GBC Reports Q2 Loss: Announces 9% workforce reduction
Monday, August 04, 2003
Northbrook, IL, August 4, 2003 -- On July 22, General Binding Corporation today announced results for the second quarter of 2003. Total segment operating income for the quarter was comparable to the level posted last year, despite a sales decline of 1.8% reflecting the continuing weak economy. In addition, the Company reported a net loss for the quarter of $(0.32) per share, including a pre-tax charge of $8.4 million for certain cost improvement initiatives, compared to net income last year of $0.13 per share, which included $1.7 million of charges. In response to the soft sales environment and to improve its profitability, GBC announced several initiatives during the quarter. These initiatives are anticipated to generate over $2 million of profitability improvement in 2003, and more than $10 million of annualized improvement after the expected completion of the initiatives in mid-year 2004. The Company reported $8.4 million of charges related to these initiatives in the second quarter. GBC also announced the refinancing of its senior credit facility during the quarter, which, together with two other recent financings, are expected to generate over $4 million of annualized interest payment savings. “The weak economy continues to affect sales in certain areas of our business,” said Dennis Martin, GBC’s Chairman, President and CEO. “However, the Operational Excellence initiatives we undertook throughout the organization last year to generate cost savings and increases in productivity levels have helped considerably to stabilize our results this year. The new programs we recently announced should contribute significant improvements in GBC’s efficiencies and profitability.” 2nd Quarter 2003 Results Financial results for the quarter included the following highlights: • Sales in the quarter totaled $171.2 million, down $3.2 million, or 1.8%, from the second quarter of 2002. International sales within the Groups were positively affected by exchange rate movements. Sales in the Commercial and Consumer Group declined by $4.9 million, or 4.2%, in the quarter over the prior year, due primarily to continuing lower demand in visual communication products, partially offset by growth in the 3-ring binder business. The Industrial and Print Finishing Group’s sales were down $0.9 million, or 2.7%, as lower domestic commercial films sales were not completely offset by higher international sales. Sales in the Europe Group were up $2.6 million, or 11.7%, primarily due to favorable exchange rates. • The Company’s gross profit for the quarter decreased by $1.6 million, or 0.2 points over the prior year to 39.8%, primarily related to the adverse effect of lower sales volumes and certain mix changes in the Commercial and Consumer Group, partially offset by the favorable impact of Operational Excellence initiatives. • Selling, service and administrative expenses were down $1.9 million, or 3.3%, in the quarter compared to prior year, primarily due to lower levels of discretionary spending and variable expenses, partially offset by the adverse effect of exchange rate movements on international expenses. • Total segment operating income for the quarter was roughly flat compared to last year at $11.6 million. Operating income in the Commercial and Consumer and the Industrial and Print Finishing Groups were down $2.7 million and $0.7 million, respectively, as a result of lower sales and lower gross profit margins. The Europe Group’s operating income was up $1.9 million due primarily to the favorable effect of exchange rates and lower costs. • Restructuring expense in the quarter totaled $8.4 million. This expense was related to the manufacturing rationalization and workforce reduction programs detailed below. In the second quarter of 2002, restructuring and other charges totaled $1.7 million. • Interest expense in the quarter totaled $10.2 million, roughly flat to the $10.0 million from the prior year. Included in interest expense for the quarter was $1.1 million related to the loss on the extinguishment of the Company’s prior credit facility which was refinanced in June 2003. • A net loss was reported for the quarter of $(0.32) per share, including a pre-tax charge of $8.4 million for the aforementioned cost improvement initiatives, compared to net income last year of $0.13 per share, which included $1.7 million of charges. • Total net debt at the end of the quarter, adjusted for cash and equivalents, was $334 million, up roughly $11 million from the amount outstanding at the beginning of the year. Six-Month Results For the first six months of 2003, sales were $340.6 million, down 1.7% from the same period last year. The net loss for the period was $(0.32) per share, including pre-tax charges totaling $9.8 million. For the same period last year, the Company reported a net loss of $(5.23) per share, including charges of $6.6 million and the cumulative effect of accounting changes totaling $79 million. Company Comments “In response to the continuing weak economy, we have continued to look hard at our organization to improve our profitability,” continued Mr. Martin, “and we recently announced several major initiatives that should reduce expenses and realign a portion of our manufacturing operations for improved profitability and efficiencies.” “We also significantly improved our capital structure by completing the refinancing of our senior credit facility during the quarter,” continued Mr. Martin. “This was an important financial milestone for GBC. We enhanced our financial flexibility by significantly reducing our interest payments and achieving a maturity date of January 2008.” “Overall,” Mr. Martin concluded, “the successful implementation of GBC’s Operational Excellence initiatives has helped us weather the lack of top line growth. We are confident that the new initiatives we undertook this quarter and our continuing focus on long-term sales and marketing initiatives position us well to drive growth in shareholder value as the economy improves.” Recent Actions To Improve Profitability On July 17, the Company announced several measures to improve its cost structure and reduce its expenses. These initiatives are anticipated to generate over $2 million of profitability improvement in 2003 and more than $10 million of annualized improvement after the expected completion of the initiatives in mid-year 2004, and they include: • Booneville, MS Manufacturing Rationalization -- As part of its ongoing Operational Excellence Program, GBC has begun relocating certain labor-intensive office products manufacturing operations from its Booneville facility to its Nuevo Laredo, Mexico facility and outsourcing several other product lines. As a result, the Booneville workforce will be reduced by about 250 employees from a total of 660 over the next 12 months. • Workforce Reduction Program – In addition to the workforce reduction actions in Booneville, the Company has recently completed a reduction in staffing of about 115 employees at other GBC locations, bringing the total number of employees affected company-wide to approximately 365, or about 9% of GBC’s total employees. The Company expects to take charges totaling approximately $9.5 million related to these cost reduction programs, of which $8.4 million was recognized in the second quarter of 2003. The cash portion of the charges is estimated at about $4 million, principally related to severance expenses. The remaining charges will be non-cash and are mainly related to asset impairments at the Booneville facility. Senior Credit Facility Refinancing On June 30, GBC announced the refinancing of its primary senior credit facility. The new $197.5 million facility includes a $72.5 million multicurrency revolving credit line and a $125 million term loan. The maturity date on the new facility is January 15, 2008, and it provides for significantly lower interest rates compared to the previous facility. The facility, led by Harris Bank, LaSalle Bank and General Electric Capital Corporation, should provide the financial flexibility and liquidity to support all of GBC’s currently anticipated operating and capital requirements. GBC was successful in reducing the size of the new facility by more than $90 million from the previous facility primarily as a result of debt reduction achieved through the successful execution of its Operational Excellence Program and approximately $30 million of aggregate proceeds from two other recent financings. The annualized interest payment savings from these financings is expected to be more than $4 million. Financial Reporting Changes Beginning with its second quarter results, the Company’s financial reporting has been modified to reflect the strategic organizational restructuring announced in late-2002. This change more closely aligns GBC’s marketing, sales and support functions around its key customers and end-consumers and eliminates operational overlap. The realignment primarily consisted of combining three of the Company’s four business units into the following two new Groups: • Commercial and Consumer Group (combination of the Document Finishing Group, Office Products Group, the Education division and the Asia/Pacific region). This combined group will focus on branding and marketing strategies for “consumer-ready” products that leverage GBC’s leadership among customers of its binding, laminating and information-display products in the work, school and home environments. • Industrial and Print Finishing Group (combination of the Films Group and the Automated Finishing division). This combined group will target print-for-pay and other finishing customers who use GBC’s professional-grade finishing equipment and supplies as part of their mass production or sophisticated, professional applications.