KAISER ALUMINUM CORPORATION The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included in Item 8. "Financial Statements and
Supplementary Data" of this Annual Report on Form 10-K ("Report"). For a
detailed discussion of items impacting the year ended
Non-GAAP Financial Measures
This information contains certain non-GAAP financial measures. A non-GAAP financial measure is defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles ("GAAP") in the statements of income, balance sheets or statements of cash flows of the company. We have provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying tables. We have also provided discussion of the reasons we believe that presentation of the non-GAAP financial measures provide useful information to investors, as well as any additional ways in which we use the non-GAAP financial measures. The non-GAAP financial measures used in the following discussions are value added revenue ("VAR"), earnings before interest, taxes, depreciation and amortization adjusted for non-run-rate items ("Adjusted EBITDA") and ratios related thereto. These measures are presented because management uses this information to monitor and evaluate financial results and trends and believes this information to also be useful for investors.
In the discussion of operating results below, we refer to certain items as "non-run-rate items." For purposes of such discussion, non-run-rate items are items that, while they may recur from period-to-period: (i) are particularly material to results; (ii) affect costs primarily as a result of external market factors; and (iii) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating environment but are worthy of being highlighted for the benefit of readers of our financial statements. Our intent is to allow users of the financial statements to consider our results both in light of and separately from such items. For a reconciliation of Adjusted EBITDA to Net (loss) income, see "Results of Operations - Selected Operational and Financial Information" below. Reconciliations of certain forward-looking non-GAAP financial measures to comparable GAAP measures are not provided because certain items required for such reconciliations are outside of our control and/or cannot be reasonably predicted or provided without unreasonable effort.
Metal Pricing Policies
Our pricing policies and hedging program are intended to significantly reduce or
eliminate the impact on our profitability of fluctuations in the underlying
price of primary and scrap, or recycled, aluminum, our main raw material, and
alloys so that our earnings are predominantly associated with the conversion of
aluminum to semifabricated mill products. To allow users of our financial
statements to consider the impact of aluminum and alloy cost on our Net sales,
we disclose Net sales as well as VAR, which is Net sales less the Hedged Cost of
Alloyed Metal. As used in this discussion, "Hedged Cost of Alloyed Metal" is the
cost of aluminum at the average Midwest Transaction Price ("Midwest Price") plus
the cost of alloying elements and any realized gains and/or losses on settled
hedges related to the metal sold in the referenced period. The average Midwest
Price of aluminum reflects the primary aluminum supply/demand dynamics in
Management Review of 2021 and Outlook for the Future
Review
This past year was transformational for the company, although one with a unique
set of operational challenges. As we look ahead, we are confident in the
processes and counter measures we have put in place to address the significant
challenges experienced in 2021, setting the stage for stronger performance in
2022. We also achieved a number of major milestones that served to strengthen
the strategic positioning of our company as we continue to manage our business
for long-term growth and profitability, including our strategic acquisition of
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Demand across our end markets was mixed creating inefficiencies as we adjusted
to changing market conditions. While demand for general engineering applications
("
Outlook
As we look forward, labor issues that hampered our ability to maximize the
market opportunities during the year, have been addressed, as we are nearly
fully staffed and expect the decline of COVID-19 pandemic-related staffing
challenges and the impact of the Omicron virus continues to subside. Our
commercial teams have been very successful passing through price increases and
instituting contained metals and commodity surcharges to offset the majority of
higher materials costs. Operating efficiencies across all facilities have begun
to improve and the supply chain issues experienced during most of the year have
either been mitigated, resolved or addressed, with the exception of challenges
we continue to work through with our major magnesium supplier and the metal
supply to our
For the full year 2022, we anticipate total VAR will be up 20% to 25%
year-over-year with further strengthening in demand for our products across all
our major markets and the benefit of a full year of operations at our
• Aerospace and high strength ("Aero/HS products"). We anticipate 15% to
20% year-over-year growth, primarily driven by declarations from major
original equipment manufacturer ("OEMs") customers, as well as continued
strength in demand for business jet and defense applications.
• Packaging. We anticipate 35% to 40% year-over-year growth, primarily
driven by continued strength in demand, a full year of shipments and
improved pricing and mix.
• GE products. We anticipate 10% to 20% year-over-year growth, primarily
driven by strong underlying demand, service center restocking and
reshoring.
• Automotive Extrusions. We anticipate 10% to 20% year-over-year growth,
primarily driven by strong demand for SUV's, crossovers and light
trucks, moderated by continued semiconductor chip shortages.
Consolidated adjusted EBITDA margin (Adjusted EBITDA as a percentage of VAR) is
expected to improve to the 17% to 20% level for the full year 2022;
strengthening through the year as operations and efficiencies improve, costs
normalize and the
We are well positioned for continued long-term growth with a diversified
portfolio and strong secular growth trends in each of our served end markets.
Notwithstanding near-term challenges, the fundamentals of our Aero/HS products,
Automotive Extrusions and
Results of Operations
Fiscal 2021 Summary
• The global COVID-19 pandemic significantly impacted all of our end market
applications during the year ended December 31, 2021 , most notably Aero/HS
products, which experienced a 7% decline in shipments;
• In March 2021 , we completed our $670.0 million purchase of the Warrick
rolling mill from Alcoa Corporation;
• As of December 31, 2021 , we had $670.5 million of combined cash and cash
equivalents and net borrowing availability under our revolving credit
facility with Wells Fargo Bank, National Association , as administrative
agent, and the other financial institutions party thereto ("Revolving
Credit Facility");
• In May 2021 , we issued $550.0 million aggregate principal amounts of 4.50%
unsecured senior notes due June 1, 2031 ("4.50% Senior Notes") resulting
in proceeds of $541.4 million , net of $8.6 million of transaction fees;
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• In May 2021 , we redeemed all outstanding 6.50% unsecured senior notes due
May 2025 ("6.50% Senior Notes") using proceeds from our 4.50% Senior Notes
offering, resulting in a cash outflow for principal, redemption premium
and accrued interest of $382.2 million ; and
• We paid a total of approximately $46.7 million , or $2.88 per common share,
in cash dividends to stockholders, including holders of restricted stock,
and dividend equivalents to holders of certain restricted stock units
during the year ended December 31, 2021 , reflecting a 7.5% increase in the
quarterly dividend compared with the prior year ended December 31, 2020 .
Consolidated Selected Operational and Financial Information
The following data should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8. "Financial Statements and Supplementary Data" of this Report.
Cost of Products Sold, Excluding Depreciation and Amortization and Other Items.
Cost of products sold, excluding depreciation and amortization and other items
for 2021 totaled
Depreciation and Amortization. Depreciation and amortization for 2021 was
Selling, General, Administrative, Research and Development ("SG&A and R&D").
SG&A and R&D expense totaled
Goodwill Impairment. See Note 4 of Notes to Consolidated Financial Statements included in this Report for further details.
Restructuring Costs. See Note 12 of Notes to Consolidated Financial Statements included in this Report for further information regarding the restructuring plan.
Other Operating Charges (Income), Net. There were no Other operating charges
(income), net, for the year ended
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impairment charges related to property, plant and equipment (see Note 1 of Notes to Consolidated Financial Statements included in this Report for details of government grants received).
Interest Expense. Interest expense represents cash and non-cash interest expense
incurred on our unsecured senior notes and our Revolving Credit Facility, net of
capitalized interest. Interest expense was
Other Expense, Net. Other expense, net for the year ended
Income Tax Benefit (Provision). The income tax benefit for 2021 was
The income tax provision for 2020 was
Selected Operational and Financial Information
The following data should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8. "Financial Statements and Supplementary Data" of this Report.
The following table provides selected operational and financial information (in
millions of dollars):
Year Ended December 31,
2021 2020
Net (loss) income $ (18.5 ) $ 28.8
Interest expense 49.5 40.9
Other expense, net 38.9 1.4
Income tax (benefit) provision (5.5 ) 10.0
Depreciation and amortization 91.5 52.2
Non-run-rate items:
Restructuring (benefit) costs (0.8 ) 7.5
Adjustments to plant-level LIFO1 7.8 2.4
Mark-to-market loss (gain) on derivative instruments2 1.4 (2.6 )
Workers' compensation cost due to discounting - 1.8
Non-cash asset impairment charges - 0.5
Net periodic post retirement service cost relating to
Salaried VEBA 0.1 0.1
Environmental expenses3 0.2 5.3
Acquisition costs4 28.0 5.5
Total non-run-rate items 36.7 20.5
Adjusted EBITDA $ 192.6 $ 153.8
1. We manage our business on a monthly last-in, first-out ("LIFO") basis at each
plant, but report inventory externally on an annual LIFO basis in accordance
with GAAP on a consolidated basis. This line item represents the conversion
from GAAP LIFO applied on a consolidated basis to monthly LIFO applied on a
plant-by-plant basis. For the year ended December 31, 2021 , this line item
reflects a $5.2 million non-run-rate LIFO benefit that resulted from a
purchase accounting adjustment to step-up Warrick's inventory to fair value.
2. Mark-to-market loss (gain) on derivative instruments for 2021 and 2020
represents: (i) the reversal of mark-to-market loss (gain) on hedges entered
into prior to the adoption of Accounting Standards Update No. 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities and settled in the periods presented above; (ii) loss
(gain) on non-designated commodity hedges; and (iii) reclassifications out of
Accumulated other comprehensive loss due to forecasted transactions no longer
probable of occurring. Adjusted EBITDA reflects the realized loss (gain) of
such settlements.
3. Non-run-rate environmental expenses are related to legacy activities at
operating facilities prior to July 6, 2006 . See Note 10 of Notes to
Consolidated Financial Statements included in this Report for additional
information relating to the environmental expenses.
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4. Acquisition costs are non-run-rate acquisition-related transaction costs,
which include professional fees, as well as noncash hedging charges recorded
in connection with our Warrick acquisition. The results for the year ended
December 31, 2020 were adjusted to reflect $5.5 million now classified as
Warrick acquisition-related costs.
Adjusted EBITDA for 2021 was
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The following table provides our shipment and VAR information (in millions of dollars, except shipments and VAR per pound) by end market applications:
Year Ended December 31,
2021 2020
Aero/HS Products:
Shipments (mmlbs) 161.6 173.3
$ $ / lb $ $ / lb
Net sales $ 533.7 $ 3.30 $ 537.9 $ 3.10
Less: Hedged Cost of Alloyed Metal (219.0 ) (1.35 ) (168.6 ) (0.97 )
VAR $ 314.7 $ 1.95 $ 369.3 $ 2.13
Packaging:
Shipments (mmlbs) 541.7 -
$ $ / lb $ $ / lb
Net sales $ 1,119.3 $ 2.07 $ - $ -
Less: Hedged Cost of Alloyed Metal (730.0 ) (1.35 ) - -
VAR $ 389.3 $ 0.72 $ - $ -
Automotive Extrusions:
Shipments (mmlbs) 94.0 84.1
$ $ / lb $ $ / lb
Net sales $ 225.0 $ 2.39 $ 161.4 $ 1.92
Less: Hedged Cost of Alloyed Metal (128.4 ) (1.36 ) (78.4 ) (0.93 )
VAR $ 96.6 $ 1.03 $ 83.0 $ 0.99
GE Products:
Shipments (mmlbs) 298.2 235.6
$ $ / lb $ $ / lb
Net sales $ 706.1 $ 2.37 $ 458.8 $ 1.95
Less: Hedged Cost of Alloyed Metal (409.0 ) (1.37 ) (220.2 ) (0.94 )
VAR $ 297.1 $ 1.00 $ 238.6 $ 1.01
Other Products:
Shipments (mmlbs) 26.1 9.4
$ $ / lb $ $ / lb
Net sales $ 37.9 $ 1.45 $ 14.6 $ 1.55
Less: Hedged Cost of Alloyed Metal (24.4 ) (0.93 ) (8.4 ) (0.89 )
VAR $ 13.5 $ 0.52 $ 6.2 $ 0.66
Total:
Shipments (mmlbs) 1,121.6 502.4
$ $ / lb $ $ / lb
Net sales $ 2,622.0 $ 2.34 $ 1,172.7 $ 2.33
Less: Hedged Cost of Alloyed Metal (1,510.8 ) (1.35 ) (475.6 ) (0.94 )
VAR $ 1,111.2 $ 0.99 $ 697.1 $ 1.39
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Liquidity and Capital Resources
Summary
The following table summarizes our liquidity (in millions of dollars):
As of December 31,
2021 2020
Available cash and cash equivalents $ 303.2 $ 780.3
Borrowing availability under Revolving Credit
Facility, net of letters of credit1 367.3 251.5
Total liquidity $ 670.5 $ 1,031.8 1. Borrowing availability under the Revolving Credit Facility as determined by a
borrowing base calculated as of
We place our cash in bank deposits and money market funds with high credit quality financial institutions. Cash equivalents consist primarily of investment-grade commercial paper, money market accounts and investments which, when purchased, have a maturity of 90 days or less. Short-term investments represent holdings in investment-grade commercial paper with a maturity at the time of purchase of greater than 90 days.
See Note 16 of Notes to Consolidated Financial Statements included in this
Report for information regarding restricted cash at
We and certain of our subsidiaries have a Revolving Credit Facility with
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities (in millions of dollars):
Year Ended December 31,
2021 2020
Total cash provided by (used in):
Operating activities $ 79.4 $ 206.9
Investing activities $ (665.8 ) $ 26.9
Financing activities $ 109.1 $ 281.9 Cash provided by operating activities for the year ended
Cash provided by operating activities for the year ended
See Statements of Consolidated Cash Flows included in this Report for further
details on our cash flows from operating, investing and financing activities for
the years ended
Sources of Liquidity
We believe our available cash and cash equivalents, borrowing availability under the Revolving Credit Facility and funds generated from operations are our most significant sources of liquidity, and that our Revolving Credit Facility and unsecured notes
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have covenants that allow us to operate our business with limited restrictions and significant flexibility for the foreseeable future. While we believe these sources will be sufficient to finance our working capital requirements, planned capital expenditures, investments, debt service obligations and other cash requirements for at least the next twelve months, and while we also believe that alternative sources of liquidity will remain available in the event we seek to add liquidity for opportunistic or other reasons in the future, our ability to fund such cash requirements will depend upon our future operating performance (which will be affected by prevailing economic conditions) and financial, business and other factors, some of which are beyond our control.
We do not believe that covenants contained in the Revolving Credit Facility are reasonably likely to limit our ability to raise additional debt or equity should we choose to do so during the next 12 months, nor do we believe it is likely that during the next 12 months we will trigger the availability threshold that would require measuring and maintaining a fixed charge coverage ratio.
See Note 9 of Notes to Consolidated Financial Statements included in this Report for a description of our Revolving Credit Facility.
Debt
See Note 9 of Notes to Consolidated Financial Statements included in this Report for further details with respect to the 4.50% Senior Notes and 4.625% Senior Notes due 2028 ("4.625% Senior Notes") and the redemption of our 6.50% Senior Notes.
We do not believe that covenants in the indenture governing the 4.50% Senior Notes and 4.625% Senior Notes are reasonably likely to limit our ability to obtain additional debt or equity financing should we choose to do so during the next 12 months.
Capital Expenditures and Investments
We strive to strengthen our competitive position across our end markets through
strategic capital investment. Significant investments over the past decade have
positioned us well with increased capacity and expanded manufacturing
capabilities while more recent capital projects have focused on further
enhancing manufacturing cost efficiency, improving product quality and promoting
operational security, which we believe are critical to maintaining and
strengthening our position in an increasingly competitive market environment. A
significant portion of our capital spending over the past several years related
to the modernization project at our rolling mill in
Our capital investment plans remain focused on supporting demand growth through
capacity expansion, sustaining our operations, enhancing product quality and
increasing operating efficiencies. We anticipate total capital spending in 2022
of approximately
Capital investments will be funded using cash generated from operations, available cash and cash equivalents, shortterm investments, borrowings under the Revolving Credit Facility and/or other third-party financing arrangements. The level of anticipated capital expenditures may be adjusted from time to time depending on our business plans, our price outlook for fabricated aluminum products, our ability to maintain adequate liquidity and other factors. No assurance can be provided as to the timing of any such expenditures or the operational benefits expected therefrom.
Dividends
We have consistently paid a quarterly cash dividend since the second quarter of 2007 to holders of our common stock, including holders of restricted stock, and have increased the dividend in each year since 2011. Nevertheless, as in the past, the future declaration and payment of dividends, if any, will be at the discretion of our Board of Directors and will depend on a number of factors, including our financial and operating results, financial position and anticipated cash requirements and contractual restrictions under our Revolving Credit Facility, the indentures for our 4.50% Senior Notes and 4.625% Senior Notes or other indebtedness we may incur in the future. We can give no assurance that dividends will be declared and paid in the future.
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We also pay quarterly dividend equivalents to the holders of certain restricted stock units. Holders of performance shares are not paid a quarterly dividend equivalent, but instead are entitled to receive, in connection with the issuance of underlying shares of common stock for performance shares that ultimately vest, a one-time payment equal to the dividends such holder would have received if the number of such shares of common stock so issued had been held of record by such holder from the date of grant of such performance shares through the date of such issuance.
See our Statements of Consolidated Stockholders' Equity and Note 18 of Notes to
Consolidated Financial Statements included in this Report for information
regarding dividends declared during 2021 and 2020 and subsequent to
Repurchases of Common Stock
We suspended share repurchases as of
Environmental Commitments and Contingencies
See Note 10 of Notes to Consolidated Financial Statements included in this Report for information regarding our environmental commitments and contingencies.
Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements
The discussion below summarizes our significant contractual obligations,
commercial commitments and off-balance sheet arrangements as of
Principal and Interest on 4.50% Senior Notes and 4.625% Senior Notes. See Note 9 of Notes to Consolidated Financial Statements included in this Report for information, including the timing of principal and interest payments, associated with our debt.
Standby Letters of Credit. Standby Letters of Credit represents letters of
credit issued under our Revolving Credit Facility. The letters of credit provide
financial assurance of our payment of obligations, primarily related to workers'
compensation. The specific timing of payments with respect to such matters is
uncertain. The letters of credit generally automatically renew every 12 months
and terminate when the underlying obligations no longer require assurance or
upon the maturity of our Revolving Credit Facility in
Employer Payroll Tax Deferrals. As of
Uncertain Tax Liabilities. At
Deferred Compensation Plan Liability. As of
Operating Leases. Operating lease liabilities represent multi-year obligations for certain manufacturing facilities, warehouses, office space and equipment. See Note 3 of Notes to Consolidated Financial Statements included in this Report for the maturity of our lease liabilities associated with our operating lease portfolio.
Finance Leases. Finance lease liabilities represent non-cancelable capital
commitments as of
Pension and OPEB. See Note 5 of Notes to Consolidated Financial Statements included in this Report for additional information regarding the future net benefits we expect to pay with respect to our pension plans and our healthcare and life insurance postretirement benefit plan ("OPEB").
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Salaried VEBA Variable Contributions. See Note 5 of Notes to Consolidated Financial Statements included in this Report for additional information regarding our variable cash contributions to the voluntary employees' beneficiary association ("VEBA") that provides benefits for certain eligible retirees and their surviving spouses and eligible dependents ("Salaried VEBA").
VEBA administrative fees. We are required to pay
Purchase Obligations. Cash outlays for purchase obligations consist primarily of commitments to purchase primary aluminum, recycled scrap aluminum, other alloys, energy and equipment. We have various contracts with suppliers of metals that require us to purchase minimum quantities of these metals in future years based primarily at the associated metal price at the time of payment. We believe the minimum required purchase quantities are lower than our current requirements for these metals. Physical delivery commitments with energy companies are in place to cover our exposure to fluctuations in electricity and natural gas prices and are based on fixed contractual rates and quantities. Equipment purchase obligations are based on scheduled payments to equipment manufacturers.
Commitment Fees on Revolving Credit Facility. Future commitment fees on our
Revolving Credit Facility are estimated based on the amount of unused credit
under the facility at
In addition to our off-balance sheet items discussed above:
• See Note 6 of Notes to Consolidated Financial Statements included in this
Report for information regarding our participation in multi-employer
pension plans.
• See Note 7 of Notes to Consolidated Financial Statements included in this
Report for information regarding our long-term employee incentive plans.
Additional equity awards are expected to be made to employees and
non-employee directors in 2022 and future years.
Critical Accounting Estimates and Policies
Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates and such differences could be material.
In addition to the accounting estimates we discuss in Note 1 of Notes to Consolidated Financial Statements included in this Report, management believes that the following accounting estimates are critical to aid in fully understanding and evaluating our reported financial results and require management's most difficult, subjective or complex judgments, resulting from the need to make estimates about the effects of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
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Potential Effect If Actual
Judgments and Results
Description Uncertainties Differ From Assumptions
Revenue Recognition.
We decide at the outset of We follow the input Although we believe that
entering into contracts method of recognizing the judgments and estimates
with customers whether our revenue over time. Under around recognizing revenue
performance obligations as this approach, revenue over time discussed herein
specified in these is recognized on are reasonable, actual
contracts are satisfied products in production results could differ and we
over time or at a point in based on the cost may be exposed to losses or
time. To recognize revenue incurred to date plus a gains that could be
over time means that we reasonable margin. Cost material. A change in our
will need to synchronize incurred to date is estimated average margins
revenue recognition with based on resources by 5% would have had an
progress toward completion consumed, labor hours impact of approximately
of the performance expended and other costs $0.2 million to Net (loss)
obligation. incurred relative to the income for the year ended
total inputs expected in December 31, 2021.
If we have determined that order to satisfy a
revenue will be recognized performance obligation.
over time for a specific Reasonable margins are
customer order, the estimated using an
earliest point in our average margin of the
production process that we respective production
will recognize revenue will facility producing the
be the point that the product.
product cannot be directed
to another customer. In For purposes of
most cases, this happens at recognizing revenue over
the time we begin to mold time on products that
the ingot or billet, either are in workin-process
by flat rolling the ingot ("WIP") as of the period
or by extruding the billet end, we make the
through a die. For custom assumption that the
alloys, we would begin average margins at the
recognizing revenue over respective production
time at the point the facilities are
custom alloy billet is reasonably close to the
cast. individual product
margins that are in WIP.
Approximately 79% of our
business is recognized at a
point in time with the
remaining 21% recognized
over time.
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Potential Effect If Actual
Judgments and Results
Description Uncertainties Differ From Assumptions
Income Tax.
We have tax attributes Inherent within the Although we believe that
available to offset the completion of our the judgments and estimates
impact of future income assessment of the need discussed herein are
taxes. We have a process for a valuation reasonable, actual results
for determining the need allowance, we make could differ and we may be
for a valuation allowance significant judgments exposed to losses or gains
with respect to these and estimates with that could be material. A
attributes. The process respect to future change in our effective tax
includes an extensive operating results, rate by 1% would have had
review of both positive and timing of the reversal an impact of approximately
negative evidence including of deferred tax assets $0.2 million to Net (loss)
our earnings history, and current market and income for the year ended
future earnings, adverse industry factors. In December 31, 2021.
recent occurrences, order to determine the
carryforward periods, an effective tax rate to
assessment of the industry apply to interim
and the impact of the periods, estimates and
timing differences. judgments are made (by
taxable jurisdiction) as
We expect to record a full to the amount of taxable
statutory tax provision in income that may be
future periods and, generated, the
therefore, the benefit of availability of
any tax attributes realized deductions and credits
will only affect future expected and the
balance sheets and availability of net
statements of cash flows. operating loss
carryforwards or other
Financial statements for tax attributes to offset
interim periods include an taxable income.
income tax provision based
on the effective tax rate Making such estimates
expected to be incurred in and judgments is subject
the current year. to inherent
uncertainties given the
difficulty of predicting
future tax rates, market
conditions, customer
requirements, the cost
for key inputs such as
energy and primary
aluminum, overall
operating efficiency and
other factors. However,
if, among other things:
(i) actual results vary
from our forecasts due
to one or more of the
factors cited above or
elsewhere in this
Report; (ii) income is
distributed differently
than expected among tax
jurisdictions; (iii) one
or more material events
or transactions occur
which were not
contemplated; or
(iv) certain expected
deductions, credits or
carryforwards are not
available, it is
possible that the
effective tax rate for a
year could vary
materially from the
assessments used to
prepare the interim
consolidated financial
statements. See Note 14
of Notes to Consolidated
Financial Statements
included in this Report
for additional
discussion of these
matters.
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Potential Effect If Actual
Judgments and Results
Description Uncertainties Differ From Assumptions
Acquisitions, Goodwill and
Intangible Assets.
We account for acquisitions The judgments made in We do not believe there is
using the acquisition determining the a reasonable likelihood
method of accounting, which estimated fair value that there will be a
requires the assets assigned to each class material change in the
acquired and liabilities of assets acquired and estimates or assumptions we
assumed to be recorded at liabilities assumed, as use to estimate the fair
the date of acquisition at well as asset lives, can value of goodwill and
their respective estimated significantly impact our intangible assets.
fair values. results of operations. Additionally, as of
Fair values and useful December 31, 2021, we do
We recognize goodwill as of lives of intangible not believe any of our
the acquisition date as the assets are determined reporting units are at risk
excess over the fair values using the income of failing the goodwill
of the identifiable net approach valuation impairment test. However,
assets acquired. Goodwill methodology, which is if actual results are not
is tested for impairment on based on, among other consistent with our
an annual basis as well as factors, the expected estimates and assumptions
on an interim basis as future period of benefit used in estimating future
events and changes in of the asset, the cash flows and fair values
circumstances occur. various characteristics assigned to each class of
of the asset, longterm assets acquired and
Definite-lived intangible forecasts of the liabilities assumed, we may
assets acquired are business, projected cash be exposed to losses from
amortized over the flows and the rate used impairment charges that
estimated useful lives of in discounting those could be material. For
the respective assets, to cash flows. As the further details on goodwill
reflect the pattern in determination of an and intangible assets, see
which the economic benefits asset's fair value and Note 4 of Notes to
of the intangible assets useful life involves Consolidated Financial
are consumed. In the event management making Statements included in this
the pattern cannot be certain estimates and Report.
reliably determined, we use because these estimates
a straight-line form the basis for the
amortization method. determination of whether
Whenever events or changes or not an impairment
in circumstances indicate charge should be
that the carrying amount of recorded, these
the intangible assets may estimates are considered
not be recoverable, the to be critical
intangible assets will be accounting estimates.
reviewed for impairment.
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Potential Effect If Actual
Judgments and Results
Description Uncertainties Differ From Assumptions
Pension and Other
Postretirement Benefits.
Liabilities and expenses Since the recorded The impact on the combined
for pension and other obligation represents pension and other
postretirement benefits are the present value of postretirement liabilities
determined using actuarial expected postretirement of a change in the weighted
methodologies and benefit payments over average discount rate of ¼
incorporate significant the life of the plans, of 1% would be
assumptions, including the decreases in the approximately $5.1 million
interest rate used to discount rate (used to as of December 31, 2021 and
discount the future compute the present either a charge or credit
estimated liability, the value of the payments) of approximately $0.5
expected long-term rate of would cause the million to pretax earnings
return ("LTRR") on plan estimated obligation to in 2022. A change in the
assets and several increase. Conversely, an assumption for the weighted
assumptions relating to the increase in the discount average expected long-term
employee workforce (salary rate would cause the rate of return on plan
increases, health care cost estimated present value assets of ¼ of 1% would
trend rates, retirement age of the obligation to impact pretax earnings by
and mortality). The most decline. approximately $0.4 million
significant assumptions for 2022.
used in determining the The LTRR on plan assets
estimated year-end reflects an assumption
obligations include the regarding what the
assumed discount rate and amount of earnings would
the LTRR. be on existing plan
assets (before
In addition to the above considering any future
assumptions used in the contributions to the
actuarial valuations, plan). Increases in the
changes in plan provisions assumed LTRR would cause
could also have a material the projected value of
impact on the net funded plan assets available to
status of our pensions and satisfy postretirement
other postretirement obligations to increase,
benefits. Additionally, our yielding a reduced net
obligation to the Salaried expense of these
VEBA is to pay an annual obligations. A reduction
variable contribution in the LTRR would reduce
amount based on the level the amount of projected
of our cash flow. The net assets available to
funding status of the satisfy postretirement
Salaried VEBA has no impact obligations and, thus,
on our annual variable cause the net expense of
contribution amount. We these obligations to
have no control over any increase.
aspect of the plan. We rely
on information provided to A change in plan
us by the Salaried VEBA provisions could cause
administrator with respect the estimated
to specific plan provisions obligations to change.
such as annual benefits An increase in annual
expected to be paid. See benefits expected to be
Note 5 of Notes to paid would increase the
Consolidated Financial estimated present value
Statements included in this of the obligations and
Report for additional conversely, a decrease
information on our benefit in annual benefits
plans. expected to be paid
would decrease the
estimated present value
of the obligations.
New Accounting Pronouncements
For a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see Note 1 of Notes to Consolidated Financial Statements included in this Report.
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