Kaiser reported a net loss of $108 million for the fourth quarter ended December 31, 2008, reflecting $192 million of previously announced non-run-rate (NRR) and predominately non-cash charges.
2008 Summary Comments
Our 2008 underlying results were solid on the strength of record shipments of aerospace and high strength products due to strong demand and completion of the Trentwood heat treat plate capacity expansion. Although full-year operating results were negatively impacted by higher energy costs and by manufacturing inefficiencies related to the implementation of strategic investment and product development initiatives, Fabricated Products operating income before non-run-rate items was the second best year in our history, said Jack A. Hockema, president, chief executive officer and chairman.
We continue to make significant progress on our strategic investment initiatives to position the company for long-term growth and operational efficiency, and we expect our strong balance sheet and liquidity to provide financial flexibility to manage through a challenging economic environment, said Hockema.
Fourth Quarter 2008
Consolidated net sales for the fourth quarter ended December 31, 2008, were $327 million, compared to $361 million reported in the prior year quarter. Net sales were favorably impacted by strong shipments of aerospace and defense products but were offset by a precipitous decline in industrial production and automotive demand applications.
The company reported a fourth quarter operating loss of $161 million compared to operating income of $43 million in the prior year period. Consolidated operating income before non-runrate items decreased to $31 million in the fourth quarter of 2008, compared to $39 million reported in the prior year quarter. Fourth quarter 2008 results were negatively impacted by significant non-run-rate and predominately non-cash charges previously announced in the company’s January 15, 2009 news release. On a consolidated basis the fourth quarter 2008 reflected unfavorable non-run-rate items of $192 million compared to $4 million of favorable non-run-rate items in the prior year period.
Full-Year 2008 Consolidated Financial Results
For the year ended December 31, 2008, consolidated net sales increased slightly to $1,508 million compared to $1,505 million for the prior year. The increase reflects higher shipments and higher value-added pricing in Fabricated Products, which was largely offset by the effect of lower shipments in Primary Aluminum as a result of the outage at Anglesey during 2008.
The company reported an operating loss of $91 million for the year ended December 31, 2008 compared to operating income of $182 million for the prior year. The 2008 operating loss reflects non-run-rate and predominately non-cash items of $207 million which were comprised of the following:
Unrealized mark-to-market losses of $87 million on derivative positions and a lower of cost-or-market inventory write-down of $66 million primarily due to a severe decline in metal prices;
An impairment charge of $38 million to write-off the company’s 49% equity investment in Anglesey;
Restructuring charges of $9 million related to the previously announced shutdown of the Tulsa, OK facility and reductions at the Bellwood, VA facility; and
Other non-run-rate items of $7 million, primarily related to legacy environmental costs.
Fabricated Products reported an operating loss of $49 million for the fourth quarter 2008 compared to $40 million of operating income in the prior-year period. Operating income before non-rate-run items was $25 million in the fourth quarter of 2008 compared to $40 million in the prior year quarter, reflecting strong aerospace and high strength shipments more than offset by a decline in demand for automotive and general industrial applications as well as heavy destocking among distributors and across the supply chain. In addition, the severity of winter weather placed significant limitations on our Trentwood facility’s production and shipments during the month of December.
In December 2008, the company took actions to reduce production and resources in response to lower demand for general engineering and automotive applications and announced the shutdown of its Tulsa, OK facility and reductions at its Bellwood, VA facility. The benefits of these actions should be reflected in 2009.
For the year ended December 31, 2008, operating income was $54 million compared to $169 million for the comparable period in 2007. Operating income before non-run-rate items was $142 million in 2008 compared to $167 million for the full-year 2007 reflecting stronger value-added sales, which was more than offset by higher energy related costs, manufacturing inefficiencies and major maintenance and depreciation expense.
During the year, the company completed the final phase of the Trentwood heat treat plate capacity expansion which along with strong aerospace and defense demand drove record shipments in 2008. In addition, the company continued to implement its strategic growth initiatives including equipment and facility upgrades to improve manufacturing and cost efficiencies, expanding product capabilities and continuing progress on its Kalamazoo project to improve the rod and bar value stream.
Primary Aluminum
Fourth quarter and full-year 2008 operating results in the Primary Aluminum segment were negatively impacted by lower production resulting from the outage at Anglesey as well as $119 million of non-run-rate items related to mark-to-market losses on metal and currency derivative positions and a $38 million impairment charge reflecting the previously announced planned full curtailment of the Anglesey smelter operations upon expiration of the power contract in September 2009. The impact of these items resulted in an operating loss of $100 million for the year ended December 31, 2008 compared to operating income of $47 million in the prior year. As a result of Anglesey’s inability to obtain affordable power, the planned full curtailment of smelter operations in September 2009, and expected cash requirements for redundancy and pension payment obligations, the company does not expect to recognize future operating results from Anglesey unless it can determine that those results will be recoverable through the receipt of dividends. The company has no requirement to make future cash investments in Anglesey.
Corporate Highlights
During 2008, the company utilized cash and revolver borrowings to fund higher levels of working capital primarily related to inventory builds in advance of planned equipment upgrades, investments in strategic capital projects and cash distributions to shareholders through dividends and share repurchases.
The company continues to maintain a strong balance sheet and access to its committed revolving credit facility. Operating cash flow is expected to remain solid throughout 2009 assuming no further significant deterioration in economic conditions.
Progress continues on the new world-class facility in Kalamazoo, a core component of the company’s business strategy which is expected to yield significant efficiencies in the rod and bar value stream. Production is scheduled to fully commence in early 2010.
