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Inscape sales drop 21.7% in latest quarter

Friday 5 March 2010

Inscape Corporation Thursday reported sales for the third quarter of fiscal 2010 were $CAN 17.9 million, 21.7% lower than the same quarter of fiscal 2009. Year-to-date sales of $CAN 52 million were 17.4% behind the same period of last year. The results reflect the contraction and pricing pressure being experienced in office furniture businesses. Without the benefit of gains from the U.S. currency hedge contracts, sales in the third quarter would have declined 23% and the year-to-date sales would have been down by 21%.
The third quarter of fiscal 2010 which ended on January 31, 2010 had a net income of C$0.1 million or 1 cent per share compared to a breakeven result in the same period of fiscal 2009. The quarter included an expense accrual of $0.5 million contractual benefits relating to the resignation of former Chief Executive Officer, which was announced in November 2009.
The third quarter\'s gross margin as a percentage of sales was 29.6% compared to 23.6% in the same quarter of last year. Year-to-date gross margin rose from last year\'s 23.5% to current year\'s 26.7%. While the gross margins were depressed by pricing pressure and unfavourable overhead absorption resulting from lower sales volumes, the negative factors were more than offset by gains in currency hedges, reductions in fixed overheads and improvements in variable production costs. The third quarter also benefited by the C$0.1 million reversal of asset retirement obligation discussed in the previous paragraphs. This non-recurring item contributed 0.9 percentage points to the third quarter gross margin and 0.3 percentage points to the year-to-date gross margin.
The third quarter\'s SG&A expenses were C$0.3 million or 5.5% lower than the same quarter of last year. The variable selling expenses were C$0.5 million lower resulting from lower sales volumes. The fixed SG&A expenses were $0.2 million higher because of the C$0.5 million contractual benefit expense accrual for the former Chief Executive Officer. With the exclusion of this unusual item, the fixed SG&A would be $0.3 million lower than the same period of last year due to various cost control measures. As a percentage of sales, the third quarter SG&A was 29.1%, compared with 24.2% in the same quarter of last year because of current year\'s lower sales volumes and the contractual benefits accrual. Year-to-date SG&A expenses were C$2.3 million less than the level a year ago. $1.2 million of the decrease related to variable selling expenses and $1.1 million were savings from fixed overheads. As a percentage of sales, SG&A increased from last year\'s 27.7% to current year\'s 29.0% mainly due to lower sales volumes.
The quarterly interest income was comparable to the income earned in the same quarter of last year. On a year-to-date basis, current year\'s interest income was less than prior year\'s records because last year\'s yield on investments started to decline only after the first quarter.
\"We are pleased with the modest return to profitability in the third quarter,\" said Madan Bhayana, Chief Executive Officer of Inscape. \"Sales levels remain depressed as the industry continues to experience widespread reductions in demand. Our employees and business partners continue to rise to the challenge of improving our business processes while at the same time streamlining our cost structure. In spite of the challenging sales environment, we generated positive cash flows from operations which allow us to make financial investments that continue to elevate our products to the highest possible quality levels.
\"During the quarter, we purchased our New York State based manufacturing facility where our wall products have been manufactured for the past 12 years. In addition to the substantial economic benefits supporting this purchase, there are substantial strategic benefits as the Company continues to expand its market position in the moveable wall segment of our industry. Our Wall division has been awarded substantial contracts for US government facilities where there is a growing need for our flexible, sustainable and cost effective moveable wall solutions.
The year-to-date nine-month period ended January 31, 2010 had a net loss of C$1.3 million or 9 cents per share compared to last year\'s net loss of C$0.3 million or 2 cents per share. Current year-to-date results included an unrealized U.S. currency translation loss of C$0.6 million whereas last year\'s results included an unrealized U.S. currency translation gain of V$1.3 million. When the unrealized exchange loss and gain are excluded from both periods, current year\'s net loss would be C$0.7 million compared to last year\'s net loss of C$1.6 million.
We expect that sales for the fourth quarter of fiscal 2010 will be slightly lower than the third quarter of fiscal 2010.\" said Bhayana.
At the end of the quarter, the company remained debt free and had cash and cash equivalents of $5.8 million and liquid short-term investments of $15.1 million. The decrease in cash and cash equivalent balance of about $3.3 million from the level at the end of the second quarter was mainly attributed to the purchase of the Falconer plant in New York State. The company does not expect significant change in the current working capital requirements in the near-term. The cash position and credit facility provide the company necessary capital resources to develop new products, meet all other expected financial requirements, and support business growth and acquisition opportunities.

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