What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-25 · 512 added, 518 removed, 1022 unchanged (50% of the section changed)

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Foothill Ranch, California

Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Kaiser Aluminum Corporation and Subsidiary Companies (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Kaiser Aluminum Corporation and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842) , and changed its method of accounting for revenue from contracts with customers in 2018 due to the adoption of Accounting Standards Update No.

2014-09, Revenue from Contracts with Customers (Topic 606) .

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842) .

Basis for Opinion

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)

with generally accepted accounting principles.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition–Refer to Note 1 to the consolidated financial statements

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition—Refer to Note 1 to the financial statements

Critical Audit Matter Description

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We evaluated management’s ability to accurately estimate reasonable margins by comparing actual margins to management’s historical estimates.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)

Environmental Contingencies–Refer to Notes 1 and 10 to the consolidated financial statements

Environmental Contingencies—Refer to Notes 1 and 10 to the financial statements

Critical Audit Matter Description

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The Company records an environmental loss contingency whenever a contingency is probable and reasonably estimable.

At December 31, 2019 , the Company’s $17.0 million accrual for expected environmental costs is included in other accrued liabilities and long-term liabilities and represents the Company’s undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, existing requirements, currently available facts, existing technology and its assessment of the likely remediation actions to be taken.

An inherent risk exists that actual costs could significantly exceed accrued amounts, and expenditures could occur sooner than anticipated, which could adversely affect the Company’s financial position, results of operations and cash flows.

Auditing management’s estimate of the costs reasonably expected to be incurred for environmental contingencies involved especially subjective judgment and an increased extent of audit procedures, including the need to involve environmental specialists.

At December 31, 2020, the Company’s $18.7 million accrual for expected environmental costs is included in other accrued liabilities and long-term liabilities and represents the Company’s undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)

regulations, existing requirements, currently available facts, existing technology and its assessment of the likely remediation actions to be taken.

We identified environmental contingencies as a critical audit matter because auditing management’s estimate of the costs reasonably expected to be incurred for environmental contingencies involved especially subjective judgment and an increased extent of audit procedures, including the need to involve environmental specialists.

How the Critical Audit Matter Was Addressed in the Audit

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Actual costs incurred to date and the progress of management’s remediation activities.

Goodwill–Imperial Machine and Tool Co.

(“IMT”) Reporting Unit–Refer to Notes 1 and 4 to the consolidated financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company used the market approach and discounted cash flow model to estimate fair value, which requires management to make significant estimates and assumptions related to discount rates and forecasts of future revenues and operating margins.

Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

During the fourth quarter of fiscal 2019 , the Company determined that the fair value of the IMT reporting unit, acquired on September 19, 2018, was lower than its carrying value, which resulted in a write-off of the total $25.2 million goodwill balance for the year ended December 31, 2019 .

Given the significant judgments made by management to estimate the fair value of IMT, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate and forecasts of future revenue and operating margins of IMT required a high degree of auditor judgment and increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures applied to the discount rate and forecasts of future revenue and operating margins used by management to estimate the fair value of IMT included the following, among others:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)

We tested management’s controls over its impairment evaluation, including those over the determination of the fair value of IMT, such as controls related to management’s selection of the discount rate and forecasts of future revenue and operating margins.

We assessed the reasonableness of management’s forecasts of future revenue and operating margins by comparing the projections to certain peer companies, third-party industry forecasts, and internal communications to management and the board of directors.

With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate utilized, including testing the source information underlying the determination of the discount rate, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the discount rate selected by management.

We evaluated management’s ability to accurately forecast future revenue and operating margins by comparing actual results to management’s historical forecasts.

/s/ Deloitte & Touche LLP

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CONSOLIDATED BALANCE SHEETS

December 31, 2018

(In millions of dollars, except share and per share amounts)

As of December 31,

(In millions of dollars, except

share and per share amounts)

Current assets:

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Stockholders' equity:

Preferred stock, 5,000,000 shares authorized at both December 31, 2019 and December 31, 2018;

no shares were issued and outstanding at December 31, 2019 and December 31, 2018

Common stock, par value $0.01, 90,000,000 shares authorized at both December 31, 2019 and December 31, 2018;

22,550,827 shares issued and 15,868,304 shares outstanding at December 31, 2019;

22,471,705 shares issued and 16,234,603 shares outstanding at December 31, 2018

Preferred stock, 5,000,000 shares authorized at both December 31, 2020 and

December 31, 2019;

no shares were issued and outstanding at December 31, 2020

and December 31, 2019

Common stock, par value $ 0.01 , 90,000,000 shares authorized at both December 31, 2020

and December 31, 2019;

22,647,455 shares issued and 15,812,169 shares outstanding at

December 31, 2020;

22,550,827 shares issued and 15,868,304 shares outstanding at

December 31, 2019

Additional paid in capital

Retained earnings

Treasury stock, at cost, 6,682,523 shares at December 31, 2019 and 6,237,102 shares at December 31, 2018

Treasury stock, at cost, 6,835,286 shares at December 31, 2020 and 6,682,523 shares at

December 31, 2019

Accumulated other comprehensive loss

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Costs and expenses:

Cost of products sold, excluding depreciation and amortization and other items 1

Cost of products sold, excluding depreciation and amortization

and other items

Depreciation and amortization

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Goodwill impairment

Other operating charges, net

Restructuring costs

Other operating (income) charges, net

Total costs and expenses

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Weighted-average number of common shares outstanding (in thousands):

_____________________

See Note 8 for discussion of our adoption of ASU 2017-12 (as defined in Note 1 ) in 2018 and the related reclassification of amounts in 2017 that were presented in the Statements of Consolidated Income within Unrealized (gain) loss on derivative instruments and are now presented within Cost of products sold, excluding depreciation and amortization and other items ("Cost of products sold").

The accompanying notes to consolidated financial statements are an integral part of these statements.

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STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY

Additional Paid In

Comprehensive

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BALANCE, December 31, 2017

Common shares issued (including impacts from Long-Term Incentive programs)

Cancellation of employee non-vested shares

Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares

Tax effect of cumulative-effect adjustment related to prior year adoption of ASU 2016-09

Cumulative-effect adjustment 1

BALANCE, January 1, 2018

Other comprehensive loss, net of tax

Common shares issued (including impacts from

Long-Term Incentive programs)

Cancellation of shares to cover employees' tax

withholdings upon vesting of non-vested shares

Repurchase of common stock 2

Cancellation of treasury stock

Cash dividends declared 3

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BALANCE, December 31, 2018

Cumulative-effect adjustment 3

BALANCE, January 1, 2018

Other comprehensive loss, net of tax

Common shares issued (including impacts from Long-Term Incentive programs)

Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares

Other comprehensive income, net of tax

Common shares issued (including impacts from

Long-Term Incentive programs)

Cancellation of shares to cover employees' tax

withholdings upon vesting of non-vested shares

Repurchase of common stock 2

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Other comprehensive income, net of tax

Common shares issued (including impacts from Long-Term Incentive programs)

Cancellation of shares to cover employees' tax withholdings upon vesting of non-vested shares

Common shares issued (including impacts from

Long-Term Incentive programs)

Cancellation of shares to cover employees' tax

withholdings upon vesting of non-vested shares

Repurchase of common stock 2

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BALANCE, December 31, 2020

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Cumulative-effect adjustment relates to our adoption of Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (Topic 606) and ASU No.

2016-01, Financial Instruments – Overall (Subtopic 825-10) .

Weighted-average repurchase price (dollars per share) for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 81.94 , $ 96.18 and $ 100.28 , respectively.

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Dividends declared per common share were $ 2.68 , $ 2.40 and $ 2.20 during 2020, 2019 and 2018, respectively.

Cumulative-effect adjustment relates to our adoption of ASC 606 and ASU 2016-01 (each as defined in Note 1 ).

The accompanying notes to consolidated financial statements are an integral part of these statements.

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Amortization of definite-lived intangible assets

Amortization of debt discount and debt issuance costs

Amortization of debt premium and debt issuance costs

Deferred income taxes

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Loss on extinguishment of debt

Gain on disposition of property, plant and equipment

Loss (gain) on disposition of property, plant and equipment

Gain on disposition of short-term investments

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Proceeds from disposal of property, plant and equipment

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities 1 :

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Issuance of 4.625% Senior Notes

Issuance of 6.50% Senior Notes

Cash paid for debt issuance costs

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Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash during the period

Net increase in cash, cash equivalents and restricted cash during the period

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

_____________

1 See Note 15 for supplemental disclosure on non-cash transactions.

See Note 16 for supplemental disclosure of cash flow information.

The accompanying notes to consolidated financial statements are an integral part of these statements.

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Accumulated Other Comprehensive (Loss) Income

Restructuring

Other Expense, Net

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Business, Product and Geographical Area Information and Concentration of Risk

Quarterly Financial Data (Unaudited)

Subsequent Events

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Kaiser Aluminum Corporation specializes in the production of semi-fabricated specialty aluminum mill products, such as aluminum plate and sheet and extruded and drawn products, for the following end market applications:

aerospace and high strength ("Aero/HS products"), automotive ("Automotive Extrusions"), general engineering ("GE products") and other industrial ("Other products").

(i) aerospace and high strength (“Aero/HS products”);

(ii) automotive (“Automotive Extrusions”);

(iii) general engineering (“GE products”);

and (iv) and other industrial (“Other products”).

Our business is organized into one operating segment.

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Principles of Consolidation and Basis of Presentation.

The consolidated financial statements include the accounts of our wholly owned subsidiaries and are prepared in accordance with United States generally accepted accounting principles ("GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC").

Our consolidated financial statements include the accounts of our wholly owned subsidiaries and are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).

Intercompany balances and transactions are eliminated.

We have reclassified certain amounts in prior-period financial statements to conform to the current period's presentation.

On the Statements of Consolidated Income, prior period presentation of Unrealized (gain) loss on derivative instruments is now contained within Cost of products sold (see Note 8 for additional details).

Coronavirus Disease 2019 ( “ COVID-19 ” ) Pandemic.

Beginning in March 2020, the COVID-19 pandemic significantly impacted our industry, causing demand for our products, primarily in our aerospace and automotive end markets, to decline.

We instituted operational measures in response to financial impacts caused by the reduced demand.

In March 2020, we suspended repurchases of our common stock.

During the quarter ended June 30, 2020, we:

(i) began limiting capital spending to critical sustaining projects (see Note 2 for discussion of idled projects);

(ii) early settled firm commitments with corresponding fair value hedges and reduced forecasts with respect to purchase transactions with corresponding cash flow hedges (see Note 8 );

(iii) settled all outstanding available for sale securities (see Note 8);

(iv) issued $ 350.0 million of new unsecured senior notes (see Note 9);

and (v) initiated a plan of restructuring (see Note 12).

Use of Estimates in the Preparation of Financial Statements.

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accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of our consolidated financial position and results of operations.

The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict.

Therefore, our accounting estimates and assumptions may change over time in response to the COVID-19 pandemic and may change materially in future periods.

Fair Value Measurements.

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Financial assets and liabilities that we measure at fair value each period include our derivative instruments, equity investments related to our deferred compensation plan and debt investment securities classified as available for sale securities (see Note 5 and Note 8).

Prior to our adoption of Accounting Standards Update ("ASU") No.

2016-01, Financial Instruments - Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), equity investments related to our deferred compensation plan were accounted for as available for sale securities.

Subsequent to our adoption of ASU 2016-01 on January 1, 2018, changes in the fair value of these equity investments are recorded within Other expense, net (see Note 5 and Note 12 ).

Additionally, we measure at fair value once each year at December 31 our Canadian defined benefit pension plan and the plan assets of the Salaried VEBA (defined in Note 5).

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Whenever events or changes in circumstances indicate that the carrying amount of the intangible assets may not be recoverable, the intangible assets are reviewed for impairment.

See Note 4 for a discussion of our business acquisition in 2018 and the goodwill impairment charges we recorded during 2019 and 2017.

See Note 4 for a discussion of our business acquisition in 2018 and the goodwill impairment charges we recorded during 2019.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

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Debt investment securities with an original maturity of 90 days or less are classified as Cash and cash equivalents (see Note 2).

Debt investment securities with an original maturity of greater than 90 days are presented as Short-term investments on the Consolidated Balance Sheets.

Debt investment securities with an original maturity of greater than 90 days are presented as Short-term investments on our Consolidated Balance Sheets.

In addition to debt investment securities, we also hold assets in various investment funds managed by a third-party trust in connection with our deferred compensation program (see Note 5).

Trade Receivables and Allowance for Doubtful Accounts.

Trade Receivables and Allowance for Credit Losses.

Trade receivables primarily consist of amounts billed to customers for products sold.

Accounts receivable are generally due within 30 to 90 days .

For the majority of our receivables, we establish an allowance for doubtful accounts based upon collection experience and other factors.

On certain other receivables where we are aware of a specific customer's inability or reluctance to pay, an allowance for doubtful accounts is established against amounts due, to reduce the net receivable balance to the amount we reasonably expect to collect.

For the majority of our receivables, we establish an allowance for credit losses based upon collection experience and other factors including , but not limited to, customer credit ratings, bankruptcy filings, published or estimated credit default rates, age of receivables, expected loss rates and collateral exposures .

On certain other receivables where we are aware of a specific customer’s inability or reluctance to pay, an allowance for credit losses is established against amounts due, to reduce the net receivable balance to the amount we reasonably expect to collect.

However, if circumstances change, our estimate of the recoverability of accounts receivable could be different.

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Any subsequent cash collections relating to accounts that have been previously written off are typically recorded as a reduction to total bad debt expense in the period of payment.

Write-offs for 2019 , 2018 and 2017 were immaterial to the consolidated financial statements.

Write-offs for 2020, 2019 and 2018 were immaterial to our consolidated financial statements.

Inventories are stated at the lower of cost or market value.

Finished products, work-in-process and raw material inventories are stated on the last-in, first-out (“LIFO”) basis.

At December 31, 2020 and December 31, 2019, the cost of our inventory on a first-in, first-out (“FIFO”) basis, which approximates the current replacement cost, exceeded its stated LIFO value by $ 8.4 million and $ 11.9 million, respectively.

During the year ended December 31, 2020, we decremented a prior year, lower cost LIFO layer, which resulted in a benefit of $ 0.2 million.

During the year ended December 31, 2019, we decremented a prior year, higher cost LIFO layer which resulted in a charge of $ 3.6 million.

At December 31, 2019 and December 31, 2018 , the current cost of our inventory exceeded its stated LIFO value by $ 11.9 million and $ 31.7 million , respectively.

The stated LIFO value of our inventory represented its net realizable value (less a normal profit margin).

Other inventories are stated on the first-in, first-out basis and consist of operating supplies, which are materials and supplies to be consumed during the production process.

Other inventories are stated on the FIFO basis and consist of operating supplies, which are materials and supplies to be consumed during the production process.

Inventory costs consist of material, labor and manufacturing overhead, including depreciation.

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Replacement Parts.

Replacement parts consist of preventative maintenance and capital spare parts, which are stated on the first-in, first-out basis.

Replacement parts consist of preventative maintenance and capital spare parts, which are stated on the FIFO basis.

Replacement parts are recorded within Prepaid expenses and other current assets or Other assets depending on whether or not the expected utilization of the replacement parts is to occur within the next 12 months.

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Depreciation is computed using the straight-line method at rates based on the estimated useful lives of the various classes of assets.

Finance lease assets and leasehold improvements are depreciated on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term.

Finance lease assets and leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term.

The estimated useful lives are as follows:

Range (in years)

Land improvements

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We recorded impairment charges of $ 0.5 million, $ 0.9 million and $ 1.4 million in 2020, 2019 and 2018, respectively, to reflect the scrap value of idled assets we determined not to deploy for future use.

Asset impairment charges are included in Other operating charges, net , in the Statements of Consolidated Income.

Asset impairment charges are included in Other operating (income) charges, net, in our Statements of Consolidated Income.

We classify assets as held for sale only when an asset is being actively marketed and expected to sell within 12 months.

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Derivative Financial Instruments.

Consistent with guidelines established by management and approved by our Board of Directors, we use derivative financial instruments to mitigate our exposure to changes in the market price of aluminum, alloying metals, energy and, to a lesser extent, foreign currency exchange rates.

Consistent with guidelines established by management and approved by our Board of Directors, we use derivative financial instruments to mitigate our exposure to changes in the market price of aluminum, certain alloying metals, energy and, to a lesser extent, foreign currency exchange rates.

We do not use derivative financial instruments for trading or other speculative purposes.

Hedging transactions are executed centrally on behalf of all of our operations to minimize transaction costs, monitor consolidated net exposures and allow for increased responsiveness to changes in market factors.

We reflect the fair value of all of our derivative instruments on our Consolidated Balance Sheets (see Note 8 ).

We reflect the fair value of all of our derivative instruments on our Consolidated Balance Sheets.

The fair value of hedges settling within one year is included in Prepaid expenses and other current assets or Other accrued liabilities.

The fair value of hedges settling beyond one year is included in Other assets or Long-term liabilities.

Cash flows related to all of our derivative instruments are reported in the Statements of Consolidated Cash Flows within the same category as the items being hedged.

Prior to our adoption of ASU No.

2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"), we did not meet the requirements for hedge (deferral) accounting related to our aluminum and energy derivatives.

Accordingly, we recorded unrealized gain or loss associated with these hedges in the Statements of Consolidated Income.

Our adoption of ASU 2017-12 on January 1, 2018 has allowed our aluminum and energy derivatives to qualify for hedge (deferral) accounting and, as such, we designated such hedges as cash flow hedges.

Forward swap contracts for zinc and copper ("Alloying Metals") used in our fabrication operations are also designated as cash flow hedges.

Unrealized gains and losses associated with our cash flow hedges are deferred in Other comprehensive loss, net of tax and reclassified to Cost of products sold when such hedges settle (see Note 8 ).

From time to time, we enter into foreign currency forward contracts to protect the value of anticipated foreign currency expenses associated with cash commitments for equipment purchases.

For the years ended December 31, 2019 , December 31, 2018 and December 31, 2017 , we did not meet the requirements for hedge (deferral) accounting related to foreign currency derivatives and, as such, gains and losses (both unrealized and realized) related to our foreign currency forward contracts have been reflected as an increase or reduction in Other expense, net.

Cash flows related to all of our derivative instruments are reported in our Statements of Consolidated Cash Flows within the same category as the items being hedged.

See Note 8 for additional information on our derivative financial instruments.

Self Insurance of Workers’ Compensation and Employee Healthcare Liabilities .

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Workers’ compensation liabilities are based on a combination of estimates for:

(i) incurred-but-not-

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

reported claims and (ii) the ultimate expense of incurred claims.

(i) incurred-but-not-reported claims and (ii) the ultimate expense of incurred claims.

Such estimates are based on judgment, using our historical claims data and information and analysis provided by actuarial and claims advisors, our insurance carriers and other professionals.

Our undiscounted workers' compensation liabilities were estimated at $ 29.2 million and $ 27.6 million at December 31, 2019 and December 31, 2018 , respectively.

However, we account for our workers' compensation accrued liability on a discounted basis (see Note 2 ), using a discount rate of 1.75 % at December 31, 2019 and 3.00 % at December 31, 2018 .

As of December 31, 2020, we revised our methodology of calculating our estimated workers’ compensation liabilities from a discounted basis to an undiscounted basis, resulting in a charge of $ 0.6 million and an ending liability of $ 29.8 million as of December 31, 2020.

Our estimate for unpaid claim liabilities, gross of insurance recoverables on an undiscounted basis was $ 29.2 million at December 31, 2019, of which we recorded $ 26.6 million using a discount rate of 1.75 % .

Accrued liabilities for employee healthcare benefits, which are estimates of unpaid incurred medical and prescription drug costs as provided by our healthcare administrators, were $ 3.1 million and $ 3.5 million at December 31, 2020 and December 31, 2019, respectively.

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(i) legal obligations related to the removal and disposal of asbestos and (ii) asset retirement obligations related to future lease terminations.

The majority of our CAROs relate to the first category and consist of incremental costs that would be associated with the removal and disposal of asbestos (all of which is believed to be fully contained and encapsulated within walls, floors, roof, piping or equipment insulation) of certain of our older facilities if such facilities were to undergo major renovation or be demolished.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and encapsulated within walls, floors, roof, piping or equipment insulation) of certain of our older facilities if such facilities were to undergo major renovation or be demolished.

We estimate incremental costs for special handling, removal and disposal costs of materials that may or will give rise to CAROs and then discount the expected costs back to the current year using a credit-adjusted, risk-free rate.

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Accruals for expected environmental costs are included in Other accrued liabilities or Long-term liabilities, as appropriate (see Note 2).

Environmental expense relating to continuing operations is included in Cost of products sold in the Statements of Consolidated Income.

Environmental expense relating to non-operating locations is included in Selling, general, administrative, research and development ("SG&A and R&D") in the Statements of Consolidated Income.

Environmental expense relating to continuing operations is included in Cost of products sold excluding depreciation and amortization and other items (“Cost of products sold” or “COGS”) in our Statements of Consolidated Income.

Environmental expense relating to non-operating locations is included in Selling, general, administrative, research and development (“SG&A and R&D”) in our Statements of Consolidated Income.

Revenue Recognition.

We adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606 ("ASC 606") on January 1, 2018 using the modified retrospective method.

The reported results for the years ended December 31, 2019 and December 31, 2018 reflect the application of ASC 606 guidance while the reported results for the periods prior to January 1, 2018 were prepared under the guidance of FASB ASC 605, Revenue Recognition ("ASC 605").

Subsequent to our adoption, we recognize revenue as we fulfill our performance obligations and transfer control of products to our customers.

We recognize revenue as we fulfill our performance obligations and transfer control of products to our customers.

For products that have an alternative use and/or for which we do not have an enforceable right to payment (including a reasonable profit) during the production process, we recognize revenue at a point in time.

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As the duration of our contracts for accounting purposes is typically less than one year, we do not present quantitative information about the aggregate transaction price allocated to unsatisfied performance obligations at the end of the reporting period.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We adjust the amount of revenue recognized on all products, regardless of timing of revenue recognition, for variable price consideration, which could include metal market price adjustments, volume rebates and sales discounts.

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Research and development costs for 2020, 2019 and 2018 were $ 9.1 million, $ 10.5 million and $ 9.8 million, respectively.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Major Maintenance Activities.

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The methodology used to value these performance-based awards is based on the nature of the performance conditions within those awards.

Awards that are subject to performance conditions pertaining to total shareholder return are valued on the date of grant using a Monte Carlo valuation model.

Awards that are subject to performance conditions pertaining to total shareholder return (market-based awards) are valued on the date of grant using a Monte Carlo valuation model.

The key assumptions in applying this model are an expected volatility and a risk-free interest rate.

Awards with performance conditions pertaining to our cost performance and awards with performance conditions pertaining to our economic value added performance are valued based on our stock price at the date of grant.

Awards with certain other performance conditions (non-market-based awards) are valued based on our stock price at the date of grant.

Our non‑market-based awards have performance conditions pertaining to our cost performance, economic value added performance and adjusted EBITDA margin performance, which is measured by our adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as a percentage of value added revenue.

Holders of performance-based awards receive a one-time payment at the time of issuance of vested shares based on the total dividends they would have received if the vested shares had been held of record from the date of grant through the date of issuance.

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Adjustments to expense related to forfeitures are recorded in the period in which they occur.

For performance shares with performance conditions pertaining to our cost performance and economic value added performance, the related expense is updated quarterly by adjusting the estimated number of shares expected to vest based on the most probable outcome of the performance condition (see Note 7 ).

For performance shares with performance conditions pertaining to our cost performance, economic value added performance and Adjusted EBITDA margin performance, the related expense is updated quarterly by adjusting the estimated number of shares expected to vest based on the most probable outcome of the performance condition (see Note 7).

Adoption of New Accounting Pronouncements

2016-02, Leases (Topic 842):

Amendments to the Financial Accounting Standards Board Accounting Standards Codification ("ASU 2016-02"), was issued in February 2016 (with amendments issued in 2018) and requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease).

For income statement purposes, a dual model was retained, requiring leases to be classified as either operating or finance.

Operating leases result in straight-line expense (similar to operating leases under the previous guidance) while finance leases result in a front-loaded expense pattern (similar to capital leases under the previous guidance).

We adopted ASU 2016-02 and its subsequent amendments (together "ASC 842") during the quarter ended March 31, 2019 using the

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

transition approach provided for under ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements , which allowed us to apply the new lease standard as of January 1, 2019, rather than the beginning of the earliest period presented.

We elected the package of practical expedients, which permitted us to:

(i) not reassess whether any of our contracts contained leases;

(ii) carry forward the historical lease classification of our existing leases;

and (iii) not reassess initial direct costs for our existing leases.

We did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets.

Due to our adoption of ASC 842, we recorded an operating lease right-of-use asset of $ 29.0 million , a current operating lease liability of $ 4.1 million and a long-term operating lease liability of $ 27.4 million on our Consolidated Balance Sheets as of January 1, 2019.

There was no cumulative-effect adjustment to Retained earnings required.

The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

Comparative information in this Report has not been adjusted and continues to be reported under the previous lease accounting rules.

See Note 3 for details of the significant changes and quantitative impacts of the changes, as well as other required disclosures related to our adoption of ASC 842.

There were no material impacts on our consolidated financial statements resulting from our adoption during the year ended December 31, 2019 of:

2018-07, Compensation-Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting;

2018-08, Not-for-Profit Entities (Topic 958):

Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made;

(iii) ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement;

2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans;

and (v) ASU No.

2019-07, Codification Updates to SEC Sections:

Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10532, Disclosure Update and Simplification, and Nos.

33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates.

Accounting Pronouncements Issued But Not Yet Adopted

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), was issued in June 2016.

Under ASU 2016-13, existing guidance on reporting credit losses for trade and other receivables and available for sale debt securities will be replaced with a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowances for losses.

We will adopt ASU 2016-13 in 2020 using the modified retrospective transition approach and do not expect it to have a material impact on our consolidated financial statements.

Under ASU 2016-13, existing guidance on reporting credit losses for trade and other receivables and available for sale debt securities have been replaced with a new forward-looking “expected loss” model that has resulted in the earlier recognition of allowances for losses.

Our adoption of ASU 2016-13 during the quarter ended March 31, 2020 using the modified retrospective transition approach did not result in a material impact on our consolidated financial statements.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

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Under ASU 2018-15, requirements for capitalizing implementation costs incurred in a hosting arrangement (cloud computing) that is a service contract are to be aligned with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

We will adopt ASU 2018-15 in 2020 using the prospective transition approach and do not expect it to have a material impact on our consolidated financial statements.

We adopted ASU 2018-15 during the quarter ended March 31, 2020 using the prospective transition approach.

The implementation costs we capitalized during the twelve months ended December 31, 2020 were included in both Prepaid expenses and other current assets and Other assets in our Consolidated Balance Sheets.

The corresponding cash flows related to these arrangements were included in Net cash provided by operating activities in our Statements of Consolidated Cash Flows.

Accounting Pronouncements Issued But Not Yet Adopted

2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), was issued in December 2019.

Under ASU 2019-12, the accounting for income taxes is simplified by eliminating certain exceptions and implementing additional requirements which result in a more consistent application of ASC 740.

Under ASU 2019-12, the accounting for income taxes is simplified by eliminating certain exceptions and implementing additional requirements which result in a more consistent application of ASC 740 Income Taxes .

Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

We are currently in the process of evaluating the impact of adopting ASU 2019-12 in 2021, but do not expect it to have a material impact on our consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Balance Sheet Information

December 31, 2019

December 31, 2018

As of December 31,

(In millions of dollars)

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Commercial paper

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

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December 31, 2019

December 31, 2018

(In millions of dollars)

Trade Receivables, net

Billed trade receivables

Unbilled trade receivables

Trade receivables, gross

Allowance for doubtful receivables

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Property, plant and equipment, gross

Accumulated depreciation

Accumulated depreciation and amortization

Assets held for sale

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Other long-term liabilities

Based on market conditions during the year ended December 31, 2020, we temporarily idled projects within Construction in progress totaling $ 20.0 million as of December 31, 2020, all of which are expected to resume at a future date.

We determine whether an agreement is a lease at inception.

We have operating and finance leases for equipment and real estate that primarily have fixed lease payments.

Our leases have remaining lease terms of approximately one to 14 years , some of which may include options to extend the lease for up to 20 years , and some of which may include options to terminate the

Our leases have remaining lease terms of approximately one to 13 years , some of which may include options to extend the lease for up to 20 years, and some of which may include options to terminate the lease within one year .

None of our options to extend or terminate are reasonably certain of being exercised, and are therefore not included in our

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

lease within one year .

None of our options to extend or terminate are reasonably certain of being exercised, and are therefore not included in our determination of lease assets and liabilities.

determination of lease assets and liabilities.

Short-term leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets.

As most of our leases do not provide an implicit rate, we use information available at the lease commencement date in determining an incremental borrowing rate when calculating our operating lease assets and operating lease liabilities.

In determining the inputs to the incremental borrowing rate calculation, we make judgments about the value of the leased asset, our credit rating and the lease term, including the probability of our exercising options to extend or terminate the underlying lease.

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Weighted-average discount rate

The following table summarizes the classification of lease assets and lease liabilities on our Consolidated Balance Sheet as of the period presented (in millions of dollars):

The following table summarizes the classification of lease assets and lease liabilities on our Consolidated Balance Sheets (in millions of dollars):

As of December 31,

Classification

December 31, 2019

Operating lease assets

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Total lease liabilities

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

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The following table summarizes the components of lease cost on our Statements of Consolidated Income for the period presented (in millions of dollars):

December 31, 2019

The following table summarizes the components of lease cost on our Statements of Consolidated Income (in millions of dollars):

Year Ended December 31,

Operating lease cost

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Total lease cost

Total lease cost was $ 8.2 million and $ 7.9 million for the years ended December 31, 2018 and December 31, 2017 , respectively.

Total lease cost was $ 8.2 million for the year ended December 31, 2018.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

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The following table presents the maturity of our lease liabilities as of December 31, 2020 (in millions of dollars):

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Operating Leases

2025 and thereafter

Total minimum lease payments

Present value

Minimum rental commitments at December 31, 2018 were as follows (in millions of dollars):

Year Ended December 31,

Finance Leases

Operating Leases

2024 and thereafter

Total minimum lease payments

Present value 1

_________________________

Of the $ 7.0 million in finance lease obligations as of December 31, 2018 , $ 1.4 million was included in Other accrued liabilities and $ 5.6 million was included in Long-term liabilities.

Assets recorded under finance leases and the accumulated amortization thereon were $ 8.3 million and $ 1.3 million , respectively, as of December 31, 2018 .

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Business Combinations, Goodwill and Intangible Assets

Business Combinations .

Pending Warrick Rolling Mill Acquisition .

On November 30, 2020, we entered into a purchase agreement with Alcoa Corporation to purchase Alcoa Warrick LLC and certain assets comprising the aluminum casting and rolling mill facility located in Warrick County, Indiana (collectively, the “Warrick Rolling Mill”) for a purchase price of approximately $ 670.0 million, consisting of approximately $ 587.0 million in cash and approximately $ 83.0 million of assumed other post-employment benefits liabilities.

The transaction, anticipated to close on or about March 31, 2021, will provide us with non-cyclical end market diversification and entry into the packaging end market.

As of December 31, 2020, we incurred approximately $ 5.5 million of acquisition costs, primarily related to legal and advisory fees.

The acquisition of the Warrick Rolling Mill is subject to a number of closing conditions and there can be no assurance that such conditions will be satisfied or that we will be able to complete the Warrick Rolling Mill acquisition within the planned timeframe or at all.

Imperial Machine & Tool Co.

On September 19, 2018, we acquired Imperial Machine & Tool Co.

(“IMT”), located in Columbia, New Jersey, for $ 43.2 million in cash, net of cash received.

IMT specializes in multi-material advanced manufacturing methods and techniques, which include multi-axis computer numerical control ("CNC") machining, additive manufacturing ("3D Printing"), welding and fabrication for demanding aerospace and defense, automotive, high tech and general industrial applications.

IMT specializes in multi-material advanced manufacturing methods and techniques, which include multi-axis computer numerical control machining, additive manufacturing (“3D Printing”), welding and fabrication for demanding aerospace and defense, automotive, high tech and general industrial applications.

The acquisition enhances our ability to address customer needs by broadening our capability to provide innovative solutions for demanding applications.

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The goodwill recorded reflected the value we expected from IMT’s 3D Printing line of business.

However, due to recent indications that opportunities for this type of disruptive technology are extending over a longer-term horizon than initially valued, during the fourth quarter of 2019, we made the strategic decision to prioritize our focus on IMT's subtractive (machining) business opportunities while the 3D Printing market continues to mature.

However, due to indications that opportunities for this type of disruptive technology were extending over a longer-term horizon than initially valued, during the fourth quarter of 2019, we made the strategic decision to prioritize our focus on IMT’s subtractive (machining) business opportunities while the 3D Printing market continues to mature.

Based on our revised strategy, we tested for goodwill impairment using Level 3 inputs and a combination of an income approach using the estimated discounted cash flow and a market-based valuation methodology.

Having determined that the carrying value of IMT exceeded its fair value as of November 30, 2019, we recognized an impairment charge of $ 25.2 million for the year ended December 31, 2019 within Operating income in the Statements of Consolidated Income.

As this goodwill is deductible for tax purposes, the deferred tax effects were included in the impairment charge and income tax provision.

2017 Goodwill Impairment .

Due to a reduction in our long-term demand assumption for hard alloy extruded shapes, we recorded an impairment charge with respect to our Chandler, Arizona (Extrusion) facility of $ 18.4 million during the quarter ended June 30, 2017 within Operating income in the Statements of Consolidated Income.

Goodwill activity was as follows for each period presented (in millions of dollars):

December 31, 2018

Impairment of IMT Goodwill

December 31, 2019

Accumulated impairment loss

Carrying value

December 31, 2017

Goodwill from IMT Acquisition

December 31, 2018

The following table presents the changes in the carrying value of our goodwill (in millions of dollars):

As of December 31,

Gross carrying value

Accumulated impairment loss:

Carrying value

Beginning balance

Impairment loss

Ending balance

Net carrying value

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Intangible Assets.

Information regarding our intangible assets consisted of the following as of the periods presented (in millions of dollars, except amortization periods):

Weighted-Average Amortization Period

December 31, 2019

The following table presents the gross carrying amount and accumulated amortization by major intangible asset class (in millions of dollars, except amortization periods):

As of December 31, 2020

Customer relationships

Non-compete agreement

December 31, 2018

As of December 31, 2019

Customer relationships

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Amortization expense relating to definite-lived intangible assets was $ 2.9 million for 2020, $ 2.8 million for 2019 and $ 1.8 million for 2018.

The expected amortization of intangible assets for each of the next five calendar years is as follows (in millions of dollars):

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

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The following table presents the expected amortization of intangible assets for each of the next five calendar years and thereafter as of December 31, 2020 (in millions of dollars):

Employee Benefits

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Fixed rate contributions either:

(i) range from (in whole dollars) $ 800 to $ 2,400 per employee per year, depending on the employee's age, or (ii) vary between 2 % to 10 % of the employees' compensation depending on their age and years of service for employees hired prior to January 1, 2004 or is a fixed 2 % annual contribution for employees hired on or after January 1, 2004.

A defined contribution 401(k) savings plan for salaried and certain hourly employees providing for a concurrent match of up to 4 % of certain contributions made by employees plus an annual contribution of between 2 % and 10 % of their compensation depending on their age and years of service to employees hired prior to January 1, 2004.

All new hires on or after January 1, 2004 receive a fixed 2 % contribution annually.

A defined contribution 401(k) savings plan for certain employees providing for an annually funded discretionary Company match determined in January based on the financial results of the previous year.

If a Company match is to be made, a total flat dollar amount is determined and then funded to employees' accounts based on their contribution levels.

(i) range from (in whole dollars) $ 800 to $ 2,400 per employee per year, depending on the employee’s age;

(ii) vary between 2 % to 10 % of the employees’ compensation depending on their age and years of service for employees hired prior to January 1, 2004;

or (iii) are fixed at a 2 % annual contribution for employees hired on or after January 1, 2004.

A defined contribution 401(k) savings plan for salaried and certain hourly employees providing for a concurrent match of up to 4 % of certain contributions made by employees plus an annual contribution between 2 % and 10 % of their compensation depending on their age and years of service to employees hired prior to January 1, 2004.

Certain salaried and hourly new hires on or after January 1, 2004 receive a fixed 2 % contribution annually.

A defined benefit pension plan for salaried employees at our London, Ontario facility, with annual contributions based on each salaried employee’s age and years of service.

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Our investment committee reviews and evaluates the investment portfolio.

The asset mix target allocation on the long-term investments is approximately 60 % in equity securities, 35 % in fixed income securities and 5 % in short-term securities.

The asset mix target allocation on the long-term investments is approximately 60 % in equity securities, 35 % in fixed income securities and 5 % in short-term

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The plan assets of our Canadian pension plan are managed by advisors selected by us, with the investment portfolio subject to periodic review and evaluation by our investment committee.

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The degree of risk and risk tolerance take into account the obligation structure of the plan, the anticipated demand for funds and the maturity profiles required from the investment portfolio in light of these demands.

A non-qualified, unfunded, unsecured plan of deferred compensation for certain employees who would otherwise suffer a loss of benefits under our defined contribution plan as a result of the limitations imposed by the Internal Revenue Code of 1986 ("Code").

Despite the plan being an unfunded plan, we make an annual contribution to a rabbi trust to fulfill future funding obligations, as contemplated by the terms of the plan.

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however, participants are eligible to receive distributions from the trust subject to vesting and other eligibility requirements.

Offsetting liabilities relating to the deferred compensation plan are included in Other accrued liabilities and Long-term liabilities.

Offsetting liabilities relating to the deferred compensation plan are included within Other accrued liabilities and Long-term liabilities.

Assets in the trust are accounted for as equity investments with changes in fair value recorded within Other expense, net (see Note 13).

An employment agreement with our chief executive officer extending through July 15, 2022.

We also provide certain members of senior management, including each of our named executive officers, with benefits related to terminations of employment in specified circumstances, including in connection with a change in control, by us without cause and by the executive officer with good reason.

Benefits for certain members of senior management, including certain of our named executive officers, related to terminations of employment in specified circumstances, including in connection with a change in control, by us without cause and by the executive officer with good reason.

Salaried VEBA Postretirement Obligation.

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We have an ongoing obligation with no express termination date to make variable cash contributions up to a maximum of $ 2.9 million to the Salaried VEBA.

We determined that in the first quarter of 2020, we will pay approximately

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 2.9 million with respect to 2019 .

We determined that in the first quarter of 2021, we will pay approximately $ 1.7 million with respect to 2020.

Such amount was recorded within Other accrued liabilities as of December 31, 2020 (see Note 2).

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The following data presents the key assumptions used and the amounts reflected in our consolidated financial statements with respect to our Canadian pension plan and the Salaried VEBA.

We use a December 31 measurement date for all of the plans.

Assumptions used to determine benefit obligations as of the periods presented were as follows:

We use a December 31 measurement date for both of the plans.

The following table presents the assumptions used to determine benefit obligations:

Canadian Pension Plan

Salaried VEBA

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

As of December 31,

Discount rate

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Our variable payment, if any, is treated as a funding/contribution policy and not counted as a Salaried VEBA asset at December 31 for actuarial purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

With respect to Salaried VEBA obligations:

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Since the Salaried VEBA was paying a fixed annual amount to its participants at both December 31, 2020 and December 31, 2019, no future cost trend rate increase has been assumed in computing the APBO for the Salaried VEBA.

Assumptions used to determine net periodic postretirement benefit cost for the years ended December 31 were:

The following table presents the assumptions used to determine net periodic postretirement benefit cost:

Canadian Pension Plan

Salaried VEBA

Year Ended December 31,

Discount rate

1 unchanged sentence

Rate of compensation increase

_____________________

The expected long-term rate of return assumption for the Salaried VEBA is based on the targeted investment portfolios provided to us by the trustee of the Salaried VEBA.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Benefit Obligations and Funded Status.

The following table presents the benefit obligations and funded status of our Canadian pension plan and the Salaried VEBA as of December 31, 2019 and December 31, 2018 and the corresponding amounts that are included in our Consolidated Balance Sheets (in millions of dollars):

The following table presents the benefit obligations and funded status of our Canadian pension plan and the Salaried VEBA and the corresponding amounts that are included in our Consolidated Balance Sheets (in millions of dollars):

Canadian Pension Plan

Salaried VEBA

As of December 31,

Change in benefit obligation:

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Interest cost

Prior service cost 1

Actuarial loss (gain) 2

Plan participants contributions

Prior service (credit) cost 1

Actuarial loss 2

Benefits paid by Company

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Actual return on assets

Plan participants contributions

Company contributions

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Net funded status 4

_____________________________

The prior service cost relating to the Salaried VEBA in both 2019 and 2018 resulted from increases in the annual healthcare reimbursement benefit starting in 2019 and 2018 , respectively, for plan participants.

The actuarial gain relating to the Salaried VEBA in 2019 was comprised of:

(i) a $ 6.8 million loss due to a change in the discount rate;

(ii) a $ 0.1 million loss due to changes in census information;

offset by (iii) a $ 0.5 million gain due to a change in the projected utilization rate.

The actuarial gain relating to the Salaried VEBA in 2018 was comprised of:

(i) a $ 5.1 million gain due to a change in the discount rate;

(ii) a $ 2.2 million gain due to a change in the projected utilization rate;

offset by (iii) a $ 0.5 million loss due to changes in census information.

The prior service (credit) cost relating to the Salaried VEBA in both 2020 and 2019 resulted from (decreases) increases in the annual healthcare reimbursement benefit starting in 2020 and 2019, respectively, for plan participants.

The actuarial loss relating to the Salaried VEBA in 2020 was comprised of a $ 5.7 million loss due to a change in the discount rate offset by a $ 1.0 million gain due to changes in census information.

The actuarial loss relating to the Salaried VEBA in 2019 was comprised of:

(i) a $ 6.8 million loss due to a change in the discount rate and (ii) a $ 0.1 million loss due to changes in census information, partially offset by a $ 0.5 million gain due to a change in the projected utilization rate.

For the Canadian pension plan, the benefit obligation is the projected benefit obligation.

For the Salaried VEBA, the benefit obligation is the APBO.

Net funded status relating to the Salaried VEBA at December 31, 2019 and December 31, 2018 , respectively, was presented as Net liabilities of Salaried VEBA on the Consolidated Balance Sheet.

The accumulated benefit obligation for the Canadian pension plan was $ 7.6 million and $ 6.4 million at December 31, 2019 and December 31, 2018 , respectively.

We expect to contribute $ 0.5 million to the Canadian pension plan in 2020 .

Net funded status relating to the Canadian pension plan at December 31, 2020 and December 31, 2019 was included within Long term liabilities on our Consolidated Balance Sheets.

Net funded status relating to the Salaried VEBA at December 31, 2020 and December 31, 2019 was presented as Net liabilities of Salaried VEBA on our Consolidated Balance Sheets.

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As of December 31, 2019 , the net benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows (in millions of dollars):

Benefit Payments Due by Period

The accumulated benefit obligation for the Canadian pension plan was $ 9.2 million and $ 7.6 million at December 31, 2020 and December 31, 2019, respectively.

We expect to contribute $ 0.3 million to the Canadian pension plan in 2021.

The following table presents the net benefits expected to be paid (in millions of dollars):

Year Ended December 31,

Canadian pension plan benefit payments

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Total net benefits

__________________________________

Such amounts are based on benefit amounts and certain key assumptions obtained from the Salaried VEBA.

The amount of loss included in the Consolidated Balance Sheets (within Accumulated other comprehensive loss) associated with our Canadian pension plan and the Salaried VEBA (before tax) that had not yet been reflected in net periodic postretirement benefit cost was as follows at December 31 (in millions of dollars):

The following table presents the amount of loss included in our Consolidated Balance Sheets (within Accumulated other comprehensive loss) associated with our Canadian pension plan and the Salaried VEBA (before tax) that had not yet been reflected in net periodic postretirement benefit cost (in millions of dollars):

Canadian Pension Plan

Salaried VEBA

As of December 31,

Accumulated net actuarial loss

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the fair value of plan assets, classified under the appropriate level of the fair value hierarchy, as of the periods presented (in millions of dollars):

December 31, 2019:

The following table presents the fair value of plan assets, classified under the appropriate level of the fair value hierarchy (in millions of dollars):

As of December 31, 2020:

Plan Assets in the Fair Value Hierarchy:

1 unchanged sentence

Cash and money market investments

Diversified investment funds in registered investment companies 1

Total Salaried VEBA assets in the fair value hierarchy

Deferred compensation program – Diversified investment funds in registered investment companies 1

Deferred compensation program – Diversified

investment funds in registered investment companies 1

Total plan assets in the fair value hierarchy

Plan Assets Measured at NAV 2 :

Salaried VEBA – Fixed income investment funds in registered investment companies 3

Salaried VEBA – Equity investment funds in registered investment companies 4

Canadian pension plan – Diversified investment funds in registered investment companies 1

Salaried VEBA – Fixed income investment funds

in registered investment companies 3

Salaried VEBA – Equity investment funds in

registered investment companies 4

Canadian pension plan – Diversified investment

funds in registered investment companies 1

Total plan assets at fair value

December 31, 2018:

As of December 31, 2019:

Plan Assets in the Fair Value Hierarchy:

1 unchanged sentence

Cash and money market investments

Diversified investment funds in registered investment companies 1

Diversified investment funds in registered

investment companies 1

Total Salaried VEBA assets in the fair value hierarchy

Deferred compensation program – Diversified investment funds in registered investment companies 1

Deferred compensation program – Diversified

investment funds in registered investment companies 1

Total plan assets in the fair value hierarchy

Plan Assets Measured at NAV 2 :

Salaried VEBA – Fixed income investment funds in registered investment companies 3

Salaried VEBA – Equity investment funds in registered investment companies 4

Canadian pension plan – Diversified investment funds in registered investment companies 1

Salaried VEBA – Fixed income investment funds

in registered investment companies 3

Salaried VEBA – Equity investment funds in

registered investment companies 4

Canadian pension plan – Diversified investment

funds in registered investment companies 1

Total plan assets at fair value

_________________________

The plan assets are invested in investment funds that hold a diversified portfolio of:

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and (iv) cash and cash equivalents.

The market value of these funds has not been categorized in the fair value hierarchy and is being presented in the table above to permit a reconciliation of the fair value hierarchy to the Consolidated Balance Sheets.

Equity investment funds measured at fair value using the NAV practical expedient are managed by an investment adviser registered with the SEC

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

under the Investment Advisers Act of 1940 and can be redeemed with five business days' notice on the 15th (or last business day prior to the 15th) and on the last business day of each month.

Equity investment funds measured at fair value using the NAV practical expedient are managed by an investment adviser registered with the SEC under the Investment Advisers Act of 1940 and can be redeemed with five business days’ notice on the 15th (or last business day prior to the 15th) and on the last business day of each month.

A business day is every day that the New York Stock Exchange is open.

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issuers across all market capitalizations.

The following tables present the total expense related to all benefit plans for the periods presented (in millions of dollars):

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the total expense related to all benefit plans (in millions of dollars):

Year Ended December 31,

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Net periodic postretirement benefit cost relating to Salaried VEBA 2,3

___________________________

Substantially all of these charges related to employee benefits are in Cost of products sold with the remaining balance in SG&A and R&D.

See Note 6 for more information on our multiemployer defined benefit pension plans.

The current service cost component of Net periodic postretirement benefit cost relating to Salaried VEBA is included within our Statements of Consolidated Income in SG&A and R&D for all periods presented.

The deferred compensation plan and the current service cost component of Net periodic postretirement benefit cost relating to Salaried VEBA is included within our Statements of Consolidated Income in SG&A and R&D for all periods presented.

All other components of Net periodic postretirement benefit cost relating to Salaried VEBA are included within Other expense, net, in our Statements of Consolidated Income.

See Note 6 for more information on our multiemployer defined benefit pension plans.

Components of Net Periodic Postretirement Benefit Cost.

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(iii) a benefit for the return on plan assets;

and (iv) amortization of prior service costs associated with plan amendments;

(iv) amortization of prior service costs associated with plan amendments;

and (v) amortization of net actuarial differences.

The following table presents the components of Net periodic postretirement benefit cost for the years ended December 31 (in millions of dollars):

The following table presents the components of Net periodic postretirement benefit cost (in millions of dollars):

Canadian Pension Plan

Salaried VEBA

Year Ended December 31,

Interest cost

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Net periodic postretirement benefit cost

__________________________

We amortize prior service cost on a straight-line basis over the average remaining years of service to full eligibility for benefits of the active plan participants.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Multiemployer Pension Plans

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At December 31, 2020, approximately 50 % of our total employees were union-represented employees at facilities participating in these multiemployer pension plans.

We currently estimate that contributions will range from $ 3.0 million to $ 5.0 million per year through 2020 .

We currently estimate that contributions will range from $ 3.0 million to $ 5.0 million in 2021.

The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:

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If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

If we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our participation in multiemployer pension plans for the year ended December 31, 2019 is outlined in the table below:

Employer Identification Number

Pension Protection Act Zone Status 1

FIP/RP Status Pending/Implemented in 2019 2

Contributions of the Company

Surcharge Imposed in 2019

Expiration Date of Collective-Bargaining Agreements

If we choose to stop participating in any of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information about multiemployer pension plans in which we participate:

FIP/RP Status

Contributions of

Protection Act

Expiration Date

Identification

Zone Status 1

Year Ended December 31,

of Collective-

Bargaining Agreements

(in millions of dollars)

Steelworkers Pension Trust (USW) 3

Steelworkers Pension

Trust (USW) 3

Mar 2021 - Sep 2025

Other Funds 4

________________

The most recent Pension Protection Act zone status available in 2020 and 2019 for the Steelworkers Pension Trust is for the plan’s year end at December 31, 2019 and December 31, 2018, respectively.

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As of December 31, 2020, USW collective bargaining agreements covering employees at our Newark, Ohio (“Newark”) and Spokane, Washington (“Trentwood”) facilities covered 85 % of our USW-represented employees and expire in September 2025.

Our monthly contributions per hour worked by each bargaining unit employee at our Newark and Trentwood facilities are (in whole dollars) $ 1.75 in 2019 .

Our monthly contributions per hour worked by each bargaining unit employee at our Newark and Trentwood facilities were (in whole dollars) $ 1.75 in 2020.

The union contracts covering employees at our Richmond, Virginia facility and Florence, Alabama facility cover 12 % and 3 % of our USW-represented employees, respectively, and expire in November 2021 and March 2021, respectively.

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Further, there were no significant changes to the number of employees covered by our multiemployer plans that would affect the period-to-period comparability of the contributions for the years presented.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Incentive Plans

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We have annual short-term incentive compensation plans for senior management and certain other employees payable at our election in cash, shares of common stock or a combination of cash and shares of common stock.

Amounts earned under STI Plans are based on our adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), modified for certain safety, quality, delivery, cost and individual performance factors.

Amounts earned under STI Plans are based on our Adjusted EBITDA, modified for certain safety, quality, delivery, cost and individual performance factors.

The Adjusted EBITDA targets are determined based on the return on adjusted net assets.

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The service period is generally one year for RSAs granted to non-employee directors and three years for RSUs granted to executive officers and other key employees.

Prior to 2016, we granted RSAs to executive officers and other key employees, generally with a three-year service period, but in certain circumstances with a longer service period.

The following table presents a summary of the activity with respect to RSAs and RSUs for the year ended December 31, 2019 :

Weighted-Average

Grant-Date Fair

Value per Share

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity relating to RSAs and RSUs for the year ended December 31, 2020:

Outstanding at December 31, 2019

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(ii) achieving targeted improvements to our total controllable cost performance over a three-year performance period;

and/or (iii) achieving targeted improvements to our economic value added performance, determined based on our adjusted pre-tax operating income in excess of a capital charge, over a three -year performance period.

(iii) achieving targeted improvements to our economic value added performance, determined based on our adjusted pre-tax operating income in excess of a capital charge, over a three-year performance period;

and/or (iv) achieving targeted improvements to our Adjusted EBITDA margin performance, measured by our Adjusted EBITDA as a percentage of value added revenue, over a three-year performance period.

Each performance share that becomes vested and earned entitles the recipient to receive one common share or a cash amount equaling the value of one common share.

The number of performance shares that may be earned and result in the issuance of cash or common shares ranges between 0 % to 200 % of the target number of underlying common shares, which is approximately one-half of the maximum payout.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inputs and assumptions used in the Monte Carlo simulations to calculate the fair value at grant date of our TSR-Based Performance Shares were as follows:

The following table presents the weighted average inputs and assumptions used in the Monte Carlo simulations to calculate the fair value at grant date of our TSR-Based Performance Shares:

Year Ended December 31,

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Dividend yield

_____________________

Expected volatility based on 2.8 years of daily closing share prices from the valuation date to the end of the performance period.

The following table presents a summary of the activity with respect to performance shares for the year ended December 31, 2019 :

Weighted-Average

Grant-Date Fair

Value per Share

Weighted average expected volatility based on 2.8 years of daily closing share prices from the valuation date to the end of the performance period.

The following table summarizes activity relating to performance shares for the year ended December 31, 2020:

Outstanding at December 31, 2019

Outstanding at December 31, 2020

_____________________

The number of shares granted and forfeited are presented at their maximum payout;

and the number of shares canceled includes the number of shares that did not vest due to performance results falling below those required for maximum payout.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Non-Cash Compensation Expense.

Non-cash compensation expense relating to all awards is included in SG&A and R&D.

The following table presents non-cash compensation expense by type of award under LTI Programs for the periods presented (in millions of dollars):

The following table presents non-cash compensation expense by type of award under LTI Programs (in millions of dollars):

Year Ended December 31,

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The aggregate fair value of awards that vested was $ 12.4 million, $ 16.4 million and $ 19.4 million for 2020, 2019 and 2018, respectively, which represents the market value of our common stock on the date that the awards vested.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unrecognized Gross Compensation Cost Data.

The following table presents unrecognized gross compensation cost data by type of award as of December 31, 2019 :

Unrecognized Gross Compensation Costs (in millions of dollars)

Expected Period (in years) Over Which the Remaining Gross Compensation Costs Will Be Recognized

The following table presents unrecognized gross compensation costs and the expected period over which the remaining gross compensation costs will be recognized by type of award as of December 31, 2020:

Unrecognized Gross Compensation Costs

Expected Period

Over Which the Remaining Gross Compensation Costs Will Be Recognized

RSAs and RSUs

Performance shares

The weighted-average grant-date fair value per share for shares granted by type of award was as follows for the periods presented:

The following table presents the weighted-average grant-date fair value per share for shares granted by type of award:

Year Ended December 31,

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(ii) energy price risk relating to fluctuating prices of natural gas and electricity used in our production processes;

and (iii) foreign currency requirements with respect to our foreign subsidiaries and cash commitments for equipment purchases denominated in foreign currency.

Our derivative activities are overseen by a committee ("Hedging Committee"), which is composed of our chief executive officer, chief operating officer, chief financial officer, chief accounting officer, vice president of metal management, treasurer and other officers and employees selected by the chief executive officer.

and (iii) foreign currency requirements with respect to cash commitments for equipment purchases denominated in foreign currency.

We do not use derivative financial instruments for trading or other speculative purposes.

Our derivative activities are overseen by a committee (“Hedging Committee”), which is composed of our chief executive officer, chief financial officer, chief accounting officer, vice president of treasury, risk and procurement, vice president of economic analysis and strategic planning and other officers and employees selected by the chief executive officer.

The Hedging Committee meets regularly to review commodity price exposure, derivative positions and strategy.

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We are exposed to counterparty credit risk on all of our derivative instruments, which we manage by monitoring the credit quality of our counterparties and allocating our hedging positions among multiple counterparties to limit exposure to any single entity.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our counterparties are major investment grade financial institutions or trading companies.

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Under certain circumstances, we mitigate this risk by periodically requiring cash collateral from them, which we classify as deferred revenue and include as a component of Other accrued liabilities.

At December 31, 2019 , we had $ 0.2 million cash collateral posted from our customers.

At December 31, 2020, we had no cash collateral posted from our customers.

For more information about concentration risks concerning customers and suppliers, see Note 17.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedges

We designate forward swap contracts for aluminum, energy and, from time-to-time, zinc and copper (“Alloying Metals”), used in our fabrication operations as cash flow hedges.

Unrealized gains and losses associated with our cash flow hedges are deferred in Other comprehensive income (loss), net of tax, and reclassified to COGS when such hedges settle or when it is probable that the original forecasted transactions will not occur by the end of the originally specified time period.

See Note 11 for the total amount of gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments and fair value hedging instruments that was reported in Accumulated other comprehensive loss (“AOCI”), as well as the related reclassifications into earnings and tax effects.

Cumulative gains and losses related to cash flow hedges are reclassified out of AOCI and recorded within COGS when the associated hedged commodity purchases impact earnings.

Aluminum Hedges .

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We, from time to time, in the ordinary course of business, enter into hedging transactions and/or physical delivery commitments with third parties to mitigate our risk from fluctuations in natural gas and electricity prices.

As of December 31, 2020, we had derivative and/or physical delivery commitments with energy companies in place to cover exposure to fluctuations in prices for approximately 90 % of our expected natural gas purchases for 2021, 95 % of our expected natural gas purchases for 2022, 92 % of our expected natural gas purchases for 2023, 83 % of our expected natural gas purchases for 2024 and 25 % of our expected natural gas purchases for both 2025 and 2026.

As of December 31, 2020, we had derivative and/or physical delivery commitments with energy companies in place to cover exposure to fluctuations in prices for approximately 92 % of our expected electricity purchases for 2021, 76 % of our expected electricity purchases for 2022 and 15 % of our expected electricity purchases for 2023.

Fair Value Hedges

We are exposed to foreign currency exchange risk related to firm-price commitments for equipment purchases from foreign manufacturers.

We, from time to time, in the ordinary course of business, use third-party hedging instruments to mitigate our exposure

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

to currency exchange rate fluctuations on these purchases and designate such hedging instruments as fair value hedges.

Gain or loss related to components excluded from the assessment of effectiveness from these fair value hedges is first recognized in AOCI and subsequently reclassified to Depreciation and amortization on a straight-line basis over the term of the hedge.

Gain or loss on the hedged item (e.g., equipment purchase firm commitments) and the remaining gain or loss on the fair value hedge is recorded within Depreciation and amortization in the period that the gain or loss occurs.

Any difference between the change in the fair value of the excluded component and amounts recognized in income on a straight-line basis over the term of the hedge is recognized in AOCI.

Non-Designated Hedges of Operational Risks

From time-to-time, we enter into commodity and foreign currency exchange contracts that are not designated as hedging instruments to mitigate certain short-term commodity and currency impacts, as identified.

For derivative instruments that are not designated as hedging instruments, the gain or loss on these derivatives is recognized within COGS or Other expense, net, depending on whether it relates to commodity risk or foreign currency risk, respectively.

During the quarter ended September 30, 2020, we declassified all outstanding Alloying Metals hedges from their initial designation as cash flow hedges.

As such, all unrealized gain or loss on these derivatives subsequent to declassification was recognized within COGS.

Notional Amount of Derivative Contracts

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1/21 through 12/21

Natural Gas 2

Fixed price sales contracts

1/21 through 12/21

Maturity Period

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1/21 through 12/24

Electricity 3

Maturity Period

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1/21 through 12/22

Maturity Period

Notional Amount of Contracts (euro)

Fixed price purchase contracts

_________________________

Regional premiums represent the premium over the London Metal Exchange price for primary aluminum which is incurred on our purchases of primary aluminum.

As of December 31, 2019 , we had derivative and/or physical delivery commitments with energy companies in place to cover exposure to fluctuations in prices for approximately 80 % of the expected natural gas purchases for 2020 , 78 % of the expected natural gas purchases for 2021 , 83 % of the expected natural gas purchases for each of the years ended 2022 and 2023 and 77 % of the expected natural gas purchases for 2024 .

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2019 , we had derivative and/or physical delivery commitments with energy companies in place to cover exposure to fluctuations in prices for approximately 55 % of the expected electricity purchases for each of the years 2020 and 2021 and 9 % of the expected electricity purchases for 2022 .

We are exposed to foreign currency exchange risk related to firm-price agreements for equipment purchases from foreign manufacturers.

We use non-designated foreign currency forward contracts designed to line up with the timing and amounts of scheduled payments to the foreign equipment manufacturers to mitigate our exposure to currency exchange rate fluctuations on these purchases.

See Note 11 for the total amount of gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments that was reported in AOCI, as well as the related reclassifications into earnings and tax effects.

Cumulative gains and losses related to cash flow hedges are reclassified out of AOCI when the associated hedged commodity purchases impact earnings.

The amount of loss (gain) included on the Statements of Consolidated Income associated with all derivative contracts consisted of the following for the periods presented (in millions of dollars):

The following table summarizes the amount of loss (gain) included on our Statements of Consolidated Income associated with all derivative contracts (in millions of dollars):

Year Ended December 31,

Statements of Consolidated

Income Classification

Total of income and expense line items presented in our Statements of Consolidated Income in which the effects of hedges are recorded:

Cash flow hedges

Cost of products sold

Fair value hedges

Depreciation and amortization

Fair value hedges (early termination)

Other expense, net

Loss (gain) recognized in our Statements of Consolidated Income related to cash flow hedges:

Cost of products sold

Alloying Metals (effective hedges)

Cost of products sold

Unrealized (gain) loss on derivative instruments

Total amounts of income and expense line items presented in the Statements of Consolidated Income in which the effects of hedges are recorded

Loss (gain) recognized in income related to cash flow hedges:

Alloying Metals

Total loss (gain) recognized in income related to cash flow hedges

(Gain) loss recognized in income related to non-designated hedges:

Foreign exchange

Total gain recognized in income related to non-designated hedges

____________________

Beginning with our adoption of ASU 2017-12 effective January 1, 2018, we no longer have Unrealized (gain) loss on derivative instruments on the Statements of Consolidated Income as all of our commodity hedges are designated as cash flow hedges.

As such, all Unrealized (gain) loss on derivative instruments is reported in Accumulated other comprehensive loss ("AOCI").

For the year ended December 31, 2017 , Unrealized (gain) loss on derivative instruments was reclassified to Cost of products sold in the Statements of Consolidated Income to conform to the current period's presentation, for a combined total of $ 1,085.9 million .

The amounts comprising both line items are presented separately here for comparative purposes.

Alloying Metals (reclassification from AOCI due to forecasted transactions no longer probable of occurring)

Cost of products sold

Total loss recognized in our Statements of Consolidated Income related to cash flow hedges

(Gain) loss recognized in our Statements of Consolidated Income related to fair value hedges:

Foreign exchange contracts

Depreciation and amortization

Excluded component amortized from AOCI

Depreciation and amortization

Reclassification from AOCI related to early termination of firm commitment

Other expense, net

Net settlement related to early termination of forward contracts

Other expense, net

Total loss recognized in our Statements of Consolidated Income related to fair value hedges

Loss (gain) recognized in our Statements of Consolidated Income related to non-designated hedges:

Alloying Metals – Realized loss

Cost of products sold

Alloying Metals – Unrealized gain

Cost of products sold

Total gain recognized in our Statements of Consolidated Income related to non-designated hedges:

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

5 unchanged sentences

All of our derivative contracts with counterparties are subject to enforceable master netting arrangements.

We reflect the fair value of our derivative contracts on a gross basis on the Consolidated Balance Sheets.

The following table presents the fair value of our derivative financial instruments as of the periods presented (in millions of dollars):

December 31, 2019

December 31, 2018

Derivative Assets

Derivative Liabilities

Derivative Assets

Derivative Liabilities

We reflect the fair value of our derivative contracts on a gross basis on our Consolidated Balance Sheets.

The following table presents the fair value of our derivative financial instruments (in millions of dollars):

As of December 31, 2020

As of December 31, 2019

Cash Flow Hedges:

Fixed price purchase contracts

Fixed price sales contracts

Midwest premium swap contracts

Alloying Metals – Fixed price purchase contracts

Alloying Metals –

Fixed price purchase contracts

Natural gas – Fixed price purchase contracts

Electricity – Fixed price purchase contracts

The following table presents the total amounts of derivative assets and liabilities on our Consolidated Balance Sheets as of the periods presented (in millions of dollars):

December 31, 2019

December 31, 2018

Total cash flow hedges

Non-Designated Hedges:

Alloying Metals –

Fixed price purchase contracts

Fixed price sales contracts

Total non-designated hedges

The following table presents the total amounts of derivative assets and liabilities on our Consolidated Balance Sheets (in millions of dollars):

As of December 31,

Derivative assets:

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Available for Sale Securities.

We hold debt investment securities that are accounted for as available for sale securities and are presented as cash equivalents and short-term investments on our Consolidated Balance Sheets.

The fair value of the debt investment securities, which consist of commercial paper, is determined based on valuation models that use observable market data.

At December 31, 2019 , all of our short-term investments had maturity dates within 12 months .

We review our debt investment portfolio for other-than-temporary impairment at least quarterly or when there are changes in credit risk or other potential valuation concerns.

At December 31, 2019 and December 31, 2018 , the total unrealized loss, net of tax, included in AOCI was immaterial and was not other-than-temporarily impaired.

We believe that it is probable that the principal and interest will be collected in accordance with the contractual terms, and that the unrealized loss on these securities was due to normal market fluctuations, and not due to increased credit risk or other valuation concerns.

The fair value input of our available for sale securities, which are classified within Level 2 of the fair value hierarchy, is calculated based on broker quotes.

The amortized cost for available for sale securities approximates their fair value.

Prior to June 30, 2020, we held commercial paper debt securities that were accounted for as available for sale securities and presented as either cash equivalents or short-term investments on our Consolidated Balance Sheets depending on their time-to-maturity upon initial investment.

At December 31, 2019, the fair value input of our available for sale securities, which were classified within Level 2 of the fair value hierarchy, was calculated based on broker quotes.

The amortized cost of available for sale securities approximated their fair value.

When applicable, we review our debt investment portfolio for credit loss at least quarterly or when there are changes in credit risk or other potential valuation concerns.

Based on market conditions during the year ended December 31, 2020, we settled all remaining outstanding available for sale securities upon maturity.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

2 unchanged sentences

Cash and cash equivalents

Short-term investments

The following table classifies our other financial assets under the appropriate level of the fair value hierarchy as of December 31, 2019 (in millions of dollars):

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6.50% Senior Notes.

In November 2019, we issued $ 500.0 million aggregate principal amount of our 4.625 % unsecured senior notes due March 2028 (" 4.625 % Senior Notes") at 100 % of the principal amount.

In April 2020 and May 2020, we issued $ 300.0 million and $ 50.0 million, respectively, aggregate principal amounts of our 6.50% unsecured senior notes due May 1, 2025 at 100 % and 101 %, respectively, of the principal amounts (“6.50% Senior Notes”).

The restrictions and covenants related to our 6.50% Senior Notes are similar to those governing our pre‑existing 4.625% unsecured senior notes due March 1, 2028 (“4.625% Senior Notes”), as discussed below.

The unamortized amount of debt issuance costs relating to the 6.50% Senior Notes as of December 31, 2020 was $ 5.4 million.

Interest expense, including amortization of debt issuance costs, relating to the 4.625 % Senior Notes was $ 2.4 million for the year ended December 31, 2019 .

Interest accrues on the 4.625% Senior Notes beginning November 26, 2019 at a rate of 4.625 % per annum and is payable semiannually on March 1 and September 1 of each year.

A portion of the interest relating to the 4.625 % Senior Notes was capitalized as construction in progress.

The effective interest rate of the 4.625 % Senior Notes is approximately 4.8 % per annum, taking into account the amortization of debt issuance costs.

Interest expense, including amortization of debt issuance costs and debt premium, relating to the 6.50% Senior Notes was $ 16.2 million for the year ended December 31, 2020.

Interest accrues on the 6.50% Senior Notes beginning April 28, 2020 at a rate of 6.50 % per annum and is payable semiannually on May 1 and November 1 of each year.

The first interest payment date was November 1, 2020 .

The effective interest rate of the 6.50% Senior Notes is approximately 6.8 % per annum, taking into account the amortization of premium and debt issuance costs.

The 6.50% Senior Notes were offered and sold in transactions not required to be registered under the Securities Act of 1933 and are not entitled to any registration rights.

1 unchanged sentence

The 6.50% Senior Notes are unsecured obligations and are guaranteed by each of our existing and future domestic subsidiaries that is a borrower or guarantor under the revolving credit facility (see Revolving Credit Facility below).

We may redeem the 6.50% Senior Notes at our option in whole or part at any time on or after May 1, 2022 at redemption prices (expressed as percentages of principal amount) of 103.250 %, declining to 101.625 % and 100.000 % on or after May 1, 2023 and May 1, 2024, respectively, in each case plus any accrued and unpaid interest to the applicable redemption date.

At any time prior to May 1, 2022, we may also redeem up to 40.0 % of the 6.50% Senior Notes using the net proceeds from certain equity offerings at a redemption price equal to 106.500 % of the principal amount plus any accrued and unpaid interest.

4.625% Senior Notes.

In November 2019, we issued $ 500.0 million principal amount of 4.625 % unsecured senior notes due March 1, 2028 at 100 % of the principal amount.

The unamortized amount of debt issuance costs as of December 31, 2020 was $ 6.5 million.

Interest expense, including amortization of debt issuance costs, relating to the 4.625% Senior Notes was $ 24.0 million and $ 2.4 million for the year December 31, 2020 and December 31, 2019 respectively.

The effective interest rate of the 4.625% Senior Notes was approximately 4.8 % per annum, taking into account the amortization of debt issuance costs.

The fair value of the outstanding 4.625% Senior Notes, which are Level 1 liabilities, was approximately $ 521.3 million and $ 513.5 million at December 31, 2020 and December 31, 2019, respectively.

The 4.625% Senior Notes are unsecured obligations and are guaranteed by each of our existing and future domestic subsidiaries that is a borrower or guarantor under the revolving credit facility (see Revolving Credit Facility below).

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The indenture governing the 4.625% Senior Notes (“indenture”) places limitations on our and our restricted subsidiaries’ ability to, among other things:

8 unchanged sentences

At any time prior to March 1, 2023, we may also redeem some or all of the 4.625% Senior Notes at a redemption price equal to 100 % of the principal amount of the 4.625% Senior Notes redeemed, plus the “applicable premium” (as defined in the indenture) as of the redemption date and any accrued and unpaid interest thereon.

In addition, subject to the conditions set forth in the indenture,

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

at any time prior to March 1, 2023, we may also redeem up to 40.0 % of the 4.625% Senior Notes using the net proceeds from certain equity offerings at a redemption price equal to 104.625 % of the principal amount plus any accrued and unpaid interest.

In addition, subject to the conditions set forth in the indenture, at any time prior to March 1, 2023, we may also redeem up to 40.0 % of the 4.625% Senior Notes using the net proceeds from certain equity offerings at a redemption price equal to 104.625 % of the principal amount plus any accrued and unpaid interest.

Holders of the 4.625 % Senior Notes have the right to require us to repurchase the 4.625 % Senior Notes at a price in cash equal to 101 % of the aggregate principal amount plus any accrued and unpaid interest following the occurrence of both:

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5.875% Senior Notes.

In May 2016, we issued $ 375.0 million aggregate principal amount of 5.875 % unsecured senior notes due May 2024 ("5.875% Senior Notes") at 100 % of the principal amount.

On December 18, 2019, we redeemed in full the $ 375.0 million aggregate principal balance of our 5.875 % Senior Notes at a redemption price of 104.406 % of the principal amount plus $ 2.0 million of accrued interest for a total net cash outflow of $ 393.5 million .

Upon redemption of the 5.875 % Senior Notes, we recorded a loss on extinguishment of debt of $ 20.3 million within Other expense, net on our Statements of Consolidated Income, which included the premium payment of $ 16.5 million and a write-off of the remaining unamortized debt issuance costs of $ 3.8 million (see Note 12 for details).

In May 2016, we issued $ 375.0 million principal amount of 5.875 % unsecured senior notes due May 15, 2024 (“5.875% Senior Notes”) at 100 % of the principal amount.

On December 18, 2019, we redeemed in full all outstanding 5.875% Senior Notes at a redemption price of 104.406 % of the principal amount.

The effective interest rate of the 5.875% Senior Notes was approximately 6.1 % per annum, taking into account the amortization of debt issuance costs.

Interest expense, including amortization of debt issuance costs, relating to the 5.875 % Senior Notes was $ 22.0 million for the year ended December 31, 2019 and $ 22.9 million for each of the years ended December 31, 2018 and December 31, 2017 .

A portion of the interest relating to the 5.875 % Senior Notes was capitalized as construction in progress.

At December 31, 2018 , the fair value of the outstanding 5.875 % Senior Notes, which were Level 1 liabilities calculated based on trading prices around the balance sheet date, was approximately $ 369.9 million .

Interest expense, including amortization of debt issuance costs, relating to the 5.875% Senior Notes was $ 22.0 million and $ 22.9 million for the years ended December 31, 2019 and December 31, 2018, respectively.

Revolving Credit Facility

2 unchanged sentences

Joining us as borrowers (“Co-Borrowers”) under the Revolving Credit Facility are three of our wholly owned domestic operating subsidiaries:

Kaiser Aluminum Investments Company, Kaiser Aluminum Fabricated Products, LLC and Kaiser Aluminum Washington, LLC.

(i) Kaiser Aluminum Investments Company;

(ii) Kaiser Aluminum Fabricated Products, LLC;

and (iii) Kaiser Aluminum Washington, LLC.

The Revolving Credit Facility replaces the previously existing facility that was due to mature in December 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We had $ 360.9 million of total borrowing availability under the Revolving Credit Facility at December 31, 2019 based on the borrowing base determination then in effect.

At December 31, 2019 , there were no borrowings under the Revolving Credit Facility and $ 8.0 million was used to support outstanding letters of credit, leaving $ 352.9 million of net borrowing availability.

The unamortized amount of debt issuance costs relating to the Revolving Credit Facility as of December 31, 2019 was $ 1.5 million .

The interest rate applicable to any overnight borrowings under the Revolving Credit Facility would have been 5.00 % at December 31, 2019 .

Amounts owed under the Revolving Credit Facility may be accelerated upon the occurrence of various events of default, including, without limitation, the failure to make principal or interest payments when due and breaches of covenants, representations and warranties set forth therein.

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At December 31, 2020, we were in compliance with all covenants contained in the Revolving Credit Facility.

The following table summarizes availability and usage of our Revolving Credit Facility as determined by a borrowing base calculated as of December 31, 2020 (in millions of dollars except for borrowing rate):

Revolving Credit Facility borrowing commitment

Borrowing base availability

Outstanding borrowings under Revolving Credit Facility

Outstanding letters of credit under Revolving Credit Facility

Remaining borrowing availability

Borrowing rate (if applicable) 1

Such borrowing rate, if applicable, represents the interest rate for any overnight borrowings under the Revolving Credit Facility.

Commitments and Contingencies

We have a variety of financial commitments, including leases, purchase agreements, forward foreign exchange and forward sales contracts, indebtedness and letters of credit (see Note 3 , Note 8 and Note 9 ).

We have a variety of financial commitments, including purchase agreements, forward foreign exchange and forward sales contracts, indebtedness and letters of credit (see Note 3, Note 8 and Note 9).

The inputs in estimating the fair value of CAROs include:

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all of these are considered Level 3 inputs as they involve significant judgment from us.

The following table summarizes the activity relating to our CARO liabilities (in millions of dollars):

The following table summarizes activity relating to CARO liabilities (in millions of dollars):

Year Ended December 31,

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Accretion expense

Adjustment to accretion expense due to revisions to estimated cash flow and timing of expenditure 1

Adjustment to accretion expense due to revisions to

estimated cash flow and timing of expenditure 1

Ending balance

_________________________

The adjustments in 2019 had a $0.01 impact on both the basic and diluted net income per share for 2019.

The adjustments to accretion expense had a $ 0.01 impact on the basic and diluted net income per share for both 2020 and 2019.

The estimated fair value of CARO liabilities were based upon the application of a weighted-average credit-adjusted risk-free rate of 8.7 % at both December 31, 2020 and December 31, 2019.

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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 based upon such laws and regulations.

We are also subject to legacy environmental contingencies related to activities that occurred at operating facilities prior to July 6, 2006, which represent the majority of our environmental accruals.

The status of these environmental

We are also subject to legacy environmental contingencies related to activities that occurred at operating facilities prior to July 6, 2006, which

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

contingencies are discussed below.

represent the majority of our environmental accruals.

The status of these environmental contingencies are discussed below.

We have established procedures for regularly evaluating environmental loss contingencies.

Our environmental accruals represent our undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, existing requirements, currently available facts, existing technology and our assessment of the likely remediation actions to be taken.

Our environmental accruals represent our undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing requirements, existing technology and our assessment of the likely remediation actions to be taken.

We continue to pursue remediation activities, primarily to address the historical use of oils containing polychlorinated biphenyls (“PCBs”) at our Trentwood facility.

Our remediation efforts are in collaboration with the Washington State Department of Ecology ("Washington State Ecology"), to which we submitted a feasibility study in 2012 of remediation alternatives and from which we received permission to begin certain remediation activities pursuant to a signed work order.

As we have finished a number of sections of the work plan, we have received approval from Washington State Ecology on satisfactory completion of those sections.

Additionally, in cooperation with Washington State Ecology, to determine the treatability and evaluate the feasibility of removing PCBs from ground water under our Trentwood facility, we constructed an experimental treatment facility and began treatment operations in 2016.

Our remediation efforts are in collaboration with the Washington State Department of Ecology (“Ecology”), to which we submitted a feasibility study in 2012 of remediation alternatives and from which we received permission to begin certain remediation activities pursuant to a signed work order.

We have completed a number of sections of the work plan and have received satisfactory completion approval from Ecology on those sections.

Additionally, in cooperation with Ecology, to determine the treatability and evaluate the feasibility of removing PCBs from ground water under the Trentwood facility, we constructed an experimental treatment facility and began treatment operations in 2015.

During the year ended December 31, 2020, we increased our environmental accrual by $ 3.8 million based on a minimum cost estimate to implement a full‑scale experimental treatment facility for ground water PCB contaminants.

As the long-term success of the new methodology cannot be reasonably determined at this time, it is possible we may need to make upward adjustments to our related accruals and cost estimates as the long term results become available.

During 2013, at the request of the Ohio Environmental Protection Agency ("OEPA"), we initiated an investigational study of our Newark facility related to historical on-site waste disposal.

In the fourth quarter of 2018, we submitted our remedial investigation study to the OEPA which is subject to their review and approval.

Following OEPA approval of the remedial investigational study, we will then prepare the final feasibility study and update estimates for probable and estimable remediation, if any.

The actual and final cost for remediation will not be fully determinable until a final feasibility study is submitted and accepted by the OEPA and work plans are prepared, which is expected to occur in the next six to 12 months .

Pursuant to a consent agreement with the Ohio Environmental Protection Agency (“OEPA”), we initiated an investigational study of our Newark facility related to historical on-site waste disposal.

During the quarter ended December 31, 2018, we submitted our remedial investigation study to the OEPA for review and approval.

The final remedial investigation report was approved by the OEPA during the quarter ended December 31, 2020.

We are currently preparing the required feasibility study, which we expect to submit to the OEPA for review during the quarter ending June 30, 2021.

The actual and final remediation cost estimates will not be fully determinable until the feasibility study has been accepted by the OEPA and the selected remediation design work plans are complete, which we expect to occur in the next 10 to 16 months .

During 2020, following the issuance of information requests under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), to which we responded, the United States Environmental Protection Agency (“USEPA”) issued a general notice letter to us alleging that we are a potentially responsible party under CERCLA for response and other potential remedial actions concerning property owned by us near our former smelter site in Mead, Spokane County, Washington.

In February 2020, we responded to the general notice letter and in August 2020, we entered into an administrative settlement agreement and an order on consent for removal actions (“EPA Order”).

We performed the required remediation actions in October 2020 and, following its field evaluation, the USEPA notified us that the remediation actions taken were deemed to have completed the requirements of the EPA Order.

As such, we have no remaining obligations or environmental accrual related to the EPA Order.

The following table presents the changes in our environmental accrual, which was primarily included in Long-term liabilities (in millions of dollars):

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It is reasonably possible that our recorded estimate will change in the next 12 months.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Contingencies.

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Accumulated Other Comprehensive (Loss) Income

The following table presents the changes in the accumulated balances for each component of AOCI for the periods presented (in millions of dollars):

The following table presents the changes in the accumulated balances for each component of AOCI (in millions of dollars):

Year Ended December 31,

Defined Benefit Pension Plan and VEBAs:

Defined Benefit Pension Plan and Salaried VEBA:

Beginning balance

Actuarial (loss) gain arising during the period

income tax benefit (expense)

Net actuarial (loss) gain arising during the period

Prior service cost arising during the period

income tax benefit

Net prior service cost arising during the period

Actuarial gain (loss) arising during the period

income tax (expense) benefit

Net actuarial gain (loss) arising during the period

Prior service credit (cost) arising during the period

income tax (expense) benefit

Net prior service credit (cost) arising during the period

Amortization of net actuarial loss 1

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Translation impact on Canadian pension plan AOCI balance

Other comprehensive income (loss), net of tax

Other comprehensive income, net of tax

Ending balance

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Net unrealized gain on available for sale securities

Reclassification of unrealized gain upon sale of available for sale securities 4

Reclassification of unrealized gain upon sale of

available for sale securities 4

income tax benefit 2

Net gain reclassified from AOCI to Net income

Other comprehensive (loss) income, net of tax

Other comprehensive loss, net of tax

Ending balance

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31,

Cash Flow Hedges:

Beginning balance

Unrealized (loss) gain on cash flow hedges

income tax benefit (expense)

Net unrealized (loss) gain on cash flow hedges

Reclassification of unrealized loss (gain) upon settlement of cash flow hedges 5

income tax (expense) benefit 2

Net loss (gain) reclassified from AOCI to Net income

Unrealized loss on cash flow hedges

income tax benefit

Net unrealized loss on cash flow hedges

Reclassification of unrealized loss upon settlement

of cash flow hedges 5

Reclassification due to forecasted transactions no longer

probable of occurring 5

income tax expense 2

Net loss reclassified from AOCI to Net income

Other comprehensive income (loss), net of tax

Ending balance

Fair Value Hedges:

Beginning balance

Unrealized loss on fair value hedges

income tax benefit

Net unrealized loss on fair value hedges

Excluded component amortized from OCI to Net income

Reclassification due to cancellation of firm commitment

income tax expense 2

Net loss reclassified from AOCI to Net income

Other comprehensive income, net of tax

Ending balance

Foreign Currency Translation:

Beginning balance

Other comprehensive (loss) income, net of tax

Other comprehensive income (loss), net of tax

Ending balance

Total AOCI ending balance

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts amortized out of AOCI relating to Salaried VEBA adjustments were included within Other expense, net, as a component of Net periodic postretirement benefit cost relating to Salaried VEBA.

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As of December 31, 2020, we estimate a net mark-to-market loss before tax of $ 4.7 million in AOCI will be reclassified into Net income within the next 12 months.

Restructuring

During the year ended December 31, 2020, global restrictions on air travel and other changes in global travel patterns as a result of the COVID-19 pandemic negatively impacted short and mid-term commercial aerospace demand within our Aero/HS products end market applications.

We therefore initiated a restructuring plan during the quarter ended June 30, 2020 that consisted primarily of a reduction in force measures.

As the economic impact of the COVID-19 pandemic is ever evolving, we made adjustments to our estimated headcount reductions during the quarters ended September 30, 2020 and December 31, 2020 that impacted our total expected cash requirements, including recalling employees that were previously on indefinite layoff.

Employee costs related to the restructuring plan were included within Restructuring costs in our Statements of Consolidated Income and consisted of severance, voluntary buyout packages, outplacement services, estimated medical costs and associated payroll costs .

Substantially all of the costs associated with the restructuring efforts initiated during the year ended December 31, 2020 were incurred and expensed as of December 31, 2020.

Cash payments associated with the restructuring plan are estimated to extend through 2022.

The following table summarizes activity relating to restructuring plan liabilities (in millions of dollars):

Year Ended December 31, 2020

Beginning balance

Restructuring costs

Cash payments

Other adjustments 1

Ending balance

In December 2020, we revised our production forecast for 2021, thereby reducing the estimated number of headcount reductions necessary as compared with our initial restructuring plan.

As such, included in Other adjustments is a reduction to our estimated restructuring liability of $ 4.9 million with an offset to Restructuring costs to accommodate the revised headcount requirements.

Other Expense, Net

Other expense, net, consisted of the following for the periods presented (in millions of dollars):

Other expense, net, consisted of the following (in millions of dollars):

Year Ended December 31,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2017 includes a $ 0.3 million realized gain related to equity investments.

Beginning in 2018 upon our adoption of ASU 2016-01, realized gains and losses on equity investments are no longer accounted for as available for sale securities (see Note 1 and Note 5 for additional details).

Income Tax Matters

The following table presents I ncome before income taxes by geographic area for the periods presented (in millions of dollars):

The following table presents Income before income taxes by geographic area (in millions of dollars):

Year Ended December 31,

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Certain income classified as foreign is also subject to domestic income taxes.

Income tax provision consisted of the following for the periods presented (in millions of dollars):

Income tax provision consisted of the following (in millions of dollars):

Year Ended December 31, 2020

Benefit (expense) applied to decrease (increase) Retained earnings/Other comprehensive income

Benefit (expense) applied to decrease (increase)

Retained earnings/Other comprehensive income

Income tax provision

Year Ended December 31, 2019

Expense applied to increase Retained earnings/ Other comprehensive loss

Benefit (expense) applied to decrease (increase)

Retained earnings/Other comprehensive income

Income tax provision

Year Ended December 31, 2018

Expense applied to increase Retained earnings/Other comprehensive income

Expense applied to increase Retained earnings/

Other comprehensive loss

Income tax provision

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a reconciliation between the provision for income taxes and the amount computed by applying the federal statutory income tax rate to Income before income taxes for the periods presented (in millions of dollars):

Year Ended December 31,

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Gross increases for tax positions from current year

Gross increases for tax positions from prior years

Gross decreases (increases) for tax positions from prior years

Foreign income tax expense

2 unchanged sentences

Income tax provision

___________________________

State income taxes were $ 3.8 million in 2019 , decreased by a $ 0.7 million due to lower tax rate true-ups in various states and increased by a $ 1.4 million change in the valuation allowance relating to certain state net operating losses.

The state income taxes were $ 4.5 million in 2018 , increased by a $ 0.9 million due to higher tax rate true-ups in various states, offset by a $ 2.9 million decrease in the valuation allowance relating to certain state net operating losses.

The state income taxes were $ 4.0 million in 2017 , increased by a $ 2.5 million change in tax rates, offset by a $ 2.2 million decrease in the valuation allowance relating to certain state net operating losses.

State income taxes were $ 1.3 million in 2020, reflecting an increase of $ 3.7 million due to state net operating loss (“NOL”) carryforward expirations and tax rate true-ups in various states, partially offset by a $ 3.5 million decrease in the valuation allowance relating to certain state net operating losses.

State income taxes were $ 3.8 million in 2019, reflecting a decrease of

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 0.7 million due to lower tax rate true-ups in various states , partially offset by an increase of $ 1.4 million due to a change in the valuation allowance relating to certain state net operating losses.

The state income taxes were $ 4.5 million in 2018, reflecting an increase of $ 0.9 million due to higher tax rate true-ups in various states, partially offset by a $ 2.9 million decrease in the valuation allowance relating to certain state net operating losses.

Deferred Income Taxes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.

The following table presents the components of our net deferred income tax assets as of the periods presented (in millions of dollars):

The following table presents the components of our net deferred income tax assets (in millions of dollars):

As of December 31,

Deferred income tax assets:

1 unchanged sentence

Salaried VEBA (see Note 5)

Leased assets

Valuation allowances

5 unchanged sentences

Total deferred income tax liabilities

Net deferred income tax assets 1

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

__________________________

Of the total net deferred income tax assets of $ 7.3 million , $ 11.8 million was presented as Deferred tax assets, net, and $ 4.5 million was presented as Deferred tax liabilities on the Consolidated Balance Sheet as of December 31, 2019 .

Of the total net deferred income tax assets of $ 31.7 million , $ 35.9 million was presented as Deferred tax assets, net, and $ 4.2 million was presented as Deferred tax liabilities on the Consolidated Balance Sheet as of December 31, 2018 .

Net deferred income tax (liabilities) assets 1

Of the total net deferred income tax assets of $ 7.3 million at December 31, 2019, $ 11.8 million was presented as Deferred tax assets, net, and $ 4.5 million was presented as Deferred tax liabilities.

Tax Attributes.

At December 31, 2019 , we had $ 121.3 million of net operating loss ("NOL") carryforwards available to reduce future cash payments for federal income taxes in the United States.

H.R.1, commonly referred to as the Tax Cut and Jobs Act ("Tax Act"), allows net operating losses generated prior to December 31, 2017 (including our NOL carryforwards) to be fully deducted against 100% of taxable income until fully utilized or expired.

At December 31, 2020, we had $ 94.6 million of NOL carryforwards available to reduce future cash payments for federal income taxes in the United States.

H.R.1, commonly referred to as the Tax Cut and Jobs Act, allows net operating losses generated prior to December 31, 2017 (including our NOL carryforwards) to be fully deducted against 100% of taxable income until fully utilized or expired.

Our NOL carryforwards expire periodically through 2030.

We also had $ 5.7 million of alternative minimum tax ("AMT") credit carryforwards available to offset regular federal income tax requirements.

Since the corporate AMT has been repealed in the Tax Act for tax years beginning after December 31, 2017, our AMT credit carryforwards that have not yet been used are refundable in future years.

We will use AMT credits to offset any regular income tax liability in years 2019 and 2020, with 50% of remaining AMT credits refunded in each of the 2019 and 2020 tax years and all remaining credits refunded in tax year 2021.

In addition, we had $ 8.1 million of federal research and development (“R&D”) credit carryforwards to offset regular federal income tax requirements.

5 unchanged sentences

When recognized, the tax benefits relating to any reversal of this valuation allowance will be recorded as a reduction of income tax expense.

There was an increase in the valuation allowance of $ 1.5 million in 2019 .

There was a decrease in the valuation allowance of $ 4.6 million and $ 2.7 million in 2018 and 2017 , respectively.

There was a decrease in the valuation allowance of $ 3.5 million in 2020, an increase in the valuation allowance of $ 1.5 million in 2019 and a decrease in the valuation allowance of $ 4.6 million in 2018.

The decrease in the valuation allowance for 2020 was primarily due to the expiration of state NOL carryforwards and the related reversal of their valuation allowances.

The increase in the valuation allowance for 2019 was primarily due to unutilized state NOL carryforwards and Federal Separate Return Limitation Year losses that were expected to expire.

The decrease in the valuation allowance for 2018 was primarily due to the expiration of state NOL carryforwards and the related reversal of their valuation allowances and the expiration of a capital loss carryforward.

The decrease in the valuation allowance for 2017 was primarily due to the expiration of state NOL carryforwards and the related reversal of their valuation allowances and the utilization of capital losses.

We and our subsidiaries file income tax returns in the U.S.

federal jurisdiction and various states and foreign jurisdictions.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our tax returns for certain past years are still subject to examination by taxing authorities and the use of NOL carryforwards in future periods could trigger a review of attributes and other tax matters in years that are not otherwise subject to examination.

1 unchanged sentence

We have gross unrecognized benefits relating to uncertain tax positions.

The following table presents a reconciliation of changes in the gross unrecognized tax benefits for the periods presented (in millions of dollars):

The following table presents a reconciliation of changes in the gross unrecognized tax benefits (in millions of dollars):

Year Ended December 31,

4 unchanged sentences

Gross unrecognized tax benefits at end of period

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If and when the $ 3.8 million of gross unrecognized tax benefits at December 31, 2020 are recognized, $ 1.5 million will be reflected in our income tax provision and thus affect the effective tax rate in future periods.

In addition, we recognize interest and penalties related to unrecognized tax benefits in the income tax provision.

We had $ 0.3 million and $ 0.2 million accrued for interest and penalties at December 31, 2019 and December 31, 2018 , respectively.

Of these amounts, none were considered current and, as such, were included in Long-term liabilities on the Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018 .

We recognized an increase in interest and penalty of $ 0.1 million in our tax provision in 2019.

We recognized an increase in interest and penalty of $ 0.1 million in our tax provision in 2018.

We recognized a decrease in interest and penalty of $ 0.1 million in our tax provision in 2017 .

We had $ 0.3 million accrued for interest and penalties at both December 31, 2020 and December 31, 2019.

Of these amounts, no ne were considered current and, as such, were included in Long-term liabilities on our Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019.

We recognized an increase in interest and penalty of $ 0.1 million in our tax provision in both 2019 and 2018.

We do not expect our gross unrecognized tax benefits to significantly change within the next 12 months.

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Diluted net income per share was calculated under the treasury stock method for 2020, 2019 and 2018, which in all years was more dilutive than the two-class method.

The following table sets forth the computation of basic and diluted net income per share for the periods presented (in millions of dollars, except share and per share amounts):

The following table sets forth the computation of basic and diluted net income per share (in millions of dollars, except share and per share amounts):

Year Ended December 31,

Denominator – Weighted-average common shares outstanding (in thousands):

dilutive effect of non-vested common shares, restricted stock units and performance shares 1

Denominator – Weighted-average common shares

outstanding (in thousands):

dilutive effect of non-vested common shares,

restricted stock units and performance shares 1

Net income per common share, Basic:

1 unchanged sentence

A total of 44,000 non-vested RSAs, RSUs and performance shares for the year ended December 31, 2020 were excluded from the weighted-average diluted shares computation as their inclusion would have been anti-dilutive.

None were excluded for the years ended December 31, 2019 and December 31, 2018 .

No ne were excluded for the years ended December 31, 2019 and December 31, 2018.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

9 unchanged sentences

Operating lease liabilities arising from obtaining operating lease assets

Cash paid for amounts included in the measurement of operating lease liabilities

Cash paid for amounts included in the measurement of

operating lease liabilities

Finance lease liabilities arising from obtaining finance lease assets

As of December 31,

Components of cash, cash equivalents and restricted cash:

2 unchanged sentences

Restricted cash included in Other assets

Total cash, cash equivalents and restricted cash shown in the Statements of Consolidated Cash Flows

Total cash, cash equivalents and restricted cash shown in our Statements of

Consolidated Cash Flows

Business, Product and Geographical Area Information and Concentration of Risk

Our primary line of business is the production of semi-fabricated specialty aluminum mill products, such as aluminum plate and sheet and extruded and drawn products, for the following end market applications:

Aero/HS products, Automotive Extrusions, GE products and Other products.

(i) Aero/HS products;

(ii) Automotive Extrusions;

(iii) GE products;

and (iv) Other products.

We operate 12 focused production facilities in the United States and one in Canada.

1 unchanged sentence

At December 31, 2020, approximately 63 % of our employees were covered by collective bargaining agreements and 24 % of those employees were covered by collective bargaining agreements with expiration dates occurring within one year from December 31, 2020.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents Net sales by end market applications and by timing of control transfer for the periods presented (in millions of dollars):

The following table presents Net sales by end market applications and by timing of control transfer (in millions of dollars):

Year Ended December 31,

7 unchanged sentences

Total net sales

__________________

As corrected from $ 543.0 million of products transferred at a point in time and $ 1,042.9 million of products transferred over time.

The following table presents g eographic information for net sales based on country of origin, income taxes paid and long-lived assets for the periods presented (in millions of dollars):

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents geographic information for net sales based on country of origin, income taxes paid and long-lived assets (in millions of dollars):

Year Ended December 31,

3 unchanged sentences

Total income taxes paid

As of December 31,

Long-lived assets:

Total long-lived assets

__________________

Foreign reflects our London, Ontario production facility.

1 unchanged sentence

The aggregate foreign currency transaction gain (loss) included in determining net income were immaterial for 2020, 2019 and 2018.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentrations.

2 unchanged sentences

One individual customer accounted for 41 % and another individual customer accounted for 10 % of the accounts receivable balance at December 31, 2019.

The following table presents information about export sales and primary aluminum supply from our major suppliers for the periods presented:

The following table presents information about export sales and primary aluminum supply from our major suppliers:

Year Ended December 31,

4 unchanged sentences

Supply from our second and third largest suppliers combined

Quarterly Financial Data (Unaudited)

The following tables present the unaudited financial data for each of the interim periods in 2019 and 2018 (in millions of dollars, except per share amounts):

Cost of products sold

Operating income

Net income (loss) 1

Net income (loss) per common share, Basic

Net income (loss) per common share, Diluted

Dividends declared per common share

_____________________

The quarter ended December 31, 2019 reflected a $ 25.2 million goodwill impairment charge (see Note 4 ) and a $ 20.3 million loss on extinguishment of debt (see Note 12 ).

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cost of products sold

Operating income

Net income per common share, Basic

Net income per common share, Diluted

Dividends declared per common share

Subsequent Events

Dividend Declaration .

On January 14, 2020 , we announced that our Board of Directors declared a quarterly cash dividend of $ 0.67 per common share, or approximately $ 10.8 million (including dividend equivalents), which was paid on February 14, 2020 to stockholders of record at the close of business on January 24, 2020 .

On January 14, 2021 , we announced that our Board of Directors declared a quarterly cash dividend of $ 0.72 per common share, or approximately $ 11.6 million (including dividend equivalents), representing a 7.5 % increase over the prior dividend declared during the quarter ended December 31, 2020.

The dividend was paid on February 12, 2021 to stockholders of record at the close of business on January 25, 2021 .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data