KAISER ALUMINUM CORP (KALU)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 Form 10-K. For a detailed discussion of items impacting the year ended December 31, 2022, as well as a year‑to‑year comparison of our financial position and results of operations for the years ended December 31, 2023 and December 31, 2022, refer to Part II, Item 7. “Management’s Discussion and Analysis” of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 22, 2024.

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 US GAAP in the statements of income (loss), 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 a discussion of the reasons we believe that presentation of the non-GAAP financial measures provides 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 Conversion Revenue (defined as Net Sales less the Hedged Cost of Alloyed Metal, see below in “Metal Pricing Policies” discussion), 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 income, see below in “Results of Operations - Selected Operational and Financial Information.” 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 certain alloys so that our earnings are predominantly associated with the conversion of aluminum to semi‑fabricated 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 Conversion Revenue, 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 MWTP 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 MWTP of aluminum reflects the primary aluminum supply/demand dynamics in North America. For a reconciliation of Conversion Revenue to Net sales, see below in “Results of Operations - Selected Operational and Financial Information.”

Results of Operations

Fiscal 2024 Summary

•
Net income of $46.8 million and Net income per diluted share of $2.87;

•
Net sales of $3.02 billion; Conversion Revenue of $1.46 billion;

•
Adjusted EBITDA of $216.5 million; Adjusted EBITDA Margin 14.9%;

•
Capital investment of $180.8 million, primarily driven by the fourth coating line investment at Warrick;

•
As of December 31, 2024, we had $571.8 million of combined cash and cash equivalents and net borrowing availability under our Revolving Credit Facility; and

•
We paid a total of approximately $50.7 million, or $3.08 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, 2024.

31

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 Form 10-K.

Net Sales. The following table sets forth the 2024 and 2023 shipments (in millions of pounds) and Net sales (in millions of dollars) by end market applications and the respective fluctuations.

The decrease in Net sales reflected a 24.1 million pound (2%) decrease in shipment volume while the average realized sales price per pound remained flat at $2.58 for the years ended 2024 and 2023.

COGS. COGS for 2024 totaled $2,691.1 million, or 89% of Net sales, compared to $2,754.9 million, or 89% of Net sales, in 2023. The decrease reflected the following (in millions of dollars):

Of the $53.3 million decrease in Hedged Cost of Alloyed Metal, $20.6 million was due to lower hedged metal cost and $32.7 million was due to lower shipment volume, as discussed above in “Net Sales.” The $11.7 million decrease in freight costs was primarily due to favorable shipping rates. The $4.7 million decrease in manufacturing costs was primarily driven by lower shipment volume and favorable impact of metal sourcing strategies partially offset by higher energy costs and higher hourly personnel costs. The $5.9 million increase in plant overhead was due to higher employee and employee-related costs for salaried operational personnel. Other cost of products sold remained flat as a result of increases in LIFO reserve expense and legacy environmental expenses offset by a decrease in major maintenance costs. See “Selected Operational and Financial Information” below for a further discussion of the comparative results of operations for 2024 and 2023.

Depreciation and Amortization. Depreciation and amortization for 2024 was $116.4 million compared to $108.6 million for 2023. The increase of $7.8 million was primarily attributable to various construction-in-progress projects related to manufacturing cost efficiency and capacity growth initiatives being placed in service.

32

Selling, General, Administrative, Research and Development (“SG&A and R&D”). SG&A and R&D expense totaled $120.8 million in 2024 compared to $122.7 million in 2023. The decrease reflected the following (in millions of dollars):

The $4.5 million decrease in other SG&A costs was due to: (i) a $2.9 million decrease in legal fees; (ii) a $1.2 million decrease in workers’ compensation expense; and (iii) a $0.7 million decrease in rent expense.

Restructuring Costs. Restructuring costs reflect the impacts of our restructuring plans initiated in 2024 and 2022. See Note 12 of Notes to Consolidated Financial Statements included in this Form 10-K for further information regarding the restructuring plans.

Other Operating Charges, Net. Other operating charges, net, of $0.4 million for the year ended December 31, 2024 represented an impairment charge on land classified as held for sale.

Interest Expense. Interest expense represents cash and non-cash interest expense incurred on our Senior Notes and our Revolving Credit Facility, net of capitalized interest. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for further information regarding interest expense, capitalized interest expense, and a discussion of our debt and credit facilities that were in effect during each of the years 2024 and 2023.

Other Income, Net. See Note 13 of Notes to Consolidated Financial Statements included in this Form 10-K for details.

Income Tax (Provision) Benefit. The income tax provision for 2024 was $16.7 million, resulting in an effective tax rate of 26.3%. The difference between the effective tax rate and the projected blended statutory tax rate for 2024 was primarily due to: (i) an increase of 5% related to an increase in the valuation allowance relating to certain state net operating losses and credits; and (ii) an increase of 4% related to non-deductible compensation expense, partially offset by (i) a decrease of 5% due to state net operating loss (“NOL”) carryforward expirations and tax rate true-ups in various states; and (ii) a decrease of 2% related to a Federal Research and Development credit.

The income tax provision for 2023 was $9.1 million, resulting in an effective tax rate of 16.2%. The difference between the effective tax rate and the projected blended statutory tax rate for 2023 was primarily due to: (i) a decrease of 6% related to a Federal Research and Development credit and (ii) a decrease of 3% related to state taxes, partially offset by an increase of 3% related to non-deductible compensation expense.

33

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 Form 10-K.

The following table provides selected operational and financial information (in millions of dollars):

1.
Non-run-rate environmental expenses are related to legacy contingencies from activities at operating facilities prior to July 6, 2006. See Note 10 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information relating to environmental expenses.

Adjusted EBITDA for 2024 was $6.9 million higher than Adjusted EBITDA for 2023. Adjusted EBITDA for the year ended December 31, 2024 was impacted by: (i) improved product mix, partially offset by lower shipment volume; (ii) a decrease in freight costs; (iii) favorable impact of metal sourcing strategies; and (iv) lower major maintenance costs driven by timing of annual planned maintenance programs. This was partially offset by: (i) higher personnel costs and (ii) an increase in energy costs. See above in “Consolidated Results of Operations” for further details.

34

The following table provides our shipment and Conversion Revenue information (in millions of dollars, except shipments and Conversion Revenue per pound) by end market applications:

1.
Hedged Cost of Alloyed Metal for 2024 and 2023 was comprised of $1,567.6 million and $1,599.7 million, respectively, reflecting the cost of aluminum at the average MWTP and the cost of certain alloys used in the production process, as well as metal price exposure on shipments that we hedged with realized losses upon settlement of $0.2 million and $21.4 million in 2024 and 2023, respectively, all of which were included within both Net sales and COGS in our Statements of Consolidated Income (Loss). See Note 8 of Notes to Consolidated Financial Statements included in this Form 10-K for the total realized (gain) loss on aluminum hedges for which we hedged the metal price exposure externally.

35

Liquidity and Capital Resources

Summary

The following table summarizes our liquidity (in millions of dollars):

1.
Borrowing availability under the Revolving Credit Facility was determined by a borrowing base calculated as of December 31, 2024 and December 31, 2023. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for further details.

We place our cash in bank deposits with high credit quality financial institutions. See Note 16 of Notes to Consolidated Financial Statements included in this Form 10-K for information regarding restricted cash at December 31, 2024.

We had no borrowings under our Revolving Credit Facility during the year ended December 31, 2024, and we had no outstanding borrowings under our Revolving Credit Facility as of December 31, 2023 after repaying borrowings of $215.1 million incurred during the year ended December 31, 2023. See “Sources of Liquidity” below for a further discussion of subsequent borrowing activity.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities (in millions of dollars):

Cash provided by operating activities for the year ended December 31, 2024 reflected results of business activity described within “Consolidated Selected Operational and Financial Information” above, as well as the following working capital changes: (i) an increase in inventory of $29.4 million, excluding LIFO impact, primarily driven by higher metal costs; (ii) an increase in contract assets of $14.9 million, primarily driven by timing of customer shipments; (iii) an increase in accounts payable of $14.1 million due to an increase in metal costs in addition to the timing of payments; and (iv) an increase in trade and other receivables of $4.4 million, primarily due to an increase in metal costs in addition to the timing of collections.

Cash provided by operating activities for the year ended December 31, 2023 reflected results of business activity described within “Consolidated Selected Operational and Financial Information” above, as well as the following working capital changes: (i) a decrease in inventory of $47.2 million, excluding LIFO impact, primarily driven by improved inventory management and lower metal costs; (ii) a decrease in trade and other receivables of $33.1 million, primarily due to a decrease in metal costs in addition to the timing of collections; and (iii) a decrease in accounts payable of $43.0 million due to the timing of payments, in addition to a decrease in metal prices.

See Statements of Consolidated Cash Flows included in this Form 10-K for further details on our cash flows from operating, investing, and financing activities for the years ended December 31, 2024 and December 31, 2023.

36

Sources of Liquidity

Our most significant sources of liquidity include available cash and cash equivalents, available credit under the Revolving Credit Facility, and funds generated from operations. We believe we have sufficient liquidity to fund our operations and meet our short-term and long-term obligations.

Our Revolving Credit Facility and Senior Notes have covenants that, we believe, allow us to operate our business with limited restrictions and significant flexibility for the foreseeable future. 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 to satisfy our foreseeable liquidity needs during the next 12 months, should we choose to do so, 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.

At February 17, 2025, we had no outstanding borrowings under the Revolving Credit Facility after repaying borrowings of $37.3 million incurred subsequent to December 31, 2024. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for a description of our Revolving Credit Facility.

We engage in certain customer-based supply chain financing programs to accelerate the receipt of payment for outstanding accounts receivable from certain customers. The costs of these programs are typically reimbursed to us by the customer. Receivables transferred under these customer-based supply chain financing programs generally meet the requirements to be accounted for as sales resulting in the derecognition of such receivables from our consolidated balance sheets. Receivables involved with these customer‑based supply chain finance programs for the year ended December 31, 2024 constituted approximately 36% of our Net sales. See Note 1 and Note 13 of Notes to Consolidated Financial Statements included in this Form 10-K for further details with respect to these supply chain financing programs.

Material Cash Requirements

The discussion below summarizes our material cash requirements from significant contractual obligations, commercial commitments and off-balance sheet arrangements as of December 31, 2024.

Debt. As of December 31, 2024, we have outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $1.05 billion. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for further details with respect to the 4.625% Senior Notes maturing in 2028 (“4.625% Senior Notes”) and the 4.50% Senior Notes maturing in 2031 (“4.50% Senior Notes”). At December 31, 2024, future interest payments associated with our outstanding notes total $241.8 million, with $47.9 million payable within 12 months. We do not believe that covenants in the indenture governing the 4.625% Senior Notes and 4.50% 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.

Purchase Obligations. Cash outlays for purchase obligations consist primarily of commitments to purchase primary aluminum, recycled scrap aluminum, 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. However, 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 utility prices and are based on fixed contractual rates and quantities. Equipment purchase obligations are based on scheduled payments to equipment manufacturers.

Leases. We have operating and finance leases for certain manufacturing facilities, warehouses, office space, equipment, and non-cancelable capital commitments. See Note 3 of Notes to Consolidated Financial Statements included in this Form 10-K for the maturity of our lease liabilities.

Deferred Compensation Plan Liability. As of December 31, 2024, we had deferred compensation plan liabilities for certain key employees, which were contingent upon investment performance, vesting and other eligibility requirements, including retirement dates. See Note 5 of Notes to Consolidated Financial Statements included in this Form 10-K for further information, including the total expense related to all benefit plans.

Revolving Credit Facility. We are required to pay a monthly commitment fee equal to 0.25% per annum of the unused commitments under the Revolving Credit Facility. No borrowings were outstanding under our Revolving Credit Facility as of December 31, 2024. Additionally, under our Revolving Credit Facility, we issue standby letters of credit to provide financial assurance of our payment of obligations, primarily related to workers’ compensation claims. 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 April 2027. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information.

Uncertain Tax Liabilities. At December 31, 2024, we had uncertain tax positions which ultimately could result in tax payments. See Note 14 of Notes to Consolidated Financial Statements included in this Form 10-K for further information.

37

Pension, OPEB, and Salaried VEBA. See Note 5 of Notes to Consolidated Financial Statements included in this Form 10-K for information regarding the future net benefits we expect to pay with respect to our pension plans, OPEB, and our variable cash contributions to the Salaried VEBA. Additionally, we are required to pay $0.3 million in annual administrative fees related to the hourly VEBA that provides benefits for eligible retirees represented by certain unions and their surviving spouses and eligible dependents through September 2025.

Multiemployer Pension Plans. See Note 6 of Notes to Consolidated Financial Statements included in this Form 10-K for information regarding the future contributions we expect to make under the terms of collective bargaining agreements that cover our union-represented employees at certain facilities. Additionally, in 2027 we expect to pay a partial withdrawal liability of approximately $4.6 million resulting from the exit of our soft alloy aluminum extrusion facility located in Sherman, Texas and the corresponding cessation of ongoing contributions to the multiemployer pension plan for those covered employees.

While we believe our available cash on hand, anticipated available borrowing capacity under the Revolving Credit Facility, and funds generated from operations 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 12 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.

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 are related to: (i) our investment in a fourth coating line at Warrick to increase our capacity for higher margin coated aluminum material for packaging applications and (ii) modernization projects at our Trentwood rolling mill, which focused on equipment upgrades throughout the process flow to reduce conversion costs, increase efficiency and further improve our competitive cost position on all products produced at Trentwood. A significant portion of the Trentwood investment also focused on modernizing legacy equipment and the process flow for thin gauge plate to achieve KaiserSelect® quality enhancements for these Aero/HS Products and GE Products. These improvements have and will allow us to gain incremental manufacturing capacity to enable future sales growth. Total capital expenditures were $180.8 million in 2024 and $143.2 million in 2023.

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 2025 of approximately $125.0 million. We expect to continue to deploy capital thoughtfully so that investment decisions align with demand expectations in order to maximize the earnings potential of the business and maintain financial strength and flexibility.

Capital investments will be funded using cash generated from operations, available cash and cash equivalents, 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. 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, the availability of surplus and/or net profits, liquidity position, anticipated cash requirements, contractual restrictions under our Revolving Credit Facility, and the indentures for our 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.

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.

38

See our Statements of Consolidated Stockholders’ Equity and Note 18 of Notes to Consolidated Financial Statements included in this Form 10-K for information regarding dividends declared during 2024 and 2023 and subsequent to December 31, 2024.

Repurchases of Common Stock

We are not obligated to repurchase any specific number of shares under our stock repurchase program. We suspended share repurchases as of March 2020. We will continue to assess share repurchases as a part of our capital allocation priorities and strategic investment opportunities identified to support further growth in our business. At December 31, 2024, $93.1 million remained authorized and available for future repurchases of common stock under our stock repurchase program. See our Statements of Consolidated Stockholders’ Equity included in this Form 10-K for information regarding minimum statutory tax withholding obligations arising during 2024 and 2023 in connection with the vesting of non-vested shares, restricted stock units, and performance shares.

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 Form 10-K, 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.

Revenue Recognition

We decide at the outset of entering into contracts with customers whether our performance obligations as specified in these contracts are satisfied over time or at a point in time. To recognize revenue over time means that we will need to synchronize revenue recognition with progress toward completion of the performance obligation. If we have determined that revenue will be recognized over time for a specific customer order, the earliest point in our production process that we will recognize revenue will be the point that the product cannot be directed to another customer. In most cases, this happens at the time we begin to mold the ingot or billet, either by flat rolling the ingot or by extruding the billet through a die. For custom alloys, we would begin recognizing revenue over time at the point the custom alloy billet is cast. Approximately 77% of our business is recognized at a point in time with the remaining 23% recognized over time.

We follow the input method of recognizing revenue over time. Under this approach, revenue is recognized for products in production based on the cost incurred to date plus a reasonable margin. Cost incurred to date is based on resources consumed, labor hours expended, and other costs incurred relative to the total inputs expected in order to satisfy a performance obligation. Reasonable margins are estimated using an average margin of the respective production facility producing the product. For purposes of recognizing revenue over time on products that are in work‑in-process as of the period end, we make the assumption that the average margins at the respective production facilities are reasonably close to the individual product margins that are in work‑in-process.

Although we believe that the judgments and estimates around recognizing revenue over time discussed herein are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. A change in our estimated average margins by 5% would have had an impact of approximately $0.1 million to Net income for the year ended December 31, 2024.

Environmental Commitments and Contingencies

We are subject to a number of environmental laws and regulations, to potential fines or penalties assessed for alleged breaches of such laws and regulations and to potential claims and litigation based upon such laws and regulations. Based on our evaluation of environmental matters, we have established environmental accruals, primarily related to solid waste disposal and soil and groundwater remediation matters. These environmental accruals represent our estimate of costs reasonably expected to be incurred in the ordinary course of business based on presently enacted laws and regulations, currently available facts, existing technology and our assessment of the likely remediation action to be taken.

Making estimates of possible incremental environmental remediation costs is subject to inherent uncertainties. In estimating the amount of any loss, in many instances a single estimation of the loss may not be possible. Rather, we may only be able to estimate a

39

range for possible losses. In such an event, ASC 450, Contingencies requires that a liability be established for at least the minimum end of the range assuming that there is no other amount which is more likely to occur. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ and we may be exposed to losses or gains that could be materially different than those reflected in our accruals. To the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of our accruals, our future results from operations could be materially affected. We believe at this time that it is reasonably possible that undiscounted costs associated with these environmental matters may exceed current accruals by amounts that could be, in the aggregate, up to an estimated $13.4 million over the remediation period. See Note 10 of Notes to Consolidated Financial Statements included in this Form 10-K for additional discussion of these matters.

Pension and Other Postretirement and Postemployment Benefits

Liabilities and expenses for pension and other postretirement and postemployment benefits are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used to discount the future estimated liability, the expected long-term rate of return (“LTRR”) on plan assets and several assumptions relating to the employee workforce (salary increases, health care cost trend rates, retirement age and mortality). The most significant assumptions used in determining the estimated year-end obligations include the assumed discount rate and the LTRR.

In addition to the above assumptions used in the actuarial valuations, changes in plan provisions could also have a material impact on the net funded status of our pensions and other postretirement and postemployment benefits. Additionally, our obligation to the Salaried VEBA is to pay an annual variable contribution amount based on the level of our cash flow. The funding status of the Salaried VEBA has no impact on our annual variable contribution amount. We have no control over any aspect of the Salaried VEBA plan. We rely on information provided to us by the Salaried VEBA administrator with respect to specific plan provisions such as annual benefits expected to be paid. See Note 5 of Notes to Consolidated Financial Statements included in this Report for additional information on our benefit plans.

Since the recorded obligation represents the present value of expected postretirement and postemployment benefit payments over the life of the plans, decreases in the discount rate (used to compute the present value of the payments) would cause the estimated obligation to increase. Conversely, an increase in the discount rate would cause the estimated present value of the obligation to decline.

The LTRR on plan assets reflects an assumption regarding what the amount of earnings would be on existing plan assets (before considering any future contributions to the plan). Increases in the assumed LTRR would cause the projected value of plan assets available to satisfy postretirement and OPEB obligations to increase, yielding a reduced net expense of these obligations in future years. A reduction in the LTRR would reduce the amount of projected net assets available to satisfy postretirement and OPEB obligations and, thus, cause the net expense of these obligations to increase in future years. A change in plan provisions could cause the estimated obligations to change. An increase in annual benefits expected to be paid would increase the estimated present value of the obligations and conversely, a decrease in annual benefits expected to be paid would decrease the estimated present value of the obligations.

The impact on the combined pension and other postretirement and OPEB liabilities of a change in the weighted average discount rate of 0.25% would be approximately $3.3 million as of December 31, 2024 and would impact pretax earnings in 2025 by approximately $0.4 million. A change in the assumption for the weighted average expected long-term rate of return on plan assets of 0.25% would impact pretax earnings by approximately $0.2 million for 2025.

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 Form 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 Form 10-K. For a detailed discussion of items impacting the year ended December 31, 2021, as well as a year‑to‑year comparison of our financial position and results of operations for the years ended December 31, 2022 and December 31, 2021, refer to Part II, Item 7. “Management’s Discussion and Analysis” of our Annual Report on Form 10-K for the years ended December 31, 2021 and 2022, respectively, filed with the SEC on March 1, 2022 and February 23, 2023, respectively.

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 US GAAP in the statements of income (loss), 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 a discussion of the reasons we believe that presentation of the non-GAAP financial measures provides 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 Conversion Revenue (defined as Net Sales less the Hedged Cost of Alloyed Metal, see below in “Metal Pricing Policies” discussion), 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 income (loss), see below in “Results of Operations - Selected Operational and Financial Information.” 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 certain alloys so that our earnings are predominantly associated with the conversion of aluminum to semi‑fabricated 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 Conversion Revenue, 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 MWTP 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 MWTP of aluminum reflects the primary aluminum supply/demand dynamics in North America. For a reconciliation of Conversion Revenue to Net sales, see below in “Results of Operations - Selected Operational and Financial Information.”

Molten Metal and Magnesium Supply Chain Issues

In September 2021, Warrick faced specific challenges with the force majeure declaration of its primary magnesium supplier, US Magnesium, LLC (“US Mag”), which resulted in a significant reduction in deliveries while we were also being impacted by the operational challenges Alcoa was experiencing at its adjacent smelter, which supplies molten metal to Warrick. In June 2022, US Mag deliveries unexpectedly stopped while performance of the smelter also rapidly deteriorated, negatively impacting Warrick’s operating efficiency and financial performance. As a result of the abrupt and unexpected decline in magnesium supply, on July 7, 2022, we declared force majeure at Warrick due to the limited availability of magnesium utilized in the production of our beverage and food packaging products, reducing our ability to produce those products at the time. After successfully securing and qualifying magnesium from additional sources, on September 6, 2022, we announced that we had lifted our force majeure declaration. We believe our supply base is now well diversified, as it is not reliant on any one single supplier or geographical region, including with respect to the supply of molten metal to our Warrick operation.

32

Management Review of 2023 and Outlook for the Future

Review

Despite its challenges, 2023 was a foundational year for Kaiser as we laid the groundwork we believe to be necessary to capture the vast growth opportunities ahead. Our focused execution led us to end the year in a solid position with full year Net income of $47.2 million and adjusted EBITDA increasing 48% over 2022 to approximately $210 million. Our marketing organization was successful working with our customers on pricing initiatives in response to higher inflationary costs impacting our performance as we exited 2022 and the first half of 2023. In addition, we led the industry in securing contain metal pass through to address the volatility of alloy costs. Aero/HS Products demand remained strong with Net sales and conversion revenue each setting a new record high. While reduced demand for general engineering plate products persisted, our unique ability to flex our capacity at our Trentwood facility to support strengthening aerospace demand further contributed to our performance. After five consecutive quarters, destocking activity for general engineering long products stabilized during the fourth quarter of 2023. In our Packaging operations, we continue to stabilize operations following the prior years impact of supply chain disruptions and the start of a beverage product destocking cycle that continued through the first half of 2023. While destocking stabilized for beverage products in the second half of 2023, the fourth quarter of 2023 was further impacted by destocking for food related products. Our new roll coat installation, to convert approximately 25% of our existing packaging capacity to higher valued coated products, is progressing well and is on time for completion and customer qualifications by the end of 2024. We believe we have ample financial resources, including $599.1 million in liquidity as of December 31, 2023, and a strong capital expenditures budget, to implement our growth initiatives as we strive to drive sustainable long-term growth.

Outlook

We believe Kaiser remains well positioned in the current demand environment as a key supplier in diverse end markets with multi-year contracts with strategic partners and expects demand will continue to improve across key markets throughout 2024. In Aero/HS Products, the strong momentum from 2023 is expected to continue, supported by customer declarations for commercial jets and strong demand for defense, space, and business jets. In Packaging applications, shipments and conversion revenue are expected to improve modestly as destocking ends in coated food products, along with anticipated steady demand improvements for both beverage and food products as the year progresses. GE Products destocking is expected to continue to abate in the first half of 2024 with improving shipments in the second half of the year. Automotive Extrusions demand is expected to continue its modest recovery with steady shipments and conversion revenue.

As a result, conversion revenue for the full year 2024 is expected to improve 2% - 3% with adjusted EBITDA margins to improve 70 - 170 basis points over 2023. The Company believes its adjusted EBITDA and adjusted EBITDA margin will continue to improve as we implement cost reduction measures in our operations, increase manufacturing efficiencies, and pursue our strategic growth initiatives in Aero/HS Products and Packing applications.

Results of Operations

Fiscal 2023 Summary

•
Increasing demand for our Aero/HS Products within commercial aerospace and space applications, while defense and business jet applications demand remained strong;

•
Continued destocking in our Packaging and GE Products end markets;

•
Negotiated more efficient contained metal pass throughs and commodity price adjustments in our customer contracts to help mitigate the impact of higher material and other inflationary costs on our business;

•
Capital investment was $143.2 million for the year, driven by the fourth roll coat line investment at our Warrick facility;

•
As of December 31, 2023, we had $599.1 million of combined cash and cash equivalents and net borrowing availability under our Revolving Credit Facility;

•
We paid a total of approximately $50.4 million, or $3.08 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, 2023.

33

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 Form 10-K.

Net Sales. We reported Net sales for 2023 of $3,087.0 million, compared to $3,427.9 million for 2022. The decrease in Net sales reflected a 57.8 million pound (5%) decrease in shipment volume and a $0.15/lb (5%) decrease in average realized sales price per pound. The shipment volume decrease reflected: (i) a 88.3 million pound (29%) decrease in GE Products primarily due to destocking at service centers for our plate and extruded rod and bar products; (ii) a 42.9 million pound (7%) decrease in Packaging reflecting destocking in the beverage and food cans market; and (iii) a 2.4 million pound (20%) decrease in our Other products, partially offset by: (i) a 67.8 million pound (36%) increase in Aero/HS Products reflecting strengthening demand for commercial aerospace applications and (ii) a 8.0 million pound (8%) increase in Automotive Extrusions reflecting increased North American automotive build rates. The decrease in average realized sales price per pound reflected a $0.28/lb (17%) decrease in average Hedged Cost of Alloyed Metal prices per pound offset by a $0.13/lb (12%) increase in Conversion Revenue per pound reflecting higher pricing and surcharges to offset higher inflationary and commodity related costs. See the table in “Selected Operational and Financial Information” below for further details.

COGS. COGS for 2023 totaled $2,754.9 million, or 89% of Net sales, compared to $3,180.2 million, or 93% of Net sales, in 2022. The decrease during 2023 compared to 2022 of $425.3 million reflected: (i) a $424.1 million decrease in Hedged Cost of Alloyed Metal and (ii) a $1.2 million decrease in net manufacturing conversion and other costs. Of the $424.1 million decrease in Hedged Cost of Alloyed Metal, $329.7 million was due to lower hedged metal cost and $94.4 million was due to lower shipment volume, as discussed above in “Net Sales.” The $1.2 million decrease in net manufacturing conversion and other costs was primarily due to: (i) a $19.8 million decrease related to lower shipments; (ii) a $10.9 million decrease in other costs, primarily due to lower freight costs; and (iii) a $3.2 million decrease in environmental costs, partially offset by: (i) a net $25.3 million increase in manufacturing costs primarily due to higher labor and material costs and (ii) a $7.4 million increase in major maintenance. See “Selected Operational and Financial Information” below for a further discussion of the comparative results of operations for 2023 and 2022.

Depreciation and Amortization. Depreciation and amortization for 2023 was $108.6 million compared to $106.9 million for 2022. The increase of $1.7 million was primarily attributable to various construction-in-progress projects being placed in service related to manufacturing cost efficiency initiatives.

Selling, General, Administrative, Research and Development (“SG&A and R&D”). SG&A and R&D expense totaled $122.7 million in 2023 compared to $110.9 million in 2022. The $11.8 million increase in 2023 compared to 2022 was primarily due to: (i) an $11.2 million increase in salaries, benefits, and incentive compensation and (ii) a $2.7 million increase in legal fees, partially offset by a $3.6 million decrease in consulting and outsourced services.

Goodwill Impairment. See Note 4 of Notes to Consolidated Financial Statements included in this Form 10-K for further details.

Restructuring Costs. Restructuring costs reflect the impacts of our restructuring plans initiated in 2022 and 2020. See Note 12 of Notes to Consolidated Financial Statements included in this Form 10-K for further information regarding the restructuring plans.

Other Operating Charges, Net. Other operating charges, net, of $3.2 million for the year ended December 31, 2022 was primarily due to the impairment of our favorable commodity contract intangible asset. See Note 4 of Notes to Consolidated Financial Statements included in this Form 10-K for further details.

Interest Expense. Interest expense represents cash and non-cash interest expense incurred on our Senior Notes and our Revolving Credit Facility, net of capitalized interest. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for further information regarding interest expense, capitalized interest expense and a discussion of our debt and credit facilities that were in effect during each of the years 2023 and 2022.

Other Income (Expense), Net. See Note 13 of Notes to Consolidated Financial Statements included in this Form 10-K for details.

Income Tax (Provision) Benefit. The income tax provision for 2023 was $9.1 million, resulting in an effective tax rate of 16.2%. The difference between the effective tax rate and the projected blended statutory tax rate for 2023 was primarily due to: (i) a decrease of 6% related to a federal Research and Development credit and (ii) a decrease of 3% related to state taxes, partially offset by an increase of 3% related to non-deductible compensation expense.

The income tax benefit for 2022 was $8.3 million, resulting in an effective tax rate of 21.9%. The difference between the effective tax rate and the projected blended statutory tax rate for 2022 was primarily due to: (i) an increase of 3% due to various permanent items not deductible for tax purposes; (ii) an increase of 2% related to non-deductible compensation expense; and (iii) an increase of 1% related to state taxes, partially offset by a decrease of 6% related to a federal Research and Development credit.

34

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 Form 10-K.

The following table provides selected operational and financial information (in millions of dollars):

1.
Mark-to-market loss on derivative instruments for 2022 represents loss on non-designated commodity hedges. Adjusted EBITDA reflects the realized loss of such settlements.

2.
See Note 4 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information relating to the impairment of goodwill in 2022.

3.
Non-run-rate environmental expenses are related to legacy contingencies from activities at operating facilities prior to July 6, 2006. See Note 10 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information relating to environmental expenses.

4.
Acquisition costs are non-run-rate acquisition-related transaction costs, which include professional fees, as well as non‑cash hedging charges recorded in connection with our Warrick acquisition.

Adjusted EBITDA for 2023 was $67.7 million higher than Adjusted EBITDA for 2022. Adjusted EBITDA for the year ended December 31, 2023 was impacted by: (i) improved pricing and surcharges to offset higher inflationary and commodity related costs; (ii) a decrease in freight costs due to lower shipment volumes; and (iii) lower energy costs, partially offset by: (i) an increase in material and overhead costs; (ii) higher personnel costs; and (ii) an increase in major maintenance. See above in “Consolidated Results of Operations” for further details.

35

The following table provides our shipment and Conversion Revenue information (in millions of dollars, except shipments and Conversion Revenue per pound) by end market applications:

1.
Hedged Cost of Alloyed Metal for 2023 and 2022 was comprised of $1,599.7 million and $2,028.2 million, respectively, reflecting the cost of aluminum at the average MWTP and the cost of certain alloys used in the production process, as well as metal price exposure on shipments that we hedged with realized losses upon settlement of $21.4 million and $17.0 million in 2023 and 2022, respectively, all of which were included within both Net sales and COGS in our Statements of Consolidated Income (Loss). See Note 8 of Notes to Consolidated Financial Statements included in this Form 10-K for the total realized loss (gain) on aluminum hedges for which we hedged the metal price exposure externally.

36

Liquidity and Capital Resources

Summary

The following table summarizes our liquidity (in millions of dollars):

1.
In April 2022, we executed Amendment No. 3 to our Revolving Credit Facility to, among other things: (i) increase the commitment to $575.0 million; (ii) extend the maturity date; (iii) update our borrowing base; and (iv) update relevant benchmark provisions from LIBOR to Term SOFR. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for further details. Borrowing availability under the Revolving Credit Facility was determined by a borrowing base calculated as of December 31, 2023 and December 31, 2022.

We place our cash in bank deposits and money market funds with high credit quality financial institutions. Cash equivalents primarily consist of money market funds, which are highly liquid. As of December 31, 2023, we had no cash in money market funds. As of December 31, 2022, we had $10.3 million in money market funds.

See Note 16 of Notes to Consolidated Financial Statements included in this Form 10-K for information regarding restricted cash at December 31, 2023.

We had no outstanding borrowings as of December 31, 2023 under our Revolving Credit Facility, after repaying borrowings of $215.1 million incurred during the year ended December 31, 2023. We had no borrowings under our Revolving Credit Facility during the year ended December 31, 2022. See “Sources of Liquidity” below for a further discussion of subsequent borrowing activity.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities (in millions of dollars):

Cash provided by operating activities for the year ended December 31, 2023 reflected results of business activity described within “Consolidated Selected Operational and Financial Information” above, as well as the following working capital changes: (i) a decrease in inventory of $48.2 million, primarily driven by improved inventory management and lower metal costs; (ii) a decrease in trade and other receivables of $33.1 million, primarily due to a decrease in metal costs in addition to the timing of collections; and (iii) a decrease in accounts payable of $43.0 million due to the timing of payments, in addition to a decrease in metal prices.

Cash used in operating activities for the year ended December 31, 2022 reflected results of business activity described within “Consolidated Selected Operational and Financial Information” above, as well as the following working capital changes: (i) an increase in inventory of $120.8 million, primarily driven by higher inventory pounds built at our Warrick facility to mitigate the impact of supply chain disruptions related to magnesium and hot metal supply and at our Trentwood facility to prepare for the planned outages associated with our large stretcher refurbishment, as well as higher per pound inventory cost due to higher metal prices in ending inventory; (ii) a decrease in accounts payable of $61.2 million, primarily due to timing of purchases and a decrease in period ending metal prices; and (iii) a decrease in accounts receivable of $15.0 million due to the timing and mix of sales, as well as a decrease in period ending metal prices.

See Statements of Consolidated Cash Flows included in this Form 10-K for further details on our cash flows from operating, investing, and financing activities for the years ended December 31, 2023 and December 31, 2022.

37

Sources of Liquidity

Our most significant sources of liquidity include available cash and cash equivalents, available credit under the Revolving Credit Facility, and funds generated from operations. We believe we have sufficient liquidity to fund our operations and meet our short-term and long-term obligations.

Our Revolving Credit Facility and Senior Notes have covenants that, we believe, allow us to operate our business with limited restrictions and significant flexibility for the foreseeable future. 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.

At February 19, 2024, we had no outstanding borrowings under the Revolving Credit Facility. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for a description of our Revolving Credit Facility.

We engage in certain customer-based supply chain financing programs to accelerate the receipt of payment for outstanding accounts receivable from certain customers. The costs of these programs are typically reimbursed to us by the customer. Receivables transferred under these customer-based supply chain financing programs generally meet the requirements to be accounted for as sales resulting in the derecognition of such receivables from our consolidated balance sheets. Receivables involved with these customer‑based supply chain finance programs for the year ended December 31, 2023 constituted approximately 41% of our Net sales. See Note 1 and Note 13 of Notes to Consolidated Financial Statements included in this Form 10-K for further details with respect to these supply chain financing programs.

Material Cash Requirements

The discussion below summarizes our material cash requirements from significant contractual obligations, commercial commitments and off-balance sheet arrangements as of December 31, 2023.

Debt. As of December 31, 2023, we have outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $1.05 billion. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for further details with respect to the 4.50% Senior Notes maturing in 2031 (“4.50% Senior Notes”) and 4.625% Senior Notes maturing in 2028 (“4.625% Senior Notes”). At December 31, 2023, future interest payments associated with our outstanding notes total $289.7 million, with $47.9 million payable within 12 months. 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.

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. However, 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.

Leases. We have operating and finance leases for certain manufacturing facilities, warehouses, office space, equipment, and non-cancelable capital commitments. See Note 3 of Notes to Consolidated Financial Statements included in this Form 10-K for the maturity of our lease liabilities.

Deferred Compensation Plan Liability. As of December 31, 2023, we had deferred compensation plan liabilities for certain key employees, which were contingent upon investment performance, vesting and other eligibility requirements, including retirement dates. See Note 5 of Notes to Consolidated Financial Statements included in this Form 10-K for further information, including the total expense related to all benefit plans.

Revolving Credit Facility. We are required to pay a monthly commitment fee equal to 0.25% per annum of the unused commitments under the Revolving Credit Facility. No borrowings were outstanding under our Revolving Credit Facility as of December 31, 2023. Additionally, under our Revolving Credit Facility, we issue standby letters of credit to provide financial assurance of our payment of obligations, primarily related to workers’ compensation claims. 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 April 2027. See Note 9 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information.

Uncertain Tax Liabilities. At December 31, 2023, we had uncertain tax positions which ultimately could result in tax payments. See Note 14 of Notes to Consolidated Financial Statements included in this Form 10-K for further information.

38

Pension, OPEB, and Salaried VEBA. See Note 5 of Notes to Consolidated Financial Statements included in this Form 10-K for additional information regarding the future net benefits we expect to pay with respect to our pension plans, OPEB, and our variable cash contributions to the Salaried VEBA. Additionally, we are required to pay $0.3 million in annual administrative fees related to the hourly VEBA that provides benefits for eligible retirees represented by certain unions and their surviving spouses and eligible dependents through September 2025.

While we believe our available cash on hand, anticipated available borrowing capacity under the Revolving Credit Facility, and funds generated from operations 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 12 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.

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 Trentwood rolling mill, which focused on equipment upgrades throughout the process flow to reduce conversion costs, increase efficiency and further improve our competitive cost position on all products produced at our Trentwood facility. In addition, a significant portion of the investment also focused on modernizing legacy equipment and the process flow for thin gauge plate to achieve KaiserSelect® quality enhancements for these Aero/HS Products and GE Products. These improvements have allowed us to gain incremental manufacturing capacity to enable future sales growth. In 2023, we continued spending on our previously announced capital project to add a fourth roll coat line at our Warrick facility to increase our capacity for higher margin coated packaging products. Total capital expenditures were $143.2 million in 2023, of which $66.0 million related to the new roll coat line and $77.2 million primarily related to critical sustaining capital projects, and $142.5 million in 2022, of which $74.7 million related to the new roll coat line and $67.8 million primarily related to critical sustaining capital projects. During 2023, we reassessed the remaining capital requirements for the fourth roll coat line, resulting in an increase to the total cost of the project from its original estimate of $150 million to approximately $250 million. The increase was primarily driven by higher labor and material costs, in addition to certain scope changes.

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 2024 of $170.0 million to $190.0 million, of which approximately 65% will be focused on growth initiatives, primarily reflecting continued investment in the new roll coat line at Warrick, which we anticipate will be approximately $100 million. In addition, approximately $10 million is attributable to our Phase VII growth project at our Trentwood facility. We expect to continue to deploy capital thoughtfully so that investment decisions align with demand expectations in order to maximize the earnings potential of the business and maintain financial strength and flexibility.

Capital investments will be funded using cash generated from operations, available cash and cash equivalents, 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. 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, including the availability of surplus and/or net profits, and operating results, financial position and anticipated cash requirements and contractual restrictions under our Revolving Credit Facility, the indentures for our 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.

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.

39

See our Statements of Consolidated Stockholders’ Equity and Note 18 of Notes to Consolidated Financial Statements included in this Form 10-K for information regarding dividends declared during 2023 and 2022 and subsequent to December 31, 2023.

Repurchases of Common Stock

We are not obligated to repurchase any specific number of shares under our stock repurchase program. We suspended share repurchases as of March 2020. We will continue to assess share repurchases as a part of our capital allocation priorities and strategic investment opportunities identified to support further growth in our business. At December 31, 2023, $93.1 million remained authorized and available for future repurchases of common stock under our stock repurchase program. See our Statements of Consolidated Stockholders’ Equity included in this Form 10-K for information regarding minimum statutory tax withholding obligations arising during 2023 and 2022 in connection with the vesting of non-vested shares, restricted stock units, and performance shares.

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 Form 10-K, 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.

Revenue Recognition

We decide at the outset of entering into contracts with customers whether our performance obligations as specified in these contracts are satisfied over time or at a point in time. To recognize revenue over time means that we will need to synchronize revenue recognition with progress toward completion of the performance obligation. If we have determined that revenue will be recognized over time for a specific customer order, the earliest point in our production process that we will recognize revenue will be the point that the product cannot be directed to another customer. In most cases, this happens at the time we begin to mold the ingot or billet, either by flat rolling the ingot or by extruding the billet through a die. For custom alloys, we would begin recognizing revenue over time at the point the custom alloy billet is cast. Approximately 78% of our business is recognized at a point in time with the remaining 22% recognized over time.

We follow the input method of recognizing revenue over time. Under this approach, revenue is recognized for products in production based on the cost incurred to date plus a reasonable margin. Cost incurred to date is based on resources consumed, labor hours expended, and other costs incurred relative to the total inputs expected in order to satisfy a performance obligation. Reasonable margins are estimated using an average margin of the respective production facility producing the product. For purposes of recognizing revenue over time on products that are in work‑in-process (“WIP”) as of the period end, we make the assumption that the average margins at the respective production facilities are reasonably close to the individual product margins that are in WIP.

Although we believe that the judgments and estimates around recognizing revenue over time discussed herein are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. A change in our estimated average margins by 5% would have had an impact of approximately $0.2 million to Net income for the year ended December 31, 2023.

Income Tax

We have tax attributes available to offset the impact of future income taxes. We have a process for determining the need for a valuation allowance with respect to these attributes. The process includes an extensive review of both positive and negative evidence including our earnings history, future earnings, adverse recent occurrences, carryforward periods, an assessment of the industry, and the impact of the timing differences. We expect to record a full statutory tax provision in future periods and, therefore, the benefit of any tax attributes realized will only affect future balance sheets and statements of cash flows. Financial statements for interim periods include an income tax provision based on the effective tax rate expected to be incurred in the current year.

Inherent within the completion of our assessment of the need for a valuation allowance, we make significant judgments and estimates with respect to future operating results, timing of the reversal of deferred tax assets and current market and industry factors.

40

In order to determine the effective tax rate to apply to interim periods, estimates and judgments are made (by taxable jurisdiction) as to the amount of taxable income that may be generated, the availability of deductions and credits expected and the availability of net operating loss carryforwards or other tax attributes to offset taxable income.

Making such estimates and judgments is subject 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 Form 10-K; (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 Form 10-K for additional discussion of these matters.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. A change in our effective tax rate by 1% would have had an impact of approximately $0.6 million to Net income for the year ended December 31, 2023.

Goodwill and Intangible Assets

We account for acquisitions using the acquisition method of accounting, which requires the assets acquired and liabilities assumed to be recorded at the date of acquisition at their respective estimated fair values. We recognize goodwill as of the acquisition date as the excess over the fair values of the identifiable net assets acquired. Goodwill is tested for impairment on an annual basis as well as on an interim basis as events and changes in circumstances occur.

Definite-lived intangible assets acquired are amortized over the estimated useful lives of the respective assets, to reflect the pattern in which the economic benefits of the intangible assets are consumed. In the event the pattern cannot be reliably determined, we use a straight-line amortization method. Whenever events or changes in circumstances indicate that the carrying amount of the intangible assets may not be recoverable, the intangible assets will be reviewed for impairment.

The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can significantly impact our results of operations. Fair values and useful lives of intangible assets are determined using the income approach valuation methodology, which is based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset, long‑term forecasts of the business, projected cash flows and the rate used in discounting those cash flows. As the determination of an asset’s fair value and useful life involves management making certain estimates and because these estimates form the basis for the determination of whether or not an impairment charge should be recorded, these estimates are considered to be critical accounting estimates.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to estimate the fair value of goodwill and intangible assets. Additionally, as of December 31, 2023, we do not believe any of our reporting units are at risk of failing the goodwill impairment test. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and fair values assigned to each class of assets acquired and liabilities assumed, we may be exposed to losses from impairment charges that could be material. For further details on goodwill and intangible assets, see Note 4 of Notes to Consolidated Financial Statements included in this Form 10-K.

Environmental Commitments and Contingencies

We are subject to a number of environmental laws and regulations, to potential fines or penalties assessed for alleged breaches of such laws and regulations and to potential claims and litigation based upon such laws and regulations. Based on our evaluation of environmental matters, we have established environmental accruals, primarily related to solid waste disposal and soil and groundwater remediation matters. These environmental accruals represent our estimate of costs reasonably expected to be incurred in the ordinary course of business based on presently enacted laws and regulations, currently available facts, existing technology and our assessment of the likely remediation action to be taken.

Making estimates of possible incremental environmental remediation costs is subject to inherent uncertainties. In estimating the amount of any loss, in many instances a single estimation of the loss may not be possible. Rather, we may only be able to estimate a range for possible losses. In such an event, ASC 450, Contingencies ("ASC 450"), requires that a liability be established for at least the minimum end of the range assuming that there is no other amount which is more likely to occur. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ and we may be exposed to losses or gains that could be materially different than those reflected in our accruals. To the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of our accruals, our future results from operations could

41

be materially affected. We believe at this time that it is reasonably possible that undiscounted costs associated with these environmental matters may exceed current accruals by amounts that could be, in the aggregate, up to an estimated $11.6 million over the remediation period. See Note 10 of Notes to Consolidated Financial Statements included in this Form 10-K for additional discussion of these matters.

Pension and Other Postretirement Benefits

Liabilities and expenses for pension and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used to discount the future estimated liability, the expected long-term rate of return (“LTRR”) on plan assets and several assumptions relating to the employee workforce (salary increases, health care cost trend rates, retirement age and mortality). The most significant assumptions used in determining the estimated year-end obligations include the assumed discount rate and the LTRR.

In addition to the above assumptions used in the actuarial valuations, changes in plan provisions could also have a material impact on the net funded status of our pensions and other postretirement benefits. Additionally, our obligation to the Salaried VEBA is to pay an annual variable contribution amount based on the level of our cash flow. The funding status of the Salaried VEBA has no impact on our annual variable contribution amount. We have no control over any aspect of the Salaried VEBA plan. We rely on information provided to us by the Salaried VEBA administrator with respect to specific plan provisions such as annual benefits expected to be paid. See Note 5 of Notes to Consolidated Financial Statements included in this Report for additional information on our benefit plans.

Since the recorded obligation represents the present value of expected postretirement benefit payments over the life of the plans, decreases in the discount rate (used to compute the present value of the payments) would cause the estimated obligation to increase. Conversely, an increase in the discount rate would cause the estimated present value of the obligation to decline.

The LTRR on plan assets reflects an assumption regarding what the amount of earnings would be on existing plan assets (before considering any future contributions to the plan). Increases in the assumed LTRR would cause the projected value of plan assets available to satisfy postretirement obligations to increase, yielding a reduced net expense of these obligations in future years. A reduction in the LTRR would reduce the amount of projected net assets available to satisfy postretirement obligations and, thus, cause the net expense of these obligations to increase in future years. A change in plan provisions could cause the estimated obligations to change. An increase in annual benefits expected to be paid would increase the estimated present value of the obligations and conversely, a decrease in annual benefits expected to be paid would decrease the estimated present value of the obligations.

The impact on the combined pension and other postretirement liabilities of a change in the weighted average discount rate of 0.25% would be approximately $3.5 million as of December 31, 2023, and would impact pretax earnings in 2024 by approximately $0.3 million. A change in the assumption for the weighted average expected long-term rate of return on plan assets of 0.25% would impact pretax earnings by approximately $0.2 million for 2024.

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 Form 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 December 31, 2020, as well as a year‑to‑year comparison of our financial position and results of operations for the years ended December 31, 2021 and December 31, 2020, refer to Part II, Item 7. “Management’s Discussion and Analysis” of our Annual Report on Form 10-K for the years ended December 31, 2020 and 2021, respectively, filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021 and March 1, 2022, respectively.

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 Conversion Revenue (defined as Net Sales less the Hedged Cost of Alloyed Metal, see below in “Metal Pricing Policies” discussion), 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, see below in “Results of Operations - Selected Operational and Financial Information.” 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.

Changes in Presentation of Non-GAAP Financial Measures

Change from Value Added Revenue to Conversion Revenue. Beginning with the year ended December 31, 2022, we determined that we will rename our previously used non-GAAP financial measure, “value added revenue” or “VAR,” to “Conversion Revenue.” The change is based on discussions with staff of the SEC pertaining to comment letters received during 2022 and is intended to more clearly characterize the metric as a subcomponent of revenue. Separately, due to high inflationary trends and the historically unprecedented volatility of alloy costs starting in early 2022, we renegotiated certain customer contracts and amendments to existing contracts to replace future price adjustments based on higher commodity and alloy costs with adjustments that pass through commodity and alloy cost. In addition, effective January 1, 2022, we have determined that we will prospectively change our approach from including a portion of alloyed metal cost within Hedged Cost of Alloyed Metal to include all alloyed metal cost. Periods prior to 2022 have not been adjusted as these changes were deemed effective as of January 1, 2022. This approach further aligns the presentation with our business model objective of “metal price neutrality,” as described below in our “Metal Pricing Policies” discussion. We have also expanded our disclosures regarding the nature of the costs included in the Hedged Cost of Alloyed Metal amounts in light of the comments from the SEC. See the table in “Results of Operations – Selected Operational and Financial Information” below for further details.

Change to Adjusted EBITDA. We have determined that we will revise our presentation of Adjusted EBITDA to no longer adjust our operating results for the impact of last-in, first-out (“LIFO”) calculated on an annual basis to LIFO calculated on a monthly basis done at a plant level, previously identified as “Adjustments to plant-level LIFO.” This change is based on discussions with the SEC pertaining to comment letters received during 2022. For comparability, references to prior periods’ Adjusted EBITDA have been updated to show the effect of this change. See the table in “Results of Operations – Selected Operational and Financial Information” below for further details.

30

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 certain alloys so that our earnings are predominantly associated with the conversion of aluminum to semi‑fabricated 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 Conversion Revenue, 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 North America. For a reconciliation of Conversion Revenue to Net sales, see below in “Results of Operations - Selected Operational and Financial Information.”

Molten Metal and Magnesium Supply Chain Issues

As we have previously discussed, our rolling mill facility located in Warrick County, Indiana (“Warrick”) faced specific challenges with the September 2021 force majeure declaration of its primary magnesium supplier, US Magnesium, LLC (“US Mag”), which resulted in a significant reduction in deliveries while we were also being impacted by the operational challenges Alcoa Corporation was experiencing at its adjacent smelter, which supplies molten metal to Warrick. In June 2022, US Mag deliveries unexpectedly stopped while performance of the smelter also rapidly deteriorated, negatively impacting Warrick’s operating efficiency and financial performance. As a result of the abrupt and unexpected decline in magnesium supply, on July 7, 2022, we declared force majeure at Warrick due to the limited availability of magnesium utilized in the production of our beverage and food packaging products, reducing our ability to produce those products at the time.

After successfully securing and qualifying magnesium from additional sources, on September 6, 2022 we announced that we had lifted our force majeure declaration and have now sourced Warrick's magnesium requirements through 2023 and beyond. We believe our supply base is now well diversified, as it is not reliant on any one single supplier or geographical region. In addition, the molten metal supply at Warrick has improved to an acceptable level and we have secured access to alternative sources of molten metal to further diversify our Warrick metal supply and mitigate the risk of further smelter operational disruptions.

Management Review of 2022 and Outlook for the Future

Review

The full year 2022 was a pivotal year in our evolution as we believe we laid the necessary groundwork to position ourselves for long-term, sustainable growth despite the numerous challenges we encountered, including unprecedented supply chain disruptions, inflationary cost pressures and labor turnover, which negatively impacted our financial performance. We continue to work with our customers to negotiate improvements to commodity price adjustments to mitigate the impact of inflationary and volatile commodity costs on our business and improve our margin profile. We are prioritizing investments in our growth through our roll coat capacity expansion project at Warrick, which we expect will become operational by mid-to-late 2024. In addition, we remain well positioned to service the recovery we have been experiencing in aerospace and continued demand for general engineering (plate) following the completion of a long planned, major outage at our Spokane, Washington (“Trentwood”) facility in the third quarter of 2022.

Outlook

Looking ahead, we remain intently focused on continuing to pursue cost reductions in our operations, as well as improving efficiencies and implementing commercial actions to increase our margins. We believe the strategy we have in place should lead to improved performance in the year ahead with our full year 2022 Adjusted EBITDA representing a temporary low point. While our efforts will take time to manifest, we are confident in our ability to execute given our solid market position as a key supplier, diverse end markets with strong secular growth characteristics, deep customer relationships and multi-year contracts with strategic partners.

We remain well positioned to navigate the current demand environment prevailing in our end markets in 2023. We expect demand in commercial aerospace to continue to strengthen throughout 2023 towards levels before the Coronavirus Disease 2019 (“COVID‑19”) pandemic with both business jet and defense remaining strong. In our beverage and food packaging (“Packaging”) end market, we expect our operations will return to more normalized levels in 2023 now that the most significant supply chain issues have been resolved, despite continuing impacts from higher metal costs and a lag in passing through certain costs. General engineering (“GE Products”) end market demand is expected to soften for plate and rod and bar products on stable pricing levels as distributors destock inventories after taking advantage of lower metal prices in the second half of 2022. In the automotive end market (“Automotive Extrusions”), we do not expect a meaningful recovery until mid-to-late 2023.

31

We are cautiously optimistic our consolidated adjusted EBITDA margin (Adjusted EBITDA as a percentage of Conversion Revenue) will begin to strengthen in 2023 as we return to more normalized costs, improved efficiencies and continued commercial actions.

Results of Operations

Fiscal 2022 Summary

•
Strong demand for GE products and Packaging;

•
Increasing demand for our aerospace and high strength products (“Aero/HS products”) within commercial aerospace while defense and business jet applications demand remained strong;

•
Modest increase in Automotive Extrusions shipments as the market slowly continued to recover;

•
Molten metal and magnesium supply chain issues impacted results;

•
Diversification of our supply base to no longer be reliant on a single supplier or geographical region;

•
Negotiated more efficient contained metal and alloy cost pass throughs and commodity price adjustments in our customer contracts to help mitigate the impact of higher material and other inflationary costs on our business;

•
Completion of planned major outage, which included refurbishment of the large stretcher, at our Trentwood facility;

•
As of December 31, 2022, we had $615.2 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”);

•
We paid a total of approximately $50.1 million, or $3.08 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, 2022, reflecting a 7% increase in the quarterly dividend compared with the prior year ended December 31, 2021.

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.

Net Sales. We reported Net sales for 2022 of $3,427.9 million, compared to $2,622.0 million for 2021. The increase in Net sales reflected a 132.6 million pound (12%) increase in shipment volume and a $0.39/lb increase in average realized sales price per pound. The shipment volume increase reflected: (i) a 113.6 million pound (21%) increase in Packaging reflecting a full year of shipments during 2022 as a result of our Warrick acquisition, which was completed on March 31, 2021, partially impacted by reduced shipments in the second half of 2022 due to the third quarter force majeure event at Warrick; (ii) a 24.9 million pound (15%) increase in Aero/HS products reflecting continued strength in demand for our business jet and defense related applications, and improved demand for commercial aerospace as we continued to see the recovery in air travel and higher shipments of new aircraft from both major airframe producers, partially offset by constrained plate shipments during the quarter ended September 30, 2022 due to our planned major outage at our Trentwood facility; (iii) a 5.7 million pound (2%) increase in GE products reflecting continued strong underlying demand for semiconductor plate and industrial and machine tools; and (iv) a 2.5 million pound (3%) increase in Automotive Extrusions, which was relatively flat over prior year, driven by the shortage of semiconductors and industry supply chain issues that impacted the North American automotive production levels. The shipment volume increase was partially offset by a 14.1 million pound (54%) decrease in our other industrial end market application (“Other products”). The increase in average realized sales price per pound reflected a $0.28/lb (21%) increase in average Hedged Cost of Alloyed Metal prices per pound and an $0.11/lb (11%) increase in Conversion Revenue per pound reflecting higher pricing and surcharges to offset higher inflationary and commodity related costs. See the table in “Selected Operational and Financial Information” below for further details.

Cost of Products Sold, Excluding Depreciation and Amortization and Other Items (“Cost of products sold”). Cost of products sold for 2022 totaled $3,180.2 million, or 93% of Net sales, compared to $2,348.1 million, or 90% of Net sales, in 2021. The increase during 2022 compared to 2021 of $832.1 million reflected: (i) a $534.4 million increase in Hedged Cost of Alloyed Metal and (ii) a $297.7 million increase in net manufacturing conversion and other costs. Of the $534.4 million increase in Hedged Cost of Alloyed Metal, $355.6 million was due to higher hedged metal cost and $178.8 million was due to higher shipment volume, as discussed above in “Net Sales.” The $297.7 million increase in net manufacturing conversion and other costs was primarily due to: (i) a $120.9 million increase related to higher sales, primarily due to a full year of shipments during 2022 as a result of our Warrick acquisition, which was

32

completed on March 31, 2021; (ii) an $85.9 million increase in manufacturing costs due to lower efficiencies and higher employee related costs; (iii) $49.8 million of higher benefits and overhead costs; (iv) $28.4 million of higher energy, freight and metal costs driven by inflation, transportation bottlenecks and supply chain inefficiencies; and (v) $8.3 million of higher planned major maintenance costs. See “Selected Operational and Financial Information” below for a further discussion of the comparative results of operations for 2022 and 2021.

Depreciation and Amortization. Depreciation and amortization for 2022 was $106.9 million compared to $91.5 million for 2021. The increase of $15.4 million was primarily attributable to a full year of Warrick operations.

Selling, General, Administrative, Research and Development (“SG&A and R&D”). SG&A and R&D expense totaled $110.9 million in 2022 compared to $118.8 million in 2021. The decrease in 2022 compared with 2021 was primarily due to a $16.8 million decrease in legal, consulting and outsourced service expenses primarily related to the completion of Warrick integration activities, partially offset by: (i) a $6.7 million increase due to the addition of Warrick operations and (ii) a $2.4 million increase in salaries and benefits.

Goodwill Impairment. Goodwill impairment of $20.5 million for the year ended December 31, 2022 reflected our write-off of the goodwill we obtained from our acquisition of Warrick. See Note 4 of Notes to Consolidated Financial Statements included in this Report for further details.

Restructuring Costs (Benefit). Restructuring costs (benefit) reflects the impacts of our restructuring plans initiated in 2022 and 2020. See Note 12 of Notes to Consolidated Financial Statements included in this Report for further information regarding the restructuring plans.

Other Operating Charges (Income), Net. Other operating charges (income), net, of $3.2 million for the year ended December 31, 2022 was primarily due to the impairment of our favorable commodity contract intangible asset. See Note 4 of Notes to Consolidated Financial Statements included in this Report for further details.

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. See Note 9 of Notes to Consolidated Financial Statements included in this Report for further information regarding interest expense, capitalized interest expense and a discussion of our debt and credit facilities that were in effect during each of the years 2022 and 2021.

Other Income (Expense), Net. See Note 9 and Note 13 of Notes to Consolidated Financial Statements included in this Report for details.

Income Tax Benefit. The income tax benefit for 2022 was $8.3 million, resulting in an effective tax rate of 21.9%. The difference between the effective tax rate and the projected blended statutory tax rate for 2022 was primarily due to: (i) an increase of 3% due to various permanent items not deductible for tax purposes; (ii) an increase of 2% related to non-deductible compensation expense; and (iii) an increase of 1% related to state taxes, partially offset by a decrease of 6% related to a Federal Research and Development Credit.

The income tax benefit for 2021 was $5.5 million, resulting in an effective tax rate of 22.9%. There was no material difference between the effective tax rate and the projected blended statutory tax rate for 2021.

33

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):

1.
Mark-to-market loss on derivative instruments for 2022 and 2021 represents loss on non-designated commodity hedges. Additionally, in 2021, the loss represents the reversal of mark-to-market loss 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. Adjusted EBITDA reflects the realized loss of such settlements.

2.
See Note 4 of Notes to Consolidated Financial Statements included in this Report for additional information relating to the impairment of goodwill in 2022.

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.

4.
Acquisition costs are non-run-rate acquisition-related transaction costs, which include professional fees, as well as non‑cash hedging charges recorded in connection with our Warrick acquisition.

Adjusted EBITDA for 2022 was $42.9 million lower than Adjusted EBITDA for 2021. Adjusted EBITDA for 2022 reflected a full year of Packaging volume during 2022 as a result of our Warrick acquisition on March 31, 2021, offset by approximately $73.0 million of incremental costs associated with magnesium and metal supply chain issues at our packaging operations, see above in “Molten Metal and Magnesium Supply Chain Issues,” coupled with the planned outage at our Trentwood facility. In addition, we had inflation-driven higher energy, manufacturing and employee related cost that were not fully recovered through pricing increases. See above in “Consolidated Selected Operational and Financial Information” for further details.

34

The following table provides our shipment and Conversion Revenue information (in millions of dollars, except shipments and Conversion Revenue per pound) by end market applications:

1.
Hedged Cost of Alloyed Metal for 2022 and 2021 was comprised of $2,028.2 million and $1,552.4 million, respectively, reflecting the cost of aluminum at the average Midwest Price and the cost of certain alloys used in the production process, as well as metal price exposure on shipments that we hedged with realized losses upon settlement of $17.0 million in 2022 and realized gains upon settlement of $41.6 million in 2021, all of which were included within both Net sales and Cost of products sold in our Statements of Consolidated (Loss) Income. See Note 8 of Notes to Consolidated Financial Statements included in this Report for the total realized loss (gain) on aluminum hedges for which we hedged the metal price exposure externally.

2.
As previously described, effective January 1, 2022, we prospectively changed our approach of quantifying Hedged Cost of Alloyed Metal from including a portion of alloyed metal cost to include all alloyed metal cost. This prospective change resulted in the following decreases of Conversion Revenue by end market: (i) $32.2 million of Aero/HS products; (ii) $49.4 million of Packaging; (iii) $22.4 million of GE products; (iv) $7.1 million of Automotive extrusions; and (v) $0.8 million of Other products, for a total decrease of $111.9 million in 2022 compared to our historical presentation of this metric.

35

Liquidity and Capital Resources

Summary

The following table summarizes our liquidity (in millions of dollars):

1.
In April 2022, we executed Amendment No. 3 to our Revolving Credit Facility to, among other things: (i) increase the commitment to $575.0 million; (ii) extend the maturity date; (iii) update our borrowing base; and (iv) update relevant benchmark provisions from London Interbank Offered Rate (“LIBOR”) to Term Secured Overnight Financing Rate (“Term SOFR”). See Note 9 of Notes to Consolidated Financial Statements included in this Report for further details. Borrowing availability under the Revolving Credit Facility was determined by a borrowing base calculated as of December 31, 2022 and December 31, 2021 using the terms of the Revolving Credit Facility in effect as of those dates.

We place our cash in bank deposits and money market funds with high credit quality financial institutions. Cash equivalents primarily consist of money market funds, which are highly liquid.

See Note 16 of Notes to Consolidated Financial Statements included in this Report for information regarding restricted cash at December 31, 2022.

There were no borrowings under our Revolving Credit Facility during the years ending December 31, 2022 or December 31, 2021. See “Sources of Liquidity” below for a further discussion of subsequent borrowing activity.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities (in millions of dollars):

Cash used in operating activities for the year ended December 31, 2022 reflected results of business activity described within “Consolidated Selected Operational and Financial Information” above, as well as the following working capital changes: (i) an increase in inventory of $120.8 million, primarily driven by higher inventory pounds built at our Warrick facility to mitigate the impact of supply chain disruptions related to magnesium and hot metal supply and at our Trentwood facility to prepare for the planned outages associated with our large stretcher refurbishment, as well as higher per pound inventory cost due to higher metal prices in ending inventory; (ii) a decrease in accounts payable of $61.2 million, primarily due to timing of purchases and a decrease in period ending metal prices; and (iii) a decrease in accounts receivable of $15.0 million due to the timing and mix of sales, as well as a decrease in period ending metal prices.

Cash provided by operating activities for the year ended December 31, 2021 reflected results of business activity for the year ended December 31, 2021, as well as the following working capital changes: (i) an increase in accounts payable of $112.5 million, primarily driven by Warrick payables added during the year ended December 31, 2021 and higher metal cost; (ii) an increase in trade and other receivables of $90.3 million, primarily driven by Warrick receivables added during the year ended December 31, 2021 and the remainder due to the timing and mix of sales and an increase in metal prices; and (iii) an increase in inventory of $43.5 million due primarily to higher inventory pounds to satisfy increased demand, as well as a higher per pound inventory cost.

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 December 31, 2022 and December 31, 2021.

36

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 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 12 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.

At February 20, 2023, we had $10.2 million in outstanding borrowings under the Revolving Credit Facility after repaying $19.3 million on total borrowings of $29.5 million incurred subsequent to December 31, 2022. See Note 9 of Notes to Consolidated Financial Statements included in this Report for a description of our Revolving Credit Facility.

We engage in certain customer-based supply chain financing programs to accelerate the receipt of payment for outstanding accounts receivable from certain customers. Costs of these programs are typically reimbursed to us by the customer. Receivables transferred under these customer-based supply chain financing programs generally meet the requirements to be accounted for as sales resulting in the derecognition of such receivables from our consolidated balance sheets. Receivables involved with these customer‑based supply chain finance programs for the year ended December 31, 2022 constituted approximately 47% of our Net sales. See Note 1 of Notes to Consolidated Financial Statements included in this Report for further details with respect to these supply chain financing programs.

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 due 2031 (“4.50% Senior Notes”) and 4.625% Senior Notes due 2028 (“4.625% Senior Notes”) and the redemption of our 6.50% Senior Notes due 2025 (“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 Trentwood rolling mill, which focused on equipment upgrades throughout the process flow to reduce conversion costs, increase efficiency and further improve our competitive cost position on all products produced at our Trentwood facility. In addition, a significant portion of the investment also focused on modernizing legacy equipment and the process flow for thin gauge plate to achieve KaiserSelect® quality enhancements for these Aero/HS products and GE products. These improvements have allowed us to gain incremental manufacturing capacity to enable future sales growth. In 2022, we continued spending on our previously announced capital project to add a fourth roll coat line at our Warrick facility to increase our capacity for higher margin coated packaging product. Total capital expenditures were $142.5 million in 2022, of which $74.7 million related to the new roll coat line and $67.8 million primarily related to critical sustaining capital projects, and $58.0 million in 2021, primarily related to critical sustaining capital projects.

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 2023 of approximately $170.0 million to $190.0 million, of which approximately 60% of total spending will be focused on growth initiatives, primarily reflecting continued investment in the new roll coat line at Warrick. We will continue to deploy capital thoughtfully to ensure that investment decisions align with demand expectations in order to maximize the earnings potential of the business and maintain financial strength and flexibility.

37

Capital investments will be funded using cash generated from operations, available cash and cash equivalents, 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, including the availability of surplus and/or net profits, 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.

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 2022 and 2021 and subsequent to December 31, 2022.

Repurchases of Common Stock

We suspended share repurchases as of March 2020. We will continue to assess share repurchases as a part of our capital allocation priorities and strategic investment opportunities identified to support further growth in our business. At December 31, 2022, $93.1 million remained authorized and available for future repurchases of common stock under our stock repurchase program. See our Statements of Consolidated Stockholders’ Equity included in this Report for information regarding minimum statutory tax withholding obligations arising during 2022 and 2021 in connection with the vesting of non-vested shares, restricted stock units and performance shares.

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 December 31, 2022.

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 April 2027. See Note 9 of Notes to Consolidated Financial Statements included in this Report for further information.

Uncertain Tax Liabilities. At December 31, 2022, we had uncertain tax positions which ultimately could result in tax payments. See Note 14 of Notes to Consolidated Financial Statements included in this Report for further information.

Deferred Compensation Plan Liability. As of December 31, 2022, we had deferred compensation plan liabilities for certain key employees, which were contingent upon investment performance, vesting and other eligibility requirements, including retirement

38

dates. See Note 5 of Notes to Consolidated Financial Statements included in this Report for further information, including the total expense related to all benefit plans.

Operating Leases. Operating lease liabilities represent multi-year obligations for certain manufacturing facilities, warehouses, office space and equipment as of December 31, 2022. 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 December 31, 2022. We expect finance leases to be funded through available cash generated from our operations, cash and cash equivalents, borrowings under our Revolving Credit Facility and/or other third-party financing arrangements. See Note 3 of Notes to Consolidated Financial Statements included in this Report for the maturity of our lease liabilities associated with our finance lease portfolio.

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”).

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 $0.3 million in annual administrative fees related to the VEBA that provides benefits for eligible retirees represented by certain unions and their surviving spouses and eligible dependents through September 2025. See Note 5 of Notes to Consolidated Financial Statements included in this Report for additional information.

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 December 31, 2022 and assuming no extension of terms beyond the current maturity date of our Revolving Credit Facility, which is in April 2027. No borrowings were outstanding under our Revolving Credit Facility either throughout the year or as of December 31, 2022. See Note 9 of Notes to Consolidated Financial Statements included in this Report for additional information. See “Sources of Liquidity” above for a discussion of subsequent borrowing activity.

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 2023 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

39

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.

40

41

42

43

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.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 December 31, 2019, as well as a year‑to‑year comparison of our financial position and results of operations for the years ended December 31, 2020 and December 31, 2019, refer to Part II, Item 7. “Management’s Discussion and Analysis” of our Annual Report on Form 10-K for the years ended December 31, 2019 and 2020, respectively, and filed with the Securities and Exchange Commission (“SEC”) on February 25, 2020 and February 26, 2021, respectively.

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 semi‑fabricated 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 North America. For a reconciliation of VAR to Net sales, see “Results of Operations - Selected Operational and Financial Information” below.

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 Alcoa Warrick LLC and certain assets comprising the aluminum casting and rolling mill facility located in Warrick County, Indiana (collectively, “Warrick”), providing non-cyclic end market diversification of our portfolio and re-entry into the resurging North American aluminum packaging market. In addition, we completed multiple multi-year contracts and extensions with key strategic aerospace and packaging partners securing additional long-term growth. With confidence in the continued strength of our markets and the expected long-term growth in our businesses, along with our commitment to continue creating value for our shareholders, in early 2022 we increased our quarterly dividend by 7% to $0.77 per share, an incremental increase from the 7.5% increase in early 2021.

30

Demand across our end markets was mixed creating inefficiencies as we adjusted to changing market conditions. While demand for general engineering applications (“GE products”) and beverage and food packaging products (“Packaging”) remained strong, demand for automotive applications (“Automotive Extrusions”) was muted throughout the year due to continued semiconductor chip shortages that significantly limited North American auto production. Recovery in demand for commercial aerospace applications continued to progress as anticipated but remained pressured, while demand for business jet and defense related applications remained strong. Our financial results for the full year 2021 reflected the impact of the demand environment, combined with rapidly rising costs, significant supply chain issues, labor constraints, continued market disruptions related to the Coronavirus Disease 2019 (“COVID‑19”) pandemic, the declaration of force majeure by one of the company’s largest magnesium suppliers and the complex integration of the Warrick acquisition.

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 Warrick facility.

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 Warrick facility. Our expectations by end market are outlined below:

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 Warrick integration process is completed.

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 GE products end markets are solid and we are increasingly optimistic in our ability to deliver significant margin expansion and long-term profitability for our Packaging business where we have a significant market position. We remain confident around the timing of the recovery in commercial aerospace and we are optimistic that as semiconductor chip shortages are alleviated, automotive production will ramp back up and our program launches will resume. We also expect our costs and operating efficiencies will continue to improve as we resolve the metal and magnesium supply chain challenges.

Results of Operations

Fiscal 2021 Summary

31

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.

Net Sales. We reported Net sales for 2021 of $2,622.0 million, compared to $1,172.7 million for 2020. The increase in Net sales during 2021 compared to 2020 reflected a 619.2 million pound (123%) increase in shipment volume and a $0.01/lb increase in average realized sales price per pound. The shipment volume increase reflected: (i) a 541.7 million pound addition in Packaging due to our Warrick acquisition; (ii) a 62.6 million pound (27%) increase in GE products reflecting the reshoring of supply lines in North America and strong demand for our semi-conductor plate; (iii) a 16.7 million pound (178%) increase in our other industrial end market application (“Other products”) reflecting an increase of non-strategic rolled products acquired with the Warrick acquisition; and (iv) a 9.9 million pound (12%) increase in Automotive Extrusions primarily reflecting the recovery from the COVID‑19 pandemic related automotive supply chain shutdowns that occurred during the quarter ended June 30, 2020, partially offset by demand impact due to the ongoing semiconductor chip shortage in the automotive industry, which continues to hamper the return to full production and new program launches. The shipment volume increase was partially offset by an 11.7 million pound (7%) decrease in Aero/HS products reflecting lower demand for our commercial aerospace products as a result of the COVID-19 pandemic. The increase in average realized sales price per pound reflected a $0.41/lb (44%) increase in average Hedged Cost of Alloyed Metal prices per pound, partially offset by a $0.40 (29%) decrease in VAR per pound due primarily to the introduction of lower VAR per pound Packaging products, as well as approximately $14.8 million of additional net sales recognized in 2020 within Aero/HS products related to modifications to the 2020 customer declarations under multi-year contracts. See the table in “Selected Operational and Financial Information” below for further details.

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 $2,348.1 million, or 90% of Net sales, compared to $941.3 million, or 80% of Net sales, in 2020. The increase during 2021 compared to 2020 of $1,406.8 million was largely attributable to the addition of Packaging and reflected a $1,035.2 million increase in Hedged Cost of Alloyed Metal and a $371.6 million increase in net manufacturing conversion and other costs. Of the $1,035.2 million increase in Hedged Cost of Alloyed Metal, $586.1 million was due to higher shipment volume, as discussed above in “Net Sales,” and $449.1 million was due to higher hedged metal prices. The $371.6 million increase in net manufacturing conversion and other costs was primarily due to the addition of Packaging and additional overhead associated with the related increase in volume, as well as higher labor, energy, freight, benefit and metal cost driven by supply chain inefficiencies, inflation and labor shortages. See “Selected Operational and Financial Information” below for a further discussion of the comparative results of operations for 2021 and 2020.

Depreciation and Amortization. Depreciation and amortization for 2021 was $91.5 million compared to $52.2 million for 2020. The increase of $39.3 million was primarily attributable to the addition of Packaging.

Selling, General, Administrative, Research and Development (“SG&A and R&D”). SG&A and R&D expense totaled $118.8 million in 2021 compared to $91.2 million in 2020. The increase in 2021 compared with 2020 was due primarily to: (i) an $11.4 million increase in costs related to the addition of Warrick operations and related transition service agreements with Alcoa Corporation to facilitate the integration; (ii) an $11.2 million increase in acquisition related costs, which were primarily comprised of professional fees; and (iii) a $5.3 million increase in salaries and benefits.

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 December 31, 2021. Other operating charges (income), net, was $0.6 million of income for the year ended December 31, 2020. During the year ended December 31, 2020, we recognized $1.3 million of payroll subsidies received by our subsidiary Kaiser Aluminum Canada Limited under the Canada Emergency Wage Subsidy (“CEWS”) Program, which was partially offset by $0.5 million of

32

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 $49.5 million and $40.9 million for 2021 and 2020, respectively. See Note 9 of Notes to Consolidated Financial Statements included in this Report for a discussion of our debt and credit facilities that were in effect during each of the years 2021 and 2020 and Note 1 of Notes to Consolidated Financial Statements included in this Report for a discussion of our interest expense capitalized as part of construction in progress.

Other Expense, Net. Other expense, net for the year ended December 31, 2021 included a $35.9 million loss on extinguishment of debt related to the redemption of our 6.50% Senior Notes. See Note 9 and Note 13 of Notes to Consolidated Financial Statements included in this Report for details.

Income Tax Benefit (Provision). The income tax benefit for 2021 was $5.5 million, resulting in an effective tax rate of 22.9%. There was no material difference between the effective tax rate and the projected blended statutory tax rate for 2021.

The income tax provision for 2020 was $10.0 million, resulting in an effective tax rate of 25.9%. There was no material difference between the effective tax rate and the projected blended statutory tax rate for 2020.

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):

33

Adjusted EBITDA for 2021 was $38.8 million higher than Adjusted EBITDA for 2020, which had the benefit of the additional $14.8 million of revenue as discussed in “Net sales” above. Adjusted EBITDA for 2021 reflected the benefit of Packaging and improvement in our Automotive Extrusions and GE products, partially offset by higher costs as discussed in “Consolidated Selected Operational and Financial Information” above.

34

The following table provides our shipment and VAR information (in millions of dollars, except shipments and VAR per pound) by end market applications:

35

Liquidity and Capital Resources

Summary

The following table summarizes our liquidity (in millions of dollars):

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 December 31, 2021.

We and certain of our subsidiaries have a Revolving Credit Facility with Wells Fargo Bank, National Association, as administrative agent, and the other financial institutions party thereto (see Note 9 of Notes to Consolidated Financial Statements included in this Report). There were no borrowings under our Revolving Credit Facility during the years ending or as of December 31, 2021 or December 31, 2020, respectively.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities (in millions of dollars):

Cash provided by operating activities for the year ended December 31, 2021 reflected results of business activity described within “Consolidated Selected Operational and Financial Information” above, as well as the following working capital changes: (i) an increase in accounts payable of $112.5 million, primarily driven by Warrick payables added during the year ended December 31, 2021 and higher metal cost; (ii) an increase in trade and other receivables of $90.3 million, primarily driven by Warrick receivables added during the year ended December 31, 2021 and the remainder due to the timing and mix of sales and an increase in metal prices; and (iii) an increase in inventory of $43.5 million due primarily to higher inventory pounds to satisfy increased demand, as well as a higher per pound inventory cost.

Cash provided by operating activities for the year ended December 31, 2020 reflected results of business activity for the year ended December 31, 2020, as well as the following working capital changes: (i) a decrease in Trade and other receivables of $60.8 million driven primarily by lower Net sales; (ii) a decrease in Inventories of $25.6 million to better align with operations; and (iii) a reduction in Contract assets of $18.5 million driven primarily by timing and volume of shipments related to revenue on products recognized over-time.

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 December 31, 2021 and December 31, 2020.

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

36

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 Spokane, Washington (“Trentwood”), which focused on equipment upgrades throughout the process flow to reduce conversion costs, increase efficiency and further improve our competitive cost position on all products produced at our Trentwood facility. In addition, a significant portion of the investment also focused on modernizing legacy equipment and the process flow for thin gauge plate to achieve KaiserSelect® quality enhancements for these Aero/HS products and GE products. These improvements have allowed us to gain incremental manufacturing capacity to enable future sales growth. Total capital expenditures were $58.0 million and $51.9 million for 2021 and 2020, respectively, and primarily related to critical sustaining capital projects.

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 $180.0 million to $200.0 million, of which approximately 60% of total spending will be focused on growth initiatives, primarily reflecting investment in the new roll coat line at Warrick and modest spending related to the Trentwood facility expansion project. In addition, we have prepared for a multiple week outage early in third quarter 2022 to refurbish the large plate stretcher at our Trentwood facility. The investment of approximately $30.0 million is a highly efficient use of capital that will allow us to temporarily defer the $145.0 million purchase for a new stretcher planned prior to the COVID-19 pandemic. We will continue to deploy capital thoughtfully to ensure that investment decisions align with demand expectations in order to maximize the earnings potential of the business and maintain financial strength and flexibility.

Capital investments will be funded using cash generated from operations, available cash and cash equivalents, short‑term 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.

37

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 December 31, 2021.

Repurchases of Common Stock

We suspended share repurchases as of March 18, 2020. We will continue to assess share repurchases as a part of our capital allocation priorities and strategic investment opportunities identified to support further growth in our business. See our Statements of Consolidated Stockholders’ Equity included in this Report for information regarding: (i) repurchases of common stock in 2021 and 2020; (ii) the amounts authorized and available for future repurchases of common stock under our stock repurchase program; and (iii) minimum statutory tax withholding obligations arising during 2021 and 2020 in connection with the vesting of non-vested shares, restricted stock units and performance shares.

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 December 31, 2021.

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 October 2024. See Note 9 of Notes to Consolidated Financial Statements included in this Report for further information.

Employer Payroll Tax Deferrals. As of December 31, 2021, we had a remaining $3.8 million in employer payroll tax deferrals to be paid in 2022 under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

Uncertain Tax Liabilities. At December 31, 2021, we had uncertain tax positions which ultimately could result in tax payments. See Note 14 of Notes to Consolidated Financial Statements included in this Report for information regarding further information.

Deferred Compensation Plan Liability. As of December 31, 2021, we had deferred compensation plan liabilities for certain key employees, which were contingent upon investment performance, vesting and other eligibility requirements, including retirement dates. See Note 5 of Notes to Consolidated Financial Statements included in this Report for further information, including the total expense related to all benefit plans.

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 December 31, 2021. We expect finance leases to be funded through available cash generated from our operations, cash and cash equivalents, borrowings under our Revolving Credit Facility and/or other third-party financing arrangements. See Note 3 of Notes to Consolidated Financial Statements included in this Report for the maturity of our lease liabilities associated with our finance lease portfolio.

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”).

38

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 $0.3 million in annual administrative fees related to the VEBA that provides benefits for eligible retirees represented by certain unions and their surviving spouses and eligible dependents through September 2025. See Note 5 of Notes to Consolidated Financial Statements included in this Report for additional information.

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 December 31, 2021 and assuming no extension of terms beyond the current maturity date of our Revolving Credit Facility, which is in October 2024. No borrowings were outstanding under our Revolving Credit Facility either throughout the year or as of December 31, 2021. See Note 9 of Notes to Consolidated Financial Statements included in this Report for additional information.

In addition to our off-balance sheet items discussed above:

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.

39

40

41

42

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.