As a result of recent unprecedented declines in demand due to the deteriorating global economic climate, PolyOne Corporation (NYSE: POL) today announced restructuring and cost savings initiatives to enhance the Company’s long-term performance while helping to mitigate the near-term effects of the economic downturn.
In order to remain competitive and enable the execution of its transformational strategy during a period of weakened demand, the Company will enact further cost saving measures that include eliminating approximately 370 jobs worldwide, implementing reduced work schedules for another 100 to 300 employees, closing its Niagara, Ontario facility and idling certain other capacity. Additionally, the Company is planning other actions that include freezing executive salaries throughout 2009.
PolyOne expects to incur one-time pre-tax charges of approximately $45 million related to these actions, of which approximately $22 million will be recorded during the fourth quarter of 2008. In total, these one-time charges will include cash costs of approximately $35 million related to severance and site closure costs with the remaining $10 million of non-cash costs related to asset write-downs and accelerated depreciation. The Company expects these actions will deliver pre-tax savings of approximately $25 to $30 million in 2009 and approximately $40 million on an annualized run-rate basis.
While the Company’s specialization strategy has allowed it to increase sales in growth markets such as healthcare and consumer goods, demand in cyclical end markets such as housing and automotive has weakened considerably over the last year. As such, the Company has taken a disciplined and proactive approach to reducing costs and conserving cash, and in July 2008, the Company announced a manufacturing realignment to streamline its operations and supply chain, and these actions are on schedule to be completed by March 2009.
“When we announced the manufacturing realignment in July, we expected that our actions would be sufficient to position the Company for an economic slowdown that was principally US-based,” said Stephen D. Newlin. “Since that time, we have observed a precipitous decline in global demand brought on by the recent worldwide financial crisis.” Newlin added, “The impact of these events has been exacerbated by significant customer inventory destocking, which we have yet to see reverse. Accordingly, we are taking immediate additional actions to further reduce capacity and costs and prepare ourselves for what may be a prolonged economic downturn.”
Newlin continued, “We recognize that our announcement today has far-reaching impacts on our associates, their families and the communities in which we operate. However, this urgent and aggressive response is prudent and required to ensure that PolyOne remains competitive. Taking care of our customers remains our top priority and this restructuring plan was designed to ensure that they do not experience service disruptions.”
In its third quarter 2008 earnings announcement, the Company reported that it had $170 million in total liquidity, including $37 million of cash and $133 million of borrowing availability under its accounts receivable securitization facility as of September 30, 2008. “We focused our cost reduction efforts on actions that have a short payback of about a year or less ensuring that they will not significantly impact our liquidity,” said Robert M. Patterson, senior vice president and chief financial officer. “In fact, we anticipate that these efforts will ultimately drive higher earnings and free cash flow which will provide PolyOne greater financial flexibility in the future, and position the Company for even greater future growth and earnings expansion as the economy recovers.”