Inscape Corporation
TSX : INQ

Inscape Corporation

March 01, 2007 19:13 ET

Inscape Corporation Announces Third Quarter Results

HOLLAND LANDING, ONTARIO--(CCNMatthews - March 1, 2007) - Peter Brunelle, President and Chief Executive Officer of Inscape (TSX:INQ), a leading designer, manufacturer and distributor of office furniture solutions, announced the following financial results for the third quarter and the nine months ended January 31, 2007:



Inscape Corporation
Summary of Consolidated Financial Results
(Unuadited) (in thousands except EPS)

Three Months Ended January 31,
2007 2006 Change
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Sales $ 24,296 $ 21,372 13.7%
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Gross margin 6,596 5,188 27.1%
Selling, general & administrative
expenses 6,052 6,345 -4.6%
Interest (income) (178) (166)
Restructuring costs (after-tax) (91) -
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Income (loss) before taxes 813 (991)
Income taxes (recovery) 173 (155)
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Net income (loss) $ 640 $ (836)
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Basic and diluted earnings per
share $ 0.04 $ (0.06)

Weighted average number of shares 15,097 15,097
(in thousands)



Nine Months Ended January 31,
2007 2006 Change
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Sales $ 67,475 $ 70,395 -4.1%
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Gross margin 17,670 16,814 5.1%
Selling, general & administrative
expenses 17,199 18,763 -8.3%
Interest (income) (614) (518)
Restructuring costs (after-tax) (91) 330
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Income (loss) before taxes 1,176 (1,761)
Income taxes (recovery) 189 (248)
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Net income (loss) $ 987 $ (1,513)
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Basic and diluted earnings per
share $ 0.07 $ (0.10)(1)

Weighted average number of shares 15,097 15,097
(in thousands)

(1) reflects impact of restructuring costs of $0.02 per share


Commentary and Outlook

"I am pleased to see that the various business improvement activities which we continue to pursue are now translating into a marked improvement in our financial results" said Peter Brunelle, CEO of Inscape Corporation. "Sales reached their highest level in five quarters, representing good sequential growth versus the second quarter and even stronger growth relative to prior year third quarter results. Operationally, we continue to transition the business to be competitive with the reality of a strong Canadian dollar relative to the US currency. Through a combination of continuous improvement activities and higher sales volume, our gross margins reached their highest level in several quarters. The work continues on expanding our market access through the addition of dealers and independent rep groups, on developing new products and on improving operations to allow us to consistently deliver positive results. Based on current order levels, we expect that sales for the fourth quarter of fiscal 2007 will be well above the fourth quarter of fiscal 2006 and in line with the third quarter of 2007" said Mr. Brunelle.

Operating Performance

Sales in the third quarter of fiscal 2007 were 13.7% higher than the same quarter of fiscal 2006. Year-to-date sales for the nine-month period were 4.1% lower than the same period of fiscal 2006 mainly as a result of unfavourable U.S. currency conversion rate. Gross margin as a percentage of sales for the third quarter of fiscal 2007 was 27.1% compared to 24.3% for the same quarter of fiscal 2006. Improvement in production costs and favourable overhead absorption due to higher sales volume resulted in higher gross margin. This improvement was mitigated by unfavourable impacts of a weaker U.S. dollar. Year-to-date gross margin percentage of 26.2% was ahead of the 23.9% of the previous year. The increase in margin was a net result of improved production costs and slightly lower discounts during the nine-month period, offset by unfavourable U.S. dollar conversion.

SG&A expenses in the third quarter of fiscal 2007 were $0.3 million lower than the same quarter of fiscal 2006 due to lower corporate overheads. On a year-to-date basis, SG&A expenses were $1.6 million less than the year before. The decrease was a result of lower variable selling expenses and a decline in showroom related amortization expenses.

The third quarter of fiscal 2007 had a net income of $0.6 million compared to a net loss of $0.8 million in the same quarter of prior year due to significant improvement in gross margin and lower SG&A expenses. Based on a lease agreement signed with a sub-tenant of the vacated New York showroom, the Company recorded a recovery in the quarter of after-tax restructuring costs of $0.09 million as an adjustment to the original estimated costs of closing the showroom in fiscal 2005. Year-to-date earnings were improved from a net loss of $1.5 million in fiscal 2006 (which included after-tax restructuring costs of $0.3 million) to a net income of $1.0 million in fiscal 2007 due to improvement in gross margin percentage, lower SG&A expenses and favourable changes to our restructuring costs.

Operations during the nine-month period generated cash of $3.6 million. As at January 31, 2007 the Company maintained a strong financial position with no debt while cash, cash equivalents and short-term investments totalled $20.7 million, an increase of $3.7 million from the balance as at April 30, 2006.

Conference Call

Inscape will host a conference call at 8:30 a.m. on Friday, March 2, 2007, to discuss the Company's third quarter and nine months results and to provide additional outlook on the next quarter. To participate, please call 1-800-346-5998. A replay of the conference call will also be available from Friday, March 2, 2007 after 10:30 a.m. until midnight on Friday, March 9, 2007. To access the rebroadcast, please dial 1-800-558-5253 (Reservation Number 21328650).

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 during the next fiscal year. 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 distributor of high quality office furniture headquartered in Holland Landing, Ontario, Canada. The Company offers innovative and integrated product solutions that effectively and efficiently landscape modern office interiors, including movable walls, systems and storage products. Company operations are based across two manufacturing facilities totalling approximately 485,000 square feet.
Visit Inscape at www.inscapesolutions.com.



CONSOLIDATED BALANCE SHEETS
Unaudited (in thousands)
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January 31, 2007 April 30, 2006
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ASSETS
CURRENT
Cash and cash equivalents $ 4,001 $ 1,472
Short-term investments 16,728 15,522
Accounts receivable 10,104 8,040
Inventory 4,689 4,160
Prepaid expenses 902 803
Income taxes receivable 230 1,876
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36,654 31,873
CAPITAL ASSETS 28,523 30,091
OTHER ASSETS 1,198 1,458
FUTURE INCOME TAX ASSET 4,997 5,084
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$ 71,372 $ 68,506
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LIABILITIES
CURRENT
Accounts payable and accrued
liabilities $ 12,739 $ 10,025
OTHER LONG-TERM OBLIGATIONS 958 1,129
FUTURE INCOME TAX LIABILITY 4,272 4,936
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17,969 16,090
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SHAREHOLDERS' EQUITY
SHARE CAPITAL 57,059 57,059
CONTRIBUTED SURPLUS 84 84
DEFICIT (3,740) (4,727)
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53,403 52,416
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$ 71,372 $ 68,506
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INSCAPE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited (in thousands, except per share amounts)
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Three Months Ended Nine Months Ended
January 31 January 31 January 31 January 31
2007 2006 2007 2006
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SALES $ 24,296 $ 21,372 $ 67,475 $ 70,395
COST OF GOODS SOLD 17,700 16,184 49,805 53,581
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GROSS MARGIN 6,596 5,188 17,670 16,814

EXPENSES
Selling, general and
administrative 6,052 6,345 17,199 18,763
Restructuring costs
and asset impairment
(Note 6) (151) - (151) 501
Interest income (178) (166) (614) (518)
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5,723 6,179 16,434 18,746
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INCOME (LOSS) BEFORE
TAXES 873 (991) 1,236 (1,932)
INCOME TAXES
(RECOVERY) (Note 7) 233 (155) 249 (419)
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NET INCOME (LOSS) $ 640 $ (836) $ 987 $ (1,513)
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BASIC AND DILUTED
INCOME (LOSS) PER
SHARE (Note 3) $ 0.04 $ (0.06) $ 0.07 $ (0.10)
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CONSOLIDATED STATEMENTS OF DEFICIT
Unaudited (in thousands)
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Three Months Ended Nine Months Ended
January 31 January 31 January 31 January 31
2007 2006 2007 2006
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(DEFICIT) RETAINED
EARNINGS, BEGINNING
OF PERIOD $ (4,380) $ (879) $ (4,727) $ 3,119
NET INCOME (LOSS) 640 (836) 987 (1,513)
DIVIDENDS - (1,661) - (4,982)
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DEFICIT, END OF
PERIOD $ (3,740) $ (3,376) $ (3,740) $ (3,376)
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INSCAPE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (in thousands)
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Three Months ended Nine Months Ended
January 31 January 31 January 31 January 31
2007 2006 2007 2006
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NET INFLOW (OUTFLOW) OF (Restated- (Restated-
CASH RELATED TO THE Note 1) Note 1)
FOLLOWING ACTIVITIES:

OPERATING
Net income (loss) $ 640 $ (836) $ 987 $ (1,513)
Items not affecting cash:
Amortization 1,216 1,418 3,533 4,166
Future income taxes (83) 252 (723) 501
Deferred expenses and
other expenses (180) 172 (102) (467)
Stock based compensation 38 (22) 57 7
Restructuring costs and
asset impairment (Note 6) (151) - (151) 501
Loss (gain) on sale of
capital assets (3) (18) 31 (118)
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1,477 966 3,632 3,077
Changes in non-cash
operating working capital
items 1,736 (43) 1,960 (237)
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3,213 923 5,592 2,840
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FINANCING
Dividends paid - (1,661) - (4,982)
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INVESTING
Short-term investments (2,128) (5,652) (1,206) 4,505
Additions to capital
assets (439) (360) (2,073) (1,751)
Proceeds from sale of
capital assets 50 169 216 520
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(2,517) (5,843) (3,063) 3,274
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NET CASH INFLOW (OUTFLOW) 696 (6,581) 2,529 1,132
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,305 9,756 1,472 2,043
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,001 $ 3,175 $ 4,001 $ 3,175
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CASH AND CASH EQUIVALENTS
CONSIST OF:
Cash $ 4,001 $ 1,111 $ 4,001 $ 1,111
Cash equivalents - 2,064 - 2,064
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$ 4,001 $ 3,175 $ 4,001 $ 3,175
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SUPPLEMENTAL INFORMATION
Income taxes (recovered)
paid $ (1,142) $ (294) $ (944) $ 319

A receivable of $294 as at January 31, 2007 (2006 - $482) relating to
disposal of an equipment in October 2005 is not included in the above
statements of cash flows


Inscape Corporation
Notes to the Interim Consolidated Financial Statements
For periods ended January 31
Unaudited (in thousands except share and per share amounts)


1. BASIS OF PRESENTATION

These unaudited interim consolidated financial statements (the "interim consolidated financial statements") have been prepared in accordance with Canadian generally accepted accounting principles; however, they do not include all of the disclosure requirements for annual consolidated financial statements. These interim consolidated financial statements follow the same accounting policies as were used for the consolidated financial statements for the year ended April 30, 2006. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended April 30, 2006 including notes thereto. These interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the periods reported.

Certain comparative amounts for "cash and cash equivalents" presented in the consolidated statements of cash flows for the three-month and nine-month periods ending January 31, 2007 have been restated to conform to the presentation adopted for the year ended April 30, 2006. The Company has removed money market and fixed income securities with original maturities in excess of three months of $13,430 from cash and cash equivalents and presented these amounts as short-term investments.

2. STOCK-BASED COMPENSATION

During the quarter, stock options with share appreciation rights for 55,500 Class B subordinated voting shares with average exercise price of $3.11 were issued (2006 - 90,000). Over the nine-month period ended January 31, 2007, stock options with share appreciation rights for 171,500 Class B subordinated voting shares with average exercise price of $3.27 were issued (2006 - 190,000).

3. EARNINGS PER SHARE



The following tables set forth the computation of basic and diluted
earnings per share:

Three Months Ended January 31,
Numerator 2007 2006
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Net income (loss) for the quarter for basic
and diluted earnings per share $ 640 $ (836)

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Denominator 2007 2006
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Weighted average number of shares outstanding
for basic earnings per share 15,096,817 15,096,817
Weighted average number of shares outstanding
for diluted earnings per share 15,098,887 15,096,817
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Nine Months Ended January 31,
Numerator 2007 2006
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Net income (loss) for the nine-month period for
basic and diluted earnings per share $ 987 $ (1,513)

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Denominator 2007 2006
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Weighted average number of shares outstanding
for basic earnings per share 15,096,817 15,096,817
Weighted average number of shares outstanding
for diluted earnings per share 15,096,817 15,096,817
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Stock options for 786,000 shares were not included in the computation of diluted earnings per share for the three months ended January 31, 2007 (2006 - 634,900 shares) as they were anti-dilutive for the period.

Stock options for 816,000 shares were not included in the computation of diluted earnings per share for the nine months ended January 31, 2007 (2006 - 634,900 shares) as they were anti-dilutive for the period.

4. SEGMENT INFORMATION

The Company operates under one reporting segment, which is the design, manufacture and distribution of office systems and furniture.



Three Months Ended January 31,
2007 2006
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Sales from
United States $ 20,691 $ 19,405
Canada 3,120 1,532
Other 485 435
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$ 24,296 $ 21,372
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Nine Months Ended January 31,
2007 2006
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Sales from
United States $ 56,556 $ 61,707
Canada 9,828 7,460
Other 1,091 1,228
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$ 67,475 $ 70,395
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January 31, April 30,
2007 2006
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Capital Assets
Canada $ 27,279 $ 28,884
United States 1,244 1,207
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$ 28,523 $ 30,091
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5. PENSION EXPENSE

The pension expense relating to the various defined benefit plans for the three-month period ended January 31, 2007 is $147 (2006 - $126). For the nine-month period ended January 31, 2007, the expense is $441 (2006 - $378).

6. RESTRUCTURING COSTS AND ASSET IMPAIRMENT

The fair value of lease restructuring costs originally estimated when the restructuring provision was recorded have been reduced by $151 based on a lease agreement signed with a sub-tenant subsequently, and recorded as a recovery of asset impairment and restructuring costs for the three and nine months ended January 31, 2007.

The table below shows changes in the liabilities incurred in the third and fourth quarters of fiscal 2005 relating to the discontinuance of manufacturing operations at its Scarborough, Ontario metal filing and seating facilities and the closing of New York showroom:



Three Months Ended January 31, 2007
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Opening Changes Payments Ending
balance Liability
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Employee termination expenses $ - - - $ -
Lease restructuring 894 (77) 31 786
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$ 894 (77) 31 $ 786
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Three Months Ended January 31, 2006
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Opening Changes Payments Ending
balance Liability
---------------------------------------------------------------------------
Employee termination expenses $ 116 - - 116
Lease restructuring 1,137 (40) 43 1,054
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$ 1,253 (40) 43 $ 1,170
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Nine Months Ended January 31, 2007
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Opening Changes Payments Ending
balance Liability
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Employee termination expenses $ 39 - 39 $ -
Lease restructuring 1,042 (121) 135 786
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$ 1,081 (121) 174 $ 786
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Nine Months Ended January 31, 2006
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Opening Changes Payments Ending
balance Liability
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Employee termination expenses $ 182 - 66 $ 116
Lease restructuring 1,519 (232) 233 1,054
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$ 1,701 (232) 299 $ 1,170
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7. INCOME TAXES

Income taxes for the nine-month period ended January 31, 2007 include a net recovery of $155 (2006 - nil) relating to re-measurement of future income tax assets and future income tax liabilities as a result of Federal corporate income tax rate reductions which were enacted in June 2006.

Contact Information

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