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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
Commission file number 1-9447
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3030279
(State of incorporation) (I.R.S. Employer Identification No.)
5847 San Felipe, Suite 2600, Houston, Texas 77057-3010
(Address of principal executive offices) (Zip Code)
(713) 267-3777
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
------ ------
As of October 31, 1994, the registrant had 58,201,263 shares of
common stock outstanding.
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<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The following interim consolidated financial statements of the
registrant and its consolidated subsidiary companies are set forth
below in response to Item 1, Part I, of this Form 10-Q:
Consolidated Balance Sheets
- September 30, 1994 (unaudited) and December 31, 1993;
Statements of Consolidated Loss (unaudited)
- quarter and nine months ended September 30, 1994 and 1993;
Statements of Consolidated Cash Flows (unaudited)
- nine months ended September 30, 1994 and 1993.
For further information, refer to the consolidated financial
statements and the footnotes thereto included in the annual report
of the registrant on Form 10-K for the year ended December 31, 1993.
- 1 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
<CAPTION>
September 30, December 31,
1994 1993
------------- -----------
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 53.1 $ 14.7
Receivables 214.0 234.7
Inventories 413.2 426.9
Prepaid expenses and other current assets 98.3 60.7
-------- --------
Total current assets 778.6 737.0
Investments in and advances to unconsolidated affiliates 171.4 183.2
Property, plant, and equipment--net 1,125.2 1,163.7
Deferred income taxes 268.9 210.8
Other assets 254.1 233.2
-------- --------
Total $2,598.2 $2,527.9
======== ========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable $ 126.1 $ 126.3
Accrued interest 13.5 23.6
Accrued salaries, wages, and related expenses 66.3 56.1
Accrued postretirement benefit obligation--current portion 47.6 47.6
Other accrued liabilities 137.1 133.2
Payable to affiliates 79.7 62.4
Short-term borrowings .5
Long-term debt--current portion 11.5 8.7
-------- --------
Total current liabilities 481.8 458.4
Long-term liabilities 499.2 501.8
Accrued postretirement benefit obligation 723.4 713.1
Long-term debt 744.7 720.2
Minority interests 111.6 105.0
Stockholders' equity:
Preferred stock .6 .2
Common stock .6 .6
Additional capital 527.5 425.9
Accumulated deficit (469.6) (375.7)
Additional minimum pension liability (21.6) (21.6)
-------- --------
Total stockholders' equity 37.5 29.4
-------- --------
Total $2,598.2 $2,527.9
======== ========
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
- 2 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED LOSS
(Unaudited)
(In millions of dollars, except share amounts)
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------- -------------------
1994 1993 1994 1993
------ ------ -------- -------
<S> <C> <C> <C> <C>
Net sales $461.1 $428.4 $1,335.7 $1,303.2
------ ------ -------- --------
Costs and expenses:
Cost of products sold 416.0 389.9 1,222.8 1,181.0
Depreciation 22.8 24.4 72.8 72.9
Selling, administrative, research and development,
and general 29.2 31.6 86.8 90.7
------ ------ -------- --------
Total costs and expenses 468.0 445.9 1,382.4 1,344.6
------ ------ -------- --------
Operating loss (6.9) (17.5) (46.7) (41.4)
Other income (expense):
Interest and other income (expense)--net (.7) 3.0 2.5 10.0
Interest expense (22.3) (20.5) (65.9) (63.8)
------ ------ -------- --------
Loss before income taxes, minority interests,
extraordinary loss, and cumulative effect of
changes in accounting principles (29.9) (35.0) (110.1) (95.2)
Credit for income taxes 10.5 14.4 38.6 39.5
Minority interests (1.4) (.4) (2.2) (1.3)
------ ------ -------- --------
Loss before extraordinary loss and cumulative effect
of changes in accounting principles (20.8) (21.0) (73.7) (57.0)
Extraordinary loss on early extinguishment of debt, net
of tax benefit of $2.9 and $11.2 for 1994 and 1993
periods, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles,
net of tax benefit of $237.7 (507.3)
------ ------ -------- --------
Net loss (20.8) (21.0) (79.1) (586.1)
Dividends on preferred stock (5.3) (3.2) (14.8) (3.2)
------ ------ -------- --------
Net loss attributable to common shareholders $(26.1) $(24.2) $ (93.9) $ (589.3)
====== ====== ======== ========
Per common and common equivalent share:
Loss before extraordinary loss and cumulative
effect of changes in accounting principles $ (.45) $ (.42) $ (1.53) $ (1.05)
Extraordinary loss (.09) (.38)
Cumulative effect of changes in accounting principles (8.85)
------- ------ -------- --------
Net loss $ (.45) $ (.42) $ (1.62) $ (10.28)
====== ====== ======== ========
Weighted average common and common equivalent
shares outstanding (000) 58,161 57,332 58,118 57,330
====== ====== ======== ========
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
- 3 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
<CAPTION>
Nine Months Ended
September 30,
--------------------
1994 1993
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (79.1) $ (586.1)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation 72.8 72.9
Amortization of deferred financing costs and discount on long-term debt 4.8 8.5
Non-cash postretirement benefit expenses other than pensions 10.4 14.6
Minority interests 2.2 1.3
Extraordinary loss on early extinguishment of debt 5.4 21.8
Cumulative effect of changes in accounting principles 507.3
Decrease in accrued and deferred income taxes (46.2) (48.8)
Equity in losses of unconsolidated affiliates 3.2 11.8
(Decrease) increase in accrued interest (9.8) 5.7
Incurrence of financing costs (19.1) (12.0)
Decrease in receivables 13.4 25.2
Decrease in inventories 13.7 8.8
(Increase) decrease in prepaid expenses and other current assets (13.2) 12.8
Decrease in accounts payable (.3) (31.3)
Increase (decrease) in payable to affiliates and accrued liabilities 5.3 (10.1)
Other 5.5 (4.8)
------- --------
Net cash used for operating activities (31.0) (2.4)
------- --------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 4.2 11.6
Capital expenditures (37.5) (36.4)
Redemption fund for minority interest preference stock (1.2) (.2)
------- --------
Net cash used for investing activities (34.5) (25.0)
------- --------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (326.2) (1,011.3)
Borrowings of long-term debt, including revolving credit 353.5 920.0
Borrowings from MAXXAM Group Inc. (see supplemental disclosure below) 15.0
Tender premiums and other costs of early extinguishment of debt (27.1)
Net short-term (payments) borrowings (.5) 13.7
Dividends paid (14.8) (3.2)
Capital stock issued 100.4 119.3
Redemption of minority interests' preference stock (8.5) (4.2)
------- --------
Net cash provided by financing activities 103.9 22.2
------- --------
Net increase (decrease) in cash and cash equivalents during the period 38.4 (5.2)
Cash and cash equivalents at beginning of period 14.7 19.1
------- --------
Cash and cash equivalents at end of period $ 53.1 $ 13.9
======= ========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 70.9 $ 49.6
Income taxes paid 9.7 9.3
Tax allocation payments from MAXXAM Inc. (3.6)
Supplemental disclosure of non-cash financing activities:
Exchange of the borrowings from MAXXAM Group Inc. for capital stock $ 15.0
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
- 4 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars)
1. General
Kaiser Aluminum Corporation ("Kaiser" or the "Company") is a
subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM owns approximately 59%
of Kaiser's common stock, assuming the conversion of each
outstanding $.65 Depositary Share and each outstanding share of
PRIDES (as defined below) into one share of Kaiser's common stock,
with the remaining 41% publicly held. The Company operates through
its direct subsidiary, Kaiser Aluminum & Chemical Corporation
("KACC").
The foregoing unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X as
promulgated by the Securities and Exchange Commission. Accordingly,
these financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary for a fair statement of the results for the
interim periods presented have been included. Operating results for
the first nine months of 1994 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1994.
Certain reclassifications of prior-period information were made to
conform to the current presentation.
In the first quarter of 1994, the Company consummated the public
offering of 8,855,550 shares of 8.255% PRIDES, Convertible Preferred
Stock (the "PRIDES"). The net proceeds from the sale of the PRIDES
were approximately $100.4. The Company used such net proceeds to
make non-interest-bearing loans to KACC in the aggregate principal
amount of $33.2 (the aggregate dividends scheduled to accrue on the
PRIDES from the issuance date until December 31, 1997, the date on
which the outstanding PRIDES are mandatorily convertible into shares
of the Company's common stock) and used the balance of such net
proceeds to make capital contributions to KACC in the aggregate
amount of approximately $67.2.
At September 30, 1994, 28,000,000 shares of the Company's common
stock owned by MAXXAM were pledged as security for debt issued by a
subsidiary of MAXXAM, consisting of $100.0 aggregate principal
amount of 11-1/4% Senior Secured Notes due 2003, and $126.7
aggregate principal amount of 12-1/4% Senior Secured Discount Notes
due 2003.
2. Inventories
The classification of inventories is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- -------------
<S> <C> <C>
Finished fabricated products $ 58.1 $ 83.7
Primary aluminum and work in process 158.8 141.4
Bauxite and alumina 88.1 94.0
Operating supplies and repair and maintenance parts 108.2 107.8
------ ------
Total $413.2 $426.9
====== ======
</TABLE>
Substantially all product inventories are stated at last-in,
first-out (LIFO) cost, not in excess of market. Replacement cost is
not in excess of LIFO cost.
- 5 -
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
<PAGE>
3. Long-Term Debt
Long-term debt is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
1994 Credit Agreement
1989 Credit Agreement (6.59% at December 31, 1993)
Revolving Credit Facility $188.0
9-7/8% Senior Notes, net of discount of $1.4 $223.6
Pollution Control and Solid Waste Disposal Facilities
Obligations (6.00% - 7.75%) 38.1 39.2
Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0
Alpart Term Loan (8.95%) 18.8 25.0
12-3/4% Senior Subordinated Notes 400.0 400.0
Other borrowings (fixed and variable rates) 15.7 16.7
------ ------
Total 756.2 728.9
Less current portion 11.5 8.7
------ ------
Long-term debt $744.7 $720.2
====== ======
</TABLE>
On February 17, 1994, the Company and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. (as agent for
itself and other lenders), Bank of America National Trust and
Savings Association, and certain other lenders (as amended, the
"1994 Credit Agreement"). The 1994 Credit Agreement consists of a
$275.0 five-year secured, revolving line of credit, scheduled to
mature in 1999, and replaces the credit agreement entered into in
December 1989 by the Company and KACC with a syndicate of commercial
banks and other financial institutions (as amended, the "1989 Credit
Agreement"). KACC is able to borrow under the facility by means of
revolving credit advances and letters of credit in an aggregate
amount equal to the lesser of $275.0 or a borrowing base related to
eligible accounts receivable plus eligible inventory. As of
September 30, 1994, $65.8 of letters of credit were outstanding,
leaving $209.2 of borrowing capacity unused under the 1994 Credit
Agreement (of which $59.2 could have been used for letters of
credit). The 1994 Credit Agreement is unconditionally guaranteed by
the Company and by certain significant subsidiaries of KACC. Loans
under the 1994 Credit Agreement bear interest at a rate per annum,
at KACC's election, equal to (i) a Reference Rate (as defined) plus
1-1/2% or (ii) LIBO Rate (Reserve Adjusted) (as defined) plus 3-
1/4%. After June 30, 1995, the interest rate margins applicable to
borrowings under the 1994 Credit Agreement may be reduced by up to
1-1/2% based upon a financial test, determined quarterly. The 1994
Credit Agreement was amended as of July 21, 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition."
The Company recorded a pre-tax extraordinary loss of $8.3 ($5.4
after taxes) in the first quarter of 1994, consisting primarily of
the write-off of unamortized deferred financing costs related to the
1989 Credit Agreement.
Concurrent with the offering by the Company of the PRIDES, KACC
issued $225.0 of its 9-7/8% Senior Notes due 2002 (the "Senior
Notes"). The net proceeds of the offering of the Senior Notes were
used to reduce outstanding borrowings under the 1989 Credit
Agreement immediately prior to the effectiveness of the 1994 Credit
Agreement and for working capital and general corporate purposes.
- 6 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
4. Net Loss per Common and Common Equivalent Share
Net loss per common and common equivalent share is computed based
on the weighted average number of common and common equivalent
shares outstanding during each period. For the quarter and nine
months ended September 30, 1994, common stock equivalents of
19,382,950 attributable to the Series A Mandatory Conversion Premium
Dividend Preferred Stock (the "Series A Shares") and 8,855,550
attributable to the PRIDES were excluded from the calculation of
weighted average shares because they were antidilutive. Aggregate
dividends on the Series A Shares and the PRIDES ($5.3 and $14.8 for
the quarter and nine months ended September 30, 1994, respectively)
are added to net loss for the purpose of calculating net loss per
common and common equivalent share.
5. Contingencies
Environmental Contingencies - The Company and KACC are subject to
a wide variety of environmental laws and regulations and to fines or
penalties assessed for alleged breaches of the environmental laws
and to claims and litigation based upon such laws. KACC is
currently subject to a number of lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments Reauthorization Act of 1986
("CERCLA"), and, along with certain other entities, has been named
as a potentially responsible party for remedial costs at certain
third-party sites listed on the National Priorities List under
CERCLA.
Based upon the Company's evaluation of these and other
environmental matters, the Company has established environmental
accruals primarily related to potential solid waste disposal and
soil and groundwater remediation matters. At September 30, 1994,
the balance of such accruals, which is primarily included in Long-
term liabilities, was $38.2.
These environmental accruals represent the Company's estimate of
costs reasonably expected to be incurred based upon presently
enacted laws and regulations, currently available facts, existing
technology, and the Company's assessment of the likely remediation
actions to be taken. The Company expects that these remediation
actions will be taken over the next several years and estimates that
annual expenditures to be charged to the environmental accrual will
be approximately $4.0 to $8.0 for the years 1994 through 1998 and an
aggregate of approximately $12.7 thereafter.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of
remediation are established, or alternative technologies are
developed, changes in these and other factors may result in actual
costs exceeding the current environmental accruals by amounts which
cannot presently be estimated. While uncertainties are inherent in
the ultimate outcome of these matters and it is impossible to
presently determine the actual costs that ultimately may be
incurred, management believes that the resolution of such
uncertainties should not have a material adverse effect upon the
Company's consolidated financial position or results of operations.
Asbestos Contingencies - KACC is a defendant in a number of
lawsuits in which the plaintiffs allege that certain of their
injuries were caused by exposure to asbestos during, and as a result
of, their employment with KACC or exposure to products containing
asbestos produced or sold by KACC. The lawsuits generally relate to
products KACC has not manufactured for at least 15 years. As of the
date of this report, the number of such lawsuits pending was
approximately 21,300.
- 7 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
Based upon prior experience, the Company estimates annual future
cash payments in connection with such litigation of approximately
$8.0 to $13.0 for each of the years 1994 through 1998, and an
aggregate of approximately $98.9 thereafter through 2007. Based
upon past experience and reasonably anticipated future activity, the
Company has established an accrual for estimated asbestos-related
costs for claims filed and estimated to be filed and settled through
2007. The Company does not presently believe there is a reasonable
basis for estimating such costs beyond 2007 and, accordingly, no
accrual has been recorded for such costs which may be incurred.
This accrual was calculated based upon the current and anticipated
number of asbestos-related claims, the prior timing and amounts of
asbestos-related payments, the current state of case law related to
asbestos claims, the advice of counsel, and the anticipated effects
of inflation and discounting at an estimated risk-free rate.
Accordingly, an asbestos-related cost accrual of $103.1 is included
primarily in Long-term liabilities at September 30, 1994. The
aggregate amount of the undiscounted liability at September 30,
1994, is $144.7, before considerations for insurance recoveries.
The Company believes that KACC has insurance coverage available
to recover a substantial portion of its asbestos-related costs.
While claims for recovery from some of KACC's insurance carriers are
currently subject to pending litigation and other carriers have
raised certain defenses, the Company believes, based upon prior
insurance-related recoveries in respect of asbestos-related claims,
existing insurance policies, and the advice of counsel, that
substantial recoveries from the insurance carriers are probable.
Accordingly, estimated insurance recoveries of $95.3, determined on
the same basis as the asbestos-related cost accrual, are recorded
primarily in Other assets as of September 30, 1994.
Based upon the factors discussed in the two preceding paragraphs,
management currently believes that the resolution of the asbestos-
related uncertainties and the incurrence of asbestos-related costs
net of insurance recoveries should not have a material adverse
effect upon the Company's consolidated financial position or results
of operations.
Other Contingencies - The Company or KACC is involved in various
other claims, lawsuits, and other proceedings relating to a wide
variety of matters. While uncertainties are inherent in the
ultimate outcome of such matters and it is impossible to determine
the actual costs that ultimately may be incurred, management
believes that the resolution of such uncertainties and the
incurrence of such costs should not have a material adverse effect
upon the Company's consolidated financial position or results of
operations.
6. Derivative Financial Instruments and Related Hedging Programs
KACC enters into a number of financial instruments with
off-balance-sheet risk in the normal course of business that are
designed to reduce its exposure to fluctuations in foreign exchange
rates, alumina and primary aluminum prices, and the cost of
purchased commodities.
KACC has significant expenditures which are denominated in
foreign currencies related to long-term purchase commitments with
its affiliates in Australia and the United Kingdom, which expose
KACC to certain exchange rate risks. In order to mitigate its
exposure, KACC periodically enters into forward foreign exchange and
currency option contracts in Australian Dollars and Pounds Sterling
to hedge these commitments. The forward foreign currency exchange
contracts are agreements to purchase or sell a foreign currency, for
a price specified at the contract date, with delivery and settlement
in the future. At September 30, 1994, KACC had net forward foreign
- 8 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
exchange contracts totaling approximately $17.2 for the purchase of
25.5 million Australian Dollars through May 1995. The option
contracts are agreements that establish the maximum price or
establish a range of prices at which the foreign currency may be
acquired. At September 30, 1994, such options established a price
range of $15.1 to $15.8 for the purchase of 24.0 million Australian
Dollars through December 1994, and established a maximum price of
$1.5 for the purchase of 1.0 million Pounds Sterling through
December 1994.
To mitigate its exposure to declines in the market prices of
alumina and primary aluminum, while retaining the ability to
participate in favorable pricing environments that may materialize,
KACC has developed strategies which include forward sales of primary
aluminum at fixed prices and the purchase or sale of options for
primary aluminum. Under the principal components of KACC's price
risk management strategy, which can be modified at any time, (i)
varying quantities of KACC's anticipated production are sold forward
at fixed prices; (ii) call options are purchased to allow KACC to
participate in certain higher market prices, should they
materialize, for a portion of KACC's excess primary aluminum and
alumina sold forward; (iii) option contracts are entered into to
establish a price range KACC will receive for a portion of its
excess primary aluminum and alumina; and (iv) put options are
purchased to establish minimum prices KACC will receive for a
portion of its excess primary aluminum and alumina. In this
regard, in respect of its remaining 1994 anticipated primary
aluminum and alumina production, as of September 30, 1994, KACC had
sold forward 11,250 metric tons of primary aluminum at fixed prices,
and had purchased call options in respect of 15,000 metric tons of
primary aluminum. Further, in respect of its 1995 anticipated
primary aluminum production, as of September 30, 1994, KACC had sold
forward 41,700 metric tons of primary aluminum at fixed prices,
purchased call options in respect of 30,000 metric tons of primary
aluminum, purchased put options to establish a minimum price for
181,500 metric tons of primary aluminum, and entered into option
contracts that established a price range for 12,000 metric tons of
primary aluminum. In addition, since several alumina sales
contracts have pricing provisions which link the selling price of
alumina to the spot price of primary aluminum, KACC has hedged a
portion of its 1995 alumina sales on the primary aluminum forward
market. As of September 30, 1994, KACC had sold 37,500 metric tons
of primary aluminum forward at fixed prices and entered into option
contracts that established a price range for 78,000 metric tons of
primary aluminum in respect of such alumina sales contracts. KACC
will not receive the benefit of market price increases to the extent
(i) the quantity of production sold forward is greater than the
tonnage covered by the purchased call options; (ii) market prices
exceed the prices at which primary aluminum is sold forward, but are
less than the strike price of the purchased call options, on the
tonnage covered by the options; or (iii) market prices exceed the
maximum of the price range on the tonnage covered by the option
contracts entered to establish a price range.
In addition, KACC enters into forward fixed price arrangements
with certain customers which provide for the delivery of a specific
quantity of fabricated aluminum products over a specified future
period of time. In order to establish the cost of primary aluminum
for a portion of such sales, KACC may enter into forward and options
contracts. In this regard, at September 30, 1994, KACC had
purchased 9,000 metric tons of primary aluminum forward purchase
contracts at fixed prices that expire at various times through
December 1995.
KACC has also entered into a natural gas pricing contract to fix
future prices of a portion (20,000 million BTU's per day) of a
plant's natural gas supply through March 1995.
- 9 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
At September 30, 1994, the net unrealized gain on KACC's position
in forward foreign exchange and foreign currency options was $3.0
and the net unrealized loss on aluminum forward sales and option
contracts and the natural gas pricing contract was $39.5, based on
dealer quoted prices. Gains and losses arising from the use of
hedging instruments are reflected in the Company's operating results
concurrently with the consummation of the underlying hedged
transactions.
KACC is exposed to credit risk in the event of non-performance by
other parties to these currency and commodity contracts, but KACC
does not anticipate non-performance by any of these counter-parties.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Item 1, Part I, of this Report.
Results of Operations
The Company's operating results are sensitive to changes in
prices of alumina, primary aluminum, and fabricated aluminum
products, and also depend to a significant degree on the volume and
mix of all products sold and on KACC's hedging strategies. The
table on the following page provides selected operational and
financial information on a consolidated basis with respect to the
Company for the quarters and nine months ended September 30, 1994
and 1993. As an integrated aluminum producer, the Company uses a
portion of its bauxite, alumina, and primary aluminum production for
additional processing at certain of its other facilities.
Intracompany shipments and sales are excluded from the information
set forth on the following page.
- 10 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
<TABLE>
SELECTED OPERATIONAL AND FINANCIAL INFORMATION
(In millions of dollars, except shipments and prices)
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------- -----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shipments: (000 tons)<F1>
Alumina 534.9 576.9 1,577.3 1,508.5
Aluminum processing:
Primary aluminum 48.4 55.3 175.8 183.4
Fabricated aluminum products 105.4 92.9 307.1 280.0
------ ------ -------- --------
Total aluminum products 153.8 148.2 482.9 463.4
====== ====== ======== ========
Average realized sales price:
Alumina (per ton) $ 171 $ 165 $ 162 $ 169
Primary aluminum (per pound) .60 .56 .56 .57
Net sales:
Bauxite and alumina:
Alumina $ 91.5 $ 95.3 $ 255.3 $ 255.5
Other<F2><F3> 19.8 23.0 60.6 64.1
------ ------ -------- --------
Total bauxite and alumina 111.3 118.3 315.9 319.6
------ ------ -------- --------
Aluminum processing:
Primary aluminum 64.1 68.7 218.2 229.3
Fabricated aluminum products 281.9 238.3 790.8 744.6
Other<F3> 3.8 3.1 10.8 9.7
------ ------ -------- --------
Total aluminum processing 349.8 310.1 1,019.8 983.6
------ ------ -------- --------
Total net sales $461.1 $428.4 $1,335.7 $1,303.2
====== ====== ======== ========
Operating income (loss):
Bauxite and alumina $ 7.8 $ 2.3 $ 5.3 $ (1.8)
Aluminum processing 3.3 (4.7) 1.4 12.6
Corporate (18.0) (15.1) (53.4) (52.2)
------ ------ -------- --------
Total operating loss $ (6.9) $(17.5) $ (46.7) $ (41.4)
====== ====== ======== ========
Loss before income taxes, minority interests, extraordinary loss,
and cumulative effect of changes in accounting principles $(29.9) $(35.0) $ (110.1) $ (95.2)
====== ====== ======== ========
Loss before extraordinary loss and cumulative effect of changes
in accounting principles $(20.8) $(21.0) $ (73.7) $ (57.0)
Extraordinary loss on early extinguishment of debt, net of tax
benefit of $2.9 and $11.2 for 1994 and 1993 periods, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles, net of tax
benefit of $237.7 (507.3)
------ ------ -------- --------
Net loss $(20.8) $(21.0) $ (79.1) $ (586.1)
====== ====== ======== ========
Capital expenditures $ 15.8 $ 13.1 $ 37.5 $ 36.4
====== ====== ======== ========
<FN>
-------------------------------------------------
<F1> All references to tons refer to metric tons of 2,204.6 pounds.
<F2> Includes net sales of bauxite.
<F3> Includes the portion of net sales attributable to minority interests in consolidated subsidiaries.
</FN>
</TABLE>
- 11 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net Sales
Bauxite and Alumina - Revenue from net sales to third parties for
the bauxite and alumina segment was $111.3 million in the third
quarter of 1994, compared with $118.3 million in the third quarter
of 1993, and $315.9 million in the first nine months of 1994,
compared with $319.6 million in the first nine months of 1993.
Revenue from alumina decreased 4% to $91.5 million in the third
quarter of 1994 from $95.3 million in the third quarter of 1993,
principally due to decreased shipments partially offset by higher
average realized prices. Revenue from alumina was $255.3 million in
the first nine months of 1994, compared with $255.5 million in the
first nine months of 1993, as increased shipments were offset by
lower average realized prices.
Aluminum Processing - Revenue from net sales to third parties for
the aluminum processing segment was $349.8 million in the third
quarter of 1994, compared with $310.1 million in the third quarter
of 1993, and $1,019.8 million in the first nine months of 1994,
compared with $983.6 million in the first nine months of 1993.
Revenue from primary aluminum decreased 7% to $64.1 million in the
third quarter of 1994 from $68.7 million in the third quarter of
1993, principally due to decreased shipments, partially offset by
higher average realized prices, and decreased 5% to $218.2 million
in the first nine months of 1994 from $229.3 million in the first
nine months of 1993, primarily because of lower shipments and, to a
lesser extent, lower average realized prices. Shipments of primary
aluminum to third parties constituted approximately 31% and 36% of
total aluminum products shipments in the third quarter and first
nine months of 1994, respectively, compared with approximately 37%
and 40% in the third quarter and first nine months of 1993. Revenue
from fabricated aluminum products increased 18% to $281.9 million in
the third quarter of 1994 from $238.3 million in the third quarter
of 1993, due to increased shipments and, to a lesser extent, higher
average realized prices, and increased 6% to $790.8 million in the
first nine months of 1994 from $744.6 million in the first nine
months of 1993, as increased shipments were partially offset by
lower average realized prices. Although KACC has realized improved
prices for all of its products in the third quarter of 1994 compared
with the third quarter of 1993 and the second quarter of 1994, the
third-quarter results continued to be unfavorably affected by: the
defensive hedging of primary aluminum prices in respect of 1994
shipments, which were put in place prior to refinancings carried out
in 1994 and recent improvements in metal prices; energy-related
curtailments of primary aluminum production (see "Trends");
relatively low fixed-price contracts for can sheet, which will
expire at year-end; and the lag time in more fully realizing margin
improvements associated with the recently announced price increases
for other fabricated products.
Operating Loss
The Company had an operating loss of $6.9 million in the third
quarter of 1994, compared with $17.5 million in the third quarter of
1993, and $46.7 million in the first nine months of 1994, compared
with $41.4 million in the first nine months of 1993.
Bauxite and Alumina - This segment's operating income in the
third quarter of 1994 was $7.8 million, compared with $2.3 million
in the third quarter of 1993, and was $5.3 million in the first nine
months of 1994, compared with an operating loss of $1.8 million in
the first nine months of 1993. The increase in operating income was
principally due to lower manufacturing costs.
- 12 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Aluminum Processing - This segment's operating income was $3.3
million in the third quarter of 1994, compared with an operating
loss of $4.7 million in the third quarter of 1993, as increased
shipments of fabricated aluminum products and higher average
realized prices of primary aluminum and fabricated aluminum products
were partially offset by decreased shipments of primary products.
This segment's operating income was $1.4 million in the first nine
months of 1994, compared with $12.6 million in the first nine months
of 1993, principally due to lower average realized prices of
fabricated aluminum products.
Third quarter results continued to be adversely affected by the
defensive hedging of primary aluminum prices and the constraints on
more fully realizing margin improvements of some fabricated
products, as discussed above.
Corporate - Corporate operating expenses of $18.0 million and
$15.1 million in the third quarters of 1994 and 1993 and $53.4
million and $52.2 million in the first nine months of 1994 and 1993
represented corporate general and administrative expenses, which are
not allocated to the Company's segments.
Extraordinary Loss on Early Extinguishment of Debt
In the first quarter of 1994, the Company recorded a pre-tax
extraordinary loss of $8.3 million ($5.4 million after taxes),
consisting primarily of the write-off of unamortized deferred
financing costs related to the 1989 Credit Agreement.
The Company recorded a pre-tax extraordinary loss of $33.0
million in the first quarter of 1993 ($21.8 million after taxes),
consisting primarily of premiums and the write-off of unamortized
discount and deferred financing costs related to the early
redemption of the 14-1/4% Senior Subordinated Notes due 1995.
Cumulative Effect of Changes in Accounting Principles
As of January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"), Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), and Statement of Financial Accounting Standards
No. 112, Employers' "Accounting for Postemployment Benefits" ("SFAS
112").
The cumulative effect of the change in accounting principle for
the adoption of SFAS 106 reduced results of operations by $497.7
million, net of a related income tax benefit of $234.2 million. The
cumulative effect of the change in accounting principle for the
adoption of SFAS 112 reduced results of operations by $7.3 million,
net of a related income tax benefit of $3.5 million. The new
accounting methods have no effect on the Company's cash outlays for
postretirement and postemployment benefits. The Company reserves
the right, subject to applicable collective bargaining agreements,
to amend or terminate these benefits.
The cumulative effect of the change in accounting principle for
the adoption of SFAS 109 reduced results of operations by $2.3
million. The implementation of SFAS 109 required the Company to
restate certain assets and liabilities to pre-tax amounts from net-
of-tax amounts originally recorded in connection with the
acquisition of the Company by MAXXAM.
- 13 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net Loss
The Company recorded a net loss of $20.8 million, or $.45 per
common and common equivalent share, for the third quarter of 1994,
compared with a net loss of $21.0 million, or $.42 per common and
common equivalent share, for the third quarter of 1993, as a
decrease in operating loss was offset by lower credits for income
taxes and a reduction in other income. For the first nine months of
1994, net loss was $79.1 million, or $1.62 per common and common
equivalent share, compared with $586.1 million, or $10.28 per common
and common equivalent share, in the same period of 1993. The
principal reasons for the decrease in net loss were the cumulative
effect of changes in accounting principles of $507.3 million and the
extraordinary loss of $21.8 million recorded in the first quarter of
1993, partially offset by higher operating losses and the 1994
extraordinary loss described above.
Financial Condition
At September 30, 1994, the Company had working capital of $296.8
million and long-term debt of $744.7 million, compared to working
capital of $278.6 million and long-term debt of $720.2 million at
December 31, 1993. As of September 30, 1994, of the $275.0 million
available under the 1994 Credit Agreement, $65.8 million was
outstanding in the form of letters of credit.
In the first quarter of 1994, the Company consummated the public
offering of 8,855,550 shares of its PRIDES. The net proceeds from
the sale of the PRIDES were approximately $100.4 million. The
Company used such net proceeds to make non-interest-bearing loans to
KACC in the aggregate principal amount of $33.2 million (the
aggregate dividends scheduled to accrue on the PRIDES from the
issuance date until December 31, 1997, the date on which the
outstanding PRIDES are mandatorily convertible into shares of the
Company's common stock) and used the balance of such net proceeds to
make capital contributions to KACC in the aggregate amount of
approximately $67.2 million.
The offering of the PRIDES, issuance of the Senior Notes, and
entering into the 1994 Credit Agreement were the final steps of a
comprehensive refinancing plan which the Company and KACC began in
January 1993 which extended the maturities of KACC's outstanding
indebtedness, enhanced its liquidity, and raised new equity capital.
The 1994 Credit Agreement was amended as of July 21, 1994, by the
First Amendment to Credit Agreement (the "First Amendment"). The
First Amendment provided, among other things, for an increase in the
revolving line of credit from $250.0 million to $275.0 million, and
for an increase in the inventory sub-limit of the borrowing base
from $175.0 million to $200.0 million, under the 1994 Credit
Agreement.
The obligations of KACC with respect to the Senior Notes and the
12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4% Notes") are
guaranteed, jointly and severally, by certain subsidiaries of KACC.
The indentures governing the Senior Notes and the 12-3/4% Notes
restrict, among other things, KACC's ability, and the 1994 Credit
Agreement restricts, among other things, Kaiser's and KACC's
ability, to incur debt, undertake transactions with affiliates, and
pay dividends. Currently, such restrictions do not permit Kaiser or
KACC to pay any dividends in respect of their common stock.
- 14 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Sensitivity to Prices and Hedging Programs
Since September 30, 1994, KACC has entered into additional
forward foreign exchange contracts totaling approximately $32.9
million for the purchase of 45.0 million Australian Dollars from
January through December 1995 in respect of its commitments for 1995
expenditures denominated in foreign currencies.
Since September 30, 1994, KACC has entered into additional hedge
positions in respect of its 1995 anticipated primary aluminum
production. As of the date of this report, KACC had sold forward an
additional 43,750 metric tons of primary aluminum at fixed prices.
See Note 6 of the Notes to Interim Consolidated Financial
Statements for derivative positions at September 30, 1994.
Trends
KACC has operated its Mead and Tacoma smelters in Washington at
approximately 75% of their full capacity since January 1993, when
three reduction potlines were removed from production (two at its
Mead smelter and one at its Tacoma smelter) in response to a power
reduction imposed by the Bonneville Power Administration ("BPA").
Although full BPA power was restored as of April 1, 1994, a 25%
power reduction was imposed again by the BPA as of August 1, 1994,
which reduction is expected to continue through November 30, 1994.
The BPA has given notice that full BPA power will be restored as of
December 1, 1994, and that the BPA expects to be able to provide
full service through November 30, 1995. KACC is evaluating these
new circumstances.
In late August 1994, the Volta River Authority ("VRA") notified
KACC that it intended to suspend supplying power to KACC's 90%-owned
Volta Aluminium Company Limited ("VALCO") smelter after September
10, 1994, due to drought conditions in the catchment area of the
Volta Lake. Following discussions between KACC and the VRA, an
agreement was reached for VALCO to curtail one potline (of the 3-1/2
potlines that were then operating) on September 18, 1994. The
agreement also called for KACC and the VRA to meet in late October
to discuss data concerning rainfall, lake level, whether an
additional curtailment was warranted, compensation due to KACC
because of the curtailment, and other matters related to the power
contract. Following the discussions in October, the VRA has made
sufficient power available to enable VALCO to restart the potline
which was shut down in mid-September. Restart preparations have
begun, and the potline is expected to be in full operation in early
February 1995. The restoration of full operation of the potline
will return VALCO to a production rate of approximately 140,000
metric tons of primary aluminum, or 70% of its total annual rated
capacity of 200,000 metric tons. With such restored production, the
Company would have an annual production rate of approximately
390,000 metric tons of primary aluminum, or 77% of its total annual
rated capacity of 508,000 metric tons.
- 15 -
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
On August 24, 1994, the United States Department of Justice
(the "DOJ") issued Civil Investigative Demand No. 11356 ("CID")
requesting information from the Company regarding (i) its production,
capacity to produce, and sales of primary aluminum from January 1, 1991,
to the date of its response; (ii) any actual or contemplated reductions
in its production of primary aluminum during that period; and (iii) any
communications with others regarding any actual, contemplated, possible
or desired reductions in primary aluminum production by the Company or any
of its competitors during that period. The Company has submitted
documents and interrogatory answers to the DOJ responding to the
CID.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Exhibit
---------- -------
27 Financial Data Schedule
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the quarter
ended September 30, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, who has signed
this report on behalf of the registrant and as the principal
financial officer of the registrant.
KAISER ALUMINUM CORPORATION
/s/ John T. La Duc
By:________________________
John T. La Duc
Vice President and
Chief Financial Officer
Dated: November 10, 1994
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
consolidated financial statements of the Company for the quarter and nine
months ended September 30, 1994, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000811596
<NAME> KAISER ALUMINUM CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 214
<ALLOWANCES> 0
<INVENTORY> 413
<CURRENT-ASSETS> 779
<PP&E> 1,125
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,598
<CURRENT-LIABILITIES> 482
<BONDS> 0
<COMMON> 1
1
0
<OTHER-SE> 36
<TOTAL-LIABILITY-AND-EQUITY> 2,598
<SALES> 1,336
<TOTAL-REVENUES> 1,336
<CGS> 1,223
<TOTAL-COSTS> 1,223
<OTHER-EXPENSES> 160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> (110)
<INCOME-TAX> 39
<INCOME-CONTINUING> (74)
<DISCONTINUED> 0
<EXTRAORDINARY> (5)
<CHANGES> 0
<NET-INCOME> (79)
<EPS-PRIMARY> (1.62)
<EPS-DILUTED> (1.62)
</TABLE>
