Debt Forces Brea Metals Company to Lay Off 10%

By JAMES S. GRANELLI

March 27, 1997 12 AM PT

TIMES STAFF WRITER

BREA —

The Earle M. Jorgensen Co., a major metals distributor heavily in debt, said Wednesday that it will close distribution centers in four U.S. cities and Singapore and lay off 250 employees to cut costs and streamline operations.

The layoffs, about 10% of its 2,500-member labor force, will come mainly in Detroit; Buffalo, N.Y.; Hartford, Conn., and Birmingham, Ala. Operations there will move to facilities in major cities nearby.

At the Brea headquarters, the company will lay off 38 of its 270 workers, including seven vice presidents, said Maurice S. Nelson Jr., the company’s president. It also will consolidate operations in two buildings into its Birch Street headquarters.

The management cuts are in areas the company has deemed not essential to line operations.

The company also shut down its recently started Singapore operation and will try to sell its distribution facilities in England and Mexico to focus on what Nelson called its “under-performing” U.S. and Canadian operations.

“We’ll concentrate on our core competencies--management of inventory and services,” he said. The company specializes in buying and reselling tube and bar products from major steel and metals makers.

After the restructuring, which Nelson hopes to complete in the next few months, the company expects to continue supplying substantially the same range of products and services to all current markets.

The company was started in 1921 by its namesake, who became a close advisor to former President Ronald Reagan. It has been struggling with a heavy debt load since 1990 when merchant banker Kelso & Co. Inc. bought it for $261 million and merged it with Kilsby Roberts & Co., which the merchant banker bought for $75 million.

Three years later, Jorgensen restructured the consolidated debts with a $175-million revolving line of credit and $155 million in high-risk corporate securities--junk bonds--that pay interest at 10.75%.

But the refinancing saddled the company with hefty interest payments. Over the next six years, it must repay a total of $279 million in public borrowings and interest, according to documents it filed with the Securities and Exchange Commission.

In addition, the company has $115.5 million outstanding on its line of credit as of the end of December and has borrowed against the life insurance policies of certain executives, according to its filings.

Altogether, the company’s average outstanding indebtedness during the first nine months of its fiscal year was $305.3 million, resulting in a staggering interest payment of $30.5 million--about $1 million more than its pretax operating income for the same period.

Nelson, hired in February from his post as president of Inland Steel Co. in Chicago, said he’s not worried about the company’s ability to repay the debts. The line of credit was renegotiated recently, he said, and the debts will be repaid.

“This is a serious and difficult situation--serious but manageable,” he said. “What I’ve told the owners is this restructuring is one of several steps that will address the cost issues. It will take the next year to get our costs in line, then we’ll start eating into that debt at a good rate.”

The company, which lost $1.2 million in the first nine months and $29.3 million in its last fiscal year, should return to profitability in a year to 18 months, Nelson said.

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Hard Times

Metals distributor Earle M. Jorgensen Co., heavily in debt and losing money, will dump about 10% of its work force. A look at the company and its economic problems:

Earle M. Jorgensen Co. at a Glance

* Headquarters: Brea

* President/CEO: Maurice S. Nelson Jr.

* Employees: 2,500

* Business: Preproduction processor and distributor of steel and aluminum products

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Revenue (in thousands)

1994: $843,380

1995: $1,022,884

1996: R1,025,659

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Net Earnings (in thousands)