UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2024
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from __________ to __________
Commission File Number: 1-09447
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 94-3030279 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
1550 West McEwen Drive, Suite 500 | ||
Franklin, Tennessee | 37067 | |
(Address of principal executive offices) | (Zip Code) |
(629) 252-7040
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered |
Common stock, par value $0.01 per share | KALU | |
Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ||||
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 16, 2017,April 22, 2024, there were 16,903,79116,068,833 shares of common stock of the registrant outstanding.
COMMONLY USED OR DEFINED TERMS
Term | Definition |
Adjusted EBITDA | Earnings before interest, taxes, depreciation and amortization adjusted for non-run-rate items |
Aero/HS Products | 2000, 7000 and certain 6000 series alloys products used in the Aerospace, Defense, Space and other end markets requiring high strength applications |
Alloy(s) | Certain metals such as copper, zinc, magnesium, manganese and silicon added to primary aluminum to obtain certain attributes |
AOCI | Accumulated other comprehensive income (loss) |
ASU | Accounting Standards Update |
Automotive Extrusions | Extruded aluminum products used in automotive applications |
COGS | Cost of products sold, excluding depreciation and amortization |
Form 10-Q | This Quarterly Report on Form 10-Q |
GAAP | United States Generally Accepted Accounting Principles |
GE Products | 6000 series alloys products used in the General Engineering end markets |
LME | London Metal Exchange |
MWTP | Midwest Transaction Price is equal to the LME aluminum price plus a Midwest premium |
Newark | Kaiser Aluminum manufacturing facility located in Heath, Ohio, a suburb of Newark, Ohio |
OPEB | Other Post Retirement Benefit Plan (Refer to Note 3 – Employee Benefits) |
Other products | Cast and aluminum products used in various non-strategic end markets |
Packaging | 3000 and 5000 series alloy products used in the beverage and food packaging end markets |
Revolving Credit Facility | Revolving credit facility with Wells Fargo Bank, National Association, as administrative agent, and the other financial institutions party thereto |
Salaried VEBA | Salaried Voluntary Employees' Beneficiary Association (Refer to Note 3 – Employee Benefits) |
SEC | Securities and Exchange Commission |
Senior Notes | Collectively, the fixed-rate unsecured notes we issued during the years ended December 31, 2019 and 2021 at the following interest rates and aggregate principal amounts, respectively: (i) 4.625% and $500.0 million; and (ii) 4.50% and $550.0 million |
Term SOFR | Forward looking term rate based on the Secured Overnight Financing Rate |
Trentwood | Kaiser Aluminum manufacturing facility located in Spokane Valley, Washington |
Warrick | Kaiser Aluminum manufacturing facility located in Newburgh, Indiana, in the county of Warrick |
TABLE OF CONTENTS
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31 | ||
31 | ||
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32 | ||
33 |
2
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
PART I – FINANCIAL INFORMATION
Item 1.
Financial StatementsCONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 2017 | December 31, 2016 | ||||||
(In millions of dollars, except share and per share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 73.9 | $ | 55.2 | |||
Short-term investments | 191.4 | 231.0 | |||||
Receivables: | |||||||
Trade receivables, net | 138.2 | 137.7 | |||||
Other | 15.4 | 11.9 | |||||
Inventories | 212.2 | 201.6 | |||||
Prepaid expenses and other current assets | 31.5 | 18.5 | |||||
Total current assets | 662.6 | 655.9 | |||||
Property, plant and equipment, net | 557.8 | 530.9 | |||||
Deferred tax assets, net | 118.7 | 159.7 | |||||
Intangible assets, net | 25.3 | 26.4 | |||||
Goodwill | 18.8 | 37.2 | |||||
Other assets | 39.5 | 33.4 | |||||
Total | $ | 1,422.7 | $ | 1,443.5 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 94.4 | $ | 75.8 | |||
Accrued salaries, wages and related expenses | 39.0 | 49.1 | |||||
Other accrued liabilities | 43.3 | �� | 40.1 | ||||
Total current liabilities | 176.7 | 165.0 | |||||
Net liabilities of Salaried VEBA | 27.8 | 28.6 | |||||
Deferred tax liabilities | 3.3 | 3.3 | |||||
Long-term liabilities | 61.9 | 73.2 | |||||
Long-term debt | 369.4 | 368.7 | |||||
Total liabilities | 639.1 | 638.8 | |||||
Commitments and contingencies – Note 8 | |||||||
Stockholders' equity: | |||||||
Preferred stock, 5,000,000 shares authorized at both September 30, 2017 and December 31, 2016; no shares were issued and outstanding at September 30, 2017 and December 31, 2016 | — | — | |||||
Common stock, par value $0.01, 90,000,000 shares authorized at both September 30, 2017 and at December 31, 2016; 22,392,946 shares issued and 16,905,368 shares outstanding at September 30, 2017; 22,332,732 shares issued and 17,651,461 shares outstanding at December 31, 2016 | 0.2 | 0.2 | |||||
Additional paid in capital | 1,052.8 | 1,047.4 | |||||
Retained earnings | 109.0 | 75.2 | |||||
Treasury stock, at cost, 5,487,578 shares at September 30, 2017 and 4,681,271 shares at December 31, 2016, respectively | (345.7 | ) | (281.4 | ) | |||
Accumulated other comprehensive loss | (32.7 | ) | (36.7 | ) | |||
Total stockholders' equity | 783.6 | 804.7 | |||||
Total | $ | 1,422.7 | $ | 1,443.5 |
|
| As of March 31, 2024 |
|
| As of December 31, 2023 |
| ||
|
| (In millions of dollars, except share |
| |||||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 101.6 |
|
| $ | 82.4 |
|
Receivables: |
|
|
|
|
|
| ||
Trade receivables, net |
|
| 341.4 |
|
|
| 325.2 |
|
Other |
|
| 11.2 |
|
|
| 12.4 |
|
Contract assets |
|
| 63.0 |
|
|
| 58.5 |
|
Inventories |
|
| 471.3 |
|
|
| 477.2 |
|
Prepaid expenses and other current assets |
|
| 34.6 |
|
|
| 34.5 |
|
Total current assets |
|
| 1,023.1 |
|
|
| 990.2 |
|
Property, plant and equipment, net |
|
| 1,055.0 |
|
|
| 1,052.1 |
|
Operating lease assets |
|
| 30.5 |
|
|
| 32.6 |
|
Deferred tax assets, net |
|
| 5.4 |
|
|
| 6.0 |
|
Intangible assets, net |
|
| 48.9 |
|
|
| 50.0 |
|
Goodwill |
|
| 18.8 |
|
|
| 18.8 |
|
Other assets |
|
| 118.1 |
|
|
| 117.7 |
|
Total assets |
| $ | 2,299.8 |
|
| $ | 2,267.4 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 273.8 |
|
| $ | 252.7 |
|
Accrued salaries, wages and related expenses |
|
| 45.5 |
|
|
| 53.0 |
|
Other accrued liabilities |
|
| 65.4 |
|
|
| 64.3 |
|
Total current liabilities |
|
| 384.7 |
|
|
| 370.0 |
|
Long-term portion of operating lease liabilities |
|
| 27.4 |
|
|
| 29.2 |
|
Pension and other postretirement benefits |
|
| 75.6 |
|
|
| 76.8 |
|
Net liabilities of Salaried VEBA |
|
| 3.8 |
|
|
| 3.8 |
|
Deferred tax liabilities |
|
| 19.5 |
|
|
| 13.9 |
|
Long-term liabilities |
|
| 83.6 |
|
|
| 81.7 |
|
Long-term debt, net |
|
| 1,040.3 |
|
|
| 1,039.8 |
|
Total liabilities |
|
| 1,634.9 |
|
|
| 1,615.2 |
|
Commitments and contingencies – Note 7 |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, 5,000,000 shares authorized at both March 31, 2024 and |
|
| — |
|
|
| — |
|
Common stock, par value $0.01, 90,000,000 shares authorized at both |
|
| 0.2 |
|
|
| 0.2 |
|
Additional paid in capital |
|
| 1,107.5 |
|
|
| 1,104.7 |
|
Retained earnings |
|
| 22.1 |
|
|
| 10.1 |
|
Treasury stock, at cost, 6,835,286 shares at both March 31, 2024 and |
|
| (475.9 | ) |
|
| (475.9 | ) |
Accumulated other comprehensive income |
|
| 11.0 |
|
|
| 13.1 |
|
Total stockholders’ equity |
|
| 664.9 |
|
|
| 652.2 |
|
Total liabilities and stockholders' equity |
| $ | 2,299.8 |
|
| $ | 2,267.4 |
|
The accompanying notes to interim consolidated financial statements are an integral part of these statements.
1
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In millions of dollars, except share and per share amounts) | |||||||||||||||
Net sales | $ | 332.8 | $ | 320.6 | $ | 1,044.4 | $ | 998.7 | |||||||
Costs and expenses: | |||||||||||||||
Cost of products sold: | |||||||||||||||
Cost of products sold, excluding depreciation and amortization and other items | 267.2 | 254.7 | 822.7 | 767.1 | |||||||||||
Lower of cost or market inventory write-down | — | — | — | 4.9 | |||||||||||
Unrealized gain on derivative instruments | (10.8 | ) | (2.0 | ) | (14.0 | ) | (16.9 | ) | |||||||
Depreciation and amortization | 10.2 | 9.0 | 29.3 | 26.7 | |||||||||||
Selling, general, administrative, research and development: | |||||||||||||||
Selling, general, administrative, research and development | 24.7 | 25.6 | 74.7 | 79.2 | |||||||||||
Net periodic postretirement benefit cost relating to Salaried VEBA | 1.2 | 0.8 | 3.4 | 2.5 | |||||||||||
Loss (gain) on removal of Union VEBA net assets – Note 6 | 0.5 | — | (0.8 | ) | (0.1 | ) | |||||||||
Total selling, general, administrative, research and development | 26.4 | 26.4 | 77.3 | 81.6 | |||||||||||
Goodwill impairment | — | — | 18.4 | — | |||||||||||
Other operating charges, net | — | 2.7 | — | 2.8 | |||||||||||
Total costs and expenses | 293.0 | 290.8 | 933.7 | 866.2 | |||||||||||
Operating income | 39.8 | 29.8 | 110.7 | 132.5 | |||||||||||
Other (expense) income: | |||||||||||||||
Interest expense | (5.3 | ) | (5.5 | ) | (16.4 | ) | (14.7 | ) | |||||||
Other income (expense), net – Note 13 | 1.5 | — | 3.1 | (10.4 | ) | ||||||||||
Income before income taxes | 36.0 | 24.3 | 97.4 | 107.4 | |||||||||||
Income tax provision | (16.1 | ) | (9.4 | ) | (36.8 | ) | (40.2 | ) | |||||||
Net income | $ | 19.9 | $ | 14.9 | $ | 60.6 | $ | 67.2 | |||||||
Net income per common share: | |||||||||||||||
Basic | $ | 1.18 | $ | 0.84 | $ | 3.55 | $ | 3.76 | |||||||
Diluted | $ | 1.16 | $ | 0.82 | $ | 3.49 | $ | 3.70 | |||||||
Weighted-average number of common shares outstanding (in thousands): | |||||||||||||||
Basic | 16,834 | 17,841 | 17,072 | 17,858 | |||||||||||
Diluted | 17,160 | 18,175 | 17,363 | 18,181 | |||||||||||
Dividends declared per common share | $ | 0.50 | $ | 0.45 | $ | 1.50 | $ | 1.35 |
|
|
|
| |||||
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions of dollars, except share and per share amounts) |
| |||||
Net sales |
| $ | 737.5 |
|
| $ | 807.6 |
|
Costs and expenses: |
|
|
|
|
|
| ||
Cost of products sold, excluding depreciation and amortization |
|
| 642.9 |
|
|
| 731.1 |
|
Depreciation and amortization |
|
| 28.8 |
|
|
| 26.3 |
|
Selling, general, administrative, research and development |
|
| 32.6 |
|
|
| 29.7 |
|
Restructuring costs |
|
| 0.1 |
|
|
| 1.4 |
|
Other operating charges, net |
|
| 0.4 |
|
|
| — |
|
Total costs and expenses |
|
| 704.8 |
|
|
| 788.5 |
|
Operating income |
|
| 32.7 |
|
|
| 19.1 |
|
Other (expense) income: |
|
|
|
|
|
| ||
Interest expense |
|
| (11.5 | ) |
|
| (11.9 | ) |
Other income, net – Note 9 |
|
| 10.9 |
|
|
| 13.6 |
|
Income before income taxes |
|
| 32.1 |
|
|
| 20.8 |
|
Income tax provision |
|
| (7.5 | ) |
|
| (4.9 | ) |
Net income |
| $ | 24.6 |
|
| $ | 15.9 |
|
|
|
|
|
|
| |||
Net income per common share: |
|
|
|
|
|
| ||
Basic |
| $ | 1.53 |
|
| $ | 1.00 |
|
Diluted |
| $ | 1.51 |
|
| $ | 0.99 |
|
Weighted-average number of common shares outstanding (in thousands): |
|
|
|
|
|
| ||
Basic |
|
| 16,027 |
|
|
| 15,940 |
|
Diluted |
|
| 16,230 |
|
|
| 16,096 |
|
The accompanying notes to interim consolidated financial statements are an integral part of these statements.
2
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In millions of dollars) | |||||||||||||||
Net income | $ | 19.9 | $ | 14.9 | $ | 60.6 | $ | 67.2 | |||||||
Other comprehensive income, net of tax – Note 14: | |||||||||||||||
Salaried VEBA and defined benefit pension plan | 0.8 | 0.7 | 2.5 | 2.2 | |||||||||||
Available for sale securities | 0.3 | 0.3 | 0.6 | 0.6 | |||||||||||
Other | 0.5 | 0.1 | 0.9 | 0.1 | |||||||||||
Other comprehensive income, net of tax | 1.6 | 1.1 | 4.0 | 2.9 | |||||||||||
Comprehensive income | $ | 21.5 | $ | 16.0 | $ | 64.6 | $ | 70.1 |
|
| Quarter Ended March 31, |
| |||||
| 2024 |
| 2023 |
| ||||
|
| (In millions of dollars) |
| |||||
Net income |
| $ | 24.6 |
|
| $ | 15.9 |
|
Other comprehensive (loss) income, net of tax – Note 8: |
|
|
|
|
|
| ||
Defined benefit plans |
|
| (0.5 | ) |
|
| 0.7 |
|
Cash flow hedges |
|
| (1.6 | ) |
|
| (1.8 | ) |
Other comprehensive loss, net of tax |
|
| (2.1 | ) |
|
| (1.1 | ) |
Comprehensive income |
| $ | 22.5 |
|
| $ | 14.8 |
|
The accompanying notes to interim consolidated financial statements are an integral part of these statements.
3
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS
Quarter Ended March 31, 2024
|
| Common |
|
| Common |
|
| Additional |
|
| Retained |
|
| Treasury |
|
| Accumulated |
|
| Total |
| |||||||
|
| (In millions of dollars, except share and per share amounts) |
| |||||||||||||||||||||||||
BALANCE, December 31, 2023 |
|
| 16,015,791 |
|
| $ | 0.2 |
|
| $ | 1,104.7 |
|
| $ | 10.1 |
|
| $ | (475.9 | ) |
| $ | 13.1 |
|
| $ | 652.2 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24.6 |
|
|
| — |
|
|
| — |
|
|
| 24.6 |
|
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.1 | ) |
|
| (2.1 | ) |
Common shares issued (including impacts from |
|
| 56,416 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Cancellation of shares to cover tax withholdings |
|
| (16,175 | ) |
|
| — |
|
|
| (1.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.2 | ) |
Cash dividends declared2 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12.6 | ) |
|
| — |
|
|
| — |
|
|
| (12.6 | ) |
Amortization of unearned equity compensation |
|
| — |
|
|
| — |
|
|
| 4.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.0 |
|
BALANCE, March 31, 2024 |
|
| 16,056,032 |
|
| $ | 0.2 |
|
| $ | 1,107.5 |
|
| $ | 22.1 |
|
| $ | (475.9 | ) |
| $ | 11.0 |
|
| $ | 664.9 |
|
Common Shares Outstanding | Common Stock | Additional Paid in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||
(In millions of dollars, except share and per share amounts) | ||||||||||||||||||||||||||
BALANCE, December 31, 2016 | 17,651,461 | $ | 0.2 | $ | 1,047.4 | $ | 75.2 | $ | (281.4 | ) | $ | (36.7 | ) | $ | 804.7 | |||||||||||
Net income | — | — | — | 60.6 | — | — | 60.6 | |||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | 4.0 | 4.0 | |||||||||||||||||||
Issuance of non-vested shares to non-employee directors | 11,817 | — | — | — | — | — | — | |||||||||||||||||||
Issuance of common shares to non-employee directors | 2,282 | — | 0.2 | — | — | — | 0.2 | |||||||||||||||||||
Issuance of common shares to employees upon vesting of restricted stock units and performance shares | 102,737 | — | — | — | — | — | — | |||||||||||||||||||
Cancellation of employee non-vested shares | (427 | ) | — | — | — | — | — | — | ||||||||||||||||||
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares | (56,195 | ) | — | (4.5 | ) | — | — | — | (4.5 | ) | ||||||||||||||||
Repurchase of common stock | (806,307 | ) | — | — | — | (64.9 | ) | — | (64.9 | ) | ||||||||||||||||
Cancellation of treasury stock | — | — | (0.2 | ) | (0.4 | ) | 0.6 | — | — | |||||||||||||||||
Cash dividends on common stock and restricted shares and dividend equivalents on restricted stock units and performance shares | — | — | — | (26.4 | ) | — | — | (26.4 | ) | |||||||||||||||||
Amortization of unearned equity compensation | — | — | 9.9 | — | — | — | 9.9 | |||||||||||||||||||
BALANCE, September 30, 2017 | 16,905,368 | $ | 0.2 | $ | 1,052.8 | $ | 109.0 | $ | (345.7 | ) | $ | (32.7 | ) | $ | 783.6 |
The accompanying notes to interim consolidated financial statements are an integral part of these statements.
4
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWSSTOCKHOLDERS’ EQUITY CONTINUED (UNAUDITED)
Quarter Ended March 31, 2023
|
| Common |
|
| Common |
|
| Additional |
|
| Retained |
|
| Treasury |
|
| Accumulated |
|
| Total |
| |||||||
|
| (In millions of dollars, except share and per share amounts) |
| |||||||||||||||||||||||||
BALANCE, December 31, 2022 |
|
| 15,940,756 |
|
| $ | 0.2 |
|
| $ | 1,090.4 |
|
| $ | 13.3 |
|
| $ | (475.9 | ) |
| $ | 3.2 |
|
| $ | 631.2 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15.9 |
|
|
| — |
|
|
| — |
|
|
| 15.9 |
|
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.1 | ) |
|
| (1.1 | ) |
Common shares issued (including impacts from |
|
| 49,128 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Cancellation of shares to cover employees' tax |
|
| (15,848 | ) |
|
| — |
|
|
| (1.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.3 | ) |
Cash dividends declared1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12.5 | ) |
|
| — |
|
|
| — |
|
|
| (12.5 | ) |
Amortization of unearned equity compensation |
|
| — |
|
|
| — |
|
|
| 3.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.4 |
|
BALANCE, March 31, 2023 |
|
| 15,974,036 |
|
| $ | 0.2 |
|
| $ | 1,092.5 |
|
| $ | 16.7 |
|
| $ | (475.9 | ) |
| $ | 2.1 |
|
| $ | 635.6 |
|
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
(In millions of dollars) | |||||||
Cash flows from operating activities: | |||||||
Net income | $ | 60.6 | $ | 67.2 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation of property, plant and equipment | 28.3 | 25.5 | |||||
Amortization of definite-lived intangible assets | 1.0 | 1.2 | |||||
Amortization of debt discount and debt issuance costs | 0.9 | 0.8 | |||||
Deferred income taxes | 38.6 | 40.7 | |||||
Non-cash equity compensation | 10.1 | 8.8 | |||||
Lower of cost or market inventory write-down | — | 4.9 | |||||
Gain on sale of available for sale securities | (1.8 | ) | — | ||||
Non-cash unrealized gain on derivative instruments | (14.0 | ) | (16.9 | ) | |||
Loss on extinguishment of debt | — | 11.1 | |||||
Non-cash intangible asset impairment charge | 18.4 | 2.6 | |||||
(Gain) loss on disposition of property, plant and equipment | (0.4 | ) | 0.2 | ||||
Non-cash net periodic postretirement benefit cost relating to Salaried VEBA | 3.4 | 2.5 | |||||
Other non-cash changes in assets and liabilities | (0.8 | ) | 1.1 | ||||
Changes in operating assets and liabilities: | |||||||
Trade and other receivables | (4.0 | ) | (26.7 | ) | |||
Inventories, excluding lower of cost or market write-down | (10.6 | ) | (8.9 | ) | |||
Prepaid expenses and other current assets | (1.8 | ) | (0.9 | ) | |||
Accounts payable | 21.6 | 0.8 | |||||
Accrued liabilities | 0.9 | 27.9 | |||||
Annual variable cash contributions to VEBAs | (20.0 | ) | (19.5 | ) | |||
Long-term assets and liabilities, net | 1.1 | (15.0 | ) | ||||
Net cash provided by operating activities | 131.5 | 107.4 | |||||
Cash flows from investing activities1: | |||||||
Capital expenditures | (56.1 | ) | (57.4 | ) | |||
Purchase of available for sale securities | (196.0 | ) | (201.1 | ) | |||
Proceeds from disposition of available for sale securities | 237.2 | 30.0 | |||||
Proceeds from disposal of property, plant and equipment | 0.6 | — | |||||
Net cash used in investing activities | (14.3 | ) | (228.5 | ) | |||
Cash flows from financing activities1: | |||||||
Repayment of principal and redemption premium of 8.25% Senior Notes | — | (206.0 | ) | ||||
Issuance of 5.875% Senior Notes | — | 375.0 | |||||
Cash paid for debt issuance costs | — | (6.8 | ) | ||||
Proceeds from stock option exercises | — | 1.0 | |||||
Repayment of capital lease | (0.2 | ) | (0.1 | ) | |||
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares | (4.5 | ) | (2.8 | ) | |||
Repurchase of common stock | (66.7 | ) | (13.6 | ) |
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
Cash dividends and dividend equivalents paid | (26.4 | ) | (24.4 | ) | |||
Net cash (used in) provided by financing activities | (97.8 | ) | 122.3 | ||||
Net increase in cash, cash equivalents and restricted cash during the period | 19.4 | 1.2 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 67.7 | 83.7 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 87.1 | $ | 84.9 |
The accompanying notes to interim consolidated financial statements are an integral part of these statements.
5
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions of dollars) |
| |||||
Cash flows from operating activities1: |
|
|
|
|
|
| ||
Net income |
| $ | 24.6 |
|
| $ | 15.9 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
| ||
Depreciation of property, plant and equipment |
|
| 27.7 |
|
|
| 24.9 |
|
Amortization of definite-lived intangible assets |
|
| 1.1 |
|
|
| 1.4 |
|
Amortization of debt premium and debt issuance costs |
|
| 0.6 |
|
|
| 0.5 |
|
Amortization of cloud computing implementation costs |
|
| 0.3 |
|
|
| 0.4 |
|
Deferred income taxes |
|
| 6.8 |
|
|
| 4.1 |
|
Non-cash equity compensation |
|
| 4.0 |
|
|
| 3.4 |
|
Non-cash asset impairment charge2 |
|
| 4.2 |
|
|
| — |
|
Loss (gain) on disposition of property, plant and equipment |
|
| 0.2 |
|
|
| (15.0 | ) |
Bad debt expense |
|
| 0.1 |
|
|
| — |
|
Non-cash postretirement defined benefit plan cost |
|
| 1.5 |
|
|
| 3.1 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Trade and other receivables |
|
| (15.1 | ) |
|
| (36.9 | ) |
Contract assets |
|
| (4.5 | ) |
|
| 5.7 |
|
Inventories |
|
| 4.4 |
|
|
| (12.3 | ) |
Prepaid expenses and other current assets |
|
| (1.7 | ) |
|
| (1.3 | ) |
Accounts payable |
|
| 18.6 |
|
|
| (22.6 | ) |
Accrued liabilities |
|
| (5.2 | ) |
|
| 10.3 |
|
Annual variable cash contributions to Salaried VEBA |
|
| (1.1 | ) |
|
| — |
|
Long-term assets and liabilities, net |
|
| (3.2 | ) |
|
| (1.9 | ) |
Net cash provided by (used in) operating activities |
|
| 63.3 |
|
|
| (20.3 | ) |
Cash flows from investing activities1: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (30.0 | ) |
|
| (41.1 | ) |
Proceeds from sale of equity securities |
|
| 0.1 |
|
|
| — |
|
Proceeds from disposition of property, plant and equipment |
|
| — |
|
|
| 15.2 |
|
Net cash used in investing activities |
|
| (29.9 | ) |
|
| (25.9 | ) |
Cash flows from financing activities1: |
|
|
|
|
|
| ||
Borrowings under the Revolving Credit Facility |
|
| — |
|
|
| 119.5 |
|
Repayment of borrowings under the Revolving Credit Facility |
|
| — |
|
|
| (80.1 | ) |
Repayment of finance lease |
|
| (0.4 | ) |
|
| (0.6 | ) |
Cancellation of shares to cover tax withholdings upon common shares issued |
|
| (1.2 | ) |
|
| (1.3 | ) |
Cash dividends and dividend equivalents paid |
|
| (12.6 | ) |
|
| (12.5 | ) |
Net cash (used in) provided by financing activities |
|
| (14.2 | ) |
|
| 25.0 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash during the period |
|
| 19.2 |
|
|
| (21.2 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 100.7 |
|
|
| 71.3 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 119.9 |
|
| $ | 50.1 |
|
The accompanying notes to interim consolidated financial statements are an integral part of these statements.
6
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTES INDEX
8 | |||
9 | |||
10 | |||
11 | |||
Derivatives, Hedging Programs and Other Financial Instruments | 11 | ||
15 | |||
16 | |||
17 | |||
18 | |||
18 | |||
18 | |||
19 | |||
19 | |||
20 |
7
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
1. SummaryBasis of SignificantPresentation and Recent Accounting Policies
This Quarterly Report on Form 10-Q (this "Report") should be read in conjunction with the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2016.2023. Unless the context otherwise requires, references in these notes to interim consolidated financial statements - unaudited to "Kaiser Aluminum Corporation," "we," "us," "our," "the Company"“Kaiser,” “we,” “us,” “our,” “the Company” and "our Company"“our Company” refer collectively to Kaiser Aluminum Corporation and its subsidiaries.
Principles of Consolidation and Basis of Presentation.
The accompanying unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries and are prepared in accordance withUse of Estimates in the Preparation of Financial Statements.
The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of our consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of our consolidated financial position and results of operations.Accounting Pronouncements Issued But Not Yet Adopted
Disclosure Improvements. In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-06 (“ASU 2023-06”), Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The guidance amends GAAP to reflect updates and simplifications to certain disclosure requirements referred to the FASB by the SEC. The amendments in ASU 2023-06 will become effective on the date which the SEC’s removal of the related disclosure becomes effective. If by June 30, 2027, the SEC does not remove the related disclosure, the pending amendment will be removed from ASC 2023-06 and it will not be effective. We do not expect this ASU to have a material impact on our consolidated financial statements.
Segment Reporting. In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), Improvements to Reportable Segment Disclosures. The guidance primarily will require enhanced disclosures about significant segment expenses. All disclosure requirements under ASU 2023-07 and existing segment disclosures in ASC 280, Segment Reporting are also required for public entities with a single reportable segment. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied on a retrospective basis. We are evaluating the impact of the standard on our reporting disclosures.
Income Taxes. In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Improvements to Income Tax Disclosures. The guidance is intended to improve income tax disclosure requirements by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied prospectively with the option of retrospective application. We are evaluating the impact of the standard on our income tax disclosures.
8
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
2. Supplemental Balance Sheet Information
|
| As of March 31, 2024 |
|
| As of December 31, 2023 |
| ||
|
| (In millions of dollars) |
| |||||
Trade Receivables, Net |
|
|
|
|
|
| ||
Billed trade receivables |
| $ | 342.0 |
|
| $ | 325.8 |
|
Allowance for doubtful receivables |
|
| (0.6 | ) |
|
| (0.6 | ) |
Trade receivables, net |
| $ | 341.4 |
|
| $ | 325.2 |
|
|
|
|
|
|
| |||
Inventories1 |
|
|
|
|
|
| ||
Finished products |
| $ | 81.0 |
|
| $ | 89.3 |
|
Work-in-process |
|
| 209.5 |
|
|
| 210.8 |
|
Raw materials |
|
| 165.0 |
|
|
| 161.5 |
|
Operating supplies |
|
| 15.8 |
|
|
| 15.6 |
|
Inventories |
| $ | 471.3 |
|
| $ | 477.2 |
|
|
|
|
|
|
| |||
Property, Plant and Equipment, Net |
|
|
|
|
|
| ||
Land and improvements |
| $ | 37.2 |
|
| $ | 38.0 |
|
Buildings and leasehold improvements |
|
| 240.0 |
|
|
| 238.4 |
|
Machinery and equipment |
|
| 1,272.8 |
|
|
| 1,265.3 |
|
Construction in progress |
|
| 193.8 |
|
|
| 173.7 |
|
Property, plant and equipment, gross |
|
| 1,743.8 |
|
|
| 1,715.4 |
|
Accumulated depreciation and amortization |
|
| (690.3 | ) |
|
| (663.7 | ) |
Land held for sale |
|
| 1.5 |
|
|
| 0.4 |
|
Property, plant and equipment, net |
| $ | 1,055.0 |
|
| $ | 1,052.1 |
|
|
|
|
|
|
| |||
Other Assets |
|
|
|
|
|
| ||
Assets to be conveyed associated with Warrick acquisition |
| $ | 56.8 |
|
| $ | 56.8 |
|
Restricted cash – Note 12 |
|
| 18.3 |
|
|
| 18.3 |
|
Long-term replacement parts |
|
| 17.2 |
|
|
| 16.7 |
|
Other |
|
| 25.8 |
|
|
| 25.9 |
|
Other assets |
| $ | 118.1 |
|
| $ | 117.7 |
|
|
|
|
|
|
| |||
Other Accrued Liabilities |
|
|
|
|
|
| ||
Uncleared cash disbursements |
| $ | 16.8 |
|
| $ | 15.7 |
|
Accrued income taxes and other taxes payable |
|
| 13.1 |
|
|
| 9.5 |
|
Accrued annual contribution to Salaried VEBA |
|
| — |
|
|
| 1.1 |
|
Accrued interest |
|
| 10.3 |
|
|
| 9.9 |
|
Short-term environmental accrual – Note 7 |
|
| 0.5 |
|
|
| 2.8 |
|
Current operating lease liabilities |
|
| 7.7 |
|
|
| 8.0 |
|
Current finance lease liabilities |
|
| 2.3 |
|
|
| 2.1 |
|
Other – Note 5 |
|
| 14.7 |
|
|
| 15.2 |
|
Other accrued liabilities |
| $ | 65.4 |
|
| $ | 64.3 |
|
|
|
|
|
|
| |||
Long-Term Liabilities |
|
|
|
|
|
| ||
Workers' compensation accrual |
| $ | 29.2 |
|
| $ | 29.9 |
|
Long-term environmental accrual – Note 7 |
|
| 15.6 |
|
|
| 14.2 |
|
Other long-term liabilities |
|
| 38.8 |
|
|
| 37.6 |
|
Long-term liabilities |
| $ | 83.6 |
|
| $ | 81.7 |
|
9
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -– UNAUDITED
3. Employee Benefits
Deferred Compensation Plan
Assets of our deferred compensation plan are included in Other assets, classified within Level 1 of the fair value hierarchy and are measured and recorded at fair value based on their quoted market prices. The fair value of these assets at March 31, 2024 and December 31, 2023 was $1.9$11.3 million and $2.4$11.1 million, duringrespectively. Assets in the nine months ended September 30, 2017trust are held in various investment funds at certain registered investment companies and September 30, 2016, respectively.are accounted for as equity investments with changes in fair value recorded within Other income, net (see Note 9). Offsetting liabilities relating to the deferred compensation plan are included in Other accrued liabilities and Long-term liabilities.
Short-Term Incentive Plans (“STI Plans”)
As of March 31, 2024, we had a liability of $6.1 million recorded within Accrued salaries, wages and related expenses for estimated probable future payments under the 2024 STI Plans.
Postretirement Benefit Plans
The following table presents the total expense related to all postretirement benefit plans (in millions of dollars):
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Defined contribution plans1 |
| $ | 5.8 |
|
| $ | 5.8 |
|
Deferred compensation plan2 |
|
| 0.7 |
|
|
| 0.2 |
|
Multiemployer pension plans1 |
|
| 1.5 |
|
|
| 1.4 |
|
Net periodic postretirement benefit cost relating to defined benefit plans2,3 |
|
| 1.5 |
|
|
| 3.1 |
|
Total |
| $ | 9.5 |
|
| $ | 10.5 |
|
Components of Net Periodic Postretirement Benefit Cost. Our results of operations included the following impacts associated with the defined benefit plans: (i) a charge for service rendered by employees; (ii) a charge for accretion of interest; (iii) a benefit for the expected return on plan assets; (iv) amortization of prior service costs (credits) associated with plan amendments; and leasehold improvements are depreciated(v) amortization of net actuarial differences.
10
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
The following table presents the components of Net periodic postretirement benefit cost (credit) relating to the defined benefit plans (in millions of dollars):
|
| Pension Plans |
|
| OPEB |
|
| Salaried VEBA |
| |||||||||||||||
|
| Quarter Ended |
|
| Quarter Ended |
|
| Quarter Ended |
| |||||||||||||||
|
| March 31 |
|
| March 31 |
|
| March 31 |
| |||||||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||||
Service cost |
| $ | 0.9 |
|
| $ | 1.0 |
|
| $ | 0.3 |
|
| $ | 0.3 |
|
| $ | — |
|
| $ | — |
|
Interest cost |
|
| 0.4 |
|
|
| 0.3 |
|
|
| 0.8 |
|
|
| 0.8 |
|
|
| 0.5 |
|
|
| 0.7 |
|
Expected return on plan assets |
|
| (0.3 | ) |
|
| (0.3 | ) |
|
| — |
|
|
| — |
|
|
| (0.5 | ) |
|
| (0.6 | ) |
Amortization of prior service cost (credit)1 |
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.5 | ) |
|
| 1.2 |
|
Amortization of net actuarial gain |
|
| — |
|
|
| — |
|
|
| (0.3 | ) |
|
| (0.3 | ) |
|
| — |
|
|
| — |
|
Total net periodic postretirement benefit cost (credit) |
| $ | 1.2 |
|
| $ | 1.0 |
|
| $ | 0.8 |
|
| $ | 0.8 |
|
| $ | (0.5 | ) |
| $ | 1.3 |
|
Pension Plan Contributions. During the quarter ended March 31, 2024, we contributed $2.5 million to the pension plans. We expect to make further contributions of approximately $3.4 million to the pension plans during the remainder of 2024.
4. Restructuring
2022 Restructuring Plan. During 2022, we relocated our corporate headquarters from Foothill Ranch, California (“Foothill Ranch”) to Franklin, Tennessee (“Franklin”). In conjunction with the relocation, we initiated a restructuring plan during the quarter ended December 31, 2022, which consisted primarily of employee retention benefits aimed at incentivizing Foothill Ranch employees to assist with the buildout of the assets ornew corporate function in Franklin (“2022 Restructuring Plan”). We incurred total restructuring costs of $7.4 million related to the lease term. Depreciation expense is not included2022 Restructuring Plan, which consisted of employee-related costs and office rent within Restructuring costs in Costour Statements of products sold, excluding depreciationConsolidated Income. All costs associated with the 2022 Restructuring Plan have been incurred as of March 31, 2024.
The following table summarizes activity relating to the 2022 Restructuring Plan liabilities (in millions of dollars):
|
| Quarter Ended March 31, |
| |
|
| 2024 |
| |
Beginning Balance |
| $ | 1.2 |
|
Restructuring costs |
|
| 0.1 |
|
Costs paid or otherwise settled1 |
|
| (1.2 | ) |
Ending Balance |
| $ | 0.1 |
|
5. Derivatives, Hedging Programs and amortizationOther Financial Instruments
Overview.In conducting our business, we enter into derivative transactions, including forward contracts and other items, but is included in Depreciation and amortization.
Our derivative activities are overseen by a committee (“Hedging Committee”), which is composed of our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer, Executive Vice President of Manufacturing and other officers and
11
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
employees selected by the Chief Executive Officer.The Hedging Committee meets regularly to review commodity price exposures, derivative positions and strategy. Management reviews the scope of the Hedging Committee’s activities with our Board of Directors.
We reflect the fair value ofare exposed to counterparty credit risk on all of our derivative instruments, which we manage by monitoring the credit quality of our counterparties and allocating our hedging positions among multiple counterparties to limit exposure to any single entity. Our counterparties are major investment grade financial institutions or trading companies, and our hedged transactions are governed by negotiated International Swaps and Derivatives Association Master Agreements, which generally require collateral to be posted by our counterparties above specified credit thresholds which may adjust up or down, based on increases or decreases in counterparty credit ratings. As a result, we believe the risk of loss is remote and contained. The aggregate fair value of our Consolidated Balance Sheets (see Note 9). The carrying valuesderivative instruments that were in a net liability position was $1.3 million and $1.0 million at March 31, 2024 and December 31, 2023, respectively, and we had no collateral posted as of hedges settling within one year are included in Prepaid expensesthose dates.
In addition, our firm-price customer sales commitments create incremental customer credit risk related to metal price movements. Under certain circumstances, we mitigate this risk by periodically requiring cash collateral to be posted by our customers, which we classify as deferred revenue and other current assets orinclude as a component of Other accrued liabilities. Carrying values forWe had no material cash collateral posted by our customers at both March 31, 2024 and December 31, 2023.
Cash Flow Hedges
We designate as cash flow hedges settling beyond one year are included in Other assets or Long-term liabilities.
Aluminum Hedges. Our pricing of tax associated with settling Alloy Hedgesfabricated aluminum products is generally intended to lock in our Conversion Revenue (representing our value added from the fabrication process) and record the realized gain or loss within Costto pass through aluminum price fluctuations to our customers. For some of our higher margin products sold excluding depreciationon a spot basis, the pass through of aluminum price movements can sometimes lag by as much as several months, with a favorable impact to us when aluminum prices decline and amortizationan adverse impact to us when aluminum prices increase. Additionally, in certain instances, we enter into firm-price arrangements with our customers for stipulated volumes to be delivered in the future. Because we generally purchase primary and other items.secondary aluminum on a floating price basis, the lag in passing through aluminum price movements to customers on some of our higher margin products sold on a spot basis and the volume that we have committed to sell to our customers under a firm-price arrangement create aluminum price risk for us. We use third-party hedging instruments to limit exposure to aluminum price risk related to the aluminum pass through lag on some of our products and firm-price customer sales contracts.
Alloying Metals Hedges. We are exposed to the risk of fluctuating prices for alloying metals used as raw materials in our fabrication operations. We, from time to time, in the ordinary course of business, enter into hedging transactions and/or physical delivery commitments with third parties to mitigate our risk from fluctuations in certain alloying metals prices that are not passed through pursuant to the terms of our customer contracts.
Energy Hedges. We are exposed to the risk of fluctuating prices for natural gas and electricity. We, from time to time, in the ordinary course of business, enter into hedging transactions and/or firm price physical delivery commitments with third parties to mitigate our risk from fluctuations in natural gas and electricity prices that are not passed through pursuant to the terms of our customer contracts.
Foreign Currency Hedges. We are exposed to foreign currency exchange risk related to certain equipment and service agreements with vendors for which payments are due in foreign currency. We, from time to time, in the ordinary course of business, use foreign currency forward contracts in order to mitigate the exposure to currency exchange rate fluctuations related to these purchases.
12
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
Non-Designated Hedges of Operational Risks
From time to time, we enter into commodity and foreign currency forward contracts that are not designated as hedging instruments to protect the value of anticipatedmitigate certain short‑term impacts, as identified. The gain or loss on these commodity and foreign currency expenses associated with cash commitments for equipment purchases. Some of these derivative contracts qualify for cash flow hedge accountingderivatives is recognized within COGS and are designated as cash flow hedges. The remainder are non-designated hedges. Both realized and unrealized gains and losses of foreign currency forward contracts designated as cash flow hedges are deferred in Accumulated other comprehensive loss and, over the period that the underlying equipment is depreciated, realized gains and losses are recorded as an adjustment to depreciation expense. For non-designated foreign currency forward contracts, gains and losses (both unrealized and realized) are reflected as an increase or reduction in Other income, (expense), net.
Notional Amount of certain financial assets and liabilities. An asset or liability's fair value classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, we utilize valuation techniques
The following table summarizes our derivative positions at March 31, 2024:
Aluminum | Maturity Period | Notional Amount of Contracts (mmlbs) | ||||
Fixed price purchase contracts for LME | April 2024 through December 2025 | 74.5 | ||||
Fixed price sale contracts for LME | April 2024 | 7.0 | ||||
Fixed price purchase contracts for MWTP | April 2024 through December 2025 | 60.5 | ||||
Fixed price sale contracts for MWTP | April 2024 through September 2024 | 26.7 |
Alloying Metals | Maturity Period | Notional Amount of Contracts (mmlbs) | ||||
Fixed price purchase contracts | April 2024 through December 2025 | 10.0 |
Natural Gas | Maturity Period | Notional Amount of Contracts (mmbtu) | ||||
Fixed price purchase contracts | April 2024 through December 2026 | 3,880,000 |
Electricity | Maturity Period | Notional Amount of Contracts (Mwh) | ||||
Fixed price purchase contracts | April 2024 through December 2024 | 39,606 |
Euro | Maturity Period | Notional Amount of Contracts (EUR) | ||||
Fixed price forward purchase contracts | April 2024 through January 2026 | 17,485,138 |
British Pounds | Maturity Period | Notional Amount of Contracts (GBP) | ||||
Fixed price forward purchase contracts | May 2024 through July 2024 | 216,799 |
13
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -– UNAUDITED
Loss (Gain) on Derivative Contracts
The following table summarizes the useamount of observable inputs and minimize the useloss (gain) on derivative contracts recorded within our Statements of unobservable inputs to the extent possible and consider counterparty riskConsolidated Income in our assessmentCOGS (in millions of fair value.dollars):
|
| Quarter Ended March 31, |
| |||||
| 2024 |
|
| 2023 |
| |||
Total of income and expense line items presented in our Statements of Consolidated Income in which the effects of hedges are recorded: |
|
|
| |||||
Cash flow hedges |
| $ | 642.9 |
|
| $ | 731.1 |
|
|
|
|
|
|
| |||
Loss (gain) recognized in our Statements of Consolidated Income related to cash flow hedges: |
|
|
|
|
|
| ||
Aluminum |
| $ | 2.0 |
|
| $ | 0.5 |
|
Natural gas |
|
| 0.3 |
|
|
| (0.3 | ) |
Electricity |
|
| (0.2 | ) |
|
| — |
|
Total loss recognized in our Statements of Consolidated Income related to cash flow hedges |
| $ | 2.1 |
|
| $ | 0.2 |
|
|
|
|
|
|
| |||
Gain recognized in our Statements of Consolidated Income related to non-designated hedges: |
|
|
|
|
|
| ||
Alloying Metals – Unrealized gain |
| $ | — |
|
| $ | (0.1 | ) |
Fair Values of Derivative Contracts
The fair values of our derivative contracts are based upon trades in liquid markets. Valuation model inputs can be verified, and valuation techniques do not involve significant judgment. The fair values of such financial assets and liabilitiesinstruments are evaluated and measured on a recurring basis. As partclassified within Level 2 of that evaluation process, we review the underlying inputs that are significant to the fair value measurementhierarchy.
All of our derivative contracts with counterparties are subject to enforceable master netting arrangements. We reflect the fair value of our derivative contracts on a gross basis on our Consolidated Balance Sheets. The following table presents the fair value of our derivative financial instruments to determine if a transfer among hierarchy levels is appropriate. We historically have not had significant transfers into or out(in millions of each hierarchy level.
|
| As of March 31, 2024 |
|
| As of December 31, 2023 |
| ||||||||||||||||||
|
| Assets |
|
| Liabilities |
|
| Net Amount |
|
| Assets |
|
| Liabilities |
|
| Net Amount |
| ||||||
Aluminum – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fixed price purchase contracts for LME |
| $ | 2.1 |
|
| $ | (0.4 | ) |
| $ | 1.7 |
|
| $ | 3.4 |
|
| $ | (0.6 | ) |
| $ | 2.8 |
|
Fixed price sale contracts for LME |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
|
| (0.2 | ) |
Fixed price purchase contracts for MWTP |
|
| 0.7 |
|
|
| (0.1 | ) |
|
| 0.6 |
|
|
| 0.4 |
|
|
| (0.3 | ) |
|
| 0.1 |
|
Fixed price sale contracts for MWTP |
|
| — |
|
|
| (0.4 | ) |
|
| (0.4 | ) |
|
| 0.1 |
|
|
| (0.2 | ) |
|
| (0.1 | ) |
Alloying Metals – Fixed price purchase contracts |
|
| 0.7 |
|
|
| (0.2 | ) |
|
| 0.5 |
|
|
| 0.7 |
|
|
| (0.1 | ) |
|
| 0.6 |
|
Natural gas – Fixed price purchase contracts |
|
| 0.4 |
|
|
| (1.2 | ) |
|
| (0.8 | ) |
|
| 0.3 |
|
|
| (0.9 | ) |
|
| (0.6 | ) |
Electricity – Fixed price purchase contracts |
|
| 0.2 |
|
|
| (0.9 | ) |
|
| (0.7 | ) |
|
| 0.5 |
|
|
| (0.6 | ) |
|
| (0.1 | ) |
Foreign currency – Fixed price forward contracts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.5 |
|
|
| — |
|
|
| 0.5 |
|
Total |
| $ | 4.1 |
|
| $ | (3.2 | ) |
| $ | 0.9 |
|
| $ | 5.9 |
|
| $ | (2.9 | ) |
| $ | 3.0 |
|
14
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -– UNAUDITED
The following table presents the total amounts of derivative assets and handling activities that occur after the customer has obtained control of a product as fulfillment activities (i.e., an expense) rather than as a promised service (i.e., a revenue element).
|
| As of March 31, 2024 |
|
| As of December 31, 2023 |
| ||
Derivative assets: |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
| $ | 3.3 |
|
| $ | 4.8 |
|
Other assets |
|
| 0.8 |
|
|
| 1.1 |
|
Total derivative assets |
| $ | 4.1 |
|
| $ | 5.9 |
|
Derivative liabilities: |
|
|
|
|
|
| ||
Other accrued liabilities |
| $ | (2.6 | ) |
| $ | (2.4 | ) |
Long-term liabilities |
|
| (0.6 | ) |
|
| (0.5 | ) |
Total derivative liabilities |
| $ | (3.2 | ) |
| $ | (2.9 | ) |
Fair Value of hedge accounting guidance. ASU 2017-12 becomes effective for us in the first quarter of 2019. We are currently assessing the impact the adoption of this ASU will have on our consolidated financial statements.
All Other Financial Assets and Financial Liabilities
September 30, 2017 | December 31, 2016 | ||||||
(In millions of dollars) | |||||||
Cash and Cash Equivalents | |||||||
Cash and money market funds | $ | 17.3 | $ | 37.9 | |||
Commercial paper | 56.6 | 17.3 | |||||
Total | $ | 73.9 | $ | 55.2 | |||
September 30, 2017 | December 31, 2016 | ||||||
(In millions of dollars) | |||||||
Trade Receivables, Net | |||||||
Billed trade receivables | $ | 138.8 | $ | 138.2 | |||
Unbilled trade receivables | 0.2 | 0.3 | |||||
Trade receivables, gross | 139.0 | 138.5 | |||||
Allowance for doubtful receivables | (0.8 | ) | (0.8 | ) | |||
Trade receivables, net | $ | 138.2 | $ | 137.7 | |||
Inventories | |||||||
Finished products | $ | 64.8 | $ | 73.8 | |||
Work-in-process | 86.1 | 71.7 | |||||
Raw materials | 56.9 | 51.1 | |||||
Operating supplies | 4.4 | 5.0 | |||||
Total | $ | 212.2 | $ | 201.6 | |||
Property, Plant and Equipment, Net | |||||||
Land and improvements | $ | 22.7 | $ | 22.7 | |||
Buildings and leasehold improvements | 90.2 | 88.6 | |||||
Machinery and equipment | 675.0 | 615.1 | |||||
Construction in progress | 27.8 | 34.8 | |||||
Property, plant and equipment, gross | 815.7 | 761.2 | |||||
Accumulated depreciation | (258.2 | ) | (230.6 | ) | |||
Assets held for sale | 0.3 | 0.3 | |||||
Property, plant and equipment, net | $ | 557.8 | $ | 530.9 | |||
Other Accrued Liabilities | |||||||
Uncleared cash disbursements | $ | 7.1 | $ | 5.8 | |||
Accrued income taxes and taxes payable | 9.0 | 4.3 | |||||
Accrued annual contribution to VEBAs | 12.0 | 20.0 | |||||
Accrued interest | 8.4 | 2.9 | |||||
Other | 6.8 | 7.1 | |||||
Total | $ | 43.3 | $ | 40.1 | |||
Long-Term Liabilities | |||||||
Workers' compensation accruals | $ | 25.0 | $ | 25.0 | |||
Long-term environmental accrual – Note 8 | 16.1 | 15.8 | |||||
Long-term portion of contingent contribution to Union VEBA – Note 6 | — | 12.8 | |||||
Other long-term liabilities | 20.8 | 19.6 | |||||
Total | $ | 61.9 | $ | 73.2 |
6. Debt and Credit Facility
Senior Notes
At March 31, 2024 and December 31, 2023, we issued $375.0 million principal amount of 5.875%had outstanding fixed-rate unsecured senior notes due May 15, 2024 ("5.875% Senior Notes") at 100% of the principal amount. The unamortized amount of debt issuance costs as of September 30, 2017 was $5.6 million. Interest expense, including amortization of debt issuance costs, relating to the 5.875% Senior Notes was $5.7 millionwith varying maturity dates. The stated interest rates and $17.1 million for the quarter and nine months ended September 30, 2017, respectively, and $5.7 million and $8.8 million for the quarter and nine months ended September 30, 2016. A portionaggregate principal amounts of the interest relating to the 5.875%our Senior Notes was capitalized as construction in progress. The effective interest rate of the 5.875%were, respectively: (i) 4.625% and $500.0 million (“4.625% Senior Notes”) and (ii) 4.50% and $550.0 million (“4.50% Senior Notes”). Our Senior Notes is approximately 6.1% per annum, taking into accountdo not require us to make any mandatory redemptions or sinking fund payments. The following table summarizes key details of our Senior Notes:
|
|
|
|
|
| Outstanding (in millions of dollars) |
| |||||||
|
| Issuance Date |
| Maturity |
| Effective Interest Rate |
| As of March 31, 2024 |
|
| As of December 31, 2023 |
| ||
4.625% Senior Notes |
| November 2019 |
| March 2028 |
| 4.8% |
| $ | 500.0 |
|
| $ | 500.0 |
|
4.50% Senior Notes |
| May 2021 |
| June 2031 |
| 4.7% |
|
| 550.0 |
|
|
| 550.0 |
|
Total debt |
|
|
|
|
|
|
|
| 1,050.0 |
|
|
| 1,050.0 |
|
Unamortized issuance costs |
|
|
|
|
|
|
|
| (9.7 | ) |
|
| (10.2 | ) |
Total carrying amount |
|
|
|
|
|
|
| $ | 1,040.3 |
|
| $ | 1,039.8 |
|
The following table presents the amortization of debt issuance costs. The fair value of theour outstanding 5.875% Senior Notes, which are Level 1 liabilities was calculated based on broker quotes and was approximately $402.1 million and $390.8 million at September 30, 2017 and December 31, 2016, respectively.
|
|
|
|
|
| As of March 31, 2024 |
|
| As of December 31, 2023 |
| ||
4.625% Senior Notes |
|
|
|
|
| $ | 469.2 |
|
| $ | 462.4 |
|
4.50% Senior Notes |
|
|
|
|
| $ | 486.6 |
|
| $ | 474.1 |
|
Revolving Credit Facility
In October 2019, we entered into a Revolving Credit Facility") providesFacility. Joining us with a $300.0 million funding commitment through December 2020. We had $294.4 million of borrowing availabilityas borrowers under the Revolving Credit Facility at September 30, 2017,are four of our wholly owned domestic operating subsidiaries: (i) Kaiser Aluminum Investments Company; (ii) Kaiser Aluminum Fabricated Products, LLC; (iii) Kaiser Aluminum Washington, LLC; and (iv) Kaiser Aluminum Warrick, LLC.
In April 2022, we entered into Amendment No. 3 to our Revolving Credit Facility. As amended, the Revolving Credit Facility contains a maximum commitment amount of $575.0 million (of which up to a maximum of $50.0 million may be utilized for letters of credit) and is set to mature in April 2027. Our effective interest rate on outstanding borrowings under the amended Revolving Credit Facility is based on the borrowing base determination thenrates of Base Rate Loans and SOFR Loans (as defined in effect. At September 30, 2017, there were nothe amended Revolving Credit Facility). The rate for Base Rate Loans is equal to the prevailing Prime Rate plus 0.25%, while the rate for SOFR Loans, which are made for one or three month periods, is equal to the Term SOFR Reference Rate (as defined in the amended Revolving Credit Facility) plus 1.35%. Outstanding borrowings under the Revolving Credit Facility and $7.8 million was being used to support outstanding letters of credit, leaving $286.6 million ofare reported within Long-term debt, net, borrowing availability. The interest rate applicable to any overnighton our Consolidated Balance Sheets. We had no borrowings under the Revolving Credit Facility would have been 4.50% at September 30, 2017.
15
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -– UNAUDITED
The provision for
Revolving Credit Facility borrowing commitment |
| $ | 575.0 |
|
Borrowing base availability |
| $ | 544.4 |
|
Less: Outstanding borrowings under Revolving Credit Facility |
|
| — |
|
Less: Outstanding letters of credit under Revolving Credit Facility |
|
| (27.0 | ) |
Remaining borrowing availability |
| $ | 517.4 |
|
Interest Expense
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Domestic | $ | 15.7 | $ | 9.1 | $ | 35.8 | $ | 39.5 | |||||||
Foreign | 0.4 | 0.3 | 1.0 | 0.7 | |||||||||||
Total | $ | 16.1 | $ | 9.4 | $ | 36.8 | $ | 40.2 |
The following table presents the components of Net periodic postretirement benefit costinterest expense relating to Salaried VEBA for the periods presentedour Senior Notes and Revolving Credit Facility (in millions of dollars):
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Senior Notes interest expense, including debt issuance cost amortization |
| $ | 12.4 |
|
| $ | 12.4 |
|
Revolving Credit Facility interest expense, including commitment fees and finance cost amortization |
|
| 0.6 |
|
|
| 0.8 |
|
Interest expense on finance lease liabilities |
|
| 0.2 |
|
|
| 0.1 |
|
Interest expense capitalized as construction in progress |
|
| (1.7 | ) |
|
| (1.4 | ) |
Total interest expense |
| $ | 11.5 |
|
| $ | 11.9 |
|
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Salaried VEBA1: | |||||||||||||||
Interest cost | $ | 0.8 | $ | 0.7 | $ | 2.3 | $ | 2.2 | |||||||
Expected return on plan assets | (1.0 | ) | (1.0 | ) | (3.1 | ) | (3.0 | ) | |||||||
Amortization of prior service cost | 1.2 | �� | 1.0 | 3.6 | 3.0 | ||||||||||
Amortization of net actuarial loss | 0.2 | 0.1 | 0.6 | 0.3 | |||||||||||
Total net periodic postretirement benefit cost relating to Salaried VEBA | $ | 1.2 | $ | 0.8 | $ | 3.4 | $ | 2.5 |
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Included within Fabricated Products: | |||||||||||||||
Deferred compensation plan | $ | 0.1 | $ | 0.1 | $ | 0.3 | $ | 0.2 | |||||||
Defined contribution plans | 1.3 | 1.6 | 6.8 | 6.7 | |||||||||||
Multiemployer pension plans | 1.1 | 1.2 | 3.4 | 3.5 | |||||||||||
Total Fabricated Products | $ | 2.5 | $ | 2.9 | $ | 10.5 | $ | 10.4 | |||||||
Included within All Other: | |||||||||||||||
Deferred compensation plan | 0.4 | 0.4 | 1.1 | 0.6 | |||||||||||
Defined contribution plans | 0.1 | 0.1 | 0.7 | 0.7 | |||||||||||
Net periodic postretirement benefit cost relating to Salaried VEBA | 1.2 | 0.8 | 3.4 | 2.5 | |||||||||||
Loss (gain) on removal of Union VEBA net assets | 0.5 | — | (0.8 | ) | (0.1 | ) | |||||||||
Total All Other | $ | 2.2 | $ | 1.3 | $ | 4.4 | $ | 3.7 | |||||||
Total | $ | 4.7 | $ | 4.2 | $ | 14.9 | $ | 14.1 |
7. Employee Incentive Plans
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Non-vested common shares and restricted stock units | $ | 1.4 | $ | 1.2 | $ | 3.9 | $ | 3.5 | |||||||
TSR-Based Performance Shares | 1.2 | 1.5 | 3.7 | 4.0 | |||||||||||
CP-Based Performance Shares | 0.8 | 0.4 | 2.0 | 0.9 | |||||||||||
EVA-Based Performance Shares | 0.2 | — | 0.4 | 0.3 | |||||||||||
Total non-cash compensation expense | $ | 3.6 | $ | 3.1 | $ | 10.0 | $ | 8.7 |
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Fabricated Products | $ | 1.3 | $ | 1.2 | $ | 3.8 | $ | 3.1 | |||||||
All Other | 2.3 | 1.9 | 6.2 | 5.6 | |||||||||||
Total non-cash compensation expense | $ | 3.6 | $ | 3.1 | $ | 10.0 | $ | 8.7 |
Unrecognized Gross Compensation Costs (in millions of dollars) | Expected Period (in years) Over Which the Remaining Gross Compensation Costs Will Be Recognized | ||||
Non-vested common shares and restricted stock units | $ | 9.6 | 2.6 | ||
TSR-Based Performance Shares | $ | 5.6 | 1.7 | ||
CP-Based Performance Shares | $ | 6.1 | 2.1 | ||
EVA-Based Performance Shares | $ | 1.5 | 2.4 |
Non-Vested Common Shares | Restricted Stock Units | TSR-Based Performance Shares | CP-Based Performance Shares | EVA-Based Performance Shares | ||||||||||||||||||||||||||||||
Shares | Weighted-Average Grant-Date Fair Value per Share | Units | Weighted-Average Grant-Date Fair Value per Unit | Shares | Weighted-Average Grant-Date Fair Value per Share | Shares | Weighted-Average Grant-Date Fair Value per Share | Shares | Weighted-Average Grant-Date Fair Value per Share | |||||||||||||||||||||||||
Outstanding at December 31, 2016 | 114,658 | $ | 69.51 | 61,800 | $ | 74.94 | 394,525 | $ | 90.30 | 63,678 | $ | 80.46 | — | $ | — | |||||||||||||||||||
Granted1 | 11,817 | 86.92 | 92,275 | 76.13 | 65,044 | 97.88 | 65,044 | 79.69 | 32,504 | 79.69 | ||||||||||||||||||||||||
Vested | (46,689 | ) | 71.46 | (8,655 | ) | 76.94 | (94,082 | ) | 83.18 | — | — | — | — | |||||||||||||||||||||
Forfeited1 | (427 | ) | 69.83 | (6,412 | ) | 77.70 | (5,519 | ) | 95.88 | (3,342 | ) | 79.92 | (1,164 | ) | 79.69 | |||||||||||||||||||
Canceled1 | — | — | — | — | (55,288 | ) | 83.18 | — | — | — | — | |||||||||||||||||||||||
Outstanding at September 30, 2017 | 79,359 | $ | 70.96 | 139,008 | $ | 75.72 | 304,680 | $ | 95.31 | 125,380 | $ | 80.07 | 31,340 | $ | 79.69 |
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Non-vested common shares | $ | — | $ | — | $ | 86.92 | $ | 86.11 | |||||||
Restricted stock units | $ | 82.33 | $ | — | $ | 76.13 | $ | 75.57 | |||||||
TSR-Based Performance Shares | $ | — | $ | — | $ | 97.88 | $ | 93.02 | |||||||
CP-Based Performance Shares | $ | — | $ | — | $ | 79.69 | $ | 80.46 | |||||||
EVA-Based Performance Shares | $ | — | $ | — | $ | 79.69 | $ | — |
Commitments.
We have a variety of financial commitments, including purchase agreements, forward foreign exchange and forward sales contracts, indebtedness and letters of credit (see NoteEnvironmental Contingencies.
We are subject to a number of environmental laws and regulations,We continue to pursue remediation activities, primarily to address the historical use of oils containing polychlorinated biphenyls ("PCBs"(“PCBs”) at our Spokane, Washington ("Trentwood")Trentwood facility. Our remediation efforts are in collaboration with the Washington State Department of Ecology ("Washington State Ecology"(“Ecology”), to which we submitted a feasibility study in 2012 of remediation alternatives and from which we received permission to begin certain remediation activities pursuant to a signed work order. As weWe have finishedcompleted a number of sections of the work plan weand have received satisfactory completion approval from Washington State Ecology on satisfactory completion of those sections. Additionally, inIn cooperation with Washington State Ecology, we constructed an experimental treatment facility to determine the treatability and evaluate the feasibility of removing PCBs from ground water under the Trentwood facility,facility. In 2015, we constructed a pilot test facility and began treatment operations atinvolving a walnut shell filtration system, which we optimized for maximum PCB capture during 2020. Furthermore, based on advancements in technology, we signed an Amended Agreed Order with Ecology in 2020 to evaluate and implement new technologies for PCB removal from groundwater on a pilot basis. The primary technology we are evaluating is Ultraviolet Light Advanced Oxidation Process (the “UV Process”). As the test facility in the first half of 2016. As thelong-term success of the new methodologyUV Process cannot be reasonably determined at this time, it is possible we may need to make upward adjustments to our related accruals as facts and cost estimates regardingas the groundwater treatment method and the operation of the treatment facilitylong-term results become available.
Pursuant to a consent agreement with the Ohio Environmental Protection Agency ("OEPA"(“OEPA”), we initiated an investigational study of theour Newark Ohio ("Newark") facility related to historical on-site waste disposal. Since 2014,During the quarter ended December 31, 2018, we have completed a number of preliminary steps insubmitted our remedial investigation study to the preparation of completing the final risk assessment and feasibility study, both of which are subject toOEPA for review and approvalapproval. The final remedial investigation report was approved by the OEPA. As work continues and progressesOEPA during the quarter ended December 31, 2020. We have submitted the Alternate Arrays Document (“AAD”) to a final risk assessment and feasibility study, we will establish and update estimatesthe OEPA for probable and estimable remediation, if any. The actual and final cost for remediation will not be fully determinable until a final feasibility studyreview during the quarter ended December 31, 2023. Once the AAD is submittedreviewed and accepted by the OEPA, we plan to submit our feasibility study to the OEPA and the selected remediation design work plans are prepared,completed, which is expectedwe expect to occur in the next 12 to 15 months.2024.
16
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
At September 30, 2017,March 31, 2024, our environmental accrual of $16.9$16.1 million represented our estimate of the incremental remediation cost based on: (i) proposed alternatives in the final feasibility study related to the Trentwood facility; (ii) currently available facts with respect to our Newark facility; and (iii) facts related to certain other locations owned or formerly owned by us. In accordance with approved and proposed remediation action plans, we expect that the implementation and ongoing monitoring could occur over a period of 30 or more years.
As additional facts are developed, feasibility studies are completed, draft remediation plans are modified, necessary regulatory approvals for the implementation of remediation are obtained, alternative technologies are developed and/or other factors change, there may be revisions to management'smanagement’s estimates and actual costs may exceed the current environmental accruals. We believe at this time that it is reasonably possible that undiscounted costs associated with these environmental matters may exceed current accruals by amounts that could be, in the aggregate, up to an estimated $12.2$11.5 million over the remediation period. It is reasonably possible that our recorded estimate will change in the next 12 months.
Other Contingencies.
We are party to various lawsuits, claims, investigations and administrative proceedings that arise in connection with past and current operations. We evaluate such matters on a case-by-case basis and our policy is to vigorouslyQuarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Realized (gain) loss: | |||||||||||||||
Aluminum | $ | (4.0 | ) | $ | 0.4 | $ | (13.8 | ) | $ | 4.1 | |||||
Natural gas | 0.2 | 0.9 | 0.3 | 4.2 | |||||||||||
Alloy Hedges | (0.3 | ) | — | (0.2 | ) | — | |||||||||
Foreign exchange | (0.1 | ) | — | (0.1 | ) | — | |||||||||
Total realized (gain) loss1 | $ | (4.2 | ) | $ | 1.3 | $ | (13.8 | ) | $ | 8.3 | |||||
Unrealized (gain) loss: | |||||||||||||||
Aluminum | $ | (10.6 | ) | $ | (1.7 | ) | $ | (15.3 | ) | $ | (11.7 | ) | |||
Natural gas | (0.2 | ) | (0.3 | ) | 1.3 | (5.2 | ) | ||||||||
Total unrealized gain2 | $ | (10.8 | ) | $ | (2.0 | ) | $ | (14.0 | ) | $ | (16.9 | ) |
September 30, 2017 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
DERIVATIVE ASSETS: | |||||||||||||||
Non-Designated Hedges: | |||||||||||||||
Aluminum – | |||||||||||||||
Fixed price purchase contracts | $ | — | $ | 18.4 | $ | — | $ | 18.4 | |||||||
Midwest premium swap contracts | — | 0.8 | — | 0.8 | |||||||||||
Natural gas – Fixed price purchase contracts | — | 0.4 | — | 0.4 | |||||||||||
Designated Hedges: | |||||||||||||||
Alloying metals – Fixed price purchase contracts | — | 0.9 | — | 0.9 | |||||||||||
Total derivative assets1 | $ | — | $ | 20.5 | $ | — | $ | 20.5 | |||||||
September 30, 2017 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
DERIVATIVE LIABILITIES: | |||||||||||||||
Non-Designated Hedges: | |||||||||||||||
Aluminum – | |||||||||||||||
Fixed price sales contracts | $ | — | $ | (0.1 | ) | $ | — | $ | (0.1 | ) | |||||
Midwest premium swap contracts | — | (0.8 | ) | — | (0.8 | ) | |||||||||
Natural gas – Fixed price purchase contracts | — | (0.5 | ) | — | (0.5 | ) | |||||||||
Total derivative liabilities2 | $ | — | $ | (1.4 | ) | $ | — | $ | (1.4 | ) |
December 31, 2016 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
DERIVATIVE ASSETS: | |||||||||||||||
Non-Designated Hedges: | |||||||||||||||
Aluminum – | |||||||||||||||
Fixed price purchase contracts | $ | — | $ | 3.3 | $ | — | $ | 3.3 | |||||||
Midwest premium swap contracts | — | 0.9 | — | 0.9 | |||||||||||
Natural gas – Fixed price purchase contracts | — | 1.6 | — | 1.6 | |||||||||||
Total derivative assets1 | $ | — | $ | 5.8 | $ | — | $ | 5.8 | |||||||
DERIVATIVE LIABILITIES: | |||||||||||||||
Non-Designated Hedges: | |||||||||||||||
Aluminum – | |||||||||||||||
Fixed price purchase contracts | $ | — | $ | (1.1 | ) | $ | — | $ | (1.1 | ) | |||||
Midwest premium swap contracts | — | (0.2 | ) | — | (0.2 | ) | |||||||||
Natural gas – Fixed price purchase contracts | — | (0.4 | ) | — | (0.4 | ) | |||||||||
Designated Hedges: | |||||||||||||||
Alloying metals – Fixed price purchase contracts | — | (0.1 | ) | — | (0.1 | ) | |||||||||
Total derivative liabilities2 | $ | — | $ | (1.8 | ) | $ | — | $ | (1.8 | ) |
Gross Amounts of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheets | Net Amounts of Assets Presented in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | Net Amount | |||||||||||||||
Counterparty (with netting agreements) | $ | 20.5 | $ | — | $ | 20.5 | $ | 1.4 | $ | 19.1 | |||||||||
Total | $ | 20.5 | $ | — | $ | 20.5 | $ | 1.4 | $ | 19.1 |
Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheets | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | Net Amount | |||||||||||||||
Counterparty (with netting agreements) | $ | (1.4 | ) | $ | — | $ | (1.4 | ) | $ | (1.4 | ) | $ | — | ||||||
Total | $ | (1.4 | ) | $ | — | $ | (1.4 | ) | $ | (1.4 | ) | $ | — |
Gross Amounts of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheets | Net Amounts of Assets Presented in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | Net Amount | |||||||||||||||
Counterparty (with netting agreements) | $ | 3.3 | $ | — | $ | 3.3 | $ | 1.0 | $ | 2.3 | |||||||||
Counterparty (with partial netting agreements) | 2.5 | — | 2.5 | 0.7 | 1.8 | ||||||||||||||
Total | $ | 5.8 | $ | — | $ | 5.8 | $ | 1.7 | $ | 4.1 |
Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheets | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | Net Amount | |||||||||||||||
Counterparty (with netting agreements) | $ | (1.0 | ) | $ | — | $ | (1.0 | ) | $ | (1.0 | ) | $ | — | ||||||
Counterparty (with partial netting agreements) | (0.8 | ) | — | (0.8 | ) | (0.7 | ) | (0.1 | ) | ||||||||||
Total | $ | (1.8 | ) | $ | — | $ | (1.8 | ) | $ | (1.7 | ) | $ | (0.1 | ) |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash and cash equivalents | $ | 17.3 | $ | 56.6 | $ | — | $ | 73.9 | |||||||
Short-term investments | — | 191.4 | — | 191.4 | |||||||||||
Total | $ | 17.3 | $ | 248.0 | $ | — | $ | 265.3 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash and cash equivalents | $ | 37.9 | $ | 17.3 | $ | — | $ | 55.2 | |||||||
Short-term investments | — | 231.0 | — | 231.0 | |||||||||||
Total | $ | 37.9 | $ | 248.3 | $ | — | $ | 286.2 |
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Numerator: | |||||||||||||||
Net income | $ | 19.9 | $ | 14.9 | $ | 60.6 | $ | 67.2 | |||||||
Denominator – Weighted-average common shares outstanding (in thousands): | |||||||||||||||
Basic1 | 16,834 | 17,841 | 17,072 | 17,858 | |||||||||||
Add: dilutive effect of non-vested common shares, restricted stock units, performance shares and stock options | 326 | 334 | 291 | 323 | |||||||||||
Diluted2 | 17,160 | 18,175 | 17,363 | 18,181 | |||||||||||
Net income per common share, Basic: | $ | 1.18 | $ | 0.84 | $ | 3.55 | $ | 3.76 | |||||||
Net income per common share, Diluted: | $ | 1.16 | $ | 0.82 | $ | 3.49 | $ | 3.70 |
Quarter Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Non-vested common shares, restricted stock units and performance shares | 3 | 3 | 3 | 2 | |||||||
Total excluded | 3 | 3 | 3 | 2 |
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
Number of common shares repurchased | 806,307 | 170,304 | |||||
Weighted-average repurchase price (dollars per share) | $ | 80.60 | $ | 81.04 | |||
Total cost of repurchased common shares (in millions of dollars) | $ | 64.9 | $ | 13.8 |
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net sales: | |||||||||||||||
Fabricated Products | $ | 332.8 | $ | 320.6 | $ | 1,044.4 | $ | 998.7 | |||||||
Segment operating income (loss): | |||||||||||||||
Fabricated Products | $ | 53.7 | $ | 42.1 | $ | 149.9 | $ | 172.1 | |||||||
All Other | (13.9 | ) | (12.3 | ) | (39.2 | ) | (39.6 | ) | |||||||
Total operating income | $ | 39.8 | $ | 29.8 | $ | 110.7 | $ | 132.5 | |||||||
Interest expense | (5.3 | ) | (5.5 | ) | (16.4 | ) | (14.7 | ) | |||||||
Other income (expense), net | 1.5 | — | 3.1 | (10.4 | ) | ||||||||||
Income before income taxes | $ | 36.0 | $ | 24.3 | $ | 97.4 | $ | 107.4 | |||||||
Depreciation and amortization: | |||||||||||||||
Fabricated Products | $ | 10.1 | $ | 8.8 | $ | 28.9 | $ | 26.2 | |||||||
All Other | 0.1 | 0.2 | 0.4 | 0.5 | |||||||||||
Total depreciation and amortization | $ | 10.2 | $ | 9.0 | $ | 29.3 | $ | 26.7 | |||||||
Capital expenditures: | |||||||||||||||
Fabricated Products | $ | 16.3 | $ | 15.0 | $ | 55.7 | $ | 57.1 | |||||||
All Other | 0.1 | 0.1 | 0.4 | 0.3 | |||||||||||
Total capital expenditures | $ | 16.4 | $ | 15.1 | $ | 56.1 | $ | 57.4 |
September 30, 2017 | December 31, 2016 | ||||||
Assets: | |||||||
Fabricated Products | $ | 1,007.9 | $ | 969.4 | |||
All Other1 | 414.8 | 474.1 | |||||
Total assets | $ | 1,422.7 | $ | 1,443.5 |
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net sales: | |||||||||||||||
Aero/HS products | $ | 150.2 | $ | 156.1 | $ | 483.2 | $ | 500.7 | |||||||
Automotive Extrusions | 52.7 | 46.5 | 161.6 | 143.6 | |||||||||||
GE products | 115.9 | 105.6 | 361.1 | 318.3 | |||||||||||
Other products | 14.0 | 12.4 | 38.5 | 36.1 | |||||||||||
Total net sales | $ | 332.8 | $ | 320.6 | $ | 1,044.4 | $ | 998.7 |
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Income taxes paid: | |||||||||||||||
Domestic | $ | 0.3 | $ | 0.1 | $ | 0.7 | $ | 0.4 | |||||||
Foreign | — | — | 0.1 | 0.5 | |||||||||||
Total income taxes paid | $ | 0.3 | $ | 0.1 | $ | 0.8 | $ | 0.9 |
Quarter Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Percentage of total primary aluminum supply (lbs): | |||||||||||
Supply from our top five major suppliers | 86 | % | 84 | % | 85 | % | 84 | % | |||
Supply from our largest supplier | 35 | % | 28 | % | 36 | % | 32 | % | |||
Supply from our second and third largest suppliers | 35 | % | 33 | % | 33 | % | 31 | % |
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
(In millions of dollars) | |||||||
Interest paid | $ | 10.0 | $ | 6.7 | |||
Non-cash investing and financing activities (included in Accounts payable): | |||||||
Unpaid purchases of property and equipment | $ | 3.4 | $ | 2.4 | |||
Stock repurchases not yet settled | $ | — | $ | 0.2 | |||
Acquisition of property and equipment through capital leasing arrangements | $ | 0.3 | $ | — | |||
Components of cash, cash equivalents and restricted cash: | September 30, 2017 | September 30, 2016 | |||||
Cash and cash equivalents | $ | 73.9 | $ | 72.9 | |||
Restricted cash included in Prepaid expenses and other current assets1 | 0.3 | 0.3 | |||||
Restricted cash included in Other assets1 | 12.9 | 11.7 | |||||
Total cash, cash equivalents and restricted cash shown in the Statements of Consolidated Cash Flows | $ | 87.1 | $ | 84.9 |
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest income | $ | — | $ | — | $ | — | $ | 0.1 | |||||||
Realized gain on investments | 0.8 | 0.1 | 2.2 | 0.4 | |||||||||||
Loss on extinguishment of debt1 | — | — | — | (11.1 | ) | ||||||||||
All other income (expense), net | 0.7 | (0.1 | ) | 0.9 | 0.2 | ||||||||||
Other income (expense), net | $ | 1.5 | $ | — | $ | 3.1 | $ | (10.4 | ) |
8. Accumulated Other Comprehensive (Loss) Income
The following table presents the changes in the accumulated balances for each component of Accumulated other comprehensive (loss) income ("AOCI") for each period presentedAOCI (in millions of dollars):
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Defined Benefit Plans: |
|
|
|
|
|
| ||
Beginning balance |
| $ | 11.0 |
|
| $ | 2.8 |
|
Amortization of net actuarial gain1 |
|
| (0.3 | ) |
|
| (0.3 | ) |
Amortization of prior service (credit) cost1 |
|
| (0.3 | ) |
|
| 1.2 |
|
Less: income tax benefit (expense)2 |
|
| 0.1 |
|
|
| (0.2 | ) |
Other comprehensive (loss) income, net of tax |
|
| (0.5 | ) |
|
| 0.7 |
|
Ending balance |
| $ | 10.5 |
|
| $ | 3.5 |
|
|
|
|
|
|
| |||
Cash Flow Hedges: |
|
|
|
|
|
| ||
Beginning balance |
| $ | 2.1 |
|
| $ | 0.4 |
|
Unrealized loss on cash flow hedges |
|
| (4.2 | ) |
|
| (2.6 | ) |
Less: income tax benefit |
|
| 1.0 |
|
|
| 0.6 |
|
Net unrealized loss on cash flow hedges |
|
| (3.2 | ) |
|
| (2.0 | ) |
Reclassification of unrealized loss upon settlement of cash flow hedges |
|
| 2.1 |
|
|
| 0.2 |
|
Less: income tax expense2 |
|
| (0.5 | ) |
|
| — |
|
Net loss reclassified from AOCI to Net income |
|
| 1.6 |
|
|
| 0.2 |
|
Other comprehensive loss, net of tax |
|
| (1.6 | ) |
|
| (1.8 | ) |
Ending balance3 |
| $ | 0.5 |
|
| $ | (1.4 | ) |
|
|
|
|
|
| |||
Total AOCI ending balance |
| $ | 11.0 |
|
| $ | 2.1 |
|
Quarter Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Salaried VEBA and defined benefit pension plan: | ||||||||||||||||
Beginning balance | $ | (35.4 | ) | $ | (29.8 | ) | $ | (37.1 | ) | $ | (31.3 | ) | ||||
Amortization of net actuarial loss1 | 0.2 | 0.1 | 0.6 | 0.3 | ||||||||||||
Amortization of prior service cost1 | 1.2 | 1.0 | 3.6 | 3.0 | ||||||||||||
Less: income tax expense2 | (0.5 | ) | (0.4 | ) | (1.6 | ) | (1.2 | ) | ||||||||
Net amortization reclassified from AOCI to Net income | 0.9 | 0.7 | 2.6 | 2.1 | ||||||||||||
Translation impact on Canadian pension plan AOCI balance | (0.1 | ) | — | (0.1 | ) | 0.1 | ||||||||||
Other comprehensive income, net of tax | 0.8 | 0.7 | 2.5 | 2.2 | ||||||||||||
Ending balance | $ | (34.6 | ) | $ | (29.1 | ) | $ | (34.6 | ) | $ | (29.1 | ) | ||||
Available for sale securities: | ||||||||||||||||
Beginning balance | $ | 1.1 | $ | 0.2 | $ | 0.8 | $ | (0.1 | ) | |||||||
Unrealized gain on available for sale securities | 1.0 | 0.9 | 3.1 | 1.3 | ||||||||||||
Less: income tax expense | (0.4 | ) | (0.4 | ) | (1.2 | ) | (0.5 | ) | ||||||||
Net unrealized gain on available for sale securities | 0.6 | 0.5 | 1.9 | 0.8 | ||||||||||||
Reclassification of unrealized gain upon sale of available for sale securities3 | (0.5 | ) | (0.3 | ) | (2.1 | ) | (0.3 | ) | ||||||||
Less: income tax benefit2 | 0.2 | 0.1 | 0.8 | 0.1 | ||||||||||||
Net unrealized gain reclassified from AOCI to Net income | (0.3 | ) | (0.2 | ) | (1.3 | ) | (0.2 | ) | ||||||||
Other comprehensive income, net of tax | 0.3 | 0.3 | 0.6 | 0.6 | ||||||||||||
Ending balance | $ | 1.4 | $ | 0.5 | $ | 1.4 | $ | 0.5 | ||||||||
Other: | ||||||||||||||||
Beginning balance | $ | — | $ | (0.3 | ) | $ | (0.4 | ) | $ | (0.3 | ) | |||||
Unrealized gain | 1.1 | 0.1 | 1.4 | 0.2 | ||||||||||||
Less: income tax expense | (0.4 | ) | — | (0.5 | ) | (0.1 | ) | |||||||||
Net gain | 0.7 | 0.1 | 0.9 | 0.1 | ||||||||||||
Gain reclassified from AOCI to Net income | (0.3 | ) | — | — | — | |||||||||||
Less: income tax benefit2 | 0.1 | — | — | — | ||||||||||||
Net gain reclassified from AOCI to Net income | (0.2 | ) | — | — | — | |||||||||||
Other comprehensive income, net of tax | 0.5 | 0.1 | 0.9 | 0.1 | ||||||||||||
Ending balance | $ | 0.5 | $ | (0.2 | ) | $ | 0.5 | $ | (0.2 | ) | ||||||
Total AOCI ending balance | $ | (32.7 | ) | $ | (28.8 | ) | $ | (32.7 | ) | $ | (28.8 | ) |
17
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -– UNAUDITED
9. Other Income, Net
The following table presents the components of Other income, net (in millions of dollars):
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Interest income |
| $ | 0.9 |
|
| $ | 0.4 |
|
Net periodic postretirement benefit cost |
|
| (0.3 | ) |
|
| (2.0 | ) |
Unrealized gain on equity securities |
|
| 0.2 |
|
|
| 0.1 |
|
(Loss) gain on disposition of property, plant and equipment |
|
| (0.2 | ) |
|
| 15.0 |
|
Gain on business interruption insurance recoveries1 |
|
| 10.5 |
|
|
| — |
|
All other, net |
|
| (0.2 | ) |
|
| 0.1 |
|
Other income, net |
| $ | 10.9 |
|
| $ | 13.6 |
|
Supply Chain Financing. We are party to several supply chain financing arrangements, in which we may sell certain of our customers’ trade accounts receivable to such customers’ financial institutions without recourse. During the quarters ended March 31, 2024 and March 31, 2023, we sold trade accounts receivable totaling $267.1 million and $303.2 million, respectively, related to these supply chain financing arrangements, of which our customers’ financial institutions applied discount fees totaling $6.3 million and $7.2 million, respectively. To the extent discount fees related to the sale of trade accounts receivable under supply chain financing arrangements are not reimbursed by our customers, they are included in Other income, net. As of March 31, 2024, we had been and/or expected to be substantially reimbursed by our customers for these discount fees, in accordance with the underlying sales agreements.
10. Income Tax Matters
The following table presents the income tax provision by region (in millions of dollars):
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Domestic |
| $ | (7.0 | ) |
| $ | (4.4 | ) |
Foreign |
|
| (0.5 | ) |
|
| (0.5 | ) |
Total |
| $ | (7.5 | ) |
| $ | (4.9 | ) |
The income tax provision for the quarters ended March 31, 2024 and Non-Guarantor Financial InformationMarch 31, 2023 was $7.5 million and $4.9 million, respectively, reflecting an effective tax rate of 23% and 24%, respectively. There was no material difference between the effective tax rate and the blended statutory tax rate for the quarters ended March 31, 2024 and March 31, 2023, respectively.
Our gross unrecognized benefits relating to uncertain tax positions were $7.5 million and $6.5 million at March 31, 2024 and December 31, 2023, respectively, of which, $7.5 million and $6.5 million would be recorded through our income tax provision and thus, impact the effective tax rate at March 31, 2024 and December 31, 2023, respectively, if the gross unrecognized tax benefits were to be recognized.
We do not expect our gross unrecognized tax benefits to significantly change within the next 12 months.
11. Net Income Per Share
18
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -– UNAUDITED
The following table sets forth the computation of basic and diluted net income per share (in millions of dollars)
|
| Quarter Ended March 31, |
| |||||
| 2024 |
|
| 2023 |
| |||
Numerator: |
|
|
|
|
|
| ||
Net income available to common shareholders1 |
| $ | 24.6 |
|
| $ | 15.9 |
|
Denominator – Weighted-average common shares outstanding (in thousands): |
|
|
|
|
|
| ||
Basic |
|
| 16,027 |
|
|
| 15,940 |
|
Add: dilutive effect of non-vested common shares, restricted stock units and performance shares2 |
|
| 203 |
|
|
| 156 |
|
Diluted |
|
| 16,230 |
|
|
| 16,096 |
|
|
|
|
|
|
| |||
Net income per common share, Basic: |
| $ | 1.53 |
|
| $ | 1.00 |
|
Net income per common share, Diluted: |
| $ | 1.51 |
|
| $ | 0.99 |
|
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 70.7 | $ | 3.2 | $ | — | $ | 73.9 | ||||||||||
Short-term investments | — | 191.4 | — | — | 191.4 | |||||||||||||||
Receivables: | ||||||||||||||||||||
Trade receivables, net | — | 133.1 | 5.1 | — | 138.2 | |||||||||||||||
Intercompany loans receivable | 55.6 | 0.1 | 0.6 | (56.3 | ) | — | ||||||||||||||
Other | — | 14.6 | 0.8 | — | 15.4 | |||||||||||||||
Inventories | — | 208.5 | 8.6 | (4.9 | ) | 212.2 | ||||||||||||||
Prepaid expenses and other current assets | 0.1 | 31.0 | 0.4 | — | 31.5 | |||||||||||||||
Total current assets | 55.7 | 649.4 | 18.7 | (61.2 | ) | 662.6 | ||||||||||||||
Investments in and advances to subsidiaries | 1,107.0 | 41.9 | — | (1,148.9 | ) | — | ||||||||||||||
Property, plant and equipment, net | — | 527.6 | 30.2 | — | 557.8 | |||||||||||||||
Long-term intercompany loans receivable | — | — | 10.5 | (10.5 | ) | — | ||||||||||||||
Deferred tax assets, net | — | 113.9 | — | 4.8 | 118.7 | |||||||||||||||
Intangible assets, net | — | 25.3 | — | — | 25.3 | |||||||||||||||
Goodwill | — | 18.8 | — | — | 18.8 | |||||||||||||||
Other assets | — | 39.5 | — | — | 39.5 | |||||||||||||||
Total | $ | 1,162.7 | $ | 1,416.4 | $ | 59.4 | $ | (1,215.8 | ) | $ | 1,422.7 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 1.4 | $ | 86.8 | $ | 6.2 | $ | — | $ | 94.4 | ||||||||||
Intercompany loans payable | — | 56.2 | 0.1 | (56.3 | ) | — | ||||||||||||||
Accrued salaries, wages and related expenses | — | 37.2 | 1.8 | — | 39.0 | |||||||||||||||
Other accrued liabilities | 8.3 | 41.0 | 1.1 | (7.1 | ) | 43.3 | ||||||||||||||
Total current liabilities | 9.7 | 221.2 | 9.2 | (63.4 | ) | 176.7 | ||||||||||||||
Net liabilities of Salaried VEBA | — | 27.8 | — | — | 27.8 | |||||||||||||||
Deferred tax liabilities | — | — | 3.3 | — | 3.3 | |||||||||||||||
Long-term intercompany loans payable | — | 10.5 | — | (10.5 | ) | — | ||||||||||||||
Long-term liabilities | — | 59.3 | 2.6 | — | 61.9 | |||||||||||||||
Long-term debt | 369.4 | — | — | — | 369.4 | |||||||||||||||
Total liabilities | 379.1 | 318.8 | 15.1 | (73.9 | ) | 639.1 | ||||||||||||||
Total stockholders' equity | 783.6 | 1,097.6 | 44.3 | (1,141.9 | ) | 783.6 | ||||||||||||||
Total | $ | 1,162.7 | $ | 1,416.4 | $ | 59.4 | $ | (1,215.8 | ) | $ | 1,422.7 |
12. Supplemental Cash Flow Information
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions of dollars) |
| |||||
Interest paid |
| $ | 10.3 |
|
| $ | 10.6 |
|
Non-cash investing and financing activities (included in Accounts payable): |
|
|
|
|
|
| ||
Unpaid purchases of property and equipment |
| $ | 19.5 |
|
| $ | 28.8 |
|
|
|
|
|
|
| |||
Supplemental lease disclosures: |
|
|
|
|
|
| ||
Operating lease liabilities arising from obtaining operating lease assets |
| $ | — |
|
| $ | 2.4 |
|
Cash paid for amounts included in the measurement of operating lease liabilities |
| $ | 2.1 |
|
| $ | 2.4 |
|
Finance lease liabilities arising from obtaining finance lease assets |
| $ | 1.0 |
|
| $ | 8.8 |
|
|
| As of March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions of dollars) |
| |||||
Components of cash, cash equivalents and restricted cash: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 101.6 |
|
| $ | 31.5 |
|
Restricted cash included in Other assets1 |
|
| 18.3 |
|
|
| 18.6 |
|
Total cash, cash equivalents and restricted cash presented on our Statements of Consolidated Cash Flows |
| $ | 119.9 |
|
| $ | 50.1 |
|
13. Business, Product, and Geographical Area Information
Our primary line of business is the production of semi-fabricated specialty aluminum mill products, such as plate and sheet, bare and coated coils, and extruded and drawn products, primarily used in our Aero/HS Products, Packaging, GE Products, Automotive Extrusions, and Other products end markets. We operate 13 focused production facilities in the United States and one in Canada. Our chief operating decision maker reviews and evaluates our business as a single operating segment.
19
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -– UNAUDITED
The following table presents Net sales by end market applications and by timing of control transfer (in millions of dollars):
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net sales: |
|
|
|
|
|
| ||
Aero/HS Products |
| $ | 220.5 |
|
| $ | 214.0 |
|
Packaging |
|
| 298.1 |
|
|
| 354.2 |
|
GE Products |
|
| 153.0 |
|
|
| 162.1 |
|
Automotive Extrusions |
|
| 63.5 |
|
|
| 70.8 |
|
Other products |
|
| 2.4 |
|
|
| 6.5 |
|
Total net sales |
| $ | 737.5 |
|
| $ | 807.6 |
|
|
|
|
|
|
| |||
Timing of revenue recognition: |
|
|
|
|
|
| ||
Products transferred at a point in time |
| $ | 569.4 |
|
| $ | 624.8 |
|
Products transferred over time |
|
| 168.1 |
|
|
| 182.8 |
|
Total net sales |
| $ | 737.5 |
|
| $ | 807.6 |
|
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 52.9 | $ | 2.3 | $ | — | $ | 55.2 | ||||||||||
Short-term investments | — | 231.0 | — | — | 231.0 | |||||||||||||||
Receivables: | ||||||||||||||||||||
Trade receivables, net | — | 133.1 | 4.6 | — | 137.7 | |||||||||||||||
Intercompany receivables | 85.8 | 0.1 | 0.6 | (86.5 | ) | — | ||||||||||||||
Other | — | 11.4 | 0.5 | — | 11.9 | |||||||||||||||
Inventories | — | 197.5 | 8.0 | (3.9 | ) | 201.6 | ||||||||||||||
Prepaid expenses and other current assets | 0.1 | 18.0 | 0.9 | (0.5 | ) | 18.5 | ||||||||||||||
Total current assets | 85.9 | 644.0 | 16.9 | (90.9 | ) | 655.9 | ||||||||||||||
Investments in and advances to subsidiaries | 1,012.4 | 40.1 | — | (1,052.5 | ) | — | ||||||||||||||
Property, plant and equipment, net | — | 499.5 | 31.4 | — | 530.9 | |||||||||||||||
Long-term intercompany receivables | 80.2 | — | 4.9 | (85.1 | ) | — | ||||||||||||||
Deferred tax assets, net | — | 154.9 | — | 4.8 | 159.7 | |||||||||||||||
Intangible assets, net | — | 26.4 | — | — | 26.4 | |||||||||||||||
Goodwill | — | 37.2 | — | — | 37.2 | |||||||||||||||
Other assets | — | 33.4 | — | — | 33.4 | |||||||||||||||
Total | $ | 1,178.5 | $ | 1,435.5 | $ | 53.2 | $ | (1,223.7 | ) | $ | 1,443.5 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 2.2 | $ | 68.9 | $ | 4.7 | $ | — | $ | 75.8 | ||||||||||
Intercompany payable | — | 86.4 | 0.1 | (86.5 | ) | — | ||||||||||||||
Accrued salaries, wages and related expenses | — | 47.2 | 1.9 | — | 49.1 | |||||||||||||||
Other accrued liabilities | 2.9 | 52.6 | (0.7 | ) | (14.7 | ) | 40.1 | |||||||||||||
Total current liabilities | 5.1 | 255.1 | 6.0 | (101.2 | ) | 165.0 | ||||||||||||||
Net liabilities of Salaried VEBA | — | 28.6 | — | — | 28.6 | |||||||||||||||
Deferred tax liabilities | — | — | 3.3 | — | 3.3 | |||||||||||||||
Long-term intercompany payable | — | 85.1 | — | (85.1 | ) | — | ||||||||||||||
Long-term liabilities | — | 70.5 | 2.7 | — | 73.2 | |||||||||||||||
Long-term debt | 368.7 | — | — | — | 368.7 | |||||||||||||||
Total liabilities | 373.8 | 439.3 | 12.0 | (186.3 | ) | 638.8 | ||||||||||||||
Total stockholders' equity | 804.7 | 996.2 | 41.2 | (1,037.4 | ) | 804.7 | ||||||||||||||
Total | $ | 1,178.5 | $ | 1,435.5 | $ | 53.2 | $ | (1,223.7 | ) | $ | 1,443.5 |
The following table presents geographic information for income taxes paid (in millions of dollars)
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Income taxes paid: |
|
|
|
|
|
| ||
Domestic |
| $ | — |
|
| $ | 0.1 |
|
Foreign |
|
| 1.6 |
|
|
| 0.2 |
|
Total income taxes paid |
| $ | 1.6 |
|
| $ | 0.3 |
|
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 325.9 | $ | 26.3 | $ | (19.4 | ) | $ | 332.8 | |||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of products sold: | ||||||||||||||||||||
Cost of products sold, excluding depreciation and amortization and other items | — | 261.6 | 24.0 | (18.4 | ) | 267.2 | ||||||||||||||
Unrealized gain on derivative instruments | — | (10.8 | ) | — | — | (10.8 | ) | |||||||||||||
Depreciation and amortization | — | 9.7 | 0.5 | — | 10.2 | |||||||||||||||
Selling, general, administrative, research and development: | ||||||||||||||||||||
Selling, general, administrative, research and development | 1.0 | 23.5 | 0.8 | (0.6 | ) | 24.7 | ||||||||||||||
Net periodic postretirement benefit cost relating to Salaried VEBA | — | 1.2 | — | — | 1.2 | |||||||||||||||
Loss on removal of Union VEBA net assets | — | 0.5 | — | — | 0.5 | |||||||||||||||
Total selling, general, administrative, research and development | 1.0 | 25.2 | 0.8 | (0.6 | ) | 26.4 | ||||||||||||||
Total costs and expenses | 1.0 | 285.7 | 25.3 | (19.0 | ) | 293.0 | ||||||||||||||
Operating (loss) income | (1.0 | ) | 40.2 | 1.0 | (0.4 | ) | 39.8 | |||||||||||||
Other (expense) income: | ||||||||||||||||||||
Interest expense | (5.0 | ) | (0.4 | ) | — | 0.1 | (5.3 | ) | ||||||||||||
Other income, net | — | 1.3 | 0.3 | (0.1 | ) | 1.5 | ||||||||||||||
(Loss) income before income taxes | (6.0 | ) | 41.1 | 1.3 | (0.4 | ) | 36.0 | |||||||||||||
Income tax provision | — | (18.0 | ) | (0.4 | ) | 2.3 | (16.1 | ) | ||||||||||||
Earnings in equity of subsidiaries | 25.9 | 0.6 | — | (26.5 | ) | — | ||||||||||||||
Net income | $ | 19.9 | $ | 23.7 | $ | 0.9 | $ | (24.6 | ) | $ | 19.9 | |||||||||
Comprehensive income | $ | 21.5 | $ | 25.3 | $ | 0.9 | $ | (26.2 | ) | $ | 21.5 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 1,019.7 | $ | 85.4 | $ | (60.7 | ) | $ | 1,044.4 | |||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of products sold: | ||||||||||||||||||||
Cost of products sold, excluding depreciation and amortization and other items | — | 805.8 | 75.0 | (58.1 | ) | 822.7 | ||||||||||||||
Unrealized gain on derivative instruments | — | (14.0 | ) | — | — | (14.0 | ) | |||||||||||||
Depreciation and amortization | — | 27.7 | 1.6 | — | 29.3 | |||||||||||||||
Selling, general, administrative, research and development: | ||||||||||||||||||||
Selling, general, administrative, research and development | 3.4 | 67.2 | 5.7 | (1.6 | ) | 74.7 | ||||||||||||||
Net periodic postretirement benefit cost relating to Salaried VEBA | — | 3.4 | — | — | 3.4 | |||||||||||||||
Gain on removal of Union VEBA net assets | — | (0.8 | ) | — | — | (0.8 | ) | |||||||||||||
Total selling, general, administrative, research and development | 3.4 | 69.8 | 5.7 | (1.6 | ) | 77.3 | ||||||||||||||
Goodwill impairment | — | 18.4 | — | — | 18.4 | |||||||||||||||
Total costs and expenses | 3.4 | 907.7 | 82.3 | (59.7 | ) | 933.7 | ||||||||||||||
Operating (loss) income | (3.4 | ) | 112.0 | 3.1 | (1.0 | ) | 110.7 | |||||||||||||
Other (expense) income: | ||||||||||||||||||||
Interest expense | (15.3 | ) | (1.2 | ) | — | 0.1 | (16.4 | ) | ||||||||||||
Other income, net | — | 2.7 | 0.5 | (0.1 | ) | 3.1 | ||||||||||||||
(Loss) income before income taxes | (18.7 | ) | 113.5 | 3.6 | (1.0 | ) | 97.4 | |||||||||||||
Income tax provision | — | (43.0 | ) | (0.9 | ) | 7.1 | (36.8 | ) | ||||||||||||
Earnings in equity of subsidiaries | 79.3 | 1.8 | — | (81.1 | ) | — | ||||||||||||||
Net income | $ | 60.6 | $ | 72.3 | $ | 2.7 | $ | (75.0 | ) | $ | 60.6 | |||||||||
Comprehensive income | $ | 64.6 | $ | 76.3 | $ | 2.7 | $ | (79.0 | ) | $ | 64.6 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 313.9 | $ | 26.6 | $ | (19.9 | ) | $ | 320.6 | |||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of products sold: | ||||||||||||||||||||
Cost of products sold, excluding depreciation and amortization and other items | — | 250.0 | 23.7 | (19.0 | ) | 254.7 | ||||||||||||||
Unrealized gain on derivative instruments | — | (2.0 | ) | — | — | (2.0 | ) | |||||||||||||
Depreciation and amortization | — | 8.5 | 0.5 | — | 9.0 | |||||||||||||||
Selling, general, administrative, research and development: | ||||||||||||||||||||
Selling, general, administrative, research and development | 0.9 | 24.0 | 1.3 | (0.6 | ) | 25.6 | ||||||||||||||
Net periodic postretirement benefit cost relating to Salaried VEBA | — | 0.8 | — | — | 0.8 | |||||||||||||||
Total selling, general, administrative, research and development | 0.9 | 24.8 | 1.3 | (0.6 | ) | 26.4 | ||||||||||||||
Other operating charges, net | — | 2.7 | — | — | 2.7 | |||||||||||||||
Total costs and expenses | 0.9 | 284.0 | 25.5 | (19.6 | ) | 290.8 | ||||||||||||||
Operating (loss) income | (0.9 | ) | 29.9 | 1.1 | (0.3 | ) | 29.8 | |||||||||||||
Other (expense) income: | ||||||||||||||||||||
Interest (expense) income | (5.7 | ) | 0.1 | — | 0.1 | (5.5 | ) | |||||||||||||
Other (expense) income, net | (0.1 | ) | 0.1 | 0.1 | (0.1 | ) | — | |||||||||||||
(Loss) income before income taxes | (6.7 | ) | 30.1 | 1.2 | (0.3 | ) | 24.3 | |||||||||||||
Income tax provision | — | (11.6 | ) | (0.3 | ) | 2.5 | (9.4 | ) | ||||||||||||
Earnings in equity of subsidiaries | 21.6 | 0.7 | — | (22.3 | ) | — | ||||||||||||||
Net income | $ | 14.9 | $ | 19.2 | $ | 0.9 | $ | (20.1 | ) | $ | 14.9 | |||||||||
Comprehensive income | $ | 16.0 | $ | 20.3 | $ | 0.9 | $ | (21.2 | ) | $ | 16.0 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 976.9 | $ | 80.6 | $ | (58.8 | ) | $ | 998.7 | |||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of products sold: | ||||||||||||||||||||
Cost of products sold, excluding depreciation and amortization and other items | — | 753.1 | 70.3 | (56.3 | ) | 767.1 | ||||||||||||||
Lower of cost or market inventory write-down | — | 4.9 | — | — | 4.9 | |||||||||||||||
Unrealized gain on derivative instruments | — | (16.9 | ) | — | — | (16.9 | ) | |||||||||||||
Depreciation and amortization | — | 25.2 | 1.5 | — | 26.7 | |||||||||||||||
Selling, general, administrative, research and development: | ||||||||||||||||||||
Selling, general, administrative, research and development | 3.3 | 71.4 | 6.5 | (2.0 | ) | 79.2 | ||||||||||||||
Net periodic postretirement benefit cost relating to Salaried VEBA | — | 2.5 | — | — | 2.5 | |||||||||||||||
Gain on removal of Union VEBA net assets | — | (0.1 | ) | — | — | (0.1 | ) | |||||||||||||
Total selling, general, administrative, research and development | 3.3 | 73.8 | 6.5 | (2.0 | ) | 81.6 | ||||||||||||||
Other operating charges, net | — | 2.8 | — | — | 2.8 | |||||||||||||||
Total costs and expenses | 3.3 | 842.9 | 78.3 | (58.3 | ) | 866.2 | ||||||||||||||
Operating (loss) income | (3.3 | ) | 134.0 | 2.3 | (0.5 | ) | 132.5 | |||||||||||||
Other (expense) income: | ||||||||||||||||||||
Interest (expense) income | (15.9 | ) | 1.1 | — | 0.1 | (14.7 | ) | |||||||||||||
Other (expense) income, net | (11.1 | ) | 0.6 | 0.2 | (0.1 | ) | (10.4 | ) | ||||||||||||
(Loss) income before income taxes | (30.3 | ) | 135.7 | 2.5 | (0.5 | ) | 107.4 | |||||||||||||
Income tax provision | — | (51.1 | ) | (0.7 | ) | 11.6 | (40.2 | ) | ||||||||||||
Earnings in equity of subsidiaries | 97.5 | 1.3 | — | (98.8 | ) | — | ||||||||||||||
Net income | $ | 67.2 | $ | 85.9 | $ | 1.8 | $ | (87.7 | ) | $ | 67.2 | |||||||||
Comprehensive income | $ | 70.1 | $ | 88.7 | $ | 1.9 | $ | (90.6 | ) | $ | 70.1 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | (12.8 | ) | $ | 137.4 | $ | 6.9 | $ | — | $ | 131.5 | |||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | — | (55.7 | ) | (0.4 | ) | — | (56.1 | ) | ||||||||||||
Purchase of available for sale securities | — | (196.0 | ) | — | — | (196.0 | ) | |||||||||||||
Proceeds from disposition of available for sale securities | — | 237.2 | — | — | 237.2 | |||||||||||||||
Proceeds from disposal of property, plant and equipment | — | 0.6 | — | — | 0.6 | |||||||||||||||
Intercompany loans receivable | 110.4 | — | (5.6 | ) | (104.8 | ) | — | |||||||||||||
Net cash provided by (used in) investing activities | 110.4 | (13.9 | ) | (6.0 | ) | (104.8 | ) | (14.3 | ) | |||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Repayment of capital lease | — | (0.2 | ) | — | — | (0.2 | ) | |||||||||||||
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares | (4.5 | ) | — | — | — | (4.5 | ) | |||||||||||||
Repurchase of common stock | (66.7 | ) | — | — | — | (66.7 | ) | |||||||||||||
Cash dividends and dividend equivalents paid | (26.4 | ) | — | — | — | (26.4 | ) | |||||||||||||
Intercompany loans payable | — | (104.8 | ) | — | 104.8 | — | ||||||||||||||
Net cash used in financing activities | (97.6 | ) | (105.0 | ) | — | 104.8 | (97.8 | ) | ||||||||||||
Net increase in cash, cash equivalents and restricted cash during the period | — | 18.5 | 0.9 | — | 19.4 | |||||||||||||||
Cash, cash equivalents and restricted cash at beginning of period | — | 65.1 | 2.6 | — | 67.7 | |||||||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | — | $ | 83.6 | $ | 3.5 | $ | — | $ | 87.1 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||
Net cash provided by operating activities | $ | 189.7 | $ | 109.3 | $ | 8.4 | $ | (200.0 | ) | $ | 107.4 | |||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||
Capital expenditures | — | (55.6 | ) | (1.8 | ) | — | (57.4 | ) | ||||||||||||||
Purchase of available for sale securities | — | (201.1 | ) | — | — | (201.1 | ) | |||||||||||||||
Proceeds from disposition of available for sale securities | — | 30.0 | — | — | 30.0 | |||||||||||||||||
Intercompany loans receivable1 | (205.6 | ) | 106.0 | (3.7 | ) | 103.3 | — | |||||||||||||||
Net cash (used in) provided by in investing activities | (205.6 | ) | (120.7 | ) | (5.5 | ) | 103.3 | (228.5 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||
Repayment of principal and redemption premium of 8.25% Senior Notes | (206.0 | ) | — | — | — | (206.0 | ) | |||||||||||||||
Issuance of 5.875% Senior Notes | 375.0 | — | — | — | 375.0 | |||||||||||||||||
Cash paid for debt issuance costs | (6.8 | ) | — | — | — | (6.8 | ) | |||||||||||||||
Proceeds from stock option exercises | 1.0 | — | — | — | 1.0 | |||||||||||||||||
Repayment of capital lease | — | — | (0.1 | ) | — | (0.1 | ) | |||||||||||||||
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares | (2.8 | ) | — | — | — | (2.8 | ) | |||||||||||||||
Repurchase of common stock | (13.6 | ) | — | — | — | (13.6 | ) | |||||||||||||||
Cash dividends and dividend equivalents paid | (24.4 | ) | — | — | — | (24.4 | ) | |||||||||||||||
Cash dividends paid to Parent | — | (200.0 | ) | — | 200.0 | — | ||||||||||||||||
Intercompany loans payable1 | (106.5 | ) | 209.3 | 0.5 | (103.3 | ) | — | |||||||||||||||
Net cash provided by financing activities | 15.9 | 9.3 | 0.4 | — | 96.7 | — | 122.3 | |||||||||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash during the period | — | (2.1 | ) | 3.3 | — | 1.2 | ||||||||||||||||
Cash, cash equivalents and restricted cash at beginning of period | — | 83.0 | 0.7 | — | 83.7 | |||||||||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | — | $ | 80.9 | $ | 4.0 | $ | — | $ | 84.9 |
14. Subsequent Events
Dividend Declaration
20
Item 2.
ManagementForward-Looking Statements
This Item should be read in conjunction with Part I, Item 1.
The following discussion and analysis of our financial condition and results of operations ("MD&A") is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
Non-GAAP Financial Measures
This information contains certain non-GAAP financial measures. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets or statements of cash flows of the company. We have provided a reconciliation of non‑GAAP financial measures to the most directly comparable financial measure in the accompanying tables. We have also provided discussion of the reasons we believe that presentation of the non-GAAP financial measures provides useful information to investors, as well as any additional ways in which we use the non-GAAP financial measures. The non-GAAP financial measures used in the following discussions are Conversion Revenue (defined as Net sales less the Hedged Cost of Alloyed Metal, see below in “Metal Pricing Policies” discussion), Adjusted EBITDA and ratios related thereto. These measures are presented because management uses this information to monitor and evaluate financial results and trends and believes this information to also be useful for investors.
In the discussion of operating results below, we refer to certain items as non-run-rate“non-run-rate items.” For purposes of such discussion, non-run-rate items are items that, while they may recur from period-to-period: (i) are particularly material to results; (ii) affect costs primarily as a result of external market factors; and (iii) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating environment but are worthy of being highlighted for the benefit of readers of our financial statements. Our intent is to allow users of the financial statements to consider our results both in light of and separately from items such as unrealized mark-to-market gains or losses on derivatives related to fluctuations in underlying metal and energy prices and currency exchange rates, lower of cost or market inventory write-downs, non-cash impairments, the impact of discount rate changes on workers' compensation liabilities, legacy environmental expenses related to predecessor operations and gains or losses related to the voluntary employee beneficiary associations ("VEBAs").items. For a reconciliation of operatingAdjusted EBITDA to Net income, (loss) excluding non-run-rate items to operating income (loss), see "Resultsbelow in “Results of Operations -
Metal Pricing Policies
A fundamental part of our business model is to remain neutral to the impact from fluctuations in the market price for aluminum and certain alloys, thereby earning profit predominatelypredominantly from the conversion of aluminum into semi-fabricated mill products. We refer to this as metal“metal price neutrality.” We purchase primary, rolling ingot and scrap, or recycled, aluminum, our main raw material, and alloys at prices that fluctuate on a monthly basis, and our pricing policies generally allow us to pass the underlying index cost of metal
21
aluminum and certain alloys through to our customers so that we remain neutral to metal pricing. ForHowever, for some of our higher value added revenuemargin products sold on a spot basis,
Our pricing policies and hedging program are intended to significantly reduce or eliminate the impact on our profitability of fluctuations in underlying metal price of primary, rolling ingot and scrap, or recycled, aluminum, our main raw material, and certain alloys so that our earnings are predominantly associated with the conversion of aluminum to semi-fabricatedsemi‑fabricated mill products. To allow users of our financial statements to consider the impact of metalaluminum and alloy cost on our Net sales, we disclose Net sales as well as value added revenue,Conversion Revenue, which is Net sales less the Hedged Cost of Alloyed Metal. The HedgedAs used in this discussion, “Hedged Cost of Alloyed MetalMetal” is the cost of our metal inputsaluminum at the Midwest Transaction Price of aluminum ("Midwest Price")average MWTP plus the cost of alloying elements and any realized gains and/or losses on settled hedges related to the metal sold in the referenced period. The Midwest Priceaverage MWTP of aluminum reflects supply and the primary aluminum supply/demand dynamics for primary aluminum in North America. For a reconciliation of value added revenueConversion Revenue to Net sales, see "Resultsbelow in “Results of Operations - SegmentSelected Operational and Financial Information.”
Business Unit Information" below.
We manufacture and sell semi-fabricated specialty aluminum mill products for the following end market applications: aerospace(i) Aero/HS Products; (ii) Packaging; (iii) GE Products; (iv) Automotive Extrusions; and high strength ("Aero/HS products"); automotive ("Automotive Extrusions"); general engineering ("GE products"); and other industrial ("(v) Other products").products. Our fabricated aluminum mill products include flat-rolled (plate, sheet and sheet)coil), extruded (rod, bar, hollows and shapes), drawn (rod, bar, pipe, tube and wire) and certain cast aluminum products. The sophistication of our products is due to the metallurgy and physical properties of the metal and the special characteristics that are required for particular end uses. We strategically choose to serve technically challenging applications for which we can deploy our core metallurgical and process technology capabilities to produce highly engineered mill products with differentiated characteristics that present opportunities for us to receive premium pricing and to create long-term profitable growth.
With respect to the global market for flat-rolled aluminum mill products, our focus is on heat treat plate and sheet for applications that require higher strength and other desired product attributes that cannot be achieved by common alloy rolled products. The primary end market applications of flat-rolled heat treat plate and sheet, which are produced at Trentwood, are Aero/HS productsProducts (which we sell globally) and GE productsProducts (which we predominantly sell within North America). Similarly,The primary end market application of bare and coated aluminum coil, which are produced at Warrick, is Packaging for can stock applications which we sell in North America. Our Packaging products require demanding attributes and can be further processed to include coating and slitting depending on customer specifications.
In the areas of aluminum extrusions, we focus on demanding Aero/HS products,Products, GE Products, and Automotive Extrusions and GE products that require high strength, machinability or other specific properties where we can create and maintain a defensible competitive position because of our technical expertise, strong production capability and high product quality. We primarily serve North American demand for extruded mill products.
We have long-standing relationships with our customers, which consist primarily of blue-chip companies including leading aerospace and automotive manufacturers, tier one aerospace and automotive suppliers, food and beverage packaging manufacturers, and metal service centers. Approximately 50%75% of our shipments is sold direct to the manufacturers or tier one suppliers and approximately 50%25% is sold to metal service centers. In our served markets, we seek to be the supplier of choice by pursuing "Best“Best in Class"Class” customer satisfaction driven by quality, availability, service and delivery performance. We strive tobelieve we differentiate our product portfolio through our broad product offering and our KaiserSelect
22
Highlights of the aerospace and defense industries' consumption of fabricated aluminum products is driven by factors that include levels of airframe build rates, the mix of aircraft models being built and defense spending. Unanticipated changes in build rates and mix of aircraft models being built can trigger re-stocking or de-stocking throughout the long aerospace supply chain, temporarily impactingquarter ended March 31, 2024 include:
Results of Operations
Consolidated Results of Operations
Net Sales.
Net sales totaledCOGS. COGS for the quarter ended September 30, 2017March 31, 2024 totaled $267.2$642.9 million, or 80%87% of Net sales, compared to $254.7$731.1 million, or 79%91% of Net sales, for the quarter ended September 30, 2016.March 31, 2023. The increasedecrease of $12.5$88.2 million was comprised ofreflected a $21.1$67.7 million increasedecrease in Hedged Cost of Alloyed Metal partially offset byand a $8.6$20.5 million reductiondecrease in net manufacturing conversion and other costs. Of the $67.7 million decrease in Hedged Cost of Alloyed Metal, $55.5 million was due to lower hedged metal prices and $12.2 million was due to lower shipment volume (see above in our “Net Sales” discussion for further details). The reduction$20.5 million decrease in net manufacturing conversion and other costs reflected: (i) a $3.3an $8.1 million improvement in raw material costsdecrease due to favorable scrap pricing and usage;lower shipments; (ii) $1.3a $7.5 million of lower planneddecrease in major maintenance expense;costs driven by timing of annual planned maintenance programs; and (iii) a $5.1$4.9 million decrease in manufacturing, LIFOfreight and other costs, partially offset by a $1.1 million increase in costs related to product mix. Of the $21.1 million increase in Hedged Cost of Alloyed Metal, $20.1 million was due to higher hedged metal prices and $1.0 million was due to higher shipment volume, as discussed in "
Selling, General, Administrative, Research and Development (“SG&A and R&D”). SG&A and R&D expense totaled $32.6 million and $29.7 million for the quarters ended September 30, 2017March 31, 2024 and September 30, 2016.
Restructuring Costs. Restructuring costs of Cost or Market Inventory Write-Down
Other Operating Charges, Net. Other operating charge of cost or market value adjustments.
Interest Expense. See Note 6 of Notes to Interim Consolidated Financial Statements included in this Report for disclosure regardinga discussion of our debt and credit facilities that were in effect during the Salaried VEBAquarters ended March 31, 2024 and net periodic postretirement benefit cost relating thereto.
Other Income, Net.See Note 49 of Notes to Interim Consolidated Financial Statements included in this Report for details.
Income (Expense), Net.
Selected Operational and Business UnitFinancial Information
The following data should be read in conjunction with our consolidated financial statements and the notes thereto included in Part I, Item 1. "Financial Statements"“Financial Statements” of this Report. Interim results are not necessarily indicative of those for a full year.
23
The table below provides selected operational and financial information (in millions of dollars):
|
| Quarter Ended March 31, |
|
| |||||
|
| 2024 |
|
| 2023 |
|
| ||
Net income |
| $ | 24.6 |
|
| $ | 15.9 |
|
|
Interest expense |
|
| 11.5 |
|
|
| 11.9 |
|
|
Other income, net |
|
| (10.9 | ) |
|
| (13.6 | ) |
|
Income tax provision |
|
| 7.5 |
|
|
| 4.9 |
|
|
Depreciation and amortization |
|
| 28.8 |
|
|
| 26.3 |
|
|
Non-run-rate items: |
|
|
|
|
|
|
| ||
Restructuring costs |
|
| 0.1 |
|
|
| 1.4 |
|
|
Mark-to-market gain on derivative instruments1 |
|
| — |
|
|
| (0.1 | ) |
|
Non-cash asset impairment charge |
|
| 0.4 |
|
|
| — |
|
|
Environmental expenses2 |
|
| 0.4 |
|
|
| — |
|
|
Total non-run-rate items |
|
| 0.9 |
|
|
| 1.3 |
|
|
Adjusted EBITDA |
| $ | 62.4 |
|
| $ | 46.7 |
|
|
Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Segment operating income | $ | 53.7 | $ | 42.1 | $ | 149.9 | $ | 172.1 | |||||||
Impact to segment operating income of non-run-rate items: | |||||||||||||||
Adjustments to plant-level LIFO1 | (2.0 | ) | (4.1 | ) | (3.9 | ) | (2.2 | ) | |||||||
Mark-to-market gain on derivative instruments | 10.8 | 2.0 | 14.0 | 16.9 | |||||||||||
Non-cash lower of cost or market inventory write-down2 | — | — | — | (4.9 | ) | ||||||||||
Workers' compensation cost due to discounting | 0.1 | (0.1 | ) | (0.1 | ) | — | |||||||||
Goodwill impairment3 | — | — | (18.4 | ) | — | ||||||||||
Asset impairment charges3 | — | (2.7 | ) | — | (2.8 | ) | |||||||||
Environmental expenses | (0.2 | ) | — | (0.2 | ) | — | |||||||||
Total non-run-rate items | 8.7 | (4.9 | ) | (8.6 | ) | 7.0 | |||||||||
Segment operating income excluding non-run-rate items | $ | 45.0 | $ | 47.0 | $ | 158.5 | $ | 165.1 |
Adjusted EBITDA for the quarter ended September 30, 2017March 31, 2024 was $2.0$15.7 million lowerhigher than segment operating income excluding such itemsAdjusted EBITDA for the quarter ended September 30, 2016. Lower operating income excluding non-run-rate items reflected: (i) a $10.2 million unfavorable sales impact due primarily to a leaner product mix and lower sales margins, as discussed above and (ii) $1.3 million of higher depreciation and amortization expense, partially offsetMarch 31, 2023. Adjusted EBITDA for the quarter ended March 31, 2024 was impacted by: (i) a $3.3 million improvement from favorable price spreads for scrap raw material purchases;improved pricing and mix; (ii) $1.3 millionimproved operating efficiencies; (iii) lower cost of lower planned major maintenance expense; and (iii) a $4.8 million improvement in net manufacturing conversion and other costs.
24
The following table below provides our Fabricated Products segment shipment and value added revenueConversion Revenue information (in millions of dollars, except shipments and value added revenueConversion Revenue per pound) by end market applicationsapplications:
|
| Quarter Ended March 31, |
| |||||||||||||
|
| 2024 |
|
| 2023 |
| ||||||||||
Aero/HS Products: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 62.9 |
|
| 58.2 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 220.5 |
|
| $ | 3.51 |
|
| $ | 214.0 |
|
| $ | 3.68 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (84.0 | ) |
|
| (1.34 | ) |
|
| (91.6 | ) |
|
| (1.58 | ) |
Conversion Revenue |
| $ | 136.5 |
|
| $ | 2.17 |
|
| $ | 122.4 |
|
| $ | 2.10 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Packaging: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 142.4 |
|
| 153.7 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 298.1 |
|
| $ | 2.09 |
|
| $ | 354.2 |
|
| $ | 2.30 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (180.1 | ) |
|
| (1.26 | ) |
|
| (221.0 | ) |
|
| (1.43 | ) |
Conversion Revenue |
| $ | 118.0 |
|
| $ | 0.83 |
|
| $ | 133.2 |
|
| $ | 0.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
GE Products: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 58.1 |
|
| 56.9 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 153.0 |
|
| $ | 2.63 |
|
| $ | 162.1 |
|
| $ | 2.85 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (72.8 | ) |
|
| (1.25 | ) |
|
| (82.2 | ) |
|
| (1.45 | ) |
Conversion Revenue |
| $ | 80.2 |
|
| $ | 1.38 |
|
| $ | 79.9 |
|
| $ | 1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Automotive Extrusions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 26.5 |
|
| 27.7 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 63.5 |
|
| $ | 2.39 |
|
| $ | 70.8 |
|
| $ | 2.56 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (32.4 | ) |
|
| (1.22 | ) |
|
| (39.6 | ) |
|
| (1.43 | ) |
Conversion Revenue |
| $ | 31.1 |
|
| $ | 1.17 |
|
| $ | 31.2 |
|
| $ | 1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Products: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 1.1 |
|
| 2.8 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 2.4 |
|
| $ | 2.18 |
|
| $ | 6.5 |
|
| $ | 2.32 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (1.3 | ) |
|
| (1.18 | ) |
|
| (3.9 | ) |
|
| (1.39 | ) |
Conversion Revenue |
| $ | 1.1 |
|
| $ | 1.00 |
|
| $ | 2.6 |
|
| $ | 0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 291.0 |
|
| 299.3 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 737.5 |
|
| $ | 2.53 |
|
| $ | 807.6 |
|
| $ | 2.70 |
|
Less: Hedged Cost of Alloyed Metal1 |
|
| (370.6 | ) |
|
| (1.27 | ) |
|
| (438.3 | ) |
|
| (1.47 | ) |
Conversion Revenue |
| $ | 366.9 |
|
| $ | 1.26 |
|
| $ | 369.3 |
|
| $ | 1.23 |
|
Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||
Aero/HS Products: | |||||||||||||||||||||||||||||||
Shipments (mmlbs) | 53.4 | 55.5 | 172.8 | 179.2 | |||||||||||||||||||||||||||
$ | $ / lb | $ | $ / lb | $ | $ / lb | $ | $ / lb | ||||||||||||||||||||||||
Net sales | $ | 150.2 | $ | 2.81 | $ | 156.1 | $ | 2.81 | $ | 483.2 | $ | 2.80 | $ | 500.7 | $ | 2.79 | |||||||||||||||
Less: Hedged Cost of Alloyed Metal | (51.8 | ) | (0.97 | ) | (47.5 | ) | (0.85 | ) | (162.7 | ) | (0.95 | ) | (152.7 | ) | (0.85 | ) | |||||||||||||||
Value added revenue | $ | 98.4 | $ | 1.84 | $ | 108.6 | $ | 1.96 | $ | 320.5 | $ | 1.85 | $ | 348.0 | $ | 1.94 | |||||||||||||||
Automotive Extrusions: | |||||||||||||||||||||||||||||||
Shipments (mmlbs) | 24.5 | 22.6 | 75.9 | 70.8 | |||||||||||||||||||||||||||
$ | $ / lb | $ | $ / lb | $ | $ / lb | $ | $ / lb | ||||||||||||||||||||||||
Net sales | $ | 52.7 | $ | 2.15 | $ | 46.5 | $ | 2.06 | $ | 161.6 | $ | 2.13 | $ | 143.6 | $ | 2.03 | |||||||||||||||
Less: Hedged Cost of Alloyed Metal | (23.8 | ) | (0.97 | ) | (18.9 | ) | (0.84 | ) | (72.9 | ) | (0.96 | ) | (58.0 | ) | (0.82 | ) | |||||||||||||||
Value added revenue | $ | 28.9 | $ | 1.18 | $ | 27.6 | $ | 1.22 | $ | 88.7 | $ | 1.17 | $ | 85.6 | $ | 1.21 | |||||||||||||||
GE Products: | |||||||||||||||||||||||||||||||
Shipments (mmlbs) | 64.1 | 62.8 | 203.1 | 190.5 | |||||||||||||||||||||||||||
$ | $ / lb | $ | $ / lb | $ | $ / lb | $ | $ / lb | ||||||||||||||||||||||||
Net sales | $ | 115.9 | $ | 1.81 | $ | 105.6 | $ | 1.68 | $ | 361.1 | $ | 1.78 | $ | 318.3 | $ | 1.67 | |||||||||||||||
Less: Hedged Cost of Alloyed Metal | (63.3 | ) | (0.99 | ) | (52.6 | ) | (0.84 | ) | (195.9 | ) | (0.97 | ) | (157.9 | ) | (0.83 | ) | |||||||||||||||
Value added revenue | $ | 52.6 | $ | 0.82 | $ | 53.0 | $ | 0.84 | $ | 165.2 | $ | 0.81 | $ | 160.4 | $ | 0.84 | |||||||||||||||
Other Products: | |||||||||||||||||||||||||||||||
Shipments (mmlbs) | 7.6 | 7.4 | 20.9 | 22.1 | |||||||||||||||||||||||||||
$ | $ / lb | $ | $ / lb | $ | $ / lb | $ | $ / lb | ||||||||||||||||||||||||
Net sales | $ | 14.0 | $ | 1.84 | $ | 12.4 | $ | 1.68 | $ | 38.5 | $ | 1.84 | $ | 36.1 | $ | 1.63 | |||||||||||||||
Less: Hedged Cost of Alloyed Metal | (7.4 | ) | (0.97 | ) | (6.2 | ) | (0.84 | ) | (20.3 | ) | (0.97 | ) | (18.1 | ) | (0.82 | ) | |||||||||||||||
Value added revenue | $ | 6.6 | $ | 0.87 | $ | 6.2 | $ | 0.84 | $ | 18.2 | $ | 0.87 | $ | 18.0 | $ | 0.81 | |||||||||||||||
Total: | |||||||||||||||||||||||||||||||
Shipments (mmlbs) | 149.6 | 148.3 | 472.7 | 462.6 | |||||||||||||||||||||||||||
$ | $ / lb | $ | $ / lb | $ | $ / lb | $ | $ / lb | ||||||||||||||||||||||||
Net sales | $ | 332.8 | $ | 2.22 | $ | 320.6 | $ | 2.16 | $ | 1,044.4 | $ | 2.21 | $ | 998.7 | $ | 2.16 | |||||||||||||||
Less: Hedged Cost of Alloyed Metal | (146.3 | ) | (0.97 | ) | (125.2 | ) | (0.84 | ) | (451.8 | ) | (0.96 | ) | (386.7 | ) | (0.84 | ) | |||||||||||||||
Value added revenue | $ | 186.5 | $ | 1.25 | $ | 195.4 | $ | 1.32 | $ | 592.6 | $ | 1.25 | $ | 612.0 | $ | 1.32 |
Outlook
We remain well positioned in the current demand environment as a key supplier in diverse end markets with multi-year contracts with strategic partners. We expect demand will improve across the majority of our end markets throughout 2024. In Aero/HS Products, increased by 4% to $332.8 million, as compared toa more cautious outlook is warranted on expected build rates for domestic large commercial jet production in the quarter ended September 30, 2016, reflectingnear-term resulting in anticipated flat conversion revenue in 2024 following a 1% increase in Fabricated Products segment shipment volume and a 3% increase in average realized sales price per pound, as discussed in further detail above in "Consolidated Results of Operations."
25
unchanged. We believe demand for ourother Aero/HS products dueProducts applications remains strong. Now that destocking is complete, we expect the rest of our end markets to constraints on throughput during installation and ramp-up of new equipment and automated controls at Trentwood. For Automotive Extrusions,perform consistent with the prior outlook.
As a result, we continue to expect double-digit year-over-year growth in shipmentsconversion revenue for the full year 2024 to improve 2% - 3% and mid-single-digit growth in value added revenueAdjusted EBITDA margin to improve 70 - 170 basis points over 2023 as new product growth is predominantly in lower value added parts. As we have previously noted for our Aero/HS products, we anticipate headwinds from lower sales margins and commercial aerospace supply chain destocking will continue through the remainder of the year. While we had previously anticipated our Aero/HS products shipments would be comparable to 2016, we now expect our 2017 Aero/HS shipments will be lower than the prior year due to the slower-than-anticipated Trentwood ramp-up.
Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating loss | $ | (13.9 | ) | $ | (12.3 | ) | $ | (39.2 | ) | $ | (39.6 | ) | |||
Impact to operating loss of non-run-rate items: | |||||||||||||||
Net periodic post retirement benefit cost relating to Salaried VEBA | (1.2 | ) | (0.8 | ) | (3.4 | ) | (2.5 | ) | |||||||
(Loss) gain on removal of Union VEBA net assets | (0.5 | ) | — | 0.8 | 0.1 | ||||||||||
Total non-run-rate items | (1.7 | ) | (0.8 | ) | (2.6 | ) | (2.4 | ) | |||||||
Operating loss excluding non-run-rate items | $ | (12.2 | ) | $ | (11.5 | ) | $ | (36.6 | ) | $ | (37.2 | ) |
Liquidity and Capital Resources
Summary
The following table summarizes our liquidity at the dates presented (in millions of dollars):
|
| As of March 31, 2024 |
|
| As of December 31, 2023 |
| ||
Available cash and cash equivalents |
| $ | 101.6 |
|
| $ | 82.4 |
|
Borrowing availability under Revolving Credit Facility, net of letters of credit1 |
|
| 517.4 |
|
|
| 516.7 |
|
Total liquidity |
| $ | 619.0 |
|
| $ | 599.1 |
|
September 30, 2017 | December 31, 2016 | ||||||
Available cash and cash equivalents | $ | 73.9 | $ | 55.2 | |||
Short-term investments | 191.4 | 231.0 | |||||
Net borrowing availability under Revolving Credit Facility after letters of credit | 286.6 | 275.3 | |||||
Total liquidity | $ | 551.9 | $ | 561.5 |
We place our cash in bank deposits and money market funds with high credit quality financial institutions, which invest primarily in commercial paper and time deposits of prime quality, short-term repurchase agreements and U.S. government agency notes. Short-term investments represent holdings in investment-grade commercial paper with a maturity at the time of purchase of greater than 90 days.
We had no outstanding borrowings as of March 31, 2024 and December 31, 2023 under our Revolving Credit Facility asFacility. See below in “Sources of September 30, 2017, or asLiquidity” for a further discussion of December 31, 2016.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for each period presented (in millions of dollars):
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Total cash provided by (used in): | |||||||
Operating activities: | |||||||
Fabricated Products | $ | 194.3 | $ | 158.8 | |||
All Other | (62.8 | ) | (51.4 | ) | |||
Total cash provided by operating activities | $ | 131.5 | $ | 107.4 | |||
Investing activities: | |||||||
Fabricated Products | $ | (55.4 | ) | $ | (57.2 | ) | |
All Other | 41.1 | (171.3 | ) | ||||
Total cash used in investing activities | $ | (14.3 | ) | $ | (228.5 | ) | |
Financing activities: | |||||||
Fabricated Products | $ | (0.2 | ) | $ | (0.1 | ) | |
All Other | (97.6 | ) | 122.4 | ||||
Total cash (used in) provided by financing activities | $ | (97.8 | ) | $ | 122.3 |
|
| Quarter Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Total cash provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
| $ | 63.3 |
|
| $ | (20.3 | ) |
Investing activities |
| $ | (29.9 | ) |
| $ | (25.9 | ) |
Financing activities |
| $ | (14.2 | ) |
| $ | 25.0 |
|
Cash provided by operating activities provided $194.3 millionfor the quarter ended March 31, 2024 reflected results of cash. Cash providedbusiness activity described above in our “Consolidated Results of Operations” discussion, as well as the nine months ended September 30, 2017 was primarily related to:following working capital changes: (i) $149.9 million of operating income; (ii) depreciation and amortization of $28.9 million; (iii) goodwill impairment of $18.4 million; and (iv) an increase in accounts payable of $21.7$18.6 million driven predominantly byprimarily due to the timing of payments and higher metal purchases. Cash provided by operating activities was partially offset by: (i) adjustments for other non-cash items of $11.3 million;cost; (ii) an increase in inventory of $10.6 million; and (iii) an increase in trade and other receivables of $0.9 million.
Cash provided byused in operating activities was partially offset by:for the quarter ended March 31, 2023 reflected results of business activity described above in our “Consolidated Results of Operations” discussion, as well as the following working capital changes: (i) an increase in accounts receivabletrade and other receivables of $26.6$36.9 million, primarily due primarily to the timing of saleshigher pricing and an increase in metal price; (ii) adjustments for other non-cash itemsa decrease in accounts payable of $13.4 million;$22.6 million primarily due to the timing of payments; and (iii) an increase in inventory of $8.9 million.
See Statements of Consolidated Cash Flows included in this Report for further details on our cash flows from operating, income excluding non-run-rate items, see "Results of Operations –
Sources of Liquidity
Our most significant sources of liquidity include available cash and cash equivalents, short-term investments, borrowing availability under the Revolving Credit Facility, and funds generated from operations are our most significant sources of liquidity. Whileoperations. We believe we believe these sources will behave sufficient to finance our working capital requirements, planned capital expenditures and investments, debt service obligations and other cash requirements for at least the next twelve months, our abilityliquidity to fund such cash requirements will depend upon our future operating performance (which will be affected by prevailing economic conditions)operations and financial, businessmeet our short-term and other factors, some of which are beyond our control.long-term obligations.
26
Our Revolving Credit Facility matures in December 2020 and providesSenior Notes have covenants that, we believe, allow us to operate our business with limited restrictions and significant flexibility for borrowings up to $300.0 million (subject to borrowing base limitations), of which up to a maximum of $20.0 million may be utilized for letters of credit. The Revolving Credit Facility may, subject to certain conditions and the agreement of lenders thereunder, be increased to $400.0 million.
October 16, 2017 | September 30, 2017 | ||||||
Revolving Credit Facility borrowing commitment | $ | 300.0 | $ | 300.0 | |||
Borrowing base availability | $ | 290.9 | $ | 294.4 | |||
Less: Outstanding borrowings under Revolving Credit Facility | — | — | |||||
Less: Outstanding letters of credit under Revolving Credit Facility | (7.8 | ) | (7.8 | ) | |||
Net remaining borrowing availability | $ | 283.1 | $ | 286.6 | |||
Borrowing rate (if applicable)1 | 4.50 | % | 4.50 | % |
At April 22, 2024, we had no outstanding borrowings under the Revolving Credit Facility. See Note 39 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 20162023 for information regardinga description of our Revolving Credit Facility.
We engage in certain customer-based supply chain financing programs to accelerate the receipt of payment for outstanding accounts receivable from certain customers. Costs of these programs are typically reimbursed to us by the customer. Receivables transferred under these customer-based supply chain financing programs generally meet the requirements to be accounted for as sales resulting in the derecognition of such receivables from our consolidated balance sheets. Receivables involved with these customer‑based supply chain finance programs for the quarter ended March 31, 2024 constituted approximately 37% of our Net sales. See "Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements –
Material Cash Requirements
See Note 9 of Notes to Consolidated Financial Statements included in Part II, Item 7. "Management's Discussion8. “Financial Statements and Analysis of Financial Condition and Results of Operations"Supplementary Data” in our Annual Report on Form 10-K for the year ended December 31, 20162023 for mandatory principal and cash interest payments on the outstanding borrowings.
We do not believe that covenants in the indentureindentures governing the 5.875% Senior Notes are reasonably likely to limit our ability to obtain additional debt or equity financing should we choose to do so during the next 12 months.
Except as otherwise disclosed in this Report, there has been no material change in our material cash requirements from significant contractual obligations, commercial commitments, or off-balance sheet arrangements other than in the ordinary course of business since December 31, 2023.
Capital Expenditures and Investments
We strive to strengthen our competitive position across our end markets through strategic capital investment. Significant investments over the past decade have positioned us well with increased capacity and expanded manufacturing capabilities while more recent capital projects have focused on further enhancing manufacturing cost efficiency, improving product quality and promoting operational security, which we believe are critical to maintaining and strengthening our position in an increasingly competitive market environment, we strategically allocateenvironment. A significant portion of our capital spending on projectsover the past several years related to maintain and improvethe modernization project at our competitive position. Objectives are to target significant improvement in our manufacturing cost efficiency and product quality. Capacity expansion typically is an additional benefit of most projectsTrentwood rolling mill, which focused on cost and quality.
Our capital investment plans remain focused on supporting demand growth through capacity expansion, sustaining our operations, enhancing product quality and increasing operating efficiencies. We anticipate total capital spending in 2018 and beyond. The2024 of approximately $170.0 million to $190.0 million, the majority of which will be focused on growth initiatives, primarily reflecting investment in the new roll coat line at the Warrick facility, which we anticipate will be $100 million. In addition, approximately $10 million is attributable to our Phase VII growth project at out Trentwood efficiency and modernization initiative was announcedfacility. We expect to continue to deploy capital thoughtfully so that investment decisions align with demand expectations in December 2015 and as of September 30, 2017 approximately halforder to maximize the earnings potential of the $150.0 million had been spent.
Capital investmentinvestments will be funded using cash generated from operations, available cash and cash equivalents, short-term investments, borrowings under the Revolving Credit Facility and/or other third-party financing arrangements. The level of anticipated capital expenditures may be adjusted from time to time depending on our business plans, our price outlook for fabricated aluminum products, our ability to maintain adequate liquidity, and other factors. No assurance can be provided as to the timing of any such expenditures or the operational benefits expected therefrom.
27
Dividends
We have consistently paid a quarterly cash dividend since the second quarter of 2007 to holders of our common stock, including holders of restricted stock, and have increased the dividend in each year since 2011.stock. Nevertheless, as in the past, the future declaration and payment of dividends, if any, will be at the discretion of our Board of Directors and will depend on a number of factors, including our financial and operating results, financialincluding the availability of surplus and/or net profits, liquidity position, and anticipated cash requirements and contractual restrictions under our revolving credit facility,Revolving Credit Facility, the indentureindentures for our 5.875% Senior Notes or other indebtedness we may incur in the future. We can give no assurance that dividends will be declared and paid in the future. See Note 3 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 for additional information about restrictions on dividend payments contained in the Revolving Credit Facility and in the indenture for our 5.875% Senior Notes.
We also pay quarterly dividend equivalents to the holders of certain restricted stock units and performance shares.units. Holders of performance shares granted beginning in 2014 are not paid a quarterly dividend equivalent, but instead are entitled to receive, in connection with the issuance of underlying shares of common stock for performance shares that ultimately vest, a one-time payment equal to the dividends such holderholders would have received if the number of such shares of common stock so issued had been held of record by such holderholders from the date of grant of such performance shares through the date of such issuance.
See our Statements of Common Stock
Repurchases of Common Stock
We suspended share repurchases as of March 2020. We will continue to assess share repurchases as a part of our capital allocation priorities and strategic investment opportunities identified to support further growth in our business. At March 31, 2024, $93.1 million remained authorized and available for future repurchases of common stock under our stock repurchase program.
See Note 7our Statements of Notes to Interim Consolidated Financial StatementsStockholders’ Equity included in this Report for information regarding minimum statutory tax withholding obligations arising during the nine monthsquarters ended September 30, 2017March 31, 2024 and September 30, 2016March 31, 2023 in connection with the vesting of non-vestednon‑vested shares, restricted stock units, and performance shares.
Critical Accounting Estimates and Policies
Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates and such differences could be material.
Our significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31,New Accounting Pronouncements
Information regarding new accounting pronouncements see "
28
Availability of news or announcements regarding our financial performance, including Securities and Exchange Commission ("SEC") filings, investor events and press and earnings releases. In addition, all Kaiser Aluminum Corporation filings submitted to the SEC, including ourInformation
We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and Proxy Statements, for our annual meeting of stockholders, as well as other Kaiser Aluminum Corporationany amendments to those reports and statements and other information with the SEC. You may obtain the documents that we file electronically from the SEC’s website at http://www.sec.gov. Our filings with the SEC are made available on the SEC's web site at
Item 3.
Quantitative and Qualitative Disclosures About Market RiskThe following quantitative and qualitative disclosures about market risk should be read in conjunction with Note 5 and Note 8 of Notes to Interim Consolidated Financial Statements included in this Report. Our operating results are sensitive to changes in the prices of primary aluminum, certain alloying metals, natural gas, electricity and electricity,foreign currency, and also depend to a significant degree upon the volume and mix of all products sold. As discussed more fully in Note 9 of Notessold to Interim Consolidated Financial Statements included in this Report, wecustomers. We have historically utilized hedging transactions to lock in a specified price or range of prices for certain products which we sell or consume in our production process, and to mitigate our exposure to changes in energy prices.
Aluminum
During the nine monthsquarters ended September 30, 2017March 31, 2024 and September 30, 2016,March 31, 2023, settlements of derivative contracts covering 136.7were for 39.9 million pounds and 163.649.7 million pounds, respectively, of hedged Fabricated Products shipments sold on pricing terms that created metalaluminum price risk for us. At September 30, 2017,March 31, 2024, we had derivative contracts with respect to approximately 47.1 million pounds, 76.4 million pounds, 24.755.3 million pounds and 1.012.4 million pounds to hedge sales to be made in the remainder of 2017, 2018, 2019,2024 and each of 2020 and 2021,2025, respectively, on pricing terms that create metalaluminum price risk for us.
Based on the aluminum derivative positions held by us to hedge firm-price customer sales agreements, we estimate that a $0.10 per pound$0.10/lb decrease in the LME market price of aluminum as of September 30, 2017March 31, 2024 and December 31, 2016,2023, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $15.0$6.8 million and $14.8$6.3 million, respectively, with corresponding changes to the net fair value of our aluminum derivative positions. Additionally, we estimate that a $0.01 per pound$0.05/lb decrease in the Midwest premium for aluminum as of March 31, 2024 and December 31, 2023, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $1.5$1.7 million asand $1.4 million, respectively, with corresponding changes to the net fair value of both September 30, 2017 and December 31, 2016.
Alloying Metals
We are exposed to the risk of fluctuating prices of certain alloying metals, especially copper, zinc, and zinc,magnesium, to the extent that changes in their prices do not highly correlate with price changes for aluminum. Copper, zinc, magnesium, and certain other metals are used in our remelt operations to cast rolling ingot and extrusion billet with the proper chemistry for our products. From time to time, we enter into forward contract swaps and/or physical delivery commitments with third parties to mitigate our risk from fluctuations in the prices of alloying metals, including copper and zinc.these alloys. As of September 30, 2017,March 31, 2024, we had forward swap contracts with settlement dates designed to align with the timing of scheduled purchases of zinc and copper ("Alloy Hedges") by our manufacturing facilities. Our Alloy Hedges are designated and qualify as cash flow hedges. See Note 9 of Notes to Interim Consolidated Financial Statements included in this Report for additional information relating to these Alloy Hedges. We estimate that a $0.10 per pound$0.10/lb decrease in the LME market price of zinc and copper as of September 30, 2017March 31, 2024 and December 31, 2016,2023, with all other variables held constant, would have resulted in an unrealized mark-to mark‑to‑market loss of $0.3$1.0 million and $0.4$0.8 million, respectively. We estimate that a $0.10 per pound decrease in the Commodity Exchange ("COMEX") market price of copper as of September 30, 2017, with all other variables
Energy
We are exposed to the risk of fluctuating prices for natural gas and electricity. We, from time to time, in the ordinary course of business, enter into hedging transactions and/or firm price physical delivery commitments with firm prices with third parties to mitigate our risk from fluctuations in natural gas and electricity prices.
29
Foreign Currency
As of March 31, 2024, we hedged certain lease transactions and equipment purchases fordenominated in Euros and British Pounds using forward swap contracts with settlement dates through January 2026. We estimate that a 10% decrease in the remainderexchange rate of 2017, 55%our hedged foreign currencies to U.S. dollars would have resulted in an unrealized mark-to-market loss of the expected electricity purchases$1.9 million for both 2018periods as of March 31, 2024 and 2019 and 18%December 31, 2023, with corresponding changes to the net fair value of the expected electricity purchases for 2020.
Item 4.
Controls and ProceduresEvaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is processed, recorded, summarized and reported within the time periods specified in theChanges in Internal Control Over Financial Reporting.
We had no changes in our internal control over financial reporting during the30
PART II – OTHER INFORMATION
Item 1.
Legal ProceedingsReference is made to Part I, Item 3. "Legal Proceedings"“Legal Proceedings” included in our Annual Report on Form 10-K for the year ended December 31, 20162023 for information concerning material legal proceedings with respect to the Company. There have been no material developments since December 31, 2016.
Item 1A.
Risk FactorsReference is made to Part I, Item 1A. "Risk Factors"“Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 20162023 for information concerning risk factors. There have been no material changes in risk factors since December 31, 2016.
Item 2.
Unregistered Sales of Equity Securities and Use of ProceedsThe following table provides information regarding our repurchases of our common shares during the quarter ended September 30, 2017:
|
| Equity Incentive Plan |
|
| Stock Repurchase Plan |
| ||||||||||||||
|
| Total |
|
| Average |
|
| Total |
|
| Average |
|
| Maximum |
| |||||
January 1, 2024 - January 31, 2024 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 93.1 |
|
February 1, 2024 - February 29, 2024 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 93.1 |
|
March 1, 2024 - March 31, 2024 |
|
| 16,175 |
|
|
| 72.39 |
|
|
| — |
|
|
| — |
|
|
| 93.1 |
|
Total |
|
| 16,175 |
|
| $ | 72.39 |
|
|
| — |
|
| $ | — |
|
| n/a |
|
Amended and Restated 2016 Equity and Performance Incentive Plan | Stock Repurchase Plan | |||||||||||||||||
Total Number of Shares Purchased1 | Average Price per Share | Total Number of Shares Purchased2 | Average Price per Share | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (millions)2 | ||||||||||||||
July 1, 2017 - July 31, 2017 | — | $ | — | 7,571 | $ | 91.57 | $ | 124.5 | ||||||||||
August 1, 2017 - August 31, 2017 | — | — | 5,750 | 96.12 | $ | 123.9 | ||||||||||||
September 1, 2017 - September 30, 2017 | — | — | 5,000 | 99.40 | $ | 123.4 | ||||||||||||
Total | — | $ | — | 18,321 | $ | 95.13 | N/A |
Item 3.
Defaults Upon Senior SecuritiesNone.
Item 4.
Mine Safety DisclosuresNot applicable.
Item 5.
Other InformationRule 10b5-1 Trading Arrangements. During the quarter ended March 31, 2024, no director or officer of the Company adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408 of Regulation S-K.
31
*Item 6.
ExhibitsExhibit | Provided | Incorporated by Reference | ||||||||||
No. | Exhibit Description | Herewith | Form | File Number | Exhibit | Filing Date | ||||||
10.1 | X | |||||||||||
10.2 | X | |||||||||||
10.3 | X | |||||||||||
31.1 | X | |||||||||||
31.2 | X | |||||||||||
32.1 | X | |||||||||||
32.2 | X | |||||||||||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema | X | ||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL | |||||||||||
and contained in Exhibit 101) | ||||||||||||
X | ||||||||||||
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
KAISER ALUMINUM CORPORATION | |||
/s/ Neal E. West | |||
Neal E. West | |||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||
/s/ | |||
Vijai Narayan | |||
Vice President and Chief Accounting Officer (Principal Accounting Officer) | |||
Date: October 27, 2017
33