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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

 

Commission File Number: 1-09447

 

KAISER ALUMINUM CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

94-3030279

(State of incorporation)

 

(I.R.S. Employer Identification No.)

 

1550 West McEwen Drive, Suite 500

 

 

Franklin, Tennessee

 

37067

(Address of principal executive offices)

 

(Zip Code)

 

(629) 252-7040

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, par value $0.01 per share

KALU

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of April 22, 2024, there were 16,068,833 shares of common stock of the registrant outstanding.

 

 


 

COMMONLY USED OR DEFINED TERMS

 

Term

Definition

Adjusted EBITDA

Earnings before interest, taxes, depreciation and amortization adjusted for non-run-rate items

Aero/HS Products

2000, 7000 and certain 6000 series alloys products used in the Aerospace, Defense, Space and other end markets requiring high strength applications

Alloy(s)

Certain metals such as copper, zinc, magnesium, manganese and silicon added to primary aluminum to obtain certain attributes

AOCI

Accumulated other comprehensive income (loss)

ASU

Accounting Standards Update

Automotive Extrusions

Extruded aluminum products used in automotive applications

COGS

Cost of products sold, excluding depreciation and amortization

Form 10-Q

This Quarterly Report on Form 10-Q

GAAP

United States Generally Accepted Accounting Principles

GE Products

6000 series alloys products used in the General Engineering end markets

LME

London Metal Exchange

MWTP

Midwest Transaction Price is equal to the LME aluminum price plus a Midwest premium

Newark

Kaiser Aluminum manufacturing facility located in Heath, Ohio, a suburb of Newark, Ohio

OPEB

Other Post Retirement Benefit Plan (Refer to Note 3 – Employee Benefits)

Other products

Cast and aluminum products used in various non-strategic end markets

Packaging

3000 and 5000 series alloy products used in the beverage and food packaging end markets

Revolving Credit Facility

Revolving credit facility with Wells Fargo Bank, National Association, as administrative agent, and the other financial institutions party thereto

Salaried VEBA

Salaried Voluntary Employees' Beneficiary Association (Refer to Note 3 – Employee Benefits)

SEC

Securities and Exchange Commission

Senior Notes

Collectively, the fixed-rate unsecured notes we issued during the years ended December 31, 2019 and 2021 at the following interest rates and aggregate principal amounts, respectively: (i) 4.625% and $500.0 million; and (ii) 4.50% and $550.0 million

Term SOFR

Forward looking term rate based on the Secured Overnight Financing Rate

Trentwood

Kaiser Aluminum manufacturing facility located in Spokane Valley, Washington

Warrick

Kaiser Aluminum manufacturing facility located in Newburgh, Indiana, in the county of Warrick

 

 


 

TABLE OF CONTENTS

 

PART I

 

 

Item 1. Financial Statements

 

1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4. Controls and Procedures

 

30

 

 

 

PART II

 

 

Item 1. Legal Proceedings

 

31

Item 1A. Risk Factors

 

31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

31

Item 3. Defaults Upon Senior Securities

 

31

Item 4. Mine Safety Disclosures

 

31

Item 5. Other Information

 

31

Item 6. Exhibits

 

32

 

 

 

SIGNATURES

 

33

 

 

2


 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

As of March 31, 2024

 

 

As of December 31, 2023

 

 

 

(In millions of dollars, except share
and per share amounts)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

101.6

 

 

$

82.4

 

Receivables:

 

 

 

 

 

 

Trade receivables, net

 

 

341.4

 

 

 

325.2

 

Other

 

 

11.2

 

 

 

12.4

 

Contract assets

 

 

63.0

 

 

 

58.5

 

Inventories

 

 

471.3

 

 

 

477.2

 

Prepaid expenses and other current assets

 

 

34.6

 

 

 

34.5

 

Total current assets

 

 

1,023.1

 

 

 

990.2

 

Property, plant and equipment, net

 

 

1,055.0

 

 

 

1,052.1

 

Operating lease assets

 

 

30.5

 

 

 

32.6

 

Deferred tax assets, net

 

 

5.4

 

 

 

6.0

 

Intangible assets, net

 

 

48.9

 

 

 

50.0

 

Goodwill

 

 

18.8

 

 

 

18.8

 

Other assets

 

 

118.1

 

 

 

117.7

 

Total assets

 

$

2,299.8

 

 

$

2,267.4

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

273.8

 

 

$

252.7

 

Accrued salaries, wages and related expenses

 

 

45.5

 

 

 

53.0

 

Other accrued liabilities

 

 

65.4

 

 

 

64.3

 

Total current liabilities

 

 

384.7

 

 

 

370.0

 

Long-term portion of operating lease liabilities

 

 

27.4

 

 

 

29.2

 

Pension and other postretirement benefits

 

 

75.6

 

 

 

76.8

 

Net liabilities of Salaried VEBA

 

 

3.8

 

 

 

3.8

 

Deferred tax liabilities

 

 

19.5

 

 

 

13.9

 

Long-term liabilities

 

 

83.6

 

 

 

81.7

 

Long-term debt, net

 

 

1,040.3

 

 

 

1,039.8

 

Total liabilities

 

 

1,634.9

 

 

 

1,615.2

 

Commitments and contingencies – Note 7

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, 5,000,000 shares authorized at both March 31, 2024 and
   December 31, 2023;
no shares were issued and outstanding at
   March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, par value $0.01, 90,000,000 shares authorized at both
   March 31, 2024 and December 31, 2023;
22,891,318 shares issued and
   
16,056,032 shares outstanding at March 31, 2024; 22,851,077 shares
   issued and
16,015,791 shares outstanding at December 31, 2023

 

 

0.2

 

 

 

0.2

 

Additional paid in capital

 

 

1,107.5

 

 

 

1,104.7

 

Retained earnings

 

 

22.1

 

 

 

10.1

 

Treasury stock, at cost, 6,835,286 shares at both March 31, 2024 and
   December 31, 2023

 

 

(475.9

)

 

 

(475.9

)

Accumulated other comprehensive income

 

 

11.0

 

 

 

13.1

 

Total stockholders’ equity

 

 

664.9

 

 

 

652.2

 

Total liabilities and stockholders' equity

 

$

2,299.8

 

 

$

2,267.4

 

 

The accompanying notes to interim consolidated financial statements are an integral part of these statements.

 

1


 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)

 

 

 

 

 

 

 

Quarter Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(In millions of dollars, except share and per share amounts)

 

Net sales

 

$

737.5

 

 

$

807.6

 

Costs and expenses:

 

 

 

 

 

 

Cost of products sold, excluding depreciation and amortization

 

 

642.9

 

 

 

731.1

 

Depreciation and amortization

 

 

28.8

 

 

 

26.3

 

Selling, general, administrative, research and development

 

 

32.6

 

 

 

29.7

 

Restructuring costs

 

 

0.1

 

 

 

1.4

 

Other operating charges, net

 

 

0.4

 

 

 

 

Total costs and expenses

 

 

704.8

 

 

 

788.5

 

Operating income

 

 

32.7

 

 

 

19.1

 

Other (expense) income:

 

 

 

 

 

 

Interest expense

 

 

(11.5

)

 

 

(11.9

)

Other income, net – Note 9

 

 

10.9

 

 

 

13.6

 

Income before income taxes

 

 

32.1

 

 

 

20.8

 

Income tax provision

 

 

(7.5

)

 

 

(4.9

)

Net income

 

$

24.6

 

 

$

15.9

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

1.53

 

 

$

1.00

 

Diluted

 

$

1.51

 

 

$

0.99

 

Weighted-average number of common shares outstanding (in thousands):

 

 

 

 

 

 

Basic

 

 

16,027

 

 

 

15,940

 

Diluted

 

 

16,230

 

 

 

16,096

 

 

The accompanying notes to interim consolidated financial statements are an integral part of these statements.

 

2


 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)

 

 

 

Quarter Ended March 31,

 

 

2024

 

2023

 

 

 

(In millions of dollars)

 

Net income

 

$

24.6

 

 

$

15.9

 

Other comprehensive (loss) income, net of tax – Note 8:

 

 

 

 

 

 

Defined benefit plans

 

 

(0.5

)

 

 

0.7

 

Cash flow hedges

 

 

(1.6

)

 

 

(1.8

)

Other comprehensive loss, net of tax

 

 

(2.1

)

 

 

(1.1

)

Comprehensive income

 

$

22.5

 

 

$

14.8

 

 

The accompanying notes to interim consolidated financial statements are an integral part of these statements.

 

3


 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS EQUITY (UNAUDITED)

Quarter Ended March 31, 2024

 

 

 

Common
Shares
Outstanding
1

 

 

Common
Stock

 

 

Additional
Paid in Capital

 

 

Retained
Earnings

 

 

Treasury
Stock

 

 

Accumulated
Other
Comprehensive
Income

 

 

Total

 

 

 

(In millions of dollars, except share and per share amounts)

 

BALANCE, December 31, 2023

 

 

16,015,791

 

 

$

0.2

 

 

$

1,104.7

 

 

$

10.1

 

 

$

(475.9

)

 

$

13.1

 

 

$

652.2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

24.6

 

 

 

 

 

 

 

 

 

24.6

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2.1

)

 

 

(2.1

)

Common shares issued (including impacts from
   Long-Term Incentive programs)

 

 

56,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of shares to cover tax withholdings
   upon common shares issued

 

 

(16,175

)

 

 

 

 

 

(1.2

)

 

 

 

 

 

 

 

 

 

 

 

(1.2

)

Cash dividends declared2

 

 

 

 

 

 

 

 

 

 

 

(12.6

)

 

 

 

 

 

 

 

 

(12.6

)

Amortization of unearned equity compensation

 

 

 

 

 

 

 

 

4.0

 

 

 

 

 

 

 

 

 

 

 

 

4.0

 

BALANCE, March 31, 2024

 

 

16,056,032

 

 

$

0.2

 

 

$

1,107.5

 

 

$

22.1

 

 

$

(475.9

)

 

$

11.0

 

 

$

664.9

 

 

1.
At March 31, 2024, 345,130 shares were available for awards under the Kaiser Aluminum Corporation 2021 Equity and Incentive Compensation Plan.
2.
Dividends declared per common share were $0.77 for the quarter ended March 31, 2024.

 

The accompanying notes to interim consolidated financial statements are an integral part of these statements.

 

4


 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS EQUITY CONTINUED (UNAUDITED)

Quarter Ended March 31, 2023

 

 

 

Common
Shares
Outstanding

 

 

Common
Stock

 

 

Additional
Paid in Capital

 

 

Retained
Earnings

 

 

Treasury
Stock

 

 

Accumulated
Other
Comprehensive
Income

 

 

Total

 

 

 

(In millions of dollars, except share and per share amounts)

 

BALANCE, December 31, 2022

 

 

15,940,756

 

 

$

0.2

 

 

$

1,090.4

 

 

$

13.3

 

 

$

(475.9

)

 

$

3.2

 

 

$

631.2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15.9

 

 

 

 

 

 

 

 

 

15.9

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.1

)

 

 

(1.1

)

Common shares issued (including impacts from
   Long-Term Incentive programs)

 

 

49,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of shares to cover employees' tax
   withholdings upon vesting of non-vested shares

 

 

(15,848

)

 

 

 

 

 

(1.3

)

 

 

 

 

 

 

 

 

 

 

 

(1.3

)

Cash dividends declared1

 

 

 

 

 

 

 

 

 

 

 

(12.5

)

 

 

 

 

 

 

 

 

(12.5

)

Amortization of unearned equity compensation

 

 

 

 

 

 

 

 

3.4

 

 

 

 

 

 

 

 

 

 

 

 

3.4

 

BALANCE, March 31, 2023

 

 

15,974,036

 

 

$

0.2

 

 

$

1,092.5

 

 

$

16.7

 

 

$

(475.9

)

 

$

2.1

 

 

$

635.6

 

 

1.
Dividends declared per common share were $0.77 for the quarter ended March 31, 2023.

 

The accompanying notes to interim consolidated financial statements are an integral part of these statements.

 

5


 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

 

 

 

Quarter Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(In millions of dollars)

 

Cash flows from operating activities1:

 

 

 

 

 

 

Net income

 

$

24.6

 

 

$

15.9

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

27.7

 

 

 

24.9

 

Amortization of definite-lived intangible assets

 

 

1.1

 

 

 

1.4

 

Amortization of debt premium and debt issuance costs

 

 

0.6

 

 

 

0.5

 

Amortization of cloud computing implementation costs

 

 

0.3

 

 

 

0.4

 

Deferred income taxes

 

 

6.8

 

 

 

4.1

 

Non-cash equity compensation

 

 

4.0

 

 

 

3.4

 

Non-cash asset impairment charge2

 

 

4.2

 

 

 

 

Loss (gain) on disposition of property, plant and equipment

 

 

0.2

 

 

 

(15.0

)

Bad debt expense

 

 

0.1

 

 

 

 

Non-cash postretirement defined benefit plan cost

 

 

1.5

 

 

 

3.1

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade and other receivables

 

 

(15.1

)

 

 

(36.9

)

Contract assets

 

 

(4.5

)

 

 

5.7

 

Inventories

 

 

4.4

 

 

 

(12.3

)

Prepaid expenses and other current assets

 

 

(1.7

)

 

 

(1.3

)

Accounts payable

 

 

18.6

 

 

 

(22.6

)

Accrued liabilities

 

 

(5.2

)

 

 

10.3

 

Annual variable cash contributions to Salaried VEBA

 

 

(1.1

)

 

 

 

Long-term assets and liabilities, net

 

 

(3.2

)

 

 

(1.9

)

Net cash provided by (used in) operating activities

 

 

63.3

 

 

 

(20.3

)

Cash flows from investing activities1:

 

 

 

 

 

 

Capital expenditures

 

 

(30.0

)

 

 

(41.1

)

Proceeds from sale of equity securities

 

 

0.1

 

 

 

 

Proceeds from disposition of property, plant and equipment

 

 

 

 

 

15.2

 

Net cash used in investing activities

 

 

(29.9

)

 

 

(25.9

)

Cash flows from financing activities1:

 

 

 

 

 

 

Borrowings under the Revolving Credit Facility

 

 

 

 

 

119.5

 

Repayment of borrowings under the Revolving Credit Facility

 

 

 

 

 

(80.1

)

Repayment of finance lease

 

 

(0.4

)

 

 

(0.6

)

Cancellation of shares to cover tax withholdings upon common shares issued

 

 

(1.2

)

 

 

(1.3

)

Cash dividends and dividend equivalents paid

 

 

(12.6

)

 

 

(12.5

)

Net cash (used in) provided by financing activities

 

 

(14.2

)

 

 

25.0

 

Net increase (decrease) in cash, cash equivalents and restricted cash during the period

 

 

19.2

 

 

 

(21.2

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

100.7

 

 

 

71.3

 

Cash, cash equivalents and restricted cash at end of period

 

$

119.9

 

 

$

50.1

 

 

1.
See Note 12 for supplemental cash flow information.
2.
Non-cash asset impairment charge for the quarter ended March 31, 2024 is comprised of: (i) a $3.8 million inventory write-down related to certain alloying metals, and (ii) a $0.4 million impairment charge on land held for sale.

 

The accompanying notes to interim consolidated financial statements are an integral part of these statements.

6


KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

NOTES INDEX

Note 1

 

Basis of Presentation and Recent Accounting Pronouncements

8

Note 2

 

Supplemental Balance Sheet Information

9

Note 3

 

Employee Benefits

10

Note 4

 

Restructuring

11

Note 5

 

Derivatives, Hedging Programs and Other Financial Instruments

11

Note 6

 

Debt and Credit Facility

15

Note 7

 

Commitments and Contingencies

16

Note 8

 

Accumulated Other Comprehensive Income

17

Note 9

 

Other Income, Net

18

Note 10

 

Income Tax Matters

18

Note 11

 

Net Income Per Share

18

Note 12

 

Supplemental Cash Flow Information

19

Note 13

 

Business, Product, and Geographical Area Information

19

Note 14

 

Subsequent Events

20

 

 

 

7


Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

1. Basis of Presentation and Recent Accounting Pronouncements

This Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Unless the context otherwise requires, references in these notes to interim consolidated financial statements - unaudited to “Kaiser,” “we,” “us,” “our,” “the Company” and “our Company” refer collectively to Kaiser Aluminum Corporation and its subsidiaries.

Principles of Consolidation and Basis of Presentation. The accompanying unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries and are prepared in accordance with GAAP and the rules and regulations of the SEC applicable for interim periods and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In management’s opinion, all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation have been included. We have reclassified certain items in prior periods to conform to current classifications. The results of operations for our interim periods are not necessarily indicative of the results of operations that may be achieved for the entire 2024 fiscal year. The financial information as of December 31, 2023 is derived from our audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2023.

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.

 

Accounting Pronouncements Issued But Not Yet Adopted

Disclosure Improvements. In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-06 (“ASU 2023-06”), Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The guidance amends GAAP to reflect updates and simplifications to certain disclosure requirements referred to the FASB by the SEC. The amendments in ASU 2023-06 will become effective on the date which the SEC’s removal of the related disclosure becomes effective. If by June 30, 2027, the SEC does not remove the related disclosure, the pending amendment will be removed from ASC 2023-06 and it will not be effective. We do not expect this ASU to have a material impact on our consolidated financial statements.

Segment Reporting. In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), Improvements to Reportable Segment Disclosures. The guidance primarily will require enhanced disclosures about significant segment expenses. All disclosure requirements under ASU 2023-07 and existing segment disclosures in ASC 280, Segment Reporting are also required for public entities with a single reportable segment. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied on a retrospective basis. We are evaluating the impact of the standard on our reporting disclosures.

Income Taxes. In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Improvements to Income Tax Disclosures. The guidance is intended to improve income tax disclosure requirements by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied prospectively with the option of retrospective application. We are evaluating the impact of the standard on our income tax disclosures.

 

8


Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

 

2. Supplemental Balance Sheet Information

 

 

 

As of March 31, 2024

 

 

As of December 31, 2023

 

 

 

(In millions of dollars)

 

Trade Receivables, Net

 

 

 

 

 

 

Billed trade receivables

 

$

342.0

 

 

$

325.8

 

Allowance for doubtful receivables

 

 

(0.6

)

 

 

(0.6

)

Trade receivables, net

 

$

341.4

 

 

$

325.2

 

 

 

 

 

 

 

Inventories1

 

 

 

 

 

 

Finished products

 

$

81.0

 

 

$

89.3

 

Work-in-process

 

 

209.5

 

 

 

210.8

 

Raw materials

 

 

165.0

 

 

 

161.5

 

Operating supplies

 

 

15.8

 

 

 

15.6

 

Inventories

 

$

471.3

 

 

$

477.2

 

 

 

 

 

 

 

Property, Plant and Equipment, Net

 

 

 

 

 

 

Land and improvements

 

$

37.2

 

 

$

38.0

 

Buildings and leasehold improvements

 

 

240.0

 

 

 

238.4

 

Machinery and equipment

 

 

1,272.8

 

 

 

1,265.3

 

Construction in progress

 

 

193.8

 

 

 

173.7

 

Property, plant and equipment, gross

 

 

1,743.8

 

 

 

1,715.4

 

Accumulated depreciation and amortization

 

 

(690.3

)

 

 

(663.7

)

Land held for sale

 

 

1.5

 

 

 

0.4

 

Property, plant and equipment, net

 

$

1,055.0

 

 

$

1,052.1

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

Assets to be conveyed associated with Warrick acquisition

 

$

56.8

 

 

$

56.8

 

Restricted cash – Note 12

 

 

18.3

 

 

 

18.3

 

Long-term replacement parts

 

 

17.2

 

 

 

16.7

 

Other

 

 

25.8

 

 

 

25.9

 

Other assets

 

$

118.1

 

 

$

117.7

 

 

 

 

 

 

 

Other Accrued Liabilities

 

 

 

 

 

 

Uncleared cash disbursements

 

$

16.8

 

 

$

15.7

 

Accrued income taxes and other taxes payable

 

 

13.1

 

 

 

9.5

 

Accrued annual contribution to Salaried VEBA

 

 

 

 

 

1.1

 

Accrued interest

 

 

10.3

 

 

 

9.9

 

Short-term environmental accrual – Note 7

 

 

0.5

 

 

 

2.8

 

Current operating lease liabilities

 

 

7.7

 

 

 

8.0

 

Current finance lease liabilities

 

 

2.3

 

 

 

2.1

 

Other – Note 5

 

 

14.7

 

 

 

15.2

 

Other accrued liabilities

 

$

65.4

 

 

$

64.3

 

 

 

 

 

 

 

Long-Term Liabilities

 

 

 

 

 

 

Workers' compensation accrual

 

$

29.2

 

 

$

29.9

 

Long-term environmental accrual – Note 7

 

 

15.6

 

 

 

14.2

 

Other long-term liabilities

 

 

38.8

 

 

 

37.6

 

Long-term liabilities

 

$

83.6

 

 

$

81.7

 

 

1.
At March 31, 2024 and December 31, 2023, the current cost of our inventory exceeded its stated last-in, first-out (“LIFO”) value by $42.6 million and $56.0 million, respectively.

 

9


Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

3. Employee Benefits

Deferred Compensation Plan

Assets of our deferred compensation plan are included in Other assets, classified within Level 1 of the fair value hierarchy and are measured and recorded at fair value based on their quoted market prices. The fair value of these assets at March 31, 2024 and December 31, 2023 was $11.3 million and $11.1 million, respectively. Assets in the trust are held in various investment funds at certain registered investment companies and are accounted for as equity investments with changes in fair value recorded within Other income, net (see Note 9). Offsetting liabilities relating to the deferred compensation plan are included in Other accrued liabilities and Long-term liabilities.

Short-Term Incentive Plans (“STI Plans”)

As of March 31, 2024, we had a liability of $6.1 million recorded within Accrued salaries, wages and related expenses for estimated probable future payments under the 2024 STI Plans.

Postretirement Benefit Plans

The following table presents the total expense related to all postretirement benefit plans (in millions of dollars):

 

 

 

Quarter Ended March 31,

 

 

 

2024

 

 

2023

 

Defined contribution plans1

 

$

5.8

 

 

$

5.8

 

Deferred compensation plan2

 

 

0.7

 

 

 

0.2

 

Multiemployer pension plans1

 

 

1.5

 

 

 

1.4

 

Net periodic postretirement benefit cost relating to defined benefit plans2,3

 

 

1.5

 

 

 

3.1

 

Total

 

$

9.5

 

 

$

10.5

 

 

1.
Substantially all of these charges related to employee benefits are in COGS with the remaining balance in Selling, general, administrative, research, and development (“SG&A and R&D”) within our Statements of Consolidated Income.
2.
Deferred compensation plan expense and the current service cost component of Net periodic postretirement benefit cost relating to Salaried VEBA are included within our Statements of Consolidated Income in SG&A and R&D for all periods presented. All other components of Net periodic postretirement benefit cost relating to Salaried VEBA are included within Other income, net, on our Statements of Consolidated Income.
3.
The current service cost component of Net periodic postretirement benefit cost relating to both the pension plans and the OPEB plan are included within our Statements of Consolidated Income in COGS for all periods presented. All other components of Net periodic postretirement benefit cost relating to both the pension plans and the OPEB plan are included within Other income, net, on our Statements of Consolidated Income.

Components of Net Periodic Postretirement Benefit Cost. Our results of operations included the following impacts associated with the defined benefit plans: (i) a charge for service rendered by employees; (ii) a charge for accretion of interest; (iii) a benefit for the expected return on plan assets; (iv) amortization of prior service costs (credits) associated with plan amendments; and (v) amortization of net actuarial differences.

 

10


Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

The following table presents the components of Net periodic postretirement benefit cost (credit) relating to the defined benefit plans (in millions of dollars):

 

 

 

Pension Plans

 

 

OPEB

 

 

Salaried VEBA

 

 

 

Quarter Ended

 

 

Quarter Ended

 

 

Quarter Ended

 

 

 

March 31

 

 

March 31

 

 

March 31

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Service cost

 

$

0.9

 

 

$

1.0

 

 

$

0.3

 

 

$

0.3

 

 

$

 

 

$

 

Interest cost

 

 

0.4

 

 

 

0.3

 

 

 

0.8

 

 

 

0.8

 

 

 

0.5

 

 

 

0.7

 

Expected return on plan assets

 

 

(0.3

)

 

 

(0.3

)

 

 

 

 

 

 

 

 

(0.5

)

 

 

(0.6

)

Amortization of prior service cost (credit)1

 

 

0.2

 

 

 

 

 

 

 

 

 

 

 

 

(0.5

)

 

 

1.2

 

Amortization of net actuarial gain

 

 

 

 

 

 

 

 

(0.3

)

 

 

(0.3

)

 

 

 

 

 

 

Total net periodic postretirement benefit cost (credit)

 

$

1.2

 

 

$

1.0

 

 

$

0.8

 

 

$

0.8

 

 

$

(0.5

)

 

$

1.3

 

 

1.
We amortize prior service cost on a straight-line basis over the average remaining years of service of the active plan participants.

 

Pension Plan Contributions. During the quarter ended March 31, 2024, we contributed $2.5 million to the pension plans. We expect to make further contributions of approximately $3.4 million to the pension plans during the remainder of 2024.

4. Restructuring

2022 Restructuring Plan. During 2022, we relocated our corporate headquarters from Foothill Ranch, California (“Foothill Ranch”) to Franklin, Tennessee (“Franklin”). In conjunction with the relocation, we initiated a restructuring plan during the quarter ended December 31, 2022, which consisted primarily of employee retention benefits aimed at incentivizing Foothill Ranch employees to assist with the buildout of the new corporate function in Franklin (“2022 Restructuring Plan”). We incurred total restructuring costs of $7.4 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. All costs associated with the 2022 Restructuring Plan have been incurred as of March 31, 2024.

The following table summarizes activity relating to the 2022 Restructuring Plan liabilities (in millions of dollars):

 

 

Quarter Ended March 31,

 

 

 

2024

 

Beginning Balance

 

$

1.2

 

Restructuring costs

 

 

0.1

 

Costs paid or otherwise settled1

 

 

(1.2

)

Ending Balance

 

$

0.1

 

 

1.
Cash paid during the quarter ended March 31, 2024 was $1.1 million.

5. 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 cash commitments for equipment purchases and/or other agreements denominated in foreign currency. We do not use derivative financial instruments for trading or other speculative purposes. Hedging transactions are executed centrally on behalf of all of our operations to minimize transaction costs, monitor consolidated net exposures and allow for increased responsiveness to changes in market factors.

Our derivative activities are overseen by a committee (“Hedging Committee”), which is composed of our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer, Executive Vice President of Manufacturing and other officers and

 

11


Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

employees selected by the Chief Executive Officer. The Hedging Committee meets regularly to review commodity price exposures, derivative positions and strategy. Management reviews the scope of the Hedging Committee’s activities with our Board of Directors.

We 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, and our hedged transactions are governed by negotiated International Swaps and Derivatives Association Master Agreements, which generally require collateral to be posted by our counterparties above specified credit thresholds which may adjust up or down, based on increases or decreases in counterparty credit ratings. As a result, we believe the risk of loss is remote and contained. The aggregate fair value of our derivative instruments that were in a net liability position was $1.3 million and $1.0 million at March 31, 2024 and December 31, 2023, respectively, and we had no collateral posted as of those dates.

In addition, our firm-price customer sales commitments create incremental customer credit risk related to metal price movements. Under certain circumstances, we mitigate this risk by periodically requiring cash collateral to be posted by our customers, which we classify as deferred revenue and include as a component of Other accrued liabilities. We had no material cash collateral posted by our customers at both March 31, 2024 and December 31, 2023.

Cash Flow Hedges

We designate as cash flow hedges forward swap contracts for aluminum and energy. Additionally, in the fourth quarter of 2023, we adopted this treatment for Alloying Metals used in our fabrication operations. We also designate as cash flow hedges foreign currency forward contracts for equipment and services for which payments are due in foreign currency. Unrealized gains and losses associated with our cash flow hedges are deferred in Other comprehensive loss, net of tax, and reclassified to COGS when such hedges settle or when it is probable that the original forecasted transactions will not occur by the end of the originally specified time period. See Note 8 for the total amount of gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments that was reported in AOCI, as well as the related reclassifications into earnings and tax effects. Cumulative gains and losses related to cash flow hedges are reclassified out of AOCI and recorded within COGS when the associated hedged commodity purchases impact earnings.

Aluminum Hedges. Our pricing of fabricated aluminum products is generally intended to lock in our Conversion Revenue (representing our value added from the fabrication process) and to pass through aluminum price fluctuations to our customers. For some of our higher margin products sold on a spot basis, the pass through of aluminum price movements can sometimes lag by as much as several months, with a favorable impact to us when aluminum prices decline and an adverse impact to us when aluminum prices increase. Additionally, in certain instances, we enter into firm-price arrangements with our customers for stipulated volumes to be delivered in the future. Because we generally purchase primary and secondary aluminum on a floating price basis, the lag in passing through aluminum price movements to customers on some of our higher margin products sold on a spot basis and the volume that we have committed to sell to our customers under a firm-price arrangement create aluminum price risk for us. We use third-party hedging instruments to limit exposure to aluminum price risk related to the aluminum pass through lag on some of our products and firm-price customer sales contracts.

Alloying Metals Hedges. We are exposed to the risk of fluctuating prices for alloying metals used as raw materials in our fabrication operations. We, from time to time, in the ordinary course of business, enter into hedging transactions and/or physical delivery commitments with third parties to mitigate our risk from fluctuations in certain alloying metals prices that are not passed through pursuant to the terms of our customer contracts.

Energy Hedges. We are exposed to the risk of fluctuating prices for natural gas and electricity. We, from time to time, in the ordinary course of business, enter into hedging transactions and/or firm price physical delivery commitments with third parties to mitigate our risk from fluctuations in natural gas and electricity prices that are not passed through pursuant to the terms of our customer contracts.

Foreign Currency Hedges. We are exposed to foreign currency exchange risk related to certain equipment and service agreements with vendors for which payments are due in foreign currency. We, from time to time, in the ordinary course of business, use foreign currency forward contracts in order to mitigate the exposure to currency exchange rate fluctuations related to these purchases.

 

12


Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

Non-Designated Hedges of Operational Risks

From time to time, we enter into commodity and foreign currency forward contracts that are not designated as hedging instruments to mitigate certain short‑term impacts, as identified. The gain or loss on these commodity and foreign currency derivatives is recognized within COGS and Other income, net, respectively. There were no non-designated hedges at both March 31, 2024 and December 31, 2023.

Notional Amount of Derivative Contracts

The following table summarizes our derivative positions at March 31, 2024:

 

Aluminum

 

Maturity Period

 

Notional Amount of Contracts (mmlbs)

 

Fixed price purchase contracts for LME

 

April 2024 through December 2025

 

 

74.5

 

Fixed price sale contracts for LME

 

April 2024

 

 

7.0

 

Fixed price purchase contracts for MWTP

 

April 2024 through December 2025

 

 

60.5

 

Fixed price sale contracts for MWTP

 

April 2024 through September 2024

 

 

26.7

 

 

Alloying Metals

 

Maturity Period

 

Notional Amount of Contracts (mmlbs)

 

Fixed price purchase contracts

 

April 2024 through December 2025

 

 

10.0

 

 

Natural Gas

 

Maturity Period

 

Notional Amount of Contracts (mmbtu)

 

Fixed price purchase contracts

 

April 2024 through December 2026

 

 

3,880,000

 

 

Electricity

 

Maturity Period

 

Notional Amount of Contracts (Mwh)

 

Fixed price purchase contracts

 

April 2024 through December 2024

 

 

39,606

 

 

Euro

 

Maturity Period

 

Notional Amount of Contracts (EUR)

 

Fixed price forward purchase contracts

 

April 2024 through January 2026

 

 

17,485,138

 

 

British Pounds

 

Maturity Period

 

Notional Amount of Contracts (GBP)

 

Fixed price forward purchase contracts

 

May 2024 through July 2024

 

 

216,799

 

 

 

13


Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

Loss (Gain) on Derivative Contracts

The following table summarizes the amount of loss (gain) on derivative contracts recorded within our Statements of Consolidated Income in COGS (in millions of dollars):

 

 

 

Quarter Ended March 31,

 

 

2024

 

 

2023

 

Total of income and expense line items presented in our Statements of Consolidated Income in which the effects of hedges are recorded:

 

 

 

Cash flow hedges

 

$

642.9

 

 

$

731.1

 

 

 

 

 

 

 

Loss (gain) recognized in our Statements of Consolidated Income related to cash flow hedges:

 

 

 

 

 

 

Aluminum

 

$

2.0

 

 

$

0.5

 

Natural gas

 

 

0.3

 

 

 

(0.3

)

Electricity

 

 

(0.2

)

 

 

 

Total loss recognized in our Statements of Consolidated Income related to cash flow hedges

 

$

2.1

 

 

$

0.2

 

 

 

 

 

 

 

Gain recognized in our Statements of Consolidated Income related to non-designated hedges:

 

 

 

 

 

 

Alloying Metals – Unrealized gain

 

$

 

 

$

(0.1

)

 

Fair Values of Derivative Contracts

The fair values of our derivative contracts are based upon trades in liquid markets. Valuation model inputs can be verified, and valuation techniques do not involve significant judgment. The fair values of such financial instruments are classified within Level 2 of the fair value hierarchy.

All of our derivative contracts with counterparties are subject to enforceable master netting arrangements. We reflect the fair value of our derivative contracts on a gross basis on our Consolidated Balance Sheets. The following table presents the fair value of our derivative financial instruments (in millions of dollars):

 

 

 

As of March 31, 2024

 

 

As of December 31, 2023

 

 

 

Assets

 

 

Liabilities

 

 

Net Amount

 

 

Assets

 

 

Liabilities

 

 

Net Amount

 

Aluminum –

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price purchase contracts for LME

 

$

2.1

 

 

$

(0.4

)

 

$

1.7

 

 

$

3.4

 

 

$

(0.6

)

 

$

2.8

 

Fixed price sale contracts for LME