INSCAPE Summary of Financial Results (millions, except EPS and number of shares) 3-Months 3-Months Ended Ended January 31, January 31, 2002 2001 Change ------------------------------------- Revenue $ 30.6 $ 46.0 -33.4% Net Income $ 1.2 $ 6.7 -82.6% EPS $ 0.08 $ 0.45 Weighted average Number of shares 15,062 15,053 (in thousands) 9-Months 9-Months Ended Ended January 31, January 31, 2002 2001 Change ------------------------------------- Revenue $ 104.9 $ 133.8 -21.6% Net Income $ 6.5 $ 20.3 -68.2% EPS $ 0.43 $ 1.35 Weighted average Number of shares 15,056 15,053 (in thousands)
Revenues for the three months ended January 31, 2002, were $30.6 million, down 33.4% from revenues in the three months ended January 31, 2001. For the nine months ended January 31, 2002, revenues declined by 21.6% to $104.9 million. The decline in revenues continues to be the result of the economic slowdown, which has resulted in lower levels of new office construction, project delays and cancellations.
Gross margin in the third quarter decreased to $10.8 million, or 35.2% of revenues, compared to gross margin of 40.5% of revenues for the same quarter last fiscal year. On a year-to-date basis, gross margin declined to 36.3% of revenues from 41.5% of revenues in the previous year. The decline in gross margin is predominantly the result of the decline in revenues and competitive pricing pressures.
Sales, marketing and administrative expenses were $9.1 million, the same level as the third quarter of fiscal 2001 and $1.3 million lower than the second quarter of fiscal 2002. For the nine months ended January 31st, 2002, these expenses were $29.2 million as compared with $26.6 million in the previous year. The increase in expenses over the previous year is the result of the completion of showrooms in Toronto, Los Angeles, New York and Dallas that have been accounted for on an operational basis since the beginning of this fiscal year, in addition to certain one-time charges and an increase in reserves for doubtful accounts. The investment in our distribution, including the addition of these showrooms and the related staffing and operational costs, has increased our fixed costs in these major markets. The Company believes that these investments will strengthen our market presence and provide for long-term growth. As reported in its first and second quarter results, the Company has taken significant measures to reduce marketing and administrative expenses for the last half of this fiscal year. In the current quarter, these expenses were significantly lower than the first two quarters of this fiscal year, demonstrating the success of these initiatives.
Net income for the quarter was $1.2 million, resulting in a decline in earnings per share from 45 cents in the third quarter of fiscal 2001 to 8 cents. On a year-to-date basis, earnings per share declined from $1.35 in fiscal 2001 to 43 cents in the current year.
Despite the decline in revenues and earnings performance, the Company continues to produce strong cash flow and maintain a solid cash position. Net cash flow from operations prior to changes in noncash operating working capital, totalled $3.2 million in the third quarter and $11.2 million for the first nine months of the year. Net cash reserves at the end of the third quarter totalled $42.4 million.
Commentary and Outlook
In February 2002, the Business and Institutional Furniture Manufacturers' Association (BIFMA) reported that industry shipments fell 17.4% in 2001, with shipments in the fourth quarter declining by 29.2%. Moving forward, BIFMA anticipates that the contract office furniture industry will experience further declines from 2001 levels, with shipments in the first quarter and first half of calendar 2002 expected to drop 27.5% and 21.6%, respectively.
Consistent with the above BIFMA projections, the Company anticipates that revenues for the fourth quarter will continue to be weak and be significantly lower than those realized in the comparative quarter of last year. Consequently, earnings will be considerably below those achieved in the fourth quarter of fiscal 2001.
``Our industry continues to face unprecedented decline and challenges,'' said Ram Ramkumar, President and Chief Executive Officer. ``However, as demonstrated in the current quarter, we are confident in our ability to reduce operating costs, while maintaining focus on distribution development and product expansions. Our recent acquisition of the North American rights to the Sitag seating line is a prime example of our commitment and ability to balance the short-term requirements of the business with a continued focus on our long-term growth and expansion strategies. We are pleased that during these uncertain times, we continue to be able to generate both profits and positive cash flows.''
New Appointment to Board of Directors
The Company announced the appointment of Alan J. Power to the Board of Directors. Mr. Power is President and Chief Executive Officer of Decoma International Inc., a supplier of exterior vehicle appearance systems for the automotive industry. He has directed Decoma's global growth since becoming President in 1993, having commenced his career with the Decoma group in 1987. ``We are very pleased to have Alan Power join us as a member of INSCAPE's Board of Directors,'' said Madan Bhayana, Executive Chairman. Mr. Power fills the position on the Board of Directors that was left open as a result of Mr. Michael Wilson's departure from the Board earlier this fiscal year.
Simultaneous with the announcement of the Company's third quarter results, the Board of Directors also declared an 11-cent dividend payable on April 11, 2002 to all shareholders of record of Class A Multiple Voting Shares and Class B Subordinate Voting Shares as of April 8, 2002.
INSCAPE will host a conference call at 8:30am on Wednesday, March 27, 2002, to discuss the Company's third quarter results and to provide further outlook on the fourth quarter. To participate, please dial 1-800-387-2917. A replay of the conference call will also be available from Wednesday, March 27, 2002, after 10:30 a.m., until midnight on Wednesday, April 3, 2002 by calling 1-800-558-5253, reservation number 20457351, followed by the # key.
Certain of the above statements are forward-looking statements that involve risks and uncertainties. Actual results, particularly those achieved during the remainder of the current fiscal year, 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 the U.S.$ 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.
INSCAPE Corporation is a leading designer, manufacturer and distributor of high quality office furniture headquartered in Holland Landing, Ontario, Canada. The Company offers a wide array of innovative product solutions that effectively and efficiently landscape modern office interiors, including: moveable wall partitions, modular interior architectural products, systems solutions capable of advanced cable management, highly customizable filing products, seating and ergonomic accessories. Company operations are based across four facilities totalling approximately 700,000 square feet. Over the past five years ended April 30, 2001, Company revenues have increased by a compound rate of 23% per annum from $76.0 million to $173.0 million, during which time net income has also grown at a compound rate of 23%