<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 30, 1994, the registrant had 58,095,599 shares
of common stock outstanding.
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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
-- March 31, 1994 (unaudited) and December 31, 1993;
Statements of Consolidated Loss (unaudited)
-- quarters ended March 31, 1994 and 1993;
Statements of Consolidated Cash Flows (unaudited)
-- quarters ended March 31, 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.
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 57.6 $ 14.7
Receivables 240.1 234.7
Inventories 412.4 426.9
Prepaid expenses and other current assets 69.1 60.7
-------- --------
Total current assets 779.2 737.0
Investments in and advances to unconsolidated affiliates 179.0 183.2
Property, plant, and equipment -- net 1,146.6 1,163.7
Deferred income taxes 231.3 210.8
Other assets 252.1 233.2
-------- --------
Total $2,588.2 $2,527.9
======== ========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable $ 113.5 $ 126.3
Accrued interest 12.8 23.6
Accrued salaries, wages, and related expenses 55.3 56.1
Accrued postretirement benefit obligation -- current portion 47.6 47.6
Other accrued liabilities 123.9 133.2
Payable to affiliates 62.4 62.4
Short-term borrowings .5
Long-term debt -- current portion 8.7 8.7
-------- --------
Total current liabilities 424.2 458.4
Long-term liabilities 506.5 501.8
Accrued postretirement benefit obligation 716.5 713.1
Long-term debt 751.6 720.2
Minority interests 98.0 105.0
Stockholders' equity:
Preferred stock .6 .2
Common stock .6 .6
Additional capital 526.4 425.9
Accumulated deficit (414.6) (375.7)
Additional minimum pension liability (21.6) (21.6)
-------- --------
Total stockholders' equity 91.4 29.4
-------- --------
Total $2,588.2 $2,527.9
======== ========
</TABLE>
The accompanying notes to interim consolidated financial
statements are an integral part of these statements.
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED LOSS
(Unaudited)
(In millions of dollars, except share amounts)
<CAPTION>
Quarter Ended
March 3l,
---------------------
1994 1993
------- -------
<S> <C> <C>
Net sales $ 415.1 $ 442.6
------- -------
Costs and expenses:
Cost of products sold 387.8 400.1
Depreciation 24.9 24.2
Selling, administrative, research and development, and general 28.0 28.0
------- -------
Total costs and expenses 440.7 452.3
------- -------
Operating loss (25.6) (9.7)
Other income (expense):
Interest and other income -- net 2.0 3.5
Interest expense (21.4) (21.4)
------- -------
Loss before income taxes, minority interests, extraordinary loss,
and cumulative effect of changes in accounting principles (45.0) (27.6)
Credit for income taxes 15.8 11.5
Minority interests (.1) (.5)
------- -------
Loss before extraordinary loss and cumulative effect of changes
in accounting principles (29.3) (16.6)
Extraordinary loss on early extinguishment of debt, net of tax
benefit of $2.9 and $11.2 for 1994 and 1993 periods, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles, net of tax
benefit of $237.7 (507.3)
------- -------
Net loss $ (34.7) $(545.7)
Dividends on preferred shares (4.2)
------- -------
Net loss attributable to common shareholders $ (38.9) $(545.7)
======= =======
Per common and common equivalent share:
Loss before extraordinary loss and cumulative effect of changes
in accounting principles $ (.58) $ (.29)
Extraordinary loss (.09) (.38)
Cumulative effect of changes in accounting principles (8.85)
------- -------
Net loss $ (.67) $ (9.52)
======= =======
Weighted average common and common equivalent shares
outstanding (000) 58,096 57,327
</TABLE>
The accompanying notes to interim consolidated financial
statements are an integral part of these statements.
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
Quarter Ended
March 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (34.7) $(545.7)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation 24.9 24.2
Amortization of deferred financing costs and
discount on long-term debt 2.2 2.9
Non-cash postretirement benefit expenses other than pensions 3.4 3.9
Minority interests .1 .5
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 (17.7) (13.1)
Equity in losses of unconsolidated affiliates 1.3 2.1
(Decrease) increase in accrued interest (10.7) 6.1
Incurrence of financing costs (17.1) (11.3)
Increase in receivables (6.6) (3.6)
Decrease (increase) in inventories 14.5 (1.2)
Increase in prepaid expenses and other current assets (7.3) (7.7)
Decrease in accounts payable (12.8) (18.8)
(Decrease) increase in payable to affiliates and
accrued liabilities (8.8) 5.3
Other (4.0) (1.0)
------- -------
Net cash used for operating activities (67.9) (28.3)
------- -------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 2.3 7.2
Capital expenditures (9.6) (10.0)
Redemption fund for minority interest preference stock (2.3) (1.0)
------- -------
Net cash used for investing activities (9.6) (3.8)
------- -------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (321.4) (575.4)
Borrowings of long-term debt, including revolving credit 353.5 622.0
Tender premiums and other costs on early extinguishment of debt (27.1)
Net short-term payments (.5) (2.9)
Borrowings from parent 15.0
Dividends paid (4.2)
Capital stock issued 100.4
Redemption of minority interests' preference stock (7.4) (3.3)
------- -------
Net cash provided by financing activities 120.4 28.3
------- -------
Net increase (decrease) in cash and cash equivalents during the period 42.9 (3.8)
Cash and cash equivalents at beginning of period 14.7 19.1
------- -------
Cash and cash equivalents at end of period $ 57.6 $ 15.3
======= =======
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 29.9 $ 12.5
Income taxes paid 2.4 1.6
</TABLE>
The accompanying notes to interim consolidated financial
statements are an integral part of these statements.
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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 60%
of Kaiser's common stock, assuming the conversion of each $.65
Depositary Share and each outstanding PRIDES (as defined below) into
one share of Kaiser's common stock, with the remaining 40% 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, said 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 quarter
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 shares
of 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 shares of 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 March 31, 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>
March 31, December 31,
1994 1993
------- ------------
<S> <C> <C>
Finished fabricated products $ 74.7 $ 83.7
Primary aluminum and work in process 143.6 141.4
Bauxite and alumina 86.7 94.0
Operating supplies and repair and maintenance 107.4 107.8
------ ------
Total $412.4 $426.9
====== ======
</TABLE>
Substantially all product inventories are stated at last-in,
first-out (LIFO) cost, not in excess of market. Replacement cost is
not in excess of LIFO cost.
- 5 -
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
3. Long-Term Debt
Long-term debt is as follows:
<TABLE>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
1994 Credit Agreement
1989 Credit Agreement (6.59% at December 31, 1993)
Revolving Credit Facility $188.0
9-7/8% Senior Notes, net of discount of $1.5 $223.5
Pollution Control and Solid Waste Disposal Facilities
Obligations (6.00% - 7.75%) 39.0 39.2
Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0
Alpart Term Loan (8.95%) 21.9 25.0
12-3/4% Senior Subordinated Notes 400.0 400.0
Other borrowings (fixed and variable rates) 15.9 16.7
------ ------
Total 760.3 728.9
Less current portion 8.7 8.7
------ ------
Long-term debt $751.6 $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 (the "1994 Credit Agreement").
The 1994 Credit Agreement replaced 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") and consists of a $250.0 five-year secured,
revolving line of credit, scheduled to mature in 1999. The Company
is able to borrow under the facility by means of revolving credit
advances and letters of credit (up to $125.0) in an aggregate amount
equal to the lesser of $250.0 or a borrowing base related to eligible
accounts receivable plus eligible inventory. As of March 31, 1994,
$179.6 of borrowing capacity was unused under the 1994 Credit
Agreement (of which $54.6 could also have been used for letters of
credit). The 1994 Credit Agreement is unconditionally guaranteed by
the Company and by all significant subsidiaries of KACC which were
guarantors of KACC's obligations under the 1989 Credit Agreement.
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 Company recorded a pre-tax extraordinary loss of
approximately $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 -
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars)
4. Net Income Per Common and Common Equivalent Share
Net income 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 ended March
31, 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. Dividends on the Series A Shares and the
PRIDES ($4.2 for the quarter ended March 31, 1994) are added to net
loss for the purpose of calculating net income 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 March 31, 1994, the balance
of such accruals, which is primarily included in Long-term
liabilities, was $42.0.
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 action to be
taken. The Company expects that these remediation actions will be
taken over the next several years and estimates that 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
$12.8 thereafter.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of
remediation are established, or alternative technologies are
developed, changes in these and other factors may result in actual
costs exceeding the current environmental accruals by amounts which
cannot presently be estimated. While uncertainties are inherent in
the ultimate outcome of these matters and it is impossible to
presently determine the actual costs that ultimately may be incurred,
management believes that the resolution of such uncertainties should
not have a material adverse effect upon the Company's consolidated
financial position or results of operations.
Asbestos Contingencies - KACC is a defendant in a number of
lawsuits in which the plaintiffs allege that certain of their
injuries were caused by exposure to asbestos during, and as a result
of, their employment with KACC or exposure to products containing
asbestos produced or sold by KACC. The lawsuits generally relate to
products KACC has not manufactured for at least 15 years. At March
31, 1994, the number of such lawsuits pending was approximately
24,500.
- 7 -
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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 the years 1994 through 1998, and an aggregate of
approximately $88.4 thereafter through 2006. 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 2006. The
Company does not presently believe there is a reasonable basis for
estimating such costs beyond 2006 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(5.25% at
March 31, 1994). Accordingly, an accrual of $102.3 for
asbestos-related expenditures is included primarily in Long-term
liabilities at March 31, 1994. The aggregate amount of the
undiscounted liability at March 31, 1994, is $139.8, 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 one 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 $94.3, determined on
the same basis as the asbestos-related cost accrual, are recorded
primarily in Other assets as of March 31, 1994.
Based upon the factors discussed in the two preceding
paragraphs, management currently believes that the resolution of the
asbestos-related uncertainties and the incurrence of asbestos-related
costs net of insurance recoveries should not have a material adverse
effect upon the Company's consolidated financial position or results
of operations.
Other Contingencies - The Company is involved in various other
claims, lawsuits, and other proceedings relating to a wide variety of
matters. While uncertainties are inherent in the ultimate outcome of
such matters and it is impossible to determine the actual costs that
ultimately may be incurred, management believes that the resolution of
such uncertainties and the incurrence of such costs should not have a
material adverse effect upon the Company's consolidated financial
position or results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Item 1, Part I, of this Report.
Results of Operations
- - ---------------------
The Company's operating results are sensitive to changes in
prices of alumina, primary aluminum, and fabricated aluminum products,
and also depend to a significant degree on the volume and mix of
all products sold. The table on the following page provides selected
operational and financial information on a consolidated basis with
respect to the Company for the quarters ended March 31,1994 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.
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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
March 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Shipments: (000 tons)(1)
Alumina 468.2 459.3
Aluminum products:
Primary aluminum 64.3 74.5
Fabricated aluminum products 96.8 91.6
------- -------
Total aluminum products 161.1 166.1
======= =======
Average realized sales price:
Alumina (per ton) $ 155 $ 174
Primary aluminum (per pound) .55 .56
Net sales:
Bauxite and alumina:
Alumina $ 72.5 $ 80.0
Other(2)(3) 20.4 19.0
------- -------
Total bauxite and alumina 92.9 99.0
------- -------
Aluminum processing:
Primary aluminum 77.3 91.2
Fabricated aluminum products 241.5 249.1
Other(3) 3.4 3.3
------- -------
Total aluminum processing 322.2 343.6
------- -------
Total net sales $ 415.1 $ 442.6
======= =======
Operating income (loss):
Bauxite and alumina $ (2.4) $ .1
Aluminum processing (6.0) 9.0
Corporate (17.2) (18.8)
------- -------
Total operating loss $ (25.6) $ (9.7)
======= =======
Loss before income taxes, minority interests,
extraordinary loss, and cumulative effect of
changes in accounting principles $ (45.0) $ (27.6)
======= =======
Loss before extraordinary loss and cumulative effect of
changes in accounting principles $ (29.3) $ (16.6)
Extraordinary loss on early extinguishment of debt, net
of tax benefit of $2.9 and $11.2
for 1994 and 1993 periods, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles,
net of tax benefit of $237.7 (507.3)
------- -------
Net loss $ (34.7) $(545.7)
======= =======
Capital expenditures $ 9.6 $ 10.0
======= =======
</TABLE>
(1) All references to tons refer to metric tons of 2,204.6 pounds.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority
interests in consolidated subsidiaries.
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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 $92.9 million in the first quarter
of 1994, compared with $99.0 million in the first quarter of 1993.
Revenue from alumina decreased 9% to $72.5 million in the first
quarter of 1994 from $80.0 million in the first quarter of 1993,
principally due to lower average realized prices.
Aluminum Processing - Revenue from net sales to third parties
for the aluminum processing segment was $322.2 million in the first
quarter of 1994, compared with $343.6 million in the first quarter of
1993. Revenue from primary aluminum decreased 15% to $77.3 million in
the first quarter of 1994 from $91.2 million in the first quarter of
1993, primarily because of lower shipments. Shipments of primary
aluminum to third parties constituted approximately 40% of total
aluminum products shipments in the first quarter of 1994, compared
with approximately 45% in the first quarter of 1993. Revenue from
fabricated aluminum products decreased 3% to $241.5 million in the
first quarter of 1994 from $249.1 million in the first quarter of
1993, principally due to lower average realized prices, partially
offset by increased shipments.
Operating Loss
The Company had an operating loss of $25.6 million in the first
quarter of 1994, compared with $9.7 million in the first quarter of
1993.
Bauxite and Alumina - This segment's operating loss in the first
quarter of 1994 was $2.4 million, compared with operating income of
$.1 million in the first quarter of 1993. The decline in earnings is
principally due to lower average realized prices for alumina.
Aluminum Processing - This segment's operating loss was $6.0
million in the first quarter of 1994, compared with operating income
of $9.0 million in the first quarter of 1993, principally due to
reduced shipments of primary aluminum and lower average realized
prices of fabricated aluminum products, partially offset by increased
shipments of fabricated aluminum products.
Corporate - Corporate operating expenses of $17.2 million in the
first quarter of 1994 and $18.8 million in the first quarter of 1993,
represented corporate general and administrative expenses, which are
not allocated to the Company's segments.
Loss Before Extraordinary Loss and Cumulative Effect of Changes in
Accounting Principles
Loss before extraordinary loss and cumulative effect of changes
in accounting principles in the first quarter of 1994 was $29.3
million, or $.58 per common and common equivalent share, compared with
$16.6 million, or $.29 per common and common equivalent share, in the
first quarter of 1993. The increase in loss resulted from the
increased operating loss previously described, partially offset by a
higher credit for income taxes.
Extraordinary Loss on Early Extinguishment of Debt
In the first quarter of 1994, the Company recorded a pre-tax
extraordinary loss of approximately $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.
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<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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.
Net Loss
The Company recorded a net loss of $34.7 million, or $.67 per
common and common equivalent share, for the first quarter of 1994,
compared with a net loss of $545.7 million, or $9.52 per common and
common equivalent share, for the first quarter 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 recorded in the first quarter of 1993,
partially offset by higher operating losses and the 1994 extraordinary
loss described above.
Financial Condition
- - -------------------
At March 31, 1994, the Company had working capital of $355.0
million and long-term debt of $751.6 million as compared to working
capital of $278.6 million and long-term debt of $720.2 million at
December 31, 1993.
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 shares of 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 shares of 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.
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The offering of the PRIDES, issuance of the Senior Notes, and
entering into the 1994 Credit Agreement were the final steps of a
comprehensive refinancing plan which the Company and KACC began in
January 1993 which extended the maturities of the Company's
outstanding indebtedness, enhanced its liquidity, and raised new
equity capital.
The 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.
Trends
- - ------
In response to the low price of primary aluminum caused by the
current surplus, a number of companies have closed smelting
facilities. As a result of this and certain power reductions
undertaken by the Bonneville Power Administration in the Pacific
Northwest, a number of companies (including the Company) have
curtailed or shut down production capacities at their smelter
facilities in the Pacific Northwest. Furthermore, after continued
assessment of current market conditions, on April 27, 1994, the
Company announced that it will curtail by May 15, 1994, about 40,000
metric tons of primary aluminum-making capacity at its 90%-owned Volta
Aluminium Company Limited ("VALCO") smelter in Ghana, West Africa.
The tonnage accounts for about 20% of VALCO's annual capacity and
about 9.3% of the Company's current annual production. With this
cutback and those taken at the Company's Pacific Northwest smelters
in January 1993, the Company will be operating at an annual production
rate of approximately 390,000 metric tons of primary aluminum, or 77%
of its total annual rated capacity of 508,000 metric tons.
During the first quarter of 1994, the Company's average
realized prices from sales of alumina and fabricated aluminum products
declined from their 1993 levels. The Company's earnings are sensitive
to changes in the prices of alumina, primary aluminum, and fabricated
aluminum products, and also depend to a significant degree upon the
volume and mix of all products sold. The Company has attempted to
mitigate the effect of market-price declines for alumina and primary
aluminum through forward sales transactions and hedging programs.
If the Company's average realized sales prices in 1994 for
substantial quantities of its primary aluminum and alumina were based
on the current market price of primary aluminum, the Company would
continue to sustain net losses in 1994, which would be expected to
exceed the loss for the year 1993 ($81.5 million) before (a)
extraordinary loss and cumulative effect of changes in accounting
principles, (b) the charges related to the restructuring of the
Trentwood plant and certain other facilities, and (c) certain other
charges principally related to a reduction in the carrying value of
the Company's inventories and the establishment of additional
litigation and environmental reserves.
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the quarter
ended March 31, 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: May 11, 1994
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