Solutia restructuring Nylon 6.6 business to avert recession gloom

12 Dec '08

3 min read

With the recession engulfing the market, resulting in rapid deterioration of global economy, Solutia Inc, decided to reduce its cost by 'Vydyne' Nylon 6.6 business.

"The Nylon strategic alternatives process is moving forward as planned, and we continue to make progress on transactional scenarios that would result in the disposition of these assets," said Jeffry N Quinn, Chairman, President and CEO of Solutia Inc. "In the mean time, we are implementing a restructuring plan to position the business for today's dynamic economic environment. This plan will result in an annualized fixed cost reduction of approximately US $40 million, or 10%, across the Nylon business."

Early this year, Solutia announced that it is exploring strategic alternatives for its Nylon business, including a possible sale. Effective with the third quarter of 2008, the company began reporting results from its Nylon segment as discontinued operations.

"In recent years we have matched our manufacturing output and inventory levels with the very strong demand present across the nylon markets," said Jim Voss, Senior Vice President of Solutia Inc and President of the Nylon business. "However, in the last several weeks, demand has declined significantly for nylon intermediate chemicals, fibers and resins. Therefore we are taking necessary actions to align our production and inventories with the current economic environment."

The key component of the restructuring plan is to temporarily decrease production throughout the Nylon chain - from intermediate chemicals to fibers and resins. "We anticipate that this will be a temporary situation, and we will bring these assets back to more normal operating rates as inventories decline and demand returns," added Voss. "We are meeting our customer commitments and will continue to do so going forward."

Additional components of the restructuring plan include a business-wide cost-reduction program as well as the permanent shutdown of significant bulk continuous filament (BCF) carpet fiber assets at the plant in Greenwood, SC. These assets had already been idled earlier this month.

This action is consistent with our transformation strategy for the Nylon business over the past three years," said Voss. "We have now removed nearly all of our dependence on the declining North American carpet fiber market, and are better able to focus our resources on serving the diversified global market for nylon resins and compounds. Our nylon resins and compounds are still the materials of choice in their respective applications, and we anticipate that demand will rebound and demonstrate the long-term viability of this business."

As part of downsizing along the PA production chain, Solutia is laying off nearly 1,600 employees in the US - about half of them permanently.

The financial impact of the restructuring plan includes cash outflows related to the workforce reductions of approximately $5 million total anticipated in the fourth quarter of 2008 and the first quarter of 2009. In addition, the non-cash charge from the permanent closure of the Greenwood assets is approximately $4 million, and will occur in the fourth quarter of 2008.

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