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, 1997 and 1996, and the related statements of
consolidated income and cash flows for each of the three years in the
period ended December 31, 1997. 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, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
February 16, 1998
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
December 31,
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(In millions of dollars) 1997 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 15.8 $ 81.3
Receivables:
Trade, less allowance for doubtful receivables of
$5.8 in 1997 and $4.7 in 1996 232.9 177.9
Other 112.4 77.7
Inventories 568.3 562.2
Prepaid expenses and other current assets 121.3 127.8
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Total current assets 1,050.7 1,026.9
Investments in and advances to unconsolidated affiliates 148.6 168.4
Property, plant, and equipment - net 1,171.8 1,168.7
Deferred income taxes 329.0 263.3
Other assets 317.2 308.6
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Total $ 3,017.3 $ 2,935.9
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 176.2 $ 189.3
Accrued interest 37.6 35.6
Accrued salaries, wages, and related expenses 97.9 95.4
Accrued postretirement medical benefit obligation -
current portion 45.3 50.1
Other accrued liabilities 145.9 132.8
Payable to affiliates 82.4 96.9
Long-term debt - current portion 8.8 8.9
Note payable to parent - current portion - 8.6
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Total current liabilities 594.1 617.6
Long-term liabilities 492.0 458.1
Accrued postretirement medical benefit obligation 720.3 722.5
Long-term debt 962.9 953.0
Minority interests 98.4 92.5
Redeemable preference stock - aggregate liquidation value
of $27.8 in 1997 and $31.7 in 1996 27.7 27.5
Commitments and contingencies
Stockholders' equity:
Preference stock - cumulative and convertible, par
value $100, authorized 1,000,000 shares, issued
and outstanding, 20,543 and 21,630 in 1997 and
1996 1.6 1.7
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 1,939.8 1,829.8
Accumulated deficit (152.3) (201.3)
Additional minimum pension liability - (2.8)
Note receivable from parent (1,682.6) (1,578.1)
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Total stockholders' equity 121.9 64.7
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Total $ 3,017.3 $ 2,935.9
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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
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31,
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(In millions of dollars) 1997 1996 1995
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Net sales $ 2,373.2 $ 2,190.5 $ 2,237.8
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Costs and expenses:
Cost of products sold 1,962.6 1,869.1 1,798.4
Depreciation 91.1 96.0 94.3
Selling, administrative, research and development,
and general 129.9 125.3 134.0
Restructuring of operations 19.7 - -
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Total costs and expenses 2,203.3 2,090.4 2,026.7
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Operating income 169.9 100.1 211.1
Other income (expense):
Interest expense (110.7) (93.4) (93.9)
Other - net 2.8 (2.6) (14.1)
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Income before income taxes and minority interests 62.0 4.1 103.1
(Provision) credit for income taxes (9.4) 8.4 (37.4)
Minority interests (.5) .7 (.4)
-------------- -------------- --------------
Net income $ 52.1 $ 13.2 $ 65.3
============== ============== ==============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31,
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(In millions of dollars) 1997 1996 1995
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Cash flows from operating activities:
Net income $ 52.1 $ 13.2 $ 65.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 91.1 96.0 94.3
Restructuring of operations 19.7 - -
Non-cash benefit for income taxes (12.5) - -
Amortization of excess investment over equity
in unconsolidated affiliates 11.4 11.6 11.4
Amortization of deferred financing costs and
net discount on long-term debt 6.1 5.6 5.4
Undistributed equity in (income) losses of
unconsolidated affiliates, net of
distributions 7.8 3.0 (19.2)
Minority interests .5 (.7) .4
(Increase) decrease in receivables (87.8) 50.2 (110.0)
Increase in inventories (9.3) (36.5) (57.7)
Decrease (increase) in prepaid expenses and
other assets 1.7 (39.4) 82.9
(Decrease) increase in accounts payable (13.1) 4.8 32.4
Increase (decrease) in accrued interest 2.0 3.6 (.6)
(Decrease) increase in payable to affiliates
and accrued liabilities (19.6) (62.8) 10.6
Decrease in accrued and deferred income taxes (16.8) (35.7) (7.2)
Other 12.3 10.0 11.5
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Net cash provided by operating
activities 45.6 22.9 119.5
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Cash flows from investing activities:
Additions to property, plant, and equipment (128.5) (161.5) (88.4)
Other 19.9 17.2 8.6
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Net cash used for investing activities (108.6) (144.3) (79.8)
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Cash flows from financing activities:
Borrowings (repayments) under revolving credit
facility, net - (13.1) 6.4
Borrowings of long-term debt 19.0 225.9 -
Repayments of long-term debt (8.8) (9.0) (11.8)
Net payments to parent (4.2) (10.7) (15.5)
Incurrence of financing costs (.9) (6.2) (.8)
Dividends paid (.6) (.7) (.7)
Capital contributions .3 .1 1.2
Redemption of preference stock (2.1) (5.3) (8.8)
Increase in restricted cash, net (5.2) - -
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Net cash (used for) provided by
financing activities (2.5) 181.0 (30.0)
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Net (decrease) increase in cash and cash equivalents during
the year (65.5) 59.6 9.7
Cash and cash equivalents at beginning of year 81.3 21.7 12.0
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Cash and cash equivalents at end of year $ 15.8 $ 81.3 $ 21.7
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Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 102.7 $ 84.2 $ 88.8
Income taxes paid 24.4 22.7 35.7
Tax allocation payments to Kaiser Aluminum Corporation 1.8 2.7 3.2
Tax allocation payments to MAXXAM Inc. 11.8 1.1 -
The accompanying notes to consolidated financial statements are an integral
part of these statements.