Good day, everyone. And welcome to the Kaiser Aluminum Third Quarter 2012 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Melinda Ellsworth. Please go ahead, ma’am.

Thank you. Good afternoon, everyone. And welcome to Kaiser Aluminum’s third quarter 2012 earnings conference call. If you have not seen a copy of today's earnings release, please visit the Investor Relations page at our website, kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are Chairman, President and Chief Executive Officer, Jack Hockema; Executive Vice President and Chief Financial Officer, Dan Rinkenberger; and Vice President and Chief Accounting Officer, Neal West. Before we begin, I'd like to refer you to the first 2 slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. 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 and reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the full year ended December 31, 2011, and Form 10-Q for the quarterly period ended June 30, 2012. The company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. In addition, we have included non-GAAP financial information in our discussion and reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. At the conclusion of the company's presentation, we will open the call for questions. I would now like to turn the call over to Jack Hockema. Jack?

Thanks, Melinda. And welcome to everyone joining us on the call today. We were pleased with our third quarter results that continued the positive momentum from the past few quarters. Similar to the results from the first 6 months of this year, the third quarter results reflect strong aerospace and automotive demand, and strong pricing on high value-added products. The third quarter results gained additional boost from steadily improving manufacturing cost performance across our platform, especially in the rod and bar value stream at our Kalamazoo and LA facilities and in our heat treat plate processing at Trentwood. Overall, the year-to-date results reflect the early stages of realizing the full benefit from capital investments that we've made to increase capacity, expand our product offering and improve efficiency and quality. An additional observation for the third quarter is that our value-added revenue was similar sequentially to the second quarter as our general engineering shipments did not exhibit their normal seasonal weakness. However, we anticipate a much more pronounced seasonal impact for the service center applications in the fourth quarter to bring the second half value-added revenue in line with the outlook that we communicate on the prior earnings call. Meaning that we expect the second half value-added revenue to be up approximately 10% compared to the same period last year, but down sequentially, approximately 5% from the first half pace. The scenario for planned major maintenance spending is similar to the value-added revenue story line. Our third quarter major maintenance expense was consistent with the run rate of the first half, but we anticipate that significantly higher major maintenance expense in the fourth quarter will bring total planned major maintenance expense for the second half in line with our outlook as expressed on the last earnings call. Also, as we indicated…

Thanks, Jack. Going to Slide 7. With strong demand for our aerospace and automotive products, our value-added revenue in 2012 continued at a higher pace than in 2011. For the third quarter of 2012 value-added revenue was 14% higher than the prior and down only slightly compared to the second quarter in the first half phase, as we saw some seasonal weakness and lower shipments for only some of our products. But as Jack said, we anticipate more pronounced seasonal weakness in the fourth quarter. As we look at each of our end market applications, aerospace and high strength value-added revenue improved substantially in 2012 relative to 2011 periods, due to strong demand and higher utilization of our aerospace plate capacity additions. Value-added revenue was up 14% for the third quarter and 25% in the first 9 months over the comparable periods of 2011. Stronger demand drove higher shipments and improved pricing on high-value-added products. We also benefited from lower contained metal costs that were not passed through on some high-value-added products. Value-added revenue for automotive extrusions also showed improvement over 2011, with the third quarter and the first 9 months of 2012 increasing 11% and 15%, respectively, compared to the prior year periods, primarily reflecting improved pricing on some of our automotive products. We did see, however, a slight decline from the third quarter on value-added revenue for automotive consistent with our expectation of normal seasonal weakness in the second half of the year. Due to model changeovers, our year-over-year shipment in pounds have lagged our year-over-year North American build rate increases, but as new programs with Kaiser extrusions launch we anticipate our volumes will improve with build rates and content increases. General engineering showed year-over-year improvement with value-added revenue for the third quarter and first 9 months, up…

Thanks, Dan. Turning to Slide 10 and our outlook for aerospace and high-strength applications, we continue to be very bullish regarding both the short-term and long-term prospects for our aerospace and high-strength applications. For the fourth quarter, we expect value-added revenue for these applications to be similar to the third quarter, as we anticipate the continuing strength in aerospace plate demand will offset seasonally weak service center order patterns in our other aerospace products. All indications for 2013 aerospace demand are very positive, and we expect that our order book will fully utilize our heat treat plate capacity, including the Phase 4 expansion next year. Looking beyond 2013, we remain optimistic as we anticipate that the large order backlog for air frames will drive steadily increasing build rates throughout the remainder of the decade. And we will continue to monitor market and customer needs to determine if and when additional heat treat plate capacity will be required beyond Phase 4 that will be online by the end of this year. Turning to Slide 11, and our automotive applications. While the full-year North American industry automotive build forecast is expected to be up approximately 15% compared to 2011, the second half industry build rate is expected to exhibit seasonal weakness and be down approximately 7% from the first half build. As a reflection of the seasonal reduction in industry build rate, we anticipate that our second half automotive value-added revenue will be down 5% to 10% from the first half. There are 2 offsetting factors embedded in this outlook: Model changeovers on certain bumpers and structural programs depressed our first half volume, but new programs are launching in the second half, boosting our shipments for these applications. On the other hand, the strengthening currency exchange rate for the U.S. dollar compared…

[Operator Instructions] And we’ll first hear from Tony Rizzuto of Dahlman Rose.

I’ve just got a couple questions. I want to make sure first of all that, and by the way congratulations on all the progress. I’m seeing in your numbers, it is just, it’s very exciting. My first question, I just want to make sure I understand your guidance correctly, because it seems a little bit different than the statements that you made. I think, Dan, you talked about that the second half EBITDA margins would be similar to the first half and the first half averaging 26%, little bit above that. And then in your Slide 13, the fourth quarter EBITDA margin in the low 20s. And I just wanted to make sure I’m thinking about this correctly. That’s my first question. I have got a couple others, too.

Tony, just a couple of corrections in there. The first half EBITDA margin was, I believe, 23.7%. And in both Dan’s comments and my comments, we’ve said we expected that the second half would be similar to that. The second half included a 26% in the third quarter and we said somewhere in the low 20s, probably in the fourth quarter. You put those together, that averages out the second half to roughly the same place as we were in the first half, plus or minus or point or so. And we’ve put a lot of numbers in there and a lot of statements. I understand, how it could be confusing, but hopefully that clarifies it.

Okay. Just wanted to verify that and then a lot of comments from both you and Dan about, and in the press release, about the early stages of operational efficiencies and sustainable improvement. It is very exciting and would I just be offbase if I thought about margins for 2013 that could climb up to a range of maybe 28% to 30%? Would that be unfair, or unreasonable?

What we said is that we expect margin improvement, as we move into next year from the operating leverage. I don't know that we put a specific number in there, but high 20s is -- I don’t think we’ll be seeing numbers like that or predicting numbers like that for next year.

Okay. And I was wondering if you could provide -- I know it's very earlier, but if you could give us a little bit of preliminary color on expectations for major maintenance in 2013? And I now it’s going to be determined by the prospects for Phase 5, et cetera, and how you size it for markets and demand for your products. But I was wondering if could maybe address that little bit just to help us frame it a little bit for 2013?

Actually, I think 2013, I don’t remember the exact number at this point, but 2013 major maintenance will not be significantly higher than this year. It probably might even be a little bit lower. I think that 2011 and 2012, as we look at our history and the forecast going forward, 2011 and 2012, actually are little bit higher than would be a norm for major maintenance. But from your standpoint, at this point until we give you more color, I just assumed that it's going to be similar to what we've been saying in '11 and '12.

Okay. That’s very helpful. The final question I have is just -- there’s been some mixed commentary out in the marketplace about lead times and I understand lead times have come in a little bit for aero heat treat, still a very tight market, though. But I was wondering if you guys could address a little bit and provide us with your thoughts about what you see coming into the market that may be of incremental supply that has maybe been put in place this year and as it might affect over the next maybe 1 or 2 years, that type of thing.

In terms of first tier legitimate suppliers of aerospace plate…

Absolutely, yes.

The only expansions that we’re aware of are Kaiser’s Phase 4, and just looking at it from our standpoint as we’ve said pretty consistently here, we have a very strong order book in the fourth quarter. And we expect to fully utilize the Phase 4 expansion that comes on the end of this year, fully utilize that next year.

Next we’ll hear from Dave Katz of JP Morgan.

I was hoping that we just come back to aerospace. Would you able to go into any impact that you saw from the Constellium labor action?

We, frankly, didn’t see much impact from Constellium and I’ll just go back to my comment. We have a very strong order book for aerospace plate in the fourth quarter. And in my comments, we said we expect fourth quarter similar to the third quarter for aerospace with plate offsetting weakness in service center shipments for other aerospace products that we supply. And we have a full order book, expect to fully utilize Phase 4 next year.

And with the order book remaining full throughout the third quarter and presumably into the fourth quarter, the value added on Aero and HS went down from the second to third quarter. Is that just due to product mix?

Yes. It’s impact on product mix normally. And just to clarify that to some degree, within our aerospace portfolio, we have said this on several times over the years, but actually plate is one of our lower value added revenue propound products. So when plate is an increasing component of that, it's actually a mix impact that drops the value-added revenue for that grouping.

Okay. And then finally, coming back to Tony's question on CapEx. I know you guys in the past have indicated that a more normal maintenance spend would be something like $60 million per year, but it looks like you’ve been running thus far at $10 million per year. Why is that? Not $10 million per year, pardon me, $10 million per quarter.

Yes. Well, our sustaining capital spending, we’ve always said is in the mid teens, 15 or so plus or minus. And what we’ve said is that over the next 5 years or so, we would expect that we will be investing in the $50 million to $60 million range going forward.

Okay.

And that’s capital spending and I don’t know we need to clarify again that major maintenance, as we discussed, is something that hits our expenses in the period which they are incurred. That's separate from capital spending. And importantly, it’s also separate from what we call a sustaining capital spending.

Next, we’ll hear from Timna Tanners of Bank of America-Merrill Lynch.

Our big question is this, and I’m sure that there is limited amount you might want to talk about it, but your balance sheet looks beyond fantastic. So given that, what can you tell us about organic growth, just any more detail? Obviously, you discuss it as an option. It seems to me we know that we’re finally seeing Kalamazoo come through. We've got Phase 4 almost behind us in Trentwood. So what’s the next -- what can you give us a preview of in terms of your next organic focus and what you might be looking at, just notionally, regarding acquisitions?

In terms of organic investments, we still have opportunity for capital efficient organic investments at Trentwood. We’ve already identified that we’ve defined Phases 5, 6 and 7 going forward and those would represent fairly significant capital investments, if you put them all together. We also anticipate that we’ll be making investments for our automotive growth. So those – it's really aerospace and automotive that would be investments for top line growth. But we also have significant organic investment opportunities to continue to improve the cost and efficiency of our platform, specifically at Trentwood, which is typically where we end up with big dollars, but also in other corners of our platform. So it’s really a combination of good capital efficient opportunities for top line and for bottom line coming from cost improvement type projects. From an acquisition standpoint, as we said when we raised the money several months ago, we continue to be optimistic that there will be good, solid complementary bolt-on type acquisitions in our future. And we continue to have that optimism, but we’re going to be prudent as we pursue those.

Okay. Great. Is the $200 million destined for acquisitions or is that something that could be absorbed with the expansion in Spokane?

It depends. But we see significant, significant organic investment opportunities as well as we expect we’ll have good acquisition opportunities.

Next we’ll hear from Edward Marshall of Sidoti & Company.

The question I had was, I think I heard you say that there lower material costs that weren't passed through to the customer in the quarter. I’m curious if you could quantify, and perhaps the margin as a percent of value add revenue, between that savings and say the manufacturing improvement that you put in place previously?

That comment really isn't specific to the quarter. The underlying metal cost has been relatively low most of this year. So, and we really began getting some benefit from lower contained metal costs already in the fourth quarter of last year. So we had very high contained metal costs first 9 months or so, certainly the first 6 months of 2011 than it began to level off and even start to come down third quarter of last year. And that created some price increases. As you remember going back to the first quarter of 2011, we had a pretty significant compression on our high-value-added. But we got price appreciation that recovered that by the middle or by the third quarter or so. And then as metal prices have regressed, we’ve been able to hold those prices. So we’ve really been enjoying that additional spread for 3 to 4 quarters here.

And do you have a timeline as to when that might reverse itself based on the way the contracts are laid out in timing wise?

It has nothing to do with contracts. Contracts are metal neutral. So than really only applies to spot business on high-value-added products and then our intent would be, as metal prices go up because the value added revenue is really established here, in our opinion, our intent would be to try to pass that through.

[Operator Instructions] Steve Levenson of Stifel.

In relation to the Phase 4 expansion, will the output on aerospace be able to carry you through the currently planned build rates through 2014, or will you need Phase 5 to get up to that level?

We’re still monitoring that in terms of what it means beyond 2013. At this point, we’re just -- we're confident about 2013, but no outlook beyond 2013 at this point.

Okay, and is there an optimization, is there the potential to get higher yields? I know you talked about cost performance. Is that at the other side of the cost performance?

Well, whenever we do an expansion project, we also look hard for methods and means to make ourselves more cost efficient and improve our quality. And that’s true in Phase 4 as well. And in future phases, that also will be the case, but going back to my answer to Timna when she asked about organic investments, even if we don’t pull the trigger on Phases 5, 6 or 7 and I anticipated some points that we will but even if we don’t, we still have substantial investment opportunities to continue to improve the efficiency of our platform.

Next, we’ll hear from Phil Gibbs of KeyBanc Capital Markets.

Just a question on potential usage of capital going forward. I think acquisitions were discussed already. But when do you think about it at this point in time in raising your dividend? It seems like your cost performance has improved at the point where it should be sustainably lower. When do we think about potentially raising that?

We obviously discuss that with the Board every quarter. We have a Board meeting here in December and I don’t know when we will actually announce for the first quarter. But that certainly is something that will be on the agenda for discussion at the next Board meeting.

Okay. And what should we think about as far as incremental impacts of the maintenance outages that you'll be taking in the fourth quarter?

We don’t see that that will have any meaningful effect on our operations. Most of the things that we'll be doing in the fourth quarter are typical furnace rebuilds and, again, part of the reason that they fault so much in the fourth quarter is because we typically see a big seasonal decline in demand. So we have the equipment hours available to do the major maintenance in the fourth quarter without really affecting operations.

Okay. And just a last one, if I could. The general engineering business, is there any reason in your mind that, that business is relatively stable in the third quarter versus the first half from a volume perspective? And we thought it would have had to have come in?

Yes. That’s a good question, Phil. Because the report I was getting from the field in July were that the end of the world was coming and that we really going to get creamed in general engineering in the third quarter and, obviously, that didn’t happen. We think we are going to get creamed in the fourth quarter so the second half's going up pretty much where we thought it would be. My analysis is that I think a lot of the fourth quarter actually got pulled into the third quarter for whatever reason. And I, frankly, don’t know that reason. Though, what we are hearing from all of our service center customers is that they are hammering on inventories right now and their order patterns are very weak here in the fourth quarter, which is not unusual. The fourth quarter is almost always weak in terms of service center demand just like it’s going to be a little bit more so this year, but I think part of that because the third quarter didn’t demonstrate its normal seasonality. So, I think it just lumpiness here and that’s why we look, as Dan said in his comments, more at 6-month buckets rather than 3 months. There's just a lot of noise and volatility quarter-to-quarter.

Can -- one more if I could, I just was curious on in your aerospace business. As far as end market applications, where do you see the differences in the plate versus some to the tubing products and some of the bar that may come out of Alexco. Are there different drivers to those 2 different dynamics?

About the only difference in driver -- that’s actually a good question that will cause me to contemplate here for a moment. But the key demand drivers are basically the same. The big demand driver is commercial aerospace for all of those applications, whether be it plate, sheet, aerospace extrusions or aerospace tubing. And then a secondary demand driver is defense aircraft applications, because, again, virtually everything that we do, there is a minor sliver there. But the preponderance goes into airframes, either commercial airframe or defense airframes. The biggest difference between plate and the other aerospace products is that while some of our plate goes through service centers, the preponderance of plate is on contracts with the big OEMs. Whereas, the sheet, to a lesser extent, but especially the extrusions, the rod, bar and the tubing, is very heavily weighted toward going through service centers. And again, back to just the phenomenon, and I, frankly, can’t explain it. But when we are dealing directly with the OEMs, the order patterns are much more consistent than they are when we are dealing with the service centers. So, we see a lot more volatility in the order pattern for those products that are more service-center intensive. Even though they're driven by the same end uses, it's really just the fact that the pipeline is longer, the supply chain is longer and we get more volatility, especially with what goes through service centers.

So on aerospace then, is it reasonable to assume that the first quarter will likely have the benefit of some sort of restock phenomenon or seasonal phenomenon from the service centers and then also have the added benefit of the Phase 4 on top of whatever you're going see in the fourth quarter?

Well, certainly we think that the plate will see that. I will wait till we get closure to the first quarter to predict what the service centers are going to do. And my track record for predicting what they do is not very good.

And it appears there are no further questions. I’ll turn the conference back over to Jack Hockema for any additional or closing comments.

Okay. Well, thanks, everyone, for joining on the call. We’re pleased with the third quarter. We are going to have a little bit of rough patch here, we think, in the fourth quarter, but that really is just adjusting, we think, for the third quarter. Strong second half, a really strong 2012 and we’re really, really optimistic about 2013. With that, we look forward to updating you again on our fourth quarter call, which will now be in February. Thanks, everyone.

That does conclude today’s conference. Thank you all for your participation.