Feb 16, 2012
Operator
Good day, and welcome to the Kaiser Aluminum Fourth Quarter 2011 Earnings Conference Call. At this time, I’d like to turn the conference over to Ms.
Melinda Ellsworth. Please go ahead.
Melinda Ellsworth
Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum’s fourth quarter and full-year 2011 earnings conference call.
If you’ve not seen a copy of our earnings release, please visit the Investor Relations page on our website at kaiseraluminum.com. We’ve also posted a PDF version of the slide presentation for this call.
Melinda Ellsworth
Joining me on the call today are Chairman, President and Chief Executive Officer, Jack Hockema; Senior Vice President and Chief Financial Officer, Dan Rinkenberger; and Vice President and Chief Accounting Officer, Neal West.
Melinda Ellsworth
Before we begin, I’d like to refer you to the first 2 slides of our presentation, and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management’s current expectations.
Melinda Ellsworth
For a summary, 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 Form 10-K for the full-year ended December 31, 2010. These factors include among others, the completion of the audit of the financial statement as of and for the year ended December 31, 2011, and the completion of the valuation post retirement obligations of Aviva.
The company undertakes no duty to update any forward-looking statements to conform with statement’s actual results or changes in the company’s expectations.
Melinda Ellsworth
In addition, we’ve included non-GAAP financial information in our discussion; reconciliations to the most comparable GAAP measures are included in 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?
Jack Hockema
Thanks, Melinda, and welcome to everyone joining us on the call today. We’re pleased with solid year-over-year improvement and strong 2011 results.
Adjusted EBITDA and earnings per share increased 31% and 41% respectively over 2010, driven by record value added revenue for our aerospace and automotive applications and strong performance from our acquisitions of the Alexco and Nichols Wire businesses.
Jack Hockema
During the year, we also made several investments in our growth platform. We commenced capacity expansions at our Alexco facility, and at our Trentwood Rolling Mill to meet the growing demand for aerospace extrusions and heat treat plate applications.
In addition, we made good progress in the production ramp up at our Kalamazoo rod and bar facility with product quality exceeding all expectations.
Jack Hockema
Although the production ramp up has been slower than anticipated, this world class facility is positioned to be a low cost producer for general engineering applications, and is expected to fully achieve its investment potential over the longer term. During the year, we amended our revolving credit facility to increase the lending commitment and extend the maturity to September 2016.
This action bolstered our liquidity position and provides us with greater flexibility to pursue organic and acquisition growth opportunities.
Jack Hockema
And lastly, we continued our practice of returning cash to shareholders through our quarterly dividend payment, and we recently announced a 4% increase in the quarterly dividend. This increase reflects our confidence in the company’s financial strength and excellent long term earnings potential.
Jack Hockema
In 2012, we expect our momentum from 2011 to continue with very strong aerospace demand, and steady improvement in automotive and general industrial demand. We’re well positioned to capitalize on this demand growth with investments made in prior years and with additional capacity being installed for aerospace applications.
Jack Hockema
We anticipate that higher sales volume combined with improving manufacturing efficiencies will continue to drive our EBITDA margin improvement trend. In addition, we anticipate capital spending of approximately $50 million in 2012 for projects that will expand our capacity, and further enhance product quality and manufacturing efficiency.
Jack Hockema
I’ll now turn the call over to Dan to discuss details of the fourth quarter and the full year 2011 results, and then I’ll provide some additional comments regarding the near term outlook for the first half of 2012. Dan?
Daniel Rinkenberger
Thanks, Jack. Slide 7 shows the quarterly and annual trends in value added revenue.
As a reminder, value added revenue is net sales minus the hedged cost of alloyed metal. The fourth quarter 2011 marks the fifth consecutive quarter of improvements in total value added revenue and value added revenue per pound, reflecting improving overall demand and a gradually richer mix throughout 2011.
Daniel Rinkenberger
Significant improvement is especially notable on a year-over-year basis with total value added revenue improving 25% in the fourth quarter, and 16% for the full year 2011.
Daniel Rinkenberger
Focusing on end market applications, aerospace and high strength value added revenue increased sequentially 8% in the fourth quarter, and consistent within our expectations, improved approximately 13% in the second half of the year, compared to the first half on stronger demand.
Daniel Rinkenberger
The continued strength of the aerospace and high strength end market applications as well as the impact of our recent acquisitions is further demonstrated by year-over-year value added revenue improvements of 41% for the quarter and 28% for the full year.
Daniel Rinkenberger
Value added revenue for automotive extrusions reflected a normal year-end seasonality in the fourth quarter with an 11% sequential decline, and was flat with the prior year fourth quarter. However, for the full year of 2011, value added revenue increased 13% on higher light vehicle build rates and the continued ramp up of new automotive aluminum extrusion programs.
Daniel Rinkenberger
Value added revenue for general engineering products in the fourth quarter was comparable to the third quarter, and up 5% compared to the prior year quarter. General engineering value added revenue for the full year of 2011 was essentially flat with the prior year 2010.
Further detail on value added revenue by sales application can be found in the appendix on slides 22 and 23.
Daniel Rinkenberger
Slide 8 shows adjusted consolidated EBITDA. Fourth quarter 2011 adjusted consolidated EBITDA of $30 million reflected a slight improvement over the third quarter, and a 92% improvement over the fourth quarter 2010.
Daniel Rinkenberger
For the full year of 2011, adjusted consolidated EBITDA improved 31% to $112 million. Our adjusted consolidated EBITDA margin as a percentage of value added revenue was 18.2% in the fourth quarter and 17.3% for the full year; both notable improvements over the comparable 2010 periods.
Year-over-year, adjusted consolidated EBITDA and margin improvements for both the fourth quarter and the full-year reflected stronger demand and shipments across all end-use categories.
Daniel Rinkenberger
Slide 9 shows consolidated cash flow for the year of 2011. After funding the Alexco transaction in early January, adjusted consolidated EBITDA of $112 million funded all remaining cash requirements for the year.
The increase in working capital supported the growth in our operating activity as our end markets continued to improve.
Daniel Rinkenberger
Capital spending was $31 million for the year. As Jack previously indicated, we expect capital spending in 2012 will be in the range of $50 million as we proceed with the Trentwood plate expansion that we announced in August, complete the Alexco expansion and fund other projects focused on capacity, quality and efficiency.
Daniel Rinkenberger
Financing cash outflows included interest and miscellaneous principal payments on our debt, and of course dividends, which, as Jack mentioned earlier, we increased by 4% to $0.25 per share per quarter as of the first quarter of 2010. Total liquidity at December 31, 2011 was approximately $300 million, including cash of $50 million, and more than $250 million of borrowing availability under our amended revolving credit facility.
Daniel Rinkenberger
On slide 10, we show key consolidated financial metrics. We are reporting preliminary unaudited results today.
Final audited results are subject to change, pending the final actuarial valuation of the accumulated post-retirement obligation of Union VEBA, due to additional information received from the VEBA administrators. If the final valuation differs materially from the preliminary 2011 or reported 2010 financial statements, we may have adjustments affecting one or both years.
Daniel Rinkenberger
VEBA-related income or expense is non-cash and considered a non-run-rate item. So any VEBA-related change in income will have no impact to adjusted or non-run-rate items, operating income, EBITDA, net income or EPS.
Only reported GAAP income measures could be affected.
Daniel Rinkenberger
Consolidated operating income as reported of $16 million in the fourth quarter and $58 million for the full year both reflected unfavorable non-run-rate adjustments - or non-run-rate items. Most significant in 2011, for the full year was a $27 million non-run-rate cash mark-to-market loss and non-cash loss on metal hedging positions.
Details for non-run-rate adjustments to operating income are shown in the appendix on Slides 24 and 25.
Daniel Rinkenberger
Consolidated fourth quarter operating income adjusted for non-run-rate items was $24 million, up slightly on a sequential basis and more than double that of the fourth quarter of 2010.
Daniel Rinkenberger
For the full year 2011, consolidated adjusted operating income of $86 million reflects an increase of 33% compared to the full year of 2010, again, reflecting stronger demand and shipments across all end-market categories.
Daniel Rinkenberger
Reported net income for the fourth quarter was $6 million or earnings per diluted share of $0.34. Adjusting for the non-run-rate items, fourth quarter net income was $10 million or adjusted earnings per diluted share of $0.52.
Daniel Rinkenberger
For the full year, reported net income was $27 million or earnings per diluted share of $1.40. Adjusting for non-run-rate items, 2011 net income was $42 million or adjusted earnings per diluted share of $2.20.
Daniel Rinkenberger
Our effective tax rate for the full year of 2011 was approximately 14% comparable to the rate for the full year of 2010. On a quarterly basis, our effective tax rate can vary significantly due a variety of factors.
You may recall that our third quarter effective tax rate was 14% reflecting the release of a tax reserve related to our prior year tax position.
Daniel Rinkenberger
In the fourth quarter, our effective tax rate was 53%, reflecting a true up of the state tax NOL positions and the acceleration of non-tax deductible compensation expenses that would have otherwise been reflected in future periods.
Daniel Rinkenberger
Our net operating loss carry-forwards of $875 million at December 2011 combined with other tax attributes are expected to result in a cash tax rate in the low single-digit percentages.
Daniel Rinkenberger
Moving to Slide 11. I’d like to review once again our relationship with the VEBA trust to appropriately frame any pending VEBA-related changes to current or prior year financial statements.
Most importantly, our financial obligation to VEBAs is to make a defined variable contribution based on an annual pre-tax cash flow calculation primarily determined by our consolidated EBITDA less capital spending and cash interest expense.
Daniel Rinkenberger
The variable contribution can range from a minimum of 0 to a maximum of $20 million in any given year. And for the year ended 2011, our variable contribution is 0 as capital spending including cash paid for Alexco and cash interest expense exceeded EBITDA.
Daniel Rinkenberger
Neither the funding status of the VEBAs nor our accounting treatment of the VEBAs can influence our variable contribution in any way. Accordingly, any VEBA-related change to prior year financials will not change our variable VEBA contributions paid in prior years or the current year.
Daniel Rinkenberger
Kaiser has no claim to or control over the VEBA assets and we do not determine pay or manage the VEBAs’ benefit obligations. The VEBAs are trusts separate from Kaiser that are independently managed through third-party administrators to provide medical benefits for certain of our current and future retirees.
Daniel Rinkenberger
Nevertheless, for accounting purposes, Kaiser is required to report the VEBA assets and obligation in our financial statements as if they were defined benefit plans. To develop appropriate assumptions for defined benefit accounting, annually we must obtain information from the VEBA administrators regarding the VEBA assets, benefit levels, participant population, and coverage elections.
Daniel Rinkenberger
As a result of additional information about the VEBAs selections by our participants -- by the participants that we recently received, we are still in the process of evaluating the Union VEBAs’ current and prior year benefit obligations. This could result in changes to our financial statements for the current or prior year or both.
Daniel Rinkenberger
Any VEBA-related change in the reported income, however, will be non-cash expense or gain that, consistent with our prior practice, will be treated as a non-run-rate item. Therefore, it’s important to note that our consolidated operating income, EBITDA, net income and EPS adjusted for non-run-rate items will remain the same notwithstanding any potential VEBA-related income change.
Daniel Rinkenberger
So to summarize, our financial obligation to the VEBAs is a variable cash contribution that is not affected by even with the funding status of the VEBAs or our accounting for the VEBAs. And our non-run-rate income measures remain the same even if there are VEBA-related changes to our financial statements.
Daniel Rinkenberger
And now I will turn the call back over to Jack to discuss current industry trends and our outlook. Jack?
Jack Hockema
Thanks, Dan. Turning to Slide 12, we continue to expect robust long-term aerospace demand growth for our products driven by steadily increasing build rates, larger airframes and continued conversion to monolithic design.
New airframe orders booked by Boeing and Airbus in the 2011 were the second highest ever, resulting in a backlog of more than 8 years.
Jack Hockema
Airline Monitor has published their updated forecast for airframe build and the already robust forecast has been increased by approximately 2% for builds anticipated during the remainder of the decade.
Jack Hockema
With the breadth of our aerospace product offering and our investments to expand capacity, we are well positioned to capitalize on this very favorable outlook for the industry. In the first half of 2012, we anticipate the growing value-added revenue for these aerospace applications will be driven by continued aerospace demand strength.
Jack Hockema
Tuning to Slide 13, our value-added revenue for custom automotive extrusions was at a record level in 2012 as a result of higher build rates and record Kaiser value-added revenue content per vehicle.
Jack Hockema
We anticipate continuing automotive sales growth in 2012 and remain especially bullish regarding the opportunities for automotive custom extrusion applications. As build rates continue to increase and to face standard strive, increasing aluminum extrusion content, we expect that this upward trend will continue for several years.
Jack Hockema
Demand for general engineering applications continues to reflect a slow, but steady recovery in the general industrial economy, and service center inventories remain at historic low levels. When the industrial economic recovery eventually gains sufficient strength and consistency to foster customer confidence, we expect to benefit from restocking.
For the first half of 2012, we anticipate normal seasonal strength, and a continuation of steadily improving demand for auto and general engineering applications.
Jack Hockema
Turning to slide 14, and our near-term outlook, we expect the total value added revenue in the first half of 2012 will be up 10% to 15% compared to the first half of 2011, driven by stronger aerospace and automotive demand, and by first half seasonal strength across our end-use applications.
Jack Hockema
We also anticipate continued improvement in EBITDA, and EBITDA margin driven primarily by higher sales volume and improving manufacturing efficiencies, and we have the potential for adjusted EBITDA margin approaching the record 20% level previously achieved in 2007.
Jack Hockema
Summarizing our remarks for today, our full year 2011 results reflect the record value added revenue for our aerospace and custom automotive applications, and solid performance from our Alexco and Nichols Wire acquired businesses.
Jack Hockema
We ended the year with strong momentum, and expect it to continue into 2012. Longer term, we’re very well positioned in attractive growing aerospace and automotive markets, with stronger demand and the benefit from our organic investments and acquisitions yet to be fully realized, we believe we have excellent long-term earnings potential.
Jack Hockema
Further, as evidenced by the recently announced expansions of heat treat plate capacity at Trentwood, and aerospace extrusion capacity at Alexco, we have opportunities for additional growth. We expect these opportunities will support capital spending of $40 million to $50 million per year over the next few years, and in addition we will continue to consider complementary acquisitions.
Jack Hockema
We'll now open the call for questions.
Operator
[Operator Instructions] We’ll take our first question from Phil Gibbs with KeyBanc Capital Markets.
Philip Gibbs
The pricing in the fourth quarter in general engineering, that’s been, I would say at the higher end of what we’ve seen in recent quarters. Is that due to price increases that you’ve been putting through?
Does the market feel stronger about the price side that we moved off the bottom? How are you viewing that going forward?
Jack Hockema
There really hasn't been any change in pricing of consequence, most of what you see in there would be mix-related, but there also is a little impact from metal prices, metal prices were a little lower in the fourth quarter, and not all of that got passed through in some of the higher value added application. So there was a little bit of impact there, but most of it is mix-related.
Philip Gibbs
Okay. And on the expansions that you’re doing at Alexco and at Trentwood, should we be thinking about any EBITDA contribution from those, late this year or should we really hold off until ‘13 to just start thinking about that?
Jack Hockema
Well, the Alexco impact will start coming on during this year, and the Trentwood really is 2013 related in terms of seeing any impact from that. But we expect to see good steady growth in aerospace as we go forward.
Philip Gibbs
Can you give us a just a general idea about the way that you would look, I know a lot of it would be depended on mix, but your idea of utilizations at your Aluminum aerospace extrusion business, and then also at Trentwood.
Jack Hockema
Well, in aerospace extrusions, we’re running very strong and relatively close to capacity there. And again we see good strong growth there, we don’t think we’re losing orders, but we think that as the new capacity comes on and as demand continues to build, that will get utilization of the new equipment coming on stream.
Jack Hockema
At Trentwood, we are on what we call managed order entry right now, and that’s a function of 2 things; one is the very strong aerospace demand, but secondly our capacity frankly is a little bit constrained, and we’ll be as we go through 2011 here and install the new capacity. So we don't have the full capacity available to us in 2012 just because of the installations that are taking place there.
Jack Hockema
So demand is strong in both of those facilities, but we’ll continue to open up capacity here as the expansions come on stream, and remove some of the obstacles at Trentwood from the installations that are taking place during the year.
Philip Gibbs
Have your aerospace, have your heat treat aerospace-related shipments, have those already surpassed the prior peak several years ago? Or, they have?
Okay.
Jack Hockema
Yes. By a considerable margin.
Operator
We’ll take our next question from Tim Hayes with Davenport & Company.
Timothy Hayes
A few questions, on Trentwood being near capacity or what not, does that imply that you can volumes still go up on the aerospace plate shipments out of Trentwood or to the extent that you’re at, capacity, might that growth be capped until that incremental capacity project is installed?
Jack Hockema
We’ll go back to my first half outlook. We said, compared to year-over-year, we expect in total be up 10% to 15% and we expect our aerospace to be on the high-end of that 10% to 15%, and the automotive and general engineering at the lower end of that 10% to 15%.
So despite having very strong demand and getting close to, quote, "capacity" and again as there is some temporary constraints that we have often on during the year, at Trentwood in particular. We still have opportunities for growth there and we expect, we had record aerospace last year even excluding the Alexco.
So even on a same-store basis, our aerospace value-added revenue was an all-time record and we expect another all-time record this year.
Timothy Hayes
Okay. And do you have a sense on the service center inventory level of aluminum plate, where they stand?
Is that still a little heavy or have those been brought in line?
Jack Hockema
We think that the aerospace inventory story is done in terms of it being an overhang suppressing demand. We think inventories are in balance and the entire focus and it has been for almost a year now, is really on gearing up for the very, very ambitious build rates that Airbus and Boeing have.
Timothy Hayes
Okay. And final question on Kalamazoo, I know that it didn’t quite hit the EBITDA target last year, where did that come in at for contribution to EBITDA in ‘11 and does that get to $15 million in ‘12, which I believe was the original or a goal for ‘11?
Jack Hockema
Yes. It was in the single digits last year as we said on the last couple of calls and we just expect good steady improvement, we’re not putting any specific target on it for ’12, but it rolls into that total EBITDA margin.
We’re expecting that the total volume improvements that we’re seeing as a company, as well as the steady manufacturing efficiencies that we’re gaining, which impart is a Kalamazoo but we also have potential at several other facilities to do a lot better than we did in 2011. We’ve got good potential to get to the kind of -- to the record EBITDA margin that we saw back in 2007.
So we’re encouraged by the progress at Kalamazoo, just we were little too optimistic in our forecast a year ago, 1.5 years ago.
Timothy Hayes
And I guess, just a follow up on that, is that all the equipment, and everything installed and put out, now just a matter of ramp up volume or there’s some production issues that you’re still...
Jack Hockema
No, it’s just continuing to - it’s steady improvement in the uptime and the reliability of the equipment.
Jack Hockema
Reliability and in terms of operating consistently.
Operator
We’ll move next to the Edward Marshall with Sidoti & Company.
Edward Marshall
So my first question is, kind of like and hone in on the service center, and general engineering if I could for just a second. And have you seen any signs or any signals that, that could point to a potential restocking on the horizon?
And more importantly, if I look back to fourth quarter, how much do you think has normal seasonal trends played into the quarter that you had, maybe working capital adjustments that the service centers look at. And also, kind of the volatility that we saw in Aluminum pricing, did that play into it, or was it something else?
Jack Hockema
No, it was typical, and there wasn’t just service center, we saw in automotive and even to some extent in aerospace where volume got curtailed, especially late in the fourth quarter, and it will get shifted into the first quarter here. In terms of the -- and that’s normal.
Jack Hockema
In terms of restocking in the service centers, yes, we’ve already gone through a couple of false starts in this cycle in late ’10, I think it was, the chart is in the appendix, and the book, but if you go look at the appendix where we plot the rod and bar inventories, there was actually restocking for 2 or 3 quarters in late 2010, and I think maybe even the first quarter of 2011, but then we saw a de-stocking again throughout the year, and it’s just the fact that we have false starts, everybody is jumping up and down saying, wow the economy is getting stronger here, we’ve gone through 2 or 3 of those false starts, and it’s just kind of an up and down, and we’re still sitting with inventories at 2.1 or 2.2 months in terms of the rod and bar inventory.
Jack Hockema
So in the prepared remarks, my comment regarding restocking was, we don’t think we’re going to see consistent restocking until we get good steady confidence in the customer base that this recovery is for real, and has legs to it.
Jack Hockema
And then, that will start to push lead times off from the mills, and we’ll get into all the normal dynamics of cars restocking. But we may see some temporary burst, there seems to be a lot of enthusiasm out there right now, but I’m not putting much credibility into it, one rose does not a garden make.
We need to see a little more of this, and maybe we’ll see some -- a real recovery in the general industrial economy.
Edward Marshall
And Kalamazoo, first, I guess you’re probably not going to give me, but I’ll ask, utilization rate for that facility. But also can you have any more additional dollars other than say, normal maintenance CapEx that you might need to spend there?
Jack Hockema
No, no, no. All the spending is done there.
There is ample open capacity at Kalamazoo, we don’t have it manned 21/7 at this point. So there is plenty of open capacity, and that was by design.
When we put it in, we put in more capacity than was required to service the general engineering market, and you’ll recall part of our storyline around Kalamazoo is that, it provides longer term capacity to facilitate the significant growth that we expect in automotive extrusions.
Jack Hockema
So as we get into later this year, and into 2013 and 2014, we expect to begin shifting some of our automotive production to Kalamazoo as well. So there is a lot of open capacity there in terms of manning it as well as the throughput per hour at Kalamazoo.
We expect a lot more from there over the next 3 or 4 years.
Edward Marshall
And in response to that question, to that answer, I guess, the ample capacity that you have there, plus I guess, lower -- maybe called lower than expected shipments from that facility at this point in time. Can you quantify, maybe the drag on the margin, even from an EBITDA or operating level from that -- from Kalamazoo at this point?
Jack Hockema
Well, we’ve been able to replace -- we’ve been able to satisfy demand from other facilities in this systems. So it really hasn’t hurt us, other than Kalamazoo isn’t operating as efficiently as we expect it to be.
So it’s really a cost problem rather than an output from a company standpoint issue.
Edward Marshall
And then if I could ask maybe about your guidance, you had talked about the 10% to 15% improvement in value added revenue, and you gave good color on the individual segments, we appreciate that. Can you kind of discuss maybe what your assumptions are for volume versus price, and I say price is value added price per pound for the business mix as a whole in that, and there’s assumptions of 10% to 15%, or is that just volume that you’re quoting there?
Jack Hockema
Well, it includes some mix, because the aerospace’s order of magnitude a couple of dollars a pound and the rest of it is around $1 a pound. So, and I said in one of the answers here that we expect aerospace to be on the high-end of that 10% to 15%, and the other stuff to be on the lower end of the 10% to 15%.
So that would imply that, there are mix improvements in there with more aerospace content as we go forward.
Edward Marshall
Yes, I guess I understand that, but if I cut in back into kind of what pricing would do, or value added pricing compound per segment, do you expect that we’re going to remain somewhat static here or do you see that number sliding slightly up or down for each individual?
Jack Hockema
In terms of real pricing, because real pricing for us is a lot more granular than the broad end-use applications that we provide to you. If we boil it down to individual products, at this point we don’t see any significant change, one direction or the other in terms of pricing.
Edward Marshall
So, if I look at this other than just mix differential, your value added revenue per pound guidance for the full business is simply majority of that would be considered volume improvements year-over-year?
Jack Hockema
Exactly, the way I look at it, I look at the value added revenue dollars, and then we look at our variable contribution as a percent of those dollars, and we think those are going to remain relatively stable.
Operator
We’ll take our next question from Steve Levenson with Stifel, Nicolaus.
Stephen Levenson
You’ve used the word, "ambitious" before, when you described the air frames’ plans on build rates. Does that mean you’re not totally confident they’re going to get to their targets, and is that sort of a short-term or a longer term assumption?
Jack Hockema
Frankly, I’m confident, and I think Boeing and Airbus are very confident. I didn’t go into a lot of granularity on the Airline Monitor forecast, but if you look at their forecast, and we put side-by-side bars in the slides that are on the website showing the old forecast and the new forecast.
They’ve actually softened their build rate; they, being Airline Monitor softened their forecast out, and I think as 2015, 2016 and that has nothing to do with demand. It’s actually they have an assumption, because we ask Airline Monitor, "What happened here.
Why are you forecasting slightly lower builds out there?" and they are just assuming that there are going to be some issues at Airbus and Boeing, not related specifically to the total build, but more specifically, they’re anticipating some problem when Boeing switches the 737 to the MAX and Airbus switches to the Neo.
Jack Hockema
So we don’t think those are going to happen, and Airbus and Boeing were in close contact with them. They think these are pretty minor changes in terms of the design, they don’t anticipate any big production problem.
So we think that the builds are going to be more a straight line, but in another opinion as Airline Monitor’s, I think there may be some rough patches in there, and time will tell.
Stephen Levenson
Got it, thanks. And speaking of 737 Max and A320neo, do you think you’ll have opportunities there similar to what the case was on 747-8 versus the old 400?
Jack Hockema
Well, you mean in terms of monolithic design, I presume that’s the thrust of the question. Yes, we think there will be heavy monolithic design.
We think most of the single aisle has heavy monolithic design content now, but there could be some opportunities. Every time we update our projections, our 10 and 20 year projections, we have more content, because we’re surprised that there are more monolithic design application.
Jack Hockema
So I think we’re going to see steady growth, but I don’t think the new designs are going to create any step change, I think it’s just the steady change of putting more and more monolithic design into all the aircraft.
Stephen Levenson
Got it. Last one, as you expand capacity and manage orders and mix, do you think there is potential for aerospace to become more than 50% of the shipments by weight, and obviously you get that percentage addition on those?
Jack Hockema
I hate to admit is, I’m an aluminum guy, but I don’t even look at the shipments. I can tell you that, for the full year, I think we were 58% or 59% aerospace in terms of our value-added.
Jack Hockema
And there is the potential for that to even increase this year depending -- because aerospace is going to continue to be strong, it’s really a function of how rapidly the industrial economy improves.
Stephen Levenson
I should have flipped the question than to ask about the value added being maybe more than 70%?
Jack Hockema
Certainly, not in this short-term, and I don’t think even our long-term projections have been getting much -- maybe into the low-60s, but not much beyond that.
Daniel Rinkenberger
There’s actually very little growth in the other areas too. So...
Jack Hockema
Yes, good point. And Dan’s points good one, because it’s really so high now because the industrial economy has been so putrid in terms of the economic recovery here.
Stephen Levenson
So you could have a more rapid recovery in the other areas, even as aerospace...
Daniel Rinkenberger
Exactly.
Operator
We’ll take our next question from Tony Rizzuto with Dahlman Rose.
Anthony Rizzuto
I got a couple of questions, and just to follow up the question. Jack, in the past you’ve talked about value added revenues, and I think on a per pound basis, about how we compare to historical trends, and I recall a couple of years ago, you did that, but I was wondering if you have to put it in perspective.
I guess, I’m kind of thinking that maybe there is more scope for pricing, and then you made the comments that you don’t really see it that way, maybe just being conservative, but could you refresh my mind a little bit about how you see the current pricing in the aero and high strength product categories for you? Then I have got a couple other questions too.
Jack Hockema
Yes, from an aero and high strength standpoint, a large portion of that business is long-term contract business. So that is relatively stable over various timeframes and we see gradual improvement over time.
But it’s relatively stable. The bigger impact is on the spot business.
We’ve seen some strengthening in the spot prices there and in some other areas here in the past few months, as just general overall demand improves. But we don’t think we’ll ever see a return to the kind of pricing levels that we saw in 2007 and 2008 and there were a lot of hedge fund investors who accused me of being a terrible pessimist, when I said that those prices were absolutely not sustainable over the long term.
Those were peak prices that I don’t think we’ll ever see again, and there are a many points of margin.
Jack Hockema
If we look at the prices in ’07 and ’08 versus what prices are now, what we think long-term prices are, it’s several points of EBITDA margin, more than 5 points of EBITDA margin. So it’s a big number.
That being said, I don’t think we’ll get back to ’07, ’08 kind of levels of pricing on spot business in either general engineering plate or in some of the aerospace products. We think that we’re at low levels now, compared to what the norm is.
So we think we’ll see little bit of margin growth, just not getting back to those ’07 and ’08 levels in terms of pricing margins on plate in particular, if that answered your question, Tony.
Anthony Rizzuto
Yes, that was very helpful. And I apologize if somebody already asked this, but I just wanted to ask you a question on the Airbus A380 wing crack issue, and I was wondering if you could describe the nature of the issue, or the problem there, and do you think is it thought that it’s a design issue, or is it a materials issue or just what is your knowledge on that at this point?
Jack Hockema
My knowledge isn’t very deep on that, Tony, and so I’m not even going to try to get into a technical explanation there. But our guys looking at it think that, longer term there could be some opportunities for Kaiser there, as the solutions are developed and are addressed there.
So it’s not in terms of Kaiser’s outlook it certainly is not a negative and if anything, that it could be a long term positive for us. And I really don’t want to go any further than that.
Anthony Rizzuto
No problem. And then finally, are you involved meaningfully as a company in the Aluminum lithium alloys?
Jack Hockema
Yes. I would not say meaningfully, the other 2 have announced investments there, and have major programs there.
From their standpoint, it’s more defensive because from a composite standpoint, a lot of the composite content that goes into aircraft is subtracting from some of the proprietary alloys that some of our competitors have.
Jack Hockema
So they have a major incentive there from a defensive standpoint on some of their high margin business. From our standpoint, we are actively engaged in aluminum lithium, and as that market develops, we’re very confident that we’ll participate in that market.
We’ve not been on the vanguard here for the reasons that I mentioned. But as that market develops over the longer term, we will be a player there.
Anthony Rizzuto
That makes a lot sense. And then just if I could sneak in one more question in, just to follow-up on the Trentwood stub expansion, is this a combination of -- you're adding heat treats, stretching, maybe ultrasonic inspection, so everything really across the board expanding there, debottlenecking?
Jack Hockema
Yes, it’s working backwards. It’s just about everything, it actually isn’t ultrasonic, although I was little surprised that I was up there couple of weeks ago.
We still have the emersion tank, Tony, I don't remember if you’ve been up there?
Anthony Rizzuto
Yes, yes, I have. I remember that.
Jack Hockema
Yes, we had actually shutdown the emersion tank, but it was the volume going through there and some of the burst and mix that comes through. They’re actually running the emersion tank occasionally.
So we have plenty of capacity from a Sonic standpoint, it’s just a matter of bringing the emersion tank back into practice when we need it. But other than that, it’s expanding virtually everything, it’s an additional module on one of the furnaces in the heat treat plate area.
It’s aging furnaces that we're doing; it’s preheat furnaces on the hotline; it’s just in bunch of other little things that really runs through the entire facility.
Jack Hockema
We’re really bumping into multiple bottlenecks through the plant and frankly, the bottleneck changed depending on the mix that’s going through the plant. So it’s become a much more complicated plant to operate and is causing some of the inventories -- we’ve had to put, some strategic inventories in place to manage the flows going through the facility.
So there lots of investments in equipment, as well as the strategy of how we operate the facility there, ringing up the full capacity of the plant.
Anthony Rizzuto
That’s interesting because I remember you’ve got a lot of room there, obviously because it used to be the multiproduct capability. So you have a lot of room to do all that.
But I was wondering, what kind of negative impacts that had on your performance, as you’ve been kind of in this process of ramping up over the last 3, 4 years?
Jack Hockema
Yes, it really hasn’t had a negative impact, but it has slowed us capturing the full potential of Trentwood. So our cost performance when we compare it to the past has been solid, our variable cost performance, or our efficiencies are comparable to what we had run historically, but we’ve expected to get more cost, better cost performance than we had.
So it goes back to one of the prior answers that I had. There has been so much focus on Kalamazoo, but in terms of our margin potential as we look forward, there are a lot of efficiency potentials, and we expect to get a lot more out of Trentwood as we get smarter and smarter about managing the mix and the volume that’s going through there, and the same thing in many of our other facilities as well.
Jack Hockema
So well, we’re relatively pleased with 2011 performance, in here, I’m not really pleased with the efficiency because we lost some money on the board frankly. We didn’t perform as well as we could have and we’ve been very open about Kalamazoo, but we could have done a lot better in Trentwood and we could have done a lot better in a few of our other facilities around the system.
Jack Hockema
So it’s why we don’t have the party hats on in here. We had a nice year in 2011, but we could have been a lot better in 2011, that’s why we’re so optimistic about the future, because there is still just a lot of unpacked potential here.
This company has a long runway in front of itself in terms of improving.
Operator
At this time, we have no further questions. I’d like to turn the call back over to Jack Hockema for any closing remarks.
Jack Hockema
Okay, thanks everyone for joining us on the call today. Good questions and a lot of good discussion here.
And we look forward to updating you on our first quarter 2012 conference call in April. Thanks again.
Operator
Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation.
You may now disconnect.