Invesprint Announces Year End Results, Looks to Spin Off Jonergin Pacific
Press release from the issuing company
TORONTO--Sept. 14, 2004-- Invesprint Corporation today announced that the Board is negotiating the sale of Jonergin Pacific Inc. and reported financial results for the year ended April 30, 2004 and the first quarter ended July 31, 2004.
Invesprint has reduced its first quarter loss by more than one million dollars from the previous year.
The July 31, 2004 first quarter pretax loss of $355,000 compares to a pretax loss of $1,383,000 in the first quarter of 2003. Despite lower revenues, the Company's cost control initiatives have significantly advanced the goal of returning to profitability.
The Jonergin Pacific operation in Napa, California continues to consume capital both to reduce debt and to fund operating losses. Invesprint is in active negotiations with a financially strong buyer to sell this business. In the event a successful transaction is concluded, Invesprint will be left operating a label manufacturing business through its wholly-owned Jonergin Division based in St-Hubert, Quebec. Jonergin will celebrate its fiftieth year in business this month.
The California business that began five years ago was negatively impacted by the loss of the Company's largest customer in November 2002. In a market currently experiencing overcapacity at all levels, a return to profitability without significant revenue growth would be challenging.
The Board's decision to focus on the core Canadian business is expected to create a financially sound enterprise that will continue to manufacture high value added product for many multinational customers.
Year ended April 30, 2004
Sales for the year ended April 30, 2004 were $22.5 million compared to $29.2 million a year ago, a decrease of 23%. Previously, the Company announced that its largest customer had chosen two other suppliers for its label needs. To date, the Company has only partially replaced the lost revenues. In addition, over-capacity in the industry has resulted in severe pressure on operating margins.
Gross margin for the year was 5.9% of sales compared to 14.4% last year. Lower sales volumes and unit selling prices resulting from the very competitive environment in which the Company operates and excess capacity at both facilities adversely impacted the margins. On average, throughout the year, the plants operated at approximately 60% to 65% of capacity. Printing is a relatively high fixed cost business and low capacity utilization has a major adverse impact on margins.
Selling, general and administrative expenses for the year ended April 30, 2004 were $5.3 million compared to $7.5 million in the prior year. The decrease of $2.3 million (29%) reflects the lower level of business and a concerted effort to reduce costs in all expense categories.
The loss from continuing operations for the year, before interest, taxes, impairment losses and other charges, was $4.0 million compared to $3.3 million a year ago.
The Canadian dollar strengthened significantly against the U.S. dollar during fiscal 2004. The exchange rate used to translate Jonergin Pacific's results into Canadian dollars was $1.34 in fiscal 2004 compared to $1.53 in the prior year. If no movement in the exchange rate had taken place during fiscal 2004, reported sales would have been approximately $1 million greater and the reported operating loss would have been approximately $280,000 higher.
As a result of continued operating and cash flow losses at Jonergin Pacific, the carrying value of production equipment was evaluated for recoverability and it was determined that the carrying value would not be recovered over its useful life. Accordingly, the production equipment was written-down by $4.3 million to its estimated fair value. Also, an impairment loss must be recognized if assets will more likely than not be disposed of before the end of their useful lives. Because it is more likely than not that the Jonergin Division's land and building will be disposed of before the end of its useful life through a sale and leaseback arrangement, the Jonergin Division's building was written-down to its estimated fair value resulting in an impairment loss of $700,000 on the building.
During the current fiscal year, the Company determined that net operating loss carry-forwards of Jonergin Pacific will not be utilized in the near future because of continuing operating losses. A full valuation allowance of $3.8 million has been made against these future income tax assets. The net operating losses available to apply against future taxable income are approximately US$8 million.
The loss from continuing operations for the year was $9,776,000 ($1.83 per share) compared to a loss of $3,056,000 ($0.57 per share) for the previous year. The net loss for the year was $10,084,000 ($1.89 per share) compared to a net loss of $2,790,000 ($0.52 per share) for the year ended April 30, 2003.
First Quarter ended July 31, 2004
Sales for the first quarter of fiscal 2005 were $5.6 million compared to $6.8 million in the first quarter of fiscal 2004. The lower level of sales reflects the very competitive environment in which the Company continues to operate. Consolidated gross margin expressed as a percentage of sales was 12.1% in the first quarter this year compared to 7.5% in the same period last year. This improvement reflects in part the cost reduction programs instituted throughout fiscal 2004. Selling, general and administrative expenses were 50% lower than in the first quarter last year reflecting the lower level of sales and a concerted effort to reduce costs in all expense categories. Administrative expenses for the first quarter of fiscal 2004 include severance expense of $74,000 related to the closing of the corporate office in Toronto.
The loss from continuing operations before interest expense and income taxes for the first quarter was $201,000, a substantial improvement over the loss of $1,245,000 for the first quarter of fiscal 2004.
During fiscal 2004, the Company determined that net operating loss carry-forwards of Jonergin Pacific are not likely to be utilized because of continuing operating losses and accordingly, a full valuation allowance was made against future income tax assets. As a result of this determination, it is no longer appropriate to record a tax recovery against current losses of Jonergin Pacific. Consequently, no tax recovery was booked against Jonergin Pacific's pretax loss of $270,000 in the first quarter of fiscal 2005. In the first quarter of fiscal 2004, a tax recovery of $384,000 was booked against Jonergin Pacific's pretax loss of $964,000.
The loss from continuing operations for the first quarter was $365,000 ($0.07 per share) compared to a loss of $853,000 ($0.16 per share) for the first quarter of fiscal 2004. The net loss for the period was $365,000 ($0.07 per share) compared to a net loss of $1,161,000 ($0.22 per share) in the same period last year.
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