Garda Reports Second Quarter Financial Results

Garda World Security Corporation (TSX: GW) (Garda), one of the most trusted consulting, investigation and security firms in the world, announced today its financial results for the second quarter ended July 31, 2008 and the implementation of a corporate strategic review.

Highlights

- Revenues increased by 7.3% for the first six months compared with the same period last year from $556.6 million to $597.1 million and quarterly revenues decreased to $301.1 million from $318.6 million for the same quarter last year.

- EBITDA increased by 23.5% for the first six months compared with the same period last year and decreased by 2.7% this second quarter compared with the same quarter last year.

- Gross margins for the quarter as a percentage of revenues increased from 21.9% to 22.6% due to operational efficiencies in the U.S. cash logistics segment.

- Shareholders' equity at the end of the quarter was $136.9 million.

- Results for the quarter were strongly impacted by the strengthening of the Canadian dollar, from the U.S. economic downturn and high energy costs.

Selected Quarterly Financial Information


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(In thousands of
 dollars, except  Three months   Three months     Six months     Six months
 per share               ended          ended          ended          ended
 amounts)        July 31, 2008  July 31, 2007  July 31, 2008  July 31, 2007
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Revenues               301,082        318,557        597,058        556,573
Gross profit            68,134         69,959        140,159        117,517
Cash flow from
 operations              8,888         12,513         27,088         26,185
Net income (loss)
 for the period         (1,008)       (1,480)          3,362          4,316
Basic net income
 (loss) per share        (0.03)        (0.05)           0.11           0.14
EBITDA(1)               22,684        23,321          52,715         42,682
Basic EBITDA(1)
 per share                0.72          0.75            1.67           1.38
Total assets           957,591       957,203         957,591        957,203
Shareholders' equity   136,928       135,321         136,928        135,321

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(1) EBITDA (earnings before interest, income taxes, depreciation and
    amortization) is not an accepted performance measure as per Canadian
    GAAP.

Recent Developments (all amounts are in thousands of dollars)

Despite the success of Garda's integration initiatives, the company's performance for the second quarter was lower than anticipated mainly due to the general economic slowdown and non-renewal of military contracts in the U.S. Additional factors include the strengthening of the Canadian dollar and continued high energy costs in Canada. However, due to Garda's efficient cost structure and ongoing cost control efforts, the company is well positioned and is taking the necessary actions for a strong second half of the year.

As a result of the lower EBITDA in Q2 2009, Garda was concerned with its ability to meet the covenants prescribed in its credit facilities as at July 31, 2008. Accordingly, the company initiated discussions with its lenders in order to readdress its financial covenants for the current and subsequent quarters. On September 15, 2008, Garda executed an amended agreement to its Credit Facilities Agreement providing more flexibility to achieve its business plan and complete its strategic review. The amended agreement replaces the existing financial covenants with a minimum EBITDA requirement to be satisfied at the end of each quarter until October 31, 2009, at which point the financial covenants revert back to the covenants previously in place under the credit facilities. Garda expects to meet the new EBITDA covenant for the next year.

As part of those amendments the annual interest rate margins on the revolving facilities and senior term loans were increased by 1.5% and the annual interest rate margins on the subordinated term loan were increased by 3.25%. Other than the covenants required by its credit facilities, Garda is not subject to any externally imposed capital requirements.

Strategic Review

Over the last few months, Garda has reviewed a number of strategic initiatives to enhance its profitability and financial flexibility. During this process, the company received an unsolicited indication of interest to buy an important part of its business if certain conditions were met. Such a transaction or any other transaction of this type could allow the company to book a profit, repay most, if not all, of its bank debt and return some capital to its shareholders. While the company is working diligently on a number of initiatives, there is no assurance that a transaction will occur over the next few months.

"Despite two excellent quarters demonstrating the quality of our integration initiatives, we are announcing disappointing results as a consequence of the economic slowdown in the U.S., a weak U.S. dollar versus the Canadian dollar and higher energy costs in Canada. We believe this to be just a weak summer and anticipate a stronger second half of the year, at the level that our shareholders are used to seeing from Garda," said Stephan Cretier, President and CEO. "Our fundamental operations throughout the company are doing well in spite of the financial pressure related to our high leverage. Garda has the resiliency and management acumen to withstand the current situation and emerge quickly as a stronger company".