Inscape Corporation Announces Second Quarter Results

Business Wire, Dec 10, 2004

HOLLAND LANDING, Ontario -- Company also announces restructuring...

Madan Bhayana, Executive Chairman of Inscape (TSX:INQ.SV), a leading designer, manufacturer and distributor of office furniture solutions, announced the following financial results for the quarter ended October 31, 2004:

INSCAPE
                            Summary of Financial Results
                     (millions, except EPS and number of shares)

                             3-Months       3-Months
                                Ended          Ended
                          October 31,    October 31,
                                 2004           2003
                          (Q2, Fiscal    (Q2, Fiscal           Change
                                2005)          2004)
---------------------------------------------------------------------
                                       (As restated)

Revenue                       $ 24.2          $ 32.1           -24.5%
Gross Margin                     5.7            10.8           -47.3%
Selling, General &
 Administrative expenses         7.8             8.4            -6.9%
Restructuring costs (pre-tax)      -             2.2
Net Income/(loss)              (1.4)             0.3
Earnings Per Share (EPS)    $ (0.09)          $ 0.02(a)

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

                             6-Months       6-Months
                               Ended           Ended
                         October 31,     October 31,           Change
                                2004            2003
---------------------------------------------------------------------
                                       (As restated)
Revenue                       $ 46.1          $ 63.9           -27.9%
Gross Margin                    10.7            22.0           -51.4%
Selling, General &
 Administrative expenses        14.9            17.3           -13.8%
Restructuring costs (pre-tax)      -             2.2
Net Income/(loss)              (2.6)             2.1
Earnings Per Share (EPS)    $ (0.17)          $ 0.14(a)

Weighted average
 number of shares             15,097          15,097

(a) Reflects the impact of restructuring costs of $0.10 per share

Commentary and Outlook

"Although revenues for the second quarter showed some improvement over the first quarter, we continue to be disappointed with our results", said Madan Bhayana, Executive Chairman. "We are taking aggressive actions to improve our financial position. In order to sharpen our focus on core business, we are rationalizing our product offering by discontinuing our seating product line. We have also changed our business model in New York. This should not only help us increase sales, but also reduce operating costs. We are continuing to review all aspects of our business in order to return to profitability and resume growth. Finally, I'm pleased to report that the Board expects to conclude the search for a new CEO in the near future."

With respect to the near term outlook, the Business and Institutional Furniture Manufacturer's Association ("BIFMA") anticipates that shipments in the fourth calendar quarter of 2004 will be 5.4% higher than the same quarter of 2003 and 2.1% lower than the third calendar quarter of 2004. Based on current order input levels, Inscape anticipates that third quarter revenues may show some improvement over the second quarter of fiscal 2005, however given the uncertainty caused by the short lead times that the Company operates under, it is possible that revenues may come in closer to the second quarter. Earnings in the third and fourth quarters of F2005 will however, be adversely impacted by the effects of the restructuring initiatives as described below.

Restructuring initiative

Inscape has been disappointed with the performance of the seating product line for some time now and results have not been commensurate with the efforts expended on this product line. Consequently, in order to increase focus in these challenging times, the Company has decided to discontinue this product line during the third quarter of fiscal 2005. This decision will result in a one-time pre-tax charge of approximately $1.7 million. This will be recorded in the Company's third quarter, ending January 31, 2005. Seating has always been a minor part of Inscape's business and therefore this discontinuance will have minimal impact on the Company's consolidated earnings on a go forward basis.

Inscape has decided to pursue a new business model in New York that is expected to generate additional sales in this market for Inscape. This decision also allows the Company to vacate its existing showroom in New York. The Company anticipates vacating the showroom by April 30, 2005 and will record pre-tax costs of $0.7 million with respect to accelerated depreciation of leasehold improvements over the remainder of fiscal 2005. The Company will also record pre-tax costs of $1.3 million in connection with vacating this showroom as current rental rates for this location are lower than Inscape's lease rate. This cost will be recognized in the period the Company ceases using the showroom. Assuming that the Company is able to sub-lease this space, it will reduce pre-tax expenses by approximately U.S. $0.4 million annually. The Company intends to lease a new showroom in New York. Operating costs of that showroom have been considered in estimating the annual savings of this initiative.