STERIS manufactures sterilization equipment at the Erie facility for its healthcare and life science business segments. Approximately 450 employees at the facility are associated with manufacturing and close to 230 employees serve in a variety of business support functions. STERIS expects to maintain its non-manufacturing presence in Erie following the transfer.
"The decision to transfer manufacturing activities from Erie to Mexico was a difficult one. However, the reality is that our core healthcare customers are under significant pressure to reduce costs and we are experiencing new global competition from lower cost suppliers. The new facility will allow us the flexibility to better meet the needs of our customers, enhance our competitive position and provide future growth opportunities," said Les C. Vinney, president and chief executive officer of STERIS Corporation. "Over recent years, we have invested considerable amounts in new equipment and improved processes and designs to make the Erie manufacturing operation more cost competitive. Despite these ongoing efforts of the Company, the unions and our employees, the Erie manufacturing operation remains STERIS's highest cost facility. We recognize the impact this will have on our employees and the community, and the company will work with the unions and employees to attempt to mitigate the impact of this action."
The transfer of the Erie manufacturing operations is designed to occur in stages over the next 18 months. In the fourth quarter of fiscal 2006, STERIS anticipates incurring pre-tax costs of approximately $30 million, primarily for non-cash expenses related to asset write downs, accelerated recognition of pension and retiree medical benefits related to the transfer, and other restructuring activities. In total, the company anticipates that these actions will impact diluted earnings per share by approximately $0.27 in the fourth quarter of fiscal 2006.
Additionally, the company anticipates pre-tax expenses associated with the transfer of approximately $35 million to be incurred over the next several years. Beginning in fiscal 2007, these expenses are expected to be partially offset by savings associated with relocating to Mexico. The net impact of this action is anticipated to be dilutive to pre-tax earnings in the range of $7 million to $9 million in fiscal 2007, and accretive to pre-tax earnings in the range of $6 million to $8 million in fiscal 2008. The company anticipates
reaching steady state, pre-tax cost reductions of $20 million beginning in fiscal 2009.
The company will announce third quarter fiscal 2006 earnings tomorrow, Jan. 31, 2006, followed by a conference call at 10:00 a.m. EST. The company will provide fourth quarter fiscal 2006 earnings guidance at that time and will also further review the financial impact of the aforementioned actions.
Source: STERIS Corporation