Kaiser Aluminum(KALU) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents Kaiser Aluminum Corporation's unaudited interim consolidated financial statements and accompanying notes for the period ending September 30, 2023 Consolidated Financial Statements The company reported improved net income and positive operating cash flow for Q3 and YTD 2023, with stable total assets and decreased liabilities Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $44.6 | $57.4 | | Inventories | $488.6 | $525.4 | | Total current assets | $984.4 | $1,042.6 | | Property, plant and equipment, net | $1,057.5 | $1,013.2 | | Total Assets | $2,268.1 | $2,288.8 | | Liabilities & Equity | | | | Accounts payable | $243.2 | $305.1 | | Total current liabilities | $367.0 | $418.7 | | Long-term debt, net | $1,039.4 | $1,038.1 | | Total Liabilities | $1,627.4 | $1,657.6 | | Total Stockholders' Equity | $640.7 | $631.2 | Consolidated Income Statement Highlights (in millions, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $743.6 | $748.9 | $2,365.3 | $2,651.9 | | Operating income | $19.1 | $3.0 | $74.1 | $26.2 | | Net income (loss) | $5.4 | $2.5 | $39.6 | $(3.2) | | Diluted EPS | $0.34 | $0.16 | $2.46 | $(0.20) | Consolidated Cash Flow Highlights (in millions) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $137.6 | $(58.6) | | Net cash used in investing activities | $(105.0) | $(71.7) | | Net cash used in financing activities | $(41.2) | $(43.2) | | Net decrease in cash | $(8.6) | $(173.5) | Notes to Interim Consolidated Financial Statements Detailed notes cover accounting policies, a headquarters relocation restructuring plan, derivative hedging, long-term debt, environmental remediation, and the company's single operating segment - The company initiated a restructuring plan in 2022 for its headquarters relocation, with $6.3 million of an estimated $8 million in costs incurred through September 30, 2023[41] - Kaiser Aluminum utilizes derivative contracts to hedge against price risks in aluminum, energy, and foreign currency, not for speculative purposes[43] - Total long-term debt was $1,039.4 million as of September 30, 2023, with $529.5 million remaining available under its $575.0 million revolving credit facility[60][61][62] - An environmental accrual of $17.8 million exists for remediation activities, with potential undiscounted costs possibly exceeding current accruals by up to an estimated $11.6 million[69][70] - The Board of Directors declared a quarterly cash dividend of $0.77 per common share on October 12, 2023[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 2023 financial performance, noting a slight sales decrease, significant Adjusted EBITDA growth, strong liquidity, and a mixed demand outlook Results of Operations Q3 2023 net sales slightly decreased due to lower prices, despite increased shipments, while Adjusted EBITDA significantly improved driven by volume, pricing, and cost reductions Shipments by End Market (millions of pounds) | End Market | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Aero/HS Products | 64.2 | 38.0 | +69% | | Packaging | 154.4 | 147.5 | +5% | | GE Products | 53.0 | 69.6 | -24% | | Automotive Extrusions | 25.6 | 24.1 | +6% | | Total Shipments | 299.3 | 281.9 | +6% | Adjusted EBITDA Reconciliation (in millions) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $5.4 | $2.5 | $39.6 | $(3.2) | | Interest expense | $11.4 | $12.1 | $35.4 | $36.5 | | Income tax provision | $0.1 | $1.1 | $8.0 | $0.3 | | Depreciation and amortization | $27.2 | $25.8 | $79.9 | $80.4 | | Non-run-rate items | $1.3 | $(0.1) | $4.0 | $5.6 | | Adjusted EBITDA | $47.6 | $28.7 | $158.0 | $112.2 | - The increase in Q3 2023 Adjusted EBITDA was primarily driven by improved volume and pricing, and lower freight and energy costs, partially offset by higher labor and maintenance expenses[110] Outlook The company anticipates mixed demand, with strengthening aerospace offset by destocking in packaging and general engineering, projecting Q4 2023 Adjusted EBITDA to be stable or slightly higher - Commercial aerospace demand is expected to strengthen, potentially reaching or exceeding pre-pandemic 2019 levels by year-end 2023[115] - Packaging shipments are projected to decline due to destocking and fourth-quarter seasonality[115] - GE products demand is anticipated to decline due to ongoing plate destocking and seasonal factors[115] - Consolidated adjusted EBITDA for Q4 2023 is expected to be in line with or slightly higher than Q4 2022 results[116] Liquidity and Capital Resources The company maintains strong liquidity of $574.1 million, with projected 2023 capital expenditures of $170-180 million, including an increased cost for the Warrick facility expansion Liquidity Summary (in millions) | Component | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Available cash and cash equivalents | $44.6 | $57.4 | | Borrowing availability under Revolving Credit Facility | $529.5 | $557.8 | | Total liquidity | $574.1 | $615.2 | - Anticipated capital spending for 2023 is approximately $170.0 million to $180.0 million[131] - The estimated cost for the Warrick facility's fourth roll coat line project increased from $150 million to approximately $250 million due to inflation and scope changes[130] - The company has consistently paid a quarterly cash dividend since 2007, with the most recent being $0.77 per share[133] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company addresses market risks from commodity and currency fluctuations using derivative contracts, with sensitivity analyses quantifying potential impacts on fair value - A hypothetical $0.10/lb decrease in LME aluminum price would result in a $7.2 million unrealized mark-to-market loss on derivative positions[148] - A hypothetical $1.00/mmbtu decrease in natural gas prices would result in a $3.1 million unrealized mark-to-market loss on derivative positions[150] - A hypothetical 10% decrease in hedged foreign currency exchange rates would result in a $0.4 million unrealized mark-to-market loss[152] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2023[153] - No material changes in internal control over financial reporting occurred during the nine months ended September 30, 2023[154] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company reports no material developments in legal proceedings since December 31, 2022 - No material developments in legal proceedings have occurred since December 31, 2022[156] Item 1A. Risk Factors The company reports no material changes to its risk factors since the December 31, 2022 Annual Report filing - No material changes in risk factors have occurred since December 31, 2022[157] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2023, the company repurchased 346 shares for tax obligations, with $93.1 million remaining available under its stock repurchase program Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Average Price per Share | Plan | Amount Remaining in Plan | | :--- | :--- | :--- | :--- | :--- | | July 2023 | 0 | N/A | N/A | $93.1M | | August 2023 | 346 | $75.92 | Equity Incentive Plan | $93.1M | | September 2023 | 0 | N/A | N/A | $93.1M | - As of September 30, 2023, $93.1 million remained authorized for future repurchases under the company's stock repurchase program[136][158] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents