Industrial Distribution Group Considers Strategic Alternatives

Industrial Distribution Group, Inc. announced it has formed a committee of independent directors to review strategic alternatives for the industrial distributor, which has about $500 million in annual sales. It also announced it expects revenue for the second quarter to be $132.6 million, down from last year.
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In addition, the company preannounced announced a cost-reduction program and related changes to its executive team.
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The independent committee will be led by the company's non-executive chairman of the board, Richard M. Seigel.
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IDG needs to consistently grow revenues at a higher level while also seeking a strategic way to reduce its cost profile, both of which have been a source of concern," Seigel said. "It is imperative that we take this time to review all aspects of IDG's business, including our revenue and cost models, IDG's competitive position and to consider all alternatives for realizing the value we believe is inherent in the company. As we consider these matters, we will be diligent, thorough and prudent, recognizing our fundamental fiduciary duties to the shareholders of IDG. We will also be appropriately cognizant of the implications for all of our constituents, including customers, associates, and suppliers."
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"During the second quarter, the internal process challenges associated with our recent IT system conversion continued to have a negative impact on IDG's customer service and sales. This factor, combined with customer specific declines in the automotive, heavy truck and the manufactured housing sectors, created a significant obstacle for IDG to overcome during the quarter," said Charles A. Lingenfelter, IDG's president and CEO. "I view quality customer service as a necessary and key competitive differentiator for IDG. I believe that, as we struggled with our recent systems conversion, we did not provide our customers the high level of service to which they have become accustomed.
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"While we have been addressing these issues, this situation has hampered market share growth that normally might have helped offset the sector declines, and thus it had a more significant adverse affect on our second quarter. We believe second quarter results are more reflective of certain industry sectors and IDG-specific issues and do not reflect market conditions in the overall industrial sector, which are generally good. As a result, we believe there is an opportunity to correct these IDG-specific issues with focused, diligent efforts to that goal."
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Lingenfelter continued: "As this year progressed, I took several initial actions including a review of our operations and IT organizations and their capabilities, as well as a review of our cost and expense profile in relation to our current financial operating profile. As a result, we have undertaken a company-wide cost reduction program aimed at reducing 2007 expenses in order to protect profitability."
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"More importantly, I have marshaled our sales, purchasing, logistics and customer service functions to identify problem areas, define solutions and engage our customers in a dialog that corrects our past missteps. With a long, solid history with the majority of our customers and by applying a focused, consistent effort to address all sales and customer service issues, I believe we will reverse the above impact and return IDG to accomplishing our objectives."
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In regard to the cost-reduction program, IDG currently expects to achieve fiscal 2007 expense reductions in the range of $1.0-$1.8 million in its technology, operations and administrative functions. IDG also announced that, with the substantial completion of its IT system conversion project, Michael W. Brice, who has served as Senior Vice President and Chief Information Officer of the company since January 2005, is resigning from those positions. As a result, as part of the organizational changes being made in connection with the cost reduction program, the company will eliminate the position of chief information officer and will execute its ongoing IT functions and strategies by using other existing personnel.

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