- New terms of lending agreement stabilize credit facilities, defer approximately US$44 million of principal repayments - Lending facilities include fully advanced term loan of US$184 million, existing US$7.6 operating facility, which is currently fully drawn, and C$4 million letter of credit facility, and a new operating facility totaling C$16 million as well as an additional C$4.5 million letter of credit facility - Lenders to obtain five-year warrants to acquire equity stake with ownership amount tied to debt reduction - Fourth quarter revenue growth results in fiscal 2008 revenue of C$309 million and EBITDA of C$51 million. Net loss for year of C$436 million includes non-cash charges for impairment of goodwill and other acquisition and amortization charges totaling C$527 million - Investor call scheduled for 8:30am December 30, 2008
OTTAWA, Dec. 29 /CNW Telbec/ - Allen-Vanguard Corporation (TSX: VRS) ("Allen-Vanguard" or the "Company") of Ottawa, Canada today announced that it has agreed to new credit terms ("New Credit Terms") with its lending syndicate ("Lenders") that re-sets financial covenants, defers approximately US$44 million of principal repayments and provides the Company with new facilities providing C$16 million in credit and C$4.5 million of letters of credit, both of which are for working capital. Closing is expected to occur by December 31, 2008, and is subject only to final completion of pending formal documentation. Pursuant to the New Credit Terms, certain Lenders will, upon execution of the definitive documentation giving effect to the New Credit Terms, be issued five-year warrants giving them the right to acquire 19.9% of the Common Shares in Allen-Vanguard, and may on April 30, 2009 be issued additional warrants or receive a share appreciation right, all as outlined below, if the Lenders have not permanently been repaid at least US$50 million by April 30, 2009. Allen-Vanguard also reported its results for the fourth quarter and fiscal year ended September 30, 2008 and filed its MD&A for the period. All figures are in Canadian dollars unless otherwise noted.
"With the announcement today of the terms of our new lending arrangements, we have stabilized our credit facilities, with a strong incentive to reduce our debt over the course of the next year," said David E. Luxton, President and CEO. "The continued support of our Lenders alleviates the short-term uncertainty of funding our business activities and growth, and allows us to take a more considered approach to debt reduction on terms that we hope will be less dilutive than other alternatives for existing shareholders. Meanwhile, the new credit terms enable us to exploit and finance global business opportunities, in pursuit of an equity value more reflective of the strong fundamentals in our business."
Summary of the New Credit Terms
Full details of the terms of the New Credit Terms are included in Note 10 to the Financial Statements of Allen-Vanguard, and in the MD&A, both of which have been filed on SEDAR today (www.sedar.com).
- The maturity date of the existing revolving facilities and term loan remains May 2011. The terms of the new operating facility and the new letter of credit facility are one year and two years, respectively. - Scheduled quarterly principal payments on the term loan of US$9.7 million which were due September 30, 2008, December 31, 2008 and March 31, 2009 are deferred to May 6, 2011, which is the maturity date of the term loan; scheduled quarterly principal payments due in 2009 on June 30, September 30, and December 31 are reduced to US$4.9 million; and scheduled quarterly principal payments due in 2010 and at March 31, 2011 remain at US$9.7 million. Interest on the term loan is at US base rate + 4.5% per annum payable monthly. Interest on the new operating facility is at US base rate + 5.5%, subject to a minimum interest rate of 10.0%.
The Company will, upon execution of the definitive documentation giving effect to the New Credit Terms, issue to those Lenders participating in the new credit facilities five-year warrants to acquire up to 27,092,367 common shares of the Company, representing an equity stake of 19.9% in Allen-Vanguard, which warrants are exercisable at a price of $0.2114 per share. In addition, if the Company has not repaid at least US$50 million of the principal amount outstanding under the New Credit Terms by April 30, 2009, such Lenders are entitled to a share appreciation right giving them the right to a cash payment equivalent to the increase in value of a further 20% equity interest in Allen-Vanguard over the following five years above $0.2114 or, in lieu thereof and subject to shareholder approval, five year warrants exercisable into a further 10% equity interest in Allen-Vanguard, at an exercise price of $0.2114 per share. If the Company has not completed a capital raise of at least US$50 million by September 30, 2009 on terms acceptable to the Lenders, the Lenders also have the option to convert the term loan to equity on terms to be agreed, failing which agreement the term loan will become payable on demand on January 31, 2010.
Financial Results for fourth quarter and year ended September 30, 2008
In summary, the Company recorded a strong upturn in the fourth quarter after a very disappointing third quarter. Revenue for the fourth quarter was $46.2 million, which represented a decline of 7.6% from $50.0 million in the fourth quarter a year ago, but a sequential growth rate of 48% over the third quarter. Revenue growth reflected a recovery in sales of Electronic Systems which more than doubled in the quarter, and a 40% increase in sales of Personal Protective Systems. For the fiscal year, revenue was $309.0 million compared to $96.2 million a year ago. Due to the major acquisitions and transformation activity of Allen-Vanguard which took place in the last half of fiscal 2007, year-over-year financial comparisons are not meaningful.
Allen-Vanguard recorded a net loss for the fourth quarter of $372.3 million, or $3.41 per share, and a net loss for the fiscal year of $436.3 million, or $4.06 per share. Included in the fiscal year loss were significant non-cash charges, including write-downs to goodwill and other intangible assets of $380.0 million, and amortization of acquisitions and financing-related charges of $146.8 million. The net loss for the year also included previously announced restructuring charges for severance and other costs of downsizing its global workforce and rationalizing manufacturing facilities of $1.5 million, with a further $4.0 million of restructuring charges anticipated in fiscal 2009. In fiscal 2007, the net loss was $14.0 million, or $0.26 per share.
The Company recorded an EBITDA(1) loss of $5.3 million in the fourth quarter compared to EBITDA(1) of $8.4 million a year ago, and compared to an EBITDA(1) loss of $9.6 million in the third quarter. The EBITDA(1) losses in the second half of fiscal 2008 were largely the result of delays in timing of major orders of Electronic Counter Measures ("ECM") equipment and components to strategic U.S. partners, General Dynamics and Lockheed Martin. This in turn led to a significant under-absorption of fixed overheads, resulting in negative operating margins. This was also reflected in the Company's reported gross margin. The Company has responded by announcing on September 25, 2008, a restructuring program, which included a 15% reduction in staff and consolidation of two facilities. In the fourth quarter, gross margin was 35.7%, compared to 38.6% last year, and a recovery from the low-water mark of 26.4% in the third quarter. Gross margin performance in Electronic Systems and Personal Protection Services improved strongly in the fourth quarter, however the Services division's gross margin was negative, primarily due to order delays on several major training contracts, with a resulting under-absorption of training salaries included in cost of sales. The Company noted that a large order signed immediately following the fourth quarter is expected to result in services margins in FY2009 more in line with historical levels.
Overhead expenses, which include selling and administration expenses and R&D activities, expanded to $21.8 million in the fourth quarter, up from $17.8 million in the third quarter and $11.0 million one year ago. The sequential increase was due to professional fees associated with refinancing activities. For the fiscal year, overhead expenses were $71.1 million, compared to $30.3 million in the previous year. These overhead expenses are expected to have peaked in the fourth quarter, as the Company will benefit from the announced restructuring and associated efficiency gains in operations and administration expected to reduce selling and administration costs by approximately $6.5 million per year. The full effect of this cost reduction is expected to commence in the second quarter of fiscal 2009.
At September 30, 2008, Allen-Vanguard's balance sheet recorded assets of $427.1 million, down from $941.0 million last year, with the decrease due to the write-down of goodwill and other intangible assets including technology and customer relationships associated with the Med-Eng and HMS acquisitions. Net working capital stood at $20.0 million, compared to $24.4 million at the end of fiscal 2007. Total bank debt was $202.9 million and shareholders' equity was $96.5 million, or $0.88 per share.
Outlook for fiscal 2009
Allen-Vanguard said that one of the most important value drivers for fiscal 2009 is financial restructuring on terms that are appropriate for all stakeholders and result in a capital structure where the Company is consistently profitable and has the flexibility to pursue attractive business opportunities. The extended timeframe provided by the New Credit Terms means that management will now have an opportunity to consider alternative recapitalization scenarios, several of which have already been proposed by outside strategic parties.
In addition, value will be created by driving revenue from Allen-Vanguard's suite of proprietary products and services to its diversified global customer base, with strong gross margins that reflect the Company's technology leadership position, and with overhead costs appropriate to the revenue level and benefit from cost-cutting initiatives that have just been implemented.
As previously reported, the Company anticipates revenue in the range of $325 million. Downside risk to this forecast is attributable mainly to timing of ECM orders as the industry awaits clarification of defense spending priorities following the U.S. presidential election, while upside potential will come from new products, in particular Micro Climate Systems, vehicle blast protection seats and personal counter-IED armor. The overall gross margin is anticipated to be approximately 40%, which will be an average of the high margins on proprietary personal protection products where the company has global market shares in excess of 50% and the lower margins on services and systems. Recurring overhead expenses including general and administrative expenses and R&D are anticipated to be approximately $60 million for the year.
The Company said that revenue for the first quarter has continued to grow strongly on a sequential basis, with an anticipated growth rate of 40% - 50% over the fourth quarter, bringing the revenue run rate back up to close to $300 million. Backlog at September 30, 2008 was $101.4 million, which had risen to approximately $120 million at October 31, and at the present time continues to range between $100 and $120 million.
Mr. Luxton concluded, "We have had many serious discussions with various strategic and financial players interested in investing or partnering with us in our technologies and growth; but these discussion have been clearly hampered by the lack of certainty around our banking arrangement. Now that our credit facilities are stabilized with the New Credit Terms this uncertainty is removed, providing a much clearer basis on which to resume discussions with these interested parties with the objective of enhancing the long-term sustainability of our business and value for existing shareholders."
(1) "EBITDA, which is defined as earnings (loss) before interest, taxes,
dividends, depreciation and amortization, is not a financial measure
recognized by Canadian generally accepted accounting principles ("GAAP")
and does not have a standardized meaning prescribed by GAAP. The Company
believes that this Non-GAAP financial measure provides meaningful
information on the Company's performance and operating results. Readers
are cautioned that EBITDA has no standardized meaning as prescribed by
GAAP and may not be comparable to similar measures presented by other
companies. Further, readers are cautioned that EBITDA should not replace
net income or loss or cash flows from operating, investing and financing
activities (as determined in accordance with GAAP), as an indicator of
the Company's performance."
Allen-Vanguard will host an investor and analyst conference call and
webcast as follows:
Date: Tuesday, December 30, 2008
Time: 8:30 a.m. ET
Dial-in numbers: 1-800-731-6941
1-416-644-3417
Web access:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID(equal sign)2508880
For those unable to listen to the call live, a replay will be available
for a two week period beginning at 10:30 a.m. ET on December 30, 2008. The
replay phone number is 877-289-8525 and the access code is 21292641 (pound
key).
Forward looking statements
This press release may contain forward-looking statements, which reflect Allen-Vanguard's current expectations regarding future events, its strategy, expected performance and condition, including the timing and amount of repayment of debt and anticipated revenues. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects," "anticipates," "plans," "believes," "estimates" or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future acquisitions or dispositions, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company and economic factors. Forward-looking statements are not promises or guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made about the Company. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. We stress that the above-mentioned list of important factors is not exhaustive. We encourage you to consider these and other factors carefully before making any investment decision and we urge you to avoid placing undue reliance on forward-looking statements. Further, you should be aware that the Company disclaims any obligation to publicly update or revise any such forward-looking statements whether as a result of new information, future events or otherwise, prior to the release of the next Management Discussion and Analysis to be released by the Company or except as required by law.
About Allen-Vanguard
Allen-Vanguard Corporation supports the mission of military and homeland security forces around the world with leading proprietary solutions for protection and counter-measures against hazardous devices of all kinds, whether chemical, biological, radiological or explosive (CBRNE), including improvised explosive devices (IEDs) and remotely controlled IEDs (RCIEDs). Allen-Vanguard equipment is in service in more than 120 countries. Products include Electronic Counter-Measures ("ECM") equipment for jamming remote detonation of terrorist devices, specialty security equipment for Explosive Ordnance Disposal ("EOD"), remote intervention robots for hazardous applications, and personal protective wear for use in dealing with explosive and bio-chemical agents. Allen-Vanguard is the developer and/or sole, worldwide licensee of proprietary technologies such as the Med-Eng bomb suit, the Defender(TM) and Vanguard(TM) Mk2 bomb disposal robots, and the Universal Containment System and CASCAD Foam system for blast mitigation and decontamination of bio-chemical warfare agents. Professional services encompass counter-IED intelligence, training and advisory services, including the Triton(TM) Report on terrorist incidents around the world. The Company operates globally through its wholly-owned subsidiaries under the names "Allen-Vanguard", "Med-Eng" and "Hazard Management Solutions". Head office operations are located in Ottawa, Ontario, Canada, with manufacturing operations in Stoney Creek and Pembroke, Ontario; Ogdensburg, New York; Tewkesbury, U.K.; and Cork, Ireland; The Company has professional services operations in Shrivenham, UK, Canada and in the U.S. in Arlington, Virginia, plus sales offices in Canada, the U.S., the U.K. and Asia. Allen-Vanguard's shares are listed on The Toronto Stock Exchange (TSX) under the symbol "VRS".
To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our website at www.allenvanguard.com.
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