The company has temporarily reduced or suspended operations at many of its manufacturing locations and distribution centers around the world, typically in response to government orders related to COVID-19. This currently includes facilities in the U.S., France, India and Malaysia and will soon include Spain and the U.K. The affected U.S. facilities currently include manufacturing and distribution centers in Michigan, California, Pennsylvania and Texas. This will temporarily, but significantly, reduce the company's ability to make and ship products and therefore recognize revenue and generate cash beginning in the first quarter of fiscal 2021.
The company is taking a series of measures to conserve capital during this period of disruption. Cash outflows related to operating expenses are being reduced by eliminating travel and events, overtime, temporary labor and annual merit increases and scaling back project spending. The company is also taking steps to significantly reduce capital expenditures by delaying longer-term projects.
Operating expenses are being further reduced by lowering people costs. This includes temporarily reducing the base pay of the CEO to $1 and of members of the company’s executive team by 60%. The Board of Directors has elected to reduce their cash retainer to zero. The actions being taken by the company also include significant reductions in people costs for those plants which reduce or suspend operations. As an example, nearly all of the company's hourly manufacturing and distribution employees in Michigan are beginning a temporary layoff today, and the company has committed to pay the full cost of employee health insurance premiums during this period. The company's salaried workers in many countries are working from home, and the company continues to serve customers planning future projects and to support many other activities. In order to conserve capital during this period of disruption, the company announced today that nearly all U.S.-based salaried employees will temporarily take a 50% base pay cut and a similar reduction in hours. The reductions will be less for some lower-paid workers and higher for some higher-paid workers. The company is taking these actions in an effort to avoid permanent headcount reductions so the company and its employees can come through this crisis together.
The company is also taking steps to manage working capital carefully. The company anticipates its finished goods inventory could increase as customers face their own local closures and are unable to receive products. The company's raw material and work in process inventories also could increase as it receives order cancellations. The company is taking steps to work with its customers and anticipate these problems to reduce the potential impact. The company also intends to closely manage its receivables and payables as it scales down operations in affected areas.
“As we enter fiscal 2021, we had strong backlog, strong orders and a growing pipeline, particularly in EMEA and the Americas, but the COVID-19 crisis has interrupted our operations in a way that makes it impossible to provide meaningful estimates of revenues or earnings per share," said Jim Keane. “In the short run, we are confident the actions we are taking will protect our people and therefore our relationships with customers, dealers and suppliers. These actions will also protect the company’s capital, so we can navigate through this crisis and emerge strong and ready to compete.”