By Mike Boyer
The Cincinnati Enquirer

In the first step of an aggressive strategy to return the struggling steelmaker to profitability, AK Steel Corp. said Friday that it will cut 475 salaried jobs, including more than 200 in Middletown.

CEO James Wainscott said the cuts, expected to result in a savings of $35 million in the first year, are part of an effort to generate $200 million in operating profit next year. He also said the company expects to open negotiations with its unions to reduce costs at the blue-collar level.

The 100-year-old steelmaker has piled up a total loss of almost $1 billion in eight of the last nine quarters, including a third-quarter loss of $277.5 million reported Friday.

"Our recent financial performance is not what we are accustomed to, nor is it something that we can live with going forward," Wainscott told investment analysts in a conference call following release of the earnings report.

Wainscott said the company will turn its attention to talks with unions representing about 7,000 hourly employees at its seven steelmaking plants. "We will now begin an active dialogue with each of our unions to find long-term solutions to lower our overall costs," he told the analysts.

Wainscott, AK's former chief financial officer who replaced Richard Wardrop in a management shakeup Sept. 18, described the job cuts as painful but necessary.

Officials in the Middletown community echoed that sentiment.

"It's like minor surgery. You don't mind it unless it's happening to you. It's painful, but has to be done," said Dick Slagle, interim chairman and president of the Mid-Miami Valley Chamber of Commerce.

"The people losing their jobs are unhappy, mad and disgusted," said Slagle, an AK Steel retiree who lived through similar cutbacks by the steelmaker the 1970s and '90s.

"When we lose 200 salaried positions at AK, it is obviously not a good situation. We hope that this is a temporary fix for the company to be able to right itself," said Middletown Mayor David Schiavone.

Meanwhile, Wainscott said AK is still negotiating a severance agreement with former CEO Wardrop. American Metal Market, a trade publication, has reported that Wardrop could receive up to $50 million. Wainscott said the agreement will be included in the company's quarterly statement to be filed with federal regulators by Nov. 14.

Charles Bradford, an independent steel analyst in New York, said the cut in salaried jobs probably is a signal to AK's unions that the company needs similar cuts in its blue-collar workforce to survive. He said he doubts the $200 million operating improvement the company is seeking will be enough.

But Ed Shelley, president of the Armco Employees Independent Federation, representing 3,100 hourly workers at the AK plant in Middletown, said, "We have a very lean workforce as it is. I'd be concerned that we could do more."

Since the last industry downturn in the early 1990s, he said, the hourly workforce at the Middletown plant has been cut by 1,200 jobs. Shelley said the union's executive committee will meet with Wainscott next week.

The company said the cuts announced Friday represent about 17 percent of the 1,200 salaried workers in Middletown and about 5 percent of the total of 4,100 employees at the plant. The layoffs will begin immediately and should be completed by year-end. AK said it will offer severance pay and assistance in finding new jobs to workers getting axed .

Wainscott told analysts the restructuring plan also includes operating cost reductions of $100 million annually and the sale of its Douglas Dynamics snow plow business and an industrial park in Houston for an expected $300 million. Other projected moves include lowering depreciation by $12 million next year and cutting $20 million in discretionary spending such as legal fees and travel.

The company also is considering an investment of more than $120 million to improve steelmaking at its Middletown and Ashland, Ky., mills. The Enquirer reported Friday that AK has discussed tax incentives with the governors of Ohio and Kentucky for each project.

Wainscott also said the company is working aggressively to get new business and regain lost customers, especially in the higher-profit automotive steel market.

He said the company's goal is to maintain quarterly shipments at 1.5 million tons, "the level we enjoyed when we made money," and ship more than 90 percent of that steel in higher-value added products.

The company said it had $59 million in cash on hand at the end of the quarter, down from $282 million a year ago. Total liquidity is about $500 million, the company said. Acting CFO Albert Ferrara said AK has not been flooded with demand for cash from its suppliers because of the company's financial struggle.

The company said it will have an unspecified operating loss in the fourth quarter but expects to generate positive cash flow.

AK's third-quarter loss of $277.5 million, or $2.56 a share, compares with a loss of $3.3 million, or 3 cents a share, a year ago. On Friday, AK Steel stock, which has tumbled 66 percent in price during the past year, closed at $2.22, down 3.5 percent for the day in New York Stock Exchange trading.

Email mboyer@enquirer.com.