Kaiser Aluminum Corporation (NASDAQ:KALU) today reported a net loss
of $22.1 million for the quarter ended September 30, 2008,
reflecting a $43.8 million non-cash, mark-to-market loss (pretax)
on derivative positions, primarily due to declining metal prices,
as well as an adverse operating impact of the previously discussed
Anglesey outage, estimated at approximately $20 million (pretax).
Net loss per diluted share was $1.11 for the third quarter 2008.
Excluding the impact of non run-rate items, primarily the
mark-to-market loss, and the Anglesey outage, adjusted net income
and earnings per diluted share were $15.7 million and a positive
$0.77, respectively. �Operating results for the quarter were
largely in line with our expectations, as the underlying
fundamentals of our core fabricated products business generally
remained strong and consistent with market trends discussed during
our previous earnings conference call,� said Jack A. Hockema,
President, CEO and Chairman. �We continued to experience solid
demand for aerospace and defense products, but began to see the
early trends of distributor de-stocking in our rod and bar
business. Consolidated operating income was $30 million after
adjustment for non-run-rate items and the impact of the Anglesey
outage.� Consolidated net sales for the third quarter ended
September 30, 2008 were $369.2 million, increasing slightly from
net sales of $366.7 million reported in the prior year quarter. Net
sales were favorably impacted by higher realized prices in the
Fabricated Products and Primary Aluminum segments, offset by a 40
percent reduction in Primary Aluminum shipments due to the outage
at Anglesey. The Company reported a $36.5 million operating loss in
the third quarter 2008 compared to operating income of $44.0
million in the third quarter 2007. The third quarter operating loss
reflects the $43.8 million non-cash, non-run-rate mark-to-market
loss mentioned above, which essentially reversed the non-cash
mark-to-market gains reported in the first half 2008, as well as
the $20 million operating impact of the Anglesey outage. Excluding
these items, adjusted operating income for the third quarter 2008
was a positive $30 million compared to $37 million in the prior
year quarter. Year-to-Date Consolidated Financial Results For the
nine months ended September 30, 2008, consolidated net sales
increased 3 percent to $1,181.7 million compared to $1,144.0
million in the nine months ended September 30, 2007. The increase
in net sales is primarily the result of a 5 percent increase in
shipments from the Fabricated Products segment and a 5 percent
increase in Primary Aluminum pricing partially offset by a 17
percent reduction in shipments in the Primary Aluminum segment due
to the Anglesey outage. Consolidated operating income decreased to
$69.6 million compared to $139.0 million in the prior year period.
Net income of $39.8 million for the nine months ended September 30,
2008, compared to $76.6 million for the same period in 2007. The
2008 periods primarily reflect a $27 million impact due to the
outage at Anglesey, higher energy related costs and operating
inefficiencies in the rod and bar value stream that will be
addressed through the Kalamazoo investment initiative. Earnings per
diluted share were $1.95 for the nine months ended September 30,
2008, compared to $3.77 in the prior year period. Fabricated
Products Operating income for the Fabricated Products segment was
$19.5 million for the third quarter 2008 compared to $39.8 million
in the prior-year period. Adjusting for non-run-rate items,
primarily mark-to-market losses on natural gas and currency hedging
positions, operating income for the quarter would have been $33
million compared to $39 million in the prior year quarter,
reflecting stronger value-added sales which were more than offset
by cost pressures from energy and other manufacturing costs. For
the nine month period ended September 30, 2008, operating income
was $102.4 million compared to $129.3 million for the comparable
period in 2007. The 2008 period reflects stronger value-added
sales, which was more than offset by unfavorable energy related
costs, higher manufacturing costs and major maintenance expense,
and higher depreciation related to the commissioning of new
production assets. The nine month period also was impacted by non
run-rate mark-to-market losses on natural gas and currency
derivative positions. Operating income for both the quarter and
nine month periods of the prior year, 2007, reflected record
results in the Fabricated Products segment. �The final phase of our
heat treat plate expansion is now complete, providing capacity that
should lead to record heat treat plate shipments in the fourth
quarter,� said Mr. Hockema. �While we expect overall demand for
aerospace and defense applications to remain strong, the current
credit crisis creates significant uncertainty regarding U.S.
industrial demand that affects other parts of our business. As a
result, we continue to take prudent actions to maintain our strong
balance sheet and competitive position in today�s environment.�
Primary Aluminum Third quarter operating results in the Primary
Aluminum segment were negatively impacted by approximately $20
million from the Anglesey outage as well as $34.1 million of
non-cash, non-run-rate mark-to-market losses on metal and currency
derivative positions. The impact of these items resulted in an
operating loss of $44.9 million for the third quarter 2008,
compared to operating income of $13.4 million for the third quarter
2007. Additionally, the third quarter results reflect a favorable
impact of higher realized pricing offset by the impact of
unfavorable currency exchange rates net of hedging. As previously
noted, the Company was unable to offset the operating loss with
income from an insurance settlement in the third quarter, but it
expects insurance proceeds to ultimately cover losses. The timing
and amount of the insurance settlement are uncertain. Operating
income for the nine months ended September 30, 2008 was $3.8
million compared to $31.8 million in the prior year period,
primarily due to the $27 million impact of the outage at Anglesey
mentioned above, favorable realized pricing, higher power costs,
and the net impact of unfavorable currency exchange rates net of
hedging. Anglesey is anticipated to return to full production by
the end of the fourth quarter. While Anglesey continues to pursue
affordable power beyond the September 2009 contract expiration, it
additionally is evaluating other strategic alternatives, including
a potential facility shutdown. An ultimate shutdown of the
operation would have no direct impact on the Company�s core
Fabricated Products business. Corporate Highlights During the third
quarter, the Company utilized cash and revolver borrowings to fund
higher levels of working capital, investment in strategic capital
projects and the repurchase of stock under its authorized share
repurchase program. The Company has ready access to its committed
revolving credit facility to meet operating cash requirements. The
final phase of the Company�s heat treat plate expansion project at
the Trentwood facility is now complete, increasing production
capacity to meet existing aerospace contract demand and other heat
treat plate applications. The new Kalamazoo project, a core
component of the Company�s business strategy, remains on track to
begin start-up in late 2009. This investment will improve operating
efficiency and significantly improve the overall cost structure in
the rod and bar value stream. Summary Comments �Although we
continue to remain bullish on aerospace and defense demand both in
the near term and long term, the current credit crisis has
heightened the risk of a global recession,� said Mr. Hockema. �The
markets we serve are cyclic, but our businesses are well positioned
to manage through this period of economic uncertainty. Consistent
with our management approach and philosophy, we will aggressively
flex costs in response to changing market conditions. Additionally,
we will continue to maintain a strong balance sheet and a prudent
liquidity cushion to fund committed strategic investments and
preserve our financial strength until we have further clarity on
the future credit environment.� Conference Call Kaiser Aluminum
will host a conference call on November 5, 2008 at 10:00am (Pacific
Time); 12:00pm (Central Time); 1:00pm (Eastern Time), to discuss
third quarter 2008 results. To participate, call the conference
call line at 1-877-660-8922. A link to the simultaneous web cast
can be accessed on the company website at
http://investors.kaiseraluminum.com/events.cfm. A copy of a
presentation will be available for download prior to the start of
the call. A replay of the conference call will be available at the
same website location until December 5, 2008. Non-GAAP Financial
Measures The press release contains certain non-GAAP financial
measures. A �non-GAAP financial measure� is defined as a numerical
measure of a company�s financial performance that excludes or
includes amounts so as to be different than the most directly
comparable measure calculated and presented in accordance with GAAP
in the statements of income, balance sheets or statements of cash
flow of the company. Pursuant to the requirements of Regulation G,
the Company has provided reconciliation of non-GAAP financial
measures to the most directly comparable financial measure in the
accompanying tables. The non-GAAP financial measures used within
this earnings release are operating profit, net income (loss) and
earnings (loss) per diluted share, excluding non-run rate and
non-operating gains and losses. These measures are presented
because management uses this information to monitor and evaluate
financial results and trends and believes this information to also
be useful for investors. Kaiser Aluminum, headquartered in Foothill
Ranch, Calif., is a leading producer of fabricated aluminum
products, serving customers worldwide with highly-engineered
solutions for aerospace and high-strength, general engineering, and
custom automotive and industrial applications. The company�s North
American facilities annually produce more than 500 million pounds
of value-added sheet, plate, extrusions, forgings, rod, bar and
tube products, adhering to traditions of quality, innovation and
service that have been key components of our culture since the
company was founded in 1946. The company�s stock is included in the
Russell 2000� index. For more information, please visit
www.kaiseraluminum.com. This press release contains 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
involving known and unknown risks and uncertainties that may cause
actual results, performance or achievements of the company to be
materially different from those expressed or implied. Kaiser
Aluminum cautions that such forward-looking statements are not
guarantees of future performance or events and involve significant
risks and uncertainties and actual events may vary materially from
those expressed or implied in the forward-looking statements as a
result of various factors. These factors include: (a) changes in
economic or aluminum industry business conditions generally,
including supply, demand and credit conditions; (b) changes in the
markets served by the company, including aerospace, defense,
general engineering, automotive, distribution and other markets,
including changes impacting the volume, price or mix of products
sold by the company; (c) the company�s ability to complete its
expansion and other organic growth projects as planned and by
targeted completion dates; (d) the company�s ability to effectively
address energy related costs and operating inefficiencies through
surcharges and other initiatives; (e) the company�s ability to meet
contractual commitments and obligations to supply products meeting
required specifications;(f) customer performance; (g) uncertainty
with respect to the future operation of Anglesey, including
Anglesey�s ability to successfully restore capacity and assert
insurance claims for the financial losses of Anglesey and its
owners resulting from the recent outage; as well as Anglesey�s
ability to secure power beyond the expiration of the current power
contract in the context of declining metal prices, continuing high
power prices and potentially significant pension funding
obligations driven by the financial market crisis; (h) changes in
competitive factors in the markets served by the company; (i)
developments in technology used by the company, its competitors or
its customers; (j) changes in accounting that may affect the
company�s reported earnings, operating income or results; and (k)
other risk factors summarized in the company�s reports filed with
the Securities and Exchange Commission, including the company's
Form 10-K for the year ended December 31, 2007. As more fully
described in these reports, �non-run-rate� items are items that,
while they may occur from period to period, are particularly
material to results, impact costs primarily as a result of external
market factors and may not occur in future periods if the same
level of underlying performance were to occur. All information in
this release is as of the date of the release. 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. KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
� STATEMENTS OF CONSOLIDATED INCOME (LOSS)(1)(2) (Unaudited) (In
millions of dollars except share and per share amounts) � � �
Quarter Ended September 30, � Nine Months Ended September 30, �
2008 � 2007 2008 � 2007 Net sales $ 369.2 � $ 366.7 � $ 1,181.7 � $
1,144.0 � Costs and expenses: Cost of products sold, excluding
depreciation 383.7 303.3 1,044.2 954.4 Depreciation and
amortization 3.6 3.0 10.8 8.3 Selling, administrative, research and
development, and general 19.8 17.8 58.3 56.0 Other operating
(benefits) charges, net (1.4 ) (1.4 ) (1.2 ) (13.7 ) Total costs
and expenses 405.7 � 322.7 � 1,112.1 � 1,005.0 � Operating income
(loss) (36.5 ) 44.0 69.6 139.0 Other income (expense): Interest
expense (.3 ) (1.0 ) (.8 ) (2.2 ) Other income (expense), net (.2 )
1.8 � 1.0 � 4.1 � Income (loss) before income taxes (37.0 ) 44.8
69.8 140.9 Income tax benefit (provision) 14.9 � (20.0 ) (30.0 )
(64.3 ) Net income (loss) $ (22.1 ) $ 24.8 � $ 39.8 � $ 76.6 �
Earnings per share � Basic: Net income (loss) per share $ (1.11 ) $
1.24 � $ 1.99 � $ 3.83 � Earnings per share � Diluted: Net income
(loss) per share $ (1.11 ) $ 1.22 � $ 1.95 � $ 3.77 � Weighted
average number of common shares outstanding (000): Basic 19,995 �
20,026 � 20,032 � 20,010 � Diluted 19,995 � 20,326 � 20,377 �
20,291 � � (1) The consolidated financial statements include the
statements of the Company and its wholly owned subsidiaries and a
49% interest in Anglesey Aluminium Limited (�Anglesey�), which owns
an aluminum smelter in the United Kingdom. � (2) Please refer to
the Company�s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2008 for additional detail regarding the items in the
table. KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES �
SELECTED OPERATIONAL AND FINANCIAL INFORMATION (1)(2) (Unaudited)
(In millions of dollars except shipments and average realized
third-party sales price) � � Quarter Ended September 30, � Nine
Months Ended September 30, 2008 � 2007 2008 � 2007 Shipments
(millions of pounds): Fabricated Products 135.3 135.2 435.6 413.1
Primary Aluminum 24.2 � 40.0 � 98.0 � 118.6 � 159.5 175.2 533.6
531.7 Average Realized Third Party Sales Price (per pound):
Fabricated Products $2.48 $2.34 $2.40 $2.39 Primary Aluminum $1.42
$1.26 $1.41 $1.34 Net Sales: Fabricated Products $334.9 $316.2
$1,043.3 $985.3 Primary Aluminum 34.3 � 50.5 � 138.4 � 158.7 �
Total Net Sales $369.2 $366.7 $1,181.7 $1,144.0 Segment Operating
(Loss) Income: Fabricated Products $19.5 $39.8 $102.4 $129.3
Primary Aluminum (44.9 ) 13.4 3.8 31.8 Corporate and Other (12.5 )
(10.6 ) (37.8 ) (35.8 ) Other Operating Benefits (Charges), Net 1.4
� 1.4 � 1.2 � 13.7 � Total Operating (Loss) Income $(36.5 ) $44.0
$69.6 $139.0 Net (Loss) Income $(22.1 ) $24.8 $39.8 $76.6 Capital
Expenditures, (net of change in accounts payable) $22.7 $15.4 $61.0
$43.1 � (1) The consolidated financial statements include the
statements of the Company and its wholly owned subsidiaries and a
49% interest in Anglesey Aluminium Limited (�Anglesey�), which owns
an aluminum smelter in the United Kingdom. � (2) Please refer to
the Company�s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2008 for additional detail regarding the items in the
table. KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES � �
CONDENSED CONSOLIDATED BALANCE SHEETS (1)(2) (Unaudited) (In
millions of dollars) � � September 30, 2008 December 31, 2007
Assets Current assets(3) 467.9 454.6 Investments in and advances to
unconsolidated affiliate 37.6 41.3 Property, plant, and equipment �
net 272.8 222.7 Net assets in respect of VEBAs 135.0 134.9 Deferred
tax assets � net 246.5 268.6 Other assets 50.5 � 43.1 � Total $
1,210.3 � $ 1,165.2 � Liabilities & Stockholders� Equity
Current liabilities 170.6 165.4 Long-term liabilities 54.4 57.0
Revolving Credit Facility 34.7 ? Commitments and contingencies �
Stockholders� equity: Common stock .2 .2 Additional capital 957.1
948.9 Retained earnings 142.4 116.1 Common stock owned by Union
VEBA subject to transfer restrictions, at reorganization value
(116.4 ) (116.4 ) Treasury stock, at cost, 572,700 shares at
September 30, 2008 (28.1 ) ? Accumulative other comprehensive
income (loss) (4.6 ) (6.0 ) Total stockholders� equity 950.6 �
942.8 � Total $ 1,210.3 � $ 1,165.2 � � (1) The consolidated
financial statements include the statements of the Company and its
wholly owned subsidiaries and a 49% interest in Anglesey Aluminium
Limited (�Anglesey�), which owns an aluminum smelter in the United
Kingdom. � (2) Please refer to the Company�s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2008 for additional
detail regarding the items in the table. � (3) Includes Cash and
cash equivalents of $1.1 and $68.7, Inventories of $269.2 and
$207.6, and net Trade receivables of $115.4 and $96.5 at September
30, 2008, and December 31, 2007, respectively. Reconciliation of
Non-GAAP Measures � The following table presents a reconciliation
of non-GAAP measures presented in the earnings release for the
quarter ended September 30, 2008: � � � Fabricated Products �
Primary Aluminum � Corporate � Consolidated GAAP operating income
(loss) $ 19.5 $ (44.9 ) $ (11.1 ) $ (36.5 ) Mark to market losses
9.7 34.1 ? 43.8 Anglesey fire impact ? 20.1 ? 20.1 Other
non-run-rate items(1) 3.9 ? � (1.6 ) 2.3 � Total adjustments 13.6
54.2 (1.6 ) 66.2 Operating income (loss), excluding no-run-rate and
non-operating gains and losses $ 33.1 $ 9.3 � $ (12.7 ) $ 29.7 � �
GAAP net income $ (22.1 ) Total adjustments (net of tax) 37.8 � Net
income, excluding no-run-rate and non-operating gains and losses $
15.7 � Diluted loss per share (GAAP) $ (1.11 ) Diluted income per
share, excluding no-run-rate and non-operating gains and losses $
.77 � � (1) Other non-run-rate items represent non-cash LIFO
charges and metal gains (losses) for the Fabricated Products
segment and primarily bad debt recoveries from pre-emergence
write-offs for the Corporate segment.
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