Electrohome Announces First Quarter Results
February 17, 2004

Overview

• Earnings for the quarter of $4.5 million were primarily due to the sale of the Company's facility on December 1, 2003.
  
  
• Net proceeds from the sale of the facility of $9.7 million were used to pay associated costs and to pay in their entirety all mortgages on the property totaling $6.4 million resulting in net cash proceeds to the Company of $3.0 million. Included in the mortgage repayment was $3.5 million owing to Mr. John A. Pollock, Chairman, President and Chief Executive Officer, and to other members of his family. 
  

Management Discussion and Analysis

Results from Operations

As Fakespace is no longer accounted for on a consolidation basis, there were no revenues in the first quarter while $3.7 million was posted last year.

An operating loss of $0.3 million this year is comprised of retiree post-employment benefit costs and corporate expenses. This compares to an operating loss last year of $0.8 million, which includes results from Fakespace System ("Fakespace") of ($0.5 million) and retiree post-employment benefit costs and corporate expenses of $0.3 million.

While interest expense for the quarter was equal to last year, there will not be any interest charges going forward as all debt was extinguished upon the sale of the Company's facility.

Royalty income at $0.1 million was marginally unfavourable to last year as timing differences resulted in decreased sales of Electrohome branded consumer electronic products by licensed third parties.

An equity loss from Fakespace, based on the Company's 30.6% interest (applicable only to the current year), was $0.2 million. 

There was no tax expense this quarter due to available tax losses, however, a tax recovery of $0.1 million was recorded in the first quarter last year associated with Fakespace.

Last year's figures also included an increase to earnings as a result of the minority interest share in the loss from Fakespace, however, in fiscal 2004 with accounting for the newly merged Fakespace on an equity basis, minority interest is no longer applicable. 

Earnings from discontinued operations of $5.1 million were primarily due to the sale of Electrohome's facility. A gain on sale of $5.6 million was recorded, which triggered an income tax expense (non-cash) of $0.6 million, for a net gain of $5.0 million this quarter. (An associated equal and offsetting tax recovery was recorded in the fourth quarter of fiscal 2003 as there was a requirement to recognize the utilization of tax loss carry-forwards at that time). The results of discontinued operations this quarter also includes net facility income of $0.1 million. This compares to a loss of $0.3 million last year, which was primarily due to operational losses incurred by Robotel, which were only offset in part by net facility income. 

As a result, earnings in the first quarter of $4.5 million compares to a loss of $0.8 million for the same quarter of fiscal 2003.

Fakespace Systems

Results for the quarter were disappointing as both revenues and the loss for the quarter were below target.
Revenues were softer than anticipated due to the continuing soft U.S. economy in which capital spending tends
to get deferred. While a margin shortfall was primarily attributable to the loss in the quarter, expenses for the
quarter were higher than anticipated due to higher spending, increased amortization expense associated with
the intangible assets (resulting from the merger) and from unfavourable exchange rates for expenses incurred
in their Canadian and European locations.

Liquidity and Capital Resources

During the first quarter of fiscal 2004, cash increased $2.7 million. Cash was provided from the sale of the Company's facility ($9.7 million) in December 2003. Cash was used to reduce long-term debt ($6.4 million) and by operations ($0.6 million).

During the first quarter of fiscal 2003, cash increased $2.0 million. Cash was provided from operations ($2.2 million) and was used to reduce long-term debt ($0.1 million) and to reduce other liabilities ($0.1 million).

Outlook

Going forward, the Company's earnings will be based on its share of Fakespace's earnings and on royalties from third parties for the use of the Electrohome name. These earnings will be offset in part by post-employment benefit costs and corporate expenses. Electrohome also has a number of one-time opportunities related to existing assets which could result in additional future earnings.

Going into the second quarter, Fakespace has a very strong order backlog that should result in a marked increase in sales and earnings. It is anticipated that this will continue going into the third quarter.

This report contains certain "forward looking statements" that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.

Electrohome's shares are traded on the TSX under the symbols ELL.X (voting) and ELL.Y (non-voting).

Download the full report, including financial statements in PDF format.