=================================================================
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, 1999
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, CALIFORNIA 94566-7769
(Address of principal executive offices) (Zip Code)
(925) 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
------ -------
At October 15, 1999, the registrant had 46,171,365 shares
of Common Stock outstanding.
=================================================================
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 8.6 $ 98.3
Receivables 293.2 288.2
Inventories 554.2 543.5
Prepaid expenses and other current assets 120.7 104.9
------------------------------
Total current assets 976.7 1,034.9
Investments in and advances to unconsolidated affiliates 96.5 128.3
Property, plant, and equipment - net 1,059.7 1,108.7
Deferred income taxes 430.5 376.9
Other assets 535.9 346.0
------------------------------
Total $ 3,099.3 $ 2,994.8
==============================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 196.2 $ 173.3
Accrued interest 24.7 37.3
Accrued salaries, wages, and related expenses 59.4 73.8
Accrued postretirement medical benefit obligation - 48.2 48.2
current portion
Other accrued liabilities 153.0 150.2
Payable to affiliates 82.4 75.3
Long-term debt - current portion .3 .4
------------------------------
Total current liabilities 564.2 558.5
Long-term liabilities 733.7 533.0
Accrued postretirement medical benefit obligation 684.1 694.3
Long-term debt 969.9 962.6
Minority interests 95.1 101.9
Redeemable preference stock 19.4 20.1
Commitments and contingencies
Stockholders' equity:
Preferred stock 1.5 1.5
Common stock 15.4 15.4
Additional capital 2,142.9 2,052.8
Accumulated deficit (244.1) (151.2)
Less: Note receivable from parent (1,882.8) (1,794.1)
------------------------------
Total stockholders' equity 32.9 124.4
------------------------------
Total $ 3,099.3 $ 2,994.8
==============================
</TABLE>
The accompanying notes to interim consolidated financial
statements are an integral part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
(Unaudited)
(In millions of dollars)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net sales $ 520.3 $ 541.6 $ 1,524.7 $ 1,753.4
----------------------------- -----------------------------
Costs and expenses:
Cost of products sold 463.9 458.2 1,397.7 1,458.8
Depreciation and amortization 20.9 24.5 69.4 74.8
Selling, administrative, research and
development, and general 28.4 28.0 82.6 88.5
Non-cash impairment of Micromill assets 19.1 - 19.1 -
----------------------------- -----------------------------
Total costs and expenses 532.3 510.7 1,568.8 1,622.1
----------------------------- -----------------------------
Operating income (loss) (12.0) 30.9 (44.1) 131.3
Other income (expense):
Interest expense (27.3) (27.7) (82.4) (82.6)
Other - net (21.9) 1.3 (19.3) (.5)
----------------------------- -----------------------------
Income (loss) before income taxes and minority
interests (61.2) 4.5 (145.8) 48.2
Benefit (provision) for income taxes 21.1 6.7 49.9 (8.5)
Minority interests 1.3 - 4.1 1.3
----------------------------- -----------------------------
Net income (loss) $ (38.8) $ 11.2 $ (91.8) $ 41.0
============================= =============================
</TABLE>
The accompanying notes to interim consolidated financial
statements are an integral part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (91.8) $ 41.0
Adjustments to reconcile net income (loss) to net cash (used)
provided by operating activities:
Depreciation and amortization (including deferred financing
costs of $3.2 and $3.0) 72.6 77.8
Gain on sale of interest in AKW joint venture (50.5) -
Non-cash impairment of Micromill assets 19.1 -
Non-cash benefit for income taxes - (8.3)
Equity in (income) loss of unconsolidated affiliates, net
of distributions (2.0) .9
Minority interests (4.1) (1.3)
(Increase) decrease in receivables (5.0) 43.0
(Increase) decrease in inventories (10.7) 48.6
(Increase) decrease in prepaid expenses and other current
assets (35.2) 26.1
Increase (decrease) in accounts payable and accrued interest 10.3 (17.2)
Decrease in payable to affiliates and other accrued
liabilities (1.1) (47.4)
(Decrease) increase in accrued and deferred income taxes (56.4) 3.1
Increase (decrease) in net long-term assets and liabilities 28.2 (26.8)
Other (.9) 7.6
--------------------------------
Net cash (used) provided by operating activities (127.5) 147.1
--------------------------------
Cash flows from investing activities:
Proceeds from sale of interest in AKW joint venture 70.4 -
Capital expenditures (40.3) (52.3)
Other .1 .2
--------------------------------
Net cash provided (used) by investing activities 30.2 (52.1)
--------------------------------
Cash flows from financing activities:
Borrowings under revolving credit facility, net 7.7 -
Repayments of long-term debt (.4) (7.1)
Capital stock issued 1.4 .1
Incurrance of financing costs - (.6)
Decrease in restricted cash, net .7 3.3
Dividends paid (.4) (.5)
Redemption of minority interests' preference stock (1.4) (8.6)
--------------------------------
Net cash provided (used) by financing activities 7.6 (13.4)
--------------------------------
Net (decrease) increase in cash and cash equivalents during (89.7) 81.6
the period
Cash and cash equivalents at beginning of period 98.3 15.8
--------------------------------
Cash and cash equivalents at end of period $ 8.6 $ 97.4
================================
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 91.8 $ 92.6
Income taxes paid 11.2 9.8
Tax allocation payments to Kaiser Aluminum Corporation - 2.7
</TABLE>
The accompanying notes to interim consolidated financial
statements are an integral part of these statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except prices and per share amounts)
1. GENERAL
Kaiser Aluminum & Chemical Corporation (the "Company") is
the principal operating subsidiary of Kaiser Aluminum
Corporation ("Kaiser"). Kaiser is a subsidiary of MAXXAM Inc.
("MAXXAM"). MAXXAM and one of its wholly owned subsidiaries
together own approximately 63% of the Company's Common Stock
with the remaining approximately 37% publicly held.
The foregoing unaudited interim 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 disclosures required by generally
accepted accounting principles for complete financial
statements. These unaudited interim consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements for the year ended December
31, 1998. In the opinion of management, the unaudited interim
consolidated financial statements furnished herein include all
adjustments, all of which are of a normal recurring nature,
necessary for a fair statement of the results for the interim
periods presented.
The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities known to exist as of the date the financial
statements are published, and the reported amounts of revenues
and expenses during the reporting period. Uncertainties with
respect to such estimates and assumptions are inherent in the
preparation of the Company's consolidated financial statements;
accordingly, it is possible that the actual results could
differ from these estimates and assumptions, which could have
a material effect on the reported amounts of the Company's
consolidated financial position and results of operations.
Operating results for the quarter and nine-month periods
ended September 30, 1999, are not necessarily indicative of
the results that may be expected for the year ending December
31, 1999.
Certain reclassifications of prior-year information were
made to conform to the current presentation.
INCIDENT AT GRAMERCY FACILITY
On July 5, 1999, the Company's Gramercy, Louisiana alumina
refinery was extensively damaged by an explosion in the
digestion area of the plant. Twenty-four employees were
injured in the incident, several of them severely. As a
result of the incident, alumina production at the facility was
completely curtailed. Production at the plant is currently
expected to remain curtailed until at least mid-2000 when the
Company expects to begin partial production. Based on
preliminary estimates, full production is currently expected to
be achieved by the end of 2000 or shortly thereafter. However,
any delay in obtaining the necessary permits or approvals to
begin construction or operations would likely delay these
expected production dates. Shortly after the incident, the
Company declared force majeure with respect to certain of its
third party alumina and hydrate sales contracts and third
party vendor purchase contracts. However, the Company
subsequently agreed to supply certain third party alumina
customers. See Business Interruption below.
The cause of the incident is under investigation by the
Company and governmental agencies. Depending on the outcome
of the ongoing investigations by the various government
agencies, the Company could be subject to civil and/or
criminal fines and penalties. However, as more fully
explained below, based on what is known to date, the Company
currently believes that the financial impact of this incident
(in excess of insurance deductibles and self-retention
provisions) will be largely offset by insurance coverage.
The Company has significant amounts of insurance coverage
related to the Gramercy incident. Deductibles and self-retention
provisions under the insurance coverage for the
incident total $5.0, which amounts have been charged to Cost
of products sold during the quarter ended September 30, 1999.
The Company's insurance coverage has four separate components:
property damage, business interruption, liability and workers'
compensation. These components are discussed in the following
paragraphs.
Property Damage. The Company's insurance policies provide
that, if the Company rebuilds the facility (which is the
Company's current intention), the Company will be reimbursed
for the costs of repairing or rebuilding the damaged portion
of the facility using new materials of like kind and quality
with no deduction for depreciation. The Company and its
engineers are in the process of developing construction
alternatives and cost projections to rebuild the facility.
Once this process is complete, the Company will have detailed
discussions with the insurance carriers and their
representatives regarding the amount of reimbursement. The
Company currently expects that it will be able to reach an
agreement with its insurance carriers as to a minimum amount
of property damage reimbursement during the fourth quarter of
1999. However, there can be no assurance that the discussions
with the insurance carriers and their representatives will be
completed by the end of the fourth quarter or that the minimum
amount of insurance proceeds will be known by that time. It
is unclear when the Company will reach a final agreement as to
the ultimate amount of recoveries the Company will receive.
At September 30, 1999, the Company had accrued approximately
$3.0 for estimated property damage insurance recoveries.
As the estimated amount of reimbursement becomes known to
the Company, it will be required under generally accepted
accounting principles to recognize gains to the extent that
the estimated insurance proceeds exceed the carrying value of
the damaged property, which is approximately $15.0. Such
gains may be reflected beginning in the fourth quarter of 1999
and from time to time thereafter as additional property
reimbursements are agreed to by the insurance carriers. The
amount of such gains is expected to be significant. The
overall impact of recognizing the gains will be a significant
increase in stockholders' equity and an increase in
depreciation expense in future years once production is
restored.
Business Interruption. The Company's insurance policies
provide for the reimbursement of specified continuing expenses
incurred during the interruption period plus lost profits (or
less expected losses) plus other expenses incurred as a result
of the incident. Operations at the Gramercy facility and a
49%-owned facility in Jamaica, which supplies bauxite to
Gramercy, will continue to incur operating expenses until
production at the Gramercy facility is restored. The Gramercy
facility will also incur incremental costs for clean up and
other activities during the remainder of 1999 and 2000.
Additionally, the Company will incur increased costs as a
result of recent agreements to supply certain of Gramercy's
major customers with alumina, despite the fact that the
Company had declared force majeure with respect to the
contracts shortly after the incident. The Company is
purchasing alumina from third parties, in excess of the
amounts of alumina available from other Company-owned
facilities, to supply these customers' needs as well as to
meet intersegment requirements. In consideration of all of
the foregoing items, the Company has recorded expected business
interruption insurance recoveries totaling $22.0 as a reduction
of Cost of products sold, which amount substantially offsets
actual expenses incurred during the quarter ended September 30,
1999. However, the amount recorded represents an estimate of
the Company's business interruption coverage, based on
preliminary discussions with the insurance carriers and their
representatives, and is, therefore, subject to change. The
Company currently believes that additional amounts may be
recoverable. Any adjustments to the recorded amounts of
expected recovery will be reflected from time to time as
agreements with the insurance carriers are reached. The
amounts of such adjustments could be material.
Since production has been completely curtailed at the
Gramercy facility, the Company has, for the time being,
suspended depreciation of the facility. Depreciation expense
for the first six months of 1999 was approximately $6.0.
However, the Company believes that the depreciation expense
that would have been incurred may, at least in part, be
recoverable under its business interruption insurance coverage.
Liability. The incident has also resulted in more than
thirty lawsuits being filed against the Company alleging, among
other things, property damage and personal injury. In
addition, a claim for alleged business interruption losses has
been made by a neighboring business. The aggregate amount of
damages sought in the lawsuits and other claims cannot be
determined at this time; however, the Company does not
currently believe the damages will exceed the amount of
coverage under its liability policies.
Workers' Compensation. Claims relating to all of the
injured employees are expected to be covered under the
Company's workers' compensation or liability policies.
However, the aggregate amount of workers' compensation claims
cannot be determined at this time and it is possible that such
claims could exceed the Company's coverage limitations. While
it is presently impossible to determine the aggregate amount
of claims that may be incurred, or whether they will exceed
the Company's coverage limitations, the Company currently
believes that any amount in excess of the coverage limitations
will not have a material effect on the Company's consolidated
financial position or liquidity. However, it is possible that
as additional facts become available, additional charges may be
required and such charges could be material to the period in
which they are recorded.
Timing of Insurance Recoveries. As of September 30,
1999, the Company has accrued receivables totaling
approximately $25.0 for estimated recoveries under its property
damage and business interruption insurance coverage. The
Company is currently working with the insurance carriers to
minimize, to the extent possible, the amount and period of
time between when the Company incurs costs and when it is
reimbursed. Delays in receiving insurance proceeds could have
a temporary adverse impact on the Company's short-term
liquidity and delay the rebuilding of the Gramercy facility.
LABOR RELATED COSTS
The Company is currently operating five of its U.S.
facilities with salaried employees and other workers as a
result of the September 30, 1998, strike by the United
Steelworkers of America ("USWA") and the subsequent "lock-out"
by the Company in January 1999. However, the Company has
continued to accrue certain benefits for the USWA members
during the period of the strike and subsequent lock-out. For
purposes of computing the benefit-related costs and liabilities
to be reflected in the accompanying interim consolidated
financial statements, the Company has based its accruals on
the terms of the previously existing (expired) USWA contract.
Any differences between any amounts accrued and any amounts
ultimately agreed to during the collective bargaining process
will be reflected in future results upon settlement or during
the term of any new contract.
Impairment of Micromill Assets
As previously announced, in early 1999, the Company began
a search for a strategic partner for the further
development and deployment of its Micromill(TM) technology.
This change in strategic course was based on
management's conclusion that additional time and investment
would be required to achieve a commercial success. Given
the Company's other strategic priorities, the Company believed
that introducing added commercial and financial
resources was the appropriate course of action for capturing
the maximum long-term value. A number of third
parties were contacted regarding joint ventures or other
arrangements. Based on negotiations with these third
parties, the Company now believes that a sale of the Micromill
assets and technology is more likely than a
partnership and that any such sales transaction would likely
result in the Company receiving a combination of a
small up-front payment and future payments based on the
subsequent performance and profitability of the Micromill
technology. As a result of these negotiations, the Company
concluded that the carrying value of the Micromill
assets should be reduced by $19.1. Accordingly, the Company
recorded a non-cash impairment charge to reflect this
write-down in the third quarter of 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board
("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires
companies to recognize all derivative instruments as assets or
liabilities in the balance sheet and to measure
those instruments at fair value. Under SFAS No. 133, the
Company will be required to "mark-to-market" its hedging
positions at each period-end in advance of recording the
physical transactions to which the hedges relate. Changes
in the fair value of the Company's open hedging positions will
be reflected as an increase or reduction in
stockholders' equity through comprehensive income. The impact
of the changes in fair value of the Company's
hedging positions will reverse out of comprehensive income (net
of any fluctuations in other "open" positions) and
will be reflected in traditional net income when the
subsequent physical transactions occur. Currently, the dollar
amount of the Company's comprehensive income adjustments is not
significant so there is not a significant difference
between "traditional" net income and comprehensive income.
However, differences between comprehensive income and
traditional net income may become significant in future periods
as SFAS No. 133 will result in fluctuations in
comprehensive income and stockholders' equity in periods of
price volatility, despite the fact that the Company's
cash flow and earnings will be "fixed" to the extent hedged.
This result is contrary to the intent of the
Company's hedging program, which is to "lock-in" a price (or
range of prices) for products sold/used so that
earnings and cash flows are subject to reduced risk of
volatility.
Adoption of SFAS No. 133 was initially required on or
before January 1, 2000. However, in June 1999, the FASB
issued SFAS No. 137 which delayed the required implementation
date of SFAS No. 133 to no later than January 1,
2001. The Company is currently evaluating how and when to
implement SFAS No. 133.
2. INVENTORIES
The classification of inventories is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-----------------------------
<S> <C> <C>
Finished fabricated aluminum products $ 138.3 $ 112.4
Primary aluminum and work in process 181.0 205.6
Bauxite and alumina 112.8 109.5
Operating supplies and repair and maintenance parts 122.1 116.0
-----------------------------
Total $ 554.2 $ 543.5
=============================
</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.
3. CONTINGENCIES
Environmental Contingencies
The Company is subject to a number of environmental laws,
to fines or penalties assessed for alleged breaches
of such environmental laws, and to claims and litigation based
upon such laws. The Company currently is subject to
a number of claims 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 on 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, 1999, the balance of such accruals,
which are primarily included in Long-term
liabilities, was $49.7. These environmental accruals represent
the Company's estimate of costs reasonably expected
to be incurred based on 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 these
environmental accruals will be approximately $3.0 to $7.0 for
the years 1999 through 2004 and an aggregate of
approximately $31.0 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. As the resolution of these
matters is subject to further regulatory review and approval,
no specific assurance can be given as to when the
factors upon which a substantial portion of this estimate is
based can be expected to be resolved. However, the
Company is currently working to resolve certain of these
matters.
The Company believes that it has insurance coverage
available to recover certain incurred and future
environmental costs and is actively pursuing claims in this
regard. No assurances can be given that the Company
will be successful in attempts to recover incurred or future
costs from insurers or that the amount of recoveries
received will ultimately be adequate to cover costs incurred.
While uncertainties are inherent in the final outcome of
these environmental matters, and it is presently
impossible to determine the actual costs that ultimately may
be incurred, management currently believes that the
resolution of such uncertainties should not have a material
adverse effect on the Company's consolidated financial
position, results of operations, or liquidity.
Asbestos Contingencies
The Company is a defendant in a number of lawsuits, some
of which involve claims of multiple persons, in which
the plaintiffs allege that certain of their injuries were
caused by, among other things, exposure to asbestos
during, and as a result of, their employment or association
with the Company or exposure to products containing
asbestos produced or sold by the Company. The lawsuits
generally relate to products the Company has not sold for
at least 20 years. At September 30, 1999, the number of such
claims pending was approximately 96,600, as compared
with 86,400 at December 31, 1998. In 1998, approximately
22,900 of such claims were received and 13,900 were
settled or dismissed. During the quarter and nine-month
periods ended September 30, 1999, approximately 6,700 and
23,000 of such claims were received and 4,800 and 12,800 of
such claims were settled or dismissed. However, the
foregoing claim and settlement figures as of and for the
quarter and nine-month periods ended September 30, 1999,
do not reflect the fact that as of September 30, 1999, the
Company has reached agreements under which it expects to
settle approximately 28,000 of the pending asbestos-related
claims over an extended period.
The Company maintains a liability for estimated asbestos-
related costs for claims filed to date and
an estimate of claims to be filed over a 10 year period (i.e.,
through 2009). The Company's estimate is based on the
Company's view, at each balance sheet date, of the current and
anticipated number of asbestos-related claims, the
timing and amounts of asbestos-related payments, the status of
ongoing litigation and settlement initiatives, and
the advice of Wharton Levin Ehrmantraut Klein & Nash, P.A.,
with respect to the current state of the law related to
asbestos claims. However, there are inherent uncertainties
involved in estimating asbestos-related costs and the
Company's actual costs could exceed the Company's estimates due
to changes in facts and circumstances after the
date of each estimate. Further, while the Company does not
presently believe there is a reasonable basis for
estimating asbestos-related costs beyond 2009 and, accordingly,
no accrual has been recorded for any costs which may
be incurred beyond 2009, there is a reasonable possibility
that such costs may continue beyond 2009, and that such
costs could be substantial. As of September 30, 1999, an
estimated asbestos-related cost accrual of $396.0, before
consideration of insurance recoveries, has been reflected in
the accompanying financial statements primarily in
Long-term liabilities. The Company estimates that annual
future cash payments for asbestos-related costs will range
from approximately $50.0 to $75.0 in the years 2000 to 2003
and an aggregate of approximately $121.0 thereafter.
The Company believes that it has insurance coverage
available to recover a substantial portion of its asbestos-
related costs. Although the Company has settled
asbestos-related coverage matters with certain of its insurance
carriers, other carriers have not yet agreed to settlements.
The timing and amount of future recoveries from these
insurance carriers will depend on the pace of claims review
and processing by such carriers and on the resolution
of any disputes regarding coverage under such policies. The
Company believes that substantial recoveries from the
insurance carriers related to existing asbestos-related
liabilities are probable. The Company reached this
conclusion after considering its prior insurance-related
recoveries in respect of asbestos-related claims, existing
insurance policies and the advice of Heller Ehrman White &
McAuliffe with respect to applicable insurance coverage
law relating to the terms and conditions of those policies.
Accordingly, an estimated aggregate insurance recovery
of $317.9, determined on the same basis as the asbestos-related
cost accrual, is recorded primarily in Other
assets at September 30, 1999. However, no assurances can be
given that the Company will be able to project similar
recovery percentages for future asbestos-related claims or that
the amounts related to future asbestos-related
claims will not exceed the Company's aggregate insurance
coverage.
Management continues to monitor claims activity, the
status of lawsuits (including settlement initiatives),
legislative developments, and costs incurred in order to
ascertain whether an adjustment to the existing accruals
should be made to the extent that historical experience may
differ significantly from the Company's underlying
assumptions. This process resulted in the Company reflecting
charges of $15.2 and $53.2 (included in Other
income(expense)) in the quarter and nine-month periods ended
September 30, 1999, for asbestos-related claims, net of
expected insurance recoveries, based on recent cost and other
trends experienced by the Company and other companies.
While uncertainties are inherent in the final outcome of these
asbestos matters and it is presently impossible to
determine the actual costs that ultimately may be incurred and
insurance recoveries that will be received,
management currently believes that, based on the factors
discussed in the preceding paragraphs, the resolution of
asbestos-related uncertainties and the incurrence of asbestos-
related costs net of related insurance
recoveries should not have a material adverse effect on the
Company's consolidated financial position or liquidity. However,
as the Company's estimates are periodically re-evaluated,
additional charges may be necessary and such charges could
be material to the results of the period in which they are
recorded.
Labor Matters
In connection with the USWA strike and subsequent lock-out
by the Company, certain allegations of unfair labor
practices ("ULPs") were filed with the National Labor Relations
Board ("NLRB") by the USWA. As previously
disclosed, the Company responded to all such allegations and
believed that they were without merit. In July 1999,
the Oakland, California, regional office of the NLRB dismissed
all material charges filed against the Company. In
September 1999, the union filed an appeal of this ruling with
the NLRB general counsel's office in Washington, DC.
If the original decision were to be reversed, the matter would
be referred to an administrative law judge for a
hearing whose outcome would be subject to an additional appeal
either by the USWA or the Company. This process
could take months or years. Although the Company knows of no
reason why the original decision would be reversed on
appeal, there can be no certainty that the original NLRB
decision will be upheld. If these proceedings eventually
resulted in a definitive ruling against the Company, it could
be obligated to provide back pay to USWA members at
the five plants and such amount could be significant.
However, while uncertainties are inherent in the final
outcome of such matters, the Company believes that the
resolution of the alleged ULPs should not result in a
material adverse effect on the Company's consolidated financial
position, results of operations, or liquidity.
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 final
outcome of such matters, and it is presently impossible to
determine the actual costs that ultimately may be incurred,
management currently believes that the resolution of
such uncertainties and the incurrence of such costs should not
have a material adverse effect on the Company's
consolidated financial position, results of operations, or
liquidity.
See Note 10 of Notes to Consolidated Financial Statements
for the year ended December 31, 1998, for additional
information on commitments and contingencies.
4. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING
PROGRAMS
At September 30, 1999, the net unrealized loss on the
Company's position in aluminum forward sales and option
contracts (excluding the impact of those contracts discussed
below which have been marked to market), energy forward
purchase and option contracts, and forward foreign exchange
contracts was approximately $36.6 (based on comparisons
to applicable quarter-end published market prices). As the
Company's hedging activities are generally designed to
lock-in a specified price or range of prices, gains or losses
on the derivative contracts utilized in these hedging
activities will generally be offset by losses or gains,
respectively, on the transactions being hedged.
Alumina and Aluminum
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. Primary
aluminum prices have historically been subject to significant
cyclical price fluctuations. Alumina prices as well
as fabricated aluminum product prices (which vary considerably
among products) are significantly influenced by
changes in the price of primary aluminum but generally lag
behind primary aluminum price changes by up to three
months. Since 1993, the Average Midwest United States
transaction price for primary aluminum has ranged from
approximately $.50 to $1.00 per pound.
From time to time in the ordinary course of business, the
Company enters into hedging transactions to provide
price risk management in respect of the net exposure of
earnings and cash flows resulting from (i) anticipated
sales of alumina, primary aluminum and fabricated aluminum
products, less (ii) expected purchases of certain items,
such as aluminum scrap, rolling ingot, and bauxite, whose
prices fluctuate with the price of primary aluminum.
Forward sales contracts are used by the Company to effectively
fix the price that the Company will receive for its
shipments. The Company also uses option contracts (i) to
establish a minimum price for its product shipments, (ii)
to establish a "collar" or range of prices for the Company's
anticipated sales, and/or (iii) to permit the Company
to realize possible upside price movements. As of September
30, 1999, the Company had sold forward, at fixed
prices, approximately 6,000* tons of primary aluminum with
respect to the remainder of 1999. As of September 30,
1999, the Company had also entered into option contracts that
established a price range for an additional 65,000,
341,000 and 180,000 tons of primary aluminum for the remainder
of 1999, 2000 and 2001, respectively.
----------------------
* All references to tons in this report refer to metric tons of
2,204.6 pounds.
Additionally, through September 30, 1999, the Company had
entered into a series of transactions with a
counterparty that will provide the Company with a premium over
the forward market prices at the date of the
transaction for 4,000 tons of primary aluminum per month
during the period October 1999 through June 2001. The
Company also contracted with the counterparty to receive
certain fixed prices (also above the forward market prices
at the date of the transaction) on 8,000 tons of primary
aluminum per month over a three year period commencing
October 2001, unless market prices during certain periods
decline below a stipulated "floor" price, in which case,
the fixed price sales portion of the transactions terminate.
The price at which the October 2001 and later
transactions terminate is well below current market prices.
While the Company believes that the October 2001 and
later transactions are consistent with its stated hedging
objectives, these positions do not qualify for treatment
as a "hedge" under current accounting guidelines. Accordingly,
these positions are "mark-to-market" each period.
For the quarter and nine-month periods ended September 30,
1999, the Company recorded mark-to-market charges of $5.9
and $20.0 in Other income (expense) associated with the
transactions described in this paragraph.
As of September 30, 1999, virtually all the Company's
sales of alumina to third parties for 1999, 2000 and
2001 are indexed to future prices of primary aluminum.
Energy
The Company is exposed to energy price risk from
fluctuating prices for fuel oil and diesel fuel consumed in
the production process. The Company from time to time in the
ordinary course of business enters into hedging
transactions with major suppliers of energy and energy related
financial instruments. As of September 30, 1999,
the Company held a combination of fixed price purchase and
option contracts for an average of 249,000 and 232,000
barrels per month of fuel oil and diesel fuel for 1999 and
2000, respectively.
Foreign Currency
The Company enters into forward exchange contracts to
hedge material cash commitments in respect of foreign
subsidiaries or affiliates. At September 30, 1999, the
Company had net forward foreign exchange contracts totaling
approximately $113.1 for the purchase of 170.0 Australian
dollars from October 1999 through May 2001, in respect of
its Australian dollar-denominated commitments for the remainder
of 1999 through May 2001. In addition, the Company
has entered into an option contract to purchase 42.0
Australian dollars for the period from January 2000 through
June 2001.
See Note 1 of the Notes to Consolidated Financial
Statements for the year ended December 31, 1998, for
additional information concerning the use of derivative
financial instruments.
5. SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
In February 1999, the Company, through a subsidiary,
completed the acquisition of its joint venture partner's
45% interest in Kaiser LaRoche Hydrate Partners ("KLHP") for a
cash purchase price of approximately $10.0. As the
Company already owned 55% of KLHP, the results of KLHP were
already included in the Company's consolidated
financial statements.
On April 1, 1999, the Company completed the previously
announced sale of its 50% interest in AKW L.P. ("AKW"),
an aluminum wheels joint venture, to its partner, Accuride
Corporation for $70.4. The sale resulted in the Company
recognizing a net pre-tax gain of $50.5 in the second quarter
of 1999. The Company's equity in income of AKW for
the nine-month period ended September 30, 1999, was $2.5. The
Company's equity in income of AKW for the quarter
and nine-month periods ended September 30, 1998, was $2.2 and
$5.6, respectively.
6. INTERIM OPERATING SEGMENT INFORMATION
The Company uses a portion of its bauxite, alumina and
primary aluminum production for additional processing at
its downstream facilities. Transfers between business units
are made at estimated market prices. The accounting
policies of the segments are the same as those described in
Note 1 of Notes to Consolidated Financial Statements
for the year ended December 31, 1998. Business unit results
are evaluated internally by management before any
allocation of corporate overhead and without any charge for
income taxes or interest expense. See Note 12 of Notes
to Consolidated Financial Statements for the year ended
December 31, 1998, for additional information regarding the
Company's segments.
Financial information by operating segment for the quarters and
nine months ended September 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net Sales:
Bauxite and Alumina: (1)
Net sales to unaffiliated customers $ 108.3 $ 129.3 $ 308.8 $ 359.5
Intersegment sales 33.7 21.2 86.3 99.5
-------------- -------------- -------------- --------------
142.0 150.5 395.1 459.0
-------------- -------------- -------------- --------------
Primary Aluminum:
Net sales to unaffiliated customers 113.5 94.6 303.1 326.6
Intersegment sales 65.7 66.9 177.9 194.7
-------------- -------------- -------------- --------------
179.2 161.5 481.0 521.3
-------------- -------------- -------------- --------------
Flat-Rolled Products 140.8 166.2 444.4 557.5
Engineered Products 134.5 132.6 405.8 451.2
Minority interests 23.2 18.8 62.6 58.6
Eliminations (99.4) (88.0) (264.2) (294.2)
-------------- -------------- -------------- --------------
$ 520.3 $ 541.6 $ 1,524.7 $ 1,753.4
============== ============== ============== ==============
Operating income (loss):
Bauxite and Alumina (2) $ .9 $ 9.3 $ (10.4) $ 38.7
Primary Aluminum (3) 10.0 13.6 (10.5) 55.8
Flat-Rolled Products 5.8 16.7 20.7 56.2
Engineered Products 12.2 11.8 29.8 43.3
Micromill (22.3) (4.5) (28.6) (14.4)
Eliminations 1.1 1.1 6.6 3.5
Corporate and Other (19.7) (17.1) (51.7) (51.8)
-------------- -------------- -------------- --------------
$ (12.0) $ 30.9 $ (44.1) $ 131.3
============== ============== ============== ==============
Depreciation and amortization:
Bauxite and Alumina (4) $ 6.0 $ 8.8 $ 23.8 $ 27.4
Primary Aluminum 6.9 7.5 21.2 22.5
Flat-Rolled Products 4.0 4.1 12.2 12.2
Engineered Products 2.6 2.6 7.9 8.0
Micromill .7 .7 2.1 2.2
Corporate and Other .7 .8 2.2 2.5
-------------- -------------- -------------- --------------
$ 20.9 $ 24.5 $ 69.4 $ 74.8
============== ============== ============== ==============
</TABLE>
(1) Net sales for the quarter ended September 30, 1999,
include approximately 190 tons of alumina purchased from
third parties and resold to certain unaffiliated customers
of the Gramercy facility and 60 tons of alumina
purchased from third parties and resold to the Company's
primary aluminum business unit.
(2) Operating income (loss) for the quarter and nine-month
period ended September 30, 1999, includes estimated
business interruption insurance recoveries totaling $22.0.
(3) Operating income (loss) for the quarter and nine-month
period ended September 30, 1999, includes potline
preparation and restart costs of $1.9 and $11.5,
respectively.
(4) Depreciation was suspended for the Gramercy facility for
the quarter ended September 30, 1999, as a result of
the July 5, 1999, incident. Depreciation expense for the
Gramercy facility for the six months ended June 30,
1999, was approximately $6.0.
Excluding the February 1999 purchase of the remaining
interest in KLHP, which affected the Bauxite and Alumina
segment, and the April 1999 sale of the Company's interest in
AKW, which affected the Engineered Products segment,
there were no material changes in segment assets since
December 31, 1998. Capital expenditures made during the
first nine months of 1999 (other than the acquisition of the
interest in KLHP) were incurred on a relatively
ratable basis among the Company's four primary operating
business segments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
This section should be read in conjunction with the
response to Item 1, Part I, of this Report.
This section contains statements which constitute
"forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These
statements appear in a number of places in this section
(see, for example, "Recent Events and Developments," "Results
of Operations," and "Liquidity and Capital
Resources"). Such statements can be identified by the use of
forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans" or
"anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions
of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties,
and that actual results may vary materially from those in the
forward-looking statements as a result of various
factors. These factors include the effectiveness of
management's strategies and decisions, general economic and
business conditions, developments in technology, year 2000
technology issues, new or modified statutory or
regulatory requirements, and changing prices and market
conditions. This section and the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, each identify
other factors that could cause such differences. No
assurance can be given that these are all of the factors that
could cause actual results to vary materially from
the forward-looking statements.
RECENT EVENTS AND DEVELOPMENTS
INCIDENT AT GRAMERCY FACILITY
On July 5, 1999, the Company's Gramercy, Louisiana alumina
refinery was extensively damaged by an explosion in
the digestion area of the plant. Twenty-four employees were
injured in the incident, several of them severely. As
a result of the incident, alumina production at the facility
was completely curtailed. Production at the plant is
currently expected to remain curtailed until at least mid-2000
when the Company expects to begin partial production.
Based on preliminary estimates, full production is currently
expected to be achieved by the end of 2000 or shortly
thereafter. However, any delay in obtaining the necessary
permits or approvals to begin construction or operations
would likely delay these expected production dates. Shortly
after the incident, the Company declared force majeure
with respect to certain of its third party alumina and hydrate
sales contracts and third party vendor purchase
contracts. However, the Company subsequently agreed to supply
certain third party alumina customers. See Business
Interruption below.
The cause of the incident is under investigation by the
Company and governmental agencies. Depending on the
outcome of the ongoing investigations by the various
government agencies, the Company could be subject
to civil and/or criminal fines and penalties.
However, as more fully explained below, based on what is
known to date, the Company currently believes that the
financial impact of this incident (in excess of insurance
deductibles and self-retention provisions) will be largely
offset by insurance coverage.
The Company has significant amounts of insurance coverage
related to the Gramercy incident. Deductibles and
self-retention provisions under the insurance coverage for the
incident total $5.0 million, which amounts have been
charged to Cost of products sold during the quarter ended
September 30, 1999. The Company's insurance coverage has
four separate components: property damage, business
interruption, liability and workers' compensation. These
components are discussed in the following paragraphs.
Property Damage. The Company's insurance policies provide
that, if the Company rebuilds the facility (which is
the Company's current intention), the Company will be
reimbursed for the costs of repairing or rebuilding the
damaged portion of the facility using new materials of like
kind and quality with no deduction for depreciation.
The Company and its engineers are in the process of developing
construction alternatives and cost projections to
rebuild the facility. Once this process is complete, the
Company will have detailed discussions with the insurance
carriers and their representatives regarding the amount of
reimbursement. The Company currently expects that it
will be able to reach an agreement with its insurance carriers
as to a minimum amount of property damage
reimbursement during the fourth quarter of 1999. However,
there can be no assurance that the discussions with the
insurance carriers and their representatives will be completed
by the end of the fourth quarter or that the minimum
amount of insurance proceeds will be known by that time. It
is unclear when the Company will reach a final
agreement as to the ultimate amount of recoveries the Company
will receive. At September 30, 1999, the Company had
accrued approximately $3.0 million for estimated property
damage insurance recoveries.
As the estimated amount of reimbursement becomes known to
the Company, it will be required under generally
accepted accounting principles to recognize gains to the extent
that the estimated insurance proceeds exceed the
carrying value of the damaged property, which is approximately
$15.0 million. Such gains may be reflected in the
fourth quarter of 1999 and from time to time thereafter as
additional property reimbursements are agreed to by the
insurance carriers. The amount of such gains is expected to
be significant. The overall impact of recognizing the
gains will be a significant increase in stockholders' equity
and an increase in depreciation expense in future
years once production is restored.
Business Interruption. The Company's insurance policies
provide for the reimbursement of specified continuing
expenses incurred during the interruption period plus lost
profits (or less expected losses) plus other expenses
incurred as a result of the incident. Operations at the
Gramercy facility and a 49%-owned facility in Jamaica,
which supplies bauxite to Gramercy, will continue to incur
operating expenses until production at the Gramercy
facility is restored. The Gramercy facility will also incur
incremental costs for clean up and other activities
during the remainder of 1999 and 2000. Additionally, the
Company will incur increased costs as a result of recent
agreements to supply certain of Gramercy's major customers with
alumina, despite the fact that the Company had
declared force majeure with respect to the contracts shortly
after the incident. The Company is purchasing alumina
from third parties, in excess of the amounts of alumina
available from other Company-owned facilities, to supply
these customers' needs as well as to meet intersegment
requirements. In consideration of all of the foregoing
items, the Company has recorded expected business interruption
insurance recoveries totaling $22.0 million as a
reduction of Cost of products sold, which amount substantially
offsets actual expenses incurred during the quarter
ended September 30, 1999. However, the amount recorded
represents an estimate of the Company's business
interruption coverage, based on preliminary discussions with
the insurance carriers and their representatives, and
is, therefore, subject to change. The Company currently
believes that additional amounts may be recoverable. Any
adjustments to the recorded amounts of expected recovery will
be reflected from time to time as agreements with the
insurance carriers are reached. The amounts of such
adjustments could be material.
Since production has been curtailed at the Gramercy
facility, the Company has, for the time being, suspended
depreciation of the facility. Depreciation expense for the
first six months of 1999 was approximately $6.0
million. However, the Company believes that the depreciation
expense that would have been incurred may, at least in
part, be recoverable under its business interruption insurance
coverage.
Liability. The incident has also resulted in more than
thirty lawsuits being filed against the Company
alleging, among other things, property damage and personal
injury. In addition, a claim for alleged business
interruption losses has been made by a neighboring business.
The aggregate amount of damages sought in the
lawsuits and other claims cannot be determined at this time;
however, the Company does not currently believe the
damages will exceed the amount of coverage under its liability
policies.
Workers' Compensation. Claims relating to all of the
injured employees are expected to be covered under the
Company's workers' compensation or liability policies.
However, the aggregate amount of workers' compensation
claims cannot be determined at this time and it is possible
that such claims could exceed the Company's coverage
limitations. While it is presently impossible to determine
the aggregate amount of claims that may be incurred, or
whether they will exceed the Company's coverage limitations,
the Company currently believes that any amount in
excess of the coverage limitations will not have a material
effect on the Company's consolidated financial position
or liquidity. However, it is possible that as additional
facts become available, additional charges may be
required and such charges could be material to the period in
which they are recorded.
Timing of Insurance Recoveries. As of September 30,
1999, the Company has accrued receivables totaling
approximately $25.0 million for estimated recoveries under its
property damage and business interruption insurance
coverage. The Company is currently working with the insurance
carriers to minimize, to the extent possible, the
amount and period of time between when the Company incurs
costs and when it is reimbursed. Delays in receiving
insurance proceeds could have a temporary adverse impact on
the Company's short-term liquidity and delay the
rebuilding of the Gramercy facility.
LABOR MATTERS
Substantially all of the Company's hourly workforce at its
Gramercy, Louisiana, alumina refinery, Mead and
Tacoma, Washington, aluminum smelters, Trentwood, Washington,
rolling mill, and Newark, Ohio, extrusion facility
were covered by a master labor agreement with the United
Steelworkers of America (the "USWA") which expired on
September 30, 1998. The parties did not reach an agreement
prior to the expiration of the master agreement and the
USWA chose to strike. In January 1999, the Company declined
an offer by the USWA to have the striking workers
return to work at the five plants without a new agreement.
The Company imposed a lock-out to support its
bargaining position and continues to operate the plants with
salaried employees and other workers as it has since
the strike began.
As a result of the USWA strike, the Company temporarily
curtailed three out of a total of eleven potlines at
its Mead and Tacoma, Washington, aluminum smelters at September
30, 1998 (representing approximately 70,000 tons per
year of production capacity out of a total combined production
capacity of 273,000 tons per year at the
facilities). The first of the two Mead potline restarts was
completed during the second quarter of 1999. Restart
activities on the second of the two Mead potlines were
completed in August 1999. The timing for any restart of
the Tacoma potline has yet to be determined and will depend
upon market conditions and other factors.
While the Company initially experienced an adverse strike-
related impact on its profitability, the
Company currently believes that the Company's operations at the
affected facilities have been substantially stabilized and
will be able to run at, or near, full capacity, and that the
effect of the incremental costs associated with
operating the affected plants during the dispute was eliminated
or substantially reduced as of January 1999
(excluding the impacts of the restart costs discussed above
and the effect of market factors such as the continued
market-related curtailment at the Tacoma smelter). However, no
assurances can be given that the Company's efforts
to run the plants on a sustained basis, without a significant
business interruption or material adverse impact on
the Company's operating results, will be successful.
The Company and the USWA continue to communicate. The
objective of the Company has been, and continues to be,
to negotiate a fair labor contract that is consistent with its
business strategy and the commercial realities of
the marketplace.
Strategic Initiatives
The Company has previously disclosed that it believes it
had met, and exceeded, its goal of achieving $120.0
million of pre-tax cost reductions and other profit
improvements, independent of metal price changes, measured
against 1996 results prior to the end of the third quarter of
1998, when the impact of such items as smelter
operating levels, the USWA strike and changes in foreign
currency exchange rates are excluded from the analysis.
The Company remains committed to sustaining the full $120.0
million improvement and to generating additional profit
improvements in future years; however, no assurances can be
given that the Company will be successful in this
regard.
In addition to working to improve the performance of the
Company's existing assets, the Company has devoted
significant efforts analyzing its existing asset portfolio with
the intent of focusing its efforts and capital in
sectors of the industry that are considered most attractive,
and in which the Company believes it is well
positioned to capture value. The initial steps of this
process resulted in the June 1997 acquisition of the
Bellwood extrusion facility, the May 1997 formation of AKW
L.P. ("AKW"), the rationalization of certain of the
Company's Engineered Products operations, the Company's
investment to expand its production capacity for heat treat
flat-rolled products at its Trentwood, Washington, rolling
mill, and the Company's fourth quarter 1998 decision to
seek a strategic partner for further development and deployment
of the Company's Micromill(TM) technology (see,
however, Impairment of Micromill Assets below). This process
has continued in 1999. In February 1999, the Company
completed the acquisition of the remaining 45% interest in
Kaiser LaRoche Hydrate Partners ("KLHP"), an alumina
marketing venture, from its joint venture partner for a cash
purchase price of approximately $10.0 million.
Additionally, in April 1999, the Company completed the sale of
its interest in AKW, an aluminum wheel joint
venture, to its partner, Accuride Corporation for $70.4
million. The cash sale represents a continuation of the
Company's strategy to focus its resources and efforts in
industry segments that are considered most attractive and
in which it believes it is well positioned to capture value.
Another area of emphasis has been a continuing focus on
managing the Company's legacy liabilities, including
the Company's active pursuit of claims in respect of insurance
coverage for certain incurred and future
environmental costs, as evidenced by the Company's fourth
quarter 1998, receipt of recoveries totaling approximately
$35.0 million related to current and future claims against
certain of its insurers. See Note 10 of Notes to
Consolidated Financial Statements for the year ended December
31, 1998, for additional information regarding
insurance recoveries.
Additional portfolio analysis and initiatives are
continuing.
Impairment of Micromill Assets
As previously announced, in early 1999, the Company began
a search for a strategic partner for the further
development and deployment of its Micromill technology. This
change in strategic course was based on management's
conclusion that additional time and investment would be
required to achieve a commercial success. Given the
Company's other strategic priorities, the Company believed that
introducing added commercial and financial resources
was the appropriate course of action for capturing the maximum
long-term value. A number of third parties were
contacted regarding joint ventures or other arrangements.
Based on negotiations with these third parties, the
Company now believes that a sale of the Micromill assets and
technology is more likely than a partnership and that
any such sales transaction would likely result in the Company
receiving a combination of a small up-front payment
and future payments based on the subsequent performance and
profitability of the Micromill technology. As a result
of these negotiations, the Company concluded that the carrying
value of the Micromill assets should be reduced by
$19.1 million. Accordingly, the Company recorded a non-cash
impairment charge to reflect this write-down in the
third quarter of 1999.
Valco Operating Level
The Company's 90%-owned Volta Aluminium Company Limited
("Valco") smelter in Ghana operated only one of its
five potlines during most of 1998. Each of Valco's potlines
is capable of producing approximately 40,000 tons per
year of primary aluminum. Valco earned compensation in 1998
(in the form of energy credits to be utilized over the
last half of 1998 and during 1999) from the Volta River
Authority ("VRA") in lieu of the power necessary to run
two of the potlines that were curtailed during 1998. The
compensation substantially mitigated the financial impact
in 1998 of the curtailment of such lines. However, Valco did
not receive any compensation from the VRA for one
additional potline which was curtailed in January 1998.
Valco's power allocation for 1999 was sufficient for the
smelter to increase its operations from one potline
to three potlines as of January 1. However, production was
well below this level in the first half of the year
due to the timing of restarts for the two incremental
potlines. Consequently, to compensate for low production the
first half of the year, Valco has operated above an equivalent
three-potline annual rate during the third quarter
of 1999 and is expected to continue this production rate
during the fourth quarter of 1999. Valco is not expected
to receive notice of its 2000 power allocation until sometime
in the fourth quarter of 1999. However, taking into
account the strong rains in the region and the current lake
level, the Company currently expects that Valco may be
allocated sufficient power to operate at least four potlines
throughout 2000. However, there can be no assurances
that Valco will be allocated sufficient power to run four
potlines or that the Valco will, in fact, operate at that
level.
Valco has notified the VRA that it believes it had the
contractual rights at the beginning of 1998 and 1999 to
sufficient energy to run four and one-half potlines for the
balance of both years. Valco continues to seek
compensation from the VRA with respect to the 1998 and 1999
reductions in its power allocation. Valco and the VRA
also are in continuing discussions concerning other matters,
including steps that might be taken to reduce the
likelihood of power curtailments in the future. No assurances
can be given as to the success of these discussions.
Electric Power Contract - Anglesey Aluminium Limited
The Company owns a 49% interest in the Anglesey Aluminium
Limited ("Anglesey") smelter in Wales. Electric
power for the Anglesey smelter is supplied under a contract
which expires in 2001. Anglesey expects to enter into
a new power agreement in the fourth quarter of 1999 under
which the existing contract would terminate early, in
April 2000, and the new agreement would replace it for the
period April 2000 through September 2005. The Company
expects that the price of power under the new agreement will
be greater than the price under the present contract,
which will reduce the Company's earnings associated with the
Anglesey smelter. However, Anglesey has ongoing
initiatives to offset the impact of increased energy costs
through cost reduction and revenue enhancement
initiatives by 2001. However, no assurance can be given that
these initiatives will be successful in offsetting
such increased energy costs.
RESULTS OF OPERATIONS
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
downstream facilities. Intersegment transfers are valued at
estimated market prices. The following table provides selected
operational and financial information on a
consolidated basis with respect to the Company for the quarter
and nine-month periods ended September 30, 1999 and
1998. The following data should be read in conjunction with
the Company's interim consolidated financial statements
and the notes thereto, contained elsewhere herein. See Note
12 of Notes to Consolidated Financial Statements for
the year ended December 31, 1998, for further information
regarding segments.
Interim results are not necessarily indicative of those
for a full year.
SELECTED OPERATIONAL AND FINANCIAL INFORMATION
(Unaudited)
(In millions of dollars, except shipments and prices)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Shipments: (000 tons)
Alumina (1)
Third Party 572.4 644.6 1,670.8 1,721.7
Intersegment 191.4 123.8 531.0 536.2
-------------- -------------- -------------- --------------
Total Alumina 763.8 768.4 2,201.8 2,257.9
-------------- -------------- -------------- --------------
Primary Aluminum
Third Party 75.4 61.5 207.3 210.3
Intersegment 44.6 48.8 130.4 134.9
-------------- -------------- -------------- --------------
Total Primary Aluminum 120.0 110.3 337.7 345.2
-------------- -------------- -------------- --------------
Flat-Rolled Products 54.3 57.0 165.8 180.3
-------------- -------------- -------------- --------------
Engineered Products 42.9 40.7 127.8 130.7
-------------- -------------- -------------- --------------
Average Realized Third Party Sales Price: (4)
Alumina (per ton) $ 177 $ 190 $ 173 $ 195
Primary Aluminum (per pound) $ .68 $ .70 $ .66 $ .70
Net Sales:
Bauxite and Alumina (1)
Third Party (includes net sales of $ 108.3 $ 129.3 $ 308.8 $ 359.5
bauxite)
Intersegment 33.7 21.2 86.3 99.5
-------------- -------------- -------------- --------------
Total Bauxite & Alumina 142.0 150.5 395.1 459.0
-------------- -------------- -------------- --------------
Primary Aluminum
Third Party 113.5 94.6 303.1 326.6
Intersegment 65.7 66.9 177.9 194.7
-------------- -------------- -------------- --------------
Total Primary Aluminum 179.2 161.5 481.0 521.3
-------------- -------------- -------------- --------------
Flat-Rolled Products 140.8 166.2 444.4 557.5
Engineered Products 134.5 132.6 405.8 451.2
Minority Interests 23.2 18.8 62.6 58.6
Eliminations (99.4) (88.0) (264.2) (294.2)
-------------- -------------- -------------- --------------
Total Net Sales $ 520.3 $ 541.6 $ 1,524.7 $ 1,753.4
============== ============== ============== ==============
Operating Income (Loss):
Bauxite & Alumina (2) $ .9 $ 9.3 $ (10.4) $ 38.7
Primary Aluminum (3) 10.0 13.6 (10.5) 55.8
Flat-Rolled Products 5.8 16.7 20.7 56.2
Engineered Products 12.2 11.8 29.8 43.3
Micromill (22.3) (4.5) (28.6) (14.4)
Eliminations 1.1 1.1 6.6 3.5
Corporate (19.7) (17.1) (51.7) (51.8)
-------------- -------------- -------------- --------------
Total Operating Income (Loss) $ (12.0) $ 30.9 $ (44.1) $ 131.3
============== ============== ============== ==============
Net Income (Loss) $ (39.2) $ 10.8 $ (93.1) $ 39.5
============== ============== ============== ==============
Capital Expenditures $ 10.0 $ 15.6 $ 40.3 $ 52.3
============== ============== ============== ==============
</TABLE>
(1) Net sales for the quarter ended September 30, 1999,
include approximately 190 tons of alumina purchased from
third parties and resold to certain unaffiliated customers
of the Gramercy facility and 60 tons of alumina
purchased from third parties and resold to the Company's
primary aluminum business unit.
(2) Operating income (loss) for the quarter and nine-month
periods ended September 30, 1999, includes estimated
business insurance recoveries totaling $22.0. Additionally,
depreciation was suspended for the Gramercy
facility for the quarter ended September 30, 1999, as a
result of the July 5, 1999, incident. Depreciation
expense for the Gramercy facility for the six months ended
June 30, 1999, was approximately $6.0.
(3) Operating income (loss) for the quarter and nine-month
periods ended September 30, 1999, includes potline
restart costs of $1.9 and $11.5, respectively.
(4) Average realized prices for the Company's Flat-rolled
products and Engineered products segments are not
presented as such prices are subject to fluctuations due to
changes in product mix. Average realized third
party sales prices for alumina and primary aluminum include
the impact of hedging activities.
Overview
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 the
Company's hedging strategies. Primary aluminum prices have
historically been subject to significant cyclical price
fluctuations. See Note 4 of Notes to Interim Consolidated
Financial Statements for a discussion of the Company's
hedging activities.
Changes in global, regional, or country-specific economic
conditions can have a significant impact on overall
demand for aluminum-intensive fabricated products in the
transportation, distribution, and packaging markets. Such
changes in demand can directly affect the Company's earnings
by impacting the overall volume and mix of such
products sold. To the extent that these end-use markets
weaken, demand can also diminish for what the Company
sometimes refers to as the "upstream" products: alumina and
primary aluminum.
During 1998, the Average Midwest United States transaction
price ("AMT Price") per pound of primary aluminum
experienced a steady decline during the year, beginning the
year in the $.70 to $.75 range and ending the year in
the low $.60 range. During the first nine months of 1999, the
AMT Price for primary aluminum increased from a per
pound range of $.57 to $.67 during the first six months to a
$.67 to $.72 per pound range during the third
quarter. The AMT Price for primary aluminum for the week ended
October 15, 1999, was approximately $.71 per pound.
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Summary
The Company reported a net loss of $39.2 million for the
third quarter of 1999 compared to a net income of
$10.8 million for the same period in 1998. Net sales in the
third quarter of 1999 totaled $520.3 million compared
to $541.6 million in the third quarter of 1998.
For the nine-month period ended September 30, 1999, the
Company reported a net loss of $93.1 million compared
to net income of $39.5 million for the nine-month period ended
September 30, 1998. Net sales for the nine-month
period ended September 30, 1999, were $1,524.7 compared to
$1,753.4 million for the first nine months of 1998.
Results for the quarter ended September 30, 1999, included
a non-cash pre-tax charge of $19.1 million to
reduce the carrying value of the Company's Micromill assets, a
non-cash pre-tax charge of $15.2 million for
asbestos-related claims and a pre-tax charge of $5.9 million
to reflect mark-to-market adjustments on certain
primary aluminum hedging transactions. Results for the nine-
month period ended September 30, 1999, included
the non-cash pre-tax Micromill charge, pre-tax charges of $20.0
million to reflect mark-to-market adjustments on certain
primary aluminum hedging transactions and non-cash pre-tax
charges of $53.2 million for asbestos-related claims.
The charges for the nine-month period were offset by a pre-tax
gain of $50.5 million on the sale of the Company's
interests in AKW.
Results for the quarter and nine-month periods ended
September 30, 1998, included two essentially offsetting
non-recurring items, a favorable $8.3 million non-cash tax
provision benefit resulting from the resolution of
certain matters and the unfavorable gross profit impact of
preparing for a strike by employees represented by the
USWA at five locations. Additionally, results for the nine-month
period included charges related to additional litigation reserves
of $3.9 million.
Bauxite and Alumina
Third party net sales of alumina declined 16% for the
quarter ended September 30, 1999, as compared to the
same period in 1998 as a result of a 7% decline in third
party average realized price and a 11% decline in third
party alumina shipments. While the per ton amount realized
from third party sales of alumina under the Company's
primary aluminum linked alumina sales contracts actually rose
quarter over quarter, the Company's average realized
third party prices declined due to a decrease in net gains
from the Company's hedging activities. While primary
aluminum prices have increased by approximately 7% in the
third quarter of 1999 over second quarter 1999 prices,
this increase in prices will not be reflected in the segment's
sales or operating results until the following
quarter as most of the Company's alumina sales contracts are
linked to metal prices on a lagged basis of up to
three months. The decline in third party shipments of alumina
between the third quarter of 1999 and 1998 resulted
primarily from differences in the timing of shipments and, to
a lesser extent, the net effect of the Gramercy
incident, after considering the 190,000 tons of alumina
purchased by the Company from third parties to fulfill
third party sales contracts.
Intersegment net sales for the third quarter of 1999
increased by 59% as compared to the same period in 1998.
The increase in net sales was due to a 55% increase in
intersegment shipments, primarily resulting from the impact
of Valco operating three potlines in 1999 as compared to one
potline in 1998 and a 3% increase in the intersegment
average realized price due to higher primary aluminum prices
in 1999 over the same period in 1998.
For the nine-month period ended September 30, 1999, third
party net sales of alumina were 14% lower than the
comparable period in 1998 as the result of a 11% decline in
third party average realized prices and a 3% decrease
in third party shipments. The decline in average realized
prices during the first nine months of 1999 as compared
to 1998 was attributable to lower realizations under the
Company's primary aluminum linked alumina sales contracts
caused by lower primary aluminum market prices as well as a
decrease in net gains from the Company's hedging
activities. The decrease in year-over-year shipments was
primarily the effect of the Gramercy incident described
above.
Intersegment net sales for the nine-month period ended
September 30, 1999, declined by 13% as compared to the
same period in 1998. The decline in net sales was primarily
due to the 12% decline in intersegment average
realized price, due to lower primary aluminum prices, as well
as reduced intersegment shipments, resulting from
potline curtailments at the Company's Washington smelters.
Segment operating income for the quarter and nine-month
periods ended September 30, 1999, was down from the
comparable periods in 1998 primarily as a result of the price
and, to a lesser extent, the volume factors discussed
above. Segment operating income for the quarter and nine-months
ended September 30, 1999, also reflects the
net impact of the Gramercy incident (see "Recent Events and
Developments" above) after estimated insurance recoveries.
Segment operating income for the quarter and nine-month periods
ended September 30, 1998, included the adverse
impact of approximately $1.0 million of incremental strike-
related costs.
PRIMARY ALUMINUM
Third party net sales of primary aluminum for the third
quarter of 1999 were up 20% as compared to the same
period in 1998 as a result of a 23% increase in third party
shipments offset, in part, by a 3% decrease in the
average realized third party sales prices. The increase in
quarterly shipments was primarily due to the favorable
impact of Valco operating three potlines in 1999, as compared
to one potline in 1998, net of the unfavorable impact
of the curtailments of one potline at the Tacoma smelter and
one potline at the Mead smelter for a portion of the
quarter. While average primary aluminum market prices for the
quarter ended September 30, 1999, were greater than
those in the third quarter of 1998, the Company experienced a
reduction in quarter-over-quarter average realized
third party prices as a result of a decrease in net gains from
the Company's hedging activities. Intersegment net
sales in the third quarter of 1999 decreased approximately 2%
from 1998. Intersegment shipments decreased 9% from
the comparable prior year period while the average realized
price increased by 8%. The increase in the average
realized price resulted from higher primary aluminum prices for
1999 over the same period in 1998. The decrease in
intersegment shipments between 1999 and 1998 was due to the
timing of shipments to the Company's fabricated
business units as well as reduced internal requirements,
primarily at the Company's flat-rolled business units.
For the nine-month period ended September 30, 1999, third
party net sales of primary aluminum declined
approximately 7% from the comparable period in 1998, primarily
as a result of a 6% decline in third party average
realized prices. Third party shipments were essentially flat.
The decline in third party average realized prices
was attributable to both a decrease in primary aluminum market
prices and a decrease in net gains from the
Company's hedging activities. Intersegment net sales for the
first nine months of 1999 were down 9% as compared to
the same period in 1998. Intersegment average realized prices
were down 5% reflecting lower market prices for
aluminum. Intersegment shipments declined 3% and was due to
the timing of shipments to the Company's fabricated
business units.
Segment operating income for the quarter and nine-month
periods ended September 30, 1999, was down from the
comparable periods of 1998. The most significant component of
this decline was the reduction in average realized
prices discussed above. However, also included in 1999
results were the adverse impact of the Valco and Washington
smelter potline curtailments (including the fact that there is
no mitigating compensation being earned in 1999 for
the Valco potline curtailments) and costs of approximately $1.9
million and $11.5 million for the quarter and nine-month
periods ended September 30, 1999, respectively, associated with
preparing and restarting potlines at Valco and
the Washington smelters. Segment operating income for the
quarter and nine-month periods ended September 30, 1998,
included the adverse impact of approximately $5.0 million of
incremental strike-related costs.
FLAT-ROLLED PRODUCTS
Net sales of flat-rolled products for the third quarter
of 1999 declined by 15% compared to the third quarter
of 1998 as a result of a 11% decline in average realized
prices and a 5% decline in shipments. The reduction in
shipments was primarily due to reduced demand in 1999 for
aerospace heat treat products offset, in small part, by
increased shipments of general engineering products. The
decline in 1999 average realized prices resulted primarily
from a shift of product mix (from aerospace products, which
have a higher price and operating margin, to other
products) and a reduction in prices resulting from reduced
demand for heat treat products.
For the nine-month period ended September 30, 1999, net
sales of flat rolled products declined by 20% from the
comparable period in 1998 as a result of a 13% decline in
average realize price and a 8% decline in product
shipments. The declines in year-to-date 1999 prices and
shipments as compared to 1998 were attributable to the
same factors described above for the third quarter of 1999 and
were also responsible for the significant decline in
segment operating income both for the third quarter and year-to-
date periods. Segment operating income for
the quarter and nine-month periods ended September 30, 1998,
included the adverse impact of approximately $3.0 million
of incremental strike-related costs.
ENGINEERED PRODUCTS
Third quarter 1999 net sales of engineered products were
slightly higher than those in the third quarter of
1998. A 5% increase in product shipments was substantially
offset by a 4% decline in average realized prices. The
increase in quarterly shipments was due to a strong increase
in the 1999 demand for ground transportation products
offset, in part, by a reduced demand in 1999 for aerospace
products. The reduction in average realized price
between periods was attributable to a change in product mix
(higher ground transportation shipments offset by lower
aerospace shipments). For the nine-month period ended
September 30, 1999, net sales of engineered products declined
by approximately 10% from the comparable period in 1998, as a
result of a 8% decline in average realized prices and
a 2% decline in product shipments. The decline in year-to-date
average prices was due to the change in product mix as described
above for the third quarter of 1999. On a year-to-date basis,
shipments of engineered products for 1999 declined slightly from
1998 as reduced aerospace shipments were almost entirely
offset by increased ground transportation product shipments.
The reasons for the increase in segment operating income
for the third quarter 1999 from the comparable period
in 1998 were the same factors as discussed above. Segment
operating income for the 1999 year-to-date period
declined from the comparable period in 1998 as a result of the
reduced equity in earnings from AKW (which
partnership interests were sold in April 1999) as well as the
product mix shift discussed above. Segment operating
income for the quarter and nine-month periods ended September
30, 1998, included the adverse impact of approximately
$1.0 million of incremental strike-related costs.
ELIMINATIONS
Eliminations of intersegment profit vary from period to
period depending on fluctuations in market prices as
well as the amount and timing of the affected segments'
production and sales.
Corporate and Other
Corporate operating expenses included corporate general
and administrative expenses which were not allocated to
the Company's business segments. Corporate operating expenses
for the quarter ended September 30, 1999, increased
over the prior year and other recent periods primarily as a
result of a $3.0 million non-cash re-allocation of
certain benefit costs between the Corporate and other business
segments.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
At September 30, 1999, the Company had working capital of
$407.3 million, compared with working capital of
$471.6 million at December 31, 1998. The decrease in working
capital primarily resulted from a decrease in Cash
and cash equivalents and an increase in Prepaid expenses and
other current assets which resulted primarily from
increased workers compensation insurance deposits.
INVESTING ACTIVITIES
Capital expenditures during the nine months ended
September 30, 1999, were $40.3 million. The only significant
expenditure was the purchase of the remaining 45% interest in
KLHP for approximately $10.0 million. The remainder
of the year-to-date 1999 capital expenditures were primarily
used to improve production efficiency and reduce
operating costs.
Total consolidated capital expenditures (of which
approximately 8% is expected to be funded by the Company's
minority partners in certain foreign joint ventures) are
expected to be between $60 and $133 million per annum in
each of 1999 through 2001, prior to any consideration of plans
to rebuild the Gramercy facility. Management
continues to evaluate numerous projects all of which would
require substantial capital, both in the United States
and overseas. The level of capital expenditures may be
adjusted from time to time depending on the Company's price
outlook for primary aluminum and other products, the Company's
ability to assure future cash flows through hedging
or other means, the Company's financial position and other
factors.
Financing Activities and Liquidity
At September 30, 1999, the Company had long-term debt of
$970 million, including $7.7 million outstanding under
the revolving credit facility of the Credit Agreement, compared
with $963.0 million at December 31, 1998.
At September 30, 1999, $244.1 million (of which $54.7
million could have been used for letters of credit) was
available to the Company under the Credit Agreement. Loans
under the Credit Agreement bear interest at a spread
(which varies based on the results of a financial test) over
either a base rate or LIBOR at the Company's option.
During the quarter ended September 30, 1999, the average per
annum interest rate on loans outstanding under the
Credit Agreement was approximately 9.75%. The Credit Agreement
does not permit Kaiser, and significantly restricts
the Company's ability, to pay any dividends on their common
stock.
As of September 30, 1999, the Company had accrued
receivables relating to the Gramercy incident totaling
approximately $25.0 million for estimated recoveries under its
property damage and business interruption insurance
coverage. The Company is currently working with the insurance
carriers to minimize, to the extent possible, the
amount and period of time between when the Company incurs
costs and when it is reimbursed. Delays in receiving
insurance proceeds could have a temporary adverse impact on
the Company's short-term liquidity and delay the
rebuilding of the Gramercy facility. However, management
believes that the Company's existing cash resources,
together with cash flows from operations and borrowings under
the Credit Agreement, will be sufficient to meet its
working capital and capital expenditure requirements for the
next year.
The Company's ability to make payments on and to
refinance its debt depends on its ability to generate cash in
the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative,
regulatory and other factors beyond the Company's control.
The Company will need to refinance all or a substantial
portion of its debt on or before its maturity. No assurance
can be given that the Company will be able to
refinance its debt on acceptable terms. However, with respect
to long-term liquidity, management believes that
operating cash flow, together with the ability to obtain both
short and long-term financing, should provide
sufficient funds to meet the Company's working capital and
capital expenditure requirements.
OTHER MATTERS
Year 2000 Readiness Disclosure
The Company utilizes software and related technologies
throughout its business that will be affected by the
date change to the year 2000. There may also be technology
embedded in certain of the equipment owned or used by
the Company that is susceptible to the year 2000 date change
as well. The Company has a company-wide program which
coordinates the year 2000 efforts of its individual business
units and tracks their progress. The intent of the
program is to make sure that critical items are identified on
a sufficiently timely basis to assure that the
necessary resources can be committed to address any material
risk areas that could prevent the Company's systems
and assets from being able to meet the Company's business
needs and objectives. Year 2000 progress and readiness
has also been the subject of the Company's normal, recurring
internal audit function.
Each of the Company's business units has developed year
2000 plans specifically tailored to its individual
situation. A wide range of solutions is being implemented,
including modifying existing systems and, in limited
cases where it is cost effective, purchasing new systems.
Total spending related to these projects, which began in
1997 and is expected to continue through 1999, is currently
estimated to be in the $10-15 million range. As of
September 30, 1999, the Company estimates that approximately
$1.8 million of year 2000 expenditures are yet to be
incurred. Such remaining amounts are expected to be incurred
during the fourth quarter of 1999. System
modification costs were expensed as incurred. Costs associated
with new systems are being capitalized and will be
amortized over the life of the system. In total, the Company
believes that its remediation and testing efforts are
over 90% complete at September 30, 1999. The balance is
expected to be completed by November 1999. The Company
plans to commit the necessary resources for these efforts.
In addition to addressing the Company's internal systems,
the company-wide program involved identification of
key suppliers, customers, and other third-party relationships
that could be impacted by year 2000 issues. A
general survey has been conducted of the Company's supplier
and customer base. Direct contact has been made with
parties which are deemed to be particularly critical including
financial institutions, power suppliers, and
customers, with which the Company has a material relationship.
Each business unit, including the corporate group, has
developed a contingency plan covering the steps that
would be taken if a year 2000 problem were to occur despite
the Company's best efforts to identify and remediate
all critical at-risk items. Formal contingency plans have
been completed for approximately 85% of the Company's
facilities and their individual systems as of September 30,
1999. Contingency plans for the remaining facilities
and systems are expected to be completed by October 31, 1999.
When complete, each contingency plan will address,
among other things, matters such as alternative suppliers for
critical inputs, incremental standby labor
requirements at the millennium to address any problems as they
occur, and backup processing capabilities for
critical equipment or processes. The goal of the contingency
plans will be to minimize any business disruption,
such as power shortages and failures by major suppliers, and
the associated financial implications.
While the Company believes that its program has identified
the critical issues and associated costs necessary
to address possible year 2000 problems, there can be no
assurances that the program or underlying steps implemented
were successful in resolving all such issues. If the steps
taken by the Company (or critical third parties) are
not successful in identifying and remediating all significant
year 2000 issues, business disruptions or delays could
occur and could have a material adverse impact on the
Company's results and financial condition. The Company
believes that the most likely worst case scenario would
involve shortages or unanticipated outages of energy
requirements. Our operations, particularly in the smelting
facilities, require significant quantities of energy.
Curtailments or disruptions of energy supplies would result in
full or partial shutdowns of these operations until
energy availability could be restored. In addition, an
unanticipated loss of energy supply could result in damage
to production equipment. However, based on the information the
Company has gathered to date and the Company's
expectations of its ability to remediate problems encountered,
the Company currently believes that significant
business disruptions that would have a material impact on the
Company's results or financial condition will not be
encountered.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
-----------------------------------------------------
RISK
----
See Part I, Item 7A. "QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK" in the Company's Form 10-K
for the year ended December 31, 1998.
As a result of the Company's hedging activities through
September 30, 1999, approximately 50%, 70% and 30% of
the Company's net hedgable volume with respect to the fourth
quarter of 1999, 2000 and 2001, respectively, is
subject to minimum and maximum contract prices. The average
minimum contract prices with respect to the balance of
1999, 2000 and 2001 range from moderately below to
significantly below the average AMT price for the week ended
October 15, 1999. The average maximum contract prices with
respect to the fourth quarter of 1999 and 2000
approximate the average AMT price for the week ended October
15, 1999. The average maximum contract price with
respect to 2001 is moderately above the average AMT price for
the week ended October 15, 1999. While the
aforementioned hedging contracts lock in a range of prices for
a portion of the Company's net hedgable volume, the
Company's average realized prices will typically exceed the
amounts realized on its hedging contracts due to
location, product and purity premiums on the physical metal
sales.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Asbestos-related Litigation
The Company is a defendant in a number of lawsuits, some
of which involve claims of multiple persons, in which
the plaintiffs allege that certain of their injuries were
caused by, among other things, exposure to asbestos
during, and as a result of, their employment or association
with the Company or exposure to products containing
asbestos produced or sold by the Company. The portion of Note
3 of Notes to Interim Consolidated Financial
Statements contained in this report under the heading "Asbestos
Contingencies" is incorporated herein by reference.
See Part I, Item 3. "LEGAL PROCEEDINGS - Asbestos-related
Litigation" in the Company's Form 10-K for the year ended
December 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
3.1 Restated Certificate of Incorporation of Kaiser
Aluminum & Chemical Corporation (the "Company"
or "KACC"), dated July 25, 1989 (incorporated by
reference to Exhibit 3.1 to the Registration
Statement on Form S-1, dated August 25, 1989,
filed by KACC, Registration No. 33-30645).
3.2 Certificate of Retirement of KACC, dated
February 7, 1990 (incorporated by reference to
Exhibit 3.2 to the Report on Form 10-K for the
period ended December 31,1989, filed by KACC,
File No. 1-3605).
3.3 Certificate of Retirement of KACC, dated October
1, 1997 (incorporated by reference to Exhibit
3.3 to the Report on Form 10-Q for the quarterly
period ended September 30, 1997, filed by KACC,
File No. 1-3605).
*4.1 Seventeenth Amendment to Credit Agreement, dated
as of September 24, 1999, amending the Credit
Agreement, dated as February 15, 1994, as amended,
among KACC, Kaiser, the financial institutions
party thereto and BankAmerica Business Credit, as
agent.
*27 Financial Data Schedule.
(b) Reports on Form 8-K.
A Report on Form 8-K was filed by the Company on July 2,
1999, announcing the expected impact of certain non-operating
adjustments on second quarter 1999 results.
A Report on Form 8-K was filed by the Company on July 9,
1999, announcing that on July 5, 1999, KACC's
Gramercy, Louisiana alumina refinery had been extensively
damaged by an explosion and that production at the
plant would be curtailed for several months.
No other Current Report on Form 8-K was filed by the
Company during the quarter ended September 30, 1999.
---------------
* Filed herewith
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 have signed this report on
behalf of the registrant as the principal financial officer
and principal accounting officer of the registrant,
respectively.
KAISER ALUMINUM & CHEMICAL
CORPORATION
/s/John T. La Duc
By:-------------------------
John T. La Duc
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/Daniel D.Maddox
By:-------------------------
Daniel D. Maddox
Vice President and Controller
(Principal
Accounting Officer)
Dated: October 26, 1999
E x e c u t I o n C o p y
SEVENTEENTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------------
THIS SEVENTEENTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of September 24, 1999, is by and between
---------
KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation
(the "Company"), KAISER ALUMINUM CORPORATION, a Delaware
-------
corporation (the "Parent Guarantor"), the various financial
----------------
institutions that are or may from time to time become parties to
the Credit Agreement referred to below (collectively, the
"Lenders" and, individually, a "Lender"), and Bank of America,
------- ------
N.A. (successor to BankAmerica Business Credit, Inc., a Delaware
corporation), as agent (in such capacity, together with its
successors and assigns in such capacity, the "Agent") for the
-----
Lenders. Capitalized terms used, but not defined, herein shall
have the meanings given to such terms in the Credit Agreement, as
amended hereby.
W I T N E S S E T H:
WHEREAS, the Company, the Parent Guarantor, the Lenders
and the Agent are parties to the Credit Agreement, dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement, dated as of July 21, 1994, the Second Amendment to
Credit Agreement, dated as of March 10, 1995, the Third Amendment
to Credit Agreement and Acknowledgement, dated as of July 20,
1995, the Fourth Amendment to Credit Agreement, dated as of
October 17, 1995, the Fifth Amendment to Credit Agreement, dated
as of December 11, 1995, the Sixth Amendment to Credit Agreement,
dated as of October 1, 1996, the Seventh Amendment to Credit
Agreement, dated as of December 17, 1996, the Eighth Amendment to
Credit Agreement, dated as of February 24, 1997, the Ninth
Amendment to Credit Agreement and Acknowledgment, dated as of
April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, the Fourteenth Amendment to Credit
Agreement, dated as of December 11, 1998, the Fifteenth Amendment
to Credit Agreement, dated as of February 23, 1999 and the
Sixteenth Amendment to Credit Agreement, dated as of March 26,
1999 (the "Credit Agreement"); and
-----------------
WHEREAS, the parties hereto have agreed to amend the
Credit Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendments to Credit Agreement.
------------------------------
1.1 Amendments to Article I: Definitions and Accounting
----------------------------------------------------
Terms.
- -----
Subsection 1.1 of the Credit Agreement is hereby
--------------
amended by amending the definition of "Minimum Net Worth"
-----------------
contained therein to read in its entirety as follows:
" Minimum Net Worth' means (a) for each Fiscal Quarter
-----------------
of the Company ending on or prior to December 31, 1998
(commencing with the Fiscal Quarter ending September 30, 1996),
$500,000,000 plus 50% of Net Income (but not loss) for each such
Fiscal Quarter, (b) for the two Fiscal Quarters of the Company
ending on March 31, 1999 and June 30, 1999, $600,000,000 plus 50%
of Net Income (but not loss) for each such Fiscal Quarter, and (c)
for each Fiscal Quarter of the Company ending thereafter,
$550,000,000 plus 50% of Net Income (but not loss) for each such
Fiscal Quarter."
1.2 Amendments to Article IX: Covenants.
------------------------------------
A. Section 9.2.4(a) of the Credit Agreement is hereby
----------------
amended by deleting the proviso contained therein and
substituting the following therefor:
"provided that for purposes of this Section 9.2.4(a),
-------- ----------------
the calculation of Net Worth shall exclude (i) the effect of
any non-cash charges, up to an aggregate amount of
$70,000,000, in respect of the Micromill project, including
(without limitation) any write-down of Micromill project
assets located at the Center for Technology in Pleasanton,
California, and at the Micromill facility near Reno, Nevada,
(ii) the net cumulative effect of any mark-to-market gains
or losses incurred after December 31, 1998, up to an
aggregate net amount of $50,000,000 of losses, on aluminum
hedging agreements of the Company and its Subsidiaries that
do not qualify for hedging treatment under GAAP, (iii) the
effect of any non-cash charges, up to an aggregate amount of
$30,000,000, in respect of the settlement of the Company's
labor dispute with the United Steelworkers of America, and
(iv) the net cumulative effect of any gains or losses, up to
an aggregate net amount of $50,000,000 of losses, in respect
of adjustments to the net cost basis of the assets of the
Gramercy, Louisiana facility as a result of the explosion at
such facility, all of the above adjustments to be reflected
on the relevant Compliance Certificate."
B. Section 9.2.4(b) of the Credit Agreement is hereby
----------------
amended to read in its entirety as follows:
"(b) Interest Coverage Ratio. The Company shall not
permit the Interest Coverage Ratio (i) for the one Fiscal
Quarter period ending March 31, 1996 to be less than 1.1 to
1.0, (ii) for the two Fiscal Quarter period ending June 30,
1996 to be less than 1.2 to 1.0, (iii) for the three Fiscal
Quarter period ending September 30, 1996 to be less than 0.5
to 1.0, (iv) for the four Fiscal Quarter period ending
December 31, 1996 to be less than 0.3 to 1.0, (v) for the
one Fiscal Quarter period ending June 30, 1997 to be less
than 0.2 to 1.0, (vi) for the two Fiscal Quarter period
ending September 30, 1997 to be less than 0.4 to 1.0,
(vii) for the three Fiscal Quarter period ending
December 31, 1997 to be less than 0.6 to 1.0 and (viii) for
the four Fiscal Quarter period ending on the last day of
each of the Fiscal Quarters set forth below to be less than
the correlative ratio indicated:
Date Ratio
----- -----
First Fiscal Quarter of 1998 0.80 to 1.00
Second Fiscal Quarter of 1998 1.20 to 1.00
Third Fiscal Quarter of 1998 1.60 to 1.00
Fourth Fiscal Quarter of 1998 1.10 to 1.00
First Fiscal Quarter of 1999 No Test
Second Fiscal Quarter of 1999 No Test
Third Fiscal Quarter of 1999 No Test
Fourth Fiscal Quarter of 1999 No Test
First Fiscal Quarter of 2000 0.50 to 1.00
Second Fiscal Quarter of 2000 1.00 to 1.00
Third Fiscal Quarter of 2000 1.25 to 1.00
Fourth Fiscal Quarter of 2000 1.50 to 1.00
First Fiscal Quarter of 2001 2.00 to 1.00
Second Fiscal Quarter of 2001 2.00 to 1.00
; provided that for purposes of calculating the Interest
--------
Coverage Ratio under this Section 9.2.4(b), (i) EBITDA shall
----------------
exclude (A) the effect of any non-cash charges, up to an
aggregate amount of $70,000,000, in respect of the Micromill
project, including (without limitation) any write-down of
Micromill project assets located at the Center for
Technology in Pleasanton, California, and at the Micromill
facility near Reno, Nevada, (B) the net cumulative effect of
any mark-to-market gains or losses, for the relevant four
Fiscal Quarter period, up to an aggregate net amount of
$50,000,000 of losses, on aluminum hedging agreements of the
Company and its Subsidiaries that do not qualify for hedging
treatment under GAAP, (C) the effect of any non-cash charges,
up to an aggregate amount of $30,000,000, in respect of the
settlement of the Company's labor dispute with the United
Steelworkers of America, and (D) the net cumulative effect
of any gains or losses, up to an aggregate net amount of
$50,000,000 of losses, in respect of adjustments to the net
cost basis of the assets of the Gramercy, Louisiana facility
as a result of the explosion at such facility, all of the
above adjustments to be reflected on the relevant Compliance
Certificate; and (ii) Adjusted Capital Expenditures shall
not be subtracted from EBITDA."
C. Section 9.2.7 of the Credit Agreement is hereby
-------------
amended by adding the following at the end of clause (b) thereof:
"; provided, however, that for purposes of calculating
-------- -------
Adjusted Capital Expenditures for each Fiscal Year after the
1998 Fiscal Year, there shall be excluded all amounts spent
by the Company or its Subsidiaries to reconstruct the
Gramercy, Louisiana facility to the extent such amounts are
covered by valid and collectible insurance from solvent
insurers."
D. Section 9.2.18 of the Credit Agreement is hereby
--------------
amended by (i) deleting the word "and" at the end of clause (vii)
thereof; (ii) deleting the period at the end of clause (viii)
thereof and substituting the phrase "; and" therefor, and (iii)
adding the following as new clause (ix) thereof:
"(ix) the Company and its wholly-owned Subsidiaries
may transfer the capital stock or other ownership interest
of any of their respective wholly-owned Subsidiaries to the
Company or any of its wholly-owned Subsidiaries; provided,
--------
however, that (a) the capital stock or other ownership
-------
interest of an Obligor shall be transferred only to another
Obligor, (b) the capital stock or other ownership interest
of a Domestic Subsidiary of the Company shall be transferred
only to the Company or another Domestic Subsidiary of the
Company and (c) the capital stock or other ownership interest
of a Subsidiary that is pledged to the Agent on behalf of
the Lenders shall be transferred only to another Obligor."
Section 2. Conditions to Effectiveness.
---------------------------
This Amendment shall become effective as of the date
hereof only when the following conditions shall have been
satisfied and notice thereof shall have been given by the Agent
to the Parent Guarantor, the Company and each Lender (the date of
satisfaction of such conditions and the giving of such notice
being referred to herein as the "Seventeenth Amendment Effective
-------------------------------
Date"):
- ----
A. The Agent shall have received for each Lender
counterparts hereof duly executed on behalf of the Parent
Guarantor, the Company, the Agent and the Required Lenders (or
notice of the approval of this Amendment by the Required Lenders
satisfactory to the Agent shall have been received by the Agent).
B. The Agent shall have received:
(1) Resolutions of the Board of Directors or of
the Executive Committee of the Board of Directors of the Company
and the Parent Guarantor approving and authorizing the execution,
delivery and performance of this Amendment, certified by their
respective corporate secretaries or assistant secretaries as
being in full force and effect without modification or amendment
as of the date of execution hereof by the Company or the Parent
Guarantor, as the case may be;
(2) A signature and incumbency certificate of the
officers of the Company and the Parent Guarantor executing this
Amendment;
(3) For each Lender, an opinion, addressed to the
Agent and each Lender, from Kramer Levin Naftalis & Frankel LLP,
in form and substance satisfactory to the Agent;
(4) Such other information, approvals, opinions,
documents or instruments as the Agent may reasonably request; and
(5) For the pro rata benefit of the Lenders, a
fee in the amount of $100,000.
Section 3. Company's Representations and
-----------------------------
Warranties.
- ----------
In order to induce the Lenders and the Agent to enter
into this Amendment and to amend the Credit Agreement in the
manner provided herein, the Parent Guarantor and the Company
represent and warrant to each Lender and the Agent that, as of
the Seventeenth Amendment Effective Date, after giving effect to
the effectiveness of this Amendment, the following statements are
true and correct in all material respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Amendment by the Company and the Parent
Guarantor and the performance of the Credit Agreement as amended
by this Amendment (the "Amended Agreement") by the Company and
-----------------
the Parent Guarantor are within such Obligor's corporate powers
and have been duly authorized by all necessary corporate action
on the part of the Company and the Parent Guarantor, as the case
may be.
B. No Conflict. The execution and delivery by the
-----------
Company and the Parent Guarantor of this Amendment and the
performance by the Company and the Parent Guarantor of the
Amended Agreement do not:
(1) contravene such Obligor's Organic Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures, or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such Obligor or any of its Subsidiaries;
or
(3) result in, or require the creation or
imposition of, any Lien on any of such Obligor's properties or
any of the properties of any Subsidiary of such Obligor, other
than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by the Company and the Parent Guarantor
and this Amendment and the Amended Agreement constitute the
legal, valid and binding obligations of the Company and the
Parent Guarantor, enforceable against the Company and the Parent
Guarantor in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors'
rights generally and by general principles of equity.
D. Governmental Approval, Regulation, etc. No
---------------------------------------
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any
other Person is required for the due execution, delivery or
performance of this Amendment by the Company or the Parent
Guarantor.
E. Incorporation of Representations and Warranties
-----------------------------------------------
from Credit Agreement. Each of the statements set forth in
- ---------------------
Section 7.2.1 of the Credit Agreement is true and correct.
- -------------
Section 4. Acknowledgement and Consent.
---------------------------
The Company is a party to the Company Collateral
Documents, in each case as amended through the date hereof,
pursuant to which the Company has created Liens in favor of the
Agent on certain Collateral to secure the Obligations. The
Parent Guarantor is a party to the Parent Collateral Documents,
in each case as amended through the date hereof, pursuant to
which the Parent Guarantor has created Liens in favor of the
Agent on certain Collateral and pledged certain Collateral to the
Agent to secure the Obligations of the Parent Guarantor. Certain
Subsidiaries of the Company are parties to the Subsidiary
Guaranty and/or one or more of the Subsidiary Collateral
Documents, in each case as amended through the date hereof,
pursuant to which such Subsidiaries have (i) guarantied the
Obligations and/or (ii) created Liens in favor of the Agent on
certain Collateral. The Company, the Parent Guarantor and such
Subsidiaries are collectively referred to herein as the "Credit
------
Support Parties", and the Company Collateral Documents, the
- ---------------
Parent Collateral Documents, the Subsidiary Guaranty and the
Subsidiary Collateral Documents are collectively referred to
herein as the "Credit Support Documents".
------------------------
Each Credit Support Party hereby acknowledges that it
has reviewed the terms and provisions of the Credit Agreement as
amended by this Amendment and consents to the amendment of the
Credit Agreement effected as of the date hereof pursuant to this
Amendment.
Each Credit Support Party acknowledges and agrees that
any of the Credit Support Documents to which it is a party or
otherwise bound shall continue in full force and effect. Each
Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all
Collateral encumbered thereby will continue to guaranty or
secure, as the case may be, the payment and performance of all
obligations guaranteed or secured thereby, as the case may be.
Each Credit Support Party (other than the Company and
the Parent Guarantor) acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this
Amendment, such Credit Support Party is not required by the terms
of the Credit Agreement or any other Loan Document to consent to
the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Loan Document shall be deemed to require
the consent of such Credit Support Party to any future amendments
to the Credit Agreement.
Section 5. Miscellaneous.
-------------
A. Reference to and Effect on the Credit Agreement
-----------------------------------------------
and the Other Loan Documents.
- ----------------------------
(1) On and after the Seventeenth Amendment
Effective Date, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like
import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment, the Credit Agreement and the other Loan Documents
shall remain in full force and effect and are hereby ratified and
confirmed.
B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO
--------------
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment
--------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Amendment or any provision
hereof.
D. Counterparts. This Amendment may be executed by
------------
the parties hereto in several counterparts and by the different
parties on separate counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but
one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached
to the same document.
E. Severability. Any provision of this Amendment
------------
which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
KAISER ALUMINUM CORPORATION KAISER ALUMINUM & CHEMICAL
CORPORATION
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
BANK OF AMERICA, N.A. (successor to BANK OF AMERICA, N.A.
BankAmerica Business Credit, Inc.), (successor to BankAmerica
as Agent Business Credit, Inc.)
By: /s/Michael J. Jasaitis By: /s/Michael J. Jasaitis
Name: Michael J. Jasaitis Name: Michael J. Jasaitis
Its: Vice President Its: Vice President
BANK OF AMERICA, N.A. (formerly known THE CIT GROUP/BUSINESS
as Bank of America National Trust and CREDIT, INC.
Savings Association)
By: /s/Michael Balok By: /s/Grant Weiss
Name Printed: Michael Balok Name Printed: Grant Weiss
Its: Managing Director Its: Assistant Vice President
CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC.
(WESTERN)
By: /s/Kristine Metchikig By: /s/Richard J. Halston
Name Printed: Kristine Metchikig Name Printed: Richard J.
Halston
Its: Vice President Its: Assistant Vice President
LA SALLE BANK NATIONAL TRANSAMERICA BUSINESS CREDIT
ASSOCIATION (formerly known as CORPORATION
La Salle National Bank)
By: /s/Douglas C. Colleth By: /s/Robert L. Heinz
Name Printed: Douglas C. Colleth Name Printed: Robert L. Heinz
Its: First Vice President Its: Senior Vice President
ABN AMRO BANK N.V.
By: /s/Jeffrey A. French
Name Printed: Jeffrey A. French
Its: Senior Vice President
By: /s/Corinna Fong
Name Printed: Corinna Fong
Its: Credit Officer
<PAGE>
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. KAISER JAMAICA CORPORATION
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS,
LLC
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION KAISER TRANSACTION CORP.
By: /s/Karen A. Twitchell By: /s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the consolidated financial statements of the Comapany for the nine months
ended September 30, 1999, and is qualified in its entirety by reference
to such financial statments.
</LEGEND>
<CIK> 0000054291
<NAME> KAISER ALUMINUM & CHEMICAL CORPORATON
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 299
<ALLOWANCES> 6
<INVENTORY> 554
<CURRENT-ASSETS> 977
<PP&E> 1,996
<DEPRECIATION> 936
<TOTAL-ASSETS> 3,099
<CURRENT-LIABILITIES> 564
<BONDS> 970
19
2
<COMMON> 15
<OTHER-SE> 16
<TOTAL-LIABILITY-AND-EQUITY> 3,099
<SALES> 1,525
<TOTAL-REVENUES> 1,525
<CGS> 1,398
<TOTAL-COSTS> 1,398
<OTHER-EXPENSES> 69
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> (146)
<INCOME-TAX> (50)
<INCOME-CONTINUING> (92)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
