Armtec Infrastructure to take $140-million goodwill writedown in second quarter

GUELPH, Ont. – Beleaguered supplier of water and drainage pipes Armtec Infrastructure Inc. (TSX:ARF) said Friday it will take a $140-million non-cash asset impairment charge against its second-quarter earnings.

The Guelph, Ont.-based company said the charge relates to goodwill, other intangible assets, and property, plant and equipment assets and results from a steep decline in its share price in the second quarter.

Armtec shares began plummeting in June after the company announced a widening of its first-quarter loss and the planned suspension of a 40 cent per share dividend. The shares were under further pressure Friday, falling 30 cents or nearly eight per cent to $3.50.

Armtec faces a potential class-action lawsuit alleging the company broke securities laws when it instituted the dividend, later to cancel it after it became unsupportable by earnings.

The suit filed in Ontario Superior Court on behalf of investors who bought shares between March 30 and June 8 alleges that Armtec should have known when it raised capital in the public market that it did not have sufficient earnings to pay dividends.

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The company received some good news earlier this month when it entered into a committed financing with Brookfield Asset Management Inc. (TSX:BAM.A) providing for a $125-million credit facility. The new credit facility will have a term of two years _ extendable to 30 months at Armtec’s option _ can be prepaid at any time and will be secured by a first charge on Armtec’s assets.

Armtec has granted Brookfield a warrant to acquire approximately 4.56 million common shares of the company representing about 15 per cent of its shares on a fully diluted basis. The exercise price has 25 per cent premium to the current market price.

Armtec reports second-quarter financial results on Aug. 9. It warned Friday that it expects those results to be negatively impacted as well, “by compression in margins in both the company’s engineered solutions business and the company’s construction and infrastructure applications business.”

The company, which makes construction materials such as precast concrete and tubing, said business was hurt by an unusually late and wet spring across the country during the quarter and ended up with a payout significantly in excess of free cash flow.