KAISER ALUMINUM CORP [KALU] Filings

10-Q 1 kalu-10q_20220331.htm 10-Q kalu-10q_20220331.htm

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, 2022

☐	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)

27422 Portola Parkway, Suite 200 Foothill Ranch, California 92610-2831

(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 18, 2022, there were 15,904,321 shares of common stock of the registrant outstanding.

TABLE OF CONTENTS

PART I
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		31

PART II
Item 1. Legal Proceedings		32
Item 1A. Risk Factors		32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3. Defaults Upon Senior Securities		32
Item 4. Mine Safety Disclosures		32
Item 5. Other Information		32
Item 6. Exhibits		33

SIGNATURES		34

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	As of March 31, 2022			As of December 31, 2021
	(In millions of dollars, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	261.0		$	303.2
Receivables:
Trade receivables, net		432.2			332.7
Other		50.6			53.0
Contract assets		74.9			63.2
Inventories		431.5			404.6
Prepaid expenses and other current assets		71.2			48.7
Total current assets		1,321.4			1,205.4
Property, plant and equipment, net		960.2			955.2
Operating lease assets		44.9			46.2
Deferred tax assets, net		3.2			3.4
Intangible assets, net		64.2			67.7
Goodwill		39.3			39.3
Other assets		108.2			105.2
Total	$	2,541.4		$	2,422.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	442.8		$	351.4
Accrued salaries, wages and related expenses		40.9			46.9
Other accrued liabilities		70.9			58.4
Total current liabilities		554.6			456.7
Long-term portion of operating lease liabilities		40.5			40.8
Pension and other postretirement benefits		88.7			92.5
Net liabilities of Salaried VEBA		20.3			20.6
Deferred tax liabilities		17.9			10.5
Long-term liabilities		74.4			72.5
Long-term debt		1,036.8			1,036.3
Total liabilities		1,833.2			1,729.9
Commitments and contingencies – Note 6
Stockholders’ equity:
Preferred stock, 5,000,000 shares authorized at both March 31, 2022 and December 31, 2021; no shares were issued and outstanding at March 31, 2022 and December 31, 2021		—			—
Common stock, par value $0.01, 90,000,000 shares authorized at both March 31, 2022 and December 31, 2021; 22,739,402 shares issued and 15,904,116 shares outstanding at March 31, 2022; 22,700,404 shares issued and 15,865,118 shares outstanding at December 31, 2021		0.2			0.2
Additional paid in capital		1,081.0			1,078.9
Retained earnings		88.6			93.0
Treasury stock, at cost, 6,835,286 shares at both March 31, 2022 and December 31, 2021		(475.9	)		(475.9	)
Accumulated other comprehensive income (loss)		14.3			(3.7	)
Total stockholders’ equity		708.2			692.5
Total	$	2,541.4		$	2,422.4

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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)

	Quarter Ended March 31,
	2022			2021
	(In millions of dollars, except share and per share amounts)
Net sales	$	948.8		$	324.0
Costs and expenses:
Cost of products sold, excluding depreciation and amortization and other items		865.9			262.5
Depreciation and amortization		27.5			13.5
Selling, general, administrative, research and development		30.2			31.8
Restructuring costs (benefit)		—			(0.7	)
Total costs and expenses		923.6			307.1
Operating income		25.2			16.9
Other expense:
Interest expense		(12.2	)		(12.3	)
Other expense, net – Note 8		(1.6	)		(0.4	)
Income before income taxes		11.4			4.2
Income tax (provision) benefit		(3.3	)		0.3
Net income	$	8.1		$	4.5
Net income per common share:
Basic	$	0.51		$	0.28
Diluted	$	0.51		$	0.28
Weighted-average number of common shares outstanding (in thousands):
Basic		15,866			15,805
Diluted		16,038			15,987

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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)

	Quarter Ended March 31,
	2022		2021
	(In millions of dollars)
Net income	$	8.1	$	4.5
Other comprehensive income (loss), net of tax – Note 7:
Defined benefit pension plan and Salaried VEBA		0.9		0.7
Cash flow hedges		17.1		8.5
Foreign currency translation		—		(0.1	)
Other comprehensive income, net of tax		18.0		9.1
Comprehensive income	$	26.1	$	13.6

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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY (UNAUDITED)

Quarter Ended March 31, 2022

	Common Shares Outstanding^1,2			Common Stock		Additional Paid in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
	(In millions of dollars, except share and per share amounts)
BALANCE, December 31, 2021		15,865,118		$	0.2	$	1,078.9		$	93.0		$	(475.9	)	$	(3.7	)	$	692.5
Net income		—			—		—			8.1			—			—			8.1
Other comprehensive income, net of tax		—			—		—			—			—			18.0			18.0
Common shares issued (including impacts from Long-Term Incentive programs)		58,641			—		—			—			—			—			—
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares		(19,643	)		—		(1.9	)		—			—			—			(1.9	)
Cash dividends declared³		—			—		—			(12.5	)		—			—			(12.5	)
Amortization of unearned equity compensation		—			—		4.0			—			—			—			4.0
BALANCE, March 31, 2022		15,904,116		$	0.2	$	1,081.0		$	88.6		$	(475.9	)	$	14.3		$	708.2

¹	At March 31, 2022, 593,072 shares were available for awards under the Kaiser Aluminum Corporation 2021 Equity and Incentive Compensation Plan (“2021 Plan”).

²	There were no repurchases of common stock during the quarter ended March 31, 2022. At March 31, 2022, $93.1 million remained available to repurchase our common shares pursuant to the stock repurchase program.

³	Dividends declared per common share were $0.77 for the quarter ended March 31, 2022.

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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY CONTINUED (UNAUDITED)

Quarter Ended March 31, 2021

	Common Shares Outstanding¹			Common Stock		Additional Paid in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			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 income		—			—		—			4.5			—			—			4.5
Other comprehensive income, net of tax		—			—		—			—			—			9.1			9.1
Common shares issued (including impacts from Long-Term Incentive programs)		56,394			—		—			—			—			—			—
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares		(20,625	)		—		(2.4	)		—			—			—			(2.4	)
Cash dividends declared²		—			—		—			(11.7	)		—			—			(11.7	)
Amortization of unearned equity compensation		—			—		3.1			—			—			—			3.1
BALANCE, March 31, 2021		15,847,938		$	0.2	$	1,069.3		$	151.0		$	(475.9	)	$	(9.6	)	$	735.0

¹	There were no repurchases of common stock during the quarter ended March 31, 2021.

²	Dividends declared per common share were $0.72 for the quarter ended March 31, 2021.

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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

	Quarter Ended March 31,
	2022			2021
	(In millions of dollars)
Cash flows from operating activities¹:
Net income	$	8.1		$	4.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		24.0			12.8
Amortization of definite-lived intangible assets		3.5			0.7
Amortization of debt premium and debt issuance costs		0.6			0.7
Deferred income taxes		2.0			(0.9	)
Non-cash equity compensation		4.0			3.1
Loss on disposition of property, plant and equipment		0.3			—
Changes in operating assets and liabilities, net of effects of acquisition:
Trade and other receivables		(97.1	)		(31.7	)
Contract assets		(11.7	)		(8.3	)
Inventories		(26.9	)		(24.3	)
Prepaid expenses and other current assets		(2.5	)		(0.4	)
Accounts payable		92.9			33.0
Accrued liabilities		6.5			4.2
Annual variable cash contributions to Salaried VEBA		—			(1.7	)
Long-term assets and liabilities, net		(2.3	)		(3.1	)
Net cash provided by (used in) operating activities		1.4			(11.4	)
Cash flows from investing activities¹:
Capital expenditures		(28.3	)		(9.1	)
Cash payment for acquisition of the Warrick rolling mill		—			(617.5	)
Net cash used in investing activities		(28.3	)		(626.6	)
Cash flows from financing activities¹:
Repayment of finance lease		(0.5	)		(0.4	)
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares		(1.9	)		(2.4	)
Cash dividends and dividend equivalents paid		(12.5	)		(11.7	)
Net cash used in financing activities		(14.9	)		(14.5	)
Net decrease in cash, cash equivalents and restricted cash during the period		(41.8	)		(652.5	)
Cash, cash equivalents and restricted cash at beginning of period		317.0			794.3
Cash, cash equivalents and restricted cash at end of period	$	275.2		$	141.8

¹	See Note 11 for supplemental cash flow information.

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

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	Derivatives, Hedging Programs and Other Financial Instruments	12
Note 5	Debt and Credit Facility	15
Note 6	Commitments and Contingencies	16
Note 7	Accumulated Other Comprehensive Income (Loss)	18
Note 8	Other Expense, Net	18
Note 9	Income Tax Matters	19
Note 10	Net Income Per Share	19
Note 11	Supplemental Cash Flow Information	20
Note 12	Business, Product and Geographical Area Information	20
Note 13	Subsequent Events	21

Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

1. Basis of Presentation and Recent Accounting Pronouncements

This Quarterly Report on Form 10-Q (this “Report”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Unless the context otherwise requires, references in these notes to interim consolidated financial statements - unaudited to “Kaiser Aluminum Corporation,” “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 United States generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“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. The results of operations for our interim periods are not necessarily indicative of the results of operations that may be achieved for the entire 2022 fiscal year. The financial information as of December 31, 2021 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, 2021.

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. We are party to several supply chain financing arrangements, in which we may sell certain of our customers’ trade accounts receivable to such customers’ financial institutions without recourse. We sell our undivided interests in certain of these receivables at our discretion when we determine that the 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 do not service the receivables after the sale. As such, these transactions are being accounted for as a sale. During the quarter ended March 31, 2022, we sold trade accounts receivable totaling $407.4 million related to these supply chain financing arrangements, of which our customers’ financial institutions applied discount fees totaling $2.9 million. We did not sell any of our trade accounts receivable during the quarter ended March 31, 2021. 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 expense, net. As of March 31, 2022, we had been and/or expected to be fully reimbursed by our customers for these discount fees.

Government Grants. From time-to-time, we receive grants from certain governmental agencies such as states and municipalities. 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. Grants related to compensation for costs already incurred or for immediate financial support, with no future related costs, are recognized as income in the period in which it is receivable.

Adoption of New Accounting Pronouncements

Accounting Standard Update (“ASU”) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”) was issued in November 2021. Under ASU 2021-10, the accounting entities with transactions with a government that are accounted for by analogy to a grant or contribution accounting model are required to annually disclose certain information regarding the transaction including: (i) nature and related accounting policy used; (ii) line items on the balance sheet and income statement affected by the transactions; (iii) amounts applicable to each line item; and (iv) significant terms and conditions. Our adoption of ASU 2021-10 during the quarter ended March 31, 2022 using a prospective approach did not have a material impact on our consolidated financial statements.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) and also issued subsequent amendments to the initial guidance (collectively, “Topic 848”). Topic 848 is effective for all entities as of March 12, 2020 through December 31, 2022 and provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. As of March 31, 2022, some of our customers’ supply chain financing contracts have transitioned to the Secured Overnight Financing Rate (“SOFR”) to replace the London Interbank Offered

Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

Rate (“LIBOR”). Our adoption of Topic 848 did not have a material impact on our consolidated financial statements and we will continue to assess contract modifications in accordance with Topic 848.

2. Supplemental Balance Sheet Information

	As of March 31, 2022			As of December 31, 2021
	(In millions of dollars)
Trade Receivables, Net
Billed trade receivables	$	432.8		$	333.5
Allowance for doubtful receivables		(0.6	)		(0.8	)
Trade receivables, net	$	432.2		$	332.7

Inventories¹
Finished products	$	83.7		$	90.3
Work-in-process		169.2			162.2
Raw materials		169.0			143.0
Operating supplies		9.6			9.1
Total	$	431.5		$	404.6

Property, Plant and Equipment, Net
Land and improvements	$	26.5		$	26.0
Buildings and leasehold improvements		182.5			179.0
Machinery and equipment		1,160.4			1,151.5
Construction in progress²		89.8			75.3
Property, plant and equipment, gross		1,459.2			1,431.8
Accumulated depreciation and amortization		(503.4	)		(480.4	)
Assets held for sale		4.4			3.8
Property, plant and equipment, net	$	960.2		$	955.2

Other Accrued Liabilities
Uncleared cash disbursements	$	16.7		$	10.9
Accrued income taxes and other taxes payable		16.3			9.5
Accrued interest		10.3			9.9
Short-term environmental accrual – Note 6		2.3			2.6
Other – Note 4		25.3			25.5
Total	$	70.9		$	58.4

Long-Term Liabilities
Workers' compensation accrual	$	31.8		$	31.9
Long-term environmental accrual – Note 6		14.1			14.2
Other long-term liabilities		28.5			26.4
Total	$	74.4		$	72.5

¹	At March 31, 2022 and December 31, 2021 the current cost of our inventory exceeded its stated last-in, first-out (“LIFO”) value by $210.5 million and $137.1 million, respectively.

²	Based on market conditions, we temporarily idled projects within Construction in progress totaling $20.6 million and $24.9 million as of March 31, 2022 and December 31, 2021, respectively, all of which are expected to resume at a future date.

3. Employee Benefits

Defined Contribution Plans

We sponsor defined contribution 401(k) savings plans for certain hourly and salaried employees. Employees may contribute a portion of their compensation to the plans and we match a specified percentage of these contributions in equivalent form of the

Notes Index

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

investments elected by the employee. Additionally, we make fixed annual contributions for certain hourly and salaried employees