Moving Metal

Karla Lewis was more guarded as she outlined Reliance’s contingency plans. “Although we believe the fundamentals of our business and ability to generate cash flow are strong,” she said, “because of the global credit tightening, we are limiting our uses of cash to the most important capital expen- diture items and maintaining dividends to our shareholders.” There was good reason for cautious optimism, as 2008 was shaping up to be another record-breaker for Reliance with the highest ever revenues and profits. Further, Reliance had diversified in such a way that when a single product line or even several lines slumped, the rest could take up the slack. This time though, things were different. In the two weeks after the conference call, manufacturing continued to weaken, commercial construction slowed to a halt, and orders were cancelled. On November 1, the bottom dropped out of Reliance’s markets. Mill pricing and product demand plummeted and gross profits and operating margins went into a free fall. “It was like someone turned out the lights and went home,” recalled Reliance Board member Tom Gimbel. Mollins added, “Every single solitary industry that we support throughout the entire North American continent was dead. Everything. Normally we have something to rely on, but not this time. Everybody’s business was terrible.” The PNA group was heavy with carbon steel and hit hard by the crash. Just as Mollins was trying to get the new acquisition into shape, “the phones quit ringing.” Normally, Reliance gave its new acquisitions leeway to make the necessary transitional adjustments, but there was no time for that now. Mollins quit trying to reason with managers who preferred to do business the old way. He fired one particularly troublesome manager and then laid down the law: if they were going to survive the crisis, then it was going to be Reliance’s way or the highway.

Sheet metal rolls out of a perforating press at the 95-year-old Diamond Manufacturing Company, acquired in 2010.

“That sent a shockwave through the rest of the group,” Mollins remembered, and so “they got on board.” As therecessiondeepenedandpersisted,Reliance leaders had to take drastic action to protect the rest of the corpora- tion from the ripple effects of the widening national economic collapse. They adopted a “keep-it-simple approach” and focused on what they could control. Inventories were the first line of attack. From September 30, 2008, to June 30, 2009, Reliance’s entire inventory was halved, dropping in value from $2.2 billion to $1.1 billion. “The faster you liquidate it, the better off you are,” Mollins explained. Of course, Reliance had to keep some metals on hand, so whenever possible, it arranged for its subsidiaries and divisions to buy internally, from each other, thus keeping the money within the corpora- tion. But inventory reduction and internal purchasing alone could not keep the company profitable. Personnel accounted for about sixty percent of operating expenses, so layoffs were inevitable; those began in November 2008. It was a tough duty for Reliance managers, especially before the winter holidays, but critical to stemming an even bigger blood-letting. In the

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