Kaiser Aluminum Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports full-year results; separate fourth-quarter figures are not provided in the supplied text. Kaiser manufactures specialty semi-fabricated aluminum products for aerospace, packaging, automotive, general engineering and other industrial markets.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $2,622.0 million | $1,172.7 million |
| Operating income | $64.4 million | $81.1 million |
| Net income (loss) | $(18.5) million | $28.8 million |
| Diluted EPS | $(1.17) | $1.81 |
| Adjusted EBITDA | $192.6 million | $153.8 million |
| Operating cash flow | $79.4 million | $206.9 million |
| Capital expenditures | $58.0 million | $51.9 million |
- Shipments rose 123% to 1,121.6 million pounds, largely reflecting the March 2021 acquisition of the Warrick rolling mill. Warrick contributed $1,141.2 million in sales from April through December.
- Value-added revenue (VAR), a company-defined non-GAAP measure, was $1,111.2 million versus $697.1 million. Adjusted EBITDA was 17.3% of VAR, compared with 22.1% in 2020. Net sales growth also reflected higher metal prices; management said lower VAR per pound reflected the addition of lower-VAR packaging products and other mix effects.
- Aero/HS shipments fell 7% to 161.6 million pounds; Automotive Extrusions shipments increased 12%, GE shipments increased 27%, and Packaging shipments were 541.7 million pounds following the acquisition.
- Cash and cash equivalents were $303.2 million at year-end, down from $780.3 million. Total liquidity, including $367.3 million of revolver availability, was $670.5 million versus $1,031.8 million. No revolver borrowings were outstanding.
- Long-term debt carrying value was $1,036.3 million. The company issued $550 million of 4.50% notes due 2031 and redeemed $350 million of 6.50% notes, recording a $35.9 million debt-extinguishment loss. The other outstanding notes are $500 million of 4.625% notes due 2028.
Changes, outlook and management commentary
- Warrick expanded Kaiser into North American beverage and food packaging. The $670 million purchase was funded in part with new notes; the acquisition also increased working capital, depreciation and integration costs.
- Management attributed the year’s challenges to uneven end-market demand, inflation and higher labor, energy and freight costs, supply-chain constraints, staffing shortages, COVID-19 disruptions, magnesium supply problems and Warrick integration. Automotive production was constrained by semiconductor shortages; commercial aerospace remained below prior levels.
- For 2022, management forecast VAR growth of 20%–25% year over year and Adjusted EBITDA margin of 17%–20%. Market forecasts were Aero/HS growth of 15%–20%, Packaging 35%–40%, GE 10%–20% and Automotive Extrusions 10%–20%. These are management expectations, not guarantees.
- Management said staffing and operating efficiency were improving, most supply-chain issues had been mitigated or addressed, and pricing actions and surcharges were expected to offset most higher material costs. Magnesium and Warrick metal supply remained challenges.
- Planned 2022 capital spending was approximately $180–$200 million, primarily for growth projects including a new Warrick roll-coat line and Trentwood work. A planned Trentwood plate-stretcher refurbishment was expected to cost about $30 million and require a multiweek outage in early third quarter.
- The quarterly dividend was increased 7% to $0.77 per share in early 2022. The board retains discretion over future dividends; share repurchases had been suspended since March 2020.
Risks, contingencies and notable items
- Customer and supplier concentration is significant: the two largest customers represented approximately 16% and 15% of 2021 sales, and the five largest together represented approximately 49%. The top five suppliers provided 78% of primary aluminum supply; the largest supplier provided 47%.
- Key risks include aerospace and automotive cyclicality, customer inventory destocking, competition and substitution by other materials, metal and alloy availability and pricing, energy and freight costs, labor relations, production interruptions, and the ongoing effects of COVID-19 and supply disruptions.
- Alcoa remained a source of molten aluminum and support services for Warrick, with transition services scheduled to extend no later than June 30, 2024. A failure or delay could disrupt Warrick operations.
- Environmental accruals were $16.8 million. The company said reasonably possible additional undiscounted costs could be up to $11.6 million; remediation and monitoring may extend for 30 years or more. A potential Warrick asbestos-related asset-retirement obligation remained indeterminable and was not accrued.
- The auditor identified revenue recognition for over-time contracts, environmental contingencies and the Warrick acquisition valuation as critical audit matters. The audit opinion was unqualified, and reported internal controls were effective; Warrick was excluded from the internal-control assessment and represented about 44% of 2021 revenue.
Important facts for investors to verify
- Whether 2022 VAR and Adjusted EBITDA margin targets were achieved, and how much improvement came from volume, pricing, mix, cost recovery and Warrick integration.
- Whether magnesium and Warrick metal supply stabilized, Alcoa transition services were completed on schedule, and the Warrick roll-coat and other capital projects delivered expected benefits.
- How commercial aerospace recovery, automotive chip availability and customer inventory levels affected shipments and demand.
- Whether operating cash flow and liquidity recovered after acquisition spending, working-capital growth and the decline in year-end cash.
- Updates to environmental estimates, the potential Warrick asbestos obligation, pension funding needs and customer or supplier concentration.