<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
Commission file number 1-3605
KAISER ALUMINUM & CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0928288
(State of incorporation) (I.R.S. Employer Identification No.)
6177 Sunol Boulevard, Pleasanton, CA 94566-7769
(Address of principal executive offices)(Zip Code)
(510) 462-1122
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----- -----
As of July 31, 1994, the registrant had 46,171,365 shares of
common stock outstanding.
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<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The following interim consolidated financial statements of the
registrant and its consolidated subsidiary companies are set forth
below in response to Item 1, Part I, of this Form 10-Q:
Consolidated Balance Sheets
- June 30, 1994 (unaudited) and December 31, 1993;
Statements of Consolidated Loss (unaudited)
- quarter and six months ended June 30, 1994 and 1993;
Statements of Consolidated Cash Flows (unaudited)
- six months ended June 30, 1994 and 1993.
For further information, refer to the consolidated financial
statements and the footnotes thereto included in the annual report of
the registrant on Form 10-K for the year ended December 31, 1993.
- 1 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 77.8 $ 14.2
Receivables 224.1 236.0
Inventories 394.5 426.9
Prepaid expenses and other current assets 86.6 60.7
-------- --------
Total current assets 783.0 737.8
Investments in and advances to unconsolidated affiliates 176.2 183.2
Property, plant, and equipment--net 1,133.1 1,163.7
Deferred income taxes 248.5 210.3
Other assets 259.2 233.2
-------- --------
Total $2,600.0 $2,528.2
======== ========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable $ 110.6 $ 126.3
Accrued interest 32.1 23.6
Accrued salaries, wages, and related expenses 62.9 56.1
Accrued postretirement benefit obligation--current portion 47.6 47.6
Other accrued liabilities 131.2 133.1
Payable to affiliates 62.8 62.4
Short-term borrowings .5
Long-term debt--current portion 11.3 8.7
Notes payable to parent--current portion 21.2 12.6
-------- --------
Total current liabilities 479.7 470.9
Long-term liabilities 512.2 501.7
Accrued postretirement benefit obligation 720.0 713.1
Long-term debt 747.9 720.2
Notes payable to parent 34.1 18.9
Minority interests 68.8 69.7
Redeemable preference stock 27.1 33.6
Stockholders' equity:
Preference stock 1.8 1.8
Common stock 15.4 15.4
Additional capital 1,582.0 1,471.2
Accumulated deficit (223.1) (165.2)
Additional minimum pension liability (21.6) (21.6)
Less: Note receivable from parent (1,344.3) (1,301.5)
-------- --------
Total stockholders' equity 10.2 .1
-------- --------
Total $2,600.0 $2,528.2
======== ========
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
- 2 -
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<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED LOSS
(Unaudited)
(In millions of dollars)
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
---------------- ----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $459.5 $432.2 $874.6 $ 874.8
------ ------ ------ -------
Costs and expenses:
Cost of products sold 419.0 391.0 806.8 791.1
Depreciation 25.1 24.3 50.0 48.5
Selling, administrative, research and development,
and general 29.5 31.0 57.5 58.9
------ ------ ------ -------
Total costs and expenses 473.6 446.3 914.3 898.5
------ ------ ------ -------
Operating loss (14.1) (14.1) (39.7) (23.7)
Other income (expense):
Interest and other income - net 1.5 3.5 3.5 6.2
Interest expense (22.2) (21.9) (43.6) (43.3)
------ ------ ------ -------
Loss before income taxes, minority interests,
extraordinary loss, and cumulative effect of
changes in accounting principles (34.8) (32.5) (79.8) (60.8)
Credit for income taxes 12.3 13.6 28.1 25.1
Minority interests .4 .9 1.5 2.1
------ ------ ------ -------
Loss before extraordinary loss and cumulative effect of
changes in accounting principles (22.1) (18.0) (50.2) (33.6)
Extraordinary loss on early extinguishment of debt, net
of tax benefit of $2.9 and $11.2 for 1994 and 1993
periods, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles,
net of tax benefit of $237.7 (507.9)
------ ------ ------ -------
Net loss $(22.1) $(18.0) $(55.6) $(563.3)
====== ======= ====== =======
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
- 3 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
<CAPTION>
Six Months Ended
June 30,
----------------
1994 1993
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (55.6) $(563.3)
Adjustments to reconcile net loss to net cash used for operating activities
Depreciation 50.0 48.5
Amortization of deferred financing costs and discount on long-term debt 3.5 5.7
Non-cash postretirement benefit expenses other than pensions 6.9 9.8
Minority interests (1.5) (2.1)
Extraordinary loss on early extinguishment of debt 5.4 21.8
Cumulative effect of changes in accounting principles 507.9
Decrease in accrued and deferred income taxes (33.6) (33.5)
Equity in losses of unconsolidated affiliates 1.3 6.5
Increase in accrued interest 8.7 19.4
Incurrence of financing costs (18.5) (11.8)
Decrease in receivables 6.4 8.7
Decrease (increase) in inventories 32.4 (.5)
(Increase) decrease in prepaid expenses and other current assets (12.8) 5.6
Decrease in accounts payable (15.7) (14.1)
(Decrease) increase in payable to affiliates and accrued liabilities (7.5) 5.7
Other 1.9 (3.4)
------- -------
Net cash (used for) provided by operating activities (28.7) 10.9
------- -------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 2.8 8.4
Capital expenditures (21.7) (23.3)
Redemption fund for preference stock (1.3) (.3)
------- -------
Net cash used for investing activities (20.2) (15.2)
------- -------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (322.7) (865.6)
Borrowings of long-term debt, including revolving credit 353.5 773.0
Borrowings from MAXXAM Group Inc. (see supplemental disclosure below) 15.0
Tender premiums and other costs on early extinguishment of debt (27.1)
Net repayments of short-term borrowings (.5) (4.8)
Net borrowings from parent 23.8 37.8
Dividends paid (.4) (.7)
Redemption of preference stock (8.4) (4.0)
Capital contribution 67.2 81.5
------- -------
Net cash provided by financing activities 112.5 5.1
-------- -------
Net increase in cash and cash equivalents during the period 63.6 .8
Cash and cash equivalents at beginning of period 14.2 18.5
------- -------
Cash and cash equivalents at end of period $ 77.8 $ 19.3
======= =======
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 31.4 $ 18.2
Income taxes paid 5.4 7.1
Supplemental disclosure of non-cash financing activities:
Contribution to capital of the borrowings from MAXXAM Group Inc. $ 15.0
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
- 4 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars)
1. General
-------
Kaiser Aluminum & Chemical Corporation ("KACC" or the "Company")
is the principal operating subsidiary of Kaiser Aluminum Corporation
("Kaiser"). Kaiser is a subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM
owns approximately 60% of Kaiser's common stock, assuming the
conversion of each outstanding $.65 Depositary Share and each
outstanding share of PRIDES (as defined below) into one share of
Kaiser's common stock, with the remaining 40% publicly held.
The foregoing unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X as promulgated by the
Securities and Exchange Commission. Accordingly, these financial
statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
necessary for a fair statement of the results for the interim periods
presented have been included. Operating results for the first half of
1994 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1994. Certain
reclassifications of prior-period information were made to conform to
the current presentation.
In the first quarter of 1994, Kaiser consummated the public
offering of 8,855,550 shares of 8.255% PRIDES, Convertible Preferred
Stock (the "PRIDES"). The net proceeds from the sale of the PRIDES
were approximately $100.4. Kaiser used such net proceeds to make non-
interest-bearing loans to KACC in the aggregate principal amount of
$33.2 (the aggregate dividends scheduled to accrue on the PRIDES from
the issuance date until December 31, 1997, the date on which the
outstanding PRIDES are mandatorily convertible into shares of Kaiser's
common stock) and used the balance of such net proceeds to make
capital contributions to KACC in the aggregate amount of approximately
$67.2.
2. Inventories
-----------
The classification of inventories is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
<S> <C> <C>
Finished fabricated products $ 63.6 $ 83.7
Primary aluminum and work in process 149.0 141.4
Bauxite and alumina 77.0 94.0
Operating supplies and repair and maintenance parts 104.9 107.8
------ ------
Total $394.5 $426.9
====== ======
</TABLE>
Substantially all product inventories are stated at last-in,
first-out (LIFO) cost, not in excess of market. Replacement cost is
not in excess of LIFO cost.
- 5 -
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<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
3. Long-Term Debt
--------------
Long-term debt is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
<S> <C> <C>
1994 Credit Agreement
1989 Credit Agreement (6.59% at December 31, 1993)
Revolving Credit Facility $188.0
9-7/8% Senior Notes, net of discount of $1.5 $223.5
Pollution Control and Solid Waste Disposal Facilities
Obligations (6.00% - 7.75%) 38.1 39.2
Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0
Alpart Term Loan (8.95%) 21.9 25.0
12-3/4% Senior Subordinated Notes 400.0 400.0
Other borrowings (fixed and variable rates) 15.7 16.7
------ ------
Total 759.2 728.9
Less current portion 11.3 8.7
------ ------
Long-term debt $747.9 $720.2
====== ======
</TABLE>
On February 17, 1994, Kaiser and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. (as agent for itself
and other lenders), Bank of America National Trust and Savings
Association, and certain other lenders (the "1994 Credit Agreement").
The 1994 Credit Agreement replaced the credit agreement entered into
in December 1989 by Kaiser and KACC with a syndicate of commercial
banks and other financial institutions (as amended, the "1989 Credit
Agreement") and consists of a $250.0 five-year secured, revolving line
of credit, scheduled to mature in 1999. The Company is able to borrow
under the facility by means of revolving credit advances and letters
of credit (up to $125.0) in an aggregate amount equal to the lesser of
$250.0 or a borrowing base related to eligible accounts receivable
plus eligible inventory. As of June 30, 1994, $184.2 of borrowing
capacity was unused under the 1994 Credit Agreement (of which $59.2
could also have been used for letters of credit). The 1994 Credit
Agreement is unconditionally guaranteed by Kaiser and by all
significant subsidiaries of KACC. Loans under the 1994 Credit
Agreement bear interest at a rate per annum, at KACC's election, equal
to (i) a Reference Rate (as defined) plus 1-1/2% or (ii) LIBO Rate
(Reserve Adjusted) (as defined) plus 3-1/4%. After June 30, 1995, the
interest rate margins applicable to borrowings under the 1994 Credit
Agreement may be reduced by up to 1-1/2% based upon a financial test,
determined quarterly. The 1994 Credit Agreement was amended as of
July 21, 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition."
The Company recorded a pre-tax extraordinary loss of $8.3 ($5.4
after taxes) in the first quarter of 1994, consisting primarily of the
write-off of unamortized deferred financing costs related to the 1989
Credit Agreement.
Concurrent with the offering by Kaiser of the PRIDES, KACC issued
$225.0 of its 9-7/8% Senior Notes due 2002 (the "Senior Notes"). The
net proceeds of the offering of the Senior Notes were used to reduce
outstanding borrowings under the 1989 Credit Agreement immediately
prior to the effectiveness of the 1994 Credit Agreement and for
working capital and general corporate purposes.
- 6 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
4. Contingencies
-------------
Environmental Contingencies - Kaiser and KACC are subject to a
wide variety of environmental laws and regulations and to fines or
penalties assessed for alleged breaches of the environmental laws and
to claims and litigation based upon such laws. KACC is currently
subject to a number of lawsuits under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the
Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and,
along with certain other entities, has been named as a potentially
responsible party for remedial costs at certain third-party sites
listed on the National Priorities List under CERCLA.
Based upon the Company's evaluation of these and other
environmental matters, the Company has established environmental
accruals primarily related to potential solid waste disposal and soil
and groundwater remediation matters. At June 30, 1994, the balance of
such accruals, which is primarily included in Long-term liabilities,
was $42.1.
These environmental accruals represent the Company's estimate of
costs reasonably expected to be incurred based upon presently enacted
laws and regulations, currently available facts, existing technology,
and the Company's assessment of the likely remediation actions to be
taken. The Company expects that these remediation actions will be
taken over the next several years and estimates that annual
expenditures to be charged to the environmental accrual will be
approximately $4.0 to $9.0 for the years 1994 through 1998 and an
aggregate of approximately $11.0 thereafter.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of
remediation are established, or alternative technologies are
developed, changes in these and other factors may result in actual
costs exceeding the current environmental accruals by amounts which
cannot presently be estimated. While uncertainties are inherent in
the ultimate outcome of these matters and it is impossible to
presently determine the actual costs that ultimately may be incurred,
management believes that the resolution of such uncertainties should
not have a material adverse effect upon the Company's consolidated
financial position or results of operations.
Asbestos Contingencies - KACC is a defendant in a number of
lawsuits in which the plaintiffs allege that certain of their injuries
were caused by exposure to asbestos during, and as a result of, their
employment with KACC or exposure to products containing asbestos
produced or sold by KACC. The lawsuits generally relate to products
KACC has not manufactured for at least 15 years. At June 30, 1994,
the number of such lawsuits pending was approximately 21,200.
Based upon prior experience, the Company estimates annual future
cash payments in connection with such litigation of approximately $8.0
to $13.0 for each of the years 1994 through 1998, and an aggregate of
approximately $95.4 thereafter through 2007. Based upon past
experience and reasonably anticipated future activity, the Company has
established an accrual for estimated asbestos-related costs for claims
filed and estimated to be filed and settled through 2007. The Company
does not presently believe there is a reasonable basis for estimating
such costs beyond 2007 and, accordingly, no accrual has been recorded
for such costs which may be incurred. This accrual was calculated
based upon the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments, the
current state of case law related to asbestos claims, the advice of
counsel, and the anticipated effects of inflation and discounting at
an estimated risk-free rate. Accordingly, an asbestos-related cost
accrual of $102.6 is included primarily in Long-term liabilities at
June 30, 1994. The aggregate amount of the undiscounted liability at
June 30, 1994, is $141.9, before considerations for insurance
recoveries.
- 7 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
The Company believes that it has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While
claims for recovery from some of the Company's insurance carriers are
currently subject to pending litigation and other carriers have raised
certain defenses, the Company believes, based upon prior insurance-
related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of counsel, that substantial
recoveries from the insurance carriers are probable. Accordingly,
estimated insurance recoveries of $97.9, determined on the same basis
as the asbestos-related cost accrual, are recorded primarily in Other
assets as of June 30, 1994.
Based upon the factors discussed in the two preceding paragraphs,
management currently believes that the resolution of the asbestos-
related uncertainties and the incurrence of asbestos-related costs net
of insurance recoveries should not have a material adverse effect upon
the Company's consolidated financial position or results of
operations.
Other Contingencies - The Company is involved in various other
claims, lawsuits, and other proceedings relating to a wide variety of
matters. While uncertainties are inherent in the ultimate outcome of
such matters and it is impossible to determine the actual costs that
ultimately may be incurred, management believes that the resolution of
such uncertainties and the incurrence of such costs should not have a
material adverse effect upon the Company's consolidated financial
position or results of operations.
5. Derivative Financial Instruments and Related Hedging Programs
-------------------------------------------------------------
The Company enters into a number of financial instruments with
off-balance-sheet risk in the normal course of business that are
designed to reduce its exposure to fluctuations in foreign exchange
rates, alumina and primary aluminum prices, and the cost of purchased
commodities.
The Company has significant expenditures which are denominated
in foreign currencies related to long-term purchase
commitments with its affiliates in Australia and the United Kingdom,
which expose the Company to certain exchange rate risks. In order to
mitigate its exposure, the Company periodically enters into forward
foreign exchange and currency option contracts in Australian Dollars
and Pounds Sterling to hedge these commitments. The forward foreign
currency exchange contracts are agreements to purchase or sell a
foreign currency, for a price specified at the contract date, with
delivery and settlement in the future. At June 30, 1994, the Company
had net forward foreign exchange contracts totaling approximately
$23.4 million for the purchase of 34.8 million Australian Dollars
through May 1995. The option contracts are agreements that establish
the maximum price or establish a range of prices at which the foreign
currency may be acquired. At June 30, 1994, such options established
a price range of $30.2 million to $31.7 million for the purchase of
48.0 million Australian Dollars through December 1994, and established
a maximum price of $2.2 million for the purchase of 1.5 million Pounds
Sterling through December 1994.
To mitigate its exposure to declines in the market prices of
alumina and primary aluminum, while retaining the ability to
participate in favorable pricing environments that may materialize,
the Company has developed strategies which include forward sales of
primary aluminum at fixed prices and the purchase or sale of options
for primary aluminum. Under the principal components of the Company's
price risk management strategy, which can be modified at any time, (i)
varying quantities of the Company's anticipated production are sold
forward at fixed prices, (ii) call options are purchased to allow the
Company to participate in certain higher market prices, should they
materialize, for a portion of the Company's excess primary aluminum
and alumina sold forward, (iii) option contracts are entered into to
establish a price range the Company will receive for a portion of its
excess primary aluminum and alumina, and (iv) put options are purchased
to establish minimum prices the Company will receive for a
portion of its excess primary aluminum and alumina. In this regard,
in respect of its remaining 1994 anticipated primary aluminum and
alumina production, as of June 30, 1994, the Company had sold forward
- 8 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
53,000 metric tons of primary aluminum at fixed prices, and had
purchased call options in respect of 30,000 metric tons of primary
aluminum. Further, in respect of its 1995 anticipated primary
aluminum and alumina production, as of June 30, 1994, the Company had
sold forward 150,000 metric tons of primary aluminum at fixed prices,
purchased call options in respect of 87,000 metric tons of primary
aluminum, and had entered into option contracts that established a
price range for 54,000 metric tons of primary aluminum. The Company
will not receive the benefit of market price increases to the extent
(i) the quantity of production sold forward is greater than the
tonnage covered by the purchased call options; (ii) market prices
exceed the prices at which primary aluminum is sold forward, but are
less than the strike price of the purchased call options, on the
tonnage covered by the options; or (iii) market prices exceed the
maximum of the price range on the tonnage covered by the option
contracts entered to establish a price range.
In addition, the Company enters into forward fixed price
arrangements with certain customers which provide for the delivery of
a specific quantity of fabricated aluminum products over a specified
future period of time. In order to establish the cost of primary
aluminum for a portion of such sales, the Company may enter into
forward and options contracts. In this regard, at June 30, 1994,
the Company had 13,500 metric tons of primary aluminum forward
purchase contracts at fixed prices.
The Company has also entered into a natural gas pricing contract
to fix future prices of a portion (20,000 million BTU's per day) of a
plant's natural gas supply through March 1995.
At June 30, 1994, the net unrealized gain on the Company's
position in forward foreign exchange and foreign currency options was
$4.3 million and the net unrealized loss on aluminum forward sales and
option contracts and the natural gas pricing contract was $35.8
million, based on dealer quoted prices. Gains and losses arising from
the use of hedging instruments are reflected in the Company's
operating results concurrently with the consummation of the underlying
hedged transactions.
The Company is exposed to credit risk in the event of
non-performance by other parties to these currency and commodity
contracts, but the Company does not anticipate non-performance by any
of these counter-parties.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Item 1, Part I, of this Report.
Results of Operations
---------------------
The Company's operating results are sensitive to changes in
prices of alumina, primary aluminum, and fabricated aluminum products,
and also depend to a significant degree on the volume and mix of all
products sold. The table on the following page provides selected
operational and financial information on a consolidated basis with
respect to the Company for the quarters and six months ended June 30,
1994 and 1993. As an integrated aluminum producer, the Company uses a
portion of its bauxite, alumina, and primary aluminum production for
additional processing at certain of its other facilities.
Intracompany shipments and sales are excluded from the information set
forth on the following page.
- 9 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
<TABLE>
SELECTED OPERATIONAL AND FINANCIAL INFORMATION
(In millions of dollars, except shipments and prices)
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------- ----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shipments: (000 tons)(1)
Alumina 574.2 472.3 1,042.4 931.6
Aluminum processing:
Primary aluminum 63.1 53.6 127.4 128.1
Fabricated aluminum products 104.9 95.5 201.7 187.1
------ ------ ------- -------
Total aluminum products 168.0 149.1 329.1 315.2
====== ====== ====== =======
Average realized sales price:
Alumina (per ton) $ 159 $ 170 $ 157 $ 172
Primary aluminum (per pound) .55 .59 .55 .57
Net sales:
Bauxite and alumina:
Alumina $ 91.3 $ 80.2 $163.8 $ 160.2
Other(2)(3) 20.4 22.1 40.8 41.1
------ ------ ------- -------
Total bauxite and alumina 111.7 102.3 204.6 201.3
------ ------ ------- -------
Aluminum processing:
Primary aluminum 76.8 69.4 154.1 160.6
Fabricated aluminum products 267.4 257.2 508.9 506.3
Other(3) 3.6 3.3 7.0 6.6
------ ------ ------- -------
Total aluminum processing 347.8 329.9 670.0 673.5
------ ------ ------- -------
Total net sales $459.5 $432.2 $874.6 $ 874.8
====== ====== ====== =======
Operating income (loss):
Bauxite and alumina $ (.1) $ (4.2) $ (2.5) $ (4.1)
Aluminum processing 4.1 8.3 (1.9) 17.3
Corporate (18.1) (18.2) (35.3) (36.9)
------ ------ ------- -------
Total operating loss $(14.1) $(14.1) $(39.7) $ (23.7)
====== ====== ====== =======
Loss before income taxes, minority interests, extraordinary loss,
and cumulative effect of changes in accounting principles $(34.8) $(32.5) $(79.8) $ (60.8)
====== ====== ====== =======
Loss before extraordinary loss and cumulative effect of changes
in accounting principles $(22.1) $(18.0) $(50.2) $ (33.6)
Extraordinary loss on early extinguishment of debt, net of tax benefit
of $2.9 and $11.2 for 1994 and 1993 periods, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles, net of tax
benefit of $237.7 (507.9)
------ ------ ------- -------
Net loss $(22.1) $(18.0) $(55.6) $(563.3)
====== ====== ====== =======
Capital expenditures $ 12.1 $ 13.3 $ 21.7 $ 23.3
====== ====== ====== =======
</TABLE>
--------------------------------------------------------------
(1) All references to tons refer to metric tons of 2,204.6 pounds.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority
interests in consolidated subsidiaries
- 10 -<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net Sales
Bauxite and Alumina - Revenue from net sales to third parties for
the bauxite and alumina segment was $111.7 million in the second
quarter of 1994, compared with $102.3 million in the second quarter of
1993, and $204.6 million in the first half of 1994, compared with
$201.3 million in the first half of 1993. Revenue from alumina
increased 14% to $91.3 million in the second quarter of 1994 from
$80.2 million in the second quarter of 1993, principally due to
increased shipments partially offset by lower average realized prices.
Revenue from alumina increased 2% to $163.8 million in the first half
of 1994 from $160.2 million in the first half of 1993, as increased
shipments were substantially offset by lower average realized prices.
Aluminum Processing - Revenue from net sales to third parties for
the aluminum processing segment was $347.8 million in the second
quarter of 1994, compared with $329.9 million in the second quarter of
1993, and $670.0 million in the first half of 1994, compared with
$673.5 million in the first half of 1993. Revenue from primary
aluminum increased 11% to $76.8 million in the second quarter of 1994
from $69.4 million in the second quarter of 1993, principally due to
increased shipments, partially offset by lower average realized
prices, and decreased 4% to $154.1 million in the first half of 1994
from $160.6 million in the first half of 1993, primarily because of
lower average realized prices and, to a lesser extent, lower
shipments. Shipments of primary aluminum to third parties constituted
approximately 38% and 39% of total aluminum products shipments in the
second quarter and first half of 1994, respectively, compared with
approximately 36% and 41% in the second quarter and first half of
1993. Revenue from fabricated aluminum products increased 4% to
$267.4 million in the second quarter of 1994 from $257.2 million in
the second quarter of 1993, due to increased shipments, partially
offset by lower average realized prices, and remained approximately
the same in the first half of 1994 compared with the first half of
1993, as increased shipments were offset by lower average realized
prices.
Operating Loss
The Company had an operating loss of $14.1 million in the second
quarters of 1994 and 1993, and $39.7 million in the first half of 1994
compared with $23.7 million in the first half of 1993.
Bauxite and Alumina - This segment's operating loss in the second
quarter of 1994 was $.1 million compared with $4.2 million in the
second quarter of 1993, and was $2.5 million in the first half of 1994
compared with $4.1 million in the first half of 1993. The decline in
loss is principally due to increased shipments of alumina, partially
offset by lower average realized prices for alumina.
Aluminum Processing - This segment's operating income was $4.1
million in the second quarter of 1994, compared with $8.3 million in
the second quarter of 1993, as increased shipments of primary aluminum
and fabricated aluminum products were more than offset by lower
average realized prices of these products. This segment's operating
loss was $1.9 million in the first half of 1994, compared with
operating income of $17.3 million in the first half of 1993,
principally due to lower average realized prices of primary aluminum
and fabricated aluminum products, partially offset by increased
shipments of fabricated aluminum products.
Corporate - Corporate operating expenses of $18.1 million and
$18.2 million in the second quarter of 1994 and 1993 and $35.3 million
and $36.9 million in the first half of 1994 and 1993 represented
corporate general and administrative expenses, which are not allocated
to the Company's segments.
- 11 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Extraordinary Loss on Early Extinguishment of Debt
In the first quarter of 1994, the Company recorded a pre-tax
extraordinary loss of $8.3 million ($5.4 million after taxes),
consisting primarily of the write-off of unamortized deferred
financing costs related to the 1989 Credit Agreement.
The Company recorded a pre-tax extraordinary loss of $33.0
million in the first quarter of 1993 ($21.8 million after taxes),
consisting primarily of premiums and the write-off of unamortized
discount and deferred financing costs related to the early redemption
of the 14-1/4% Senior Subordinated Notes due 1995.
Cumulative Effect of Changes in Accounting Principles
As of January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions ("SFAS 106"), Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"), and Statement of Financial Accounting Standards No. 112,
Employers' Accounting for Postemployment Benefits ("SFAS 112").
The cumulative effect of the change in accounting principle for
the adoption of SFAS 106 reduced results of operations by $497.7
million, net of a related income tax benefit of $234.2 million. The
cumulative effect of the change in accounting principle for the
adoption of SFAS 112 reduced results of operations by $7.3 million,
net of a related income tax benefit of $3.5 million. The new
accounting methods have no effect on the Company's cash outlays for
postretirement and postemployment benefits. The Company reserves the
right, subject to applicable collective bargaining agreements, to
amend or terminate these benefits.
The cumulative effect of the change in accounting principle for
the adoption of SFAS 109 reduced results of operations by $2.9
million. The implementation of SFAS 109 required the Company to
restate certain assets and liabilities to pre-tax amounts from net-of-
tax amounts originally recorded in connection with the acquisition of
the Company by MAXXAM.
Net Loss
The Company recorded a net loss of $22.1 million for the second
quarter of 1994, compared with a net loss of $18.0 million for the
second quarter of 1993. For the first half of 1994, net loss was
$55.6 million compared with $563.3 million in the same period of 1993.
The principal reasons for the decrease in net loss were the cumulative
effect of changes in accounting principles of $507.9 million and the
extraordinary loss of $21.8 million recorded in the first quarter of
1993, partially offset by higher operating losses and the 1994
extraordinary loss described above.
Financial Condition
-------------------
At June 30, 1994, the Company had working capital of $303.3
million and long-term debt of $747.9 million (excluding Notes payable
to parent) as compared to working capital of $266.9 million and long-
term debt of $720.2 million (excluding Notes payable to parent) at
December 31, 1993.
In the first quarter of 1994, Kaiser consummated the public
offering of 8,855,550 shares of its PRIDES. The net proceeds from the
sale of the PRIDES were approximately $100.4 million. Kaiser used
such net proceeds to make non-interest-bearing loans to KACC in the
aggregate principal amount of $33.2 million (the aggregate dividends
scheduled to accrue on the PRIDES from the issuance date until
December 31, 1997, the date on which the outstanding PRIDES are
mandatorily convertible into shares of Kaiser's common stock) and used
the balance of such net proceeds to make capital contributions to KACC
in the aggregate amount of approximately $67.2 million.
- 12 -<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The offering of the PRIDES, issuance of the Senior Notes, and
entering into the 1994 Credit Agreement were the final steps of a
comprehensive refinancing plan which Kaiser and KACC began in January
1993 which extended the maturities of the Company's outstanding
indebtedness, enhanced its liquidity, and raised new equity capital.
The 1994 Credit Agreement was amended as of July 21, 1994, by
First Amendment to Credit Agreement (the "First Amendment"). The
First Amendment provided, among other things, for an increase in the
revolving line of credit from $250.0 million to $275.0 million, and
for an increase in the inventory sub-limit of the borrowing base from
$175.0 million to $200.0 million, under the 1994 Credit Agreement.
The obligations of KACC with respect to the Senior Notes and the
12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4% Notes") are
guaranteed, jointly and severally, by certain subsidiaries of KACC.
The indentures governing the Senior Notes and the 12-3/4% Notes
restrict, among other things, KACC's ability, and the 1994 Credit
Agreement restricts, among other things, Kaiser's and KACC's ability,
to incur debt, undertake transactions with affiliates, and pay
dividends. Currently, such restrictions do not permit Kaiser or
KACC to pay any dividends in respect of their common stock.
Sensitivity to Prices and Hedging Programs
------------------------------------------
To mitigate its exposure to declines in the market prices of
alumina and primary aluminum, while retaining the ability to
participate in favorable pricing environments that may materialize,
the Company has developed strategies which include forward sales of
primary aluminum at fixed prices and the purchase or sale of options
for primary aluminum. Under the principal components of the Company's
price risk management strategy, which can be modified at any time, (i)
varying quantities of the Company's anticipated production are sold
forward at fixed prices, (ii) call options are purchased to allow the
Company to participate in certain higher market prices, should they
materialize, for a portion of the Company's excess primary aluminum
and alumina sold forward, (iii) option contracts are entered into to
establish a price range the Company will receive for a portion of its
excess primary aluminum and alumina, and (iv) put options are
purchased to establish minimum prices the Company will receive for a
portion of its excess primary aluminum and alumina.
Since June 30, 1994, in addition to the positions which have
expired pursuant to their terms, the Company has adjusted certain of
its hedge positions. In respect of its remaining 1994 anticipated
primary aluminum and alumina production, as of the date of this report,
the Company had sold forward 59,200 metric tons of primary aluminum at
fixed prices, and had purchased call options in respect of 25,000 metric
tons of primary aluminum. Further, in respect of its 1995 anticipated
primary aluminum production, as of the date of this report, the Company
had sold forward 42,200 metric tons of primary aluminum at fixed prices,
had purchased call options in respect of 30,000 metric tons of primary
aluminum, had entered into option contracts that established a price
range for 90,000 metric tons of primary aluminum, and had purchased
put options to establish a minimum price for 181,500 metric tons of
primary aluminum. In addition, since several alumina sales contracts
have pricing provisions which link the selling price of alumina to
the spot price of primary aluminum, the Company has hedged a portion
of its 1995 alumina sales on the primary aluminum forward market.
As of the date of this report, the Company had sold 34,000 metric tons
of primary aluminum forward at fixed prices.
See Note 6 of the Notes to Interim Consolidated Financial
Statements for derivative positions at June 30, 1994.
- 13 - <PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Trends
------
In response to a power reduction imposed by the Bonneville Power
Administration ("BPA") in the Pacific Northwest, the Company in
January 1993 removed three reduction potlines from production in
Washington (two at its Mead smelter and one at its Tacoma smelter).
The Company has operated these smelters at such reduced operating rate
since that time. Although full BPA power was restored as of April 1,
1994, a 25% power reduction was imposed again by the BPA as of August
1, 1994, which reduction is expected to continue through at least
November 30, 1994. The Company cannot predict whether full power will
be provided by the BPA after November 30, 1994, or whether power will
otherwise become available at a price acceptable to the Company. The
Company currently anticipates that it will operate its Mead and Tacoma
smelters during the remainder of 1994 at a rate which does not exceed
the current operating rate of 75% of full capacity for such smelters.
Furthermore, after continued assessment of current market conditions,
on May 15, 1994, the Company curtailed about 40,000 metric tons of
primary aluminum-making capacity at its 90%-owned Volta Aluminium
Company Limited ("VALCO") smelter in Ghana, West Africa. The tonnage
accounts for about 20% of VALCO's annual capacity and about 9.3% of
the Company's current annual production. With this cutback and those
taken at the Company's Pacific Northwest smelters in January 1993, the
Company is operating at an annual production rate of approximately
390,000 metric tons of primary aluminum, or 77% of its total annual
rated capacity of 508,000 metric tons.
During the first half of 1994, the Company's average realized
prices from sales of alumina, primary aluminum, and fabricated
aluminum products declined from their 1993 levels. The Company's
earnings are sensitive to changes in the prices of alumina, primary
aluminum, and fabricated aluminum products, and also depend to a
significant degree upon the volume and mix of all products sold. If
the Company's average realized sales prices during the remainder of
1994 for substantial quantities of its primary aluminum and alumina
were based on the current market price of primary aluminum, the
Company would continue to sustain net losses in 1994, which would be
expected to exceed the loss for the year 1993 ($76.0 million) before
(a) extraordinary loss and cumulative effect of changes in accounting
principles, (b) the charges related to the restructuring of the
Trentwood plant and certain other facilities, and (c) certain other
charges principally related to a reduction in the carrying value of
the Company's inventories and the establishment of additional
litigation and environmental reserves.
- 14 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
Aberdeen Pesticides Dumps Site Matter
As more fully described in Item 3. "LEGAL PROCEEDINGS--Aberdeen
Pesticide Dumps Site Matter" in the Company's Report on Form 10-K for
the fiscal year ended December 31, 1993 (the "10-K"), by letters dated
December 30, 1993, the Environmental Protection Agency (the "EPA")
notified KACC of its potential liability for, and requested that KACC,
along with certain other named companies, undertake or agree to
finance, groundwater remediation at certain of the Sites (as defined
in the 10-K).
On June 22, 1994, the EPA issued two Unilateral Administrative
Orders under Section 106(a) of CERCLA under U.S. EPA Docket No.
94-28-C and U.S. EPA Docket No. 94-27-C, respectively, ordering the
named respondents to design and implement the groundwater remediation
remedy for the Farm Chemicals and Twin Sites and for the Fairway Six
Site. In addition to KACC, the Unilateral Administrative Order for
the Farm Chemicals and Twin Site areas named as respondents J. M.
Taylor, Grower Service Corporation, E. I. Du Pont de Nemours and
Company, Olin Corporation, UCI Holdings, Inc., Union Carbide
Corporation, Hercules, Inc., Ciba-Geigy Corporation, Farm Chemicals,
Inc., Mobil Oil Corporation, Shell Oil Company, The Boots Company (USA)
Inc., Nor-Am Chemical Co., and Miles, Inc. Named as respondents in
addition to KACC for the Fairway Six Site area were J. M. Taylor, George
Anderson, Grower Service Corporation, E. I. Du Pont de Nemours and
Company, Olin Corporation, UCI Holdings, Inc., Ciba-Geigy Corporation,
Robert Trent Jones, Yadco of Pinehurst, Inc., Dan Maples, Pits
Management Corporation, Partners in the Pits, and Maples Golf
Construction, Inc.
KACC has reached an agreement in principle with certain of the
respondents to participate jointly in responding to both of the
Unilateral Administrative Orders, to share costs incurred on an
interim basis, and to seek to reach a final allocation of costs
through agreement or to allow such final allocation and determination
of liability to be made by the U.S. District Court.
A definitive PRP Participation Agreement is under negotiation by the
participating respondents. The participating respondents are also in
the process of notifying the EPA of their intent to comply with the
Unilateral Administrative Orders to the extent consistent with
applicable law.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The annual meeting of stockholders of Kaiser Aluminum & Chemical
Corporation was held on June 8, 1994, at which meeting the
stockholders voted to elect management's slate of nominees as
directors of the Company.
The nominees for election as directors of the Company are listed
below, together with the number of votes cast for, against, and
withheld with respect to each such nominee, as well as the number of
abstentions and broker nonvotes with respect to each such nominee:
Nominees for Director
---------------------
Robert J. Cruikshank
Votes For: 46,901,650
Votes Against:
Votes Withheld: 88,098
Abstentions:
Broker Nonvotes:
- 15 -<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMCIAL CORPORATION AND SUBSIDIARY COMPANIES
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(continued)
George T. Haymaker, Jr.
Votes For: 46,898,711
Votes Against:
Votes Withheld: 91,037
Abstentions:
Broker Nonvotes:
Charles E. Hurwitz
Votes For: 46,856,814
Votes Against:
Votes Withheld: 132,934
Abstentions:
Broker Nonvotes:
Ezra G. Levin
Votes For: 46,898,948
Votes Against:
Votes Withheld: 90,800
Abstentions:
Broker Nonvotes:
Robert Marcus
Votes For: 46,902,551
Votes Against:
Votes Withheld: 87,197
Abstentions:
Broker Nonvotes:
Paul D. Rusen
Votes For: 46,900,589
Votes Against:
Votes Withheld: 89,159
Abstentions:
Broker Nonvotes:
- 16 -
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
* 4.1 First Amendment to Credit Agreement, dated as of July 21,
1994, amending the Credit Agreement, dated as of February
17, 1994, among Kaiser, KACC, the financial institutions
party thereto, and BankAmerica Business Credit, Inc., as
Agent (incorporated by reference to Exhibit 4.1 to report
on Form 10-Q for the quarterly period ended June 30, 1994,
filed by Kaiser, File No. 1-9447).
* 10.1 Compensation Agreement, dated July 18, 1994, between
Kaiser Aluminum & Chemical Corporation and Larry L. Watts
(incorporated by reference to Exhibit 10.1 to report on
Form 10-Q for the quarterly period ended June 30, 1994,
filed by Kaiser, File No. 1-9447).
* 10.2 Compensation Agreement, dated July 18, 1994, between Kaiser
Aluminum & Chemical Corporation and Geoff S. Smith
(incorporated by reference to Exhibit 10.2 to report on
Form 10-Q for the quarterly period ended June 30, 1994,
filed by Kaiser, File No. 1-9447).
27 Financial Data Schedule
* Incorporated by reference.
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the quarter
ended June 30, 1994.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, who has signed
this report on behalf of the registrant and as the principal financial
officer of the registrant.
KAISER ALUMINUM & CHEMICAL CORPORATION
/s/ John T. La Duc
By:
---------------------------
John T. La Duc
Vice President and
Chief Financial Officer
Dated: August 12, 1994
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
consolidated financial statements of the registrant for the quarter and six
months ended June 30, 1994, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
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<NAME> KAISER ALUMINUM & CHEMICAL CORPORATION
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