Martinrea International Inc.-Releases December 31, 2004 Annual Results: Growing an International Automotive Parts Manufacturer

TORONTO--March 14, 2005--Martinrea International Inc.,(TSX:MRE) a leader in the production of quality metal parts, assemblies and modules and fluid management systems focused primarily on the automotive sector, announced today the release of its financial results for the fiscal year ended December 31, 2004 and its fourth quarter ended December 31, 2004.

Revenues for the year ended December 31, 2004 totaled $582.7 million as compared to $608.1 million for the year ended December 31, 2003. Revenues in the year have decreased by $25.4 million from the prior year comparable due to lower prototype and tooling revenues. Tooling revenues totaled $32.4 million in 2004 as compared to $57.4 million in 2003. The reduction in tooling revenue is attributable to the number and nature of programs launched in the previous year versus the current year. The appreciation of the Canadian dollar versus the U.S. dollar also impacted sales by approximately $18.5 million. These factors were offset in part by increased production revenues pertaining primarily to the Daimler Chrysler new LX program (300C, Magnum), a full year production of the Ford V229 program (Freestar), a full year production of the Company's participation in GM's GMT800 pick-up program (Silverado, Sierra), the launch of GM's GMX365/367 program (W-car), metallic takeover business and other new programs.

The Company's revenues for the fourth quarter of 2004 of $149.9 million were $22.8 million lower than the fourth quarter of 2003 of $172.7 million. The reduction in revenues is primarily due to lower tooling sales of $15.9 million versus the prior year, and the appreciation of the Canadian dollar versus the U.S. dollar that impacted the translation of the Company's US dollar denominated revenues. The Company's revenues for the fourth quarter of 2004 exceeded third quarter of 2004 revenues of $125.3 million by $24.6 million primarily due to higher vehicle production by the Company's customers.

Gross margin percentage for the year ended December 31, 2004 was 16.1% as compared to 15.2% for the year ended December 31, 2003. The overall increase in gross margin percentage was due to productivity improvements and lower launch costs. These improvements have been offset in part by lower production levels, continuing price reductions to automotive customers and steel surcharges on part of the Company's steel purchases not on customer steel resale programs. The Company has not been able to offset the price reductions to customers or the steel surcharges in their entirety. At the current time approximately 25% of the Company's steel purchases are subject to steel surcharges. The Company has been successfully negotiating price increases with many customers not on steel resale programs in order to reduce the Company's exposure to existing material increases.

Gross margin percentage for the fourth quarter ended December 31, 2004 was 16.6% as compared to 13.9% in the fourth quarter ended December 31, 2003. The increase in gross margin from the prior year is attributable to lower launch costs in the current year. The Company anticipates continued gross margin improvement over time as sales volumes increase and new incremental programs continue to fill available production capacity. The improvement of gross margin is evident from a comparison of the fourth quarter of 2004 gross margin of 16.6% versus 15.9% in the third quarter of 2004.

Net earnings for the year ended December 31, 2004 were approximately $11.0 million versus a $15.4 million result for the year ended December 31, 2003. The earnings per share for the year was $0.20 ($0.19 on a diluted basis) as compared to the prior year of $0.28 ($0.27 on a diluted basis). Net earnings for the year ended December 31, 2004 were lower than the prior year comparable even though a gross margin percentage increase occurred. The decline in profitability versus the prior year is attributable to foreign exchange gains of $1.9 million after tax realized in the prior year that did not reoccur in 2004, higher engineering costs related to an increase in the number of engineers in the Company's Detroit metal forming engineering centre of approximately $0.6 million after tax and the remainder is attributable to higher amortization on production ready assets in 2004, where capacity was not fully utilized.

Net earnings for the quarter ended December 31, 2004 were approximately $2.2 million or $0.04 per share ($0.03 on a diluted basis) versus a similar result of $2.3 million, (or $0.04 per share on a basic and diluted basis) for the quarter ended December 31, 2003. The reduction of net earnings resulting from lower revenues in the fourth quarter of 2004 versus the fourth quarter of 2003 was primarily offset by improved gross margins.

Net earnings for the fourth quarter ended December 31, 2004 of $2.2 million was $1.2 million higher than the third quarter of 2004 net earnings of $1.0 million. The benefit of improved gross margin in the fourth quarter of 2004 versus the third quarter of 2004 was offset in part by write downs of redundant assets totaling $0.7 million after tax resulting from the closure of the Company's Claireville location in 2004 and a year-end adjustment of $0.3 million after tax to reflect the adoption of a new accounting standard that impacts upon the recognition of rent expense on leased premises. Net earnings in the fourth quarter of 2004 were also impacted by foreign exchange fluctuations. The Company's changing product mix from new launches and the growing profitability of the Company's foreign operations have created a scenario where net earnings is now impacted by foreign exchange fluctuations. In the fourth quarter of 2004 net earnings were reduced by $0.6 million as a result of the appreciation of the Canadian dollar versus US dollar during the fourth quarter of 2004.

Fred Jaekel, Martinrea's President and Chief Executive Officer, stated: "Although the 2004 fiscal year has been challenging given the difficulties of the automotive sector, Martinrea has established some momentum with our customers and our people geared to achieving prudent, profitable growth. We ended 2004 with an improved quarter from an earnings perspective from the previous quarter, and our fourth quarter revenues were higher than we anticipated at the end of our third quarter. I think this is a good basis for an improved 2005."

Mr. Jaekel added: "I am very pleased with the progress in our operations. We are improving our people and processes division by division, consistently. We need to continuously improve to take advantage of the many opportunities in our business, in order to satisfy the needs of our customers. We are building our reputation with our customers, and they are rewarding us with opportunities for new work and for takeover business. As previously announced, we acquired a metal forming plant in Corydon, Indiana, our first such facility in the United States, a very good strategic move that was supported by one of our largest customers, General Motors. The fact that such a move can be taken with strong customer support strengthens my view that Martinrea is becoming a supplier of choice for our customers. I am also encouraged by our technology related opportunities. We are improving many of our manufacturing processes with technology developed both in house and obtained for our use. We are working with innovative coatings, improved product components and better processes. Our recently announced initiative with Hy Drive Technologies is also very exciting to us, as we apply our expertise to developing a hydrogen generating system for the automotive market. The Hy Drive hydrogen generating system is in my view one of the best solutions to air pollution on the market today and has high potential to help our customers meet their objectives to develop more fuel efficient and environmentally friendly vehicles. The industry needs strong suppliers, which are focused on being innovative, lean, efficient and financially healthy. We have become such a supplier, and that is going to become more evident this year and next."

Nick Orlando, Martinrea's Executive Vice-President and Chief Financial Officer, stated: "In 2004 the Company has taken many positive steps to ensure the long-term profitability and strengthening of financial resources that will allow the Company to grow in the future despite a very competitive business environment. Revenues will continue to grow as the Company launches new products and gross margin which has improved to 16.6% in the fourth quarter of 2004 will continue to rise as the Company fills capacity. In the fourth quarter of 2004 bank indebtedness declined and long-term debt is being repaid as a result of improving cash flow from operations and improved working capital management. Capital expenditures in 2005 will range from $24 to $28 million and any new capital commitments will be limited to new incremental programs. The major investments on manufacturing infrastructure in the last three years are beginning to yield returns. These are clear signals of a growing financial maturity. This improving financial position will give the Company the opportunity to consider new business opportunities that many of our heavily indebted competitors will not be able to undertake."

Nick Orlando added: "In the first quarter of 2005, the Company estimates that revenues will range from $146 million to $155 million and will exceed revenues of $145 million from the first quarter of 2004. Revenues will remain stable in the first quarter of 2005 despite the lower vehicle production by our customers, price reductions to customers and the reduction of revenues from the translation of US dollar revenues as a result of the strengthening Canadian dollar. The Company has been able to increase revenues through metallic takeover work that was won during the last three months and new work launched in the third quarter of 2004. The Company expects revenues to continue increasing given the launch of three new programs in the third quarter of 2005 that together account for $74 million on an annualized basis once full production is achieved. The programs are the metal gas tank for the Ford Fusion that amounts to revenues of $36 million, the hydroformed engine cradle for GM's Buick Lucerne and Cadillac DTS that amounts to $22 million and the fuel and brake lines for GM's new Impala that amounts to $16 million. Revenues will also increase in the three remaining quarters of 2005 due to the acquisition of the Company's first metal forming facility in the United States that was purchased on February 17, 2005. Revenues from the new facility should exceed $US 40 million in 2005. The incremental business discussed above will be accretive to net earnings. The Company expects gross margin to increase from 16.6% in the fourth quarter of 2004 to approximately 17% in the first quarter of 2005. The improving gross margin is attributable to lower launch costs, the benefits of integrating operations in 2004 and production efficiencies. The Company estimates that basic earnings per share will range from $0.08 per share to $0.10 per share in the first quarter of 2005."

Rob Wildeboer, Martinrea's Chairman, stated: "We are much stronger as a company than we were a year ago. We have over 3,300 employees now, and they are our greatest strength. They are consistently improving, and improving our company in the process, and we at Martinrea can feel the momentum and the spirit of the Company growing. Over the past three years, we have been extremely focused on implementing an entrepreneurial and decentralized structure over a range of predecessor organizations, and that takes a lot of time and work, but the ultimate result is that the Company becomes very much less dependent on any individual and stronger as a firm. Our entrepreneurial spirit is I believe making us stronger than many of our competitors in a very difficult environment. Despite the challenges of the industry, we have achieved some significant highlights in 2004 and 2005 to date, which in addition to our financial results include the following:

- The Company's book of business has increased. Many program awards previously announced have yet to come into production, but in addition to those programs, which include the GMT 222/272 hydroformed engine cradle, the Ford CD338 tank and the GMT 900 fuel and brake lines, the Company has won significant new takeover business and the business associated with the acquisition of a new plant in Corydon Indiana. Based on anticipated production volumes, revenues in 2005 will significantly exceed those in 2004.

- The Company's 2004 launches went smoothly and programs to be launched in 2005 and 2006 are proceeding smoothly.

- The Company has continued to rationalize its production capacity and facilities. Significant capital expenditures have given the Company some state of the art production facilities and product lines, particularly in its Atlas Fluid Systems group and its Hydroform Solutions facility. State of the art facilities give the Company competitive advantage and the ability to improve productivity. In 2003 two fluid systems plants were closed in Michigan and the Company sold its Claireville facility in 2004; meanwhile, the Company has added a facility to its Atlas Fluid Systems group (now two facilities), leased an additional facility close to its Alfield metal forming plant to handle extra production, and purchased a metal forming facility in Indiana, all representing future growth.

We look forward to many highlights in the coming year."

The Company also indicated that its annual meeting would again be held at its own facilities at Hydroform Solutions in May, giving its shareholders the opportunity to see improvements at the facility and meet with management in the plant.

The Company further stated that Erich Genseberger, formerly the Chief Operating Officer, has departed the Company. The Company indicated it has no present intention to fill this position.

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

A conference call to discuss those results will be held on Tuesday March 15, 2005 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 405-9328 or toll free (866) 387-6216. Please call 10 minutes prior to the start of the conference all. There will also be a rebroadcast of the call available by dialing (416) 695-5800 or toll free number (800) 408-3053 (conference id - 3143968#). The rebroadcast will be available until Friday March 25, 2005.

This press release contains forward-looking statements based on assumptions, uncertainties and management's best estimates of future events. When used herein, words such as "intend" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on assumptions by and information available to the Company. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include such risks and factors as are detailed from time to time in the Company's periodic reports filed with the Ontario Securities Commission and other regulatory authorities. Actual results may differ materially from those currently anticipated. The Company has no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


MARTINREA INTERNATIONAL INC.
Consolidated Balance Sheets

As at December 31, 2004 with comparative figures for December 31,
2003
(in thousands of dollars)

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                                               2004             2003
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Assets

Current assets:
 Accounts receivable                         84,695          102,923
 Other receivables                            5,709            7,893
 Income taxes recoverable                     2,756            6,570
 Inventories (note 2)                        40,949           49,980
 Prepaid expenses and deposits                7,804            4,388
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                                            141,913          171,754

Future income tax asset (note 7)             19,132           18,560
Capital assets (note 3 and 6)               218,576          212,388
Goodwill (note 1(g))                        230,558          230,558
Intangible assets (note 1(h) and 4)          27,496           30,958

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                                          $ 637,675        $ 664,218
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Liabilities and Shareholders' Equity
Current liabilities:
 Bank indebtedness (note 5)                $ 10,525         $ 16,567
 Accounts payable and accrued liabilities    88,089          110,674
 Current portion of long-term debt
  (note 6)                                   15,362           15,967
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                                            113,976          143,208

Long-term debt (note 6)                      55,327           62,437

Future income tax liability (note 7)         18,563           15,500

Non-controlling interest                        698              400

Shareholders' equity:
 Share capital (note 8)                     444,047          444,014
 Notes receivable for share capital
  (note 8)                                  (15,750)         (15,750)
 Contributed Surplus (note 9)                19,668                -
 Cumulative translation adjustment          (10,974)          (6,254)
 Retained earnings                           12,120           20,663
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                                            449,111          442,673
Guarantees and Commitments (note 14)
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                                          $ 637,675        $ 664,218
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See accompanying notes to the consolidated financial statements.
 On behalf of the Board:

"Fred Jaekel"         Director
"Robert Wildeboer"    Director



MARTINREA INTERNATIONAL INC.
Consolidated Statements of Operations

For the years ended December 31, 2004 and 2003
(in thousands of dollars - except per share amounts)

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                                               2004             2003
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Sales                                     $ 582,744        $ 608,139

Cost of sales                               488,672          515,449
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Gross profit                                 94,072           92,690

Expenses:
 Selling, administrative and general         43,555           42,571
 Foreign exchange                               256           (2,658)
 Amortization - capital assets (note 3)      23,093           18,043
 Amortization - intangible assets (note 4)    3,462            3,462
 Interest on long term debt                   4,848            5,182
 Other interest expense (income), net         1,042              884
 Loss on disposal of capital assets             168              670
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                                             76,424           68,154
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Earnings before income taxes and
 non-controlling interest                    17,648           24,536

Income taxes (note 7)
 Current                                      3,896              732
 Future                                       2,491            8,464
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                                              6,387            9,196

Earnings before non-controlling interest     11,261           15,340

Non-controlling interest                        298              (67)
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Net earnings                               $ 10,963         $ 15,407
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Earnings per common share (note 10)

 Basic                                       $ 0.20           $ 0.28
 Diluted                                     $ 0.19           $ 0.27

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Retained earnings, beginning of year       $ 20,663          $ 5,256

Adjustment to reflect change in
 accounting for stock-based
 compensation (notes 1(i) and 9)            (19,506)               -
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Retained earnings as restated,
 beginning of year                            1,157            5,256

Net earnings                                 10,963           15,407

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Retained earnings, end of year             $ 12,120         $ 20,663
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See accompanying notes to the consolidated financial statements.



MARTINREA INTERNATIONAL INC.
Consolidated Statements of Cash Flows

For the years ended December 31, 2004 and 2003
(in thousands of dollars)

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                                               2004             2003
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Cash provided by (used in):

Operating activities:
 Net earnings                              $ 10,963         $ 15,407
 Items not requiring cash:
  Amortization - capital assets (note 3)     23,093           18,043
  Amortization - intangible assets (note 4)   3,462            3,462
  Future income taxes                         2,491            8,464
  Non-controlling interest                      298              (67)
  Loss on disposal of capital assets            168              670
  Stock-based compensation                      162                -
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                                             40,637           45,979
 Changes in non-cash working capital
  items:
  Accounts and other receivables             20,412          (41,266)
  Accounts payable and accrued liabilities  (22,585)           3,321
  Income taxes recoverable                    3,814              777
  Inventories                                 9,031            6,902
  Prepaid expenses and deposits              (3,416)             (88)
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                                             47,893           15,625
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Financing activities:
 Issue of share capital (net of issue costs)     33              427
 Increase in long-term debt                  15,792           63,662
 Repayment of long-term debt                (23,319)         (61,299)
 Increase/(decrease) in bank indebtedness    (6,042)          16,567
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                                            (13,536)          19,357
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Investing activities:
 Purchase of capital assets                 (37,798)         (55,487)
 Proceeds on disposal of capital assets       5,039            5,253
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                                            (32,759)         (50,234)
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Effect of exchange rate changes on
 cash and cash equivalents                   (1,598)          (5,453)
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Decrease in cash and cash equivalents             -          (20,705)

Cash and cash equivalents, beginning
 of year                                          -           20,705

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Cash and cash equivalents, end of year          $ -              $ -
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Supplemental cash flow information:
 Cash paid for interest, net                $ 5,890          $ 6,059
 Cash paid (refunded) for income taxes          571           (2,268)

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See accompanying notes to the consolidated financial statements.



MARTINREA INTERNATIONAL INC.
Notes to Consolidated Financial Statements

For the years ended December 31, 2004 and 2003
(in thousands of dollars)

The Company was incorporated under the Ontario Business Corporations Act on February 10, 1987. It designs, engineers, manufactures and sells quality metal parts, assemblies and fluid management systems and is focused on the automotive sector.

Note 1: Summary of significant accounting policies:

(a) Basis of Presentation:

The consolidated financial statements of Martinrea International Inc. ("Martinrea") have been prepared in accordance with Canadian generally accepted accounting principles.

(b) Principles of consolidation:

These consolidated financial statements include the accounts of the Company and those of its subsidiaries. The results of subsidiaries are consolidated from their respective dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation.

(c) Revenue recognition:

Revenue from the sale of manufactured products is recognized when measurable, upon shipment to, or receipt by customers (depending on contractual terms) and acceptance by customers. Appropriate provisions are made to reflect all related risks and rewards pertaining to such transactions. Revenue from fixed tooling contracts is recognized using the completed contract method.

(d) Inventories:

Inventories are valued at the lower of cost and replacement cost for raw materials, and lower of cost and net realizable value for work in progress, tooling work in progress and finished goods, with cost being determined substantially on a first-in, first-out basis. In determining the net realizable value, the Company considers factors such as yield, turnover, expected future demand and past experience. Cost includes the cost of materials plus direct labour and the applicable share of manufacturing overhead, excluding the amortization of manufacturing and stamping equipment.

(e) Capital assets:

Capital assets are recorded at cost net of related investment tax credits, less accumulated amortization. Interest costs relating to major capital expenditures are capitalized when interest costs are incurred before the capital asset is placed into productive use. Amortization is provided for over the estimated useful lives of the capital assets at the following rates and bases:


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                                     Basis                       Rate
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Building and improvements            Declining balance             4%
Leasehold improvements               Straight line         Lease term
Manufacturing equipment              Declining balance            15%
Stamping equipment                   Straight line              7-10%
Tooling and fixtures                 Straight line    Life of program
Motor and delivery vehicles          Declining balance            30%
Office and computer equipment        Declining balance            20%
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Amortization of construction in progress does not commence until the related assets are placed into productive use.

Capital assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

(f) Research and development costs:

Research costs, including costs of market research and new product prototyping during the marketing stage, are expensed in the year in which they are incurred. Development costs are expensed in the year incurred, unless such costs meet the criteria under Canadian generally accepted accounting principles for deferral and amortization. No amounts have been capitalized in the past two years.

(g) Goodwill

Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, less liabilities assumed, based on their fair values. Goodwill is allocated as of the date of the business combination to the Company's reporting units that are expected to benefit from the synergies of the business combination. Goodwill is not amortized and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case the implied fair value of the reporting unit's goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determined in a business combination described above by allocating the fair value of the reporting unit in a manner similar to a purchase allocation. When the carrying amount of reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess and is presented as a separate line item in the statement of earnings before extraordinary items and discontinued operations. The Company completed the annual impairment assessment and no impairment loss has been recorded in the year ended December 31, 2004.

(h) Intangible assets

The Company's intangible assets are comprised of customer contracts acquired in acquisitions and have a definite life. The Company regularly evaluates existing intangible assets including estimates of remaining useful lives.

Customer contracts are amortized over their estimated economic life of approximately 10 years on a pro-rata basis consistent with the relative contract value initially established.

(i) Stock based compensation

In October 2003, the Canadian Institute of Chartered Accountants amended Section 3870 "Stock-based compensation and Other Stock-based Payments", requiring the use of the fair value-based method to account for employee stock options beginning January 1, 2004. Under the fair value method, compensation cost is measured at the fair value at the date of grant and is expensed over the award's vesting period. In accordance with one of the transitional options under amended Section 3870, the Company has retroactively applied the fair value based method to all employee stock options granted on or after January 1, 2002. Prior periods have not been restated and an adjustment was made to the opening balance of retained earnings in the current period to reflect the cumulative effect of the change on prior periods. The effect of retroactively adopting the fair value based method is to decrease retained earnings by $19,506 and to increase contributed surplus by $19,506 as at December 31, 2003. Compensation expense in 2004 amounted to $162, relating primarily to the amortization of options previously granted.

(j) Foreign currency translation:

The monetary assets and liabilities of the Company which are denominated in foreign currencies are translated at the year end exchange rate. Revenues and expenses denominated in foreign currencies are translated at rates of exchange prevailing on transaction dates, with any exchange gain or loss being recorded in current earnings. The accounts of the Company's self-sustaining foreign subsidiaries are translated using the current rate method, whereby assets and liabilities are translated using the year-end exchange rates and revenues and expenses are translated at average exchange rates for the year. The resulting unrealized exchange gains and losses are deferred and recorded as a separate component of shareholders' equity.

(k) Financial instruments:

The Company utilizes certain financial instruments, principally interest rate swap contracts and forward currency exchange contracts to manage the risk associated with fluctuations in interest rates and currency exchange rates. The Company's policy is not to utilize financial instruments for trading or speculative purposes. Interest rate swap contracts are used to reduce the impact of fluctuating interest rates on the Company's long-term debt. These swap agreements require the periodic exchange of payments without the exchange of the notional principal amount on which the payments are based. Forward currency exchange contracts are used to reduce the impact of fluctuating exchange rates on the Company's purchases of materials and equipment.

Payments and receipts under interest rate swap contracts are recognized as adjustments to interest expense on long-term debt. Gains and losses on forward foreign exchange contracts are reflected in the consolidated financial statements in the same period as the hedged item. In the event that a hedged item is sold or cancelled prior to the termination of the related hedging item, any unrealized gain or loss on the hedging item is immediately recognized in income.

(l) Future income taxes:

The Company applies the asset and liability method whereby future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax laws and rates is recognized in income in the period that includes the enactment date.

The ultimate realization of future income tax assets is dependent upon the generation of future taxable income during the period in which the temporary differences and loss carryforwards become deductible. Future tax assets are evaluated and if their realizability is not "more likely than not", a valuation allowance is provided.

(m) Earnings per share:

Basic earnings per share are computed by dividing net earnings by the weighted average number of shares outstanding during the reporting period. Diluted earnings per share are computed similar to basic earnings per share, except that the weighted average number of shares outstanding are increased to include additional shares from the assumed exercise of stock options and warrants, if dilutive. The number of additional shares are calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the reporting period.

(n) Use of estimates:

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates and assumptions. Significant areas requiring the use of management estimates include the net realizable values of inventories, the fair value of goodwill and the determination of impairment thereon, the economic lives of intangible assets, recoverability of future income tax assets, the determination of fair values of financial instruments, as well as the determination of stock based compensation.

(o) Hedging relationships

In November 2001, the CICA issued Accounting Guideline 13, "Hedging Relationships" ("AcG 13"). AcG 13 established new criteria for hedge accounting effective for the Company's 2004 fiscal year. The Company reassessed all hedging relationships to determine whether the criteria were met and has applied the new guidance on a prospective basis. To qualify for hedge accounting, the hedging relationship must be appropriately documented at the inception of the hedge and there must be reasonable assurance, both at the inception and throughout the term of the hedge, that the hedging relationship will be effective. Effectiveness requires a high degree of correlation of changes in fair values or cash flows between the hedged item and the hedge. Management has documented these hedge relationships where applicable in accordance with the guidance commencing January 1, 2004.

(p) Asset retirement obligations

Effective January 1, 2004, the Company adopted the new CICA accounting standard for asset retirement obligations ("Section 3110"). The standard addressed the recognition and measurement of legal obligations associated with the retirement of property and equipment when those obligations result from the acquisitions, construction, development or normal operation of the asset. This standard is effective on a retroactive basis with restatement of prior periods. The standard requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value is added to the carrying amount of the associated asset. Following the initial recognition of an asset retirement obligation, the carrying amount of the obligation is increased for the passage of time and adjusted for revisions to the amount or timing of the underlying cash flows needed to settle the obligation. The cost is amortized into income subsequently on the same basis as the related asset. The impact of the adoption of this new standard in the year ended December 31, 2004 is not significant to the Company's financial statements.

(q) Guarantees

Effective for the year ended December 31, 2004, the Company adopted Accounting Guideline 14, "Disclosure of Guarantees", issued by the CICA in February 2003. This guideline expands on previously issued accounting guidance and requires additional disclosure by a guarantor in its financial statements. This guideline defines a guarantee to be a contract (including indemnity) that contingently requires the Company to make payments to the guaranteed party based on: (i) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, liability or an equity security of the counterparty, (ii) failure of another party to perform under an obligating agreement or (iii) failure of a third party to pay indebtedness when due. See note 14.

(r) Generally Accepted Accounting Principles

Effective January 1, 2004, the CICA issued Handbook Section 1100, "Generally Accepted Accounting Principles" ("GAAP"). The recommendations in this section clarify the hierarchy of GAAP and codify the sources of GAAP to more clearly establish the authority of GAAP outside the CICA Handbook. As a result, the Company changed its method of recording rental expense relating to its leased properties.

The Company has adopted the straight-line method of recognizing rental expense whereby the total amount of rental expense to be paid for all leases is accounted for on a straight-line basis over the term of the related leases. Previously the Company recorded the rental expense as it was paid. The difference between the rental expense recognized and the amount contractually due under the lease agreements is set up as a liability. The Company included an additional $500 in rental expense for the year ended December 31, 2004 as a result of this new policy.

(s) Prior period comparatives:

Certain prior period comparatives have been reclassified to conform with the basis of presentation adopted in the current year.


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Note 2: Inventories
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                                                       2004      2003
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Raw materials                                      $ 18,160  $ 22,939
Work in progress                                      8,590     7,852
Finished goods                                        8,539    10,113
Tooling work in progress                              5,660     9,076

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                                                   $ 40,949  $ 49,980
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Note 3: Capital assets

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At December 31, 2004:                           Accumulated  Net book
                                         Cost  Amortization     Value
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Land                                  $ 8,228           $ -   $ 8,228
Buildings and improvements             40,673         7,598    33,075
Leasehold improvements                 11,198         4,127     7,071
Manufacturing equipment               213,251        99,613   113,638
Metal forming equipment                35,795         6,200    29,595
Tooling and fixtures                   14,812         5,162     9,650
Motor and delivery vehicles             1,389         1,177       212
Office and computer equipment          16,189        12,023     4,166
Construction in progress               12,941             -    12,941

---------------------------------------------------------------------
                                    $ 354,476     $ 135,900 $ 218,576
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
At December 31, 2003:                           Accumulated  Net book
                                         Cost  Amortization     Value
---------------------------------------------------------------------

Land                                  $ 9,069           $ -   $ 9,069
Buildings and improvements             44,524         7,992    36,532
Leasehold improvements                  8,487         3,426     5,061
Manufacturing equipment               196,299        90,785   105,514
Stamping equipment                     33,679         4,104    29,575
Tooling and fixtures                   12,996         4,188     8,808
Motor and delivery vehicles             1,398         1,203       195
Office and computer equipment          16,550        10,864     5,686
Construction in progress               11,948             -    11,948

---------------------------------------------------------------------
                                    $ 334,950     $ 122,562 $ 212,388
---------------------------------------------------------------------
---------------------------------------------------------------------

Assets included in construction in progress are expected to be placed
 into productive use during 2005. Construction in progress consists
 of equipment under construction of $12,941 (2003 - $11,948).

Note 4: Intangible Assets

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

                                                     2004       2003
---------------------------------------------------------------------

Customer contracts                               $ 34,620   $ 34,620
Accumulated amortization                            7,124      3,662

---------------------------------------------------------------------
                                                 $ 27,496   $ 30,958
---------------------------------------------------------------------
---------------------------------------------------------------------

Note 5: Bank Indebtedness

The Company has available a $50 million operating line of credit, with an interest rate ranging from bankers acceptance plus 1.5% to 2.5% on Canadian dollar amounts, and prime to prime plus 1.5% on U.S. dollar amounts, depending on the Company's funded debt to earnings before interest, taxes, and amortization ratio. The operating line of credit also entails registered general security agreements and a first charge on the assets of the Company. The indenture requires the maintenance of certain financial ratios.

The $50 million line of credit is comprised of a $38 million revolving credit line, a $5 million Canadian dollar swing line, and a $5 million USD swing line.


Note 6: Long-term debt
---------------------------------------------------------------------
---------------------------------------------------------------------

                                                       2004      2003
---------------------------------------------------------------------
Three year commercial term loan secured by a
 registered general security agreement and a first
 charge on the assets of all the Company's material
 subsidiaries, with interest payable at a fixed rate
 of 5.67% (2003 - 5.17%) on $24,375 (2003 - $30,000)
 and at a floating rate of bankers acceptance (BA)
 plus 1.5% to 2.5% on Canadian dollar amounts, and
 prime to prime plus 1.5% on U.S. dollar amounts on
 the remaining amount. The floating rate varies
 depending on the Company's funded debt to earnings
 before interest, taxes, and amortization ratio. As
 at December 31, 2004, the floating rate was at
 4.62% (2003 - 4.2%). The actual rate payable will be
 dependent upon certain financial ratios. On August
 14, 2004, the Company amended its original credit
 agreement dated June 27, 2003. Under the amended
 agreement, the three year commercial term loan was
 reduced by $10 million, with a corresponding
 increase in the Company's line of credit.
 Commencing September 30, 2004, equal quarterly
 payments were reduced to $2,000 from $3,750, with
 full repayment of all outstanding amounts on the
 maturity date of June 30, 2006. The term loan
 requires the maintenance of certain financial
 ratios.                                           $ 42,000  $ 60,000

Fixed rate equipment loans with interest thereon
 payable monthly with fixed rates ranging from
 4.5% to 8% per annum, payable in aggregate
 monthly payments of $126 (principal and
 interest) and maturing April 2005 to August
 2007. These loans are secured by the underlying
 equipment.                                           1,085     2,745

US dollar equipment loans in the amount of $309 US
 with interest thereon payable monthly with fixed
 rates of 4.5% per annum, payable in aggregate
 monthly payments of $15 US (principal and
 interest), and maturing in June 2006. These loans
 are secured by the underlying equipment.               372       693

US dollar equipment loans in the amount of $5,884
 US with semi annual principal and interest
 payments, fixed rates of 5.8% to 6.2% per annum,
 payable in aggregate semi-annual principle
 payments of $654 US, maturing from January 2005
 to May 2009. These loans are secured by the
 underlying equipment.                                7,442     9,325

Note payable on the purchase of SCS International
 Inc. with interest thereon payable annually at
 3% per annum and semi-annual payments of $500 to
 July 2005.                                           1,000     2,000

Four to seven year equipment loans with interest
 thereon payable monthly at a floating rate of BA
 plus 2.25%, with a one-time option to fix the
 variable rate, and maturing from March 2009 to
 April 2011. Interest on advances made before
 commencement of the loan is calculated at prime
 plus 1.75%. The actual rate payable will be
 dependent upon certain financial rates. These
 loans are secured by the underlying equipment.      18,790     3,641
---------------------------------------------------------------------
                                                     70,689    78,404

Less current portion                                 15,362    15,967
---------------------------------------------------------------------
                                                   $ 55,327  $ 62,437
---------------------------------------------------------------------
---------------------------------------------------------------------


Future minimum annual payments required are as follows:
2005                                                         $ 15,362
2006                                                           39,632
2007                                                            5,446
2008                                                            5,431
2009                                                            3,489
Thereafter                                                      1,329
---------------------------------------------------------------------
                                                             $ 70,689
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 7: Income taxes

(a) Income taxes attributable to earnings differs from the amounts
    computed by applying statutory rates to pretax income as a result
    of the items listed in the following table.

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

                                               2004             2003
---------------------------------------------------------------------

Basic statutory rates applied to
 earnings before income taxes               $ 6,374          $ 8,985
Increase (decrease) in income taxes
 resulting from:
 Tax rate changes                                 -               99
 Intangibles                                  1,181            1,147
 Manufacturing and processing
  profits deduction                            (353)            (647)
 Large corporations tax                         463              243
 Decrease due to deductible expenses
  incurred in foreign jurisdictions          (1,291)            (985)
 Other                                           13              354

---------------------------------------------------------------------
Income taxes                                $ 6,387          $ 9,196
---------------------------------------------------------------------
---------------------------------------------------------------------

(b) The tax effects of temporary differences that give rise to
    significant portions of future income tax assets and future
    income tax liabilities are presented below:

---------------------------------------------------------------------
---------------------------------------------------------------------
                                               2004             2003
---------------------------------------------------------------------

Future income tax assets:
Share issue costs                           $ 2,105          $ 3,193
Stock appreciation rights                       216              368
Investment tax credits                          636            1,444
Provincial minimum tax                        1,230            1,686
Non-capital loss carryforwards               25,099           21,064
Reserves                                      4,159            4,958
---------------------------------------------------------------------
                                             33,445           32,713
Valuation allowance                         (14,313)         (14,153)
---------------------------------------------------------------------
Total future income tax assets               19,132           18,560

Future income tax liabilities:
Capital assets                              (18,563)         (15,500)

---------------------------------------------------------------------
Net future income tax asset                   $ 569          $ 3,060
---------------------------------------------------------------------
---------------------------------------------------------------------

The ultimate realization of the future income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible.

The valuation allowance for future taxes as at December 31, 2004 was $14,313 (2003 - $14,153). The increase in the valuation allowance is due to exchange differences on tax loss carryforwards relating to the Company's division in the Netherlands. In assessing the realizability of future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will be realized. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences and loss carry forwards are deductible.

(c) The Company has accumulated approximately $73.3 million in non-capital tax losses that are available to reduce taxable income in future years. If unused these losses will expire as follows:


---------------------------------------------------------------------
---------------------------------------------------------------------
Year                                                           Amount
---------------------------------------------------------------------
2009                                                            4,044
2010                                                           16,104
2011                                                           14,996
2020                                                            3,310
Indefinite                                                     34,869
---------------------------------------------------------------------
                                                               73,323
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 8: Share Capital

---------------------------------------------------------------------
---------------------------------------------------------------------
                                                 Number       Amount
---------------------------------------------------------------------
Common Shares

Authorized - unlimited number of common
 shares

Issued and outstanding:
 Balance, December 31, 2002                  57,690,226    $ 437,434
 Issued on exercise of employee options          95,050          427
 Share issue costs (net of future
  tax recovery of $4)                                            (11)
---------------------------------------------------------------------
Balance, December 31, 2003                   57,785,276    $ 437,850
---------------------------------------------------------------------

 Issued on Director's compensation                5,075         $ 33
---------------------------------------------------------------------
Balance, December 31, 2004                   57,790,351    $ 437,883
---------------------------------------------------------------------

Warrants

Issued and outstanding:
---------------------------------------------------------------------
Balance, December 31, 2003 and 2004           3,533,333      $ 6,164
---------------------------------------------------------------------

Share Capital, December 31, 2004                           $ 444,047
---------------------------------------------------------------------
---------------------------------------------------------------------

Notes receivable for share capital

Notes receivable represents 10 year, non-interest bearing notes issued to three senior officers in 2001 and 2002 in order to enable them to acquire an aggregate of 2,500,000 shares of the Company at a price of $4.50 and $9.00 per common share. These notes are secured by the acquired common shares and have been included as a component of shareholder's equity for presentation purposes.

Warrants

As part of a private placement on December 12, 2002, the Company sold 10,000,000 subscription receipts at a price of $8.00 per subscription receipt, resulting in aggregate gross proceeds of $80 million. Each subscription receipt entitled the holder to subscribe for one common share of the Company and one-third of a common share purchase warrant (a "warrant"), without payment of any consideration in addition to the issue price of such subscription receipt. Each whole warrant entitles the holder to subscribe for one common share of the Company for a period of three years from the date of issue at a subscription price of $10.00 per share.

On April 29, 2002, the Company issued 200,000 warrants to its financial advisors. Each warrant will entitle the holder to purchase one common share of the Company at a price of $11.85 on or before April 29, 2007.

Stock options

The Company has one stock option plan for key employees. Under the plan, the Company may grant options to its key employees for up to 4,762,000 shares of common stock. The Company has, in the past, also granted options to officers and employees of Rea and Pilot in connection with the acquisitions thereof. Such options were granted outside the stock option plan. Under the plan, the exercise price of each option equals the market price of the Company's stock on the date of grant and the options have a maximum term of 10 years. Options are granted throughout the year and vest between 0 and 4 years

The following summary sets out the activity in outstanding common share purchase options:


---------------------------------------------------------------------
---------------------------------------------------------------------
                                        2004               2003
---------------------------------------------------------------------
                                Options   Weighted   Options Weighted
                                           average            average
                                          exercise           exercise
                                             price              price
---------------------------------------------------------------------
Beginning of year             4,194,000     $ 9.54 4,561,550   $ 9.61
 Granted                         30,000       6.34   334,000     7.43
 Exercised                            -          -   (95,050)    4.49
 Cancelled                     (120,000)      8.00  (606,500)    9.71

---------------------------------------------------------------------
End of year                   4,104,000     $ 9.56 4,194,000   $ 9.54
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
Options exercisable,
 end of year                  4,051,500     $ 9.68 3,942,750   $ 9.65
---------------------------------------------------------------------
---------------------------------------------------------------------

The following is a summary of common share purchase options issued
 and outstanding under the Company's stock option plan:

---------------------------------------------------------------------
---------------------------------------------------------------------
Range of exercise Number outstanding   Date of    Expiry      Vesting
  price per share    at December 31,     grant                 period
                                2004
---------------------------------------------------------------------

4.50 -5.50                   130,000      2001      2011 Fully vested
6.34                          30,000      2004      2014 Fully vested
7.00 - 8.60                  621,500    2001 -    2011 -
                                          2003      2013 Fully vested
7.50 - 8.00                   52,500    2002 -    2012 -
                                          2003      2013 1 to 4 years
10.35                         50,000      2002      2012 Fully vested
10.00                      2,225,000      2002      2012 Fully vested
10.00                        490,000      2002      2005 Fully vested
11.00                         50,000      1998      2005 Fully vested
11.00 - 12.00                455,000    1998 -    2008 -
                                          2002      2012 Fully vested

---------------------------------------------------------------------
                           4,104,000
---------------------------------------------------------------------
---------------------------------------------------------------------

Note 9: Contributed Surplus

Contributed surplus represents the use of the fair value-based method for stock-based compensation arrangements. The Company recorded an adjustment of $19,506 on January 1, 2004 to reflect the adoption of CICA Handbook section 3870 as described in note 1(i) and expensed a further $162 during 2004 to reflect current year compensation expense, as derived using the Black-Scholes option valuation model.

The table below shows the assumptions used in determining stock based compensation expense under the Black-Scholes option pricing model:


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

Assumptions                                    2004             2003
---------------------------------------------------------------------

Risk fee interest rate                          4.5%            4.00%
Expected life (years)                             4                4
Expected volatility                              25%              25%
Weighted average fair value of options
 granted                                       1.73           $ 1.96
---------------------------------------------------------------------

The Black-Scholes option valuation model used by the Company to determine fair values was developed for use in estimating the fair value of freely traded options, which are fully transferable and have no vesting restrictions. The Company's stock options are not transferable, cannot be traded and are subject to vesting restrictions and exercise restrictions under the Company's black-out policy which would tend to reduce the fair value of the Company's stock options. Changes to subjective input assumptions used in the model can cause a significant variation in the estimate of the fair value of the options.

Note 10: Earnings per common share

Basic and diluted earnings per common share have been calculated using the weighted average and maximum dilutive number of shares, using the treasury stock method.


---------------------------------------------------------------------
---------------------------------------------------------------------
                              2004                       2003
                Weighed average Per common Weighed average Per common
                      number of      share       number of      share
                  common shares     amount   common shares     amount
---------------------------------------------------------------------

Basic                55,287,841     $ 0.20      55,262,104     $ 0.28

Effect of dilutive
 securities
-Shares secured by
 notes receivable     2,500,000       0.01       2,500,000       0.01
-Stock options           19,743          -          44,583          -
-Warrants                     -          -               -          -
---------------------------------------------------------------------
                      2,519,743     $ 0.01       2,544,583     $ 0.01
---------------------------------------------------------------------

Diluted              57,807,584     $ 0.19      57,806,687     $ 0.27
---------------------------------------------------------------------
---------------------------------------------------------------------

The dilutive effect of stock options and warrants excludes the effect
 of 3,974,000 (2003 - 3,930,000) options whose strike price is higher
 than the average market price for the period, as they are
 anti-dilutive.

Note 11: Financial instruments:

(a) Fair values of financial instruments:

The fair values of accounts receivable, other receivables, deposits, bank indebtedness, accounts payable and accrued liabilities as recorded in the consolidated balance sheets approximate their carrying amounts due to the short-term maturities of these instruments.

The fair value of the note payable on the purchase of SCS International Inc. is not readily determinable. The Company does not have plans to sell this financial instrument to a third party and will realize or settle it in the normal course of business. No quoted market prices exists for this instrument because it is not traded in an active and liquid market and, accordingly, the fair value is not readily determinable.

The Company has entered into interest rate swap agreements to manage its interest rate exposure on floating rate debt. As at December 31, 2004, the Company has $24,375 (2003 - $30,000) of floating rate bank debt swapped against fixed rate debt with an interest rate of 3.67% (2003 - 3.67%), plus applicable stamping fees. This agreement expires on June 30, 2006. The fair value of all long term debt approximates its carrying value as the terms and conditions of the borrowing arrangements are comparable to current market terms and conditions for similar loans. Fair value has been calculated using the future cash flows (principal and interest) of the actual outstanding debt instruments, discounted at current market rates available to the Company for the same or similar instruments.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

(b) Derivative financial instruments:

The Company utilizes forward foreign exchange contracts and interest rate swaps to reduce exposure to fluctuations in foreign currency exchange rates and interest rates. The Company does not purchase or hold derivative financial instruments for speculative purposes.

As at December 31, 2004, the Company has committed to purchase a total of US$6,408 at an average exchange rate of 1.29 and a total of 800 Euros at an average exchange rate of 1.57, with maturity dates ranging from January 2005 to April 2008. At December 31, 2004, unrecognized losses totaled $503 (2003 - $315).

(c) Interest rate risk:

The Company has interest bearing loans on which general interest rate fluctuations apply. Part of this risk has been mitigated through interest rate contracts on $24,375 of the Company's term debt.

(d) Concentration of credit risk:

The Company primarily sells to the North American automotive industry. The exposure to credit risk associated with the non-performance of these customers can be directly impacted by a decline in economic conditions which would impair the customers' ability to satisfy their obligations to the Company. In order to reduce this economic risk, the Company has credit procedures in place whereby analyses are performed to control the granting of credit to any high risk customer. The Company believes that there is no significant risk associated with the collection of these amounts.

(e) Foreign currency risk:

The Company undertakes revenue and purchase transactions in foreign currencies, and therefore is subject to gains and losses due to fluctuations in foreign currency exchange rates. A portion of this risk has been mitigated through foreign exchange contracts, as described in (b) above.

Note 12: Related party transactions

During 2004, the Company paid rent of US$1,039 (2003 - $1,039) relating to leased premises for two divisions acquired as part of the purchase of Pilot Industries Inc. on December 31, 2002. Both of these divisions were subsequently closed. These premises are co-owned by an employee of the Company. Refer also to note 14.

During 2003, the Company repaid the mortgage payable to a relative of the President of the Company, used to complete the purchase of Pilot Industries Inc. on December 31, 2002.


Note 13: Segmented information:

The Company focuses its operations on the production of goods for
 the automotive industry.

Revenues by geographic region are summarized as follows:
---------------------------------------------------------------------
---------------------------------------------------------------------
Year ended, December 31, 2004     Canada        US    Other     Total

Canada                           158,711 $ 187,220 $ 10,152   356,083

Export sales:
 US                               16,726   113,279    3,694   133,699
 Other                               162    62,024   30,776    92,962

---------------------------------------------------------------------
                                 175,599   362,523 $ 44,622 $ 582,744
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
---------------------------------------------------------------------
Year ended, December 31, 2003     Canada        US    Other     Total
---------------------------------------------------------------------

Canada                           120,740 $ 214,209 $ 14,574   349,523

Export sales:
 US                               19,366   149,187      677   169,230
 Other                                 -    46,830   42,556    89,386

---------------------------------------------------------------------
                                 140,106   410,226 $ 57,807 $ 608,139
---------------------------------------------------------------------
---------------------------------------------------------------------

Approximately 68% (2003 - 60%) of the Company's revenues are derived
 from four (2003 - four) customers.

Assets by geographic region are summarized as follows:

---------------------------------------------------------------------
---------------------------------------------------------------------
At December 31, 2004:      Current    Capital  Goodwill and     Total
                            assets     Assets  Other assets         
---------------------------------------------------------------------

Canada                      84,788    167,310       192,349 $ 444,447
US                          35,783     27,091        58,118   120,992
Mexico                      12,636     14,293        14,499    41,428
Europe                       8,706      9,882        12,220    30,808

---------------------------------------------------------------------
                         $ 141,913  $ 218,576     $ 277,186 $ 637,675
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
---------------------------------------------------------------------
At December 31, 2003:      Current    Capital  Goodwill and     Total
                            assets     Assets  Other assets         
---------------------------------------------------------------------
Canada                   $ 119,371  $ 161,608     $ 198,541 $ 479,520
US                          32,742     30,238        56,615   119,595
Mexico                      12,846      9,878        13,856    36,580
Europe                       6,795     10,664        11,064    28,523

---------------------------------------------------------------------
                         $ 171,754  $ 212,388     $ 280,076 $ 664,218
---------------------------------------------------------------------
---------------------------------------------------------------------

Note 14: Guarantees and Commitments

The Company leases manufacturing premises, office equipment, vehicles and facilities under long term operating leases. The aggregate minimum annual lease payments are as follows:


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

2005                                                          $ 6,381
2006                                                            6,113
2007                                                            5,768
2008                                                            4,513
2009                                                            4,051
Thereafter                                                      8,295

---------------------------------------------------------------------
                                                             $ 35,121
---------------------------------------------------------------------
---------------------------------------------------------------------

Of the above amount US$3,400 are under an arrangement with a company in which an employee of the Company's U.S. subsidiary has a financial interest. These leases were negotiated prior to the acquisition of Pilot Industries Inc. by the Company and are at fair market value.

As at December 31, 2004, the Company has two letters of credit outstanding for a total of $1,550 (2003 - $720). These letters of credit were issued to the City of Brampton to guarantee various projects.

Commitments in capital expenditures totaled $679 as at December 31, 2004 (2003 - $190).

The Company also entered into foreign exchange contracts to purchase US $6,408, with maturity dates ranging from January 2005 to April 2008 and 800 Euros, with maturity dates ranging from January 2005 to June 2005. Total settlement value amounts to approximately $9,492.

The Company is a guarantor under a tool financing program. The tool financing program involves a third party that provides tooling suppliers with financing subject to a Company guarantee. Payments from the third party to the tooling supplier are approved by the Company prior to the funds being advanced. The amounts loaned to tooling suppliers through this financing arrangement do not appear on the Company's balance sheet. At December 31, 2004, the amount of program financing was $11.9 million. The maximum amount of undiscounted future payments the Company could be required to make under the guarantee is $11.9 million. The Company would be required to perform under the guarantee in cases where a tooling supplier could not meet its obligation to the third party. Since the amount advanced to the tooling supplier is required to be repaid generally when the Company receives reimbursement from the final customer, and at this point the Company will in turn repay the tooling supplier, the Company views the likelihood of tooling supplier default as remote. Moreover, if such an instance were to occur, the Company would obtain the tool inventory as collateral. The term of the guarantee will vary from program to program, but typically ranges between 6-18 months.

From time to time, the Company is involved in various claims, legal proceedings, and complaints arising in the course of business. The Company cannot determine whether these claims, legal proceedings, and complaints will, individually or collectively, have a material adverse effect on the business, results of operations and financial condition of the Company.

Note 15: Subsequent Event

On February 17, 2005, the Company completed the acquisition of the assets of a metal forming plant in Corydon, Indiana for approximately US$9,200 plus the assumption of operating leases with an outstanding obligation to maturity of approximately US$1,600. The purchase price was funded through a combination of asset-based financing and cash. The assets purchased include the land and the building, and all equipment necessary for the production of the programs at the facility.

Subsequent to year end, the Company entered into lease agreements totalling approximately $346 per annum, which relate primarily to additional leased premises for two of the Company's divisions.

MANAGEMENT DISCUSSION AND ANALYSIS

OF OPERATING RESULTS AND FINANCIAL POSITION

For the Year ended December 31, 2004

The following discussion and analysis should be read together with the Company's unaudited consolidated financial statements for the year ended December 31, 2004 and the accompanying notes.

Overview

Martinrea International Inc. ("Martinrea" or the "Company") is a leader in the production of quality metal parts, assemblies and modules and fluid management systems focused primarily on the automotive sector. Martinrea currently employs over 3,000 skilled and motivated people in 18 plants in Canada, the United States, Mexico, the Netherlands and the United Kingdom.

Martinrea's objective is to develop a state-of-the-art international fluid systems and metal forming business that will continue to be and further become a key supplier in the automotive industry. Growth will be prudent, profitable and based on innovation. The backbone of this future growth is the development of talented people. The significant development of the Company the last three years has reflected this business strategy. The profitability of the Company in the last three years indicate the beginning of the fulfillment of this strategy.

Results of Operations

Revenues for the year ended December 31, 2004 totaled $582.7 million as compared to $608.1 million for the year ended December 31, 2003. Revenues in the year have decreased by $25.4 million from the prior year comparable due to lower prototype and tooling revenues. Tooling revenues totaled $32.4 million in 2004 as compared to $57.4 million in 2003. The reduction in tooling revenue is attributable to the number and nature of programs launched in the previous year versus the current year. The appreciation of the Canadian dollar versus the U.S. dollar also impacted sales by approximately $18.5 million. These factors were offset in part by increased production revenues pertaining primarily to the Daimler Chrysler new LX program (300C, Magnum), a full year production of the Ford V229 program (Freestar), a full year production of the Company's participation in GM's GMT800 pick-up program (Silverado, Sierra), the launch of GM's GMX365/367 program (W-car), metallic takeover business and other new programs.

The Company's revenues for the fourth quarter of 2004 of $149.9 million were $22.8 million lower than the fourth quarter of 2003 of $172.7 million. The reduction in revenues is primarily due to lower tooling sales of $15.9 million versus the prior year, and the appreciation of the Canadian dollar versus the U.S. dollar that impacted the translation of the Company's US dollar denominated revenues. The Company's revenues for the fourth quarter of 2004 exceeded third quarter of 2004 revenues of $125.3 million by $24.6 million primarily due to higher vehicle production by the Company's customers.

Gross margin percentage for the year ended December 31, 2004 was 16.1% as compared to 15.2% for the year ended December 31, 2003. The overall increase in gross margin percentage was due to productivity improvements and lower launch costs. These improvements have been offset in part by lower production levels, continuing price reductions to automotive customers and steel surcharges on part of the Company's steel purchases not on customer steel resale programs. The Company has not been able to offset the price reductions to customers or the steel surcharges in their entirety. At the current time approximately 25% of the Company's steel purchases are subject to steel surcharges. The Company has been successfully negotiating price increases with many customers not on steel resale programs in order to reduce the Company's exposure to existing material increases.

Gross margin percentage for the fourth quarter ended December 31, 2004 was 16.6% as compared to 13.9% in the fourth quarter ended December 31, 2003. The increase in gross margin from the prior year is attributable to lower launch costs in the current year. The Company anticipates continued gross margin improvement over time as sales volumes increase and new incremental programs continue to fill available production capacity. The improvement of gross margin is evident from a comparison of the fourth quarter of 2004 gross margin of 16.6% versus 15.9% in the third quarter of 2004.

Net earnings for the year ended December 31, 2004 were approximately $11.0 million versus a $15.4 million result for the year ended December 31, 2003. The earnings per share for the year was $0.20 ($0.19 on a diluted basis) as compared to the prior year of $0.28 ($0.27 on a diluted basis). Net earnings for the year ended December 31, 2004 were lower than the prior year comparable even though a gross margin percentage increase occurred. The decline in profitability versus the prior year is attributable to foreign exchange gains of $1.9 million after tax realized in the prior year that did not reoccur in 2004, higher engineering costs related to an increase in the number of engineers in the Company's Detroit metal forming engineering centre of approximately $0.6 million after tax and the remainder is attributable to higher amortization on production ready assets in 2004, where capacity was not fully utilized.

Net earnings for the quarter ended December 31, 2004 were approximately $2.2 million or $0.04 per share ($0.03 on a diluted basis) versus a similar result of $2.3 million, (or $0.04 per share on a basic and diluted basis) for the quarter ended December 31, 2003. The reduction of net earnings resulting from lower revenues in the fourth quarter of 2004 versus the fourth quarter of 2003 was primarily offset by improved gross margins.

Net earnings for the fourth quarter ended December 31, 2004 of $2.2 million was $1.2 million higher than the third quarter of 2004 net earnings of $1.0 million. The benefit of improved gross margin in the fourth quarter of 2004 versus the third quarter of 2004 was offset in part by write downs of redundant assets totaling $0.7 million after tax resulting from the closure of the Company's Claireville location in 2004 and a year-end adjustment of $0.3 million after tax to reflect the adoption of a new accounting standard that impacts upon the recognition of rent expense on leased premises. Net earnings in the fourth quarter of 2004 were also impacted by foreign exchange fluctuations. The Company's changing product mix from new launches and the growing profitability of the Company's foreign operations have created a scenario where net earnings is now impacted by foreign exchange fluctuations. In the fourth quarter of 2004 net earnings were reduced by $0.6 million as a result of the appreciation of the Canadian dollar versus US dollar during the fourth quarter of 2004.

Amortization expense was $26.6 million for the year ended December 31, 2004 versus $21.5 million for the year ended December 31, 2003. The increase in amortization from the comparable period is attributable to amortization of capital assets previously purchased that are now production ready, most notably a full year amortization of Hydroform Solution's metal forming presses and building expansion.

Selling, general and administrative expenses for the year ended December 31, 2004 were $43.6 million, or 7.5% of revenues, compared to $42.6 million, or 7.0% of revenues, for the year ended December 31, 2003. The increase from the prior year is primarily attributable to the need for additional sales engineering resources that are required for the Company to compete in larger metallic assemblies. The increase in selling, general and administrative expenses on a percentage basis has gone up in 2004 versus 2003 due to lower revenues discussed above.

Selling, general and administrative expenses for the fourth quarter of 2004 totaled $12.7 million or 8.4% of revenues as compared to $12.8 million for the fourth quarter of 2003 or 7.4% of revenues. The actual expenditures in the fourth quarter of 2004 are consistent with the comparable period, but on a percentage basis the increase in the percentage for the fourth quarter of 2004 versus the prior year comparable is due to the lower revenues discussed above. The increase in the sales, general and administrative expenses in the fourth quarter of 2004 versus the third quarter of 2004 of $2.8 million is due to the write-down of redundant assets from the closure of the Company's Claireville location of $1.1 million and the timing of engineering expenditures.

Capital expenditures for the year ended December 31, 2004 totaled $37.8 million compared to $55.5 million for the comparable year ended December 31, 2003. Capital expenditures were slightly higher than the Company's projection of $35 million due to incremental capital on metallic takeover business and the acceleration of capital expenditures in order to meet customer timing requirements on launches. Expenditures in the fourth quarter of 2004 were $7.6 million vs. $14.9 million in the fourth quarter of 2003. Capital expenditures in 2004 related primarily to program capital. During 2005, the Company plans to spend approximately $24 to $28 million on new program capital to be employed in its existing North American and operations.


Selected Quarterly Information

                        Dec 31-04  Sept 30-04  June 30-04   Mar 31-04
---------------------------------------------------------------------

Sales                    $149,913    $125,286    $162,328    $145,217
Gross Margin               24,925      19,941      27,115      22,091

Selling, general &
 administrative            12,683       9,867      10,679      10,326

Interest                    1,605       1,383       1,602       1,310
Net earnings                2,174         971       5,134       2,684

Earnings per share:                                                  

 -Basic                      0.04        0.02        0.09        0.05
 -Diluted                    0.03        0.02        0.09        0.05

Weighted average
 number of common
 shares outstanding:                                                 

 -Basic                55,290,351  55,290,351  55,285,332  55,285,276
 -Diluted              57,792,921  57,808,939  57,815,669  57,822,805


                        Dec 31-03  Sept 30-03  June 30-03   Mar 31-03
---------------------------------------------------------------------

Sales                    $172,708    $141,423    $142,823    $151,185
Gross Margin               23,989      22,491      22,692      23,518

Selling, general &
 administrative            12,794       9,122       9,940      10,715

Interest                    1,148       1,314       1,771       1,793
Net earnings                2,265       4,171       4,519       4,452

Earnings per share:                                                  

-Basic                       0.04        0.08        0.08        0.08
-Diluted                     0.04        0.07        0.08        0.08

Weighted average
 number of common
 shares outstanding:                                                 

-Basic                 55,285,276  55,285,276  55,274,699  55,201,995
-Diluted               57,848,926  57,848,926  57,821,935  57,778,044

Liquidity, Capital Resources, and Off Balance Sheet Financing

The Company's financial condition remains strong given the continuing profitability of its operations and its prospects for growth and new program launches. The Company's growing financial maturity is reflected in its ability to increase its level and variety of debt financing for new investments. The increase in financing alternatives is primarily due to its increasing cash flow from operations and its ability to absorb new business by utilizing existing capacity.

During the third quarter of 2004 the Company improved its credit arrangements with its banking syndicate. The updated banking agreement provided the Company with $96 million of financing that consisted of a $50 million revolving credit facility and a $46 million long-term facility. At the time of amendment, the credit facilities were reduced from the previous $100 million as a result of the Company's repayment of $4 million of long term debt. The previous banking agreement consisted of a $40 million revolving credit facility and a $60 million long-term facility. The term to maturity and interest rate schedule remain unchanged and the new banking arrangement has improved the Company's cash flow by reducing the yearly repayment of long-term debt from $15 million to $8 million. The new banking arrangement also improves the Company's ability to finance future investments relating to new programs by allowing increased access to alternative sources of debt.

The Company is a guarantor under certain tooling financing programs negotiated in 2004 that provide direct financing for specific programs. The tool financing program involves a third party that provides tooling suppliers with financing subject to a Company guarantee. The amounts loaned to tooling suppliers through this financing arrangement do not appear on the Company's balance sheet. At December 31, 2004 the amount of program financing is $11.9 million.

The Company has also entered into asset backed financing arrangements for program capital that total $18.8 million at December 31, 2004. The loans are repayable over the related production part program life which is generally four or five years.

The Company's bank indebtedness of approximately $10.5 million at December 31, 2004 has decreased relative to the $16.6 million at December 31, 2003 due to increasing cash flow from operations, the positive impact resulting from the implementation of the new tool financing program in 2004, the collection of tooling receivables and improved working capital management. The bank indebtedness at December 31, 2004 of $10.5 million has decreased relative to the $25.7 million at September 30, 2004 due to increasing cash flow from operations, the payment of tooling receivables by customers on programs ready for production that were previously funded by the Company's bank operating lines, and improved working capital management.

The Company had a strong balance sheet as at December 31, 2004, with shareholders equity of $449.1 million, as compared to $442.6 million as at December 31, 2003. The Company's working capital of $27.9 million should be sufficient to cover anticipated cash needs together with internally generated cash flow and financing facilities in place. As at December 31, 2004, Martinrea's ratio of current assets to current liabilities was 1.2:1, which is consistent with the prior year.

As a result of growth and ongoing expansion programs, the Company anticipates that capital expenditures will amount to approximately $24 to $28 million in 2005 based on the current business plan. Such amounts will be financed by increasing cash flow from operations, utilization of operating lines, asset based financing facilities, and management of working capital.

Acquisition of Corydon Manufacturing LLC

On February 17, 2005, the Company completed the acquisition of Corydon Manufacturing LLC ("Corydon"), for a purchase price of approximately US$9.2 million plus the assumption of operating leases with an outstanding obligation to maturity of approximately US$1.6 million. The purchase price was funded through a combination of asset-based financing and cash. The Corydon facility is located in Indiana, and manufactures underbody assemblies called spiders and rails, which are assembled on the Saturn Vue, Chevrolet Equinox and Pontiac Torrent (Cami). This purchase provides the Company with metal forming capabilities in the United States, which in turn provides flexibility in dealing with foreign exchange fluctuations, competitive advantage with regards to transportation to customers in the central United States, and greater opportunities on metal forming takeover work in the United States.

The financial position and results of Corydon Manufacturing LLC have not been included in the Company's December 31, 2004 financial statements.

Risks and Uncertainties

The Company is exposed to a number of risks and uncertainties that could impact future results. The nature of the Company's business, especially in the automotive sector, means that it is affected by general economic conditions and competitive factors, both domestic and from foreign sources. The Company operates in a capital intensive business environment and therefore needs to be financially able to purchase new equipment and technology on a timely basis. The Company has a strong balance sheet and, to ensure future tooling and capital requirements are satisfied, the Company has negotiated capital equipment financing facilities to supplement cash flow generation from Company operations.

The automotive industry is currently an extremely challenging business characterized by rapid technological change, frequent new product introductions and customer pricing pressures. The ability of the Company to compete successfully will depend in large measure on its ability to maintain a technically competent workforce and to adapt to technological changes and advances in the industry, including providing for the continued compatibility of its products with evolving industry standards and protocols.

The Company has acquired and anticipates that it may continue to acquire complementary businesses, technologies or products. The benefit to the Company of these acquisitions is highly dependent on the Company's ability to integrate the acquired businesses and their technologies, employees and products. Any failure to successfully integrate businesses or failure of the businesses to benefit the Company could have a material adverse effect on the Company's business and results of operations.

The success of the Company is also dependent on a variety of risk factors, which could materially and adversely affect Martinrea's future operating results including, but not limited to:

- the dependence upon a few large customers such that cancellation of a significant order or a loss of a major customer would reduce the Company's revenues;

- the high level of competition in the industry, and the fact that some of Martinrea's competitors have significant financial or other resources;

- the cyclicality of the automotive industry and other risks inherent to the automotive industry;

- the pressure to absorb additional costs from the customer and the pressure of price reduction programs typical in the automotive industry, which have become increasingly intense over the past several years;

- production volumes on vehicle platforms may vary to reflect consumer demand, and the Company's revenues per platform are highly dependent on such platform volumes;

- the dependence of the Company's success on the services of a number of the members of its senior management. The experience and talents of these individuals will be a significant factor in the Company's continued success and growth. The loss of one or more of these individuals without adequate replacement measures could have a material adverse effect on the Company's operations and business prospects;

- risks relating to product warranty, recall and liability;

- uncertainty of financing a capital intensive business should the Company seek additional equity or debt financing;

- changes in the regulatory environment;

- ongoing health and labour relations issues;

- currency and interest rate risks; and

- increases in the price of raw materials upon which the Company is directly or indirectly dependent, including electricity, oil and steel, although most of the Company's steel requirements are purchased from its original equipment manufacturing customers, thus reducing the direct exposure to steel prices.

For a more detailed discussion of some of these factors, and a broader description of the Company's business, reference is made to the disclosure regarding Martinrea's operations and the risks and uncertainties facing the Company set forth in the Company's Annual Information Form and other public filings which can be found at www.SEDAR.com.

Disclosure of Outstanding Share Data

As at March 14, 2005 the Company had 57,790,351 common shares outstanding. The Company's common shares constitute its only class of voting securities. As at March 14, 2005, options and warrants exercisable to acquire 7,297,333 common shares were outstanding.

Contractual Obligations and Off Balance Sheet Financing

At December 31, 2004, the Company had contractual obligations requiring annual payments as follows (all figures in thousands):


---------------------------------------------------------------------
                 Less     1-2     2-3    3-4     4-5  There-    Total
               than 1   years   years  years   years   after
                 year
---------------------------------------------------------------------
Operating
 leases with
 third parties $6,381  $6,113  $5,768 $4,513  $4,051  $8,295  $35,121
---------------------------------------------------------------------
Long-term debt 15,362  39,632   5,446  5,431   3,489   1,329   70,689
---------------------------------------------------------------------
Purchase
 obligations
 (i)           18,994   7,360     132   ----    ----    ----   26,486
---------------------------------------------------------------------
Total
 contractual
 obligations  $40,737 $53,105 $11,346 $9,944  $7,540  $9,624 $132,296
---------------------------------------------------------------------

(i) The Company had no purchase obligations other than those related to inventory, services, tooling and fixed assets in the ordinary course of business.

The Company utilizes certain financial instruments, principally interest rate swap contracts and forward currency exchange contracts to manage the risk associated with fluctuations in interest rates and currency exchange rates. The Company's policy is not to utilize financial instruments for trading or speculative purposes. Interest rate swap contracts are used to reduce the impact of fluctuating interest rates on the Company's long-term debt. These swap agreements require the periodic exchange of payments without the exchange of the notional principal amount on which the payments are based. Forward currency exchange contracts are used to reduce the impact of fluctuating exchange rates on the Company's purchases of materials and equipment. Payments and receipts under interest rate swap contracts are recognized as adjustments to interest expense on long-term debt. Gains and losses on forward foreign exchange contracts are reflected in the consolidated financial statements in the same period as the hedged item. In the event that a hedged item is sold or cancelled prior to the termination of the related hedging item, any unrealized gain or loss on the hedging item is immediately recognized in income.

As at December 31, 2004, the Company has committed to purchase a total of US$6,408 at an average exchange rate of 1.29 and a total of 800 Euros at an average exchange rate of 1.57 with maturity dates ranging from January 2005 to April 2008. At December 31, 2004, unrecognized losses totaled $503 (2003-$315).

The Company has negotiated tool financing facilities that will provide direct financing for specific programs. The tool financing program involves a third party that provides tooling suppliers with financing subject to a Company guarantee. Payments from the third party to the tooling supplier are approved by the Company prior to the funds being advanced. The amounts loaned to tooling suppliers through this financing arrangement do not appear on the Company's balance sheet. At December 31, 2004, the amount of program financing was $11.9 million. The maximum amount of undiscounted future payments the Company could be required to make under the guarantee is $11.9 million. The Company would be required to perform under the guarantee in cases where a tooling supplier could not meet its obligation to the third party. Since the amount advanced to the tooling supplier is required to be repaid generally when the Company receives reimbursement from the final customer, and at this point the Company will in turn repay the tooling supplier, the Company views the likelihood of tooling supplier default as remote. Moreover, if such an instance were to occur, the Company would obtain the tool inventory as collateral. The term of the guarantee will vary from program to program, but typically ranges between 6-18 months.

Related Parties

During 2004, the Company paid rent of $US 1.0 million relating to leased premises for two divisions acquired as part of the purchase of Pilot Industries Inc. on December 31, 2002. Both of these divisions were closed as part of the Company's integration process, with production transferred to other facilities. These premises are owned in part by an employee of the Company. These leases were negotiated prior to the acquisition of Pilot Industries Inc. by the Company and are at fair market value.

Critical Accounting Policies

The Company's discussion and analysis of its results of operations and financial position is based upon the consolidated interim financial statements, which have been prepared in accordance with Canadian GAAP. The preparation of the interim consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. The Company's management bases its estimates on historical experience and various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. On an ongoing basis, management evaluates these estimates. However, actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated interim financial statements of the Company. Management has discussed the development and selection of the following critical accounting policies with the Audit Committee of the Board of Directors and the Audit Committee has reviewed its disclosure relating to critical accounting policies in this MD&A.

Revenue Recognition on Separately Priced Tooling Contracts

Revenues from separately priced tooling contracts are recognized on a completed contract basis. The completed contract method recognizes revenue and cost of sales upon completion of the tooling project, which is typically defined as the PPAP (customer acceptance) date. Under such contracts, the related receivables could be paid in full upon completion of the contract, or in installments.

Revenues and cost of sales from separately priced tooling contracts are presented on a gross basis in the consolidated statements of income.

Tooling contract prices are generally fixed; however, price changes, change orders and program cancellations may affect the ultimate amount of revenue recorded with respect to a contract. Contract costs are estimated at the time of signing the contract and are reviewed at each reporting date. Adjustments to the original estimates of total contract costs are often required as work progresses under the contract and as experience is gained, even though the scope of the work under the contract may not change. When the current estimates of total contract revenue and total contract costs indicate a loss, a provision for the entire loss on the contract is made. Factors that are considered in arriving at the forecasted loss on a contract include, amongst others, cost over-runs, non-reimbursable costs, change orders and potential price changes.

The Company expenses all costs as incurred related to the design and development of moulds, dies and other tools that it will not own and that will be used in, and reimbursed as part of the piece-price amount for, subsequent related parts production unless the supply agreement provides the Company with a contractual guarantee for reimbursement of costs or the non-cancelable right to use the moulds, dies and other tools during the supply agreement, in which case the costs are capitalized and amortized straight line over the life of the related program.

Impairment of Goodwill, Intangibles and Other Long-lived Assets

Goodwill and indefinite life intangibles are subject to an annual impairment test or more frequently when an event or circumstance occurs that more likely than not reduces the fair value of a reporting unit or indefinite life intangible below its carrying value.

Management evaluates fixed assets and other long-lived assets for impairment using a two step process whenever indicators of impairment exist. Indicators of impairment include prolonged operating losses or a decision to dispose of, or otherwise change the use of, an existing fixed or other long-lived asset. If the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges, is less than the reported value of the asset, asset impairment must be recognized in the financial statements. The amount of impairment to be recognized is calculated by subtracting the fair value of the asset from the reported value of the asset.

Management believes that accounting estimates related to goodwill, intangible and other long-lived asset impairment assessments are "critical accounting estimates" because: (i) they are subject to significant measurement uncertainty and are susceptible to change as management is required to make forward-looking assumptions regarding the impact of improvement plans on current operations, in-sourcing and other new business opportunities, program price and cost assumptions on current and future business, the timing of new program launches and future forecasted production volumes; and (ii) any resulting impairment loss could have a material impact on consolidated net income and on the amount of assets reported on the Company's consolidated balance sheet.

Future Income Tax Assets

At December 31, 2004, the Company had recorded future tax assets (net of related valuation allowances) in respect of loss carry forwards and other deductible temporary differences of $19.1 million. The future tax assets in respect of loss carry forwards relate primarily to the Company's Canadian and European operations.

The Company evaluates yearly the realization of its future tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are a forecast of future taxable income and available tax planning strategies that could be implemented to realize the future tax assets. The Company has, and continues to use, tax planning strategies to realize future tax assets in order to avoid the potential loss of benefits.

At December 31, 2004, the Company had gross income tax loss carry forwards of approximately $73.3 million, of which $41.5 million relate to operations in Canada and the Netherlands, the tax benefits of which have not been recognized in the Company's consolidated financial statements. Of the total unrecognized losses, $38.9 million expire during 2009-2020 and the remainder have no expiry date. If operations improve to profitable levels in these jurisdictions, and such improvements are sustained for a prolonged period of time, the Company's net earnings will benefit from these loss carryforward pools.

Stock-based Compensation

The Black-Scholes option valuation model was used by the Company to determine fair values of options granted during the year. The Black-Scholes model was developed for use in estimating the fair value of freely traded options, which are fully transferable and have no vesting restrictions. The Company's stock options are not transferable, cannot be traded and are subject to vesting restrictions and exercise restrictions under the Company's black-out policy which would tend to reduce the fair value of the Company's stock options. Changes to subjective input assumptions used in the model can cause a significant variation in the estimate of the fair value of the options. During 2004, the Company used the following assumptions to determine the stock-based compensation expense under the Black-Scholes option pricing model: risk free interest rate - 4.5%, expected life - 4 years and expected volatility - 25%.

Changes in Accounting Policies

Revenue Arrangements with Multiple Deliverables

The CICA recently issued Emerging Issues Committee Abstract No. 142, "Revenue Arrangements with Multiple Deliverables". These abstracts provide guidance on accounting by a vendor for arrangements involving multiple deliverables. They specifically address how a vendor determines whether an arrangement involving multiple deliverables contains more than one unit of accounting and they also address how consideration should be measured and allocated to the separate units of accounting in the arrangement. These abstracts are effective for revenue arrangements entered into by the Company on or after January 1, 2004. The Company has determined that the application of this abstract has not resulted in a change in revenue recognition practices.

Asset Retirement Obligations

In 2003, the CICA issued Handbook Section 3110, "Asset Retirement Obligations" which is effective for fiscal years beginning on or after January 1, 2004. The standard establishes recognition, measurement and disclosure standards applicable to legal obligations associated with the retirement of property, plant and equipment that results from its acquisition, construction, development or normal operations. The Company has assessed the effect of this new standard and has determined that it had no significant impact on the financial statements of the Company.

Stock-based Compensation

In October 2003, the CICA reissued Section 3870 "Stock-based Compensation and Other Stock-based Payments", requiring the use of the fair value-based method for all transactions where goods and services are received in exchange for stock-based compensation and other stock-based payments. The change in Section 3870 is applicable for all years beginning on or after January 1, 2004. During 2004, the Company began to account for employee stock options that are settled by the issuance of common shares using the fair value-based method, resulting in compensation expense of $0.2 million being recorded during this period. An adjustment of $19.5 million was made to opening retained earnings on January 1, 2004 to reflect the adoption of this new standard.

Generally Accepted Accounting Principles

In 2003 the CICA issued Handbook Section 1100 "Generally Accepted Accounting Principles". This section establishes standards for financial reporting in accordance with Canadian GAAP, and describes what constitutes Canadian GAAP and its sources. This section also provides guidance on sources to consult when selecting accounting policies and determining appropriate disclosures when the primary sources of Canadian GAAP are silent. This standard was effective for the Company's 2004 fiscal year. The adoption of this standard resulted in $0.5 million of additional rent expense that will reverse gradually over time in concurrence with the life of the leases. In 2005, the Company expects approximately an additional $1.1 million in expenses due to the adoption of this new standard.

Hedging relationships

In November 2001, the CICA issued Accounting Guideline 13, "Hedging Relationships" ("AcG 13"). AcG 13 established new criteria for hedge accounting effective for the Company's 2004 fiscal year. The Company reassessed all hedging relationships to determine whether the criteria were met and has applied the new guidance on a prospective basis. To qualify for hedge accounting, the hedging relationship must be appropriately documented in the inception of the hedge and there must be reasonable assurance, both at the inception and throughout the term of the hedge, that the hedging relationship will be effective. Effectiveness requires a high degree of correlation of changes in fair values or cash flows between the hedged item and the hedge. Management has documented these hedge relationships where applicable in accordance with the guidance commencing January 1, 2004.

Guarantees

Effective for the year ended December 31, 2004, the Company adopted Accounting Guideline 14, "Disclosure of Guarantees", issued by the CICA in February 2003. This guideline expands on previously issued accounting guidance and requires additional disclosure by a guarantor in its financial statements. This guideline defines a guarantee to be a contract (including indemnity) that contingently requires the Company to make payments to the guaranteed party based on: (i) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, liability or an equity security of the counterparty, (ii) failure of another party to perform under an obligating agreement or (iii) failure of a third party to pay indebtedness when due.

Selected Annual Information

Martinrea's financial year ended December 31, 2002 was a year of significant growth for the Company and building a base for its future. The Company acquired Rea International Inc. ("Rea") in April 2002 and Pilot Industries Inc. ("Pilot") in December 2002. As a result of the acquisitions, revenues for the year ended December 31, 2002 increased significantly over the prior year comparable. Martinrea's employees grew in number from approximately 350 to over 3,000 people. Manufacturing space grew from approximately 400,000 square feet to approximately 2,000,000 square feet. The Company expanded from four plants in the Toronto area to 18 plants internationally, with operations and sales offices in many countries. Upon completing the acquisitions the Company created one of the largest fluid management systems groups in North America. The Company also increased its organic new business. During 2002 Martinrea continued construction of world-class stamping and metal forming facilities. The Company achieved Tier 1 supplier status to major automotive companies.

The financial results of the Company for the year ended December 31, 2002 include the operating results of Rea after the date of acquisition on April 29, 2002, as well as the Company's former Royal Laser operations. The operating results of Pilot were not included, as Pilot was acquired on December 31, 2002. The assets and liabilities of both Rea and Pilot were included in the December 31, 2002 financial statements.

The Rea and Pilot acquisitions and the related financings resulted in significant changes to the operations of the Company. The Rea acquisition gave the Company the ability to develop complete fuel and fluid delivery systems combined with the Company's structural metal forming capabilities. In the Company's view, the future of the automotive industry includes the development of space frames that are functional and not just structural. The Rea acquisition gave the Company the opportunity to provide engineered fluid management for better weight distribution and utilization within future automotive structures, thus eliminating some of the present fluid reservoirs, further reducing weight and cost to customers. The Pilot acquisition on December 31, 2002 provided the Company with an expanded and complementary customer base, a broader geographic presence, a greater share of the fluid management systems market, a broadened technology base, and access to an excellent employee group. In addition, the acquisition accelerated some initiatives and developed significant new product areas, such as the manufacturing of fuel tanks.

Revenues for the year ended December 31, 2003 totaled $608.1 million as compared to $222.0 million for the year ended December 31, 2002. Revenues increased from the prior year comparables primarily due to the inclusion of the Rea and Pilot operations for the entire year of 2003 and increased revenues from the 2003 launch of new programs such as GMT 800 Pick-up fuel bundles, V229 (Ford Freestar) seat frames, metal stamping and assemblies for Epsilon (Malibu, Grand-Am) and Saturn (Saturn Vue and Ion) platforms, fuel fillers for Jaguar and bus frames for Orion Bus. Revenues attributable to new programs totaled $67 million in 2003. Revenues for the year ended December 31, 2004 totaled $582.7 million. The revenue comparison of 2004 versus 2003 is discussed above.

Net earnings for the year ended December 31, 2003 were approximately $15.4 million versus a break-even result for the year ended December 31, 2002. The earnings per share for the year was $0.28 ($0.27 on a fully diluted basis), versus a breakeven result in the prior year. The increases in net earnings from the prior year comparables are primarily attributable to the inclusion of net earnings from the operations acquired as part of the Rea and Pilot acquisitions. The net earnings comparison of 2004 versus 2003 is discussed above.

No dividends were declared in the above periods, given the investments in tooling and capital required to support the Company's growth during this timeframe.

The following table sets forth selected information from the Company's consolidated financial statements for the years ended December 31, 2004, December 31, 2003 and December 31, 2002.


Fiscal Period Ended
(in thousands of Canadian Dollars, except per share amounts)
                                 2004           2003             2002
---------------------------------------------------------------------
Sales                        $582,744       $608,139         $221,956
---------------------------------------------------------------------
Earnings from continuing
 operations                  $ 17,648       $ 24,536         $    949
---------------------------------------------------------------------
Net income                   $ 10,963       $ 15,407         $     10
---------------------------------------------------------------------
Net earning per share
 Basic                       $   0.20       $   0.28         $   0.00
 Diluted                         0.19       $   0.27         $   0.00
---------------------------------------------------------------------
Total assets                 $637,675       $664,218         $622,195
---------------------------------------------------------------------
Total long-term interest
 bearing debt                $ 55,327       $ 62,437         $ 38,420
---------------------------------------------------------------------
Dividends declared                nil            nil              nil
---------------------------------------------------------------------

Outlook

The automotive industry is an extremely challenging business, characterized at the OEM level by intense competition for market share, rebates to consumers, declining automotive profits at North American OEM's, and drives for quality and profits, and characterized at the supplier level by price reductions, increasing quality standards, higher input prices (at least recently) and a declining number of qualified suppliers. The Company believes that the long term outlook of the automotive industry is good, albeit with many challenges, and that many opportunities will exist for innovative and cost effective suppliers who build great products. Growth at the supplier level will occur as OEM's reduce the number of Tier 1 suppliers, continue to outsource product, and provide opportunities for new work and takeover business. Given the Company's stage of its growth, an industry slow-down or consolidation can be viewed as a strategic opportunity to win additional business from competitors producing fluid management systems or metal formed products. The Company also believes that its capabilities provide it with the ability to capitalize on a broad range of opportunities. In 2003 the Company streamlined operations, managed the integration of acquisitions to create efficiencies, strengthened product offerings, took advantage of technological capabilities and created more profitability. The Company built on this in 2004, building a base for the future. The Company aims to continue this successful strategy in 2005 and beyond with a view to increasing revenues and profits.

Forward-Looking Information

In various places in Management's Discussion and Analysis and in other sections of this document, management's expectations regarding future performance of Martinrea was discussed. These "forward-looking" statements are based on currently available competitive, financial and economic data and operating plans but are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations or financial position of Martinrea, as well as statements preceded by, followed by, or that include the words "believes", "expects", "anticipates", "estimates", "projects", "intends", "should" or similar expressions. Important factors, in addition to those discussed in this document, could affect the future results of Martinrea and could cause those results to differ materially from those expressed in any forward looking statements.

Martinrea International Inc. (TSX:MRE)

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