SEC Filing | Kaiser Aluminum

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kalu-10q_20200930.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 September 30, 2020

☐	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.)

27422 Portola Parkway, Suite 200
Foothill Ranch, California		92610-2831
(Address of principal executive offices)		(Zip Code)

(949) 614-1740

(Registrant’s telephone number, including area code)

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 October 19, 2020, there were 15,812,169 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		26
Item 3. Quantitative and Qualitative Disclosures About Market Risk		36
Item 4. Controls and Procedures		37

PART II
Item 1. Legal Proceedings		38
Item 1A. Risk Factors		38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 3. Defaults Upon Senior Securities		39
Item 4. Mine Safety Disclosures		39
Item 5. Other Information		39
Item 6. Exhibits		40

SIGNATURES		41

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30, 2020			December 31, 2019
	(In millions of dollars, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	750.1		$	264.3
Short-term investments		—			78.7
Receivables:
Trade receivables, net		119.0			167.1
Other		22.8			18.1
Contract assets		34.8			54.6
Inventories		157.5			177.6
Prepaid expenses and other current assets		25.4			19.4
Total current assets		1,109.6			779.8
Property, plant and equipment, net		622.9			622.0
Operating lease assets		27.2			25.8
Deferred tax assets, net		—			11.8
Intangible assets, net		27.4			29.6
Goodwill		18.8			18.8
Other assets		41.1			38.4
Total	$	1,847.0		$	1,526.2
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	63.4		$	92.0
Accrued salaries, wages and related expenses		33.5			34.4
Other accrued liabilities		45.3			44.0
Total current liabilities		142.2			170.4
Long-term portion of operating lease liabilities		26.3			25.2
Net liabilities of Salaried VEBA		32.4			32.6
Deferred tax liabilities		8.9			4.5
Long-term liabilities		80.3			67.0
Long-term debt		837.6			492.6
Total liabilities		1,127.7			792.3
Commitments and contingencies – Note 7
Stockholders’ equity:
Preferred stock, 5,000,000 shares authorized at both September 30, 2020 and December 31, 2019; no shares were issued and outstanding at September 30, 2020 and December 31, 2019		—			—
Common stock, par value $0.01, 90,000,000 shares authorized at both September 30, 2020 and at December 31, 2019; 22,647,455 shares issued and 15,812,169 shares outstanding at September 30, 2020; 22,550,827 shares issued and 15,868,304 shares outstanding at December 31, 2019		0.2			0.2
Additional paid in capital		1,066.0			1,062.9
Retained earnings		163.0			172.8
Treasury stock, at cost, 6,835,286 shares at September 30, 2020 and 6,682,523 shares at December 31, 2019, respectively		(475.9	)		(463.4	)
Accumulated other comprehensive loss		(34.0	)		(38.6	)
Total stockholders’ equity		719.3			733.9
Total	$	1,847.0		$	1,526.2

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						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
	(In millions of dollars, except share and per share amounts)
Net sales	$	255.7		$	374.9		$	900.7		$	1,145.4
Costs and expenses:
Cost of products sold, excluding depreciation and amortization and other items		208.4			298.6			719.5			917.2
Depreciation and amortization		12.9			12.3			39.1			36.3
Selling, general, administrative, research and development		21.3			23.3			67.9			75.7
Restructuring costs		0.5			—			12.4			—
Other operating charges (income), net		0.3			—			(0.8	)		0.1
Total costs and expenses		243.4			334.2			838.1			1,029.3
Operating income		12.3			40.7			62.6			116.1
Other income (expense):
Interest expense		(12.1	)		(5.8	)		(28.7	)		(17.3	)
Other expense, net – Note 10		(0.5	)		(0.8	)		(0.8	)		(0.4	)
(Loss) income before income taxes		(0.3	)		34.1			33.1			98.4
Income tax benefit (provision)		0.7			(8.7	)		(10.2	)		(25.8	)
Net income	$	0.4		$	25.4		$	22.9		$	72.6
Net income per common share:
Basic	$	0.02		$	1.59		$	1.45		$	4.52
Diluted	$	0.02		$	1.57		$	1.44		$	4.47
Weighted-average number of common shares outstanding (in thousands):
Basic		15,794			15,956			15,804			16,042
Diluted		15,865			16,125			15,904			16,235

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					Nine Months Ended
	September 30,					September 30,
	2020		2019			2020			2019
	(In millions of dollars)
Net income	$	0.4	$	25.4		$	22.9		$	72.6
Other comprehensive income (loss), net of tax – Note 8:
Defined benefit pension plan and Salaried VEBA		0.8		1.2			2.8			3.4
Available for sale securities		—		0.1			(0.5	)		(0.2	)
Cash flow hedges		7.3		(2.2	)		2.2			2.4
Foreign currency translation		0.1		—			0.1			—
Other comprehensive income (loss), net of tax		8.2		(0.9	)		4.6			5.6
Comprehensive income	$	8.6	$	24.5		$	27.5		$	78.2

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)

Nine Months Ended September 30, 2020

	Common Shares Outstanding¹			Common Stock		Additional Paid in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
	(In millions of dollars, except share and per share amounts)
BALANCE, December 31, 2019		15,868,304		$	0.2	$	1,062.9		$	172.8		$	(463.4	)	$	(38.6	)	$	733.9
Net income		—			—		—			29.1			—			—			29.1
Other comprehensive loss, net of tax		—			—		—			—			—			(15.5	)		(15.5	)
Common shares issued (including impacts from Long-Term Incentive programs)		119,598			—		—			—			—			—			—
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares		(45,545	)		—		(4.3	)		—			—			—			(4.3	)
Repurchase of common stock²		(152,763	)		—		—			—			(12.5	)		—			(12.5	)
Cash dividends declared³		—			—		—			(11.3	)		—			—			(11.3	)
Amortization of unearned equity compensation		—			—		1.7			—			—			—			1.7
BALANCE, March 31, 2020		15,789,594		$	0.2	$	1,060.3		$	190.6		$	(475.9	)	$	(54.1	)	$	721.1
Net loss		—			—		—			(6.6	)		—			—			(6.6	)
Other comprehensive income, net of tax		—			—		—			—			—			11.9			11.9
Common shares issued (including impacts from Long-Term Incentive programs)		22,575			—		0.4			—			—			—			0.4
Cash dividends declared³		—			—		—			(10.6	)		—			—			(10.6	)
Amortization of unearned equity compensation		—			—		2.6			—			—			—			2.6
BALANCE, June 30, 2020		15,812,169		$	0.2	$	1,063.3		$	173.4		$	(475.9	)	$	(42.2	)	$	718.8
Net income		—			—		—			0.4			—			—			0.4
Other comprehensive income, net of tax		—			—		—			—			—			8.2			8.2
Cash dividends declared³		—			—		—			(10.8	)		—			—			(10.8	)
Amortization of unearned equity compensation		—			—		2.7			—			—			—			2.7
BALANCE, September 30, 2020		15,812,169		$	0.2	$	1,066.0		$	163.0		$	(475.9	)	$	(34.0	)	$	719.3

¹	At September 30, 2020, 309,181 shares were available for awards under the Kaiser Aluminum Corporation 2016 Equity and Incentive Compensation Plan (“2016 Plan”).

Weighted-average repurchase price (dollars per share) for the quarter ended March 31, 2020 was $81.94. There were no repurchases of common stock during the quarters ended June 30, 2020 and September 30, 2020. At September 30, 2020, $93.1 million remained available to repurchase our common shares pursuant to the stock repurchase program.

³	Dividends declared per common share was $0.67 for each of the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020.

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)

Nine Months Ended September 30, 2019

	Common Shares Outstanding			Common Stock		Additional Paid in Capital			Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total
	(In millions of dollars, except share and per share amounts)
BALANCE, December 31, 2018		16,234,603		$	0.2	$	1,059.3		$	150.2	$	(420.5	)	$	(48.8	)	$	740.4
Net income		—			—		—			28.0		—			—			28.0
Other comprehensive income, net of tax		—			—		—			—		—			9.7			9.7
Common shares issued (including impacts from Long-Term Incentive programs)		122,309			—		—			—		—			—			—
Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares		(46,388	)		—		(5.0	)		—		—			—			(5.0	)
Repurchase of common stock¹		(175,977