EXHIBIT 99.1
FOR IMMEDIATE RELEASE Contact:
Robert A. Virtue, President
Douglas A. Virtue, Executive Vice President
Robert E. Dose, Chief Financial Officer
Virco Mfg. Corporation (310) 533-0474
VIRCO ISSUES SECOND QUARTER RESULTS
Torrance, California: September 16, 2003 - Virco Mfg. Corporation (AMEX: VIR)
today released its second quarter results in the following letter to
shareholders from Robert A. Virtue, President and CEO:
Following our interim report on July 17, when we announced the voluntary
separation of 485 employees due to persistent sluggishness in our core classroom
furniture market, order rates continued to decline. They now appear to have
stabilized at about 25% below last year's rates for the comparable late-summer
period.
From February through June, incoming order rates were running 14% below the
prior year, a serious but not devastating decline that our preferred cost
control methods of attrition and depreciation were capable of matching. In early
July, concurrent with the release of lower state budgets, school districts
reduced their furniture purchases another 11%.
At this point we took immediate action, announcing the voluntary severance that
was completed two weeks later. After three more weeks of analyzing incoming
orders and adjusting operating costs, we determined that deeper cuts were
necessary. As a result, we laid off 160 employees during the first week of
September. This brings the total number of employees lost this year through
attrition, voluntary separation and layoff to 775, or 38% of our workforce. This
is the largest workforce reduction in our history and it reflects the worst
decline in school spending we've seen in 53 years of serving this market.
Here are the numbers for the second quarter and the first six months, with
non-recurring severance and layoff expenses highlighted:
Three Months Ended Six Months Ended
-------------------------- -------------------------
07/31/2003 07/31/2002 07/31/2003 07/31/2002
---------- ---------- ---------- ----------
(in thousands except per share data)
Sales $ 65,861 $ 83,164 $ 97,041 $124,332
Cost of Sales 44,895 52,175 65,664 79,044
-------- -------- -------- --------
Gross Margin 20,966 30,989 31,377 45,288
Selling, General & Administrative 21,844 24,005 38,834 41,808
SEPARATION CHARGES 7,788 -- 7,788 --
-------- -------- -------- --------
Income before Taxes (8,666) 6,984 (15,245) 3,480
Income Tax expense (380) 2,724 (2,946) 1,357
-------- -------- -------- --------
Net Income $ (8,286) $ 4,260 $(12,299) $ 2,123
======== ======== ======== ========
Net Income per share - assuming dilution (a) $ (0.63) $ 0.32 $ (0.93) $ 0.16
Weighted average shares outstanding -
Assuming dilution (a) 13,095 13,487 13,247 13,507
(a) For fiscal year 2003, net loss per share was calculated based on basic
shares outstanding at July 31, 2003, due to the anti-dilutive effect on the
inclusion of common stock equivalent shares.
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07/31/2003 01/31/2003
---------- ----------
Current Assets $92,954 $66,068
Non-current Assets 83,426 88,728
Current Liabilities 86,902 27,320
Non-Current Liabilities 19,709 44,702
Stockholders Equity 69,769 82,774
It is now clear that we will suffer a substantial loss for the year, only the
fourth time in our history that this has happened. In addition to the workforce
reductions already discussed, we will be taking the following actions to return
Virco to profitability:
- Quarterly cash dividend payments will be suspended until solid
profitability returns
- The traditional 10% stock dividend will also be suspended
- Pensions will be frozen effective January 1, 2004, although all
outstanding obligations will be funded at our current conservative
discount rate and investment return assumptions
- Stock repurchases will be limited to $250,000 per year
In total, our non-recurring costs for downsizing the company will be
approximately $14,500,000, all of which will be recognized in the current year.
Anticipated annual savings from these actions are $25,000,000 to $30,000,000,
not including volume-related savings such as raw material, freight, utilities,
and interest.
This approximate 2:1 ratio of annual savings to restructuring costs compares
favorably to other restructurings reported by publicly held furniture
manufacturers during the current recession. On average, the ratio of annual
savings to restructuring costs runs about 1:1, primarily because the process of
shutting down factories, as opposed to simple workforce reductions, entails the
additional expense of inventory liquidation, machinery write-offs, etc.
Our current loan with Wells Fargo contains certain covenants that we will not
meet this year. We are re-negotiating the loan to match it to our strength,
which is our asset base. During the negotiations Wells Fargo has waived the
second quarter covenants and we expect to have a new facility in place by the
end of the third quarter. Tight inventory controls and continued low levels of
capital expenditures should permit us to finish the year with less outstanding
debt than in 2002, although we won't meet our goal of being debt-free.
In spite of a year-to-date sales decline of 23% and a beginning summer inventory
14% higher than last year's, our inventory as of this writing was $562,000 lower
than on the same date last September. Our ability to control inventories in the
face of uncertain market conditions is due to the maturation of Assemble-to-Ship
(ATS), which we've explained in prior releases, and this year's associated
seasonal shifting of employees. These combined programs allowed us to build much
of the summer's inventory before June, then shift our experienced workers to the
field where they performed deliveries and installations. We received such
positive reviews from customers on the quality of our own installation teams
that we intend to expand this program next year. Formerly, we used temporary
labor for the bulk of this work.
Obviously the key question is "What does the future hold?" Next year will very
likely be a repeat of this one in terms of state and school district spending.
This means our volume will probably come in below $200,000,000. If we're
reasonably close to this number, the cuts we've made should generate a profit in
fiscal 2004. Incoming order rates are being monitored closely and if they fall
further, we will make proportionate adjustments.
One area where we're not cutting back is new product development. Technology
continues to transform both classrooms and curricula, and we feel compelled to
support this evolution. We're also re-engineering several traditional product
lines to take advantage of ATS. The benefits of these two initiatives have been
obscured by recession, but we continue to believe in their viability.
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This news release contains "forward-looking statements" as defined by the
Private Securities Litigation Reform Act of 1995. These statements include, but
are not limited to, statements regarding: the anticipated suspension of
dividends and reduction of stock repurchases, our ability to successfully
renegotiate our credit line with Wells Fargo, our business strategies, our
ability to continue to control costs and inventory levels, our ability to reduce
debt by year's end, the potential impact of our Assemble-to-Ship program on
earnings, market demand pricing and seasonality, and the company's prospects for
the future. Forward-looking statements are based on current expectations and
beliefs about future events or circumstances, and you should not place undue
reliance on these statements. Such statements involve known and unknown risks,
uncertainties, assumptions and other factors, many of which are out of our
control and difficult to forecast, that may cause actual results to differ
materially from those which are anticipated. Such factors include, but are not
limited to, changes in general economic conditions, the markets for school and
office furniture generally and specifically in areas and with customers with
which we conduct our principal business activities, customer confidence, and
competition. See our Annual Report on Form-10K for year ended January 31, 2003,
and other materials filed with the Securities and Exchange Commission for
further description of these and other risks and uncertainties applicable to our
business. We assume no, and hereby disclaim any, obligation to update any of our
forward-looking statements. We nonetheless reserve the right to make such
updates from time to time by press release, periodic reports or other methods of
public disclosure without the need for specific reference to this press release.
No such update shall be deemed to indicate that other statements which are not
addressed by such an update remain correct or create an obligation to provide
any other updates.
END OF FILING
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