"The balance we have sought to build into our business helped us achieve a solid sales outcome for the quarter, in spite of the weakening we observed during the last half of the quarter," said Peter H. Soderberg, president & CEO. "As other firms and analysts have reported, we are seeing, and expect to continue to see, material reductions in capital spending by U.S. hospitals. While our therapy rental business is performing well and as anticipated, we are reacting to this softening environment by taking a number of actions to better balance our capacity with demand, as well as to continue to reduce the cost structure of our business. These additional actions are confined to the U.S., as we are not yet experiencing noticeable contractions in international provider capital budgets."
Among the additional actions being announced today to more aggressively manage the company's cost structure are: 1) Consolidation of certain manufacturing and selected back office operations; 2) Redeployment of U.S. sales and service resources to increase our customer presence and support; 3) Further reduction in non-sales, non-R&D discretionary spending; 4) A voluntary early retirement program, 5) Involuntary job eliminations to reflect lower capital equipment demand and productivity improvements.
Today's actions related to the workforce are aimed at resizing the company's U.S.-based workforce and may impact approximately 450 people. However, as a result of restructuring, consolidations and the need to relocate certain positions, the net reduction in positions is expected to be approximately 300 positions. This process follows a workforce streamlining initiative that took place in the fourth quarter of fiscal year 2008 that focused on global salaried positions and resulted in 160 position eliminations.
To mitigate the impact of the resizing effort, a Voluntary Early Retirement Program is being offered to eligible associates who meet certain requirements. It is anticipated that the eliminations and operational consolidations will result in approximately $12 to $14 million in annual savings, about half of which is related to volume declines.
The company expects to incur a special charge related primarily to severance, early retirement benefits, and other costs associated with the consolidation of certain operations of approximately $7 to $10 million over the second and third quarters. There may be additional special charges related to the impairment of assets, lease terminations and possible pension and health care plan costs. The decision to adjust the organizational structure and further streamline the operation, was approved by Hill-Rom's Board of Directors on Tuesday, January 13.
Measures put into place today include the consolidation of current patient support manufacturing operations from the company's Charleston, S.C. facility to its Batesville, Ind. operations and to some outside suppliers. In addition, a number of Post Acute Care Accounts Receivable positions will be consolidated to create one Center of Excellence at the company's St. Paul, Minn. site. Finally, the Batesville operations will eliminate a number of positions in response to lowered demand for hospital capital items and as a result of ongoing productivity enhancements. Associates who are affected by the position eliminations will receive enhanced severance packages, including ongoing health care benefits and outplacement services.
"These are painful decisions, particularly because they directly affect our dedicated associates during these challenging times; however, I want to reiterate the company's commitment to stay the course on our strategy and maintain our investments in selling and new product development," said Soderberg.
Hill-Rom will report on its first quarter earnings on February 5, 2009, providing more financial details and perspectives on the future outlook at that time.
Hill-Rom is a leading worldwide manufacturer and provider of medical technologies and related services for the health care industry, including patient support systems, safe mobility and handling solutions, non-invasive therapeutic products for a variety of acute and chronic medical conditions, medical equipment rentals, and information technology solutions. Hill-Rom's comprehensive product and service offerings are used by health care providers across the health care continuum and around the world in hospitals, extended care facilities and home care settings to enhance the safety and quality of patient care.
Hill-Rom…enhancing outcomes for patients and their caregivers.