Kaiser Aluminum Corporation (KALU)

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Kaiser Aluminum Corporation (KALU)

Q1 2009 Earnings Call

April 30, 2009; 1:00 pm ET


Jack Hockema - Chairman of the Board, President & Chief Executive Officer

Dan Rinkenberger - Chief Financial Officer & Senior Vice President

Neal West - Vice President & Chief Accounting Officer

Melinda Ellsworth - Vice President, Treasurer


Timna Tanners - UBS

Tony Rizzuto - Dahlman Rose

Mark Parr - KeyBanc Capital Markets

Lloyd O’Carroll - Davenport & Company



Good day and welcome everyone to the Kaiser Aluminum first quarter 2009 earnings results conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Miss. Melinda Ellsworth. Please go ahead ma’am.

Melinda Ellsworth

Thank you. Good afternoon everyone and welcome to Kaiser Aluminum’s first quarter 2009 earnings conference call. If you have not seen a copy of our earnings release, please visit the Investor Relations page on our website at www.kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call.

Joining me today are President, CEO and Chairman, Jack Hockema; Senior Vice President and Chief Financial Officer, Dan Rinkenberger; and Chief Accounting Officer, Neal West. Jack and Dan will review the results and at the conclusion of our presentation, we will open the call for questions.

Before we begin, I’d like to remind the audience that the information contained in this presentation includes statements based on management’s current expectations, estimates and projections that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company’s anticipated financial and operating performance, relate to future events and expectations and involve known and unknown risks and uncertainties.

For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the company’s earnings release for the first quarter of 2009 and reports filed with the Securities and Exchange Commission including the company’s form 10-K for the full-year ended December 31, 2008.

All information in this presentation is as of the date of the presentation. The company undertakes no duty to update any forward-looking statement, to conform the statement to actual results or changes in the company’s expectations.

Non-run items to us are items that while they may recur from period-to-period, are particularly material to results, impacts costs as a result of external market factors and may not recur in future periods if the same level of underlying performance were to occur. These are certainly part of our business and operating environment, but are worthy of being highlighted for the benefit of the users of our financial statements.

Management’s intent is to significantly neutralize the fabricated product segment from fluctuations in underlying metal prices. We characterize metal profits and LIFO charges as non-run rate items that eventually offset to a great extent over the course of the full year.

Further, presentations including such terms as net income or operating income, before non-run rate or after adjustments are not intended to be and should not be relied on in lieu of the comparable caption under Generally Accepted Accounting Principals to which it is reconciled. Such presentations are solely intended to provide greater clarity of the impact of certain material items on the GAAP measure and are not intended to imply such items to be excluded.

I would now like to turn the call over to Jack Hockema. Jack.

Jack Hockema

Thanks Melinda and good afternoon everyone. As Melinda mentioned, you may follow our discussion by viewing the slide presentation on our website at www.kaiseraluminum.com. I will be begin with a high level review of the quarter and then turn the call over to Dan, who will review some of the financial details. I’ll then share some thoughts on our outlook before opening the call for questions.

Turning to slide five, we are pleased with our underlying fabricated product’s first quarter operating income considering the very challenging market conditions. Consistent with the outlook discussed during the fourth quarter earnings call, both shipments and value added revenues for aerospace and high-strength applications exceeded our record fourth quarter results.

In contrast, shipments for general engineering, ground transportation and industrial applications continued to decline sharply as a result of weak end user demand and continued destocking. We are also please with progress we have made toward our 2009 objectives of improving manufacturing efficiencies, while continuing to reduce inventories and strengthen our balance sheet.

During the quarter, our net cash position increased $39 million as we repaid revolver borrowings and exceeded our targeted inventory reduction plan. Our capital spending focus continues on our strategic investment in a new world class extrusion plant in Kalamazoo, Michigan and we are on schedule for launch in early 2010.

I will now turn the call over to Dan, who will go into more detail regarding the first quarter results and then I will discuss some industry trends and their implications for Kaiser.

Dan Rinkenberger

Thanks Jack. The consolidated financial highlights are shown on slide seven. As Jack mentioned, we are pleased with our first quarter underlying operating income performance, especially in light of these very challenging economic conditions. Excluding non-run rate items, consolidated operating income was $28 million for the first quarter of 2009, a decrease of approximately 27% compared to the prior year quarter.

Although sales declined approximately 33% from the prior year, we had a good leverage on an operating income basis as we flexed our costs to adjust to significantly lower fabricated product shipments for general engineering and ground transportation products.

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