Kaiser Aluminum Corp (KALU) 2013 Q4 法說會逐字稿

Good day and welcome to the Kaiser Aluminum fourth-quarter and full-year 2013 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.

Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum's fourth-quarter and full-year 2013 earnings conference call. If you have not seen a copy of the Earnings Release, please visit the Investor Relations page on our website at 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 two 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 of on Form 10-K for the full year ended December 31, 2013. The Company undertakes no duty to update any forward-looking statements to conform to the actual results or changes in the Company's expectations.

In addition, we've included non-GAAP financial information in our discussion. 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. Welcome to everyone joining us on the call today.

Looking back on 2013, our value-added revenue adjusted EBITDA and margin were essentially the same year over year, following the step change results achieved in 2012. Our aerospace plate shipments in 2013 were a new record. However, as discussed on prior earnings calls, headwinds from an inventory overhang for non-plate aerospace products more than offset the year-over-year increase in aerospace plate. Our record automotive extrusion value-added revenue increased 12% year over year as we gained content with the launch of new programs and enjoyed an additional boost from a 5% increase in light vehicle builds.

During the year we continued our investment initiatives to further enhance operating efficiencies, expand capacity and better position our manufacturing platform for further demand growth in aerospace and automotive end market applications. The $45 million Phase 5 project at Trentwood, to provide additional plate capacity and improved efficiencies, was completed in December and will begin to ramp up in the first quarter. In addition, a new $35 million casting complex at Trentwood is scheduled for commissioning in the second quarter, and will enable lower-cost rolling angent and improved downstream manufacturing efficiencies. We also initiated approximately $15 million of investments to provide capacity and capability for new automotive programs for crash management systems and various structural applications that are scheduled to come on-stream in 2014 and 2015.

In addition to continuing to make significant investments in our business, during the year we also continued to return cash totaling more than $100 million to shareholders through quarterly dividends and share repurchases.

On our third-quarter call, I spoke to a number of themes that were beginning to shape the business and operating environment for 2014. Before I discuss those in greater detail, I want to first provide some additional color around issues related specifically to heat-treat plate. In a perfect world, the relatively linear growth in commercial airframe builds would result in a linear growth trend for our aerospace products. However, swings in inventory levels throughout the long supply chain can cause a disconnect between real demand and shipments from the mills.

The chart on the left side of slide 6 illustrates our assessment for recent year-to-year changes in the aerospace plate supply chain inventory. In 2012, the supply chain restocked in anticipation of increasing build rates and in response to aggressive supplier readiness initiatives promoted by the major airframe manufacturers. We estimate that this increased demand on the mills by approximately 5% to 10%, compared to what was actually required to support airframe builds.

Despite that build in inventory in 2012, we estimate there was modest restocking again in 2013, as customers fulfilled supply commitments to the mills. Our forecast for 2014, however, is that the aerospace plate supply chain will experience a correction with destocking levels similar to the magnitude of the restocking that occurred in 2012.

As we look forward to 2015, how good is our visibility? I'll answer it by reflecting on our view in February 2011, corroborated at the time by other well-connected industry observers, that heavy destocking was likely in 2012. As a consequence, we delayed initiating the Phase 4 expansion.

Of course, 2012 evolved as we already discussed and we could have used every bit of the Phase 4 capacity had it been in production. We have indications that there is potential for plate destocking to continue beyond 2014 into 2015. Our view, however, is that the level of destocking in 2015, if any, will be modest and there's certainly the possibility that increasing airframe build rates could create sufficient demand pull to bring the total supply chain into balance by the end of 2014.

During prior earnings calls we've also commented that the aerospace plate destocking is customer specific, which means that not all mills will experience the same impact. For Kaiser in 2014, we expect strong aerospace plate shipments with the potential to exceed our record 2013 aerospace plate shipments. However, we also expect to experience competitive price pressure on both aerospace and general engineering plate as some competitor mills pursue noncontract volume by offering low prices in the spot market.

Kaiser's business model is unique, compared to other major aerospace plate suppliers who rely almost exclusively on contract business. We have long-standing partner relationships with service centers that, in many cases, span decades and we sell a substantial portion of our portfolio of aerospace and general engineering products to our service center partners. The right-hand side of slide 6 illustrates the noncontract, or spot pricing, of our plate products.

Virtually all of our general engineering plate is sold through service centers and is priced on a noncontract or spot price basis and a portion of our aerospace plate is sold on a similar basis. During periods of strong demand and/or restocking as we experienced in 2012 and 2013, this can create a positive tailwind for the business, and during periods of weak demand and/or supply chain destocking as we experienced in 2010 and 2011, and expect again in 2014, our noncontract business is susceptible to competitive price pressure.

So what does this mean for Kaiser in 2014? Despite the anticipated destocking, we continue to expect a modest year-over-year increase in our aerospace plate shipments. Inventory overhang on non-plate aerospace products, however, is beginning to abate, although there is still some customer-specific -- are some customer-specific issues on certain non-plate products. For automotive extrusions, we expect another record year as build rates are expected to be up approximately 4% year over year, and our content per vehicle continues to grow.

As discussed in my earlier comments, we expect competitive pricing pressure on our plate products. However, we anticipate that the combined net impact of sales price, sales volume, and sales mix in 2014 will be similar to 2013.

On the cost side of the equation, we expect a tale of two halves. In the first half of 2014, we expect to experience continuing inefficiencies related to the installation and subsequent ramp-up of Trentwood's new casting complex as well as the ramp-up costs in preparation for the launch of several new automotive programs in the second half of the year. In addition, in contrast to recent history, our planned major maintenance spending in 2014 is expected to be more heavily weighted toward the first half of the year, rather than the typical pattern of being weighted to the second half of the year.

While we expect inefficiencies early in the year, we expect improving manufacturing efficiencies during the year following our investments in Phase 5 and the new casting complex at Trentwood and as the new automotive programs begin production in the third and fourth quarters. Overall, with a mixture of headwinds and tailwinds, we anticipate that 2014 value-added revenue and adjusted EBITDA results will be similar to 2012 and 2013.

As we look to 2015 and beyond, solid fundamentals remain in place and we see the potential for strong top line and bottom line growth. We expect that the aerospace supply chain inventories will stabilize and we will again experience demand for our aerospace products in proportion to the robust build rates for air frames.

We also anticipate continued automotive demand to drive growth, and we expect strong momentum to capture improved manufacturing efficiencies from our investments at Trentwood. Reflecting on our confidence in the future, our Board has increased the regular quarterly dividend by 17% to $0.35 per share, and has authorized an additional $75 million for future share repurchases.

On that note, I'll turn the call over to Dan for further discussion of 2013 results and then I'll provide some additional granularity and color regarding our short-term outlook. Dan?

Thanks, Jack. As Jack mentioned, our 2013 value-added revenue, adjusted EBITDA and EBITDA margin were in line with the step change results that we achieved in 2012. Value-added revenue for aerospace and high strength applications was essentially the same as the prior year, reflecting record aerospace plate shipments, offset by the negative impact of an inventory overhang for non-plate aerospace products that continues through the year.

Value-added revenue for automotive extrusions grew 12% to another annual record in 2013, as we launched several new automotive programs in the second half of the year. In 2014, we plan to launch additional programs driven by further aluminum extrusion content increases. Value-added revenue for our general engineering products declined 3%, in part due to temporary throughput disruptions that limited our general engineering plate shipments in the last half of the year.

Adjusted EBITDA was $174 million, and EBITDA margin was 23.7%, comparable to the record results in 2012. Including in 2013 results was a $4.5 million customer payment in lieu of taking contractual minimum volumes that we received early in the year. 2013 also reflected the impact of temporary manufacturing inefficiencies in the second half of the year, as construction disruptions related to our two major capital programs at Trentwood hampered our throughput for plate and drove manufacturing costs higher.

On slide 12, we show other key -- pardon me, slide 10 -- we show other key consolidated financial metrics. As reported, consolidated operating income was $173 million for 2013. Adjusted for $27 million of non-run rate gains, the largest of which was approximately $22 million of a non-cash gain related to the VEBAs, consolidated operating income was $146 million, which compared to $147 million the prior year. The $1 million decline from 2012 reflected slightly higher depreciation expense.

Reported net income for the year was $105 million, or earnings per diluted share of $5.44. Adjusting for non-run rate items, as well as favorable settlements and adjustments reflecting our tax reserves, 2013 net income was $70 million, or adjusted earnings per diluted share of $3.65. This compares to adjusted net income of $74 million, or adjusted earnings per diluted share of $3.82 in 2012. The year-over-year decline was primarily related to a full year of interest expense on the senior notes that we issued in May 2012.

Our effective tax rate of 27% for 2013 reflects favorable settlements and adjustments affecting our tax reserves that I previously mentioned. At the end of 2013, our net operating loss carry-forwards totaled $737 million. As we apply these net operating loss carry-forwards, our cash tax rate remains in the low single digits.

Commenting briefly on the fourth quarter of 2013, adjusted consolidated operating income improved slightly over the third quarter and improved $6 million over the prior-year quarter, primarily reflecting the impact of improved sales over the prior year.

Slide 11 shows the strong cash generation of our business. Our adjusted EBITDA of $174 million was more than enough to fund our cash requirements for operating and investment activities as well as debt service. We paid the annual maximum of $20 million to the two VEBAs last year, and as a result of our strong earnings and cash flow in 2013, we will make another annual variable contribution to the VEBAs of $16 million in the first quarter of this year. Our sizable capital spending of $70 million in 2013 funded important growth initiatives, including the casting complex at Trentwood, which will yield cost reduction in the second half of the year, Phase 5 plate capacity expansion at Trentwood and various investments to enable growth in automotive extrusion programs.

In addition to the significant capital investment programs, during 2013 we returned over $100 million to our shareholders through quarterly dividends and share repurchases. As we maintain financial flexibility and generate strong cash flows from our business, we will continue to deploy cash in a balanced and prudent manner, by investing in attractive projects for long-term value creation, preserving liquidity and cash for our $175 million debt maturity in early 2015, and returning excess cash to our shareholders through share repurchases and dividends.

And now Jack will discuss current industry trends and our outlook. Jack?

Thanks, Dan. Turning to slide 12, Boeing and Airbus had record airframe builds and record net new orders in 2013, driving the backlog to an all-time high. The large backlog continues to provide the impetus for increasing build rates and supports our long-term optimism for these applications.

On slide 13, we expect that our first half 2014 value-added revenue for aerospace and high strength applications will be similar sequentially to the second half 2013 pace, with solid aerospace plate volume, slowly improving non-plate aerospace demand with some offset from the competitive price pressure on plate products.

Slide 14 has our automotive outlook. We expect that North American builds will increase approximately 4% to 16.8 million vehicles in 2014, and we expect that our first half value-added revenue for these applications will increase sequentially from the record second half of 2013 level. We have numerous product launches in progress for crash management systems and various structural applications, and we anticipate that our content per vehicle will continue to grow as these new programs are scheduled to come on-stream later this year.

Slide 15 addresses our outlook for general engineering applications. We anticipate modestly stronger general engineering demand and shipments in 2014, although we expect the competitive pricing pressure on general engineering plate will offset some of the benefit from increased volume.

Summarizing our outlook for the first half of 2014 on slide 16, we expect that value-added revenue will show sequential growth from the second half 2013 pace and we anticipate that the net effect of sales volumes, sales mix and sales price will be similar sequentially to the second half of 2013. As mentioned in my earlier comments, in the first half of 2014 we expect to experience continuing inefficiencies related to the installation and subsequent ramp-up of Trentwood's new casting complex as well as ramp-up costs in preparation for the launch of several new automotive programs.

In addition, in contrast to recent history, our planned major maintenance spending in 2014 is expected to be more heavily weighted toward the first half of the year, rather than the typical pattern of being weighted toward the second half of the year. As a result of these higher costs and inefficiencies, we expect that the first half adjusted EBITDA will be weaker sequentially than the second half of 2013 and we anticipate that the first quarter in particular will exhibit adjusted EBITDA below the second half 2013 run rate.

Summarizing our remarks today, despite some headwinds, our 2013 results essentially replicated the step change results achieved in 2012. We continue to make significant investments in our business during the year, while also returning more than $100 million of cash to shareholders through quarterly dividends and share repurchases. In 2014 we expect destocking headwinds in the plate market will be offset by tailwinds from continuing growth in automotive demand and content and slowly improving non-plate aerospace market conditions.

We remain bullish about Kaiser's long-term future and our ability to drive shareholder value. Looking beyond 2014, we expect growth from the strong base established in 2012 through 2014 as the aerospace supply chain inventory overhang abates and we again realize the full benefits from strong secular growth fundamentals for our aerospace and automotive applications. In addition, we expect to realize growing benefits from our previous investments in capacity, quality, and efficiency. We will now open the call for questions.

Thank you.

(Operator Instructions)

And our first question will come from Edward Marshall with Sidoti & Company.

Good afternoon, or good morning.

Hey, Ed.

Hi, Ed.

Hey. So the first -- the question I had was, looking at the chart that you have on page 6, I guess it's a little bit harder to kind of talk about where, or pinpoint where, spot pricing will be in 2014. But if we could take a look at maybe the aerospace plate and the 75% give or take under contract, first, I'm curious, has that price reset to the lower standard yet? And secondly, how much of that 75% under contract is coming up for, say, new pricing negotiations in 2014?

I think we may have said on the last call, or maybe a call prior to that, but we basically have reset our entire book of contract business over the past couple of years. And I've expressed before and I'll express it again here, that we're very pleased with a very strong, robust book of contract business, which frankly, in part, explains our expectation that, even with some destocking in the industry supply chain this year, we expect 2014 shipments are probably going to be equal to or greater than our record 2013 shipments.

In terms of pricing, we're very happy with the pricing, but I'll make one caveat related to contract pricing. I'll go back to the first quarter of last year. Some of you may not remember, but there was a big spike in the first quarter because we received a $4.5 million penalty payment from a customer who didn't meet their volume commitments to us. And we've had similar characteristics throughout the past several years, especially the 2010-2011 period where people were below -- or were relatively low in terms of demand, relative to some of the contracts.

And if you analyze that whole situation, our situation going forward, we expect that we're going to have very strong demand and that we'll have people meeting their commitments and their requirements. So while we don't see unit pricing changing that much, the apparent price may be different because prior periods had penalty payments spread over some lower volumes.

So what does all that mean? If I bring it back and you put the whole package together, spot pricing and contract pricing for plate -- recall that when we made the big jump in EBITDA for the step change, as we've characterized it, from 2011 to 2012 and our margin went from roughly 17% to 23%, we said that 6% jump was roughly one-third price, one-third leverage and one-third cost efficiencies. And our current view, and again, it's a very dynamic, competitive environment out there, but our current view of 2014 is that we're going to see pricing levels on plate similar to what we saw in 2010 and 2011. And that said, 2010 and 2011 included some premium prices related to the low volumes that we had in that period of time.

So putting this all into perspective, this certainly is nothing that we haven't seen before. You go back to 2010 and 2011, weak market, destocking -- we saw some price pressure. 2012, 2013, restocking, a much stronger demand environment and we saw better pricing. So this is kind of a normal phase that we go through in the industry.

Do we like it? Do we like these ups and downs? No, we'd like that nice, linear growth pattern like we have in build rates, but that's not the way this industry works. It's a very long supply chain and we see these swings in inventory and it affects volume and it affects pricing through the supply chain.

Long answer, but did I get to your point there, Ed?

Sure. I just want to be clear on something that you said. The step change that you saw, the one-third that came from pricing, you're not suggesting that this year you're giving that one-third from pricing back, is that what you're saying? I don't think you are, but I just want to be clear on that.

The prices this year will not be as good as our prices last year. So when we look at this year now, the competitive pressure on plate prices could represent 1 to 2 points of margin on the total value-added revenue, compared to where we were in 2012 or 2013.

But again, I'll come back and say -- I said it three or four times in my prepared remarks. When we look at the total package of sales price, sales volume, and sales mix, i.e., the contribution of our sales to the bottom line next year -- this year, we expect it's going to be pretty much similar to where we were in 2012 and 2013.

So while there's some price degradation, we believe we'll have volume and mix that essentially make up for that and puts us, from a sales standpoint, relatively neutral to where we've been the past couple years.

I see. And then, if I look at, maybe, as we bring Trentwood Phase 5 on board, as well as the casting, I'm curious -- if you kind of talk to utilization, where you'd be at that point, considering. I do -- you did mention that you anticipate volumes are up. Where do you see your utilization kind of panning out, say the end of 2014?

I think we've said consistently, even going back to when we announced Phase 5, that Phase 5 was really a combination of what previously had been phases 5 and 6, and so we were bringing on more capacity even than what we thought would be required in 2014, because Phase 6 had some important efficiencies that we wanted to capture, and it improved the capital efficiency of the entire project to combine the two.

So we've not expected that we would have full utilization of that Phase 5 capacity in 2014, and at this stage we don't expect that either.

How about 2015? Do you a anticipate filling that in 2015 or is it too early to tell?

It's way too early. It goes back to -- and I know I talked a long time in my prepared remarks, but I went back to 2011 and I'll just repeat that. We sat at exactly this time three years ago in 2011, contemplating whether we should pull the trigger on Phase 4, and at that point we were expecting pretty significant destocking in 2012, as well as potential for destocking going into 2013. And we didn't pull the trigger on Phase 4 until September, didn't get it completed until late 2012, and instead of destocking in 2012 we ended up with restocking in 2012 and we could have sold every pound that we would have produced with Phase 4 had we pulled the trigger earlier.

So sitting here a year ahead of time, 2011 to 2012 is just an indicator. While we've got some precincts out there, customer precincts, telling us that they're expecting destocking, minor destocking but destocking in 2015, it's way too soon to tell what the entire landscape will look like. I mean, we could be back into restocking even though one or two customers could be destocking next year.

So we are optimistic that 2015 demand's going to be much better than 2014, but how much better is still a crap shoot, so to speak.

Thanks very much.

And next question will come from Steve Levenson with Stifel.

Good day, everybody, I guess the easiest way to say it. Just a question, in terms of the long-term contracts and the pricing, can your customers substitute spot business for commitments they'd otherwise made under contracts or are they looking for renegotiations of any amount?

Let me just go back to what happened in 2010 and 2011. We said during that period -- I don't know if you were covering us at the time, Steve, but we did enforce all of our contract provisions. So without getting into any specifics, I'll just say we're very pleased with what is a very robust, long-term book of business going forward.

Got it. That was --

Very pleased with what we have.

Okay. That's helpful, because I didn't cover the Company back then. Are there any additional details you can go into? I know you can't name them, but you talked about customer-specific situations in terms of the destocking.

Yes, I'm not going to talk about individual customers. We'll let them speak for themselves. But what we're seeing in plate, in particular, is that most of this destocking pattern is really in one major supply chain, part of the supply chain.

There are other parts that are not destocking. In fact, that may even be restocking as we go through this. So it's really -- the situation we're seeing here is really just one segment of the supply chain that has gotten out of whack.

I also said customer-specific in the prepared remarks a as it related to non-plate inventory, and while for the past year we've been saying that, that has been general, it's been multiple products and it's been throughout the entire supply chain, we're starting to see that sporadically improve. So now it's more customer-specific, where some products and some customers are getting back to normal, or steady pull, and in other customer-specific areas we haven't seen it return to more normal demand patterns. If that answers --

That's helpful. Thanks a lot. One last one.

The automotive market's been working out great. Is there a holy grail you're looking at that would provide more content in a chunk than the incremental increases you're currently seeing? For example, like the Ford explorer -- I'm sorry, Ford F-150 going to a very much increased aluminum content.

Well, again, we don't speak to customer specifics. All I'll say is, first of all, without the F-150, we had a pretty good step change in the second half of last year, if you look at those trends.

And all I'll say about our plans going forward is that we are the number-one supplier of demanding automotive extrusion applications in the industry. And so as industry demand grows, we certainly expect that we're going to grow at least at the rate that industry demand grows and probably, we think, grow faster than industry demand growth.

Got it. Thank you very much.

(Operator Instructions).

And this question comes from Josh Sullivan with Sterne Agee.

Good afternoon, Jack, Dan, Melinda.

On the previous aerospace cycles, you guys have noted the lumpiness on the growth platforms as the OEMs stock up. However, in the current cycle, if I look at the two largest commercial airframes, it appears they might be exasperating the overhang. I guess my question is, If the 747-8 and the A380 are settling in at current rates, speaking in generalities, historically, how long does it take the supply chain to absorb a rate reduction? Or are you saying that we're kind of already through that?

Well, there's so many factors that can cause these things. It's virtually impossible. I'd go back to the anecdote I just used in answer to Ed Marshall's situation. I mean, we -- and we've got some -- a lot of other industry observers that are very close to the situation, as well. We all felt in early 2011 that we were probably going to see heavy destocking in 2012. These are the most knowledgeable people in the industry, and, in fact, we saw heavy restocking in 2012.

So there are just so many variables and so many customers involved, we can -- we get a much better appreciation in plate because the two big guys do have a much better handle on the supply chain in plate than the other products where it's really fragmented in terms of the supply. But even in plate, there are enough precincts out there, and things change in a 12-month period, as well. It's very difficult to be precise in terms of how these things last.

Okay. And then what do you think the cadence of the pricing pressure looks like throughout the year? It gets stronger, or as your volumes increase kind of as your guidance says? Or how are you guys looking at that?

No, we don't think so. We think this plate overhang is a full-year 2014 issue, and as long as that plate overhangs there, we're probably going to have these issues facing us.

Okay. Because I mean, if I look at general engineering, the price for this last quarter, the pricing actually didn't look that bad but it looks like the volumes were off. Is there anything particular for that market?

On the last call we said we didn't think that the price pressure would hit until 2014. So we expected we were going to have, quote, normal prices, end quote, in the fourth quarter and we did. From a volume standpoint, general engineering almost always is very weak volume in the fourth quarter. That's just the normal seasonality of demand.

Okay. Thanks. I'll jump back in the queue.

Next question will come from Phil Gibbs with KeyBanc.

Thanks for taking my call. How are you?

Hey, Phil, good.

Good. The headwinds that you point out from the investments, Jack, in Trentwood and then also some of the automotive programs, is there any way to quantify that on an incremental basis versus the fourth quarter? And what should we be -- and what we're looking for here?

I knew you were going to ask me this, Phil. There are a couple of factors going on half to half. The first one is major maintenance, which I talked about. And you've been following us long enough; you know that typically we have a pretty significant shift in our major maintenance spending in the -- higher spending in the second half compared to the first half.

This year currently, and these things are always subject to change, but right now our planning cycle, we're anticipating that a typical second half level of spending in the first half and a lower level of spending in the second half, which may be the first time I've seen that since I've been here in the last 15 or 20 years. It may have happened but I don't remember it happening before. So a big part of cost change first half to second half, frankly, is going to be the major maintenance.

And then the second part is the manufacturing efficiencies, which are primarily Trentwood, related to the construction, and we talked in the third-quarter call last year that we got hammered pretty hard in the third quarter with inefficiencies and that continued in the fourth quarter. And at this point it certainly continued in January and we expect it's going to continue in the first quarter and into the second quarter, in terms of the construction interruption there. And then we start to button up the casting complex in the second quarter and ramp it up, so the construction interference will be out of the way, and then we start ramping up casting as well as being into the ramp-up of Phase 5.

So we expect the efficiencies are going to improve as the year goes on. How to quantify that is -- I mean, we've got our forecasts, obviously, but it will be what it will be in terms of the timing and the improvements that we make.

And a third factor that we have that's affecting us here in the first half, we do expect some fairly significant ramp-ups in terms of new products on automotive models, and we're doing that in some plants that haven't had that much automotive business in the past, and so we've had to add a lot of resources and a lot of costs here in the first and second quarter in some of our automotive plants getting ready for what are planned significant increases in volume in the third and then into the fourth quarter of the year. So we've got a lot of things happening here in the first half that we hope are going to be remedied in the second half.

I know that doesn't give you the granularity that you're looking for, but we're looking in the first half probably at EBITDA's high $30 millions, low $40 millions. I think we were $41million or $42 million pace in the second half of last year, $42 million, I think.

So somewhat lower than that $42 million, and we think the first quarter's going to be worse than the second quarter in terms of how that looks. So we're expecting a pretty rough first quarter and not as rough second quarter, and then we think the second half, if everything works out the way it looks to us today, we should really start to see some strong improvement in the second half.

That makes a lot of sense. You've essentially got major maintenance as per usual in the second half of 2013. As per not usual or unseasonaly, you have that continuing into the first half of next year, and then on top of that you've got the investments. So when we get into the second half of next year we could think about the maintenance coming off and then the investments or efficiencies starting to come through.

Exactly. You've got it.

Okay. That makes a lot of sense, and I understand why it was difficult to go through that, so I appreciate it. The premiums, the spike that we've seen in the last, I don't know, 45, 60 days, how does that impact your business, Jack?

You're talking about the Midwest premium?

Yes.

As you know, we pass through the Midwest price on most of our business, other than high value-added products. It hasn't moved enough that it's that significant of an issue on our high value-added products. If it moves $0.20 or so like it did back in the -- I think the 2010, 2011 time frame, that can bite us with a little bit of lag.

But we haven't had anything approaching that. We're still sitting at metal prices now, Midwest prices, similar to where we were early last year. So it hasn't hammered us yet and we don't think it will, but you never know with metal prices.

Okay. Appreciate that. Thank you.

At this time there are no further questions. I'll now turn the conference back over to you for any additional remarks.

Okay. Thanks, everyone, for joining us on the call, and we look forward to updating you again during our first-quarter call in April. Thank you.

Thank you. And that does conclude today's conference. We do thank you for your participation today.