase in revenue would have been higher had it not been offset by a reduction in the translation of U.S. dollar denominated revenue of approximately $16.5 million. Tooling revenue relating primarily to new program launches increased by $10.4 million to $20.7 million as compared to the third quarter of 2009.

Third Quarter 2010 to Second Quarter 2010 comparison

The Company's revenue for the third quarter of 2010 of $395.1 million decreased by $23.3 million or 5.6% as compared to the revenue for the second quarter of 2010 of $418.4 million. The decrease is primarily attributable to the seasonal softness in production volumes in North American light vehicle platforms. The overall decrease in revenue would have been greater had it not been offset by an improvement in the translation of U.S. dollar denominated revenue of approximately $4.2 million. Tooling revenue relating primarily to new program launches increased by $4.9 million to $20.7 million as compared to the second quarter of 2010.



GROSS MARGIN

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Three months ended
--------------------------------
September 30, September 30,
2010 2009 Change % Change
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Gross margin 37,095 26,859 10,236 38.1%
% of revenue 9.4% 9.1%
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Third Quarter 2010 to Third Quarter 2009 comparison

The gross margin percentage for the third quarter of 2010 of 9.4% increased by 0.3% from the prior year comparable of 9.1% primarily on account of one time items impacting the gross margin percentage in the third quarter of 2009 in the nature of closure costs at the Kitchener Frame facility and development costs associated with the takeover business from the SKD Automotive Group ("SKD") as discussed below in Table A under Adjustments to Net Income. Excluding the one-time items related to the closures of the Company's Kitchener Frame and Windsor, Ontario facilities and development costs associated with the takeover business from SKD as explained in Table A under Adjustments to Net Income, the gross margin for the third quarter of 2010 decreased by 0.4% to 9.5% as compared to 9.9% for the same period in the prior year primarily on account of a change in product mix and more new program launch activity.

Third Quarter 2010 to Second Quarter 2010 comparison

The gross margin percentage of 9.4% for the third quarter of 2010 decreased slightly as compared to the gross margin percentage in the second quarter of 2010 of 9.7 %. Excluding the one-time items primarily related to the closures of the Windsor, Ontario and Kitchener Frame facilities, the write-down of excess service inventory at the Company's Windsor, Ontario facility and the post employment curtailment gain in the second quarter of 2010 as explained in Table B under Adjustments to Net Income, the gross margin percentage for the third quarter of 2010 was 9.5% compared to 9.9% in the second quarter of 2010. The decrease can be attributed to lower absorption of manufacturing overheads as a result of lower production volumes, and change in overall product mix. The Company continues to rationalize excess capacity at certain facilities, which will improve the Company's gross margin percentage as vehicle production volumes increase back to historical levels.

ADJUSTMENTS TO NET INCOME

As a result of the economic recession in North America that caused a significant reduction in production by customers in 2008 and 2009 and a number of industry-related developments and risks, and the continued rationalization of the Company's manufacturing facilities, the Company recorded a number of unusual items and other items during the whole of the financial year ended December 31, 2009 and the first three quarters of 2010. The Company believes that it is useful to set out in detail these unusual and other items as they are non-recurring and, as a result, the Company's financial results for the quarter ended September 30, 2010 may not be indicative of future results.



TABLE A

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Three months ended
--------------------------------
September 30, September 30,
2010 2009 Change
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NET INCOME (PER CANADIAN GAAP) (A) 5,746 717 5,029

Add back - Unusual Items:

Employee Related Severance Costs
(2) 250 439 (189)

Other Restructuring Costs (3) 5,223 803 4,420

Other Restructuring Costs -
Kitchener period costs recorded as
cost of sales (3) - 1,114 (1,114)

Other Restructuring Costs -
Kitchener period costs recorded as
SG&A expenses (3) - 104 (104)

Other Restructuring Costs - Windsor
period costs recorded as cost of
sales (3) 307 - 307

Other Restructuring Costs - Windsor
period costs recorded as SG&A
expenses (3) 142 - 142

Add back - Other Items:

Development Costs (4) - 1,131 (1,131)
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TOTAL UNUSUAL AND OTHER ITEMS
BEFORE TAX 5,922 3,591 2,331

Tax Impact of above items (1,530) (1,221) (309)
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TOTAL UNUSUAL AND OTHER ITEMS AFTER
TAX (B) 4,392 2,370 2,022

ADJUSTED NET EARNINGS (NON CANADIAN
GAAP) (A + B) 10,138 3,087 7,051
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Number of Shares Outstanding -
Basic ('000) 83,326 83,326

Adjusted Basic Earnings Per Share 0.12 0.04

Number of Shares Outstanding -
Diluted ('000) 84,279 84,014

Adjusted Diluted Earnings Per Share 0.12 0.04
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TABLE B

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Three months ended
---------------------------
September 30, June 30,
2010 2010 Change
----------------------------------------------------------------------------

NET INCOME (PER CANADIAN GAAP) (A) 5,746 12,412 (6,666)

Add back - Unusual Items:

Property, plant and equipment impairment
(1) - 6,308 (6,308)

Employee Related Severance Costs (2) 250 3,892 (3,642)

Other Restructuring Costs (3) 5,223 1,517 3,706

Other Restructuring Costs - Kitchener
period costs recorded as cost of sales
(3) - 74 (74)

Other Restructuring Costs - Kitchener
period costs recorded as SG&A expenses
(3) - 30 (30)

Other Restructuring Costs - Windsor
period costs recorded as cost of sales
(3) 307 - 307

Other Restructuring Costs - Windsor
period costs recorded as SG&A expenses
(3) 142 - 142

Add back - Other Items:

Change in valuation allowance on future
tax assets (5) - (366) 366

Write-down of excess service inventory
at the Company's Windsor, Ontario
facility (6) - 1,290 (1,290)

Gain on sale of Kitchener land and
building (7) - (10,675) 10,675

Post employment benefit curtailment gain
(8) - (630) 630
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TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX 5,922 1,440 4,482

Tax impact of above items (1,530) (1,867) 337
----------------------------------

TOTAL UNUSUAL AND OTHER ITEMS AFTER TAX
(B) 4,392 (427) 4,819
----------------------------------
ADJUSTED NET EARNINGS (NON CANADIAN
GAAP) (A + B) 10,138 11,985 (1,847)
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Number of Shares Outstanding - Basic
('000) 83,326 83,326

Adjusted Basic Earnings Per Share 0.12 0.14

Number of Shares Outstanding - Diluted
('000) 84,279 84,427

Adjusted Diluted Earnings Per Share 0.12 0.14
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(1) Property, Plant and Equipment ("PP&E") Impairment

During the second quarter of 2010, the Company determined that the carrying value of certain dedicated manufacturing and stamping equipment exceeded its recoverable amount. Consequently, the carrying value of the PP&E was written-down by $6.3 million, being the excess of the carrying amount of the PP&E over its estimated fair value. This impairment charge is non-cash in nature.

No such PP&E impairment charges were recorded during the third quarter of 2010 or the third quarter of 2009.

(2) Employee Related Severance Costs

During the third quarter of 2010, the Company incurred severance costs of $0.3 million relating primarily to cost cutting programs aimed at realigning and increasing the efficiency of the Company's operations. A similar amount of $0.4 million was incurred during the third quarter of 2009.

During the second quarter of 2010, the Company incurred severance costs of $3.9 million resulting primarily from the closure of the Company's facility in Windsor, Ontario on June 30, 2010. No further employee related severance costs are expected to be incurred at this facility.

(3) Other Restructuring Costs

Other restructuring costs during the second and third quarters of 2010 relate primarily to the cessation of manufacturing operations at the Company's Windsor, Ontario facility on June 30, 2010. The restructuring costs primarily include facility closure costs and costs of dismantling and transporting PP&E between Company facilities.

It is anticipated that the Company will incur total other restructuring costs of approximately $9.0 million (excluding employee related severance costs discussed above and funding of the Windsor pension and OPEB plans which the Company will continue to fund over the next four years) relating to the closure of the facility of which $6.8 million has been expensed to date.

In addition, during the first three quarters of 2010 and 2009, the Company incurred other restructuring costs associated with the Company's initiatives of strict cost reduction measures across the entire organization, consolidation of certain facilities, closing of the Kitchener Frame facility and the rationalization of excess capacity at certain facilities by moving equipment and programs between facilities.

The Company has expensed total restructuring costs of $84.3 million (combining this item with Employee Related Severance Costs in Item 2 above) of which $12.7 million was expensed in the first three quarters of 2010 and $21.4 million in 2009. The balance of $50.2 million was expensed in 2008.

(4) Development Costs

Development costs in the nature of product testing, employee training and other operational inefficiencies during the product launch period are expensed in accordance with Canadian GAAP and the Company's accounting policies. As a result of the uncertainty surrounding precise future production volumes, developmental costs of $1.1 million were expensed as incurred in the third quarter of 2009. These development costs were primarily in relation to takeover business from SKD.

(5) Valuation Allowance on Future Tax Assets

During the second quarter of 2010, the Company's valuation allowance decreased by $0.4 million against future tax assets primarily on account of changes in non-capital losses. The valuation allowance at September 30, 2010 includes $8.7 million of U.S. non-capital loss carry forwards, $5.0 million of European non-capital loss carry forwards, $2.5 million of Mexican non-capital loss carry forwards and $1.3 million of Canadian future tax assets relating to capital losses.

(6) Write-down of excess service inventory at the Company's Windsor, Ontario facility

Certain excess service inventory costs of approximately $1.2 million associated with discontinued platforms were expensed during the second quarter of 2010 in connection with the closure of the Company's facility in Windsor, Ontario.

(7) Gain on sale of Kitchener facility

On June 25, 2010, the Company sold the land and building located in Kitchener Ontario ("Kitchener Real Property") on an "as is" basis resulting in a gain on sale of $10.7 million in the second quarter of 2010. The fair value of the proceeds on disposition of the property amounted to $13.7 million of which $1.1 million was paid in cash and the remainder in the form of a promissory note with a face value of $13.9 million. The promissory note is secured by the Kitchener Real Property and is scheduled to be fully repaid by December 2013.

(8) Post employment benefit curtailment gain

The Company recognized a curtailment gain of $0.6 million during the second quarter of 2010 as a result of the restructuring of the post employment benefits of the employees at its Shelbyville facility and restructuring at its Windsor division leading to the curtailment of future benefits under the OPEB plan.



NET EARNINGS

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Three months ended
------------------------------
September 30, September 30,
2010 2009 Change % Change
----------------------------------------------------------------------------

Net Earnings 5,746 717 5,029 701.4%
Earnings per common share
Basic 0.07 0.01
Diluted 0.07 0.01
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Third Quarter 2010 to Third Quarter 2009 comparison

The net earnings for the third quarter of 2010 of $5.7 million increased by $5.0 million from a net income of $0.7 million in the third quarter of 2009 primarily on account of increased customer production volumes partially offset by an increase in the net impact of one-time items as described in Table A under Adjustments to Net Income. Excluding one-time items, the adjusted net earnings in the third quarter of 2010 improved to $10.1 million or $0.12 per share, on a basic and diluted basis, in comparison to an adjusted net income of $3.1 million or $0.04 earnings per share, on a basic and diluted basis, in the third quarter of 2009.

The increase in adjusted net earnings in the third quarter of 2010 as compared to the third quarter of 2009 was primarily attributable to a 34.4% increase in revenue in the third quarter of 2010 as compared to the third quarter of 2009 which was partially offset by a change in the overall product mix and more new program launch activity.

Third Quarter 2010 to Second Quarter 2010 comparison

The net earnings for the third quarter of 2010 of $5.7 million was lower than the net earnings of $12.4 million in the second quarter of 2010 primarily because of the impact of one-time items as discussed in Table B under Adjustments to Net Income and lower revenues resulting from the seasonal softness in North American production volumes in the third quarter of 2010 as compared to the second quarter of 2010.

Excluding the one-time items, the adjusted net earnings of $10.1 million or $0.12 adjusted earnings per share in the third quarter of 2010 was lower than the adjusted net income of $12.0 million or $0.14 per share in the second quarter of 2010. The decrease in adjusted net earnings for the third quarter of 2010 can be attributed to lower revenues resulting from the seasonal softness in North American production volumes.

CAPITAL EXPENDITURES

Third Quarter 2010 to Third Quarter 2009 comparison

Capital expenditures of $23.1 million during the third quarter of 2010 were significantly higher than the $10.2 million spent in the third quarter of 2009. Capital expenditures incurred in the third quarter of 2010 are primarily related to building expansions at Jonesville, Michigan, Springfield, Tennessee, Tupelo, Mississippi and the Company's Saltillo, Ramos and Hermosillo facilities in Mexico and the purchase of new program equipment in response to newly awarded business scheduled to launch over the next two years.

Third Quarter 2010 to Second Quarter 2010 comparison

Capital expenditures increased by $3.4 million from $19.7 million in the second quarter of 2010 to $23.1 million in the third quarter of 2010 mainly on account of the continuing building expansions discussed above and general timing of the capital expenditures.

NORMAL COURSE ISSUER BID

Martinrea announced today that it is commencing a normal course issuer bid for up to 4,196,800 common shares of the Company, representing approximately up to 5% of Martinrea's issued and outstanding common shares.

Martinrea believes that, as cash builds up over time, repurchasing its shares may be a good use of funds, as it reduces dilution from stock issuances, distributes cash to shareholders and reflects its view that current share prices do not adequately reflect their value in relation to its business prospects.

The Company's normal course issuer bid shall commence on or about November 12, 2010 and terminate on November 11, 2011, unless earlier terminated by the Company. Common shares purchased under the normal course issuer bid will be cancelled. The price that Martinrea will pay for any such common shares will be the market price at the time of acquisition. Management of Martinrea will determine the actual number of common shares that may be purchased and the timing of any such purchases, subject to compliance with TSX rules. The maximum number of common shares that may be purchased on a daily basis, other than block purchase exceptions, shall be 27,428 common shares. Martinrea has 83,936,018 common shares issued outstanding as at the date hereof. The bid has been approved by the TSX, and shall be effected through the facilities of the TSX.

Paradigm Capital Inc. will conduct the bid on behalf of the Company.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "Revenues for our third quarter were much improved from last year, although not as high as our second quarter of this year. This is typical given the usual July shutdowns. Our operating earnings were strong, and we are very pleased with our results. We continued to focus on operational improvements in our operations, on a plant by plant basis. Given the amount of new business we have won and have to launch over the next two years, we are very focused on our launch activity. It is very important to launch well, and we intend to do so consistently. We continue to market our company also, and we have been busy quoting new work. We have some nice new work to report. During the third quarter the Company was awarded $100 million of new incremental business that commences in the 2012-2013 time frame. The new business awards include $50 million of new business for the Ford CD4 program in Oakville, an additional $20 million for the CD4 program in Hermosillo, and other metallic assemblies totaling $14 million for the GM small car, and in the past few days we have been awarded our first significant package from BMW, consisting of metallic work for the new BMW X5, which will be performed in our Hopkinsville facility, amounting to an estimated $16 million per year when launched in 2013. It takes time to build a new customer relationship, but here we have done so. I want to thank our people for continuing to emphasize strong customer relationships, and we are very grateful to our customers for their ongoing support."

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "We had a good third quarter from a financial point of view, with net income, on a basic and diluted basis, of $0.07 per common share, and adjusted net income before unusual and other items of $0.12 per common share on a basic and diluted basis. As noted in our press release and MD&A, we did have some unusual items as we continue to restructure some of our operations. On June 30 of this year, we closed our plant in Windsor, and in our third quarter we dismantled and transported a significant amount of property, plant and equipment to other company facilities. These costs represent the bulk of our restructuring costs in the quarter with some remaining costs scheduled to be incurred in the next six months. I should note that we continue to focus on operational improvements and rationalization of our divisions throughout the company. Although industry volumes are still at levels which are historically low, many of our plants are filling capacity with new program awards currently and through 2013. The facilities will experience increasing revenue and profits. Some of our plants are still being built up or expanded. For example, we have just opened a new plant in Mexico for industrial work; we are looking to open yet another metal forming plant in Mexico in the near future; and we are completing expansions in our plants in Tupelo Mississippi, Springfield Tennessee and Jonesville Michigan, all on account of work won that has to be processed. We are filling our very large plant in Shelbyville, which has lots of capacity available. We continue to rationalize or restructure some of our plants, especially in Canada, to make them profitable or at least more competitive. All these investments today will help us in future. The Company anticipates that revenue in the fourth quarter of 2010 will be higher than revenue in the third quarter of 2010."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "We are very focused on building a strong base for the future. Decisions we make today are all geared to the long term healthy development of our company, which provides both job security for our people and opportunities for them to grow. In effect, we are making investments in our future. To that end, we are building new plants and capacity where we need it, and taking out capacity or restructuring where we are not competitive. The name of the game is competitiveness. In 2010 we have disposed of our Kitchener facility and closed our Windsor facility, for competitiveness reasons. We are pleased to report that we have come to agreements in our Ridgetown and Dresden facilities which permit some rationalization of the operations, which should improve overall operational performance. We are continuing to work on the windup of defined pension benefit plans, and by the end of the year we will have wound up or commenced the winding up process for all but one such plan. We anticipate paying out the pension plan of our Shelbyville facility in the next few days. These steps represent in our view good investments in our future. We believe the future will see improvements in North American volumes over time, which will lead to higher revenues and profits."

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

Special Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of applicable Canadian securities laws including statements related to the Company's efficiency programs, capacity utilization, continuous improvement, and rationalization of operating facilities, the Company's expectations of future revenues, the Company's expectations as to gross margin percentage, the Company's expectations as to the launching of new metal forming and fluid systems programs and revenue generation, continued consolidation of automotive suppliers, the opportunity to increase sales, broad geographic penetration, increased relationships with intermediary suppliers, the nature and duration of the economic recession to the continuation of monitoring, managing and rationalization of expenses including restructuring costs, the Company's expectation regarding its sources of capital and the availability of financing of future capital expenditures, the Company's views of the likelihood of tooling and component part supplier default, the Company's views on the long term outlook of the automotive industry and future vehicle production, the Company's views on environmental risks, the Company's view on strengthening its balance sheet through removing pension liabilities and the Company's ability to capitalize on opportunities in the automotive industry, the Company's view on future sales and production volume, statements with respect to the Company's intention to purchase up to 4,196,800 common shares pursuant to the Notice of Intention to Make a Normal Course Issuer Bid filed with the Toronto Stock Exchange, the Company's expectation to be repaid on the Kitchener Frame promissory note by December, 2013 as well as other forward-looking statements. The words "continue", "expect", "anticipate", "estimate", "may", "will", "should", "views", "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, the following factors, some of which are discussed in detail under "Risks and Uncertainties" in the Company's Management Discussion and Analysis dated November 8, 2010 for the third quarter ended September 30, 2010 and which are also discussed in the Company's Annual Information Form for the fiscal year ended December 31, 2009 and other public filings which can be found at www.sedar.com:



-- North American and global economic conditions;
-- the highly cyclical nature of the automotive industry and the industry's
dependence on consumer spending and general economic conditions;
-- the Company's dependence on a limited number of significant customers,
which have experienced and may continue to face severe financial
challenges;
-- financial viability of suppliers;
-- Martinrea's reliance on suppliers for components and the risk that
suppliers will not be able to supply components on a timely basis or in
sufficient quantities;
-- competition;
-- the increasing pressure on the Company to absorb costs related to
product design and development, engineering, program management,
prototypes, validation and tooling;
-- increased pricing of raw materials;
-- outsourcing and in-sourcing trends;
-- competition with low cost countries;
-- the risk of increased costs associated with product warranty and recalls
together with the associated liability;
-- the Company's ability to enhance operations and manufacturing
techniques;
-- dependence on key personnel;
-- limited financial resources;
-- risks associated with the integration of acquisitions;
-- costs associated with rationalization of production facilities;
-- the potential volatility of the Company's share price;
-- changes in governmental regulations or laws including any changes to the
North American Free Trade Agreement;
-- labour disputes;
-- litigation;
-- currency risk;
-- fluctuations in operating results;
-- internal controls over financial reporting and disclosure controls and
procedures;
-- environmental regulation;
-- under-funding of pension plans; and
-- the cost of post-employment benefits.


These factors should be considered carefully, and readers should not place undue reliance on the Company's forward-looking statements. The Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

A conference call to discuss those results will be held on Tuesday, November 9, 2010 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 340-8410 or toll free (866) 225-2055. 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 toll free (800) 408-3053 (conference id - 5175583). The rebroadcast will be available until November 23, 2010.



MARTINREA INTERNATIONAL INC.
Interim Consolidated Balance Sheets

As at September 30, 2010 (unaudited) with comparative figures for December
31, 2009
(in thousands of dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31,
2010 2009
----------------------------------------------------------------------------


Assets

Current assets:
Cash and cash equivalents $ - $ 22,769
Accounts receivable 302,695 221,591
Other receivables 4,953 7,380
Income tax recoverable 1,655 13,369
Inventories (note 3) 158,188 136,050
Prepaid expenses and deposits 4,930 4,389
Current portion of promissory note (note
7) 3,352 -

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475,773 405,548

Future income tax assets 59,148 64,379
Property, plant and equipment (note 4) 402,068 395,855
Intangible assets 14,737 18,315
Promissory note (note 7) 9,521 -
Note receivable (note 5) - 199,666

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$ 961,247 $ 1,083,763
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Liabilities and Shareholders' Equity

Current liabilities:
Bank indebtedness $ 5,060 $ -
Accounts payable and accrued liabilities 265,930 224,097
Current portion of long-term debt (note
8) 16,530 14,845

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287,520 238,942

Long-term debt (note 8) 90,780 72,555
Pension and other post-retirement
benefits 29,313 237,239
Future income tax liabilities 27,657 30,824
Non-controlling interest 1,130 1,259

Shareholders' equity:
Share capital (note 9) 683,057 683,057
Notes receivable for share capital (note
9) (2,700) (2,700)
Contributed surplus (note 9) 40,236 37,402
Accumulated other comprehensive loss (68,138) (59,336)
Accumulated deficit (127,608) (155,479)

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524,847 502,944
Guarantees (note 11)

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$ 961,247 $ 1,083,763
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----------------------------------------------------------------------------

See accompanying notes to unaudited interim consolidated financial
statements.

On behalf of the Board:

"Fred Jaekel" Director
--------------------------------------

"Robert Wildeboer" Director
--------------------------------------


MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Operations

For the three and nine months ended September 30, 2010 and 2009 (unaudited)
(in thousands of dollars, except per share amounts)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 30, 30, 30,
2010 2009 2010 2009
----------------------------------------------------------------------------

Sales $ 395,087 $ 293,786 $ 1,194,959 $ 742,175

Cost of sales
(excluding
amortization of
property, plant and
equipment
(production)) 346,827 255,077 1,047,897 660,077
Amortization of
property, plant and
equipment
(production) 11,165 11,850 32,702 35,507

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Total cost of sales 357,992 266,927 1,080,599 695,584
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Gross profit 37,095 26,859 114,360 46,591

Expenses:
Selling, general and
administrative 19,880 17,949 59,401 52,444
Foreign exchange
(gain) loss (386) 2,741 (519) 5,705
Amortization of
property, plant and
equipment (non-
production) 735 738 2,038 2,079
Amortization of
intangible assets 1,167 1,279 3,499 3,527
Impairment charge on
property, plant and
equipment (note 4) - - 6,308 -
Restructuring costs
(note 6) 5,473 1,242 11,252 12,807
Interest on long-
term debt 1,369 1,373 4,212 3,773
Other interest
expense (income),
net (52) 147 33 38
Loss (gain) on
disposal of
property, plant and
equipment 112 60 (10,492) (4,029)

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28,298 25,529 75,732 76,344
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Income (loss) before
income taxes and
non-controlling
interest 8,797 1,330 38,628 (29,753)

Income taxes
(recovery):
Current 806 2,316 9,914 1,872
Future 2,195 (1,657) 971 (11,845)

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3,001 659 10,885 (9,973)

Income (loss) before
non-controlling
interest 5,796 671 27,743 (19,780)

Non-controlling
interest 50 (46) (128) (218)

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Net income (loss) $ 5,746 $ 717 $ 27,871 $ (19,562)
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Earnings (loss) per
common share (note
10):
Basic $ 0.07 $ 0.01 $ 0.33 $ (0.26)
Diluted $ 0.07 $ 0.01 $ 0.33 $ (0.26)


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See accompanying notes to unaudited interim consolidated financial
statements.



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

For the three and nine months ended September 30, 2010 and 2009 (unaudited)
(in thousands of dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 30, 30, 30,
2010 2009 2010 2009
----------------------------------------------------------------------------

Net income (loss) 5,746 717 $ 27,871 $ (19,562)

Other comprehensive
loss, net of tax:

Unrealized loss on
translation of
financial
statements of self-
sustaining
operations (11,148) (23,387) (8,802) (40,937)

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Other comprehensive
loss (11,148) (23,387) (8,802) (40,937)

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Comprehensive income
(loss) $ (5,402) $ (22,670) $ 19,069 $ (60,499)
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See accompanying notes to unaudited interim consolidated financial
statements.

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

For the nine months ended September 30, 2010 and 2009 (unaudited) and year
ended December 31, 2009
(in thousands of dollars)


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes
receivable
Share for share Contributed
capital capital surplus
----------------------------------------------------------------------------

Balances, December
31, 2008 629,052 (2,700) 34,478

Net loss - - -

Shares issued in
private placement
(net of share issue
costs of $2,486 and
future tax recovery
of $716) 54,005 - -

Compensation expense
related to stock
options - - 2,089

Other comprehensive
loss - - -

----------------------------------------------------------------------------
Balances, September
30, 2009 683,057 (2,700) 36,567

Net loss - - -

Compensation expense
related to stock
options - - 835

Other comprehensive
loss - - -

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

Balances, December
31, 2009 683,057 (2,700) 37,402

Net income - - -

Compensation expense
related to stock
options - - 2,834

Other comprehensive
loss - - -

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

Balances, September
30, 2010 $ 683,057 $ (2,700) $ 40,236
----------------------------------------------------------------------------
----------------------------------------------------------------------------



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
other
comprehensive Accumulated
loss deficit Total
----------------------------------------------------------------------------

Balances, December
31, 2008 (13,212) (130,539) 517,079

Net loss - (19,562) (19,562)

Shares issued in
private placement
(net of share issue
costs of $2,486 and
future tax recovery
of $716) - - 54,005

Compensation expense
related to stock
options - - 2,089

Other comprehensive
loss (40,937) - (40,937)

----------------------------------------------------------------------------
Balances, September
30, 2009 (54,149) (150,101) 512,674

Net loss - (5,378) (5,378)

Compensation expense
related to stock
options - - 835

Other comprehensive
loss (5,187) - (5,187)

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

Balances, December
31, 2009 (59,336) (155,479) 502,944

Net income - 27,871 27,871

Compensation expense
related to stock
options - - 2,834

Other comprehensive
loss (8,802) - (8,802)

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

Balances, September
30, 2010 $ (68,138) $ (127,608) $ 524,847
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to unaudited interim consolidated financial
statements.


MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Cash Flows

For the three and nine months ended September 30, 2010 and 2009 (unaudited)
(in thousands of dollars)


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
September September September September
30, 30, 30, 30,
2010 2009 2010 2009
----------------------------------------------------------------------------

Cash provided by
(used in):

Operating activities:
Net income (loss) $ 5,746 717 $ 27,871 $ (19,562)
Items not involving
cash:
Amortization of
property, plant
and equipment 11,900 12,588 34,740 37,586
Amortization of
intangible assets 1,167 1,279 3,499 3,527
Impairment charge
on property, plant
and equipment
(note 4) - - 6,308 -
Amortization of
deferred financing
costs 67 - 211 -
Accretion of
interest on
promissory note (236) - (236) -
Unrealized (gain)
loss on foreign
exchange forward
contracts (360) - (227) -
Future income taxes 2,195 (1,657) 971 (11,845)
Non-controlling
interest 50 (46) (128) (218)
Loss (gain) on
disposal of
property, plant
and equipment 112 60 (10,492) (4,029)
Stock-based
compensation 770 953 2,834 2,089
Pension and other
post-employment
benefits 821 2,268 725 4,776
Contributions made
to pension and
other post-
employment benefits (2,693) (2,631) (8,415) (8,899)

----------------------------------------------------------------------------
19,539 13,531 57,661 3,425
Changes in non-cash
working capital
items:
Accounts receivable (19,966) (62,291) (85,089) (15,765)
Other receivables 1,467 1,571 2,354 (632)
Inventories (13,500) (8,311) (24,095) (8,452)
Prepaid expenses
and deposits 277 684 (541) (94)
Accounts payable
and accrued
liabilities 12,466 27,432 45,058 (36,118)
Income taxes
payable /
recoverable (640) 8,271 12,807 12,699

----------------------------------------------------------------------------
(357) (19,113) 8,155 (44,937)
----------------------------------------------------------------------------

Financing activities:
Increase in bank
indebtedness 5,060 - 5,060 -
Issue of share
capital (net of
share issuance
costs) - - - 54,005
Increase in long-
term debt 15,000 11,800 31,000 29,503
Repayment of long-
term debt (3,355) (5,242) (11,017) (58,436)

----------------------------------------------------------------------------
16,705 6,558 25,043 25,072
----------------------------------------------------------------------------

Investing activities:
Acquisition of SKD
Automotive Group
(net of acquisition
costs) (note 2) - - - (4,267)
Purchase of
property, plant and
equipment (23,121) (10,148) (55,927) (34,840)
Promissory note
(note 7) - - (12,637) -
Proceeds on disposal
of property, plant
and equipment - 9 13,807 5,342

----------------------------------------------------------------------------
(23,121) (10,139) (54,757) (33,765)
----------------------------------------------------------------------------

Effect of foreign
exchange rate
changes on cash and
cash equivalents 1,164 (1,145) (1,210) (4,644)

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

Decrease in cash and
cash equivalents (5,609) (23,839) (22,769) (58,274)

Cash and cash
equivalents,
beginning of period 5,609 26,530 22,769 60,965

----------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ - $ 2,691 $ - $ 2,691
----------------------------------------------------------------------------

Supplemental cash
flow information:
Cash paid for
interest, net $ 1,127 $ 1,112 $ 4,341 $ 3,226
Cash paid (received)
for income taxes,
net $ (1,581) $ (2,723) $ (4,097) $ (5,382)

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

See accompanying notes to unaudited interim consolidated financial
statements.

Contact Information

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