CFM Corporation

CFM Corporation

March 04, 2005 12:47 ET

CFM Corporation Announces Results For The 4th Quarter And Fiscal Year 2004


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: CFM CORPORATION

TSX SYMBOL: CFM

MARCH 4, 2005 - 12:47 ET

CFM Corporation Announces Results For The 4th Quarter
And Fiscal Year 2004

MISSISSAUGA, ONTARIO--(CCNMatthews - March 4, 2005) - CFM Corporation
(TSX:CFM) today announced its financial results for the fourth quarter
and fiscal year ended October 2, 2004. All currency amounts are in U.S.
dollars.

- Sales were $146.1 million for the quarter and $494.2 million for the
year.

- Net income (loss) before restructuring costs, goodwill impairment and
deferred tax valuation allowance(a) was ($10.9) million or ($0.27) per
share for the fourth quarter and $2.2 million or $0.05 per share for the
year.



Financial Highlights

(US$millions, Three Months Ended Year Ended
except per October 2, September 27, October 2, September 27,
share amounts) 2004 2003 2004 2003
--------------------------------------------------
Net sales 146.1 134.5 494.2 470.4
Gross profit 23.8 34.9 113.5 128.2
Net income (loss) (137.9) 3.5 (134.1) 24.2

Earnings (loss)
per share (3.45) 0.09 (3.34) 0.60

Earnings (loss) per
share before
restructuring costs,
goodwill impairment
and deferred tax
valuation
allowance(a) (0.27) 0.17 0.05 0.69

EBITDA before
restructuring costs
and goodwill
impairment (see
enclosed definition) (7.8) 16.1 25.8 59.2


(a) Net income (loss) before restructuring costs, goodwill impairment
and deferred tax valuation allowance has been determined by taking net
income for the applicable period, adding to it the restructuring costs,
goodwill impairment and deferred tax valuation allowance, deducting
provision for income taxes applicable to the restructuring charge and
goodwill impairment to arrive at net income before restructuring costs,
goodwill impairment and deferred tax valuation allowance for the
applicable period. Earnings(loss) per share before restructuring costs,
goodwill impairment and deferred tax valuation allowance has been
determined by dividing net income(loss) before restructuring costs,
goodwill impairment and deferred tax valuation allowance by the average
number of shares outstanding during such period. Net income(loss) before
restructuring costs, goodwill impairment and deferred tax valuation
allowance and earnings(loss) per share before restructuring costs,
goodwill impairment and deferred tax valuation allowance, are presented
as a measure of the normal operating performance of the Company. A
reconciliation of net income(loss) before restructuring costs, goodwill
impairment and deferred tax valuation allowance and earnings(loss) per
share before restructuring, goodwill impairment and deferred tax
valuation allowance costs to net income(loss) and earnings(loss) per
share is as follows:




(US$millions, except Three Months Ended Year Ended
per share amounts) October 2, 2004 October 2, 2004
--------------------------------------------------
Earnings EPS Earnings EPS

Net income(loss) (137.9) (3.45) (134.1) (3.34)
Restructuring costs 3.3 0.08 18.7 0.47
Income tax related
to restructuring
costs (1.4) (0.03) (7.5) (0.19)
Goodwill impairment 129.0 3.22 129.0 3.21
Income tax related
to goodwill
impairment (33.6) (0.83) (33.6) (0.84)
Deferred tax
valuation allowance 29.7 0.74 29.7 0.74
--------------------------------------------------
Net income(loss)
before restructuring
costs, goodwill
impairment and
deferred tax
valuation allowance (10.9) (0.27) 2.2 0.05
--------------------------------------------------


Net income (loss) before restructuring costs, goodwill impairment and
deferred tax valuation allowance and earnings(loss) per share before
restructuring costs, goodwill impairment and deferred tax valuation
allowance are not recognized as measures for financial statement
presentation under Canadian generally accepted accounting principles
("GAAP"). Non-GAAP measures (such as net income(loss) before
restructuring costs, goodwill impairment and deferred tax valuation
allowance and earnings(loss) per share before restructuring costs,
goodwill impairment and deferred tax valuation allowance) do not have
any standardized meaning and are therefore unlikely to be comparable to
similar measures presented by other issuers.

Filing Delay

As previously announced, the Company did not meet the February 18, 2005
filing deadline for its audited annual financial statements and related
management's discussion and analysis and annual information form for
fiscal 2004. The Company anticipates that such materials will be filed
during the week of March 7, 2005. Completion of the audit was delayed in
part as a result of additional time and audit work required to audit the
conversion of certain of the Company's financial operating systems
within its mass merchant operations that occurred during fiscal 2004 as
part of the Company's restructuring initiatives.

The Company also previously announced that it would not meet the
February 14, 2005 filing deadline for its interim unaudited financial
statements and related management's discussion and analysis for the
three month period ended January 1, 2005. The Company anticipates that
it will be able to release its first quarter results by March 31, 2005.

Operating Highlights

Sales for the fourth quarter were $146.1 million, an increase of 8.6%
from $134.5 million in the fourth quarter last year. This brings sales
for the year ended October 2, 2004 to $494.2 million, which is an
increase of 5.1% from $470.4 million for the year ended September 27,
2003. Net loss before restructuring costs, goodwill impairment and
deferred tax valuation allowance(a) was $10.9 million for the quarter or
a $0.27 loss per share, a decrease of $17.9 million or $0.44 per share
over the corresponding period in fiscal 2003. Net income before
restructuring costs, goodwill impairment and deferred tax valuation
allowance(a) for year ended October 2, 2004 was $2.2 million or $0.05
per share compared to $27.7 million or $0.69 per share for the year
ended September 27, 2003.

The Company's earnings are lower principally due to initial operating
inefficiencies following the Company's restructuring activities, lower
than expected margins on electric fireplaces, higher distribution costs,
an increase in steel and other raw material costs and the strengthening
of the Canadian dollar as compared to the U.S. dollar.

The Company performed its annual impairment test for goodwill as at
October 2, 2004 in accordance with the recommendations of section 3062
of the CICA handbook. Deteriorating business conditions in several
reporting units gave rise to the decline in the fair value of these
reporting units. As a result, the Company determined that goodwill of
$129 million was impaired which has been recorded as a charge against
earnings for the fiscal year ended October 2, 2004.

The significant goodwill impairment charge resulted in the Company being
in a cumulative loss position for the last three years and raised
concern about the Company's ability to recover current and future tax
assets. As a consequence, in accordance with the recommendations of
section 3465 of the CICA handbook, the Company has recorded a valuation
allowance against these future tax assets of $29.7 million as a tax
provision for the fourth quarter and fiscal year ended October 2, 2004.



Sales by Product Category

Three Months Ended Year Ended
October 2, September 27, October 2, September 27,
(US$millions) 2004 2003 2004 2003
--------------------------------------------------
Hearth and
Heating Products 116.7 109.8 350.1 309.5
Barbeque and
Outdoor Products 26.1 20.7 132.0 149.3
Water Products 3.3 4.0 12.1 11.6
--------------------------------------------------
146.1 134.5 494.2 470.4
--------------------------------------------------
--------------------------------------------------


Sales of hearth and heating products were $116.7 million in the quarter,
an increase of $6.9 million or 6.3% from the fourth quarter of the prior
year. For the year ended October 2, 2004, hearth and heating sales were
$350.1 million, an increase of 13.1% or $40.6 million from the twelve
months of fiscal 2003.

Sales of barbecue and outdoor products were $26.1 million in the
quarter, an increase of $5.4 million or 26.1% from the fourth quarter of
last year. For the year ended October 2, 2004, sales of barbeque and
outdoor products were $132.0 million compared to $149.3 million in the
prior year, a decrease of $17.3 million or 11.6%.

Sales of water products decreased 17.5% to $3.3 million in the quarter
when compared to the same quarter a year ago. Sales of water products
for the year ended October 2, 2004 were $12.1 million, up 4.3% from
$11.6 million in the prior year.

Gross Profit

Gross profit for the quarter ended October 2, 2004 was $23.8 million, a
decrease of $11.1 million or 31.8% from $34.9 million in the fourth
quarter of 2003. As a percentage of sales, gross profit was 16.3%
compared to the prior year of 25.9%. Gross profit for the year was
$113.5 million, a decrease of $14.7 million from $128.2 million in the
previous year. As a percentage of sales, gross profit for the year was
23.0% compared to 27.3% in the prior year.

Selling, Administrative, Research and Development Expenses

Operating expenses for the quarter were $31.5 million, up $12.8 million
from the corresponding quarter in the previous year. For the year,
operating expenses were $87.7 million, an increase of $18.7 million from
the prior year.

EBITDA before restructuring costs and goodwill impairment(b)

Earnings (loss) before restructuring costs, goodwill impairment,
interest, taxes and amortization ("EBITDA before restructuring costs and
goodwill impairment") for the quarter were ($7.8) million versus $16.1
million in the corresponding period in the prior year. For the year
ended October 2, 2004, EBITDA before restructuring costs and goodwill
impairment was $25.8 million compared to $59.2 million in the prior year.

(b) EBITDA before restructuring costs and goodwill impairment is defined
as earnings before the taking of any deductions in respect of goodwill
impairment, interest, taxes, amortization, and restructuring costs.
EBITDA before restructuring costs and goodwill impairment is presented
before deductions for interest expense, tax expense, amortization, and
restructuring costs as this is a widely accepted measure of a company's
normal operating performance. EBITDA before restructuring costs and
goodwill impairment has been determined by taking net income for the
period and adding to it interest expense, amortization and income taxes
and restructuring costs as follows:



Three Months Ended Year Ended
October 2, September 27, October 2, September 27,
(US$millions) 2004 2003 2004 2003
--------------------------------------------------

Net income(loss)
for the period (137.9) 3.5 (134.1) 24.2
Restructuring costs 3.3 5.8 18.7 5.8
Goodwill impairment 129.0 - 129.0 -
Amortization 5.8 3.5 14.8 11.8
Interest income (0.1) - (0.3) (0.1)
Interest expense 3.0 1.6 9.4 5.7
Income taxes (10.9) 1.7 (11.7) 11.8
--------------------------------------------------
EBITDA before
restructuring
costs and
goodwill impairment (7.8) 16.1 25.8 59.2
--------------------------------------------------


EBITDA before restructuring costs and goodwill impairment is not a
recognized measure for financial statement presentation under GAAP.
Non-GAAP measures (such as EBITDA before restructuring costs and
goodwill impairment) do not have any standardized meaning and are
therefore unlikely to be comparable to similar measures presented by
other issuers.

Restructuring Costs

In connection with the Company's previously announced restructuring, CFM
incurred $3.3 million in restructuring costs during the quarter and
$18.7 million for the year.

Interest Expense

Net interest expense was $2.9 million for the fourth quarter, which was
$1.4 million higher than the corresponding period in the prior year, due
to the higher fixed interest rate on the Company's senior notes. Net
interest expense was $9.1 million for the year compared to $5.6 million
in the prior year.

Net Bank Debt(c)

Net bank debt at October 2, 2004 was $128.7 million, up $15.9 million
from $112.8 million in 2003. CFM was capitalized(c) as at October 2,
2004 with net bank debt to total capitalization of 53.5%, as compared
with 31.5% as at September 27, 2003.

(c) Net bank debt is defined as bank debt (current and long-term), plus
bank indebtedness, plus senior notes payable less cash. This measure is
widely accepted by the financial markets as a measure of credit
availability.

Capitalization is defined as net bank debt plus shareholders' equity.
Capitalization is presented as a measure of the Company's total
financing structure.

Net bank debt is not a recognized measure for financial statement
presentation under GAAP. Non-GAAP financial measures (such as net bank
debt) do not have any standardized meaning and are therefore unlikely to
be comparable to similar measures presented by other issuers.

Weighted Average Shares Outstanding

The weighted average shares outstanding during the quarter ended October
2, 2004 decreased by 280,000 shares to 40,026,000 as compared to
40,306,000 shares outstanding during the fourth quarter of fiscal 2003.
The decrease is primarily the result of shares repurchased and cancelled
during the second quarter net of shares issued on the exercise of stock
options. On a year-to-date basis, 693,400 shares have been purchased
under the Normal Course Issuer Bid at an average price of $7.73 (Cdn
$10.28).

This press release contains forward looking statements that involve
certain risks and uncertainties which could cause actual results to
differ materially from future results expressed or implied by such
forward looking statements. Important factors that could affect these
statements include, without limitation, general economic conditions,
consumer confidence, the level of housing starts and demographics, CFM's
ability to develop new products, patent protection, weather and related
customer buying patterns and manufacturing issues, industry capacity,
product liability, availability of gas and gas prices, mass merchant
consolidation, credit and collections, supply and cost of raw materials,
steel availability and pricing, purchased parts and personnel, costs of
certain employee benefits, the inability to increase selling prices as
costs increase, competition, foreign currency fluctuations and
government regulation. These factors and other risks and uncertainties
are discussed in detail in CFM's Annual Information Form dated February
9, 2004 and in the reports and disclosure documents filed by CFM with
Canadian and U.S. securities regulatory authorities and commissions.
Statements made in this press release are made as of March 4, 2005 and
CFM disclaims any intention or obligation to update or revise any
statements made herein, whether as a result of new information, future
events or otherwise.

CFM is a leading integrated manufacturer of home products and related
accessories in North America and the United Kingdom. CFM designs,
develops, manufactures and distributes a complete line of hearth
products, including gas, wood-burning and electric fireplaces,
free-standing stoves, gas logs, and hearth accessories, and maintains an
ongoing program of research and development aimed at continually
improving the quality, design, features and efficiency of its products.
CFM also manufactures barbecues, barbecue parts and accessories and
outdoor garden accessories and imports indoor and outdoor space heating
products from South Korea.



CFM CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In US thousands of dollars, unaudited)

As at October 2, Sept 27,
2004 2003
----------------------------
$ $
ASSETS
Current
Cash and cash equivalents 6,750 13,386
Accounts receivable 103,846 106,520
Inventory 110,836 79,602
Prepaid and other expenses 4,374 1,946
Income taxes recoverable 12,654 -
Future income taxes - 13,057
----------------------------
Total current assets 238,460 214,511
----------------------------
Property, plant and equipment, net 69,696 75,228
Other assets 2,654 5,310
Goodwill, net 44,420 160,888
Intangible assets 1,799 5,399
Future income taxes - 749
----------------------------
Total assets 357,029 462,085
----------------------------
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 2,289 10,548
Accounts payable and accrued liabilities 94,434 61,657
Current portion of long-term debt 130,036 8,198
Current portion of note payable 5,903 4,944
Income taxes payable 2,516 2,288
Deferred gain on sale of assets -
current portion 513 -
Future income taxes - 1,462
----------------------------
Total current liabilities 235,691 89,097
----------------------------

Deferred gain on sale of assets 4,618 -
Long-term debt 3,141 107,424
Note payable 1,650 2,101
Future income taxes - 18,652
Total liabilities 245,100 217,274

Minority interest - 29

Shareholders' equity
Share capital 105,635 106,204
Contributed surplus 233 -
Retained earnings (deficit) (14,554) 122,786
Cumulative translation adjustment 20,615 15,792
----------------------------
Total shareholders' equity 111,929 244,782

Total liabilities and shareholders' ----------------------------
equity 357,029 462,085
----------------------------
----------------------------
(Thousands of common shares and options)
Common shares issued and outstanding 40,030 40,400
Stock options outstanding 3,656 3,464
Stock options exercisable 1,355 1,206



CFM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(In US thousands of dollars except for earnings per share, unaudited)

Three Months Ended Year Ended
October 2, Sept 27, October 2, Sept 27,
2004 2003 2004 2003
-------------------------------------------
$ $ $ $
Sales 146,129 134,540 494,230 470,355
Cost of sales 122,372 99,655 380,765 342,151
-------------------------------------------
Gross profit 23,757 34,885 113,465 128,204

Expenses
Selling and administrative,
research and development 31,513 18,707 87,656 68,954
Amortization 5,829 3,529 14,750 11,839
Interest income (107) (17) (278) (119)
Interest expense 3,042 1,587 9,416 5,748
Goodwill Impairment 129,025 - 129,025 -
Restructuring costs 3,281 5,826 18,664 5,826
-------------------------------------------
172,583 29,632 259,233 92,248
-------------------------------------------
Income (loss) before
income taxes (148,826) 5,253 (145,768) 35,956
Income taxes (recovery)
expense (10,904) 1,741 (11,679) 11,792
-------------------------------------------
Net income (loss) for
the period (137,922) 3,512 (134,089) 24,164
-------------------------------------------
-------------------------------------------
Retained earnings,
beginning of period 123,368 119,274 122,786 102,060
Premium on repurchased
common shares - - (3,251) (3,438)
-------------------------------------------

Retained earnings
(deficit), end
of period (14,554) 122,786 (14,554) 122,786
-------------------------------------------
-------------------------------------------

Earnings (loss) per share (3.45) 0.09 (3.34) 0.60

Diluted earnings (loss)
per share (3.45) 0.09 (3.34) 0.59



CFM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In US thousands of dollars, unaudited)

Three Months Ended Year Ended
October 2, Sept 27, October 2, Sept 27,
2004 2003 2004 2003
-------------------------------------------
$ $ $ $
Cash flows from operating
activities
Net income (loss) for
the period (137,922) 3,512 (134,089) 24,164
Add (deduct) items not
involving cash
Amortization 5,829 3,529 14,750 11,839
Future income taxes (7,153) (5,698) (8,080) (2,192)
Minority interest - 9 - 20
Loss on disposal of
capital assets 4 51 171 61
Non-cash stock
compensation 190 - 233 -
Non-cash interest on
vendor take-back
note payable 25 34 37 195
Goodwill impairment 129,025 - 129,025 -
Restructuring costs 1,003 5,610 8,202 5,610
-------------------------------------------
(8,999) 7,047 10,249 39,697

Change in non-cash
working capital 10,284 14,092 (7,968) 5,218
-------------------------------------------
Cash flows provided by
operating activities 1,285 21,139 2,281 44,915

Cash flows from investing
activities
Acquisitions, net of
cash acquired (346) (104) (7,961) (3,136)
Purchase of capital assets (2,783) (1,427) (8,800) (8,295)
Development costs (133) (205) (160) (451)
Proceeds on disposal of
capital assets 11,158 3 11,167 29
-------------------------------------------
Cash flows used in
investing activities 7,896 (1,733) (5,754) (11,853)

Cash flows from financing
activities
Proceeds from private
placement debt - 60,000 65,000 60,000
Repayment of non-revolving
term facility - (7,106) - (18,168)
Revolving term
facility, net (308) (61,653) (49,678) (50,689)
Bank indebtedness (11,865) 732 (8,578) (3,546)
Repayment of note payable (914) (2,716) (4,703) (10,254)
Deferred financing costs (253) (1,759) (1,204) (1,759)
Repurchase of common shares - - (5,359) (5,184)
Issuance of common shares 17 714 1,539 2,082
-------------------------------------------
Cash flows provided by
(used in) financing
activities (13,323) (11,788) (2,983) (27,518)
Effect of foreign currency
translation on cash and
cash equivalents 467 (247) (180) 412
-------------------------------------------
Net increase (decrease)
in cash and cash
equivalents during the
period (3,675) 7,371 (6,636) 5,956
Cash and cash equivalents,
beginning of period 10,425 6,015 13,386 7,430
-------------------------------------------
Cash and cash equivalents,
end of period 6,750 13,386 6,750 13,386
-------------------------------------------
-------------------------------------------
Supplementary cash flow
information:
Cash taxes paid 145 533 8,605 11,937
Cash interest paid 2,226 9803 7,203 4,663



-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Investors: CFM Corporation
    COLIN M. ADAMSON
    Chairman and Chief Executive Officer
    (905) 670-7777 ext.2419
    or
    Investors: CFM Corporation
    J. DAVID WOOD
    Vice President and Chief Financial Officer
    (905) 670-7777 ext. 2419
    (905) 670-7915 (FAX)
    cfm@cfmcorp.com
    www.cfmcorp.com
    or
    Media:
    Lute & Company
    (416) 929-5883