- 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, 2008OTTAWA, 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=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.
%SEDAR: 00018026E
For further information: Robin Sundstrom, (647) 822-8111,
ir@allenvanguard.com
