Back to GetFilings.com
================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1993
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)
Registrant's telephone number, including area code: (510)
462-1122
Securities registered pursuant to Section 12(b) of the
Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Cumulative Convertible Preference
Stock (par value $100)
4 1/8% Series None
4 3/4% (1957 Series) None
4 3/4% (1959 Series) None
4 3/4% (1966 Series) None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Cumulative (1985 Series A) Preference Stock
Cumulative (1985 Series B) Preference Stock
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,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
As of March 21, 1994, there were 46,171,365 shares of the common
stock of the registrant outstanding, all of which were owned by
Kaiser Aluminum Corporation, the parent corporation of the
registrant. As of March 21, 1994, non-affiliates of the
registrant held 794,473 shares of Cumulative (1985 Series A)
Preference Stock and 139,863 shares of Cumulative (Series B)
Preference Stock of the registrant. The aggregate value of the
Cumulative (1985 Series A) Preference Stock and the Cumulative
(1985 Series B) Preference Stock, based upon the redemption price
for such stock, is $46.7 million.
Certain portions of the registrant's definitive proxy statement
to be filed not later than 120 days after the close of the
registrant's fiscal year are incorporated by reference into Part
III of this Report on Form 10-K.
===============================================================
N O T E
Kaiser Aluminum & Chemical Corporation's Report on Form 10-K
filed with the Securities and Exchange Commission includes all
exhibits required to be filed with the Report. Copies of this
Report on Form 10-K, including only Exhibit 21 of the exhibits
listed on pages 73-78 of this Report, are available without
charge upon written request. The registrant will furnish copies
of the other exhibits to this Report on Form 10-K upon payment of
a fee of 25 cents per page. Please contact the office set forth
below to request copies of this Report on Form 10-K and for
information as to the number of pages contained in each of the
other exhibits and to request copies of such exhibits:
Corporate Secretary
Kaiser Aluminum & Chemical Corporation
6177 Sunol Boulevard
Pleasanton, California 94566-7769
(i)
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
T A B L E O F C O N T E N T S
Page
----
PART I. . .. . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS.. . .. . .. . . . .. . . 1
ITEM 2. PROPERTIES . .. . .. . .. . .. . .. . . 14
ITEM 3. LEGAL PROCEEDINGS .. . .. . .. . .. . . 14
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS.. . . . . 18
PART II.. .. . . . . . . . . . . . . . . . 18
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS. . .. . .. . .. . .. . .. . . 18
ITEM 6. SELECTED FINANCIAL DATA. .. .. . . 19
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS . .. . .. . .. . .. . . 20
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA . .. . .. . .. . . 31
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE .. . .. . .. . .. . .. . . 70
PART III. .. . . . . . . . . . . . . . . . 70
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT . . . . . . . . 70
ITEM 11. EXECUTIVE COMPENSATION . . . . . . 70
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . 70
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS. . . . . . . 70
PART IV. . . .. . .. . .. . .. . .. . .. . .. . . 70
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . 70
SIGNATURES . .. . .. . .. . .. . .. . .. . .. . . 72
INDEX OF EXHIBITS. .. . .. . .. . .. . .. . .. . . 73
EXHIBIT 21 . .. . .. . .. . .. . .. . .. . .. . . 79
(ii)
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
PART I
ITEM 1. BUSINESS
Industry Overview
Primary aluminum is produced by the refining of bauxite (the
major aluminum-bearing ore) into alumina (the intermediate
material) and the reduction of alumina into primary aluminum.
Approximately two pounds of bauxite are required to produce one
pound of alumina, and approximately two pounds of alumina are
required to produce one pound of primary aluminum. Aluminum s
valuable physical properties include its light weight, corrosion
resistance, thermal and electrical conductivity, and high tensile
strength.
Demand
The packaging and transportation industries are the principal
consumers of aluminum in the United States, Japan, and Western
Europe. In the packaging industry, which accounted for
approximately 22% of consumption in 1992, aluminum s
recyclability and weight advantages have enabled it to gain
market share from steel and glass, primarily in the beverage
container area. The aluminum packaging market in the United
States, Japan, and Western Europe grew at a rate of approximately
4.0% per year during the period 1982-1992, and total United
States aluminum beverage can shipments increased at a rate of
approximately 2.5% in 1993, 1.5% in 1992, and 3.9% in 1991.
Nearly all beer cans and approximately 95% of the soft drink cans
manufactured for the United States market are made of aluminum.
Despite the flat demand currently being experienced in the can
stock market, growth in the packaging area is generally expected
to continue in the 1990s due to general population increase and
to further penetration of the beverage can market in Western
Europe and Japan, where aluminum cans are a substantially lower
percentage of the total beverage container market than in the
United States.
In the transportation industry, which accounted for approximately
28% of aluminum consumption in the United States, Japan, and
Western Europe in 1992, automotive manufacturers use aluminum
instead of steel or copper for an increasing number of
components, including radiators, wheels, and engines, in order to
meet more stringent environmental and fuel efficiency
requirements through vehicle weight reduction. Management
believes that sales of aluminum to the transportation industry
have considerable growth potential due to projected increases in
the use of aluminum in automobiles. According to industry
sources, aluminum content in United States automobiles nearly
doubled in the last 15 years to an average of 191 pounds per
vehicle and the amount of aluminum consumed in the manufacture of
Japanese automobiles more than doubled from 1983 to 1990.
Management believes that the use of aluminum in automobiles in
the United States and Japan will approximately double between
1991 and 2006.
Supply
As of year-end 1993, Western world aluminum capacity from 109
smelting facilities was approximately 16.4 million tons* per
year. Net exports of aluminum from the Commonwealth of
Independent States (the "C.I.S.") increased substantially from
1990 levels during the period from 1991 through 1993 and have
contributed to a significant increase in London Metal Exchange
stocks of primary aluminum.
- --------------------
* All references to tons in this Report refer to metric tons of
2,204.6 pounds.
- 1 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
Based upon information currently available, Kaiser Aluminum &
Chemical Corporation (the "Company") believes that only moderate
additions will be made during 1994-1995 to Western world alumina
and primary aluminum production capacity; however, due to the
decline of primary aluminum prices since January 1, 1991, and
other factors, curtailments or permanent shutdowns have been
announced, to management's knowledge, with respect to
approximately three million tons of primary aluminum production
capacity. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Trends." The increases in
alumina capacity during 1994-1995 will come from incremental
expansions of existing refineries and not from new plants, which
generally require a four to five-year design, engineering, and
construction period.
Recent Industry Trends
The aluminum industry has been cyclical and market prices of
alumina and primary aluminum have been volatile from time to
time. During 1989, tight supply conditions for alumina and strong
demand for primary aluminum resulted in unusually high spot
prices for alumina. During 1990, a moderate surplus of alumina
supply developed due to new alumina production from two
facilities restarted in prior years (including the Company s
Alpart refinery) and increased production at other refineries.
Furthermore, curtailments of primary aluminum production in
response to declining ingot prices have increased the surplus of
alumina supply. Since 1990, spot prices of alumina have declined
substantially due to these factors and slow economic growth in
major aluminum consuming countries. Contract prices for
deliveries of alumina in 1993 were in a lower range than the
ranges applicable during the past several years. As a result of
these factors and the continuing expansion of existing alumina
refineries during 1992-1993, the current surplus of alumina is
expected to continue.
During 1989 and 1990, primary aluminum smelters throughout the
world operated at near capacity levels. This factor, combined
with increased production from smelter capacity additions during
1989 and 1990, resulted in a reduction of the market price of
primary aluminum from 1988 peak prices. Additions to smelter
capacity in 1991, 1992, and 1993, continued high operating rates
in the Western world, and slow economic growth in major aluminum
consuming countries, as well as exports from the C.I.S. have
contributed to an oversupply of primary aluminum and a
significant increase in primary aluminum inventories in the
world. If Western world production and exports from the C.I.S.
continue at current levels, primary aluminum inventory levels are
expected to increase further in 1994. The foregoing factors have
contributed to a significant reduction in the market price of
primary aluminum, and may continue to adversely affect the market
price of primary aluminum in the future. The average price of
primary aluminum was at historic lows in real terms for the year
ended 1993. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends."
Government officials from the European Union, the United States,
Canada, Norway, Australia, and the Russian Federation met in a
multilateral conference in January 1994 to discuss the current
excess global supply of primary aluminum. All participants have
ratified as a trade agreement the resulting Memorandum which
provides, in part, for (i) a reduction in Russian Federation
primary aluminum production by 300,000 tons per year within three
months of the date of ratification of the Memorandum and an
additional 200,000 tons within the following three months, (ii)
improved availability of comprehensive data on Russian aluminum
production, and (iii) certain assistance to the Russian aluminum
industry. A Russian Federation Trade Ministry official has
publicly stated that the output reduction would remain in effect
for 18 months to two years, provided that other worldwide
production cutbacks occur, existing trade restrictions on
aluminum are eliminated, and no new trade restrictions on
aluminum are imposed. The Memorandum does not require specific
levels of production cutbacks by other producing nations. The
Memorandum was finalized at a second meeting of the participants
held at the end of February 1994.
- 2 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
The Company
General
The Company is a direct subsidiary of Kaiser Aluminum Corporation
("Kaiser") and is an indirect subsidiary of MAXXAM Inc.
("MAXXAM"). The Company operates in all principal aspects of the
aluminum industry the mining of bauxite, the refining of
bauxite into alumina, the production of primary aluminum from
alumina, and the manufacture of fabricated (including
semi-fabricated) aluminum products. In addition to the
production utilized by the Company in its operations, the Company
sells significant amounts of alumina and primary aluminum in the
domestic and international markets. In 1993, the Company
produced approximately 2,826,600 tons of alumina, of which
approximately 71% was sold to third parties, and produced 436,200
tons of primary aluminum, of which approximately 56% was sold to
third parties. The Company is also a major domestic supplier of
fabricated aluminum products. In 1993, the Company shipped
approximately 373,200 tons of fabricated aluminum products to
third parties, which accounted for approximately 6% of the total
tonnage of United States domestic shipments in 1993. A majority
of the Company's fabricated products are used by customers as
components in the manufacture and assembly of finished end-use
products.
The following table sets forth total shipments and intracompany
transfers of the Company's alumina, primary aluminum, and
fabricated aluminum operations:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
(in thousands of tons)
ALUMINA:
Shipments to Third Parties 1,997.5 2,001.3 1,945.9
Intracompany Transfers 807.5 878.2 884.2
PRIMARY ALUMINUM:
Shipments to Third Parties 242.5 355.4 340.6
Intracompany Transfers 233.6 224.4 199.6
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties 373.2 343.6 314.2
Business Strategy
The Company has made significant changes in the mix of products
sold to customers by disposing of selected assets, restarting and
increasing its percentage ownership interest in the Alumina
Partners of Jamaica ("Alpart") alumina refinery, and increasing
production of alumina at Gramercy, Louisiana, and Queensland
Alumina Limited ("QAL") in Australia. The percentage of the
Company's alumina production sold to third parties increased
from
approximately 35% in 1987 to approximately 71% in 1993, and the
percentage of its primary aluminum production sold to third
parties increased from approximately 20% in 1987 to approximately
56% in 1993.
The Company has concentrated its fabricated products operations
on the beverage container market (which historically has been
recession-resistant); high value-added, heat-treated sheet and
plate products for the aerospace industry; hubs, wheels and other
products for the truck, trailer and shipping container industry;
parts for air bag canisters and other automotive components; and
distributor markets for a variety of semifabricated aluminum
products. Since January 1,
- 3 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
1989, the Company has constructed four new fabrication facilities
and has modernized and expanded others, with the objective of
reducing manufacturing costs and expanding sales in selected
product markets in which the Company has production expertise,
high-quality capability, and geographic and other competitive
advantages.
The Company has taken steps to control and reduce costs, improve
the efficiency and increase the capacity of its alumina and
primary aluminum production and fabricating operations, modernize
its facilities, and streamline and decentralize its management
structure to reduce corporate overhead and shift decision-making
and accountability to its business units. In October 1993, the
Company announced that it is restructuring its flat-rolled
products operation at its Trentwood plant in Spokane, Washington,
to reduce that facility's annual operating costs. This effort is
in response to overcapacity in the aluminum rolling industry,
flat demand in the U. S. can stock market, and declining demand
for aluminum products sold to customers in the commercial
aerospace industry, all of which have resulted in declining
prices in Trentwood's key markets. The Trentwood restructuring
is
expected to result in annual cost savings of at least $50.0
million after it has been fully implemented (which is expected to
occur by the end of 1995). See "- Production Operations -
Fabricated Products - Flat-Rolled Products."
Primary aluminum production at the Company's Mead and Tacoma
smelters was curtailed in 1993 because of a power reduction
imposed by the Bonneville Power Administration (the "BPA") which
reduced the operating rates for those smelters. See "- Primary
Aluminum Products". Furthermore, the Company announced on
February 24, 1994, that it will curtail approximately 9.3% of its
annual production capacity currently available from its primary
aluminum smelters.
The Company has also attempted to lessen its exposure to possible
future declines in the market prices of alumina and primary
aluminum by entering into fixed and variable rate power and fuel
supply contracts, and a labor contract with the United
Steelworkers of America (the "USWA") which provides for semi-
variable compensation with respect to approximately 73% of the
Company's domestic hourly work force. See "- Production
Operations" and " Employees."
Sensitivity to Prices and Hedging Programs
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 by the Company. Through its variable cost
structures, forward sales, and hedging programs, the Company has
attempted to mitigate its exposure to possible further declines
in the market prices of alumina and primary aluminum while
retaining the ability to participate in favorable pricing
environments that may materialize. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Trends Sensitivity to Prices and Hedging Programs."
Production Operations
The Company's operations are conducted through the Company s
decentralized business units which compete throughout the
aluminum industry.
o The Alumina Business Unit, which mines bauxite and obtains
additional bauxite tonnage under long-term contracts,
produced approximately 8% of Western world alumina in 1993.
During 1993, the Company utilized approximately 82% of its
bauxite production at its alumina refineries and the
remainder was either sold to third
- 4 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
parties or tolled into alumina by a third party. In addition,
during 1993 the Company utilized approximately 29% of its alumina
for internal purposes and sold the remainder to third parties.
The Company's share of total Western world alumina capacity was
8% in 1993.
o The Primary Aluminum Products Business Unit operates two
domestic smelters wholly owned by the Company and two foreign
smelters in which the Company holds significant ownership
interests. In 1993, the Company utilized approximately 44% of
its primary aluminum for internal purposes and sold the
remainder to third parties. The Company's share of total
Western world primary aluminum capacity was 3% in 1993.
o Fabricated products are manufactured by three Business Units
Flat-Rolled Products, Extruded Products (including rod and
bar), and Forgings which manufacture a variety of
fabricated products (including body, lid, and tab stock for
beverage containers, sheet and plate products, screw machine
stock, redraw rod, forging stock, truck wheels and hubs, air
bag canisters, and other forgings and extruded products) and
operate plants located in principal marketing areas of the
United States and Canada. Substantially all of the primary
aluminum utilized in the Company's fabricated products
operations is obtained internally, with the balance of the
metal utilized in its fabricated products operations obtained
from scrap metal purchases. In 1993, the Company shipped
approximately 373,200 tons of fabricated aluminum products to
third parties, which accounted for approximately 6% of the
total tonnage of United States domestic fabricated shipments
for such year.
Alumina
--------
The following table lists the Company's bauxite mining and
alumina refining facilities as of December 31, 1993:
Annual
Production Total
Capacity Annual
Company Available to Production
Activity Facility Location Ownership the Company Capacity
- -------- -------- -------- --------- ------------ ----------
(tons) (tons)
Bauxite Mining KJBC (1) Jamaica 49% 4,500,000 4,500,000
Alpart (2) Jamaica 65% 2,275,000 3,500,000
--------- ---------
6,775,000 8,000,000
========= =========
Alumina Refining Gramercy Louisiana 100% 1,000,000 1,000,000
Alpart Jamaica 65% 943,000 1,450,000
QAL Australia 28.3% 934,000 3,300,000
--------- ---------
2,877,000 5,750,000
========= =========
- --------------------
(1) Although the Company owns 49% of Kaiser Jamaica
Bauxite Company, it has the right to receive all of such
entity's output.
(2) Alpart bauxite is refined into alumina at the Alpart
refinery.
Bauxite mined in Jamaica by Kaiser Jamaica Bauxite Company
("KJBC") is refined into alumina at the Company's plant at
Gramercy, Louisiana, or is sold to third parties. In 1979, the
Government of Jamaica granted the Company a mining lease
- 5 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
for the mining of bauxite sufficient to supply the Company s
then-existing Louisiana alumina refineries at their annual
capacities of 1,656,000 tons per year until January 31, 2020.
Alumina from the Gramercy plant is sold to third parties. The
Company has entered into a series of medium-term contracts for
the supply of natural gas to the Gramercy plant. The price of
such gas varies based upon certain spot natural gas prices, with
floor and ceiling prices applicable to approximately one-half of
the delivered gas. The Company has, however, established a fixed
price for a portion of the delivered gas through a hedging
program.
Alpart holds bauxite reserves and owns an alumina plant located
in Jamaica. The Company has a 65% interest in Alpart and Hydro
Aluminium a.s ("Hydro") owns the remaining 35% interest. The
Company has management responsibility for the facility on a fee
basis. The Company and Hydro have agreed to be responsible for
their proportionate shares of Alpart's costs and expenses.
Alpart
began a program of modernization and expansion of its facilities
in 1991. As a part of that program, the capacity of the Alpart
alumina refinery has been increased to 1,450,000 tons per year as
of December 31, 1992. In 1981, the Government of Jamaica granted
Alpart a mining lease covering bauxite reserves sufficient to
operate the Alpart plant until December 31, 2019. In connection
with the expansion program, the Alpart partners have entered into
an agreement with the Government of Jamaica designed to assure
that sufficient reserves of bauxite will be available to Alpart
to operate its refinery, as it has been expanded and as it may be
expanded through the year 2024 (to a capacity of 2,000,000 tons
per year).
In mid-1990, Alpart entered into a five-year agreement for the
supply of substantially all of its fuel oil, the refinery s
primary energy source. In February 1992, the term of this
agreement was extended to 1996 and the quantity of fuel oil to be
supplied was increased. The price for 80% of the initial
quantity remains fixed at a price which prevailed in the fourth
quarter of 1989; the price for 80% of the increased quantity is
fixed at a negotiated price; and the price for the balance of the
initial and increased quantities was based upon certain spot fuel
oil prices plus transportation costs. Alpart has purchased all
of the quantities of fuel oil which could be purchased based upon
certain spot fuel oil prices under both the initial and extended
agreements.
The Company holds a 28.3% interest in QAL, which owns the largest
and one of the most efficient alumina refineries in the world,
located in Queensland, Australia. QAL refines bauxite into
alumina, essentially on a cost basis, for the account of its
stockholders pursuant to long-term tolling contracts. The
stockholders, including the Company, purchase bauxite from
another QAL stockholder pursuant to long-term supply contracts.
The Company has contracted to take approximately 751,000 tons per
year of capacity or pay standby charges. The Company is
unconditionally obligated to pay amounts calculated to service
its share ($73.6 million at December 31, 1993) of certain debt of
QAL, as well as other QAL costs and expenses, including bauxite
shipping costs. QAL's annual production capacity is
approximately 3,300,000 tons, of which approximately 934,000 tons are
availableto the Company.
The Company's principal customers for bauxite and alumina
consistof large and small domestic and international aluminum producers
that purchase bauxite and reduction-grade alumina for use in
their internal refining and smelting operations and trading
intermediaries who resell raw materials to end-users. In 1993,
the Company sold all of its bauxite to one customer, and sold
alumina to 13 customers, the largest and top five of which
accounted for approximately 22% and 79% of such sales,
respectively. Among alumina producers, the Company believes it is
now the world's second largest seller of alumina to third
parties. The Company's strategy is to sell a substantial portion
of the bauxite and alumina available to it in excess of its
internal refining and smelting requirements pursuant to forward
sales contracts. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends -
Sensitivity to Prices and Hedging Programs". Marketing and sales
efforts are conducted by executives of the Alumina Business Unit
and the Company.
- 6 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
Primary Aluminum Products
- -------------------------
The following table lists the Company's primary aluminum
smelting
facilities as of December 31, 1993:
Annual Rated Total
Capacity Annual 1993
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
- -------- -------- --------- ------------ -------- --------
(tons) (tons)
Domestic
Washington Mead 100% 200,000 200,000 80%
Washington Tacoma 100% 73,000 73,000 77%
------- -------
Subtotal 273,000 273,000
------- -------
International
Ghana Valco 90% 180,000 200,000 88%
Wales, United Kingdom Anglesey 49% 55,000 112,000 112%
------- -------
Subtotal 235,000 312,000
------- -------
Total 508,000 585,000
======= =======
The Company owns two smelters located at Mead and Tacoma,
Washington, where alumina is processed into primary aluminum. The
Mead facility uses pre-bake technology and produces primary
aluminum, almost all of which is used at the Company's Trentwood
fabricating facility and the balance of which is sold to third
parties. The Tacoma plant uses Soderberg technology and produces
primary aluminum and high-grade, continuous-cast, redraw rod,
which currently commands a premium price in excess of the price
of primary aluminum. Both smelters have achieved significant
production efficiencies in recent years through retrofit
technology, cost controls, and semi-variable wage and power
contracts, leading to increases in production volume and
enhancing their ability to compete with newer smelters. At the
Mead plant, the Company has converted to welded anode assemblies
to increase energy efficiency, reduced the number of anodes used
in the smelting process, changed from pencil to liquid pitch to
produce carbon anodes which achieved environmental and operating
savings, and engaged in efforts to increase production through
the use of improved, higher-efficiency reduction cells.
Electrical power represents an important production cost for the
Company at its Mead and Tacoma smelters. The electricity supply
contracts between the BPA and the Company expire in 2001. The
electricity contracts between the BPA and its direct service
industry customers (which consist of 15 energy intensive
companies, principally aluminum producers, including the Company)
permit the BPA to interrupt up to 25% of the amount of power
which it normally supplies to such customers. Both the Mead and
Tacoma plants operated at approximately full rated capacity
during 1991-1992, but operated at less than rated capacity
throughout 1993. As a result of drought conditions, in January
1993 the BPA reduced the amount of power it normally supplies to
its direct service industry customers. In response to such
reduction, the Company removed three reduction potlines from
production (two at the Mead smelter and one at the Tacoma
smelter) and purchased substitute power in the first quarter of
1993 at increased costs. Despite the temporary availability of
such power through July 1993, the Company operated its Mead and
Tacoma smelters at the reduced operating rates introduced in
January 1993, and operated its Trentwood fabrication facility
without any curtailment of its production. The Company currently
anticipates that in 1994, the Company will operate the Mead and
Tacoma smelters at rates which do not exceed the current
operating rates of 75% of full capacity for such smelters. The
BPA has recently notified its direct service industry customers
that it intends to restore full power through July 31, 1994.
- 7 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
Through June 1996, the Company pays for power on a basis which
varies, within certain limits, with the market price of primary
aluminum, and thereafter the Company will pay for power at
variable rates to be negotiated. During 1993, the Company paid
for power under its power supply contract with the BPA at the
floor rate. Effective October 1, 1993, an increase in the base
rate the BPA charges to its direct service industry customers for
electricity was adopted which will increase the Company s
production costs at the Mead and Tacoma smelters by approximately
$15.0 million per year (approximately $9.1 million per year based
on the Company's current operating rate of approximately 75% of
full capacity). The rate increase generally is expected to remain
in effect for two years. In the event that the BPA's revenues
fall below certain levels prior to April 1994, the BPA may impose
up to a 10% surcharge on the base rate it charges to its direct
service industry customers, effective during the period from
October 1994 through October 1995 (which would increase the
Company's production costs at the Mead and Tacoma smelters by
approximately $9.1 million per year based on the Company s
current operating rate of approximately 75% of full capacity). In
addition, in order to comply with certain federal laws and
regulations applicable to endangered fish species, the BPA may be
required in the future to reduce its power generation and to
purchase substitute power (at greater expense) from other
sources.
The Company manages, and holds a 90% interest in, the Volta
Aluminum Limited ("Valco") aluminum smelter in Ghana. The Valco
smelter uses pre-bake technology and processes alumina supplied
by the Company and the other participant into primary aluminum
under long-term tolling contracts which provide for proportionate
payments by the participants in amounts intended to pay not less
than all of Valco's operating and financing costs. The Company s
share of the primary aluminum is sold to third parties. Power
for the Valco smelter is supplied under an agreement which
expires in 1997, subject to Valco's right to extend the
agreement
for 20 years. The agreement indexes the price of two-thirds of
the contract quantity to the market price of primary aluminum and
fixes the price for the remainder. The agreement also provides
for a review and adjustment of the base power rate and the price
index every five years. The Valco smelter restarted production
early in 1985 after being closed for more than two years due to
lack of rainfall and the resultant hydroelectricity shortage. The
Company believes that there has been sufficient rainfall and
water storage such that an adequate supply of electricity for the
Valco plant at its current operating rate is probable for at
least one year.
The Company has a 49% interest in the Anglesey Aluminium Limited
("Anglesey") aluminum smelter and port facility at Holyhead,
Wales. The Anglesey smelter uses pre-bake technology. The Company
supplies 49% of Anglesey's alumina requirements and purchases
49%
of Anglesey's aluminum output. The Company sells its share of
Anglesey's output to third parties. Power for the Anglesey
aluminum smelter is supplied under an agreement which expires in
2001.
The Company has developed and installed proprietary retrofit
technology in all of its smelters. This technology which
includes the redesign of the cathodes and anodes that conduct
electricity through reduction cells, improved "feed" systems that
add alumina to the cells, and a computerized system that controls
energy flow in the cells enhances the Company's ability to
compete more effectively with the industry's newer smelters. The
Company is actively engaged in efforts to license this technology
and sell technical and managerial assistance to other producers
worldwide, and may participate in joint ventures or similar
business partnerships which employ the Company's technical and
managerial knowledge. Pursuant to various arrangements, the
Company's technology has been installed in aluminum smelters
located in West Virginia, Ohio, Missouri, Kentucky, Sweden,
Germany, India, Australia, New Zealand, Ghana, the C.I.S., and
the United Kingdom. See " Research and Development".
The Company's principal primary aluminum customers consist of
large trading intermediaries and metal brokers, who resell
primary aluminum to fabricated product manufacturers, and large
and small international aluminum fabricators. In 1993, the
Company sold the approximately 56% of its primary aluminum
production not utilized for internal purposes to approximately 50
customers, the largest and top five of which accounted for
approximately 44% and 64% of such sales, respectively. Marketing
and sales efforts are conducted by a small staff located at the
business unit's headquarters in
- 8 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
Pleasanton, California, and by senior executives of the Company
who participate in the structuring of major sales transactions. A
majority of the business unit's sales are based upon long-term
relationships with metal merchants and end-users.
Fabricated Products
-------------------
The Company manufactures and markets fabricated aluminum products
for the packaging, transportation, construction, and consumer
durables markets in the United States and abroad. Sales in these
markets are made directly and through distributors to a large
number of customers, both domestic and foreign. In 1993, seven
domestic beverage container manufacturers constituted the leading
customers for the Company's fabricated products and accounted
for
approximately 19% of the Company's sales revenue.
The Company's fabricated products compete with those of numerous
domestic and foreign producers and with products made with steel,
copper, glass, plastic, and other materials. Product quality,
price, and availability are the principal competitive factors in
the market for fabricated aluminum products. The Company has
refocused its fabricated products operations to concentrate on
selected products in which the Company has production expertise,
high quality capability, and geographic and other competitive
advantages.
Flat-Rolled Products The Flat-Rolled Products Business Unit,
the largest of the Company's fabricated products businesses,
operates the Trentwood sheet and plate mill at Spokane,
Washington. The Trentwood facility is the Company's largest
fabricating plant and accounted for substantially more than one-
half of the Company's 1993 fabricated products shipments. The
business unit supplies the beverage container market (producing
body, lid, and tab stock), the aerospace market, and the tooling
plate, heat-treated alloy and common alloy coil markets, both
directly and through distributors. The Company announced in
October 1993 that it is restructuring its flat-rolled products
operation at its Trentwood plant to reduce that facility's
annual
operating costs. This effort is in response to overcapacity in
the aluminum rolling industry, flat demand in the U.S. can stock
market, and declining demand for aluminum products sold to
customers in the commercial aerospace industry, all of which have
resulted in declining prices in Trentwood's key markets. The
Trentwood restructuring is expected to result in annual cost
savings of at least $50.0 million after it has been fully
implemented (which is expected to occur by the end of 1995). In
connection with the restructuring, Trentwood completed an
organizational streamlining that included a reduction of
approximately 80 salaried employees. In addition, the Company
has reached an agreement with the USWA that will reduce the total
number of hourly employees at Trentwood by approximately 300
employees, or about 25%, by the end of 1995. The agreement with
the USWA also includes a commitment by the Company to spend up to
$50.0 million of capital at Trentwood over three years, provided
that goals on cost reduction and profitability are met or
exceeded.
The Company's flat-rolled products are sold primarily to
beverage
container manufacturers located in the western United States
where the Company has a transportation advantage. Quality of
products for the beverage container industry, timeliness of
delivery, and price are the primary bases on which the Company
competes. The Company believes that the Company's capital
improvements at Trentwood have enhanced the quality of the
Company's products for the beverage container industry and the
capacity and efficiency of the Company's manufacturing
operations. The Company believes that it is one of the highest
quality producers of aluminum beverage can stock in the world.
In 1993, the Flat-Rolled Products Business Unit had 22 foreign
and domestic can stock customers, the majority of which were
beverage can manufacturers (including seven of the eight major
domestic beverage can manufacturers) and the balance of which
were brewers. The largest and top five of such customers
accounted for approximately 25% and 56%, respectively, of the
business unit's sales revenue. In 1993, the business unit
shipped
products to over 200 customers in the aerospace, transportation,
and industrial ("ATI") markets, most of which were distributors
who sell
- 9 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
to a variety of industrial end-users. The top five customers in
the ATI markets for flat-rolled products accounted for
approximately 10% of the business unit's sales revenue. The
marketing staff for the Flat-Rolled Products Business Unit is
headquartered in Pleasanton, California, and is also located at
the Trentwood facility. Sales are made directly to customers
(including distributors) from ten sales offices located
throughout the United States. International customers are served
by a sales office in the Netherlands and by independent sales
agents in Asia and Latin America. See also "MANAGEMENT S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs
- - Aluminum Processing" for a discussion of demand for fabricated
products in the aerospace market.
Extruded Products The Extruded Products Business Unit is
headquartered in Dallas, Texas, and operates soft-alloy extrusion
facilities in Los Angeles, California; Santa Fe Springs,
California; Sherman, Texas; and London, Ontario, Canada; a
cathodic protection business located in Tulsa, Oklahoma, that
also extrudes both aluminum and magnesium; and rod and bar
facilities in Newark, Ohio, and Jackson, Tennessee, which produce
screw machine stock, redraw rod, forging stock, and billet. Each
of the soft-alloy extrusion facilities has fabricating
capabilities and provides finishing services. The Extruded
Products Business Unit's major markets are in the transportation
industry, to which it provides extruded shapes for automobiles,
trucks, trailers, cabs, and shipping containers, and
distribution, durable goods, defense, building and construction,
ordnance, and electrical markets. In 1993, the Extruded Products
Business Unit had over 900 customers for its products, the
largest and top five of which accounted for approximately 6% and
19%, respectively, of its sales revenue. Sales are made directly
from plants as well as marketing locations across the United
States.
Forgings The Forgings Business Unit operates forging facilities
at Erie, Pennsylvania; Oxnard, California; and Greenwood, South
Carolina; and a machine shop at Greenwood, South Carolina. The
Forgings Business Unit is one of the largest producers of
aluminum forgings in the United States and is a major supplier of
high-quality forged parts to customers in the automotive,
commercial vehicle, and ordnance markets. The high strength-to-
weight properties of forged aluminum make it particularly well
suited for automotive applications. The Forgings Business Unit
entered the castings business by purchasing the assets of Winters
Industries, which supplies cast aluminum engine manifolds to the
automobile, truck, and marine markets. The casting production
facilities include two foundries and a machining facility in
Ohio. The Company has recently implemented a plan to discontinue
its castings operations at these facilities. See "MANAGEMENT S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS Results of Operations Aluminum Processing". In
1993, the Forgings Business Unit had over 500 customers for its
products, the largest and top five of which accounted for
approximately 20% and 57%, respectively, of the Forgings Business
Unit's sales revenue. The Forgings Business Unit's headquarters
is located in Erie, Pennsylvania, and additional sales,
marketing, and engineering groups are located in the midwestern
and western United States.
Competition
Aluminum products compete in many markets with steel, copper,
glass, plastic, and numerous other materials. Within the aluminum
business, the Company competes with both domestic and foreign
producers of bauxite, alumina, and primary aluminum, and with
domestic and foreign fabricators. The Company's principal
competitors in the sale of alumina include Alcoa of Australia
Ltd., Billiton International Metals B.V., Clarendon Ltd., and
Pechiney S.A. In addition to the foregoing, the Company competes
with most aluminum producers in the production of primary
aluminum. Many of the Company's competitors have greater
financial resources than the Company. In addition, the C.I.S. has
been supplying large quantities of primary aluminum to the
Western world.
- 10 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
Primary aluminum and, to some degree, alumina are commodities
with generally standard qualities, and competition in the sale of
these commodities is based primarily upon price, quality, and
availability. The Company believes that, assuming the current
relationship between worldwide supply and demand for alumina and
primary aluminum does not change materially, the loss of any one
of its customers, including intermediaries, would not have a
material adverse effect on its business or operations.
The Company also competes with a wide range of domestic and
international fabricators in the sale of fabricated aluminum
products. Competition in the sale of fabricated products is based
upon quality, availability, price, and service, including
delivery performance. The Company concentrates its fabricating
operations on selected products in which the Company has
production expertise, high quality capability, and geographic and
other competitive advantages.
Research and Development
The Company conducts research and development activities
principally at three facilities dedicated to that purpose the
Center for Technology ("CFT") in Pleasanton, California; the
Primary Aluminum Products Division Technology Center ("DTC")
adjacent to the Mead smelter in Washington; and the Alumina
Development Laboratory ("ADL") at the Gramercy, Louisiana
refinery. Net expenditures for Company-sponsored research and
development activities were $18.5 million in 1993, $13.5 million
in 1992, and $11.4 million in 1991. The Company's research staff
totaled 160 at December 31, 1993. The Company estimates that
research and development net expenditures will be in the range of
approximately $17 - $19 million in 1994.
CFT concentrates its research and development efforts on flat-
rolled products while providing specialized services to the
Company's other business units. Its activities include
development of can stock products and aircraft sheet and plate
products, and process improvements directed at efficiency and
quality. In can stock, CFT works to optimize the product s
metallurgy, surface characteristics, coatings, and lubrication.
CFT also offers research and development, technical services, and
selected proprietary technology for license or sale to third
parties. CFT provided technology and technical assistance to
Samyang Metal Co. Ltd. in building an aluminum rolling mill in
Yongju, Korea. CFT also is engaged in cooperative research and
development projects with Furukawa Electric Co., Ltd., Pechiney
Rhenalu, and Kawasaki Steel Corporation of Japan, with respect to
the ground transportation market.
DTC maintains specialized laboratories and a miniature carbon
plant where experiments with new anode and cathode technology are
performed. DTC supports the Company's primary aluminum smelters,
concentrating on the development of cost-effective technical
innovations and equipment and process improvements. Energy
savings of approximately 10% have been achieved at smelters
utilizing proprietary DTC developed technologies (which are
employed in both retrofit and new construction applications),
such as improved cathode and anode design and insulation,
modified electrolyte chemistry, distributive microprocessor
control, and modified cell magnetics. Other proprietary DTC
retrofit technologies, such as redesigned reduction cells, have
helped the Company's older smelters achieve competitiveness with
more recently constructed facilities. The Company is actively
engaged in efforts to license this technology and sell technical
and managerial assistance to other producers worldwide. Pursuant
to various arrangements, the Company's technology has been
installed in aluminum smelters located in West Virginia, Ohio,
Missouri, Kentucky, Sweden, Germany, India, Australia, New
Zealand, Ghana, and the United Kingdom.
The Company has entered into agreements with respect to the
Krasnoyarsk smelter located in Russia pursuant to which it has
licensed certain of its technology for use in such facility and
agreed to provide purchasing services in obtaining western-
sourced technology and equipment to be used in such facility.
These agreements were entered into in November 1990, and the
services under them are expected to be completed in 1994. In
addition, the Company has entered into
- 11 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
agreements with respect to the Nadvoitsy smelter located in
Russia and the Korba smelter of the Bharat Aluminum Co. Ltd.,
located in India, pursuant to which the Company has licensed
certain of its technology for use in such facilities. The
agreements relating to the Nadvoitsy and Korba smelters were
entered into in 1993, and the services under such agreements are
expected to be completed in 1995 and 1994, respectively.
ADL has developed technologies which have improved alumina
refinery efficiency. These include a high capacity thickener
process used in the separation of alumina from bauxite slurry,
plant conversion designs that enable alumina refineries to
convert from the production of fine alumina to the preferred
coarser "sandy" alumina, technology that enables refineries to
process different qualities of bauxite, and computer-aided
instrumentation systems to improve process efficiencies and
energy use in alumina refineries. The Company is actively
pursuing the licensing of alumina refinery technology worldwide.
The Company's technology is in use in alumina refineries in the
Americas, Australia, India, and Europe.
The Company's technology sales and revenue from technical
assistance to third parties were $12.8 million in 1993, $14.1
million in 1992, and $10.9 million in 1991.
Employees
During 1993, the Company employed an average of approximately
10,220 persons, compared with an average of approximately 10,130
employees in 1992, and approximately 9,970 employees in 1991. At
December 31, 1993, the Company's work force was approximately
10,029, including a domestic work force of approximately 5,930,
of whom approximately 4,150 were paid at an hourly rate. Most
hourly paid domestic employees are covered by collective
bargaining agreements with various labor unions. Approximately
73% of such employees are covered by a master agreement (the
"Labor Contract") with the USWA which expires on October 31,
1994. The Labor Contract covers the Company's plants in Spokane
(Trentwood), Mead, and Tacoma, Washington; Gramercy, Louisiana;
and Newark, Ohio.
The Labor Contract provides for floor level wages at all covered
plants. In addition, for workers covered by the Labor Contract at
the Mead and Newark plants, for any quarterly period when the
average Midwest U.S. transaction price of primary aluminum is
$.54 per pound or above, a bonus payment is made. The amount of
the quarterly bonus payment changes incrementally with each full
cent change in the price of primary aluminum between $.54 per
pound and $.61 per pound, remains constant when the price is $.61
or more per pound but is below $.74 per pound, changes
incrementally again with each full cent change in the price
between $.74 per pound and $.81 per pound, and remains at the
ceiling when the price is $.81 per pound or more. Workers covered
by the Labor Contract at the Trentwood, Tacoma, and Gramercy
plants may receive quarterly bonus payments based on various
indices of productivity, efficiency, and other aspects of
specific plant performance, as well as, in certain cases, the
price of alumina or primary aluminum. The particular quarterly
bonus variable compensation formula currently applicable at each
plant will remain applicable for the remainder of the contract
term.
Pursuant to the Labor Contract, base wage rates were raised $.50
per hour in 1990 and were raised an additional $.50 per hour
effective November 1, 1993. Each of the employees covered by the
Labor Contract has received $2,000 in lump-sum signing and
special bonuses. In addition, in the first quarter of 1991 the
Company acquired up to $4,000 of preference stock held in the
stock bonus plan for the benefit of approximately 80% of the
employees covered by the Labor Contract, and in February 1994
acquired an additional $2,000 of such preference stock held in
the stock bonus plan for the benefit of substantially the same
employees. In the first quarter of 1991, the Company also
acquired up to $4,000 of preference stock which had been held for
the benefit of each of certain
- 12 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
salaried employees, and in February 1994 acquired an additional
$2,000 of such preference stock held in the stock bonus plan for
the benefit of substantially the same employees. The February
1994 acquisitions of preference stock were in the aggregate
amount of $5.4 million. The Company considers its employee
relations to be satisfactory.
Environmental Matters
The Company is subject to a wide variety of international, state,
and local environmental laws and regulations ("Environmental
Laws") which continue to be adopted and amended. The
Environmental Laws regulate, among other things, air and water
emissions and discharges; the generation, storage, treatment,
transportation, and disposal of solid and hazardous waste; the
release of hazardous or toxic substances, pollutants and
contaminants into the environment; and, in certain instances, the
environmental condition of industrial property prior to transfer
or sale. In addition, the Company is subject to various federal,
state, and local workplace health and safety laws and regulations
("Health Laws").
From time to time, the Company is subject, with respect to its
current and former operations, to fines or penalties assessed for
alleged breaches of the Environmental and Health Laws and to
claims and litigation brought by federal, state or local agencies
and by private parties seeking remedial or other enforcement
action under the Environmental and Health Laws or damages related
to alleged injuries to health or to the environment, including
claims with respect to certain waste disposal sites and the
remediation of sites presently or formerly operated by the
Company. See " LEGAL PROCEEDINGS." The Company 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 and Reauthorization Act of
1986 ("CERCLA"). The Company, along with several other entities,
has been named as a Potentially Responsible Party ("PRP") for
remedial costs at certain third-party sites listed on the
National Priorities List under CERCLA and, in certain instances,
may be exposed to joint and several liability for those costs or
damages to natural resources.
The Company's Mead, Washington facility has been listed on the
National Priorities List under CERCLA. In addition, in connection
with certain of its asset sales, the Company has indemnified the
purchasers of assets with respect to certain liabilities (and
associated expenses) resulting from acts or omissions arising
prior to such dispositions, including environmental liabilities.
While the ultimate extent of the Company's liability for pending
or potential fines, penalties, remedial costs, claims, and
litigation relating to environmental and health and safety
matters cannot be determined at this time and, in light of
evolving case law relating to insurance coverage for
environmental claims, management is unable to determine
definitively the extent of such coverage, management currently
believes that the resolution of these matters (even without
giving effect to potential insurance recovery) should not have a
material adverse effect on the Company's consolidated financial
position or results of operations.
Environmental capital spending was $12.6 million in 1993, $13.1
million in 1992, and $11.2 million in 1991. Annual operating
costs for pollution control, not including corporate overhead or
depreciation, were approximately $22.4 million in 1993, $21.6
million in 1992, and $17.8 million in 1991. Legislative,
regulatory, and economic uncertainties make it difficult to
project future spending for these purposes. However, the Company
currently anticipates that in the 1994-1995 period, environmental
capital spending will be within the range of approximately $7
$20.0 million per year, and operating costs for pollution control
will be within the range of $20.0 - $22.0 million per year. These
expenditures will be made to assure compliance with applicable
Environmental Laws and are expected to include, among other
things, additional "red mud" disposal facilities and improved
levees at the Gramercy, Louisiana refinery (which are being
financed by the industrial revenue bonds); bath crushing
improvements, baking furnace modernization, and
- 13 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 1. BUSINESS (continued)
improved calcining controls at the Mead, Washington facility; new
and continuing environmental projects at the Trentwood,
Washington facility; and environmental projects required under
the Clean Air Act Amendments of 1990. In addition, $7.2 million
in cash expenditures in 1993, $9.6 million in 1992, and $14.0
million in 1991 were charged to previously established reserves
relating to environmental cost. Approximately $7.0 million is
expected to be charged to such reserves in 1994.
Note 10 of the Notes to the Consolidated Financial Statements
contained in the Company's 1993 Annual Report to Shareholders
(the "Annual Report") is incorporated herein by reference.
ITEM 2. PROPERTIES
The locations and general character of the principal plants,
mines, and other materially important physical properties
relating to the Company's operations are described in "ITEM 1.
BUSINESS," and those descriptions are incorporated herein by
reference. The Company owns in fee or leases all the real estate
and facilities used in connection with its business. Plants and
equipment and other facilities are generally in good condition
and suitable for their intended uses, subject to changing
environmental requirements. Although the Company's domestic
aluminum smelters and alumina facility were initially designed
early in the Company's history, they have been modified
frequently over the years to incorporate technological advances
in order to improve efficiency, increase capacity, and achieve
energy savings. The Company believes that its domestic plants are
cost competitive on an international basis. Due to the Company s
variable cost structure, the plants operating costs are
relatively lower in periods of low primary aluminum prices and
relatively higher in periods of high primary aluminum prices.
The Company's obligations under the Credit Agreement entered into
on February 17, 1994, which replaced the Company's prior credit
agreement, are secured by, among other things, mortgages on the
Company's major domestic plants (other than the Gramercy alumina
plant). See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Financial Condition and
Capital Spending."
ITEM 3. LEGAL PROCEEDINGS
Aberdeen Pesticide Dumps Site Matter
The Aberdeen Pesticide Dumps Site, listed on the Superfund
National Priorities List, is composed of five separate sites
around the town of Aberdeen, North Carolina. These sites
(collectively, the "Sites") include the Farm Chemicals Site, Twin
Sites, Fairway Six Site, McIver Dump Site and the Route 211 Site.
The Sites are of concern to the United States Environmental
Protection Agency (the "EPA") because of their past use as either
pesticide formulation facilities or pesticide disposal areas from
approximately the mid 1930s through the late 1980s.
The United States originally filed a cost recovery complaint (as
amended, the "Complaint") in the United States District Court for
the Middle District of North Carolina, Rockingham Division, No.
C-89-231-R, against five defendants on March 31, 1989, and
subsequently amended its complaint to add another ten defendants
on February 6, 1991, and another four defendants on August 1,
1991. The Company was not a named defendant in the Complaint. The
Complaint seeks reimbursement for past and future response costs
and a determination of liability of the defendants
- 14 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS (continued)
under Section 107 of CERCLA. On or about October 2, 1991, the
Company, along with approximately 17 other parties, was served
with third party complaints from four of the defendants named in
the Complaint (the "Third Party Plaintiffs") alleging claims
arising under various theories of contribution and indemnity. On
October 22, 1992, the United States filed a motion for leave to
file an amended complaint naming the Company as a first party
defendant in its cost recovery action. On February 16, 1993, the
court granted that motion.
The EPA has performed a Remedial Investigation/Feasibility Study
and issued a Record of Decision ("ROD") dated September 30, 1991,
for the Sites. The major remedy selected for the five Sites in
the ROD consisted of excavation of contaminated soil, treatment
of the contaminated soil at a single location utilizing thermal
treatment, and placement of the treated material back into the
areas of excavation. The estimated cost of such remedy for the
five Sites is approximately $32 million. Other possible remedies
described in the ROD included on-site incineration and on-site
ash disposal at an estimated cost of approximately $53 million,
and off-site incineration and disposal at an estimated cost of
approximately $222 million. The Company understands that the EPA
is also investigating contamination of groundwater at the Sites.
The EPA has stated that it has incurred past costs at the Sites
in the range of $7.5 - $8 million as of February 9, 1993, and
alleges that response costs will continue to be incurred in the
future.
On May 20, 1993, the EPA issued three unilateral Administrative
Orders under Section 106(a) of CERCLA ordering the respondents,
including the Company, to perform the remedial design and
remedial action described in the ROD for the Farm Chemicals Site
(EPA Docket No. 93-13-C), Twin Sites (EPA Docket No. 93-14-C) and
Fairway Six Site (EPA Docket No. 93-15-C). The estimated cost as
set forth in the ROD for the remedial action at the three Sites
is approximately $27 million. In addition to the Company,
respondents named in the Administrative Orders for all three
Sites include J.M. Taylor, Grower Service Corporation, E.I.
DuPont de Nemours & Co., Olin Corporation, UCI Holdings, Inc.,
PPG Industries, Inc., and Union Carbide Corporation. Ciba-Geigy
Corporation, Hercules, Inc., Mobil Oil Corporation, Shell Oil
Company, The Boots Company (USA), Inc., Nor-Am Chemical Co.,
George D. Anderson, Farm Chemicals, Inc., Partners In The Pits,
Ltd., Dan F. Maples, Pits Management Corp., Maples Golf
Construction, Inc., Yadco of Pinehurst, Inc., and Robert Trent
Jones are named as Respondents for one or two of the Sites.
The Company has entered into an Agreement in Principle with
certain of the respondents to participate jointly in responding
to the Administrative Orders, to share costs incurred on an
interim basis, and to seek to reach a final allocation of costs
through agreement or to allow such final allocation and
determination of liability to be made by the United States
District Court. A definitive PRP Participation Agreement is
currently awaiting execution by the group. By letter dated July
6, 1993, the Company has notified the EPA of its ongoing
participation with such group of respondents which, as a group,
are intending to comply with the Administrative Orders to the
extent consistent with applicable law.
By letters dated December 30, 1993, the EPA notified the Company
of its potential liability for, and requested that the Company,
along with certain other companies, undertake or agree to
finance, groundwater remediation at certain of the Sites. With
respect to the Farm Chemicals and Twin Sites, in addition to the
Company, the EPA issued such letters to J.M. Taylor, Grower
Services Corporation, Farm Chemicals, Inc., E.I. DuPont de
Nemours and Company, Olin Corporation, UCI Holdings, Inc., Union
Carbide Corporation, Miles, Inc., Mobil Oil Corporation, Shell
Oil Company, Hercules, Inc., The Boots Company (USA), Inc., Nor-
Am Chemical Company, and Ciba-Geigy Corporation. With respect to
the Fairway Six Site, in addition to the Company, the EPA issued
such letters to J.M. Taylor, G.D. Anderson, Grower Service
Corporation, Partners in Pits, Dan Maples, Pits Management
Corporation, Maples Golf Construction, Inc., Yadco of Pinehurst
Inc., Robert Trent Jones, E.I. DuPont de Nemours and Company,
Olin Corporation, UCI Holdings, Inc., Union Carbide Corporation,
Miles, Inc., Ciba-Geigy Corporation, and Hercules, Inc. The ROD-
selected remedy for the groundwater remediation selected by the
EPA includes extraction, on site treatment by coagulation,
flocculation,
- 15 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS (continued)
precipitation, air stripping, GAC absorption, and discharge on
site for the Farm Chemicals/Twin Sites and extraction, on-site
treatment by GAC absorption and discharge on-site for the Fairway
Six Site. The EPA has estimated the total present worth cost,
including 30 years of operation and maintenance, at $11,849,757.
The Company, along with other notified parties, plans to meet
with representatives of the EPA to discuss whether an agreement
to perform this remediation is possible.
Based upon the information presently available to it, the Company
is unable to determine whether the Company has any liability with
respect to any of the Sites or, if there is any liability, the
amount thereof. Two government witnesses have testified that the
Company acquired pesticide products from the operator of the
formulation site over a two to three year period. The Company has
been unable to confirm the accuracy of this testimony.
United States of America v. Kaiser Aluminum & Chemical
Corporation
On February 8, 1989, a civil action was filed by the United
States Department of Justice at the request of the EPA against
the Company in the United States District Court for the Eastern
District of Washington, Case No. C-89-106-CLQ. The complaint
alleged that emissions from certain stacks at the Company s
Trentwood facility in Spokane, Washington intermittently violated
the opacity standard contained in the Washington State
Implementation Plan ("SIP"), approved by the EPA under the
federal Clean Air Act. The complaint sought injunctive relief,
including an order that the Company take all necessary action to
achieve compliance with the Washington SIP opacity limit and the
assessment of civil penalties of not more than $25,000 per day.
In the course of the litigation, questions arose as to whether
the observers who recorded the alleged exceedances were qualified
under the Washington SIP to read opacity. In July 1990, the
Company and the Department of Justice agreed to a voluntary
dismissal of the action. At that time, however, the EPA had
arranged for increased surveillance of the Trentwood facility by
consultants and the EPA's personnel. From May 1990 through May
1991, these observers recorded approximately 130 alleged
exceedances of the SIP opacity rule. Justice Department
representatives have stated their intent to file a second lawsuit
against the Company based on the opacity observations recorded
during that period.
The second lawsuit has not yet been filed. Instead, the Company
has entered into negotiations with the EPA to resolve the claims
against the Company through a consent decree. Although the EPA
and the Company have made substantial progress in negotiating the
terms of the consent decree, key issues remain to be resolved.
Anticipated elements of any settlement would include a commitment
by the Company to improve the emission control equipment at the
Trentwood facility and a civil penalty assessment against the
Company, in an amount to be determined.
At this time, the Company cannot predict the likelihood that the
EPA and the Company will reach an agreement upon the terms of a
consent decree. In the event that the negotiations are not
successful the matter likely would be resolved in federal court.
Catellus Development Corporation v. Kaiser Aluminum & Chemical
Corporation and James L. Ferry & Son, Inc.
On January 7, 1991, the City of Richmond, et al. (the
"Plaintiffs") filed a Second Amended Complaint for Damages and
Declaratory Relief against the United States of America, the
United States Maritime Administration and Santa Fe Land
Corporation (now known as Catellus Development Corporation
("Catellus")) (collectively, the "Defendants") alleging, among
other things, that the Defendants caused or allowed hazardous
substances, pollutants, contaminants, debris, and other solid
wastes to be discharged, deposited, disposed of or released on
certain property located in Richmond, California (the "Property")
formerly owned by Catellus and leased to (i) the Company for the
purpose of
- 16 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS (continued)
shipbuilding activities conducted by the Company on behalf of the
United States during World War II, and (ii) subsequent tenants
thereafter. Plaintiffs allege, among other things, that (i) the
Defendants are jointly and severally liable for response costs
and natural resources damages under CERCLA, (ii) Defendant United
States of America is liable on grounds of negligence for damages
under the Federal Tort Claims Act, and (iii) Defendant Catellus
is strictly liable on grounds of negligence for such discharge,
deposit, disposal or release. Certain of the Plaintiffs have
alleged that they had incurred or expect to incur costs and
damages in the amount of approximately $49 million, in the
aggregate.
On or about September 23, 1992, the Plaintiffs filed a Third
Amended Complaint, alleging, among other things, that (i) the
Defendants are jointly and severally liable for response costs,
declaratory relief, and natural resources damages under CERCLA;
(ii) Defendant United States of America is liable on grounds of
negligence, continuing trespass and continuing nuisance for
damages under the Federal Tort Claims Act; (iii) Defendant
Catellus is strictly liable on grounds of continuing nuisance,
continuing trespass, and negligence for such discharge, deposit,
disposal or release; (iv) Catellus is liable to indemnify
Plaintiffs; and (v) Catellus is liable for fraudulent concealment
of the alleged contamination.
On February 20, 1991, Catellus filed a third party complaint (the
"Third Party Complaint") against the Company and James L. Ferry &
Son, Inc. ("Ferry") in the United States District Court for the
Northern District of California, Case No. C-89-2935 DLJ. The
Third Party Complaint was served on the Company as of April 12,
1991. The Third Party Complaint alleges that, if the allegations
of the Plaintiffs are true, then the Company and Ferry (which is
alleged to have performed certain excavation activities on the
Property and, as a result thereof, to have released contaminants
on the Property and to have arranged for the transportation,
treatment, and disposal of such contaminants) are liable for
Catellus response costs and damages under CERCLA and damages
under other theories of negligence and nuisance and, in the case
of the Company, waste. Catellus seeks (i) contribution from the
Company and Ferry, jointly and severally, for its costs and
damages pursuant to CERCLA; (ii) indemnity from the Company and
Ferry for any liability or judgment imposed upon it; (iii)
indemnity from the Company and Ferry for reasonable attorneys
fees and costs incurred by it; (iv) damages for the injury to its
interest in the Property; and (v) treble damages from the Company
pursuant to California Code of Civil Procedure Section 732. On
June 4, 1991, Catellus served on the Company a first amended
third party complaint which alleges, in addition to the
allegations of the Third Party Complaint, that the Company and/or
a predecessor in interest to the Company is also liable for
Catellus damages, if any, on the basis of alleged contractual
indemnities contained in certain former leases of the Property.
The Third Party Complaint was amended on or about October 26,
1992. The amended Third Party Complaint alleges that, if the
allegations of the Plaintiffs are true, then the Company and
Ferry are liable for (i) Catellus response costs and natural
resources damage under CERCLA; (ii) damages under theories of
negligence, trespass and nuisance; (iii) indemnity (equitable and
contractual); and (iv) attorneys fees under California Code of
Civil Procedure Section 1021.6.
By letter dated October 26, 1992, counsel for certain
underwriters at Lloyd's London and certain London Market
insurance companies ("London Insurers") advised that the London
Insurers agreed to reimburse the Company for defense expenses in
the third party action filed by Catellus, subject to a full
reservation of rights.
The Plaintiffs filed a motion for leave to file a Third Amended
Complaint which would have added the Company as a first party
defendant. This motion was denied. On October 26, 1992, the
Plaintiffs served a separate Complaint against the Company for
damages and declaratory relief. The claims asserted by the
Plaintiffs are for (i) recovery of costs, natural resources
damages, and declaratory relief under CERCLA; (ii) damages for
injury to the Property arising from negligence;
- 17 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS (continued)
(iii) damages under a theory of strict liability; (iv) continuing
nuisance and continuing trespass; (v) equitable indemnity; (vi)
response costs incurred by the Richmond Redevelopment Agency
under California Health & Safety Code Section 33459.4; and (vii)
declaratory relief on the state claims. This matter has been
tendered to the London Insurers.
Picketville Road Landfill Matter
On July 1, 1991, the EPA served on the Company and 13 other PRPs
a Unilateral Administrative Order For Remedial Design and
Remedial Action (the "Order") at the Picketville Road Landfill
site in Jacksonville, Florida. The EPA seeks remedial design and
remedial action pursuant to CERCLA from some, but apparently not
all, PRPs based upon a Record of Decision outlining remedial
cleanup measures to be undertaken at the site adopted by the EPA
on September 28, 1990. The site was operated as a municipal and
industrial waste landfill from 1968 to 1977 by the City of
Jacksonville. The Company was first notified by the EPA on
January 17, 1991, that wastes from one of the Company's plants
may have been transported to and deposited in the site. In its
Record of Decision, the EPA estimated that the total capital,
operations, and maintenance costs of its elected remedy for the
site would be approximately $9.9 million. In addition, the EPA
has reserved the right to seek recovery of its costs incurred
relating to the Order, including, but not limited to,
reimbursement of the EPA's cost of response. Through
negotiations
with the EPA and other PRPs, the Company has reached an agreement
with such PRPs under which the Company will fund $146,700 of the
cost of the remedial action (unless remedial costs exceed $19
million in which event the settlement agreement will be re-
opened). The implementation of the foregoing agreement is subject
to continuing discussions among the EPA, the other PRPs, and the
Company.
Asbestos-related Litigation
The Company 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 the Company or to products containing asbestos produced or
sold by the Company. The lawsuits generally relate to products
the Company has not manufactured for at least 15 years. The
number of such lawsuits instituted against the Company increased
substantially in 1993 and management believes the number of such
lawsuits will continue to increase at a greater annualized rate
than in prior years. For additional information see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Financial Condition and Capital Spending - Asbestos
Contingencies."
Various other lawsuits and claims are pending against the
Company. Management believes that resolution of the lawsuits and
claims made against the Company, including matters discussed
above, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the
Company during the fourth quarter of 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Company's
common stock, which is held solely by Kaiser. Page 64 of this
Report, and the information in Note 10 of the Notes to
Consolidated Financial Statements under the heading "Dividends on
Common Stock" at page 54 of this Report, are incorporated herein
by reference.
- 18 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
The Indentures and the 1994 Credit Agreement (Exhibits 4.1
through 4.4 to this Report) contain restrictions on the ability
of the Company to pay dividends on or make distributions on
account of the Company's common stock and restrictions on the
ability of the Company's subsidiaries to transfer funds to the
Company in the form of cash dividends, loans or advances.
Exhibits 4.1 through 4.4 to this Report; Note 6 of the Notes to
Consolidated Financial Statements at pages 40-43 of this Report;
and the information under the heading "Financial Condition and
Capital Spending--Capital Structure" at pages 23-25 of this
Report, are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated herein by
reference to the table at page 3 of this Report; to the table at
page 20 of this Report; to the discussion under the heading
"Results of Operations" at page 21 of this Report; to Note 1 of
the Notes to Consolidated Financial Statements at pages 36-38 of
this Report; and to pages 62-63 of this Report.
- 19 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
---------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Kaiser Aluminum & Chemical Corporation ("KACC" or the "Company"),
operates in two business segments: bauxite and alumina, and aluminum
processing. Intracompany shipments and sales are excluded from the
information set forth below.
Year Ended December 31,
--------------------------------
(In millions of dollars, except shipments and prices) 1993 1992 1991
-------------------------------------------------------------------------------------
Shipments: (000 tons)(1)
Alumina 1,997.5 2,001.3 1,945.9
Aluminum products:
Primary aluminum 242.5 355.4 340.6
Fabricated products 373.2 343.6 314.2
------- -------- --------
Total aluminum products 615.7 699.0 654.8
======= ======== ========
Average realized sales price:
Alumina (per ton) $ 169 $ 195 $ 240
Primary aluminum (per pound) .56 .66 .72
Net sales:
Bauxite and alumina:
Alumina (2)(3) $ 338.2 $ 390.8 $ 466.5
Other 85.2 75.7 84.3
-------- -------- --------
Total bauxite and alumina 423.4 466.5 550.8
-------- -------- --------
Aluminum processing:
Primary aluminum 301.7 515.0 538.5
Fabricated products 981.4 913.7 898.9
Other (3) 12.6 13.9 12.6
-------- -------- --------
Total aluminum processing 1,295.7 1,442.6 1,450.0
-------- -------- --------
Total net sales $1,719.1 $1,909.1 $2,000.8
======== ======== ========
Operating income (loss):
Bauxite and alumina $ (4.5) $ 62.6 $ 150.0
Aluminum processing (46.3) 104.9 150.2
Corporate (72.3) (77.3) (84.4)
-------- -------- --------
Total operating income (loss) $ (123.1) $ 90.2 $ 215.8
======== ======== ========
Income (loss) before income taxes, minority
interests, extraordinary loss, and cumulative
effect of changes in accounting principles $ (208.8) $ 28.4 $ 149.5
======== ======== ========
Income (loss) before extraordinary loss and
cumulative effect of changes in accounting
principles $ (117.6) $ 29.6 $ 124.7
Extraordinary loss on early extinguishment
of debt, net of tax benefit of $11.2 (21.8)
Cumulative effect of changes in accounting
principles net of tax benefit of $237.7 (507.9)
-------- -------- ---------
Net income (loss) $ (647.3) $ 29.6 $ 124.7
======== ======== =========
Capital expenditures $ 67.7 $ 114.4 $ 118.1
======== ======= ==========
(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.
- 20 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
----------------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 upon the volume and mix of all products
sold. The previous table provides selected operational and financial
information on a consolidated basis with respect to the Company for
the years ended December 31, 1993, 1992, and 1991. 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.
Net Sales
Bauxite and Alumina - Revenue from net sales of bauxite and alumina to
third parties was $423.4 million in 1993, compared with $466.5 million
in 1992 and $550.8 million in 1991. Revenue from alumina decreased
13% to $338.2 million in 1993 from $390.8 million in 1992 because of
lower average realized prices. Revenue from alumina decreased 16% to
$390.8 million in 1992 from $466.5 million in 1991 as significantly
lower average realized prices more than offset a 3% increase in
alumina shipments, which was principally attributable to increased
production at all three of the Company's refineries. The remainder of
the segment's sales revenues were from sales of bauxite, which
remained about the same throughout the three years, and the portion of
sales of alumina attributable to the minority interest in Alumina
Partners of Jamaica ("Alpart").
Aluminum Processing -- Revenue from net sales to third parties for
the aluminum processing segment was $1,295.7 million in 1993, compared
with $1,442.6 million in 1992 and $1,450.0 million in 1991. The bulk
of the segment's sales represents the Company's primary aluminum and
fabricated aluminum products, with the remainder attributable to the
portion of sales of primary aluminum related to the minority interest
in Volta Aluminium Company Limited.
Revenue from primary aluminum decreased 41% to $301.7 million in 1993
from $515.0 million in 1992 because of lower shipments and lower
average realized prices. Shipments of primary aluminum to third
parties were approximately 39% of total aluminum products shipments in
1993, compared with approximately 51% in 1992. Revenue from primary
aluminum decreased 4% to $515.0 million in 1992 from $538.5 million in
1991, as an 8% decrease in average realized prices more than offset a
4% increase in primary aluminum shipments. Shipments of primary
aluminum to third parties were approximately 51% of total aluminum
products shipments in 1992, compared with approximately 52% in 1991.
Revenue from fabricated aluminum products increased 7% to $981.4
million in 1993 from $913.7 million in 1992, principally due to
increased shipments of most fabricated aluminum products, partially
offset, to a lesser extent, by a decrease in average realized prices
of most of these products. Revenue from fabricated aluminum products
increased 2% to $913.7 million in 1992 from $898.9 million in 1991,
primarily because lower average realized prices were more than offset
by a 9% increase in shipments of fabricated aluminum products.
- 21 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
---------------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Operating Income (Loss)
The Company had an operating loss of $123.1 million in 1993, compared
with income of $90.2 million in 1992 and $215.8 million in 1991. In
the fourth quarter of 1993, the Company recorded a pre-tax charge of
approximately $35.8 million related to the restructuring charges (see
Note 3 of the Notes to Consolidated Financial Statements) and a pre-
tax charge of $19.4 million ($29.0 million in the fourth quarter of
1992) because of a reduction in the carrying value of its inventories
caused principally by prevailing lower prices for alumina, primary
aluminum, and fabricated products.
Bauxite and Alumina -- This segment's operating loss in 1993 was $4.5
million, compared with income of $62.6 million in 1992 and $150.0
million in 1991. In 1993 compared with 1992, operating income was
adversely affected principally due to a decrease in average realized
prices for alumina, which more than offset above-market prices for
virtually all of its excess alumina sold forward in prior periods
under long-term contracts. In 1992 compared to 1991, operating income
was adversely affected by a decrease in average realized prices for
alumina, which more than offset higher alumina shipments and above-
market prices for significant quantities of alumina sold forward in
prior periods under long-term contracts.
Aluminum Processing -- This segment's operating loss was $46.3 million
in 1993, compared with income of $104.9 million in 1992. This
decrease was caused principally by reduced shipments and lower average
realized prices of primary aluminum products which more than offset
increased shipments of fabricated products. In 1993, KACC implemented
a restructuring plan for its flat-rolled products operation at its
Trentwood plant in response to overcapacity in the aluminum rolling
industry, flat demand in the U.S. can stock market, and declining
demand for aluminum products sold to customers in the commercial
aerospace industry, all of which have resulted in declining prices in
Trentwood's key markets. Additionally, KACC implemented a plan to
discontinue its casting operations, which include three facilities
located in Ohio. This entire restructuring is expected to be
completed by the end of 1995 and will affect approximately 670
employees. The pre-tax charge for this restructuring of $35.8 million
includes $25.2 million for pension, severance, and other termination
benefits; $4.7 million for a writedown of the casting facilities to
net realizable value; $3.3 million for estimated 1994 casting
operating losses until the date of closure or sale; and $2.6 million
for various other items. The Trentwood restructuring is expected to
result in annual cost savings of at least $50.0 million after it has
been fully implemented. Other contributing factors were lower
production at the Company's smelters in the Pacific Northwest in 1993
as a result of the removal of three reduction potlines from production
at those smelters in January 1993 in response to the Bonneville Power
Administration's (the "BPA") reduction during the first quarter of
1993 of the amount of power it normally provides to the Company, and
the increased cost of substitute power in such quarter. In 1993, the
Company's average realized price from sales of primary aluminum was
approximately $.56 per pound, compared to the average Midwest United
States transaction price of approximately $.54 per pound during such
period. In both 1993 and 1992, the Company realized above-market
prices for significant quantities of primary aluminum sold forward in
prior periods under long-term contracts. Operating income for the
aluminum processing segment was $104.9 million in 1992, a decrease of
30% from $150.2 million in 1991. Operating income in 1992 was
adversely affected by a decrease in average realized prices for
primary aluminum and most fabricated aluminum products, partially
offset by increased shipments. In both 1992 and 1991, the Company
realized above-market prices for significant quantities of primary
aluminum sold forward in prior periods under long-term contracts.
- 22 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
---------------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Corporate -- Corporate operating expenses of $72.3 million, $77.3
million, and $84.4 million in 1993, 1992, and 1991, respectively,
represented corporate general and administrative expenses which were
not allocated to segments.
Income (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 1993 was $117.6 million, compared with income
of $29.6 million in 1992. This decrease resulted from the lower
operating income previously described and approximately $10.8 million
of other pre-tax charges, principally related to establishing
additional litigation and environmental reserves. Other income
remained about the same in 1992 and 1991, as approximately $14.0
million of income for non-recurring adjustments to previously recorded
liabilities and reserves in the fourth quarter of 1992 approximately
equaled the receipt of a $12.0 million fee in the first quarter of
1991 from the Company's minority partner in Alpart in consideration
for the execution of an expansion agreement for the Alpart alumina
refinery.
Income before extraordinary loss and cumulative effect of changes in
accounting principles in 1992 was $29.6 million, a decrease of 76%
from $124.7 million in 1991. This decrease resulted from the lower
operating income previously described, partially offset by an increase
in other income principally due to approximately $14.0 million of
income for non-recurring adjustments to previously recorded
liabilities and reserves in the fourth quarter of 1992.
Net Income (Loss)
The Company reported a net loss of $647.3 million in 1993, compared
with net income of $29.6 million in 1992 and $124.7 million in 1991.
The principal reasons for the earnings decline in 1993 compared with
1992 were the cumulative effect of changes in accounting principles of
$507.9 million related to the adoption of Statements of Financial
Accounting Standards No. 106, 112, and 109 (see Note 1 of the Notes to
Consolidated Financial Statements), the extraordinary loss on early
extinguishment of debt of $21.8 million, and the operating losses
described above.
The principal reason for the earnings decline in 1992 compared with
1991 was the decrease in average realized prices for alumina, primary
aluminum, and most fabricated products, partially offset by an
increase in shipments of such products.
Financial Condition and Capital Spending
Capital Structure
On February 17, 1994, the Company and its parent, Kaiser Aluminum
Corporation ("Kaiser"), entered into a credit agreement with
BankAmerica Business Credit, Inc. (as agent for itself and other
lenders), the 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 Kaiser with a syndicate of commercial
banks and other financial institutions (as amended, the "1989 Credit
Agreement") and consists of a $250.0 million 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 million) in an aggregate
amount equal to the lesser of $250.0 million or a borrowing base
relating to eligible
- 23 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
-------------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
accounts receivable plus eligible inventory. The Company will
record a pre-tax extraordinary loss of approximately $8.3
million in the first quarter of 1994, consisting primarily of the
write-off of unamortized deferred financing costs related to the 1989
Credit Agreement. As of February 24, 1994, the amount outstanding
under the 1994 Credit Agreement was $67.4 million of letters of
credit. The 1994 Credit Agreement is unconditionally guaranteed by
the all significant subsidiaries of KACC which were guarantors of
KACC's obligations under the 1989 Credit Agreement and by Kaiser.
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) 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 % (non-cumulatively),
based upon a financial test, determined quarterly.
The 1994 Credit Agreement requires KACC to maintain certain financial
covenants and places restrictions on the Company's and KACC's ability
to, among other things, incur debt and liens, make investments, pay
common stock dividends, undertake transactions with affiliates, make
capital expenditures, and enter into unrelated lines of business. The
1994 Credit Agreement is secured by, among other things, (i) mortgages
on KACC's major domestic plants (excluding the Gramercy plant); (ii)
subject to certain exceptions, liens on the accounts receivable,
inventory, equipment, domestic patents and trademarks, and
substantially all other personal property of KACC and certain of its
subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser;
and (iv) pledges of all of the stock of a number of KACC's wholly
owned domestic subsidiaries, pledges of a portion of the stock of
certain foreign subsidiaries, and pledges of a portion of the stock of
certain partially owned foreign affiliates.
On February 17, 1994, Kaiser consummated the public offering of
8,000,000 shares of its 8.255% PRIDES, Convertible Preferred Stock
(the "PRIDES"). The net proceeds from the sale of the shares of
PRIDES were approximately $90.6 million. Kaiser used such net
proceeds to make a non-interest bearing loan to KACC in a principal
amount equal to $30.0 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 will be mandatorily
converted into shares of Kaiser's common stock), evidenced by an
intercompany note, and used the balance of such net proceeds to make a
capital contribution to KACC in the amount of approximately $60.6
million. In connection with the PRIDES offering, Kaiser granted the
underwriters an over allotment option for up to 1,200,000 of such
shares.
Concurrent with the offering of the PRIDES, on February 17, 1994, KACC
issued $225.0 million 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 Revolving Credit
Facility of the 1989 Credit Agreement immediately prior to the
effectiveness of the 1994 Credit Agreement and for working capital and
general corporate purposes.
The offering of the PRIDES, the concurrent issuance of the Senior
Notes, and the replacement of the 1989 Credit Agreement are the final
steps of a comprehensive refinancing plan which the Company and Kaiser
began in January 1993 which extended the maturities of the Company's
outstanding indebtedness, enhanced its liquidity, and raised new
equity capital.
- 24 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
---------------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
At December 31, 1993, the Company's total consolidated indebtedness
was $729.4 million, compared to $795.8 million at December 31, 1992.
As of December 31, 1992, the Company's long-term indebtedness
consisted principally of $321.7 million aggregate amount of the 14-
1/4% Senior Subordinated Notes due 1995 (the "14-1/4% Notes") and the
1989 Credit Agreement. KACC refinanced the 14-1/4% Notes through the
issuance in February 1993 of $400.0 million aggregate principal amount
of the 12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4%
Notes"). The net proceeds from the sale of the 12-3/4% Notes were
used to retire $321.7 million aggregate principal amount of, and pay
premiums on, the 14-1/4% Notes, to prepay $18.0 million of the term
loan under the 1989 Credit Agreement, and to reduce outstanding
borrowings under the Revolving Credit Facility of the 1989 Credit
Agreement. These transactions resulted in a pre-tax extraordinary
loss of approximately $33.0 million in the first quarter of 1993
($21.8 million after taxes), consisting primarily of the write-off of
unamortized discount and deferred financing costs related to the 14-1/4%
Notes and the payment of premiums on the 14-1/4% Notes.
The obligations of KACC with respect to the Senior Notes and 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
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.
To increase its equity capital, Kaiser consummated a public offering
of its $.65 Depositary Shares in June 1993, each representing one-
tenth of a share of Series A Mandatory Conversion Premium Dividend
Preferred Stock (the "Series A Shares") pursuant to which it realized
net cash proceeds of approximately $119.3 million. In connection with
the offering of the $.65 Depositary Shares, Kaiser made a non-interest
bearing loan to KACC in the principal amount of $37.8 million (the
aggregate dividends scheduled to accrue on the Series A Shares from
the issuance date until the date on which the outstanding Series A
Shares mandatorily convert into shares of Kaiser's common stock). The
loan is evidenced by an intercompany note which matures on June 29,
1996, and is payable in quarterly installments. As of December 31,
1993, the aggregate principal amount of such intercompany note was
$31.5 million.
Cash from Operations
Cash provided by operations was $25.3 million in 1993, compared with
$28.0 million in 1992 and $143.7 million in 1991. The decrease in
1992 compared with 1991 was primarily because of the decline in net
income and a $66.3 million decrease in previously withdrawn equity
resulting from the excess of current market value over the premiums
paid in certain option contracts.
Capital Expenditures
The Company's capital expenditures of approximately $300.2 million (of
which $42.6 million was funded by the Company's minority partners in
certain foreign joint ventures) during the three years ended December
31, 1993, were made primarily to improve production efficiency, reduce
operating costs, expand capacity at existing facilities, and construct
new facilities. Total consolidated capital expenditures were $67.7
million in 1993, compared with $114.4 million in 1992 and $118.1
million in 1991 (of which $9.4, $17.1, and $16.1 million were funded
by the minority partners in certain foreign joint ventures in 1993,
1992, and 1991, respectively). Total consolidated capital
expenditures (of which approximately 5% is expected to be funded by
the minority partners in certain foreign joint ventures) are expected
to be in the range of $50.0 to $75.0 million per year in the years
1994-1996.
- 25 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
-----------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Debt Service and Capital Expenditure Requirements
The Company expects that it will be able to satisfy its debt service
and capital expenditure requirements through at least December 31,
1995, from cash flows generated by operations and, to the extent
necessary, from borrowings under the 1994 Credit Agreement.
Dividends and Distributions
The declaration and payment of dividends by the Company and Kaiser on
their shares of common stock is subject to certain covenants contained
in the 1994 Credit Agreement and, in the case of the Company, the
Senior Note Indenture and the 12-3/4% Note Indenture. The 1994 Credit
Agreement does not permit the Company or Kaiser to pay any dividends
on their common stock. The declaration and payment of dividends by
Kaiser on the shares of the Series A Shares and the PRIDES is
expressly permitted by the terms of the 1994 Credit Agreement to the
extent Kaiser receives payments on the intercompany notes or certain
other permitted distributions from the Company.
Other Obligations
In December 1992, KACC entered into an installment sale agreement (the
"Sale Agreement") with the Parish of St. James, Louisiana (the
"Louisiana Parish"), pursuant to which the Louisiana Parish issued
$20.0 million aggregate principal amount of its 7-3/4% Bonds due
August 1, 2022 (the "Bonds"), to finance the construction of certain
solid waste disposal facilities at KACC's Gramercy plant. The
proceeds from the sale of the Bonds were deposited into a construction
fund and may be withdrawn, from time to time, pursuant to the terms of
the Sale Agreement and the Bond indenture. At December 31, 1993,
$10.8 million remained in the construction fund. The Sale Agreement
requires KACC to make payments to the Louisiana Parish in installments
due on the dates and in the amounts required to permit the Louisiana
Parish to satisfy all of its payment obligations under the Bonds.
The Company has historically participated in various raw material
joint ventures outside the United States. At December 31, 1993, the
Company was unconditionally obligated for $73.6 million of
indebtedness of one such joint venture affiliate.
Environmental Contingencies
The Company and Kaiser 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 KACC's evaluation of these and other environmental matters,
KACC has established environmental accruals primarily related to
potential solid waste disposal and soil and groundwater remediation
matters. The following table presents the changes in such accruals,
which are primarily included in Long-term liabilities, for the years
ended December 31, 1993, 1992, and 1991:
(In millions of dollars) 1993 1992 1991
-------------------------------------------------------------------
Balance at beginning of period $ 46.4 $ 51.5 $ 57.7
Additional amounts 1.7 4.5 7.8
Less expenditures (7.2) (9.6) (14.0)
------ ------ ------
Balance at end of period $ 40.9 $ 46.4 $ 51.5
====== ====== ======
- 26 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
---------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
These environmental accruals represent KACC's estimate of costs
reasonably expected to be incurred based upon presently enacted laws
and regulations, currently available facts, existing technology, and
KACC's assessment of the likely remediation action to be taken. KACC
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 million for
the years 1994 through 1998 and an aggregate of approximately $12.8
million 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 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 year-end 1993, the number of such lawsuits pending was
approximately 23,400 (approximately 11,400 of which were received in
1993). The number of such lawsuits instituted against KACC increased
substantially in 1993, and management believes the number of such
lawsuits will continue at approximately the same rate for the next few
years.
In connection with such litigation, during 1993, 1992, and 1991, KACC
made cash payments for settlement and other related costs of $7.0,
$7.1, and $6.1 million, respectively. Based upon prior experience,
KACC estimates annual future cash payments in connection with such
litigation of approximately $8.0 to $13.0 million for the years 1994
through 1998, and an aggregate of approximately $88.4 million
thereafter through 2006. Based upon past experience and reasonably
anticipated future activity, KACC 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 December 31, 1993). Accordingly, an accrual of
$102.8 million for asbestos-related expenditures is included primarily
in Long-term liabilities at December 31, 1993. The aggregate amount
of the undiscounted liability at December 31, 1993, of $141.5 million,
before considerations for insurance recoveries, reflects an increase
of $56.6 million from the prior year, resulting primarily from an
increase in claims filed during 1993 and the Company's belief that the
number of such lawsuits will continue at approximately the same rate
for the next few years.
- 27 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
---------------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 $94.0 million determined on the same
basis as the asbestos-related cost accrual are recorded primarily in
Other assets as of December 31, 1993.
Based upon the factors discussed in the two preceding paragraphs,
management currently believes that there is no more than a remote
possibility (under generally accepted accounting principles) that the
Company's asbestos-related costs net of related insurance recoveries
exceed those accrued as of December 31, 1993, and, accordingly, that
the resolution of such uncertainties and the incurrence of such net
costs should not have a material adverse effect upon the Company's
consolidated financial position or results of operations.
Income Tax Matters
Tax Attribute Carryforwards
At December 31, 1993, the Company had certain tax attribute
carryforwards which may be utilized, subject to certain limitations,
to reduce future income tax liabilities. See Note 7 of the Notes to
Consolidated Financial Statements for a discussion of the effects upon
the Company's tax attribute carryforwards and carrybacks resulting
from the offering of Kaiser's $.65 Depositary Shares in June 1993.
Deferred Income Tax Assets
As discussed in Note 7 of the Notes to Consolidated Financial
Statements, the Company's net deferred income tax assets as of
December 31, 1993, were $206.3 million. Approximately $82.3 million
of these net deferred income tax assets relate to the benefit of loss
and credit carryforwards, net of valuation allowances. The Company
evaluated all appropriate factors to determine the proper valuation
allowances for these carryforwards, including any limitations
concerning their use and the year the carryforwards expire, as well as
the levels of taxable income necessary for utilization. For example,
full valuation allowances were provided for certain credit
carryforwards that expire in the near term. With regard to future
levels of income, the Company believes, based on the cyclical nature
of its business, its history of prior operating earnings, and its
expectations for future years, that it will more likely than not
generate sufficient taxable income to realize the benefit attributable
to the loss and credit carryforwards for which valuation allowances
were not provided. The remaining portion of the Company's net
deferred income tax assets at December 31, 1993, is approximately
$124.0 million. A principal component of this amount is the tax
benefit associated with the accrual for postretirement benefits other
than pensions. The future tax deductions with respect to the
turnaround of this accrual will occur over a 30- to 40-year period.
If such deductions create or increase a net operating loss in any one
year, the Company has the ability to carry forward such loss for 15
taxable years. For these reasons, the Company believes a long-term
view of profitability is appropriate and has concluded that this net
deferred income tax asset will more likely than not be realized
despite the recent decline in profitability.
- 28 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
---------------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Trends
Exports from the Commonwealth of Independent States ("C.I.S."),
additions to smelter capacities during the past several years,
continued high operating rates, and other factors have contributed to
a significant increase in primary aluminum inventories in the Western
world. If Western world production and exports from the C.I.S.
continue at current levels, primary aluminum inventory levels will
increase further in 1994. The foregoing factors, among others, have
contributed to a significant reduction in the market price of primary
aluminum, and may continue to adversely affect the market price of
primary aluminum in the future.
Government officials from the European Union, the United States of
America, Canada, Norway, Australia, and the Russian Federation met in
a multilateral conference in January 1994 to discuss the current
excess global supply of primary aluminum. All six participating
governments have ratified as a trade agreement the resulting
Memorandum which provides, in part, for (i) a reduction in Russian
Federation primary aluminum production by 300,000 tons per year within
three months of ratification of the Memorandum and an additional
200,000 tons within the following three months, (ii) improved
availability of comprehensive data on Russian aluminum production, and
(iii) certain assistance to the Russian aluminum industry. A Russian
Federation Trade Ministry official has publicly stated that the output
reduction would remain in effect for 18 months to two years, provided
that other worldwide production cutbacks occur, existing trade
restrictions on aluminum are eliminated, and no new trade restrictions
on aluminum are imposed. The Memorandum does not require specific
levels of production cutbacks by other producing nations. There can
be no assurance that the implementation of the Memorandum will
adequately address the current oversupply of primary aluminum.
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 approximate
the loss in 1993 ($81.5 million) before extraordinary loss and
cumulative effect of changes in accounting principles, restructuring
charges, reduction in the carrying value of inventories, and additions
to litigation and environmental reserves as described in Notes 1 and 3
of the Notes to Consolidated Financial Statements.
Effective October 1, 1993, an increase in the base rate the BPA
charges to its direct service industry customers for electricity was
adopted, which will increase the Company's production costs at the
Mead and Tacoma smelters by approximately $15.0 million per year
(approximately $11.3 million per year, based on the current operating
rate of approximately 75% of full capacity). The rate increase is
generally expected to remain in effect for two years.
Sensitivity to Prices and Hedging Programs
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. Consequently, the Company has developed strategies to mitigate
its exposure to possible further declines in the market prices of
alumina and primary aluminum while retaining the ability to
participate in favorable pricing environments that may materialize.
- 29 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Alumina -- The Company has sold forward substantially all of the
alumina available to it in excess of its projected internal smelting
requirements for 1994, and a substantial portion of such excess
alumina for 1995. Approximately 95% of 1994 sales and virtually all
of 1995 sales were made at prices indexed to future prices of primary
aluminum. Approximately 75% of 1994 sales were made at prices indexed
to future prices of primary aluminum, but with minimum prices that
exceed the Company's estimated cash production costs. The remainder
of 1994 sales were made either at fixed prices that exceed the
Company's estimated cash production costs, or are subject to prices
indexed to future prices of primary aluminum but without minimum
prices. Approximately 85% of 1995 sales were made at prices indexed
to future prices of primary aluminum, but with minimum prices that
exceed the Company's estimated cash production costs.
Aluminum Processing -- As of the date of this report, the Company has
sold forward at fixed prices approximately 75% of its primary aluminum
in excess of its projected internal fabrication requirements in 1994
and approximately 55% of such surplus in 1995 at fixed prices that
exceed the current market price of primary aluminum. Hedging programs
already in place would allow the Company to participate in higher
market prices, should they materialize, for approximately 40% of the
Company's excess primary aluminum sold forward in 1994, and 100% of
the Company's excess primary aluminum sold forward in 1995.
In response to the low price of primary aluminum caused by the current
surplus, a number of companies have closed smelting facilities. In
addition, in response to certain power reductions undertaken by the
BPA 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 its production levels in light of market
prices, industry inventory levels, production costs, and user demand,
on February 25, 1994, the Company announced that in April 1994 it will
curtail approximately 9.3% of its primary aluminum current annual
production capacity.
Fabricated aluminum prices, which vary considerably among products,
are heavily influenced by changes in the price of primary aluminum and
generally lag behind primary aluminum prices for periods of up to six
months. A significant portion of the Company's fabricated product
shipments consist of body, lid, and tab stock for the beverage
container market. The Company may not be able to receive increases in
primary aluminum prices from its can stock customers as promptly as in
the recent past because of competition from other aluminum producers
and because of excess supply in the industry. The Company also ships
fabricated products to customers in the aerospace market. Aluminum
demand in the aerospace market is decreasing as a result of the
structural contraction of the defense industry caused by the end of
the Cold War. In addition, the commercial aerospace market is
experiencing a cyclical downturn in business due to the recent
economic recessions in the United States, Canada, Australia, and the
United Kingdom, and slow economic growth in other countries.
- 30 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Public Accountants.. . . 32
Consolidated Balance Sheets . .. . .. . .. . . 33
Statements of Consolidated Income. .. . .. . . 34
Statements of Consolidated Cash Flows.. .. . . 35
Notes to Consolidated Financial Statements . . 36
Five-Year Financial Data .. . .. . .. . .. . . 62
Quarterly Financial Data .. . .. . .. . .. . . 64
Schedule II - Amounts Receivable from
Related Parties and
Underwriters, Promoters,
and Employees Other Than
Related Parties. . . . . 65
Schedule V - Consolidated Property,
Plant, and Equipment. . . 66
Schedule VI - Accumulated Depreciation,
Depletion, and
Amortization of
Consolidated Property,
Plant, and Equipment. . . 67
Schedule IX - Consolidated Short-
Term Borrowings. . . . . 68
Schedule X - Supplementary
Consolidated Income
Statement Information. . . . . 69
All other schedules are inapplicable or the required information is included
in the Consolidated Financial Statements or the Notes
thereto.
- 31 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Kaiser Aluminum &
Chemical Corporation:
We have audited the accompanying consolidated balance sheets of Kaiser
Aluminum & Chemical Corporation (a Delaware corporation) and subsidiaries
as of December 31, 1993 and 1992, and the related statements of
consolidated income and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements and the
schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kaiser Aluminum &
Chemical Corporation and subsidiaries as of December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index
of financial statements are presented for purposes of complying with the
Securities and Exchange Commission s rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
As explained in Note 1 of the Notes to Consolidated Financial Statements,
effective January 1, 1993, the Company changed its methods of accounting
for postretirement benefits other than pensions, postemployment benefits,
and income taxes.
ARTHUR ANDERSEN & CO.
San Francisco, California
February 24, 1994
- 32 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------
December 31,
--------------------
(In millions of dollars, except share amounts) 1993 1992
--------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 14.2 $ 18.5
Receivables:
Trade, less allowance for doubtful
receivables of $2.9 in 1993 and $3.0 in 1992 156.1 174.0
Other 79.9 97.1
Inventories 426.9 439.9
Prepaid expenses and other current assets 60.7 37.0
-------- --------
Total current assets 737.8 766.5
Investments in and advances to unconsolidated affiliates 183.2 150.1
Property, plant, and equipment - net 1,163.7 1,066.8
Deferred income taxes 210.3
Other assets 233.2 190.4
-------- --------
Total $2,528.2 $2,173.8
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 126.3 $ 136.6
Accrued interest 23.6 4.6
Accrued salaries, wages, and related expenses 56.1 84.4
Accrued postretirement benefit
obligation -- current portion 47.6
Other accrued liabilities 133.1 120.9
Payable to affiliates 62.4 78.5
Short-term borrowings .5 4.8
Long-term debt -- current portion 8.7 25.9
Note payable to parent -- current portion 12.6
-------- --------
Total current liabilities 470.9 455.7
Long-term liabilities 501.7 281.7
Accrued postretirement benefit obligation 713.1
Long-term debt 720.2 765.1
Note payable to parent 18.9
Minority interests 69.7 70.1
Redeemable preference stock -- aggregate liquidation value
of $54.1 in 1993 and $58.2 in 1992 33.6 32.8
Stockholders' equity:
Preference stock -- cumulative and convertible, par value
$100, authorized 1,000,000 shares; issued and outstanding,
24,039 and 26,006 in 1993 and 1992 1.8 2.0
Common stock, par value 33-1/3 cents, authorized
100,000,000 shares; issued and outstanding,
46,171,365 shares in 1993 and 1992 15.4 15.4
Additional capital 1,471.2 1,255.6
Retained earnings (accumulated deficit) (165.2) 487.9
Additional minimum pension liability (21.6) (6.7)
Less: Note receivable from parent (1,301.5) (1,185.8)
-------- --------
Total stockholders' equity .1 568.4
-------- --------
Total $2,528.2 $2,173.8
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
- 33 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
----------------------------------------------------------------------
Year Ended December 31,
--------------------------------
(In millions of dollars) 1993 1992 1991
------------------------------------------------------------------------------------------
Net sales $1,719.1 $1,909.1 $2,000.8
-------- -------- --------
Costs and expenses:
Cost of products sold 1,587.7 1,619.3 1,594.2
Depreciation 97.1 80.3 73.2
Selling, administrative, research
and development, and general 121.6 119.3 117.6
Restructuring of operations 35.8
-------- -------- --------
Total costs and expenses 1,842.2 1,818.9 1,785.0
-------- -------- --------
Operating income (loss) (123.1) 90.2 215.8
Other income (expense):
Interest and other income - net (1.5) 16.9 16.4
Interest expense (84.2) (78.7) (82.7)
-------- -------- --------
Income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes
in accounting principles (208.8) 28.4 149.5
Credit (provision) for income taxes 86.9 (5.3) (32.4)
Minority interests 4.3 6.5 7.6
-------- -------- --------
Income (loss) before extraordinary loss and cumulative
effect of changes in accounting principles (117.6) 29.6 124.7
Extraordinary loss on early extinguishment of debt,
net of tax benefit of $11.2 (21.8)
Cumulative effect of changes in accounting principles,
net of tax benefit of $237.7 (507.9)
-------- -------- --------
Net income (loss) $(647.3) $ 29.6 $ 124.7
======== ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
- 34 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------------------
Year Ended December 31,
---------------------------------
(In millions of dollars) 1993 1992 1991
------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (647.3) $ 29.6 $ 124.7
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation 97.1 80.3 73.2
Amortization of deferred financing costs and
discount on long-term debt 11.2 11.5 10.7
Non-cash postretirement benefit expenses other than pensions 19.2
Restructuring of operations 35.8
Minority interests (4.3) (6.5) (7.6)
Extraordinary loss on early extinguishment of debt -- net 21.8
Cumulative effect of changes in accounting principles -- net 507.9
(Decrease) increase in accrued and deferred income taxes (96.4) 3.5 10.1
Equity in losses of unconsolidated affiliates 3.3 1.9 19.5
Recognition of previously deferred income
from a forward alumina sale (.6) (25.7) (42.0)
Increase (decrease) in accrued interest 19.2 (.3) (1.9)
Incurrence of financing costs (12.7) (5.5) (5.9)
Increase in receivables (6.2) (58.6) (2.7)
Decrease in inventories 13.0 58.7 25.3
Decrease (increase) in prepaid expenses and other current assets 7.4 7.6 (38.3)
Increase (decrease) in accounts payable,
payable to affiliates, and accrued liabilities 46.9 (92.8) (33.8)
Other 10.0 24.3 12.4
-------- -------- --------
Net cash provided by operating activities 25.3 28.0 143.7
-------- -------- --------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 13.1 26.1 8.8
Capital expenditures (67.7) (114.4) (118.1)
-------- -------- --------
Net cash used for investing activities (54.6) (88.3) (109.3)
-------- -------- --------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (1,134.5) (221.4) (533.3)
Borrowings of long-term debt, including revolving credit 1,068.1 303.8 575.9
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 (4.3) (1.5) 6.7
Borrowings from MAXXAM Inc. 2.5
Net borrowings from parent 31.5
Dividends paid (1.0) (12.8) (94.9)
Capital stock issued 23.3
Redemption of preference stock (4.2) (7.3) (20.4)
Capital contribution 81.5
-------- -------- --------
Net cash provided by (used for) financing activities 25.0 63.3 (42.7)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents during the year (4.3) 3.0 (8.3)
Cash and cash equivalents at beginning of year 18.5 15.5 23.8
-------- -------- --------
Cash and cash equivalents at end of year $ 14.2 $ 18.5 $ 15.5
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 53.7 $ 68.1 $ 74.5
Income taxes paid 13.5 1.8 20.9
Tax allocation payments to MAXXAM 28.1 39.1
Supplemental disclosure of non-cash financing activities:
Contribution to capital of the borrowings from MAXXAM Group Inc. 15.0
The accompanying notes to consolidated financial statements are an
integral part of these statements.
- 35 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------
(In millions of dollars, except share amounts)
--------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the statements of Kaiser
Aluminum & Chemical Corporation ("KACC" or the "Company") and its
majority owned subsidiaries. Investments in 50%-or-less-owned
entities are accounted for primarily by the equity method.
Intercompany balances and transactions are eliminated. The Company is
a wholly owned subsidiary of Kaiser Aluminum Corporation ("Kaiser")
which is a subsidiary of MAXXAM Inc. ("MAXXAM"). Certain
reclassifications of prior-year information were made to conform to
the current presentation.
Changes in Accounting Principles
The Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"), and Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
("SFAS 112"), as of January 1, 1993. The costs of postretirement
benefits other than pensions and postemployment benefits are now
accrued over the period employees provide services to the date of
their full eligibility for such benefits. Previously, such costs were
expensed as actual claims were incurred. The cumulative effect of the
changes in accounting principles for the adoption of SFAS 106 and SFAS
112 were recorded as charges to results of operations of $497.7 and
$7.3, net of related income taxes of $234.2 and $3.5, respectively.
The new accounting standards had no effect on the Company's cash
outlays for postretirement or postemployment benefits, nor did these
one-time charges affect the Company's compliance with its existing
debt covenants. The Company reserves the right, subject to applicable
collective bargaining agreements and applicable legal requirements, to
amend or terminate these benefits.
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1,
1993. The adoption of SFAS 109 changes the Company's method of
accounting for income taxes to an asset and liability approach from
the deferral method prescribed by Accounting Principles Board Opinion
No. 11, "Accounting for Income Taxes" ("APB 11"). The asset and
liability approach requires the recognition of deferred income tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns. Under this method, deferred income tax assets and
liabilities are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities using
enacted tax rates. The cumulative effect of the change in accounting
principle reduced the Company's results of operations by $2.9.
Cash and Cash Equivalents
The Company considers only those short-term, highly liquid investments
with original maturities of 90 days or less to be cash equivalents.
Inventories
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. Other inventories, principally operating
supplies and repair and maintenance parts, are stated at the lower of
average cost or market. Inventory costs consist of material, labor,
and manufacturing overhead, including depreciation. Inventories
consist of the following:
- 36 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------
(In millions of dollars, except share amounts)
--------------------------------------------------------------------
December 31,
----------------
1993 1992
-----------------------------------------------------------------------
Finished fabricated products $ 83.7 $ 91.2
Primary aluminum and work in process 141.4 128.7
Bauxite and alumina 94.0 107.4
Operating supplies and repair
maintenance parts 107.8 112.6
------ ------
$426.9 $439.9
====== ======
The Company recorded pre-tax charges of approximately $19.4 in 1993
and $29.0 in 1992 because of a reduction in the carrying values of its
inventories caused principally by prevailing lower prices for alumina,
primary aluminum, and fabricated products. The 1992 amount includes a
LIFO inventory liquidation of $10.2.
Depreciation
Depreciation is computed principally by the straight-line method at
rates based upon the estimated useful lives of the various classes of
assets. The principal estimated useful lives by class of assets are:
---------------------------------------------------------------------
Land improvements 8 to 25 years
Buildings 15 to 45 years
Machinery and equipment 10 to 22 years
Other Income
Other income in 1993 includes approximately $10.8 of pre-tax charges
related principally to establishing additional litigation and
environmental reserves in the fourth quarter. Other income in 1992
includes approximately $14.0 of pre-tax income for non-recurring
adjustments to previously recorded liabilities and reserves in the
fourth quarter. Included in interest and other income in 1991 is the
receipt of a $12.0 fee in the first quarter from the Company's
minority partner in consideration for the execution of an expansion
agreement for the Alumina Partners of Jamaica ("Alpart") alumina
refinery. The agreement provides for a program of expansion and
modernization of Alpart at the existing ownership interest of 65% for
KACC and 35% for KACC's minority partner. The prior expansion
agreement provided for expansion rights of 75% for KACC and 25% for
KACC's minority partner.
Futures Contracts and Options
The Company periodically enters into forward foreign exchange,
commodity futures, and commodity and currency option contracts, which
are primarily accounted for as hedges of its revenues and costs. The
gains and losses on these contracts are reflected in earnings
concurrently with the hedged revenues or costs. The cash flows from
these contracts are classified in a manner consistent with the
underlying nature of the transactions. At December 31, 1993, the net
fair market value of the Company's position in these contracts was not
material.
Deferred Financing Costs
Costs incurred to obtain debt financing are deferred and amortized
over the estimated term of the related borrowing.
Foreign Currency
The Company uses the United States dollar as the functional currency
for its foreign operations.
- 37 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Fair Value of Financial Instruments
Unless otherwise disclosed, the carrying amount of all financial
instruments is a reasonable estimate of fair value.
2. Pro Forma Financial Information
On February 17, 1994, Kaiser completed an equity offering of preferred
stock (see Note 10), and KACC completed a refinancing which included
the issuance of $225.0 of Senior Notes and the signing of the 1994
Credit Agreement (see Note 6). The following unaudited pro forma
information reflects the effects of these transactions as if they had
occurred on December 31, 1993.
----------------------------------------------------------------------
Current assets $ 844.4
Non-current assets 1,799.6
Current liabilities 473.5
Long-term debt 755.7
Stockholders' equity 54.5
3. Restructuring of Operations
In 1993, KACC implemented a restructuring plan for its flat-rolled
products operation at its Trentwood plant in response to overcapacity
in the aluminum rolling industry, flat demand in the U.S. can stock
market, and declining demand for aluminum products sold to customers
in the commercial aerospace industry, all of which have resulted in
declining prices in Trentwood's key markets. Additionally, KACC
implemented a plan to discontinue its casting operations, which
include three facilities located in Ohio. This entire restructuring
is expected to be completed by the end of 1995 and will affect
approximately 670 employees. The pre-tax charge for this
restructuring of $35.8 includes $25.2 for pension, severance, and
other termination benefits; $4.7 for a write-down of the casting
facilities to net realizable value; $3.3 for estimated 1994 casting
operating losses until the date of closure or sale; and $2.6 for
various other items.
4. Investments In and Advances To Unconsolidated Affiliates
Summary combined financial information is provided below for
unconsolidated aluminum investments, most of which supply and process
raw materials. The investees are Queensland Alumina Limited ("QAL")
(28.3% owned), Anglesey Aluminium Limited ("Anglesey") (49.0% owned),
and Kaiser Jamaica Bauxite Company (49.0% owned). The equity in
earnings (losses) before income taxes of such operations are treated
as a reduction (increase) in cost of products sold. At December 31,
1993 and 1992, KACC's net receivables from these affiliates were not
material.
- 38 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Summary of Combined Financial Position
December 31,
------------------
1993 1992
------------------------------------------------------------------------------------
Current assets $312.3 $295.0
Property, plant, and equipment -- net 371.1 389.4
Other assets 46.3 49.9
------ ------
Total assets $729.7 $734.3
====== ======
Current liabilities $130.4 $132.8
Long-term debt 290.0 275.0
Other liabilities 17.8 20.0
Stockholders' equity 291.5 306.5
------ ------
Total liabilities and stockholders' equity $729.7 $734.3
====== ======
Summary of Combined Operations
Year Ended December 31,
--------------------------------
1993 1992 1991
-------------------------------------------------------------------------------------
Net sales $ 510.3 $ 586.6 $ 589.0
Costs and expenses (527.2) (586.7) (630.7)
Provision for income taxes 1.9 6.9 9.5
------- ------- -------
Net income (loss) $ (15.0) $ 6.8 $ (32.2)
======= ======= =======
Company's equity in losses $ (3.3) $ (1.9) $ (19.5)
======= ======= =======
The Company's equity in losses differs from the summary net income
(loss) due to various percentage ownerships in the entities and equity
method accounting adjustments.
At December 31, 1993, KACC's investment in its unconsolidated
affiliates exceeded its equity in their net assets by approximately
$80.7. The Company is amortizing this amount over a 12-year period,
which results in an annual amortization charge of approximately $11.9.
The Company and its affiliates have interrelated operations. The
Company provides some of its affiliates with services such as
financing, management, and engineering. Significant activities with
affiliates include the acquisition and processing of bauxite, alumina,
and primary aluminum. Purchases from these affiliates were $206.6,
$219.4, and $238.7 in the years ended December 31, 1993, 1992, and
1991, respectively. No dividends were received from investees in the
three years ended December 31, 1993. See Note 7 for the impact of the
adoption of SFAS 109 in 1993.
- 39 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
5. Property, Plant, and Equipment
The major classes of property, plant, and equipment are as follows:
December 31,
----------------------
1993 1992
-------------------------------------------------------------------------------------
Land and improvements $ 135.1 $ 123.8
Buildings 194.8 164.1
Machinery and equipment 1,223.0 1,010.7
Construction in progress 64.9 70.3
-------- --------
1,617.8 1,368.9
Accumulated depreciation 454.1 302.1
-------- --------
Property, plant, and equipment -- net $1,163.7 $1,066.8
======== ========
See Note 7 for the impact of the adoption of SFAS 109 in 1993.
6. Long-Term Debt
Long-term debt and its maturity schedule are as follows:
December 31,
1999 ----------------
and 1993 1992
1994 1995 1996 1997 1998 After Total Total
---------------------------------------------------------------------------------------------------------------------
1989 Credit Agreement (6.59% at
December 31, 1993)
Revolving Credit Facility $188.0 $188.0 $290.0
Term Loan 36.6
Pollution Control and Solid Waste Disposal
Facilities Obligations (6.00%-7.75%) $ 1.1 $ 1.2 $ 1.2 $ 1.3 $ 1.3 33.1 39.2 40.0
Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0 60.0
Alpart Term Loan (8.95%) 6.3 6.2 6.3 6.2 25.0 31.3
12-3/4% Senior Subordinated Notes 400.0 400.0
14-1/4% Senior Subordinated Notes 320.5
Other borrowings (fixed and variable rates) 1.3 3.7 1.5 1.5 7.8 .9 16.7 12.6
------ ------ ------ ------ ------ ------ ------ ------
Total $ 8.7 $ 11.1 $ 9.0 $ 9.0 $ 9.1 $682.0 728.9 791.0
====== ====== ====== ====== ====== ======
Less current portion 8.7 25.9
------ ------
Long-term debt $720.2 $765.1
====== ======
1994 Credit Agreement
On February 17, 1994, the Company and Kaiser 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 1989 Credit Agreement (as
defined below) and consists of a $250.0 five-year secured, revolving
line of credit, scheduled to mature in 1999. The Company
- 40 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
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 relating to eligible
accounts receivable plus eligible inventory. The Company will record a
pre-tax extraordinary loss of approximately $8.3 in the first quarter
of 1994, consisting primarily of the write-off of unamortized deferred
financing costs related to the 1989 Credit Agreement. As of February
24, 1994, the amount outstanding under the 1994 Credit Agreement was
$67.4 of letters of credit. The 1994 Credit Agreement is
unconditionally guaranteed by Kaiser 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) 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% (non-cumulatively), based upon a financial
test, determined quarterly.
The 1994 Credit Agreement requires the Company to maintain certain
financial covenants and places restrictions on the Company's and
Kaiser's ability to, among other things, incur debt and liens, make
investments, pay common stock dividends, undertake transactions with
affiliates, make capital expenditures, and enter into unrelated lines
of business. The 1994 Credit Agreement is secured by, among other
things, (i) mortgages on KACC's major domestic plants (excluding the
Gramercy plant); (ii) subject to certain exceptions, liens on the
accounts receivable, inventory, equipment, domestic patents and
trademarks, and substantially all other personal property of KACC and
certain of its subsidiaries; (iii) a pledge of all the stock of KACC
owned by Kaiser; and (iv) pledges of all of the stock of a number of
KACC's wholly owned domestic subsidiaries, pledges of a portion of the
stock of certain foreign subsidiaries, and pledges of a portion of the
stock of certain partially owned foreign affiliates.
The 1989 Credit Agreement
The Company and Kaiser entered into a credit agreement with a
syndicate of commercial banks and other financial institutions. This
agreement was composed of a Revolving Credit Facility, a five-year
Term Loan, and certain other agreements (as amended, the "1989 Credit
Agreement"). The obligations of KACC in respect of the credit
facilities were guaranteed by Kaiser, and by a number of wholly owned
subsidiaries of KACC.
The Revolving Credit Facility under the 1989 Credit Agreement provided
for loans not to exceed the lesser of $350.0 or a borrowing base
relating to the amount of eligible accounts receivable and eligible
inventory of KACC and certain of its subsidiaries. Up to $50.0 of
availability under the Revolving Credit Facility could have been used
for letters of credit. As of December 31, 1993, $113.6 of borrowing
capacity was unused under the Revolving Credit Facility of the 1989
Credit Agreement (of which $12.8 could also have been used for letters
of credit). The five-year Term Loan component of the 1989 Credit
Agreement, which was originally to be repaid in ten equal semi-annual
installments commencing May 31, 1990, was prepaid in June 1993.
Senior Notes
Concurrent with the offering by Kaiser of its 8.255% PRIDES,
Convertible Preferred Stock (the "PRIDES") on February 17, 1994 (see
Note 9), 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 Revolving Credit
Facility of the 1989 Credit Agreement immediately prior to the
effectiveness of the 1994 Credit Agreement and for working capital and
general corporate purposes.
- 41 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Senior Subordinated Notes
On February 1, 1993, KACC issued $400.0 of 12-3/4% Senior Subordinated
Notes due 2003 (the "12-3/4% Notes"). The net proceeds from the sale
of the 12-3/4% Notes were used to retire the 14-1/4% Senior
Subordinated Notes due 1995 (the "14-1/4% Notes"), to prepay $18.0 of
the Term Loan, and to reduce outstanding borrowings under the
Revolving Credit Facility. These transactions resulted in a pre-tax
extraordinary loss of approximately $33.0 in the first quarter of
1993, consisting primarily of the write-off of unamortized discount
and deferred financing costs related to the 14-1/4% Notes and the
payment of premiums on the 14-1/4% Notes.
The obligations of KACC with respect to the Senior Notes and 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 to
incur debt, undertake transactions with affiliates, and pay dividends.
Gramercy Revenue Bonds
In December 1992, KACC entered into an installment sale agreement (the
"Sale Agreement") with the Parish of St. James, Louisiana (the
"Louisiana Parish"), pursuant to which the Louisiana Parish issued
$20.0 aggregate principal amount of its 7-3/4% Bonds due August 1,
2022 (the "Bonds") to finance the construction of certain solid waste
disposal facilities at KACC's Gramercy plant. The proceeds from the
sale of the Bonds were deposited into a construction fund and may be
withdrawn, from time to time, pursuant to the terms of the Sale
Agreement and the Bond indenture. At December 31, 1993, $10.8
remained in the construction fund. The Sale Agreement requires KACC
to make payments to the Louisiana Parish in installments due on the
dates and in the amounts required to permit the Louisiana Parish to
satisfy all of its payment obligations under the Bonds.
Alpart CARIFA Loan
In December 1991, Alpart entered into a loan agreement with the
Caribbean Basin Projects Financing Authority ("CARIFA") under which
CARIFA loaned Alpart the proceeds from the issuance of CARIFA's
industrial revenue bonds. The terms of the loan parallel the bonds'
repayment terms. The $38.0 aggregate principal amount of Series A
bonds matures on June 1, 2008. The Series A bonds bear interest at a
floating rate of 87% of the applicable LIBID Rate (LIBOR less 1/8 of
1%) on $37.5 of the principal amount (2.9% at December 31, 1993) with
the remaining $.5 bearing interest at a fixed rate of 6.35%. The
$22.0 aggregate principal amount of Series B bonds matures on June 1,
2007, and bears interest at a fixed rate of 8.25%.
Proceeds from the sale of the bonds were used by Alpart to refinance
interim loans from the partners in Alpart, to pay eligible project
costs for the expansion and modernization of its alumina refinery and
related port and bauxite mining facilities, and to pay certain costs
of issuance. Under the terms of the loan agreement, Alpart must
remain a qualified recipient for Caribbean Basin Initiative funds as
defined in applicable laws. Alpart has agreed to indemnify
bondholders of CARIFA for certain tax payments that could result from
events, as defined, that adversely affect the tax treatment of the
interest income on the bonds. Alpart's obligations under the loan
agreement are secured by a $64.2 letter of credit guaranteed by the
partners in Alpart (of which $22.5 is guaranteed by the Company's
minority partner in Alpart).
Capitalized Interest
Interest capitalized in 1993, 1992, and 1991 was $3.4, $4.4, and $4.2,
respectively.
- 42 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Fair Value Disclosure
The fair value of the Company's long-term debt was approximately
$734.1 and $806.8 at December 31, 1993 and 1992, respectively. For
1993, the fair value of the 12-3/4% Notes was estimated using the market
value of such notes, or $401.0. For 1992, the estimated fair value of
the 14-1/4% Notes was the amount used to retire the 14-1/4% Notes in
February 1993, or $347.8. The fair value of all other long-term debt
is based upon discounting the future cash flows using the current rate
for debt of similar maturities and terms.
7. Income Taxes
The adoption of SFAS 109 as of January 1, 1993, as discussed in Note
1, required the Company to restate certain assets and liabilities to
their pre-tax amounts from their net-of-tax amounts originally
recorded in connection with the acquisition by MAXXAM in October 1988.
The restatement of the assigned values with respect to certain assets
and liabilities recorded as a result of the acquisition and the
recomputation of deferred income tax liabilities under SFAS 109
resulted in: (i) an increase of $144.6 in the net carrying value of
property, plant, and equipment; (ii) an increase of $47.8 in
investments in and advances to unconsolidated affiliates; (iii) an
increase of $126.7 in deferred income tax liabilities (a substantial
portion of which has been netted against deferred income tax assets on
the Consolidated Balance Sheet); (iv) a decrease of $2.5 in other
assets; (v) an increase of $56.0 in long-term liabilities; and (vi) an
increase of $10.1 in other liabilities. As a result of restating the
assets and liabilities, as described above, the loss before income
taxes, minority interests, extraordinary loss, and cumulative effect
of changes in accounting principles for the year ended December 31,
1993, was increased by $9.3.
Concurrent with the adoption of SFAS 109, the Company implemented
changes in its accounting method for postretirement benefits and
postemployment benefits pursuant to SFAS 106 and SFAS 112 (see Notes 1
and 8). The pre-tax cumulative effect of changes in accounting
principles relating to SFAS 106 and SFAS 112 was a charge of $742.7.
These accounting principles changes resulted in the recognition of
deferred income tax assets of $237.7, net of valuation allowances.
Income (loss) before income taxes, minority interests, extraordinary
loss, and cumulative effect of changes in accounting principles by
geographic area is as follows:
Year Ended December 31,
---------------------------
1993 1992 1991
---------------------------------------------------------------------
Domestic $(232.3) $ (81.3) $ 23.3
Foreign 23.5 109.7 126.2
------- ------- -------
Total $(208.8) $ 28.4 $ 149.5
======= ======= =======
- 43 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
The credit (provision) for income taxes on income (loss) before income
taxes, minority interests, extraordinary loss, and cumulative effect
of changes in accounting principles consists of:
Federal Foreign State Total
----------------------------------------------------------------------
1993 Current $ 12.5 $ (7.9) $ (.1) $ 4.5
Deferred 68.6 12.0 1.8 82.4
------ ------ ------ ------
Total $ 81.1 $ 4.1 $ 1.7 $ 86.9
====== ====== ====== ======
1992 Current $ (9.7) $(11.4) $ (.1) $(21.2)
Deferred 13.1 3.3 (.5) 15.9
------ ------ ------ ------
Total $ 3.4 $ (8.1) $ (.6) $ (5.3)
====== ====== ====== ======
1991 Current $(25.3) $ (8.9) $ (1.1) $(35.3)
Deferred 1.9 (1.4) 2.4 2.9
------ ------ ------ ------
Total $(23.4) $(10.3) $ 1.3 $ 32.4)
====== ====== ====== ======
The Omnibus Budget Reconciliation Act of 1993 (the "Act"), enacted on
August 10, 1993, retroactively increased the maximum federal statutory
income tax rate from 34% to 35% for periods beginning on or after
January 1, 1993. The 1993 federal deferred credit for income taxes of
$68.6 includes $29.1 for the benefit of operating loss carryforwards
generated in 1993 and includes a $3.4 benefit for increasing net
deferred income tax assets (liabilities) as of the date of enactment
of the Act due to the increase in the federal statutory income tax
rate.
The deferred credit for income taxes for the years ended December 31,
1992 and 1991, as computed under APB 11, results from the following
timing differences:
Year Ended
December 31,
--------------------
1992 1991
-----------------------------------------------------------------------
Undistributed earnings or losses of foreign and
unconsolidated affiliates $ 12.3 $ 12.4
Inventory costing differences 5.5 (5.9)
Revision of prior years' tax estimates 2.9 8.7
Net federal and foreign tax loss and credit
carryforwards utilized and other foreign
tax items (.9)
Depreciation (5.4) (7.8)
Other .6 (3.6)
------- -------
Total $ 15.9 $ 2.9
======= =======
A reconciliation between the credit (provision) for income taxes and
the amount computed by applying the federal statutory income tax rate
to income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes in accounting
principles is as follows:
- 44 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Year Ended December 31,
---------------------------
1993 1992 1991
- ----------------------------------------------------------------------------------------------------
Amount of federal income tax based upon the statutory rate $ 73.1 $ (9.7) $ (50.9)
Percentage depletion 6.4 6.3 6.0
Revision of prior years' tax estimates and other changes
in valuation allowances 3.9 2.9 8.7
Increase in net deferred income tax assets due to tax rate
change 3.4
Financial reporting/tax basis differences (4.2) 5.1
Foreign taxes, net of federal tax benefit (2.6) (.4) .2
Other 2.7 (.2) (1.5)
------ ------ ------
Credit (provision) for income taxes $ 86.9 $ (5.3) $(32.4)
====== ====== ======
As shown in the Statement of Consolidated Income (Loss) for the year
ended December 31, 1993, the Company reported an extraordinary loss
related to the early extinguishment of debt. The Company reported the
loss, net of related current federal income taxes, of $11.2, which
approximated the federal statutory rate in effect on the date the
transaction occurred. The related deferred income tax benefits
recorded by the Company in respect of SFAS 106 and SFAS 112 were
recorded at the federal statutory rate in effect on the date the
accounting standards were adopted before giving effect to certain
valuation allowances. At December 31, 1993 and 1992, the Company
recorded charges to equity for additional minimum pension liabilities
pursuant to Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("SFAS 87"). The Company recorded
the charges net of related deferred federal and state income taxes of
$8.7 at December 31, 1993, and $3.6 at December 31, 1992, which
approximated the federal and state statutory rates.
After giving effect to the adoption of SFAS 106, SFAS 109, and SFAS 112,
the components of the Company's net deferred income tax assets were as
follows:
December 31, January 1, 1993
1993 (date of adoption)
-------------------------------------------------------------------------------------------------
Deferred income tax assets:
Postretirement benefits other than pensions $ 285.4 $ 270.8
Loss and credit carryforwards 142.5 83.3
Other liabilities 104.8 98.8
Pensions 60.6 45.8
Foreign and state deferred income tax liabilities 33.0 44.4
Property, plant, and equipment 23.1 22.6
Other 10.5 18.0
Valuation allowances (133.5) (103.7)
------- -------
Total deferred income tax assets -- net 526.4 480.0
------- -------
Deferred income tax liabilities:
Property, plant, and equipment (224.4) (218.3)
Investments in and advances to unconsolidated affiliates (60.6) (60.9)
Inventories (14.8) (18.6)
Other (20.3) (28.7)
------- -------
Total deferred income tax liabilities (320.1) (326.5)
------- -------
Net deferred income tax assets $ 206.3 $ 153.5
======= =======
- 45 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
The valuation allowances listed above relate primarily to loss and
credit carryforwards and postretirement benefits other than pensions.
As of December 31, 1993, approximately $82.3 of the net deferred
income tax assets listed above relate to the benefit of loss and
credit carryforwards, net of valuation allowances. The Company
evaluated all appropriate factors to determine the proper valuation
allowances for these carryforwards, including any limitations
concerning their use and the year the carryforwards expire, as well as
the levels of taxable income necessary for utilization. For example,
full valuation allowances were provided for certain credit
carryforwards that expire in the near term. With regard to future
levels of income, the Company believes, based on the cyclical nature
of its business, its history of prior operating earnings, and its
expectations for future years, that it will more likely than not
generate sufficient taxable income to realize the benefit attributable
to the loss and credit carryforwards for which valuation allowances
were not provided. The remaining portion of the Company's net
deferred income tax assets at December 31, 1993, is approximately
$124.0. A principal component of this amount is the tax benefit
associated with the accrual for postretirement benefits other than
pensions. The future tax deductions with respect to the turnaround of
this accrual will occur over a 30- to 40-year period. If such
deductions create or increase a net operating loss in any one year,
the Company has the ability to carry forward such loss for 15 taxable
years. For these reasons, the Company believes a long-term view of
profitability is appropriate and has concluded that this net deferred
income tax asset will more likely than not be realized despite the
recent decline in profitability.
Certain of the deferred income tax assets and liabilities listed above
are included on the Consolidated Balance Sheet in the captions
entitled Receivables, Prepaid expenses and other current assets, Other
accrued liabilities, and Long-term liabilities.
The Company and its subsidiaries (collectively, the "KACC Subgroup")
were included in the consolidated federal income tax returns of MAXXAM
for the period from October 28, 1988, through December 31, 1992. The
taxable income and loss and tax credits for the KACC Subgroup for the
period January 1, 1993, through June 30, 1993, will be included in the
1993 MAXXAM consolidated federal income tax return.
As a consequence of the issuance of the Depositary Shares on June 30,
1993, as discussed in Note 10, the KACC Subgroup is no longer included
in the consolidated federal income tax return of MAXXAM. The KACC
Subgroup has become a member of a new consolidated return group of
which Kaiser is the common parent corporation (the "New Kaiser Tax
Group"). The New Kaiser Tax Group will file a consolidated federal
income tax return for taxable periods beginning on or after July 1,
1993.
The tax allocation agreement between the Company and MAXXAM (the "KACC
Tax Allocation Agreement"), discussed below, terminated pursuant to
its terms, effective for taxable periods beginning after June 30,
1993. Any unused federal income tax attribute carryforwards under the
terms of the KACC Tax Allocation Agreement were eliminated and are not
available to offset federal income tax liabilities of the KACC
Subgroup for taxable periods beginning on or after July 1, 1993. Upon
the filing of MAXXAM's 1993 consolidated federal income tax return,
the tax attribute carryforwards of the MAXXAM consolidated return
group as of December 31, 1993, will be apportioned in part to Kaiser
and the KACC Subgroup, based upon the provisions of the relevant
consolidated return regulations. It is estimated that the benefit of
such tax attribute carryforwards apportioned to the KACC Subgroup will
approximate or exceed the benefit of tax attribute carryforwards
eliminated under the KACC Tax Allocation Agreement. To the extent the
KACC Subgroup generates unused tax losses or tax credits for periods
beginning on or after July 1, 1993, such amounts will not be available
to obtain refunds of amounts paid by the Company to MAXXAM for periods
ending on or before June 30, 1993, pursuant to the KACC Tax Allocation
Agreement.
The Company and MAXXAM entered into the KACC Tax Allocation
Agreement, which became effective as of October 28, 1988. Under the
terms of the KACC Tax Allocation Agreement, MAXXAM computed the
federal income
- 46 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
tax liability for the KACC Subgroup as if the KACC Subgroup were a
separate affiliated group of corporations which was never connected
with MAXXAM. The provisions of the KACC Tax Allocation Agreement will
continue to govern for periods ended prior to July 1, 1993.
Therefore, payments or refunds may still be required by or payable to
the Company under the terms of the KACC Tax Allocation Agreement for
periods ended prior to July 1, 1993, due to the final resolution of
audits, amended returns, and related matters with respect to such
periods. However, the 1994 Credit Agreement prohibits the payment by
the Company to MAXXAM of any amounts due under the KACC Tax Allocation
Agreement, except for certain payments that are required as a result
of audits and only to the extent of any amounts paid after February
17, 1994, by MAXXAM to the Company under the KACC Tax Allocation
Agreement. As of December 31, 1993, MAXXAM owed the Company
approximately $11.6 under the terms of the KACC Tax Allocation
Agreement.
On June 30, 1993, the Company and Kaiser entered into a tax allocation
agreement (the "New KACC Tax Allocation Agreement"), effective for
taxable periods beginning on or after July 1, 1993. The terms of the
New KACC Tax Allocation Agreement are similar, in all material
respects, to those of the KACC Tax Allocation Agreement except that
the Company is liable to Kaiser.
Income taxes are classified as either domestic or foreign, based on
whether payment is made or due to the United States or a foreign
country. Certain income classified as foreign is also subject to
domestic income taxes.
The following table presents the Company's tax attributes for federal
income tax purposes under the terms of the New KACC Tax Allocation
Agreement as of December 31, 1993. The amounts of such attributes may
change based upon the final 1993 tax returns. The utilization of
certain of these tax attributes are subject to limitations:
Expiring
Through
--------------------------------------------------------------------------------
Regular tax attribute carryforwards:
Current year net operating loss $ 83.2 2008
Prior year net operating losses 54.9 2006
General business tax credits 41.6 2006
Foreign tax credits 19.8 1998
Alternative minimum tax credits 15.3 Indefinite
Alternative minimum tax attribute carryforwards:
Current year net operating loss $ 55.8 2008
Prior year net operating losses 24.0 2002
Foreign tax credits 12.0 1998
8. Employee Benefit and Incentive Plans
Retirement Plans
Retirement plans are non-contributory for salaried and hourly
employees and generally provide for benefits based on a formula which
considers length of service and earnings during years of service. The
Company's funding policies meet or exceed all regulatory requirements.
- 47 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Employee pension benefit plans funded status and amounts included in
the Company's Consolidated Balance Sheets are as follows:
Plans with Accumulated
Benefits Exceeding Assets (1)
December 31,
-----------------------------
1993 1992
----------------------------------------------------------------------------------------------
Accumulated benefit obligation:
Vested employees $(705.0) $(663.5)
Nonvested employees (40.1) (49.6)
------- -------
Accumulated benefit obligation (745.1) (713.1)
Additional amounts related to projected salary increases (45.5) (33.7)
------- -------
Projected benefit obligation (790.6) (746.8)
Plan assets (principally fixed income
obligations and common stocks) at fair value 569.8 572.5
------- -------
Plan assets less than projected benefit obligation (220.8) (174.3)
Unrecognized net losses 75.7 34.7
Unrecognized net obligations 1.6 2.6
Unrecognized prior-service cost 16.9 15.9
Adjustment required to recognize minimum liability (47.7) (25.3)
Accrued pension obligation included in the ------- -------
Consolidated Balance Sheets (principally in long-term liabilities) $(174.3) $(146.4)
======= =======
(1) Includes plans with assets exceeding accumulated benefits by
approximately $.1 and $.4 in 1993 and 1992, respectively.
The Company also recorded $13.7 of additional pension obligation (not
included in the amounts above) as part of the restructuring reserve
(see Note 3).
SFAS No. 87 requires recognition of a minimum pension liability for
unfunded plans. At December 31, 1993 and 1992, the Company recorded
an after-tax charge to equity of $14.9 and $6.7, respectively, for the
excess of the minimum liability over the unrecognized net obligation
and prior-service cost.
The components of net periodic pension cost are:
Year Ended December 31,
------------------------------
1993 1992 1991
--------------------------------------------------------------------------------------------------
Service cost -- benefits earned during the period $ 10.8 $ 11.0 $ 9.8
Interest cost on projected benefit obligation 59.2 58.8 59.3
Return on assets:
Actual gain (70.3) (26.3) (100.1)
Deferred gain (loss) 15.9 (31.2) 49.9
Net amortization and deferral 2.3 2.1 .3
------- ------- -------
Net periodic pension cost $ 17.9 $ 14.4 $ 19.2
======= ======= ======
- 48 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Assumptions used to value obligations at year-end and to determine the
net periodic pension cost in the subsequent year are:
1993 1992 1991
--------------------------------------------------------------------------------
Discount rate 7.50% 8.25% 8.25%
Expected long-term rate of return on assets 10.00% 10.00% 10.00%
Rate of increase in compensation levels 5.00% 5.00% 5.00%
Postretirement Benefits Other Than Pensions
The Company adopted SFAS 106 to account for postretirement benefits
other than pensions effective January 1, 1993 (see Note 1). The
Company and its subsidiaries provide postretirement health care and
life insurance benefits to retired employees. Substantially all
employees may become eligible for those benefits if they reach
retirement age while still working for the Company or its
subsidiaries. These benefits are provided through contracts with
various insurance carriers. The Company has not funded the liability
for these benefits.
The Company changed certain salaried retiree group insurance benefits
effective January 1, 1994, to provide for additional cost-sharing
features, such as reducing certain reimbursements and requiring future
retiree contributions which will lower salaried retiree medical
expenses.
The Company's accrued postretirement benefit obligation is composed of
the following:
December 31, 1993
---------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $(629.3)
Active employees eligible for postretirement benefits (35.1)
Active employees not eligible for postretirement benefits (128.3)
-------
Accumulated postretirement benefit obligation (792.7)
Unrecognized net losses 67.0
Unrecognized prior-service costs (35.0)
-------
Accrued postretirement benefit obligation $(760.7)
=======
The components of net periodic postretirement benefit cost are:
Year Ended
December 31, 1993
- --------------------------------------------------------------------------------
Service cost $ 7.1
Interest cost 58.5
-----
Net periodic postretirement benefit cost $65.6
=====
The 1994 annual assumed rates of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) are 9.5% and
8.0% for retirees under 65 and over 65, respectively, and are assumed
to decrease gradually to 5.25% in 2006 and remain at that level
thereafter. The health care cost trend rate has a significant effect
on the amounts reported. A one-percentage-point increase in the
assumed health care cost trend rate would increase the accumulated
- 49 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------
postretirement benefit obligation as of December 31, 1993, by
approximately $96.0 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1993 by
approximately $9.5. The weighted average discount rate used to
determine the accumulated postretirement benefit obligation at
December 31, 1993, was 7.5%.
Postemployment Benefits
The Company adopted the new accounting standard on postemployment
benefits effective January 1, 1993 (see Note 1). The Company provides
certain benefits to former or inactive employees after employment but
before retirement.
Incentive Plans
Effective January 1, 1989, the Company adopted an unfunded Long-Term
Incentive Plan (the "LTIP") for certain key employees of the Company
and its consolidated subsidiaries. All compensation vested as of
December 31, 1992, under the LTIP, as amended in 1991 and 1992, has
been paid to the participants in cash or common stock of Kaiser as of
December 31, 1993. Under the LTIP, as amended, 764,092 shares of
Kaiser's common stock were distributed to participants during 1993,
which will generally vest at the rate of 25% per year. The Company
will record the related expense of $6.5 over the four-year period
ending December 31, 1996.
Effective January 1, 1990, KACC adopted an unfunded Middle Management
Long-Term Incentive Plan. KACC also has a supplemental savings and
retirement plan for salaried employees under which the participants
contribute a percentage of their base salaries.
The Company's expense for the above plans was $5.3, $6.6, and $6.5 for
the years ended December 31, 1993, 1992, and 1991, respectively.
9. Redeemable Preference Stock
In March 1985, KACC entered into a three-year agreement with the
United Steelworkers of America (USWA) whereby shares of a new series
of "Cumulative (1985 Series A) Preference Stock" would be issued to an
employee stock ownership plan in exchange for certain elements of
wages and benefits. Concurrently, a similar plan was established for
certain nonbargaining employees which provided for the issuance of
"Cumulative (1985 Series B) Preference Stock." Series A Stock and
Series B Stock ("Series A and B Stock") each have a par value of $1
per share and a liquidation and redemption value of $50 per share plus
accrued dividends, if any.
For financial reporting purposes, Series A and B Stock were recorded
at fair market value when issued, based on independent appraisals,
with a corresponding charge to compensation cost. Carrying values
have been increased each year to recognize accretion of redemption
values and, in certain years, there have been other increases for
reasons described below. Issuances and redemptions of Series A and B
Stock are shown below.
1993 1992 1991
----------------------------------------------------------------------------------
Shares:
Beginning of year 1,163,221 1,305,550 1,718,051
Issued 1,868
Redeemed (81,673) (142,329) (414,369)
--------- --------- ---------
End of year 1,081,548 1,163,221 1,305,550
========= ========= =========
- 50 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
No additional Series A or B Stock will be issued based on compensation
earned in 1992 or subsequent years. While held by the plan trustee,
Series B Stock is entitled to cumulative annual dividends, when and as
declared by the Board of Directors, payable in stock or in cash at the
option of KACC on or after March 1, 1991, in respect to years
commencing January 1, 1990, based on a formula tied to KACC's income
before tax from aluminum operations. When distributed to plan
participants (generally upon separation from KACC), the Series A and B
Stock are entitled to an annual cash dividend of $5 per share, payable
quarterly, when and as declared by the Board of Directors.
Redemption fund agreements require KACC to make annual payments by
March 31 each year based on a formula tied to consolidated net income
until the redemption funds are sufficient to redeem all Series A and B
Stock. On an annual basis, the minimum payment is $4.3 and the
maximum payment is $7.3. In March 1992 and 1993, KACC contributed
$7.0 and $4.3 for the years 1991 and 1992, respectively, and will
contribute $4.3 in March 1994 for 1993.
Under the USWA labor contract effective November 1, 1990, KACC was
obligated to offer to purchase up to 80 shares of Series A Stock from
each active participant in 1991 at a price equal to its redemption
value of $50 per share. KACC also agreed to offer to purchase up to
an additional 40 shares from each participant in 1994. The employees
may elect to receive their shares, accept cash, or place the proceeds
into KACC's 401(k) savings plan. Under separate action, KACC also
offered to purchase 80 shares of Series B Stock from active
participants in 1991 and 40 shares in 1994. Under the provisions of
these contracts, in February 1994, KACC purchased $4.6 and $.8 of the
Series A and B Stock, respectively.
The Series A and B Stock is distributed in the event of death,
retirement, or in other specified circumstances. KACC may also redeem
such stock at $50 per share plus accrued dividends, if any. At the
option of the plan participant, the trustee shall redeem stock
distributed from the plans at redemption value to the extent funds are
available in the redemption fund. Under the Tax Reform Act of 1986,
at the option of the plan participant, KACC must purchase distributed
shares earned after December 31, 1985, at redemption value on a five-
year installment basis, with interest at market rates. The obligation
of KACC to make such installment payments must be secured.
The Series A and B Stock is entitled to the same voting rights as KACC
common stock and to certain additional voting rights under certain
circumstances, including the right to elect, along with other KACC
preference stockholders, two directors whenever accrued dividends have
not been paid on two annual dividend payment dates, or when accrued
dividends in an amount equivalent to six full quarterly dividends are
in arrears. The Series A and B Stock restricts the ability of KACC to
redeem or pay dividends on common stock if KACC is in default on any
dividends payable on the Series A and B Stock.
- 51 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
10. Stockholders' Equity
Changes in stockholders' equity were:
Additional Note
Minimum Receivable
Preference Common Additional Retained Pension From
Stock Stock Capital Earnings Liability Parent
----------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1991 $ 2.4 $15.0 $ 975.2 $ 453.5 $ (929.0)
Net income 124.7
Interest on note receivable from parent 120.3 (120.3)
Sale of common stock to Kaiser .4 22.9
Conversions (3,262 preference shares into ca) (.2)
Dividends:
Preference stock (1.9)
Common stock (93.0)
Redeemable preference stock accretion (7.1)
------ ----- -------- -------- --------
BALANCE, DECEMBER 31, 1991 2.2 15.4 1,118.4 476.2 (1,049.3)
Net income 29.6
Interest on note receivable from parent 136.5 (136.5)
Contribution for LTIP shares .7
Conversions (2,405 preference shares into cash) (.2)
Dividends:
Preference stock (1.4)
Common stock (11.4)
Redeemable preference stock accretion (5.1)
Additional minimum pension liability $ (6.7)
------ ----- ------- ------ ------ ---------
BALANCE, DECEMBER 31, 1992 2.0 15.4 1,255.6 487.9 (6.7) (1,185.8)
Net loss (647.3)
Interest on note receivable from parent 115.7 (115.7)
Contribution for LTIP shares 3.4
Conversions (1,967 preference shares into cash) (.2)
Capital contribution 96.5
Preference stock dividends (1.0)
Redeemable preference stock accretion (4.8)
Additional minimum pension liability (14.9)
------ ----- -------- ------- ------ ---------
BALANCE, DECEMBER 31, 1993 $ 1.8 $15.4 $1,471.2 $ (165.2) $(21.6) $(1,301.5)
====== ===== ======== ======== ====== =========
- 52 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Preference Stock
KACC Cumulative Convertible Preference Stock, $100 par value ("$100
Preference Stock"), restricts acquisition of junior stock and payment
of dividends. At December 31, 1993, such provisions were less
restrictive as to the payment of cash dividends than the 1989 Credit
Agreement provisions. KACC has the option to redeem the $100
Preference Stocks at par value plus accrued dividends. KACC does not
intend to issue any additional shares of the $100 Preference Stocks.
The 4-1/8% and 4-3/4% (1957 Series, 1959 Series, and 1966 Series) $100
Preference Stock can be exchanged for per share cash amounts of
$69.30, $77.84, $78.38, and $76.46, respectively. KACC records the
$100 Preference Stock at their exchange amounts for financial
statement presentation and the Company includes such amounts in
minority interests. The outstanding shares of KACC preference stock
were:
December 31,
------------------
1993 1992
--------------------------------------------------------------------
4-1/8% 3,921 4,110
4-3/4% (1957 Series) 2,623 3,054
4-3/4% (1959 Series) 13,605 14,607
4-3/4% (1966 Series) 3,890 4,235
Additional Capital
Series A Convertible -- On June 30, 1993, Kaiser issued 17,250,000 of
its $.65 Depositary Shares (the "Depositary Shares"), each
representing one-tenth of a share of Series A Mandatory Conversion
Premium Dividend Preferred Stock (the "Series A Shares"). In
connection with the issuance of the Depositary Shares, MAXXAM Group
Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, exchanged a $15.0
promissory note of KACC (the "MAXXAM Note") for an additional
2,132,950 Depositary Shares. The net cash proceeds from the sale of
Depositary Shares were approximately $119.3. Kaiser used
approximately $37.8 of such net proceeds to make a non-interest
bearing loan to KACC evidenced by an intercompany note, which matures
on June 29, 1996, and is payable in quarterly installments. The
intercompany note is designed to provide sufficient funds to Kaiser to
enable it to make dividend payments on the Series A Shares until June
30, 1996, the date on which the outstanding Series A Shares are
mandatorily converted into shares of Kaiser's common stock. Kaiser
used approximately $81.5 of such net proceeds and the MAXXAM Note to
make a capital contribution to KACC. KACC used approximately $13.7 of
the funds it received from Kaiser to prepay the remaining balance of
the Term Loan under the 1989 Credit Agreement and $105.6 of such funds
to reduce outstanding borrowings under the Revolving Credit Facility
of the 1989 Credit Agreement.
- 53 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
PRIDES Convertible -- On February 17, 1994, Kaiser consummated the
public offering of 8,000,000 shares of the PRIDES. The net proceeds
from the sale of the shares of PRIDES were approximately $90.6.
Kaiser used such net proceeds to make a non-interest bearing loan to
KACC in a principal amount equal to $30.0 (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 converted into shares of Kaiser's common stock), evidenced
by an intercompany note, and used the balance of such net proceeds to
make a capital contribution to KACC in the amount of approximately
$60.6.
Note Receivable from Parent
The Note Receivable from Parent bears interest at a fixed rate of 6-
5/8% per annum. No interest or principal payments are due until
December 21, 2000, after which interest and principal will be payable
over a 15-year term pursuant to a predetermined schedule. Accrued
interest is accounted for as additional contributed capital.
Dividends on Common Stock
The Company paid quarterly cash dividends on common stock of $50.0,
$37.3, $2.9, and $2.8, respectively, in 1991. The Company paid cash
dividends on common stock of $2.9 in each quarter of 1992. As
required under the 1989 Credit Agreement, on December 15, 1992, KACC
issued a Pay-in-Kind Note (the "PIK Note") to a subsidiary of MAXXAM,
in the principal amount of $2.5, representing the entire amount of the
dividend received by such subsidiary in respect of the shares of
Kaiser's common stock which it owned. The PIK Note bears interest,
compounded semiannually, at a rate equal to 12% per annum, and is due
and payable, together with accrued interest thereon, on June 30, 1995.
The indentures governing the Senior Notes and the 12-3/4% Notes and the
1994 Credit Agreement restrict, among other things, the Company's
ability to incur debt, undertake transactions with affiliates, and pay
dividends. Under the most restrictive of these covenants, the Company
is not currently permitted to pay dividends on its common stock.
Stock Incentive Plan
In 1993, Kaiser adopted the Kaiser 1993 Omnibus Stock Incentive Plan.
A total of 2,500,000 shares of Kaiser common stock are reserved for
awards or for payment of rights granted under the Plan. Six Company
executives have received grants of 764,092 shares under the LTIP for
benefits generally earned but not vested as of December 31, 1992 (see
Note 8). In 1993, the stockholders approved the award of 584,300
shares as nonqualified stock options to members of management other
than those participating in the LTIP. These options will generally
vest at the rate of 20% per year over the next five years, commencing
May 18, 1994. The exercise price of these shares is $7.25 per share,
the quoted market price at the date of grant.
11. Commitments and Contingencies
Commitments
The Company has financial commitments, including purchase agreements,
tolling arrangements, forward foreign exchange contracts, forward
sales contracts, letters of credit, and guarantees.
- 54 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Purchase agreements and tolling arrangements include agreements to
supply alumina to Anglesey and to purchase aluminum from that company.
Similarly, KACC has long-term agreements for the purchase and tolling
of bauxite into alumina in Australia by QAL. These obligations expire
in 2008. Under the agreements, KACC is unconditionally obligated to
pay its proportional share of debt, operating costs, and certain other
costs of QAL. The aggregate minimum amount of required future
principal payments at December 31, 1993, is $73.6, due in 1997. The
KACC share of payments, including operating costs and certain other
expenses under the agreement, was $86.7, $99.2, and $107.6 for the
years ended December 31, 1993, 1992, and 1991, respectively.
Minimum rental commitments under operating leases at December 31,
1993, are as follows: years ending December 31, 1994 -- $24.3; 1995 -
- $23.2; 1996 -- $22.3; 1997 -- $21.8; 1998 -- $23.4; thereafter --
$243.2. The future minimum rentals receivable under noncancelable
subleases was $90.7 at December 31, 1993.
Rental expenses were $29.0, $26.2, and $23.3 for the years ended
December 31, 1993, 1992, and 1991, respectively.
Environmental Contingencies
KACC is 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. The following table presents the changes in such
accruals, which are primarily included in Long-term liabilities, for
the years ended December 31, 1993, 1992, and 1991:
1993 1992 1991
------------------------------------------------------------------------
Balance at beginning of period $ 46.4 $ 51.5 $ 57.7
Additional amounts 1.7 4.5 7.8
Less expenditures (7.2) (9.6) (14.0)
------ ------ ------
Balance at end of period $ 40.9 $ 46.4 $ 51.5
====== ====== ======
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.
- 55 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
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 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 year-end 1993, the number of such lawsuits pending was
approximately 23,400 (approximately 11,400 of which were received in
1993). The number of such lawsuits instituted against KACC increased
substantially in 1993, and management believes the number of such
lawsuits will continue at approximately the same rate for the next few
years.
In connection with such litigation, during 1993, 1992, and 1991, KACC
made cash payments for settlement and other related costs of $7.0,
$7.1, and $6.1, respectively. 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
December 31, 1993). Accordingly, an accrual of $102.8 for asbestos-
related expenditures is included primarily in Long-term liabilities at
December 31, 1993. The aggregate amount of the undiscounted liability
at December 31, 1993, of $141.5, before considerations for insurance
recoveries, reflects an increase of $56.6 from the prior year,
resulting primarily from an increase in claims filed during 1993 and
the Company's belief that the number of such lawsuits will continue at
approximately the same rate for the next few years.
The Company believes that it has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While
claims for recovery from one of the Company's insurance carriers are
currently subject to pending litigation and other carriers have raised
certain defenses, the Company believes, based upon prior insurance-
related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of counsel, that substantial
recoveries from the insurance carriers are probable. Accordingly,
estimated insurance recoveries of $94.0, determined on the same basis
as the asbestos-related cost accrual, are recorded primarily in Other
assets as of December 31, 1993.
Based upon the factors discussed in the two preceding paragraphs,
management currently believes that there is no more than a remote
possibility (under generally accepted accounting principles) that the
Company's asbestos-related costs net of related insurance recoveries
exceed those accrued as of December 31, 1993, and, accordingly, that
the resolution of such uncertainties and the incurrence of such net
costs should not have a material adverse effect upon the Company s
consolidated financial position or results of operations.
- 56 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
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.
12. Segment and Geographical Area Information
Sales and transfers among geographic areas are made on a basis
intended to reflect the market value of products.
The aggregate foreign currency gain included in determining net income
was $4.9, $12.0, and $1.2 for the years ended December 31, 1993, 1992,
and 1991, respectively.
There were no sales of more than 10% of total revenue to a single
customer for the year ended December 31, 1993. Sales to a single
customer were $135.3 and $155.9 of bauxite and alumina and $144.9 and
$160.9 of aluminum processing for the years ended December 31, 1992
and 1991, respectively.
Export sales were less than 10% of total revenue during the years
ended December 31, 1993, 1992, and 1991.
- 57 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------
Financial information by industry segment at December 31, 1993 and
1992, and for the years ended December 31, 1993, 1992, and 1991, is as
follows:
Year Ended Bauxite & Aluminum
December 31, Alumina Processing Corporate Total
------------------------------------------------------------------------------------------
Net sales to unaffiliated customers 1993 $423.4 $ 1,295.7 $ 1,719.1
1992 466.5 1,442.6 1,909.1
1991 550.8 1,450.0 2,000.8
Intersegment sales 1993 $129.4 $ 129.4
1992 179.9 179.9
1991 194.6 194.6
Equity in earnings (losses) of 1993 $ (2.5) $ (.8) $ (3.3)
unconsolidated affiliates 1992 1.8 (3.7) (1.9)
1991 (4.4) (15.1) (19.5)
Operating income (loss) 1993 $ (4.5) $ (46.3) $(72.3) $ (123.1)
1992 62.6 104.9 (77.3) 90.2
1991 150.0 150.2 (84.4) 215.8
Effect of changes in accounting
principles on operating
income (loss)
SFAS 106 1993 $ (2.0) $ (16.1) $ (1.1) $ (19.2)
SFAS 109 1993 (7.7) (7.8) .3 (15.2)
Depreciation 1993 $ 35.3 $ 59.9 $ 1.9 $ 97.1
1992 29.8 49.0 1.5 80.3
1991 26.4 46.0 .8 73.2
Capital expenditures 1993 $ 35.3 $ 31.2 $ 1.2 $ 67.7
1992 50.8 39.4 24.2 114.4
1991 51.1 64.8 2.2 118.1
Investment in and advances to 1993 $151.5 $ 30.7 $ 1.0 $ 183.2
unconsolidated affiliates 1992 136.2 12.5 1.4 150.1
Identifiable assets 1993 $734.0 $ 1,214.9 $579.3 $2,528.2
1992 715.7 1,165.9 292.2 2,173.8
- 58 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Geographical area information relative to operations is summarized as
follows:
Year Ended Other
December 31, Domestic Caribbean Africa Foreign Eliminations Total
-----------------------------------------------------------------------------------------------------------
Net sales to unaffiliated customers 1993 $ 1,230.5 $ 96.5 $ 207.5 $ 184.6 $ 1,719.1
1992 1,359.6 92.9 263.5 193.1 1,909.1
1991 1,383.8 149.6 269.2 198.2 2,000.8
Sales and transfers among 1993 $ 92.3 $ 79.6 $ (171.9)
geographic areas 1992 111.8 93.5 (205.3)
1991 116.4 112.3 (228.7)
Equity in losses of 1993 $ (3.3) $ (3.3)
unconsolidated affiliates 1992 (1.9) (1.9)
1991 (19.5) (19.5)
Operating income (loss) 1993 $ (159.5) $ (2.0) $ 34.1 $ 4.3 $ (123.1)
1992 (25.0) 18.4 78.8 18.0 90.2
1991 59.5 47.8 72.1 36.4 215.8
Investment in and advances to 1993 $ 1.0 $ 30.5 $ 151.7 $ 183.2
unconsolidated affiliates 1992 1.4 29.5 119.2 150.1
Identifiable assets 1993 $ 1,758.3 $ 360.4 $ 223.0 $ 186.5 $ 2,528.2
1992 1,376.1 358.3 227.5 211.9 2,173.8
13. Subsidiary Guarantors
Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance
Corporation ("KFC"), Kaiser Jamaica Corporation ("KJC"), and Alpart
Jamaica Inc. ("AJI") (collectively referred to as the "Subsidiary
Guarantors") are domestic wholly owned (directly or indirectly)
subsidiaries of the Company that have provided subordinated guarantees
of the 12-3/4% Notes and joint and several guarantees of the 1989
Credit Agreement (see Note 6).
KAAC, KJC, and AJI are wholly owned subsidiaries, which serve as
holding companies for the Company's investments in Alpart, KFC, and
QAL. KFC is a wholly owned subsidiary of KAAC, whose principal
business is making loans to the Company and its subsidiaries. Summary
of combined financial information for the Subsidiary Guarantors as of
December 31, 1993 and 1992, is as follows.
- 59 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Summary of Combined Financial Position
December 31,
--------------------
1993 1992
-------- ---------
Assets
Current assets $ 73.8 $ 94.3
Due from KACC 665.1 620.2
Investments in and advances to unconsolidated affiliates 121.0 106.7
Property, plant, and equipment -- net 256.5 238.9
Other assets 27.4 3.2
-------- --------
Total $1,143.8 $1,063.3
======== ========
Liabilities and Stockholders' Equity
Current liabilities $ 141.7 $ 118.0
Payable to KACC 267.2 468.6
Other long-term liabilities 54.2
Long-term debt -- net of current maturity 82.7 85.0
Minority interest 56.6 58.5
Stockholders' equity 541.4 333.2
-------- --------
Total $1,143.8 $1,063.3
======== ========
Summary of Combined Operations
Year Ended December 31,
---------------------------
1993 1992 1991
------- ------- -------
Net sales $ 326.3 $ 316.0 $ 385.1
Costs and expenses 348.0 303.0 377.5
------- ------- -------
Operating income (loss) (21.7) 13.0 7.6
Other income (expense):
Interest and other income 26.0 24.5 45.2
Interest expense (20.4) (24.1) (25.3)
------- ------- -------
Income (loss) before income taxes, minority interests,
cumulative effect of change in accounting principle (16.1) 13.4 27.5
Credit (provision) for income taxes 3.8 (2.3) (9.2)
Minority interest 7.6 6.7 6.4
------- ------- -------
Income (loss) before cumulative effect of change in (4.7) 17.8 24.7
accounting principle
Cumulative effect of change in accounting principle (11.3)
------- ------- -------
Net income (loss) $ (16.0) $ 17.8 $ 24.7
======= ======= =======
- 60 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- -------------------------------------------------------------------------
Notes to Summary of Combined Financial Information
for the Subsidiary Guarantors
Income Taxes -- The Subsidiary Guarantors were included in the
consolidated federal income tax return of MAXXAM for the period
from October 28, 1988, through December 31, 1992. The Subsidiary
Guarantors' taxable income (loss) for the period from January 1,
1993, through June 30, 1993, will be included in the 1993
consolidated federal income tax return of MAXXAM. Effective July 1,
1993, the Subsidiary Guarantors became members of the consolidated
federal income tax return group of which Kaiser is the common
parent corporation. The taxable income (loss) of the Subsidiary
Guarantors for the period from July 1, 1993, through December 31,
1993 (and for subsequent taxable periods) will be included in the
consolidated federal income tax return of Kaiser. The (credit)
provision for income taxes is computed as if each Subsidiary
Guarantor filed returns on a separate company basis.
Effective January 1, 1993, the Subsidiary Guarantors adopted SFAS
109, which required the restatement of certain assets and
liabilities to their pre-tax amounts from their net-of-tax amounts
originally recorded in connection with the acquisition by
MAXXAM in October 1988. The restatement of the assigned values
with respect to certain assets and liabilities recorded as a
result of the acquisition and the recomputation of deferred income
tax liabilities under SFAS 109 resulted in: (i) an increase of
$13.5 in the net carrying value of property, plant, and equipment;
(ii) an increase of $25.4 in investments in and advances to
unconsolidated affiliates; and (iii) an increase of $50.2 in net
deferred income tax liabilities. The net deferred income tax
liabilities relate primarily to financial reporting basis in
excess of tax basis with respect to investments in and advances to
unconsolidated affiliates and property, plant, and equipment,
offset, in part, by the benefit of loss and credit carryforwards.
The cumulative effect of the change in accounting principle, as of
January 1, 1993, reduced the Subsidiary Guarantors' results of
operations by $11.3. Included in Other assets and Other long-term
liabilities at December 31, 1993, are $25.0 and $54.2 of
deferred income tax assets and liabilities, respectively.
Receivables and Payables -- At December 31, 1993, receivables
from and payables to KACC and affiliates include $635.8 and $237.3
of interest bearing loans, respectively. The similar amounts at
December 31, 1992 were $592.2 and $242.2.
Inventory Valuation -- Inventories are stated at first-in,
first-out (FIFO) cost, not in excess of market.
Investments -- At December 31, 1993, KAAC held a 28.3% interest in
QAL. This investment is accounted for by the equity method.
The equity in QAL's income (loss) before income taxes of $(2.5) and
$1.8 in 1993 and 1992, respectively, is included in the
Company's cost of products sold.
Capital Contribution -- In 1993, the Company converted $200.0 and
$25.0 of its receivables from KJC and AJI, respectively, into
capital contributions to these companies. These amounts are
included in Stockholders' equity as of December 31, 1993.
Foreign Currency -- The functional currency of the Subsidiary
Guarantors is the United States dollar, and accordingly,
translation gains included in net income (loss) were $5.6,
$27.3, and $5.3 for the years ended December 31, 1993, 1992,
and 1991, respectively.
- 61 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
----------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------------------------------------
(In millions of dollars) 1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 14.2 $ 18.5 $ 15.5 $ 23.8 $ 95.1
Receivables 236.0 271.1 219.0 227.5 262.9
Inventories 426.9 439.9 498.6 523.9 511.1
Prepaid expenses and other current assets 60.7 37.0 84.0 48.7 6.6
Assets held for sale 51.1
-------- ------- -------- -------- --------
Total current assets 737.8 766.5 817.1 823.9 926.8
Investments in and advances to unconsolidated affiliates 183.2 150.1 161.9 184.5 187.8
Property, plant, and equipment -- net 1,163.7 1,066.8 1,014.5 970.3 936.0
Deferred income taxes 210.3
Other assets 233.2 190.4 145.2 148.3 95.6
-------- -------- -------- -------- --------
Total $2,528.2 $2,173.8 $2,138.7 $2,127.0 $2,146.2
======== ======== ======== ======== ========
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable and accruals $ 339.6 $ 351.3 $ 461.3 $ 428.3 $ 526.9
Accrued postretirement benefit obligation -- current 47.6
Payable to affiliates 62.4 78.5 87.1 82.2 60.7
Long-term debt -- current portion 8.7 25.9 26.3 32.5 139.0
Note payable to parent -- current portion 12.6
-------- -------- -------- -------- --------
Total current liabilities 470.9 455.7 574.7 543.0 726.6
Long-term liabilities 501.7 281.7 212.9 314.6 321.1
Accrued postretirement benefit obligation 713.1
Long-term debt 720.2 765.1 681.5 631.5 655.8
Note payable to parent 18.9
Minority interests 69.7 70.1 71.9 73.0 71.4
Redeemable preferred stock 33.6 32.8 34.8 47.8 60.8
Stockholders' equity:
Preference stock 1.8 2.0 2.2 2.4 2.9
Common stock 15.4 15.4 15.4 15.0 15.0
Additional capital 1,471.2 1,255.6 1,118.4 975.2 868.1
Retained earnings (accumulated deficit) (165.2) 487.9 476.2 453.5 246.3
Additional minimum pension liability (21.6) (6.7)
Less: Note receivable from parent (1,301.5) (1,185.8) (1,049.3) (929.0) (821.8)
-------- -------- -------- -------- --------
Total stockholders' equity .1 568.4 562.9 517.1 310.5
-------- -------- -------- -------- --------
Total $2,528.2 $2,173.8 $2,138.7 $2,127.0 $2,146.2
======== ======== ======== ======== ========
- 62 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
----------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
Year Ended December 31,
--------------------------------------------------------
(In millions of dollar) 1993 1992 1991 1990 1989
-------------------------------------------------------------------------------------------------
Net sales $1,719.1 $1,909.1 $2,000.8 $2,095.0 $2,192.7
-------- -------- -------- -------- --------
Costs and expenses:
Cost of products sold 1,587.7 1,619.3 1,594.2 1,525.2 1,545.6
Depreciation 97.1 80.3 73.2 70.5 62.3
Selling, administrative, research
and development, and general 121.6 119.3 117.6 122.9 115.1
Restructuring of operations 35.8
-------- -------- -------- -------- --------
Total costs and expenses 1,842.2 1,819.9 1,785.0 1,718.6 1,723.0
-------- -------- -------- -------- --------
Operating income (loss) (123.1) 90.2 215.8 376.4 469.7
Other income (expense):
Interest and other income -- net (1.5) 16.9 16.4 11.0 46.6
Interest expense (84.2) (78.7) (82.7) (96.6) (32.6)
-------- -------- -------- -------- --------
Income (loss) before income taxes,
minority interests, extraordinary
loss and cumulative effect of
changes in accounting principles (208.8) 28.4 149.5 290.8 483.7
Credit (provision) for income taxes 86.9 (5.3) (32.4) (75.6) (100.1)
Minority interests 4.3 6.5 7.6 5.5 1.0
-------- -------- -------- -------- --------
Income (loss) before extraordinary
loss and cumulative effect of
changes in accounting principles (117.6) 29.6 124.7 220.7 384.6
Extraordinary loss on early
extinguishment of debt,
net of tax benefit of $11.2 (21.8)
Cumulative effect of changes in
accounting principles, net
of tax benefit of $237.7 (507.9)
-------- -------- -------- -------- --------
Net income (loss) $ (647.3) $ 29.6 $ 124.7 $ 220.7 $ 384.6
======== ======== ======== ======== ========
- 63-
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------------------------------------------------------
Quarter Ended
--------------------------------------------------
(In millions of dollars) March 31 June 30 September 30 December 31
------------------------------------------------------------------------------------
1993
Net sales $442.6 $432.2 $428.4 $415.9
Operating loss 9.6 14.1 17.5 81.9(1)
Net loss 545.3(2) 18.0 19.5 64.5(3)
1992
Net sales $463.7 $490.9 $458.5 $496.0
Operating income 29.5 29.7 26.7 4.3(4)
Net income 9.5 12.6 4.4 3.1(5)
Dividends declared 2.9 2.9 2.9 2.9
(1) Includes pre-tax charges of approximately $35.8 related to the
restructuring of operations and $19.4 because of a
reduction in the carrying value of inventories.
(2) Includes $507.9 after-tax charge for the cumulative effect of
changes in accounting principles and $21.8 after-tax charge
for extraordinary loss on early extinguishment of debt.
(3) Includes a pre-tax charge of approximately $10.8 principally
related to establishing additional litigation and environmental
reserves.
(4) Includes a pre-tax charge of approximately $29.0 because of a
reduction in the carrying value of inventories.
(5) Includes approximately $14.0 of pre-tax income for non-recurring
adjustments to previously recorded liabilities and reserves.
- 64 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II
----------------------------------------------------------------------
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
(In millions of dollars)
Balance at
Deductions End of Year
Balance at --------------------- -----------------
Beginning Amounts Amounts Not
Name of Debetor of Year Additions Collected Written Off Current Current
--------------- ---------- --------- --------- ----------- ------- -------
1993
----
None
1992
----
J. A. Bonn (1) $ .1 $ .1
1991
----
J. M. Seidl (2) $ 1.3 1.3
J. A. Bonn (1) .1 $ .1
(1) This note bears interest at 7.09% per annum and is due on the earlier of demand, the
termination of Mr. Bonn's employment, or on June 30, 1994. The interest is payable quarterly.
The note is secured by real estate owned by Mr. Bonn. The full amount of the note was paid
in March 1992.
(2) The note of $1.0, together with its accrued interest (at 8.9% per annum), was transferred to
the Company by MAXXAM in September 1991 and was subsequently paid off in cash.
- 65 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE V
----------------------------------------------------------------------
CONSOLIDATED PROPERTY, PLANT, AND EQUIPMENT
(In millions of dollars)
Balance at Other Balance at
Beginning Changes End of
Description of Year Additions Retirements Add (Deduct) Year
----------- ---------- --------- ----------- ------------ -----------
Year ended December 31, 1993:
Land $ 84.8 $ 1.8 $ 5.1 $ 91.7
Land improvements 39.0 1.0 3.4 43.4
Buildings 155.0 5.9 $ (.7) 24.2 184.4
Machinery and equipment 1,010.7 63.4 (15.7) 164.6 1,223.0
Leasehold improvements 9.1 .7 (.3) .9 10.4
Construction in progress 70.3 (5.1) (.3) 64.9
-------- -------- -------- -------- --------
Total $1,368.9 $ 67.7 $(17.0) $ 198.2(1) $1,617.8
======== ======== ======== ======== ========
Year ended December 31, 1992:
Land $ 49.5 $ 11.0 $ 24.3 $ 84.8
Land improvements 33.7 5.5 (.2) 39.0
Buildings 135.3 16.6 $(.2) 3.3 155.0
Machinery and equipment 925.7 94.6 (4.8) (4.8) 1,010.7
Leasehold improvements 5.8 3.3 9.1
Construction in progress 87.5 (16.6) (.1) (.5) 70.3
-------- ------- ------- ------- --------
Total $1,237.5 $114.4 $(5.1) $ 22.1(2) $1,368.9
======== ======= ======== ======= ========
Year ended December 31, 1991:
Land $ 43.3 $ 1.4 $(.2) $ 5.0 $ 49.5
Land improvements 27.7 1.8 4.2 33.7
Buildings 123.5 5.9 (.7) 6.6 135.3
Machinery and equipment 866.7 71.6 (6.0) (6.6) 925.7
Leasehold improvements 5.0 .7 .1 5.8
Construction in progress 52.4 36.7 (.1) (1.5) 87.5
-------- -------- ------- -------- --------
Total $1,118.6 $118.1 $(7.0) $ 7.8 $1,237.5
======== ======== ======= ======== ========
(1) Consists principally of the initial impact of adoption of SFAS
No. 109, as of January 1,1993, which required the Company to
restate
certain assets to their pre-tax amounts from their net-of-tax
amounts originally recorded in connection with the acquisition
by MAXXAM in October 1988.
(2) Consists principally of reclassifications from other current and
long-term assets to property, plant, and equipment.
- 66 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE VI
-----------------------------------------------------------------------
ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF CONSOLIDATED PROPERTY, PLANT, AND EQUIPMENT
(In millions of dollars)
Balance at Other Balance at
Beginning Changes End of
Description of year Additions Retirements Add (Deduct) Year
----------- ---------- --------- ----------- ------------ ----------
Year ended December 31, 1993:
Depletable land $ 1.5 $ $.6 $ 1.4 $ 3.5
Land improvements 6.3 2.1 1.4 9.8
Buildings 30.7 8.4 $ (.1) 7.2 46.2
Machinery and equipment 261.2 85.4 (5.1) 49.9 391.4
Leasehold improvements 2.4 .6 (.1) .3 3.2
------ ------- ------ ------ ------
Total $302.1 $ 97.1 $ (5.3) $ 60.2(1) $454.1
====== ======= ====== ====== ======
Year ended December 31, 1992:
Depletable land $ 1.2 $ .3 $ 1.5
Land improvements 4.8 1.6 $ (.1) 6.3
Buildings 21.9 7.3 $ (.1) 1.6 30.7
Machinery and equipment 193.2 70.5 (1.1) (1.4) 261.2
Leasehold improvements 1.9 .6 (.1) 2.4
------ ------- ------ ------ ------
Total $223.0 $ 80.3 $ (1.2) nil $302.1
====== ======= ====== ====== ======
Year ended December 31, 1991:
Depletable land $ .7 $ .5 $ 1.2
Land improvements 3.5 1.1 $ .2 4.8
Buildings 14.6 6.5 $ (.1) .9 21.9
Machinery and equipment 128.3 64.5 (1.6) 2.0 193.2
Leasehold improvements 1.2 .6 .1 1.9
------ ------- ------ ------ ------
Total $148.3 $ 73.2 $ (1.7) $ 3.2 $223.0
====== ======= ====== ====== ======
(1) Consists principally of the initial impact of adoption of SFAS No. 109, as of January 1,1993,
which required the Company to restate certain assets to their pre-tax amounts from
their net-of-tax amounts originally recorded in connection with
the acquisition by MAXXAM in October 1988.
- 67 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE IX
----------------------------------------------------------------
CONSOLIDATED SHORT-TERM BORROWINGS
(In millions of dollars)
Maximum Average Weighted
Weighted Amounts Amount Average
Category of Balance Average Outstanding Outstanding Interest Rate
Aggregate Short- at End Interest During During the During the
Term Borrowings of Year Rate the Year Year(1) Year (2)
--------------- -------- -------- ----------- ----------- ----------
Bank borrowings(3)
---------------
1993 $ .5 8.0% $18.5 $ 6.2 4.5%
1992 4.8 4.8 52.8 29.6 4.7
1991 6.3 4.9 50.6 29.2 7.0
(1) Based on outstanding borrowings at the end of each month.
(2) Based on outstanding borrowings and weighted average interest
rates at the end of each month.
(3) Short-term bank borrowings are made available on an uncommitted
basis and no fee is charged. Maturities generally range from one
to ten days with no formal provisions for the extension of
maturities. Interest rates are based upon short-term prevailing
rates.
- 68 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE X
----------------------------------------------------------------------
SUPPLEMENTARY CONSOLIDATED INCOME STATEMENT INFORMATION (1)
(In millions of dollars)
Charged to Costs and Expenses
Year Ended December 31,
-----------------------------------
1993 1992 1991
------- ------- -------
Maintenance and repairs $ 168.9 $ 147.0 $ 161.4
======= ====== =======
Taxes, other than payroll and income
taxes -- production levy on bauxite $ 27.9 $ 31.5 $ 34.0
======= ======= =======
(1) The amounts for amortization of intangible assets and
preoperating costs and similar deferrals, royalties, and
advertising costs are not reported as these items did not exceed
1% of sales and revenues.
- 69 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
P A R T I I I
Information required under Part III (Items 10, 11, 12, and 13)
has been omitted from this Report since the Company intends to
file with the Securities and Exchange Commission, not later than
120 days after the close of its fiscal year, a definitive proxy
statement pursuant to Regulation 14A which involves the election
of directors.
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Index to Financial Statements and Schedules
1. Financial Statements Page
-------------------- ----
Report of Independent Public Accountants .. . . 32
Consolidated Balance Sheets. . .. . .. . .. . . 33
Statements of Consolidated Income.. .. . .. . . 34
Statements of Consolidated Cash Flows. . .. . . 35
Notes to Consolidated Financial Statements. . . 36
Five-Year Financial Data. .. . .. . .. . .. . . 62
Quarterly Financial Data. .. . .. . .. . .. . . 64
2. Financial Statement Schedules Page
----
Schedule II - Amounts Receivable from
Related Parties and
Underwriters, Promoters,
and Employees Other Than
Related Parties . . . . . 65
Schedule V - Consolidated Property,
Plant, and Equipment . . . 66
Schedule VI - Accumulated Depreciation,
Depletion, and
Amortization of
Consolidated Property,
Plant, and Equipment . . . 67
Schedule IX - Consolidated Short-
Term Borrowings . . . . . 68
Schedule X - Supplementary
Consolidated Income
Statement Information. . . 69
All other schedules are inapplicable or the required information
is included in the Consolidated Financial Statements or the Notes
thereto.
- 70 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K (continued)
3. Exhibits
---------
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 73), which
index is incorporated herein by reference.
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the quarter
ended December 31, 1993.
(c) Exhibits
Reference is made to the Index of Exhibits immediately preceding
the
exhibits hereto (beginning on page 73), which index is
incorporated
herein by reference.
- 71 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
KAISER ALUMINUM & CHEMICAL
CORPORATION
George T. Haymaker, Jr.
Date: March 30, 1994 By
- ------------------------------------
George T. Haymaker, Jr.
Chairman of the Board and
Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of
1934, this report has been signed below by the following persons
on
behalf of the registrant and in the capacities and on the dates
indicated.
George T. Haymaker, Jr.
Date: March 30, 1994
- --------------------------------------
George T. Haymaker, Jr.
Chairman of the Board and
Chief
Executive Officer
(Principal Executive Officer)
John T. La Duc
Date: March 30, 1994
- --------------------------------------
John T. La Duc
Vice President, Chief
Financial
Officer and Treasurer
(Principal Financial Officer)
Charlie Alongi
Date: March 30, 1994
- --------------------------------------
Charlie Alongi
Controller
(Principal Accounting Officer)
Robert J. Cruikshank
Date: March 30, 1994
- --------------------------------------
Robert J. Cruikshank
Director
Charles E. Hurwitz
Date: March 30, 1994
- --------------------------------------
Charles E. Hurwitz
Director
Ezra G. Levin
Date: March 30, 1994
- --------------------------------------
Ezra G. Levin
Director
Robert Marcus
Date: March 30, 1994
- -------------------------------------
Robert Marcus
Director
Paul D. Rusen
Date: March 30, 1994
- --------------------------------------
Paul D. Rusen
Director
- 72 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
INDEX OF EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of Kaiser
Aluminum & Chemical Corporation ("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 Form
10-K for the period ended December 31, 1989, filed by
KACC, File No. 1-3605).
3.3 By-laws of KACC, dated November 30, 1988 (incorporated
by reference to Exhibit (3)(c) to Form 10-K for the
period ended December 31, 1988, filed by KACC, File No.
1-3605).
4.1 Indenture, dated as of February 1, 1993, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., and Kaiser Jamaica Corporation, as
Subsidiary Guarantors, and The First National Bank of
Boston, as Trustee, regarding KACC's 12-3/4% Senior
Subordinated Notes Due 2003 (incorporated to Form 10-K
for the period ended December 31, 1992, filed by KACC,
File No. 1-3605).
4.2 First Supplemental Indenture, dated as of May 1, 1993
(incorporated by reference to Exhibit 4.2 to the Report
on Form 10-Q for the quarterly period ended June 30,
1993, filed by KACC, File No. 1-3605).
4.3 Indenture, dated as of February 17, 1994, among KACC,
as Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, and Kaiser
Finance Corporation, as Subsidiary Guarantors, and
First Trust National Association as Trustee, regarding
KACC's 9-7/8% Senior Notes Due 2002 (incorporated by
reference to Exhibit 4.3 to Form 10-K for the period
ended December 31, 1993, filed by KAC, File No.
1-9447).
4.4 Credit Agreement, dated as of February 17, 1994, among
KACC, Kaiser Aluminum Corporation ("KAC"), the
financial institutions a party thereto, BankAmerica
Business Credit, Inc., as Agent, and certain financial
institutions (incorporated by reference to Exhibit 4.4
to Form 10-K for the period ended December 31, 1993,
filed by KAC, File No. 1-9447).
4.5 Credit Agreement, dated as of December 13, 1989 (the
"1989 Credit Agreement"), among KACC, KAC, the
financial institutions a party thereto, Bank of America
National Trust and Savings Association, as Agent, and
Mellon Bank, N.A., as Collateral Agent (incorporated by
reference to Exhibit 4.3 to Amendment No. 5 to the
Registration Statement on Form S-1 dated December 13,
1989, filed by KACC, Registration No. 33-30645).
4.6 First Amendment to the 1989 Credit Agreement, dated as
of April 17, 1990 (incorporated by reference to Exhibit
4.2 of the Report on Form 10-Q for the quarterly period
ended September 30, 1990, of MAXXAM Inc. ("MAXXAM"),
filed November 6, 1990, File No. 1-3924).
4.7 Second Amendment to the 1989 Credit Agreement, dated as
of September 17, 1990 (incorporated by reference to
Exhibit 4.3 of the Report on Form 10-Q for the
quarterly period ended September 30, 1990, of MAXXAM,
filed November 6, 1990, File No. 1-3924).
- 73 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
Exhibit
Number Description
- ------ -----------
4.8 Third Amendment to the 1989 Credit Agreement, dated as
of December 7, 1990 (incorporated by reference to
Exhibit 4.6 to Amendment No. 1 to the Registration
Statement on Form S-1, dated February 13, 1991, filed
by KAC, Registration No. 33-37895).
4.9 Fourth Amendment to the 1989 Credit Agreement, dated as
of April 19, 1991 (incorporated by reference to Exhibit
4.1 of the Report on Form 10-Q for the quarterly period
ended March 31, 1991, filed by KACC, File No. 1-3605).
4.10 Fifth Amendment to the 1989 Credit Agreement, dated as
of March 13, 1992 (incorporated by reference to Exhibit
4.8 to Form 10-K for the period ended December 31,
1991, filed by KACC, File No. 1-3605).
4.11 Seventh Amendment to the 1989 Credit Agreement, dated
as of November 6, 1992 (incorporated by reference to
Exhibit 4.10 to Amendment No. 5 to the Registration
Statement on Form S-2, dated January 22, 1993, filed by
KACC, Registration No. 33-48260).
4.12 Eighth Amendment to the 1989 Credit Agreement, dated as
of January 7, 1993 (incorporated by reference to
Exhibit 4.12 to Amendment No. 5 to the Registration
Statement on Form S-2, dated January 22, 1993, filed by
KACC, Registration No. 33-48260).
4.13 Ninth Amendment to 1989 Credit Agreement, dated as of
May 19, 1993 including the form of Intercompany Note
annexed as an Exhibit thereto (incorporated by
reference to Exhibit 4.10 to Amendment No. 2 to the
Registration Statement on Form S-1, dated June 22,
1993, filed by KACC, Registration No. 33-49555).
4.14 Tenth Amendment to 1989 Credit Agreement, dated as of
July 23, 1993, (incorporated by reference to Exhibit
4.13 to the Registration Statement on Form S-3, dated
August 26, 1993, filed by KACC, Registration No.
33-50097).
4.15 Eleventh Amendment to 1989 Credit Agreement, dated as
of August 27, 1993, (incorporated by reference to
Exhibit 4.13 to the Registration Statement on Form S-3,
dated October 13, 1993, filed by KAC, Registration
No. 33-50581).
4.16 Twelfth Amendment to 1989 Credit Agreement, dated as of
December 20, 1993, (incorporated by reference to
Exhibit 4.15 to Amendment No. 3 to the Registration
Statement on Form S-2, dated February 8, 1994, filed by
KACC, Registration No. 33-50097).
4.17 Certificate of Designation of Series A Mandatory
Conversion Premium Dividend Preferred Stock of KAC,
dated June 28, 1993 (incorporated by reference to
Exhibit 4.3 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC,
File No. 1-3605).
4.18 Deposit Agreement between KAC and The First National
Bank of Boston, dated as of June 30, 1993 (incorporated
by reference to Exhibit 4.4 to the Report on Form 10-Q
for the quarterly period ended June 30, 1993, filed by
KACC, File No. 1-3605).
- 74 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
Exhibit
Number Description
- ------ -----------
4.19 Intercompany Note between KACC and KAC (incorporated by
reference to Exhibit 4.2 to Amendment No. 5 to the
Registration Statement on Form S-1 dated December 13,
1989, filed by KACC, Registration No. 33-30645).
4.20 Senior Subordinated Intercompany Note between KACC and
MAXXAM, dated January 14, 1993 (incorporated by
reference to Exhibit 4.13 to Amendment No. 5 to the
Registration Statement on Form S-2, dated January 22,
1993, filed by KACC, Registration No. 33-48260).
4.21 Certificate of Designation of KAC's 8.255% Preferred
Redeemable Increased Dividend Equity Securities, dated
February 17, 1994 (incorporated by reference to Exhibit
4.21 to Form 10-K for the period ended December 31,
1993, filed by KAC, File No. 1-9447).
4.22 Senior Subordinated Intercompany Note between KACC and
KAC dated February 15, 1994 (incorporated by reference
to Exhibit 4.22 to Form 10-K for the period ended
December 31, 1993, filed by KAC, File No. 1-9447).
4.23 Senior Subordinated Intercompany Note between KACC and
KAC dated March 17, 1994 (incorporated by reference to
Exhibit 4.23 to Form 10-K for the period ended December
31, 1993, filed by KAC, File No. 1-9447).
4.24 Senior Subordinated Intercompany Note between KACC and
KAC dated June 30, 1993 (incorporated by reference to
Exhibit 4.24 to Form 10-K for the period ended December
31, 1993, filed by KAC, File No. 1-9447).
KACC has not filed certain long-term debt instruments
not being registered with the Securities and Exchange
Commission where the total amount of indebtedness
authorized under any such instrument does not exceed
10% of the total assets of KACC and its subsidiaries on
a consolidated basis. KACC agrees and undertakes to
furnish a copy of any such instrument to the Securities
and Exchange Commission upon its request.
10.1 Form of indemnification agreement with officers and
directors (incorporated by reference to Exhibit (10)(b)
to the Registration Statement of KAC on Form S-4, File
No. 33-12836).
10.2 Tax Allocation Agreement between MAXXAM and KACC
(incorporated by reference to Exhibit 10.21 to
Amendment No. 6 to the Registration Statement on Form
S-1, dated December 14, 1989, filed by KACC,
Registration No. 33-30645).
10.3 Tax Allocation Agreement between KAC and MAXXAM
(incorporated by reference to Exhibit 10.23 to
Amendment No. 2 to the Registration Statement on Form
S-1, dated June 11, 1991, filed by KAC, Registration
No. 33-37895).
10.4 Tax Allocation Agreement, dated as of June 30, 1993,
between KAC and KACC (incorporated by reference to
Exhibit 10.3 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC,
File No. 1-3605).
10.5 Amended and Restated Alumina Supply Agreement, dated as
of October 11, 1989 (incorporated by reference to
Exhibit 10.19 to Amendment No. 3 to the Registration
Statement on Form S-1, dated November 14, 1989, filed
by KACC, Registration No. 33-30645).
10.6 Assumption Agreement, dated as of October 28, 1988
(incorporated by reference to Exhibit HHH to the Final
Amendment to the Schedule 13D of MAXXAM Group Inc. and
others in respect of the Common Stock of KAC, par value
$.33-1/3 per share).
- 75 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
Exhibit
Number Description
- ------ -----------
10.7 Agreement, dated as of June 30, 1993, between KAC and
MAXXAM (incorporated by reference to Exhibit 10.2 to
the Report on Form 10-Q for the quarterly period ended
June 30, 1993, filed by KACC, File No. 1-3605).
Executive Compensation Plans and Arrangements
---------------------------------------------
10.8 KACC's Bonus Plan (incorporated by reference to Exhibit
10.25 to Amendment No. 6 to the Registration Statement
on Form S-1, dated December 14, 1989, filed by KACC,
Registration No. 33-30645).
10.9 KaiserTech Limited Long Term Incentive Plan, dated June
2, 1989 (incorporated by reference to Exhibit 10.14 to
Form 10-K for the period ended December 31, 1989, filed
by KACC, File No. 1-3605).
10.10 Amendment No. 2 to KaiserTech Limited Long Term
Incentive Plan, dated as of December 18, 1991
(incorporated by reference to Exhibit 10.7 to Form 10-K
for the period ended December 31, 1991, filed by KACC,
File No. 1-3605).
10.11 Amendment No. 3 to Kaiser Aluminum Long Term Incentive
Plan, dated as of December 31, 1991 (incorporated by
reference to Exhibit 10.8 to Form 10-K for the period
ended December 31, 1991, filed by KACC, File No.
1-3605).
10.12 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Report on Form 10-Q
for the quarterly period ended June 30, 1993, filed by
KACC, File No. 1-3605).
10.13 Kaiser Aluminum Middle Management Long-Term Incentive
Plan, dated June 25, 1990, as amended (incorporated by
reference to Exhibit 10.22 to Amendment No. 1 to the
Registration Statement on Form S-1, dated February 13,
1991, filed by KAC, Registration No. 33-37895).
10.14 Employment Agreement, dated April 1, 1993, among KAC,
KACC, and George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10.2 to the Report on Form 10-Q
for the quarterly period ended March 31, 1993, filed by
KAC, File No. 1-9447).
10.15 Employment Agreement, dated as of October 1, 1992,
among KACC, KAC and A. Stephens Hutchcraft, Jr.
(incorporated by reference to Exhibit 10.15 to
Amendment No. 5 to the Registration Statement on Form
S-2, dated January 22, 1993, filed by KACC,
Registration No. 33-48260).
10.16 Severance Agreement, dated July 1, 1985, between KACC
and A. Stephens Hutchcraft, Jr., as amended
(incorporated by reference to Exhibit (10)(f) to Form
10-K for the period ended December 31, 1988, filed by
KACC, File No. 1-3605).
10.17 Amendment, dated October 31, 1989, to the Severance
Agreement of A. Stephens Hutchcraft, Jr. referenced in
Exhibit 10.16 above (incorporated by reference to
Exhibit 10.24 to Amendment No. 5 to the Registration
Statement on Form S-1, dated December 13, 1989, filed
by KACC, Registration No. 33-30645).
- 76 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
Exhibit
Number Description
- ------ -----------
10.18 Consulting Agreement, dated November 19, 1993 between
KACC and A. Stephens Hutchcraft, Jr. (incorporated
herein by reference to MAXXAM's Annual Report on Form
10-K for the period ended December 31, 1993, File No.
1-3924; the "MAXXAM 1993 Form 10-K").
10.19 Employment Agreement, dated September 26, 1990, between
KACC, MAXXAM and John T. La Duc (incorporated by
reference to Exhibit 10.20 to Amendment No. 1 to the
Registration Statement on Form S-1, dated February 13,
1991, filed by KAC, Registration No. 33-37895).
10.20 Employment Agreement, dated as of August 22, 1990,
among KACC, MAXXAM and Robert W. Irelan (incorporated
by reference to Exhibit 10.2 of the Report on Form 10-Q
for the quarterly period ended March 31, 1991, filed by
KACC, File No. 1-3605).
10.21 Promissory Note, dated October 4, 1990, by Robert W.
Irelan and Barbara M. Irelan to KACC (incorporated by
reference to Exhibit 10.54 to Form 10-K for the period
ended December 31, 1990, filed by MAXXAM, File No.
1-3924).
10.22 Real Estate Lien Note, dated October 4, 1990, by Robert
W. Irelan and Barbara M. Irelan to KACC and related
Deed of Trust (incorporated by reference to Exhibit
10.55 to Form 10-K for the period ended December 31,
1990, filed by MAXXAM, File No. 1-3924).
10.23 Employment Agreement, dated as of March 8, 1990,
between MAXXAM and Anthony R. Pierno (incorporated by
reference to Exhibit 10.28 to Form 10-K for the period
ended December 31, 1990, filed by MAXXAM, File No.
1-3924).
10.24 Promissory Note dated February 1, 1989, by Anthony R.
Pierno and Beverly J. Pierno to MAXXAM (incorporated by
reference to Exhibit 10.30 to Form 10-K for the period
ended December 31, 1988, filed by MAXXAM, File No.
1-3924).
10.25 Promissory Note, dated July 19, 1990, by Anthony R.
Pierno to MAXXAM (incorporated by reference to Exhibit
10.31 to Form 10-K for the period ended December 31,
1990, filed by MAXXAM, File No. 1-3924).
10.26 Commercial Guaranty, dated February 22, 1993, executed
by MAXXAM in favor of Charter National Bank-Houston
with respect to a loan from Charter National Bank-
Houston to Anthony R. Pierno (incorporated by reference
to Exhibit 10.27 to Form 10-K for the period ended
December 31, 1992, filed by KAC, File No. 1-9447).
10.27 Commercial Guaranty, dated January 24, 1994, between
MAXXAM and Charter National Bank-Houston, in respect of
a loan from Charter National Bank-Houston to Anthony R.
Pierno and a related letter agreement (incorporated
herein by reference to the MAXXAM 1993 Form 10-K).
- 77 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
Exhibit
Number Description
- ------ -----------
10.28 Employment Agreement, dated as of March 8, 1990,
between MAXXAM and Byron L. Wade (incorporated by
reference to Exhibit 10.50 to Form 10-K for the period
ended December 31, 1990, filed by MAXXAM, File No.
1-3924).
10.29 Promissory Note, dated July 20, 1993, between MAXXAM
and Byron L. Wade (incorporated herein by reference to
the MAXXAM 1993 Form 10-K).
10.30 Employment Agreement, dated as of July 1, 1991, by and
among MAXXAM, KACC and Joseph A. Bonn (incorporated by
reference to Exhibit 10.23 to Form 10-K for the period
ended December 31, 1991, filed by KACC, File No.
1-3605).
10.31 Agreement, dated December 20, 1991, between KAC and
Joseph A. Bonn (incorporated by reference to Exhibit
10.3 to the Report on Form 10-Q for the quarterly
period ended March 31, 1992, filed by KACC, File No.
1-3605).
10.32 Employment Agreement, dated August 20, 1993, between
KACC and Robert E. Cole (incorporated by reference to
the MAXXAM 1993 Form 10-K).
*21 Significant subsidiaries of KACC.
- -----------------
*Filed herewith.
- 78 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
Exhibit 21
SUBSIDIARIES
Listed below are the principal subsidiaries of Kaiser Aluminum &
Chemical Corporation and the jurisdiction of their incorporation
or organization. Certain subsidiaries are omitted which,
considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
Place of
Incorporation
Name or Organization
---- ---------------
Alpart Jamaica Inc . .. . .. . .. . .. . .. Delaware
Alumina Partners of Jamaica (partnership). Delaware
Anglesey Aluminium Limited.. . .. . .. . . United Kingdom
Kaiser Alumina Australia Corporation.. . . Delaware
Kaiser Aluminium Europe (U.K.) Limited . .. United Kingdom
Kaiser Aluminium International, Inc... . . Delaware
Kaiser Aluminum & Chemical
International N.V... . .. . .. . .. . .. Netherlands
Antilles
Kaiser Aluminum & Chemical of Canada Limited. Ontario
Kaiser Aluminum Technical Services, Inc. .. California
Kaiser Bauxite Company. . .. . .. . .. . .. Nevada
Kaiser Center, Inc.. .. . .. . .. . .. . .. California
Kaiser Center Properties (partnership) . .. California
Kaiser Finance Corporation . . .. . .. . .. Delaware
Kaiser Jamaica Bauxite Company (partnership) Jamaica
Kaiser Jamaica Corporation.. . .. . .. . . Delaware
Queensland Alumina Limited.. . .. . .. . . Queensland
Strombus International Insurance Company,
Ltd.. .. . .. . .. . .. . .. . .. . .. Bermuda
Trochus Insurance Company, Ltd... . .. . . Bermuda
Volta Aluminium Company Limited.. . .. . . Ghana
- 79 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
PRODUCTION AND RESEARCH FACILITIES
(100% owned unless otherwise noted)
Alumina and Bauxite Fabricated Products
Gramercy, Louisiana Flat Rolled Products
Alumina Partners of Jamaica --------------------
(Alpart), Jamaica (65%) Trentwood, Washington
Kaiser Jamaica Bauxite Company (KJBC),
Jamaica (49%) Extruded Products
Queensland Alumina Limited (QAL), -----------------
Australia (28.3%) including Rod and Bar
Alumina Development Laboratory, ---------------------
Gramercy, Louisiana Jackson, Tennessee
Los Angeles, California
Santa Fe Springs,
Primary Products California
Newark, Ohio
Mead, Washington Sherman, Texas
Tacoma, Washington Tulsa, Oklahoma
Anglesey Aluminium Limited, Kaiser Aluminum &
Wales (49%) Chemical of Canada
Volta Aluminium Company Limited,London,
Limited (Valco), Ontario, Canada
Ghana (90%)
Division Technology Center, Forgings
Mead, Washington --------
Alliance, Ohio
Canton, Ohio
Center for Technology Erie, Pennsylvania
Greenwood, South
Pleasanton, California Carolina, Forge
Greenwood, South
Carolina, Machine
Shop
Oxnard, California
- 80 -
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------
Executive Offices Directors
6177 Sunol Boulevard Charles E. Hurwitz
Pleasanton, CA, 94566-7769 George T. Haymaker, Jr.
510/462-1122 Robert J. Cruikshank
Ezra G. Levin
Robert Marcus
Paul D. Rusen
Auditors
Arthur Andersen & Co.
Spear Street Tower Corporate Officers and
One Market Plaza Business Unit Managers
San Francisco, CA 94105-1019
George T. Haymaker, Jr.
Chairman of the Board and
Chief Executive Officer
Charlie Alongi
Controller
Joseph A. Bonn
Vice President, Planning and
Administration
Robert E. Cole
Vice President, Government
Affairs
John E. Daniel
Vice President, Primary
Aluminum Products
Richard B. Evans
Vice President, Flat-Rolled
Products
Robert W. Irelan
Vice President, Public
Relations
John T. La Duc
Vice President and Chief
Financial Officer
James T. Owen
Vice President, Extruded
Products/Rod and Bar
Joseph Peganoff
Vice President, Forgings
Anthony R. Pierno
Vice President and General
Counsel
Geoffrey W. Smith
Vice President, Alumina
Kris S. Vasan
Treasurer
Byron L. Wade
Vice President, Secretary
and Deputy General Counsel
Lawrence L. Watts
Vice President, Alumina
- 81 -