Olympic Steel Inc, US based steel service center, announced that due to continued weakness in the economy and the steel market, it has taken additional actions to reduce its operating expenses and it will be required to write down the value of its inventory at March 31st 2009, in accordance with lower of cost or market accounting guidance.
It said that “Demand for flat rolled steel remained soft and pricing continued to unexpectedly deteriorate through March 2009. In response to the weak market conditions, Olympic Steel estimates that it has reduced its annual operating expenses for 2009 by approximately USD 65 million, or approximately 35%, compared to total annual operating expenses for 2008. Cost reductions have been achieved through various initiatives including: headcount reductions of 21% from peak 2008 levels, reduced work hours to match depressed customer production schedules, company wide base pay reductions ranging from 2.5% to 10% effective March 30th 2009, including cash compensation reductions taken by our executive management team equal to 20% of each executive’s base salary and a 20% cash compensation reduction by our board of directors; benefit reductions; and heightened control over all discretionary spending.”
The release added that “Market conditions will also require the Company to report an inventory lower of cost or market pretax charge of approximately USD 30 million or approximately 12% of its March 31st 2009 inventory.”
Mr Michael D Siegal chairman & CEO of Olympic Steel stated that “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. 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. 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.”
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 US 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.
