Rutter Inc. Releases First Quarter Financial Results



    ST. JOHN'S, NL, Jan. 14 /CNW/ - Today, Rutter Inc. (TSX: RUT) released
its unaudited First Quarter Financial Statements for the three month period
ending November 30, 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 Wednesday, January 16, 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.

    Summary

    Revenue from operations for the first quarter of fiscal 2008 was
$23,962,000, an increase of $6,314,000 or 35.8 % from operating revenue of
$17,648,000 reported for the first quarter of fiscal 2007. The revenue
increase consisted of a 58.5% or $4,816,000 increase in Controls and
Automation segment and a 15.9% or $1,498,000 increase in Technologies segment
revenues.
    For the quarter ended November 30, 2007, Rutter is reporting a net loss
of $3,792,000 which translates to both a basic and fully diluted loss per
share of $0.05 as compared to a $0.04 loss per share for the same quarter in
fiscal 2007. EBITDA for the quarter was a loss of $217,000. This modest
improvement from a loss of $441,000 in the first quarter of the prior year is
attributable to positive EBITDA of $618,000 in the Technologies segment offset
by an EBITDA loss of $230,000 in Controls and Automation and corporate costs
of $605,000 for the quarter.
    "With the addition of Hinz Automation, Controls and Automation revenues
in North America increased from $3,515,000 to $10,189,000 a 190% increase that
also saw EBITDA swing from a loss of $366,000 in the same quarter a year ago
to positive EBITDA of $207,000 in the current quarter," said Donald I. Clarke,
Chairman and CEO of Rutter Inc. "Six months into the Hinz acquisition we are
seeing considerable improvement in our Controls and Automation results in
North America with more improvement to come, particularly at the EBITDA line.
Unfortunately, these significant improvements continue to be dampened by
Brazil where political circumstance continue to gridlock the award of major
oil and gas contracts by the national oil company. In comparison to a year
ago, quarterly revenues in Brazil have fallen from $4,716,000 to $2,858,000
and more significantly we have seen EBITDA swing from essentially a break even
a year ago to a loss of $437,000 in this quarter," he said.
    "Unfortunately the gridlock in the award of oil and gas contracts in
Brazil has served as a strong reminder of the risks associated with owning an
asset that is largely dependent on a single customer in a single market,"
stated Clarke. "Although there are indications that things may return to
normal in the third quarter of the current fiscal year, there is no guarantee
that that will be the case or that Unicontrol will recover quickly from the
significant losses it has incurred over these past three quarters. After
assessing these risks, the Board has concluded that it is the best interest of
Rutter Inc. and its shareholders to divest of this asset. We are currently
pursuing negotiations with potential buyers with a view to concluding a deal
and gaining all appropriate regulatory approvals in the current quarter. This
will minimize the risk of future losses and enable the Company to concentrate
on expansion of its North American operations," he added.
    "The Technologies segment continues to perform well and we are
successfully diversifying our offering in this area of our business. Revenues
are up $1,498,000 on the strength of our military contracts and continuing
brisk VDR sales, however we have not seen a corresponding increase in EBITDA
this quarter," said Clarke. "This is largely due to the impact of the falling
U.S. dollar against the Canadian dollar. In response, Rutter has entered into
a formal gain sharing initiative to improve overall manufacturing operations
and has renegotiated pricing on a number of key supplier inputs that impact
our overall manufacturing costs."
    "With the exception of Brazil, Rutter saw significant revenue growth in
both business segments and Technologies continues to deliver solid overall
performance, despite competitive pressures and a strong Canadian dollar," said
Clarke. "Below the EBITDA line a $2,246,000 increase in the quarterly net loss
in comparison to a year ago is largely attributable to a $1,276,000 increase
in interest on long-term debt and depreciation and amortization costs that
have increased by over a million dollars since acquiring Hinz."

    
    -------------------------------------------------------------------------
                           Revenue & Earnings Data
                   (in thousands except per share amounts)
    -------------------------------------------------------------------------
                                                         Q1 2008     Q1 2007
    -------------------------------------------------------------------------
    Revenue
    -------------------------------------------------------------------------
    Controls & Automation - North America               $ 10,189    $  3,515
    -------------------------------------------------------------------------
    Controls & Automation - South America                  2,858       4,716
    -------------------------------------------------------------------------
    Total  Controls & Automation                        $ 13,047    $  8,231
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Technologies - Third Party Manufacturing            $  6,245    $  5,079
    -------------------------------------------------------------------------
    Technologies - Company Owned Products                  4,670       4,338
    -------------------------------------------------------------------------
    Total Technologies                                  $ 10,915    $  9,417
    -------------------------------------------------------------------------
    EBITDA:
    -------------------------------------------------------------------------
    Controls & Automation - North America               $    207    $   (366)
    -------------------------------------------------------------------------
    Controls & Automation - South America                   (437)         (3)
    -------------------------------------------------------------------------
    Total Controls & Automation                         $   (230)   $   (369)
    -------------------------------------------------------------------------
    Technologies                                        $    618    $    661
    -------------------------------------------------------------------------
    Corporate Costs                                         (605)       (733)
    -------------------------------------------------------------------------
    Total EBITDA                                        $   (217)   $   (441)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net  Loss                                           $ (3,792)   $ (1,546)
    -------------------------------------------------------------------------
    Loss Per Share                                      $  (0.05)   $  (0.04)
    -------------------------------------------------------------------------
    

    Segment Performance and Details

    Controls and Automation - The $4,816,000 increase in revenue in
comparison to the prior year is attributable to a $6,674,000 revenue increase
in North American operations offset partially by a $1,858,000 decrease in
South American revenues. The North American increase is entirely attributable
to the acquisition of Hinz in the fourth quarter of the prior year. Prior to
the fourth quarter, controls and automation revenues were declining in the
North American portion of the Controls and Automation business due to a
general lack of large project work available in the Atlantic Canadian market
and difficulty in securing international work.
    The decline in South American revenue is consistent with the trend that
had developed in the second half of the prior year. As noted, the Brazilian
operation continues to be adversely impacted by delays relating to initiation
of new projects anticipated from the principal Brazilian oil and gas
production company. This is the direct result of a political situation within
Brazil and has impacted all companies that depend upon the oil and gas
industry in that country. As indicated earlier, Rutter will divest of its
ownership in Unicontrol international Ltda., the Company's asset in Brazil.
    The $230,000 EBITDA loss in the Controls and Automation segment overall
represents a $139,000 improvement from a loss of $369,000 for the comparative
period in the prior year. This is the result of an increase in EBITDA in
North America of $573,000 offset by a decrease in EBITDA in Brazil of
$434,000. North American EBITDA was $207,000 versus a loss of $366,000 and
reflects the impact of the Hinz acquisition. The EBITDA loss of $437,000 in
Brazil is significantly higher than a nearly breakeven position in the
comparative quarter of the prior year.

    Technologies - The earlier noted 15.9% or $1,498,000 increase in
Technologies segment revenue is largely the result of a 23% increase in third
party manufacturing revenues and a 7.7% increase in revenues from company
owned products. Third party manufacturing increases are primarily due to a
$1,688,000 or 72% increase in revenue from the Company's major military
customer. Company owned product revenues have increased both in the radar and
VDR product lines with the growth in radar revenues accounting for 79% of the
revenues growth. This reflects a continuing strong demand for Rutter's VDR and
growing interest and sales for the radar product line, including the Company's
Ice Navigator product.
    At $618,000 Technologies segment EBITDA has decreased by $43,000 in
relation to $661,000 reported for the same quarter a year ago. As explained
earlier, this is primarily due to the impact of the falling US dollar as
measured against the Canadian dollar and management has taken specific action
to address this challenge going forward.

    Corporate and Other - Corporate costs decreased by $128,000, from
$733,000 for the comparative quarter last year to $605,000 for the same
quarter this year. The decrease in the current year was primarily due to lower
staffing levels.
    Depreciation and amortization expenses for the quarter were $1,565,000
versus $511,000 for the comparative quarter last year, an increase of
$1,054,000. This is primarily attributable to the cumulative impact of a
$919,000 increase in amortization of intangibles and increase in the
depreciation of capital assets of $149,000 both related to the Hinz
acquisition.
    Interest on long-term debt increased from $414,000 in the comparative
quarter last year to $1,690,000 this quarter, an increase of $1,276,000. 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 the debentures that were issued in June
2007. Offsetting some of the increased interest on long term debt was a
$236,000 decrease in bank related interest and charges. This decrease was
primarily the result of the payout of the operating line in Canada and the
repayment of the May 2006 $2,000,000 notes payable during the fourth quarter
of fiscal 2007.
    Foreign exchange losses were significant in the quarter due to the
strengthening of the Canadian dollar versus the US dollar. At November 30,
2007, the period end rates used for the US dollar as compared to the Canadian
dollar were 0.99 versus 1.0609 at August 31, 2007.

    Equity Income - Equity income during the quarter was $65,000 down from
$597,000 reported in the first quarter of fiscal 2007. This decrease of
$532,000 relates to the divestiture of the Company's 28% interest in DORIS
which was completed during final quarter of fiscal 2007.

    Outlook Summary

    Controls & Automation - As noted at year end, Rutter Inc. acquired Hinz
Automation to grow and strengthen its position in the North American controls
and automation market. The subsequent integration of Hinz and Rutter's
existing Canadian controls and automation business began late in fiscal 2007
and the Company has already seen significant revenue increases in Controls and
Automation at year end and in the first quarter and improved EBITDA
performance in North America. We expect these improvements to continue in 2008
as the new Rutter Hinz entity continues to benefit from the integration
process.
    With overall growth expected in western Canadian and US operations and
expected improvements in Atlantic Canada later in the year, 2008 is expected
to be a transitional but profitable year for the Controls and Automation
segment. On the strength of activity in the oil and gas, mining and power
generation sectors western Canadian operations are expected to deliver a
strong performance in 2008. While a poor outlook in the US housing market will
constrain growth in the Vancouver office, that operation is expected to remain
profitable.
    In eastern Canada, management expects performance to continue to be weak
in the first half of fiscal 2008. However, the region continues to benefit
from being part of the new Rutter Hinz entity and the level of optimism on
securing a significant amount of work in the region 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.
    In the United States, the Denver office is expecting a number of
long-term clients in the mining and energy sectors to release significant
capital projects in the coming months. Though relatively small, the Rutter
Hinz office located in San Diego sees considerable opportunity in southern
California where municipal water authorities are expected to make significant
capital expenditures in 2008.

    Technologies - In the Technologies segment, 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.
    Rutter Technologies continues to enjoy strong demand for its VDR and
brisk sales are expected to continue until at least 2010 at which time most
existing internationally traveling vessels will have been retrofitted with a
unit. The Company expects some slowing of VDR sales after 2010 as only
new-build vessels expected to travel in international waters will require
them. However, Rutter is aware that several countries are at various stages of
requiring domestic ferries and Ro Ro vessels to carry a VDR and this could
create a very significant new market for this product.
    As noted at year end, Rutter has seen a significant increase in demand
for its sigma S6 radar technology and Q1 sales were up significantly over the
same period a year ago. The Company will see additional staff dedicated to
radar sales in the second quarter and fully expects to see sales growth in
this product line in 2008.
    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. Potential applications range from military tactical data recording to
commercial surveillance.
    Rutter Technologies expanded its 21 year relationship with its military
customer in 2006 and 2007, signing new long-term contracts that have increased
sales volume and expanded the range of assemblies the Company now produces. 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, designated as Mine
Resistant and Ambush Protected (MRAP) vehicles. 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 see an increase in its military
business in 2008.

    Conclusion and Special Committee Update

    Since the Hinz acquisition, Rutter Inc. has seen improvement in the
performance of the Controls and Automation segment in North America. With the
sale of Unicontrol, the Company will eliminate its exposure to additional
losses in Brazil and free up resources to concentrate on integration and
further performance improvements in North American operations. This, combined
with a continuing solid performance from the Technologies segment, should
result in a significant improvement in the overall financial performance of
the Company in the coming quarters. Rutter's cash position is strong and
conclusion of the sale of Unicontrol will further strengthen the Company's
ability to generate positive cash flow.
    As was announced at year end, Rutter Inc. is in violation of certain
financial ratio covenants with its senior lender and has struck a Special
Committee of the Board to work with that lender to look at restructuring and
other solutions to reduce the Company's debt load and bring these covenants
back in line. The Committee has made several recommendations to the Board,
including the recommendation to divest of the Unicontrol assets in Brazil.
    "Rutter's principal lender is working closely with the Special Committee
and the Board and is supportive of the Company's current initiatives and long
term strategy." stated Donald I. Clarke, Chairman and CEO of Rutter Inc. "As
new information becomes available on any material decision made by the Board
and/or the lender, be assured Rutter Inc. will immediately issue a press
release informing all shareholders of such decisions," Clarke reiterated.

    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.
    %SEDAR: 00022015E




For further information:

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


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