Martinrea International Inc.: Corporate Update
TORONTO, ONTARIO--(Marketwired - Dec 18, 2013) - Martinrea
International Inc. (TSX:MRE) a leader in the production of quality
metal parts, assemblies and modules and fluid management systems
focused primarily on the automotive sector, is providing an update
on several corporate related matters.
Update on
Litigation
The Martinrea defendants have completed their pleadings in the
Rea litigation. The other defendants in the litigation are in the
process of scheduling pleadings and other motions with the
plaintiff. The pleadings are publicly available. The Company's
position remains that the Rea claims are without merit, improperly
motivated and should be dismissed. It intends to pursue its
counterclaim seeking damages for abuse of process. As previously
disclosed, supervision of the litigation has been delegated to a
Special Committee of the Board. The next steps in the litigation
process are not expected to begin for several months. It is
anticipated that when the litigation action proceeds, ongoing time
required by management with respect to the litigation will not be
substantial as the Special Committee will continue to oversee it
and liaise with counsel and experts as necessary.
Mandate of Special
Committee
The Special Committee is comprised of Scott Balfour and Fred
Olson, both independent directors with significant business and
financial experience, as summarized in the Company's proxy
materials. The Special Committee is authorized to supervise the
investigation of the Rea allegations and review any other related
matters that it decides are advisable to review or as may be
further requested by the Board from time to time; to consider the
appropriateness of relevant accounting policies followed by the
Company and the adequacy of its internal controls; to instruct
legal counsel in respect of the litigation; to consider and make
recommendations to the Board as to any steps the Board should take
as a result of its activities; and to consider any other matters it
deems relevant.
Stikeman Elliott LLP is advising the Special Committee. Earl
Cherniak of Lerners LLP has also been retained by the Special
Committee as a special independent legal advisor. In addition, the
Special Committee has retained PricewaterhouseCoopers LLP as its
independent financial experts to provide such financial and
accounting advice and forensic services as the Special Committee
may deem appropriate. The Special Committee has the full
cooperation of management and complete access to corporate
information.
Corporate Governance
and Nomination Committee
The Company is committed to effective corporate governance that
results in good corporate performance. Its approach to corporate
governance is described in its proxy materials, which are available
on the Company's website and at www.sedar.com.
At the 2013 annual shareholders meeting, six directors were
elected to the Board, each with high approval rates. As a result of
a director recruitment process conducted in the first half of 2013
Scott Balfour was invited to serve as a director. Mr. Balfour
brings significant financial and operational experience to the
Board. The proxy materials also indicated that the Company would
add another independent director in the coming year.
In the most recent quarterly call, the Company indicated that it
plans to add two additional independent directors, with
automotive/industrial/business and financial/governance experience.
It also indicated that a new Corporate Governance and Nomination
Committee of the Board has been created comprised of Scott Balfour
and Fred Olson. The charter for the Committee includes board
nominee identification and the establishment and review of
governance policies. The Committee is actively considering director
candidates, although it may be prudent to wait to choose from a
full range of candidates once the Special Committee's initial work
is complete.
2013 Financial
Reporting
The Company has commenced preparations for the completion of its
2013 consolidated financial statements. Management has identified
an issue with the historical reporting of one of the Company's
Canadian plants and immediately notified the Board and its external
auditor KPMG. The review is not complete; however it appears at
this point that the plant misreported its financial statements over
a number of years dating back to 2005. The discrepancies identified
in the plant's financial statements appear to be rooted in the
tracking of production and tooling inventories.
The issue with the historical reporting of the plant in question
is not related to the Rea litigation. Rather, the discrepancies
were revealed as part of an ongoing review by Martinrea financial
management. However, the timing is such that the Board has asked
the Special Committee to add the review of this matter to its
mandate. Martinrea management is working with KPMG (its external
auditor) and PWC to complete the work necessary to fully address
the issue. Based on work to date, management does not anticipate
any effect on year-to-date reported net earnings for 2013, and it
is working to ascertain the adjustments to the consolidated
financial statements, if any, which may be required for years
previous. It is presently estimated by management that the net
income of the Company may have been overstated by $10 to $18
million in total, spread over the years 2005-2012, but the exact
figure will be determined after the completion of the analysis by
management, KPMG and PWC. It has not been determined whether
adjustments to the consolidated financial statements will be
material from an accounting perspective. While the work continues
in earnest to fully determine and quantify the impacts, the Board
has determined to make public the ongoing review and will disclose
the particulars of the review and the steps taken, if any, as a
result, once completed.
Operational and
Financial Update
The Company provided an update on the Company's operations and
financial position with the release of its third quarter financial
statements, and gave earnings guidance for the fourth quarter of
2013. Since the release of those financial statements, several
events have taken place which will impact earnings for the fourth
quarter.
Some of the litigation costs are not covered by insurance. For
the most part these costs were not factored into the original
earnings guidance for the quarter.
While the vast majority of the Company's plants are performing
according to the fourth quarter forecast, the Company has been
experiencing operational issues at its Hopkinsville plant, as it
deals with new program launches, copes with customer-requested
engineering changes which are impacting productivity and continues
to deal with the overall ramp-up in production volumes being
experienced in the automotive industry. This has resulted in
incremental premium costs in the form of expedited freight,
overtime, increased manpower, higher scrap levels, sorting and
rework costs, launch related inefficiencies and other costs. In
addition, Hopkinsville has again experienced serious equipment
failures on two of its large tonnage presses. The presses are
operational again but are not yet performing at optimal levels.
This has resulted in the outsourcing of dies and further delays in
the planned insourcing of dies. The Company is looking at a
year-end write-down of assets for that plant. Consistent with its
decentralized structure, the Company assesses the recoverability of
asset values on a plant-by-plant basis. In accordance with the
Company's accounting policies, assets can only be written down and
not up above the original cost base. The Company believes the
carrying value of its overall assets as shown on its financial
statements is well below replacement cost.
As previously indicated, the Company anticipated some
restructuring costs at its Martinrea Honsel operations in Germany
in the fourth quarter of 2013, as the Company continued to adjust
the size of the workforce and experience severance costs. It
appears that such costs will be lower than previously anticipated
for the fourth quarter and for the year in general.
The Company anticipates that net earnings for the fourth quarter
will be negatively impacted by these unusual items and expenses and
will likely fall short of previously provided earnings guidance for
the quarter. The Company remains focused on its operations and
their financial performance. Most plants are either meeting or
exceeding expectations. Next year is anticipated to be another
record year from a financial perspective.
The Company also announced that it has recently closed a $50
million equipment based financing with GE Capital to finance
equipment purchases. Proceeds will be applied to equipment
financing and the reduction of the Company's operating lines.
Rob Wildeboer, the Company's Executive Chairman, stated: "After
consecutive record quarters from a financial and performance
perspective, we are dealing with some legal and operational issues.
We have faced many challenges over the years as we grew this
company from scratch, and have always met every challenge head on
with conviction and a desire to do the right thing for all our
stakeholders. We will do the same here. We have a great team, doing
great things, and we remain singularly focused on being the best in
the world at what we do. Our prospects remain excellent. I am
pleased to announce that since September 30, 2013, we have been
awarded new or replacement product mandates from multiple
customers, including Ford, GM and Chrysler. Notwithstanding the
above noted challenges, we are still looking at a record year in
2013, with even better years ahead."
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 as to: the success of the Rea litigation and impact on
operations; the addition of new independent directors; the size,
materiality, impact on earnings or otherwise and the cause of
discrepancies in the financial statements at one of the Company's
plants, and the disclosure of the details of the review; the impact
on net earnings as a result of unusual items and expenses for the
fourth quarter; the expectations as to the Company's performance
for 2013 and future years; the financial impact of the Rea
litigation on earnings; operational issues and the write down of
assets at its Hopkinsville plant; restructuring costs at the
Martinrea Honsel operations in Germany; 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 risk factors discussed in detail
in the Company's Annual Information Form dated March 20, 2013 and
other public filings which can be found at www.sedar.com.
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.Rob WildeboerExecutive Chairman(416)
749-0314(289) 982-3001
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