MTI Global Inc.
TSX : MTI

MTI Global Inc.

November 30, 2008 18:08 ET

MTI Global Reports Fiscal 2008 Third Quarter Results

MISSISSAUGA, ONTARIO--(Marketwire - Nov. 30, 2008) - 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
-----

Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
--------------------------------------------------------------
--------------------------------------------------------------
Polyfab
Aerospace $7,291 $4,793 $20,323 $17,312
Fabricated Products 824 944 2,658 3,516
--------------------------------------------------------------
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
--------------------------------------------------------------
Total $17,552 $15,541 $53,187 $47,833
--------------------------------------------------------------
--------------------------------------------------------------


Income (Loss) Before Income Taxes and Non-controlling Interest
--------------------------------------------------------------


Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
---------------------------------------------------------------
---------------------------------------------------------------
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)
---------------------------------------------------------------
Total $(6,850) $(1,966) $(11,948) $(2,632)
---------------------------------------------------------------
---------------------------------------------------------------


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. Silicone and goodwill impairment charges.

At Polyfab, margins were lower as the Company incurred higher than expected material conversion costs, all of which the Company is addressing. MTI Global expects sales in Aerospace to continue growing as well as margin improvements in the fourth quarter of 2008 and into fiscal 2009. We expect margin improvements will be driven by actions taken to improve the effectiveness of manufacturing processes in Mexico. Additionally, as the transition of our Aerospace manufacturing to Mexico is complete and consequently, our costs and revenues are now better aligned in U.S. dollars, the Company expect this will positively affect our results going forward.

In Fabricated Products, MTI Global continues to experience difficult sales volume as a result of the automotive sector downturn and a softening in the seasonal sporting goods market. However, the Company has augmented its sales group in Fabricated Products and continues to seek a broader range in its offering to customers.

In N.A. Silicone, activity with transit seating foam customers began to increase in the latter half of the second quarter and continued into the third quarter. Sales of Magnifoam, the principal product at the Richmond, Virginia plant, were ahead of expectations. While this increase was insufficient to offset sales slippage at MTI Milton, a new calander oven line at the Richmond plant went into production during the quarter. This division is now able to sell and ship a wider variety of silicone materials and the Company expects full production to begin as materials are certified. The consolidation is now substantially complete and the Company expects to see improvements in margins beginning in the fourth quarter of 2008 and into fiscal 2009.

As a result of the consolidation of N.A. Silicone, the land and building in Buchanan, Virginia has been listed for sale. The N.A. Silicone division also continues to experience the pressure of higher raw material prices.

At Leewood, management expects continued sales growth in 2008 as it finally begins to ship in increasing volumes on the Airbus A380. The third quarter showed a marginal increase in year-over-year sales. Margin improvement is a key goal in 2008, and the division is delivering on this goal. Leewood is realizing stronger margins from its new business lines and operational savings on its current business although it is facing pressure from higher material input prices. Management expects further improvements through scrap reduction and quality control, as well as more strategic pricing.

At Sterne, management expects sales to continue to grow in the last quarter of 2008 and beyond in 2009. Success will be primarily dependent on Sterne's ability to grow clean room manufacturing sales and to expand its distribution sales for MTI Leewood's products.

The Company has experienced operating losses caused by major delays in customer orders, unfavourable foreign exchange rates, and changes in economic conditions affecting some of its customer markets. MTI Global has responded quickly and implemented a number of measures and restructuring actions to address these issues, which have necessitated higher capital requirements. In order to strengthen the Company's balance sheet and realize on its restructuring investments, MTI Global is evaluating all alternatives available to the Company on an ongoing basis.

Finally, disciplined operations management is integral to achieving sales growth and improved results. Based on early indications of the Canadian dollar value against the U.S. dollar, the Company is increasingly confident about a return to profitability with aerospace programs fully relocated to Mexico, consolidated operations in N.A. Silicone, and growth in European operations.

About MTI Global Inc.:

MTI Global Inc. (TSX: MTI) designs, develops and manufactures custom-engineered products using silicone and other cellular materials. The Company serves a variety of specialty markets focused on three main product categories: Silicone, Aerospace and Fabricated Products. MTI Global's manufacturing divisions develop and produce silicone foam using patented technology. The Company designs and fabricates energy management systems from a variety of flexible, cellular materials. MTI Global also produces and distributes specialty silicone elastomer products. MTI Global's primary markets are aerospace and mass transit. Secondary markets include sporting goods, automotive, industrial, institutional, electronics, and the medical market through a 51% interest in MTI Sterne SARL of Cavaillon, France. MTI Global's head office and Canadian manufacturing operations are located in Mississauga, Ontario, with international manufacturing operations located in Richmond, Virginia; Pensacola, Florida; Bremen, Germany; and a contract manufacturer venture in Ensenada, Mexico. The Company also has sales operations in England and Sweden, and an engineering support centre in Brazil. The Company's website is www.mtiglobalinc.com.

Investors, analysts and the media are invited to participate in a conference call to discuss the 2008 Third Quarter results on Monday, December 1, 2008, at 10:50 a.m. (Eastern). To join the conference call, please dial 1-800-732-6179 (Canada and U.S). The conference call can also be accessed via the web at www.newswire.ca. A replay of the conference call will be available for one week by dialing 416-640-1917 (Toronto area only) or 1-877-289-8525 and entering reservation no. 21290805#.

Notes to financial statements and additional financial reporting details can be found at www.sedar.ca. The foregoing press release contains forward-looking statements and is subject to important risks and uncertainties. Although MTI Global believes that the expectations reflected in any forward-looking statements are reasonable, the results or events predicted in these statements may differ materially from actual results or events. Forward looking statements are based on estimates and assumptions derived from past experience, historical trends, current conditions and expected future developments. Many factors could cause results or events to differ from current expectations, including the impact of price and product competition, general industry and market conditions and growth rates and reliance on key customers. For additional information with respect to these and other factors, see the reports filed by MTI Global Inc. with the applicable securities regulatory authorities at www.sedar.com. MTI Global Inc. disclaims any intention or obligation to update or revise any forward-looking statements, except as may be required under applicable securities laws.

Financial Statements Follow



Unaudited Interim Consolidated Balance Sheets
---------------------------------------------


As at As at
September 30, December 31,
(In thousands of Canadian dollars) 2008 2007
------------------------------------------------------------------
------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ - $1,254
Cash deposited as collateral 657 651
Short-term investment 1,972 -
Accounts receivable 12,165 11,774
Income taxes recoverable 40 20
Inventories 9,840 9,967
Prepaid expenses and deposits 408 424
------------------------------------------------------------------
25,082 24,090

Property, plant and equipment 12,318 13,240
Asset held for sale 625 -
Goodwill 6,729 9,930
Intangibles 581 689
Deferred development costs 9,890 10,046
------------------------------------------------------------------
$55,225 $57,995
------------------------------------------------------------------
------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness 8,510 $7,255
Accounts payable and accrued expenses 8,140 7,389
Subordinated debt 7,000 -
Current portion of long-term debt 434 3,670
-----------------------------------------------------------------
24,084 18,314

Long-term debt 1,825 1,852
Non-controlling interest 292 264
------------------------------------------------------------------
26,201 20,430
------------------------------------------------------------------

Commitments and contingencies

Shareholders' equity
Share capital 55,102 55,102
Contributed surplus 1,119 1,022
Warrants 1,474 -
Accumulated other comprehensive loss (2,482) (4,117)
Deficit (26,189) (14,442)
------------------------------------------------------------------
29,024 37,565
------------------------------------------------------------------
$55,225 $57,995
------------------------------------------------------------------
------------------------------------------------------------------





MTI Global Inc.
Unaudited Interim Consolidated Statements of Deficit
----------------------------------------------------

Nine months Nine months
ended September ended September
(In thousands of Canadian dollars) 30, 2008 30, 2007
--------------------------------------------------------------------
--------------------------------------------------------------------

Deficit, beginning of period $(14,442) $(6,384)
Cumulative effect of
adopting new accounting standards 212 -
Net loss for the period (11,959) (2,820)
--------------------------------------------------------------------
Deficit, end of period $(26,189) $(9,204)
--------------------------------------------------------------------
--------------------------------------------------------------------




MTI Global Inc.
Unaudited Interim Consolidated Statements of Operations
-------------------------------------------------------


Three Three Nine Nine
months months months months
(In thousands of Canadian ended ended ended ended
dollars, except per September September September September
share amounts) 30, 2008 30, 2007 30, 2008 30, 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Sales $17,552 $15,541 $53,187 $47,833

Cost of sales 14,412 13,067 42,708 37,643
--------------------------------------------------------------------------
Gross margin 3,140 2,474 10,479 10,190
--------------------------------------------------------------------------
Operating expenses
Plant and laboratory 671 493 2,124 1,636
Sales and marketing 1,494 1,291 4,248 3,937
Administrative 1,825 1,639 5,532 4,897
Restructuring costs 1,279 227 2,606 227
Foreign exchange loss 80 144 42 424
--------------------------------------------------------------------------
5,349 3,794 14,552 11,121
--------------------------------------------------------------------------
Operating loss before the
following items (2,209) (1,320) (4,073) (931)
--------------------------------------------------------------------------
Amortization of property,
plant and equipment 27 47 229 305
Amortization of intangibles 52 52 152 52
Amortization of deferred
development costs 526 408 1,520 1,073
Goodwill impairment 3,426 - 3,426 -
--------------------------------------------------------------------------
4,031 507 5,327 1,430
--------------------------------------------------------------------------
Loss before other items,
income taxes and non controlling
interest (6,240) (1,827) (9,400) (2,361)
--------------------------------------------------------------------------
Other items
Interest on long-term debt 61 96 292 263
Interest on subordinated debt 224 - 288 -
Other interest expense 147 43 423 154
Write-down of equipment 104 - 104 -
Subordinated debt financing and
warrant re-pricing charges 85 - 1,474 -
Interest and other income (11) - (33) (146)
--------------------------------------------------------------------------
610 139 2,548 271
--------------------------------------------------------------------------
Loss before income taxes and
non-controlling Interest (6,850) (1,966) (11,948) (2,632)
--------------------------------------------------------------------------
Income taxes
Current income tax expense
(recovery) (10) 33 (10) 57
Future income tax expense - 83 - 5
--------------------------------------------------------------------------
(10) 116 (10) 62
--------------------------------------------------------------------------
Loss before non-controlling
interest (6,840) (2,082) (11,938) (2,694)
Non-controlling interest (32) 48 21 126
--------------------------------------------------------------------------
Net loss for the period $(6,808) $(2,130) $(11,959) $(2,820)
--------------------------------------------------------------------------
Loss per share
Basic and diluted $(0.24) $(0.08) $(0.43) $(0.10)
--------------------------------------------------------------------------
--------------------------------------------------------------------------




MTI Global Inc.
Unaudited Interim Consolidated Statements of Comprehensive Loss
---------------------------------------------------------------

Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
(In thousands of Canadian dollars) 30, 2008 30, 2007 30, 2008 30, 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net loss for the period $(6,808) $(2,130) $(11,959) $(2,820)
---------------------------------------------------------------------------
Other comprehensive income (loss)
Net change in cumulative
translation adjustment (47) (1,227) 1,790 (3,048)
Unrecognized gain (loss) on
foreign currency forward contracts - 162 (155) 390
---------------------------------------------------------------------------
(47) (1,065) 1,635 (2,658)
---------------------------------------------------------------------------
Comprehensive loss $(6,855) $(3,195) $(10,324) $(5,478)
---------------------------------------------------------------------------
---------------------------------------------------------------------------




MTI Global Inc.
Unaudited Interim Consolidated Statements of Cash Flows
-------------------------------------------------------

Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
(In thousands of Canadian
dollars) 30, 2008 30, 2007 30, 2008 30, 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Cash flows from operating
activities
Net loss for the period $(6,808) $(2,130) $(11,959) $(2,820)
Adjustments for non-cash items
Amortization 962 885 2,964 2,449
Future income taxes - 83 - 5
Write-down of equipment 104 - 104 -
Unrealized foreign exchange loss 510 87 989 359
Stock option expense (recovery) 32 (9) 97 70
Subordinated debt financing and
warrant re-pricing charges 85 - 1,474 -
Goodwill impairment 3,426 - 3,426 -
Non-controlling interest (32) 48 21 126
--------------------------------------------------------------------------
(1,721) (1,036) (2,884) 189
Cumulative effect of adopting
new accounting standards - - 212 -
Net change in non-cash working
capital balances 374 (268) (49) (2,143)
--------------------------------------------------------------------------
Cash used in operating activities (1,347) (1,304) (2,721) (1,954)
--------------------------------------------------------------------------
Cash flows from investing
activities
Purchase of property, plant and
equipment (209) (80) (467) (696)
Acquisition - (3,245) - (3,245)
Deferred development costs
capitalized (336) (389) (958) (1,316)
--------------------------------------------------------------------------
Cash used in investing activities (545) (3,714) (1,425) (5,257)
--------------------------------------------------------------------------
Cash flows from financing
activities
Repayments of long-term debt (273) (245) (3,409) (791)
Proceeds from subordinated debt - - 7,000 -
Decrease (increase) short-term
investment 1,028 - (1,972) -
Proceeds from term loan - 3,000 - 3,000
Increase (decrease) in bank
indebtedness (400) 1,393 1,255 3,686
Decrease (increase) in cash
deposited as collateral 50 (9) (5) 35
--------------------------------------------------------------------------
Cash provided by financing
activities 405 4,139 2,869 5,930
--------------------------------------------------------------------------
Foreign exchange on cash and
cash equivalents (22) (7) 23 (47)
--------------------------------------------------------------------------
Net decrease in cash during the
period (1,509) (886) (1,254) (1,328)
Cash and cash equivalents,
beginning of period 1,509 1,037 1,254 1,479
--------------------------------------------------------------------------

Cash and cash equivalents, end
of period $ - $151 $ - $151
--------------------------------------------------------------------------
Supplemental cash flow
information
Cash paid for interest $433 $157 $1,042 $445
Cash paid for income taxes $ - $ 2 $ 38 $ 17
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Contact Information

  • MTI Global Inc.
    Bill Neill
    President & Chief Executive Officer
    (905) 564-9700
    Email: mti@magnifoam.ca
    Website: www.mtiglobalinc.com
    or
    Fleishman-Hillard Canada
    Anne Lachance
    Investor Relations
    (416) 214-0701