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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 September 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 October 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
- September 30, 1994 (unaudited) and December 31, 1993;
Statements of Consolidated Loss (unaudited)
- quarter and nine months ended September 30, 1994 and 1993;
Statements of Consolidated Cash Flows (unaudited)
- nine months ended September 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>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 52.9 $ 14.2
Receivables 215.4 236.0
Inventories 413.2 426.9
Prepaid expenses and other current assets 98.3 60.7
-------- --------
Total current assets 779.8 737.8
Investments in and advances to unconsolidated affiliates 171.4 183.2
Property, plant, and equipment--net 1,125.2 1,163.7
Deferred income taxes 268.5 210.3
Other assets 254.1 233.2
-------- --------
Total $2,599.0 $2,528.2
======== ========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable $ 126.1 $ 126.3
Accrued interest 13.5 23.6
Accrued salaries, wages, and related expenses 66.3 56.1
Accrued postretirement benefit obligation--current portion 47.6 47.6
Other accrued liabilities 137.1 133.1
Payable to affiliates 79.7 62.4
Short-term borrowings .5
Long-term debt--current portion 11.5 8.7
Notes payable to parent--current portion 21.2 12.6
-------- --------
Total current liabilities 503.0 470.9
Long-term liabilities 499.2 501.7
Accrued postretirement benefit obligation 723.4 713.1
Long-term debt 744.7 720.2
Notes payable to parent 28.8 18.9
Minority interests 81.8 69.7
Redeemable preference stock 28.0 33.6
Stockholders' equity:
Preferred stock 1.8 1.8
Common stock 15.4 15.4
Additional capital 1,604.3 1,471.2
Accumulated deficit (243.8) (165.2)
Additional minimum pension liability (21.6) (21.6)
Less: Note receivable from parent (1,366.0) (1,301.5)
-------- --------
Total stockholders' equity (deficit) (9.9) .1
-------- --------
Total $2,599.0 $2,528.2
======== ========
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
- 2 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED LOSS
(Unaudited)
(In millions of dollars)
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------- -------------------
1994 1993 1994 1993
------ ------ -------- --------
<S> <C> <C> <C> <C>
Net sales $461.1 $428.4 $1,335.7 $1,303.2
------ ------ -------- --------
Costs and expenses:
Cost of products sold 416.0 389.9 1,222.8 1,181.0
Depreciation 22.8 24.4 72.8 72.9
Selling, administrative, research and development,
and general 29.1 31.6 86.6 90.5
------ ------ -------- --------
Total costs and expenses 467.9 445.9 1,382.2 1,344.4
------ ------ -------- --------
Operating loss (6.8) (17.5) (46.5) (41.2)
Other income (expense):
Interest and other income (expense)--net (.8) 3.0 2.7 9.2
Interest expense (22.3) (20.5) (65.9) (63.8)
------ ------ -------- --------
Loss before income taxes, minority interests,
extraordinary loss, and cumulative effect of
changes in accounting principles (29.9) (35.0) (109.7) (95.8)
Credit for income taxes 10.5 14.4 38.6 39.5
Minority interests (.1) 1.1 1.4 3.2
------ ------ -------- --------
Loss before extraordinary loss and cumulative effect of
changes in accounting principles (19.5) (19.5) (69.7) (53.1)
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 $(19.5) $(19.5) $ (75.1) $ (582.8)
====== ====== ======== ========
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
- 3 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
<CAPTION>
Nine Months Ended
September 30,
------------------
1994 1993
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (75.1) $ (582.8)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation 72.8 72.9
Amortization of deferred financing costs and discount on long-term debt 4.8 8.5
Non-cash postretirement benefit expenses other than pensions 10.4 14.6
Minority interests (1.4) (3.2)
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 (46.3) (48.8)
Equity in losses of unconsolidated affiliates 3.2 11.8
(Decrease) increase in accrued interest (9.8) 5.7
Incurrence of financing costs (19.1) (12.0)
Decrease in receivables 13.2 25.0
Decrease in inventories 13.7 8.8
(Increase) decrease in prepaid expenses and other current assets (13.2) 12.8
Decrease in accounts payable (.3) (31.3)
Increase (decrease) in payable to affiliates and accrued liabilities 6.1 (10.7)
Other 5.3 (3.0)
------- ---------
Net cash used for operating activities (30.3) (2.0)
------- ---------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 4.2 11.6
Capital expenditures (37.5) (36.4)
Redemption fund for minority interest preference stock (1.2) (.2)
------- ---------
Net cash used for investing activities (34.5) (25.0)
------- ---------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (326.2) (1,011.3)
Borrowings of long-term debt, including revolving credit 353.5 920.0
Borrowings from MAXXAM Group Inc. (see supplemental disclosure below) 15.0
Tender premiums and other costs of early extinguishment of debt (27.1)
Net short-term (payments) borrowings (.5) 13.7
Net borrowings from parent 18.5 34.6
Dividends paid (.5) (.8)
Redemption of minority interests' preference stock (8.5) (4.2)
Capital contribution 67.2 81.5
------- ---------
Net cash provided by financing activities 103.5 21.4
------- ---------
Net increase (decrease) in cash and cash equivalents during the period 38.7 (5.6)
Cash and cash equivalents at beginning of period 14.2 18.5
------- ---------
Cash and cash equivalents at end of period $ 52.9 $ 12.9
======= =========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 70.9 $ 49.6
Income taxes paid 9.7 9.3
Tax allocation payments from MAXXAM Inc. (3.4)
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 59% 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 41% 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 nine
months 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>
September 30, December 31,
1994 1993
------------- -------------
<S> <C> <C>
Finished fabricated products $ 58.1 $ 83.7
Primary aluminum and work in process 158.8 141.4
Bauxite and alumina 88.1 94.0
Operating supplies and repair and maintenance parts 108.2 107.8
------ ------
Total $413.2 $426.9
====== ======
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 -
<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>
<TABLE>
<CAPTION>
September 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 $1.4 $223.6
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%) 18.8 25.0
12-3/4% Senior Subordinated Notes 400.0 400.0
Other borrowings (fixed and variable rates) 15.7 16.7
------ ------
Total 756.2 728.9
Less current portion 11.5 8.7
------ ------
Long-term debt $744.7 $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 (as amended, the "1994 Credit
Agreement"). The 1994 Credit Agreement consists of a $275.0 five-year
secured, revolving line of credit, scheduled to mature in 1999, and
replaces 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"). KACC is able
to borrow under the facility by means of revolving credit advances and
letters of credit in an aggregate amount equal to the lesser of $275.0
or a borrowing base related to eligible accounts receivable plus
eligible inventory. As of September 30, 1994, $65.8 of letters of
credit were outstanding, leaving $209.2 of borrowing capacity unused
under the 1994 Credit Agreement (of which $59.2 could have been used
for letters of credit). The 1994 Credit Agreement is unconditionally
guaranteed by Kaiser and by certain 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>
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 September 30, 1994, the
balance of such accruals, which is primarily included in Long-term
liabilities, was $38.2.
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 $8.0 for the years 1994 through 1998 and an
aggregate of approximately $12.7 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. As of the date of
this report, the number of such lawsuits pending was approximately
21,300.
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 $98.9 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
- 7 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
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 $103.1 is included primarily in Long-term liabilities at
September 30, 1994. The aggregate amount of the undiscounted
liability at September 30, 1994, is $144.7, before considerations for
insurance recoveries.
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 KACC'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 $95.3, determined on the same basis
as the asbestos-related cost accrual, are recorded primarily in Other
assets as of September 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
KACC 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.
KACC 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 KACC to
certain exchange rate risks. In order to mitigate its exposure, KACC
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 September 30, 1994, KACC had net forward foreign exchange
contracts totaling approximately $17.2 for the purchase of 25.5
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 September
30, 1994, such options established a price range of $15.1 to $15.8 for
the purchase of 24.0 million Australian Dollars through December 1994,
and established a maximum price of $1.5 for the purchase of 1.0
million Pounds Sterling through December 1994.
- 8 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
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,
KACC 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 KACC's price risk
management strategy, which can be modified at any time, (i) varying
quantities of KACC's anticipated production are sold forward at fixed
prices; (ii) call options are purchased to allow KACC to participate
in certain higher market prices, should they materialize, for a
portion of KACC's excess primary aluminum and alumina sold forward;
(iii) option contracts are entered into to establish a price range
KACC will receive for a portion of its excess primary aluminum and
alumina; and (iv) put options are purchased to establish minimum
prices KACC 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 September
30, 1994, KACC had sold forward 11,250 metric tons of primary aluminum
at fixed prices, and had purchased call options in respect of 15,000
metric tons of primary aluminum. Further, in respect of its 1995
anticipated primary aluminum production, as of September 30, 1994,
KACC had sold forward 41,700 metric tons of primary aluminum at fixed
prices, purchased call options in respect of 30,000 metric tons of
primary aluminum, purchased put options to establish a minimum price
for 181,500 metric tons of primary aluminum, and entered into option
contracts that established a price range for 12,000 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, KACC has hedged a portion of its 1995
alumina sales on the primary aluminum forward market. As of September
30, 1994, KACC had sold 37,500 metric tons of primary aluminum forward
at fixed prices and entered into option contracts that established a
price range for 78,000 metric tons of primary aluminum in respect of
such alumina sales contracts. KACC 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, KACC 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, KACC may enter into forward and options
contracts. In this regard, at September 30, 1994, KACC had purchased
9,000 metric tons of primary aluminum forward purchase contracts at
fixed prices that expire at various times through December 1995.
KACC 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 September 30, 1994, the net unrealized gain on KACC's position
in forward foreign exchange and foreign currency options was $3.0 and
the net unrealized loss on aluminum forward sales and option contracts
and the natural gas pricing contract was $39.5, 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.
KACC is exposed to credit risk in the event of non-performance by
other parties to these currency and commodity contracts, but KACC does
not anticipate non-performance by any of these counter-parties.
- 9 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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 and on its hedging strategies. 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 nine months ended September 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.
- 10 -
<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 Nine Months Ended
September 30, September 30,
--------------- -------------------
1994 1993 1994 1993
------ ------ -------- --------
<S> <C> <C> <C> <C>
Shipments: (000 tons)<F1>
Alumina 534.9 576.9 1,577.3 1,508.5
Aluminum processing:
Primary aluminum 48.4 55.3 175.8 183.4
Fabricated aluminum products 105.4 92.9 307.1 280.0
------ ------ -------- --------
Total aluminum products 153.8 148.2 482.9 463.4
====== ====== ======== ========
Average realized sales price:
Alumina (per ton) $ 171 $ 165 $ 162 $ 169
Primary aluminum (per pound) .60 .56 .56 .57
Net sales:
Bauxite and alumina:
Alumina $ 91.5 $ 95.3 $ 255.3 $ 255.5
Other<F2><F3> 19.8 23.0 60.6 64.1
------ ------ -------- --------
Total bauxite and alumina 111.3 118.3 315.9 319.6
------ ------ -------- --------
Aluminum processing:
Primary aluminum 64.1 68.7 218.2 229.3
Fabricated aluminum products 281.9 238.3 790.8 744.6
Other<F3> 3.8 3.1 10.8 9.7
------ ------ -------- --------
Total aluminum processing 349.8 310.1 1,019.8 983.6
------ ------ -------- --------
Total net sales $461.1 $428.4 $1,335.7 $1,303.2
====== ====== ======== ========
Operating income (loss):
Bauxite and alumina $ 7.8 $ 2.3 $ 5.3 $ (1.8)
Aluminum processing 3.3 (4.7) 1.4 12.6
Corporate (17.9) (15.1) (53.2) (52.0)
------ ------ -------- --------
Total operating loss $ (6.8) $(17.5) $ (46.5) $ (41.2)
====== ====== ======== ========
Loss before income taxes, minority interests, extraordinary loss,
and cumulative effect of changes in accounting principles $(29.9) $(35.0) $ (109.7) $ (95.8)
====== ====== ======== ========
Loss before extraordinary loss and cumulative effect of changes
in accounting principles $(19.5) $(19.5) $ (69.7) $ (53.1)
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 $(19.5) $(19.5) $ (75.1) $ (582.8)
====== ====== ======== ========
Capital expenditures $ 15.8 $ 13.1 $ 37.5 $ 36.4
====== ====== ======== ========
<FN>
----------------------------------------------------------------
<F1> All references to tons refer to metric tons of 2,204.6 pounds.
<F2> Includes net sales of bauxite.
<F3> Includes the portion of net sales attributable to minority
interests in consolidated subsidiaries.
</FN>
</TABLE>
- 11 -
<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 $111.3 million in the third
quarter of 1994, compared with $118.3 million in the third quarter of
1993, and $315.9 million in the first nine months of 1994, compared
with $319.6 million in the first nine months of 1993. Revenue from
alumina decreased 4% to $91.5 million in the third quarter of 1994
from $95.3 million in the third quarter of 1993, principally due to
decreased shipments partially offset by higher average realized
prices. Revenue from alumina was $255.3 million in the first nine
months of 1994, compared with $255.5 million in the first nine months
of 1993, as increased shipments were offset by lower average realized
prices.
Aluminum Processing - Revenue from net sales to third parties for
the aluminum processing segment was $349.8 million in the third
quarter of 1994, compared with $310.1 million in the third quarter of
1993, and $1,019.8 million in the first nine months of 1994, compared
with $983.6 million in the first nine months of 1993. Revenue from
primary aluminum decreased 7% to $64.1 million in the third quarter of
1994 from $68.7 million in the third quarter of 1993, principally due
to decreased shipments, partially offset by higher average realized
prices, and decreased 5% to $218.2 million in the first nine months of
1994 from $229.3 million in the first nine months of 1993, primarily
because of lower shipments and, to a lesser extent, lower average
realized prices. Shipments of primary aluminum to third parties
constituted approximately 31% and 36% of total aluminum products
shipments in the third quarter and first nine months of 1994,
respectively, compared with approximately 37% and 40% in the third
quarter and first nine months of 1993. Revenue from fabricated
aluminum products increased 18% to $281.9 million in the third quarter
of 1994 from $238.3 million in the third quarter of 1993, due to
increased shipments and, to a lesser extent, higher average realized
prices, and increased 6% to $790.8 million in the first nine months of
1994 from $744.6 million in the first nine months of 1993, as
increased shipments were partially offset by lower average realized
prices. Although KACC has realized improved prices for all of its
products in the third quarter of 1994 compared with the third quarter
of 1993 and the second quarter of 1994, the third-quarter results
continued to be unfavorably affected by: the defensive hedging of
primary aluminum prices in respect of 1994 shipments, which were put
in place prior to refinancings carried out in 1994 and recent
improvements in metal prices; energy-related curtailments of primary
aluminum production (see "Trends"); relatively low fixed-price
contracts for can sheet, which will expire at year end; and the lag
time in more fully realizing margin improvements associated with the
recently announced price increases for other fabricated products.
Operating Loss
The Company had an operating loss of $6.8 million in the third
quarter of 1994, compared with $17.5 million in the third quarter of
1993, and $46.5 million in the first nine months of 1994, compared
with $41.2 million in the first nine months of 1993.
Bauxite and Alumina - This segment's operating income in the
third quarter of 1994 was $7.8 million, compared with $2.3 million in
the third quarter of 1993, and was $5.3 million in the first nine
months of 1994, compared with an operating loss of $1.8 million in the
first nine months of 1993. The increase in operating income was
principally due to lower manufacturing costs.
- 12 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Aluminum Processing - This segment's operating income was $3.3
million in the third quarter of 1994, compared with an operating loss
of $4.7 million in the third quarter of 1993, as increased shipments
of fabricated aluminum products and higher average realized prices of
primary aluminum and fabricated aluminum products were partially
offset by decreased shipments of primary products. This segment's
operating income was $1.4 million in the first nine months of 1994,
compared with $12.6 million in the first nine months of 1993,
principally due to lower average realized prices of fabricated
aluminum products.
Third quarter results continued to be adversely affected by the
defensive hedging of primary aluminum prices and the constraints on
more fully realizing margin improvements of some fabricated products,
as discussed above.
Corporate - Corporate operating expenses of $17.9 million and
$15.1 million in the third quarters of 1994 and 1993 and $53.2 million
and $52.0 million in the first nine months of 1994 and 1993
represented corporate general and administrative expenses, which are
not allocated to the Company's segments.
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.
- 13 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net Loss
The Company recorded a net loss of $19.5 million for the third
quarters of 1994 and 1993, as a decrease in operating loss was offset
by lower credits for income taxes and a reduction in other income.
For the first nine months of 1994, net loss was $75.1 million,
compared with $582.8 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 September 30, 1994, the Company had working capital of $276.8
million and long-term debt of $744.7 million (excluding Notes payable
to parent), 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. As of September 30, 1994, of the $275.0 million
available under the 1994 Credit Agreement, $65.8 million was
outstanding in the form of letters of credit.
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.
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 KACC's outstanding indebtedness,
enhanced its liquidity, and raised new equity capital.
The 1994 Credit Agreement was amended as of July 21, 1994, by the
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.
- 14-
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Sensitivity to Prices and Hedging Programs
Since September 30, 1994, KACC has entered into additional
forward foreign exchange contracts totaling approximately $32.9
million for the purchase of 45.0 million Australian Dollars from
January through December 1995 in respect of its commitments for 1995
expenditures denominated in foreign currencies.
Since September 30, 1994, KACC has entered into additional hedge
positions in respect of its 1995 anticipated primary aluminum
production. As of the date of this report, KACC had sold forward an
additional 43,750 metric tons of primary aluminum at fixed prices.
See Note 5 of the Notes to Interim Consolidated Financial
Statements for derivative positions at September 30, 1994.
Trends
KACC has operated its Mead and Tacoma smelters in Washington at
approximately 75% of their full capacity since January 1993, when
three reduction potlines were removed from production (two at its Mead
smelter and one at its Tacoma smelter) in response to a power
reduction imposed by the Bonneville Power Administration ("BPA").
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 November 30, 1994. The BPA
has given notice that full BPA power will be restored as of December
1, 1994, and that the BPA expects to be able to provide full service
through November 30, 1995. KACC is evaluating these new
circumstances.
In late August 1994, the Volta River Authority ("VRA") notified
KACC that it intended to suspend supplying power to KACC's 90%-owned
Volta Aluminium Company Limited ("VALCO") smelter after September 10,
1994, due to drought conditions in the catchment area of the Volta
Lake. Following discussions between KACC and the VRA, an agreement
was reached for VALCO to curtail one potline (of the 3-1/2 potlines
that were then operating) on September 18, 1994. The agreement also
called for KACC and the VRA to meet in late October to discuss data
concerning rainfall, lake level, whether an additional curtailment was
warranted, compensation due to KACC because of the curtailment, and
other matters related to the power contract. Following the
discussions in October, the VRA has made sufficient power available to
enable VALCO to restart the potline which was shut down in mid-
September. Restart preparations have begun, and the potline is
expected to be in full operation in early February 1995. The
restoration of full operation of the potline will return VALCO to a
production rate of approximately 140,000 metric tons of primary
aluminum, or 70% of its total annual rated capacity of 200,000 metric
tons. With such restored production, the Company would have 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.
- 15 -
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
On August 24, 1994, the United States Department of Justice (the
"DOJ") issued Civil Investigative Demand No. 11356 ("CID") requesting
information from Kaiser regarding (i) its production, capacity to produce,
and sales of primary aluminum from January 1, 1991, to the date of its
response; (ii) any actual or contemplated reductions in its production
of primary aluminum during that period; and (iii) any communications with
others regarding any actual, contemplated, possible or desired reductions
in primary aluminum production by Kaiser or any of its competitors during
that period. Kaiser has submitted documents and interrogatory answers
to the DOJ responding to the CID.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the quarter
ended September 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
By: /s/ John T. La Duc
----------------------------
John T. La Duc
Vice President and
Chief Financial Officer
Dated: November 10, 1994
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
consolidated financial statements of the Company for the quarter and nine
months ended September 30, 1994, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000054291
<NAME> KAISER ALUMINUM & CHEMICAL CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 215
<ALLOWANCES> 0
<INVENTORY> 413
<CURRENT-ASSETS> 780
<PP&E> 1,125
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,599
<CURRENT-LIABILITIES> 503
<BONDS> 0
<COMMON> 15
2
0
<OTHER-SE> (27)
<TOTAL-LIABILITY-AND-EQUITY> 2,599
<SALES> 1,336
<TOTAL-REVENUES> 1,336
<CGS> 1,223
<TOTAL-COSTS> 1,223
<OTHER-EXPENSES> 159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> (110)
<INCOME-TAX> 39
<INCOME-CONTINUING> (70)
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<CHANGES> 0
<NET-INCOME> (75)
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</TABLE>
