Transcontinental Consolidates Two Direct Mail Facilities
Press release from the issuing company
Montreal, November 03, 2008 – Transcontinental Inc. today announced that Transcontinental Direct USA Inc., its direct mail subsidiary in the U.S., will consolidate production from its Warminster, PA facility to its facility in Hamburg, PA. One of fourteen groups currently operated by Transcontinental Inc., this subsidiary represents about 10% of the Corporation's consolidated revenues.
The turmoil affecting financial markets is having a major impact on the marketing programs of financial institutions which represent a large portion of Transcontinental's direct mail customers in the U.S. Transcontinental must adjust its capacity to current demand levels, thereby reducing its overall cost base. The transfer of production will be complete in January 2009, at which time Transcontinental Direct USA will have a cost-effective production capacity of 3.5 billion direct mail pieces per year, remaining a leader in the direct mail industry in the United States.
A pre-tax restructuring charge of between $15M and $20M (all figures quoted in Canadian dollars) will be charged to income in the fourth quarter, and between $10M and $15M will be charged to income in future quarters. More than a third of this restructuring charge will have no impact on cash flow. This charge covers workforce reduction costs, impairment of assets and transfer of equipment and other costs. In light of the significant deterioration of market conditions, the Corporation also completed a goodwill impairment test for its U.S. direct mail business. As a result, the Corporation will completely write off the goodwill associated with this business in the fourth quarter. The impairment amounting to approximately $195M is a non-cash charge to income, and it will not affect the Corporations' liquidity, cash flows from operating activities or debt covenants, or have any impact on future operations. Net of related taxes, the impact of these unusual items will total between $139M and $142M in 2008 (between $1.69 and $1.73 per share) and between $7M and $10M in future quarters (between $0.09 and $0.12 per share).
"Following an extensive capacity review of our U.S. direct mail operations, Transcontinental has acted to quickly address the negative impact of current market conditions, while continuing to meet the needs of our customers and giving us the flexibility we need over the long-term," said François Olivier, President and Chief Executive Officer, Transcontinental Inc. "We believe that direct mail will remain a valued marketing tool for our clients in the future. These immediate decisions are not easy and we are sensitive to the impact they have on our employees and their families."
Consolidation will result in the elimination of 460 positions in Warminster. Affected employees will be offered separation pay, outplacement assistance, and the opportunity to apply for available positions in Hamburg.
Transcontinental Direct USA maintains its geographic footprint in Pennsylvania, Texas and California, allowing customers to control logistics costs, improve time to market and manage their environmental impact. Combined with the company's various commingling operations, Transcontinental Direct USA offers the most comprehensive national postal optimization program in the industry.
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