Inscape Corporation
TSX : INQ

Inscape Corporation

March 10, 2011 18:13 ET

CORRECTION FROM SOURCE: Inscape Corporation Announces Continued Sales Growth in Third Quarter

HOLLAND LANDING, ONTARIO--(Marketwire - March 10, 2011) - The following corrects and replaces the release sent at 4:44 pm ET on March 10, 2011. In the Summary of Consolidated Financial Results table, the headings should read 2011 and 2010, instead of 2010 and 2009. The complete and corrected release follows.

Mr. Madan Bhayana, Chief Executive Officer of Inscape (TSX:INQ), a leading designer, manufacturer and marketer of office systems, storage and architectural wall solutions for commercial office environments, announces the following financial results for the third quarter ended January 31, 2011:

Inscape Corporation
Summary of Consolidated Financial Results
(Unaudited) (in thousands except EPS)
 
   Three Months Ended January 31,      
    2011     2010   Change  
   
Sales $ 23,585   $ 17,909   31.7 %
Gross margin   6,891     5,215   32.1 %
Selling, general & administrative expenses   5,967     5,141   16.1 %
Unrealized loss on foreign exchange   122     42      
Unrealized gain on derivatives   (375 )   -      
Interest income   (150 )   (167 )    
Income before taxes   1,327     199      
Income taxes   423     92      
Net Income $ 904   $ 107      
   
Basic and diluted earnings per share $ 0.06   $ 0.01      
   
Weighted average number of shares (in thousands)              
for basic EPS calculation   14,635     15,097      
for diluted EPS calculation   14,779     15,097      
   
   Nine Months Ended January 31,      
    2011     2010   Change  
   
Sales $ 66,345   $ 52,089   27.4 %
Gross margin   20,133     13,695   47.0 %
Selling, general & administrative expenses   16,416     14,899   10.2 %
Unrealized loss on foreign exchange   149     623      
Unrealized gain on derivatives   (673 )   -      
Interest income   (354 )   (412 )    
Income (Loss) before taxes   4,595     (1,415 )    
Income taxes (recovery)   1,534     (85 )    
Net income (loss) $ 3,061   $ (1,330 )    
   
Basic and diluted earnings per share $ 0.21   $ (0.09 )    
   
Weighted average number of shares (in thousands)              
for basic EPS calculation   14,778     15,097      
for diluted EPS calculation   14,831     15,146      

Commentary and Outlook

"Sales in the third quarter of fiscal 2011 were 31.7% ahead of the same quarter of last year," announced Madan Bhayana, Chairman and CEO. "Our top line sales growth far exceeds the general industry increase. Our operating effectiveness continues to improve allowing us to generate cash of $2.3 million from operations during the third quarter and $7.3 million during the nine-month period. The favourable U.S. currency hedge contracts that we purchased 15 to 27 months ago continue to contribute substantially to our positive results.

We are conscious of the serious challenges ahead of us given the recent soaring prices for oil, metals and the high Canadian currency versus the U.S. dollar. Over the past few years we have been effective in improving our productivity and managing our costs to mitigate the effects of currency decline. While the current political unrest causing upward pressure on commodity prices may lessen, it is clear that we have to undertake additional efforts to be successful despite the unfavourable currency environment which we expect to be around for the foreseeable future. The current year's financial results are sheltered from the adverse currency impact because of favourable currency hedge contracts which will be mostly settled by the end of this fiscal year. To drive profitability without the benefits of currency hedging, we will continue to implement our strategic initiatives focused on increasing our sales in both the US and the Canadian markets. In addition we will undertake a strategic review of our operations to determine where additional improvements can be found to deliver profits in a par dollar environment.

Throughout this fiscal year we have taken important steps towards enhancing our selling capabilities and improving market position. Our sales and marketing organization has been realigned to provide stronger focus on sales opportunities. Significant progress has been made in the training of our external sales partners. Resources have been employed to identify new distribution opportunities and to strengthen our dealer relationships. We are confident that our commitment and focus on executing our sales growth strategies has contributed to our improved results this year and will bring us further growth in sales and sustainable profitability in the years to come.

Based on the existing back-log on hand, we expect that the sales for the fourth quarter of fiscal year 2011 to be lower than the third quarter of this year and materially higher than the fourth quarter of the prior year."

Operating Performance

Net income for the third quarter of fiscal year 2011 ending January 31, 2011 was $0.9 million or 6 cents per share, compared with a net income of $0.1 million or 1 cent per share in the same quarter of last fiscal year. The current year's quarterly results included an accrued expense of $0.5 million for a contingent liability for a workers' compensation assessment related primarily to the past operations of a purchased company. Details of the accrual are disclosed in note 11 of the Consolidated Financial Statements. Excluding the special charge, net income for the quarter was $1.2 million or 8 cents per share. The improvement in the quarterly net income was attributable to a 31.7% growth in sales, which generated a 32.1% increase in gross margin. The current quarter's sales benefited from a U.S. currency hedge gain of $2.2 million, compared with a total hedge gain of $1.0 million in the same quarter of last year. Without the currency hedge gain, and with the average U.S. spot exchange rate near parity during the quarter, the three-month period would have a net loss of about $0.7 million.

On a year-to-date basis, the nine-month period ending January 31, 2011 had a net income of $3.1 million or 21 cents per share, compared with a net loss of $1.3 million or 9 cents per share. The year-over- year sales were up 27.4%, while gross margin grew 47.0%. The year-to-date sales included a U.S. currency hedge gain of $5.4 million for fiscal 2011 and $1.4 million for fiscal 2010. The fiscal 2011 year-to-date results would have a net loss of about $0.8 million without the currency hedge gain.

Sales in the third quarter of fiscal 2011 were $23.6 million, an increase of 31.7% from the $17.9 million in the same quarter of last year. The current quarter's sales included a U.S. currency hedge gain of $2.2 million, while the same quarter of last year had a hedge gain of $1.0 million. Sales in the year-to-date nine-month period rose 27.4% from last year's $52.1 million to the current year's $66.3 million. The sales results in the nine-month period included total hedge gains of $5.4 million versus a net hedge gain of $1.4 million in the prior year.

On a constant dollar basis that eliminates the impact of the U.S. dollar exchange rate fluctuations, sales advanced 30.1% on a quarterly basis and increased 26.2% on a year-to-date basis. This growth in sales was predominately stimulated by a significant increase in project-based business. In addition to the success rate of project biddings, the U.S. currency spot exchange rate, U.S. currency forward contract hedge rate and selling price pressure will continue to have impact on reported sales.

Gross margin as a percentage of sales in the third quarter of fiscal year 2011 was 29.2%, compared to last year's 29.1%. The current quarter's gross margin was reduced by 2.2 percentage points due to an accrual of $0.5 million for a contingent liability for a workers' compensation assessment as detailed in note 11 of the Consolidated Financial Statements. In the third quarter of last year, the gross margin benefited from a reversal of asset retirement obligation for equipment at the Falconer plant in the amount of $0.2 million before tax. The gross margin would be lowered to 28.2% without the reversal of the obligation. For the nine-month period, the gross margin rate increased from last year's 26.3% to the current year's 30.3%. The year-over-year improvements in the gross margin rates were attributable to a favourable overhead absorption due to higher volumes, an increase in gains from the U.S. currency hedge contracts and continued manufacturing improvements, offset by lower realized selling prices.

Selling, general and administrative expenses ("SG&A") in the third quarter of fiscal year 2011 were 25.3% of sales, compared to 28.7% in the same quarter of last year. The nine-month period SG&A rate dropped from last year's 28.6% to the current year's 24.7% mainly as a result of higher sales. The increases of $0.8 million in SG&A in the quarter and $1.5 million in the nine-month period were attributable to investments in various sales, marketing and promotional initiatives.

Financial Statements

To view the financial statements, please visit the following link: http://media3.marketwire.com/docs/INQ-financialsQ3.pdf.

Conference Call

Inscape will host a conference call at 8:30 a.m. on Friday, March 11, 2011 to discuss the Company's quarterly results and to provide additional outlook on the next quarter. To participate, please call 1-800-952-4629. A replay of the conference call will also be available from Friday, March 11, 2011 after 10:30 a.m. until midnight on March 18, 2011. To access the rebroadcast, please dial 1-800-558-5253 (Reservation Number 21511170).

Forward-Looking Statements

Certain of the above statements are forward-looking statements that involve risks and uncertainties. Actual results could differ materially as a result of many factors including, but not limited to, further changes in market conditions and changes or delays in anticipated product demand. In addition, future results may also differ materially as a result of many factors, including: fluctuations in the Company's operating results due to product demand arising from competitive and general economic and business conditions in North America; length of sales cycles; significant fluctuations in international exchange rates, particularly the U.S. dollar exchange rate; restrictions in access to the U.S. market; changes in the Company's markets, including technology changes and competitive new product introductions; pricing pressures; dependence on key personnel; and other factors set forth in the Company's Ontario Securities Commission reports and filings.

About Inscape

Inscape Corporation is a leading designer, manufacturer and marketer of office systems, storage and architectural wall solutions for commercial office environments. Headquartered in Holland Landing, Ontario, the company has offices and production facilities in Canada and the United States totalling approximately 438,000 square feet and serves customers through a network of authorized dealers. For more information, please visit www.inscapesolutions.com.

Contact Information

  • Inscape Corporation
    Kent Smallwood CA
    Chief Financial Officer
    905-836-7676
    905-836-5037 (FAX)
    www.inscapesolutions.com