Initiatives to Drive Industrial Materials' Operating Efficiencies and Global Competitiveness
Today, we announced global initiatives to position the Company to significantly reduce its Industrial Materials' cost base and improve our competitive position. The plan addresses three key areas: improving profitability, optimizing cash flow and positioning for future growth.
We intend to close, subject to certain ongoing union and workforce consultations, our two highest cost graphite electrode plants, located in Brazil and South Africa, as well as a machine shop in Russia. Reductions in corporate overhead are also included in these initiatives. These actions would result in a reduction in our graphite electrode capacity by approximately 60,000 metric tons, which would leave us sufficient capacity to serve our customers worldwide and satisfy near term projected global demand. The planned closures and related overhead initiatives would yield approximately $75 million of annual cost savings. The proposed rationalization is targeted to be substantially complete by the end of the second quarter of 2014 and would contribute approximately $35 million in savings next year. These three facilities currently employ approximately 600 people or approximately 20 percent of our global workforce.
Total pre-tax costs for the rationalization plan are estimated to be approximately $105 million, approximately $30 million of which will be cash outlays to be paid in the fourth quarter of 2013 and through the first half of 2014, and funded through working capital improvements in 2014. The remaining $75 million are non-cash costs, which primarily reflect the write-off of assets, and will be expensed throughout the wind-down period. We incurred approximately $18 million of expense related to these initiatives in the third quarter and we expect approximately $51 million of additional expense based on our current estimates to be recognized in the fourth quarter of 2013.
The rationalization plan will also focus on reducing inventory levels across our production network, and along with the completion of the wind-down agreement for third party supply of needle coke to us, is expected to generate working capital improvements of approximately $100 million. The majority of the cash improvement, approximately $75 million, will be reflected in 2014 with the remaining $25 million expected to be realized in 2015. Going forward, we will utilize our advantaged, integrated supply chain to further reduce working capital requirements and optimize cash flow generation.