Rutter Inc. Releases Third Quarter Results



    ST. JOHN'S, July 15 /CNW/ - July 15, 2008 /CNW/ - Today, Rutter Inc.
(TSX: RUT) released its unaudited financial statements for the nine month
period ending May 31, 2008. Summary information is provided in this press
release and should be read in conjunction with the financial statements and
MD&A that are available on the Company's website at www.rutter.ca or on SEDAR
at www.sedar.com.
    President and CEO, Ryan Hinz and Chief Financial Officer, Karen M. Snook
will host a conference call at 9:00 AM eastern time on Thursday, July 17, 2008
to discuss the financial results and recent corporate developments. Details on
the call have been provided in a separate press release issued on July 9, 2008
and posted on the Company's website.

    SUMMARY OF RESULTS

    The Company's quarterly and year-to-date results are summarized in the
    tables below:

    
    -------------------------------------------------------------------------
                   (in thousands except per share amounts)
    -------------------------------------------------------------------------
                     Three     Three    Change      Nine      Nine    Change
                    months    months              months    months
                      2008      2007                2008      2007
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Revenue       $ 22,329  $ 13,698  $  8,631  $ 64,215  $ 38,394  $ 25,821
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    EBITDA(1)          282       (85)      367     1,707      (234)    1,941
    -------------------------------------------------------------------------
    Other costs/
     income(2)       4,606      1,233    3,373    11,939     3,332     8,607
    -------------------------------------------------------------------------
    Net loss from
     Discontinued
     Operations       (507)     (908)      401    (1,607)     (177)   (1,430)
    -------------------------------------------------------------------------
    Net loss        (4,830)   (2,226)   (2,604)  (11,838)   (3,768)   (8,070)
    -------------------------------------------------------------------------
    Loss Per
     Share        $  (0.06) $  (0.05) $  (0.01) $  (0.15) $  (0.09) $  (0.06)
    -------------------------------------------------------------------------


    ---------------------------
    (1) The Company defines EBITDA as net earnings (loss) before interest
        expense, income taxes, depreciation and amortization, non-controlling
        interest, foreign exchange gains (losses), equity income, 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.

    (2) Other costs/income include: Depreciation and amortization; Interest
        on long-term debt; Interest and bank charges; Other items and Equity
        income; all of which are separately disclosed in the Company's
        financial statements.


    -------------------------------------------------------------------------
                               (in thousands)
    -------------------------------------------------------------------------
                     Three     Three    Change      Nine      Nine    Change
                    months    months              Months    Months
                      2008      2007                2008      2007
    -------------------------------------------------------------------------
    Controls and Automation
    -------------------------------------------------------------------------
    Revenue       $ 11,213  $  2,878  $  8,335  $ 31,850  $  9,414  $ 22,436
    -------------------------------------------------------------------------
    EBITDA             918      (615)    1,533     1,829    (1,324)    3,153
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Technologies
    -------------------------------------------------------------------------
    Revenue
    -------------------------------------------------------------------------
    Third party
     manufacturing   6,113     5,060     1,053    17,570    13,930     3,640
    -------------------------------------------------------------------------
    Company owned
     products        5,003     5,760      (757)   14,795    15,050      (255)
    -------------------------------------------------------------------------
    Total revenue   11,116    10,820       296    32,365    28,980     3,385
    -------------------------------------------------------------------------
    EBITDA            (164)    1,172    (1,336)    1,426     3,088    (1,662)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Corporate
     Costs            (472)     (642)      170    (1,548)   (1,998)      450
    -------------------------------------------------------------------------
    

    RESULTS & OUTLOOK

    The improvements in both revenue and EBITDA performance are driven
largely by the acquisition of Hinz Automation (Hinz) in the fourth quarter of
fiscal 2007 and its subsequent integration with the Company's Controls and
Automation assets. EBITDA performance in the quarter was significantly
hampered by an increase in warranty provision of $1,500,000 required to
address specific warranty issues in the Technologies segment.

    Controls and Automation -The continued increase in revenue and EBITDA
performance in this segment reflect the impact of the acquisition of the
Company's Controls and Automation assets in western Canada and the US. This
acquisition occurred in the final quarter of the prior year and accordingly,
prior year comparatives reflect only the operating results of the Atlantic
Canadian operation which had been struggling on an ongoing basis with
profitability. Positive momentum has been evident in the Controls and
Automation segment over the course of each quarter of the current year.
One-half of the improvement in year to date EBITDA performance occurred during
the third quarter due largely to increasing levels of business in most
Controls and Automation offices beginning in the second quarter and also due
to the completion of integration efforts near the end of the first quarter.
    Project workload is expected to continue to improve in the western Canada
and US operations and there has been significant turnaround in the Maritimes
locations. The segment has had recent significant project awards in the hydro
and mining sectors as well as ongoing project awards in several locations in
the energy sector. While there are still some challenges in eastern Canada,
the operations have been organized to optimize the use of available resources
and the outlook continues to improve.
    Fiscal 2008 was expected to be a transitional year for the Controls and
Automation segment, with improving quarters expected over the course of the
year. The significant improvement in EBITDA in the second and third quarters
reconfirms management's expectation that EBITDA performance will continue to
improve in this segment.

    Technologies - The increase in revenue in this segment during the quarter
is attributable to third party manufacturing primarily with telecommunications
customers whereas year to date growth was achieved with both military and
telecommunications customers due to high level of activities in both sectors.
Due to the additional expense of $1,500,000 recognized in the quarter with
respect to warranty issues, EBITDA performance has declined on both a
quarterly and year to date basis. Excluding the impact of this warranty
provision would result in relatively consistent EBITDA performance as compared
to the prior year. That consistency of EBITDA at a time when revenues have
grown is due to a number of factors impacting gross margin performance: the
negative impact of the falling US dollar as measured against the Canadian
dollar, particularly on military customer sales; the decrease in average
selling price of the VDR unit resulting in a lower gross margin per unit; a
later than anticipated introduction of cost saving initiatives for the VDR
product; and additional costs incurred due to increasing levels of activity.
    The Technologies segment expects continued strong demand for VDRs due to
regulatory requirements, growth in demand for its radar and light products,
and strong revenue streams in the third party manufacturing driven by activity
levels of the two primary customers. The segment continues to focus on
improving internal efficiencies to ensure cost effectiveness at both cost of
sales and selling, general and administrative expense levels.

    Other items & Net loss - For the quarter, the net loss has increased by
$2,604,000 as compared to the same quarter last year and by $8,070,000 for the
comparative nine month period. Contributing to the change are: increased
depreciation and amortization; increased interest on long-term debt; severance
and contract termination costs; reduced equity income; and on a year to date
basis only, an increase in net loss from discontinued operations.
    Amortization of intangible costs arising from the prior year's Controls
and Automation acquisition have reduced net earnings by $948,000 this quarter
and $2,873,000 year to date as compared to the same periods of the prior year.
Included in this figure is $1,583,000 of amortization of non-compete
agreements which are now substantially amortized at the end of the current
quarter.
    High borrowing costs due both to the high debt load and associated high
interest rates, including an additional 2% premium interest for the current
quarter on term debt due to defaults of covenants in the original loan
agreements, have contributed to the net loss with an increase in interest on
long-term debt of $1,742,000 for the quarter and $4,289,000 for the nine
months as compared to the prior year. As reported at August 31, 2007, the
Company was in violation of certain financial ratio covenants with its senior
lender and had established a Special Committee of the Board to work with the
lender to look at restructuring and other solutions to reduce the Company's
debt load and bring these covenants back in line. The Special Committee
concluded an amending agreement early in the quarter but due to the impact of
the increased warranty provision, the Company has not met the revised EBITDA
covenant as of May 31, 2008.
    One time severance and contract termination costs included in the current
quarter and year to date, totaling $1,032,000, have also impacted the
Company's current results.
    The equity income decrease of $298,000 for the quarter and $1,174,000 for
the nine month period as compared to the comparative period last year reflects
the disposal of the Company's interest in DORIS Engineering SA which occurred
during the final quarter of fiscal 2007.
    For the quarter, the net loss from discontinued operations was reduced by
$401,000 as compared to last year. On a year to date basis, losses in the
Brazilian subsidiary have increased by $1,430,000 as compared to the same
period of the prior year. These results are reflective of operational
challenges which began in the subsidiary over a year ago due to delays by the
key Brazilian oil company in awarding its next major project work. This
subsidiary is now presented as a discontinued operation in the Company's
financial statements as a result of the decision to divest of the Company's
interest.
    To reach profitability, the Company must address its high debt levels and
high borrowing costs and must reach a level of EBITDA that enables the Company
to meet its original financial covenants with its lenders. Improving EBITDA in
the continuing operations will assist ongoing efforts to address the long term
debt structure.

    CONCLUSION

    "With strong revenue growth in both segments, management is focused on
improving EBITDA performance," said Ryan Hinz, President and CEO of Rutter
Inc. "Management of the Technologies segment is continuing to review its cost
structure and implement strategies to generate greater efficiencies. We have
had challenges with warranty issues on our VDR product but I am pleased with
the actions taken by management and we are confident those issues are
resolved, enabling EBITDA performance of this segment to return to expected
levels in the coming months," he added. "The acquisition of Hinz, completed
last year had a slow start but is bringing continually improving results
throughout our Controls and Automation segment and is expected to continue to
show improvements in future. Revenue in both Rutter's reporting segments
continued to show growth over the prior year's results and provides a solid
basis on which to make the necessary adjustments to ensure the Company
achieves success," he concluded.

    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, defense 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: Karen M. Snook, Chief Financial Officer, Rutter
Inc., (709) 368-3174; Dan Herder, Corporate Secretary, Rutter Inc., (709)
368-3174


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