MISSISSAUGA, ONTARIO -- (Marketwire) -- 11/30/08 -- MTI Global Inc. (TSX: MTI) today reported its financial results for the three-month period ended September 30, 2008.
Q3 Highlights:
- MTI Global is optimizing Aerospace operations following the completed offload of manufacturing to Mexico and has largely completed the consolidation of operations in its N.A. Silicone division
- Sales for the three months ended September 30, 2008 were $17.6 million, an increase of 12.9% from last year's sales of $15.5 million
- Aerospace sales were $7.3 million for the quarter, an increase of 52.1% over last year's sales of $4.8 million resulting from an increase in sales volume
- EBITDA(1) for the quarter was negative $2.2 million, although restructuring charges during the quarter were $1.3 million
- Gross margin for the quarter was $3.1 million, an increase of $0.7 million or 26.9% over last year while the gross margin percentage increased to 17.9% from 15.9%
- The net loss for the quarter was $6.8 million or twenty four cents per share
- The Company breached the following financial covenants with its principal Canadian lenders and is in continuing discussions seeking to obtain a waiver of these breaches:
- Earnings before interest, taxes and depreciation
- Fixed charge coverage
- Due to changes in economic circumstances and the performance of the Company, the Company determined that there had been impairment in the carrying value of N.A. Silicone's and Leewood's goodwill and accordingly, recorded a write-down in the amount of $3.4 million. The Company failing its Step One Goodwill and Intangible Asset Test was the cause of the delayed financial reporting, announced in the November 12, 2008 MTI Global news release, as additional time was required to quantify the amount of the impairment.
Bill Neill, MTI Global's President and Chief Executive Officer stated, "We remain optimistic that we will report further improvements in sales and operating performance through the fourth quarter of 2008, despite sales slippage at MTI Milton caused by the downturn in the automotive industry. MTI Global's primary goal continues to be focused on improving margins with reduced operating costs in the fourth quarter and beyond."
(1) EBITDA consists of earnings before interest expense, income taxes, depreciation, amortization, goodwill impairment charges, subordinated debt financing and warrant re-pricing charges, and non-controlling interest. MTI Global believes EBITDA is a useful measure in the evaluation of performance. EBITDA is not a measure recognized under Generally Accepted Accounting Principles ("GAAP") and does not have a standardized meaning as prescribed by GAAP. Therefore, EBITDA may not be comparable to similar measures presented by other entities. Investors are cautioned that EBITDA should not be construed as an alternative to net loss determined in accordance with GAAP.
"We have finally begun to see benefits from the new calander line in Richmond and have also successfully completed the consolidation of our N.A. Silicone operations from three facilities into two. During the quarter, our results were negatively affected due to a number of items including non-cash charges such as goodwill impairment and warrant re-pricing charges."
Mr. Neill added, "From an operational standpoint, while the third quarter showed some improvements, the fourth quarter is expected to show continued improvements for both top and bottom lines. Additionally, the Canadian dollar against the U.S. dollar has been working in our favour and is expected to positively affect our results."
Sales
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Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
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Polyfab
Aerospace $7,291 $4,793 $20,323 $17,312
Fabricated Products 824 944 2,658 3,516
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Total Polyfab 8,115 5,737 22,981 20,828
Silicone
N.A. Silicone 5,333 5,723 16,862 14,207
Leewood 2,988 2,982 9,696 9,385
Sterne 1,116 1,099 3,648 3,413
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Total $17,552 $15,541 $53,187 $47,833
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Income (Loss) Before Income Taxes and Non-controlling Interest
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Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
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Polyfab $(514) $(1,025) $(1,043) $(353)
N.A. Silicone (1,241) (354) (1,487) (278)
Leewood (3,082) (151) (3,658) (544)
Sterne (75) 147 32 353
Corporate (1,938) (583) (5,792) (1,810)
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Total $(6,850) $(1,966) $(11,948) $(2,632)
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Financial Results:
Sales for the three months ended September 30, 2008 were $17.6 million, approximately 12.9% ahead of last year's sales of $15.5 million. This included an increase of approximately $157,000 due to the impact of currency fluctuations in the U.S. dollar and the Euro compared to 2007.
Aerospace sales of $7.3 million for the quarter were ahead of prior year's sales for the comparable period due to an increase in sales volume. Coincidently, sales decreased by approximately $157,000 due to the lower U.S. dollar compared to exchange rates in effect last year.
Fabricated Products sales of $824,000 were approximately 12.7% less than prior year's sales of $944,000 for the same period. This was primarily due to a decline in sales to the automotive and sporting goods markets.
N.A. Silicone sales of $5.3 million in 2008 decreased by $390,000 or approximately 6.8% compared to sales of $5.7 million for the three months ended September 30, 2007. The decrease is principally due to a weakening in the automotive sector. Sales decreased by $16,000 as a result of the lower U.S. dollar compared to exchange rates in effect in 2007.
Leewood sales of $3.0 million for the three months ended September 30, 2008 remained the same compared to prior year's sales.
Sterne sales of $1.1 million for the three months ended September 30, 2008 were $17,000 higher than last year's sales. This included an increase of approximately $90,000 due to the appreciation in the Euro.
On a percentage basis, Aerospace accounted for 42% of total sales, compared to 31% for the same period last year. Silicone sales represented 54% of total sales, compared to 63% for the comparable period last year. Fabricated Products accounted for 4% of total sales, compared to 6% for last year.
The gross margin for the three months ended September 30, 2008 was $3.1 million, an increase of $666,000 or approximately 26.9% over the prior year. The gross margin percentage increased to 17.9% from 15.9%. The increase was primarily due to improved margins at Leewood with the operation of the continuous oven line and the elimination of redundant costs in Polyfab that were present in 2007 as a result of outsourcing the majority of Aerospace manufacturing to Mexico.
Total operating expenses for the three months ended September 30, 2008 of $5.4 million were $1.6 million higher than in the same period in 2007 and include $1.3 million of restructuring costs largely attributable to changes in the business operations.
Plant and laboratory expenses of $671,000 were $178,000 higher than in the same period last year due to Polyfab costs associated with the Mexican contract manufacturing operation and additional staff at Leewood. Sales and marketing expenses of $1.5 million increased $203,000 from the prior year due to increased headcount at Leewood and Sterne. Administrative expenses of $1.8 million increased $186,000 from the same period last year. The increase is primarily due to an increase in professional fees.
MTI Polyfab's loss before taxes and non-controlling interest for the three months ended September 30, 2008 of $514,000 was $511,000 lower than last year's loss of $1 million. The decrease in the loss is due to reduced operating costs in Canada and the outsourcing of its Aerospace manufacturing to Mexico. These costs were significantly eliminated in the third quarter of 2008. Loss before income taxes and non-controlling interest for the nine months ended September 30, 2008 of $1.0 million was $690,000 higher than last year's loss of $353,000.
The net loss for the quarter was $6.8 million or twenty four cents per share compared to a net loss in the prior year of $2.1 million or eight cents per share.
Goodwill Impairment:
As at September 30, 2008, due to changes in economic circumstances and the performance of the Company, the Company assessed the fair value of all the reporting units to which underlying goodwill is attributed. As a result of this assessment, the Company determined that there had been impairment in the carrying value of N.A. Silicone's and Leewood's goodwill and, accordingly, recorded a write-down in the amount of $3.4 million.
The determination that the fair value of N.A. Silicone's and Leewood's goodwill was less than its carrying value arose from the application of a higher discount rate and a more modest forecast due to changes in economic circumstances and the performance of the Company that in combination resulted in goodwill impairment.
The Company failing its Step One Goodwill and Intangible Asset Test was the cause of the delayed financial reporting, announced in the November 12, 2008 MTI Global news release, as additional time was required to quantify the amount of the impairment.
Outlook:
While revenues improved mainly as a result of increased sales in Aerospace and gross margin improvements realized at Polyfab and Leewood, third quarter results remained below expectations. The Company continued to incur higher than expected outsourced manufacturing costs as material and conversion costs remained elevated in addition to incurred restructuring costs related to the consolidation of N.A.
