Rutter Inc. Releases 2007 Audited Year End Financial Statements



    ST. JOHN'S, Nov. 29 /CNW/ - Today, Rutter Inc. (TSX: RUT) released its
audited consolidated financial statements for the year ended August 31, 2007.
Summary information is provided in this press release and the full statements
are available on the Company's website at www.rutter.ca or on SEDAR at
www.sedar.com. Chairman and CEO, Donald I. Clarke and Chief Financial Officer,
Karen M. Snook will host a conference call at 9:00 AM eastern time on Monday,
December 3, 2007 to discuss the financial results and recent corporate
developments. Details on the Call have been provided in a separate press
release issued today and posted on the Company's website.
    Revenue from operations for fiscal 2007 was $77,305,000 an increase of
$3,008,000 or 4.0% from operating revenue of $74,297,000 reported for fiscal
2006. The revenue increase consisted of an increase of $4,560,000 in the
Technologies segment offset partially by a decrease in the Controls and
Automation segment revenues of $1,552,000.
    For the year ended August 31, 2007, Rutter is reporting a net loss of
$4,660,000 which translates to both a basic and fully diluted loss per share
of $0.09 as compared to a $0.03 loss per share in 2006. EBITDA(1) for fiscal
2007 was a loss of $758,000, a decrease of $861,000 from EBITDA of $103,000 in
fiscal 2006. The EBITDA decrease consisted of an increase of $1,665,000 in the
Technologies segment and a decrease of $847,000 in corporate costs offset by a
$3,373,000 decrease in the Controls and Automation segment.
    "Solid performances in all areas of our Technologies segment were offset
by challenges faced in the Controls and Automation segment primarily in
Brazil," said Donald I. Clarke, Chairman and CEO of Rutter Inc. "The 61.4%
increase in EBITDA in the Technologies segment is the result of high demand
for our Voyage Data Recorder (VDR), a strong performance from radar products
and a better than expected performance from manufacturing services. The
appreciation of the Canadian dollar coupled with downward pressure on VDR
prices did impact product margins, however this segment of our business
remains solid and we saw the fruits of our diversification efforts as radar
sales increased by 75% this year."
    "Our Controls and Automation operation in Brazil (Unicontrol
International Ltda.) was severely impacted by a combination of challenges in
the last half of fiscal 2007. Year-over- year revenues in Brazil declined by
more than $5 million all related to the last half of the year and $3.5 million
of which relates to the fourth quarter alone," said Clarke. "The decrease in
EBITDA in the Controls and Automation segment as a whole is entirely
attributable to the results from Brazil in the second half. Brazil is
reporting an EBITDA loss of $1,349,000 this year in comparison to positive
EBITDA of $2,549,000 last year. That $3,898,000 swing in EBITDA dealt a
serious blow to our financial performance," Clarke added.
    "As reported previously, unexpected delays in the initiation of new
projects by the Brazilian national oil and gas entity was the single largest
factor impacting third quarter losses but gross margin adjustments on
significant contracts nearing completion also impacted that quarter.
Compounding year-to-date losses in Brazil was recognition of a $671,000 loss
in our DORIS Engenharia joint venture, also impacted by the project gridlock.
While we cannot be certain at this point, the best information we have is that
these delays are not likely to be resolved until the third quarter of fiscal
2008," said Clarke.

    
    -------------------------------------------------------------------------
                           Revenue & Earnings Data
                   (in thousands except per share amounts)
    -------------------------------------------------------------------------
                                              Year          Fourth Quarter
    -------------------------------------------------------------------------
                                        Fiscal    Fiscal
                                          2007      2006   Q4 2007   Q4 2006
    -------------------------------------------------------------------------
    Revenue:
    -------------------------------------------------------------------------
    Controls & Automation              $34,943   $36,495   $13,115   $10,138
    -------------------------------------------------------------------------
    Technologies                       $42,362   $37,802   $13,382   $ 8,754
    -------------------------------------------------------------------------
                                       $77,305   $74,297   $26,497   $18,892
    -------------------------------------------------------------------------
    EBITDA:
    -------------------------------------------------------------------------
    Controls & Automation              $(2,485)  $   889   $(1,072)  $  (469)
    -------------------------------------------------------------------------
    Technologies                       $ 4,378   $ 2,713   $ 1,291   $   140
    -------------------------------------------------------------------------
    Corporate Costs                    $(2,651)  $(3,499)  $  (653)  $  (888)
    -------------------------------------------------------------------------
                                       $  (758)  $   103   $  (434)  $(1,217)
    -------------------------------------------------------------------------
    Net Loss                           $(4,660)  $(1,479)  $  (892)  $  (849)
    -------------------------------------------------------------------------
    Loss Per Share
     (basic and diluted)               $ (0.09)  $ (0.03)  $ (0.00)  $ (0.01)
    -------------------------------------------------------------------------

    "In contrast, and largely as a result of the Hinz acquisition, the North
American Controls and Automation operation experienced a revenue increase of
$3,503,000. Prior to the fourth quarter, revenues in North America had
declined due to general lack of large projects emerging in the local market in
Atlantic Canada coupled with difficulty in securing international work," said
Clarke. "However, we are optimistic about opportunities associated with major
oil and gas and other resource projects coming up in the Atlantic region."
    "With the positive impact of the Hinz acquisition, management expects
revenues from this segment to double and to see significant improvements in
EBITDA in North American Controls and Automation in 2008, Clarke said.

    Segment Performance

    Controls and Automation - Totaling $34,943,000, revenue in the Controls
and Automation segment declined by $1,552,000 or 4.3% in comparison to the
prior year. For fiscal 2007 Brazilian revenues were $15,570,000 as compared to
$20,625,000 reported in 2006. For fiscal 2007, this segment is reporting an
EBITDA loss of $2,485,000 as compared to positive EBITDA of $889,000 in fiscal
2006. This major swing is directly related to the earlier noted project delays
in Brazil. Operations in Atlantic Canada did incur losses and continue to be
scaled to reflect near term opportunities.

    Technologies - Revenues for the year were $42,362,000, an increase of
12.1% over the prior year, and attributable to increased revenues of
$6,877,000 or 48.8% in company owned products. This increase was partially
offset by an expected $2,317,000 decline in manufacturing revenues. As noted
above, Technologies segment revenues were driven by high demand for VDRs in
the lead up to the 2010 compliance deadline and a jump in radar sales largely
attributable to the success of the Company's 'Ice Navigator' radar technology.
The Technologies segment is reporting EBITDA of $4,378,000 up $1,665,000 or
61.4% from the prior year.

    Corporate and Other - Corporate costs decreased from $3,499,000 last year
to $2,651,000 this year, a $848,000 drop. This decrease is primarily due to a
decrease in salary costs of $534,000 related to lower staffing levels and a
decrease in stock based compensation expense of $241,000.

    Income tax expense is $1,367,000 compared to a recovery of $273,000 last
year. The decrease of $1,640,000 is primarily the result of recognition of
valuation allowances against future tax assets that had been set up in Brazil
in the prior year but due to losses incurred in Brazil in the current year had
to be reversed. This tax expense directly impacted the net earnings of the
Company in the fourth quarter and the year.
    Interest on long-term debt increased from $1,787,000 last year to
$2,961,000 this year, an increase of $1,174,000. This increase was largely a
result of the interest on long-term debt due to both increased debt levels and
higher interest rates and from higher amortization of deferred financing costs
related to debentures that were issued in June 2007.
    Interest and bank charges for the fiscal year 2007 were $1,492,000
compared to $798,000 in the prior year. The increase of $694,000 was primarily
the result of higher utilization of the operating line in Canada until its
payout in June, 2007 and interest and accretion recognized on the May, 2006
$2,000,000 notes payable and the March, 2007 $2,000,000 notes payable which
have also been paid out.
    During the year, the Company disposed of its 28% interest in DORIS
Engineering SA ("DORIS") for total proceeds of $15,518,000 ((euro)10,730,000).
The carrying value at the time was $10,955,000 resulting in a gain on the sale
of investment of $4,563,000. Rutter Inc. acquired its shares in DORIS in a
series of transactions between August 2003 and February 2004 for a total cost
of $8,100,000 million.

    Fourth Quarter Summary

    Fourth quarter revenues for Rutter were $26,497,000 in comparison to
$18,892,000 in the same quarter in 2006, an increase of $7,605,000 or 40.0%.
This relates to a strong performance in the Technologies segment which saw its
revenue increase by $4,628,000 or 53% and its EBITDA improve from $140,000
last year to $1,291,000.
    On the strength of the Hinz acquisition, Controls and Automation revenues
in North America rose from $3,478,000 last year to $9,959,000 this year, a
$6,481,000 or 186% increase. Although dampened by losses incurred in Eastern
Canada, EBITDA still improved from a loss of $834,000 for the fourth quarter
last year to positive $237,000 this year, a $1,071,000 improvement.
    In The fourth quarter Controls and Automation revenues in Brazil dropped
from $6,659,000 to $3,156,000, a 53% decrease. Brazil also saw EBITDA swing
from $365,000 in the fourth quarter last year to an EBITDA loss of $1,309,000
this year.
    The Technologies segment performed very well for the quarter. Controls and
Automation segment losses in the quarter are primarily related to the ongoing
contract delays in Brazil and to a lesser extent weakness in eastern Canada.
For the fourth quarter ended August 31, 2007, Rutter is reporting a net loss
of $892,000 which translates to both a basic and fully diluted loss per share
of $0.00 (when rounded) as compared to a $0.01 loss per share in 2006.

    Restructuring to Address Debt

    The Company's borrowings with its senior lender are subject to maintaining
specific financial ratio covenants related to working capital and the
relationship between total funded debt (excluding the $15,000,000 term loan
principal) and EBITDA, third party debt and EBITDA and third party debt and
shareholders' equity. The Company is currently in violation of its EBITDA
related covenants and has not received a waiver of these covenants.
Accordingly, the loans have been reclassified as current debt and will remain
so until such time as the Company and the lender can establish a new
arrangement.
    In the absence of these waivers, the Board of Directors has struck a
Special Committee consisting of two independent Directors and two Directors
involved in the day to day operations of the Company. Its priority in the
coming days and weeks will be to work closely with the lender and in the
shareholders best interest, to identify alternatives and develop a specific
plan for restructuring the Company and the debt. As new information becomes
available on any material decision made by this Committee and/or the lender,
Rutter Inc. will immediately issue a press release informing all shareholders
of such decisions.

    OUTLOOK

    Controls and Automation Outlook

    As disclosed in the press release dated June 7, 2007 (Rutter Closes Hinz
Automation Acquisition and Associated Private Placement) Rutter Inc. acquired
Hinz Automation Inc., a well established controls and automation entity
operating in western Canada and the US.
    The immediate impact of the Hinz acquisition was to more than double the
size of the Controls and Automation segment taking the employee total from
approximately 200 personnel to almost 500. The subsequent integration of Hinz
and Rutter's existing Canadian controls and automation business to form Rutter
Hinz occurred late in fiscal 2007 such that the full impact of this
acquisition upon the earnings of the Company will not be evident until the
following fiscal year. For the year ended September 30, 2006 Hinz' Audited
Financial Statements reflected revenues of $42.4 million. Its normalized
EBITDA for the same period was $6.8 million.
    Rutter Hinz is now more diversified geographically and across industry
sectors. On the strength of overall growth in western Canadian and US
operations and improvements in Brazil and Atlantic Canada later in the year,
2008 is expected to be a transitional year with much improved EBITDA for the
Automation and Controls segment. In addition to initiatives to break Rutter
Hinz into western Canadian oil sands activity, the pending Deep Panuke
offshore oil and gas project and longer term, a final agreement concerning the
Hebron project offshore Newfoundland, all offer considerable opportunity.
    The western Canadian operations, added through the acquisition, are
expected to deliver a strong performance in 2008.The Alberta offices are well
positioned in the oil and gas sector with excellent opportunities to expand in
pipeline automation. Saskatchewan, which has expertise in mining, oil and gas,
and power generation, is expected to have a growth year on the strength of
very active mining and energy sectors. The decision by the Potash Corporation
of Saskatchewan to develop a new mine in New Brunswick provides a significant
opportunity for the Rutter Hinz office in New Brunswick as they are an
existing Rutter Hinz customer in Saskatchewan. A poor outlook in the US
housing market will constrain growth in the Vancouver office but that
operation will remain profitable.
    In eastern Canada, management expects performance to continue to be weak
in the first half of fiscal 2008. However, the region has benefitted from the
formation of the new Rutter Hinz entity and the level of optimism on securing
a significant amount of work in the region later in the year is high as there
are major infrastructure projects pending in refining, mining and offshore oil
and gas; all sectors where Rutter Hinz has experience and in some cases
relationships with the clients.
    Offices in the United States, also added through the acquisition, are
located in Denver, Colorado and San Diego, California. Denver's focus is the
mining and energy sectors and there are positive indications from a number of
long-term clients that significant capital projects will be released in the
coming months. Although San Diego is a small office, Rutter Hinz is gaining
the attention of key customers in the area and management sees considerable
opportunity for growth. The water and wastewater industry is the primary focus
of this office and the southern California water authorities are expected to
make significant capital expenditures in 2008.
    The primary market for Unicontrol, the Company's 74% owned Brazilian
subsidiary, is offshore oil and gas platform work and as noted above, major
projects have been stalled. Unicontrol has historically been a very strong
performer and these delays, which are affecting the entire industry, are not
expected to be resolved until at least the third quarter of 2008 at which time
Unicontrol should return to its former performance levels.

    Technologies Segment Outlook

    The Technologies segment plans to build upon its success in 2007 by
further diversifying its marine product mix, by continuing to work to expand
relationships with existing large customers in its third party manufacturing
operation and by focusing on reducing its overhead costs by achieving greater
process efficiencies.
    Initiatives to diversify the revenue base for Company owned products to
include a broader range of higher margin products began in 2007. In 2008,
Rutter Technologies expects to begin generating new revenue streams from an
electronic charting system and the Vector M military raft light. In addition
to the impact of these new product launches, anticipated ongoing success with
the VDR and momentum in existing radar products are expected to ensure another
strong performance for Company owned products.
    The Technologies segment is also pursuing niche opportunities defined by a
more fundamental recognition that its electrical engineering capabilities and
propriety hardware and software allow the Company to be very competitive in
offering custom solutions for integrated data recording and playback systems.
Applications range from military tactical data recording to commercial
surveillance.
    Rutter Technologies has also diversified and expanded its 21 year
relationship with its large military customer. In 2006, new long-term contract
awards saw Rutter increase sales volume and expand the range of assemblies to
be produced for the Stryker class of light armoured vehicle. In September
2007, the Company announced that it had been successful in winning what
management views as an initial order to produce components for a second
emerging class of light armoured vehicle the RG31. With this broader platform
on which to build and every indication that the RG31 will be in high demand
going forward, Rutter Technologies expects to continue to build on this
opportunity.

    CONCLUSION

    Had it not been for the extenuating circumstances in Brazil, the impact of
the acquisition of Hinz Automation would have resulted in an improvement in
performance of the Controls and Automation segment as a whole. This area of
the business had struggled in Canada with profitability for quite some time
and despite improvements in the current year from the perspectives of both
costs and margins, revenues continued to decline. The newly integrated entity,
Rutter Hinz, with a strong management team and history of profitability, will
benefit from reduced overhead costs and additional sales opportunities for the
larger entity.
    Opportunities for the Brazilian subsidiary are not likely to improve until
the third quarter of fiscal 2008 as marketplace issues delaying project awards
will continue until at least then. Readers should not lose sight of the fact
that up until the last half of fiscal 2007, Unicontrol had been a strong
performer for Rutter and should return to its former level of activity.
    On the other hand, the Technologies segment has achieved a diversification
of business opportunities and is expected to continue to perform well.
    The Company will address its liquidity and lender issues through a Special
Committee of the Board appointed to work with the Company's senior lender to
restructure the Company and its debt. Actions to be taken will be determined
and commenced early in the second quarter.

    About Rutter - Rutter Inc. has two business segments, Controls and
Automation and Technologies. Led by Rutter Hinz Inc., the Controls and
Automation segment is a vendor independent automation and controls systems
engineering enterprise with offices in Canada, the United States and Brazil.
Rutter Technologies Inc. is a global enterprise providing voyage data
recorders, enhanced radar solutions, marine certified interfaces, safety
lights and other custom integrated electronics systems. Rutter Technologies is
also an ISO 9001: 2000 manufacturer of electronics and electronic
subassemblies for clients in the marine, defence and telecommunications
sectors. For more information see www.rutter.ca.

    Forward-Looking Statements

    This press release may contain forward-looking statements that involve
risks and uncertainties. These statements reflect current expectations and are
subject to a number of risks and uncertainties including but not limited to,
change in technology and general market conditions. Due to the many risks and
uncertainties, Rutter Inc. cannot assure that forward-looking statements that
may be contained in this press release will be realized.

    The TSX has not reviewed and does not accept responsibility for the
    adequacy or accuracy of this release.

    ---------------------
    (1) The Company defines EBITDA as Net earnings (loss) before interest
        expense, income taxes, depreciation and amortization, non-controlling
        interest, foreign exchange gains (losses), gain on extinguishment of
        debt and other costs. This is identified on the Company's financial
        statements as "Earnings (loss) before undernoted items". EBITDA is
        not a measure of financial performance under Canadian generally
        accepted accounting principles ("GAAP") and may not be comparable to
        a similar measure used by other companies. The Company has included
        information concerning EBITDA because it believes it is a useful
        financial indicator commonly used by investors. Management uses
        EBITDA as one measure to assess the operating performance of its
        business units.
    
    %SEDAR: 00022015E




For further information:

For further information: Paul Snow, Director of Communications &
Investor Relations, Rutter Inc., (709) 368-3174

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