Peter Brunelle, President and Chief Executive Officer of Inscape (TSX:INQ), a
leading designer, manufacturer and distributor of office furniture solutions,
announces the following financial results for the first quarter ended July 31,
2007:
Inscape Corporation
Summary of Consolidated Financial Results
(Unuadited) (in thousands except EPS)
Quarters Ended July 31,
2007 2006 Change
--------------------------------------------------------------------------
Sales $ 24,100 $ 20,478 17.7%
-----------------------------------------------------------------
Gross margin 7,245 5,442 33.1%
Selling, general & administrative expenses 5,982 5,356 11.7%
Interest income (271) (176)
Income before taxes 1,534 262
Income taxes (recovery) 504 (60)
-----------------------------------------------------------------
Net income $ 1,030 $ 322
-----------------------------------------------------------------
-----------------------------------------------------------------
Basic and diluted earnings per share $ 0.07 $ 0.02
Commentary and Outlook
"I am pleased by the ongoing improvement in our financial results, especially in
light of the challenges posed by the appreciating Canadian dollar relative to
the US currency" said Peter Brunelle, CEO of Inscape Corporation. "All key
operating metrics, from sales to earnings showed a marked improvement over the
prior year. We are especially encouraged by the improvement in gross margin at
30.1% . This noteworthy result is reflective of numerous continuous improvement
activities that have been underway for the last two years combined with material
cost and yield savings and a beneficial sales mix impact. Based on current order
levels, we expect that sales for the second quarter of fiscal 2008 will be in
line with the second quarter of fiscal 2007" said Mr. Brunelle.
Operating Performance
Sales for the first quarter of fiscal 2008 were 17.7% higher than the same
quarter of fiscal 2007. The increase was driven by increased general demand for
our products and increased project business. On a comparable exchange rate
basis, the quarterly sales were 19% higher than the same period of last year.
Gross margin as a percentage of sales for the first quarter of fiscal 2008 was
30.1% compared to 26.6% for the same quarter of fiscal 2007. The 3.5 percentage
point improvement was attributable to leverage from much higher sales volume,
improved logistics management and benefit of reduced material cost and
consumption. The level of improvement was offset to some extent by continued
weakening of the U.S. dollar exchange rate from 90.1 cents at the beginning of
the quarter to 93.7 cents at the end of the quarter.
SG&A expenses for the first quarter of fiscal 2008 were $0.6 million higher than
the same quarter of fiscal 2007 due to higher variable selling expenses and an
accrual for preliminary capital tax assessments. As a percentage of sales, SG&A
expenses decreased from 26.2% for the first quarter of fiscal 2007 to 24.8% for
the first quarter of fiscal 2008.
The Company adopted the new CICA Accounting Standards on "Financial
Instruments". Financial assets and liabilities of the Company, including cash,
cash equivalents, short-term investments, foreign exchange derivatives and
accounts payable, were recorded in the Balance Sheets at their fair values as at
the end of the quarter. Accordingly, the Company also recorded in the quarter an
unrealized gain of $0.5 million (after-tax) in relation to its U.S. dollar
exchange forward contracts and options. As a result, the quarter ended with a
net income of $1 million from operations and the $0.5 million unrealized gain,
giving a comprehensive net income of $1.5 million.
The Company maintained a strong financial position with cash and short-term
investments of $21 million and no debt.
Conference Call
INSCAPE will host a conference call at 8:30 a.m. on Wednesday, September 12,
2007 to discuss the Company's quarterly results and to provide additional
outlook on the next quarter. To participate, please call 1-800-926-5230. A
replay of the conference call will also be available from Wednesday, September
12, 2007 after 10:30 a.m. until midnight on Wednesday, September 19, 2007. To
access the rebroadcast, please dial 1-800-558-5253 (Reservation Number
21347033).
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 US.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 product solutions that seamlessly integrate to create
highly flexible office interiors, including moveable 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.
INSCAPE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)(in thousands)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
July 31, April 30,
2007 2007
---------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 11,824 $ 4,551
Short-term investments 9,187 16,759
Accounts receivable 12,715 11,656
Inventory 4,935 4,250
Derivatives asset (Note 2) 1,838 -
Prepaid expenses 1,053 742
Income taxes receivable 174 106
---------------------------------------------------------------------------
41,726 38,064
CAPITAL ASSETS 27,037 27,542
OTHER ASSETS 1,522 1,519
FUTURE INCOME TAX ASSET 3,644 4,535
---------------------------------------------------------------------------
$ 73,929 $ 71,660
---------------------------------------------------------------------------
---------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 12,374 $ 12,356
Income taxes payable - 95
---------------------------------------------------------------------------
12,374 12,451
OTHER LONG-TERM OBLIGATIONS 769 955
FUTURE INCOME TAX LIABILITY 4,350 4,069
---------------------------------------------------------------------------
17,493 17,475
---------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 57,059 57,059
CONTRIBUTED SURPLUS 84 84
ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 2) 1,221 -
DEFICIT (1,928) (2,958)
---------------------------------------------------------------------------
56,436 54,185
---------------------------------------------------------------------------
$ 73,929 $ 71,660
---------------------------------------------------------------------------
---------------------------------------------------------------------------
INSCAPE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)(in thousands , except per share amounts)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three Months Ended
July 31,
2007 2006
---------------------------------------------------------------------------
SALES $ 24,100 $ 20,478
COST OF GOODS SOLD 16,855 15,036
---------------------------------------------------------------------------
GROSS MARGIN 7,245 5,442
EXPENSES
Selling, general and administrative 5,982 5,356
Interest income (271) (176)
---------------------------------------------------------------------------
5,711 5,180
---------------------------------------------------------------------------
INCOME BEFORE TAXES 1,534 262
INCOME TAXES (RECOVERY) (Note 7) 504 (60)
---------------------------------------------------------------------------
NET INCOME $ 1,030 $ 322
---------------------------------------------------------------------------
BASIC AND DILUTED INCOME PER SHARE (Note 3) $ 0.07 $ 0.02
---------------------------------------------------------------------------
---------------------------------------------------------------------------
INSCAPE CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Months Ended July 31, 2007
(Unaudited)(in thousands)
--------------------------------------------------------------
NET INCOME $ 1,030
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Realized gain on derivatives designated as cash
flow hedges classified to income (net of taxes
of $36) (71)
Unrealized gain on derivatives designated as cash
flow hedges (net of taxes of $261) 516
--------------------------------------------------------------
445
--------------------------------------------------------------
COMPREHENSIVE INCOME, NET OF TAXES $ 1,475
--------------------------------------------------------------
--------------------------------------------------------------
INSCAPE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended July 31, 2007
(Unaudited)(in thousands)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accumu-
lated
Share Contributed Other Total Total
Capital Surplus Compreh- Deficit AOCI and Shareholder's
ensive Deficit Equity
Income
("AOCI")
---------------------------------------------------------------------------
---------------------------------------------------------------------------
BALANCE -
April 30,
2007 $ 57,059 $ 84 $ - $ (2,958) $(2,958) $ 54,185
Opening
balance
adjustment
for
unrealized
gain on
cash flow
hedges
(net
of taxes
$392) 776 776 776
---------------------------------------------------------------------------
BALANCE -
May 1,
2007 57,059 84 776 (2,958) (2,182) 54,961
Net Income 1,030 1,030 1,030
Realized
gain on
derivatives
designated
as cash
flow
hedges
classified
to income
(net of
taxes of
$36) (71) (71) (71)
Unrealized
gain on
derivatives
designated
as cash
flow
hedges
(net of
taxes of
$261) 516 516 516
---------------------------------------------------------------------------
BALANCE -
July 31,
2007 $ 57,059 $ 84 $ 1,221 $ (1,928) $ (707) $ 56,436
---------------------------------------------------------------------------
---------------------------------------------------------------------------
INSCAPE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three Months Ended
July 31,
2007 2006
---------------------------------------------------------------------------
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES:
OPERATING
Net income $ 1,030 $ 322
Items not affecting cash:
Amortization 1,210 1,139
Future income taxes (359) (515)
Deferred expenses and other expenses (98) 50
Stock based compensation (108) (9)
Loss (gain) on sale of capital assets - (7)
---------------------------------------------------------------------------
1,675 980
Changes in non-cash operating working capital
items (1,313) (536)
---------------------------------------------------------------------------
362 444
---------------------------------------------------------------------------
INVESTING
Short-term investments net redemption 7,572 2,310
Additions to capital assets (705) (856)
Proceeds from sale of capital assets 44 53
---------------------------------------------------------------------------
6,911 1,507
---------------------------------------------------------------------------
NET CASH INFLOW 7,273 1,951
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,551 1,472
---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,824 $ 3,423
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS CONSIST OF:
Cash $ 3,911 $ 3,179
Cash equivalents 7,913 244
---------------------------------------------------------------------------
$ 11,824 $ 3,423
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
Income taxes paid $ 541 $ 198
Inscape Corporation
Notes to the Interim Consolidated Financial Statements
For periods ended July 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. These interim financial
statements do not include all of the disclosure requirements for annual
consolidated financial statements, and accordingly, these statements should be
read in conjunction with the consolidated financial statements for the year
ended April 30, 2007 including the 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.
2. ACCOUNTING POLICIES
These interim consolidated financial statements follow the same accounting
policies as were used for the consolidated financial statements for the year
ended April 30, 2007, except for the new accounting policies as noted below.
On May 1, 2007 the Corporation adopted the following Canadian Institute of
Chartered Accountants ("CICA") new accounting standards on recognition,
measurement and presentation of financial instruments:
(a) Section 1530 "Comprehensive Income" - "comprehensive income" is the change
in equity of the Corporation during a period from transactions and other events
from non-owner sources, which include net income from operations and other
comprehensive income ("OCI"). Examples of items included in OCI are changes in
fair value of available-for-sale financial assets and effective portion of
changes in fair value of cash flow hedging instruments. OCI net of taxes is
disclosed in the "Consolidated Statements of Comprehensive Income" for the
three-month period ended July 31, 2007.
(b) Section 3251 "Equity" - this standard describes the presentation of equity
and changes in equity during an accounting period with respect to comprehensive
income. As a result of the implementation of the standard, the "Consolidated
Statements of Retained Earnings (Deficit)" has been reformatted and replaced by
the "Consolidated Statements of Changes in Shareholders' Equity" to disclose
separately the changes in the components of shareholders' equity. "Accumulated
other comprehensive income" (the portion of comprehensive income not already
included in net income) is presented as a separate line in shareholders' equity
on the consolidated balance sheet.
(c) Section 3855 "Financial Instruments, Recognition and Measurement" - a
financial instrument is any contract that gives rise to a financial asset of one
entity and a financial liability or equity instrument of another entity. This
standard requires all financial instruments be classified according to their
characteristics or management's intent or choice, with the corresponding
measurement and the recognition of associated gains and losses implications as
summarized below:
---------------------------------------------------------------------------
Measurement
subsequent
Financial to initial
Instrument Class recognition (1) Gains and Losses
---------------------------------------------------------------------------
Recognized in net
Held for trading Fair value income in the
current period
----------------------------------------------------------
Recognized in net
income in the period
Held to maturity Amortized cost that the asset
is derecognized
or impaired
Financial assets ----------------------------------------------------------
Recognized in net
income in the period
Loans and that the asset
receivables Amortized cost is derecognized
or impaired
----------------------------------------------------------
Recognized in OCI
Available for sale Fair value until realized through
disposal or impaired
---------------------------------------------------------------------------
Recognized in net
Held for trading Fair value income in the current
period
Financial ----------------------------------------------------------
liabilities Recognized in net
income in the period
Other liabilities Amortized cost that the liability
is derecognized
---------------------------------------------------------------------------
(1) All financial instruments, including derivatives designated in
qualifying hedging relationships and any embedded derivatives, are
initially measured at fair value.
Upon adoption of this new accounting standard, the Corporation's financial
assets and liabilities are classified as follows:
---------------------------------------------------------------------------
Cash and cash equivalents and short-term investments Held for trading
---------------------------------------------------------------------------
Accounts receivable Loans and receivables
---------------------------------------------------------------------------
Accounts payable Other liabilities
---------------------------------------------------------------------------
Other long-term obligations Other liabilities
---------------------------------------------------------------------------
(d) Section 3861 "Financial instruments - Disclosure and Presentation" - this
standard prescribes information that should be disclosed about financial
instruments and non-financial derivatives. Under this standard, the accounting
polices on financial instruments have been applied retroactively without
restatement. Accordingly, the Corporation's comparative financial statements are
not required to be restated.
(e) Section 3865 "Hedges" - this standard establishes formal documentation,
designation and effectiveness assessment as pre-requisites for application of
hedge accounting. The Corporation enters into foreign exchange contracts to
hedge its exposure to foreign currency risk on its accounts receivable from
anticipated sales which are denominated in U.S. dollar. These contracts are
designated as cash flow hedges with their fair values as at July 31, 2007
recorded as derivative assets on the consolidated balance sheet. The effective
portion of the change in these fair values during the period is included in
other comprehensive income ("OCI").
On the adoption of this standard, the Company had an unrealized gain on its cash
flow hedges of $776 (net of taxes of $392) which was recorded as the opening
accumulated OCI balance. During the three-month period ended July 31, 2007,
realized gain of $71 (net of taxes of $36) was reclassified from accumulated OCI
to net income. Unrealized gain of $516 (net of taxes of $261) was recorded to
OCI of the period. The balance of accumulated OCI of $1,221 as at July 31, 2007
is expected to be fully reclassified to net income within the next 12 months,
when the U.S. dollar denominated accounts receivable being hedged are recognized
on the balance sheet.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended July 31,
Numerator 2007 2006
---------------------------------------------------------------------------
Net income for the quarter for basic and
diluted earnings per share $ 1,030 $ 322
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Denominator 2007 2006
---------------------------------------------------------------------------
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 15,120,316 15,096,817
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Stock options for 524,500 shares were not included in the computation of diluted
earnings per share for the three months ended July 31, 2007 (2006 - 727,000
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 July 31,
2007 2006
--------------------------------------------------------------------
Sales from
United States $ 20,516 $ 17,585
Canada 3,337 2,513
Other 247 380
-------------------------------------------------------------------
$ 24,100 $ 20,478
--------------------------------------------------------------------
--------------------------------------------------------------------
July 31, April 30,
2007 2007
-------------------------------------------------------------------
Capital Assets
Canada $ 25,564 $ 26,256
United States 1,473 1,286
-------------------------------------------------------------------
$ 27,037 $ 27,542
-------------------------------------------------------------------
-------------------------------------------------------------------
5. PENSION EXPENSE
Total pension expense relating to the various defined benefit plans for the
three-month period ended July 31, 2007 is $82 (2006 - $148).
6. RESTRUCTURING COSTS AND ASSET IMPAIRMENT
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 July 31, 2007
---------------------------------------------------------------------
Opening Ending
balance Changes Payments Liability
---------------------------------------------------------------------
Employee termination expenses $ - - - $ -
Lease restructuring 699 (20) 55 624
---------------------------------------------------------------------
$ 699 (20) 55 $ 624
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended July 31, 2006
---------------------------------------------------------------------
Opening Ending
balance Changes Payments Liability
---------------------------------------------------------------------
Employee termination expenses $ 39 - 21 $ 18
Lease restructuring 1,042 (26) 41 975
---------------------------------------------------------------------
$ 1,081 (26) 62 $ 993
---------------------------------------------------------------------
---------------------------------------------------------------------
The lease restructuring provision is expected to be completed in the first
quarter of fiscal year 2011.
7. INCOME TAXES
Income taxes for the three-month period ended July 31, 2007 include a net
recovery of $107 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 2007 (2006 - $177).
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