Good day, everyone, and welcome to the Kaiser Aluminum fourth quarter 2015 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Melinda Ellsworth, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum's fourth quarter and full year 2015 earnings conference call. If you have not yet seen a copy of our 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 we will use for this call. Joining me on the call today are Chief Executive Officer and Chairman, Jack Hockema; President and Chief Operating Officer, Keith Harvey; 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 on Form 10-K for the full year ended December 31, 2015. 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. Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items for which we've provided reconciliations in the appendix. 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. I'll start today's discussion with comments on the fourth quarter and the full year of 2015, and Dan will provide further comments on the 2015 results. After Dan's comments, I'll share our expectations for 2016 and the three-year outlook for our served markets. Our yearend customer activity is often unpredictable and it was again this year. While plate demand remained strong, fourth quarter shipments in value-added revenue were below our expectation, as we experienced supply chain destocking for aerospace and high strength long products. Order patterns for those products so far in the first quarter are as anticipated and we do not foresee further destocking. Sales margins in the fourth quarter were strong, although our sales mix was not as rich as the unusually favorable third quarter mix. As expected, our underlying manufacturing efficiency improved compared to the third quarter, as we experience less growth-related inefficiency in our automotive operations and we recovered from the impact of Trentwood's third quarter planned equipment outage. Turning to Slide 6 and a review of the full year 2015. We achieve record shipments, value-added revenue and EBITDA. Shipments in value-added revenue reflected our seventh consecutive year for record heat treat plate shipments and our fifth consecutive year for record automotive value-added revenue. Our previous investments in Trentwood and across our automotive platform were key factors driving these record results. EBITDA reflected the record volume plus expanded sales margins, which benefited from lower contained metal cost and improved pricing for heat treat plate and certain general engineering products. EBITDA margin improved approximately 110 basis points compared to prior year, primarily due to the expanded sales margins and increased leverage from strong volume. Although, our underlying manufacturing efficiency improved during the year, the improvement…

Thanks, Jack. In 2015 value-added revenue grew 8% to a record $790 million, reflecting strong value-added revenue growth in all three of our strategic served markets, aerospace and high strength, automotive extrusions and general engineering. Aerospace and high strength value-added revenue increased $19 million or 4% over 2014. The year-over-year improvement reflected improved pricing on most aerospace products, including aerospace plate, as well as another annual record for aerospace heat treat plate shipments. After growing 37% in 2014, value-added revenue for automotive extrusions grew another 22% in 2015 to $111 million, setting a fifth consecutive annual record. This growth in 2015 was driven by a 19% increase in automotive shipments, as we launched new programs at each of our automotive-focused facilities and experienced a significant ramp up in the Ford F150 programs. While North American vehicle build rates have continued to increase in recent years. Our growth in automotive has been fueled by the ongoing conversion of numerous automotive applications to lightweight high strength aluminum extrusions. As an indication of our automotive content growth, our value-added revenue for North American vehicle build increased 18% in 2015 to $6.32. General engineering value-added revenue grew 10% or $18 million in 2015 compared to the prior year. With shipments growing 4%, growth in general engineering value-added revenue was primarily due to price improvements and benefits from lower contained metal costs for general engineering plate as well as some of our extruded or long products. Turing to Slide 8. Adjusted EBITDA for the full year 2015 improved $21 million or 13% over the prior year to $183 million, establishing another new record for Kaiser. Improved sales contributed $34 million to adjusted EBITDA, driven by shipment growth for both aerospace and high strength and automotive extrusions, and improved sales margins as we benefited from favorable…

Thanks, Dan. Slide 11, sets the stage for a discussion of our outlook with a reminder that approximately 70% of our sales mix is allocated to growing aerospace high strength and automotive applications, all of which have a long-term growth trajectory, with the remaining 30% allocated to mature U.S. industrial applications. Slide 12 summarizes the outlook for the extensive portfolio of mill products that we produce for aerospace and high strength applications, including heat treat plate, sheet, extrusions, cold finished, rod and bar, wire and drawn tube products. As shown in the pie chart on this slide, we supply high strength products for commercial aerospace, plus other aerospace and industrial applications. 55% of demand is for large commercial aircraft construction, where we expect demand growth driven primarily by build rates, but also by larger aircraft and growing use of monolithic design that benefits plate demand with some detriment to demand on our other aerospace long products. Airframe builds in 2015 were a record, and for the sixth consecutive year order rates exceeded builds. The large nine-year order backlog at Boeing and Airbus continues to support growing build rates. There are a number of storylines over the next few years for commercial airframes, but the net result is growth. Builds are expected to decline for the very large Boeing 747 and Airbus A-380 airframes, and the Boeing 777 and Airbus A-330 are expected to have a small dip in builds during the redesign transition. At the same time, increasing builds of other twin-aisles, particularly the A-350, the 767 and the 787, plus growing builds of single-aisles by both Boeing and Airbus are expected to drive net demand growth over the next few years. Shifting to other aerospace sectors, approximately 30% of demand for our high strength products is driven by applications,…

[Operator Instructions] We'll take our first question from Steve Levenson with Stifel.

In the past, you helped us a little bit with a discussion about seasonality. Do you see that same situation coming up in 2016?

Yes. We do, Steve. Typically the first quarter is our second strongest quarter and the second quarter is our strongest quarter. And then we typically have the seasonal weakening in the third quarter, and then more significant seasonality in the fourth quarter and unpredictability in the fourth quarter.

It's unfortunate. I guess it's not something that's easy to manage though?

Well, I mean that's part of our business model. We recognize that volatility and recognize we have to know how to flex our costs and adapt to the conditions.

And just a follow-up on production delivery of airplanes. There has been some controversy because Boeing's deliveries in '16 are going to be less than '15, but it appears that production is rising, the difference being new models that go into inventory and some tankers that need completion. Could you tell us a little bit about what you are seeing in your releases related to aerospace? And if those changes -- those differences between builds and deliveries have any impact on Kaiser's business?

Well, certainly. It's just as you iterated here, two factors. One is there is a lead time on our shipments versus actual production of airframes. So we would have seen some of the flattening, if you will, already last year. But the same is true, as we said, we're anticipating 5% year-over-year growth in our aerospace sector and that's primarily driven by the large commercial aircrafts, so it's exactly as you articulated.

We'll go next to Jorge Beristain with Deutsche Bank.

Jack, maybe this question is for you. I think that the results we're considered a little bit of amiss, particularly you flagged some of the impact of the auto launches in your release in your comments. Could you just walk us through at what point you think that that kind of lag on cost eventually dissipates and when you start to hit your stride in terms of completing these new platforms or is this going to be sort of more of the same throughout 2016?

Let me answer more broadly just to put a clear point on the fourth quarter. We had it in my remarks here earlier, but the biggest factor, and I'll talk in terms of what we said on the third quarter call versus how things played out, what you might have anticipated based on our third quarter call comments. The biggest impact was the aerospace long products where we had significant destocking and it really became increasingly apparent as the quarter proceeded. There were some in October, but then as we got into November and then into December, the bottom really fell out, so that was by far the most significant. And you may recall, we said on the third quarter call, we expected aerospace to come in at the bottom of our range in terms of value-added revenue for the year, which is, I recall, was around 6%. We actually came in at a little over 4%. And all of that was a function of long products. Actually heat treat plate in aerospace in the fourth quarter was even a little bit better than what we had expected. So it was really a softening in long products and we attribute that to destocking. We're in the first quarter here and we see normal order patterns there, no impact at all from destocking in terms of our actual January shipments and what we're saying for February and March. So that appears to be a clear anomaly. The other thing that we did not signal on the third quarter call is that the third quarter had very, very strong sales margins. That we're up pretty substantially compared to the first half of the year. Fourth quarter was off 1% from those sales margins, but was about 1.5% better than our run rate…

Well, I guess, like they say, that is a high-class problem to have. And the second question I had was just on your Trentwood CapEx spending that you have green lit. Could you just give us some feelings around there in terms of what kind of payback you are expecting on that project or concretely maybe return on capital that you are kind of targeting so we could sort of model that incremental EBIT going forward?

Well, I won't give you a specific number, but what we'll say is the project has very attractive returns, as we go forward, a very comfortable margin, well over our cost of capital.

Single-digits, double-digits?

Yes, double-digits, yes.

We'll go next to Tony Rizzuto with Cowen and Company.

I've got a couple questions. Throughout your comments there was a lot of sprinkling of cautionary comments that you answered about the long product side and the end of the destocking and you're seeing more normal patterns so far coming out of the gate. And you made some comments about auto, you are increasingly cautious about the North American auto build-rate. So for one, I was wondering if you could comment about that? And then we are hearing from some of our channel checks that maybe the aero heat treat side on the 2 and 7000 series not as tight as it was maybe three, five months ago. And I am wondering how you see that playing out along with maybe increased import pressures for the steady flow of imports in the 60, 61 market, how that all plays out from a standpoint of volumes and pricing as you look at 2016?

You've got a lot in that basket, Tony. Let me start with North American builds. We said that our outlook for the next three years that we used in this forecast is a 1% CAGR on North American builds. If you look at the industry forecasts and the industry forecasters, they're typically around a 2% CAGR. And we think that that maybe a little too ambitious in terms of our outlook here. So we've cut it to 1%. But still good strong build rates with a little bit more cautionary than what some of the industry forecasts are. You've just talked about aerospace plate. I'll talk about plate in total. Our lead times on heat treat plate out of Trentwood right now are 29 weeks. And that's a pretty substantial lead time. I think we may have been in the low-30s three months ago. So it may have slipped a little bit, but we're still basically six months lead times. We are booked past the middle of the year at this point. So plate demand continues to be very strong. In terms of pricing on general engineering, we had indicated we expected to see impacts starting in early 2016. We're seeing some impact early in 2016. Our outlook internally and now externally with these comments is that we expected to become more and more prevalent as the year goes on, more prevalent in the second half than the first half. Your follow-up question is asked me to quantify that, I'd say, it would be between maybe $1 million to $2 million possibly in the first half compared to our run rate in the second half of last year.

And, Jack, do you see that impacting at all -- one of the problems obviously you and I have discussed many times in the past, how that supply or the surplus in that market can tend to cause the other heat treat suppliers of very high quality material to be going for a smaller pie, if you will. Obviously the build rates are very strong, but do you see that impacting in the higher value added part of the market on the 2 and 7000 series or not really?

We've not seen it this time around. We have in the past few years, if you go back four or five years, we saw some impact there. At this point, there is very little domestic activity in general engineering plate other than Kaiser, maybe in some of the very thick plate, but the big demand is in thin plate and those products, so that the primary competition is import competition, and that's where we're seeing the biggest price pressure.

And then one more question if I may. Just the Trentwood and how you see the cadence of that in terms of how should we think about any potential dislocation from this -- not the building out, but the refurbishing, if you will, some of that legacy equipment, how should I think about the impact on the operations from a standpoint of efficiencies going forward

In the news release when we announced the investment, we had a comment in there that part of reason we were stretching it over a five years is to try to manage the impact of disruption. Clearly, we'll have some disruption whenever you do something like this and you get out of the normal cadence of operations it has an impact. We don't think it's going to be anything huge. And when we get into some of the activities that might give us some disruption, we'll try to signal that at a time.

We'll go next to Phil Gibbs with KeyBanc Capital Markets.

The 3% to 5% outlook for this year on the topline, how much of that is pricing versus volume?

It's probably neutral in terms of pricing. As we just already discussed here in the Q&A, we're expecting some degradation in heat treat plate progressively as we go through the year. On the flipside, we indicated on the third quarter call that we were benefiting from some fairly significant price increases on certain long products in general engineering, and that really kicked-in in the second half of the year. So when you look at the full year, we'll get a full year benefit on some of those price increases rather than six months. And you net all that out it's probably pretty close to a wash, I would say.

And I think you called out about $5 million in inefficiencies in 2015, but you also had some benefit from lower contained metal costs. So I'm just trying to square up those two things for 2016?

Well, the inefficiencies, and you may be referring to some overhead too. Is that from Dan's comments?

That's $5 million. I think that was the automotive you are speaking to. Is that right Phil? $5 million of inefficiency.

Yes, if that's what you called out. I'm just trying to parse out what might have been a headwind this past year that's likely not to repeat.

So the automotive, the $5 million is inefficiency. But inefficiency was not $5 million. There was also a quite a bit of plant overhead related to the significant increases in volume, where our resources are catching up to the step change we've had in volume in our automotive facilities. So that $5 million, we don't expect to see that repeat. As I said, we think we're going to be more efficient in our automotive, not to what we think our steady state long-term should be, but more efficient in automotive this year than we were last year. Related to the lower contained metal, that really influenced our sales margins. So when we look back on 2016 we did have some true raw price increases, but some of the sales margin that we gained was the fact that we do not pass-through directly changes in metal on some of our very high value-added products. And so as metal cost migrated down over the year, that gave us some hidden benefit, if you will, on our sales margins. And we think those are relatively stable right now, unless we get a big surge in metal cost. And typically there is a little bit of a lag there recovering all of that for the same reason we benefitted, when it drops down dramatically.

Could that have been as much as $5 million for 2015, the benefit from lower contained metal on the margins?

Well, it's hard to segregate the two. We've got so many products and there is so much mix in there and it's hard to tell. It's impossible to tell, I'll just say. But the sales margins were significantly better year-over-year. It would have exceeded $5 million in total sales price and contained metal benefits.

And then, just lastly, I think you had mentioned in the release before and you mentioned on the call here too, that the fourth quarter did not shape up as strong as you had anticipated. Was it just in the long products piece or was there other things in there as well?

I've gone through this thing with a fine-tooth comb, a very, very fine-tooth comb. It's all right there in products other than heat treat plate in aerospace and high strength products. It's all right there. And we got seven or eight other products that we ship in that category and it was virtually every one of them was substantially below of where we expected them to be in the fourth quarter. It was a quite an anomaly. And in general engineering we were right where we expected to be pretty much and our automotive was right where we expected. So everything was pretty much where we expected it to be in the fourth quarter, except for that grouping of long products and aerospace, it was quite an anomaly.

And Dan, what share count are we at, right now, approximately? Because I know that the balance -- excuse me, the quarterly income statement was not provided?

Yes. I believe it's just a little over 18 million shares as of yearend, is that right?

February 12, there was 17.5 million outstanding, registered outstanding.

I think we need to confirm that one.

We'll come back, when we get the final number.

I mean, it will be obviously on our 10-K on the face of the 10-K. But I think that's not an updated number that you're looking at.

We'll go next to Edward Marshall with Sidoti & Company.

So you've had some steady pressure for some time on the plate side of the business, I guess, especially from the import activity. And it's really not apparent in value-added revenue or value-added revenue per pound, and that's a testament I guess to you. But I guess my comment is or my question is, is this more of same for 2016 or is there an expected step up of activity and therefore a little bit more pressure than you've seen in the recent years?

Well, actually, Ed, we had improvement in general engineering plate prices net in 2015 and especially in the second half of 2015. So that's why in my earlier comments to a question about 2016, I compared where I think it will be in the first half compared to the second half of last year. And a big part of that was the lower contained metal prices that did not get pass-through that benefited our general engineering plate and some was that we were able to get through some stronger pricing as well. So that's the situation last year. As we go forward, we expect to see, as I said, maybe $1 million or $2 million total impact degradation first half of this year versus second half of last year. And then, it could be more than that as we get into second half, although we're not ready to forecast anything at this point.

You had an unusual planned maintenance activity disruption I guess in 2015. Do we expect any change in 2016 as a normal year, where it's more 60%-40%?

You're talking the seasonality of the major maintenance?

That's correct. Is it a normal season this year?

Well, last year it was heavily weighted to the second half of the year. This year, I am waiting for somebody to raise their eyebrows or give me thumbs up, but I think that 40% in the first half, 60% in second half. So there's probably order of magnitude in the ballpark. I'm getting head nods on that.

The $5 million of NOLs that were adjusted in the tax rate, I just want to kind of confirm, that was not broken out in the NRR, in non-run rate items, right? That was included in the $0.60 number?

That was included in the $0.60 number. And you could argue, it's an item that out of the deep activity of this year, but it's something we counted as part of the actual tax, not non-run rate.

And that brings you back down to the normal run rate. And that's about $0.27, I guess of --

That's about right for the fourth quarter. It would have been about that much. And one other comment in answer to Phil, February 12, it will be on the K, that we had 18 million effectively shares outstanding. It rounds to 18 million.

We'll go next to Josh Sullivan with Sterne Agee CRT.

Just on the aerospace destocking in the fourth quarter, can you tell if that was due to the supply adjustments for the very large aircraft or adjustments for the next-generation aircraft ramping up here? Any way for you to tell?

I mean, it's hard to tell. And the first comment I would make is that where we said that 15% of demand for the aerospace and high strength sector is related to industrial applications. It's a much higher number in the long products than it is in our aerospace plate. So there is a big industrial component. There is also big business jet component, smaller regional jets, those kinds of applications, much less large commercial airframe demand on the long products than there is on the sector in total. And where that destocking came from, it's anyone's guess. We have a couple of stories that where we know what was happening, but that only explains maybe 10% of what was going on there. It happened in a myriad of products, a myriad of customers. It's hard to explain.

And then on the automotive side, you guys continue to get some pretty strong pricing. As the content increases, how does that pricing picture look over the next three years? The products you are getting increased content on higher value, should we expect that pricing to go up?

Well, if you're talking the automotive sector where we show value-added revenue per pound that will decline over time. And the reason that would decline over time, the highest value-added per pound is for our driveshaft tubing that's may be $6 or $7 a pound value-added revenue where the typical automotive product other than driveshaft is in the $1.50, $2 range per pound, and so the growth is going to be in the lower value-added per pound items versus the mature driveshaft.

We'll take a follow-up from Steve Levenson with Stifel.

I hope I understood this right, so I'm just asking for a clarification. On automotive you mentioned that demand was up over the maximum. And I want to make sure I understood that that's how your contractual arrangement works? And what happens to pricing when you go over the top like that?

As of the fourth quarter nothing happened. But that is under review right now by our President and COO who is sitting here and giving me a big thumbs up.

So I'm going to ask a new different question into the first quarter call. Or I'll get to ask this one again.

We'll take a follow-up from Jorge Beristain with Deutsche Bank.

I guess my questions are more Dan, just a little bit on some of the financial stuff. Could you just clarify a little bit some of the non-run rate items of $4 million in the fourth quarter appears to be related to the mark-to-market of a convertible bond and some financial derivatives. Could you just clarify is that something that we should expect quarter-to-quarter going forward? And how we could best model that?

Well, I think it's very difficult to model non-run rate items. And that's part of the reason we consider them non-run rate, because most of the mark-to-market items will be driven by what happens with the market of commodities. By the way, our convertible, that anything related to the convertible debt, with regard to mark-to-market of that derivative was done in the prior year. We didn't have anything this year and wouldn't have, of course, in the future.

I was reading the footnotes, so I guess that needs to just be updated.

The mark-to-market gains or losses are related to our metal or gas positions, not related to the convertible debt. And again, I can't predict those.

And then the other question I had just in terms of the change, I think there was about a $6 million increase in costs this year, which you broke out in your cash flow waterfall. Some of it was related to benefits, I assume those mean wage increases. Some of it was related to stock. Could you just kind of quantify how much is in each bucket there and how we would expect -- I mean, maybe in a rising stock market does executive comp get tied to that or can we expect the same level for 2016?

I don't know that we're going to be have a significant change in the long-term incentive compensation as we go forward. And the short-term in compensation, to the extent that's going to be part of incentive comp. It depends on how our EBITDA turns out to be during the course of the year and the [ph] returns on our program to short-term. It was up this year, because we are, of course, at a higher level than we were in the prior year.

And relates to our performance modifiers beyond our EBITDA performance.

Very good point, because we have additionally some pretty high leverage on some of those modifiers. Part of the benefits increases that we saw during the course of this last year were medical related for employees. And so again, it's difficult for us to predict how the inflation will play out on that, and we're hopeful that we're going to be able to control that to some degree. But there were a couple of million dollars worth of medical benefits right there.

Well go next to Paul Luther with Bank of America Merrill Lynch.

I just want to talk quickly on the general engineering plate business. You had a fairly sober outlook in that business, which is understandable. I was wondering if you could talk about plans for that side of your operations. I get that its contribution is going to naturally wane right as aerospace and automotive growth outpace it looking relatively flat. So are there other things you're considering, other things in the toolbox to -- in that business given the import pressure, whether cutting costs or more aggressively shifting output away from that business into the others, things like that?

A big part of the $150 million investment is related to general engineering plate. And we're looking as we go through the process some pretty substantial reductions in our conversion cost. As I said in my earlier remarks, on thin gauge plate or light gauge plate, which is less than two-inch plate, which we now process on some very old equipment, that's not state-of-the-art. Our intention here in the $150 million is to get equipment comparable to what we're using for our thicker plate both general engineering and aerospace plate that will give us big cost benefits.

And then a housekeeping one. In terms of cash taxes, I think you said you were low-single-digits for '15. Do you expect that to continue through '16 given the NOL base?

Yes, we expect that for the, I'll call it, for several years probably given the NOL position that we have, predominantly federal NOLs are what are going to be shielding the taxation for a period of time. And again, I think I said $564 million of pre-tax U.S. income shielded by the federal NOLs.

And with no further questions in the queue, I'd like to turn the conference back to Jack Hockema for any additional or closing remarks. End of Q&A

Thanks, everyone, for joining us on the call. And we look forward to updating you on our first quarter call in April. Thank you.

Again, that concludes today's presentation. As a reminder, an audio recording of this call will be available on the company's website. Thank you for your participation.