Shrinking education budgets are crippling schools across the country. They also are making business miserable for Virco Manufacturing Corp.

The Torrance maker of chairs, desks and other institutional furniture offered early retirement and voluntary buyouts this month to its entire staff of 1,050 employees.

It also announced two weeks of furloughs during traditionally slow months of school furniture business later this year, and that the top executives would take pay cuts. Chief Executive Robert Virtue, son of the company’s founder, is taking a $180,000 salary cut, and his son, Executive Vice President Doug Virtue, is taking a $50,000 cut.

The moves come as school districts nationwide drastically cut spending on classroom furniture. That has caused a double-digit decline in sales for the family-run company that holds about 50 percent of the market share of the nation’s K-12 school furniture market.

“The problem here is they have really held on tightly to the mantra ‘We’ve never laid anyone off’ and maintaining that image,” said Kevin Lee, a senior associate at Wedbush Securities Inc. in downtown Los Angeles who tracks the company. “They have a fixed set of costs and the only variable in that business is the employees.”

It’s unclear how many employees the company wants to shed. Virco representatives did not return calls and e-mails. Lee speculated that perhaps 200 employees would accept the buyouts.

The company had a mediocre 2010, reporting a loss of 5 cents a share as revenue fell 10 percent to $191 million. That was followed by a rougher first quarter this year. Virco reported a loss of 38 cents a share as revenue fell 2.4 percent to $24.8 million.

Shares were trading above $11 in 2007, but last month hit a 52-week low of $2.12. Shares closed at $2.22 on Sept. 7.

Avoiding layoffs

Founded in 1950 as a supplier of furniture to the Los Angeles Unified School District, Virco does some of its manufacturing at its 559,000-square-foot headquarters in Torrance and the rest at facilities in Conway, Ark. The company is still run by the founding family.

Until now, the owners’ goal was to avoid layoffs by implementing temporary 10 percent pay reductions across the board, but Robert Virtue said in a statement that the company could no longer postpone job cuts.

“We simply need less output than before the recession,” he said. “We hope this moderate approach to lowering costs will provide us the savings we need.”

Virco has not been the only institutional furniture maker to suffer from sharp declines in educational funding. Also suffering are manufacturers like School Specialty Inc., a Greenville, Wis., supplier of furniture and curricular products, and Artco-Bell Corp., a Temple, Texas, school furniture manufacturer, which have undergone layoffs and cutbacks in the recession.

Schools spend only about 5 percent of their budgets on supplies such as books and furniture, according to Education Data Partnership, a database maintained by the California Department of Education and others.

In California, local school districts received $43.2 billion in state funding for 2011-12, down from $50.3 billion at the beginning of the 2007-08 school year.

The cuts have forced Beverly Hills Unified School District to halt spending on furniture and school equipment except in rare cases.

“If you have a desk that’s broken, rather than buying new, we are using our carpenters,” said Brian David Goldberg, school board vice president.

Virco didn’t specify how much money it hopes to save through the new plan.

Chief Executive Robert Virtue will receive a salary cut to $240,000 from $420,000, while son Doug Virtue will see a smaller cut to $220,000 from $270,000.

In May, the company signed a voluntary separation agreement with its vice president of sales, Larry Wonder. The package included $166,935 lump sum payment as well as $2,000 for health insurance and $5,000 for outplacement. Wonder was scheduled to retire in 2013.

Wedbush’s Lee projects that Virco’s sales will be down an additional 5 percent next year, and could be even worse.

Virco has implied that it is exploring catering to new industry bases, but didn’t identify them. It might be an alternative tactic that will work, he said.

“Really diversifying its end markets and the customers it serves could be a silver lining to weather this downturn,” Lee said. “But we need to see greater traction.”

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