TORONTO, ONTARIO -- (Marketwired) -- 11/14/17 -- Martinrea International Inc. (TSX: MRE), a leader in the development and production of quality metal parts, assemblies and modules and fluid management systems and complex aluminum products focused primarily on the automotive sector, announced today the release of its financial results for the third quarter ended September 30, 2017 and a quarterly dividend.
HIGHLIGHTS
-- Twelfth consecutive quarter with record year-over-year adjusted
earnings; best third quarterly earnings to date
-- Production sales of $800 million
-- Record third quarter adjusted net income of $36.3 million, or $0.42 per
share
-- Record third quarter adjusted EBITDA of $92.4 million
-- Quarterly adjusted operating income (6.2%) and adjusted EBITDA (11.0%)
margins increase substantially year-over-year
-- Continued strong margin growth anticipated over next three years
-- Net debt decreases; balance sheet continues to strengthen
-- Dividend of $0.03 per share announced
OVERVIEW
Pat D'Eramo, Martinrea President and Chief Executive Officer, stated: "Martinrea continued to perform well in the third quarter. Our Martinrea 2.0 strategy is achieving results and our focus on operational excellence, cost reduction, good launches, and improving our product offerings to customers is taking hold. Our margin improvement plan continues to be on track and our leverage ratio continues to improve. Our objectives for the year are clearly being achieved, regardless of market conditions. This is now our twelfth quarter in a row with record year-over-year adjusted earnings and we expect that progress to continue in the fourth quarter. We expect fourth quarter sales, excluding tooling sales, of $790 million to $830 million, and adjusted net earnings per share in the range of $0.45 to $0.49 per share, which would be our best fourth quarter ever from a financial perspective. I am also pleased to announce $70 million of annualized new business wins in the quarter, since our last call, including $20 million of aluminum structural components with Jaguar Land Rover, including a new battery housing, starting in 2020; $20 million of aluminum structural work for BMW starting in 2020; $20 million of steel metal forming work on GM's large SUV platform starting in 2020; and $10 million of fluids management systems work for FCA on the Dodge Ram platform starting in 2018. These new business wins are a testimony to our competitiveness and our ability to lower our cost. In addition, our quoting today is robust, particularly in our aluminum business, and we are excited about opportunities we see in the pipeline. We expect to announce significant incremental work in the coming quarters."
Fred Di Tosto, Martinrea's Chief Financial Officer, stated: "Sales for the third quarter, excluding tooling sales of approximately $39 million, were $800 million, slightly lower than previously announced sales guidance as a result of losing two weeks of sales on the GM Equinox program due to the strike at CAMI, which ended in mid-October. In the quarter, our adjusted net earnings per share, on a basic and diluted basis, was $0.42 per share, at the midpoint of our quarterly guidance and a record third quarter. Earnings were negatively affected by the CAMI strike, which shut down production in two of our plants. Third quarter adjusted operating income and adjusted EBITDA margins improved significantly year-over-year. We continue to expect operating margins to be over 6% for 2017; based on our Q4 guidance we are essentially there. Our net debt to adjusted EBITDA ratio ended the quarter at 1.59x, a nice improvement from the end of the previous quarter and this time last year, as we continue to move towards our target ratio of 1.5x by the end of 2017. Overall, we had a very solid quarter from a financial perspective, once again. Our financial position is strong, our balance sheet is solid, and both are improving."
Rob Wildeboer, Executive Chairman, stated: "We continue to drive our One Company culture and Martinrea 2.0 strategy as we continuously improve our business. Our Vision, Mission and Ten Guiding Principles are living things and are at the core of our improving financials. The future looks great, and we are now anticipating that our margin improvement over the next three years will accelerate from the past three years. We have been saying publicly that our operating margins will continue to increase subsequent to 2017, reaching 8% by fiscal 2020. Based on our updated budgets just reviewed and approved by our board of directors, which take into consideration current FX rates and industry production estimates, and our anticipated book of business, we now believe we can reach that threshold a year early, by fiscal 2019, and that operating margins can be 9% or more by fiscal 2020, a greater than 50% improvement from where we are today. Next year we expect to see double digit growth in adjusted net earnings, and another record year. All this in a relatively flat automotive sales environment, and a real testament to the performance of our team, which is driving our success. As for sales, we anticipate they will be flattish next year, given anticipated timing of new launches and a full year impact of the module assembly sales in our Ingersoll plant moving to a Value Added model, but believe sales will start to increase in 2019 and grow to over $4 billion in 2020, based on our budgets."
RESULTS OF OPERATIONS
Results of operations may include certain unusual and other items which have been separately disclosed, where appropriate, in order to provide a clear assessment of the underlying Company results. In addition to IFRS measures, management uses non-IFRS measures in the Company's disclosures that it believes provide the most appropriate basis on which to evaluate the Company's results.
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 third quarter ended September 30, 2017 ("MD&A"), the Company's interim condensed consolidated financial statements for the third quarter ended September 30, 2017 (the "interim consolidated financial statements) and the Company's Annual Information Form for the year ended December 31, 2016, can be found at www.sedar.com.
OVERALL RESULTS
The following tables set out certain highlights of the Company's performance for the three and nine months ended September 30, 2017 and 2016. Refer to the Company's interim consolidated financial statements for the three and nine months ended September 30, 2017 for a detailed account of the Company's performance for the periods presented in the tables below.
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Three Three
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
Sales $ 838,535 $ 914,725 (76,190) (8.3%)
Gross Margin 113,418 99,698 13,720 13.8%
Operating Income 50,106 43,394 6,712 15.5%
Net Income for the period 36,022 28,827 7,195 25.0%
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Net Income Attributable to
Equity Holders of the Company $ 36,229 $ 29,098 7,131 24.5%
----------------------------------------------------------------------------
Net Earnings per Share - Basic
and Diluted $ 0.42 $ 0.34 0.08 23.5%
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Non-IFRS Measures(i)
------------------------------
Adjusted Operating Income $ 51,873 $ 43,394 8,479 19.5%
% of sales 6.2% 4.7%
Adjusted EBITDA 92,409 80,614 11,795 14.6%
% of sales 11.0% 8.8%
Adjusted Net Income
Attributable to Equity
Holders of the Company 36,263 29,098 7,165 24.6%
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Adjusted Net Earnings per
Share - Basic and Diluted $ 0.42 $ 0.34 0.08 23.5%
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Nine Nine
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
Sales $ 2,811,857 $ 2,978,000 (166,143) (5.6%)
Gross Margin 360,559 327,738 32,821 10.0%
Operating Income 179,097 113,468 65,629 57.8%
Net Income for the period 126,900 61,331 65,569 106.9%
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Net Income Attributable to
Equity Holders of the Company $ 127,177 $ 61,627 65,550 106.4%
----------------------------------------------------------------------------
Net Earnings per Share - Basic
and Diluted $ 1.47 $ 0.71 0.76 107.1%
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Non-IFRS Measures(i)
------------------------------
Adjusted Operating Income $ 175,166 $ 151,731 23,435 15.4%
% of sales 6.2% 5.1%
Adjusted EBITDA 295,663 264,285 31,378 11.9%
% of sales 10.5% 8.9%
Adjusted Net Income
Attributable to Equity
Holders of the Company 122,340 99,332 23,008 23.2%
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Adjusted Net Earnings per
Share - Basic and Diluted $ 1.41 $ 1.15 0.26 22.6%
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(i)Non-IFRS Measures
The Company prepares its financial statements in accordance with International Financial Reporting Standards ("IFRS"). However, the Company considers certain non-IFRS financial measures as useful additional information in measuring the financial performance and condition of the Company. These measures, which the Company believes are widely used by investors, securities analysts and other interested parties in evaluating the Company's performance, 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 financial measures determined in accordance with IFRS. Non-IFRS measures include "Adjusted Net Income", "Adjusted Net Earnings per Share (on a basic and diluted basis)", "Adjusted Operating Income" and "Adjusted EBITDA".
The following tables provide a reconciliation of IFRS "Net Income Attributable to Equity Holders of the Company" to Non-IFRS "Adjusted Net Income Attributable to Equity Holders of the Company", "Adjusted Operating Income" and "Adjusted EBITDA":
----------------------------------------------------------------------------
Three months Three months
ended ended
September 30, September 30,
2017 2016
----------------------------------------------------------------------------
Net Income Attributable to Equity Holders
of the Company $ 36,229 $ 29,098
Unusual and Other Items (after-tax)(i) 34 -
----------------------------------------------------------------------------
Adjusted Net Income Attributable to Equity
Holders of the Company $ 36,263 $ 29,098
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months Nine months
ended ended
September 30, September 30,
2017 2016
----------------------------------------------------------------------------
Net Income Attributable to Equity Holders
of the Company $ 127,177 $ 61,627
Unusual and Other Items (after-tax)(i) (4,837) 37,705
----------------------------------------------------------------------------
Adjusted Net Income Attributable to Equity
Holders of the Company $ 122,340 $ 99,332
----------------------------------------------------------------------------
(i)Unusual and other items for the three and nine months ended September
30, 2017 and 2016 are explained in the "Adjustments to Net Income" section
of this press release
----------------------------------------------------------------------------
Three months Three months
ended ended
September 30, September 30,
2017 2016
----------------------------------------------------------------------------
Net Income Attributable to Equity Holders
of the Company $ 36,229 $ 29,098
Non-controlling interest (207) (271)
Income tax expense 10,348 9,319
Other finance income - excluding Unusual
and Other Items(i) (340) (770)
Finance expense 5,451 6,018
Unusual and Other Items (before-tax)(i) 392 -
----------------------------------------------------------------------------
Adjusted Operating Income $ 51,873 $ 43,394
----------------------------------------------------------------------------
Depreciation of property, plant and
equipment 36,873 33,500
Amortization of intangible assets 3,897 3,673
Loss/(gain) on disposal of property, plant
and equipment (234) 47
----------------------------------------------------------------------------
Adjusted EBITDA $ 92,409 $ 80,614
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----------------------------------------------------------------------------
Nine months Nine months
ended ended
September 30, September 30,
2017 2016
----------------------------------------------------------------------------
Net Income Attributable to Equity Holders
of the Company $ 127,177 $ 61,627
Non-controlling interest (277) (296)
Income tax expense 37,863 31,455
Other finance expense (income) - excluding
Unusual and Other Items(i) (1,083) 2,570
Finance expense 16,792 18,112
Unusual and Other Items (before-tax)(i) (5,306) 38,263
----------------------------------------------------------------------------
Adjusted Operating Income $ 175,166 $ 151,731
----------------------------------------------------------------------------
Depreciation of property, plant and
equipment 109,401 100,723
Amortization of intangible assets 11,623 11,755
Loss/(gain) on disposal of property, plant
and equipment (527) 76
----------------------------------------------------------------------------
Adjusted EBITDA $ 295,663 $ 264,285
----------------------------------------------------------------------------
(i)Unusual and other items for the three and nine months ended September
30, 2017 and 2016 are explained in the "Adjustments to Net Income" section
of this press release
The year-over-year changes in significant accounts and financial highlights are discussed in detail in the sections below. Certain comparative information has been reclassified where relevant to conform to the current financial statement presentation adopted in 2017.
SALES
Three months ended September 30, 2017 to three months ended September 30,
2016 comparison
----------------------------------------------------------------------------
Three Three
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
North America $ 646,895 $ 737,127 (90,232) (12.2%)
Europe 165,140 152,080 13,060 8.6%
Rest of the World 30,319 27,721 2,598 9.4%
Eliminations (3,819) (2,203) (1,616) (73.4%)
----------------------------------------------------------------------------
Total Sales $ 838,535 $ 914,725 (76,190) (8.3%)
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The Company's consolidated sales for the third quarter of 2017 decreased by $76.2 million or 8.3% to $838.5 million as compared to $914.7 million for the third quarter of 2016. The total decrease in sales was driven by a decrease in the North America operating segment, partially offset by year-over-year increases in sales in Europe and the Rest of the World.
Sales for the third quarter of 2017 in the Company's North America operating segment decreased by $90.2 million or 12.2% to $646.9 million from $737.1 million for the third quarter of 2016. The decrease was due to the impact of foreign exchange on the translation of U.S. denominated production sales, which had a negative impact on overall sales for the third quarter of 2017 of approximately $4.9 million as compared to the third quarter of 2016; and lower year-over-year OEM production volumes on certain light-vehicle platforms including the Ford Fusion, Chevrolet Malibu, and other platforms late in their life cycle, and programs that ended production during or subsequent to the third quarter of 2016 such as the previous version of the GM Equinox/Terrain. These negative factors were partially offset by a $2.2 million increase in tooling sales, which are typically dependent on the timing of tooling construction and final acceptance by the customer; higher year-over-year production volumes on certain light vehicle platforms such as the Ford Escape; and the launch of new programs during or subsequent to the third quarter of 2016 including the GM Bolt and next generation GM Equinox/Terrain, third quarter production volumes of which were impacted by an employee strike at GM's assembly plant in Ingersoll, Ontario.
Sales for the third quarter of 2017 in the Company's Europe operating segment increased by $13.0 million or 8.6% to $165.1 million from $152.1 million for the third quarter of 2016. The increase can be attributed to a $3.4 million positive foreign exchange impact from the translation of Euro denominated production sales as compared to the third quarter of 2016, and higher overall production volumes in the Company's Martinrea Honsel German operations including the ramp up of the new V8 AMG engine block for Daimler. These positive factors were partially offset by a $1.6 million decrease in tooling sales.
Sales for the third quarter of 2017 in the Company's Rest of the World operating segment increased by $2.6 million or 9.4% to $30.3 million from $27.7 million in the third quarter of 2016. The increase was due to higher year-over-year production sales in the Company's operating facility in Brazil; partially offset by a $0.3 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to the third quarter of 2016 and a $0.2 million decrease in tooling sales.
Overall tooling sales increased by $0.4 million to $38.6 million for the third quarter of 2017 from $38.2 million for the third quarter of 2016.
Nine months ended September 30, 2017 to nine months ended September 30, 2016
comparison
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Nine Nine
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
North America $ 2,238,933 $ 2,417,956 (179,023) (7.4%)
Europe 493,080 484,313 8,767 1.8%
Rest of the World 90,163 84,826 5,337 6.3%
Eliminations (10,319) (9,095) (1,224) (13.5)
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Total Sales $ 2,811,857 $ 2,978,000 (166,143) (5.6%)
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The Company's consolidated sales for the nine months ended September 30, 2017 decreased by $166.1 million or 5.6% to $2,811.9 million as compared to $2,978.0 million for the nine months ended September 30, 2016. The total decrease in sales was driven by a decrease in the Company's North America operating segment, partially offset by year-over-year increases in sales in Europe and the Rest of the World.
Sales for the nine months ended September 30, 2017 in the Company's North America operating segment decreased by $179.0 million or 7.4% to $2,238.9 million from $2,418.0 million for the nine months ended September 30, 2016. The decrease was due to the impact of foreign exchange on the translation of U.S. denominated production sales, which had a negative impact on overall sales for the nine months ended September 30, 2017 of approximately $14.7 million as compared to the comparative period of 2016; and lower year-over-year OEM production volumes on certain light-vehicle platforms including the Chrysler 200, customer production of which ended at the end of 2016, Ford Fusion, Chevrolet Malibu, and other platforms late in their product life cycle, and programs that ended production during or subsequent to the nine months ended September 30, 2016 such as the previous version of the GM Equinox/Terrain. These negative factors were partially offset by a year-over-year increase in tooling sales of $3.9 million; an increase in production volumes on the Chrysler V6 Pentastar engine block program which was down during the first quarter of 2016 for re-tooling; higher year-over-year volumes on certain light vehicle platforms such as the Ford Escape, GM Pick-up truck/SUV platform and other GM programs previously impacted by unplanned OEM shutdowns during the second quarter of 2016 because of an earthquake in Japan which disrupted the supply chain; and the launch of new programs during or subsequent to the nine months ended September 30, 2016 including the GM Bolt and next generation GM Equinox/Terrain, third quarter production volumes of which were impacted by an employee strike at GM's assembly plant in Ingersoll, Ontario.
Sales for the nine months ended September 30, 2017 in the Company's Europe operating segment increased by $8.8 million or 1.8% to $493.1 million from $484.3 million for the nine months ended September 30, 2016. The increase can be attributed to higher production volumes in the Company's Martinrea Honsel German operations including the ramp up of the new V8 AMG engine block for Daimler, and a $1.6 million increase in tooling sales; partially offset by the impact of foreign exchange on the translation of Euro denominated production sales, which had a negative impact on overall sales for the nine months ended September 30, 2017 of approximately $9.0 million as compared to the comparative period of 2016.
Sales for the nine months ended September 30, 2017 in the Company's Rest of the World operating segment increased by $5.4 million or 6.3% to $90.2 million from $84.8 million for the nine months ended September 30, 2016. The increase was mainly due to a year-over-year increase in production sales in the Company's operations in China due in large part to a year-over-year increase in production volumes on one of its key platforms which was down for seven weeks during the second quarter of 2016 as a result of an unplanned OEM shutdown; higher year-over-year production sales in the Company's operating facility in Brazil; and a $0.6 million positive foreign exchange impact from the translation of foreign denominated production sales as compared to the nine months ended September 30, 2016. These positive factors were partially offset by a $9.1 million decrease in tooling sales.
Overall tooling sales decreased by $3.6 million to $142.1 million for the nine months ended September 30, 2017 from $145.7 million for the nine months ended September 30, 2016.
GROSS MARGIN
Three months ended September 30, 2017 to three months ended September 30,
2016 comparison
----------------------------------------------------------------------------
Three Three
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
Gross margin $ 113,418 $ 99,698 13,720 13.8%
% of sales 13.5% 10.9%
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The gross margin percentage for the third quarter of 2017 of 13.5% increased as a percentage of sales by 2.6% as compared to the gross margin percentage for the third quarter of 2016 of 10.9%. The increase in gross margin as a percentage of sales was generally due to:
-- productivity and efficiency improvements at certain operating
facilities; and
-- general sales mix including new and replacement programs that launched,
and old programs that ended production, during or subsequent to the
third quarter of 2016.
These positive factors were partially offset by operational inefficiencies and other costs at certain other facilities including upfront costs incurred in the Company's China operations in preparation of upcoming new programs.
Nine months ended September 30, 2017 to nine months ended September 30, 2016
comparison
----------------------------------------------------------------------------
Nine Nine
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
Gross margin $ 360,559 $ 327,738 32,821 10.0%
% of sales 12.8% 11.0%
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The gross margin percentage for the nine months ended September 30, 2017 of 12.8% increased as a percentage of sales by 1.8% as compared to the gross margin percentage for the nine months ended September 30, 2016 of 11.0%. The increase in gross margin as a percentage of sales was generally due to:
-- productivity and efficiency improvements at certain operating
facilities;
-- general sales mix including new and replacement programs that launched,
and old programs that ended production, during or subsequent to the nine
months ended September 30, 2016; and
-- a slight decrease in tooling sales which typically earn low or no
margins for the Company.
These positive factors were partially offset by operational inefficiencies and other costs at certain other facilities including upfront costs incurred in the Company's China operations in preparation of upcoming new programs.
ADJUSTMENTS TO NET INCOME
(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)
Adjusted Net Income excludes certain unusual and other items, as set out in the following tables and described in the notes thereto. Management uses Adjusted Net Income 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
Three months ended September 30, 2017 to three months ended September 30,
2016 comparison
----------------------------------------------------------------------------
For the three For the three
months ended months ended
September 30, September 30,
2017 2016 (a)-(b)
--------------- ---------------
(a) (b) Change
----------------------------------------------------------------------------
NET INCOME (A) $36,229 $29,098 $7,131
Add Back - Unusual and Other Items:
Executive separation agreement (1) 1,767 - 1,767
Unrealized gain on derivative
instruments (2) (1,375) - (1,375)
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TOTAL UNUSUAL AND OTHER ITEMS
BEFORE TAX 392 - $392
Tax impact of above items (358) - (358)
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TOTAL UNUSUAL AND OTHER ITEMS -
AFTER TAX (B) 34 - $34
----------------------------------------------------------------------------
ADJUSTED NET INCOME (A + B) $36,263 $29,098 $7,165
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Number of Shares Outstanding -
Basic ('000) 86,512 86,385
Adjusted Basic Net Earnings Per
Share $0.42 $0.34
Number of Shares Outstanding -
Diluted ('000) 86,794 86,507
Adjusted Diluted Net Earnings Per
Share $0.42 $0.34
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TABLE B
Nine months ended September 30, 2017 to nine months ended
September 30, 2016 comparison
----------------------------------------------------------------------------
For the nine For the nine
months ended months ended
September 30, September 30,
2017 2016 (a)-(b)
--------------- ---------------
(a) (b) Change
----------------------------------------------------------------------------
NET INCOME (A) $127,177 $61,627 $65,550
Add Back - Unusual and Other Items:
Executive separation agreement (1) 1,767 - 1,767
Unrealized gain on derivative
instruments (2) (1,375) - (1,375)
Gain on sale of land and building
(3) (5,698) - (5,698)
Impairment of assets (4) - 34,579 (34,579)
Restructuring costs (5) - 3,684 (3,684)
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TOTAL UNUSUAL AND OTHER ITEMS
BEFORE TAX ($5,306) $38,263 ($43,569)
Tax impact of above items (6) 469 (558) 1,027
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TOTAL UNUSUAL AND OTHER ITEMS -
AFTER TAX (B) ($4,837) $37,705 ($42,542)
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ADJUSTED NET INCOME (A + B) $122,340 $99,332 $23,008
----------------------------------------------------------------------------
Number of Shares Outstanding -
Basic ('000) 86,505 86,385
Adjusted Basic Net Earnings Per
Share $1.41 $1.15
Number of Shares Outstanding -
Diluted ('000) 86,739 86,570
Adjusted Diluted Net Earnings Per
Share $1.41 $1.15
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(1) Executive separation agreement
During the third quarter of 2017, David Rashid ceased to be an Executive Vice President of Operations of the Company. The costs added back for Adjusted Net Income purposes represents Mr. Rashid's termination benefits (included in SG&A expense) as set out in his employment contract payable over a twelve-month period.
(2) Unrealized gain on derivative instruments
In the third quarter, the Company acquired 5.5 million common shares in NanoXplore Inc. ("NanoXplore"), a publicly listed company on the TSX Venture Exchange trading under the ticker symbol GRA, for a total of $2.5 million through a private placement offering (the investment is further described in note 7 of the interim consolidated financial statements for the three and nine months ended September 30, 2017 and later on in the MD&A under the section "Investments"). As part of the transaction to acquire the common shares, the Company also received warrants entitling the Company to acquire up to an additional 2.75 million common shares in NanoXplore at a price of $0.70 per share for a period of up to two years after issuance. The warrants in NanoXplore represent derivative instruments and are fair valued at the end of each reporting period with the change in fair value recorded through profit or loss. As at September 30, 2017, the warrants had a fair value of $1.7 million which resulted in an unrealized gain of $1.4 million for the third quarter recorded in Other finance income. This unrealized gain has been added back for Adjusted Net Income purposes.
(3) Gain on sale of land and building
During the first quarter of 2017, in connection with the relocation of an existing operation to another manufacturing facility, a building owned by the Company in Mississauga, Ontario was sold on an "as-is, where-is" basis. The building was sold for proceeds of $9.9 million (net of closing costs of $0.4 million) resulting in a pre-tax gain of $5.7 million.
(4) Impairment of assets
During the second quarter of 2016, the Company recorded impairment charges on PP&E, intangible assets and inventories totaling $34.6 million (US $26.6 million) related to an operating facility in Detroit, Michigan included in the North America operating segment. The impairment charges resulted from the cancellation of the main OEM light vehicle platform being serviced by the facility, representing the majority of the business, well before the end of its expected life cycle. This led to a decision to close the facility. The impairment charges were recorded where the carrying amount of the assets exceeded their estimated recoverable amounts.
(5) Restructuring costs
As part of the acquisition of Honsel in 2011, a certain level of restructuring was contemplated, in particular, at the Company's German operating facility in Meschede, Germany. In connection with these restructuring activities, $1.8 million (EUR1.2 million) of employee related severance was recognized during the second quarter of 2016. No further costs related to this restructuring are expected to be incurred.
Other additions to the restructuring accrual during the second quarter of 2016 totaled $1.9 million (US$1.4 million) and represent employee related payouts resulting from the closure of the operating facility in Detroit, Michigan as described above.
(6) Tax impact of above items (For the nine months ended September 30, 2016)
The tax impact of the adjustments recorded to income during the nine months ended September 30, 2016 of $0.6 million represents solely the corresponding tax effect on the $1.8 million in restructuring costs incurred in Meschede, Germany. The $34.6 million in impairment charges and $1.9 million in restructuring costs related to the closure of the operating facility in Detroit, Michigan, as described above, resulted in tax losses that were not benefitted and, as a result, not recognized as a deferred tax asset. In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of taxable temporary differences; however, forming a conclusion on the realization of deferred tax assets requires judgment when there are recent tax losses.
NET INCOME
(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)
Three months ended September 30, 2017 to three months ended September 30,
2016 comparison
----------------------------------------------------------------------------
Three Three
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
Net Income $ 36,229 $ 29,098 7,131 24.5%
Adjusted Net Income $ 36,263 $ 29,098 7,165 24.6%
Net Earnings per Share
Basic and Diluted $ 0.42 $ 0.34
Adjusted Net Earnings per Share
Basic and Diluted $ 0.42 $ 0.34
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Net Income, before adjustments, for the third quarter of 2017 increased by $7.1 million to $36.2 million from $29.1 million for the third quarter of 2016 largely as a result of the increase in the Company's gross margin as previously discussed. Excluding the unusual and other items recognized during the third quarter of 2017 as explained in Table A under "Adjustments to Net Income", Net Income for the third quarter of 2017 remained essentially the same at $36.2 million or $0.42 per share, on a basic and diluted basis, compared to $29.1 million or $0.34 per share, on a basic and diluted basis, for the third quarter of 2016.
Adjusted Net Income for the third quarter of 2017, as compared to the third quarter of 2016, was positively impacted by the following:
-- higher gross profit despite an overall decrease in year-over-year sales
as previously explained;
-- productivity and efficiency improvements at certain operating
facilities;
-- general sales mix including new and replacement programs that launched,
and old programs that ended production, during or subsequent to the
third quarter of 2016;
-- a slight year-over-year decrease in finance expense on the Company's
bank debt and equipment loans; and
-- a lower effective tax rate on adjusted income due generally to the mix
of earnings (22.9% for the third quarter of 2017 compared to 24.4% for
the third quarter of 2016).
These factors were partially offset by the following:
-- operational inefficiencies and other costs at certain other facilities;
-- a year-over-year increase in SG&A expense as previously discussed;
-- a year-over-year increase in depreciation expense as previously
discussed; and
-- an increase in research and development costs due to increased new
product and process research and development activity.
Nine months ended September 30, 2017 to nine months ended September 30, 2016
comparison
----------------------------------------------------------------------------
Nine Nine
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
Net Income $ 127,177 $ 61,627 65,550 106.4%
Adjusted Net Income $ 122,340 $ 99,332 23,008 23.2%
Net Earnings per Share
Basic and Diluted $ 1.47 $ 0.71
Adjusted Net Earnings per Share
Basic and Diluted $ 1.41 $ 1.15
----------------------------------------------------------------------------
Net Income, before adjustments, for the nine months ended September 30, 2017 increased by $65.6 million to $127.2 million from $61.6 million for the nine months ended September 30, 2016 largely as a result of the increase in the Company's gross margin, as previously discussed, and the impact of the unusual and other items incurred during the nine months ended September 30, 2017 and 2016 as explained in Table B under "Adjustments to Net Income". Excluding these unusual and other items, net income for the nine months ended September 30, 2017 increased by $23.0 million to $122.3 million or $1.41 per share, on a basic and diluted basis, from $99.3 million or $1.15 per share, on a basic and diluted basis, for the nine months ended September 30, 2016.
Adjusted Net Income for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was positively impacted by the following:
-- higher gross profit despite an overall decrease in year-over-year sales
as previously explained;
-- productivity and efficiency improvements at certain operating
facilities;
-- general sales mix including new and replacement programs that launched,
and old programs that ended production, during or subsequent to the nine
months ended September 30, 2016;
-- a net foreign exchange gain of $0.8 million for the nine months ended
September 30, 2017 compared to a net foreign exchange loss of $2.7
million for the nine months ended September 30, 2016;
-- a year-over-year decrease in finance expense on the Company's bank debt
and equipment loans; and
-- a lower effective tax rate on adjusted income due generally to the mix
of earnings (23.5% for the nine months ended September 30, 2017 compared
to 24.4% for the nine months ended September 30, 2016).
These factors were partially offset by the following:
-- operational inefficiencies and other costs at certain other facilities;
-- a year-over-year increase in SG&A expense as previously discussed;
-- a year-over-year increase in depreciation expense as previously
discussed; and
-- an increase in research and development costs due to increased new
product and process research and development activity.
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Three months ended September 30, 2017 to three months ended September 30,
2016 comparison
----------------------------------------------------------------------------
Three Three
months months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
Additions to PP&E $ 56,373 $ 43,739 12,634 28.9%
----------------------------------------------------------------------------
Additions to PP&E increased by $12.6 million to $56.4 million in the third quarter of 2017 from $43.7 million for the third quarter of 2016. Additions as a percentage of sales increased year-over-year to 6.7% for the third quarter of 2017 compared to 4.8% for the comparative period of 2016. The Company continues to make investments in the business in particular at new greenfield operating facilities as these new plants execute on their backlogs of new business.
Nine months ended September 30, 2017 to nine months ended September 30, 2016
comparison
----------------------------------------------------------------------------
Nine months Nine months
ended ended
September September
30, 2017 30, 2016 $ Change % Change
----------------------------------------------------------------------------
Additions to PP&E $ 168,105 $ 136,733 31,372 22.9%
----------------------------------------------------------------------------
Additions to PP&E increased by $31.4 million year-over-year to $168.1 million for the nine months ended September 30, 2017 compared to $136.7 million for the nine months ended September 30, 2016. Additions as a percentage of sales increased year-over-year to 6.0% for the nine months ended September 30, 2017 compared to 4.6% for the nine months ended September 30, 2016. While capital expenditures are made to refurbish or replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in the first nine months of 2017 continued to be for manufacturing equipment for new and replacement programs that recently launched or will be launching over the next 24 months.
DIVIDEND
A cash dividend of $0.03 per share has been declared by the Board of Directors payable to shareholders of record on December 31, 2017, on or about January 15, 2018.
ABOUT MARTINREA
Martinrea currently employs approximately 15,000 skilled and motivated people in 44 operating divisions in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain and China.
Martinrea's vision for the future is to be the best, preferred and most valued supplier in the world in the products and services we provide our customers. The Company's mission is to deliver: outstanding quality products and services to our customers; meaningful opportunity, job satisfaction and job security to our people through competitiveness and prudent growth; superior long term investment returns to our stakeholders; and positive contributions to our communities as good corporate citizens.
CONFERENCE CALL DETAILS
A conference call to discuss those results will be held on November 15, 2017 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 405-9200 or toll free (866) 696-5896. 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 (905) 694-9451 or toll free (800) 408-3053 (conference id 9347812#). The rebroadcast will be available until November 29, 2017.
FORWARD-LOOKING INFORMATION
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 growth or expectations of, improvements in, expansion of and/or guidance or outlook as to future revenue, sales, gross margin, earnings, and earnings per share (including as adjusted), operating income margins and net debt:EBITDA ratios for the 2017 year and beyond, the financial strength of the Company and its balance sheet, the expected acceleration of the Company's margin improvement to 8% or more by 2019 and 9% or more by 2020, the expected double digit growth in earnings by 2019 and growth in sales to over $4 billion by 2020, the ramping up and launching of new programs and the financial impact of launches, the opportunity to increase sales and ability to capitalize on opportunities in the automotive industry, the future amount and type of restructuring expenses to be expensed (including the expectation as to no further restructuring costs from the Honsel acquisition), the growth and strengthening of and the competitiveness of the Company, the opening of facilities and pursuit of its strategies, the progress, and expectations, of operational and productivity improvements and efficiencies and the lean manufacturing culture, the reduction of costs and expense, investments in its business, customer working relationships, the payment of dividends, improvements in product offerings, program wins, the expectation of announcing significant incremental work and as well as other forward-looking statements. The words "continue", "expect", "anticipate", "estimate", "may", "will", "should", "views", "intend", "believe", "plan", "outlook" 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, such as expected sales and industry production estimates, current foreign exchange rates (FX), timing of product launches and operational improvements during the period and current Board approved budgets. Certain forward-looking financial assumptions are presented as non-IFRS information, and we do not provide reconciliation to IFRS for such assumptions. 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 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;
-- the Company'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 insourcing trends;
-- 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;
-- launch costs;
-- 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;
-- competition with low cost countries;
-- the Company's ability to shift its manufacturing footprint to take
advantage of opportunities in emerging markets;
-- risks of conducting business in foreign countries, including China,
Brazil and other growing markets;
-- potential tax exposure;
-- a change in the Company's mix of earnings between jurisdictions with
lower tax rates and those with higher tax rates, as well as under-
funding of pensions plans;
-- the cost of post-employment benefits;
-- impairment charges; and
-- cybersecurity threats.
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.
The common shares of Martinrea trade on The Toronto Stock Exchange under the symbol "MRE".
Martinrea International Inc.
Interim Condensed Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31,
Note 2017 2016
----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 52,465 $ 59,165
Trade and other receivables 2 520,105 568,445
Inventories 3 378,939 306,130
Prepaid expenses and deposits 17,149 14,758
Income taxes recoverable 15,459 9,786
Assets held for sale 4 17,622 -
----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,001,739 958,284
----------------------------------------------------------------------------
Property, plant and equipment 5 1,239,702 1,257,247
Deferred income tax assets 178,708 179,702
Intangible assets 6 67,979 73,261
Other assets 7 7,663 -
----------------------------------------------------------------------------
TOTAL NON-CURRENT ASSETS 1,494,052 1,510,210
----------------------------------------------------------------------------
TOTAL ASSETS $ 2,495,791 $ 2,468,494
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Trade and other payables 9 $ 720,104 $ 707,007
Provisions 10 5,349 6,689
Income taxes payable 37,117 18,622
Current portion of long-term debt 11 15,355 27,982
----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 777,925 760,300
----------------------------------------------------------------------------
Long-term debt 11 643,011 693,421
Pension and other post-retirement
benefits 71,184 66,863
Deferred income tax liabilities 95,344 118,234
----------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES 809,539 878,518
----------------------------------------------------------------------------
TOTAL LIABILITIES 1,587,464 1,638,818
----------------------------------------------------------------------------
EQUITY
Capital stock 13 710,794 710,510
Contributed surplus 42,689 42,660
Accumulated other comprehensive
income 80,278 117,048
Retained earnings (accumulated
deficit) 74,566 (40,020)
----------------------------------------------------------------------------
TOTAL EQUITY ATTRIBUTABLE TO
EQUITY HOLDERS OF THE COMPANY 908,327 830,198
Non-controlling interest - (522)
----------------------------------------------------------------------------
TOTAL EQUITY 908,327 829,676
----------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 2,495,791 $ 2,468,494
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contingencies (note 18)
Subsequent Events (notes 4, and 11)
See accompanying notes to the interim condensed consolidated financial
statements.
On behalf of the Board:
"Robert Wildeboer" Director
---------------------------------
"Scott Balfour" Director
---------------------------------
Martinrea International Inc.
Interim Condensed Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three
months months Nine months Nine months
ended ended ended ended
September September September September
Note 30, 2017 30, 2016 30, 2017 30, 2016
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SALES $ 838,535 $ 914,725 $ 2,811,857 $ 2,978,000
----------------------------------------------------------------------------
Cost of sales
(excluding
depreciation of
property, plant
and equipment) (690,629) (783,692) (2,348,953) (2,556,008)
Depreciation of
property, plant
and equipment
(production) (34,488) (31,335) (102,345) (94,254)
----------------------------------------------------------------------------
Total cost of
sales (725,117) (815,027) (2,451,298) (2,650,262)
----------------------------------------------------------------------------
GROSS MARGIN 113,418 99,698 360,559 327,738
----------------------------------------------------------------------------
Research and
development costs (6,745) (5,482) (19,997) (17,614)
Selling, general
and
administrative (53,864) (48,023) (159,002) (150,138)
Depreciation of
property, plant
and equipment
(non-production) (2,385) (2,165) (7,056) (6,469)
Amortization of
customer
contracts and
relationships (552) (587) (1,632) (1,710)
Gain on sale of
land and building 5 - - 5,698 -
Gain/(loss) on
disposal of
property, plant
and equipment 234 (47) 527 (76)
Impairment of
assets 8 - - - (34,579)
Restructuring
costs 10 - - - (3,684)
----------------------------------------------------------------------------
OPERATING INCOME 50,106 43,394 179,097 113,468
----------------------------------------------------------------------------
Finance expense (5,451) (6,018) (16,792) (18,112)
Other finance
income (expense) 15 1,715 770 2,458 (2,570)
----------------------------------------------------------------------------
INCOME BEFORE
INCOME TAXES 46,370 38,146 164,763 92,786
Income tax expense 12 (10,348) (9,319) (37,863) (31,455)
----------------------------------------------------------------------------
NET INCOME FOR THE
PERIOD $ 36,022 $ 28,827 $ 126,900 $ 61,331
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Non-controlling
interest 207 271 277 296
----------------------------------------------------------------------------
NET INCOME
ATTRIBUTABLE TO
EQUITY HOLDERS OF
THE COMPANY $ 36,229 $ 29,098 $ 127,177 $ 61,627
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per
share 14 $ 0.42 $ 0.34 $ 1.47 $ 0.71
Diluted earnings
per share 14 $ 0.42 $ 0.34 $ 1.47 $ 0.71
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim condensed consolidated financial
statements.
Martinrea International Inc.
Interim Condensed Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three
months months Nine months Nine months
ended ended ended ended
September September September September
30, 2017 30, 2016 30, 2017 30, 2016
----------------------------------------------------------------------------
NET INCOME FOR THE
PERIOD $ 36,022 $ 28,827 $ 126,900 $ 61,331
Other comprehensive
income (loss), net of
tax:
Items that may be
reclassified to net
income
Foreign currency
translation
differences for
foreign operations (27,752) 15,690 (40,106) (35,234)
Change in fair value of
available for sale
investments 3,336 - 3,336 -
Items that will not be
reclassified to net
income
Remeasurement of
defined benefit plans 775 (4,028) (2,954) (9,448)
----------------------------------------------------------------------------
Other comprehensive
income (loss), net of
tax (23,641) 11,662 (39,724) (44,682)
----------------------------------------------------------------------------
TOTAL COMPREHENSIVE
INCOME FOR THE PERIOD $ 12,381 $ 40,489 $ 87,176 $ 16,649
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
Equity holders of the
Company 12,588 40,760 87,453 16,945
Non-controlling
interest (207) (271) (277) (296)
----------------------------------------------------------------------------
TOTAL COMPREHENSIVE
INCOME FOR THE PERIOD $ 12,381 $ 40,489 $ 87,176 $ 16,649
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim condensed consolidated financial
statements.
Martinrea International Inc.
Interim Condensed Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equity attributable to equity holders of the
Company
---------------------------------------------
Other
Capital Contributed comprehensive
stock surplus income
----------------------------------------------------------------------------
Balance at
December 31,
2015 $ 709,396 $ 42,648 $ 147,442
----------------------------------------------------------------------------
Net income for
the period - - -
Compensation
expense related
to stock
options - 250 -
Dividends ($0.09
per share) - - -
Exercise of
employee stock
options 101 (29) -
Other
comprehensive
loss, net of
tax
-------------------------------
Remeasurement
of defined
benefit plans - - -
Foreign
currency
translation
differences - - (35,234)
----------------------------------------------------------------------------
Balance at
September 30,
2016 709,497 42,869 112,208
----------------------------------------------------------------------------
Net income for
the period - - -
Compensation
expense related
to stock
options - 83 -
Dividends ($0.03
per share) - - -
Exercise of
employee stock
options 1,013 (292) -
Other
comprehensive
income, net of
tax
-------------------------------
Remeasurement
of defined
benefit plans - - -
Foreign
currency
translation
differences - - 4,840
----------------------------------------------------------------------------
Balance at
December 31,
2016 710,510 42,660 117,048
----------------------------------------------------------------------------
Net income for
the period - - -
Change in non-
controlling
interest - - -
Compensation
expense related
to stock
options - 111 -
Dividends ($0.09
per share) - - -
Exercise of
employee stock
options 284 (82) -
Other
comprehensive
income (loss),
net of tax
-------------------------------
Remeasurement
of defined
benefit plans - - -
Foreign
currency
translation
differences - - (40,106)
Change in fair
value of
available for
sale
investments - - 3,336
----------------------------------------------------------------------------
Balance at
September 30,
2017 $ 710,794 $ 42,689 $ 80,278
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Martinrea International Inc.
Interim Condensed Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equity attributable to equity
holders of the Company
------------------------------
Retained
earnings/ Non-
(accumulated controlling Total
deficit) Total interest equity
----------------------------------------------------------------------------
Balance at
December 31,
2015 $ (123,157) $ 776,329 $ (103) $ 776,226
----------------------------------------------------------------------------
Net income for
the period 61,627 61,627 (296) 61,331
Compensation
expense related
to stock
options - 250 - 250
Dividends ($0.09
per share) (7,775) (7,775) - (7,775)
Exercise of
employee stock
options - 72 - 72
Other
comprehensive
loss, net of
tax
----------------
Remeasurement
of defined
benefit plans (9,448) (9,448) - (9,448)
Foreign
currency
translation
differences - (35,234) - (35,234)
----------------------------------------------------------------------------
Balance at
September 30,
2016 (78,753) 785,821 (399) 785,422
----------------------------------------------------------------------------
Net income for
the period 30,753 30,753 (123) 30,630
Compensation
expense related
to stock
options - 83 - 83
Dividends ($0.03
per share) (2,591) (2,591) - (2,591)
Exercise of
employee stock
options - 721 - 721
Other
comprehensive
income, net of
tax
----------------
Remeasurement
of defined
benefit plans 10,571 10,571 - 10,571
Foreign
currency
translation
differences - 4,840 - 4,840
----------------------------------------------------------------------------
Balance at
December 31,
2016 (40,020) 830,198 (522) 829,676
----------------------------------------------------------------------------
Net income for
the period 127,177 127,177 (277) 126,900
Change in non-
controlling
interest (1,849) (1,849) 799 (1,050)
Compensation
expense related
to stock
options - 111 - 111
Dividends ($0.09
per share) (7,788) (7,788) - (7,788)
Exercise of
employee stock
options - 202 - 202
Other
comprehensive
income (loss),
net of tax
----------------
Remeasurement
of defined
benefit plans (2,954) (2,954) - (2,954)
Foreign
currency
translation
differences - (40,106) - (40,106)
Change in fair
value of
available for
sale
investments - 3,336 - 3,336
----------------------------------------------------------------------------
Balance at
September 30,
2017 $ 74,566 $ 908,327 $ - $ 908,327
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim condensed consolidated financial
statements.
Martinrea International Inc.
Interim Condensed Consolidated Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three
months months Nine months Nine months
ended ended ended ended
September September September September
30, 2017 30, 2016 30, 2017 30, 2016
----------------------------------------------------------------------------
CASH PROVIDED BY (USED
IN):
OPERATING ACTIVITIES:
Net Income for the
period $ 36,022 $ 28,827 $ 126,900 $ 61,331
Adjustments for:
Depreciation of
property, plant and
equipment 36,873 33,500 109,401 100,723
Amortization of
customer contracts and
relationships 552 587 1,632 1,710
Amortization of
development costs 3,345 3,086 9,991 10,045
Impairment of assets
(note 8) - - - 34,579
Unrealized losses
(gains) on foreign
exchange forward
contracts 331 (772) 781 144
Unrealized gain on
derivative instruments
(note 7) (1,375) - (1,375) -
Finance expense 5,451 6,018 16,792 18,112
Income tax expense 10,348 9,319 37,863 31,455
Gain on sale of land
and building (note 5) - - (5,698) -
Loss (gain) on disposal
of property, plant and
equipment (234) 47 (527) 76
Deferred and restricted
share units expense 473 1 1,262 254
Stock options expense 37 84 111 250
Pension and other post-
retirement benefits
expense 1,137 1,183 3,429 3,450
Contributions made to
pension and other
post-retirement
benefits (473) (308) (1,449) (1,347)
----------------------------------------------------------------------------
92,487 81,572 299,113 260,782
Changes in non-cash
working capital items:
Trade and other
receivables 73,413 185 30,311 (65,961)
Inventories (48,863) (2,305) (85,615) 6,023
Prepaid expenses and
deposits 622 (693) (3,243) (1,513)
Trade, other payables
and provisions (42,659) 13,714 54,846 22,103
----------------------------------------------------------------------------
75,000 92,473 295,412 221,434
Interest paid
(excluding capitalized
interest) (4,797) (5,336) (14,761) (15,336)
Income taxes paid (10,597) (9,527) (43,254) (40,795)
----------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 59,606 $ 77,610 $ 237,397 $ 165,303
----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in long-term
debt - 66 - 88,876
Repayment of long-term
debt (4,608) (29,087) (39,198) (51,607)
Dividends paid (2,606) (2,591) (7,788) (7,774)
Exercise of employee
stock options - - 202 72
----------------------------------------------------------------------------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES $ (7,214) $ (31,612) $ (46,784) $ 29,567
----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property,
plant and equipment(i) (49,004) (61,981) (192,556) (164,942)
Capitalized development
costs (3,289) (3,342) (10,580) (9,653)
Proceeds on disposal of
property, plant and
equipment 705 125 1,330 370
Investment in
NanoXplore Inc.(note
7) (2,475) - (2,475) -
Proceeds on disposal of
land and building
(note 5) - - 9,872 -
Upfront recovery of
development costs
incurred - - 1,170 -
----------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES $ (54,063) $ (65,198) $ (193,239) $ (174,225)
----------------------------------------------------------------------------
Effect of foreign
exchange rate changes
on cash and cash
equivalents (3,007) 1,931 (4,074) (1,976)
----------------------------------------------------------------------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS (4,678) (17,269) (6,700) 18,669
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD 57,143 64,837 59,165 28,899
----------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD $ 52,465 $ 47,568 $ 52,465 $ 47,568
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i)As at September 30, 2017, $47,106 (December 31, 2016- $71,557) of
purchases of property, plant and equipment remain unpaid.
See accompanying notes to the interim condensed consolidated financial
statements
Contacts:
Fred Di Tosto
Chief Financial Officer
Martinrea International Inc.
Tel: (416) 749-0314
Fax: (289) 982-3001
