Plummeting telephone sales over the last nine months have forced San/Bar Corp. to close two manufacturing plants, lay off nearly one-third of its work force and consider spinning off a new company to handle consumer sales of its new household lubricant, the Irvine-based firm revealed Monday.
The company’s announcement came as it released dismal results for the third quarter, ended March 31. The company posted a loss of $1.5 million, compared to a profit of $93,000 for the same period last year. Sales dropped to $5 million, 33% below the $7.5 million of a year ago.
“We have got to get our expenses and manufacturing costs down to the point where we can make some money,” said chief financial officer David Young of the moves. “Our costs are just too high for our sales volume.”
The company said the cost-cutting measures are expected to make San/Bar profitable in the fiscal year that begins July 1.
San/Bar, which has been plagued with declining sales for the last nine months, has attributed its sagging fortunes to an outdated line of telephone parts and systems and its failure, so far, to successfully introduce an updated, replacement product line.
Results Include Write-Down
The third-quarter results include a $2.1-million write-down of manufacturing equipment and supplies made obsolete by design changes in the new business telephone product line.
Although the company recorded a profit of $6.3 million for the nine months ended March 31, it was due entirely to an $8.5-million lawsuit settlement payment from American Telephone and Telegraph Co. Without the extraordinary gain, the company would have posted a $2.3 million loss for the nine-month period. For that period a year earlier, San/Bar posted a $108,000 profit. Sales for the first nine months of the fiscal year dropped 20% to $15.1 million.
Because of the continuing problems, San/Bar has closed manufacturing plants in Canada and Texas and consolidated all manufacturing in Irvine. The moves, Young said, have required the company to lay off about 100 of its 350 employees over the last six months.
In addition, Young said the company is actively considering contracting to have its products made overseas. So far, he said, San/Bar has conducted a few tests with manufacturers in Mexico and may expand the experiment to Korea.
New Firm May Be Formed
At the same time, the company is considering creating a new corporation to handle the manufacturing and marketing of Break Free CLP, its new and potentially fast-selling household and automotive cleaner, lubricant and protective agent.
The theory, Young said, is that the full potential of Break Free, which has been test-marketed for the last year by Duracell Inc., cannot be realized unless the product is handled by a consumer-oriented marketing and sales company. San/Bar sells to businesses and the Department of Defense but does not have the extensive sales force and marketing staff of a consumer products operation.
Although details of the current proposal are still sketchy, early indications are that the plans call for creation of a new Break Free Corp. that would be led by executives from both San/Bar and Duracell.
The plan, which must be approved by the U.S. Internal Revenue Service, would give each stockholder of San/Bar as many shares of the new company as they own of San/Bar.