Kaiser Aluminum Corp (KALU) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to the Kaiser Aluminum fourth quarter and full year 2009 earnings call. As a reminder, today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Ms. Melinda Ellsworth. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum's fourth quarter and full year 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've 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 Vice President 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 would 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 the 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 fourth quarter of 2009 and the reports filed with the Securities & Exchange Commission, including the Company's Form 10-K for the full year ended December 31, 2009.

All information in this presentation is as of the date of the presentation. The Company undertakes no duty to update any forward-looking statements to conform these statement to actual results or changes in the Company's expectations. Non-run-rate items to us are items that while they may recur from period to period are materially -- are particularly material to results, impact 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 products 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 a 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 Principles 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 should be excluded.

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

Thanks, Melinda, and good afternoon, everyone. As Melinda mentioned, you may follow our discussion by viewing the slide presentation on our website at KaiserAluminum.com. I will begin with a high level review of the year and turn the call over to Dan who will review some of the financial details, and then I will share some thoughts on our outlook before opening the call for questions. My opening comments are summarized on slide five.

While 2009 was a very challenging year, we generated strong financial results and executed well on our key priorities. We're even more confident today than before the recession that our business model is sound and that we're well-positioned for future growth and profitability. Considering the business climate, we were pleased with the full-year fabricated products operating income of $91 million excluding non-run-rate items. And the fourth quarter fabricated products operating income of $23 million was a 15% sequential improvement compared to the run rate of the prior two quarters. This performance was made possible by the fact that we executed well on the priorities that we set for 2009.

We achieved significant improvements in our manufacturing efficiencies during the course of the year. In addition, we reduced underlying corporate and business unit overhead costs by approximately $7 million, further enhancing our overall cost structure. Second, we strengthened our liquidity position with inventory reductions and strong cash flow from operations. As a result, we were able to fund important strategic initiatives and ended 2009 in a stronger financial position than when we began the year.

Next, we continued to progress on our initiative to achieve a low cost producer position across the breadth of our manufacturing platform, and are confident in our ability to progress further in this area as we remain on track for our new world class extrusion plant in Kalamazoo to be fully operational late this year. We also moved forward in our continuing initiative to further differentiate our product offering as we expanded our portfolio of Kaiser Select products. Our new Kaiser Select plate products have achieved a step change in performance, addressing specific customer needs fore demanding aerospace and general engineering applications.

In summary, 2009 was a challenging year, but one that confirmed the strength of our business model. Our actions bolstered our financial and competitive position and we continued the strategic investment in the new world class Kalamazoo facility. Looking ahead, we see excellent long-term prospects for growth and profitability. I will now turn the call over to Dan to discuss the fourth quarter and full-year financial results, and then I will discuss key industry trends and the outlook for Kaiser.

Thanks, Jack. The consolidated financial highlights are shown on slide seven. As Jack mentioned, we executed well and are pleased with our performance, given the challenging environment we faced in 2009. Overall, consolidated operating income as reported -- as shown before non-run-rate items was $63 million. This was driven by strong underlying performance of fabricated products which showed segment operating income before non-run-rate items of $91 million for the year.

On a consolidated basis, both the operating income as reported for 2009 and the operating loss as reported for 2008 reflected significant non-run-rate items that deflect from the true underlying performance of the business. Large non-run-rate and noncash mark-to-market gains and losses, due to dramatic changes in metal price and currency rates, drove the reported results in both years with mark-to-market gains in 2009 and mark-to-market losses in 2008. Additional non-run-rate items in 2008 included a significant lower cost market adjustment to inventory and the impairment of our investment in Anglesey. Non-run-rate items are present in detail on slide 24 in the appendix.

Anglesey-related and hedged operating income before non-run-rate items in 2009 reflected lower production and metal prices, as well as the curtailment of the smelter during the year. Additionally, the fourth quarter hedging loss of $5 million occurred as we had indicated in our third quarter earnings call. During the year, we made significant improvements to our corporate cost structure, reducing underlying costs before non-run-rate items by $4 million. The remaining cost improvement at corporate was primarily due to lower incentive compensation expense.

Reported net income was $71 million reflected the non-run-rate items previously mentioned and an effective tax rate of 40.5%. Our cash tax rate remains in the mid-single digits, however, as we apply our net operating loss carry forwards and other tax attributes. As of December 31, 2009, we had approximately $890 million of NOLs and other tax credits to reduce future cash payments on income taxes.

Fully diluted EPS was $3.51 per share as reported for the year. But excluding the pretax non-run-rate items, fully diluted EPS was $1.74 per share for the full year of 2009. As you will note on this slide seven, with respect to segment reporting we now report only one segment, fabricated products. The Anglesey-related and metal hedging activities, as well as corporate and overhead expenses not allocated to fabricated products are now shown in a category called, all other. The prior periods have been recast to reflect this change and segment reporting will be presented this way going forward.

Slide eight focuses on the fabricated product results excluding non-run-rate items. Results for the full year 2009 reflect solid execution in a tough market environment. Although we experienced a 23% decline in shipments, our strong base load of contract business related to the [Trentwood] expansion mitigated the impact of lower demand. lower revenue reflected lower shipments as well as the impact of lower underlying metal prices that we pass onto our customers. Value-added revenue per pound in 2009 was comparable to the prior year, although with a product mix more heavily weighted towards aerospace and high strength shipments. Overall, operating income before non-run-rate items reflected both the impact of lower sales, but offset by lower energy related costs and improved manufacturing efficiencies achieved during the year. On a sequential basis, we are please that our fourth quarter fabricated products operating income before non-run-rate items improved as value-added revenue increased on higher shipments of aerospace and high strength products.

Slide nine provides -- illustrates the recessionary impact by end use application on fabricated product shipments and value-added pricing. Total aerospace and high strength shipments declined 8% compared to shipments in 2008, reflecting a solid base load of contract business for aerospace plate. However, total 2009 value-added revenue for these products declined 14% as a result of a significant service center destocking of our higher value-added aerospace and high strength sheet, cold finish rod and bar, and drawn tube products.

Year-over-year declines in shipments of general engineering and automotive products were affected by the weak economy and dramatic supply chain destocking. Service center inventories of general engineering products are currently at historic lows, and we're encouraged that destocking appears to have ended. In addition, shipments of automotive products improved in the second half of 2009 from the very weak levels of the first half.

Slide ten provides a summary of the changes in fabricated products operating income before non-run-rate items in 2009 as compared to the prior year. The significant reduction in sales reflects the severity of this recession on our business although cushioned by the base load of contract business I mentioned earlier. The impact of lower sales was partially offset by favorable energy and freight costs which had a positive impact of approximately $25 million year-over-year.

Additionally, we executed well, adjusting production to changing levels in demand, reducing manufacturing and overhead costs, and continuing to drive operating efficiencies throughout the organization which contributed approximately $17 million of improvements to our cost structure in 2009. As a result, fabricated products operating income before non-run-rate items for the full year 2009 was a solid $91 million. We anticipate as the benefits of our capital investments are fully realized, in addition to our focus on continuous improvement using our Kaiser production system, we will continue to improve our manufacturing efficiencies and overall cost competitiveness in 2010 and beyond.

Turning to slide 11, as we have discussed, a key focus in 2009 was on prudent liquidity management to not only maintain, but also strengthen our financial position. During the year, we have generated approximately $130 million of cash from earnings and working capital management, improving our net cash position by $66 million. Although we were prudent in managing liquidity, we did not lose sight of our long-term strategic objectives and continued our significant capital investment program at our Kalamazoo facility. Total capital spending for 2010 is expected to be between $50 million and $60 million and of this amount, approximately $25 million to $30 million is related to the completion of the strategic investment in our Kalamazoo project. Capital spending in 2010 will also include additional investments throughout our manufacturing platform to improve cost and product quality and to enhance product availability.

Overall, our priorities for cash remain unchanged. We will continue to pursue profitable growth initiatives, including both internal investments and acquisitions and we will return cash to shareholders. We believe that 2009 demonstrated that our business model, managing for cyclical nature of our business and the inevitable downturn, has served us well. As a result, we entered 2010 with a stronger competitive and financial position to capitalize on new opportunities as the economy recovers and market conditions improve.

Now I will turn the call back over to Jack to provide some additional comments.

Thanks, Dan. Slide 13 provides context for a discussion of our outlook for sheet, plate, extruded and drawn products for aerospace and high strength applications. We remain bullish on the long-term fundamentals for commercial and defense aerospace.

The order backlog for commercial aircraft is robust despite recent order cancellations by airlines, and we expect that strong build rates will continue. This expectation is reinforced by airline monitors recently updated forecast that slightly increased builds compared to their forecast issued last July. We are encouraged that air frame build rates will be strong in 2010, but we expect destocking by air frame manufacturers to work off their surplus inventories built during prior delays in the production schedule for new air frames.

On the other hand, we are encouraged that these destocking in the aerospace service center sector is abating. You will recall that service center destocking was a root cause for the substantial decline in our shipments, beginning in the second quarter of 2009. The net impact is that we expect our shipments for aerospace and high strength applications during the first half of 2010 to improve from the run rate of the last three quarters of 2009, as increased shipments to service centers offset the impact of destocking by air frame manufacturers as they work through their inventory over hang.

Slide 14 addresses our outlook for general engineering, automotive and industrial applications. Service center inventories for our general engineered products are substantially below levels seen during the 2001 to 2003 recession, and we're optimistic that this destocking cycle has ended. The 2010 North American automotive build rate is expected to improve approximately 35% compared to last year, although the rate remains well below historic levels.

While our visibility remains limited, we anticipate that the gradual recovery and demand throughout the supply chain will continue the trend from the past nine months for steadily improving shipments for these applications. An additional consideration unique to the first quarter of 2010 is that we expect approximately $3 million of drag compared to the second half 2009 run rate from the start up of operations in Kalamazoo and assigning bonus related to the recently negotiated labor agreements.

Slide 15 summarizes our key priorities for 2010. The new labor agreements for the Trentwood and Newark facilities that I just referenced extend through September 2015. The successful early negotiation and ratification of the agreements reaffirms the positive Company union relationship that both parties have worked hard to build at these plants over the past decade. We also have 2010 expiration dates for labor agreements for the Bellwood and Sherman plants, and negotiations will commence later this year.

Our major operational priority this year is the completion of the new world class remelt and extrusion facility in Kalamazoo which is a key element of our long-term profitability plans. As I indicated in my earlier remarks, the project remains on schedule. The casting operation is in the initial stages of start up, and the extrusion presses are scheduled to start during the next few months. Building and opening a facility of this caliber is a significant undertaking, and there is still much work to be done until it becomes fully operational late this year.

Product development remains a key focus, and we will continue our emphasis on developing and launching new Kaiser Select products to meet the unique needs and specifications of our customers. We will also sustain our emphasis to capture additional manufacturing efficiencies from capital improvement projects and implementation of the Kaiser production system. Our pursuit for value creating growth continues, and we are optimistic that an improving economy will present new opportunities. Although we expect to challenging economic environment to continue in 2010, we're confident in our ability to continue to advance our financial strength and competitive advantage, and we are very optimistic about the future beyond 2010.

The long-term fundamentals for aerospace are excellent, and the full benefit of our Trentwood expansion has yet to be realized due to soft market conditions. The Kalamazoo facility is an important next step in advancing our competitive positioning. It will also provide capacity to facilitate profitable automotive sales growth, driven by increasing demand for aluminum extrusions to achieve more fuel efficient vehicles.

The Kalamazoo project in combination with the capital improvements recently completed at Trentwood and several other facilities, rounds out our comprehensive platform of focused facilities to petition Kaiser as the supplier of choice and a low cost producer of products for aerospace, automotive and general engineering applications. With attractive markets and a strong financial and competitive profile, Kaiser is well-positioned for profitable growth as the market recover. We'll now open the call for questions.

(Operator Instructions). We'll take our first question from Tony Rizzuto with Dahlman Rose.

Thank you very much and congrats on all the progress. I have a couple of questions here. First of all, on aero and high strength, when you talk about slight improvement, Jack, versus the three quarter average in '09, I am thinking that you're maybe referring to up 5% to 10%. Would that be in that slight improvement definition that you refer to?

Yes, it sure would.

Okay. And I noticed that -- was very pleased to see that your operating margin reached its highest level since the third quarter of last year. With all of the things you're doing, the Kaiser Select and everything else, is it possible you could see a return to the levels you saw in the first half of '08, the 11% to 12% type of margin? Is that too premature to expect that in the later stages of 2010?

Tony, what margins are you referring to? What's the numerator and the denominator?

That would be in the aero and that would actually be for the fabricated overall.

Operating income on sales?

Right.

We actually don't track that number because the sales are so dependent on metal prices. As the price of aluminum goes from $0.60 to $1, it has a tendency to drive down those operating margins. The biggest factor, frankly, effecting a margin as a percent of net sales is the price of aluminum.

Okay. Let me just see. I want to make sure in the model here. All right. The other question I have is with regard to the destocking that's continuing at -- in terms of air frame manufacturers, do you expect to still benefit from the base load of tonnage that you had under contract in '09? Will that still be a positive influence in 2010?

As we have said, the contracts that we have with our customers provide a safety net, and that clearly was evident in 2009. Most of these contracts, in fact I think all of the significant contracts, run for several more years, so all of those same contracts are in effect in 2010.

Okay. Not only do you -- I'm sorry.

Just to follow up on that, Tony, just a reminder that those aren't necessarily take or pay. They typically have min, maxes so the volume can fluctuate, but there are some controls on how low the volume can go.

Okay. Very good. And when you talk about the Kalamazoo and you mentioned and I want to make sure I understand that correctly. You mentioned something about $3million drag and if you could repeat what you said because I missed a portion of that. There was a little bit of a cutout on my phone there. If you could repeat that again, but also to help us better understand when you really expect Kalamazoo to impact the bottom line favorably. Obviously, you have a lot of benefits from that, I understand, but when should we really start to see the contribution from a P&L standpoint?

Good questions. Let me go through the profile. My comment was we expect $3 million of drag, and this is in comparison to the run rate second half of last year.

Okay.

Actually the last nine months of last year. We expect $3 million of drag in the first quarter. Most of that is Kalamazoo start up because we're heavy into hiring and start up in the first quarter, as well as a little less than $1million of signing bonus related to the labor agreement that we signed with Trentwood and Newark. We expect that by the second quarter and again, all of this is tenuous when you go through a start up.

But our best expectation is we think by the second quarter, we'll be back from a Kalamazoo standpoint to essentially the run rate we had through most of 2009. In terms of getting a big uptick, we hope it comes sooner, but from our standpoint we really don't expect to see significant impact from Kalamazoo until we get into 2011. There are two key variables there. One variable obviously is how well our start up goes, but the other key variable is how much demand we have in the marketplace for these products.

Understood. Jack, thanks very much. I appreciate those insights.

Yes, Tony.

Our next question comes from Mark Parr with Keybanc Capital Markets.

Good morning, guys.

Good morning, Mark.

Good morning.

Congratulations on the results.

Thanks.

One thing, the permanent cost reductions in 2009, I don't know if you said that in your prepared comments. But could you just help us understand the magnitude of those on a dollar basis and what you would expect to be achieved this year?

First of all, within fabricated products, it is really those manufacturing efficiencies that is we discussed that we quantified at about $17 million year-over-year. That was what we achieved in terms of what we would consider the permanent underlying cost improvements there. Additionally within the corporate overhead portion, there was about $4 million of what we would consider permanent reductions and those were related mostly to compliance costs and audit type fees. Going forward, we expect to see some improvements -- we hope to see improvement in the operating efficiencies, so that $17 million of improvement we would hope would improve further.

All right. If I was going to think about -- would I look at incremental $5 million to $10 million? Would that be fair for this year? Or would $5 million -- zero to $5 million be more in the range?

You mean year-over-year?

Yes, incremental over '09.

Probably more than $5 million and probably closer to $10 million, and hopefully we'll see more than that.

All right. That's helpful. As far as the tax rate, do you have any guidance for what tax rate we should be using for this year?

Actually, what we have for the -- when we reported 40.5% is really not too far off from what we should expect.

All right. No change in the tax rate. I do -- I appreciate the execution momentum. I think investors do. I am sure we're all looking forward to a conclusion to destocking at the aerospace OEM side of the equation. You guys have got a lot of really good results ahead of you, and looking forward to watching that unfold over the next couple of years.

Thanks, Mark. I think -- just to put a point on it, and Tony raised the comment, do we expect the aerospace high strength to be order magnitude 5% to 10% better than the run rate over the past nine months. That in fact is true and that's despite the destocking that we expect to see at the major air frame manufacturers. It is pretty clear to us that the destocking, while it may not be finished in the service centers, the heavy destocking has ended. We're seeing pretty strong demand, especially in some of the extruded and drawn type products in the aerospace sector. We're relatively optimistic about the improving trend here due to service centers in 2010 and then hopefully, we're going to start to see 2011 pick up substantially at the air frame manufacturers as well.

Okay. Terrific. Look forward to that, and thanks for all the color, Jack.

Okay. Thank you.

We'll take our next question from Phil Gibbs with Keybanc.

Mark, touched upon what I was trying to get at. Thanks, guys.

Thank you, Phil.

We'll move to Timna Tanners with UBS.

Hi. Good afternoon.

Hi, Timna.

I wanted to drill down a little bit more on Kalamazoo for starters. When you think about Kalamazoo and the start up timing and you talked about the [specifics] to the extent demand recovery timing will be key. Do you think that will take the incremental demand that you're hoping to see by 2011 or do you think you will also be looking to maybe restart some of the facilities that are down? How does that play into the potential to expand Jackson and some of the other project that is you have talked about?

Good questions, Timna. We don't expect to restart any of the facilities that is we took down.

Like ever?

Yes, like never.

Okay.

Tulsa we took down, and Bellwood we didn't take down, but we took all of the rod and bar type product which will go to Kalamazoo, we have taken that out of Bellwood. Bellwood will be a focused seamless tube facility for service centers and for automotive applications. The real growth will be absorbed in the Kalamazoo facility. Currently we're running a lot of that product in our Sherman, Texas plant and our London plant. But as automotive comes back and as general industrial comes back, it will squeeze the capacity in those plants and we'll need Kalamazoo to absorb that.

It is really a function -- part of it is just getting Kalamazoo up and running because we have a burn rate now with people that re not producing anything we can sell. On the other hand, as the market begins to pick up, Kalamazoo will start to give us some leverage.

That makes sense. What about the Jackson expansion? Is that on hold still?

Yes, it is.

Great. I just wanted to drill down a little more on cash use as well. You said, generally looking at profitable growth, internal growth, acquisitions, returning cash to shareholders, but can you give us a little better idea? Is there going to be some working capital drain as well as one would imagine if you're restocking and as your customers have been as well? Can you give us a little more color on cash use, please?

Sure. We're at a relatively lean level, I would say with I relatively lean set of demand drivers so our working capital is considered to be at a relatively low point. As it grows, we would certainly see our receivables grow within sales, probably not see our inventory grow as much because we expect to be relatively efficient with the return of the economy. That's not going to be a huge, I would expect, driver for cash flow -- outflows in 2010 unless we have a huge return on the market.

The other thing is our capital spending. We talked about the size of the spending that we expect for 2010 in the $50 million to $60 million range.

Okay. Great. Thanks very much.

We'll take our next question from Tim Hayes with Davenport & Company.

Good morning.

Good morning.

Hey, Tim.

A couple questions, first on -- to get more detail on the destocking through the aerospace supply chain, I was curious on the air frame side, some of those products do indeed go through service centers. And if true -- if the air frame still has to destock, yet that's a service center product, how can you separate the two air frame and say that has destocking to go yet service centers are better in line? I was just curious for more detail on that.

That's a good question, too. If you go back to our second quarter call last year when we saw a step change down in our shipments of aerospace and high strength, we attributed that primarily to service centers and to non-plate products. As part of my script here, I intentionally mentioned and we put it on the slide that we supply sheet plate, extruded and drawn products to this marketplace. The big decline we saw in the second quarter was not plate.

There was some decline there, but the big change was in sheet, extruded and drawn products that go into that marketplace. That's really where we're seeing strength coming back in our shipments here as we move into the first quarter is in other-than-plate products. Most of the big inventory overhang at the big air frame manufacturers was in the plate supply. That was related to the 787 and the A-380, those great big aircraft that use prodigious quantities of plate.

Sure. That's helpful. Back moving over to the engineered product side, was a couple years back, you laid out the initial plans to reorganize that side of the business. And a big part of that was the new Kalamazoo plant and in total, if I recall the expected contribution was supposed to be $23 million of EBITDA. Wanted to know, has any of that benefit occurred in '09 since you have shut down some of those facilities? And then secondly, is that $23 million, is that still a good number? And then thirdly, with demand as low as it is is 23 -- how much of that $23 million might you start seeing in 2011?

Good questions. Let me work backwards. I am not sure we said exactly $23 million. Somewhere in the low to mid-20s is the incremental EBITDA that we said, and that was defined as incremental EBITDA compared to 2006 at 2006 demand levels. And when we get to 2006 demand levels, is anyone's question at this point although we're beginning to see some strengthening in the whole general engineering sector, although maybe more in plate than rod and bar. Although there is some strength in rod and bar as well.

Did we realize some of that last year? Some of the cost reduction that we saw -- that we achieved last year was some of the overhead consolidation that we realized by taking down facilities, although there is some overhead now coming back in to support the Kalamazoo facility. Did we get some of that last year? Probably, but the demand levels and the production levels are so different that it is hard to see it. For example, I mentioned on one of the other questions that most of our rod and bar now is being produced at Sherman and at London, two very efficient facilities but those are typically efficient facilities that are full of production for automotive and for general industrial applications.

The question is where is the cost reduction. We would have had much higher costs in London and in Sherman had we not had some of this base load rod and bar business. I am answering the question by telling you I can't say that there is much cost reduction we got in 2009 that won't accrue when Kalamazoo starts up and is at full operation with a robust economy.

Okay. Thanks. One last question in terms of the of your extrusion business here in North America. One of the major competitors mentioned that -- or I should say maybe bragged the fact that they thought they had lost the least amount of money in extrusions in North America. I was curious, was your business there profitable in '09? And would you -- if are you aware of that statement, would you agree with it?

I don't know. Good for them. I don't know who you're talking about. We didn't listen to that call, so we don't know. We were pleased with our performance last year.

Was it profitable?

It depends plant by plant. We had pretty good results throughout the system. We'll have much better results when we get Kalamazoo up and running.

Sure. Very good. Thank you.

We'll take our next question as a follow-up from Tony Rizzuto with Dahlman Rose.

Thanks again. Jack, you peaked my interest there when you mentioned about the inventory overhang, most of it being if plate. I imagine you're referring to maybe thicker gauge plate, obviously don't to want put words in your mouth. As I recall, this is the sweet spot for the Trentwood modernization expansion. I wonder if you could just make some general comments about where you think you are along the continuum of realizing the benefits from all the capital you spent at Trentwood over recent years on a percentage basis if you will.

Go ahead with what you were saying, your question.

That's my first question. I have a follow-up on something else.

Okay. That is a good question. It was in some of my comments as we went through the outlook for the future.

There is a tendency to forget that we didn't even realize the full impact of the Phase II of the Trentwood expansion because in 2008, you recall we had a lot of inefficiencies at Trentwood and didn't even get the full impact of Phase II because we were bringing on Phase III and were qualifying the heavy plate. 2008 was a poor year, and was well short of -- and I am trying to remember the numbers from back then, but I think we were running around 80% of the full capacity utilization of Trentwood's plate operations, so we didn't come close to getting that full potential if that answers the question. There is a lot of upside there.

That's very helpful. The second question is, as you guys have really done a great job, you've got a great balance sheet, a lot of flexibility, have you changed your views? I did hear the word mentioned by Dan about acquisitions and you talked about it, in addition to organic growth. Are you now thinking that -- are you able to look at maybe game changer types of acquisitions versus maybe more bolt-ons? How would you help us understand how you're thinking about the future and possible acquisitions?

Yes. We could look at game changers. I won't say that we are looking at game changers. Our primary focus frankly, is on the more the bolt-on type opportunities, but frankly we look at game changers and analyze those as well. If the moon and stars align properly for a game changer, we certainly would consider that and think we have the where-with-all to do it.

It's got to remain overall -- anything you look at and go down the road with, it has to be in line with where you believe to be your competitive strengths and so on and so forth?

Exactly. It goes back to our theme through this. We like our business model. We like how we're positioned. A game changer isn't because we need to change this company, a game changer would be because we can absorb something that is very consistent with this platform and business model that we have established and hopefully, where some of our strengths we can bring to bear and create some significant synergies with a, quote, game changer type acquisition.

Very helpful. I appreciate that, Jack. Thank you.

We have no additional questions in our queue. I would like to turn the call back over to Mr. Hockema for any additional or closing remarks.

Thanks, Brendan. I would like to take a moment to recap a few key messages. Our long-term business fundamentals remain positive. We've demonstrated financial and competitive strength to navigate market cycles and are well-positioned to capitalize on new opportunities as the market recovers.

We're continuing to invest in strategic projects, such as the world class plant in Kalamazoo, to improve our long-term growth and profitability outlook. And the full benefit of our Trentwood expansion has yet to be realized due to soft market conditions, providing an additional growth catalyst in the years ahead. Thanks for joining us on the call today. We look forward to updating you again on our first quarter 2010 conference call.

That does conclude today's call. Thank you for your participation.