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Item 1A. | 15 | ||
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| 1C. | 27 | ||
| 2. | 29 | ||
Item 3. | 29 | ||
Item 4. | 29 | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 | ||
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 86 | ||
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Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspection | 86 | |
Item 10. | 87 | ||
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 87 | ||
Certain Relationships and Related Transactions and Director Independence | 87 | ||
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Item 16. | 91 | ||
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PART I
Forward-Looking Statements
This Annual Report on Form 10-K (this "Report") contains statements which constitute "forward-looking statements"“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, as applicable. These statements appear throughout this Report,Form 10-K, including Item 1. "Business“Business – Business Operations,"” Item 1A. "Risk Factors,"“Risk Factors” and Item 7. "Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations."” These forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "estimates," "will," "should," "plans"“believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or "anticipates,"“anticipates,” or the negative of the foregoing or other variations or comparable terminology, or by discussions of strategy.
Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties and that actual results may vary from those in the forward-looking statements as a result of various factors. These factors include: (i) the effectiveness of management’s strategies and decisions;decisions, including strategic investments, capital spending strategies, processes and countermeasures implemented to address operational and supply chain challenges and the execution of those strategies; (ii) general economic and business conditions, including the impact of geopolitical factors and governmental and other actions taken in response, cyclicality, reshoring, labor challenges, supply interruptions, and other conditions that impact demand drivers in the aerospace, automotiveAero/HS Products, Packaging, GE Products, Automotive Extrusions and other end markets we serve; (iii) our ability to participate in mature and anticipated new automotive programs expected to launch in the future and successfully launch new automotive programs; (iv) changes or shifts in defense spending due to competing national priorities; (v) pricing, market conditions and our ability to effectively execute commercial and labor strategies, pass through cost increases, including the institution of surcharges, and flex costs in response to changing economic conditions, volatile commodity costs and inflation; (vi) developments in technology; (vii) the impact of our future earnings, cash flows, financial condition, capital requirements and other factors on our financial strength and flexibility; (viii) new or modified statutory or regulatory requirements; changing prices(ix) the successful integration of acquired operations and market conditions;technologies; (x) stakeholders’, including regulators’, views regarding our environmental, social, and governance (“ESG” or “Sustainability”) goals and initiatives, and the impact of factors outside of our control on such goals and initiatives; and (xi) other factors discussed in Item 1A. "Risk Factors"“Risk Factors” and elsewhere in this Report.Form 10-K. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.
Readers are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included herein are made only as of the date of this ReportForm 10-K and we undertake no obligation to update or revise any information contained in this ReportForm 10-K or to publicly release any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this ReportForm 10-K except as required by law.
Item 1.
BusinessAvailability of Information
We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, any amendments to those reports and statements and other information with the Securities and Exchange Commission ("SEC").SEC. You may inspect and, for a fee, copy any document that we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. You may also obtain the documents that we file electronically from the SEC'sSEC’s website at
Business Overview
Kaiser Aluminum Corporation, a Delaware corporation, manufactures and sells 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 tube)wire) and certain cast aluminum products. OurThe sophistication of our products are differentiated based onis 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. 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 predominantly from the conversion of aluminum into
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semi-fabricated mill products. We refer to this as “metal price neutrality.” See the “Pricing, Metal Price Risk Management and Hedging” section below for more details.
With respect to the global market for flat-rolled aluminum mill products, our focus is on heat treattreated 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 are Aero/HS products (which we sell globally) and GE products (which we predominantly sell within North America). We do not supply sheetOn March 31, 2021, with the completion of our acquisition of Warrick, we expanded our flat‑rolled aluminum products to include bare and coated aluminum coil for automotivecan stock applications in the beverage and have chosen notfood packaging industry in North America. Our Packaging products require demanding attributes and can be further processed to supply sheet for beverage/food can applications nor common alloy rolled products for construction or other applications. Although global demand for these applications is large, the product requirements are less demanding.
Similarly, in the areas of extruded and drawn aluminum extrusions, wemill products, our focus is on demanding Aero/HS products, GE products and Automotive Extrusions and GE productsfor demanding applications 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 and drawn aluminum mill products. Building and construction applications, the largest segment of North American aluminum extrusion market, rarely require extruded products with specialized properties. Since we have strategically chosen to deploy our capabilities to make differentiated products, we do not focus on building and construction applications.
Our rolling mill in Spokane, Washington ("Trentwood")Trentwood facility produces heat treat plate and sheet for aerospace and general engineering end market applications.applications and our Warrick facility produces bare and coated aluminum coil used for can stock applications in the beverage and food packaging industry. Our 11 extrusion/drawing facilities, 10 of which are in the United States and one of which is in Canada, serve primarily aerospace, automotive or general engineering or automotive applications. Our facility located in Columbia, New Jersey focuses on multi-material advanced manufacturing methods and techniques which include multi-axis computer numerical control (“CNC”) machining, additive manufacturing (“3D Printing”), welding and fabrication for demanding aerospace and defense, high tech and general industrial and automotive applications. In 2023, our consolidated Net sales in 2017 totaled approximately $1.4 billion$3,087.0 million on approximately 625.71,196.4 million pounds shipped from these 12 focusedour facilities. We employed approximately 2,770 people at December 31, 2017.
We purchase primary, rolling ingot and scrap, or recycled, aluminum, our mainpredominant 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 (see “Raw Materials” section below) of metalaluminum 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, however,competitive dynamics may limit the pass throughamount and/or delay the timing of selling price increases to recover our increased aluminum and alloy costs, resulting in a lag up to several months during which we may be exposed to metal price movementsrisk. As a result, we can lag by several months, withexperience an adverse impact when aluminum and alloy prices increase and a favorable impact to us when metalaluminum and alloy prices decline, as we and an adverse impactour competitors tend to us whendefer adjusting pricing unless market dynamics require such in a declining metal prices increase. Additionally, we sometimescost environment. We may also enter into firm-price customer sales agreements that specify a firm underlying metal price plus a conversion price. Spot sales with lagged metalaluminum and alloy price pass through and firm-price sales agreements create metal price exposure for us, which we mitigate through a hedging programand related programs with an objective to remain metal price neutral.
We further strive to enhance our margins through the efficient use of scrap or recycled aluminum. As scrap aluminum is usually purchased at a discount to the index price of aluminum at which we sell at, we can generate additional margins by increasing our utilization of scrap. However, as scrap aluminum availability and the discount to the index price at which it is sold is subject to market dynamics, in periods of lower availability, we may experience adverse impacts to our results and favorable impacts when scrap is more readily available. Furthermore, due to manufacturing requirements, supply chain disruptions, or rapid changes in market demands for our products, we may not be able to utilize scrap efficiently, thereby causing an adverse impact to our margins, which we refer to as an inventory imbalance.
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, beverage and food packaging manufacturers and metal service centers. Approximately 51%75% of our shipments is sold direct to manufacturers or tier one suppliers and approximately 49%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
We further strive to enhance the efficiency of product flow to our customers and our status as a supplier of choice by tightly integrating the management of our operations across multiple production facilities, product lines and target markets. Additionally, our strategy to be athe supplier of choice and a low cost producer is facilitatedenabled by a culture of continuous improvement that is facilitated by the
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Kaiser Production System ("KPS"(“KPS”), an integrated application of tools such as Lean Manufacturing, Six Sigma, and Total Productive Manufacturing. Using KPS, we seek to continuously reduce our own manufacturing costs and eliminate waste throughout the value chain.
A key component of our business model is to maintain financial strength and flexibility throughoutthrough the business cycle so that even inand economic downturns we can proactively pursue strategic growth withcycles. We manage and monitor our financial and competitive strength.
Products
Overview
Our business our semi-fabricated products business is treated as a single operating segment, which we refer to as the Fabricated Products segment. In addition to the Fabricated Products segment, we have one business unit, All Other, which provides general and administrative support for our operations. For purposes of segment reporting under United States generally accepted accounting principles ("GAAP"), we treat the Fabricated Products segment as its own reportable segment. All Other is not considered a reportable segment.
We believe aluminum is highly sustainable because it is infinitely recyclable, and the recycling process requires significantly less energy compared with the original mining and refining process. Our highly engineered solutions contribute to reduced carbon emissions by enabling improved performance of dollars exceptconsumer products, light‑weighting in applications such as aircraft and transportation for shipment informationfuel efficiency and percentages):
Year Ended December 31, | |||||||||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||||||
| Shipments (mm lbs): | |||||||||||||||||||||
| Aero/HS products | 233.0 | 37 | % | 243.2 | 40 | % | 243.5 | 40 | % | ||||||||||||
| Automotive Extrusions | 101.0 | 16 | % | 92.9 | 15 | % | 93.5 | 15 | % | ||||||||||||
| GE products | 264.7 | 43 | % | 249.9 | 41 | % | 231.4 | 38 | % | ||||||||||||
| Other products | 27.0 | 4 | % | 28.3 | 4 | % | 47.0 | 7 | % | ||||||||||||
| 625.7 | 100 | % | 614.3 | 100 | % | 615.4 | 100 | % | |||||||||||||
| Sales: | |||||||||||||||||||||
| Aero/HS products | $ | 653.7 | 47 | % | $ | 675.4 | 51 | % | $ | 695.5 | 50 | % | |||||||||
| Automotive Extrusions | 217.3 | 15 | % | 188.8 | 14 | % | 199.2 | 14 | % | ||||||||||||
| GE products | 476.2 | 34 | % | 420.1 | 32 | % | 426.1 | 31 | % | ||||||||||||
| Other products | 50.3 | 4 | % | 46.3 | 3 | % | 71.1 | 5 | % | ||||||||||||
| $ | 1,397.5 | 100 | % | $ | 1,330.6 | 100 | % | $ | 1,391.9 | 100 | % | ||||||||||
Aero/HS Products.
Our Aero/HS products include heatPackaging. Our Packaging products consist of bare and coated 3000- and 5000-series alloy aluminum coil used in the aerospacebeverage and defense industries' consumptionfood packaging industry, with applications that include coated food stock, coated end and tab stock, body stock and bottle stock. Our Warrick rolling mill is one of fabricatedfour major aluminum rolling mills currently dedicated to the packaging industry in North America, with one of the world’s largest ingot casting facilities, hot and cold rolling, coated finishing, and slitting capacity. The Warrick rolling mill has a unique capability to produce high-margin coated packaging products representing approximately 64% of our total Packaging shipments.
GE Products. Our broad portfolio of GE products consists primarily of 6000-series aluminum alloy plate, sheet, rod, bar, tube, wire and standard extruded shapes. The 6000-series alloy is an extremely versatile, medium-strength, heat treatable alloy that can be both extruded and rolled. Our GE products have a wide range of uses and applications, many of which involve further fabrication for numerous transportation and other industrial end market applications where the machining of plate, rod and bar is intensive. For example, our GE products are used to produce armor for military vehicles, ordnances, manufacturing cells for semiconductor production, numerous electronic devices, after-market motor sport parts, tooling plate, parts for machinery and equipment, bolts, screws, and rivets.
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Automotive Extrusions. Automotive Extrusions consist of extruded aluminum products is drivenfor many North American automotive applications. Examples of the variety of extruded products that we supply to the automotive industry include extruded products for the body-in-white structural components, crash management systems, anti-lock braking systems and drawn tube for drive shafts. For some Automotive Extrusions, we perform limited fabrication, including sawing and cutting to length. In recent years, automotive original equipment manufacturers (“OEMs”) and their suppliers have, at an increasing pace, been converting many automotive components that historically were made of steel to aluminum to decrease weight without sacrificing structural integrity and safety performance and thereby achieve greater fuel efficiency standards mandated by factors that include airframe build rates, thestringent United States’ Corporate Average Fuel Economy or equivalent state regulations. Our Automotive Extrusions are designed and produced to provide specific mechanical properties and performance attributes required in automotive applications across a broad mix of aircraft models being builtNorth American OEMs and defense spending. Unanticipated changesautomotive platforms. We believe that these attributes are not easily replicated by our competitors and are important to our customers, who are typically tier one automotive suppliers.
Other Products. Other products consist of rerolled, extruded, drawn and cast billet aluminum products for a variety of North American industrial end uses. We continue to exit these non-core applications and focus our resources and production capacity on strategic Aero/HS Products, Packaging, GE Products, and Automotive Extrusions.
Markets
Sales, Marketing, and Distribution
Industry sales for fabricated products fluctuate in build ratesresponse to competitive and mixmarket dynamics. Sales are made directly to customers by our sales personnel located in the United States, Canada, and Western Europe and by independent sales agents in other regions of aircraft models being built can trigger restocking or destocking throughoutAsia, Latin America, and the longMiddle East. Our sales and marketing efforts are focused on the markets for Aero/HS Products, Packaging, GE Products, and Automotive Extrusions.
Aero/HS Products. We sell our Aero/HS products to metal service centers, as well as directly to aerospace supply chain, temporarily impacting demand for ourmanufacturers and tier one suppliers. Sales are made primarily under long-term agreements, but also on an order-by-order basis. We serve this market with a North American and Western Europe sales force focused on Aero/HS products. Growth in demand for aerospace plate has exceeded demand growth for other forms of Aero/HS products, as aircraft manufacturers have migrated to monolithic component design, where a single piece of aluminum, usually a plate, is heavily machined to form a desired part rather than creating the same part by assembling sub-components made of aluminum sheet, extrusions or forgings that are affixed to one another using rivets, bolts or welds. As more applications convertDemand for our Aero/HS products is heavily impacted by commercial airframe build rates and, to monolithic design,a lesser degree, by defense related airframes and other products. In addition, unanticipated changes in build rates and mix of aircraft models being built can trigger restocking or destocking throughout the aerospace supply chain, temporarily impacting demand. While commercial airframe build rates can be subject to certain short-terms events (see Part I, Item 1A. “Risk Factors” included in this Form 10-K), we expect aerospace platebelieve the long-term demand tofor air travel and fuel efficiency will continue to grow atdrive long-term growth for our products.
Packaging. Our Packaging products are sold primarily to North American beverage can manufacturers and fillers and food packaging manufacturers. Sales are made primarily under long-term agreements by a pace higher thanNorth American direct sales force. Aluminum can demand is driven by the packaging industry’s shift towards environmentally sustainable materials due to the fact that aluminum is infinitely recyclable and has the highest consumer recycling rate among beverage containers. Major players have already transitioned some plastic bottled water and carbonated soft drink production to aluminum. We anticipate further growth will be underpinned by sustainability trends, the secular shift from plastic to aluminum and the fact that North American packaging capacity has been reallocated towards other end markets, including automotive and industrial. In addition, unanticipated changes in end consumer preferences for certain canned beverages and/or foods and pet foods, can trigger restocking or destocking throughout the packaging supply chain, temporarily impacting demand.
GE Products. A majority of our other Aero/HSGE products are sold to large metal service centers in North America on an order-by-order basis, with orders primarily consisting of standard catalog type items shipped with a relatively short lead-time. We service this market with a North American sales force focused on GE products.
Automotive Extrusions.
Our Automotive Extrusions7
growing conversion to electric and other alternative vehicles, will continue to drive growth in demand for aluminum extruded components in passenger vehicles as a replacement for the heavier weight of steel components.
Customers
In 2023, we had approximately 520 customers. For the years ended December 31, 2023, and December 31, 2022, our largest customer accounted for 18% and 19%, respectively, of Net sales. While the loss of this customer could have a material adverse effect on us, we believe that our long-standing relationship with the customer is good and that the risk of losing the customer is remote. See Note 17 of Notes to Consolidated Financial Statements included in this Form 10-K for information about our significant concentrations.
Competition
The semi-fabricated aluminum industry is highly competitive. We seek to further differentiate ourselves from our competitors through our ongoing investments to continuously improve the quality and machinability of our products, manufacture and deliver unique product attributes (KaiserSelect®) and provide a broad product offering while maintaining a strong customer focus to achieve “Best in Class” status in our markets.
Our primary competitors in the global market for Aero/HS Products are Arconic Corporation, Constellium N.V. and Novelis Inc. In North America, our primary competitors for Packaging are Arconic Corporation., Constellium N.V., Novelis Inc. and Tri-Arrows Aluminum, Inc. In serving our North American customers for both GE Products and Automotive Extrusions, our primary competitors are designedArconic Corporation and produced to provide specific mechanical propertiesNorsk Hydro ASA, and performance attributes required in automotive applications across a broad mixfor certain of these products, we also compete with smaller, regional participants. In North American OEMsAmerica, we also compete with general engineering heat treat plate products imported from South Africa, Europe, and automotive platforms. We believe that these attributes are not easily replicated byChina. Some of our competitors are substantially larger, have greater financial resources and are important to our customers, who are typically tier one automotive suppliers.
Because many of which involve further fabrication for numerous transportation and other industrial end market applications where machining of plate, rod and bar is intensive. For example, our GE products are used in critical safety applications, our customers have demanding standards for product quality and consistency that make it difficult to become a qualified supplier. Suppliers must pass a rigorous qualification process to sell to both airframe and automotive manufacturers and must also make significant investments in infrastructure and specialized equipment to supply products for these high strength applications. Further, sophisticated manufacturing processes make it difficult to become a qualified supplier, even with proper equipment. For example, producing heat treat plate and sheet products, particularly for aerospace applications, requires technological expertise that only a few companies have developed through significant investment in research and development and decades of operating experience. To be a supplier in the packaging market, demanding standards are also required. Producing coated end, tab, and body stock for the can market requires the development of alloys and application of coatings that must pass stringent customer qualifications and be compliant with Food and Drug Administration regulations. Our experienced and dedicated research and development team, combined with our Customer Service group, coordinates with coating suppliers, manufacturing operations, and our customers to create these alloy and coating systems.
Research and Development
Our products are differentiated based on the metallurgy and physical properties of the metal and special characteristics that are required for particular end uses. A significant amount of our research and development is devoted to product and process development within our production operations and is largely focused on controlling the manufacturing process to improve product quality, ensure consistency, and enhance one or more specific product attributes. This has resulted in the creation and delivery of our highly differentiated KaiserSelect® products.
We operate the following four research and development centers:
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Our Imperial Machine & Tool Co. (“IMT”) subsidiary, located in Columbia, New Jersey, provides us with significant technology and intellectual property that complements our metallurgical and application engineering expertise to further advance our capability to deliver highly engineered solutions for semiconductor production,our customers.
We hold numerous electronic devices, after-market motor sport parts, tooling plate, parts for machinerypatents, trademarks, trade secrets, and equipment, bolts, screws, nailscopyrights that relate to the design, use, and rivets. Demand growth and cyclicality for GE products tendmarketing of products. We consider this intellectual property to mirror broad economic patterns and industrial activity in North America. Demandbe important, but no single property is also impacted bymaterial to the destocking and restockingoverall conduct of inventory throughout the supply chain.
Resources
Manufacturing Processes
We use two main processes, flat rolling, and extrusion/drawing, to produce our fabricatedsemi-fabricated products using a cast of alloyed prime and recycled aluminum in the desired forms and dimensions and with the desired physical properties. Both processes start by heating an aluminum a rolling ingot or extrusion billet to an elevated temperature at which the metal is malleable and then applying pressure in a manner that both forces the metal into a desired shape and begins the "working"“working” of the metal to enhance its strength and related properties.
Flat Rolling.
Our manufacturing process for aluminum flat-rolled products uses ingot, a large rectangular slab of aluminum, as the starter material. The ingot is processed through a series of rolling operations that can be done at elevated (hot) or room (cold) temperatures. Finishing steps may include heat treatment, annealing, stretching, leveling,Extrusion/Drawing.
Our extrusion process begins with a cast billet, which is an aluminum cylinder of varying length andIn addition, some of our locations have remelt and casting operations to produce the ingot or billetlog for flat rolling or extrusion.extrusion processing, respectively. To produce the ingot or billet,log, we purchase primary aluminum and/or recycled scrap aluminum segregated by alloys and other metals (including, but not limited to, copper, zinc, and magnesium) that are necessary to create various aluminum alloys. We also recycle internally generated scrap from our own manufacturing processes. Initially in solid form, aluminum is heated in a vessel to a temperature at which it melts. While in molten form, additional metals (aluminum alloyed scrap, alloy metals, primary aluminum, or high purity aluminum) are introduced to achieve the proper mixture of chemical elements for a particular aluminum alloy. When the desired chemical composition of the molten metal has been achieved, it is poured intothrough a mold in which the molten metal cools in a controlled manner and solidifies into a rolling ingot or extrusion billet.log. The size of the mold determines the dimensions of the rolling ingot or extrusion billet.log. Our casting operations at our facilities in Kalamazoo, Michigan,Michigan; London, Ontario,Ontario; Los Angeles, California, Newark, OhioCalifornia; Heath, Ohio; and Sherman, Texas produce extrusion log and cut billet for their operations and for our other facilities that do not have casting operations. Our Trentwood castsand Warrick facilities cast rolling ingot for itstheir own consumption.
IMT is a leader in advanced manufacturing processesmethods and category of products at each of our production facilities at December 31, 2017 is shown below:
Many of our facilities employ the same basic manufacturing process and produce the same types of products. We make a significant effort to tightly integrate the management of our Fabricated Products segment across multiple manufacturing locations, product lines, and end market applications to most efficiently and effectively serve the needs of our customers. We centralize purchasing of our primary, rolling ingot and scrap, or recycled, aluminum requirements and related alloying agents in order to better manage price, credit, and other benefits. Our sales force and the management thereof are also significantly integrated as many customers purchase a number of different products that are produced at different plant facilities. We believe that integration of our operations allows us to capture efficiencies while allowing our facilities to remain highly focused on their specific processes and end market applications.
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Raw Materials
To make our fabricated products, we purchase primary aluminum and scrap, or recycled aluminum from third partythird-party suppliers in varying percentages depending on various market factors, including price and availability. The price we pay for primary aluminum purchased for the Fabricated Products segment is typically based on the Average Midwest Transaction Price ("Midwest Price"),average MWTP, which reflects the primary aluminum supply/demand dynamics in North America. The average LME and the average Midwest Premium for 2023, 2022 and 2021 were $1.02 + $0.23, $1.23 + $0.30 and $1.12 + $0.26, respectively. Scrap aluminum is typically purchased at a discount to the Midwest PriceMWTP but can require additional processing. The average Midwest Price is comprised of the average London Metal Exchange ("LME") plus average Midwest premium. The average LME and the average Midwest premium for 2017, 2016 and 2015 were $0.89 + $0.09, $0.73 + $0.07 and $0.75 + $0.13, respectively.
In addition to selling fabricated aluminum products to third parties, certainsome of our production facilities supply log, billet, log or other intermediate material to anothersome of our other facilities for further value added production.conversion processing. As an example,examples, our Newark,London, Ontario facility supplies billet to our Richmond, Virginia facility, and our Heath, Ohio facility supplies billetlog and logbillet to our Jackson, Tennessee facility.
Suppliers
We purchase raw materials from a wide array of vendors. In most instances, we have multiple vendors of raw materials to mitigate the risk of an interruption of supply should one of them underperform or discontinue operations. A number of our input materials are commodities, which are subject to market price fluctuations, which we strive to mitigate with our metal price neutrality and hedging programs. See Note 17 of Notes to Consolidated Financial Statements included in this Form 10-K for information about our significant concentrations.
Pricing, Metal Price Risk Management and Hedging
As noted above, we purchase primary, rolling ingot and scrap, or recycled aluminum, our principalpredominant raw material, on a floating price basis typically based on the Midwest Price.average MWTP. Our pricing of fabricatedsemi-fabricated aluminum products is generally intended to lock in a conversion margin (representing the value added from the fabrication process(es))process) and to pass metalaluminum and certain alloy price fluctuationfluctuations through to our customers. In order to meet our objective to be metal price neutral, we manage the risk of fluctuations in the price of aluminum through our pricing policies and use of financial derivatives. Our three principal pricing mechanisms are as follows:
In addition to the aluminum pricing mechanisms described above, we also strive to pass through the cost of certain alloys through either pricing adders or surcharge mechanisms. In some cases, the passing through of this alloy cost can lag the actual alloy cost, the timing of which is dependent on market conditions and customer agreements, with a favorable impact to us when alloy prices decline and an adverse impact to us when alloy prices increase. As with aluminum, we, from time to time, enter into either hedging transactions with third parties or firm price physical contracts to minimize the impact of alloy price fluctuations.
All metal procurement and hedging activities are managed centrally to minimize transaction costs, monitor consolidated net exposures, and respond promptly to changes in market factors. Hedging activities are conducted in compliance with a policy approved by our Board of Directors and administered by our hedging committee (members of which include our principal executive officer, principal financial officerChief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer, Executive Vice President of Manufacturing and principal accounting officer).
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Seasonality
Under normal operating and economic conditions, we generally have immaterial fluctuations in responseour overall portfolio quarter‑over‑quarter results. Within our individual end markets, our Packaging shipments are generally weighted towards the second half of the year as compared to competitive and market dynamics. Sales are made directly to customers bythe first half while our sales personnel located in the United States, Canada, Europe and China and by independent sales agents in other regions of Asia, Latin America and the Middle East. Our sales and marketing efforts are focused on the markets for Aero/HS products, Automotive Extrusions, GE products and Other products.
Government Regulation
Our operations are not allocated to our other operations. All Other is not considered a reportable segment.
Government Contracts
We directly own 100%are one of the issuedfew remaining United States based aluminum semi-fabricated producers that supply the American defense industry. Although our products are used in a wide variety of military applications, including military aircraft, armored vehicles, and outstanding sharesordnance, these products are typically sourced from us by a number of capital stockservice centers and machine shops that are suppliers to the defense industry. As we generally sell to the chain of suppliers who either subcontract with direct contractors or directly contract with the government, we do not have significant direct government agreements.
Human Capital
At December 31, 2023, we employed approximately 4,000 people, of which approximately 3,910 were employed in our manufacturing, sales, and support office locations and approximately 90 were employed in a corporate capacity.
Governance and Culture
Our talented workforce is a key factor underlying our success. We strive to be the employer of choice by providing equal employment and a non‑discriminatory workplace, protecting the health and safety of our employees, providing training programs and maintaining a positive and constructive relationship with labor unions of which a majority of our employees are members. Our values support and serve as the foundation for our strategic initiatives and are intended to reflect the company’s “tone at the top” which we believe sustains our culture; a culture that continues to drive our behavior. In addition, the goal of being a valued corporate citizen guides our environmental, social, and governance decisions. We are committed to being socially responsible and active members of our industry and the communities in which we operate, and our employees and their families live.
Consistent with our corporate values, we promote fair business practices and a culture of accountability, responsibility, and ethical behavior through:
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We believe respecting human rights is a fundamental part of our values and corporate responsibility. We strive to respect and promote human rights in our relationships with our employees, suppliers, customers, and stakeholders and are guided by the principles of the International Bill of Human Rights (the Universal Declaration of Human Rights and the two international covenants) and the International Labor Organization’s Declaration on the Fundamental Principles and Rights at Work. Our Human Rights Policy is communicated to our employees as part of their annual code of conduct training, and we expect our employees to uphold this policy.
Diversity, Equity, Inclusion and Belonging
We are committed to diversity, equity, inclusion and belonging and strive to be the preferred employer by, among other things: (i) attracting, developing and retaining the best people from all cultures and segments of the population based on ability; (ii) treating all employees with dignity and respect; (iii) providing an environment of diversity, inclusion, belonging, empowerment, responsibility and accountability; and (iv) offering competitive and equal pay and benefits that attract and retain employees. We focus on: (i) continuing to consider ethnic and gender diversity as we identify training cohorts and opportunities; (ii) leveraging the views and perspectives of our diverse employees and leaders; (iii) developing meaningful metrics and benchmarks by location and job function to measure the effectiveness of our efforts; (iv) fostering relationships with educational institutions, employment agencies, and professional groups to expand the pool of potential candidates and employees to achieve a more diverse workforce; (v) focusing on diverse candidates for internships, entry-level positions, and scholarships; and (vi) actively recruiting from military bases for military and veteran hiring. Our Human Rights Policy and Diversity, Equity, Inclusion and Belonging Policy, which align with our corporate values and Code of Business Conduct and Ethics, are overseen by our Board of Directors and senior leadership team.
Labor Practices and Policies
Safety. We believe employee safety begins with a strong and consistent tone at the top through our executive leadership with oversight provided by our Corporate Health and Safety team, led by our Chief Administrative Officer and General Counsel. To help us achieve and maintain a strong safety culture, we have robust compliance and assessment programs such as annual safety planning, monthly safety calls, routine performance reviews against targets, and routine audits. In addition, we partner with the USW and various industry groups, including the Aluminum Association, to share and identify best practices. We use both internal and external resources, including the American National Standards Institute and International Organization for Standardization, to assess our compliance with regulatory and internal standards, providing training, performing risk assessments, audits and loss control inspections, and developing mitigation strategies with particular emphasis on risks with a greater potential for severe injury. We stress risk awareness and safe job practices and engage our employees in conversations about safety and safety training using a variety of communication channels, including one-on-one communications.
We also believe that having a culture of health and safety involves every employee at every level throughout the organization assuming responsibility to guard against workplace injuries by recognizing risks and taking other actions to minimize injury risk and severity. Risk reduction is a key initiative at each of our facilities and part of our annual planning process and we are committed to nurturing a culture consistent with being a preferred employer. We monitor our progress through routine reviews of our safety process and performance. We utilize both leading and trailing indicators to monitor our progress. While trailing indicators, such as total case incident rate (“TCIR”), lost-time case incident rate (“LTIR”) and days away, restricted and transfer rate, help us monitor our safety performance, leading indicators, such as significant injury and fatality potential and actual incident rate, near‑misses, timely correction action of internal and external audit findings, on-time safety plan execution information and safety culture risk, help us monitor and assess risks and the effectiveness of our safety plans and processes. Plant safety metrics are integrated into our monthly quality, production, and financial reports and are reviewed by the senior leadership team every month. In addition, TCIR and LTIR safety modifiers are included in each of our short-term incentive compensation plans, including the corporate plan applicable to each of our executive officers and members of senior management.
Health. Over the years, we have implemented programs on a Company-wide basis to increase awareness of the importance of employee wellness. We have continued to introduce programs to educate and assist employees to make healthy lifestyle choices and have offered incentives and discounts to encourage participation across the organization, including:
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Labor Union Affiliations. We believe in freedom of association and respect our employees’ choice to be represented or not represented by a union in accordance with the laws of the states and countries where we operate, without fear of reprisal, intimidation, or harassment. Approximately 65% of our employees are represented by labor unions under labor contracts with varying durations and expiration dates. The following table shows each manufacturing location, the primary union affiliation, if any, and the expiration date for the current union contracts as of December 31, 2023. As indicated in the table, our union affiliations are with the USW, International Association of Machinists (“IAM”), and International Brotherhood of Teamsters (“Teamsters”). See Note 17 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information about concentration of labor subject to collective bargaining agreements.
Contract | ||||
Location | Union | Expiration Date | ||
Chandler, Arizona (Extrusion) | Non-union | — | ||
Chandler, Arizona (Tube) | USW | Apr 2024 | ||
Columbia, New Jersey | Non-union | — | ||
Florence, Alabama | USW | Mar 2026 | ||
Jackson, Tennessee | Non-union | — | ||
Kalamazoo, Michigan | USW | Feb 2026 | ||
London, Ontario | USW Canada | Feb 2026 | ||
Los Angeles, California | Teamsters | Apr 2026 | ||
Heath, Ohio | USW | Sep 2025 | ||
Newburgh, Indiana | USW | May 2027 | ||
Richland, Washington | Non-union | — | ||
Richmond, Virginia | USW/IAM | Nov 2026/Nov 2026 | ||
Sherman, Texas | IAM | May 2027 | ||
Spokane Valley, Washington | USW | Sep 2025 |
Recruiting, Training, Development and Retention
Recruiting. We are committed to recruiting a workforce that reflects people from all cultures and segments of the population based on ability. Our initiatives, which go beyond legal compliance, include: (i) identifying and recruiting diverse talent, including military veterans; (ii) fostering relationships with universities, employment agencies, and professional groups that work with more diverse populations; (iii) leveraging inclusive job-posting sites; and (iv) concentrating on diverse candidates for internships, entry‑level positions, and scholarships. We have a well-established talent review process that includes operations and functional leaders that are key in the early identification of high performing and high potential employees. We also track and review the gender and ethnic diversity of job applicants and new hires to evaluate our efforts to continue to increase the diversity of our organization. The ESG committee of our board oversees, among other things, the succession planning for our executive officers and the leadership, progression, and development of key employees.
Training, Development and Retention. We are committed to the development of our employees through a broad mix of internal and external program resources incorporating on-the-job training and development through the Kaiser Leadership Program, the Front Line Leader Development Program, the Kaiser Aluminum Investments Company,Women’s Leadership Program (“KWLP”), Kaiser University, the Tuition Assistance Program, and the Metallurgy Excellence and Technical Strength Program. We continue to expand our talent management initiatives to pursue the significant long-term potential for our continued success. Our success is dependent on the knowledge, skills, and abilities of our current and future leaders and employees.
The Kaiser Leadership Program is a Delaware corporation ("KAIC"), which functions asfull year program that accelerates the readiness of key talent and combines personalized leadership development and Kaiser-management system focused curriculum with a unique opportunity to build relationships with an intermediate holding company.
The Front Line Leader Development Program is a six-month program that strengthens organizational performance through ethical, effective, and sustaining tactical leadership for both new and experienced frontline supervisors. The program uses a cohort model to encourage collaboration and team-building and to ensure accountability, facilitated group discussions, and effective best practice sharing.
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The KWLP provides a female-focused professional development curriculum, mentorship, and networking opportunities designed to elevate the visibility of women at Kaiser Aluminum, Beijing Trading Company,to increase female representation in all levels of leadership and to enhance the inclusion and sense of belonging for current and potential female leaders. Similar to the Kaiser Leadership Program, the KWLP uses in-person events, program meetings, self-directed learning and assignments, mentoring meetings, and cohort collective meetings.
Kaiser University is our web-based learning and development platform offering a catalog of thousands of on-demand courses to employees across a broad range of topics including compliance, maintenance, health and safety, Lean Six Sigma, communication skills, business skills, computer skills, cybersecurity, discrimination and harassment prevention, and our processes and policies.
The Tuition Assistance Program provides tuition reimbursement for salaried employees and certain represented employees as stipulated by the collective bargaining agreement. The mission of this program is to support our workforce in completing a degree that benefits both our employees and our company.
The Metallurgy Excellence and Technical Strength Program provides professional development for our talented metallurgical professionals in order to facilitate their ability to develop and implement process control systems and identify new technologies that can benefit the company. This program provides mentorship opportunities with company leaders and experts as well as participation in career enhancing training to ensure our competitive advantage.
Rewards
All our employees, including hourly and salaried employees at our production facilities, participate in short-term incentive compensation plans, which was formedare based on attainment of performance metrics that drive and support our “Best in ChinaClass” commitment. We also provide stock-based compensation to executive officers, members of senior management throughout the company, and other key employees, as well as a deferred compensation plan for certain employees. All our U.S. employees have access to 401(k) savings plans, depending on the primary purposeterms of engaging in market developmenttheir employment, and commercialization and distribution of our products in Asia.
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Item 1A.
Risk FactorsIn addition to the factors discussed elsewhere in this Report,Form 10-K, the risks described below are those that we believe are material to our company. The occurrence of any of the events discussed below could significantly and adversely affect our business, prospects, financial position, results of operations, and cash flows as well as the trading price of our common stock.
RISKS RELATED TO CHANGES IN DEMAND FOR OUR PRODUCTS.
Recent macroeconomic factors including labor shortages, supply chain disruptions, inflation and recession risks have adversely affected our business, and could cause additional downturns in the aerospace, automotive, and ground transportation industries, which would further adversely affect our business.
We derive a significant portion of our revenue from products sold to the aerospace and automotive and ground transportation industries. Macroeconomic factors include, but not limited to: (i) labor shortages; (ii) disruptions to supply chains; (iii) other interruptions of international and regional commerce; (iv) inflation; (v) higher interest rates; and (vi) recession risks. Moreover, because new automotive vehicle demand is tied closely to overall economic strength, economic uncertainty, increasing interest rates and/or increased unemployment could lead to weak demand for, or lower production of, new cars, light trucks, SUVs, and heavy-duty vehicles and trailers, which could adversely affect demand for our products. Additional adverse macroeconomic developments may lead to reduced demand for our products, which could adversely affect our financial position, results of operations, and cash flows.
We operate in a highly competitive industry.
We compete with others in the semi-fabricated products segment of the aluminum industry based upon quality, availability, price, customer service, and delivery performance. Some of our competitors are substantially larger and maythan we are, have greater financial resources than we do. Additionally, some competitors maydo, operate more facilities than we do, beare geographically closer to our customers than we are, employ more efficient or advanced technologies than we do, or have other strategic advantages. To the extent thatNew parties may become capable of manufacturing similar products and qualifying them with our competitors have existingcustomers, which could lead to further competitive pressure. Competitors’ facilities or locate new production facilitieslocated in developing economies, their facilitiescertain other countries may have a manufacturing cost advantage compared to our facilities, which are all located in North America. Foreignthe United States and Canada. Such foreign competitors may sell products similar to our products at lower prices as a result of having lower manufacturing costs or due to currency exchange rates that periodically favor foreign competition or dumping thosecompetition. Some foreign competitors may also dump their products in North Americathe United States and Canada in violation of existing trade laws. Additionally, new parties may become capable of manufacturing similar products and qualifying them with our customers. The capability and incremental capacity for such products that these new competitors introduce to the market could lead to further competitive pricing pressure. We may not be able to compete by differentiating ourselves based on the quality, availability and delivery of our products or our customer service. We alsoAdditionally, we may not be able to adequately reduce our cost structure and our selling prices or our costs to levelsbe competitive with new orothers, and tariffs introduced to protect manufacturers in the United States and Canada from foreign competitors.price competition may not be fully effective. Increased competition
Reductions in demand for our products may be more severe than, and may occur prior to, reductions in demand for our customers’ products.
Most of our products undergo further fabrication by other parties before being deployed in their end uses. In particular, our Aero/HS products undergo numerous stages of further fabrication or assembly by a number of parties in the supply chain, often over the course of many months. The lead time from when we sell our Aero/HS product to when the finished product is installed on an aircraft often exceeds a year. Due to this long lead time, demand for our products may increase prior to demand for our customers'customers’ products or may decrease when our customers experience or anticipate softening demand for their products. Our customers typically respond to reduced demand for their products by depleting their inventory until their inventory falls to a new desired level. This causes a greater reduction in demand for our products than our customers experience for their products. Further, the reduction in demand for our products can be exacerbated if our customers'customers’ inventory levels had been higher than normal, if production is delayed for specific commercial airframe models, if our customers previously had purchased products from us at committed sales contract volumes that exceeded their actual need or for other reasons. The amplified reduction in demand for our products while our customers consume their inventory to meet their business needs (destocking) may adversely affect our financial position, results of operations and cash flows.
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Our customers may reduce their demand for aluminum products in favor of alternative materials.
Our products compete with other materials for use in various customer applications. For instance, the commercial aerospace industry has used and continues to evaluate the further use of titanium, composites, and carbon fiber materials as alternatives to aluminum to reduce aircraft weight and increase fuel efficiency. Additionally, while the automotive industry has continued to increase the use of aluminum in vehicle production to reduce vehicle weight and achieve government-mandatedincrease fuel efficiency, standards, manufacturers may revert to steel or other materials for certain applications and rely on improved drivetrain technology, more efficient engines, aerodynamics, or other measures to achieve fuel efficiency goals. Finally, the packaging industry has used and continues to use steel, tin, plastics, glass, and paperboard as alternatives to aluminum for packaging and delivery of food and beverages. The packaging industry is heavily influenced by cost and recyclability of the packaging material. The willingness of customers to use materials other than aluminum could adversely affect the demand for our products, particularly our Aero/HS products, Packaging, and Automotive Extrusions, and thus could adversely affect our financial position, results of operations and cash flows.
Our customers may reduce their demand for our products if the government loosens CAFErelaxes fuel efficiency standards or if oil prices remain low for a protracted period of time.
Efficient use of fossil fuels partially drives demand for aluminum in transportation applications. The U.S. Environmental Protection Agency ("EPA") andUSEPA, other federal regulatory agencies, and regulatory agencies of certain states have generally sought to limit growth of fossil fuel usage by establishing stricter fuel efficiency standards. However, the current leaders of the EPAIn addition, newly elected and/or changing administrations could accelerate efforts to not only limit, but reduce, fossil fuel usage and other federal agencies opposecarbon emissions beyond what may be technologically possible for certain products and manufacturing processes and revisit or reverse the environmental agendas of priorprevious administrations and could relax thesewith respect to previously established fuel efficiency standards. Additionally, in periods of lower oil prices, the economic benefits of replacing older aircraft and automobiles with more fuel-efficient models are less compelling. A relaxation of fuel efficiency standards by the EPAregulatory agencies or an extended period of moderate oil prices could reduce demand for new more efficient aircraft and automobiles, which could adversely affect the demand for our products and have an adverse effect on our financial position, results of operations and cash flows.
The commercial aerospace industry is cyclical and downturns in the commercial aerospace industry could adversely affect our business.
We derive a significant portion of our revenue from products sold to the aerospace industry. Notwithstanding a secular growth trend spanning nearly two decades, the aerospace industry is highly cyclical. Numerous factors that influence demand for new commercial aircraft could result in cancellations or deferrals of aircraft orders and a global decrease in new commercial aircraft deliveries. These factors include but are not limited to: (i) declines or reduced growth trends in global travel and airline passenger traffic; (ii) the rate of replacement of older aircraft with more fuel efficient aircraft; (iii) changing airline strategies affecting preferences for single-aisle aircraft models as opposed to twin-aisle or jumbo aircraft models; (iv) airline industry profitability; (v) the state of regional and global economies; (vi) concerns regarding terrorism or the threat of terrorism; (vii) concerns regarding new pandemics of infectious disease; and (viii) safety concerns with newly introduced and existing aircraft. Despite existing backlogs, adverse developments in any one or more of these influencing factors may lead to reduced demand for new aircraft that utilize our products, which could adversely affect our financial position, results of operations and cash flows.
Reductions in defense spending for aerospace and non-aerospace military applications could adversely affect demand for our products.
Our products are used in a wide variety of military applications, including military aircraft, armored vehicles, and ordnance. Certain military programs are used by the U.S. armed forces, as well as by the defense forces of our allied foreign powers. Military programs that currently use or in the future could use our products may be subject to changes in military strategy and government priorities. Further, while many of the U.S. government programs span several years, they are often funded annually, and funding is generally subject to congressional appropriations. When U.S. and foreign allied governments are faced with competing national priorities, such as addressing financial or spending crises or public health emergencies, there can be significant pressure to reduce defense spending, which could reduce the demand for our products and adversely affect our financial position, results of operations and cash flows.
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Downturns in the automotive and ground transportation industries could adversely affect our business.
The demand for our Automotive Extrusions and many of our general engineering and other industrial products is dependent on the production of cars, light trucks, SUVs, and heavy dutyheavy-duty vehicles and trailers in North America. The automotive industry is highly cyclical, as new vehicle demand is dependent on consumer spending and is tied closely to the overall strength of the North American economy. Even with the automotive industry’s growing use of aluminum to reduce vehicle weight, weak demand for, or lower production of, new cars, light trucks, SUVs, and heavy duty vehicles and trailers could adversely affect the demand for our products and have an adverse effect on our financial position, results of operations and cash flows.
Changes in consumer demand for particular motor vehicles could adversely affect our business.
Sensitivity to fuel prices, an increased preference for environmentally friendly alternatives and other consumer preferences can influence consumer demand for motor vehicles that have a higher content of the aluminum Automotive Extrusions that we supply. The loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which we are a significant supplier could have an adverse impact on our financial position, results of operations and cash flows.
Aluminum beverage and food packaging products are subject to competition from substitute products and decreases in demand, which could result in lower profits and reduced cash flows.
Aluminum coil produced for demanding end market applications in the beverage and food packaging industry in North America are subject to substantial competition from producers of alternative packaging made from glass, paper, flexible materials, plastic and organic or compostable materials, which may compare favorably to aluminum with respect to preservation of food and beverage quality and/or sustainability. Changes in the volume of sales by our customers in the food and beverage markets and preferences for products and packaging by consumers of prepackaged food and beverage cans may significantly influence our sales. Changes in packaging preferences by our customers may require us to re-tool manufacturing operations, which could require material expenditures. In addition, a decrease in the costs of, or a further increase in consumer demand for, alternative packaging could result in lower profits and reduced cash flows for us. For example, increases in the price of aluminum and decreases in the price of plastic resin, which is a petrochemical product and may fluctuate with prices in the oil and gas market, may increase substitution of plastic food and beverage containers for metal containers. Moreover, due to the associated high percentage of fixed costs, we may be unable to maintain the gross margin of aluminum packaging products at past levels if we are not able to achieve high-capacity utilization rates for our production equipment. In periods of low demand for aluminum packaging products or in situations where industry expansion created excess capacity, we may experience relatively low-capacity utilization rates, which can lead to reduced margins during that period and can have an adverse effect on our business.
RISKS RELATED TO SALES.
We depend on a core group of significant customers.
Our five largest customers in total accounted for approximately 53% of our 2023 net sales. Most of these customers have one or more sizable sales agreements with us. If one or more of these customers experienced a prolonged period of adverse demand, depressed business activity or financial distress, if any of these customers breached or sought relief from its contractual obligations under its sales agreements with us or if any of these customer relationships otherwise ended or materially deteriorated and such lost business was not successfully replaced, our financial position, results of operations and cash flows could be adversely affected.
We experience fluctuation in certain costs that we cannot pass through to our customers and face pressure from our customers on pricing.
We are unable to pass fluctuations of certain costs through to our customers, including the cost of energy, certain raw materials, operating supplies, and freight. Further, cost-cutting initiatives that many of our customers have adopted generally result in downward pressure on pricing. If we are unable to generate sufficient productivity improvements and cost savings in the future to offset reductions in our selling prices and increases in our costs that we cannot pass through to our customers, our financial position, results of operations and cash flows could be adversely affected.
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We are exposed to risks related to our receivables supply chain financing arrangements.
We are party to several supply chain financing arrangements, in which we may sell certain of our customers’ trade accounts receivable without recourse to such customers’ financial institutions. To the extent that these arrangements are terminated, our financial condition, results of operations, cash flows and liquidity could be adversely affected by extended payment terms, delays, or failures in collecting trade accounts receivables. The utility of certain supply chain financing arrangements also depends upon the Term SOFR rate, as it is a component of the discount rate applicable to certain arrangements. If the Term SOFR rate increases significantly or remains at an elevated level for a prolonged period of time, we may be negatively impacted as we may not be able to pass these added costs on to our customers, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.
RISKS RELATED TO GEO-POLITICAL FACTORS.
Our industry is very sensitive to foreign economic, regulatory and political factors that may adversely affect our business.
We import primary aluminum and certain alloy metals from, and manufacture fabricated products used in, foreign countries. Our financial position, results of operations and cash flows could be adversely affected by numerous factors in the politically and economically diverse jurisdictions: (i) from which our input materials are sourced; (ii) in which we operate; (iii) in which our customers operate; or (iv) in which our products are consumed or further fabricated. Such factors include but are not limited to:
RISKS RELATED TO PRODUCT AND MANUFACTURING.
We may experience difficulties in the launch or production ramp-up of new products which could adversely affect our business.
As we ramp up manufacturing processes for newly introduced products, we may experience difficulties, including manufacturing disruptions, delays, or other complications, which could adversely impact our ability to serve our customers, our reputation, our costs of production and, ultimately, our financial position, results of operations and cash flows.
Unplanned events may interrupt our production operations, which may adversely affect our business.
The production of fabricated aluminum products is subject to unplanned events such as explosions, fires, inclement weather, natural disasters, accidents, equipment failures, labor disruptions, transportation interruptions, public utilities interruptions, and supply chain interruptions. Operational interruptions could significantly curtail the production capacity of a facility for a period of time. We have redundant capacity and capability to produce many of our extruded products within our manufacturing platform to mitigate our business risk from such interruptions, but interruptions at our Trentwood facility where our production of plate and sheet is concentrated or at our Warrick facility where our production of packaging material is concentrated, could significantly compromise our ability to meet our customers’ needs. Delayed delivery of our products to customers who require on-time delivery from us may cause customers to purchase alternative products at a higher cost, reschedule their own production, or incur other incremental costs. Customers may be able to pursue financial claims against us for their incremental costs, and we may incur costs to correct such problems in addition to any liability resulting from such claims. Interruptions may also harm our reputation among actual and potential customers, potentially resulting in a loss of business. To the extent these losses are not covered by insurance, our financial position, results of operations and cash flows could be adversely affected by such events.
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We may face challenges to our intellectual property rights which could adversely affect our reputation, business and competitive position.
Our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve. Our competitors may develop technologies that are similar or superior to our proprietary technologies or design around the patents we own or license. Despite our controls and safeguards, our technology may be misappropriated by our employees, our competitors, or other third parties. The pursuit of remedies for any misappropriation of our intellectual property is expensive and the ultimate remedies may be deemed insufficient. Developments or assertions by or against us relating to intellectual property rights, and any inability to protect or enforce our rights sufficiently, could adversely affect our business and competitive position.
RISKS RELATED TO OUR STRATEGIC TRANSACTIONS AND INITIATIVES.
We may not be able to successfully implement our productivity enhancement and cost reduction initiatives that are necessary to offset competitive price pressure.
Over time, we have experienced pricing pressure on many of our products and anticipate continued pricing pressure in the future. Ongoing and heightened competitive price pressure makes it increasingly important for us to be a low costlow-cost producer. Although we have undertaken and expect to continue to undertake productivity enhancement and cost reduction initiatives, including significant investments in our facilities to improve our manufacturing efficiency, cost, and product quality, we cannot make assurances that we will complete all of these initiatives, that we will fully realize the estimated cost savings from such activities, that short-to-medium term improvements from new efficiencies and lower cost structure achieved will become permanent or that we will be able to continue to reduce cost and increase productivity over the long term.
Our investment and other expansion projects may not be completed, start up as scheduled or deliver the expected capacity and other benefits.
Our ability to complete our investment and expansion projects and the timing and costs of doing so are subject to various risks associated with all major construction projects, many of which are beyond our control, including technical or mechanical problems and economic conditions. Additionally, the start-up of operations after such projects have been completed can be complicated and costly. If we are unable to fully complete these projects, if the actual costs for these projects exceed our expectations, if the start-up phase after completion is more complicated than anticipated or if the capacity and other benefits of these projects are less than anticipated, our financial position, results of operations and cash flows could be adversely affected.
We may not realize the benefits of the Warrick rolling mill acquisition.
Our acquisition of Warrick rolling mill in 2021 could disrupt our business and/or dilute or adversely affect the price of our common stock. Risks associated with the Warrick rolling mill acquisition may include difficulties integrating the financial, technological and management standards, processes, procedures, and controls of the acquired business with those of our existing operations. In addition, we may experience difficulties achieving anticipated operational improvements at Warrick. If we fail to successfully integrate the Warrick rolling mill, we may not realize the benefits expected from the transaction and/or it may have adverse effects on our financial position, results of operations, and cash flows.
We are dependent upon Alcoa for certain resources essential to the day-to-day operation of our business at Warrick.
We are dependent upon Alcoa for certain resources required for the day-to-day operation of our business at Warrick, which include “support services” such as the provision of potable water, compressed air, laboratory services, electricity, steam and hot water. In order to transition Warrick from dependence upon the support services to independence as a facility with its own self-sufficient infrastructure, Alcoa has agreed to provide “transition services,” including providing infrastructure and equipment for the production of steam, hot water and compressed air and conveying the filtration plant currently utilized for the supply of potable water. In addition, Alcoa has agreed to pay for the development of infrastructure necessary for Warrick to obtain electricity from a third-party power supplier, subject to certain conditions no later than June 30, 2024. A failure by Alcoa to provide support services or transition services within the time frames and upon the terms agreed to, including quality and performance standards, could cause us to incur substantial costs to keep the Warrick rolling mill operational or result in the temporary or permanent shutdown of Warrick’s operations. In the event that production of Warrick is negatively impacted by Alcoa’s failure to provide support or transition services, our operations, business, financial condition and results of operations could be adversely affected.
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RISKS RELATED TO COMMODITY-RELATED PRICE FLUCTUATIONS.
Our business could be adversely affected by increases in the costpricing and availability of primary aluminum.
Our largest inputs to produce fabricated aluminum products are primary aluminum and recycled scrap aluminum. ThePrimary aluminum pricing of primary and recycled scrap aluminum fluctuates in response to global supply and demand. Additionally, recycled scrap aluminum is generally priced at a discount to primary aluminum that loosensdemand and tightens in response to regional aluminum scrap supplyalso reflects the impact of duties and demand.tariffs imposed by the United States and certain other countries. The timing and magnitude of changes in market pricing for primary and scrap aluminum are largely unpredictable. Our pricing structures for fabricated aluminum products generally allow us to pass fluctuations in the price of primary aluminum through to our customers so that we can minimize our exposure to metal price risk. However, competitive dynamics for certain of our high value addedmargin products may limit the amount or delay the timing of selling price increases on our products to recover our increased aluminum costs, resulting in a time lag during which we may be partially exposed to metal price risk. If these events were to occur, they could have an adverse effect on our financial position, results of
Our business could be adversely affected by the pricing and availability of recycled scrap aluminum.
We can efficiently use certain forms of recycled scrap aluminum in lieu of primary aluminum and alloying metals in our operations because recycled scrap aluminum trades at a discount to primary aluminum. The size of the discount to primary aluminum depends on regional scrap aluminum supply and demand dynamics. Larger discounts, generally available in periods of ample regional scrap aluminum supply relative to demand, enhance the economic advantage to us of using recycled scrap aluminum in lieu of primary aluminum and alloying metals. The timing and magnitude of changes in scrap discounts relative to primary aluminum are largely unpredictable. If the availability of recycled scrap aluminum in our regional markets were to tighten, scrap discounts relative to primary aluminum could decline and the amount of recycled scrap aluminum we could procure for use in our operations could decline, either of which could have an adverse effect on our financial position, results of operations and cash flows.
Our business could be adversely affected by the pricing for commodities, including aluminum,and availability of alloying metals.
We use certain alloying metals, natural gassuch as copper, zinc, magnesium and electricity, can causesilicon, in our liquidityoperations in order to declineachieve the required performance properties in our products. The availability of these alloys in some cases has been and, lead to non-cash charges in periods of declining commodity pricing.
Reduced pricing for aluminum can reduce our borrowing availability and cause our liquidity to decline.
Lower aluminum prices reduce the market value of our inventory and generally cause a reduction in our accounts receivable as we pass through a lower underlying aluminum price to our customers. Because the amount we can borrow under our Revolving Credit Facility is determined by the value of our receivables and inventory, which serve as collateral for the facility, a reduction in aluminum prices can reduce our borrowing availability and our liquidity, which could have an adverse effect on our financial position, results of operations and cash flows.
Our hedging programs have been and could continue to be adversely impacted by fluctuations as a result of the impacts of supply chain disruptions, geopolitical activity and general economic conditions.
We use forward contracts to protect against fluctuations in commodity prices and currency exchange rate risks. The effectiveness of these hedges depends, in part, on our ability to accurately forecast future product demand and related cash flow. Due to the impacts of supply chain disruptions, geopolitical activity, general economic conditions and other factors, our customers’ businesses are subject to many uncertainties and, as a result, we have experienced, and may continue to experience, unanticipated volatility in product demand and related cash flows. When we experience such volatility or are otherwise unable to make accurate predictions with respect to our forward swaps designated as cash flow hedges, such hedging activities may become ineffective. The early settlement, reclassification of cumulative losses and/or the periodic adjustment to fair value through Net income (loss) associated with ineffective hedging activities could have a material negative impact on our financial position, results of operations and cash flows.
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Our hedging programs may limit the income and cash flows we would otherwise expect to receive if our hedging programprograms were not in place and may otherwise affect our business.
In the ordinary course of business, we enter into hedging transactions to limit our exposure to risks relating to changes in the market prices of primary aluminum, certain alloying metals, natural gas, and electricity, as well as fluctuations in foreign currency exchange rates. To the extent that market prices or exchange rates at the expiration of these hedging transactions would have been more favorable to us than the fixed prices or rates established by these hedging transactions, our income and cash flows will be lower than they otherwise would have been. As noted above, ourOur liquidity could also be adversely affected to the extent we incur margin calls from our hedging counterparties due to the market price of the underlying commodity or the foreign currency exchange rates deviating adversely from fixed, floor or ceiling prices or rates established by our outstanding hedging transactions. Our failure to satisfy certain covenants in the underlying hedging documents or the occurrence of an event of default thereunder could also trigger margin calls that could adversely impact our liquidity, financial position, results of operations and cash flows. Our hedging programs also expose us to the creditworthiness of our hedging counterparties, which is inherently difficult to assess and can change quickly and dramatically. Non-performance by a hedging counterparty could have an adverse effect on our financial position, results of operations and cash flows.
RISKS RELATED TO OUR INDEBTEDNESS.
Covenants and events of default in our debt instruments could limit our ability to undertake certain types of transactions and adversely affect our liquidity.
Our revolving credit facilityRevolving Credit Facility and the indentureindentures governing our 5.875% Senior Notes due 2024 ("5.875% Senior Notes") contain a number of restrictive covenants that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:
In addition, restrictive covenants in our revolving credit facilityRevolving Credit Facility require us in certain circumstances to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control and we may be unable to meet them.
A breach of the covenants or restrictions under our revolving credit facilityRevolving Credit Facility or under the indentureindentures governing the 5.875% Senior Notes could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt. A payment default or an acceleration following an event of default under our revolving credit facilityRevolving Credit Facility or our indentureindentures for our 5.875% Senior Notes could trigger an event of default under the other indebtedness obligation, as well as any other debt to which a cross-acceleration or cross-default provision applies, which could result in the principal of and the accrued and unpaid interest on all such debt becoming due and payable. In addition, an event of default under our revolving credit facilityRevolving Credit Facility could permit the lenders under our revolving credit facilityRevolving Credit Facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay any amounts due and payable under our revolving credit facility,Revolving Credit Facility, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
As a result of these restrictions, we may be:
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In addition, our financial results, our level of indebtedness, and our credit ratings could adversely affect the availability and terms of any additional or replacement financing.
More detailed descriptions of our revolving credit facilityRevolving Credit Facility and the indentureindentures governing our 5.875% Senior Notes are included in filings made by us with the SEC, along with the documents themselves, which provide the full text of these covenants.
Restrictive covenants in our debt instruments contain significant qualifications and exceptions.
While our revolving credit facilityRevolving Credit Facility and the indentureindentures governing the 5.875% Senior Notes place limitations on our ability to pay dividends or make other distributions, repurchase or redeem capital stock, make loans and investments, and incur additional indebtedness, investors should be aware that these limitations are subject to significant qualifications and exceptions. The aggregate amount of payments made or incremental debt incurred in compliance with these limitations could be substantial.
As indicated above, more detailed descriptions of our revolving credit facilityRevolving Credit Facility and the indentureindentures governing our 5.875% Senior Notes are included in filings made by us with the SEC, along with the documents themselves, which provide the full text of these covenants.
Servicing our debt requires a significant amount of cash and we may not have sufficient cash flow from our business to pay our debt.
Our ability to make scheduled interest and principal payments on our debt obligations or to refinance such obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the interest, principal, and premium, if any, on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, dispose of material assets or operations, restructure or refinance our indebtedness or seek additional debt or equity capital. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative
If we cannot make scheduled payments on our debt, we will be in default and holders of the 5.875% Senior Notes could declare all outstanding principal and interest to be due and payable, the lenders under our revolving credit facilityRevolving Credit Facility could terminate their commitments to loan money, the lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.
We are a holding company and depend on our subsidiaries for cash to meet our obligations and pay any dividends.
We are a holding company and conduct all of our operations through our subsidiaries, certain of which are not guarantors of our 5.875% Senior Notes or our revolving credit facility.Revolving Credit Facility. Accordingly, repayments of our 5.875% Senior Notes and any future amounts due under our revolving credit facilityRevolving Credit Facility are dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us by dividend, loan, debt repayment, or otherwise. Our subsidiaries that are not guarantors of our revolving credit facilitySenior Notes, or the 5.875% Senior NotesRevolving Credit Facility have no obligation to pay amounts due on the revolving credit facilitySenior Notes, or the 5.875% Senior NotesRevolving Credit Facility or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required interest and principal payments on our revolving credit facility, the 5.875% Senior Notes, or our Revolving Credit Facility, or other indebtedness.
Our inability to receive distributions from our subsidiaries, otherwise generate sufficient cash flows to satisfy our debt obligations or refinance our indebtedness on commercially reasonable terms, or at all, would adversely affect our financial position and results of operations.
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RISKS RELATED TO OUR COLLECTIVE BARGAINING AGREEMENTS.
Our failure to maintain satisfactory labor relations could adversely affect our business.
At December 31, 2017,2023, approximately 63%65% of our employees were represented by labor unions under labor contracts with varying durations and expiration dates. Employees at our Trentwood and our Newark Ohio facilityfacilities are represented by the USW under a single contract that extends through September 2020.2025. The USW also represents employees at fivesix other facilities, twoone of which have contractshas a contract expiring in 2018.2024. As part of any labor negotiation, the future wages, healthcare benefits, and excise taxes that may result therefrom, and other benefits that we agree to, could adversely affect our future financial position, results of operations and cash flows. In addition, negotiations could divert management attention, result in unsatisfactory terms and conditions, fail in coming to any agreement at all or result in strikes, work stoppages or other union-initiated work actions, any of which could have an adverse effect on our financial position, results of operations and cash flows. Moreover, the existence of labor agreements may not prevent such union-initiated work actions.
Our participation in multi-employermultiemployer union pension plans may have an adverse effect on our financial performance.
We participate in several multi-employermultiemployer pension plans pursuant to our collective bargaining agreements. Our contribution amounts to these plans were established by collective bargaining and, along with benefit levels and related items, will be issues in our future collective bargaining negotiations. Based on the most recent information available to us, we believe some of these plans are underfunded and may require increased contributions from participating employers to fill the funding shortfall in the future. An employer that withdraws or partially withdraws from a multi-employermultiemployer pension plan may incur a withdrawal liability for the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. The failure of a withdrawing employer to fund these obligations can increase the burden of the remaining participating employers to make up the funding shortfall, which could have an adverse effect on our financial position, results of operations and cash flows. The increase or decrease in our contributions to these multi-employermultiemployer pension plans will depend on our future collective bargaining, actions taken by trustees who manage the plans, actions of other participating employers, government regulations and the actual return on assets held in the plans, among other factors.
An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and other factors could affect our business, financial condition, results of operations or amount of pension funding contributions in future periods.
Our results of operations may be negatively affected by the amount of expense we record for our pension and other postretirement benefit plans, reductions in the fair value of plan assets and other factors. We calculate income or expense for our plans using actuarial valuations in accordance with GAAP.
These valuations reflect assumptions about financial markets and other economic conditions, which may change based on changes in key economic indicators. The most significant year-end assumptions we use to estimate pension or other postretirement benefit income or expense for the following year are the discount rate applied to plan liabilities and the expected long-term rate of return on plan assets. In addition, we are required to make an annual measurement of plan assets and liabilities, which may result in a significant charge to stockholders’ equity. For more information, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition” under caption “Critical Accounting Estimates and Policies – Pension and Other Postretirement Benefits” included in this Form 10-K, as well as Note 5 of Notes to Consolidated Financial Statements included in this Form 10-K. Although GAAP expense and pension funding contributions are impacted by different regulations and requirements, the key economic factors that affect GAAP expense would also likely affect the amount of cash we would contribute to the pension plans.
Potential pension contributions include both mandatory amounts required under federal law and discretionary contributions to improve the plans’ funded status. Higher than expected pension contributions due to a decline in the plans’ funded status as a result of declines in the discount rate or lower-than-expected investment returns on plan assets could have a material negative effect on our cash flows. Adverse capital market conditions could result in reductions in the fair value of plan assets and increase our liabilities related to such plans, adversely affecting our liquidity and results of operations.
The USW has director nomination rights through which it may influence us, and interests of the USW may not align with our interests or the interests of our stockholders, debt holders and other stakeholders.
Pursuant to agreements we have with the USW, the USW has the right, subject to certain limitations, to nominate candidates which, if elected, would constitute 40% of our Board of Directors through December 31, 2020.2025. As a result, the directors
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RISKS RELATED TO ENVIRONMENTAL LAWS AND REGULATIONS AND SUSTAINABILITY INITIATIVES.
Environmental compliance, clean upcleanup and damage claims may decrease our cash flow and adversely affect our business.
We are subject to numerous environmental laws and regulations, including permitting and other administrative requirements, with respect to, among other things: (i) air and water emissions and discharges; (ii) the generation, storage, treatment, transportation and disposal of solid and hazardous waste;materials; and (iii) the release of hazardous or toxic substances, pollutants and contaminants into the environment. In addition to environmental laws and regulations, environmental activists, lobbyists and consumers have targeted manufacturers for the purported impact of their operations on the environment. Compliance with theseexisting and new environmental laws is and willstandards or the implications of any actions by third parties are and may continue to be costly.
We have accrued and will accrue for costs that are reasonably expected to be incurred based on available information with respect to permits, fines, penalties and expenses for alleged breaches of, and compliance activities associated with, environmental laws and regulations in connection with our existing operations and investigations and environmental clean upcleanup activities with respect to our continuing operations and certain of our former operations. However, actual costs could exceed accrued amounts, perhaps significantly, and such expenditures could occur sooner than anticipated, which could adversely affect our financial position, results of operations and cash flows.
Additionally, we may be subject to new claims from governmental authorities or third parties related to alleged injuries to the environment, human health or natural resources, including claims with respect to waste disposal sites, the clean upcleanup of sites currently or formerly used by us or exposure of individuals to hazardous materials. New laws or regulations or changes to existing laws and regulations may also be enacted including government mandated green initiatives and limitations on carbon emissions that increase the cost or complexity of compliance. Costs related to any new investigation, clean-upcleanup or other remediation, fines or penalties, resolution of third-party claims or compliance with new or amended laws and regulations, including enhanced permitting requirements, may be significant and could have an adverse effect on our financial position, results of operations and cash flows.
Governmental regulation relating to greenhouse gas emissions may subject us to significant new costs and restrictions on our operations
and could impact our supply chain and cost of material.Laws enacted by the U.S. Congressgovernment agencies, or policies of regulators, including the EPAUSEPA and the SEC, could regulate greenhouse gas emissions through cap-and-trade systems, carbon taxes, or other programs under which emitters would be required to buy allowances to offset emissions of greenhouse gas, pay carbon based taxes, make certain disclosures about emissions, which may be extensive, make significant capital investments, alter manufacturing practices or curtail production. In addition, several states, including the state of Washington, in which we have manufacturing operations, have consideredimplemented and continue to consider various greenhouse gas regulation and reduction programs through legislative proposals, executive orders and ballot initiatives. Certain of our manufacturing plants use significant amounts of electricity and natural gas and certain of our plants emit amounts of greenhouse gas above certain minimum thresholds that have or may be imposed. GreenhouseWhile certain of our operations, including the melting of aluminum, require the use of natural gas to achieve the required temperatures, greenhouse gas regulations could restrict our access to natural gas and limit our ability to use natural gas and increase the price we pay for natural gas and electricity, any one of which could significantly increase our costs, reduce our competitiveness in the global economy or otherwise adversely affect our business, operations or financial results.
Furthermore, regulations or other targets for greenhouse gas emissions reductions could impact the availability and price of energy and raw materials, which could ultimately lead to supply demand imbalances, higher costs and supply chain disruptions. Prolonged shortages or slowdowns could negatively impact our cost of goods and result in delays or non-delivery of shipments of our products. The future impact of these or other changes could be regulatory or voluntary and could impact our operations directly or indirectly through our customers or our supply chain. These potential impacts could have an adverse effect on our operations, financial position, results of operations and cash flows.
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Expectations relating to sustainability considerations expose us to potential liabilities, increased costs and reporting requirements, reputational harm and other adverse effects on our business.
Many governments, regulators, investors, employees, customers, and other stakeholders are increasingly focused on sustainability considerations relating to businesses, including climate change and greenhouse gas emissions, human capital and diversity, equity and inclusion. We make statements about our sustainability goals and initiatives through information provided on our website, press statements, and other communications, including through our Corporate Sustainability Report. Responding to these sustainability considerations and implementation of these goals and initiatives involves risks and uncertainties, including those described under “Forward-Looking Statements,” requires investments and is impacted by factors that may be outside our control. In addition, some stakeholders may disagree with our goals and initiatives and the focus of stakeholders may change and evolve over time. Stakeholders also may have very different views on where sustainability focus should be placed, including differing views of regulators in various jurisdictions in which we operate. Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, comply with federal, state or international sustainability laws and regulations or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us that could materially adversely affect our business, reputation, results of operations, financial condition and stock price.
RISKS RELATED TO CYBERSECURITY AND PRIVACY.
We are subject to risks relating to our information technology systems.
We rely on information technology networks and systems to process, transmit and store electronic information, and manage and operate our business. business and communicate among our locations and with our customers, suppliers and other interested parties. Many of these systems are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify to varying degrees certain security and service level standards. Our information technology systems are dependent upon these providers. Such information technology systems are subject to: (i) interruption or damage from power outages; (ii) cybersecurity breaches and other types of unauthorized access and/or use; and (iii) cyberattacks in the form of computer viruses, worms, malicious computer programs, denial‑of‑service attacks and other illegal or illicit means. Cyberattack and security breach strategies and methods continue to evolve and become more sophisticated. Accordingly, preventing intrusions and detecting successful intrusions and defending against them continues to be more difficult and requires ever-increasing vigilance.
A breach in cybercybersecurity on our systems or any of our third-party service providers could result in manipulation and destruction of sensitive data, cause critical systems to malfunction, be damaged or shut down and lead to disruption of our operations and production downtimes, potentially for lengthy periods of time. Theft of personal or other confidential data and sensitive proprietary information could also occur as a result of a breach in cybersecurity, exposing us to costs and liabilities associated with privacy and data security laws in the jurisdictions in which we operate. Additionally, a breach could expose us, our customers, our suppliers, and our employees to risks of misuse of confidentialsuch information. A breach could also result in manipulation and destructionSuch negative consequences of data, production downtimes and operations disruptions, which in turncyberattacks or security breaches could adversely affect our reputation, competitive position, business, or results of operations. The lost profits and increased costs related to cyber or other security threats or disruptions may not be fully insured against or indemnified by other means.
In addition, from time to time we may implement new technology systems or replace and/or upgrade our current information technology systems. These upgrades or replacements may not improve our productivity to the levels anticipated and may subject us to inherent costs and risks associated with implementing, replacing and updating these systems, including potential disruption of our internal control structure, substantial capital expenditures, demands on management time and other risks of delays or difficulties in transitioning to new systems or of integrating new systems into other existing systems. Our inability to prevent information technology system disruptions or to mitigate the impact of such disruptions could have an adverse effect on us.
RISKS RELATED TO TAX REGULATIONS.
We may not be able to utilize all of our net operating loss carryforwards.
Our ability to utilize our net operating loss carryforwards and other tax attributes could be limited to the extent they expire before we fully utilize them or if changes in federal or certain state tax laws reduce or eliminate our ability to use them to offset income taxes. Additionally, a change in our ownership, specifically a change in ownership of more than 50% during any period
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Furthermore, our tax attributes, our stockholders have (a) approved an amendmentreturns for certain past years are still subject to our certificateexamination by taxing authorities, and the use of incorporation to implement stock transfer restrictions ("Transfer Restrictions") that will expire on May 26, 2019 and (b) ratified a tax asset protection rights plan ("Tax Asset Rights Plan"), which will expire on April 7, 2019. While both were designed to preserve our ability to fully utilize our net operating loss carryforwards in future periods could trigger a review of attributes and other significant tax attributesmatters in years that are not otherwise subject to offset future taxable income, neither the Transfer Restrictions nor the Tax Asset Rights Plan completely protects us from an ownership change that could limit our use of our net operating loss carryforwards and other valuable tax attributes.
We could engage in or approve transactions involving our common shares that inadvertently impair the use of our federal income tax attributes.
Section 382 of the Code affects our ability to use our federal income tax attributes, including our net operating loss carryforwards, following a more than 50% change in ownership during any period of 36 consecutive months, an ownership change, as determined under the Code. Certain transactions may be included in the calculation of an ownership change, including transactions involving our repurchase or issuance of our common shares. When we engage in or approve any transaction involving our common shares that may be included in the calculation of an ownership change, our practice is to first perform the calculations necessary to confirm that our ability to use our federal income tax attributes will not be affected. These calculations are complex and reflect certain necessary assumptions. Accordingly, it is possible that we could approve or engage in a transaction involving our common shares that causes an ownership change and inadvertently impairs the use of our federal income tax attributes.
RISKS RELATED TO OUR COMMON STOCK.
Payment of dividends may not continue in the future and our payment of dividends and stock repurchases are subject to restrictions.
Our Board of Directors has declared a cash dividend for each quarter since the summer of 2007. In addition, our Board of Directors has authorized a stock repurchase program. The future declaration and payment of dividends and the purchase of our shares under the repurchase program, if any, are at the discretion of the 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.requirements and regulatory rules. Additionally, our revolving credit facilityRevolving Credit Facility and the indentureindentures for our 5.875% Senior Notes impose limitations on our ability to pay dividends and repurchase our common shares. We can give no assurance that dividends will be declared and paid, that dividends will not be reduced or that purchases of our shares pursuant to our repurchase program will occur in the future.
Delaware law and our governing documents may impede or discourage a takeover, which could adversely affect the value of our common stock.
The provisions of Delaware law and our certificate of incorporation and bylaws may discourage a change of control of our company or deter tender offers for our common stock. We are currently subject to anti-takeover provisions under Delaware law. These anti-takeoveranti‑takeover provisions impose various impediments to the ability of a third partythird-party to acquire control of us. Additionally,In addition, provisions of our certificate of incorporation and bylaws impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. For example, our certificate of incorporation authorizes our Board of Directors to determine the rights, preferences and privileges and restrictions of unissued shares of preferred stock without any vote or action by our stockholders. As a result, our Board of Directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of common stock. Our certificate of incorporation also divides our Board of Directors into three classes of directors who serve for staggered terms. A significant effect of a classified Board of Directors may be to deter hostile takeover attempts because an acquirer could experience delays in replacing a majority of directors. Moreover, stockholders are not permitted to call a special meeting.
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RISKS RELATED TO PUBLICLY TRADED U.S. manufacturing company.
As a publicly traded U.S. manufacturing company, we are subject to a variety of other risks, each of which could adversely affect our financial position, results of operations or cash flows or the price of our common stock. These risks include but are not limited to:
Item 1B.Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and
We employ information systems to meetsupport our business. As is the expectationscase for other manufacturing companies of investors,comparable size and scope, we, from time to time, experience attempted cyber-attacks on our information system. We also face risks associated with other potential significant failures or disruptions of our information technology networks. We utilize a risk-based, multi-layered information security approach that incorporates some of the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (“CSF”). We have adopted and implemented this approach to identify and mitigate information security risks in a manner that we believe is commercially reasonable for manufacturing companies of our size and scope.
The review of cybersecurity risks and threats is integrated into our enterprise risk management (“ERM”). Our ERM program includes an annual risk prioritization process to identify key enterprise risks. Each key risk is assigned risk owners to establish action plans and implement risk mitigation strategies. The cybersecurity threat risk action plan is managed at the enterprise level by our Chief Information Officer (“CIO”). Management employs in-depth defense mechanisms throughout the enterprise. We regularly engage and consult with independent third-party consultants as part of our overall ERM, including penetration testing and periodic tabletop exercises to better prepare us for potential cyber threats. We also conduct annual information security training to educate employees and make them aware of information security risks and to enable them to take steps to mitigate those risks. As part of this program, we take reasonable steps to provide our executive management and employees who may come into possession of confidential financial information with appropriate information security awareness training. In addition, we employ multi-factor authentication and vulnerability management to mitigate and/or prevent cybersecurity incidents.
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A cybersecurity incident may be detected in a number of ways, including, but not limited to, through automated reporting mechanisms, network and system indicators, intrusion detection systems, employee reports, law enforcement reports, or other third-party notification. To oversee and identify cybersecurity threat risks on a day-to-day basis, including from third-party service providers, the Company maintains a cybersecurity operations team with round-the-clock monitoring, and the CIO and Director of Cybersecurity receive regular reports on industry activity. Upon receiving notification of a cybersecurity incident, the cybersecurity operations team acts to isolate and contain the threat. The CIO along with the Director of Cybersecurity will consult and determine the incident severity level, which determines whether the incident should be escalated. Critical and high severity incidents must be reported to our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, Executive Vice President, Chief Administrative Officer and General Counsel and Executive Vice President - Manufacturing. The Company may engage third-party experts for assistance with crisis management, including forensic investigations, ransom negotiation, or crisis communication. During this process, the cybersecurity operations team will take steps to preserve evidence as soon as possible, including, but not limited to, memory dumps, log preservation and forensic hard drive collection. In addition, our Executive Vice President, Chief Administrative Officer and General Counsel, in consultation with the CIO and Director of Cybersecurity, will promptly evaluate whether the incident requires legal notifications or disclosure, including whether the incident requires disclosure under the U.S. securities laws. Following a cybersecurity incident, the Executive Vice President and Chief Financial Officer will direct the development of documentation regarding lessons learned in the response, including evaluation of preparedness capability, to continuously strengthen the cybersecurity posture of the Corporation.
Management has not identified risks from cybersecurity threats, including as a result of factors beyondany previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business, strategy, results of operations, or financial condition. See “Item 1A. Risk Factors - Risks Related to Cybersecurity and Privacy” for additional information. While we continually work to safeguard the information systems we use, and the proprietary, confidential and personal information residing therein, and mitigate potential risks, there can be no assurance that such actions will be sufficient to prevent cybersecurity incidents or mitigate all potential risks to such systems, networks and data or those of our third-party providers. In the event an attack or other intrusion were to be successful, we have a response team of internal and external resources engaged and prepared to respond. We also have a cyber risk insurance policy to help us mitigate risk exposure by offsetting costs involved with recovery and remediation in the event of a successful attack or other intrusion.
Governance
The Audit Committee is responsible for the review of risks relating to our information technology system, including cybersecurity, emerging cybersecurity developments and threats and our strategy for mitigating cybersecurity risks. Our entire Board of Directors is responsible for overseeing management’s risk assessment and risk management processes designed to monitor and mitigate information security risks. The CIO and Director of Cybersecurity reports on cybersecurity matters semi-annually to the Board, primarily through the Audit Committee. Management provides benchmarking information and updates on key operational and compliance metrics to the Audit Committee. In addition, cybersecurity training is provided to the Audit Committee, to educate directors on the current cybersecurity threat environment and measures companies can take to mitigate the risk and impact of cyberattacks.
As described above, management is actively involved in assessing and managing the Company’s material cybersecurity risks. The CIO and the Director of Cybersecurity primarily lead these efforts. The CIO, reporting to the Company’s Executive Vice President and Chief Financial Officer, manages the global information technology and cybersecurity programs. The CIO holds Bachelor’s and Master’s degrees in Business Administration, specializing in information systems and quantitative methods from Loyola Marymount University. The CIO maintains over 25 years of information technology expertise with extensive experience in enterprise risk management, including analysis, development, evaluation, and testing of control objectives and procedures to mitigate risks. The Director of an individual company.Cybersecurity oversees and helps to ensure appropriate capabilities and controls are implemented in the areas of network security, endpoint protection, data protection, incident response, identity, and access management. Additionally, in this role, the Director of Cybersecurity works closely with 3rd party security partners surrounding monitoring and incident response services.
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Item 2.
PropertiesThe following table provides information regarding the location, size, and ownership of our principal production facilities as of December 31, 2017 is below:
Location | Square | Owned or | ||||
Chandler, Arizona | 98,000 | Leased1 | ||||
Chandler, Arizona | 103,000 | Leased2 | ||||
Columbia, New Jersey | 33,000 | Owned | ||||
Florence, Alabama | 249,000 | Owned | ||||
Jackson, Tennessee | 306,000 | Owned | ||||
Kalamazoo, Michigan | 465,000 | Leased2 | ||||
London, Ontario | 306,000 | Owned | ||||
Los Angeles, California | 174,000 | Owned | ||||
Heath, Ohio | 1,284,000 | Owned | ||||
Newburgh, Indiana | 3,922,000 | Owned/Leased3 | ||||
Richland, Washington | 63,000 | Leased4 | ||||
Richmond, Virginia | 474,000 | Owned | ||||
Sherman, Texas | 311,000 | Owned | ||||
Spokane Valley, Washington | 2,886,000 | |||||
Owned/Leased5 | ||||||
Total | 10,674,000 |
1. The Chandler, Arizona extrusion facility is subject to a lease with a term that expires in 2038, subject to certain extension rights held by us. |
2.
Production facilities and equipment are generally in good condition and suitable for their intended uses. For additional information regarding our production facilities, see the table under Item 1. Business "Business Operations - Fabricated Products Segment“Resources - Manufacturing Processes"Processes” of this Report.
Item 3.
Legal ProceedingsNone.
Item 4.
Mine Safety DisclosuresNot applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our outstanding common stock is traded under the ticker symbol “KALU” on the Nasdaq Global Select Market under the ticker symbol "KALU."
| High | Low | |||||||
| Fiscal 2017 | ||||||||
| First quarter | $ | 86.37 | $ | 74.56 | ||||
| Second quarter | $ | 88.97 | $ | 76.73 | ||||
| Third quarter | $ | 104.02 | $ | 88.60 | ||||
| Fourth quarter | $ | 109.13 | $ | 90.93 | ||||
| Fiscal 2016 | ||||||||
| First quarter | $ | 85.96 | $ | 70.14 | ||||
| Second quarter | $ | 96.06 | $ | 80.75 | ||||
| Third quarter | $ | 94.65 | $ | 80.44 | ||||
| Fourth quarter | $ | 88.68 | $ | 69.41 | ||||
Holders
As of February 15, 2018,19, 2024, there were approximately 576495 holders of record of our common stock.
Stock Performance Graph
The following graph compares the cumulative total shareholder return on our common stock with: (i) the Russell 2000
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Kaiser Aluminum Corporation, the Russell 2000 Index and
the S&P SmallCap 600 Materials Index
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Issuer Repurchases of Equity Securities
The following table provides information regarding our repurchases of our common shares during the quarter ended December 31, 2017:
|
| Equity Incentive Plans |
|
| Stock Repurchase Plan |
| ||||||||||||||
|
| Total |
|
| Average |
|
| Total |
|
| Average |
|
| Maximum |
| |||||
October 1, 2023 - October 31, 2023 |
|
| 344 |
|
| $ | 67.08 |
|
|
| — |
|
| $ | — |
|
| $ | 93.1 |
|
November 1, 2023 - November 30, 2023 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 93.1 |
|
December 1, 2023 - December 31, 2023 |
|
| 683 |
|
|
| 64.95 |
|
|
| — |
|
|
| — |
|
|
| 93.1 |
|
Total |
|
| 1,027 |
|
| $ | 65.67 |
|
|
| — |
|
| $ | — |
|
| 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 Program (millions)2 | ||||||||||||||
| October 1, 2017 - October 31, 2017 | 300 | $ | 99.18 | 15,077 | $ | 99.58 | $ | 121.9 | ||||||||||
| November 1, 2017 - November 30, 2017 | — | — | 76,211 | 95.66 | $ | 114.7 | ||||||||||||
| December 1, 2017 - December 31, 2017 | — | — | 41,085 | 99.96 | $ | 110.5 | ||||||||||||
| Total | 300 | $ | 99.18 | 132,373 | $ | 97.44 | N/A | |||||||||||
Item 6.[Reserved]
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Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Item 8. "Financial Statements and Supplementary Data" of this Report (in millions of dollars, except shipments and per share amounts):
| Year Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
| Shipments (mm lbs) | 625.7 | 614.3 | 615.4 | 588.8 | 563.7 | |||||||||||||||
| Net sales | $ | 1,397.5 | $ | 1,330.6 | $ | 1,391.9 | $ | 1,356.1 | $ | 1,297.5 | ||||||||||
Net income (loss)1 | $ | 45.4 | $ | 91.7 | $ | (236.6 | ) | $ | 71.8 | $ | 104.8 | |||||||||
| Net income (loss) per share - Basic | $ | 2.67 | $ | 5.15 | $ | (13.76 | ) | �� | $ | 4.02 | $ | 5.56 | ||||||||
| Net income (loss) per share - Diluted | $ | 2.63 | $ | 5.09 | $ | (13.76 | ) | $ | 3.86 | $ | 5.44 | |||||||||
| Cash dividends declared per common share | $ | 2.00 | $ | 1.80 | $ | 1.60 | $ | 1.40 | $ | 1.20 | ||||||||||
| Capital expenditures | $ | 75.5 | $ | 76.1 | $ | 63.1 | $ | 59.4 | $ | 70.4 | ||||||||||
| Depreciation and amortization expense | $ | 39.7 | $ | 36.0 | $ | 32.4 | $ | 31.1 | $ | 28.1 | ||||||||||
| December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
| Assets: | ||||||||||||||||||||
| Fabricated Products | $ | 1,046.8 | $ | 969.4 | $ | 904.7 | $ | 878.9 | $ | 852.5 | ||||||||||
All Other | 338.4 | 474.1 | 342.2 | 860.1 | 911.7 | |||||||||||||||
Total assets1 | $ | 1,385.2 | $ | 1,443.5 | $ | 1,246.9 | $ | 1,739.0 | $ | 1,764.2 | ||||||||||
| Cash and short-term investments | $ | 234.8 | $ | 286.2 | $ | 102.5 | $ | 291.7 | $ | 299.0 | ||||||||||
| Long-term borrowings (at face value), including amounts due within one year | $ | 375.0 | $ | 375.0 | $ | 197.8 | $ | 400.0 | $ | 400.0 | ||||||||||
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 generally accepted accounting principles ("GAAP")US GAAP in the statements of income (loss), balance sheets, or statements of cash flows of the company. Pursuant to the requirements of Regulation G,
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 our voluntary employee beneficiary associations ("VEBAs").items. For a reconciliation of operating income (loss) excluding non-run-rate itemsAdjusted EBITDA to operatingNet income (loss), see "Resultsbelow in “Results of Operations -
Metal Pricing Policies
Our pricing policies and hedging program are intended to significantly reduce or eliminate the impact on our profitability of fluctuations in the underlying price of primary 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‑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. As used in this discussion, "Hedged“Hedged Cost of Alloyed Metal"Metal” 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 -
Molten Metal and Magnesium Supply Chain Issues
In September 2021, Warrick faced specific challenges with the force majeure declaration of its primary magnesium supplier, US Magnesium, LLC (“US Mag”), which resulted in a significant reduction in deliveries while we were also being impacted by the operational challenges Alcoa was experiencing at its adjacent smelter, which supplies molten metal to Warrick. In June 2022, US Mag deliveries unexpectedly stopped while performance of the smelter also rapidly deteriorated, negatively impacting Warrick’s operating efficiency and financial performance. As a result of the abrupt and unexpected decline in magnesium supply, on July 7, 2022, we declared force majeure at Warrick due to the limited availability of magnesium utilized in the production of our beverage and food packaging products, reducing our ability to produce those products at the time. After successfully securing and qualifying magnesium from additional sources, on September 6, 2022, we announced that we had lifted our force majeure declaration. We believe our supply base is now well diversified, as it is not reliant on any one single supplier or geographical region, including with respect to the supply of molten metal to our Warrick operation.
32
Management Review of 20172023 and Outlook for the Future
Review
Despite its challenges, 2023 was a foundational year for Kaiser as we laid the groundwork we believe to be necessary to capture the vast growth opportunities ahead. Our focused execution led us to end the year in a solid position with full year 2017,Net income of $47.2 million and adjusted EBITDA increasing 48% over 2022 to approximately $210 million. Our marketing organization was successful working with our customers on pricing initiatives in response to higher inflationary costs impacting our performance as we hadexited 2022 and the first half of 2023. In addition, we led the industry in securing contain metal pass through to address the volatility of alloy costs. Aero/HS Products demand remained strong operating performancewith Net sales and achievedconversion revenue each setting a new record shipments, despite headwinds fromhigh. While reduced demand for general engineering plate products persisted, our unique ability to flex our capacity at our Trentwood facility to support strengthening aerospace demand further contributed to our performance. After five consecutive quarters, destocking activity for general engineering long products stabilized during the fourth quarter of 2023. In our Packaging operations, we continue to stabilize operations following the prior years impact of supply chain disruptions and the start of a beverage product destocking lower-than-anticipated automotive build rates, competitive price pressurecycle that continued through the first half of 2023. While destocking stabilized for beverage products in the second half of 2023, the fourth quarter of 2023 was further impacted by destocking for food related products. Our new roll coat installation, to convert approximately 25% of our existing packaging capacity to higher valued coated products, is progressing well and construction-related disruptions atis on time for completion and customer qualifications by the end of 2024. We believe we have ample financial resources, including $599.1 million in liquidity as of December 31, 2023, and a strong capital expenditures budget, to implement our rolling millgrowth initiatives as we strive to drive sustainable long-term growth.
Outlook
We believe Kaiser remains well positioned in Spokane, Washington ("Trentwood").
As a 6% compound annual growth rate in both our shipments and value addedresult, conversion revenue for general engineering applications ("GE products") over the past three years driven by improving, broad-based industrial demand. We are cautiously optimistic about underlying demand for our GE products as we look forward. However, as we have previously discussed, we continue to experience price pressure on our high value-added products from both imports and increasing metal costs.
Results of our annual depreciation expense.
Fiscal 2023 Summary
33
Consolidated Selected Operational and Financial Information
The following data should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8. "Financial“Financial Statements and Supplementary Data"Data” of this Report. See Note 15 of Notes to Consolidated Financial Statements included in this Report for further information regarding segments.
Net Sales.
We reported Net sales forCOGS. COGS for 20172023 totaled $1,105.3$2,754.9 million, or 79%89% of Net sales, compared to $1,019.5$3,180.2 million, or 77%93% of Net sales, in 2016 and $1,115.4 million, or 80% of Net sales, in 2015.2022. The increasedecrease during 20172023 compared to 20162022 of $85.8$425.3 million was comprised ofreflected: (i) a $93.6$424.1 million increasedecrease in Hedged Cost of Alloyed Metal partially offset byand (ii) a $7.8$1.2 million reductiondecrease in net manufacturing conversion and other costs. Of the $424.1 million decrease in Hedged Cost of Alloyed Metal, $329.7 million was due to lower hedged metal cost and $94.4 million was due to lower shipment volume, as discussed above in “Net Sales.” The reduction$1.2 million decrease in net manufacturing conversion and other costs reflected:was primarily due to: (i) a $19.8 million decrease related to lower shipments; (ii) a $10.9 million favorable impact from efficient raw material usage,decrease in other costs, primarily due to favorable scrap aluminum pricinglower freight costs; and (ii) $1.6(iii) a $3.2 million of lower energy pricing,decrease in environmental costs, partially offset by: (i) $3.2a net $25.3 million ofincrease in manufacturing costs primarily due to higher planned major maintenance expenselabor and material costs and (ii) a net $1.5 million manufacturing cost increase as incremental conversion costs associated with higher shipment volume in 2017 were mitigated by favorable manufacturing cost efficiency. Of the $93.6$7.4 million increase in Hedged Cost of Alloyed Metal, $83.9 million was due to higher hedged metal pricesmajor maintenance. See “Selected Operational and $9.7 million was due to higher shipment volume, as discussed in "
Depreciation and Amortization.
Depreciation and amortization forSelling, General, Administrative, Research and Development ("(“SG&A and R&D"&D”).
Goodwill Impairment. See Note 4 of Notes to Consolidated Financial Statements included in this ReportForm 10-K for details onfurther details.
Restructuring Costs. Restructuring costs reflect the Loss on removalimpacts of Union VEBA net assetsour restructuring plans initiated in 20152022 and our estimated liability for the final remaining variable cash contribution to be paid in 2018.
Other Operating Charges, Net.
Interest Expense.
Interest expense represents cash and non-cash interest expense incurred on ourOther Income (Expense), Net. See Note 13 of Notes to Consolidated Financial Statements included in this Form 10-K for details.
Income Tax (Provision) Benefit.
The income tax provision forThe income tax provisionbenefit for 20162022 was $55.5$8.3 million, resulting in an effective tax rate of 37.7%. There was no material difference between the effective tax rate and the projected blended statutory tax rate for 2016.
34
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 II, Item 8. “Financial Statements and Supplementary Data” of this Report. Form 10-K.
The following table provides selected operational and financial information (in millions of dollars):
|
| Year Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net income (loss) |
| $ | 47.2 |
|
| $ | (29.6 | ) |
Interest expense |
|
| 46.9 |
|
|
| 48.3 |
|
Other income, net |
|
| (7.4 | ) |
|
| (6.4 | ) |
Income tax provision (benefit) |
|
| 9.1 |
|
|
| (8.3 | ) |
Depreciation and amortization |
|
| 108.6 |
|
|
| 106.9 |
|
Non-run-rate items: |
|
|
|
|
|
| ||
Restructuring cost |
|
| 5.0 |
|
|
| 2.2 |
|
Mark-to-market loss on derivative instruments1 |
|
| — |
|
|
| 1.4 |
|
Goodwill impairment2 |
|
| — |
|
|
| 20.5 |
|
Non-cash asset impairment charge |
|
| — |
|
|
| 3.2 |
|
Net periodic postretirement service cost relating to Salaried VEBA |
|
| — |
|
|
| 0.1 |
|
Environmental expenses3 |
|
| 0.2 |
|
|
| 3.2 |
|
Acquisition costs4 |
|
| — |
|
|
| 0.4 |
|
Total non-run-rate items |
|
| 5.2 |
|
|
| 31.0 |
|
Adjusted EBITDA |
| $ | 209.6 |
|
| $ | 141.9 |
|
relating to the impairment of goodwill in 2022.
Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Segment operating income | $ | 201.3 | $ | 229.6 | $ | 190.8 | ||||||
| Impact to segment operating income of non-run-rate items: | ||||||||||||
Adjustments to plant-level LIFO1 | (3.8 | ) | (0.6 | ) | 7.0 | |||||||
| Mark-to-market gain (loss) on derivative instruments | 19.4 | 18.7 | (3.4 | ) | ||||||||
Non-cash lower of cost or market inventory write-down2 | — | (4.9 | ) | (2.6 | ) | |||||||
| Workers’ compensation benefit (cost) due to discounting | — | 0.3 | (0.2 | ) | ||||||||
Goodwill impairment3 | (18.4 | ) | — | — | ||||||||
| Asset impairment charges | (0.8 | ) | (2.8 | ) | (0.1 | ) | ||||||
Environmental expenses4 | (0.3 | ) | (0.1 | ) | (1.7 | ) | ||||||
| Total non-run-rate items | (3.9 | ) | 10.6 | (1.0 | ) | |||||||
| Segment operating income excluding non-run-rate items | $ | 205.2 | $ | 219.0 | $ | 191.8 | ||||||
Adjusted EBITDA for 20172023 was $13.8$67.7 million higher than Adjusted EBITDA for 2022. Adjusted EBITDA for the year ended December 31, 2023 was impacted by: (i) improved pricing and surcharges to offset higher inflationary and commodity related costs; (ii) a decrease in freight costs due to lower than segment operating income excluding such items for 2016. Lower operating income excluding non-run-rate items reflected: (i) a $20.5 million unfavorable sales impact due primarily to a leaner product mix and compressed sales margins, partially offset by favorable price spreads for scrap raw material purchases; (ii) $3.6 million of higher depreciation and amortization expense;shipment volumes; and (iii) $3.2 million of higher planned major maintenance expense,lower energy costs, partially offset by: (i) a $4.7 million improvementan increase in net manufacturing conversionmaterial and otheroverhead costs; (ii) a $5.0 million decrease in overheadhigher personnel costs; and other benefits and costs; (iii) a $2.2 million decrease in incentive compensation expense; and (iv) $1.6 million of lower energy pricing.
35
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:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||
Aero/HS Products: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 254.3 |
|
| 186.5 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 899.3 |
|
| $ | 3.54 |
|
| $ | 676.1 |
|
| $ | 3.63 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (366.4 | ) |
|
| (1.44 | ) |
|
| (319.8 | ) |
|
| (1.72 | ) |
Conversion Revenue |
| $ | 532.9 |
|
| $ | 2.10 |
|
| $ | 356.3 |
|
| $ | 1.91 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Packaging: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 612.4 |
|
| 655.3 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 1,315.2 |
|
| $ | 2.15 |
|
| $ | 1,585.3 |
|
| $ | 2.42 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (812.0 | ) |
|
| (1.33 | ) |
|
| (1,030.6 | ) |
|
| (1.57 | ) |
Conversion Revenue |
| $ | 503.2 |
|
| $ | 0.82 |
|
| $ | 554.7 |
|
| $ | 0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
GE Products: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 215.6 |
|
| 303.9 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 596.5 |
|
| $ | 2.77 |
|
| $ | 883.8 |
|
| $ | 2.91 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (291.4 | ) |
|
| (1.35 | ) |
|
| (517.2 | ) |
|
| (1.70 | ) |
Conversion Revenue |
| $ | 305.1 |
|
| $ | 1.42 |
|
| $ | 366.6 |
|
| $ | 1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Automotive Extrusions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 104.5 |
|
| 96.5 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 254.9 |
|
| $ | 2.44 |
|
| $ | 254.8 |
|
| $ | 2.64 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (138.7 | ) |
|
| (1.33 | ) |
|
| (159.0 | ) |
|
| (1.65 | ) |
Conversion Revenue |
| $ | 116.2 |
|
| $ | 1.11 |
|
| $ | 95.8 |
|
| $ | 0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Products: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 9.6 |
|
| 12.0 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 21.1 |
|
| $ | 2.20 |
|
| $ | 27.9 |
|
| $ | 2.33 |
|
Less: Hedged Cost of Alloyed Metal |
|
| (12.6 | ) |
|
| (1.31 | ) |
|
| (18.6 | ) |
|
| (1.55 | ) |
Conversion Revenue |
| $ | 8.5 |
|
| $ | 0.89 |
|
| $ | 9.3 |
|
| $ | 0.78 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shipments (mmlbs) |
| 1,196.4 |
|
| 1,254.2 |
| ||||||||||
| $ |
|
| $ / lb |
|
| $ |
|
| $ / lb |
| |||||
Net sales |
| $ | 3,087.0 |
|
| $ | 2.58 |
|
| $ | 3,427.9 |
|
| $ | 2.73 |
|
Less: Hedged Cost of Alloyed Metal1 |
|
| (1,621.1 | ) |
|
| (1.35 | ) |
|
| (2,045.2 | ) |
|
| (1.63 | ) |
Conversion Revenue |
| $ | 1,465.9 |
|
| $ | 1.23 |
|
| $ | 1,382.7 |
|
| $ | 1.10 |
|
| Year Ended December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||
| Aero/HS Products: | ||||||||||||||||||||||||
| Shipments (mmlbs) | 233.0 | 243.2 | 243.5 | |||||||||||||||||||||
| $ | $ / lb | $ | $ / lb | $ | $ / lb | |||||||||||||||||||
| Net sales | $ | 653.7 | $ | 2.81 | $ | 675.4 | $ | 2.78 | $ | 695.5 | $ | 2.86 | ||||||||||||
| Less: Hedged Cost of Alloyed Metal | (223.4 | ) | (0.96 | ) | (208.5 | ) | (0.86 | ) | (246.4 | ) | (1.02 | ) | ||||||||||||
| Value added revenue | $ | 430.3 | $ | 1.85 | $ | 466.9 | $ | 1.92 | $ | 449.1 | $ | 1.84 | ||||||||||||
| Automotive Extrusions: | ||||||||||||||||||||||||
| Shipments (mmlbs) | 101.0 | 92.9 | 93.5 | |||||||||||||||||||||
| $ | $ / lb | $ | $ / lb | $ | $ / lb | |||||||||||||||||||
| Net sales | $ | 217.3 | $ | 2.15 | $ | 188.8 | $ | 2.03 | $ | 199.2 | $ | 2.13 | ||||||||||||
| Less: Hedged Cost of Alloyed Metal | (99.6 | ) | (0.98 | ) | (77.0 | ) | (0.83 | ) | (88.7 | ) | (0.95 | ) | ||||||||||||
| Value added revenue | $ | 117.7 | $ | 1.17 | $ | 111.8 | $ | 1.20 | $ | 110.5 | $ | 1.18 | ||||||||||||
| GE Products: | ||||||||||||||||||||||||
| Shipments (mmlbs) | 264.7 | 249.9 | 231.4 | |||||||||||||||||||||
| $ | $ / lb | $ | $ / lb | $ | $ / lb | |||||||||||||||||||
| Net sales | $ | 476.2 | $ | 1.80 | $ | 420.1 | $ | 1.68 | $ | 426.1 | $ | 1.84 | ||||||||||||
| Less: Hedged Cost of Alloyed Metal | (261.2 | ) | (0.99 | ) | (208.9 | ) | (0.83 | ) | (226.1 | ) | (0.98 | ) | ||||||||||||
| Value added revenue | $ | 215.0 | $ | 0.81 | $ | 211.2 | $ | 0.85 | $ | 200.0 | $ | 0.86 | ||||||||||||
| Other Products: | ||||||||||||||||||||||||
| Shipments (mmlbs) | 27.0 | 28.3 | 47.0 | |||||||||||||||||||||
| $ | $ / lb | $ | $ / lb | $ | $ / lb | |||||||||||||||||||
| Net sales | $ | 50.3 | $ | 1.86 | $ | 46.3 | $ | 1.64 | $ | 71.1 | $ | 1.51 | ||||||||||||
| Less: Hedged Cost of Alloyed Metal | (27.0 | ) | (1.00 | ) | (23.2 | ) | (0.82 | ) | (40.8 | ) | (0.87 | ) | ||||||||||||
| Value added revenue | $ | 23.3 | $ | 0.86 | $ | 23.1 | $ | 0.82 | $ | 30.3 | $ | 0.64 | ||||||||||||
| Total: | ||||||||||||||||||||||||
| Shipments (mmlbs) | 625.7 | 614.3 | 615.4 | |||||||||||||||||||||
| $ | $ / lb | $ | $ / lb | $ | $ / lb | |||||||||||||||||||
| Net sales | $ | 1,397.5 | $ | 2.23 | $ | 1,330.6 | $ | 2.17 | $ | 1,391.9 | $ | 2.26 | ||||||||||||
| Less: Hedged Cost of Alloyed Metal | (611.2 | ) | (0.97 | ) | (517.6 | ) | (0.85 | ) | (602.0 | ) | (0.98 | ) | ||||||||||||
| Value added revenue | $ | 786.3 | $ | 1.26 | $ | 813.0 | $ | 1.32 | $ | 789.9 | $ | 1.28 | ||||||||||||
36
Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Operating loss | $ | (50.6 | ) | $ | (51.8 | ) | $ | (536.7 | ) | |||
| Impact to operating loss of non-run-rate items: | ||||||||||||
Net periodic postretirement benefit cost relating to Salaried VEBA1 | (4.5 | ) | (3.4 | ) | (2.4 | ) | ||||||
Gain (loss) on removal of Union VEBA net assets1 | — | 0.1 | (493.4 | ) | ||||||||
Environmental expense adjustments2 | — | — | 0.4 | |||||||||
| Total non-run-rate items | (4.5 | ) | (3.3 | ) | (495.4 | ) | ||||||
| Operating loss excluding non-run-rate items | $ | (46.1 | ) | $ | (48.5 | ) | $ | (41.3 | ) | |||
Liquidity and Capital Resources
Summary
The following table summarizes our liquidity at the dates presented (in millions of dollars):
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Available cash and cash equivalents |
| $ | 82.4 |
|
| $ | 57.4 |
|
Borrowing availability under Revolving Credit Facility, net of letters of credit1 |
|
| 516.7 |
|
|
| 557.8 |
|
Total liquidity |
| $ | 599.1 |
|
| $ | 615.2 |
|
| December 31, 2017 | December 31, 2016 | ||||||
| Available cash and cash equivalents | $ | 51.1 | $ | 55.2 | |||
| Short-term investments | 183.7 | 231.0 | |||||
| Net borrowing availability under Revolving Credit Facility after letters of credit | 291.9 | 275.3 | |||||
| Total liquidity | $ | 526.7 | $ | 561.5 | |||
We place our cash in bank deposits and money market funds with high credit quality financial institutions,institutions. Cash equivalents primarily consist of money market funds, which invest primarily in commercial paper and time depositsare highly liquid. As 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 of greater than 90 days.
See Note 1416 of Notes to Consolidated Financial Statements included in this Report).
We and certainhad no outstanding borrowings as of December 31, 2023 under our subsidiaries have a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other financial institutions party thereto ("Revolving Credit Facility") (see Note 8Facility, after repaying borrowings of Notes to Consolidated Financial Statements included in this Report). There were$215.1 million incurred during the year ended December 31, 2023. We had no borrowings under our Revolving Credit Facility as ofduring the year ended December 31, 2017 or 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):
Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Total cash provided by (used in): | ||||||||||||
| Operating activities: | ||||||||||||
| Fabricated Products | $ | 221.2 | $ | 235.6 | $ | 227.3 | ||||||
| All Other | (79.7 | ) | (70.0 | ) | (67.6 | ) | ||||||
| Total cash provided by operating activities | $ | 141.5 | $ | 165.6 | $ | 159.7 | ||||||
| Investing activities: | ||||||||||||
| Fabricated Products | $ | (74.7 | ) | $ | (75.8 | ) | $ | (62.4 | ) | |||
| All Other | 49.2 | (200.6 | ) | 82.8 | ||||||||
| Total cash (used in) provided by investing activities | $ | (25.5 | ) | $ | (276.4 | ) | $ | 20.4 | ||||
| Financing activities: | ||||||||||||
| Fabricated Products | $ | (0.4 | ) | $ | — | $ | — | |||||
| All Other | (119.0 | ) | 94.8 | (284.4 | ) | |||||||
| Total cash (used in) provided by financing activities | $ | (119.4 | ) | $ | 94.8 | $ | (284.4 | ) | ||||
|
| Year Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Total cash provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
| $ | 211.9 |
|
| $ | (63.1 | ) |
Investing activities |
| $ | (128.2 | ) |
| $ | (125.8 | ) |
Financing activities |
| $ | (54.3 | ) |
| $ | (56.8 | ) |
Cash provided by operating activities was partially offset by:for the year ended December 31, 2023 reflected results of business activity described within “Consolidated Selected Operational and Financial Information” above, as well as the following working capital changes: (i) an increasea decrease in accountsinventory of $48.2 million, primarily driven by improved inventory management and lower metal costs; (ii) a decrease in trade and other receivables of $27.9$33.1 million, primarily due primarilyto a decrease in metal costs in addition to the timing of salescollections; and increase(iii) a decrease in accounts payable of $43.0 million due to the timing of payments, in addition to a decrease in metal price; (ii) unrealized gain on derivative instrumentsprices.
Cash used in operating activities for the year ended December 31, 2022 reflected results of $19.4 million; (iii)business activity described within “Consolidated Selected Operational and Financial Information” above, as well as the following working capital changes: (i) an increase in inventory of $6.3 million;$120.8 million, primarily driven by higher inventory pounds built at our Warrick facility to mitigate the impact of supply chain disruptions related to magnesium and (iv) an increasehot metal supply and at our Trentwood facility to prepare for the planned outages associated with our large stretcher refurbishment, as well as higher per pound inventory cost due to higher metal prices in prepaid expenses and other current assets of $1.6 million.
See Statements of Consolidated Cash Flows included in this Form 10-K for further details on our cash flows from operating, investing, and decreasing price of aluminum.
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Sources of Liquidity
Our most significant sources of liquidity include available cash and cash equivalents, short-term investments, borrowing availabilityavailable credit 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.
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 up to $400.0 million.
| February 15, 2018 | December 31, 2017 | ||||||
| Revolving Credit Facility borrowing commitment | $ | 300.0 | $ | 300.0 | |||
| Borrowing base availability | $ | 291.9 | $ | 300.0 | |||
| Less: Outstanding borrowings under Revolving Credit Facility | — | — | |||||
| Less: Outstanding letters of credit under Revolving Credit Facility | 8.1 | (8.1 | ) | ||||
| Net remaining borrowing availability | $ | 300.0 | $ | 291.9 | |||
Borrowing rate (if applicable)1 | 4.75 | % | 4.75 | % | |||
At February 19, 2024, we had no outstanding borrowings under the Revolving Credit Facility. See Note 89 of Notes to Consolidated Financial Statements included in this ReportForm 10-K for a description of our Revolving Credit Facility.
We engage in certain customer-based supply chain financing programs to accelerate the receipt of payment for mandatory principal and cash interest payments onoutstanding accounts receivable from certain customers. The costs of these programs are typically reimbursed to us by the outstanding borrowingscustomer. Receivables transferred under these customer-based supply chain financing programs generally meet the 5.875% Senior Notes.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 year ended December 31, 2023 constituted approximately 41% of our Net sales. See Note 81 and Note 13 of Notes to Consolidated Financial Statements included in this ReportForm 10-K for further details with respect to these supply chain financing programs.
Material Cash Requirements
The discussion below summarizes our material cash requirements from significant contractual obligations, commercial commitments and off-balance sheet arrangements as of December 31, 2023.
Debt.As of December 31, 2023, we have outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $1.05 billion. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for further details with respect to the 5.875%4.50% Senior Notes maturing in 2031 (“4.50% Senior Notes”) and the redemption of4.625% Senior Notes maturing in 2028 (“4.625% Senior Notes”). At December 31, 2023, future interest payments associated with our 8.25% Senior Notes.
Purchase Obligations. Cash outlays for purchase obligations consist primarily of commitments to purchase primary aluminum, recycled scrap aluminum, other alloys, energy, and equipment. We have various contracts with suppliers of metals that require us to purchase minimum quantities of these metals in future years based primarily at the associated metal price at the time of payment. However, we believe the minimum required purchase quantities are lower than our current requirements for these metals. Physical delivery commitments with energy companies are in place to cover our exposure to fluctuations in electricity and natural gas prices and are based on fixed contractual rates and quantities. Equipment purchase obligations are based on scheduled payments to equipment manufacturers.
Leases. We have operating and finance leases for certain manufacturing facilities, warehouses, office space, equipment, and non-cancelable capital commitments. See Note 3 of Notes to Consolidated Financial Statements included in this Form 10-K for the maturity of our lease liabilities.
Deferred Compensation Plan Liability. As of December 31, 2023, we had deferred compensation plan liabilities for certain key employees, which were contingent upon investment performance, vesting and other eligibility requirements, including retirement dates. See Note 5 of Notes to Consolidated Financial Statements included in this Form 10-K for further information, including the total expense related to all benefit plans.
Revolving Credit Facility. We are required to pay a monthly commitment fee equal to 0.25% per annum of the unused commitments under the Revolving Credit Facility. No borrowings were outstanding under our Revolving Credit Facility as of December 31, 2023. Additionally, under our Revolving Credit Facility, we issue standby letters of credit to provide financial assurance of our payment of obligations, primarily related to workers’ compensation claims. The specific timing of payments with respect to such matters is uncertain. The letters of credit generally automatically renew every 12 months and terminate when the underlying obligations no longer require assurance or upon the maturity of our Revolving Credit Facility in April 2027. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information.
Uncertain Tax Liabilities. At December 31, 2023, we had uncertain tax positions which ultimately could result in tax payments. See Note 14 of Notes to Consolidated Financial Statements included in this Form 10-K for further information.
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Pension, OPEB, and Salaried VEBA. See Note 5 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information regarding the future net benefits we expect to pay with respect to our pension plans, OPEB, and our variable cash contributions to the Salaried VEBA. Additionally, we are required to pay $0.3 million in annual administrative fees related to the hourly VEBA that provides benefits for eligible retirees represented by certain unions and their surviving spouses and eligible dependents through September 2025.
While we believe our available cash on hand, anticipated available borrowing capacity under the Revolving Credit Facility, and funds generated from operations will be sufficient to finance our working capital requirements, planned capital expenditures, investments, debt service obligations and other cash requirements for at least the next 12 months, and while we also believe that alternative sources of liquidity will remain available in the event we seek to add liquidity for opportunistic or other reasons in the future, our ability to fund such cash requirements will depend upon our future operating performance (which will be affected by prevailing economic conditions) and financial, business and other factors, some of which are beyond our control.
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 manufacturing cost efficiency,promoting operational security, which we believe are critical to maintaining and strengthening our position in an increasingly competitive market environmentenvironment. A significant portion of our capital spending over the coming decade.
Our capital investment plans remain focused on supporting demand growth through capacity expansion, sustaining our automotive growth initiative, including upgrades to existing extrusion presses at several of our automotive-focused facilities, a new extrusion press at our London, Ontario facility in 2015operations, enhancing product quality and a new extrusion press and related equipment at our Sherman, Texas facility in 2015 and 2016. The remainder of ourincreasing operating efficiencies. We anticipate total capital spending in all three years was allocated among our manufacturing locations2024 of $170.0 million to $190.0 million, of which approximately 65% will be focused on projects expected to reduce operating costs, improve quality, increase capacity or enhance operational security.
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.
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. 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, including the availability of surplus and/or net profits, and operating results, financial position and anticipated cash requirements and contractual restrictions under our Revolving Credit Facility, the indentures for our 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.
We also pay quarterly dividend equivalents to the holders of certain restricted stock units. Holders of performance shares 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 holder would have received if the number of such shares of common stock so issued had been held of record by such holder from the date of grant of such performance shares through the date of such issuance.
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See Note 13our Statements of Consolidated Stockholders’ Equity and Note 18 of Notes to Consolidated Financial Statements included in this ReportForm 10-K for information regarding dividends paiddeclared during 2017, 20162023 and 2015,2022 and declared subsequent to December 31, 2017. See Item 5 of this Report for disclosure regarding the future declaration and payment of dividends.
Repurchases of Common Stock
We are not obligated to repurchase any specific number of Notesshares under our stock repurchase program. We suspended share repurchases as of March 2020. We will continue to Consolidated Financial Statements includedassess share repurchases as a part of our capital allocation priorities and strategic investment opportunities identified to support further growth in this Report for information regarding repurchases of common stock in 2017 and 2016 and the amountsour business. At December 31, 2023, $93.1 million remained authorized and available for future repurchases of common stock under our stock repurchase program.
| Payments Due by Period | ||||||||||||||||||||||||||||
| Total | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 and Thereafter | ||||||||||||||||||||||
| On-Balance Sheet: | ||||||||||||||||||||||||||||
| Principal and interest on 5.875% Senior Notes | $ | 518.2 | $ | 22.0 | $ | 22.0 | $ | 22.0 | $ | 22.0 | $ | 22.0 | $ | 408.2 | ||||||||||||||
| Standby letters of credit | 8.4 | 7.2 | 1.2 | — | — | — | — | |||||||||||||||||||||
| Uncertain tax liabilities | 0.6 | — | — | — | — | — | — | |||||||||||||||||||||
| Deferred compensation plan liability | 9.8 | — | — | — | — | — | — | |||||||||||||||||||||
| Capital leases | 1.2 | 0.6 | 0.5 | 0.1 | — | — | — | |||||||||||||||||||||
| VEBA variable contributions | 15.7 | 15.7 | — | — | — | — | — | |||||||||||||||||||||
| Off-Balance Sheet: | ||||||||||||||||||||||||||||
| VEBA administrative fees | 0.9 | 0.3 | 0.3 | 0.3 | — | — | — | |||||||||||||||||||||
| Purchase obligations | 449.6 | 426.5 | 13.9 | 7.0 | 1.1 | 1.0 | 0.1 | |||||||||||||||||||||
| Operating leases | 39.7 | 5.7 | 5.2 | 3.1 | 2.5 | 2.2 | 21.0 | |||||||||||||||||||||
| Commitment fees on Revolving Credit Facility | 3.2 | 1.1 | 1.1 | 1.0 | — | — | — | |||||||||||||||||||||
| Total contractual obligations | $ | 1,047.3 | $ | 479.1 | $ | 44.2 | $ | 33.5 | $ | 25.6 | $ | 25.2 | $ | 429.3 | ||||||||||||||
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.
In addition to the accounting estimates we discuss in Note 1 of Notes to Consolidated Financial Statements included in this Report,Form 10-K, management believes that the following accounting estimates are critical to aid in fully understanding and evaluating our reported financial results and require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effects of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
Revenue Recognition
We decide at the outset of entering into contracts with customers whether our performance obligations as specified in these contracts are satisfied over time or at a point in time. To recognize revenue over time means that we will need to synchronize revenue recognition with progress toward completion of the performance obligation. If we have determined that revenue will be recognized over time for a specific customer order, the earliest point in our production process that we will recognize revenue will be the point that the product cannot be directed to another customer. In most cases, this happens at the time we begin to mold the ingot or billet, either by flat rolling the ingot or by extruding the billet through a die. For custom alloys, we would begin recognizing revenue over time at the point the custom alloy billet is cast. Approximately 78% of our business is recognized at a point in time with the remaining 22% recognized over time.
We follow the input method of recognizing revenue over time. Under this approach, revenue is recognized for products in production based on the cost incurred to date plus a reasonable margin. Cost incurred to date is based on resources consumed, labor hours expended, and other costs incurred relative to the total inputs expected in order to satisfy a performance obligation. Reasonable margins are estimated using an average margin of the respective production facility producing the product. For purposes of recognizing revenue over time on products that are in work‑in-process (“WIP”) as of the period end, we make the assumption that the average margins at the respective production facilities are reasonably close to the individual product margins that are in WIP.
Although we believe that the judgments and estimates around recognizing revenue over time discussed herein are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. A change in our estimated average margins by 5% would have had an impact of approximately $0.2 million to Net income for the year ended December 31, 2023.
Income Tax
We have tax attributes available to offset the impact of future income taxes. We have a process for determining the need for a valuation allowance with respect to these attributes. The process includes an extensive review of both positive and negative evidence including our earnings history, future earnings, adverse recent occurrences, carryforward periods, an assessment of the industry, and the impact of the timing differences. We expect to record a full statutory tax provision in future periods and, therefore, the benefit of any tax attributes realized will only affect future balance sheets and statements of cash flows. Financial statements for interim periods include an income tax provision based on the effective tax rate expected to be incurred in the current year.
Inherent within the completion of our assessment of the need for a valuation allowance, we make significant judgments and estimates with respect to future operating results, timing of the reversal of deferred tax assets and current market and industry factors.
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In order to determine the effective tax rate to apply to interim periods, estimates and judgments are made (by taxable jurisdiction) as to the amount of taxable income that may be generated, the availability of deductions and credits expected and the availability of net operating loss carryforwards or other tax attributes to offset taxable income.
Making such estimates and judgments is subject to inherent uncertainties given the difficulty of predicting future tax rates, market conditions, customer requirements, the cost for key inputs such as energy and primary aluminum, overall operating efficiency and other factors. However, if, among other things: (i) actual results vary from our forecasts due to one or more of the factors cited above or elsewhere in this Form 10-K; (ii) income is distributed differently than expected among tax jurisdictions; (iii) one or more material events or transactions occur which were not contemplated; or (iv) certain expected deductions, credits, or carryforwards are not available, it is possible that the effective tax rate for a year could vary materially from the assessments used to prepare the interim consolidated financial statements. See Note 14 of Notes to Consolidated Financial Statements included in this Form 10-K for additional discussion of these matters.
Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. A change in our effective tax rate by 1% would have had an impact of approximately $0.6 million to Net income for the year ended December 31, 2023.
Goodwill and Intangible Assets
We account for acquisitions using the acquisition method of accounting, which requires the assets acquired and liabilities assumed to be recorded at the date of acquisition at their respective estimated fair values. We recognize goodwill as of the acquisition date as the excess over the fair values of the identifiable net assets acquired. Goodwill is tested for impairment on an annual basis as well as on an interim basis as events and changes in circumstances occur.
Definite-lived intangible assets acquired are amortized over the estimated useful lives of the respective assets, to reflect the pattern in which the economic benefits of the intangible assets are consumed. In the event the pattern cannot be reliably determined, we use a straight-line amortization method. Whenever events or changes in circumstances indicate that the carrying amount of the intangible assets may not be recoverable, the intangible assets will be reviewed for impairment.
The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can significantly impact our results of operations. Fair values and useful lives of intangible assets are determined using the income approach valuation methodology, which is based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset, long‑term forecasts of the business, projected cash flows and the rate used in discounting those cash flows. As the determination of an asset’s fair value and useful life involves management making certain estimates and because these estimates form the basis for the determination of whether or not an impairment charge should be recorded, these estimates are considered to be critical accounting estimates.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to estimate the fair value of goodwill and intangible assets. Additionally, as of December 31, 2023, we do not believe any of our reporting units are at risk of failing the goodwill impairment test. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and fair values assigned to each class of assets acquired and liabilities assumed, we may be exposed to losses from impairment charges that could be material. For further details on goodwill and intangible assets, see Note 4 of Notes to Consolidated Financial Statements included in this Form 10-K.
Environmental Commitments and Contingencies
We are subject to a number of environmental laws and regulations, to potential fines or penalties assessed for alleged breaches of such laws and regulations and to potential claims and litigation based upon such laws and regulations. Based on our evaluation of environmental matters, we have established environmental accruals, primarily related to solid waste disposal and soil and groundwater remediation matters. These environmental accruals represent our estimate of costs reasonably expected to be incurred in the ordinary course of business based on presently enacted laws and regulations, currently available facts, existing technology and our assessment of the likely remediation action to be taken.
Making estimates of possible incremental environmental remediation costs is subject to inherent uncertainties. In estimating the amount of any loss, in many instances a single estimation of the loss may not be possible. Rather, we may only be able to estimate a range for possible losses. In such an event, ASC 450, Contingencies ("ASC 450"), requires that a liability be established for at least the minimum end of the range assuming that there is no other amount which is more likely to occur. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals.
Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ and we may be exposed to losses or gains that could be materially different than those reflected in our accruals. To the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of our accruals, our future results from operations could
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be materially affected. 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 $11.6 million over the remediation period. See Note 10 of Notes to Consolidated Financial Statements included in this Form 10-K for additional discussion of these matters.
Pension and Other Postretirement Benefits
Liabilities and expenses for pension and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used to discount the future estimated liability, the expected long-term rate of return (“LTRR”) on plan assets and several assumptions relating to the employee workforce (salary increases, health care cost trend rates, retirement age and mortality). The most significant assumptions used in determining the estimated year-end obligations include the assumed discount rate and the LTRR.
In addition to the above assumptions used in the actuarial valuations, changes in plan provisions could also have a material impact on the net funded status of our pensions and other postretirement benefits. Additionally, our obligation to the Salaried VEBA is to pay an annual variable contribution amount based on the level of our cash flow. The funding status of the Salaried VEBA has no impact on our annual variable contribution amount. We have no control over any aspect of the Salaried VEBA plan. We rely on information provided to us by the Salaried VEBA administrator with respect to specific plan provisions such as annual benefits expected to be paid. See Note 5 of Notes to Consolidated Financial Statements included in this Report for additional information on our benefit plans.
Since the recorded obligation represents the present value of expected postretirement benefit payments over the life of the plans, decreases in the discount rate (used to compute the present value of the payments) would cause the estimated obligation to increase. Conversely, an increase in the discount rate would cause the estimated present value of the obligation to decline.
The LTRR on plan assets reflects an assumption regarding what the amount of earnings would be on existing plan assets (before considering any future contributions to the plan). Increases in the assumed LTRR would cause the projected value of plan assets available to satisfy postretirement obligations to increase, yielding a reduced net expense of these obligations in future years. A reduction in the LTRR would reduce the amount of projected net assets available to satisfy postretirement obligations and, thus, cause the net expense of these obligations to increase in future years. A change in plan provisions could cause the estimated obligations to change. An increase in annual benefits expected to be paid would increase the estimated present value of the obligations and conversely, a decrease in annual benefits expected to be paid would decrease the estimated present value of the obligations.
The impact on the combined pension and other postretirement liabilities of a change in the weighted average discount rate of 0.25% would be approximately $3.5 million as of December 31, 2023, and would impact pretax earnings in 2024 by approximately $0.3 million. A change in the assumption for the weighted average expected long-term rate of return on plan assets of 0.25% would impact pretax earnings by approximately $0.2 million for 2024.
New Accounting Pronouncements
For a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see Note 1 of Notes to Consolidated Financial Statements included in this Report.
Item 7A.
Quantitative and Qualitative Disclosures About Market RiskThe following quantitative and qualitative disclosures about market risk should be read in conjunction with Note 8 and Note 11 of Notes to Consolidated Financial Statements included in this Form 10-K. 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 7 of Notessold to Consolidated Financial Statements included in this Report, wecustomers. We have historically utilized hedging transactions
Aluminum
In 2023 and third-party hedging instruments.
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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 London Metal Exchange ("LME")LME market price of aluminum as of December 31, 20172023 and December 31, 2016,2022, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $16.4$6.3 million in both periods, with corresponding changes to the net fair value of our aluminum derivative positions. In addition, we estimate that a $0.05/lb decrease in the Midwest premium for aluminum as of December 31, 2023 and December 31, 2022, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $1.4 million and $14.8$3.2 million, respectively, with corresponding changes to the net fair value of our aluminum derivative positions. Additionally, we estimate that a $0.01 per pound decrease in the Midwest premium for aluminum as of December 31, 2017 and December 31, 2016, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $1.6 million and $1.5 million, respectively.
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 December 31, 2017,2023, 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 7 of Notes to 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 December 31, 20172023 and December 31, 2016,2022, with all other variables held constant, would have resulted in an unrealized mark-to marketmark-to-market loss of $0.2$0.8 million and $0.4$0.1 million, respectively. We estimate that a $0.10 per pound decrease in the Commodity Exchange, Inc. market price of copper as of December 31, 2017, with all other variables held constant, would have resulted in an unrealized mark-to market loss of $0.1 million,respectively, with corresponding changes to the net fair value of our Alloy Hedges.
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 physical delivery commitments with firm prices with third parties to mitigate our risk from fluctuations in natural gas and electricity prices. See Note 7 of Notes to Consolidated Financial Statements included in this Report for information regarding the volume of our derivative and physical delivery commitments with energy companies in place to cover our exposure to fluctuations in natural gas and electricity prices as of December 31, 2017.
Foreign Currency
As of December 31, 2023, we hedged certain lease transactions and equipment purchases denominated in Euros and British Pounds using forward swap contracts with settlement dates through January 2026. We estimate that a 10% decrease in the exchange rate of our hedged foreign currencies to U.S. dollars would have resulted in an unrealized mark-to-market loss of $1.9 million and $0.1 million as of December 31, 2023 and December 31, 2022, respectively, with corresponding changes to the net fair value of our foreign currency derivative positions.
Our primary foreign exchange exposure is the operating costs of our London, Ontario facility. AWe estimate that a 10% change in the Canadian dollar exchange rate is estimated toas of December 31, 2023 and December 31, 2022 would have resulted in an annual operating cost impact of $1.7 million.
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Item 8.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders of
Kaiser Aluminum Corporation
Franklin, Tennessee
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Kaiser Aluminum Corporation and Subsidiary Companiessubsidiaries (the "Company") as of December 31, 20172023 and 2016,2022, the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2017,2023, and the related notes (collectively referred to as the "consolidated financial"financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition — Refer to Notes 1 and 17 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue as it fulfills its performance obligations and transfers control of products to its customers. For products that have no alternative use and for which the Company has an enforceable right to payment (including a reasonable profit) throughout the production process, revenue is recognized over time. In general, revenue recognized over time primarily relates to the Company’s Aero/HS products and Automotive Extrusions, with the revenue for the remainder of its products recognized at a point in time. For contracts recognized over time, control transfer occurs incrementally during the Company’s production process as progress is made on fulfilling the performance obligation. The Company uses the input method of determining the progress, capturing direct costs beginning at the point that billet or cast ingot is introduced into production at either the extrusion phase or the rolling phase, respectively. For products in production, the Company recognizes revenue using the cost incurred to date plus an estimate of reasonable margin.
Contract assets primarily relate to the Company’s enforceable right to consideration for work completed but not billed at the reporting date on contracts for products recognized over time. Contract assets also include amounts related to the Company’s contractual right to consideration for finished goods recognized over time that were in transit as of period end.
Given the volume of contracts that are recognized over time and the complexity of the determination of over time revenue, we identified revenue for over time contracts as a critical audit matter.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to revenue recognized over time included the following, among others:
o
o
/s/ DELOITTEDeloitte & TOUCHETouche LLP
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)
Nashville, Tennessee
February 22, 2018
We have served as the Company'sCompany’s auditor since 2002.
47
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
| December 31, 2017 | December 31, 2016 | |||||||
| (In millions of dollars, except share and per share amounts) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 51.1 | $ | 55.2 | ||||
| Short-term investments | 183.7 | 231.0 | ||||||
| Receivables: | ||||||||
| Trade receivables, net | 165.0 | 137.7 | ||||||
| Other | 15.5 | 11.9 | ||||||
| Inventories | 207.9 | 201.6 | ||||||
| Prepaid expenses and other current assets | 33.4 | 18.5 | ||||||
| Total current assets | 656.6 | 655.9 | ||||||
| Property, plant and equipment, net | 571.4 | 530.9 | ||||||
| Deferred tax assets, net | 72.0 | 159.7 | ||||||
| Intangible assets, net | 25.0 | 26.4 | ||||||
| Goodwill | 18.8 | 37.2 | ||||||
| Other assets | 41.4 | 33.4 | ||||||
| Total | $ | 1,385.2 | $ | 1,443.5 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 90.0 | $ | 75.8 | ||||
| Accrued salaries, wages and related expenses | 42.6 | 49.1 | ||||||
| Other accrued liabilities | 40.5 | 40.1 | ||||||
| Total current liabilities | 173.1 | 165.0 | ||||||
| Net liabilities of Salaried VEBA | 31.9 | 28.6 | ||||||
| Deferred tax liabilities | 4.3 | 3.3 | ||||||
| Long-term liabilities | 60.0 | 73.2 | ||||||
| Long-term debt | 369.6 | 368.7 | ||||||
| Total liabilities | 638.9 | 638.8 | ||||||
| Commitments and contingencies – Note 9 | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, 5,000,000 shares authorized at both December 31, 2017 and December 31, 2016; no shares were issued and outstanding at December 31, 2017 and December 31, 2016 | — | — | ||||||
| Common stock, par value $0.01, 90,000,000 shares authorized at both December 31, 2017 and December 31, 2016; 22,393,537 shares issued and 16,773,586 shares outstanding at December 31, 2017; 22,332,732 shares issued and 17,651,461 shares outstanding at December 31, 2016 | 0.2 | 0.2 | ||||||
| Additional paid in capital | 1,055.9 | 1,047.4 | ||||||
| Retained earnings | 85.5 | 75.2 | ||||||
| Treasury stock, at cost, 5,619,951 shares at December 31, 2017 and 4,681,271 shares at December 31, 2016 | (358.6 | ) | (281.4 | ) | ||||
| Accumulated other comprehensive loss | (36.7 | ) | (36.7 | ) | ||||
| Total stockholders’ equity | 746.3 | 804.7 | ||||||
| Total | $ | 1,385.2 | $ | 1,443.5 | ||||
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In millions of dollars, except share |
| |||||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 82.4 |
|
| $ | 57.4 |
|
Receivables: |
|
|
|
|
|
| ||
Trade receivables, net |
|
| 325.2 |
|
|
| 297.2 |
|
Other |
|
| 12.4 |
|
|
| 73.5 |
|
Contract assets |
|
| 58.5 |
|
|
| 58.6 |
|
Inventories |
|
| 477.2 |
|
|
| 525.4 |
|
Prepaid expenses and other current assets |
|
| 34.5 |
|
|
| 30.5 |
|
Total current assets |
|
| 990.2 |
|
|
| 1,042.6 |
|
Property, plant and equipment, net |
|
| 1,052.1 |
|
|
| 1,013.2 |
|
Operating lease assets |
|
| 32.6 |
|
|
| 39.1 |
|
Deferred tax assets, net |
|
| 6.0 |
|
|
| 7.5 |
|
Intangible assets, net |
|
| 50.0 |
|
|
| 55.3 |
|
Goodwill |
|
| 18.8 |
|
|
| 18.8 |
|
Other assets |
|
| 117.7 |
|
|
| 112.3 |
|
Total assets |
| $ | 2,267.4 |
|
| $ | 2,288.8 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 252.7 |
|
| $ | 305.1 |
|
Accrued salaries, wages and related expenses |
|
| 53.0 |
|
|
| 45.2 |
|
Other accrued liabilities |
|
| 64.3 |
|
|
| 68.4 |
|
Total current liabilities |
|
| 370.0 |
|
|
| 418.7 |
|
Long-term portion of operating lease liabilities |
|
| 29.2 |
|
|
| 35.4 |
|
Pension and other postretirement benefits |
|
| 76.8 |
|
|
| 69.3 |
|
Net liabilities of Salaried VEBA |
|
| 3.8 |
|
|
| 16.5 |
|
Deferred tax liabilities |
|
| 13.9 |
|
|
| 4.9 |
|
Long-term liabilities |
|
| 81.7 |
|
|
| 74.7 |
|
Long-term debt, net |
|
| 1,039.8 |
|
|
| 1,038.1 |
|
Total liabilities |
|
| 1,615.2 |
|
|
| 1,657.6 |
|
Commitments and contingencies – Note 10 |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, 5,000,000 shares authorized at both December 31, 2023 and |
|
| — |
|
|
| — |
|
Common stock, par value $0.01, 90,000,000 shares authorized at both |
|
| 0.2 |
|
|
| 0.2 |
|
Additional paid in capital |
|
| 1,104.7 |
|
|
| 1,090.4 |
|
Retained earnings |
|
| 10.1 |
|
|
| 13.3 |
|
Treasury stock, at cost, 6,835,286 shares at both December 31, 2023 and |
|
| (475.9 | ) |
|
| (475.9 | ) |
Accumulated other comprehensive income |
|
| 13.1 |
|
|
| 3.2 |
|
Total stockholders’ equity |
|
| 652.2 |
|
|
| 631.2 |
|
Total liabilities and stockholders' equity |
| $ | 2,267.4 |
|
| $ | 2,288.8 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
48
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| (In millions of dollars, except share and per share amounts) | ||||||||||||
| Net sales | $ | 1,397.5 | $ | 1,330.6 | $ | 1,391.9 | ||||||
| Costs and expenses: | ||||||||||||
| Cost of products sold: | ||||||||||||
| Cost of products sold, excluding depreciation and amortization and other items | 1,105.3 | 1,019.5 | 1,115.4 | |||||||||
| Lower of cost or market inventory write-down | — | 4.9 | 2.6 | |||||||||
| Unrealized (gain) loss on derivative instruments | (19.4 | ) | (18.7 | ) | 3.4 | |||||||
| Depreciation and amortization | 39.7 | 36.0 | 32.4 | |||||||||
| Selling, general, administrative, research and development: | ||||||||||||
| Selling, general, administrative, research and development | 97.5 | 105.0 | 88.1 | |||||||||
| Net periodic postretirement benefit cost relating to Salaried VEBA | 4.5 | 3.4 | 2.4 | |||||||||
| (Gain) loss on removal of Union VEBA net assets – Note 4 | — | (0.1 | ) | 493.4 | ||||||||
| Total selling, general, administrative, research and development | 102.0 | 108.3 | 583.9 | |||||||||
| Goodwill impairment | 18.4 | — | — | |||||||||
| Other operating charges, net | 0.8 | 2.8 | 0.1 | |||||||||
| Total costs and expenses | 1,246.8 | 1,152.8 | 1,737.8 | |||||||||
| Operating income (loss) | 150.7 | 177.8 | (345.9 | ) | ||||||||
| Other (expense) income: | ||||||||||||
| Interest expense | (22.2 | ) | (20.3 | ) | (24.1 | ) | ||||||
| Other income (expense), net – Note 11 | 4.5 | (10.3 | ) | (1.8 | ) | |||||||
| Income (loss) before income taxes | 133.0 | 147.2 | (371.8 | ) | ||||||||
| Income tax (provision) benefit | (87.6 | ) | (55.5 | ) | 135.2 | |||||||
| Net income (loss) | $ | 45.4 | $ | 91.7 | $ | (236.6 | ) | |||||
| Net income (loss) per common share: | ||||||||||||
| Basic | $ | 2.67 | $ | 5.15 | $ | (13.76 | ) | |||||
| Diluted | $ | 2.63 | $ | 5.09 | $ | (13.76 | ) | |||||
| Weighted-average number of common shares outstanding (in thousands): | ||||||||||||
| Basic | 16,996 | 17,813 | 17,201 | |||||||||
| Diluted | 17,259 | 18,033 | 17,201 | |||||||||
| Dividends declared per common share | $ | 2.00 | $ | 1.80 | $ | 1.60 | ||||||
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
|
| (In millions of dollars, except share and per share amounts) |
| |||||||||
Net sales |
| $ | 3,087.0 |
|
| $ | 3,427.9 |
|
| $ | 2,622.0 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
| |||
Cost of products sold, excluding depreciation and amortization |
|
| 2,754.9 |
|
|
| 3,180.2 |
|
|
| 2,348.1 |
|
Depreciation and amortization |
|
| 108.6 |
|
|
| 106.9 |
|
|
| 91.5 |
|
Selling, general, administrative, research and development |
|
| 122.7 |
|
|
| 110.9 |
|
|
| 118.8 |
|
Goodwill impairment |
|
| — |
|
|
| 20.5 |
|
|
| — |
|
Restructuring costs (benefit) |
|
| 5.0 |
|
|
| 2.2 |
|
|
| (0.8 | ) |
Other operating charges, net |
|
| — |
|
|
| 3.2 |
|
|
| — |
|
Total costs and expenses |
|
| 2,991.2 |
|
|
| 3,423.9 |
|
|
| 2,557.6 |
|
Operating income |
|
| 95.8 |
|
|
| 4.0 |
|
|
| 64.4 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
| (46.9 | ) |
|
| (48.3 | ) |
|
| (49.5 | ) |
Other income (expense), net – Note 13 |
|
| 7.4 |
|
|
| 6.4 |
|
|
| (38.9 | ) |
Income (loss) before income taxes |
|
| 56.3 |
|
|
| (37.9 | ) |
|
| (24.0 | ) |
Income tax (provision) benefit |
|
| (9.1 | ) |
|
| 8.3 |
|
|
| 5.5 |
|
Net income (loss) |
| $ | 47.2 |
|
| $ | (29.6 | ) |
| $ | (18.5 | ) |
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 2.95 |
|
| $ | (1.86 | ) |
| $ | (1.17 | ) |
Diluted |
| $ | 2.92 |
|
| $ | (1.86 | ) |
| $ | (1.17 | ) |
Weighted-average number of common shares outstanding (in thousands): |
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 15,991 |
|
|
| 15,906 |
|
|
| 15,836 |
|
Diluted |
|
| 16,131 |
|
|
| 15,906 |
|
|
| 15,836 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
49
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| (In millions of dollars) | ||||||||||||
| Net income (loss) | $ | 45.4 | $ | 91.7 | $ | (236.6 | ) | |||||
| Other comprehensive (loss) income, net of tax – Note 10: | ||||||||||||
| Defined benefit pension plan and VEBAs | (1.4 | ) | (5.8 | ) | 65.1 | |||||||
| Available for sale securities | 0.5 | 0.9 | (0.3 | ) | ||||||||
| Other | 0.9 | (0.1 | ) | (0.4 | ) | |||||||
| Other comprehensive (loss) income, net of tax | — | (5.0 | ) | 64.4 | ||||||||
| Comprehensive income (loss) | $ | 45.4 | $ | 86.7 | $ | (172.2 | ) | |||||
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
|
| (In millions of dollars) |
| |||||||||
Net income (loss) |
| $ | 47.2 |
|
| $ | (29.6 | ) |
| $ | (18.5 | ) |
Other comprehensive income (loss), net of tax – Note 11: |
|
|
|
|
|
|
|
|
| |||
Defined benefit plans |
|
| 8.2 |
|
|
| 24.2 |
|
|
| (1.6 | ) |
Cash flow hedges |
|
| 1.7 |
|
|
| (17.3 | ) |
|
| 16.6 |
|
Other comprehensive income, net of tax |
|
| 9.9 |
|
|
| 6.9 |
|
|
| 15.0 |
|
Comprehensive income (loss) |
| $ | 57.1 |
|
| $ | (22.7 | ) |
| $ | (3.5 | ) |
The accompanying notes to consolidated financial statements are an integral part of these statements.
50
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY
|
| Common |
|
| Common |
|
| Additional |
|
| Retained |
|
| Treasury |
|
| Accumulated |
|
| Total |
| |||||||
|
| (In millions of dollars, except share and per share amounts) |
| |||||||||||||||||||||||||
BALANCE, December 31, 2020 |
|
| 15,812,169 |
|
| $ | 0.2 |
|
| $ | 1,068.6 |
|
| $ | 158.2 |
|
| $ | (475.9 | ) |
| $ | (18.7 | ) |
| $ | 732.4 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18.5 | ) |
|
| — |
|
|
| — |
|
|
| (18.5 | ) |
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15.0 |
|
|
| 15.0 |
|
Common shares issued (including impacts from |
|
| 75,748 |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
Cancellation of shares to cover employees' tax |
|
| (22,799 | ) |
|
| — |
|
|
| (2.6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.6 | ) |
Cash dividends declared1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (46.7 | ) |
|
| — |
|
|
| — |
|
|
| (46.7 | ) |
Amortization of unearned equity compensation |
|
| — |
|
|
| — |
|
|
| 12.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12.6 |
|
BALANCE, December 31, 2021 |
|
| 15,865,118 |
|
| $ | 0.2 |
|
| $ | 1,078.9 |
|
| $ | 93.0 |
|
| $ | (475.9 | ) |
| $ | (3.7 | ) |
| $ | 692.5 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29.6 | ) |
|
| — |
|
|
| — |
|
|
| (29.6 | ) |
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.9 |
|
|
| 6.9 |
|
Common shares issued (including impacts from |
|
| 107,494 |
|
|
| — |
|
|
| 0.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.6 |
|
Cancellation of shares to cover employees' tax |
|
| (31,856 | ) |
|
| — |
|
|
| (2.8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.8 | ) |
Cash dividends declared1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50.1 | ) |
|
| — |
|
|
| — |
|
|
| (50.1 | ) |
Amortization of unearned equity compensation |
|
| — |
|
|
| — |
|
|
| 13.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13.7 |
|
BALANCE, December 31, 2022 |
|
| 15,940,756 |
|
| $ | 0.2 |
|
| $ | 1,090.4 |
|
| $ | 13.3 |
|
| $ | (475.9 | ) |
| $ | 3.2 |
|
| $ | 631.2 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 47.2 |
|
|
| — |
|
|
| — |
|
|
| 47.2 |
|
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9.9 |
|
|
| 9.9 |
|
Common shares issued (including impacts from |
|
| 98,292 |
|
|
| — |
|
|
| 0.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.7 |
|
Cancellation of shares to cover tax withholdings |
|
| (23,257 | ) |
|
| — |
|
|
| (1.8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.8 | ) |
Cash dividends declared1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50.4 | ) |
|
| — |
|
|
| — |
|
|
| (50.4 | ) |
Amortization of unearned equity compensation |
|
| — |
|
|
| — |
|
|
| 15.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15.4 |
|
BALANCE, December 31, 2023 |
|
| 16,015,791 |
|
| $ | 0.2 |
|
| $ | 1,104.7 |
|
| $ | 10.1 |
|
| $ | (475.9 | ) |
| $ | 13.1 |
|
| $ | 652.2 |
|
Common Shares Outstanding | Common Stock | Additional Paid In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive (Loss) Income | Total | |||||||||||||||||||||
| (In millions of dollars, except share and per share amounts) | |||||||||||||||||||||||||||
| BALANCE, December 31, 2014 | 17,607,251 | $ | 0.2 | $ | 1,028.5 | $ | 280.4 | $ | (197.1 | ) | $ | (96.1 | ) | $ | 1,015.9 | ||||||||||||
| Net loss | — | — | — | (236.6 | ) | — | — | (236.6 | ) | ||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | 64.4 | 64.4 | ||||||||||||||||||||
| Issuance of non-vested shares to employees and non-employee directors | 62,285 | — | — | — | — | — | — | ||||||||||||||||||||
| Issuance of common shares to non-employee directors | 2,436 | — | 0.2 | — | — | — | 0.2 | ||||||||||||||||||||
| Issuance of common shares to employees upon vesting of restricted stock units and performance shares | 52,106 | — | — | — | — | — | — | ||||||||||||||||||||
| Cancellation of employee non-vested shares | (987 | ) | — | — | — | — | — | — | |||||||||||||||||||
| Cancellation of shares to cover employees’ tax withholdings upon vesting of non-vested shares | (37,009 | ) | — | (2.8 | ) | — | — | — | (2.8 | ) | |||||||||||||||||
| Repurchase of common stock | (647,520 | ) | — | — | — | (49.4 | ) | — | (49.4 | ) | |||||||||||||||||
| Issuance of stock related to warrants | 1,015,185 | — | — | — | — | — | — | ||||||||||||||||||||
| Cash dividends on common stock and restricted shares and dividend equivalents on restricted stock units and performance shares | — | — | — | (28.1 | ) | — | — | (28.1 | ) | ||||||||||||||||||
| Excess tax benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest | — | — | 1.3 | — | — | — | 1.3 | ||||||||||||||||||||
| Amortization of unearned equity compensation | — | — | 9.3 | — | — | — | 9.3 | ||||||||||||||||||||
| Dividends on unvested equity awards that were canceled | — | — | — | 0.2 | — | — | 0.2 | ||||||||||||||||||||
| BALANCE, December 31, 2015 | 18,053,747 | $ | 0.2 | $ | 1,036.5 | $ | 15.9 | $ | (246.5 | ) | $ | (31.7 | ) | $ | 774.4 | ||||||||||||
| Cumulative-effect adjustment | — | — | 0.8 | (0.1 | ) | — | — | 0.7 | |||||||||||||||||||
| BALANCE, January 1, 2016 | 18,053,747 | $ | 0.2 | $ | 1,037.3 | $ | 15.8 | $ | (246.5 | ) | $ | (31.7 | ) | $ | 775.1 | ||||||||||||
| Net income | — | $ | — | $ | — | $ | 91.7 | $ | — | $ | — | $ | 91.7 | ||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (5.0 | ) | (5.0 | ) | ||||||||||||||||||
| Issuance of non-vested shares to employees and non-employee directors | 9,702 | — | — | — | — | — | — | ||||||||||||||||||||
| Issuance of common shares to non-employee directors | 1,474 | — | 0.1 | — | — | — | 0.1 | ||||||||||||||||||||
| Issuance of common shares to employees upon option exercises and vesting of restricted stock units and performance shares | 66,810 | — | 1.2 | — | — | — | 1.2 | ||||||||||||||||||||
| Cancellation of employee non-vested shares | (379 | ) | — | — | — | — | — | — | |||||||||||||||||||
| Cancellation of shares to cover employees’ tax withholdings upon vesting of non-vested shares | (36,055 | ) | — | (2.9 | ) | — | — | — | (2.9 | ) | |||||||||||||||||
| Repurchase of common stock | (443,838 | ) | — | — | — | (34.9 | ) | — | (34.9 | ) | |||||||||||||||||
| Cash dividends on common stock and restricted shares and dividend equivalents on restricted stock units and performance shares | — | — | — | (32.4 | ) | — | — | (32.4 | ) | ||||||||||||||||||
| Amortization of unearned equity compensation | — | — | 11.7 | — | — | — | 11.7 | ||||||||||||||||||||
| Dividends on unvested equity awards that were canceled | — | — | — | 0.1 | — | — | 0.1 | ||||||||||||||||||||
| BALANCE, December 31, 2016 | 17,651,461 | $ | 0.2 | $ | 1,047.4 | $ | 75.2 | $ | (281.4 | ) | $ | (36.7 | ) | $ | 804.7 | ||||||||||||
| Net income | — | $ | — | $ | — | $ | 45.4 | $ | — | $ | — | $ | 45.4 | ||||||||||||||
| 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 | 103,652 | — | — | — | — | — | — | ||||||||||||||||||||
| Cancellation of employee non-vested shares | (451 | ) | — | — | — | — | — | — | |||||||||||||||||||
| Cancellation of shares to cover employees’ tax withholdings upon vesting of non-vested shares | (56,495 | ) | — | (4.5 | ) | — | — | — | (4.5 | ) | |||||||||||||||||
| Tax effect of cumulative-effect adjustment related to prior year adoption of ASU 2016-09 | — | — | — | 0.3 | — | — | 0.3 | ||||||||||||||||||||
| Repurchase of common stock | (938,680 | ) | — | — | — | (77.8 | ) | — | (77.8 | ) | |||||||||||||||||
| 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 | — | — | — | (35.0 | ) | — | — | (35.0 | ) | ||||||||||||||||||
| Amortization of unearned equity compensation | — | — | 13.0 | — | — | — | 13.0 | ||||||||||||||||||||
| BALANCE, December 31, 2017 | 16,773,586 | $ | 0.2 | $ | 1,055.9 | $ | 85.5 | $ | (358.6 | ) | $ | (36.7 | ) | $ | 746.3 | ||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
51
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
|
| (In millions of dollars) |
| |||||||||
Cash flows from operating activities1: |
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
| $ | 47.2 |
|
| $ | (29.6 | ) |
| $ | (18.5 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
| |||
Depreciation of property, plant and equipment |
|
| 103.3 |
|
|
| 97.6 |
|
|
| 82.5 |
|
Amortization of definite-lived intangible assets |
|
| 5.3 |
|
|
| 9.3 |
|
|
| 9.0 |
|
Amortization of debt premium and debt issuance costs |
|
| 2.2 |
|
|
| 2.3 |
|
|
| 2.1 |
|
Deferred income taxes |
|
| 7.5 |
|
|
| (12.0 | ) |
|
| (11.4 | ) |
Non-cash equity compensation |
|
| 16.1 |
|
|
| 14.3 |
|
|
| 12.9 |
|
Non-cash asset impairment charges |
|
| — |
|
|
| 23.7 |
|
|
| — |
|
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| 35.9 |
|
Gain on disposition of property, plant and equipment |
|
| (13.8 | ) |
|
| (6.0 | ) |
|
| (0.5 | ) |
Gain on reimbursement on certain machinery and equipment – Note 13 |
|
| — |
|
|
| (6.0 | ) |
|
| — |
|
Non-cash defined benefit net periodic postretirement benefit cost |
|
| 13.4 |
|
|
| 13.1 |
|
|
| 9.4 |
|
Changes in operating assets and liabilities, net of effects of acquisition: |
|
|
|
|
|
|
|
|
| |||
Trade and other receivables |
|
| 33.1 |
|
|
| 15.0 |
|
|
| (90.3 | ) |
Contract assets |
|
| 0.1 |
|
|
| 4.6 |
|
|
| (27.1 | ) |
Inventories |
|
| 48.2 |
|
|
| (120.8 | ) |
|
| (43.5 | ) |
Prepaid expenses and other current assets |
|
| (2.8 | ) |
|
| (1.5 | ) |
|
| (0.9 | ) |
Accounts payable |
|
| (43.0 | ) |
|
| (61.2 | ) |
|
| 112.5 |
|
Accrued liabilities |
|
| 6.6 |
|
|
| 4.4 |
|
|
| 17.3 |
|
Annual variable cash contributions to Salaried VEBA |
|
| — |
|
|
| — |
|
|
| (1.7 | ) |
Long-term assets and liabilities, net |
|
| (11.5 | ) |
|
| (10.3 | ) |
|
| (8.3 | ) |
Net cash provided by (used in) operating activities |
|
| 211.9 |
|
|
| (63.1 | ) |
|
| 79.4 |
|
Cash flows from investing activities1: |
|
|
|
|
|
|
|
|
| |||
Capital expenditures |
|
| (143.2 | ) |
|
| (142.5 | ) |
|
| (58.0 | ) |
Purchase of equity securities |
|
| (0.3 | ) |
|
| (0.3 | ) |
|
| (0.4 | ) |
Proceeds from sale of equity securities |
|
| 0.1 |
|
|
| — |
|
|
| — |
|
Cash payment for acquisition of Warrick, net of cash received – Note 4 |
|
| — |
|
|
| — |
|
|
| (609.2 | ) |
Proceeds from reimbursement on certain machinery and equipment – Note 13 |
|
| — |
|
|
| 6.0 |
|
|
| — |
|
Proceeds from disposition of property, plant and equipment |
|
| 15.2 |
|
|
| 11.0 |
|
|
| 1.8 |
|
Net cash used in investing activities |
|
| (128.2 | ) |
|
| (125.8 | ) |
|
| (665.8 | ) |
Cash flows from financing activities1: |
|
|
|
|
|
|
|
|
| |||
Borrowings under the Revolving Credit Facility |
| 215.1 |
|
|
| — |
|
|
| — |
| |
Repayment of borrowings under the Revolving Credit Facility |
|
| (215.1 | ) |
|
| — |
|
|
| — |
|
Repayment of principal and redemption premium of 6.50% Senior Notes |
|
| — |
|
|
| — |
|
|
| (380.9 | ) |
Issuance of 4.50% Senior Notes |
|
| — |
|
|
| — |
|
|
| 550.0 |
|
Cash paid for debt issuance costs |
|
| — |
|
|
| (1.8 | ) |
|
| (8.6 | ) |
Repayment of finance lease |
|
| (2.1 | ) |
|
| (2.1 | ) |
|
| (2.1 | ) |
Cancellation of shares to cover tax withholdings upon common shares issued |
|
| (1.8 | ) |
|
| (2.8 | ) |
|
| (2.6 | ) |
Cash dividends and dividend equivalents paid |
|
| (50.4 | ) |
|
| (50.1 | ) |
|
| (46.7 | ) |
Net cash (used in) provided by financing activities |
|
| (54.3 | ) |
|
| (56.8 | ) |
|
| 109.1 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash during the period |
|
| 29.4 |
|
|
| (245.7 | ) |
|
| (477.3 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 71.3 |
|
|
| 317.0 |
|
|
| 794.3 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 100.7 |
|
| $ | 71.3 |
|
| $ | 317.0 |
|
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| (In millions of dollars) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | 45.4 | $ | 91.7 | $ | (236.6 | ) | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Depreciation of property, plant and equipment | 38.3 | 34.5 | 30.8 | |||||||||
| Amortization of definite-lived intangible assets | 1.4 | 1.5 | 1.6 | |||||||||
| Amortization of debt discount and debt issuance costs | 1.2 | 1.1 | 4.3 | |||||||||
| Deferred income taxes | 89.0 | 57.4 | (131.7 | ) | ||||||||
| Excess tax benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest | — | — | (1.3 | ) | ||||||||
| Non-cash compensation | 13.3 | 11.8 | 9.5 | |||||||||
| Lower of cost or market inventory write-down | — | 4.9 | 2.6 | |||||||||
| Non-cash unrealized (gain) loss on derivative instruments | (19.4 | ) | (18.7 | ) | 3.4 | |||||||
| Non-cash impairment charges | 19.2 | 2.8 | 0.1 | |||||||||
| Loss on extinguishment of debt | — | 11.1 | 2.5 | |||||||||
| (Gain) loss on disposition of property, plant and equipment | (0.5 | ) | 0.2 | 0.3 | ||||||||
| Gain on disposition of available for sale securities | (2.3 | ) | — | — | ||||||||
| Non-cash defined benefit net periodic benefit cost | 4.8 | 3.7 | 2.8 | |||||||||
| Non-cash loss on removal of Union VEBA, net | — | — | 446.7 | |||||||||
| Other non-cash changes in assets and liabilities | 3.9 | 1.2 | 0.6 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Trade and other receivables | (30.9 | ) | (26.8 | ) | 17.4 | |||||||
| Inventories, excluding lower of cost or market write-down | (6.3 | ) | 13.1 | (7.5 | ) | |||||||
| Prepaid expenses and other current assets | (1.7 | ) | (8.0 | ) | 0.5 | |||||||
| Accounts payable | 13.0 | 3.4 | (13.6 | ) | ||||||||
| Accrued liabilities | (4.7 | ) | 26.2 | 12.8 | ||||||||
| Annual variable cash contributions to VEBAs | (20.0 | ) | (19.5 | ) | (13.7 | ) | ||||||
| Long-term assets and liabilities, net | (2.2 | ) | (26.0 | ) | 28.2 | |||||||
| Net cash provided by operating activities | 141.5 | 165.6 | 159.7 | |||||||||
Cash flows from investing activities1: | ||||||||||||
| Capital expenditures | (75.5 | ) | (76.1 | ) | (63.1 | ) | ||||||
| Purchase of available for sale securities | (247.5 | ) | (255.3 | ) | (0.5 | ) | ||||||
| Proceeds from disposition of available for sale securities | 296.9 | 55.0 | 84.0 | |||||||||
| Proceeds from disposal of property, plant and equipment | 0.6 | — | — | |||||||||
| Net cash (used in) provided by investing activities | (25.5 | ) | (276.4 | ) | 20.4 | |||||||
Cash flows from financing activities1: | ||||||||||||
| Repayment of principal and redemption premium of 8.25% Senior Notes | — | (206.0 | ) | (30.0 | ) | |||||||
| Issuance of 5.875% Senior Notes | — | 375.0 | — | |||||||||
| Repayment of Convertible Notes | — | — | (175.0 | ) | ||||||||
| Proceeds from cash-settled call options related to settlement of Convertible Notes | — | — | 94.9 | |||||||||
| Payment for conversion premium related to settlement of Convertible Notes | — | — | (94.9 | ) | ||||||||
| Cash paid for debt issuance costs | — | (6.8 | ) | (0.6 | ) | |||||||
| Proceeds from stock option exercises | — | 1.2 | — | |||||||||
| Repayment of capital lease | (0.4 | ) | — | — | ||||||||
| Excess tax benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest | — | — | 1.3 | |||||||||
| Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares | (4.5 | ) | (2.9 | ) | (2.8 | ) | ||||||
| Repurchase of common stock | (79.5 | ) | (33.3 | ) | (49.2 | ) | ||||||
| Cash dividends and dividend equivalents paid | (35.0 | ) | (32.4 | ) | (28.1 | ) | ||||||
| Net cash (used in) provided by financing activities | (119.4 | ) | 94.8 | (284.4 | ) | |||||||
| Net decrease in cash, cash equivalents and restricted cash during the period | (3.4 | ) | (16.0 | ) | (104.3 | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | 67.7 | 83.7 | 188.0 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 64.3 | $ | 67.7 | $ | 83.7 | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
52
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES INDEX
Note 1 | 54 | |
Note 2 | 60 | |
Note 3 | 61 | |
Note 4 | 62 | |
Note 5 | 63 | |
Note 6 | 68 | |
Note 7 | 69 | |
Note 8 | Derivatives, Hedging Programs and Other Financial Instruments | 71 |
Note 9 | 75 | |
Note 10 | 76 | |
Note 11 | 78 | |
Note 12 | 78 | |
Note 13 | 79 | |
Note 14 | 80 | |
Note 15 | 83 | |
Note 16 | 84 | |
Note 17 | Business, Product and Geographical Area Information and Concentration of Risk | 84 |
Note 18 | 85 |
53
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
In this Annual Report on Form 10-K, (this "Report"), unless the context otherwise requires, references in these notes to consolidated financial statements to "Kaiser“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.
Organization and Nature of Operations.
Kaiser Aluminum Corporation specializes in the production of semi-fabricated specialty aluminum mill products, such as aluminum plate and sheet, bare and coated coil and extruded and drawn products, for the following end market applications:Principles of Consolidation and Basis of Presentation.
Use 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.Supply Chain Financing. Upon our acquisition of Warrick (see Note 4), we became party to several supply chain financing arrangements, in which we may sell certain of our foreign subsidiaries use the local currency as their functional currency; the assets and liabilitiescustomers’ trade accounts receivable to such customers’ financial institutions without recourse. We sell our undivided interests in certain of these foreign subsidiaries are translatedreceivables at exchange rates in effect atour discretion when we determine that the balance sheet date;cost of these arrangements is less than the cost of servicing our receivables with existing debt. Under the terms of the agreements, we retain no rights or interest, have no obligations with respect to the sold receivables and our statement of income (loss) is translated at weighted-average monthly rates of exchange prevailing duringdo not service the year. Resulting translation adjustments are recorded directly toreceivables after the sale. As such, we account for these transactions as a separate component of stockholders’ equity. Where the U.S. dollar is the functional currency of a foreign facility or subsidiary, re-measurement adjustments are recorded in Other income (expense), net.
Fair Value Measurements.
We apply the fair value hierarchy established by GAAP for the recognition and measurement of certain financial assets and liabilities. An asset orFinancial assets and liabilities that we measure at fair value each period include our derivative instruments and available for sale securities, consisting of debt investment securities andequity investments related to our deferred compensation plan (see Note 4)5 and Note 8). Additionally, we measure at fair value once each year at December 31 the plan assets of our defined benefit pension and postretirement plans including the Salaried VEBA (defined in(see Note 4) and our Canadian defined benefit pension plan.5). In determining the fair value of the plan assets at an annual period end, we utilize primarily the results of valuations supplied by the investment advisors responsible for managing the assets of each plan, which we independently review for reasonableness. We record our remaining financial assets and liabilities at carrying value.
Goodwill is tested for impairment during the fourth quarter on an annual basis, as well as on an interim basis, as warranted, at the time of relevant events and changes in circumstances. Our evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. We estimate the fair value of a reporting unit using a combination of an income approach and a market-based approach. Intangible asset fair values and useful lives are determined using the income approach valuation methodology. The income approach incorporates the use of cash flow projections and a discount rate that are developed using market participant-based assumptions. The cash flow projections are based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset, long‑term forecasts of the business, market prices, projected cash flows and the rate used in discounting those cash flows. Intangible assets with definite lives are initially recognized at fair value and subsequently amortized over the estimated useful lives to reflect the pattern in which the economic benefits of the intangible assets are consumed. In the event the pattern cannot be reliably determined, we use a straight-line amortization method. Whenever events or changes in circumstances indicate that the carrying amount of the intangible assets may not be recoverable, the intangible assets are reviewed for impairment. See Note 4 for discussion on business combinations, goodwill and intangible assets.
54
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For a majority of our remaining non-financial assets and liabilities, which include goodwill, intangible assets, inventories, debt issuance costs and property, plant and equipment, we are not required to measure their fair value on a recurring basis. However, if certain triggering events occur, (or at least annually for goodwill), an evaluation of the affected non-financial asset or liability will be required, which could result in a reduction to the carrying amount of such asset or liability. Other than the impairment charges discussed below in
Government Grants. From time to time, we receive grants from certain governmental agencies such as states and liabilities subject to fair value assessments on a non-recurring basis required a material adjustmentmunicipalities. We recognize government grants when we have reasonable assurance that we will comply with any conditions attached to the grant and the grant will be received. Government grants related to property, plant and equipment are presented as a reduction to the related asset’s carrying amount of such assets and liabilitiesamount. Grants related to compensation for expenses already incurred or for immediate financial support with no future related costs are recognized as income in the period in which they are receivable. The following table presents the total government assistance recognized during the yearsyear ended December 31, 20172023 (in millions of dollars):
Grantor |
| Grant |
| Amount |
|
| Duration |
| Classification | |
Indiana Economic Development Corporation |
| IN EDGE Tax Credit |
| $ | 1.6 |
|
| 2021 - 2030 |
| Cost of products sold, excluding depreciation and amortization |
Total |
|
|
| $ | 1.6 |
|
|
|
|
|
To be eligible to receive and December 31, 2016.keep the full amount of the IN EDGE Tax Credit, we must achieve: (i) minimum cumulative expenditures towards capital expenditures and (ii) a minimum number of full-time employees.
Cash and Cash Equivalents.
We consider only those short-term, highly liquid investments which, when purchased, have maturities of 90 days or less to be cash equivalents. Our cash equivalents consist primarily of funds inRestricted Cash.
We are required to keep on deposit certain amounts that are pledged or held as collateral relating to workers’ compensation and other agreements. We account for such deposits as restricted cash (see NoteTrade Receivables and Allowance for Doubtful Accounts.
Inventories.
Inventories are stated at the lower of cost or market value.Replacement Parts.
Replacement parts consist of preventative maintenance and capital spare parts, which are stated on theProperty, Plant and Equipment, Net.
Property, plant and equipment, net, is recorded at cost and includes construction in progress (see Note 2). Property, plant and equipment acquired in the Warrick acquisition was recorded at fair value as of the date of acquisition (see Note 4). Interest related to the construction of qualifying assets is capitalized as part of the construction55
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation is computed using the straight-line method at rates based on the estimated useful lives of the various classes of assets. CapitalDepreciable finance lease assets and leasehold improvements are depreciatedamortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term. The principal estimated useful lives are as follows:
Range | ||
Land improvements | 1-25 | |
Buildings and leasehold improvements | 2-45 | |
Machinery and equipment | 1-22 | |
Depreciable finance lease assets | 2-120 |
| Range (in years) | |||
| Land improvements | 3 | - | 25 |
| Buildings and leasehold improvements | 15 | - | 45 |
| Machinery and equipment | 1 | - | 24 |
| Capital lease assets | 3 | - | 5 |
Depreciation expense is not included in Cost of products sold, excluding depreciation and amortization and other items, but is included in Depreciation and amortization.
Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or group of assets may not be recoverable. We regularly assess whether events and circumstances with the potential to trigger impairment have occurred and rely on a number of factors, including operating results, business plans, economic projections, and anticipated future cash flow, to make such assessments. We use an estimate of the future undiscounted cash flows of the related asset or asset group over the estimated remaining life of such asset(s)asset or asset group in measuring whether the asset(s) areasset or asset group is recoverable. Measurement of the amount of impairment, if any, is based on the difference between the carrying value of the asset(s) and the estimated fair value of such asset(s). Fair value is determined through a series of standard valuation techniques.
There were no impairment charges of $0.8 million, $0.2 millionin 2023, 2022, and $0.1 million in 2017, 2016 and 2015, respectively, to reflect the scrap value of idled assets we determined not to deploy for future use.2021. Asset impairment charges are included in Other operating charges, net, in theour Statements of Consolidated Income (Loss) and are included in the Fabricated Products segment.
We classify assets as held for sale only when an asset is being actively marketed and expected to sell within 12 months. Assets held for sale are initially measured at the lesser of the assets'assets’ carrying amount and the fair value less costs to sell.
Cloud Computing Implementation Costs. We defer implementation costs associated with a software hosting arrangement that meets the definition of a service contract. We recognize these deferred costs within Prepaid expenses and Intangible Assets.
|
| As of December 31, |
|
| Average | |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| Useful Life | |||
Deferred implementation costs1 |
| $ | 11.7 |
|
| $ | 10.4 |
|
| $ | 7.8 |
|
| 9 years |
Accumulated amortization |
| $ | (2.2 | ) |
| $ | (1.1 | ) |
| $ | (0.1 | ) |
| n/a |
We recorded amortization expense of $1.1 million, $1.0 million, and $0.1 million in 2023, 2022, and 2021, respectively.
Leases. We determine whether an agreement is a lease at inception. We have operating and finance leases for equipment and real estate that primarily have fixed lease payments. For purposes of calculating lease liabilities, options to extend or terminate a lease are included within the fourth quarterlease term when it is reasonably certain that we will exercise such options. Short-term leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets.
As most of our leases do not provide an annual basis,implicit rate, we use information available at the lease commencement date in determining an incremental borrowing rate when calculating our right-of-use lease assets and liabilities. In determining the inputs to the incremental borrowing rate calculation, we make judgments about the value of the leased asset, our credit rating, and the lease term, including the probability of our exercising options to extend or terminate the underlying lease. Additionally, we make judgments around contractual asset substitution rights in determining whether a contract contains a lease.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. These non-lease components include items such as common area maintenance, taxes, and insurance for our real estate leases, as well as on an interim basis, as warranted, at the time of relevant events and changes in circumstances. Intangible assets with definite lives are initially recognized at fair value and subsequently amortized over the estimated useful lives to reflect the pattern in which the economic benefits of the intangible assets are consumed. In the event the pattern cannot be reliably determined, we use a straight-line amortization method. Whenever events or changes in circumstances indicate that the carrying amount of the intangible assets may not be recoverable, the intangible assets are reviewed for impairment. See Note 3 for a discussion of the goodwill impairment charge recorded during 2017 maintenance charges
56
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related to our equipment leases. We have, however, appliedthe operations atpractical expedient within ASC No. 2016-02, Leases (Topic 842): Amendments to the Financial Accounting Standards Board Accounting Standards Codification (“ASC 2016-02”), to not separate lease and non-lease components to our Chandler, Arizona (Extrusion) facility, as well asembedded supply system equipment leases and have therefore accounted for both lease and non‑lease components in determining the non-cash impairment charge recorded during 2016 related to onelease assets and liabilities.
Many of our customer relationship intangible assets.equipment leases contain clauses that require us to return the equipment with certain functionality intact. We account for these costs as residual value guarantees when the guarantee becomes probable of being owed. Our lease agreements do not contain any material restrictive covenants.
Derivative Financial Instruments.
Consistent with guidelines established by management and approved by our Board of Directors, we use derivative financial instruments to mitigate our exposure to changes in the market price of aluminum, certain alloying metals,We reflect the fair value of all of our derivative instruments on our Consolidated Balance Sheets (see Note 7).Sheets. The carrying valuesfair value of hedges settling within one year areis included in Prepaid expenses and other current assets or Other accrued liabilities. Carrying values forThe fair value of hedges settling beyond one year areis included in Other assets or Long-term liabilities.
Self-Insurance of products sold, excluding depreciation and amortization and other items.
Debt Issuance Costs.
Costs incurred in connection with debt financing are deferred and amortized over the estimated term of the related borrowing. Such amortization is included in Interest expenseConditional Asset Retirement Obligations (
Environmental Contingencies.
With respect to environmental loss contingencies, we record a loss contingency whenever a contingency is probable and reasonably estimable (see Note57
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition. We recognize revenue as we fulfill our performance obligations and transfer control of Sales. Salesproducts to our customers. For products that have an alternative use and/or for which we do not have an enforceable right to payment (including a reasonable profit) during the production process, we recognize revenue at a point in time. For products that have no alternative use and for which we have an enforceable right to payment (including a reasonable profit) throughout the production process, we recognize revenue over time. In general, revenue recognized over time primarily relates to our Aero/HS products and our Automotive Extrusions with the remainder of our products recognized at a point in time. In limited circumstances, we have concluded that we are generallyan agent in certain Packaging end market arrangements. For these transactions, revenue has been recognized on a gross basisnet basis.
For the majority of our business, contracts with customers begin when allwe acknowledge a purchase order for a specific customer order of product to be delivered in the near term. These purchase orders are short term in nature, although they may reference a longer term “blanket purchase order” or a “terms and conditions” agreement, both of which may span multiple years. For revenue recognized at a point in time, transfer of control usually occurs upon shipment or upon customer receipt of the following criteria are met: (i) persuasive evidenceproduct, depending on shipping terms. For contracts recognized over time, control transfer occurs incrementally during our production process as progress is made on fulfilling the performance obligation. We use the input method of determining our progress, capturing direct costs beginning at the point that billet or cast ingot is introduced into production at either the extrusion phase or the rolling phase, respectively. We believe the input method more accurately reflects the transfer of control as it represents the best information available of work completed to date for which we have an arrangement exists; (ii) title, ownership and risk of loss has passedenforceable right to the customer; (iii) the price to the customer is fixed or determinable; and (iv) collectionpayment. For products in production, we recognize revenue using estimates of the resultingcost incurred to date plus a reasonable margin. As the duration of our contracts for accounting purposes is typically less than one year, we do not present quantitative information about the aggregate transaction price allocated to unsatisfied performance obligations at the end of the reporting period.
We adjust the amount of revenue recognized on all products, regardless of timing of revenue recognition, for variable price consideration, which could include metal market price adjustments, volume rebates and sales discounts. We estimate rebate and discount values based on forecasted order data and historical payment trends for specific customers, adjusted as necessary at each reporting period. Accounts receivable is reasonably assured. A provisionrecorded when our right to consideration becomes unconditional. Payment terms for estimated sales returns from and allowances toa majority of our customers is made30 to 90 days, with the longer terms generally to accommodate customers with deliveries to overseas locations. As such, we do not adjust the promised amount of consideration for the effects of a significant financing component as we do not expect the period between the transfer of control of products to our customers and receipt of payment will be greater than one year.
Contract assets primarily relate to our enforceable right to consideration for work completed but not billed at the reporting date on contracts for products recognized over time. Contract assets also include amounts related to our contractual right to consideration for finished goods recognized over time that were in transit as of period end.
Incremental Costs of Obtaining a Contract. We expense the same periodcosts of obtaining a contract as incurred as the related revenues areamortization period of the asset that we otherwise would have recognized based on historical experienceis one year or the specific identification of an event necessitating a reserve.less.
Shipping and Handling Costs.
Advertising Costs.
Advertising costs, which are included in SG&A and R&D, are expensed as incurred. Advertising costs forResearch and Development Costs.
Research and development costs, which are included in SG&A and R&D, are expensed as incurred. Research and development costs forMajor Maintenance Activities.
All major maintenance costs are accounted for using the direct expensing method.Stock-Based Compensation.
Stock-based compensation in the form of service-based awards is provided to executive officers, certain employees and non-employee directors and is accounted for at fair value. We measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award and the number of awards expected to ultimately vest. The grant-date fair value is determined based on the stock price on the date of grant, adjusted for expected dividends or dividend equivalents to be paid during the vesting period.58
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also grant performance-based awards to executive officers and other key employees. The methodology used to value these performance-based awards is based on the nature of the performance conditions within those awards. Awards that are subject to performance conditions pertaining to total shareholder return (market-based awards) are valued on the date of grant using a Monte Carlo valuation model. The key assumptions in applying this model are an expected volatility and a risk-free interest rate. Awards with certain other performance conditions pertaining to our cost performance and awards with performance conditions pertaining to our economic value added performance(non-market-based awards) are valued based on our stock price at the date of grant. ForOur non‑market-based awards have performance conditions pertaining to our cost performance and adjusted EBITDA margin performance, which is measured by our Adjusted EBITDA as a percentage of Conversion Revenue, which is Net sales less the Hedged Cost of Alloyed Metal. As used in this discussion, “Hedged Cost of Alloyed Metal” is the cost of aluminum at the 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. Holders of performance-based awards receive a one-time payment at the time of issuance of vested shares based on the total dividends they would have received if the vested shares had been held of record from the date of grant through the date of issuance. See Note 7 for more information on our stock-based compensation, see Note 6.
The cost of service-based awards, including time-vested restricted stock and performance shares, is recognized as an expense over the requisite service period of the award on a straight-line basis. Adjustments to expense related to forfeitures are recorded in the period in which they occur. We recognize stock-based compensation expense for market-based awards if the requisite service period is rendered, even if the market condition is never satisfied. For performance shares with performance conditions pertaining to our cost performance and economic value addedAdjusted EBITDA margin performance, the related expense is updated quarterly by adjusting the estimated number of shares expected to vest based on the most probable outcome of the performance condition (see Note 6)7).
Adoption of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying statutory tax rates in effect for the year during which the differences are expected to reverse. In accordance with Accounting Standards Codification ("ASC") Topic 740,
There have been no new accounting pronouncements adopted since the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, ASU 2014-09 was amended by ASU No. 2015-14,
Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting; (iii) ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; (iv) ASU No. 2016-20, Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements to Topic 606; and (v) ASU No. 2017-14, Income Statement - Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606).
Disclosure Improvements. In October 2023, the Financial Accounting Standards Board Accounting Standards(“FASB”) issued ASU No. 2023-06 (“ASU 2023-06”), Codification
Segment Reporting. In November 2023, the FASB issued ASU No. 2017-12,
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 related notes. It alsorate reconciliation and (ii) the disaggregation of income taxes paid by jurisdiction. The guidance makes certain targeted improvementsseveral other changes to simplify the applicationincome 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 hedge accounting guidance.retrospective application. We do not expect to record a cumulative effect adjustment as a resultare evaluating the impact of early adopting ASU 2017-12 in the first quarter of 2018; however, we plan to designate a significant portion of our commodity hedges as cash flow hedges beginning January 1, 2018. We therefore expect to significantly reduce or eliminate the mark-to-market adjustments that have historically been recorded within Unrealized (gain) loss on derivative instruments. These adjustments will instead be recorded within Accumulated other comprehensive loss beginning in the first quarter of 2018.
59
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Supplemental Balance Sheet Information
| As of December 31, |
| ||||||||||||||
| December 31, 2017 | December 31, 2016 |
| 2023 |
|
| 2022 |
| |||||||||
| (In millions of dollars) |
| (In millions of dollars) |
| |||||||||||||
| Cash and Cash Equivalents | ||||||||||||||||
| Cash and money market funds | $ | 23.5 | $ | 37.9 | ||||||||||||
| Commercial paper | 27.6 | 17.3 | ||||||||||||||
| Total | $ | 51.1 | $ | 55.2 | ||||||||||||
| Trade Receivables, net | ||||||||||||||||
Trade Receivables, Net |
|
|
|
|
|
| ||||||||||
| Billed trade receivables | $ | 165.9 | $ | 138.2 |
| $ | 325.8 |
|
| $ | 297.7 |
| ||||
| Unbilled trade receivables | 0.3 | 0.3 | ||||||||||||||
| Trade receivables, gross | 166.2 | 138.5 | ||||||||||||||
| Allowance for doubtful receivables | (1.2 | ) | (0.8 | ) |
|
| (0.6 | ) |
|
| (0.5 | ) | ||||
| Trade receivables, net | $ | 165.0 | $ | 137.7 |
| $ | 325.2 |
|
| $ | 297.2 |
| ||||
|
|
|
|
|
| |||||||||||
| Inventories |
|
|
|
|
|
| ||||||||||
| Finished products | $ | 63.8 | $ | 73.8 |
| $ | 89.3 |
|
| $ | 98.0 |
| ||||
| Work-in-process | 78.3 | 71.7 |
|
| 210.8 |
|
|
| 242.5 |
| ||||||
| Raw materials | 61.3 | 51.1 |
|
| 161.5 |
|
|
| 174.0 |
| ||||||
| Operating supplies | 4.5 | 5.0 |
|
| 15.6 |
|
|
| 10.9 |
| ||||||
| Total | $ | 207.9 | $ | 201.6 | ||||||||||||
Inventories |
| $ | 477.2 |
|
| $ | 525.4 |
| ||||||||
|
|
|
|
|
| |||||||||||
| Property, Plant and Equipment, net | ||||||||||||||||
Property, Plant and Equipment, Net |
|
|
|
|
|
| ||||||||||
| Land and improvements | $ | 21.1 | $ | 22.7 |
| $ | 38.0 |
|
| $ | 28.4 |
| ||||
| Buildings and leasehold improvements | 92.1 | 88.6 |
|
| 238.4 |
|
|
| 185.5 |
| ||||||
| Machinery and equipment | 689.1 | 615.1 |
|
| 1,265.3 |
|
|
| 1,232.7 |
| ||||||
| Construction in progress | 35.1 | 34.8 |
|
| 173.7 |
|
|
| 141.3 |
| ||||||
| Property, plant and equipment – gross | 837.4 | 761.2 | ||||||||||||||
| Accumulated depreciation | (267.9 | ) | (230.6 | ) | ||||||||||||
| Assets held for sale | 1.9 | 0.3 | ||||||||||||||
Property, plant and equipment, gross |
|
| 1,715.4 |
|
|
| 1,587.9 |
| ||||||||
Accumulated depreciation and amortization |
|
| (663.7 | ) |
|
| (574.9 | ) | ||||||||
Land held for sale |
|
| 0.4 |
|
|
| 0.2 |
| ||||||||
| Property, plant and equipment, net | $ | 571.4 | $ | 530.9 |
| $ | 1,052.1 |
|
| $ | 1,013.2 |
| ||||
|
|
|
|
|
| |||||||||||
Other Assets |
|
|
|
|
|
| ||||||||||
Assets to be conveyed associated with Warrick acquisition |
| $ | 56.8 |
|
| $ | 56.8 |
| ||||||||
Restricted cash – Note 16 |
|
| 18.3 |
|
|
| 13.9 |
| ||||||||
Long-term replacement parts |
|
| 16.7 |
|
|
| 15.5 |
| ||||||||
Other |
|
| 25.9 |
|
|
| 26.1 |
| ||||||||
Other assets |
| $ | 117.7 |
|
| $ | 112.3 |
| ||||||||
. |
|
|
|
|
|
| ||||||||||
| Other Accrued Liabilities |
|
|
|
|
|
| ||||||||||
| Uncleared cash disbursements | $ | 7.3 | $ | 5.8 |
| $ | 15.7 |
|
| $ | 13.6 |
| ||||
| Accrued income taxes and other taxes payable | 6.8 | 4.3 |
|
| 9.5 |
|
|
| 8.9 |
| ||||||
| Accrued annual contribution to VEBAs – Note 4 | 15.7 | 20.0 | ||||||||||||||
Accrued annual contribution to Salaried VEBA – Note 5 |
|
| 1.1 |
|
|
| — |
| ||||||||
| Accrued interest | 2.9 | 2.9 |
|
| 9.9 |
|
|
| 9.9 |
| ||||||
| Other | 7.8 | 7.1 | ||||||||||||||
| Total | $ | 40.5 | $ | 40.1 | ||||||||||||
Short-term environmental accrual – Note 10 |
|
| 2.8 |
|
|
| 1.1 |
| ||||||||
Current operating lease liabilities – Note 3 |
|
| 8.0 |
|
|
| 9.1 |
| ||||||||
Current finance lease liabilities – Note 3 |
|
| 2.1 |
|
|
| 2.1 |
| ||||||||
Other – Note 8 |
|
| 15.2 |
|
|
| 23.7 |
| ||||||||
Other accrued liabilities |
| $ | 64.3 |
|
| $ | 68.4 |
| ||||||||
|
|
|
|
|
| |||||||||||
Long-Term Liabilities |
|
|
|
|
|
| ||||||||||
Workers' compensation accrual |
| $ | 29.9 |
|
| $ | 30.9 |
| ||||||||
Long-term environmental accrual – Note 10 |
|
| 14.2 |
|
|
| 16.6 |
| ||||||||
Other long-term liabilities |
|
| 37.6 |
|
|
| 27.2 |
| ||||||||
Long-term liabilities |
| $ | 81.7 |
|
| $ | 74.7 |
| ||||||||
60
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Leases
The following table presents lease terms and discount rates:
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Weighted-average remaining lease term (in years): |
|
|
|
|
|
| ||
Finance leases |
|
| 38.8 |
|
|
| 29.0 |
|
Operating leases |
|
| 8.9 |
|
|
| 7.0 |
|
Weighted-average discount rate: |
|
|
|
|
|
| ||
Finance leases |
|
| 5.31 | % |
|
| 3.51 | % |
Operating leases |
|
| 4.35 | % |
|
| 3.95 | % |
The following table summarizes the classification of lease assets and lease liabilities on our Consolidated Balance Sheets (in millions of dollars):
|
|
|
| As of December 31, |
| |||||
Description |
| Classification |
| 2023 |
|
| 2022 |
| ||
Operating lease assets |
| Operating lease assets |
| $ | 32.6 |
|
| $ | 39.1 |
|
Finance lease assets |
| Property, plant and equipment, net |
| $ | 14.3 |
|
| $ | 6.7 |
|
|
|
|
|
|
|
|
|
| ||
Current operating lease liabilities |
| Other accrued liabilities |
| $ | 8.0 |
|
| $ | 9.1 |
|
Non-current operating lease liabilities |
| Long-term portion of operating lease liabilities |
| $ | 29.2 |
|
| $ | 35.4 |
|
Total operating lease liabilities |
|
|
| $ | 37.2 |
|
| $ | 44.5 |
|
|
|
|
|
|
|
|
|
| ||
Current finance lease liabilities |
| Other accrued liabilities |
| $ | 2.1 |
|
| $ | 2.1 |
|
Non-current finance lease liabilities |
| Long-term liabilities |
| $ | 12.9 |
|
| $ | 5.0 |
|
Total finance lease liabilities |
|
|
| $ | 15.0 |
|
| $ | 7.1 |
|
The following table summarizes the components of lease cost in our Statements of Consolidated Income (Loss) (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Operating lease cost |
| $ | 11.6 |
|
| $ | 12.1 |
|
| $ | 11.0 |
|
Short-term lease cost |
|
| 4.3 |
|
|
| 4.3 |
|
|
| 3.2 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
| |||
Amortization of leased assets |
|
| 2.4 |
|
|
| 2.5 |
|
|
| 2.1 |
|
Interest on lease liabilities |
|
| 0.7 |
|
|
| 0.3 |
|
|
| 0.3 |
|
Total lease cost |
| $ | 19.0 |
|
| $ | 19.2 |
|
| $ | 16.6 |
|
The following table presents the maturity of our lease liabilities as of December 31, 2023 (in millions of dollars):
|
| Finance Leases |
|
| Operating Leases |
| ||
2024 |
| $ | 2.9 |
|
| $ | 9.4 |
|
2025 |
|
| 2.2 |
|
|
| 6.8 |
|
2026 |
|
| 1.7 |
|
|
| 4.4 |
|
2027 |
|
| 0.8 |
|
|
| 3.7 |
|
2028 |
|
| 0.6 |
|
|
| 3.4 |
|
Thereafter |
|
| 26.9 |
|
|
| 19.2 |
|
Total minimum lease payments |
| $ | 35.1 |
|
| $ | 46.9 |
|
Less: interest |
|
| (20.1 | ) |
|
| (9.7 | ) |
Present value |
| $ | 15.0 |
|
| $ | 37.2 |
|
61
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| December 31, 2017 | December 31, 2016 | |||||||
| (In millions of dollars) | ||||||||
| Long-Term Liabilities | ||||||||
| Workers’ compensation accruals | $ | 22.6 | $ | 25.0 | ||||
| Long-term environmental accrual – Note 9 | 15.8 | 15.8 | ||||||
| Long-term portion of contingent contribution to Union VEBA – Note 4 | — | 12.8 | ||||||
| Other long-term liabilities | 21.6 | 19.6 | ||||||
| Total | $ | 60.0 | $ | 73.2 | ||||
4. Business Combinations, Goodwill and Intangible Assets
Business Combinations. On March 31, 2021, we acquired Warrick for a final aggregate purchase consideration, after giving effect to working capital adjustments and indebtedness related to our acquisitionspostretirement benefits, of the Chandler, Arizona (Extrusion) facility$609.2 million. Warrick is a leading producer of bare and the Florence, Alabama facility and is includedcoated aluminum coil used for can stock applications in the Fabricated Products segment.beverage and food packaging industry in North America. The transaction provided us with non-cyclical end market diversification and re-entry into the packaging end market.
Goodwill. In conjunction with our acquisition of Warrick, we added $20.5 million of goodwill after allocating the consideration paid, net of cash received to all other identifiable assets. The goodwill reflected the value we expected from our re-entry into the Packaging end market and our assembled workforce. In conjunction with our annual testing and due to downward revisions in forecasted operating margins as a result of supply chain challenges, inflationary cost pressures and manufacturing inefficiencies, we determined that the carrying value of our goodwill was $18.8Warrick exceeded its fair value, and we recognized an impairment charge of $20.5 million as of December 31, 2017 and $37.2 million at both the beginning and the end offor the year ended December 31, 2016. The carrying value as of December 31, 2017 included accumulated impairment of $18.4 million. There was no accumulated impairment reflected2022 within Operating income in the carrying values at bothStatements of Consolidated Income (Loss). We estimated the beginning and the endfair value of the year ended December 31, 2016.
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Gross carrying value1: |
|
|
|
|
|
| ||
Beginning balance |
| $ | 57.7 |
|
| $ | 57.7 |
|
Warrick impairment |
|
| — |
|
|
| (20.5 | ) |
Ending balance |
|
| 57.7 |
|
|
| 37.2 |
|
Accumulated impairment loss1 |
|
| (38.9 | ) |
|
| (18.4 | ) |
Net carrying value |
| $ | 18.8 |
|
| $ | 18.8 |
|
Intangible Assets. In 2017 and 2016, our identifiable intangible assets related to acquired finite-lived customer relationships. Information regardingThe following table presents the gross carrying amount and accumulated amortization by major intangible asset class (in millions of thesedollars, except amortization periods):
|
| Weighted- |
|
| Gross |
|
| Accumulated |
|
| Intangible |
| ||||
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer relationships |
|
| 19 |
|
| $ | 68.1 |
|
| $ | (26.1 | ) |
| $ | 42.0 |
|
Trade name |
|
| 10 |
|
|
| 2.4 |
|
|
| (1.2 | ) |
|
| 1.2 |
|
Non-compete agreement |
|
| 5 |
|
|
| 5.4 |
|
|
| (5.4 | ) |
|
| — |
|
Favorable lease contracts |
|
| 120 |
|
|
| 7.0 |
|
|
| (0.2 | ) |
|
| 6.8 |
|
Total |
|
|
|
| $ | 82.9 |
|
| $ | (32.9 | ) |
| $ | 50.0 |
| |
As of December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer relationships |
|
| 19 |
|
| $ | 68.1 |
|
| $ | (21.9 | ) |
| $ | 46.2 |
|
Trade name |
|
| 10 |
|
|
| 2.4 |
|
|
| (1.0 | ) |
|
| 1.4 |
|
Non-compete agreement |
|
| 5 |
|
|
| 5.4 |
|
|
| (4.6 | ) |
|
| 0.8 |
|
Favorable lease contracts |
|
| 120 |
|
|
| 7.0 |
|
|
| (0.1 | ) |
|
| 6.9 |
|
Total |
|
|
|
| $ | 82.9 |
|
| $ | (27.6 | ) |
| $ | 55.3 |
| |
During the year ended December 31, 2022, we impaired the remaining book value of our favorable commodity contracts intangible assets wasasset as follows asthe supplier associated with the intangible asset ceased all deliveries of each period presented:
| December 31, 2017 | December 31, 2016 | |||||||
| (In millions of dollars) | ||||||||
| Gross carrying amount | $ | 34.7 | $ | 34.7 | ||||
| Accumulated amortization | (9.7 | ) | (8.3 | ) | ||||
| Net carrying amount | $ | 25.0 | $ | 26.4 | ||||
62
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization expense relating to definite-lived intangible assets is recorded in the Fabricated Products segment over a weighted-average useful life of 25 years. Such expense was $1.4$5.3 million, $9.3 million and $9.0 million for 2017, $1.5 million for 2016,2023, 2022, and $1.6 million for 2015. 2021, respectively. The following table presents the expected amortization of intangible assets for each of the next five calendar years is $1.4 million and $18.0 million for years thereafter.
2024 |
| $ | 4.5 |
|
2025 |
|
| 4.5 |
|
2026 |
|
| 4.5 |
|
2027 |
|
| 4.5 |
|
2028 |
|
| 4.4 |
|
Thereafter |
|
| 27.6 |
|
Total |
| $ | 50.0 |
|
5. Employee Benefits
Defined Contribution Plans
We sponsor defined contribution 401(k) savings planplans for hourly bargaining unit employees at nine of our production facilities based on the specific collective bargaining agreement at each facility. For active bargaining unit employees at three of these production facilities, we are required to make fixed rate contributions. For active bargaining unit employees at one of these production facilities, we are required to match certain employee contributions. For active bargaining unit employees at three of these production facilities, we are required to make both fixed rate contributions and concurrent matches. For active bargaining unit employees at two remaining production facilities, we are not required to make any contributions. Fixed rate contributions either: (i) range from (in whole dollars) $800 to $2,400 per employee per year, depending on the employee’s age, or (ii) vary between 2% to 10% of the employees’ compensation depending on their age and years of service for employees hired prior to January 1, 2004 or is a fixed 2% annual contribution for employees hired on or after January 1, 2004.
Deferred Compensation Plan
We sponsor a fixed 2% contribution annually.
Other Benefits
We also provide other benefits for certain members of senior management, including eachcertain of our named executive officers, with benefits related to terminations of employment in specified circumstances, including in connection with a change in control, by us without cause and by the executive officer with good reason.
Defined Benefit Plans
Pension. We sponsor defined benefit pension plans for certain hourly bargaining unit employees and salaried employees. Pension benefits generally depend on length of service, job grade, and remuneration. Substantially all benefits are paid through pension trusts that are sufficiently funded to ensure that all plans can pay benefits to retirees as they become due. We use a December 31 measurement date for our pension plans.
OPEB. We sponsor an OPEB plan covering certain eligible retirees. Generally, the medical plans are unfunded and pay a percentage of medical expenses, reduced by deductibles and other coverage. Life insurance benefits are generally provided by insurance contracts. We use a December 31 measurement date for our OPEB plan.
Salaried VEBA Postretirement Obligation.
Certain retirees who retired prior to 2004 and certain employees who were hired prior to February 2002 and have subsequently retired or will retire with the requisite age and service, along with their surviving spouses and eligible dependents, are eligible to participate in a63
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have an ongoing obligation with no express termination date to make annual variable cash contributions to the Salaried VEBA, we account for it as a defined benefit plan in our financial statements.
| Canadian Pension Plan | Salaried VEBA | |||||||||||
| December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | |||||||||
| Discount rate | 3.40 | % | 3.80 | % | 3.20 | % | 3.60 | % | ||||
| Rate of compensation increase | 3.00 | % | 3.00 | % | — | — | ||||||
Key Assumptions. The following table presents the weighted average assumptions used to determine benefit obligations:
|
| Pension Plans1 |
|
| OPEB |
|
| Salaried VEBA |
| |||||||||||||||
|
| As of December 31, |
|
| As of December 31, |
|
| As of December 31, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Discount rate |
|
| 4.95 | % |
|
| 5.16 | % |
|
| 4.92 | % |
|
| 5.14 | % |
|
| 4.89 | % |
|
| 5.10 | % |
Rate of compensation increase |
|
| 2.63 | % |
|
| 2.69 | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| — | % |
The following table presents the Salaried VEBA was paying a fixed annual amount to its participants at both December 31, 2017 and December 31, 2016, no future cost trend rate increase has been assumed in computing the APBO for the Salaried VEBA.
|
| Pension Plans1 |
|
| OPEB |
|
| Salaried VEBA |
| |||||||||||||||||||||||||||
|
| Year Ended December 31, |
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| |||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||
Discount rate |
|
| 5.19 | % |
|
| 2.90 | % |
|
| 2.89 | % |
|
| 5.14 | % |
|
| 2.64 | % |
|
| 2.97 | % |
|
| 5.10 | % |
|
| 2.49 | % |
|
| 2.05 | % |
Expected long-term return on plan assets2 |
|
| 6.33 | % |
|
| 6.02 | % |
|
| 5.78 | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| 5.75 | % |
|
| 5.50 | % |
|
| 5.50 | % |
Rate of compensation increase |
|
| 2.63 | % |
|
| 2.69 | % |
|
| 2.74 | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| — | % |
| Canadian Pension Plan | Salaried VEBA | |||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||
| Discount rate | 3.80 | % | 4.10 | % | 4.00 | % | 3.60 | % | 3.90 | % | 3.60 | % | ||||||
Expected long-term return on plan assets1 | 4.45 | % | 4.45 | % | 5.10 | % | 7.75 | % | 7.75 | % | 7.75 | % | ||||||
| Rate of compensation increase | 3.00 | % | 3.00 | % | 3.00 | % | — | — | — | |||||||||
64
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In measuring the expected cost of benefits covered by our OPEB plan, we estimate a healthcare cost trend rate representing the annual rates of change in the costs of the healthcare benefits currently provided by the OPEB plan. The 2023 actuarial valuation assumed a 6.9% annual rate of increase in the per capita cost of covered healthcare claims with the rate decreasing until reaching 4.0% in 2036.
Benefit Obligations and Funded Status.
The following table presents the benefit obligations and funded status of our
|
| Pension Plans |
|
| OPEB |
|
| Salaried VEBA |
| |||||||||||||||
|
| As of December 31, |
|
| As of December 31, |
|
| As of December 31, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Obligation at beginning of year |
| $ | 18.8 |
|
| $ | 20.3 |
|
| $ | 66.4 |
|
| $ | 83.5 |
|
| $ | 58.9 |
|
| $ | 79.8 |
|
Foreign currency translation adjustment |
|
| 0.2 |
|
|
| (0.5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Service cost |
|
| 3.8 |
|
|
| 5.8 |
|
|
| 1.1 |
|
|
| 1.6 |
|
|
| — |
|
|
| 0.1 |
|
Interest cost |
|
| 1.3 |
|
|
| 0.6 |
|
|
| 3.4 |
|
|
| 2.2 |
|
|
| 2.9 |
|
|
| 1.9 |
|
Prior service cost (credit)1 |
|
| 6.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8.8 | ) |
|
| — |
|
Actuarial loss (gain)2 |
|
| 0.2 |
|
|
| (7.1 | ) |
|
| (0.7 | ) |
|
| (20.4 | ) |
|
| 0.4 |
|
|
| (16.3 | ) |
Plan participants contributions |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
Benefits paid |
|
| (0.5 | ) |
|
| (0.4 | ) |
|
| (1.5 | ) |
|
| (0.6 | ) |
|
| (6.5 | ) |
|
| (6.6 | ) |
Obligation at end of year3 |
|
| 30.5 |
|
|
| 18.8 |
|
|
| 68.8 |
|
|
| 66.4 |
|
|
| 46.9 |
|
|
| 58.9 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fair market value of plan assets at beginning of year |
|
| 14.9 |
|
|
| 9.8 |
|
|
| — |
|
|
| — |
|
|
| 42.4 |
|
|
| 59.2 |
|
Foreign currency translation adjustment |
|
| 0.2 |
|
|
| (0.5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Actual return on assets |
|
| 1.4 |
|
|
| (2.6 | ) |
|
| — |
|
|
| — |
|
|
| 6.1 |
|
|
| (10.2 | ) |
Plan participants contributions |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
Company contributions |
|
| 4.4 |
|
|
| 8.5 |
|
|
| 1.4 |
|
|
| 0.5 |
|
|
| 1.1 |
|
|
| — |
|
Benefits paid |
|
| (0.5 | ) |
|
| (0.4 | ) |
|
| (1.5 | ) |
|
| (0.6 | ) |
|
| (6.5 | ) |
|
| (6.6 | ) |
Fair market value of plan assets at end of year |
|
| 20.5 |
|
|
| 14.9 |
|
|
| — |
|
|
| — |
|
|
| 43.1 |
|
|
| 42.4 |
|
Net funded status4 |
| $ | (10.0 | ) |
| $ | (3.9 | ) |
| $ | (68.8 | ) |
| $ | (66.4 | ) |
| $ | (3.8 | ) |
| $ | (16.5 | ) |
Cumulative gain (loss) recognized in Accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accumulated net actuarial gain |
| $ | 1.3 |
|
| $ | 2.6 |
|
| $ | 17.4 |
|
| $ | 17.8 |
|
| $ | 5.2 |
|
| $ | 1.7 |
|
Prior service cost |
|
| (6.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16.0 | ) |
|
| (29.7 | ) |
Total |
| $ | (4.8 | ) |
| $ | 2.6 |
|
| $ | 17.4 |
|
| $ | 17.8 |
|
| $ | (10.8 | ) |
| $ | (28.0 | ) |
| Canadian Pension Plan | Salaried VEBA | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Change in benefit obligation: | ||||||||||||||||
| Obligation at beginning of year | $ | 7.0 | $ | 6.1 | $ | 86.8 | $ | 77.9 | ||||||||
| Foreign currency translation adjustment | 0.5 | 0.2 | — | — | ||||||||||||
| Service cost | 0.3 | 0.3 | — | — | ||||||||||||
| Interest cost | 0.3 | 0.3 | 3.0 | 2.9 | ||||||||||||
Prior service cost1 | — | — | 7.3 | 8.4 | ||||||||||||
Actuarial loss (gain)2 | 0.6 | 0.3 | (0.5 | ) | 4.1 | |||||||||||
| Plan participants contributions | 0.1 | — | — | — | ||||||||||||
| Benefits paid by Company | (0.3 | ) | (0.2 | ) | — | — | ||||||||||
| Benefits paid by Salaried VEBA | — | — | (6.6 | ) | (6.5 | ) | ||||||||||
Obligation at end of year3 | 8.5 | 7.0 | 90.0 | 86.8 | ||||||||||||
| Change in plan assets: | ||||||||||||||||
| Fair market value of plan assets at beginning of year | 6.1 | 5.7 | 58.2 | 58.9 | ||||||||||||
| Foreign currency translation adjustment | 0.5 | 0.2 | — | — | ||||||||||||
| Actual return on assets | 0.5 | 0.1 | 3.6 | 2.9 | ||||||||||||
| Plan participants contributions | 0.1 | — | — | — | ||||||||||||
| Company contributions | 0.4 | 0.3 | 2.9 | 2.9 | ||||||||||||
| Benefits paid by Company | (0.3 | ) | (0.2 | ) | — | — | ||||||||||
| Benefits paid by Salaried VEBA | — | — | (6.6 | ) | (6.5 | ) | ||||||||||
| Fair market value of plan assets at end of year | 7.3 | 6.1 | 58.1 | 58.2 | ||||||||||||
Net funded status4 | $ | (1.2 | ) | $ | (0.9 | ) | $ | (31.9 | ) | $ | (28.6 | ) | ||||
65
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
The accumulated benefit obligation for the Canadian defined benefit pension planplans was $7.9$29.6 million and $6.4$18.0 million at December 31, 20172023 and December 31, 2016,2022, respectively. We expect to contribute $0.5$4.2 million to the Canadian pension planplans in 2018.
The following table presents the net benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||||||||||||||
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| 2028 |
|
| 2029-2033 |
| ||||||
Pension benefit payments |
| $ | 0.8 |
|
| $ | 1.0 |
|
| $ | 1.2 |
|
| $ | 1.5 |
|
| $ | 1.7 |
|
| $ | 11.3 |
|
Salaried VEBA benefit payments1 |
|
| 5.4 |
|
|
| 5.2 |
|
|
| 5.0 |
|
|
| 4.8 |
|
|
| 4.5 |
|
|
| 18.1 |
|
OPEB payments |
|
| 3.3 |
|
|
| 3.9 |
|
|
| 4.6 |
|
|
| 5.2 |
|
|
| 5.8 |
|
|
| 35.0 |
|
Total |
| $ | 9.5 |
|
| $ | 10.1 |
|
| $ | 10.8 |
|
| $ | 11.5 |
|
| $ | 12.0 |
|
| $ | 64.4 |
|
| Benefit Payments Due by Period | |||||||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023-2027 | ||||||||||||||||||
| Canadian pension plan benefit payments | $ | 0.3 | $ | 0.3 | $ | 0.3 | $ | 0.4 | $ | 0.3 | $ | 1.9 | |||||||||||
Salaried VEBA benefit payments1 | 7.5 | 7.3 | 7.2 | 7.0 | 6.8 | 30.3 | |||||||||||||||||
| Total net benefits | $ | 7.8 | $ | 7.6 | $ | 7.5 | $ | 7.4 | $ | 7.1 | $ | 32.2 | |||||||||||
| Such amounts are based on benefit amounts and certain key assumptions obtained from |
| Canadian Pension Plan | Salaried VEBA | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Accumulated net actuarial loss | $ | (1.9 | ) | $ | (1.5 | ) | $ | (17.5 | ) | $ | (18.3 | ) | ||||
| Transition assets | 0.1 | 0.1 | — | — | ||||||||||||
| Prior service cost | — | — | (42.7 | ) | (40.2 | ) | ||||||||||
| Cumulative loss reflected in Accumulated other comprehensive loss | $ | (1.8 | ) | $ | (1.4 | ) | $ | (60.2 | ) | $ | (58.5 | ) | ||||
Plan Assets. The following table presents the asset class allocation per our pension plan investment policy and $0.8 million is related to amortization of net actuarial loss. See Note 10 for reclassification adjustments of other comprehensive (loss) income that were recognized as components of net periodic benefit cost for 2017, 2016 and 2015.the weighted average asset allocation:
Asset class | Policy range | As of December 31, 2023 | ||
Equities | 54% - 60% | 59% | ||
Fixed income | 35% - 40% | 35% | ||
Other investments | 5% - 6% | 6% |
Fair Value of Plan Assets.
The plan assets of ourCertain Salaried VEBA plan assets are valued based upon unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets (e.g., liquid securities listed on an exchange). Such assets are classified within Level 1 of the fair value hierarchy. Valuation of other Salaried VEBA invested plan assets is based on significant observable inputs (e.g., valuations derived from actual market transactions, broker-dealer supplied valuations or correlations between a given U.S. market and a non-U.S. security). Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are classified within Level 2 of the fair value hierarchy.
66
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the fair value of plan assets at December 31, 2023 and 2022, classified under the appropriate level of the fair value hierarchy as of each period presented (in millions of dollars):
|
| December 31, 2023 |
|
| December 31, 2022 |
|
| ||
Plan Assets in the Fair Value Hierarchy: 4 |
| Level 1 |
|
| |||||
Salaried VEBA – Equity investment funds in registered investment companies1 |
| $ | 25.5 |
|
| $ | 27.4 |
|
|
Salaried VEBA – Fixed income investment funds in registered investment companies2 |
|
| 16.5 |
|
|
| 15.0 |
|
|
Pension plans – Equity investment funds in registered investment companies1 |
|
| 7.1 |
|
|
| 4.1 |
|
|
Pension plans – Fixed income investment funds in registered investment companies2 |
|
| 4.1 |
|
|
| 2.6 |
|
|
Pension plans – Diversified investment funds in registered investment companies3 |
|
| 9.3 |
|
|
| 8.2 |
|
|
Deferred compensation program – Diversified investment funds in registered investment companies3 |
|
| 11.1 |
|
|
| 9.8 |
|
|
Total plan assets in the fair value hierarchy |
| $ | 73.6 |
|
| $ | 67.1 |
|
|
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| As of December 31, 2017: | |||||||||||||||
| Plan Assets in the Fair Value Hierarchy: | |||||||||||||||
| Salaried VEBA – | |||||||||||||||
| Cash and money market investments | $ | 1.3 | $ | — | $ | — | $ | 1.3 | |||||||
Diversified investment funds in registered investment companies1 | 10.2 | — | — | 10.2 | |||||||||||
| Total Salaried VEBA assets in the fair value hierarchy | 11.5 | — | — | 11.5 | |||||||||||
Deferred compensation program – Diversified investment funds in registered investment companies1 | — | 9.8 | — | 9.8 | |||||||||||
| Total plan assets in the fair value hierarchy | $ | 11.5 | $ | 9.8 | $ | — | $ | 21.3 | |||||||
Plan Assets Measured at NAV 2: | |||||||||||||||
Salaried VEBA – Fixed income investment funds in registered investment companies3 | $ | 19.4 | |||||||||||||
Salaried VEBA – Equity investment funds in registered investment companies4 | 24.3 | ||||||||||||||
Canadian pension plan – Diversified investment funds in registered investment companies1 | 7.3 | ||||||||||||||
| Total plan assets at fair value | $ | 72.3 | |||||||||||||
| As of December 31, 2016: | |||||||||||||||
| Plan Assets in the Fair Value Hierarchy: | |||||||||||||||
| Salaried VEBA – | |||||||||||||||
| Cash and money market investments | $ | 3.3 | $ | — | $ | — | $ | 3.3 | |||||||
Diversified investment funds in registered investment companies1 | 12.8 | — | — | 12.8 | |||||||||||
| Total Salaried VEBA assets in the fair value hierarchy | 16.1 | — | — | 16.1 | |||||||||||
Deferred compensation program – Diversified investment funds in registered investment companies1 | — | 8.2 | — | 8.2 | |||||||||||
| Total plan assets in the fair value hierarchy | $ | 16.1 | $ | 8.2 | $ | — | $ | 24.3 | |||||||
Plan Assets Measured at NAV 2: | |||||||||||||||
Salaried VEBA – Fixed income investment funds in registered investment companies3 | $ | 17.9 | |||||||||||||
Salaried VEBA – Equity investment funds in registered investment companies4 | 21.3 | ||||||||||||||
Canadian pension plan – Diversified investment funds in registered investment companies1 | 6.1 | ||||||||||||||
| Total plan assets at fair value | $ | 69.6 | |||||||||||||
All plan assets were measured using Level 1 inputs.
The following table presents the total expense related to all benefit plans (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Defined contribution plans1 |
| $ | 18.1 |
|
| $ | 17.1 |
|
| $ | 13.9 |
|
Deferred compensation plan2 |
|
| 1.2 |
|
|
| (0.6 | ) |
|
| 0.7 |
|
Multiemployer pension plans1,3 |
|
| 5.6 |
|
|
| 5.2 |
|
|
| 5.0 |
|
Net periodic postretirement benefit cost relating to defined benefit plans2,3,4 |
|
| 13.4 |
|
|
| 13.1 |
|
|
| 9.4 |
|
Total |
| $ | 38.3 |
|
| $ | 34.8 |
|
| $ | 29.0 |
|
67
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Components of Net Periodic Postretirement Benefit Cost.
Our results of operations included the following impacts associated withThe following table presents the components of netNet periodic postretirement benefit cost for the years ended December 31relating to our defined benefit plans (in millions of dollars):
|
| Pension Plans |
|
| OPEB |
|
| Salaried VEBA |
| |||||||||||||||||||||||||||
|
| Year Ended December 31, |
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| |||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||
Service cost |
| $ | 3.8 |
|
| $ | 5.8 |
|
| $ | 4.1 |
|
| $ | 1.1 |
|
| $ | 1.6 |
|
| $ | 1.1 |
|
| $ | — |
|
| $ | 0.1 |
|
| $ | 0.1 |
|
Interest cost |
|
| 1.3 |
|
|
| 0.6 |
|
|
| 0.5 |
|
|
| 3.4 |
|
|
| 2.2 |
|
|
| 1.7 |
|
|
| 2.9 |
|
|
| 1.9 |
|
|
| 1.5 |
|
Expected return on plan assets |
|
| (1.1 | ) |
|
| (0.9 | ) |
|
| (0.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.2 | ) |
|
| (3.1 | ) |
|
| (3.1 | ) |
Amortization of prior service cost1 |
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.9 |
|
|
| 4.9 |
|
|
| 3.5 |
|
Amortization of net actuarial loss (gain) |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| (1.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
Total net periodic postretirement benefit cost |
| $ | 4.4 |
|
| $ | 5.5 |
|
| $ | 4.3 |
|
| $ | 3.4 |
|
| $ | 3.8 |
|
| $ | 2.8 |
|
| $ | 5.6 |
|
| $ | 3.8 |
|
| $ | 2.3 |
|
| Canadian Pension Plan | Salaried VEBA | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
Service cost1 | $ | 0.3 | $ | 0.3 | $ | 0.3 | $ | — | $ | — | $ | — | ||||||||||||
| Interest cost | 0.3 | 0.3 | 0.3 | 3.0 | 2.9 | 2.7 | ||||||||||||||||||
| Expected return on plan assets | (0.3 | ) | (0.3 | ) | (0.3 | ) | (4.1 | ) | (4.1 | ) | (4.3 | ) | ||||||||||||
Amortization of prior service cost2 | — | — | — | 4.7 | 4.1 | 3.0 | ||||||||||||||||||
| Amortization of net actuarial loss | — | — | 0.1 | 0.9 | 0.5 | 1.0 | ||||||||||||||||||
| Net periodic benefit cost | $ | 0.3 | $ | 0.3 | $ | 0.4 | $ | 4.5 | $ | 3.4 | $ | 2.4 | ||||||||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Included within Fabricated Products: | ||||||||||||
| Canadian pension plan | $ | 0.3 | $ | 0.3 | $ | 0.4 | ||||||
| Deferred compensation plan | 0.4 | 0.2 | 0.1 | |||||||||
| Defined contribution plans | 8.1 | 8.1 | 7.8 | |||||||||
Multiemployer pension plans1 | 4.6 | 4.7 | 4.4 | |||||||||
Total Fabricated Products2 | 13.4 | 13.3 | 12.7 | |||||||||
| Included within All Other: | ||||||||||||
| Net periodic postretirement benefit cost relating to Salaried VEBA | 4.5 | 3.4 | 2.4 | |||||||||
| (Gain) loss on removal of Union VEBA net assets | — | (0.1 | ) | 493.4 | ||||||||
| Deferred compensation plan | 1.4 | 0.7 | 0.3 | |||||||||
| Defined contribution plans | 0.8 | 0.8 | 0.8 | |||||||||
Total All Other3 | 6.7 | 4.8 | 496.9 | |||||||||
| Total | $ | 20.1 | $ | 18.1 | $ | 509.6 | ||||||
6. Multiemployer Pension Plans
Overview.
We contribute to multiemployer defined benefit pension plans under the terms of collective bargaining agreements that cover our union-represented employees at certain facilities. At December 31,The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
The following table presents information about multiemployer pension plans in which we participate:
|
|
|
| Pension |
| FIP/RP Status |
| Contributions of |
|
|
|
|
|
|
| |||||||||||
|
| Employer |
| Protection Act |
| Pending/ |
| the Company |
|
| Surcharge |
| Expiration Date | |||||||||||||
|
| Identification |
| Zone Status1 |
| Implemented |
| Year Ended December 31, |
|
| Imposed |
| of Collective- | |||||||||||||
Pension Fund |
| Number |
| 2023 |
| 2022 |
| in 2023² |
| 2023 |
|
| 2022 |
|
| 2021 |
|
| in 2023 |
| Bargaining Agreements | |||||
|
|
|
|
|
|
|
|
|
| (in millions of dollars) |
|
|
|
|
|
|
| |||||||||
USW3 |
| 23-6648508 |
| Green |
| Green |
| No |
| $ | 4.2 |
|
| $ | 3.8 |
|
| $ | 3.6 |
|
| No |
| Sep 2025 - Nov 2026 | ||
Other Funds4 |
|
|
|
|
|
|
|
|
|
| 1.4 |
|
|
| 1.4 |
|
|
| 1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 5.6 |
|
| $ | 5.2 |
|
| $ | 5.0 |
|
|
|
|
|
|
| |
1.
68
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Pension Fund | Employer Identification Number | Pension Protection Act Zone Status1 | FIP/RP Status Pending/Implemented in 20172 | Contributions of the Company | Surcharge Imposed in 2017 | Expiration Date of Collective-Bargaining Agreements | ||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||
| 2017 | 2016 | (in millions of dollars) | ||||||||||||||||||||||||
Steelworkers Pension Trust (USW)3 | 236648508 | Green | Green | No | $ | 3.5 | $ | 3.7 | $ | 3.5 | No | Mar 2020 | - | Nov 2020 | ||||||||||||
Other Funds4 | 1.1 | 1.0 | 0.9 | |||||||||||||||||||||||
| $ | 4.6 | $ | 4.7 | $ | 4.4 | |||||||||||||||||||||
We were not listed in any of the plans'plans’ Forms 5500 or the Canada-Wide Industrial Pension Plan financial statements as providing more than 5%5% of the total contributions for any of the plan years disclosed. At December 31, 2017,the date the Company’s financial statements andwere issued, Forms 5500 were not available for the plan yearsyear ending in 2017.2023. Further, there were no significant changes to the number of employees covered by our multiemployer plans that would affect the period-to-period comparability of the contributions for the years presented.
7. Employee Incentive Plans
Short-Term Incentive Plans ("(“STI Plans"Plans”)
We have annual short-term incentive compensation plans for senior management and certain other employees payable at our election in cash, shares of common stock, or a combination of cash and shares of common stock. Amounts earned under STI Plans are based on our adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"),EBITDA, modified for certain safety, quality, delivery, cost, and individual performance factors. The Adjusted EBITDA targets are determined based on the return on adjusted net assets of our Fabricated Products business.assets. Most of our production facilities have similar programs for both hourly and salaried employees. In addition, we have discretionary bonus programs that allow for management to incentivize employees based on performance. As of December 31, 2017,2023, we had a liability of $17.4$11.4 million recorded within Accrued salaries, wages and related expenses for estimated probable future payments relating to the 12-month performance period of our 20172023 STI Plans.
Long-Term Incentive Programs ("(“LTI Programs"Programs”)
General
. Executive officers and other key employees of the Company, as well as non-employee directors of the Company, are eligible to participate in the Kaiser Aluminum CorporationNon-Vested Common Shares and Restricted Stock Units. We grant non-vested common shares (“RSAs”) to our non-employee directors and restricted stock units (“RSUs”) to our executive officers and other key employees. The RSUs have rights similar to the rights of RSAs, and each RSU that becomes vested entitles the recipient to receive one common share, for which we issue new shares of our common stock upon vesting under the 2016 Plan.
The following table summarizes activity relating to RSAs and RSUs for the year ended December 31, 2023:
|
| Shares |
|
| Weighted- |
| ||
Outstanding at December 31, 2022 |
|
| 323,179 |
|
| $ | 87.59 |
|
Granted |
|
| 171,710 |
|
|
| 71.81 |
|
Vested |
|
| (80,452 | ) |
|
| 90.82 |
|
Forfeited |
|
| (15,050 | ) |
|
| 80.92 |
|
Outstanding at December 31, 2023 |
|
| 399,387 |
|
| $ | 80.41 |
|
Performance Shares.
69
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
one common share or a cash amount equaling the value of one common share. The number of performance shares under the 2015-2017, 2016-2018 and 2017-2019 LTI Programs that may be earned and result in the issuance of cash or common shares ranges between 0%0% to 200%200% of the target number of underlying common shares, which is approximately one-half ofperformance shares.
The following table presents the maximum payout. The performance shares granted under the 2015-2017, 2016-2018 and 2017-2019 LTI Programs will vest in 2018, 2019 and 2020, respectively.
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Grant date fair value |
| $ | 104.87 |
|
| $ | 122.22 |
|
| $ | 151.98 |
|
Grant date stock price |
| $ | 84.33 |
|
| $ | 95.13 |
|
| $ | 114.71 |
|
Expected volatility of Kaiser Aluminum1 |
|
| 49.72 | % |
|
| 49.37 | % |
|
| 45.71 | % |
Expected volatility of peer companies1 |
|
| 45.14 | % |
|
| 51.08 | % |
|
| 50.69 | % |
Risk-free interest rate |
|
| 4.59 | % |
|
| 1.59 | % |
|
| 0.29 | % |
Dividend yield |
|
| 3.65 | % |
|
| 3.24 | % |
|
| 2.51 | % |
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Grant date fair value | $ | 97.88 | $ | 93.02 | $ | 95.68 | |||||
| Grant date stock price | $ | 79.69 | $ | 80.46 | $ | 75.41 | |||||
Expected volatility of Kaiser Aluminum1 | 22.74 | % | 17.81 | % | 19.03 | % | |||||
Expected volatility of peer companies1 | 44.19 | % | 41.22 | % | 33.73 | % | |||||
| Risk-free interest rate | 1.54 | % | 1.01 | % | 0.98 | % | |||||
| Dividend yield | 2.50 | % | 2.24 | % | 2.12 | % | |||||
The following table summarizes activity relating to performance shares for the year ended December 31, 2023:
|
| Shares |
|
| Weighted- |
| ||
Outstanding at December 31, 2022 |
|
| 367,552 |
|
| $ | 114.25 |
|
Granted 1 |
|
| 98,708 |
|
|
| 96.65 |
|
Forfeited 1 |
|
| (3,932 | ) |
|
| 119.15 |
|
Canceled 1 |
|
| (133,712 | ) |
|
| 99.79 |
|
Outstanding at December 31, 2023 |
|
| 328,616 |
|
| $ | 114.79 |
|
Non-Cash Compensation Expense.
Non-cash compensation expense
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
RSAs and RSUs |
| $ | 10.7 |
|
| $ | 8.8 |
|
| $ | 8.1 |
|
Performance shares |
|
| 4.7 |
|
|
| 4.9 |
|
|
| 4.5 |
|
Total non-cash compensation expense |
| $ | 15.4 |
|
| $ | 13.7 |
|
| $ | 12.6 |
|
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Non-vested common shares and restricted stock units | $ | 5.4 | $ | 4.7 | $ | 4.4 | |||||
| TSR-Based Performance Shares | 4.8 | 5.4 | 4.0 | ||||||||
| CP-Based Performance Shares | 2.7 | 1.3 | — | ||||||||
| EVA-Based Performance Shares | 0.2 | 0.3 | 0.9 | ||||||||
| Total non-cash compensation expense | $ | 13.1 | $ | 11.7 | $ | 9.3 | |||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Fabricated Products | $ | 5.0 | $ | 4.2 | $ | 3.5 | |||||
| All Other | 8.1 | 7.5 | 5.8 | ||||||||
| Total non-cash compensation expense | $ | 13.1 | $ | 11.7 | $ | 9.3 | |||||
Recognized tax benefits relating to the non-cash compensation expense presented in the table above were $4.9$3.6 million, $4.4$3.2 million and $3.5$3.0 million for 2017, 20162023, 2022, and 2015,2021, respectively.
The aggregate fair value of awards that vested was $6.2 million, $9.1 million and $9.7 million for 2023, 2022, and 2021, respectively, which represents the market value of our common stock on the date that the awards vested.
70
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrecognized Gross Compensation Cost Data.
The following table presents unrecognized gross compensation
|
| Unrecognized Gross Compensation Costs |
|
| Expected Period |
| ||
RSAs and RSUs |
| $ | 14.0 |
|
|
| 2.3 |
|
Performance shares |
| $ | 6.0 |
|
|
| 1.8 |
|
| 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 | $ | 8.1 | 2.5 | ||
| TSR-Based Performance Shares | $ | 4.3 | 1.6 | ||
| CP-Based Performance Shares | $ | 5.2 | 1.9 | ||
| EVA-Based Performance Shares | $ | 0.5 | 2.2 | ||
The following table presents the activity with respect to non-vested common shares, restricted stock units, TSR-Based Performance Shares, CP-Based Performance Shares and EVA-Based Performance Shares for the year ended December 31, 2017 is as follows:
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 | — | $ | — | |||||||||||||||||||
Granted 1 | 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 | (9,570 | ) | 76.19 | (94,082 | ) | 83.18 | — | — | — | — | |||||||||||||||||||||
Forfeited 1 | (451 | ) | 69.83 | (6,887 | ) | 77.44 | (6,383 | ) | 95.85 | (3,999 | ) | 79.93 | (1,374 | ) | 79.69 | |||||||||||||||||||
Canceled 1 | — | — | — | — | (55,288 | ) | 83.18 | — | — | — | — | |||||||||||||||||||||||
| Outstanding at December 31, 2017 | 79,335 | $ | 70.96 | 137,618 | $ | 75.81 | 303,816 | $ | 95.31 | 124,723 | $ | 80.08 | 31,130 | $ | 79.69 | |||||||||||||||||||
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
RSAs and RSUs |
| $ | 71.81 |
|
| $ | 84.16 |
|
| $ | 107.24 |
|
Performance shares |
| $ | 96.65 |
|
| $ | 111.37 |
|
| $ | 137.06 |
|
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Non-vested common shares | $ | 86.92 | $ | 86.11 | $ | 72.09 | |||||
| Restricted stock units | $ | 76.13 | $ | 75.29 | $ | 69.83 | |||||
| TSR-Based Performance Shares | $ | 97.88 | $ | 93.02 | $ | 95.68 | |||||
| CP-Based Performance Shares | $ | 79.69 | $ | 80.46 | $ | — | |||||
| EVA-Based Performance Shares | $ | 79.69 | $ | — | $ | — | |||||
Participants may elect to have us withhold common shares to satisfy minimum statutory tax withholding obligations arising in connection with the exercise of stock options and vesting of non-vested shares, restricted stock unitsRSAs, RSUs, and performance shares. We cancel any such shares withheld on the applicable vesting dates or earlier dates when service requirements are satisfied, which correspond to the times at which income to the employeeparticipant is recognized. When we withhold these common shares, we are required to remit to the appropriate taxing authorities the fair value of the shares withheld as of the vesting date. During 2017, 2016 and 2015, 56,495, 36,055 and 37,009 common shares, respectively, were withheld and canceled for this purpose. The withholding of common shares by us could be deemed a purchase of the common shares. See Statements of Consolidated Stockholders’ Equity for details on cancellation of shares to cover tax withholdings upon common shares issued.
8. Derivatives, Hedging Programs and Other Financial Instruments
Overview. In conducting our business, we enter into derivative transactions, including forward contracts and options, to limit our exposure to: (i) metal price risk related to our sale of fabricated aluminum products and the purchase of metal, including primary, rolling ingot and scrap, or recycled, aluminum, our main raw material, and certain alloys used as raw material for our fabrication operations; (ii) energy price risk relating to fluctuating prices of natural gas and electricity used in our production processes; and (iii) foreign currency requirements with respect to our foreign subsidiaries and cash commitments for equipment purchases and/or other agreements denominated in foreign currency.
Our derivative activities are overseen by a hedging committee ("(“Hedging Committee"Committee”), which is composed of our chief executive officer, chief operating officer, chief financial officer, chief accounting officer, treasurerChief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer, Executive Vice President of Manufacturing and other officers and employees selected by the chief executive officer. Chief Executive Officer.The Hedging Committee meets regularly to review commodity price exposure, derivative positions, and strategy. Management reviews the scope of the Hedging Committee'sCommittee’s activities with our Board of Directors.
We are 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. Hedgingcompanies, and our hedging transactions are governed by negotiated reciprocal credit lines,International Swaps and Derivatives Association Master Agreements, which generally require collateral to be posted by our counterparties above specified credit thresholds. Wethresholds 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 due to counterparty credit quality, our diversification practice and collateral requirements.
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 from them,to be posted by our customers, which we classify as deferred revenue and include as a component of Other accrued liabilities. At December 31, 2017, weWe had no material cash collateral posted from any ofby our customers.customers at both December 31, 2023 and December 31, 2022. For more information about concentration risks concerning customers and suppliers, see Note 15.
71
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Hedges
We designate as cash flow hedges forward swap contracts for aluminum and energy. Additionally, in the fourth quarter of Operational Risks
Aluminum Hedges. Our pricing of fabricated aluminum products is generally intended to lock in a conversion marginour Conversion Revenue (representing theour value added from the fabrication process(es))process) and to pass through metalaluminum price fluctuations to our customers. For some of our higher value addedmargin products sold on a spot basis, the pass through of metalaluminum price movements can sometimes lag by as much as several months, with a favorable impact to us when metalaluminum prices decline and an adverse impact to us when metalaluminum 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 secondary aluminum on a floating price basis, the lag in passing through metalaluminum price movements to customers on some of our higher value addedmargin products sold on a spot basis and the volume that we have committed to sell to our customers under a firm-price arrangement create metalaluminum price risk for us. We use third-party hedging instruments to limit exposure to metalaluminum price risk related to the metalaluminum pass through lag on some of our products and firm-price customer sales contracts.
Alloying Metals Hedges. We are exposed to 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 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 physical delivery commitments with third parties to mitigate our risk from fluctuations in natural gas and electricity prices.
Foreign Currency Hedges. We are also exposed to foreign currency exchange risk related to firm-pricecertain equipment and service agreements with vendors for equipment purchaseswhich payments are due in foreign currency. We, from foreign manufacturers. Wetime to time, in the ordinary course of business, use foreign currency forward contracts designed to line up with the timing and amounts of scheduled payments to the foreign equipment manufacturersin order to mitigate ourthe exposure to currency exchange rate fluctuations onrelated to these purchases. Realized
Non-Designated Hedges of Operational Risks
From time to time, we enter into commodity and unrealized periodic gains and losses of non-designated foreign currency forward contracts that are reflectednot designated as a reductionhedging instruments to mitigate certain short‑term impacts, as identified. The gain or increase inloss on these commodity and foreign currency derivatives is recognized within COGS and Other income (expense), net.
Notional Amount of Derivative Contracts
The following table summarizes our fabrication operationsderivative positions at fluctuating prices that we are unable to pass along to our customers. We mitigate our exposure to metal price risk by entering into Alloy Hedges with third-party financial institutions at predetermined/fixed prices at stated delivery dates. Our Alloy Hedges are expected to be highly effective because monthly settlements correspond to forecasted physical purchasesDecember 31, 2023:
Aluminum | Maturity Period | Notional Amount of Contracts (mmlbs) | ||||
Fixed price purchase contracts for LME | January 2024 through December 2025 | 69.8 | ||||
Fixed price sale contracts for LME | January 2024 through April 2024 | 6.3 | ||||
Fixed price purchase contracts for MWTP | January 2024 through December 2025 | 54.1 | ||||
Fixed price sale contracts for MWTP | January 2024 through May 2024 | 26.6 | ||||
Alloying Metals | Maturity Period | Notional Amount of Contracts (mmlbs) | ||||
Fixed price purchase contracts | January 2024 through December 2025 | 8.4 | ||||
72
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Natural Gas | Maturity Period | Notional Amount of Contracts (mmbtu) | ||||
Fixed price purchase contracts | January 2024 through December 2026 | 3,390,000 | ||||
Electricity | Maturity Period | Notional Amount of Contracts (Mwh) | ||||
Fixed price purchase contracts | January 2024 through December 2024 | 52,704 | ||||
Euros | Maturity Period | Notional Amount of Contracts (EUR) | ||||
Fixed price forward purchase contracts | January 2024 through January 2026 | 16,745,648 | ||||
British Pounds | Maturity Period | Notional Amount of Contracts (GBP) | ||||
Fixed price forward purchase contracts | May 2024 through July 2024 | 216,799 | ||||
Loss (Gain) on Derivative Contracts
The following table summarizes the amount of alloying metals by our manufacturing facilities. The effective portion of the fair valueloss (gain) on these Alloy Hedges isderivative contracts recorded within Other comprehensive income, net of tax, and is reclassified into theour Statements of Consolidated Income (Loss) during the month of settlement to in Cost of products sold (see Note 10). As (in millions of December 31, 2017, we estimate the net gain of $0.5 million will be reclassified from Accumulated other comprehensive income into Net income within the next 6 months. We incurred no ineffectiveness on these hedges during 2017.
|
| Year Ended December 31, |
| |||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Total of income and expense line items presented in our Statements of Consolidated Income (Loss) in which the effects of hedges are recorded: |
|
|
|
|
| |||||||
Cash flow hedges |
| $ | 2,754.9 |
|
| $ | 3,180.2 |
|
| $ | 2,348.1 |
|
|
|
|
|
|
|
|
|
| ||||
Loss (gain) recognized in our Statements of Consolidated Income (Loss) related to cash flow hedges: |
|
|
|
|
|
|
|
|
| |||
Aluminum |
| $ | 12.8 |
|
| $ | 7.4 |
|
| $ | (35.2 | ) |
Alloying Metals |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Natural gas |
|
| 0.1 |
|
|
| (6.6 | ) |
|
| (2.1 | ) |
Electricity |
|
| — |
|
|
| (11.3 | ) |
|
| (4.7 | ) |
Total loss (gain) recognized in our Statements of Consolidated Income (Loss) related to cash flow hedges |
| $ | 12.9 |
|
| $ | (10.5 | ) |
| $ | (41.9 | ) |
|
|
|
|
|
|
|
|
| ||||
Loss (gain) recognized in our Statements of Consolidated Income (Loss) related to non-designated hedges: |
|
|
|
|
|
|
|
|
| |||
Alloying Metals – Realized loss (gain) |
| $ | 0.1 |
|
| $ | (0.5 | ) |
| $ | (5.0 | ) |
Alloying Metals – Unrealized loss |
|
| — |
|
|
| 1.4 |
|
|
| 1.2 |
|
Total loss (gain) recognized in our Statements of Consolidated Income (Loss) related to non-designated hedges |
| $ | 0.1 |
|
| $ | 0.9 |
|
| $ | (3.8 | ) |
73
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Realized (gain) loss: | ||||||||||||
| Aluminum | $ | (20.4 | ) | $ | 2.0 | $ | 27.3 | |||||
| Natural gas | 0.7 | 5.0 | 5.4 | |||||||||
| Alloy Hedges | (0.9 | ) | — | — | ||||||||
| Foreign currency | (0.1 | ) | 0.1 | — | ||||||||
| Electricity | — | — | 1.9 | |||||||||
Total realized (gain) loss1 | $ | (20.7 | ) | $ | 7.1 | $ | 34.6 | |||||
| Unrealized (gain) loss: | ||||||||||||
| Aluminum | $ | (20.9 | ) | $ | (10.8 | ) | $ | 4.6 | ||||
| Natural gas | 1.4 | (7.9 | ) | 0.5 | ||||||||
| Electricity | 0.1 | — | (1.7 | ) | ||||||||
Total unrealized (gain) loss2 | $ | (19.4 | ) | $ | (18.7 | ) | $ | 3.4 | ||||
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 instruments are classified within Level 2 of the fair value hierarchy.
| December 31, 2017 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| DERIVATIVE ASSETS: | |||||||||||||||
| Non-Designated Hedges: | |||||||||||||||
Aluminum – | |||||||||||||||
| Fixed price purchase contracts | $ | — | $ | 22.5 | $ | — | $ | 22.5 | |||||||
| Midwest premium swap contracts | — | 1.7 | — | 1.7 | |||||||||||
Natural gas – Fixed price purchase contracts | — | 0.2 | — | 0.2 | |||||||||||
| Designated Hedges: | |||||||||||||||
Alloying metals – Fixed price purchase contracts | — | 0.9 | — | 0.9 | |||||||||||
Total derivative assets1 | $ | — | $ | 25.3 | $ | — | $ | 25.3 | |||||||
| DERIVATIVE LIABILITIES: | |||||||||||||||
| Non-Designated Hedges: | |||||||||||||||
| Aluminum – | |||||||||||||||
| Fixed price sales contracts | $ | — | $ | (0.1 | ) | $ | — | $ | (0.1 | ) | |||||
| Midwest premium swap contracts | — | (0.1 | ) | — | (0.1 | ) | |||||||||
Natural gas – Fixed price purchase contracts | — | (0.5 | ) | — | (0.5 | ) | |||||||||
Electricity – Fixed price purchase contracts | — | (0.1 | ) | — | (0.1 | ) | |||||||||
| Designated Hedges: | |||||||||||||||
Alloying metals – Fixed price purchase contracts | — | — | — | — | |||||||||||
Total derivative liabilities2 | $ | — | $ | (0.8 | ) | $ | — | $ | (0.8 | ) | |||||
| 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 | ) | |||||
All of our derivative contracts relating to non-designated hedges of operational activities are reflected in Operating income (loss).
| 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) | $ | 25.3 | $ | — | $ | 25.3 | $ | 0.8 | $ | 24.5 | |||||||||
| Total | $ | 25.3 | $ | — | $ | 25.3 | $ | 0.8 | $ | 24.5 | |||||||||
| 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) | $ | (0.8 | ) | $ | — | $ | (0.8 | ) | $ | (0.8 | ) | $ | — | ||||||
| Total | $ | (0.8 | ) | $ | — | $ | (0.8 | ) | $ | (0.8 | ) | $ | — | ||||||
|
| As of December 31, 2023 |
|
| As of December 31, 2022 |
| ||||||||||||||||||
|
| Assets |
|
| Liabilities |
|
| Net Amount |
|
| Assets |
|
| Liabilities |
|
| Net Amount |
| ||||||
Aluminum – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fixed price purchase contracts for LME |
| $ | 3.4 |
|
| $ | (0.6 | ) |
| $ | 2.8 |
|
| $ | 0.7 |
|
| $ | (3.9 | ) |
| $ | (3.2 | ) |
Fixed price sale contracts for LME |
|
| — |
|
|
| (0.2 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Fixed price purchase contracts for MWTP |
|
| 0.4 |
|
|
| (0.3 | ) |
|
| 0.1 |
|
|
| 0.5 |
|
|
| (1.4 | ) |
|
| (0.9 | ) |
Fixed price sale contracts for MWTP |
|
| 0.1 |
|
|
| (0.2 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Alloying Metals – Fixed price purchase contracts |
|
| 0.7 |
|
|
| (0.1 | ) |
|
| 0.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Natural gas – Fixed price purchase contracts |
|
| 0.3 |
|
|
| (0.9 | ) |
|
| (0.6 | ) |
|
| 4.7 |
|
|
| — |
|
|
| 4.7 |
|
Electricity – Fixed price purchase contracts |
|
| 0.5 |
|
|
| (0.6 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Foreign Currency – Fixed price forward contracts |
|
| 0.5 |
|
|
| — |
|
|
| 0.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 5.9 |
|
| $ | (2.9 | ) |
| $ | 3.0 |
|
| $ | 5.9 |
|
| $ | (5.3 | ) |
| $ | 0.6 |
|
The following tables present offsetting information regardingtable presents the total amounts of derivative assets and liabilities on our derivatives by type of counterparty as of December 31, 2016Consolidated Balance Sheets (in millions of dollars):
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Derivative assets: |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
| $ | 4.8 |
|
| $ | 3.6 |
|
Other assets |
|
| 1.1 |
|
|
| 2.3 |
|
Total derivative assets |
| $ | 5.9 |
|
| $ | 5.9 |
|
Derivative liabilities: |
|
|
|
|
|
| ||
Other accrued liabilities |
| $ | (2.4 | ) |
| $ | (5.3 | ) |
Long-term liabilities |
|
| (0.5 | ) |
|
| — |
|
Total derivative liabilities |
| $ | (2.9 | ) |
| $ | (5.3 | ) |
| 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 | ) | |||||
Fair Value of Other Financial Instruments
All Other Financial Assets and Liabilities.
We believe that the fair74
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Debt and Credit Facility
Senior Notes
At December 31, 2023 and 2022, we had outstanding fixed-rate unsecured Senior Notes with varying maturity dates. The stated interest rates and aggregate principal amounts of cashsuch Senior Notes were, respectively: (i) 4.50% and cash equivalents.$550.0 million (“4.50% Senior Notes”) and (ii) 4.625% and $500.0 million (“4.625% Senior Notes”). Our Senior Notes do not require us to make any mandatory redemptions or sinking fund payments. The following table summarizes key details of our outstanding Senior Notes:
|
|
|
|
|
|
|
| Outstanding (in millions of dollars) |
| |||||
|
| Issuance Date |
| Maturity |
| Effective Interest Rate |
| As of December 31, 2023 |
|
| As of December 31, 2022 |
| ||
4.50% Senior Notes |
| May 2021 |
| June 2031 |
| 4.7% |
| $ | 550.0 |
|
| $ | 550.0 |
|
4.625% Senior Notes |
| November 2019 |
| March 2028 |
| 4.8% |
|
| 500.0 |
|
|
| 500.0 |
|
Total debt |
|
|
|
|
|
|
|
| 1,050.0 |
|
|
| 1,050.0 |
|
Unamortized issuance costs |
|
|
|
|
|
|
|
| (10.2 | ) |
|
| (11.9 | ) |
Total carrying amount |
|
|
|
|
|
|
| $ | 1,039.8 |
|
| $ | 1,038.1 |
|
The following table presents our other financial assets, classified under the appropriate level of the fair value hierarchy, as of December 31, 2017 (in millions of dollars):
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Cash and cash equivalents | $ | 23.5 | $ | 27.6 | $ | — | $ | 51.1 | |||||||
| Short-term investments | — | 183.7 | — | 183.7 | |||||||||||
| Total | $ | 23.5 | $ | 211.3 | $ | — | $ | 234.8 | |||||||
| 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 | |||||||
|
|
|
|
|
| As of December 31, |
| |||||
|
|
|
|
|
| 2023 |
|
| 2022 |
| ||
4.50% Senior Notes |
|
|
|
|
| $ | 474.1 |
|
| $ | 438.7 |
|
4.625% Senior Notes |
|
|
|
|
| $ | 462.4 |
|
| $ | 440.4 |
|
Revolving Credit Facility
In October 2019, we entered into a Revolving Credit Facility. Joining us as borrowers under the Revolving Credit Facility are unsecured obligations and are guaranteed by certainfour of our wholly owned domestic subsidiaries that own virtually all ofoperating 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 operating assets and through which we conductRevolving Credit Facility. As amended, the vast majority of our business. See Note 16 for condensed guarantor and non-guarantor financial information.
| Year Ended December 31, | |||
| 2015 | |||
| Contractual coupon interest | $ | 2.0 | |
| Amortization of discount | 2.4 | ||
| Amortization of debt issuance costs | 0.3 | ||
Total interest expense1 | $ | 4.7 | |
The following table summarizes availability and usage of our Revolving Credit Facility may be accelerated upon the occurrenceas determined by a borrowing base calculated as of various eventsDecember 31, 2023 (in millions of default including, without limitation, the failuredollars):
Revolving Credit Facility borrowing commitment |
| $ | 575.0 |
|
Borrowing base availability |
| $ | 543.5 |
|
Less: Outstanding borrowings under Revolving Credit Facility |
|
| — |
|
Less: Outstanding letters of credit under Revolving Credit Facility |
|
| (26.8 | ) |
Remaining borrowing availability |
| $ | 516.7 |
|
75
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest Expense and Future Maturities
The following table presents interest expense relating to make principal or interest payments when dueour Senior Notes and breaches of covenants, representations and warranties set forth therein. The Revolving Credit Facility places limitations on(in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Senior Notes interest expense, including debt issuance cost amortization |
| $ | 49.6 |
|
| $ | 49.6 |
|
| $ | 49.0 |
|
Revolving Credit Facility interest expense, including commitment fees and finance cost amortization |
|
| 3.0 |
|
|
| 2.0 |
|
|
| 1.4 |
|
Interest expense on finance lease liabilities |
|
| 0.7 |
|
|
| 0.3 |
|
|
| 0.3 |
|
Interest expense capitalized as construction in progress |
|
| (6.4 | ) |
|
| (3.6 | ) |
|
| (1.2 | ) |
Total interest expense |
| $ | 46.9 |
|
| $ | 48.3 |
|
| $ | 49.5 |
|
The following table presents the future principal payments for our abilitySenior Notes and certain of our subsidiaries to, among other things, grant liens, engage in mergers, sell assets, incur debt, enter into sale and leaseback transactions, make investments, undertake transactions with affiliates, prepay certain debt, pay dividends and repurchase shares. We are allowed to prepay debt, pay dividends and repurchase shares in any amount if, after giving effect to such payment, $52.5 million or more would be available for us to borrow under the Revolving Credit Facility or if after giving effect to such payment, $45.0 million or more would be available to us to borrow under the Revolving Credit Facility and we maintain a fixed charge coverage ratio at or above 1.15:1.0. In addition, we are required to maintain a fixed charge coverage ratio on a consolidated basis at or above 1.0:1.0 if borrowing availability under the Revolving Credit Facility is less than $30.0 million.as of December 31, 2023 (in millions of dollars):
Year ending December 31, |
|
| |
2024 | $ | — |
|
2025 |
| — |
|
2026 |
| — |
|
2027 |
| — |
|
2028 |
| 500.0 |
|
Thereafter |
| 550.0 |
|
Total | $ | 1,050.0 |
|
10. Commitments and Contingencies
Commitments.
We have a variety of financial commitments, including purchase agreements, forward foreign exchange and forward sales contracts, indebtedness, and letters of credit (see Note| Year Ended December 31, | ||||||||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 and Thereafter | |||||||||||||||||||
| Minimum rental commitments | $ | 5.7 | $ | 5.2 | $ | 3.1 | $ | 2.5 | $ | 2.2 | $ | 21.0 | ||||||||||||
CAROs.
The inputs in estimating the fair value of CAROs include: (i) the timing of when any such CARO cash flows may be incurred; (ii) incremental costs associated with special handling or treatment of CARO materials; and (iii) the credit-adjusted risk-free rate applicable at the time additional CARO cash flows areThe following table summarizes the activity relating to our CARO liabilities (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Beginning balance |
| $ | 10.1 |
|
| $ | 7.2 |
|
| $ | 6.7 |
|
Liabilities added during the period |
|
| — |
|
|
| 2.3 |
|
|
| — |
|
Liabilities settled during the period |
|
| — |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
Accretion expense |
|
| 0.8 |
|
|
| 0.7 |
|
|
| 0.6 |
|
Ending balance |
| $ | 10.9 |
|
| $ | 10.1 |
|
| $ | 7.2 |
|
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Beginning balance | $ | 5.5 | $ | 4.9 | $ | 4.8 | ||||||
| Liabilities incurred during the period | — | — | — | |||||||||
| Liabilities settled during the period | — | (0.1 | ) | (0.2 | ) | |||||||
| Accretion expense | 0.4 | 0.5 | 0.3 | |||||||||
Adjustment to accretion expense due to revisions to estimated cash flow and timing of expenditure1 | — | 0.2 | — | |||||||||
| Ending balance | $ | 5.9 | $ | 5.5 | $ | 4.9 | ||||||
The estimated fair valuevalues of CARO liabilities at December 31, 2017 and December 31, 2016 were based upon the application of a weighted-average credit-adjusted risk-free rate of 8.7%8.26% and 8.6%,8.23% at December 31, 2023 and December 31, 2022, respectively. CAROs are included in Other accrued liabilities or Long-term liabilities, as appropriate.
Environmental Contingencies.
We are subject to a number of environmental laws and regulations,76
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expected to be incurred based on presently enacted laws and regulations, existing requirements, currently available facts, existing requirements, existing technology and our assessment of the likely remediation actions to be taken.
We continue to pursue remediation activities, primarily to address the historical use of oils containing polychlorinated biphenyls ("PCBs"(“PCBs”) at our 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 our Newark facility related to historical on-site waste disposal. Since 2014,During the quarter ended December 31, 2018, we submitted our remedial investigation study to the OEPA for review and approval. The final remedial investigation report was approved by the OEPA during the quarter ended December 31, 2020. We have completed a number of preliminary steps insubmitted the preparation of completingAlternate Arrays Document (“AAD”) to the final risk assessmentOEPA for review during the quarter ended December 31, 2023. Once the AAD is reviewed and accepted by the OEPA, we plan to submit our feasibility study both of which are subject to review and approval by the OEPA. As work continues and progresses to a final risk assessment and feasibility study, we will establish and update estimates for probable and estimable remediation, if any. The actual and final remediation cost for remediationestimates will not be fully determinable until a finalthe feasibility study ishas been submitted and accepted byto the OEPA and the selected remediation design work plans are prepared,completed, which is expectedwe expect to occur in the next 18 to 24 months.
The following table presents the changes in our environmental accrual, which was primarily included inaccrual. We classify the short-term and long-term liabilities within Other accrued liabilities and Long-term liabilities, respectively, on our Consolidated Balance Sheets (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Beginning balance |
| $ | 17.7 |
|
| $ | 16.8 |
|
| $ | 18.7 |
|
Additional accruals |
|
| 1.2 |
|
|
| 3.2 |
|
|
| 0.1 |
|
Less: expenditures |
|
| (1.9 | ) |
|
| (2.3 | ) |
|
| (2.0 | ) |
Ending balance |
| $ | 17.0 |
|
| $ | 17.7 |
|
| $ | 16.8 |
|
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Beginning balance | $ | 17.2 | $ | 18.6 | $ | 19.3 | ||||||
| Additional accruals | 0.3 | 0.1 | 1.3 | |||||||||
| Less: expenditures | (0.9 | ) | (1.5 | ) | (2.0 | ) | ||||||
| Ending balance | $ | 16.6 | $ | 17.2 | $ | 18.6 | ||||||
At December 31, 2017,2023, our environmental accrual of $16.6$17.0 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’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 $12.5$11.6 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 vigorously contest any such claims we believe are without merit. We accrue for a legal liability when it is both probable that a liability has been incurred and the amount of the loss is reasonably estimable. Quarterly, in addition to when changes in facts and circumstances require it, we review and adjust these accruals to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. While uncertainties are inherent in the final outcome of such matters and it is presently impossible to determine the actual cost that may ultimately be incurred, we believe that we have sufficiently accrued for such matters and that the ultimate resolution of pending matters will not have a material impact on our consolidated financial position, operating results or liquidity.77
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Accumulated Other Comprehensive Income (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):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Defined Benefit Plans: |
|
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 2.8 |
|
| $ | (21.4 | ) |
| $ | (19.8 | ) |
Actuarial gain arising during the period |
|
| 4.3 |
|
|
| 27.0 |
|
|
| 8.0 |
|
Less: income tax expense |
|
| (1.0 | ) |
|
| (6.5 | ) |
|
| (1.9 | ) |
Net actuarial gain arising during the period |
|
| 3.3 |
|
|
| 20.5 |
|
|
| 6.1 |
|
Prior service credit (cost) arising during the period |
|
| 2.2 |
|
|
| — |
|
|
| (14.0 | ) |
Less: income tax (expense) benefit |
|
| (0.5 | ) |
|
| — |
|
|
| 3.3 |
|
Net prior service credit (cost) arising during the period |
|
| 1.7 |
|
|
| — |
|
|
| (10.7 | ) |
Amortization of net actuarial (gain) loss1 |
|
| (1.1 | ) |
|
| — |
|
|
| 0.4 |
|
Amortization of prior service cost1 |
|
| 5.3 |
|
|
| 4.9 |
|
|
| 3.5 |
|
Less: income tax expense2 |
|
| (1.0 | ) |
|
| (1.2 | ) |
|
| (0.9 | ) |
Net amortization reclassified from AOCI to Net income (loss) |
|
| 3.2 |
|
|
| 3.7 |
|
|
| 3.0 |
|
Other comprehensive income (loss), net of tax |
|
| 8.2 |
|
|
| 24.2 |
|
|
| (1.6 | ) |
Ending balance |
| $ | 11.0 |
|
| $ | 2.8 |
|
| $ | (21.4 | ) |
|
|
|
|
|
|
|
|
| ||||
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 0.4 |
|
| $ | 17.7 |
|
| $ | 1.1 |
|
Unrealized (loss) gain on cash flow hedges |
|
| (10.7 | ) |
|
| (12.2 | ) |
|
| 63.6 |
|
Less: income tax benefit (expense) |
|
| 2.5 |
|
|
| 2.9 |
|
|
| (15.0 | ) |
Net unrealized (loss) gain on cash flow hedges |
|
| (8.2 | ) |
|
| (9.3 | ) |
|
| 48.6 |
|
Reclassification of unrealized loss (gain) upon settlement |
|
| 12.9 |
|
|
| (10.5 | ) |
|
| (41.9 | ) |
Less: income tax (expense) benefit2 |
|
| (3.0 | ) |
|
| 2.5 |
|
|
| 9.9 |
|
Net loss (gain) reclassified from AOCI to Net income (loss) |
|
| 9.9 |
|
|
| (8.0 | ) |
|
| (32.0 | ) |
Other comprehensive income (loss), net of tax |
|
| 1.7 |
|
|
| (17.3 | ) |
|
| 16.6 |
|
Ending balance3 |
| $ | 2.1 |
|
| $ | 0.4 |
|
| $ | 17.7 |
|
|
|
|
|
|
|
|
|
| ||||
Total AOCI ending balance |
| $ | 13.1 |
|
| $ | 3.2 |
|
| $ | (3.7 | ) |
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Defined benefit pension plan and VEBAs: | ||||||||||||
| Beginning balance | $ | (37.1 | ) | $ | (31.3 | ) | $ | (96.4 | ) | |||
| Actuarial loss arising during the period | (0.3 | ) | (5.7 | ) | (12.9 | ) | ||||||
| Less: income tax benefit | 0.1 | 2.1 | 4.9 | |||||||||
| Net actuarial loss arising during the period | (0.2 | ) | (3.6 | ) | (8.0 | ) | ||||||
| Prior service (cost) credit arising during the period | (7.3 | ) | (8.3 | ) | 6.8 | |||||||
| Less: income tax benefit (expense) | 2.7 | 3.1 | (2.6 | ) | ||||||||
| Net prior service (cost) credit arising during the period | (4.6 | ) | (5.2 | ) | 4.2 | |||||||
Amortization of net actuarial loss1 | 0.9 | 0.5 | 1.1 | |||||||||
Amortization of prior service cost1 | 4.7 | 4.1 | 3.0 | |||||||||
| Removal of obligation relating to Union VEBA | — | — | 106.6 | |||||||||
Less: income tax expense2 | (2.1 | ) | (1.7 | ) | (41.8 | ) | ||||||
| Net amortization and reclassification from AOCI to Net income (loss) | 3.5 | 2.9 | 68.9 | |||||||||
| Translation impact on Canadian pension plan AOCI balance | (0.1 | ) | 0.1 | — | ||||||||
| Other comprehensive (loss) income, net of tax | (1.4 | ) | (5.8 | ) | 65.1 | |||||||
| Ending balance | $ | (38.5 | ) | $ | (37.1 | ) | $ | (31.3 | ) | |||
| Available for sale securities: | ||||||||||||
| Beginning balance | $ | 0.8 | $ | (0.1 | ) | $ | 0.2 | |||||
| Unrealized gain (loss) on available for sale securities | 4.0 | 1.9 | (0.1 | ) | ||||||||
| Less: income tax expense | (1.5 | ) | (0.7 | ) | — | |||||||
| Net gain (loss) on available for sale securities | 2.5 | 1.2 | (0.1 | ) | ||||||||
Gain reclassified from AOCI to Net income (loss)3 | (3.2 | ) | (0.5 | ) | (0.4 | ) | ||||||
Less: income tax benefit2 | 1.2 | 0.2 | 0.2 | |||||||||
| Net gain reclassified from AOCI to Net income (loss) | (2.0 | ) | (0.3 | ) | (0.2 | ) | ||||||
| Other comprehensive income (loss), net of tax | 0.5 | 0.9 | (0.3 | ) | ||||||||
| Ending balance | $ | 1.3 | $ | 0.8 | $ | (0.1 | ) | |||||
| Other: | ||||||||||||
| Beginning balance | $ | (0.4 | ) | $ | (0.3 | ) | $ | 0.1 | ||||
| Unrealized gain (loss) | 2.0 | (0.2 | ) | (0.5 | ) | |||||||
| Less: income tax (expense) benefit | (0.7 | ) | — | 0.1 | ||||||||
| Net gain (loss) | 1.3 | (0.2 | ) | (0.4 | ) | |||||||
| (Gain) loss reclassified from AOCI to Net income (loss) | (0.6 | ) | 0.1 | — | ||||||||
Less: income tax benefit2 | 0.2 | — | — | |||||||||
| Net (gain) loss reclassified from AOCI to Net income (loss) | (0.4 | ) | 0.1 | — | ||||||||
| Other comprehensive income (loss), net of tax | 0.9 | (0.1 | ) | (0.4 | ) | |||||||
| Ending balance | $ | 0.5 | $ | (0.4 | ) | $ | (0.3 | ) | ||||
| Total AOCI ending balance | $ | (36.7 | ) | $ | (36.7 | ) | $ | (31.7 | ) | |||
3.
12. 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 new corporate function in Franklin (“2022 Restructuring Plan”). At December 31, 2023, the total amount expected to be incurred in connection with the 2022 Restructuring Plan is approximately $8.0 million. Through December 31, 2023, we incurred restructuring costs of $7.2 million, of which cash paid was $5.4 million, related to the 2022 Restructuring Plan, which consisted of employee-related costs and office rent within Restructuring costs in our Statements of Consolidated Income (Loss). Substantially all of the costs associated with the restructuring efforts initiated under the 2022 Plan were incurred and expensed as of December 31, 2023.
78
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes activity relating to the 2022 Restructuring Plan liabilities (in millions of dollars):
BALANCE, December 31, 2021 |
| $ | — |
|
Restructuring costs |
|
| 2.2 |
|
Costs paid or otherwise settled1 |
|
| (0.5 | ) |
BALANCE, December 31, 2022 |
|
| 1.7 |
|
Restructuring costs |
|
| 5.0 |
|
Costs paid or otherwise settled1 |
|
| (5.5 | ) |
BALANCE, December 31, 2023 |
| $ | 1.2 |
|
2020 Restructuring Plan. We initiated a restructuring plan during the quarter ended June 30, 2020, which consisted primarily of reduction in force measures (“2020 Restructuring Plan”) in order to align our projected operational requirements with reduced short and mid-term commercial aerospace demand as a result of the COVID pandemic. We incurred total restructuring costs of $6.7 million related to the 2020 Restructuring Plan, which consisted of severance, voluntary buyout packages, outplacement services, estimated medical costs and associated payroll costs within Restructuring costs in our Statements of Consolidated Income (Loss). We completed the 2020 Restructuring Plan as of December 31, 2021.
The following table summarizes activity relating to the 2020 Restructuring Plan liabilities (in millions of dollars):
BALANCE, December 31, 2020 |
| $ | 1.4 |
|
Restructuring costs |
|
| — |
|
Costs paid or otherwise settled |
|
| (0.6 | ) |
Other adjustments1 |
|
| (0.8 | ) |
BALANCE, December 31, 2021 |
| $ | — |
|
13. Other Income (Expense), Net
The following table presents the components of Other income (expense), net, consisted of the following for each period presented (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Interest income |
| $ | 1.7 |
|
| $ | 1.3 |
|
| $ | 0.2 |
|
Net periodic postretirement benefit cost |
|
| (8.4 | ) |
|
| (5.6 | ) |
|
| (4.1 | ) |
Unrealized gain (loss) on equity securities |
|
| 0.6 |
|
|
| (1.2 | ) |
|
| (0.2 | ) |
Loss on extinguishment of debt1 |
|
| — |
|
|
| — |
|
|
| (35.9 | ) |
Gain on disposition of property, plant and equipment |
|
| 13.8 |
|
|
| 6.0 |
|
|
| 0.5 |
|
Post-acquisition funding received from Alcoa Corporation2 |
|
| — |
|
|
| 6.0 |
|
|
| — |
|
All other, net |
|
| (0.3 | ) |
|
| (0.1 | ) |
|
| 0.6 |
|
Other income (expense), net |
| $ | 7.4 |
|
| $ | 6.4 |
|
| $ | (38.9 | ) |
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Interest income | $ | 0.2 | $ | 0.1 | $ | 0.4 | |||||
| Realized gain on investments | 3.4 | 0.8 | 0.8 | ||||||||
Loss on extinguishment of debt1 | — | (11.1 | ) | — | |||||||
| All other, net | 0.9 | (0.1 | ) | (3.0 | ) | ||||||
| Other income (expense), net | $ | 4.5 | $ | (10.3 | ) | $ | (1.8 | ) | |||
Supply Chain Financing. During the years ended December 31, 2023 and December 31, 2022, we sold trade accounts receivable totaling $1,240.6 million and $1,589.3 million, respectively, related to these supply chain financing arrangements, of which our customers’
79
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
financial institutions applied discount fees totaling $29.7 million and $23.3 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 (expense), net. As of December 31, 2023, we had been and/or expected to be substantially reimbursed by our customers for these discount fees, in accordance with the underlying sales agreements.
14. Income Tax Matters
The following table presents Income (loss) before income taxes by geographic area was as follows (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Domestic |
| $ | 48.0 |
|
| $ | (44.6 | ) |
| $ | (30.2 | ) |
Foreign |
|
| 8.3 |
|
|
| 6.7 |
|
|
| 6.2 |
|
Income (loss) before income taxes |
| $ | 56.3 |
|
| $ | (37.9 | ) |
| $ | (24.0 | ) |
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Domestic | $ | 127.9 | $ | 143.6 | $ | (373.6 | ) | ||||
| Foreign | 5.1 | 3.6 | 1.8 | ||||||||
| Income (loss) before income taxes | $ | 133.0 | $ | 147.2 | $ | (371.8 | ) | ||||
Tax (Provision) Benefit. Income taxes are classified as either domestic or foreign based on whether payment is made or due to the United States or a foreign country. Certain income classified as foreign is also subject to domestic income taxes.
|
| Federal |
|
| Foreign |
|
| State |
|
| Total |
| ||||
Year Ended December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current |
| $ | — |
|
| $ | (2.2 | ) |
| $ | 0.6 |
|
| $ | (1.6 | ) |
Deferred |
|
| (11.6 | ) |
|
| 0.1 |
|
|
| 1.0 |
|
|
| (10.5 | ) |
Benefit applied to decrease AOCI |
|
| 2.5 |
|
|
| 0.1 |
|
|
| 0.4 |
|
|
| 3.0 |
|
Income tax (provision) benefit |
| $ | (9.1 | ) |
| $ | (2.0 | ) |
| $ | 2.0 |
|
| $ | (9.1 | ) |
Year Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current |
| $ | — |
|
| $ | (1.1 | ) |
| $ | (2.5 | ) |
| $ | (3.6 | ) |
Deferred |
|
| 8.9 |
|
|
| (0.8 | ) |
|
| 1.6 |
|
|
| 9.7 |
|
Benefit applied to decrease AOCI |
|
| 1.7 |
|
|
| 0.2 |
|
|
| 0.3 |
|
|
| 2.2 |
|
Income tax benefit (provision) |
| $ | 10.6 |
|
| $ | (1.7 | ) |
| $ | (0.6 | ) |
| $ | 8.3 |
|
Year Ended December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current |
| $ | — |
|
| $ | (2.4 | ) |
| $ | (3.5 | ) |
| $ | (5.9 | ) |
Deferred |
|
| 2.1 |
|
|
| 0.5 |
|
|
| 4.2 |
|
|
| 6.8 |
|
Benefit applied to decrease AOCI |
|
| 3.7 |
|
|
| 0.3 |
|
|
| 0.6 |
|
|
| 4.6 |
|
Income tax benefit (provision) |
| $ | 5.8 |
|
| $ | (1.6 | ) |
| $ | 1.3 |
|
| $ | 5.5 |
|
| Federal | Foreign | State | Total | ||||||||||||
| 2017 | |||||||||||||||
| Current | $ | 3.1 | $ | (0.8 | ) | $ | (1.0 | ) | $ | 1.3 | |||||
| Deferred | (82.0 | ) | (1.0 | ) | (5.7 | ) | (88.7 | ) | |||||||
| Expense applied to increase Retained earnings/ Other comprehensive income (loss) | (0.1 | ) | (0.1 | ) | — | (0.2 | ) | ||||||||
| Income tax provision | $ | (79.0 | ) | $ | (1.9 | ) | $ | (6.7 | ) | $ | (87.6 | ) | |||
| 2016 | |||||||||||||||
| Current | $ | 2.7 | $ | 0.6 | $ | (1.5 | ) | $ | 1.8 | ||||||
| Deferred | (47.8 | ) | (1.2 | ) | (4.7 | ) | (53.7 | ) | |||||||
| Expense applied to increase Additional paid in capital/ Other comprehensive income (loss) | (3.2 | ) | (0.1 | ) | (0.3 | ) | (3.6 | ) | |||||||
| Income tax provision | $ | (48.3 | ) | $ | (0.7 | ) | $ | (6.5 | ) | $ | (55.5 | ) | |||
| 2015 | |||||||||||||||
| Current | $ | 0.7 | $ | 2.1 | $ | 0.4 | $ | 3.2 | |||||||
| Deferred | 93.2 | (1.2 | ) | 1.8 | 93.8 | ||||||||||
| Benefit applied to decrease Additional paid in capital/Other comprehensive income (loss) | 33.5 | 0.4 | 4.3 | 38.2 | |||||||||||
| Income tax benefit | $ | 127.4 | $ | 1.3 | $ | 6.5 | $ | 135.2 | |||||||
The following table presents a reconciliation between the (provision for)(provision) benefit fromfor income taxes and the amount computed by applying the federal statutory income tax rate to Income (loss) before income taxes is as follows (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Amount of federal income tax (provision) benefit based on the statutory rate |
| $ | (11.8 | ) |
| $ | 8.0 |
|
| $ | 5.0 |
|
Decrease in federal valuation allowances |
|
| — |
|
|
| 1.1 |
|
|
| 0.2 |
|
Non-deductible compensation expense |
|
| (1.6 | ) |
|
| (0.9 | ) |
|
| (0.5 | ) |
Non-deductible benefit (expense) |
|
| 0.2 |
|
|
| (1.0 | ) |
|
| (0.2 | ) |
State income tax benefit (provision), net of federal benefit1 |
|
| 1.5 |
|
|
| (0.5 | ) |
|
| 1.0 |
|
Research and development credit |
|
| 3.2 |
|
|
| 2.2 |
|
|
| 0.6 |
|
Foreign income tax expense |
|
| (0.3 | ) |
|
| (0.3 | ) |
|
| (0.3 | ) |
Foreign undistributed earnings |
|
| (0.3 | ) |
|
| (0.3 | ) |
|
| (0.3 | ) |
Income tax (provision) benefit |
| $ | (9.1 | ) |
| $ | 8.3 |
|
| $ | 5.5 |
|
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Amount of federal income tax (provision) benefit based on the statutory rate | $ | (46.5 | ) | $ | (51.5 | ) | $ | 130.1 | |||
| (Increase) decrease in federal valuation allowances | 0.5 | (0.3 | ) | (0.6 | ) | ||||||
| Non-deductible compensation (expense) benefit | (2.3 | ) | 0.3 | (0.2 | ) | ||||||
| Non-deductible (expense) | — | (0.3 | ) | (0.3 | ) | ||||||
State income tax (provision) benefit, net of federal benefit 1 | (4.3 | ) | (4.2 | ) | 4.2 | ||||||
| Foreign income tax (expense) benefit | (0.1 | ) | 0.5 | 0.1 | |||||||
| Foreign undistributed earnings | (5.9 | ) | — | — | |||||||
| Expiration of statute of limitations | — | — | 1.7 | ||||||||
| Tax rate change | (29.0 | ) | — | — | |||||||
| Advance pricing agreement | — | — | (0.2 | ) | |||||||
| Competent Authority settlement | — | — | 0.4 | ||||||||
| Income tax (provision) benefit | $ | (87.6 | ) | $ | (55.5 | ) | $ | 135.2 | |||
80
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Income Taxes.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The following table presents the components of our net deferred income tax assets
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Deferred income tax assets: |
|
|
|
|
|
| ||
Loss and credit carryforwards |
| $ | 39.6 |
|
| $ | 47.7 |
|
Defined benefit plans |
|
| 3.6 |
|
|
| 2.9 |
|
Other assets |
|
| 36.8 |
|
|
| 36.3 |
|
Lease assets |
|
| 8.7 |
|
|
| 10.6 |
|
Inventories |
|
| 29.5 |
|
|
| 46.9 |
|
Excess interest carryforward |
|
| 14.0 |
|
|
| 12.2 |
|
Research & development capitalization |
|
| 16.9 |
|
|
| 8.7 |
|
Valuation allowances |
|
| (2.7 | ) |
|
| (3.7 | ) |
Total deferred income tax assets |
|
| 146.4 |
|
|
| 161.6 |
|
Deferred income tax liabilities: |
|
|
|
|
|
| ||
Property, plant and equipment |
|
| (142.6 | ) |
|
| (147.0 | ) |
Lease liabilities |
|
| (8.7 | ) |
|
| (9.3 | ) |
Undistributed foreign earnings |
|
| (3.0 | ) |
|
| (2.7 | ) |
Total deferred income tax liabilities |
|
| (154.3 | ) |
|
| (159.0 | ) |
Net deferred income tax (liabilities) assets |
| $ | (7.9 | ) |
| $ | 2.6 |
|
| Year Ended December 31, | |||||||
| 2017 | 2016 | ||||||
| Deferred income tax assets: | |||||||
| Loss and credit carryforwards | $ | 98.7 | $ | 191.8 | |||
| VEBAs (see Note 4) | 11.6 | 23.2 | |||||
| Other assets | 21.0 | 39.8 | |||||
| Inventory | 9.3 | — | |||||
| Valuation allowances | (13.0 | ) | (15.7 | ) | |||
| Total deferred income tax assets | 127.6 | 239.1 | |||||
| Deferred income tax liabilities: | |||||||
| Property, plant and equipment | (57.7 | ) | (82.7 | ) | |||
| Undistributed foreign earnings | (2.2 | ) | — | ||||
| Total deferred income tax liabilities | (59.9 | ) | (82.7 | ) | |||
Net deferred income tax assets 1 | $ | 67.7 | $ | 156.4 | |||
Tax Attributes.
At December 31,In addition, we had $23.3$17.4 million of alternative minimum tax ("AMT"federal research and development (“R&D”) credit carryforwards available to offset regular federal income tax requirements. Since the corporate AMT has been repealed in the Tax Act for tax years beginning after December 31, 2017, our AMTOur R&D credit carryforwards expire periodically through 2043. We also had $1.5 million of state credit carryforwards that have not yet been used are refundable in future years. We will use AMT credits to offset any regular income tax liability in years 2018expire periodically through 2020, with 50% of remaining AMT credits refunded in each of the 2018, 2019, and 2020 tax years and all remaining credits refunded in tax year 2021 (see "
In assessing the realizability of deferred tax assets, management considers whether it is "more“more likely than not"not” that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. Due to uncertainties surrounding the realization of some of our deferred tax assets, primarily including state NOL carryforwards sustained during the prior years and expiring tax benefits, we have a valuation allowance against ourcertain deferred tax assets. When recognized, the tax benefits relating to any reversal of this valuation allowance will be recorded as a reduction of income tax expense. The (decrease) increaseThere was a decrease in the valuation allowance was $(2.7) million, $(5.5) million and $2.0of $1.0 million in 2017, 20162023, a decrease in the valuation allowance of $0.9 million in 2022 and 2015, respectively.
The decrease in the valuation allowance for 2017 was primarily due to the expiration of state NOL carryforwards and the related reversal of their valuation allowances and the utilization of capital losses. The decrease in the valuation allowance for 20162023 was primarily due to the expiration of state NOL carryforwards and the related reversal of their valuation allowances. The increasedecrease in the valuation allowance in 2015for 2022 was primarily due to unutilizedthe liquidation of an inactive passive insurance company, and its related separate return limitation year net operating losses. The decrease in the valuation allowance for 2021 was primarily due to the expiration of state NOL carryforwards and Federal Separate Return Limitation Year losses that were expected to expire.
Other
. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions.81
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our tax returns for certain past years are still subject to examination by taxing authorities, and the use of NOL carryforwards in future periods could trigger a review of attributes and other tax matters in years that are not otherwise subject to examination.
On October 8, 2021, the Organization for Economic Co-operation and Development ("OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. The OECD continues to release additional guidance on the two-pillar framework with widespread implementation anticipated by 2024. Although we are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by individual countries, we do not anticipate any material financial impact. The legislation is anticipated to be effective for our fiscal year beginning January 1, 2024.
We have gross unrecognized benefits relating to uncertain tax positions. AThe following table presents a reconciliation of changes in the gross unrecognized tax benefits is as follows (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Gross unrecognized tax benefits at beginning of period |
| $ | 5.0 |
|
| $ | 4.1 |
|
| $ | 3.8 |
|
Gross increases for tax positions of current year |
|
| 1.3 |
|
|
| 0.9 |
|
|
| 0.3 |
|
Gross increases for tax positions of prior years |
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.4 |
|
Gross decreases for tax positions of prior years |
|
| — |
|
|
| (0.1 | ) |
|
| (0.3 | ) |
Settlements |
|
| — |
|
|
| — |
|
|
| (0.1 | ) |
Gross unrecognized tax benefits at end of period |
| $ | 6.5 |
|
| $ | 5.0 |
|
| $ | 4.1 |
|
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Gross unrecognized tax benefits at beginning of period | $ | 1.8 | $ | 1.7 | $ | 2.2 | ||||||
| Gross increases for tax positions of prior years | — | 0.1 | 0.1 | |||||||||
| Gross decreases for tax positions of prior years | (0.3 | ) | — | — | ||||||||
| Gross decrease for tax positions relating to lapse of a statute of limitation | — | — | (0.6 | ) | ||||||||
| Gross unrecognized tax benefits at end of period | $ | 1.5 | $ | 1.8 | $ | 1.7 | ||||||
If and when the $1.5 million, $1.8 million and $1.7$6.5 million of gross unrecognized tax benefits at December 31, 2017, December 31, 2016 and December 31, 2015, respectively,2023 are recognized, $0.4 million, $0.7 million and $0.6$6.5 million will be reflected respectively, in our income tax provision and thus affect the effective tax rate in future periods.
In addition, we recognize interest and penalties related to unrecognized tax benefits in the income tax provision. We had $0.1$0.2 million and $0.2$0.1 million accrued for interest and penalties at December 31, 20172023 and December 31, 2016, respectively.2022, respectively, and we recognized interest and penalties of $0.2 million in our tax provision in 2021. Of thesethe amounts noneaccrued, none were considered current and, as such, were included in Long-term liabilities on theour Consolidated Balance Sheets atas of December 31, 20172023 and December 31, 2016. We recognized a decrease in interest and penalty of $0.1 million in our tax provision in 2017. There was no change to interest and penalty in 2016. We recognized decrease in interest and penalty of $1.2 million in our tax provision in 2015.
We do not expect our gross unrecognized tax benefits to significantly change within the next 12 months.
82
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basic net income (loss) per share is computed by dividing distributed and undistributed net income (loss) allocableavailable to common shares by the weighted-average number of common shares outstanding during the applicable period. The basic weighted-average number of common shares outstanding during the period excludes unvestednon-vested share-based payment awards. DilutedBasic and diluted net income (loss) per share was calculated under the treasury stocktwo-class method for 2017, 20162023, and 2015,the treasury method in 2022 and 2021, which in all years was more dilutive than the two-classtwo‑class method.
The following table sets forth the computation of basic and diluted net income (loss) per share for the periods presented (in millions of dollars, except share and per share amounts):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
| 47.2 |
|
|
| (29.6 | ) |
|
| (18.5 | ) |
Less: earnings attributable to participating securities1 |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
Net income (loss) available to common shareholders |
|
| 47.1 |
|
|
| (29.6 | ) |
|
| (18.5 | ) |
Denominator – Weighted-average common shares |
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 15,991 |
|
|
| 15,906 |
|
|
| 15,836 |
|
Add: dilutive effect of non-vested common shares, |
|
| 140 |
|
|
| — |
|
|
| — |
|
Diluted |
|
| 16,131 |
|
|
| 15,906 |
|
|
| 15,836 |
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) per common share, Basic |
| $ | 2.95 |
|
| $ | (1.86 | ) |
| $ | (1.17 | ) |
Net income (loss) per common share, Diluted |
| $ | 2.92 |
|
| $ | (1.86 | ) |
| $ | (1.17 | ) |
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Numerator: | ||||||||||||
| Net income (loss) | $ | 45.4 | $ | 91.7 | $ | (236.6 | ) | |||||
| Denominator – Weighted-average common shares outstanding (in thousands): | ||||||||||||
| Basic | 16,996 | 17,813 | 17,201 | |||||||||
| Add: dilutive effect of non-vested common shares, restricted stock units and performance shares | 263 | 220 | — | |||||||||
| Diluted | 17,259 | 18,033 | 17,201 | |||||||||
| Net income (loss) per common share, Basic: | $ | 2.67 | $ | 5.15 | $ | (13.76 | ) | |||||
| Net income (loss) per common share, Diluted: | $ | 2.63 | $ | 5.09 | $ | (13.76 | ) | |||||
| Year Ended December 31, | |||||||||
| 2017 | 2016 | 2015 | |||||||
| Non-vested common shares, restricted stock units and performance shares | 52 | 50 | 302 | ||||||
| Warrants | — | — | 639 | ||||||
| Total excluded | 52 | 50 | 941 | ||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Number of common shares repurchased | 938,680 | 443,838 | 647,520 | |||||||||
| Weighted-average repurchase price (dollars per share) | $ | 82.97 | $ | 78.59 | $ | 76.35 | ||||||
| Total cost of repurchased common shares (in millions of dollars) | $ | 77.8 | $ | 34.9 | $ | 49.4 | ||||||
83
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Supplemental Cash Flow Information
| Year Ended December 31, |
| Year Ended December 31, |
| ||||||||||||||||||||
| 2017 | 2016 | 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||
| (in millions of dollars) |
| (in millions of dollars) |
| ||||||||||||||||||||
| Interest paid | $ | 21.1 | $ | 17.7 | $ | 22.1 |
| $ | 43.8 |
|
| $ | 45.7 |
|
| $ | 48.7 |
| |||||
| Non-cash investing and financing activities (included in Accounts payable): |
|
|
|
|
|
|
|
|
| ||||||||||||||
| Unpaid purchases of property and equipment | $ | 7.4 | $ | 4.6 | $ | 10.5 |
| $ | 19.3 |
|
| $ | 28.9 |
|
| $ | 14.0 |
| |||||
| Stock repurchases not yet settled | $ | 0.1 | $ | 1.8 | $ | 0.2 | |||||||||||||||||
| Acquisition of property and equipment through capital leasing arrangements | $ | 1.2 | $ | 0.2 | $ | — | |||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||
Supplemental lease disclosures: |
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating lease liabilities arising from obtaining operating lease assets |
| $ | 3.2 |
|
| $ | 3.1 |
|
| $ | 27.8 |
| |||||||||||
Cash paid for amounts included in the measurement of |
| $ | 9.3 |
|
| $ | 9.8 |
|
| $ | 8.2 |
| |||||||||||
Finance lease liabilities arising from obtaining finance lease assets |
| $ | 10.0 |
|
| $ | 1.0 |
|
| $ | 2.2 |
| |||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||
| As of December 31, |
| |||||||||||||||||||||
| December 31, |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||
| 2017 | 2016 | 2015 |
| (in millions of dollars) |
| ||||||||||||||||||
| Components of cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
| ||||||||||||||
| Cash and cash equivalents | $ | 51.1 | $ | 55.2 | $ | 72.5 |
| $ | 82.4 |
|
| $ | 57.4 |
|
| $ | 303.2 |
| |||||
| Restricted cash included in Prepaid expenses and other current assets | 0.3 | 0.3 | 0.3 | ||||||||||||||||||||
| Restricted cash included in Other assets | 12.9 | 12.2 | 10.9 |
|
| 18.3 |
|
|
| 13.9 |
|
|
| 13.8 |
| ||||||||
| Total cash, cash equivalents and restricted cash shown in the Statements of Consolidated Cash Flows | $ | 64.3 | $ | 67.7 | $ | 83.7 | |||||||||||||||||
Total cash, cash equivalents and restricted cash presented on our Statements of |
| $ | 100.7 |
|
| $ | 71.3 |
|
| $ | 317.0 |
| |||||||||||
17. Business, Product and Geographical Area Information
Our primary line of business is the production of semi-fabricated specialty aluminum mill products, such as aluminum plate and sheet, bare and coated coils and extruded and drawn products, primarily used in our Aero/HS products, Packaging, GE products, Automotive Extrusions GE products and Other products.products end markets. We operate 1113 focused production facilities in the United States and one in Canada. Consistent with the manner in which ourOur chief operating decision maker reviews and evaluates our business the Fabricated Products business is treated as a single operating segment. At December 31, 2017,2023, approximately 63%65% of our employees were covered by collective bargaining agreements and approximately 12%4% of ourthose employees were covered by collective bargaining agreements with expiration dates occurring within one year from December 31, 2017.
The following tables provide financial information by reporting segment and business unit for each period or as of each period end, as applicable (in millions of dollars):
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net sales: | |||||||||||
| Fabricated Products | $ | 1,397.5 | $ | 1,330.6 | $ | 1,391.9 | |||||
| Segment operating income (loss): | |||||||||||
| Fabricated Products | 201.3 | 229.6 | 190.8 | ||||||||
| All Other | (50.6 | ) | (51.8 | ) | (536.7 | ) | |||||
| Total operating income (loss) | 150.7 | 177.8 | (345.9 | ) | |||||||
| Interest expense | (22.2 | ) | (20.3 | ) | (24.1 | ) | |||||
| Other income (expense) , net | 4.5 | (10.3 | ) | (1.8 | ) | ||||||
| Income (loss) before income taxes | $ | 133.0 | $ | 147.2 | $ | (371.8 | ) | ||||
| Depreciation and amortization: | |||||||||||
| Fabricated Products | $ | 39.0 | $ | 35.4 | $ | 31.9 | |||||
| All Other | 0.7 | 0.6 | 0.5 | ||||||||
| Total depreciation and amortization | $ | 39.7 | $ | 36.0 | $ | 32.4 | |||||
| Capital expenditures: | |||||||||||
| Fabricated Products | $ | 75.3 | $ | 75.6 | $ | 62.4 | |||||
| All Other | 0.2 | 0.5 | 0.7 | ||||||||
| Total capital expenditures | $ | 75.5 | $ | 76.1 | $ | 63.1 | |||||
| December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Assets: | |||||||||||
| Fabricated Products | $ | 1,046.8 | $ | 969.4 | $ | 904.7 | |||||
All Other1 | 338.4 | 474.1 | 342.2 | ||||||||
| Total assets | $ | 1,385.2 | $ | 1,443.5 | $ | 1,246.9 | |||||
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Net sales: |
|
|
|
|
|
|
|
|
| |||
Aero/HS products |
| $ | 899.3 |
|
| $ | 676.1 |
|
| $ | 533.7 |
|
Packaging |
|
| 1,315.2 |
|
|
| 1,585.3 |
|
|
| 1,119.3 |
|
GE products |
|
| 596.5 |
|
|
| 883.8 |
|
|
| 706.1 |
|
Automotive Extrusions |
|
| 254.9 |
|
|
| 254.8 |
|
|
| 225.0 |
|
Other products |
|
| 21.1 |
|
|
| 27.9 |
|
|
| 37.9 |
|
Total net sales |
| $ | 3,087.0 |
|
| $ | 3,427.9 |
|
| $ | 2,622.0 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
| |||
Products transferred at a point in time |
| $ | 2,394.8 |
|
| $ | 2,782.9 |
|
| $ | 2,067.9 |
|
Products transferred over time |
|
| 692.2 |
|
|
| 645.0 |
|
|
| 554.1 |
|
Total net sales |
| $ | 3,087.0 |
|
| $ | 3,427.9 |
|
| $ | 2,622.0 |
|
84
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net sales: | |||||||||||
| Aero/HS products | $ | 653.7 | $ | 675.4 | $ | 695.5 | |||||
| Automotive Extrusions | 217.3 | 188.8 | 199.2 | ||||||||
| GE products | 476.2 | 420.1 | 426.1 | ||||||||
| Other products | 50.3 | 46.3 | 71.1 | ||||||||
| Total net sales | $ | 1,397.5 | $ | 1,330.6 | $ | 1,391.9 | |||||
The following table presents geographic information for net sales based on country of origin, income taxes paid, and long-lived assets were as follows (in millions of dollars):
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Net sales to unaffiliated customers: |
|
|
|
|
|
|
|
|
| |||
Domestic |
| $ | 2,986.0 |
|
| $ | 3,328.2 |
|
| $ | 2,545.0 |
|
Foreign1 |
|
| 101.0 |
|
|
| 99.7 |
|
|
| 77.0 |
|
Total net sales |
| $ | 3,087.0 |
|
| $ | 3,427.9 |
|
| $ | 2,622.0 |
|
Income taxes paid: |
|
|
|
|
|
|
|
|
| |||
Domestic |
| $ | 0.3 |
|
| $ | 3.1 |
|
| $ | 4.5 |
|
Foreign |
|
| 0.2 |
|
|
| 3.2 |
|
|
| 1.1 |
|
Total income taxes paid |
| $ | 0.5 |
|
| $ | 6.3 |
|
| $ | 5.6 |
|
|
| As of December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Long-lived assets:2 |
|
|
|
|
|
|
|
|
| |||
Domestic |
| $ | 1,025.3 |
|
| $ | 984.8 |
|
| $ | 925.3 |
|
Foreign1 |
|
| 26.8 |
|
|
| 28.4 |
|
|
| 29.9 |
|
Total long-lived assets |
| $ | 1,052.1 |
|
| $ | 1,013.2 |
|
| $ | 955.2 |
|
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net sales to unaffiliated customers: | |||||||||||
Fabricated Products – | |||||||||||
| Domestic | $ | 1,337.3 | $ | 1,278.6 | $ | 1,321.3 | |||||
Foreign1 | 60.2 | 52.0 | 70.6 | ||||||||
| Total net sales | $ | 1,397.5 | $ | 1,330.6 | $ | 1,391.9 | |||||
| Income taxes paid: | |||||||||||
Fabricated Products – | |||||||||||
| Domestic | $ | 1.2 | $ | 0.7 | $ | 0.6 | |||||
| Foreign | 0.1 | 0.5 | 1.7 | ||||||||
| Total income taxes paid | $ | 1.3 | $ | 1.2 | $ | 2.3 | |||||
| December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
Long-lived assets:2 | |||||||||||
Fabricated Products – | |||||||||||
| Domestic | $ | 536.6 | $ | 494.7 | $ | 459.6 | |||||
| Foreign | 30.2 | 31.4 | 30.9 | ||||||||
| Total Fabricated Products long-lived assets | 566.8 | 526.1 | 490.5 | ||||||||
All Other – | |||||||||||
| Domestic | 4.6 | 4.8 | 4.9 | ||||||||
| Total All Other long-lived assets | 4.6 | 4.8 | 4.9 | ||||||||
| Total long-lived assets | $ | 571.4 | $ | 530.9 | $ | 495.4 | |||||
The aggregate foreign currency transaction gain (loss) included in determining netNet income (loss) werewas immaterial for 2017, 20162023. The aggregate foreign currency transaction loss included in determining Net loss was $0.5 million for 2022 and 2015.
Concentrations.For the years ended December 31, 2017,2023, December 31, 20162022 and December 31, 2015, 2021, one customer represented 27%18%, 26%19% and 25%16%, respectively, of Fabricated Products Net sales. For the year ended December 31, 2017, a second customer represented
One individual customer accounted for 22% and another individual20%, a second customer accounted for 14%13% and a third customer accounted for 12% of the trade receivablesaccounts receivable balance at December 31, 2017.2023. One individual customer accounted for 18% and two individual customers each17%, a second customer accounted for 14%14% and a third customer accounted for 13% of the trade receivablesaccounts receivable balance at December 31, 2016.
The following table presents information about export sales and primary aluminum supply from our major suppliers were as follows:
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Percentage of Net sales: |
|
|
|
|
|
|
|
|
| |||
Export sales |
|
| 10 | % |
|
| 10 | % |
|
| 10 | % |
|
|
|
|
|
|
|
|
| ||||
Percentage of total annual primary aluminum supply (lbs): |
|
|
|
|
|
|
|
|
| |||
Supply from our top five major suppliers |
|
| 83 | % |
|
| 81 | % |
|
| 78 | % |
Supply from our largest supplier |
|
| 37 | % |
|
| 48 | % |
|
| 47 | % |
Supply from our second and third largest suppliers combined |
|
| 28 | % |
|
| 20 | % |
|
| 20 | % |
| Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Percentage of Net sales: | ||||||||
| Export sales | 18 | % | 19 | % | 19 | % | ||
| Percentage of total annual primary aluminum supply (lbs): | ||||||||
| Supply from our top five major suppliers | 85 | % | 84 | % | 86 | % | ||
| Supply from our largest supplier | 36 | % | 32 | % | 28 | % | ||
| Supply from our second and third largest suppliers combined | 33 | % | 32 | % | 36 | % | ||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 48.4 | $ | 2.7 | $ | — | $ | 51.1 | ||||||||||
| Short-term investments | — | 183.7 | — | — | 183.7 | |||||||||||||||
| Receivables: | ||||||||||||||||||||
| Trade receivables, net | — | 160.1 | 4.9 | — | 165.0 | |||||||||||||||
| Intercompany receivables | 22.8 | 0.1 | 0.7 | (23.6 | ) | — | ||||||||||||||
| Other | — | 14.7 | 0.8 | — | 15.5 | |||||||||||||||
| Inventories | — | 198.7 | 9.2 | — | 207.9 | |||||||||||||||
| Prepaid expenses and other current assets | 0.1 | 32.9 | 0.4 | — | 33.4 | |||||||||||||||
| Total current assets | 22.9 | 638.6 | 18.7 | (23.6 | ) | 656.6 | ||||||||||||||
| Investments in and advances to subsidiaries | 1,097.7 | 48.2 | — | (1,145.9 | ) | — | ||||||||||||||
| Property, plant and equipment, net | — | 541.2 | 30.2 | — | 571.4 | |||||||||||||||
| Long-term intercompany receivables | — | — | 12.4 | (12.4 | ) | — | ||||||||||||||
| Deferred tax assets, net | — | 67.3 | — | 4.7 | 72.0 | |||||||||||||||
| Intangible assets, net | — | 25.0 | — | — | 25.0 | |||||||||||||||
| Goodwill | — | 18.8 | — | — | 18.8 | |||||||||||||||
| Other assets | — | 41.4 | — | — | 41.4 | |||||||||||||||
| Total | $ | 1,120.6 | $ | 1,380.5 | $ | 61.3 | $ | (1,177.2 | ) | $ | 1,385.2 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable | $ | 1.9 | $ | 81.4 | $ | 6.7 | $ | — | $ | 90.0 | ||||||||||
| Intercompany payable | — | 23.5 | 0.1 | (23.6 | ) | — | ||||||||||||||
| Accrued salaries, wages and related expenses | — | 41.0 | 1.6 | — | 42.6 | |||||||||||||||
| Other accrued liabilities | 2.8 | 46.2 | 1.0 | (9.5 | ) | 40.5 | ||||||||||||||
| Total current liabilities | 4.7 | 192.1 | 9.4 | (33.1 | ) | 173.1 | ||||||||||||||
| Net liabilities of Salaried VEBA | — | 31.9 | — | — | 31.9 | |||||||||||||||
| Deferred tax liabilities | — | — | 4.3 | — | 4.3 | |||||||||||||||
| Long-term intercompany payable | — | 12.4 | — | (12.4 | ) | — | ||||||||||||||
| Long-term liabilities | — | 58.0 | 2.0 | — | 60.0 | |||||||||||||||
| Long-term debt | 369.6 | — | — | — | 369.6 | |||||||||||||||
| Total liabilities | 374.3 | 294.4 | 15.7 | (45.5 | ) | 638.9 | ||||||||||||||
| Total stockholders’ equity | 746.3 | 1,086.1 | 45.6 | (1,131.7 | ) | 746.3 | ||||||||||||||
| Total | $ | 1,120.6 | $ | 1,380.5 | $ | 61.3 | $ | (1,177.2 | ) | $ | 1,385.2 | |||||||||
| 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 | |||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
| Net sales | $ | — | $ | 1,365.3 | $ | 115.7 | $ | (83.5 | ) | $ | 1,397.5 | |||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of products sold: | ||||||||||||||||||||
| Cost of products sold, excluding depreciation and amortization and other items | — | 1,085.5 | 101.1 | (81.3 | ) | 1,105.3 | ||||||||||||||
| Unrealized gain on derivative instruments | — | (19.4 | ) | — | — | (19.4 | ) | |||||||||||||
| Depreciation and amortization | — | 37.5 | 2.2 | — | 39.7 | |||||||||||||||
| Selling, general, administrative, research and development: | ||||||||||||||||||||
| Selling, general, administrative, research and development | 4.5 | 88.3 | 6.9 | (2.2 | ) | 97.5 | ||||||||||||||
| Net periodic postretirement benefit cost relating to Salaried VEBA | — | 4.5 | — | — | 4.5 | |||||||||||||||
| Total selling, general, administrative, research and development | 4.5 | 92.8 | 6.9 | (2.2 | ) | 102.0 | ||||||||||||||
| Goodwill impairment | — | 18.4 | — | — | 18.4 | |||||||||||||||
| Other operating charges, net | — | 0.8 | — | — | 0.8 | |||||||||||||||
| Total costs and expenses | 4.5 | 1,215.6 | 110.2 | (83.5 | ) | 1,246.8 | ||||||||||||||
| Operating (loss) income | (4.5 | ) | 149.7 | 5.5 | — | 150.7 | ||||||||||||||
| Other (expense) income: | ||||||||||||||||||||
| Interest expense | (20.7 | ) | (1.7 | ) | — | 0.2 | (22.2 | ) | ||||||||||||
| Other income, net | — | 4.0 | 0.7 | (0.2 | ) | 4.5 | ||||||||||||||
| (Loss) income before income taxes | (25.2 | ) | 152.0 | 6.2 | — | 133.0 | ||||||||||||||
| Income tax provision | — | (95.2 | ) | (1.9 | ) | 9.5 | (87.6 | ) | ||||||||||||
| Earnings in equity of subsidiaries | 70.6 | 4.3 | — | (74.9 | ) | — | ||||||||||||||
| Net income | $ | 45.4 | $ | 61.1 | $ | 4.3 | $ | (65.4 | ) | $ | 45.4 | |||||||||
| Comprehensive income | $ | 45.4 | $ | 61.1 | $ | 4.3 | $ | (65.4 | ) | $ | 45.4 | |||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
| Net sales | $ | — | $ | 1,301.6 | $ | 103.4 | $ | (74.4 | ) | $ | 1,330.6 | |||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of products sold: | ||||||||||||||||||||
| Cost of products sold, excluding depreciation and amortization and other items | — | 1,000.6 | 90.0 | (71.1 | ) | 1,019.5 | ||||||||||||||
| Lower of cost or market inventory write-down | — | 4.9 | — | — | 4.9 | |||||||||||||||
| Unrealized gain on derivative instruments | — | (18.7 | ) | — | — | (18.7 | ) | |||||||||||||
| Depreciation and amortization | — | 34.0 | 2.0 | — | 36.0 | |||||||||||||||
| Selling, general, administrative, research and development: | ||||||||||||||||||||
| Selling, general, administrative, research and development | 4.2 | 95.0 | 8.4 | (2.6 | ) | 105.0 | ||||||||||||||
| Net periodic postretirement benefit cost relating to Salaried VEBA | — | 3.4 | — | — | 3.4 | |||||||||||||||
| Gain on removal of Union VEBA net assets | — | (0.1 | ) | — | — | (0.1 | ) | |||||||||||||
| Total selling, general, administrative, research and development | 4.2 | 98.3 | 8.4 | (2.6 | ) | 108.3 | ||||||||||||||
| Other operating charges, net | — | 2.8 | — | — | 2.8 | |||||||||||||||
| Total costs and expenses | 4.2 | 1,121.9 | 100.4 | (73.7 | ) | 1,152.8 | ||||||||||||||
| Operating (loss) income | (4.2 | ) | 179.7 | 3.0 | (0.7 | ) | 177.8 | |||||||||||||
| Other (expense) income: | ||||||||||||||||||||
| Interest (expense) income | (21.6 | ) | 1.2 | — | 0.1 | (20.3 | ) | |||||||||||||
| Other (expense) income, net | (11.1 | ) | 0.9 | — | (0.1 | ) | (10.3 | ) | ||||||||||||
| (Loss) income before income taxes | (36.9 | ) | 181.8 | 3.0 | (0.7 | ) | 147.2 | |||||||||||||
| Income tax provision | — | (69.0 | ) | (0.6 | ) | 14.1 | (55.5 | ) | ||||||||||||
| Earnings in equity of subsidiaries | 128.6 | 1.7 | — | (130.3 | ) | — | ||||||||||||||
| Net income | $ | 91.7 | $ | 114.5 | $ | 2.4 | $ | (116.9 | ) | $ | 91.7 | |||||||||
| Comprehensive income | $ | 86.7 | $ | 109.8 | $ | 2.1 | $ | (111.9 | ) | $ | 86.7 | |||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
| Net sales | $ | — | $ | 1,361.6 | $ | 123.3 | $ | (93.0 | ) | $ | 1,391.9 | |||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of products sold: | ||||||||||||||||||||
| Cost of products sold, excluding depreciation and amortization and other items | — | 1,095.6 | 108.4 | (88.6 | ) | 1,115.4 | ||||||||||||||
| Lower of cost or market inventory write-down | — | 2.6 | — | — | 2.6 | |||||||||||||||
| Unrealized loss on derivative instruments | — | 3.4 | — | — | 3.4 | |||||||||||||||
| Depreciation and amortization | — | 31.3 | 1.1 | — | 32.4 | |||||||||||||||
| Selling, general, administrative, research and development: | ||||||||||||||||||||
| Selling, general, administrative, research and development | 4.3 | 76.5 | 9.3 | (2.0 | ) | 88.1 | ||||||||||||||
| Net periodic postretirement benefit income relating to Salaried VEBA | — | 2.4 | — | — | 2.4 | |||||||||||||||
| Loss on removal of Union VEBA net assets | — | 493.4 | — | — | 493.4 | |||||||||||||||
| Total selling, general, administrative, research and development | 4.3 | 572.3 | 9.3 | (2.0 | ) | 583.9 | ||||||||||||||
| Other operating charges, net | — | 0.1 | — | — | 0.1 | |||||||||||||||
| Total costs and expenses | 4.3 | 1,705.3 | 118.8 | (90.6 | ) | 1,737.8 | ||||||||||||||
| Operating (loss) income | (4.3 | ) | (343.7 | ) | 4.5 | (2.4 | ) | (345.9 | ) | |||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest expense | (23.5 | ) | (0.9 | ) | — | 0.3 | (24.1 | ) | ||||||||||||
| Other (expense) income, net | (2.5 | ) | 3.5 | (2.5 | ) | (0.3 | ) | (1.8 | ) | |||||||||||
| (Loss) income before income taxes | (30.3 | ) | (341.1 | ) | 2.0 | (2.4 | ) | (371.8 | ) | |||||||||||
| Income tax benefit | — | 122.5 | 1.3 | 11.4 | 135.2 | |||||||||||||||
| (Loss) earnings in equity of subsidiaries | (206.3 | ) | 0.9 | — | 205.4 | — | ||||||||||||||
| Net (loss) income | $ | (236.6 | ) | $ | (217.7 | ) | $ | 3.3 | $ | 214.4 | $ | (236.6 | ) | |||||||
| Comprehensive (loss) income | $ | (172.2 | ) | $ | (153.5 | ) | $ | 3.5 | $ | 150.0 | $ | (172.2 | ) | |||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net cash (used in) provided by operating activities | $ | (24.2 | ) | $ | 156.9 | $ | 8.8 | $ | — | $ | 141.5 | |||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | — | (74.7 | ) | (0.8 | ) | — | (75.5 | ) | ||||||||||||
| Purchase of available for sale securities | — | (247.5 | ) | — | — | (247.5 | ) | |||||||||||||
| Proceeds from disposition of available for sale securities | — | 296.9 | — | — | 296.9 | |||||||||||||||
| Proceeds from disposal of property, plant and equipment | — | 0.6 | — | — | 0.6 | |||||||||||||||
| Intercompany loans receivable | 143.2 | — | (7.6 | ) | (135.6 | ) | — | |||||||||||||
| Net cash provided by (used in) investing activities | 143.2 | (24.7 | ) | (8.4 | ) | (135.6 | ) | (25.5 | ) | |||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Repayment of capital lease | — | (0.4 | ) | — | — | (0.4 | ) | |||||||||||||
| Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares | (4.5 | ) | — | — | — | (4.5 | ) | |||||||||||||
| Repurchase of common stock | (79.5 | ) | — | — | — | (79.5 | ) | |||||||||||||
| Cash dividends and dividend equivalents paid | (35.0 | ) | — | — | — | (35.0 | ) | |||||||||||||
| Intercompany loans payable | — | (135.6 | ) | — | 135.6 | — | ||||||||||||||
| Net cash used in financing activities | (119.0 | ) | (136.0 | ) | — | 135.6 | (119.4 | ) | ||||||||||||
| Net (decrease) increase in cash and cash equivalents during the period | — | (3.8 | ) | 0.4 | — | (3.4 | ) | |||||||||||||
| 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 | $ | — | $ | 61.3 | $ | 3.0 | $ | — | $ | 64.3 | ||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 177.7 | $ | 178.7 | $ | 9.2 | $ | (200.0 | ) | $ | 165.6 | |||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | — | (74.0 | ) | (2.1 | ) | — | (76.1 | ) | ||||||||||||
| Purchase of available for sale securities | — | (255.3 | ) | — | — | (255.3 | ) | |||||||||||||
| Proceeds from disposition of available for sale securities | — | 55.0 | — | — | 55.0 | |||||||||||||||
Intercompany loans receivable1 | (166.0 | ) | 110.4 | (1.3 | ) | 56.9 | — | |||||||||||||
| Net cash used in investing activities | (166.0 | ) | (163.9 | ) | (3.4 | ) | 56.9 | (276.4 | ) | |||||||||||
| 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 | 1.2 | — | — | — | 1.2 | |||||||||||||||
| Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares | (2.9 | ) | — | — | — | (2.9 | ) | |||||||||||||
| Repurchase of common stock | (33.3 | ) | — | — | — | (33.3 | ) | |||||||||||||
| Cash dividends and dividend equivalents paid | (32.4 | ) | — | — | — | (32.4 | ) | |||||||||||||
| Cash dividends paid to Parent | — | (200.0 | ) | — | 200.0 | — | ||||||||||||||
Intercompany loans payable1 | (106.5 | ) | 167.3 | (3.9 | ) | (56.9 | ) | — | ||||||||||||
| Net cash (used in) provided by financing activities | (11.7 | ) | (32.7 | ) | (3.9 | ) | 143.1 | 94.8 | ||||||||||||
| Net (decrease) increase in cash and cash equivalents during the period | — | (17.9 | ) | 1.9 | — | (16.0 | ) | |||||||||||||
| 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 | $ | — | $ | 65.1 | $ | 2.6 | $ | — | $ | 67.7 | ||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated | ||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 285.7 | $ | (126.3 | ) | $ | 0.3 | $ | — | $ | 159.7 | |||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | — | (47.9 | ) | (15.2 | ) | — | (63.1 | ) | ||||||||||||
| Purchase of available for sale securities | — | (0.5 | ) | — | — | (0.5 | ) | |||||||||||||
| Proceeds from disposition of available for sale securities | — | 84.0 | — | — | 84.0 | |||||||||||||||
| Net cash provided by (used in) investing activities | — | 35.6 | (15.2 | ) | — | 20.4 | ||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Repayment of principal and redemption premium of 8.25% Senior Notes | (30.0 | ) | — | — | — | (30.0 | ) | |||||||||||||
| Repayment of Convertible Notes | (175.0 | ) | — | — | — | (175.0 | ) | |||||||||||||
| Proceeds from cash-settled call options related to settlement of Convertible Notes | 94.9 | — | — | — | 94.9 | |||||||||||||||
| Payment for conversion premium related to settlement of Convertible Notes | (94.9 | ) | — | — | — | (94.9 | ) | |||||||||||||
| Cash paid for debt issuance costs | (0.6 | ) | — | — | — | (0.6 | ) | |||||||||||||
| Excess tax benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest | — | 1.3 | — | — | 1.3 | |||||||||||||||
| Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares | (2.8 | ) | — | — | — | (2.8 | ) | |||||||||||||
| Repurchase of common stock | (49.2 | ) | — | — | — | (49.2 | ) | |||||||||||||
| Cash dividends and dividend equivalents paid | (28.1 | ) | — | — | — | (28.1 | ) | |||||||||||||
| Intercompany loans payable | — | (12.8 | ) | 12.8 | — | — | ||||||||||||||
| Net cash (used in) provided by financing activities | (285.7 | ) | (11.5 | ) | 12.8 | — | (284.4 | ) | ||||||||||||
| Net decrease in cash and cash equivalents during the period | — | (102.2 | ) | (2.1 | ) | — | (104.3 | ) | ||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | — | 185.2 | 2.8 | — | 188.0 | |||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | — | $ | 83.0 | $ | 0.7 | $ | — | $ | 83.7 | ||||||||||
Quarter Ended 31-Mar | Quarter Ended 30-Jun | Quarter Ended 30-Sep | Quarter Ended 31-Dec | |||||||||||||
| 2017 | ||||||||||||||||
| Net sales | $ | 355.3 | $ | 356.3 | $ | 332.8 | $ | 353.1 | ||||||||
| Cost of products sold, excluding depreciation, amortization and other items | $ | 277.8 | $ | 277.7 | $ | 267.2 | $ | 282.6 | ||||||||
| Unrealized (gain) loss on derivative instruments | $ | (15.1 | ) | $ | 11.9 | $ | (10.8 | ) | $ | (5.4 | ) | |||||
| Gross profit | $ | 92.6 | $ | 66.7 | $ | 76.4 | $ | 75.9 | ||||||||
| Operating income | $ | 59.5 | $ | 11.4 | $ | 39.8 | $ | 40.0 | ||||||||
Net income (loss)1 | $ | 36.0 | $ | 4.7 | $ | 19.9 | $ | (15.2 | ) | |||||||
| Net income (loss) per common share, Basic | $ | 2.07 | $ | 0.28 | $ | 1.18 | $ | (0.90 | ) | |||||||
| Net income (loss) per common share, Diluted | $ | 2.04 | $ | 0.27 | $ | 1.16 | $ | (0.90 | ) | |||||||
| Dividends declared per common share | $ | 0.50 | $ | 0.50 | $ | 0.50 | $ | 0.50 | ||||||||
Quarter Ended 31-Mar | Quarter Ended 30-Jun | Quarter Ended 30-Sep | Quarter Ended 31-Dec | |||||||||||||
| 2016 | ||||||||||||||||
| Net sales | $ | 343.2 | $ | 334.9 | $ | 320.6 | $ | 331.9 | ||||||||
| Cost of products sold, excluding depreciation, amortization and other items | $ | 262.0 | $ | 250.4 | $ | 254.7 | $ | 252.4 | ||||||||
| Lower of cost or market inventory write-down | $ | 4.9 | $ | — | $ | — | $ | — | ||||||||
| Unrealized gain on derivative instruments | $ | (4.0 | ) | $ | (10.9 | ) | $ | (2.0 | ) | $ | (1.8 | ) | ||||
| Gross profit | $ | 80.3 | $ | 95.4 | $ | 67.9 | $ | 81.3 | ||||||||
| Operating income | $ | 44.8 | $ | 57.9 | $ | 29.8 | $ | 45.3 | ||||||||
| Net income | $ | 26.3 | $ | 26.0 | $ | 14.9 | $ | 24.5 | ||||||||
| Net income per common share, Basic | $ | 1.47 | $ | 1.45 | $ | 0.84 | $ | 1.39 | ||||||||
| Net income per common share, Diluted | $ | 1.44 | $ | 1.43 | $ | 0.82 | $ | 1.37 | ||||||||
| Dividends declared per common share | $ | 0.45 | $ | 0.45 | $ | 0.45 | $ | 0.45 | ||||||||
18. Subsequent Events
Dividend Declaration
. On January85
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.
Item 9A.
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 theManagement’s Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed under the supervision of our principal executive officer and principal financial officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and include those policies and procedures that:Because of our inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2017,2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control -– Integrated Framework as established in 2013. Based on that evaluation, our management, including our principal executive officer and principal financial officer concluded that our internal control over financial reporting was effective as of December 31, 2017.
Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements for the year ended December 31, 20172023 included in Item 8. "Financial“Financial Statements and Supplementary Data"Data” of this Report,Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting.
Changes in Internal ControlsControl Over Financial Reporting
Item 9B.
Other InformationNone.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
86
Part III
Item 10.
Directors, Executive Officers and Corporate GovernanceThe information required by this item is incorporated by reference to the information included under the captions "Executive“Executive Officers," "Proposals” “Proposals Requiring Your Vote – Proposal 1 – Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance"Directors” and "Corporate Governance"“Corporate Governance” in our proxy statement for the 20182024 annual meeting of stockholders.
Item 11.
Executive CompensationThe information required by this item is incorporated by reference to the information included under the captions "Executive“Executive Compensation," "Director Compensation"” “Director Compensation” and "Corporate“Corporate Governance – Board Committees – Compensation Committee – Compensation Committee Interlocks and Insider Participation"Participation” in our proxy statement for the 20182024 annual meeting of stockholders.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is incorporated by reference to the information included under the captions "Equity“Equity Compensation Plan Information"Information” and "Principal“Principal Stockholders and Management Ownership"Ownership” in our proxy statement for the 20182024 annual meeting of stockholders.
The information required by this item is incorporated by reference to the information included under the captions "Certain“Certain Relationships and Related Transactions"Transactions” and "Corporate“Corporate Governance – Director Independence"Independence” in our proxy statement for the 20182024 annual meeting of stockholders.
Item 14.
Principal Accountant Fees and ServicesThe information required by this item is incorporated by reference to the information included under the caption "Independent“Independent Public Accountants"Accountants” in our proxy statement for the 20182024 annual meeting of stockholders.
87
PART IV
Item 15.
Exhibits and Financial Statement Schedules1. Financial Statements
The following are contained in this Annual Report on Form 10-K:
45 | |||
48 | |||
49 | |||
50 | |||
51 | |||
52 | |||
53 |
2. Financial Statement Schedules
All schedules are omitted because they are either inapplicable or the required information is included in theour Consolidated Financial Statements or the notes thereto included in Item 8. "Financial“Financial Statements and Supplementary Data"Data” and incorporated herein by reference.
3. Exhibits Index
Exhibit |
|
|
| Provided |
| Incorporated by Reference | ||||||
No. |
| Exhibit Description |
| Herewith |
| Form |
| File Number |
| Exhibit |
| Filing Date |
2.1 |
|
|
|
| 8-K |
| 001-09447 |
| 2.1 |
| November 30, 2020 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
| Amended and Restated Certificate of Incorporation of the Company |
|
|
| 8-A |
| 000-52105 |
| 3.1 |
| July 6, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
| 10-Q |
| 000-52105 |
| 3.2 |
| August 7, 2008 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.3 |
|
|
|
| 8-K |
| 000-52105 |
| 3.1 |
| June 8, 2015 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4 |
|
|
|
| 8-K |
| 001-09447 |
| 3.1 |
| May 26, 2016 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
| 8-K |
| 000-52105 |
| 3.1 |
| April 8, 2016 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6 |
|
|
|
| 8-K |
| 001-09447 |
| 3.1 |
| June 22, 2020 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1 |
|
|
|
| 8-K |
| 001-09447 |
| 4.1 |
| November 26, 2019 | |
88
Exhibit |
|
|
| Provided |
| Incorporated by Reference | ||||||
No. |
| Exhibit Description |
| Herewith |
| Form |
| File Number |
| Exhibit |
| Filing Date |
|
| named therein and Wells Fargo Bank, National Association, as Trustee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2 |
| Form of 4.625% Senior Notes due 2028 (included in Exhibit 4.1) |
|
|
| 8-K |
| 001-09447 |
| 4.2 |
| November 26, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
| Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 |
|
|
| 10-K |
| 001-09447 |
| 4.3 |
| February 25, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
|
| 8-K |
| 001-09447 |
| 4.1 |
| May 20, 2021 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5 |
| Form of 4.50% Senior Note due 2031 (included in Exhibit 4.1) |
|
|
| 8-K |
| 001-09447 |
| 4.2 |
| May 20, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
|
|
| 8-K |
| 001-09447 |
| 10.1 |
| November 4, 2019 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
|
|
|
| 10-K |
| 001-09447 |
| 10.2 |
| February 24, 2023 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3 |
|
|
|
| 10-K |
| 001-09447 |
| 10.3 |
| February 24, 2023 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4 |
|
|
|
| 8-K |
| 001-09447 |
| 10.1 |
| April 12, 2022 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5 |
|
|
|
| 10-Q |
| 001-09447 |
| 10.2 |
| July 28, 2022 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.6 |
| Offer Letter dated June 22, 2020, between the Company and Keith A. Harvey |
|
|
| 8-K |
| 001-09447 |
| 10.1 |
| June 22, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.7 |
| Amended and Restated Severance Agreement dated July 31, 2020 between the Company and Keith A. Harvey |
|
|
| 8-K |
| 001-09447 |
| 10.1 |
| July 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.8 |
|
|
|
| 8-K |
| 001-09447 |
| 10.8 |
| July 6, 2006 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.9 |
|
|
|
| 8-K |
| 001-09447 |
| 10.9 |
| July 6, 2006 | |
89
Exhibit |
|
|
| Provided |
| Incorporated by Reference | ||||||
No. |
| Exhibit Description |
| Herewith |
| Form |
| File Number |
| Exhibit |
| Filing Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.10 |
|
|
|
| 8-K |
| 001-09447 |
| 10.10 |
| July 6, 2006 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.11 |
|
|
|
| 8-K |
| 001-09447 |
| 10.14 |
| July 6, 2006 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.12 |
| Amendment to the Kaiser Aluminum Fabricated Products Restoration Plan |
|
|
| 8-K |
| 000-52105 |
| 10.4 |
| December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13 |
| Form of Non-Employee Director Restricted Stock Award Agreement |
|
|
| 10-Q |
| 001-09447 |
| 10.2 |
| July 27, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.14 |
| Form of Executive Officer Restricted Stock Units Award Agreement |
|
|
| 8-K |
| 001-09447 |
| 10.2 |
| March 10, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.15 |
| Amended and Restated Severance Agreement dated March 5, 2021 between the Company and John M. Donnan |
|
|
| 8-K |
| 001-09447 |
| 10.1 |
| March 11, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.16
|
|
|
|
| 8-K |
| 001-09447 |
| 10.3 |
| March 11, 2021 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.17 |
|
|
|
| 8-K |
| 001-09447 |
| 10.2 |
| March 10, 2022 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.18 |
|
|
|
| 10-Q |
| 001-09447 |
| 10.1 |
| April 28, 2023 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.19 |
|
|
|
| 10-Q |
| 001-09447 |
| 10.2 |
| April 28, 2023 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.20 |
|
|
|
| 10-Q |
| 001-09447 |
| 10.3 |
| April 28, 2023 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.21 |
|
|
|
| 8-K |
| 001-09447 |
| 10.1 |
| April 1, 2021 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.22 |
| Kaiser Aluminum Corporation 2021 Equity and Incentive Compensation Plan |
|
|
| 8-K |
| 001-09447 |
| 10.1 |
| June 3, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.23 |
| Amended and Restated Director Designation Agreement dated September 3, 2021 |
|
|
| 8-K |
| 001-09447 |
| 10.1 |
| September 7, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*19.1 |
|
| X |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
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|
|
21.1 |
|
| X |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1 |
|
| X |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
| Certification of Keith A. Harvey pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
| Certification of Neal E. West pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
Exhibit | Provided | Incorporated by Reference | ||||||||||
No. | Exhibit Description | Herewith | Form | File Number | Exhibit | Filing Date | ||||||
32.1 | ||||||||||||
X | ||||||||||||
32.2 | X | |||||||||||
* | Kaiser Aluminum Corporation Compensation Clawback Policy Effective October 2, 2023 | 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 | ||||||||||||
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10‑K.
Item 16.Form 10-K Summary
None.
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Keith A. | ||||
Keith A. Harvey | ||||
President and Chief Executive Officer | ||||
Date: February 22, 2024 | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ | President, Chief Executive Officer (Principal Executive Officer) | Date: February 22, | ||
Keith A. | ||||
/s/ | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | Date: February 22, | ||
Neal E. West | ||||
/s/ | Vice President and Chief Accounting Officer (Principal Accounting Officer) | Date: February 22, | ||
Vijai Narayan | ||||
Director | ||||
Michael C. Arnold | ||||
Director | ||||
David A. Foster | ||||
Director | ||||
Richard P. Grimley | ||||
/s/ | Executive Chairman of the Board | Date: February 22, | ||
Jack A. Hockema | ||||
/s/ | Director | Date: February 22, | ||
Lauralee E. Martin | ||||
Director | ||||
Alfred E. Osborne, Jr., Ph.D. | ||||
/s/ Teresa M. Sebastian | Director | Date: February 22, | ||
Teresa M. Sebastian | ||||
Director | ||||
Donald J. Stebbins | ||||
/s/ Brett E. Wilcox | Director | Date: February 22, | ||
Brett E. Wilcox | ||||
/s/ Kevin W. Williams | Director | Date: February 22, 2024 | ||
Kevin W. Williams |
92