Allegheny Technologies Incorporated (NYSE:ATI) has decided to shut down its Rowley facility in Utah that is dedicated to the production of raw materials called titanium sponge. The company uses the raw materials from the facility for titanium production at its other plants.
The plant shutdown will cost jobs and Allegheny is bracing itself for the effects, especially the financial impact of the process. The idling of the titanium sponge facility is expected to result in the loss of about 140 jobs. It is not currently clear whether the affected employees will find jobs elsewhere within Allegheny. However, the company is already provisioning for labor related charges.
Plant shutdown charges
Allegheny Technologies is bracing for $317 million ($2.96 per share) in after-tax non-cash charges relating to the titanium sponge plant shutdown. The company is also preparing for another $23 million ($0.22 per share) hit relating to idling costs.
As a result of the charges, Allegheny will make a tax valuation allowance of $183 ($1.71 per share).
If the tax valuation allowance is included, Allegheny will have to absorb charges of $4.89 per share. The company expects to recognize a charge of $4.83 per share in the current quarter and the balance in the next quarter.
Impact on operating income
After the charges, Allegheny said that it expects the closing of the Utah titanium sponge plant to boost its operating income by close to $50 million annually beginning in 2017. On top of that, the company is expecting a $50 million cash flow boost from idling of the titanium sponge facility because of reduced working capital burden.
What happens to raw material supply?
Allegheny Technologies is not going to stop producing titanium products because it is shutting down its titanium sponge facility. Instead, the company has entered into agreements with overseas suppliers to provide it with the titanium sponge for its titanium production at competitive costs. However, Allegheny has decided to idle its Rowley facility in such a manner that it can restart it in case the terms of purchasing titanium sponge from overseas suppliers changes.