Chronicle Journal: Finance

Avcorp announces 2018 Third Quarter Financial Results

VANCOUVER, Nov. 14, 2018 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Corporation", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended September 30, 2018. All amounts are in Canadian currency unless otherwise stated.

2018 Highlights

Key financial results include:

  • Third quarter 2018 operating loss was reduced by $4,100,000, in comparison to the same quarter in 2017, primarily as a result of increased revenues, consolidation of costs and improved operating effectiveness; after the benefit of amortization to income of unfavourable contracts liability and onerous contracts provisions, and the income impact of a claim settlement and termination of contract, have been removed.

  • During the third quarter 2018 production of a certain unfavourable contract was terminated after the customer stopped issuing purchase orders to the Company and redirected production requirements to another supplier, giving rise to the full amortization of the unfavourable contracts liability and related onerous contract provision into income. This has been recorded in the Condensed Interim Consolidated Statements of Income and Comprehensive Income as a Termination of Contract in the amount of $40,758,000.

  • On August 20, 2018, the Company entered into a settlement agreement with a customer, in the amount of $2,219,000, which provided the Company a Net Claim Settlement in satisfaction of existing and potential claims, causes of action, and disputes between the Company and its customer.

  • On a year-to-date basis, negative 2018 cash flows used in operating activities were reduced by $15,906,000, over the same period in 2017.

  • On March 28, 2018, the Company signed a loan agreement to expand the current agreement with a Canadian Chartered Bank, supported by a major and material customer, to access an additional USD$10 million operating line of credit.

  • On August 24, 2018, the Company signed a non-revolving term loan agreement with Panta in the principal amount of USD$3,500,000.

Review of 2018 Third Quarter Financial Results

For the quarter ending September 30, 2018, the Avcorp Group recorded income from operations totaling $41,070,000 from $44,862,000 revenue, as compared to $6,644,000 operating losses from $36,267,000 revenue for the same quarter in the previous year. It should be noted that third quarter 2018 operating income benefited by $3,330,000 income from amortization of an unfavourable contract liability and onerous contracts provision into income (September 30, 2017: $2,693,000). During the third quarter 2018 production of a certain unfavourable contract was terminated after the customer stopped issuing purchase orders to the Company and redirected production requirements to another supplier, giving rise to the full amortization of the unfavourable contracts liability and related onerous contract provision into income. This has been recorded in Condensed Interim Consolidated Statements of Income and Comprehensive Income as a Termination of Contract in the amount of $40,758,000. On August 20, 2018, the Company entered into a settlement agreement with a customer, in the amount of $2,219,000, which provided the Company a net settlement in satisfaction of existing and potential claims, causes of action, and disputes between the Company and its customer. Increased sales and continued consolidation of operating costs have resulted in reduced current quarter operating losses, in comparison to the same quarter in 2017 after the benefit of amortization to income of unfavourable contracts liability and onerous contracts provisions, and the income impact of a claim settlement and termination of contract, have been removed.

During the quarter ended September 30, 2018, cash flows from operating activities, excluding the impact of changes in non-cash working capital, utilized $3,490,000 of cash as compared with utilization of $8,114,000 of cash during the quarter ended September 30, 2017; a significant improvement, primarily attributable to a reduction in operating losses during 2018 in comparison to 2017. Changes in non-cash working capital during the current quarter utilized $3,693,000 as compared to the same quarter previous year during which non-cash working capital utilized $4,238,000; primarily as a result of prepayments made by a customer on future program deliveries.

As at September 30, 2018, the Company had $2,923,000 cash on hand (December 31, 2017: $5,212,000) and had utilized $81,454,000 of its operating line of credit (December 31, 2017: $61,283,000). The Company has a working capital deficit of $58,480,000 as at September 30, 2018 which has decreased from the December 31, 2017 $63,038,000 deficit. Working capital surplus/deficit is defined as the difference between current assets and current liabilities. However, the Company's accounts receivable, contract assets, and inventories net of accounts payable, amount to a $39,689,000 surplus as at September 30, 2018 (December 31, 2017: $38,464,000 surplus). The Company's accumulated deficit as at September 30, 2018 is $125,670,000 (December 31, 2017: $157,185,000).

The Company's complete financial statements and management's discussion and analysis for the year ended December 31, 2017 and quarter ended September 30, 2018 can be found at www.avcorp.com or at www.sedar.com.

About Avcorp

The Avcorp Group designs and builds major airframe structures for some of the world's leading aircraft companies, including BAE Systems, Boeing, Bombardier, Lockheed Martin and Subaru Corporation.  The Avcorp Group has more than 60 years of experience, over 700 skilled employees and 636,000 square feet of facilities. Avcorp Structures & Integration located in Delta British Columbia, Canada is dedicated to metallic and composite aerostructures assembly and integration; Avcorp Engineered Composites located in Burlington Ontario, Canada is dedicated to design and manufacture of composite aerostructures, and Avcorp Composite Fabrication located in Gardena California, USA has advanced composite aerostructures fabrication capabilities for composite aerostructures. The Avcorp Group offers integrated composite and metallic aircraft structures to aircraft manufacturers, a distinct advantage in the pursuit of contracts for new aircraft designs, which require lower-cost, light‑weight, strong, reliable structures.  Comtek Advanced Structures Ltd., at our Burlington, Ontario, Canada location also provides aircraft operators with aircraft structural component repair services for commercial aircraft. 

Avcorp Composite Fabrication Inc. is wholly owned by Avcorp US Holdings Inc.  Both companies are incorporated in the State of Delaware, USA, and are wholly owned subsidiaries of Avcorp Industries Inc.

Comtek Advanced Structures Ltd., incorporated in the Province of Ontario, Canada, is a wholly owned subsidiary of Avcorp Industries Inc.

Avcorp Industries Inc. is a federally incorporated reporting company in Canada and traded on the Toronto Stock Exchange (TSX:AVP).

AMANDEEP KALER
CHIEF EXECUTIVE OFFICER
AVCORP GROUP

Forward-Looking Statements

This release should be read in conjunction with the Company's unaudited financial statements contained in the Company's Annual Report and with the quarterly financial statements and accompanying notes filed with Sedar (www.sedar.com).

Certain statements in this release and other oral and written statements made by the Company from time to time are forward-looking statements, including those that discuss strategies, goals, outlook or other non‑historical matters; or projected revenues, income, returns or other financial measures.  These forward‑looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following:  (a) changes in worldwide economic and political conditions that impact interest and foreign exchange rates; (b) the occurrence of work stoppages and strikes at key facilities of the Corporation or the Corporation's customers or suppliers; (c) government funding and program approvals affecting products being developed or sold under government programs; (d) cost and delivery performance under various program and development contracts; (e) the adequacy of cost estimates for various customer care programs including servicing warranties; (f) the ability to control costs and successful implementation of various cost reduction programs; (g) the timing of certifications of new aircraft products; (h) the occurrence of downturns in customer markets to which the Corporation products are sold or supplied or where the Corporation offers financing; (i) changes in aircraft delivery schedules or cancellation of orders; (j) the Corporation's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by original equipment manufacturer customers; (k) the availability and cost of insurance; (l) the Corporation's ability to maintain portfolio credit quality; (m) the Corporation's access to debt financing at competitive rates; (n) uncertainty in estimating contingent liabilities and establishing reserves tailored to address such contingencies; and (o) integration of newly acquired operations and associated expenses may adversely affect profitability.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited, expressed in thousands of Canadian dollars)


September 30, 2018

December 31, 2017

ASSETS



Current assets



Cash

$2,923

$5,212

Accounts receivable

26,821

18,942

Claim settlement receivable

2,396

-

Contract assets

16,601

-

Inventories

25,112

42,781

Prepayments and other assets

5,487

4,390


79,340

71,325

Non-current assets



Prepaid rent and security

146

146

Development costs

10,634

8,623

Property, plant and equipment

28,329

29,318

Intangibles

3,342

3,864

Total assets

121,791

113,276




LIABILITIES AND EQUITY



Current liabilities



Bank indebtedness

81,454

61,283

Accounts payable and accrued liabilities

28,845

23,259

Current portion of term debt

164

1,285

Customer advance

6,061

7,227

Deferred program revenues

15,972

17,131

Unfavourable contracts liability

-

16,881

Onerous contract provision

5,324

7,297


137,820

134,363

Non-current liabilities



Guarantee fee

2,217

575

Deferred gain and lease inducement

-

100

Term debt

7,651

1,885

Deferred program revenues

-

110

Unfavourable contracts liability

-

27,579

Onerous contract provision

285

6,069


147,973

170,681

(Deficiency) Equity



Capital stock

86,219

82,905

Contributed surplus

6,397

6,979

Accumulated other comprehensive income

6,872

9,896

Accumulated deficit

(125,670)

(157,185)


(26,182)

(57,405)

Total liabilities and (deficiency) equity

121,791

113,276

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited, expressed in thousands of Canadian dollars, except number of shares and per share amounts)


Three months ended
September 30

Nine months ended
September 30


2018

2017

2018

2017

Revenues

$44,862

$36,267

$131,430

$111,521






Cost of sales

39,361

38,244

119,514

122,175






Gross profit (loss)

5,501

(1,977)

11,916

(10,654)






Administrative and general expenses

7,259

4,589

17,705

15,561

Office equipment depreciation

149

78

438

216

Net termination of contract

(40,758)

-

(40,758)

-

Net claim settlement

(2,219)

-

(2,219)

-






Operating income (loss)

41,070

(6,644)

36,750

(26,431)






Finance costs – net

1,585

664

3,968

2,094

Foreign exchange (gain) loss

(749)

1,136

(890)

2,529

Net loss on sale of equipment

-

-

-

15






Income (loss) before income tax

40,234

(8,444)

33,672

(31,069)






Income tax expense

-

-

-

-






Income (loss) for the period

40,234

(8,444)

33,672

(31,069)






Other comprehensive income (loss)

1,130

2,088

(3,024)

4,718






Net income (loss) and total comprehensive income (loss) for
the period

41,364

(6,356)

30,648

(26,351)






Income (loss) per share:










Basic and diluted income (loss) per common share

0.12

(0.03)

0.10

(0.10)






Basic and diluted weighted average number of shares outstanding (000's)

339,408

320,036

338,080

311,487

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, expressed in thousands of Canadian dollars)


Three months ended
September 30

Nine months ended
September 30


2018

2017

2018

2017

Cash flows (used in) operating activities





Net loss for the period

$40,234

$(8,444)

$33,672

$(31,069)

Adjustment for items not affecting cash:





Interest expense

1,583

664

3,961

1,506

Depreciation

1,171

980

3,357

3,009

Development cost amortization

332

235

1,881

1,127

Intangible assets amortization

341

306

1,008

980

Non-cash financing cost accretion

2

-

7

588

Loss on disposal of equipment

-

-

-

15

Provision for unfavourable contracts

(1,334)

(2,693)

(6,195)

(7,127)

Provision for onerous contracts

(1,996)

-

(5,376)

-

Provision for obsolete inventory

343

(366)

1,505

(281)

Stock based compensation

29

178

580

575

Net termination of contract

(40,758)

-

(40,758)

-

Net claim settlement

(2,219)

-

(2,219)

-

Unrealized foreign exchange

(1,193)

1,058

(489)

875

Other items

(25)

(32)

(91)

(100)

Cash flows (used in) operating activities before changes in non-cash working capital

(3,490)

(8,114)

(9,157)

(29,902)

Changes in non-cash working capital





Accounts receivable

775

1,021

(6,079)

3,604

Contract assets

990

-

(2,446)

-

Inventories

2,071

(3,808)

162

(4,952)

Prepayments and other assets

(1,464)

(1,783)

(2,034)

(670)

Accounts payable and accrued liabilities

2,001

418

5,175

(5,966)

Customer advance payable

(502)

(961)

(2,660)

(3,169)

Deferred program revenues

(7,564)

875

(1,965)

6,145






Net cash (used in) operating activities

(7,183)

(12,352)

(19,004)

(34,910)






Cash flows (used in) from investing activities





Proceeds from consideration receivable

-

-

-

12,378

Proceeds from sale of equipment

-

-

-

20

Purchase of equipment

(632)

(463)

(1,463)

(1,144)

Addition of developed software

-

(485)

(371)

(1,022)

Payments relating to development costs and tooling

(1,692)

(1,053)

(3,892)

(3,025)






Net cash (used in) from investing activities

(2,324)

(2,001)

(5,726)

7,207






Cash flows from (used in) financing activities





Increase in bank indebtedness

-

24,485

17,961

35,150

Payment of interest

(847)

(60)

(2,010)

(633)

Proceeds from term debt

5,466

260

5,664

1,473

Exercise of warrants

938

-

938

-

Repayment of term debt

(58)

(3,668)

(211)

(4,961)






Net cash from financing activities

5,499

21,017

22,342

31,029






Net (decrease) increase in cash

(4,008)

6,664

(2,388)

3,326






Net foreign exchange difference

62

(2,504)

99

224






Cash - Beginning of the period

6,869

3,350

5,212

3,960






Cash - End of the period

2,923

7,510

2,923

7,510

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited, expressed in thousands of Canadian dollars, except number of shares)


Capital Stock






Number of
Shares

Amount

Contributed
Surplus

Accumulated
Deficit

Accumulated
Other
Comprehensive 
Income

Total
Deficiency








Balance at December 31, 2016

307,141,184

80,302

6,744

(98,647)

4,718

(6,883)








Issue of common shares

30,263,318

2,118

-

-

-

2,118








Stock-based compensation expense

-

-

573

-

-

573








Cancellation of issued stock options

-

-

2

-

-

2








Unrealized currency gain on translation
for the period

-

-

-

-

4,718

4,718








Net loss for the period

-

-

-

(31,069)

-

(31,069)








Balance September 30, 2017

337,404,502

82,420

7,319

(129,716)

9,436

(30,541)








Restated balance at December 31,
20171

337,404,502

82,905

6,979

(159,342)

9,896

(59,562)








Issue of common shares

30,714,118

2,152

-

-

-

2,152








Stock-based compensation expense

-

-

140

-

-

140








Cancellation of issued stock options

-

-

440

-

-

440








Transfer to share capital on exercise of
stock options

-

1,162

(1,162)

-

-

-








Unrealized currency gain on translation
for the period

-

-

-

-

(3,024)

(3,024)








Net income for the year

-

-

-

33,672

-

33,672








Balance September 30, 2018

368,118,620

86,219

6,397

(125,670)

6,872

(26,182)








1. 

The Company has initially applied IFRS 15 using the retrospective with cumulative effect method. Under this method, the comparative information is not restated.

 

Cision View original content:http://www.prnewswire.com/news-releases/avcorp-announces-2018-third-quarter-financial-results-300750830.html

SOURCE Avcorp Industries Inc.

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