KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
R E P O R T O F I N D E P E N D E N T P U B L I C
A C C O U N T A N T S
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, 1998 and 1997, and the related
statements of consolidated income (loss) and cash flows for each of
the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements 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,
1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
February 28, 1999
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
C O N S O L I D A T E D B A L A N C E S H E E T S
DECEMBER 31,
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(In millions of dollars, except share amounts) 1998 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 98.3 $ 15.8
Receivables:
Trade, less allowance for doubtful receivables of $6.2 in
1998 and $5.8 in 1997 170.1 232.9
Other 118.1 112.4
Inventories 543.5 568.3
Prepaid expenses and other current assets 104.9 121.3
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Total current assets 1,034.9 1,050.7
Investments in and advances to unconsolidated affiliates 128.3 148.6
Property, plant, and equipment - net 1,108.7 1,171.8
Deferred income taxes 376.9 329.0
Other assets 346.0 317.2
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Total $ 2,994.8 $ 3,017.3
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 173.3 $ 176.2
Accrued interest 37.3 37.6
Accrued salaries, wages, and related expenses 73.8 97.9
Accrued postretirement medical benefit obligation - current
portion 48.2 45.3
Other accrued liabilities 150.2 145.9
Payable to affiliates 75.3 82.4
Long-term debt - current portion .4 8.8
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Total current liabilities 558.5 594.1
Long-term liabilities 533.0 492.0
Accrued postretirement medical benefit obligation 694.3 720.3
Long-term debt 962.6 962.9
Minority interests 101.9 98.4
Redeemable preference stock - aggregate liquidation value of $21.1 in
1998 and $27.8 in 1997 20.1 27.7
Commitments and contingencies
Stockholders' equity:
Preference stock - cumulative and convertible, par value $100,
authorized 1,000,000 shares, issued and outstanding, 19,963
and 20,543 in 1998 and 1997 1.5 1.6
Common stock, par value 33-1/3 cents, authorized 100,000,000
shares; issued and outstanding, 46,171,365 15.4 15.4
Additional capital 2,052.8 1,939.8
Accumulated deficit (151.2) (152.3)
Note receivable from parent (1,794.1) (1,682.6)
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Total stockholders' equity 124.4 121.9
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Total $ 2,994.8 $ 3,017.3
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The accompanying notes to consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
S T A T E M E N T S O F C O N S O L I D A T E D I N C O M E
( L O S S )
Year Ended December 31,
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(In millions of dollars) 1998 1997 1996
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Net sales $ 2,256.4 $ 2,373.2 $ 2,190.5
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Costs and expenses:
Cost of products sold 1,906.2 1,951.2 1,857.5
Depreciation and amortization 99.1 102.5 107.6
Selling, administrative, research and development,
and general 115.1 129.9 125.3
Impairment of Micromill(TM) assets/restructuring of
operations 45.0 19.7 -
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Total costs and expenses 2,165.4 2,203.3 2,090.4
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Operating income 91.0 169.9 100.1
Other income (expense):
Interest expense (110.0) (110.7) (93.4)
Other - net 3.5 2.8 (2.6)
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Income (loss) before income taxes and minority interests (15.5) 62.0 4.1
Benefit (provision) for income taxes 16.4 (9.4) 8.4
Minority interests 1.8 (.5) .7
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Net income $ 2.7 $ 52.1 $ 13.2
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The accompanying notes to consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
S T A T E M E N T S O F C O N S O L I D A T E D C A S H F L O W S
Year Ended December 31,
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(In millions of dollars) 1998 1997 1996
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Cash flows from operating activities:
Net income $ 2.7 $ 52.1 $ 13.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization (including deferred
financing costs) 103.0 108.6 113.2
Impairment of Micromill assets/restructuring of
operations 45.0 19.7 -
Non-cash benefit for income taxes (8.3) (12.5) -
Equity in (income) loss of unconsolidated affiliates,
net of distributions .1 7.8 3.0
Minority interests (1.8) .5 (.7)
Decrease (increase) in receivables 61.0 (94.0) 50.2
Decrease (increase) in inventories 24.8 (9.3) (36.5)
Decrease (increase) in prepaid expenses and other
assets 2.4 7.9 (39.4)
(Decrease) increase in accounts payable and accrued
interest (3.2) (11.1) 8.4
Decrease in payable to affiliates and accrued
liabilities (41.4) (19.6) (62.8)
Decrease in accrued and deferred income taxes (26.2) (16.8) (35.7)
Other 13.1 12.3 10.0
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Net cash provided by operating activities 171.2 45.6 22.9
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Cash flows from investing activities:
Additions to property, plant, and equipment (77.6) (128.5) (161.5)
Other 3.2 19.9 17.2
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Net cash used for investing activities (74.4) (108.6) (144.3)
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Cash flows from financing activities:
Repayments under revolving credit facility, net - - (13.1)
Borrowings of long-term debt - 19.0 225.9
Repayments of long-term debt (8.9) (8.8) (9.0)
Net payments to parent - (4.2) (10.7)
Incurrence of financing costs (.6) (.9) (6.2)
Dividends paid (.6) (.6) (.7)
Capital contributions .1 .3 .1
Redemption of preference stock (8.7) (2.1) (5.3)
Decrease (increase) in restricted cash, net 4.4 (5.2) -
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Net cash (used for) provided by financing
activities (14.3) (2.5) 181.0
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Net increase (decrease) in Cash and cash equivalents during the year 82.5 (65.5) 59.6
Cash and cash equivalents at beginning of year 15.8 81.3 21.7
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Cash and cash equivalents at end of year $ 98.3 $ 15.8 $ 81.3
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Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 106.3 $ 102.7 $ 84.2
Income taxes paid 13.5 22.6 20.0
Tax allocation payments to Kaiser Aluminum Corporation 3.3 1.8 2.7
Tax allocation payments to MAXXAM Inc. - 11.8 1.1
The accompanying notes to consolidated financial statements are an
integral part of these statements.