Martinrea International Inc. Releases Second Quarter 2012 Results: Ramping Up Revenues and Launches

Marketwired

TORONTO, ONTARIO--(Marketwire -08/14/12)- Martinrea International Inc. (MRE.TO) a leader in the production and development of quality metal parts, assemblies and modules, fluid management systems and complex aluminum products focused primarily on the automotive sector announced today the release of its financial results for the second quarter ended June 30, 2012. Martinrea currently employs over 11,000 skilled and motivated people in 37 plants in Canada, the United States, Mexico, Brazil and Europe.

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. Additional information about the Company, including the Company's Management Discussion and Analysis of Operating Results and Financial Position for the quarter ended June 30, 2012 ("MD&A") dated as of August 14, 2012, the Company's unaudited interim consolidated financial statements for the quarter ended June 30, 2012 (the "unaudited consolidated interim financial statements") and the Company's Annual Information Form for the year ended December 31, 2011, can be found at www.sedar.com.

Non-IFRS Measures

The Company reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). However, the Company has included certain non-IFRS financial measures and ratios in this Press Release 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 IFRS 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 IFRS. Non-IFRS measures referred to in the analysis include "adjusted net earnings", and "adjusted earnings per share on a basic and diluted basis" and are defined in Tables A and B under "Adjustments to Net Income" of this Press Release.

 

Results of Operations

REVENUE


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Three months ended
June 30, 2012 June 30, 2011 Change % Change
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North America $ 603,190 $ 473,723 129,467 27.3%
Europe 145,195 864 144,331 -
Rest of World 14,168 - 14,168 -
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Revenue $ 762,553 $ 474,587 287,966 60.7%
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Second Quarter 2012 to Second Quarter 2011 comparison

The Company's revenues for the second quarter of 2012 increased by $288.0 million or 60.7% to $762.6 million as compared to $474.6 million for the second quarter of 2011. The increase was partially due to $180.8 million in incremental revenue resulting from the inclusion of Martinrea Honsel in the consolidated financial results of the Company effective July 29, 2011, which caused sales in both the Company's Europe and Rest of World operating segments to increase significantly year-over-year. Included in the $129.5 million increase in revenue generated in North America was $23.3 million related to the operations of the Company's plant in Queretaro, Mexico which formed part of the Honsel acquisition. The remainder of the increase in revenue in North America was due to improved production volumes in North American light vehicle platforms, the launch of new programs during or subsequent to the second quarter of 2011, an increase in tooling revenue relating to upcoming new programs which is typically dependent on the timing of tooling construction and final inspection and acceptance by the customer, and the impact of exchange rates on the translation of U.S. dollar denominated revenue, which had a positive impact on revenue for the second quarter of 2012 of $12.9 million in comparison to the second quarter of 2011.

Overall tooling revenue increased by $23.0 million from $39.3 million for the second quarter of 2011 to $62.3 million for the second quarter of 2012, $10.0 million of which was generated by Martinrea Honsel.

 

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Three months ended Three months ended
June 30, 2012 March 31, 2012 Change % Change
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North America $ 603,190 $ 568,366 34,824 6.1%
Europe 145,195 153,281 (8,086) (5.3%)
Rest of World 14,168 14,007 161 1.1%
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Revenue $ 762,553 $ 735,654 26,899 3.7%
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Second Quarter 2012 to First Quarter 2012 comparison

The Company's revenues for the second quarter of 2012 increased by $26.9 million or 3.7% to $762.6 million as compared to $735.7 million for the first quarter of 2012. The total increase was driven by an increase in revenue in the North American operating segment and an overall increase in tooling revenue, partially offset by a decrease in revenue in Europe. Overall North American OEM light vehicle production for the second quarter of 2012 was essentially flat compared to the first quarter of 2012. The quarter-over-quarter increase in revenue in the Company's North American operating segment for the second quarter of 2012 outpaced overall North American light vehicle production due largely to the launch of incremental new programs during or subsequent to the first quarter of 2012, including the new Ford Escape. The decrease in revenue in Europe was driven by a quarter-over-quarter decrease in OEM light vehicle and engine production in Western Europe, which decreased sequentially by approximately 9%.

In addition to the above, the translation of U.S. dollar, Euro and Brazilian Real denominated revenue into Canadian dollars negatively impacted revenue in the North America, Europe and Rest of World operating segments for the second quarter of 2012 by approximately $3.8 million, $2.5 million and $1.1 million, respectively.

Overall tooling revenue increased by $10.4 million from $51.9 million for the first quarter of 2012 to $62.3 million for the second quarter of 2012. Approximately $4.3 million of the $10.4 million increase was generated in Europe.

 

GROSS MARGIN

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Three months ended Three months ended
June 30, 2012 June 30, 2011 Change % Change
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Gross margin $ 76,067 $ 49,992 26,075 52.2%
% of revenue 10.0% 10.5%
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Second Quarter 2012 to Second Quarter 2011 comparison

The gross margin percentage, before adjustments, for the second quarter of 2012 of 10.0% decreased by 0.5% as compared to the gross margin percentage for the second quarter of 2011 of 10.5%. Excluding the operations of Martinrea Honsel, which was acquired on July 29, 2011 and, as a consequence, is not included in the financial results of the comparative quarter, the unusual and other items recorded as cost of sales in Table A under "Adjustments to Net Income", including the impact of a major equipment failure at one of the Company's facilities in the U.S., and tooling revenue, which increased significantly year-over-year and typically earns low or no margins for the Company, Martinrea's gross margin percentage for the second quarter of 2012 would have been 11.7%, an increase over 11.5% realized in the second quarter of 2011. The increase was primarily due to increased gross margin as a result of higher light vehicle production volumes in North America and productivity and efficiency improvements at certain North American operating facilities offset by launch activity costs which negatively impacted gross margin for the quarter. The launch activity costs incurred during the quarter relate to several new programs currently ramping up or scheduled to launch during the second half of 2012, which will generate approximately $450 million in annualized business when fully launched. The most significant of the new programs is the new Ford Escape which is launching in four Martinrea facilities in the U.S., including the Company's facility in Shelbyville, Kentucky. In addition to the content on the new Ford Escape, current or upcoming launches during the second half of the year include content on the following OEM platforms: Ford CD4, GM Global Gamma, GM Alpha, GM Epsilon, Nissan L12F and Honda C-5.

The Company's Shelbyville facility, approximating one million square feet, represents about 20% of the Company's square footage in North America and had a revenue run rate of about $50 million per year prior to the launch of the new Ford Escape. A total of approximately $275 million in anticipated annualized business related to Ford's C520 program is in the process of being launched at this facility, which has increased from the award of the program, as anticipated sales and production volumes have increased. The new work will greatly expand throughput and capacity utilization at Shelbyville, and is expected to turn a very large plant with negative gross margin and earnings and current ramp up costs into a positive gross margin and earnings contributor during the fourth quarter of 2012 when full vehicle production volumes are expected to peak and current launch activity costs begin to subside. This Ford C520 business consists of approximately $150 million in value added internally produced components (some of which are or will be manufactured by other Martinrea facilities) and $125 million in components purchased from other suppliers that will be integrated with internally produced components to produce finished welded assemblies. The gross margins on components purchased from other suppliers are typically lower than for value added work, although return on capital is higher. After the launch of the Ford C520 program in Shelbyville, approximately 25% of Martinrea's business excluding Martinrea Honsel will involve integrator or assembly work.

 

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Three months ended Three months ended
June 30, 2012 March 31, 2012 Change % Change
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Gross margin $ 76,067 $ 80,309 (4,242) (5.3%)
% of revenue 10.0% 10.9%
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Second Quarter 2012 to First Quarter 2012 comparison

Gross margin percentage, before adjustments, for the second quarter of 2012 of 10.0% decreased by 0.9% as compared to the gross margin percentage for the first quarter of 2012 of 10.9%. Excluding the unusual and other items recorded as cost of sales in Table B under "Adjustments to Net Income", which included the impact of a major equipment failure at one of the Company's facilities in the U.S., and tooling revenue, which increased significantly quarter-over-quarter and typically earns no or low margins for the Company, gross margin percentage for the second quarter of 2012 decreased by 0.3% to 11.5% from 11.8% for the first quarter of 2012. The gross margin percentage for the second quarter was positively impacted by productivity and efficiency improvements at certain North American facilities and the commencement of operations at the Company's new facility in Silao. The positive impact was more than offset by a decrease in production volumes in Europe as previously noted, launch activity costs which increased quarter-over-quarter, and the impact of exchange rates on the translation of U.S. dollar and Euro denominated gross margin, which had a negative impact on gross margin for the second quarter of 2012 of $0.5 million as compared to the first quarter of 2012.

ADJUSTMENTS TO NET INCOME

(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)

Adjusted net earnings excludes certain unusual and other items, as set out in the following tables and described in the notes thereto. Management uses adjusted earnings as a measurement of operating performance of the Company and believes that, in conjunction with IFRS measures, it provides useful information about the financial performance and condition of the Company.

 

TABLE A

----------------------------------------------------------------------------
For the three For the three
months ended months ended
June 30, 2012 June 30, 2011
------------- -------------
(a) (b) (a)-(b)
IFRS IFRS Change
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NET EARNINGS (A) 14,372 15,546 (1,174)

Add back - Unusual Items:
Employee related severance costs (1) 1,054 - 1,054
Other restructuring costs (1) 1,413 - 1,413

Add back - Other Items:
Executive separation agreement
(recorded in SG&A) (2) 5,177 - 5,177
Impact of a major equipment failure
at an operating facility in the U.S.
(recorded as COS) (3) 4,503 - 4,503
Transaction costs associated with the
Honsel acquisition (recorded as
SG&A) (4) - 1,436 (1,436)

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TOTAL UNUSUAL AND OTHER ITEMS BEFORE
TAX 12,147 1,436 10,711
Tax impact of above items (2,367) (359) (2,008)
Non-controlling interest on above
items (102) - (102)

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TOTAL UNUSUAL AND OTHER ITEMS AFTER
TAX (B) 9,678 1,077 8,601

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ADJUSTED NET EARNINGS (A + B) 24,050 16,623 7,427
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Number of Shares Outstanding - Basic
('000) 82,975 83,276
Adjusted Basic Earnings Per Share 0.29 0.20
Number of Shares Outstanding -
Diluted ('000) 83,715 83,977
Adjusted Diluted Earnings Per Share 0.29 0.20

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TABLE B

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For the For the
three months three months
ended ended
June 30, March 31,
2012 2012 (a-b)
------------- -------------
(a) (b) Change
----------------------------------------------------------------------------

NET EARNINGS (A) - Per IFRS 14,372 23,055 (8,683)

Add back - Unusual Items:
Employee related severance costs (1) 1,054 846 208
Other restructuring costs (1) 1,413 1,318 95

Add back - Other Items:
Executive separation agreement
(recorded in SG&A) (2) 5,177 - 5,177
Impact of a major equipment failure at
an operating facility in the U.S.
(recorded as COS) (3) 4,503 - 4,503
Transaction and integration costs
associated with the Honsel
acquisition (recorded as SG&A) (4) - 581 (581)

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TOTAL UNUSUAL AND OTHER ITEMS BEFORE
TAX 12,147 2,745 9,402
Tax impact of above items (2,367) (528) (1,839)
Non-controlling interest in above
items (102) (535) 433

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TOTAL UNUSUAL AND OTHER ITEMS AFTER
TAX (B) 9,678 1,682 7,996
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ADJUSTED NET EARNINGS (A + B) 24,050 24,737 (687)
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Number of Shares Outstanding - Basic
('000) 82,975 82,907
Adjusted Basic Earnings Per Share 0.29 0.30
Number of Shares Outstanding - Diluted
('000) 83,715 83,591
Adjusted Diluted Earnings Per Share 0.29 0.30

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(1) Employee related severance and other restructuring costs

As part of the acquisition of Honsel, a certain level of restructuring was planned, in particular, at the Company's German facility in Meschede. The restructuring efforts commenced immediately after the closing of the acquisition and, as a result, $11.4 million of employee related severance was recognized during the year ended December 31, 2011. An additional $0.6 million and $0.2 million of employee related severance was recognized during the three months ended March 31, 2012 and three months ended June 30, 2012, respectively. The majority of the restructuring costs expected to be incurred will be in the nature of employee related severance as the Company rationalizes the overhead cost structure and improves the efficiency of the operations. The Company anticipates that additional employee related severance will be incurred during the remainder of 2012.

In addition, during the fourth quarter of 2011, the Company began the process of closing one of its small operating facilities in Mexico. The existing business and equipment of this facility will be moved to other Company facilities in Mexico including a new facility the Company opened in Silao, Mexico in 2011. Restructuring costs relating to this closure during the fourth quarter of 2011 totaled $2.4 million consisting primarily of employee related severance ($1.5 million) and the dismantling and transporting of PP&E between Company facilities ($0.9 million). An additional $1.5 million and $1.4 million of primarily other restructuring costs were recognized during the three months ended March 31, 2012 and three months ended June 30, 2012, respectively, related to the dismantling and transporting of PP&E between Company facilities.

Costs associated with other restructuring activities incurred during the three months ended June 30, 2012 totaled $0.9 million for employee related severance relating to the right sizing of certain other manufacturing facilities.

At this time, the Company does not expect to incur any further significant restructuring costs with the exception of the settlement of the Windsor pension and OPEB plans which the Company will continue to fund over the next twelve months, the windup of the Martinrea Fabco Hot Stampings pension plan, the completion of the closure of the small operating facility in Mexico and any restructuring required relating to the acquired assets of Honsel (as discussed above).

(2) Executive separation agreement

On June 29, 2012, the Company announced that Nat Rea stepped down as Vice Chairman and Director of Martinrea, effective immediately, to pursue other opportunities. As part of the separation agreement and based on the terms of his employment contract, the Company paid Mr. Rea $5.2 million which was expensed during the second quarter of 2012 and included in SG&A expense. The Company does not expect to incur any further costs associated with Mr. Rea's departure.

(3) Impact of a major equipment failure at an operating facility in the U.S.

During the month of June, 2012, a press in one of the Company's operating facilities in the U.S. experienced a significant failure and was not operational for approximately 23 days. As a consequence and due to the lack of press capacity at the facility, approximately thirty dies were outsourced to external stamping companies which resulted in the following incremental costs:

 

-- external stamping fees;
-- transportation costs to move the dies to the external stamping companies
and stamped parts back to the Martinrea operating facility for assembly;
-- additional manpower to ensure the quality of parts stamped by external
suppliers;
-- sorting and rework costs; and
-- dedicated external contractor support to get the press operational
again.

These incremental costs, which totaled $4.5 million for the quarter, are non-recurring in nature and had a significant impact on the performance of the facility during the month of June, 2012. The press is now operational again but the incremental costs outlined above continued into July, 2012 and are expected to have an impact on the results for the third quarter but to a lesser extent.

(4) Transaction costs associated with the acquisition of Honsel

On July 29, 2011, the Company closed the purchase of the assets of Honsel to form the Martinrea Honsel Group. Martinrea joined with Anchorage in the transaction and, consequently, owns 55% of the Martinrea Honsel Group with Anchorage owning the remaining 45%. The Company expensed $1.4 million and $0.6 million in transaction and integration costs related to the acquisition during the quarters ended June 30, 2011 and March 31, 2012, respectively. The Company does not expect to incur any further significant transaction and integration costs related to the acquired assets of Martinrea Honsel.

 

NET EARNINGS
(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)

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Three months Three months
ended June 30, ended June 30,
2012 2011 Change % Change
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Net Earnings $ 14,372 $ 15,546 (1,174) (7.6%)
Adjusted net earnings $ 24,050 $ 16,623 7,427 44.7%
Earnings per common
share
Basic $ 0.17 $ 0.19
Diluted $ 0.17 $ 0.19
Adjusted earnings per
common share
Basic $ 0.29 $ 0.20
Diluted $ 0.29 $ 0.20
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Second Quarter 2012 to Second Quarter 2011 comparison

Net earnings, before adjustments, for the second quarter of 2012 of $14.4 million decreased by $1.2 million from $15.5 million for the second quarter of 2011. Excluding unusual and other items incurred during these two quarters as explained in Table A under "Adjustments to Net Income", the net earnings for the second quarter of 2012 improved to $24.1 million or $0.29 per share, on a basic and diluted basis, in comparison to adjusted net earnings of $16.6 million or $0.20 per share, on a basic and diluted basis, for the second quarter of 2011.

The adjusted net earnings for the second quarter of 2012, as compared to the second quarter of 2011, was positively impacted by the addition of Martinrea Honsel to the consolidated financial results of the Company, which contributed $0.05 per share to the quarter after adjustments, an increase in customer light vehicle production volumes in North America, the launch of new programs during or subsequent to the second quarter of 2011 and productivity and efficiency improvements at certain North American facilities. The positive impact was partially offset by launch activity costs during the quarter.

 

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Three months Three months
ended June 30, ended March 31,
2012 2012 Change % Change
----------------------------------------------------------------------------
Net Earnings $ 14,372 $ 23,055 (8,683) (37.7%)
Adjusted net earnings $ 24,050 $ 24,737 (687) (2.8%)
Earnings per common
share
Basic $ 0.17 $ 0.28
Diluted $ 0.17 $ 0.28
Adjusted earnings per
common share
Basic $ 0.29 $ 0.30
Diluted $ 0.29 $ 0.30
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Second Quarter 2012 to First Quarter 2012 comparison

Net earnings, before adjustments, for the second quarter of 2012 of $14.4 million decreased by $8.7 million from net earnings of $23.1 million for the first quarter of 2012. Excluding unusual and other items incurred during these two quarters, as explained in Table B under "Adjustments to Net Income", net earnings for the second quarter of 2012 decreased to $24.1 million or $0.29 per share, on a basic and diluted basis, as compared to net earnings of $24.7 million or $0.30 per share, on a basic and diluted basis, for the first quarter of 2012. The decrease can be attributed to a decrease in production volumes in Europe as previously noted and launch activity costs which increased quarter over quarter.

 

CAPITAL EXPENDITURES

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Three months Three months
ended June 30, ended June 30,
2012 2011 Change % Change
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Capital Expenditures $ 53,065 $ 29,006 24,059 82.9%
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Second Quarter 2012 to Second Quarter 2011 comparison

Capital expenditures increased by $24.1 million to $53.1 million in the second quarter of 2012 from $29.0 million in the second quarter of 2011. This increase is primarily attributed to incremental capital expenditures relating to Martinrea Honsel which amounted to $18.8 million during the quarter, the purchase of new program equipment in response to newly awarded business scheduled to launch over the next two years, and capital for a new plant the Company has recently opened in Silao, Mexico.

 

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Three months Three months
ended June 30, ended March 31,
2012 2012 Change % Change
----------------------------------------------------------------------------
Capital Expenditures $ 53,065 $ 34,233 18,832 55.0%
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Second Quarter 2012 to First Quarter 2012 comparison

Capital expenditures increased by $18.8 million to $53.1 million in the second quarter of 2012 from $34.2 million in the first quarter of 2012. This increase is primarily attributed to an increase in the purchase of new program equipment in response to newly awarded business scheduled to launch over the next two years.

Nick Orlando, Martinrea's Chief Executive Officer, stated: "Our second quarter results reflected record Q2 revenues, solid earnings after adjustments, and extensive launch and pre-launch activity as we continue to ramp up the largest backlog in our history. Operationally, many of our plants are performing very well and we continue to make operational improvements. Our launch of parts for the new Ford Escape at four Martinrea facilities in the U.S., including Shelbyville, the largest in our history, commenced in the middle of the quarter and has continued to ramp up under a compressed time frame. We are pleased to be launching the Ford Escape, a vehicle that is enjoying a very good reception in the market place. It appears that revenues for this program for the Shelbyville facility alone will meet or exceed $275 million when fully launched, eventually bringing our revenues in the Shelbyville facility to over $325 million per annum, a nice piece of good news. Large launches, and sometimes smaller ones too, bring their challenges but are ultimately very rewarding for a growing business. To give a sense of the magnitude of the launch activity we are currently experiencing in our Company, all programs currently ramping up or scheduled to launch during the second half of the year will generate approximately $450 million in annualized business when fully launched, a large amount of business in a short period of time. In addition to the content on the Ford Escape launching in four of our facilities in the U.S., current or upcoming launches during the second half of the year include content on the following OEM platforms: Ford CD4, GM Global Gamma, GM Alpha, GM Epsilon, Nissan L12F and Honda C-5. Due to the magnitude of the current launch activity, launch costs have impacted net earnings for the second quarter of 2012. As we have stated before, 2012 is the year of the launch for us. We also had some one time issues in the second quarter which affected us - some one time severance costs, and a major equipment failure in one of our U.S. facilities for an extended period of time, which caused us to outsource work and incur significant incremental costs in June and July as we fixed the equipment. This facility is now fully operational again and improving its efficiencies. Although we are very focused on launches this year, we continue to look for and quote appropriate new business, and have added the following new business since our last announcement: $30 million in metal forming work for the Volkswagen Golf scheduled to launch in 2013 and the takeover of some hot stamping work on the Chrysler JS platform which will generate approximately $10 million in annualized sales starting in the third quarter of 2012."

Fred Di Tosto, Martinrea's Chief Financial Officer, added: "Revenues for the second quarter, excluding $62.3 million in tooling revenues, were approximately $700 million, which was within our quarterly sales guidance as previously provided. In the second quarter of 2012 our adjusted earnings per share was $0.29, after factoring out restructuring costs, the cost of an executive's separation agreement, and the cost of a major equipment failure, up from $0.20 in the second quarter of 2011 and slightly down from $0.30 in the first quarter of 2012, after adjustments and on a diluted basis, and within our quarterly earnings guidance as previously provided. Our second quarter results from the Martinrea Honsel assets were accretive to earnings, after factoring out unusual and other items, and amounted to approximately $0.05 of earnings per share for the quarter, slightly lower than our previous two quarters due mainly to some softness in Brazil and Europe. Our second quarter from Martinrea Classic amounted to approximately $0.24 of earnings per share, after factoring out unusual and other items. As noted, we did experience some launch activity costs which negatively impacted earnings in the quarter. These launch activity costs are expected to subside during the fourth quarter of 2012 but are expected to increase during the third quarter of 2012 as we continue to work through the ramp up of the largest backlog in our history."

Mr. Di Tosto added: "In addition, we saw gross margin for the quarter, excluding tooling revenue, at 11.5%, a slight decrease over the previous quarter due mainly to a decrease in production volumes in Europe and launch activity costs. Aside from the short term volatility in our gross margin as a result of the extensive launch activity, we expect gross margin to continue to improve and approach historical levels as we launch a significant backlog of business over the next 24 months and as, if and when production volumes continue to improve in North America."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "We have had a very good first half, with record revenues and adjusted earnings per share of $0.59. Our third quarter will be less profitable, as we experience the typical July shutdowns in North America and August shutdowns in Europe for Martinrea Honsel. We anticipate that the Martinrea Honsel numbers will be lower in the third quarter than in the first two, as Europe is experiencing softness in its production and revenues. Earnings per share from Martinrea Honsel we anticipate will be positive, but not to the level of the second quarter. In North America, we expect to experience increased launch costs related to the heavy ramp up of business. The equipment failure at one of our facilities will impact third quarter results also because of July based expenses. In our third quarter of 2012, we anticipate revenues (excluding tooling revenues) will range from $660 to $680 million, and we believe our earnings per share after adjustments will range from $0.17 to $0.22 cents per share. Our third quarter is generally our lowest quarter each year in terms of earnings, and in 2012 we believe that trend will continue.

As for the full year, based on where we sit today, we continue to believe that 2012 will be our best year to date from a financial point of view, subject to market conditions. As previously stated, based on our assumptions of volumes, interest rates and our outlook, we are budgeting for consolidated revenues approaching $3 billion in 2012, and we are maintaining our guidance on earnings, where we have stated that earnings, including our interest in Martinrea Honsel, should range somewhere between $1.05 and $1.25 per share, absent unusual items in each case. Given launch costs to date and anticipated in the third quarter, and the softness in Martinrea Honsel just noted, we believe adjusted earnings will be at the lower end of the range. The risk to us meeting our budgeted numbers lies primarily in our launch costs, which we expense. We update our budgets each year in November, and we will provide our fourth quarter outlook then. Over time, as we launch our backlog, increase throughput, and increase our efficiencies, we believe increased gross margins and EBITDA margins will translate to increased earnings, and we continue to anticipate in our budgets that our earnings per share for 2013 will grow to the $1.30 to $1.50 range, based on current assumptions. Our Company maintains a strong financial position also. I am pleased to announce that we have entered into an expanded revolving credit facility with our banks. We have added three large banks to our syndicate, the overall facility has been increased by $100 million to a $400 million facility, our term has been extended to 2016, and our pricing is improved. This greater flexibility will allow us to fund our growth and, at some point, purchase the minority interest in Martinrea Honsel that we do not own at this time. We thank our lenders for their ongoing support."

Forward-Looking Information

Special Note Regarding Forward-Looking Statements

This Press Release and the documents incorporated by reference therein contains forward-looking statements within the meaning of applicable Canadian securities laws including related to the Company's expectations as to gross margin percentage and future profitability, revenues, outlooks and earnings, statements as to the growth of the Company and pursuit of its strategies, the launching of new metal forming and fluid systems programs including expectations as to the financial impact of the launch at the Shelbyville plant and other launch costs, the opportunity to increase sales, broad geographic penetration, and the nature and duration of the economic recession to the continuation of monitoring, managing and rationalization of expenses (including of Martinrea Honsel), the Company's expectations regarding the future amount and type of restructuring expenses to be expensed (including Martinrea Honsel) and the windup of the Hot Stampings pension plan, the Company's expectation regarding the financing of future capital expenditures, the Company's views on the long term outlook of the automotive industry, statements as to the benefits of the Honsel acquisition, and the Company's ability to capitalize on opportunities in the automotive industry 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 in the Company's Annual Information Form and other public filings which can be found at www.sedar.com:

 

-- North American and global economic and political 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;
-- financial viability of suppliers;
-- Martinrea's reliance on critical suppliers and 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;
-- a shift away from technologies in which the Company is investing;
-- potential tax exposures;
-- a change in the Company's mix of earnings between jurisdictions with
lower tax rates and those with higher tax rates, as well as the
Company's ability to fully benefit from tax losses;
-- the Company's ability to shift its manufacturing footprint to take
advantage of opportunities in growing markets;
-- risks of conducting business in foreign countries, including China,
Brazil and other growing markets;
-- 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 Wednesday, August 15 at 8:00 a.m. (Toronto time) which can be accessed by dialing 416-340-8410 or toll free 1-866-225-2055. 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 1-800-408-3053 (conference id 4555837#). The rebroadcast will be available until August 29, 2012.

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

 

Martinrea International Inc.
Condensed Consolidated Balance Sheets

(in thousands of Canadian dollars) (unaudited)

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----------------------------------------------------------------------------
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Note June 30, 2012 December 31, 2011
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ASSETS
Cash and cash equivalents $ 26,743 $ 26,505
Trade and other receivables 3 514,966 386,776
Inventories 4 268,748 248,588
Prepaid expenses and deposits 9,335 8,224
Income taxes recoverable 9,409 11,056
Current portion of promissory note 2,320 2,263
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TOTAL CURRENT ASSETS 831,521 683,412
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Property, plant and equipment 5 667,703 616,592
Deferred income tax assets 68,307 72,715
Intangible assets 6 52,846 42,397
Promissory note 2,438 2,378
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TOTAL NON-CURRENT ASSETS 791,294 734,082
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TOTAL ASSETS $ 1,622,815 $ 1,417,494
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----------------------------------------------------------------------------

LIABILITIES
Bank Indebtedness $ 11,360 $ -
Trade and other payables 7 522,297 427,072
Provisions 8 8,498 12,956
Income taxes payable 5,510 3,724
Current portion of long-term debt 9 22,118 17,928
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TOTAL CURRENT LIABILITIES 569,783 461,680
----------------------------------------------------------------------------
Long-term debt 9 301,506 245,317
Pension and other post-retirement
benefits 58,460 53,795
Deferred income tax liabilities 38,890 40,119
Provisions 8 2,410 3,149
Other financial liability 2 77,150 71,236
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TOTAL NON-CURRENT LIABILITIES 478,416 413,616
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TOTAL LIABILITIES 1,048,199 875,296
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EQUITY
Share capital 11 675,404 674,568
Notes receivable for share capital 11 - (602)
Contributed surplus 11 45,692 44,165
Other equity 2 (77,150) (71,236)
Accumulated other comprehensive
loss (12,131) (8,330)
Accumulated deficit (136,585) (169,006)
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TOTAL EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY 495,230 469,559
Non-controlling interest 79,386 72,639
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TOTAL EQUITY 574,616 542,198
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TOTAL LIABILITIES AND EQUITY $ 1,622,815 $ 1,417,494
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Subsequent event (note 9)

See accompanying notes to the interim condensed consolidated financial
statements.

On behalf of the Board:

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

"Suleiman Rashid" Director
--------------------------------------

Martinrea International Inc.
Condensed Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts) (unaudited)

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----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three
months months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
Note 2012 2011 2012 2011
----------------------------------------------------------------------------

----------------------------------------------------------------------------
SALES $ 762,553 $ 474,587 $ 1,498,207 $ 905,768
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Cost of sales
(excluding
depreciation of
property, plant and
equipment) (671,048) (413,999) (1,310,864) (792,728)
Depreciation of
property, plant and
equipment (production) (15,438) (10,596) (30,967) (20,610)
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Total cost of sales (686,486) (424,595) (1,341,831) (813,338)
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GROSS MARGIN 76,067 49,992 156,376 92,430
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Research and
development costs (3,807) (2,033) (7,135) (4,291)
Selling, general and
administrative (39,925) (23,361) (74,191) (41,067)
Depreciation of
property, plant and
equipment (non-
production) (1,352) (794) (2,418) (1,515)
Amortization of
customer contracts and
relationships (1,549) (1,069) (3,127) (2,160)
Restructuring and
integration costs 13 (2,467) - (4,631) -
Gain (loss) on disposal
of property, plant and
equipment 109 - 71 (4)
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OPERATING INCOME 27,076 22,735 64,945 43,393
----------------------------------------------------------------------------

Finance costs (4,263) (1,506) (8,019) (2,937)
Other finance income
and expenses 158 434 523 693
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INCOME BEFORE INCOME
TAXES 22,971 21,663 57,449 41,149

Income tax expense 10 (5,779) (6,219) (14,148) (11,731)
----------------------------------------------------------------------------
NET INCOME FOR THE
PERIOD 17,192 15,444 43,301 29,418
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----------------------------------------------------------------------------

Non-controlling
interest (2,820) 102 (5,874) 143
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NET INCOME ATTRIBUTABLE
TO EQUITY HOLDERS OF
THE COMPANY $ 14,372 $ 15,546 $ 37,427 $ 29,561
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----------------------------------------------------------------------------


----------------------------------------------------------------------------
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Basic earnings per
share 12 $ 0.17 $ 0.19 $ 0.45 $ 0.35
Diluted earnings per
share 12 $ 0.17 $ 0.19 $ 0.45 $ 0.35
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----------------------------------------------------------------------------

See accompanying notes to the interim condensed consolidated financial
statements.

Martinrea International Inc.
Condensed Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars) (unaudited)

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

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2012 2011 2012 2011
----------------------------------------------------------------------------

NET INCOME FOR THE PERIOD $ 17,192 $ 15,444 $ 43,301 $ 29,418
Other comprehensive income (loss),
net of tax:
Foreign currency translation
differences for foreign
operations 6,014 (2,377) (2,928) (11,574)
Defined benefit plan actuarial
losses (4,943) (1,809) (5,006) (170)
----------------------------------------------------------------------------
Other comprehensive income (loss),
net of tax 1,071 (4,186) (7,934) (11,744)
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TOTAL COMPREHENSIVE INCOME FOR THE
PERIOD 18,263 11,258 35,367 17,674
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----------------------------------------------------------------------------

Attributable to:
Equity holders of the Company 13,978 11,379 28,620 17,927
Non-controlling interest 4,285 (121) 6,747 (253)
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TOTAL COMPREHENSIVE INCOME FOR THE
PERIOD $ 18,263 $ 11,258 $ 35,367 $ 17,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim condensed consolidated financial
statements.

Martinrea International Inc.
Condensed Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars) (unaudited)

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----------------------------------------------------------------------------
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Equity attributable to equity holders of the Company
---------------------------------------------------------

Notes
receivable Cumulative
Share for share Contributed Other translation
capital capital surplus equity account
----------------------------------------------------------------------------
Balance at
December 31, 2010 $682,495 $ (2,700) $ 41,241 $ - $ (18,822)
----------------------------------------------------------------------------
Net income for the
period - - - - -
Compensation
expense related
to stock options - - 1,140 - -
Exercise of
employee stock
options 499 - (40) - -
Repurchase of
common shares (1,505) - - - -
Other
comprehensive
income, net of
tax
Actuarial gains - - - - -
Foreign currency
translation
differences - - - - (11,574)
----------------------------------------------------------------------------
Balance at June
30, 2011 681,489 (2,700) 42,341 - (30,396)
----------------------------------------------------------------------------

Net income for the
period - - - - -
Compensation
expense related
to stock options - - 1,824 - -
Contribution from
non-controlling
interest - Honsel
acquisition - - - - -
Acquired non-
controlling
interest - Honsel
acquisition - - - - -
Fair value of put
option granted to
non-controlling
interest (note 2) - - - (71,236) -
Repayment of notes
receivable - 2,098 -
Repurchase of
common shares (6,921) - - - -
Other
comprehensive
income, net of
tax
Actuarial losses - - - - -
Foreign currency
translation
differences - - - - 22,066
----------------------------------------------------------------------------
Balance at
December 31, 2011 674,568 (602) 44,165 (71,236) (8,330)
----------------------------------------------------------------------------

Net income for the
period - - - - -
Compensation
expense related
to stock options - - 1,771 - -
Fair value
adjustment of put
option granted to
non-controlling
interest - - - (5,914) -
Repayment of notes
receivable - 602 - - -
Exercise of
employee stock
options 836 - (244) - -
Other
comprehensive
income, net of
tax
Actuarial losses - - - - -
Foreign currency
translation
differences - - - - (3,801)
----------------------------------------------------------------------------
Balance at June
30, 2012 $675,404 $ - $ 45,692 $(77,150) (12,131)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equity attributable to equity
holders of the Company
--------------------------------


Non-
Accumulated controlling Total
deficit Total interest equity
----------------------------------------------------------------------------
Balance at
December 31, 2010 $ (214,028) $ 488,186 $ 922 $ 489,108
----------------------------------------------------------------------------
Net income for the
period 29,561 29,561 (143) 29,418
Compensation
expense related
to stock options - 1,140 - 1,140
Exercise of
employee stock
options - 459 - 459
Repurchase of
common shares 65 (1,440) - (1,440)
Other
comprehensive
income, net of
tax
Actuarial gains (170) (170) - (170)
Foreign currency
translation
differences - (11,574) - (11,574)
----------------------------------------------------------------------------
Balance at June
30, 2011 (184,572) 506,162 779 506,941
----------------------------------------------------------------------------

Net income for the
period 24,969 24,969 1,863 26,832
Compensation
expense related
to stock options - 1,824 - 1,824
Contribution from
non-controlling
interest - Honsel
acquisition - - 67,924 67,924
Acquired non-
controlling
interest - Honsel
acquisition - - 5,415 5,415
Fair value of put
option granted to
non-controlling
interest (note 2) - (71,236) - (71,236)
Repayment of notes
receivable - 2,098 - 2,098
Repurchase of
common shares 1,031 (5,890) - (5,890)
Other
comprehensive
income, net of
tax
Actuarial losses (10,434) (10,434) - (10,434)
Foreign currency
translation
differences - 22,066 (3,342) 18,724
----------------------------------------------------------------------------
Balance at
December 31, 2011 (169,006) 469,559 72,639 542,198
----------------------------------------------------------------------------

Net income for the
period 37,427 37,427 5,874 43,301
Compensation
expense related
to stock options - 1,771 - 1,771
Fair value
adjustment of put
option granted to
non-controlling
interest - (5,914) - (5,914)
Repayment of notes
receivable - 602 - 602
Exercise of
employee stock
options - 592 - 592
Other
comprehensive
income, net of
tax
Actuarial losses (5,006) (5,006) - (5,006)
Foreign currency
translation
differences - (3,801) 873 (2,928)
----------------------------------------------------------------------------
Balance at June
30, 2012 $ (136,585) $ 495,230 $ 79,386 $ 574,616
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the interim condensed consolidated financial
statements.

Martinrea International Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)

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----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
Net Income for the period $ 17,192 $ 15,444 $ 43,301 29,418
Adjustments for:
Depreciation of property,
plant and equipment 16,790 11,390 33,385 22,125
Amortization of customer
contracts and relationships 1,549 1,069 3,127 2,160
Amortization of development
costs 437 20 834 20
Accretion of interest on
promissory note (58) (135) (117) (268)
Unrealized losses / (gains) on
foreign exchange forward
contracts (280) (212) 89 (492)
Finance costs 4,263 1,506 8,019 2,937
Income tax expense 5,779 6,219 14,148 11,731
(Gain) loss on disposal of
property, plant and equipment (109) - (71) 4
Stock-based compensation 795 570 1,771 1,140
Pension and other post-
retirement benefits expense 784 142 1,497 796
Contributions made to pension
and other post-retirement
benefits (1,634) (4,145) (3,614) (5,564)
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45,508 31,868 102,369 64,007
Changes in non-cash working
capital items:
Trade and other receivables (14,990) 3,484 (132,922) (79,902)
Inventories 4,085 2,134 (22,503) (21,426)
Prepaid expenses and deposits (520) (851) (1,111) (1,818)
Trade, other payables and
provisions 25,037 10,552 94,872 45,838
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59,120 47,187 40,705 6,699
Interest paid (4,103) (1,639) (7,624) (2,856)
Income taxes paid (4,832) (4,120) (6,908) (6,284)
----------------------------------------------------------------------------
NET CASH PROVIDED / (USED) IN
OPERATING ACTIVITIES 50,185 41,428 26,173 (2,441)
----------------------------------------------------------------------------

FINANCING ACTIVITIES:
Increase / (decrease) in bank
indebtedness (2,358) (15,760) 11,360 -
Repurchase of common shares - (1,215) - (1,440)
Receipt of payment on notes
receivable for share capital - - 602 -
Exercise of employee stock
options 28 - 592 459
Increase in long-term debt 19,132 13,788 74,626 44,157
Repayment of long-term debt (5,660) (3,173) (12,707) (6,495)
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NET CASH PROVIDED / (USED) IN
FINANCING ACTIVITIES 11,142 (6,360) 74,473 36,681
----------------------------------------------------------------------------

INVESTING ACTIVITIES:
Purchase of property, plant
and equipment (53,065) (29,006) (87,298) (54,081)
Promissory note (net of
principal repayments) - 1,500 - 1,500
Capitalized development costs (6,073) (741) (14,486) (2,161)
Proceeds on disposal of
property, plant and equipment 205 - 295 47
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NET CASH USED IN INVESTING
ACTIVITIES (58,933) (28,247) (101,489) (54,695)
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Effect of foreign exchange rate
changes on cash and cash
equivalents 1,705 (1,455) 1,081 (206)
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INCREASE IN CASH AND CASH
EQUIVALENTS 4,099 5,366 238 (20,661)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 22,644 - 26,505 26,027
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CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 26,743 $ 5,366 $ 26,743 5,366
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the interim condensed consolidated financial
statements.

Contact:

Martinrea International Inc.
Fred Di Tosto
Chief Financial Officer
(416) 749-0314
(289) 982-3001 (FAX)

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