Kaiser Aluminum Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; the filing also reports unaudited fourth-quarter results. Kaiser produces specialty semi-fabricated aluminum products at 12 North American facilities. Its principal markets are aerospace/high-strength, automotive extrusions, and general engineering.
Financial and operating performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $1,391.9 million | $1,356.1 million |
| Shipments | 615.4 million pounds | 588.8 million pounds |
| Net income (loss) | $(236.6) million | $71.8 million |
| Diluted EPS | $(13.76) | $3.86 |
| Cash provided by operating activities | $158.8 million | $124.1 million |
| Capital expenditures | $63.1 million | $59.4 million |
| Cash and short-term investments | $102.5 million | $291.7 million |
| Long-term debt at face value | $197.8 million | $400.0 million |
Reported operating loss was $345.9 million, primarily due to a $493.4 million loss recorded on removal of Union VEBA net assets and related accounting changes. Management reported operating income of $150.5 million and net income of $71.6 million excluding non-run-rate items; these are non-GAAP adjusted figures. Fabricated Products segment operating income was $190.8 million, or $191.8 million excluding segment non-run-rate items. The filing does not present a consolidated operating-margin measure excluding all such items.
Fourth-quarter 2015 sales were $316.6 million, versus $338.0 million in fourth-quarter 2014; operating income was $35.2 million versus $26.8 million, and net income was $13.3 million versus $15.6 million.
Changes versus the prior year
- Annual sales rose 2.6% as shipments increased 5%; average realized sales price per pound fell 2%, reflecting lower metal costs, partly offset by improved value-added pricing.
- Automotive Extrusions shipments grew 19% to 93.5 million pounds, supported by new program launches, including the Ford F-150. Aero/HS shipments rose 3%; GE shipments rose 4%.
- Adjusted operating income increased from $133.3 million in 2014 to $150.5 million in 2015, according to the filing’s consolidated figures. Higher volume and better pricing were partly offset by automotive launch and ramp-up costs.
- Operating cash flow increased $34.7 million. Cash and short-term investments declined $189.2 million, while face-value debt fell $202.2 million, including settlement of $175.0 million of convertible notes and repurchase of $27.2 million of senior notes.
Liquidity, debt, and capital allocation
At year-end, liquidity was $383.3 million: $72.5 million cash, $30.0 million short-term investments, and $280.8 million net availability under the revolving credit facility. There were no revolver borrowings. The $300 million facility was extended to December 2020. Remaining senior notes were $197.8 million of 8.25% notes due 2020.
The company paid $28.1 million in dividends, or $1.60 per share, and repurchased $49.4 million of common stock during 2015. A quarterly dividend of $0.45 per share was declared in January 2016 and paid in February.
Outlook, risks, and unusual items
- For 2016, management expected total value-added revenue to increase 3%–5% year over year, including approximately 5% growth in Aero/HS and 10% in Automotive Extrusions; GE and industrial demand was expected to be relatively flat. These are management expectations, not guarantees.
- Management anticipated capital spending of $60–$80 million annually over the next three years, with 2016 spending at the upper end. A multi-year $150 million Trentwood modernization is intended to improve cost, quality, and capacity; management projected 5%–10% additional Trentwood capacity by early 2018.
- Key risks include cyclical aerospace and automotive demand, substitution by other materials, customer concentration (Reliance accounted for about 25% and Boeing about 10% of 2015 sales), competitive pricing and imports, and production or new-program ramp-up difficulties.
- Aluminum, energy, and foreign-exchange movements can affect results, working capital, and hedge-related liquidity. Metal-price declines also led to a $2.6 million inventory write-down in 2015.
- Environmental accruals were $18.6 million; the company said reasonably possible additional costs could be up to an estimated $24.7 million over the remediation period. Union VEBA variable contributions are expected to continue through September 2017; $46.7 million was accrued for estimated remaining contributions at year-end.
- Restrictions intended to protect tax attributes were scheduled to expire July 6, 2016. The company reported $564.4 million of U.S. NOL carryforwards, subject to ownership-change limitations and realization uncertainty.
Important facts for investors to verify
- Reconcile the reported net loss with the $493.4 million Union VEBA charge and management’s adjusted earnings measures.
- Track automotive program ramp-up costs, execution of Trentwood and extrusion investments, and whether expected growth converts into operating income and cash flow.
- Assess customer concentration, end-market demand, import competition, and exposure to aluminum, energy, and hedge-related cash requirements.
- Review the environmental cost range, remaining VEBA payments, debt covenants, and the ability to preserve and use tax attributes after transfer restrictions expire.