Closure of Haley Facility
On June 6, 2008, the Company announced the closure of its Haley, Ontario manufacturing facility. This facility supplied the cast magnesium billet used in the Company’s magnesium extrusion operations in Aurora, Colorado. All of these supplies are now being provided by outsource partners. This facility also produced specialty magnesium granules and turnings which are now produced in the Company’s Nuevo Laredo, Mexico facility.
The closure of the Haley facility has resulted in a charge to earnings of approximately $11.9 million before taxes in fiscal 2008. The charge is lower than the range of costs of $15 to $17 million anticipated when the closure announcement was made, although the total cost of the closure over time will be in the expected range as indicated in the table below.
Cost element ($000’s)
closure
(June 30,
2008)
Revisions
in the
third quarter
2008
Revisions
in the
fourth quarter
2008
reorganization
charge
(December 31, 2008)
Expense to be
recognized in
future periods
Cash
expenditures
during 2008
costs
1,659
970
2,629
n/a
1,333
costs
3,220
824
(136)
3,908
n/a
312
Of the anticipated pension expense of $11.9 million related to the Haley facility, more than half relates to the settlement of the liability to the pensioners upon wind-up of the plan, when the pension obligation is actually settled, and, accordingly, is not recognized as an expense at the time of closure of the facility.
The balance of the reorganization charge amounting to $7.7 million comprises severance, site closure and remediation costs, asset relocation costs and asset write downs to estimated fair market value. The assets located at the Haley facility were deemed to be impaired as of December 31, 2006 and were written down to $1.25 million at that time. At December 31, 2008, the Company updated its assessment of the fair market value of the Haley land and buildings and deemed they had been impaired by a further $0.8 million.
During the third and fourth quarters 2008, the Company updated the estimated costs relating to the site closure and remediation costs and increased the provision by $0.8 million and $1.3 million, respectively. The Company also expended $1.3 million in the fourth quarter 2008 ($2.5 million during fiscal 2008) with respect to this reorganization charge, primarily for employee termination costs.