8-K/A
Kaiser Aluminum Corp (KALU)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): March 31, 2021
KAISER ALUMINUM CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 1-09447 | 94-3030279 |
|---|---|---|
| (State or Other Jurisdiction<br><br><br>of Incorporation) | (Commission File Number) | (I.R.S. Employer<br><br><br>Identification No.) |
| 27422 Portola Parkway,<br><br><br>Suite 200 Foothill Ranch, California | 92610-2831 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(949) 614-1740
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br><br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | KALU | Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
Kaiser Aluminum Corporation (the “Company”) previously filed a Current Report on Form 8‑K on April 1, 2021 (the “Initial Report”) to report the completion of the Company’s acquisition of Alcoa Warrick LLC and certain assets comprising the aluminum casting and rolling mill facility (“Alcoa Warrick Rolling Mill”), pursuant to the terms of the Purchase Agreement between the Company and Alcoa Corporation (“Alcoa”) dated November 30, 2020.
The purpose of this Current Report on Form 8-K/A (the “Amended Report”) is to provide the historical financial statements and pro forma financial information required by Item 9.01 of Form 8-K that were previously omitted from the Initial Report as permitted by Item 9.01(a)(4).
The pro forma financial information included in this Amended Report on Form 8-K/A has been presented for informational purposes, is based on various adjustments and assumptions and is not necessarily indicative of what the Company’s consolidated statement of operations or consolidated statement of financial condition actually would have been had the acquisition and other adjustments been completed as of the dates indicated or will be for any future periods.
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of business acquired
The audited combined balance sheets of the Alcoa Warrick Rolling Mill, which is a carve-out of certain operations of Alcoa Warrick, LLC as of December 31, 2020 and 2019, the related combined statements of loss, comprehensive loss, of changes in net parent investment and cash flows for the years ended December 31, 2020 and 2019, the related notes and the related report of PricewaterhouseCoopers LLP are all filed as Exhibit 99.1 hereto and incorporated by reference herein.
(b) Pro forma financial information
The unaudited pro forma combined financial information of the Company, giving effect to the acquisition of the Alcoa Warrick Rolling Mill, which includes the unaudited pro forma combined statement of operations for the year ended December 31, 2020, the unaudited pro forma combined balance sheet as of December 31, 2020 and the related notes, is filed as Exhibit 99.2 hereto and incorporated by reference herein.
(c) Exhibits
| Exhibit<br><br><br>Number | Description |
|---|---|
| 23.1 | Consent of PricewaterhouseCoopers LLP. |
| 99.1 | The historical audited combined balance sheets of Alcoa Warrick Rolling Mill (carve-out of certain operations of Alcoa Warrick, LLC) as of December 31, 2020 and 2019, the related combined statements of loss and comprehensive loss, of changes in net parent investment and cash flows for the years ended December 31, 2020 and 2019, and the related notes. |
| 99.2 | The unaudited pro forma combined financial information of the Company, giving effect to the acquisition of Alcoa Warrick Rolling Mill, which includes the unaudited pro forma combined balance sheet as of December 31, 2020 and the unaudited pro forma combined statement of operations for the year ended December 31, 2020 and the related notes. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
Forward-Looking Statements
This Amended Report contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management based on information available to it at the time such statements are made. The Company cautions that any forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. These factors include: (i) the Company’s ability to successfully integrate the acquired operations and technologies, drive innovative solutions and further advance its capabilities; (ii) the effectiveness of management’s strategies and decisions, including capital spending strategies and decisions; (iii) general economic and business conditions, including the impact of the global outbreak of Coronavirus Disease 2019 and governmental and other actions taken in response, cyclicality and other conditions in the aerospace/high strength, automotive, general engineering, packaging and other end markets the Company serves; and (iv) other risk factors summarized in the Company’s reports filed with the Securities and Exchange Commission, including the Company’s Form 10-K for the year ended December 31, 2020 and Form 10-Q for the quarter ended March 31, 2021. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KAISER ALUMINUM CORPORATION<br><br><br>(Registrant) | |
|---|---|
| By: | /s/ Neal E. West |
| Neal E. West | |
| Executive Vice President and Chief Financial Officer<br><br><br>(Principal Financial Officer) |
Date: May 7, 2021
kalu-ex231_579.htm
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-211641, 333-170513 and 333-135613) of Kaiser Aluminum Corporation of our report dated March 18, 2021 relating to the combined financial statements of the Alcoa Warrick Rolling Mill, included in this Current Report on Form 8-K/A of Kaiser Aluminum Corporation.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
May 7, 2021
kalu-ex991_578.htm
Exhibit 99.1
Alcoa Warrick Rolling Mill
(Carve-Out of Certain Operations of Alcoa Warrick, LLC)
Combined Financial Statements
December 31, 2020 and 2019 and for the Years Then Ended
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Alcoa Warrick, LLC)
Index
| Page(s) | |
|---|---|
| Report of Independent Auditors | 1 |
| --- | --- |
| Combined Financial Statements | |
| Balance Sheets<br>December 31, 2020 and 2019 | 2 |
| Statements of Loss and Comprehensive Loss<br>Years Ended December 31, 2020 and 2019 | 3 |
| Statements of Cash Flows<br>Years Ended December 31, 2020 and 2019 | 4 |
| Statements of Changes in Net Parent Investment<br>Years Ended December 31, 2020 and 2019 | 5 |
| Notes to Financial Statements<br>December 31, 2020 and 2019 | 6–15 |
| --- | --- |
Report of Independent Auditors
To the Board of Directors of Alcoa Corporation
We have audited the accompanying combined financial statements of the Alcoa Warrick Rolling Mill, a carve-out of certain operations of Alcoa Warrick, LLC, which comprise the combined balance sheets as of December 31, 2020 and 2019, and the related combined statements of loss and comprehensive loss, of changes in net parent investment, and of cash flows for the years then ended.
Management's Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Alcoa Warrick Rolling Mill as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note A to the combined financial statements, the Alcoa Warrick Rolling Mill has significant related party transactions with Alcoa Warrick, LLC and Alcoa Corporation, its parent companies. Our opinion is not modified with respect to this matter.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
March 18, 2021
PricewaterhouseCoopers LLP, 600 Grant Street, Pittsburgh, PA 15219
T: (412) 355 6000, F: (412) 355 8089, www.pwc.com/us
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Alcoa Warrick, LLC)
Combined Balance Sheets
December 31, 2020 and 2019
| (U.S. dollars in millions) | 2020 | 2019 | ||
|---|---|---|---|---|
| Assets | ||||
| Current assets | ||||
| Receivables from customers | $ | 86.2 | $ | 90.1 |
| Other receivables | 6.2 | 8.0 | ||
| Inventories (C) | 168.0 | 199.0 | ||
| Prepaid expenses and other current assets | - | 0.4 | ||
| Total current assets | 260.4 | 297.5 | ||
| Properties, plants and equipment, net (D) | 389.4 | 394.6 | ||
| Other noncurrent assets | 0.1 | 0.4 | ||
| Total assets | $ | 649.9 | $ | 692.5 |
| Liabilities | ||||
| Current liabilities | ||||
| Accounts payable, trade | $ | 86.7 | $ | 96.4 |
| Accounts payable to Ma'aden (E) | 34.6 | 48.4 | ||
| Customer rebates payable | 21.1 | 22.6 | ||
| Accrued compensation and retirement costs | 8.2 | 8.5 | ||
| Taxes, including taxes on income | 2.3 | 2.5 | ||
| Other current liabilities | 3.4 | 3.7 | ||
| Total current liabilities | 156.3 | 182.1 | ||
| Other noncurrent liabilities and deferred charges | 7.6 | 13.2 | ||
| Total liabilities | $ | 163.9 | $ | 195.3 |
| Contingencies and commitments (H) | ||||
| Net Parent Investment | ||||
| Net Parent Investment | 486.0 | 497.2 | ||
| Total net parent investment | 486.0 | 497.2 | ||
| Total liabilities and net parent investment | $ | 649.9 | $ | 692.5 |
The accompanying notes are an integral part of these combined financial statements.
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Alcoa Warrick, LLC)
Combined Statements of Loss and Comprehensive Loss
Years Ended December 31, 2020 and 2019
| (U.S. dollars in millions) | 2020 | 2019 | ||||
|---|---|---|---|---|---|---|
| Revenues | ||||||
| Sales | $ | 1,115.6 | $ | 1,219.5 | ||
| Costs and Expenses | ||||||
| Cost of goods sold (exclusive of expenses below) | 1,098.3 | 1,208.9 | ||||
| Selling, general administrative, and other expenses | 14.7 | 16.6 | ||||
| Research and development expenses | 2.1 | 2.9 | ||||
| Provision for depreciation, depletion and amortization | 28.4 | 28.3 | ||||
| Restructuring and other charges | - | 1.6 | ||||
| Other expense, net (I) | 17.7 | 25.9 | ||||
| 1,161.2 | 1,284.2 | |||||
| Loss before income taxes (G) | (45.6 | ) | (64.7 | ) | ||
| Provision for taxes on income | (7.3 | ) | (15.0 | ) | ||
| Net loss | (38.3 | ) | (49.7 | ) | ||
| Other comprehensive (income)/loss | - | - | ||||
| Total comprehensive loss | $ | (38.3 | ) | $ | (49.7 | ) |
The accompanying notes are an integral part of these combined financial statements.
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Combined Statements of Cash Flows
Years Ended December 31, 2020 and 2019
| (U.S. dollars in millions) | 2020 | 2019 | ||||
|---|---|---|---|---|---|---|
| Cash from Operations | ||||||
| Net loss | $ | (38.3 | ) | $ | (49.7 | ) |
| Adjustments to reconcile net loss to cash from operations | ||||||
| Depreciation, depletion and amortization | 28.4 | 28.3 | ||||
| Restructuring and other charges | - | 1.6 | ||||
| Loss on sale of receivables | 8.2 | 15.5 | ||||
| Changes in assets and liabilities | ||||||
| (Increase) decrease in receivables | (2.5 | ) | 4.4 | |||
| Decrease in inventories | 31.1 | 8.2 | ||||
| Decrease (increase) in prepaid expenses and other current<br> assets | 0.4 | (0.2 | ) | |||
| (Decrease) increase in accounts payable and accrued expenses | (29.3 | ) | 22.8 | |||
| Decrease in taxes, including taxes on income | (0.1 | ) | (0.5 | ) | ||
| Net change in noncurrent assets and liabilities, and other | (8.0 | ) | (15.6 | ) | ||
| Cash (used for) provided by operations | (10.1 | ) | 14.8 | |||
| Financing Activities | ||||||
| Net contribution from parent | 27.1 | 21.2 | ||||
| Cash provided by financing activities | 27.1 | 21.2 | ||||
| Investing activities | ||||||
| Capital expenditures | (17.0 | ) | (36.0 | ) | ||
| Cash used for investing activities | (17.0 | ) | (36.0 | ) | ||
| Net change in cash and cash equivalents | - | - | ||||
| Cash and cash equivalents | ||||||
| Cash and cash equivalents at beginning of year | - | - | ||||
| Cash and cash equivalents at end of year | $ | - | $ | - |
The accompanying notes are an integral part of these combined financial statements.
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Combined Statements of Changes in Net Parent Investment
Years Ended December 31, 2020 and 2019
| Total Net | |||
|---|---|---|---|
| Parent | |||
| Investment | |||
| Balance at December 31, 2018 | $ | 525.7 | |
| Net loss | (49.7 | ) | |
| Net Contribution to Parent | 21.2 | ||
| Balance at December 31, 2019 | 497.2 | ||
| Net loss | (38.3 | ) | |
| Net Contribution from Parent | 27.1 | ||
| Balance at December 31, 2020 | $ | 486.0 |
The accompanying notes are an integral part of these combined financial statements.
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
| A. | Basis of Presentation |
|---|
The accompanying Combined Financial Statements are for the Alcoa Warrick Rolling Mill operations (the “Rolling Mill”). The Rolling Mill is located in Newburgh, Indiana. These financial statements do not include the power generating assets (Warrick Power Plant), which is part of Alcoa Power Generating, Inc., or the aluminum smelter (Warrick Smelter), which is part of Alcoa Warrick, LLC (“Alcoa Warrick”). Alcoa Power Generating, Inc. and Alcoa Warrick LLC are both wholly-owned subsidiaries of Alcoa Corporation (“Alcoa”). The Rolling Mill produces rolled aluminum sheet primarily for the packaging industry, including beverage can body stock, beverage can end stock, tab stock, closure stock, bottle stock and food can.
Basis of Presentation and Principles of Combination
The Rolling Mill has historically operated as part of Alcoa; consequently, stand-alone financial statements have not historically been prepared for the Rolling Mill. The Combined Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In accordance with GAAP, certain situations require management to make estimates based on judgments and assumptions, which may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates upon subsequent resolution of identified matters.
The Combined Financial Statements of the Rolling Mill include all assets and liabilities that have been determined to be directly attributable to the Rolling Mill. All transactions between the Rolling Mill and Alcoa have been included as related party transactions in these Combined Financial Statements and considered to be effectively settled at the time the transaction is recorded. The total net effect of the settlement of these transactions is reflected within Net parent investment in the Combined Balance Sheets and in the Combined Statements of Cash Flows as a financing activity.
The Combined Financial Statements of the Rolling Mill also include all revenues and costs directly attributable to the Rolling Mill. These include costs charged to the Rolling Mill by Alcoa for certain supporting functions and services in the normal course of business. These costs have been allocated on a basis considered reasonable by management using either specific identification or proportional allocations based on usage, headcount, working capital, or other reasonable methods of allocation (see below). However, the Combined Financial Statements of the Rolling Mill may not reflect the actual costs that would have been incurred and may not be indicative of the Rolling Mill’s combined results, financial position, and cash flows had it operated as a separate, stand-alone entity during the periods presented.
Cost Allocations
The Combined Financial Statements of the Rolling Mill include general corporate expenses of Alcoa that have been allocated to the Rolling Mill for certain support functions provided on a centralized basis, such as accounting and finance, treasury, audit, legal, information technology, human resources, procurement, facilities, employee benefits and compensation, and research and development (“R&D”) activities. These costs have been allocated on a basis considered reasonable by management using either specific identification or proportional allocations based on usage, headcount, working capital, or other reasonable methods of allocation.
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
The following table reflects the cost allocations detailed above:
| 2020 | 2019 | |||
|---|---|---|---|---|
| Cost of goods sold | $ | 14.8 | $ | 13.5 |
| Selling, general administrative, and other expenses | 5.1 | 3.2 | ||
| Research and development expenses | 2.5 | 2.6 | ||
| Other expenses, net | 10.1 | 11.4 | ||
| Total expenses allocated | $ | 32.5 | $ | 30.7 |
Related Party Transactions
The Rolling Mill purchases aluminum from the Warrick Smelter at smelter cost and electrical power, process (hot) water, and steam from the Warrick Power Plant, at negotiated prices between the parties. Additionally, as disclosed above, Alcoa provides employee, administrative and other services to the Rolling Mill. For additional information on related party transactions, see Note E.
To enhance the variety of product offerings to customers, the Rolling Mill sells certain products produced by Ma’aden Rolling Company (Ma’aden Rolling) for which it previously held a 25.1% interest. Alcoa divested its investment in Ma’aden Rolling in June 2019. These products are bought and sold at negotiated prices between the two parties and were recorded net of commissions as the Rolling Mill was acting as an agent and earns a fixed commission. Revenue related to these transactions recorded on a net basis was $0.5 and $0.3 during the years ended December 31, 2020 and 2019, respectively.
| B. | Summary of Significant Accounting Policies |
|---|
Cash Management
Cash management is managed centrally. Transfers of cash, both to and from Alcoa’s centralized cash management system, are reflected as a component of Net parent investment in the Combined Balance Sheets and as a financing activity in the accompanying Combined Statements of Cash Flows. As a result, the Rolling Mill does not have a cash balance.
The Rolling Mill maintains accounts receivable direct sales programs in the U.S to provide additional sources of working capital. In accordance with ASC 860 Transfers and Servicing, the accounts receivables are sold and de-recognized from the Combined Balance Sheet with any fees associated with the programs recorded in Other Expense, net in the Combined Statements of Loss and Comprehensive Loss. For additional information, see Note I.
Inventory Valuation
Inventories are carried at the lower of cost or market, with the cost of inventories principally determined under the average-cost method. See Note C for additional information.
As discussed in Note E, the Rolling Mill purchases aluminum from the Warrick Smelter. The Warrick Smelter has historically sold this aluminum to the Rolling Mill at smelter cost and is reflected as such in the Combined Financial Statements.
Properties, Plants and Equipment
Properties, plants and equipment are recorded at cost. Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets. The weighted-average useful lives of structures are 31.7 years and machinery and equipment is 22.8 years.
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
Repairs and maintenance are charged to expense as incurred. Gains or losses from the sale of assets are generally recorded in Other expense, net. Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (asset group) may not be recoverable. See Note D for additional information.
Leases
Management determines whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset which the Rolling Mill has the right to control. The Rolling Mill does not have financing leases. Operating lease right-of-use (ROU) assets are included in Properties, plants, and equipment with the corresponding operating lease liabilities included within Other current liabilities and Other noncurrent liabilities and deferred charges on the Combined Balance Sheets.
Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Rolling Mill uses Alcoa’s incremental borrowing rate at the commencement date in determining the present value of lease payments unless a rate is implicit in the lease. Lease terms include options to extend the lease when it is reasonably certain that those options will be exercised. Leases with an initial term of 12 months or less, including anticipated renewals, are not recorded on the balance sheet.
The Rolling Mill has made a policy election not to record any non-lease components of a lease agreement in the lease liability. Variable lease payments are not presented as part of the initial ROU asset or liability recorded at the inception of a contract. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Revenue Recognition
The Rolling Mill produces aluminum sheet primarily sold directly to customers in the packaging market for the production of aluminum cans (beverage and food) primarily in North America. The Rolling Mill’s sales to key customers, including their subsidiaries, are as follows:
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| Customer | ||||||
| Silgan | 37 | % | 36 | % | ||
| Pepsi | 17 | % | 17 | % | ||
| Ball | 17 | % | 18 | % | ||
| Crown | 14 | % | 14 | % | ||
| Anheuser-Busch | 10 | % | 8 | % |
Sales to the Rolling Mill’s top five customers represented 95% and 93% of sales for the years ended December 31, 2020 and 2019, respectively.
The Rolling Mill recognizes revenue when it satisfies a performance obligation(s) in accordance with the provisions of a customer order or contract. This is achieved when control of the product has been transferred to the customer, which is generally determined when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product. The shipping terms vary and depend on the product, the country of destination, and the type of transportation. Accordingly, the sale of the Rolling Mill’s products to its customers represent single performance obligations for which revenue is recognized at a point in time. Revenue is based on the consideration it expects to receive in exchange for its products. Returns and other adjustments
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
have not been material. Based on the foregoing, no significant judgment is required to determine when control of a product has been transferred to a customer.
Aluminum sheet is sold to customers at LME plus a regional premium and a conversion price. LME (London Metal Exchange) is a globally recognized exchange for commodity trading, including aluminum. The LME pricing component represents the underlying base metal component, based on quoted prices for aluminum on the exchange. The regional premium represents the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States). The product premium represents the incremental price for receiving physical metal in a particular shape (e.g. billet, rod, slab, etc,). Conversion represents the incremental price over the metal price component that is associated with converting the primary or scrap aluminum into sheet.
Shipping terms with customers are generally Delivered at Place (DAP). Under these terms the Rolling Mill pays for the cost, insurance, and freight for all methods of transportation until the product reaches the buyer’s designated destination point. The Rolling Mill considers shipping and handling activities as costs to fulfill the promise to transfer the related products. As a result, customer payments of shipping and handling costs are recorded as a component of revenue. Taxes collected (e.g., sales, use, value-added, excise) from its customers related to the sale of its products are remitted to governmental authorities and excluded from revenue.
Payment terms are negotiated with individual customers and do not exceed one year.
Certain rolled product sales contracts offer volume discounts which are estimated at the beginning of the year and reduce the revenue recognized based on the forecasted sales volume for each specific customer account. The rebates are then disbursed at the beginning of the following year. Approximately $21.1 and $22.6 was recorded as customer rebates payable as of December 31, 2020 and 2019, respectively. These amounts were paid in January 2021 and 2020, respectively.
Pension and Other Postretirement Benefits
The Rolling Mill’s salaried employees and union hourly employees participate in defined benefit pension plans sponsored by Alcoa. These plans include other Alcoa employees that are not employees of the Rolling Mill. Alcoa also provides certain retiree health and life insurance benefits to eligible employees who have retired from the Rolling Mill. The Rolling Mill accounts for these plans as multiemployer benefit plans and does not record an asset or liability in the Combined Balance Sheets to recognize the funded status of these plans as they are sponsored by Alcoa and will remain a liability of Alcoa. However, the pension and other postretirement benefits expense specific to Rolling Mill employees of $16.7 in 2020 and $17.3 in 2019 has been recorded in the Combined Statements of Loss and Comprehensive Loss as follows:
| 2020 | 2019 | |||
|---|---|---|---|---|
| Cost of goods sold | $ | 6.6 | $ | 5.9 |
| Other expense, net | 10.1 | 11.4 | ||
| Total Pension/OPEB expense | $ | 16.7 | $ | 17.3 |
Litigation Matters
For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a matter is deemed to be probable and the loss is reasonably estimable. With respect to unasserted claims or assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
ability to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood of an unfavorable outcome or the estimate of a potential loss. Legal costs, which are primarily for general litigation, environmental compliance, tax disputes, and general corporate matters, are expensed as incurred.
Income Taxes
The Rolling Mill’s operations have historically been included in the income tax filings of Alcoa. The provision for income taxes in the Rolling Mill’s Combined Financial Statements is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from differences between the financial and tax bases of the Rolling Mill’s assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management applies judgement in assessing all available positive and negative evidence and considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies. Positive evidence includes factors such as a history of profitable operations and projections of future profitability within the carryforward period, including from tax planning strategies. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates due to law changes.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized. Uncertain tax positions are not material to the Rolling Mill’s Combined Financial Statements for all periods presented.
See Note G for additional information.
Derivatives and Hedging
Alcoa’s treasury function is managed centrally, including executing derivative transactions. Alcoa enters into derivative transactions hedging the price of aluminum that impacts both the Rolling Mill operations and other Alcoa operations. As a result, a derivative asset or liability is not attributed to the Rolling Mill’s Combined Balance Sheets. However, the impacts of these derivative transactions
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
on the Rolling Mill’s operations are included in the Combined Statements of Loss and Comprehensive Loss. Derivative and hedging impacts in the Combined Financial Statements are immaterial.
Recently Adopted Accounting Guidance
On January 1, 2019, the Rolling Mill adopted Accounting Standards Update (ASU) No. 2016-02, Leases, issued by the Financial Accounting Standards Board (FASB) regarding the accounting for leases, using the modified retrospective approach. This ASU requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for operating and finance leases with a term of 12 months or more. Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option, or not exercise an option to terminate the lease. A right-of-use asset represents an entity’s right to use the underlying asset for the lease term, and a lease liability represents an entity’s obligation to make lease payments. The Rolling Mill has made a policy election not to record any non-lease components in the lease liability. Previously, an asset and liability were only recorded for leases classified as capital leases (financing leases). The measurement, recognition, and presentation of expenses and cash flows arising from leases by a lessee remains the same. Management elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications. Additionally, in July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements, to provide for an alternative transition method to the new lease guidance, whereby an entity can choose to not reflect the impact of the new lease guidance in the prior periods included in its financial statements. The Rolling Mill elected this alternative transition method upon adoption on January 1, 2019. Management also elected the practical expedient related to land easements, allowing the Rolling Mill to carry forward the current treatment on existing arrangements.
As a result of the adoption, management recorded a right-of-use asset and lease liability, each in the amount of $7.3, on the Rolling Mill’s Combined Balance Sheet as of January 1, 2019 for several types of operating leases, including plant equipment and vehicles. See Note F for additional information related to the adoption of this standard.
Adoption of the following accounting guidance in 2019 did not have a material impact on the Rolling Mill’s Combined Financial Statements:
| • | ASU No. 2018-01, Leases: Land Easement Practical Expedient for Transition |
|---|
On January 1, 2020, the Rolling Mill adopted the following ASU issued by the FASB, which did not have a material impact on the Rolling Mill’s Combined Financial Statements:
| • | ASU No. 2016-13, Financial Instruments – Credit Losses |
|---|
Other pronouncements issued by the FASB or other authoritative accounting standards groups with effective dates in 2020 are not applicable to the Rolling Mill’s financial position, results of operations or cash flows.
Recently Issued Accounting Guidance
The Rolling Mill does not believe that any of the recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material impact on the Combined Financial Statements or disclosures
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
| C. | Inventories | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| --- | --- | --- | --- | --- |
| Finished goods | $ | 29.8 | $ | 34.9 |
| Work-in-process | 129.2 | 157.0 | ||
| Purchased raw materials | 6.5 | 4.7 | ||
| Operating supplies | 2.5 | 2.4 | ||
| $ | 168.0 | $ | 199.0 | |
| D. | Properties, Plants, and Equipment, Net | |||
| --- | --- | |||
| 2020 | 2019 | |||
| --- | --- | --- | --- | --- |
| Structures | $ | 306.4 | $ | 301.3 |
| Machinery and equipment | 1,095.7 | 1,070.7 | ||
| 1,402.1 | 1,372.0 | |||
| Less: Accumulated depreciation and depletion | 1,044.1 | 1,013.6 | ||
| 358.0 | 358.4 | |||
| Construction work-in-progress | 31.4 | 36.2 | ||
| $ | 389.4 | $ | 394.6 | |
| E. | Related Party Transactions | |||
| --- | --- |
The Rolling Mill purchases aluminum from the Warrick Smelter. The Warrick Smelter has historically sold this aluminum to the Rolling Mill at smelter cost and is reflected as such in the Combined Financial Statements. Total purchases from the Warrick Smelter were approximately $367.6 in 2020 and $397.0 in 2019.
The Rolling Mill purchases electrical power, process (hot) water, and steam from the Warrick Power Plant at negotiated prices between the parties. Total purchases from the Warrick Power Plant were approximately $23.2 in 2020 and $24.2 in 2019.
Additionally, Alcoa provides employee, administrative and other services to the Rolling Mill. These costs have been allocated on a basis considered reasonable by management using either specific identification or proportional allocations based on usage, headcount, working capital, or other reasonable methods of allocation. Such allocations are estimates and do not represent the costs of such services if performed on a standalone basis. See Note A for additional information.
The Rolling Mill, acting as an agent, purchases certain products produced by Ma’aden Rolling. A payable of $34.6 and $48.4 related to inventory purchases from Ma’aden Rolling under the agent arrangement was recorded as of December 31, 2020 and 2019, respectively. The payable with Ma’aden is settled when cash is received from customers who purchase Ma’aden products sold under the agent arrangement.
| F. | Leasing |
|---|
As a result of the adoption of ASU No. 2016-02, Leases, management recorded a right-of-use asset and lease liability, each in the amount of $7.3, on the Rolling Mill’s Combined Balance Sheet as of January 1, 2019 for several types of operating leases, including plant equipment and vehicles. These amounts are equivalent to the aggregate future lease payments on a discounted
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
basis. The leases have remaining terms of one to 7 years. Lease expense and operating cash flows for the years ended December 31, 2020 and 2019 includes costs from operating leases of $5.8 and $4.4 and short-term rental expense of $0.4 and $1.1, respectively. Variable lease payments are immaterial in 2020 and 2019. New leases of $6.6 and $1.8 were added during 2020 and 2019, respectively. The Rolling Mill does not have financing leases.
The following represents the aggregate right-of use assets and related lease obligations as of December 31, 2020 and 2019:
| 2020 | 2019 | |||
|---|---|---|---|---|
| Amounts recognized in the Combined Balance Sheets<br> at December 31: | ||||
| Properties, plants and equipment, net | $ | 10.5 | 6.7 | |
| Other current liabilities | 2.9 | 2.2 | ||
| Other noncurrent liabilities and deferred credits | 7.6 | 4.5 | ||
| Total operating lease liabilities | $ | 10.5 | 6.7 |
The weighted average lease term and weighted average discount rate as of December 31, 2020 and 2019 were as follows:
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| Weighted average lease term | ||||||
| Operating leases | 3.8 years | 3.0 years | ||||
| Weighted average discount rate | ||||||
| Operating leases | 5.3 | % | 5.0 | % |
The future cash flows related to the operating lease obligations as of December 31, 2020 were as follows:
| Year Ending December 31, | Operating<br><br><br>leases | ||
|---|---|---|---|
| 2021 | 3.5 | ||
| 2022 | 3.1 | ||
| 2023 | 2.4 | ||
| 2024 | 2.2 | ||
| 2025 | 0.9 | ||
| Thereafter | - | ||
| Total lease payments (undiscounted) | 12.1 | ||
| Less: discount to net present value | (1.6 | ) | |
| Total | $ | 10.5 |
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
| G. | Income Taxes |
|---|
Income before income taxes and the provision (benefit) for taxes on income consisted of:
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| Loss before income taxes | (45.6 | ) | (64.7 | ) | ||
| Income tax expense (benefit) | ||||||
| Current | ||||||
| U.S. | - | - | ||||
| Foreign | 1.4 | 1.4 | ||||
| 1.4 | 1.4 | |||||
| Deferred | ||||||
| U.S. | (8.7 | ) | (16.4 | ) | ||
| Foreign | - | - | ||||
| (8.7 | ) | (16.4 | ) | |||
| Total | $ | (7.3 | ) | $ | (15.0 | ) |
Reconciliation of the U.S. federal statutory rate to the Rolling Mill’s effective tax rate follows:
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| U.S. federal statutory rate | 21.0 | % | 21.0 | % | ||
| State taxes net of federal benefit | 4.4 | % | 4.4 | % | ||
| Taxes on Foreign Operations- Witholding tax<br><br><br>expense | (3.1 | )% | (2.1 | )% | ||
| Valuation Allowance | (6.3 | )% | 0.0 | % | ||
| Effective tax rate | 16.0 | % | 23.3 | % |
In 2020, the Company established a valuation allowance of $2.9 related to the remaining net deferred tax assets as it does not expect to have sufficient future taxable income, or reversals of temporary differences, to utilize the remaining net deferred tax assets.
The components of net deferred tax assets and liabilities at December 31 follows:
| 2020 | 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | ||||||
| Depreciation | $ | - | 44.5 | - | 31.9 | ||||
| Employee benefits | 1.0 | - | 1.1 | - | |||||
| Lease assets / liabilities | 2.4 | 2.4 | 1.1 | 1.1 | |||||
| Operating loss carryforwards | 46.4 | - | 22.0 | - | |||||
| 49.8 | 46.9 | 24.2 | 33.0 | ||||||
| Valuation Allowance | (2.9 | ) | - | - | - | ||||
| Total | $ | 46.9 | $ | 46.9 | $ | 24.2 | $ | 33.0 |
Alcoa Warrick Rolling Mill
(A Carve-Out of Certain Operations of Warrick, LLC)
Notes to Combined Financial Statements
December 31, 2020 and 2019
(U.S. dollars in millions)
The following table details the expiration periods of the deferred tax assets presented above:
| Expires | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Expires | within | No | ||||||||||||
| within 10 years | 11-20 years | Expiration | Other | Total | ||||||||||
| Tax Loss Carryforwards | $ | - | $ | 10.2 | $ | 36.2 | - | 46.4 | ||||||
| Other | - | - | - | 3.4 | 3.4 | |||||||||
| Valuation Allowance | - | (0.6 | ) | (2.2 | ) | (0.1 | ) | (2.9 | ) | |||||
| Total | $ | - | $ | 9.6 | $ | 34.0 | 3.3 | 46.9 |
Deferred tax assets with no expiration may still have annual limitations on utilization. Other represents deferred tax assets whose expiration is dependent upon the reversal of the underlying temporary difference. The total deferred tax asset (net of valuation allowance) is supported by projections of future taxable income exclusive of reversing temporary differences and taxable temporary differences that reverse within the carryforward period.
| H. | Contingencies and Commitments |
|---|
Contingencies
Litigation
Various lawsuits, claims, and proceedings have been or may be instituted or asserted against the Rolling Mill, including those pertaining to environmental, safety and health, commercial, tax, product liability, intellectual property infringement, employment, and employee and retiree benefit matters, and other actions and claims arising out of the normal course of business. While the amounts claimed in these other matters may be substantial, the ultimate liability is not readily determinable because of the considerable uncertainties that exist. Accordingly, it is possible that the Rolling Mill’s liquidity or results of operations in a particular period could be materially affected by one or more of these other matters. However, based on facts currently available, management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of the Rolling Mill.
| I. | Other Expense, Net | |||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Loss from receivable sales | $ | 8.2 | $ | 15.5 | ||
| Non-service costs - Pension/OPEB | 10.1 | 11.4 | ||||
| Other, net | (0.6 | ) | (1.0 | ) | ||
| $ | 17.7 | $ | 25.9 | |||
| J. | Subsequent Events | |||||
| --- | --- |
The Rolling Mill has evaluated transactions that occurred as of the issuance of these combined financial statements, March 18, 2021, for purposes of disclosure of unrecognized subsequent events.
15
kalu-ex992_916.htm
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On March 31, 2021, Kaiser Aluminum Corporation (the “Company”) completed its acquisition of Alcoa Warrick LLC along with certain assets comprising the aluminum casting and rolling mill facility (“Warrick”) located in Warrick County, Indiana, pursuant to the terms of the Purchase Agreement between the Company and Alcoa Corporation (the “Purchase Agreement”) dated November 30, 2020 (the “Transaction” or “Acquisition”). The contract purchase price of $670.0 million was adjusted for preliminary estimates of working capital and indebtedness totaling $52.5 million, which reduced the cash payment due at closing on March 31, 2021, to $617.5 million.
As provided in the Purchase Agreement, Alcoa Corporation (“Alcoa”) will retain ownership of: (i) the smelting assets and power plant adjacent to the Warrick facility and (ii) the land under the Warrick facility, which is subject to a ground lease. In conjunction with the completion of the Transaction, Alcoa and the Company entered into certain ancillary agreements, in addition to the ground lease, including a transition services agreement, the molten metal supply agreement and certain other commercial agreements relating to the Transaction.
The following unaudited pro forma combined financial information of the Company and Warrick is presented to illustrate the estimated effects of the Acquisition described below (collectively, “Adjustments” or “Transaction Accounting Adjustments”).
The unaudited pro forma combined balance sheet as of December 31, 2020 combines the historical consolidated balance sheet of the Company and the combined balance sheet of Warrick, after giving effect to the Acquisition as if it had occurred on December 31, 2020. The unaudited pro forma combined statement of operations for the year ended December 31, 2020 combines the historical statement of consolidated income of the Company and the combined statement of loss of Warrick, after giving effect to the Acquisition as if it had occurred on January 1, 2020. These unaudited pro forma combined balance sheet and unaudited pro forma combined statement of operations are referred to collectively as the “pro forma financial information.”
The pro forma financial information should be read in conjunction with the accompanying notes. In addition, the pro forma financial information is derived from and should be read in conjunction with the following historical financial statements and accompanying notes of the Company and Warrick:
| (i) | audited consolidated financial statements as of and for the fiscal year ended December 31, 2020 and the related notes included in the annual report on Form 10-K for the year ended December 31, 2020 filed by the Company and |
|---|---|
| (ii) | audited combined financial statements of Warrick as of and for the fiscal year ended December 31, 2020 and the related notes included as Exhibit 99.1 to this Current Report on Form 8-K/A filed May 6, 2021. |
| --- | --- |
The pro forma financial information has been prepared by the Company for illustrative and informational purposes only in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Amendments to Financial Disclosures About Acquired and Disposed Businesses, as adopted by the U.S. Securities and Exchange Commission (the “SEC”) on May 21, 2020 (“Article 11”). The pro forma financial information is based on various adjustments and assumptions and is not necessarily indicative of what the Company’s statements of consolidated balance sheet or consolidated income actually would have been had the Acquisition and other Adjustments been completed as of the dates indicated or will be for any future periods. The pro forma financial information does not purport to project the Company’s future financial position or results of operations following the completion of the Acquisition. While the pro forma financial information does not reflect potential cost savings or synergies that may be achievable in connection with the Acquisition, management’s estimates of certain reductions to costs of products sold expected to be realized following the closing of the Acquisition are illustrated in Note 5 to the unaudited pro forma combined financial statements.
The pro forma financial information has been prepared using the acquisition method of accounting under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) with the Company being the accounting acquirer in the Acquisition. The pro forma Adjustments are preliminary, based upon available information and prepared solely for the purpose of this pro forma financial information. These Adjustments are based on preliminary estimates and will be different from the adjustments based on final acquisition accounting when it is completed, and these differences could be material.
The pro forma financial information gives effect to the use of cash on hand of $617.5 million in payment of the preliminary estimate of purchase consideration (based on Warrick’s book value as of March 31, 2021) paid by the Company to complete the Acquisition.
The pro forma financial information reflects pro forma Adjustments management believes are necessary to present the Company’s pro forma balance sheet and results of operations following the closing of the Acquisition as of and for the periods indicated in accordance with Article 11. The pro forma Adjustments are based on currently available information and assumptions management believes are necessary under the circumstances and given the information available at this time, reasonable, directly attributable to the Acquisition and reflective of adjustments necessary under Article 11 to state the Company’s financial position and results of operation as if the Company completed the Acquisition on December 31, 2020 and January 1, 2020, respectively.
| UNAUDITED PRO FORMA COMBINED BALANCE SHEET | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As of December 31, 2020 | |||||||||||||
| Kaiser Historical | Warrick Historical | Transaction Accounting Adjustments Total | Pro Forma Combined Balance Sheet | ||||||||||
| (In millions of dollars) | |||||||||||||
| ASSETS | |||||||||||||
| Current assets: | |||||||||||||
| Cash and cash equivalents | $ | 780.3 | $ | — | $ | (629.0 | ) | A | $ | 151.3 | |||
| Receivables: | |||||||||||||
| Trade receivables, net | 112.8 | 86.2 | — | 199.0 | |||||||||
| Other | 11.6 | 6.2 | 12.7 | B | 30.5 | ||||||||
| Contract assets | 36.1 | — | — | 36.1 | |||||||||
| Inventories | 152.0 | 168.0 | (41.2 | ) | C | F I | 278.8 | ||||||
| Prepaid expenses and other current assets | 28.6 | — | — | 28.6 | |||||||||
| Total current assets | 1,121.4 | 260.4 | (657.5 | ) | 724.3 | ||||||||
| Property, plant and equipment, net | 627.2 | 389.4 | — | C | G | 1,016.6 | |||||||
| Operating lease assets | 26.5 | — | 12.3 | G | H | 38.8 | |||||||
| Intangible assets, net | 26.7 | — | 56.5 | C | 83.2 | ||||||||
| Goodwill | 18.8 | — | 145.4 | D | 164.2 | ||||||||
| Other assets | 44.1 | 0.1 | — | 44.2 | |||||||||
| Total | $ | 1,864.7 | $ | 649.9 | $ | (443.3 | ) | $ | 2,071.3 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||
| Current liabilities: | |||||||||||||
| Accounts payable | $ | 86.1 | $ | 121.3 | $ | (34.6 | ) | F | $ | 172.8 | |||
| Accrued salaries, wages and related expenses | 30.8 | 8.2 | — | 39.0 | |||||||||
| Customer rebates payable | — | 21.1 | — | 21.1 | |||||||||
| Other accrued liabilities | 41.4 | 5.7 | 1.7 | A | E H | 48.8 | |||||||
| Total current liabilities | 158.3 | 156.3 | (32.9 | ) | 281.7 | ||||||||
| Long-term portion of operating lease liabilities | 25.6 | — | 8.7 | G | H | 34.3 | |||||||
| Pension and other postretirement benefits | 1.3 | — | 83.7 | E | 85.0 | ||||||||
| Net liabilities of Salaried VEBA | 17.8 | — | — | 17.8 | |||||||||
| Deferred tax liabilities | 13.9 | — | — | 13.9 | |||||||||
| Long-term liabilities | 77.3 | 7.6 | (6.0 | ) | G | H | 78.9 | ||||||
| Long-term debt | 838.1 | — | — | 838.1 | |||||||||
| Total liabilities | 1,132.3 | 163.9 | 53.5 | 1,349.7 | |||||||||
| Commitments and contingencies | |||||||||||||
| Stockholders’ equity: | |||||||||||||
| Preferred stock | — | — | — | — | |||||||||
| Common stock | 0.2 | — | — | 0.2 | |||||||||
| Additional paid in capital | 1,068.6 | — | — | 1,068.6 | |||||||||
| Retained earnings | 158.2 | — | (10.8 | ) | I | 147.4 | |||||||
| Treasury stock | (475.9 | ) | — | — | (475.9 | ) | |||||||
| Accumulated other comprehensive loss | (18.7 | ) | — | — | (18.7 | ) | |||||||
| Net parent investment | — | 486.0 | (486.0 | ) | J | — | |||||||
| Total stockholders’ equity | 732.4 | 486.0 | (496.8 | ) | 721.6 | ||||||||
| Total | $ | 1,864.7 | $ | 649.9 | $ | (443.3 | ) | $ | 2,071.3 |
The accompanying notes to unaudited pro forma combined financial statements are an integral part of these statements.
| UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, 2020 | ||||||||||||||
| Kaiser Historical | Warrick Historical | Transaction Accounting Adjustments Total | Pro Forma Combined Statement of Operations | |||||||||||
| (In millions of dollars, except share and per share amounts) | ||||||||||||||
| Net sales | $ | 1,172.7 | $ | 1,115.6 | $ | (32.0 | ) | L | M | $ | 2,256.3 | |||
| Costs and expenses: | ||||||||||||||
| Cost of products sold, excluding depreciation and amortization and other items | 941.3 | 1,098.3 | (25.1 | ) | K | L | 2,014.5 | |||||||
| Depreciation and amortization | 52.2 | 28.4 | 21.1 | N | O | 101.7 | ||||||||
| Selling, general, administrative, research and development | 91.2 | 16.8 | 11.0 | P | 119.0 | |||||||||
| Restructuring costs | 7.5 | — | — | 7.5 | ||||||||||
| Other operating income, net | (0.6 | ) | — | — | (0.6 | ) | ||||||||
| Total costs and expenses | 1,091.6 | 1,143.5 | 7.0 | 2,242.1 | ||||||||||
| Operating income | 81.1 | (27.9 | ) | (39.0 | ) | 14.2 | ||||||||
| Other expense: | ||||||||||||||
| Interest expense | (40.9 | ) | — | — | (40.9 | ) | ||||||||
| Other expense, net | (1.4 | ) | (17.7 | ) | 7.2 | M | (11.9 | ) | ||||||
| Income (loss) before income taxes | 38.8 | (45.6 | ) | (31.8 | ) | (38.6 | ) | |||||||
| Income tax (provision) benefit | (10.0 | ) | 7.3 | 7.5 | Q | 4.8 | ||||||||
| Net income (loss) | $ | 28.8 | $ | (38.3 | ) | $ | (24.3 | ) | $ | (33.8 | ) | |||
| Net income per common share: | ||||||||||||||
| Basic | $ | 1.82 | n/a | n/a | $ | (2.14 | ) | |||||||
| Diluted | $ | 1.81 | n/a | n/a | $ | (2.13 | ) | |||||||
| Weighted-average number of common shares outstanding (in thousands): | ||||||||||||||
| Basic | 15,802 | n/a | n/a | 15,802 | ||||||||||
| Diluted | 15,913 | n/a | n/a | 15,913 |
The accompanying notes to unaudited pro forma combined financial statements are an integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
- Basis of Presentation
The pro forma financial information was prepared using the acquisition method of accounting in accordance with Accounting Standards Codification 805, “Business Combinations” (“ASC 805”) and was derived from the audited historical financial statements of the Company and Warrick.
The pro forma financial information has been prepared by the Company for illustrative and informational purposes only in accordance with Article 11. The pro forma financial information is not necessarily indicative of what the Company’s statements of consolidated income or consolidated balance sheet actually would have been had the Acquisition and other Adjustments been completed as of the dates indicated or will be for any future periods. The pro forma financial information does not purport to project the Company’s future financial position or results of operations following the completion of the Acquisition. While the pro forma financial information does not reflect potential cost savings or synergies that may be achievable in connection with the Acquisition, management’s estimates of certain reductions to costs of products sold expected to be realized following the closing of the Acquisition are illustrated in Note 5 to the unaudited pro forma combined financial statements. The pro forma financial information reflects pro forma Adjustments management believes are necessary to present the Company’s pro forma balance sheet and results of operations following the closing of the Acquisition as of and for the period indicated in accordance with Article 11.
The Company is still in the process of performing a full review of Warrick’s accounting policies to determine if there are any additional material differences that require modification or reclassification of Warrick’s revenues, expenses, assets or liabilities to conform to the Company’s accounting policies and classifications. As a result of that review, the Company may identify differences between the accounting policies of the companies that, when conformed, could have a material impact on the pro forma financial information.
- Consideration and Purchase Price
The contract purchase price for the transaction was $670.0 million subject to adjustments. The following table presents the calculation of preliminary purchase consideration (in millions of dollars):
| Contract purchase price | $ | 670.0 | |
|---|---|---|---|
| Preliminary working capital adjustment | 31.0 | ||
| Preliminary outstanding indebtedness | (83.5 | ) | |
| Cash paid at acquisition close on March 31, 2021 | 617.5 | ||
| Estimate of post-close adjustments | (12.7 | ) | |
| Total allocated purchase price | $ | 604.8 |
Given that the purchase price is subject to certain post-closing purchase price adjustments as provided in the Purchase Agreement (estimates of which are included in the table above), the final transaction consideration to be paid by the Company assumed for the purpose of this pro forma financial information may not reflect the ultimate purchase price that the Company will have to pay for the Acquisition of Warrick.
Furthermore, the allocation of the consideration is preliminary and pending finalization of various estimates, inputs and analyses. Since this pro forma financial information has been prepared based on preliminary estimates of consideration and fair values attributable to the Acquisition, the actual amounts eventually recorded in accordance with the acquisition method of accounting, including the identifiable intangibles and goodwill, may differ materially from the information presented.
The Company expects to finalize the valuation of the assets and liabilities, as well as the post-closing adjustments as soon as practicable, but in any event no later than one year from the closing date.
- Preliminary Fair Value Estimate of Assets to be Acquired and Liabilities to be Assumed
The following table presents the preliminary purchase price allocation of the assets acquired and the liabilities assumed as if the Acquisition occurred on December 31, 2020 (in millions of dollars):
| Assets acquired: | ||
|---|---|---|
| Trade receivables | $ | 86.2 |
| Other receivables | 6.2 | |
| Inventories, including step up (down) | 161.2 | |
| Property, plant and equipment | 389.4 | |
| Operating lease assets | 12.3 | |
| Intangible assets | 56.5 | |
| Goodwill | 145.4 | |
| Other assets | 0.1 | |
| $ | 857.3 | |
| Liabilities assumed: | ||
| Accounts payable | $ | 121.3 |
| Accrued salaries, wages and related expenses | 8.2 | |
| Other accrued liabilities | 28.0 | |
| Pension and other postretirement benefits | 84.7 | |
| Other long-term liabilities | 10.3 | |
| $ | 252.5 | |
| Total allocated purchase price | $ | 604.8 |
The acquisition method of accounting uses the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective, and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances.
The Company prepared the allocation of the purchase price as if the Acquisition had occurred on December 31, 2020 based on estimates of the fair value of the acquired assets and assumed liabilities on a basis consistent with the purchase price allocation initially recorded at the closing of the Transaction. As the Company continues to obtain additional information supporting the final valuation of inventories, property, plant and equipment, intangible assets and long-term liabilities, it will refine the estimates of fair value and revise its allocation of the purchase price. The Company expects to finalize the valuation of the assets and liabilities, as well as the post-closing adjustments as soon as practicable, but in any event no later than one year from the closing date of the Acquisition.
Goodwill represents the excess of the estimated purchase price over the estimated fair value of Warrick’s assets and liabilities, including the fair value of the estimated identifiable finite and indefinite lived intangible assets. Goodwill will not be amortized, but will be subject to periodic impairment testing.
Preliminary identifiable intangible assets in the unaudited pro forma financial information consist of the following (in millions of dollars, except amortization periods):
| Useful Life<br><br><br>(in years) | Fair Value | |||
|---|---|---|---|---|
| Favorable lease contract | 120 | $ | 7.0 | |
| Favorable commodity contracts | 2 | 11.0 | ||
| Customer relationships | 12 | 38.5 | ||
| Total | $ | 56.5 |
Under ASC 805, acquisition-related transaction costs are not included as a component of consideration transferred but are accounted for as expenses in the period in which the costs are incurred. Total Transaction related costs in connection with the Acquisition are estimated to be approximately $16.5 million, $5.5 million of which were already included in the consolidated financial statements of the Company for the year ended December 31, 2020.
- Transaction Accounting Adjustments
Explanation of the adjustments to the unaudited pro forma combined balance sheet are as follows:
| A. | Reflects the estimated cash consideration to be paid in connection with the Acquisition and Acquisition‑related transaction costs impact on cash and cash equivalents as shown below (in millions of dollars): | |
|---|---|---|
| Cash consideration paid | $ | 617.5 |
| --- | --- | --- |
| Transaction expenses * | 11.5 | |
| Pro forma combined after transaction accounting adjustment | $ | 629.0 |
* Total transaction expenses are expected to be approximately $16.5 million, of which $5.0 million had been paid and $0.5 million were included in Other accrued liabilities at December 31, 2020.
| B. | Represents the estimated cash payment payable to the Company in final settlement of certain amounts defined in the Purchase Agreement that were estimated at the closing date of the Transaction, such as net working capital and outstanding indebtedness. The final determination of these amounts has not yet been made. The estimated payment payable to the Company is included in Other receivables. | ||||||
|---|---|---|---|---|---|---|---|
| C. | Reflects the adjustments related to the step-up in fair value of assets acquired as shown below (in millions of dollars): | ||||||
| --- | --- | ||||||
| Historical Value | Fair Value | Step-up/(down) | |||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| Inventories, net | $ | 168.0 | $ | 161.2 | $ | (6.8 | ) |
| Property, plant and equipment | 378.9 | 389.4 | 10.5 | ||||
| Intangible assets | — | 56.5 | 56.5 | ||||
| Total | $ | 546.9 | $ | 607.1 | $ | 60.2 | |
| D. | Reflects management’s preliminary estimate of Goodwill associated with the Acquisition. | ||||||
| --- | --- | ||||||
| E. | Reflects liabilities assumed related to certain Pension and other post-retirement benefit (“OPEB”) obligations, which were historically recorded on Warrick's parent company’s books. Values are based on a preliminary actuarial valuation as shown below (in millions of dollars): | ||||||
| --- | --- | ||||||
| Current | Long-term | ||||||
| --- | --- | --- | --- | --- | |||
| OPEB | $ | 0.9 | $ | 77.0 | |||
| Pension | 0.1 | 6.7 | |||||
| Total | $ | 1.0 | $ | 83.7 | |||
| F. | Represents the reduction to inventory and accounts payable of $34.6 million related to a Warrick customer contract to be recognized on a net basis in conformity with the Company’s accounting policies. | ||||||
| --- | --- | ||||||
| G. | Represents the reclassification of $10.5 million in operating lease assets from property, plant and equipment and $7.6 million in operating lease liabilities from long-term liabilities. | ||||||
| --- | --- | ||||||
| H. | To record leases upon acquisition, including right-of-use assets of $1.8 million, $1.2 million in other accrued liabilities, $1.1 million in long-term portion of operating lease liabilities and $1.6 million in long term liabilities related to the present value of remaining lease payments. | ||||||
| --- | --- | ||||||
| I. | To record the following adjustments to retained earnings (in millions of dollars): | ||||||
| --- | --- | ||||||
| December 31, 2020 | |||||||
| --- | --- | --- | --- | ||||
| Impact of inventory related accounting adjustments recorded during 2020 | $ | 0.2 | |||||
| Impact of transaction costs incurred in the first quarter of 2021 as part of the Acquisition | (11.0 | ) | |||||
| Total | $ | (10.8 | ) | ||||
| J. | Represents the elimination of Warrick’s historical net parent investment balances in accordance with the acquisition method of accounting. | ||||||
| --- | --- |
Explanation of the adjustments to the unaudited pro forma combined statement of operations are as follows:
| K. | Represents a $0.2 million reduction in Cost of products sold resulting from purchase accounting inventory adjustments. | |||||
|---|---|---|---|---|---|---|
| L. | The Company recognizes customer payments of shipping and handling costs as a reduction of cost of products sold, while Warrick recognized these payments as a component of revenue. Therefore, this adjustment conforms the presentation of shipping and handling costs of $24.9 million to the Company’s presentation. | |||||
| --- | --- | |||||
| M. | Warrick maintained accounts receivable supply chain financing arrangements in the U.S. to provide additional sources of working capital. The accounts receivables were sold and de-recognized from its combined balance sheet with any fees associated with the programs recorded in Warrick’s combined statements of loss and comprehensive loss as Other expense, net. At times, a portion of such fees would be reimbursed by Warrick’s customers and recognized as Sales and as Other expense, net. This adjustment conforms the presentation of such reimbursed fees totaling $7.2 million to the Company’s presentation as only an offset to Other expense, net. | |||||
| --- | --- | |||||
| N. | Reflects transaction accounting adjustments to amortization to reflect amortization expense that would have been recorded on intangible assets if the Transaction occurred at the beginning of the accounting period as shown in the table below (in millions of dollars, except amortization periods): | |||||
| --- | --- | |||||
| Estimated Fair Value | Estimated Useful Life in Years | Amortization Expense for the Year Ended December 31, 2020 | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Favorable lease contract | $ | 7.0 | 120 | $ | 0.1 | |
| Favorable commodity contract | 11.0 | 2 | 5.5 | |||
| Customer relationships | 38.5 | 12 | 3.2 | |||
| Identifiable intangibles | $ | 56.5 | $ | 8.8 | ||
| Historical amortization expense | — | |||||
| Transaction accounting adjustment to amortization | $ | 8.8 | ||||
| O. | Reflects transaction accounting adjustments to depreciation to reflect depreciation expense that would have been recorded on the property, plant and equipment acquired if the Transaction occurred at the beginning of the accounting period, as shown below (in millions of dollars, except depreciation periods): | |||||
| --- | --- | |||||
| Estimated Fair Value | Average Useful Life in Years | Depreciation Expense for the Year Ended December 31, 2020 | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Land and improvements | $ | 3.8 | 1.8 | $ | 2.1 | |
| Building and leasehold improvements | 59.3 | 5.1 | 11.6 | |||
| Machinery and Equipment | 296.6 | 11.0 | 27.0 | |||
| Construction in Progress | 29.7 | n/a | — | |||
| Property, plant and equipment | $ | 389.4 | $ | 40.7 | ||
| Historical depreciation expense | 28.4 | |||||
| Transaction accounting adjustment to depreciation | $ | 12.3 | ||||
| P. | To record the Company’s estimated transaction costs, such as legal and consulting fees incurred subsequent to December 31, 2020. | |||||
| --- | --- | |||||
| Q. | Reflects the income tax net benefit effect of the transaction accounting adjustments based on the applicable statutory rates associated with the respective adjustments. | |||||
| --- | --- |
- Management’s Adjustments
Warrick historically purchased aluminum and electrical power from Alcoa's smelter and power plant, respectively. Alcoa historically sold to Warrick aluminum from the smelter at the smelter’s cost and electrical power from the power plant at negotiated prices between the parties. Aluminum and electrical power are reflected at these prices in Warrick’s historical combined financial statements. As part of the Acquisition and effective immediately following the close of the Acquisition, the Company negotiated pricing for aluminum and electrical power at alternative rates that more closely align with market pricing. The table below reflects a reduction to Cost of products sold representing the cost of aluminum and electrical power under the negotiated pricing (“Reduced Cost of Aluminum” and “Reduced Cost of Electrical Power”, respectively) as if the negotiated contract pricing had been in place at January 1, 2020, and at a statutory tax rate of 24%.
The adjustments shown below include those that management deemed necessary for a fair statement of the pro forma financial information presented. The adjustments include forward-looking information that is subject to the safe harbor protections of the Securities Exchange Act of 1934, and actual results could differ materially from what is presented below (in millions of dollars, except share and per share amounts):
| Net (Loss) Income | Basic (Loss) Earnings Per Share | Weighted Average Shares | Diluted (Loss) Earnings Per Share | Weighted Average Shares | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pro forma combined | $ | (33.8 | ) | $ | (2.14 | ) | 15,802 | $ | (2.13 | ) | 15,913 | ||
| Management's adjustments: | |||||||||||||
| Reduced Cost of Aluminum | 81.6 | ||||||||||||
| Reduced Cost of Electrical Power | 2.3 | ||||||||||||
| Tax effect | (19.7 | ) | |||||||||||
| Pro forma combined after management's adjustments | $ | 30.4 | $ | 1.92 | 15,802 | $ | 1.91 | 15,913 |
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