Electrohome Limited Reports Third Quarter Results

July 12, 1999

Highlights

• Revenues for the third quarter were $28.9 million, $7.9 million ahead of last year, while year-to-date numbers were $90.9 million, $23.1 million ahead of last year.
• A loss before interest, taxes, depreciation and amortization (EBITDA) from ongoing operations for the quarter was $1.7 million versus a loss of $2.4 million last year. On a year-to-date basis, a loss of $0.1 million compares to a loss of $2.7 million last year, a year over year improvement of $2.8 million.
• Included in the above numbers are unfavourable foreign exchange adjustments versus last year due to the strengthening of the Canadian dollar of $1.0 million for the quarter and $3.4 million year-to-date.
• A net loss for the quarter of $3.5 million compares to a loss of $1.7 million for the same period last year. On a year-to-date basis, a net loss of $3.8 million compares to earnings of $6.0 million last year which included a gain of $10.0 million from discontinued operations.

Third Quarter and Nine Months Results

Revenues for both the three and nine months ended May 31, 1999 were substantially ahead of last year due to strong demand across all product lines with particularly strong results from VistaGRAPHX and HAL DLV product lines. On a year-to-date basis, the revenue increase has come from all major markets, North American, European and Asian.

The loss at the operating level (EBITDA) of $1.7 million for the quarter was a $0.8 million improvement over last year, while on a year-to-date basis, a loss of $0.1 million was $2.7 million ahead. Although results have improved, they are still not at satisfactory levels. For both the quarter and year-to-date, gross margin increases due to higher revenues have been more than offset by increased distribution and manufacturing expenses as well as unfavourable ordinary course foreign exchange losses. When the foreign exchange impact is excluded, EBITDA improved a further $1.0 million for the quarter and $3.4 million on a year-to-date basis. These adjustments to our foreign denominated net assets must be included in our profit and loss statement (as opposed to being included as a separate component of shareholders equity on the balance sheet) due to our operating and legal structure.

A net loss for the third quarter of $3.5 million compares to a net loss of $1.7 million the prior year, which included $2.0 million of one-time benefits (income tax recoveries and a gain from discontinued operations). For the nine months, a net loss of $3.8 million compares to a loss of $4.0 million last year, excluding a $10.0 million gain from discontinued operations.

Included in both the quarter and year-to-date figures are the four month s results of Robotel. On February 1, 1999, the Company purchased an additional 80% of the equity of Robotel Electronique Inc. of Montreal for $4.7 million, increasing its ownership to 90%. Robotel provides a broad range of computer-based classroom training and distance learning products. Its proprietary hardware and software connects training room computers, monitors and keyboards so that an instructor can interact on-site or remotely, with individual students or the whole class, via voice and video links.

Outlook

While revenue growth has been substantial in fiscal 1999, expenses have also increased at a much higher pace than originally planned. The high-end Projection business is undergoing dramatic change, in terms of technological advances, channels to market and increased competition. To remain a significant player in the global high-end projection market requires a high level of investment in how we do business and in research and development. Our Projection System division has been very successful in the past, however, the rate of change over the last two years has proven to be difficult and costly. The division has just completed a major restructuring and now has an organization in place, which should enable it to return to an acceptable level of earnings. Improved financial performance will remain the major area of focus for the company.

In June the division introduced a number of new products including a 10,000 lumen Roadie built specifically for the rental staging marketplace, listing for US$110,000. Other major introductions are also planned over the balance of calendar 1999. These new purpose built products will continue to be targeted at the high brightness and high resolution markets. They are feature rich and incorporate ever higher performance standards to ensure leading positions in the highly specialized market niches we serve.

Results from Robotel over the past four months have met our expectations and we anticipate a positive contribution to our fourth quarter results as this is typically Robotel s strongest period. We also see ongoing opportunities from our Visualization business, which aside from Robotel, includes equity investments in Fakespace, Inc. and Immersion Studios Inc.

Year 2000

Efforts to resolve potential Year 2000 problems have been underway since the latter part of 1996. Currently, all Year 2000 issues considered "business critical" have been completed, tested and implemented. There are still a small number of non-critical issues outstanding, which are scheduled to be resolved in the fall of 1999. None of these issues are considered essential to our on-going operations.

John A. Pollock,
Chairman and Chief Executive Officer

EDITORS NOTE:

An Adobe Acrobat (PDF) version of the full report is available at the Electrohome site.  Go there by clicking http://www.electrohome.com/.