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Virco announces 4th quarter results

Wednesday 25 April 2012

Virco Mfg. Corporation 4th quarter and year-end results were announced yesterday by Robert A. Virtue, President and CEO saying they reflect the continued volatility and softness in state and municipal funding in general, and public school funding in particular. Sales in the 4th quarter, which is seasonally a very slow period, increased by over 14% from $22,993,000 in fiscal 2010 to $26,294,000. Sales for the year decreased by 8% from $180,995,000 in fiscal 2010 to $166,441,000.
Publicly funded entities continue to suffer serious budget challenges. Reduced tax revenues and structural spending deficits continue to adversely affect budgets for education spending, typically the largest line item in a state budget. Most states, cities, counties, and school districts continue to face significant reductions in operating budgets requiring cutbacks in personnel and services, leaving less money for new or replacement furniture. Bond funding for public schools continues to be relatively strong compared to operating budgets, but construction completions have continued to decline since 2008.
In addition to the reduction in funds available for schools, fiscal 2011 reflected uncharacteristic and significant volatility in order rates. Our business is extremely seasonal, but the seasonal trends are typically similar from year to year. Order rates for the first quarter of 2011 declined by nearly 22% compared to the same period last year. Order rates for the seasonally important second quarter declined by nearly 9% compared to the same period last year. Third quarter order rates stabilized and showed a slight (<1%) increase compared to the third quarter of 2010. The fourth quarter, which is typically a very slow period, reflected an 18% decrease in orders compared to the fourth quarter of 2010. The first two months of 2012 seem to have stabilized a bit, and year-to-date orders through March 31, 2012 are approximately 1.5% greater than the first two months of 2011.
In September, we implemented several cost saving measures intended to return the Company to profitability at the current level of sales volume. The most impactful of these initiatives was a voluntary separation program that provided for early retirement and severance payments based on years of service to employees who voluntarily elected to retire. Approximately 150 employees (15% of our workforce) accepted the program, the majority severing their employment in the last week of September. At the beginning of the 2011 fiscal year, the Company had approximately 1,045 employees. At January 31, 2012, after the effect of the voluntary retirement program coupled with attrition, the Company employed approximately 825 persons. The reduction in headcount is evenly split between direct labor and other positions. The third quarter financial results were impacted by approximately $3.9 million of expenses related to the voluntary retirement program, including pension settlement expenses of approximately $1.4 million. The fourth quarter included an additional $670,000 of severance and pension settlement costs. The annual cost savings from this reduction in force when including overtime, taxes, and benefits is expected to range between $9 -- 10 million per year. These savings will be offset somewhat by the cost of temporary direct labor employees hired to meet production requirements during 2012.

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