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Olympic Steel Cuts 2009 Operating Expenses by $65 Million
04/07/2009 - Olympic Steel deploys a series of cost-cutting measures which will help it reduce annual operating expenses by about $65 million, including headcount reductions, reduced work hours, and base pay reductions.
Olympic Steel, Inc. has deployed a series of cost-cutting measures that the company is estimating will reduce annual operating expenses by about $65 million. The moves—which the company said are a response to continued weakness in both the steel market and the general economy—have included headcount reductions, reduced man-hours, base pay reductions, benefit reductions and more.
“In light of challenging market conditions in 2009, where February year-to-date steel service center shipments have declined by 43% compared to the same period of 2008 according to the Metals Service Center Institute’s Metals Activity Report, we have taken actions to reduce our expenses and preserve our cash, including the suspension of new non-maintenance capital expenditures,” said Chairman and CEO Michael D. Siegal, commenting on the company’s actions.
The company cut operating expenses through headcount reductions (21% from peak 2008 levels), reduced work hours to match depressed customer production schedules; and company-wide base pay reductions (from 2.5% to 10%) effective March 30, 2009. Pay reductions included cash compensation reductions for the executive management team (20% of each executive’s base salary). Additional cost-cutting measures included benefit reductions; a 20% reduction in cash compensation for the board of directors; and heightened control over all discretionary spending. The company is estimating these actions will result in an approximately $65 million (35%) reduction in 2009 operating expenses.
The company said it also will be required to write down the value of its inventory at March 31, 2009, in accordance with lower of cost or market accounting guidance. The company will report an inventory lower of cost or market pretax charge of approximately $30 million (approximately 12% of its March 31, 2009 inventory).
“We expect to generate significant cash flow from inventory reductions in the next six months to substantially reduce our outstanding debt by the end of 2009,” said Siegal. “We have also completed an amendment to our revolving credit facility eliminating the impact of the inventory lower of cost or market charge on our covenants. We believe that our focus on cash flow, expense reductions and our strong balance sheet will be advantageous once an economic recovery occurs,” concluded Siegal.
The company also announced that it has reached a new three-year contractual agreement with the collective bargaining unit representing its Minneapolis plate facility employees. The agreement contains base pay and benefit concessions similar to those implemented for non-contractual employees.
Founded in 1954, Olympic Steel is a leading U.S. steel service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel products. Headquartered in Cleveland, Ohio, the company operates 17 facilities.
