KAISER ALUMINUM CORP (KALU)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Report and can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates,” or the negative of the foregoing or other variations of comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward‑looking statements are not guarantees of future performance and involve significant risks and uncertainties and that actual results may vary from those in the forward-looking statements as a result of various factors. These factors include: (i) the effectiveness of management’s strategies and decisions, including strategic investments, capital spending strategies, cost reduction initiatives, sourcing strategies, processes and countermeasures implemented to address operational and supply chain challenges and the execution of those strategies; (ii) the execution and timing of strategic investments; (iii) general economic and business conditions, including higher interest rates, the impact of geopolitical factors and governmental and other actions taken in response, tariffs, cyclicality, reshoring, sanctions and export controls, labor challenges, supply interruptions, energy price volatility, scrap availability and pricing, customer operation disruptions, including as a result of regulatory actions, customer inventory imbalances and supply chain issues, regional aluminum premium volatility, and other conditions that impact demand drivers in the Aero/HS Products, Packaging, GE Products, and Automotive Extrusions end markets we serve; (iv) our ability to participate in mature and anticipated new automotive programs expected to launch in the future and successfully launch new automotive programs, including electric vehicle platforms; (v) changes or shifts in defense spending due to competing national priorities; (vi) pricing, market conditions and our ability to effectively execute commercial and labor strategies, pass through cost increases, including the institution of surcharges, and flex costs in response to inflation, volatile commodity costs, regional aluminum premiums and energy prices, and changing economic conditions; (vii) developments in technology, including cybersecurity and artificial intelligence threats; (viii) the impact of our future earnings, cash flows, financial condition, capital requirements and other factors on our financial strength and flexibility; (ix) new or modified statutory or regulatory requirements, including evolving climate-related disclosure regimes, state-level climate programs, and packaging and recycled content laws; (x) the successful integration of acquired operations and technologies; (xi) the views of our stakeholders, including regulators and customers, regarding our sustainability goals and initiatives and the impact of factors outside of our control on such goals and initiatives, including potential greenwashing or consumer protection claims; and (xii) other factors discussed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025, and in other filings we make with the SEC from time to time. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Readers are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on such statements. We undertake no obligation to update or revise any forward-looking statements, except as required by law.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part I, Item 1. “Financial Statements” of this Report and our consolidated financial statements and related notes included in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2025. Unless otherwise noted, dollars in tables are presented in millions.

Business Overview

We manufacture and sell semi-fabricated specialty aluminum mill products, including flat-rolled (plate, sheet, and coil), extruded (rod, bar, hollows, and shapes), drawn (rod, bar, pipe, tube, and wire), and certain cast aluminum products. We strategically focus our business on select end markets with demanding applications and high barriers to entry, where we believe we have sustainable competitive advantages that allow us to earn premium pricing and generate long-term profitable growth. The end market applications on which we have historically focused include: (i) Aero/HS Products; (ii) Packaging; (iii) GE Products; and (iv) Automotive Extrusions. These technically challenging applications leverage our core metallurgical and process technology capabilities to produce highly engineered mill products with differentiated characteristics that are required for the particular end uses.

Within the global market for flat-rolled aluminum mill products, our focus is on two primary product categories: (i) heat treat plate, sheet and coil products and (ii) packaging coil products. Heat treat plate, sheet and coil products, which are produced at Trentwood, serve the global Aero/HS and primarily North America GE end markets and are designed for applications requiring higher strength and other specialized attributes that cannot be achieved by common alloy rolled products. Packaging coil products, which are produced at Warrick and sold primarily in North America are for demanding food and beverage can package applications. Our focus is primarily on coated packaging applications, which includes a range of colors and widths, depending on customer specifications, in addition to bare coil products.

In the areas of aluminum extrusions, we focus on demanding Aero/HS Products, GE Products, and Automotive Extrusions that require high strength, machinability, or other specialized attributes. Our 10 extrusion/drawing facilities, nine of which are in the United States and one of which is in Canada, primarily serve North American demand for aerospace, general engineering, and automotive applications. Additionally, we operate a facility in Columbia, New Jersey that focuses on multi-material advanced manufacturing

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methods and techniques, including multi-axis computer numerical control machining, additive manufacturing, welding and fabrication for demanding aerospace and defense, high technology, general industrial, and automotive applications. We employed approximately 3,800 people at June 30, 2026.

We have long-standing relationships with our customers, which consist primarily of blue-chip companies, including leading aerospace and automotive manufacturers, tier one aerospace and automotive suppliers, leading beverage and food companies, beverage and food packaging manufacturers, and metal service centers. Approximately 70% of our shipments are sold direct to manufacturers or tier one suppliers and approximately 30% are sold to metal service centers. In our served markets, we seek to be the supplier of choice by pursuing “Best in Class” customer satisfaction driven by quality, availability, service and delivery performance. We believe we differentiate our product portfolio through our broad product offering and our KaiserSelect® products, which are engineered and manufactured to deliver enhanced product characteristics with improved consistency, so as to result in better performance, lower waste and, in many cases, lower production cost for our customers.

Non-GAAP Financial Measures

This information contains certain non-GAAP financial measures. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with US GAAP in the statements of income, balance sheets, or statements of cash flows of the company. We have provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying tables. We have also provided a discussion of the reasons we believe that presentation of the non-GAAP financial measures provides useful information to investors, as well as any additional ways in which we use the non-GAAP financial measures. The non-GAAP financial measures used in the following discussions are Conversion Revenue (defined as Net Sales less the Hedged Cost of Alloyed Metal, see below in “Metal Pricing Policies” discussion) and Adjusted EBITDA. These measures are presented because management uses this information to monitor and evaluate financial results and trends and believes this information to also be useful for investors.

In the discussion of operating results below, we refer to certain items as “non-run-rate items.” For purposes of such discussion, non-run-rate items are items that, while they may recur from period-to-period: (i) are particularly material to results; (ii) affect costs primarily as a result of external market factors; and (iii) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating environment but are worthy of being highlighted for the benefit of readers of our financial statements. Our intent is to allow users of the financial statements to consider our results both in light of and separately from such items. For a reconciliation of Conversion Revenue to Net sales and Adjusted EBITDA to Net income, see below in “Results of Operations - Selected Operational and Financial Information.”

Metal Pricing Policies

A fundamental aspect of our business model is to maintain relative neutrality to fluctuations in the market prices of aluminum and certain alloying elements ("metal price neutrality"). We generally achieve this objective by structuring customer pricing to pass through changes in the underlying index-based cost of aluminum and certain alloys. In instances where metal price neutrality is not fully achieved through customer pricing actions for certain alloying elements, we manage these exposures through a combination of supply arrangements, and hedging activities. Despite these pass-through mechanisms, our results of operations may be affected by timing differences between when metal costs are incurred and when those costs are reflected in customer pricing. As a result, our reported operating results may be impacted by favorable or unfavorable fluctuations in metal prices, the timing and magnitude of such fluctuations, and other market factors that could influence metal prices. Over the long term, however, our business model is designed to generate earnings primarily from the conversion of aluminum into value-added semi-fabricated products rather than from changes in underlying metal prices.

In order to allow users of our financial statements to consider the impact of aluminum and alloy cost on our Net sales, we disclose Net sales as well as Conversion Revenue, which is Net sales less the Hedged Cost of Alloyed Metal. As used in this discussion, “Hedged Cost of Alloyed Metal” is the cost of aluminum at the average MWTP plus the cost of alloying elements and any realized gains and/or losses on settled hedges related to the metal sold in the referenced period. The average MWTP of aluminum reflects the primary aluminum supply/demand dynamics in North America. For a reconciliation of Conversion Revenue to Net sales, see below in “Results of Operations - Selected Operational and Financial Information.”

Highlights for the quarter ended June 30, 2026:

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data” of this Form 10-K. For a detailed discussion of items impacting the year ended December 31, 2023, as well as a year‑to‑year comparison of our financial position and results of operations for the years ended December 31, 2024 and December 31, 2023, refer to Part II, Item 7. “Management’s Discussion and Analysis” of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 20, 2025.

Basis of Presentation

Effective January 1, 2025, we changed our inventory valuation methodology from LIFO to WAC. The effects of this change in accounting principle have been retrospectively applied to all periods presented with a cumulative effect adjustment reflected in the January 1, 2023 beginning retained earnings. See Note 18 of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data” of this Form 10-K for further information. Prior period information provided in this Management’s Discussion and Analysis has been updated to reflect the retrospective application of the change in accounting principle.

Non-GAAP Financial Measures

This information contains certain non-GAAP financial measures. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with US GAAP in the statements of income, balance sheets, or statements of cash flows of the company. We have provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying tables. We have also provided a discussion of the reasons we believe that presentation of the non-GAAP financial measures provides useful information to investors, as well as any additional ways in which we use the non-GAAP financial measures. The non-GAAP financial measures used in the following discussions are Conversion Revenue (defined as Net Sales less the Hedged Cost of Alloyed Metal, see below in “Metal Pricing Policies” discussion), Adjusted EBITDA and ratios related thereto. These measures are presented because management uses this information to monitor and evaluate financial results and trends and believes this information to also be useful for investors.

In the discussion of operating results below, we refer to certain items as “non-run-rate items.” For purposes of such discussion, non-run-rate items are items that, while they may recur from period-to-period: (i) are particularly material to results; (ii) affect costs primarily as a result of external market factors; and (iii) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating environment but are worthy of being highlighted for the benefit of readers of our financial statements. Our intent is to allow users of the financial statements to consider our results both in light of and separately from such items. For a reconciliation of Conversion Revenue to Net sales and Adjusted EBITDA to Net income, see below in “Results of Operations - Selected Operational and Financial Information.”

Metal Pricing Policies

A fundamental part of our business model is to remain neutral to the impact from fluctuations in the market price for aluminum and certain alloys, thereby earning profit predominantly from the conversion of aluminum into semi-fabricated mill products. We refer to this as “metal price neutrality.” We purchase primary, rolling ingot and scrap, or recycled, aluminum, our main raw material, and alloys at prices that fluctuate on a monthly basis, and our pricing policies generally allow us to pass the current month underlying index cost of aluminum and certain alloys through to our customers so that we remain neutral to metal pricing. We may also enter into firm-price customer sales agreements that specify a firm underlying metal price plus a conversion price. Firm-price sales agreements create price exposure for us, which we mitigate through hedging and related programs with an objective to remain metal price neutral. Additionally, we have certain contracts that may adjust certain alloy prices for a forward period based on an average prior period cost for such alloys. As a result, until the selling price resets, we can experience an adverse impact when alloy prices increase and a favorable impact when alloy prices decrease.

In order to allow users of our financial statements to consider the impact of aluminum and alloy cost on our Net sales, we disclose Net sales as well as Conversion Revenue, which is Net sales less the Hedged Cost of Alloyed Metal. As used in this discussion, “Hedged Cost of Alloyed Metal” is the cost of aluminum at the average MWTP plus the cost of alloying elements and any realized gains and/or losses on settled hedges related to the metal sold in the referenced period. The average MWTP of aluminum reflects the primary aluminum supply/demand dynamics in North America. For a reconciliation of Conversion Revenue to Net sales, see below in “Results of Operations - Selected Operational and Financial Information.”

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Results of Operations

Fiscal 2025 Summary

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Net income of $112.5 million and Net income per diluted share of $6.77;

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Net sales of $3.37 billion; Conversion Revenue of $1.45 billion;

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Adjusted EBITDA of $310.2 million;

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Issuance of a new $500.0 million aggregate principal amount of 5.875% unsecured Senior Notes, due 2034 replacing the $500.0 million aggregate principal amount of 4.625% unsecured Senior Notes due in 2028;

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As of December 31, 2025, we had $547.2 million of combined cash and cash equivalents and net borrowing availability under our Revolving Credit Facility; and

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We paid a total of approximately $51.3 million, or $3.08 per common share, in cash dividends during 2025.

Consolidated Selected Operational and Financial Information

The following data should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8. “Financial Statements and Supplementary Data” of this Form 10-K.

Net Sales. The following table sets forth the 2025 and 2024 shipments (in millions of pounds) and Net sales (in millions of dollars) by end market applications and the respective fluctuations.

1.
Beginning January 1, 2025, Other Products is combined with GE Products.

The increase in Net sales reflected an increase in the average realized sales price per pound of $0.46 (18%). This benefit was partially offset by a 64.1 million pound (5%) decrease in shipment volume. The decrease in shipment volume primarily reflects the impact of a planned partial outage at our Trentwood facility in conjunction with the Phase VII capacity expansion project, destocking of plate products in the commercial aerospace portion of Aero/HS Products, and the delayed ramp up of our fourth coating line at our Warrick facility.

COGS. COGS for 2025 totaled $2,930.6 million, or 87% of Net sales, compared to $2,666.6 million, or 88% of Net sales, in 2024. The increase reflected the following (in millions of dollars):

1.
Adjusted to reflect the retrospective change in inventory valuation methodology from LIFO to WAC. See Note 18 to the Consolidated Financial Statements included in this Form 10-K for further discussion.

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Of the $352.0 million increase in Hedged Cost of Alloyed Metal, $437.7 million was due to an increase in underlying metal prices, partially offset by an $85.7 million decrease attributed to lower shipment volume (see above in our “Net Sales” discussion for further details). The $89.7 million decrease in manufacturing costs was primarily due to favorable metal consumption cost and lower shipment volume, partially offset primarily by lower manufacturing efficiencies associated with a planned partial outage at Trentwood for the Phase VII capacity expansion project and the commissioning and start-up of the fourth coating line at Warrick. The $7.5 million decrease in freight costs was primarily due to lower shipment volume. The $6.2 million increase in other cost of products sold was primarily driven by an increase in major maintenance costs, partially offset by a decrease in legacy environmental costs and a gain on the disposition of operating assets. See “Selected Operational and Financial Information” below for a further discussion of the comparative results of operations for 2025 and 2024.

Depreciation and Amortization. Depreciation and amortization for 2025 was $122.5 million compared to $116.4 million for 2024. The increase of $6.1 million was primarily attributable to the fourth coating line and Phase VII capacity growth initiatives being placed in service at Warrick and Trentwood, respectively.

Selling, General, Administrative, Research and Development (“SG&A and R&D”). SG&A and R&D expense totaled $129.2 million in 2025 compared to $120.8 million in 2024. The increase reflected the following (in millions of dollars), with employee costs being driven primarily by higher incentive costs:

Restructuring Costs. Restructuring costs of $1.9 million and $7.6 million for the years ended December 31, 2025 and 2024, respectively, reflect the impacts of our restructuring plans. See Note 12 of Notes to Consolidated Financial Statements included in this Form 10-K for further information regarding the restructuring plans.

Other Operating Charges, Net. Other operating charges

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