Feb 9 2011
A. Schulman, Inc. (Nasdaq: SHLM) announced today that it is moving its manufacturing facility in Verolanuova, Italy.
Operations will be relocated to its existing facility in Gorla Maggiore, Italy. The Company will also consolidate operations in Australia by moving production from its Breaside, Australia specialty powders facility near Melbourne, Australia, to other facilities in the region. In total, approximately 40 to 60 jobs will be eliminated.
Production lines at the Verolanuova, Italy facility are expected to be relocated by early calendar 2012. Specialty powders production will be moved from Verolanuova to better leverage the state-of-the-art facilities in Gorla Maggiore, Italy. A. Schulman will further enhance the capabilities of the Gorla Maggiore plant to develop and manufacture value-added technical powders as well as custom color masterbatches and compounds for the local market. A commercial and administrative office will remain in Verolanuova, Italy.
Bernard Rzepka, General Manager and Chief Operating Officer, Europe, commented on the Italian realignment: "By more fully capitalizing on our state-of-the-art Gorla facility, we will be able to combine our color masterbatch, compound and color powder development and manufacturing to quickly and effectively serve the local plastics markets with innovative products. We believe this move signals that we are committed to maintaining our leading position in the dynamic Italian specialty powders market as well as focusing on our customers and their profitable growth in European added-value and technology markets."
Additionally, A. Schulman will move all production from the Breaside facility. The region will continue to be served by the Company's Brisbane, Australia facility and Asian facilities in Malaysia, Indonesia, China and soon-to-be constructed India plant. The consolidation in Breaside resulted, primarily, from the ongoing deterioration of the Australian rotomolding business.
"The Breaside plant had historically been supported by the water tank market which, in recent years, has been in a steady decline as drought conditions have subsided and government rebates on water tanks withdrawn. This recent manufacturing optimization will allow us to better lever our existing assets while continuing to serve our customers. When we complete this consolidation, by the end of the fourth-quarter of fiscal 2011, we expect our Australian operations to return to profitability," said Derek Bristow, General Manager and Chief Operating Officer, Asia Pacific.
"As part of our ongoing continuous improvement initiatives, we are realigning our manufacturing capacity to effectively utilize the existing assets of our global operations, and we continue to focus on growing our capabilities to serve customers in all of our markets," said Joseph M. Gingo, Chairman, President and Chief Executive Officer. "Our actions in Europe and Australia are evidence of this effort. Australia's performance has continued to degrade, instead of realizing anticipated improvement. We expect operating losses in Australia of approximately $1 million to $2 million during the fiscal second quarter, and we were projecting that these losses would have continued, had we not consolidated our operations. We currently anticipate that we can offset this shortfall, based on the slow and steady growth of our markets in other locations and our satisfaction with overall volume growth. As a result, we are reaffirming our annual net income guidance in the range of $57 million to $62 million for the fiscal year ending August 31, 2011."
Restructuring Impact on Financial Statements
The Company anticipates a total annual after-tax benefit of approximately $1.0 million to $2.0 million from the initiatives announced above, of which the majority will be realized after fiscal year ending August 31, 2011 once operations are discontinued at the impacted facilities. Over the next several quarters, the Company anticipates taking the following estimated after-tax charges related to the restructuring activities outlined above:
- $2.0 million to $3.0 million in cash for termination benefits and other employee costs
- $1.0 million to $2.0 million in cash for contract terminations, legal expenses and costs to disassemble and transfer equipment
- $6.0 million of non-cash accelerated depreciation expense
- $1.0 million of non-cash intangible asset impairment charges
These items are expected to result in estimated total non-operating charges of $10.0 million to $12.0 million. Total estimated cash expenditures are expected to be between $4.0 million and $6.0 million, reflecting additional retirement benefits to be paid to employees that had already been recorded during the associates' employment tenure. The Company will update these numbers in its quarterly earnings releases and conference calls.