KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Stockholders and the Board of Directors of Kaiser Aluminum Corporation:
We have audited the accompanying consolidated balance sheets of Kaiser Aluminum
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related statements of consolidated income (loss) and cash
flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 7, 2000
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
-------------------------
(In millions of dollars, except share amounts) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 21.2 $ 98.3
Receivables:
Trade, less allowance for doubtful receivables of $5.9 in 1999 and $6.2 in 1998 154.1 170.1
Other 106.9 112.6
Inventories 546.1 543.5
Prepaid expenses and other current assets 145.6 105.5
---------- ----------
Total current assets 973.9 1,030.0
Investments in and advances to unconsolidated affiliates 96.9 128.3
Property, plant, and equipment - net 1,053.7 1,108.7
Deferred income taxes 440.0 377.9
Other assets 634.3 346.0
---------- ----------
Total $ 3,198.8 $ 2,990.9
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 231.7 $ 173.3
Accrued interest 37.7 37.3
Accrued salaries, wages, and related expenses 62.1 73.8
Accrued postretirement medical benefit obligation - current portion 51.5 48.2
Other accrued liabilities 168.8 148.3
Payable to affiliates 85.8 77.1
Long-term debt - current portion .3 .4
---------- ----------
Total current liabilities 637.9 558.4
Long-term liabilities 727.1 532.9
Accrued postretirement medical benefit obligation 678.3 694.3
Long-term debt 972.5 962.6
Minority interests 117.7 123.5
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01, authorized 125,000,000 shares; issued and
outstanding, 79,405,333 and 79,153,543 in 1999 and 1998 .8 .8
Additional capital 536.8 535.4
Accumulated deficit (471.1) (417.0)
Accumulated other comprehensive income - additional minimum pension liability (1.2) -
---------- ----------
Total stockholders' equity 65.3 119.2
---------- ----------
Total $ 3,198.8 $ 2,990.9
========== ==========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</FN>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
- --------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------
(In millions of dollars, except share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $ 2,044.3 $ 2,256.4 $ 2,373.2
---------- ---------- ----------
Costs and expenses:
Cost of products sold 1,859.2 1,906.2 1,951.2
Depreciation and amortization 89.5 99.1 102.5
Selling, administrative, research and development, and general 105.4 115.5 131.8
Non-cash impairment of Micromill assets/restructuring of operations 19.1 45.0 19.7
---------- ---------- ----------
Total costs and expenses 2,073.2 2,165.8 2,205.2
---------- ---------- ----------
Operating income (loss) (28.9) 90.6 168.0
Other income (expense):
Interest expense (110.1) (110.0) (110.7)
Gain on involuntary conversion at Gramercy facility 85.0 - -
Other - net (35.9) 3.5 3.0
---------- ---------- ----------
Income (loss) before income taxes and minority interests (89.9) (15.9) 60.3
Benefit (provision) for income taxes 32.7 16.4 (8.8)
Minority interests 3.1 .1 (3.5)
---------- ---------- ----------
Net income (loss) (54.1) .6 48.0
Dividends on preferred stock - - (5.5)
Net income (loss) available to common shareholders $ (54.1) $ .6 $ 42.5
========== ========== ==========
Earnings (loss) per share:
Basic $ (.68) $ .01 $ .57
========== ========== ==========
Diluted $ (.68) $ .01 $ .57
========== ========== ==========
Weighted average shares outstanding (000):
Basic 79,336 79,115 74,221
========== ========== ==========
Diluted 79,336 79,156 74,382
========== ========== ==========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</FN>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
(In millions of dollars) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (54.1) $ .6 $ 48.0
Adjustments to reconcile net income to net cash (used) provided by operating
activities:
Depreciation and amortization (including deferred financing costs of
$4.3, $3.9, and $6.1) 93.8 103.0 108.6
Non-cash impairment of Micromill assets/restructuring of operations 19.1 45.0 19.7
Gain on involuntary conversion at Gramercy facility (85.0) - -
Gain on sale of interest in AKW joint venture (50.5) - -
Non-cash benefit for income taxes - (8.3) (12.5)
Equity in (income) loss of unconsolidated affiliates, net of distributions (4.9) .1 7.8
Minority interests (3.1) (.1) 3.5
Decrease (increase) decrease in receivables 21.7 61.5 (92.1)
(Increase) decrease in inventories (2.6) 24.8 (9.3)
(Increase) decrease in prepaid expenses and other current assets (66.9) 30.1 (10.1)
Increase (decrease) in accounts payable and accrued interest 58.8 (3.2) (11.5)
Increase (decrease) in payable to affiliates and other accrued liabilities 19.6 (45.3) (23.9)
Decrease in accrued and deferred income taxes (55.2) (26.2) (17.4)
Increase (decrease) in net long-term assets and liabilities 15.7 (23.9) 28.6
Other 3.0 12.6 5.6
--------- -------- ---------
Net cash (used) provided by operating activities (90.6) 170.7 45.0
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of interest in AKW joint venture 70.4 - -
Additions to property, plant, and equipment (68.4) (77.6) (128.5)
Other 1.1 3.2 19.9
--------- -------- ---------
Net cash provided (used) by investing activities 3.1 (74.4) (108.6)
--------- -------- ---------
Cash flows from financing activities:
Borrowings under credit agreement, net 10.4 - -
Borrowings of long-term debt - - 19.0
Repayments of long-term debt (.6) (8.9) (8.8)
Capital stock issued 1.4 .1 .4
Decrease (increase) in restricted cash, net .8 4.3 (5.3)
Incurrence of financing costs - (.6) (.9)
Preferred stock dividends paid - - (4.2)
Redemption of minority interests' preference stock (1.6) (8.7) (2.1)
--------- -------- ---------
Net cash provided (used) by financing activities 10.4 (13.8) (1.9)
Net (decrease) increase in Cash and cash equivalents during the year (77.1) 82.5 (65.5)
Cash and cash equivalents at beginning of year 98.3 15.8 81.3
--------- -------- ---------
Cash and cash equivalents at end of year $ 21.2 $ 98.3 $ 15.8
========= ======== =========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 105.4 $ 106.3 $ 102.7
Income taxes paid 24.1 16.8 24.4
Tax allocation payments to MAXXAM Inc. - - 11.8
<FN>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</FN>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(In millions of dollars, except share amounts)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the statements of Kaiser Aluminum
Corporation ("Kaiser" or the "Company") and its majority owned subsidiaries. The
Company is a subsidiary of MAXXAM Inc. ("MAXXAM") and conducts its operations
through its wholly-owned subsidiary, Kaiser Aluminum & Chemical Corporation
("KACC"). KACC operates in all principal aspects of the aluminum industry-the
mining of bauxite (the major aluminum bearing ore), the refining of bauxite into
alumina (the intermediate material), the production of primary aluminum, and the
manufacture of fabricated and semi-fabricated aluminum products. Kaiser's
production levels of alumina, before consideration of the Gramercy incident (see
Note 2), and primary aluminum exceed its internal processing needs, which allows
it to be a major seller of alumina and primary aluminum to domestic and
international third parties (see Note 12).
The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities known to exist as of the date the financial statements are
published, and the reported amounts of revenues and expenses during the
reporting period. Uncertainties, with respect to such estimates and assumptions,
are inherent in the preparation of the Company's consolidated financial
statements; accordingly, it is possible that the actual results could differ
from these estimates and assumptions, which could have a material effect on the
reported amounts of the Company's consolidated financial position and results of
operation.
Investments in 50%-or-less-owned entities are accounted for primarily by the
equity method. Intercompany balances and transactions are eliminated.
Certain reclassifications of prior-year information were made to conform to the
current presentation.
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 value. 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:
December 31,
--------------------------
1999 1998
- --------------------------------------------------------------------------------
Finished fabricated products $ 118.5 $ 112.4
Primary aluminum and work in process 189.4 205.6
Bauxite and alumina 124.1 109.5
Operating supplies and repair and
maintenance parts 114.1 116.0
----------- ----------
$ 546.1 $ 543.5
=========== ==========
DEPRECIATION
Depreciation is computed principally by the straight-line method at rates based
on the estimated useful lives of the various classes of assets. The principal
estimated useful lives of land improvements, buildings, and machinery and
equipment are 8 to 25 years, 15 to 45 years, and 10 to 22 years, respectively.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value method to account for a stock-based
compensation plan whereby compensation cost is recognized only to the extent
that the quoted market price of the stock at the measurement date exceeds the
amount an employee must pay to acquire the stock. No compensation cost has been
recognized for this plan as the exercise price of the stock options granted in
1999, 1998 and 1997 were at or above the market price (see Note 7).
OTHER INCOME (EXPENSE)
Other expense in 1999, 1998, and 1997, includes $53.2, $12.7, and $8.8, of
pre-tax charges related principally to establishing additional litigation
reserves for asbestos claims net of estimated aggregate insurance recoveries
pertaining to operations which were discontinued prior to the acquisition of the
Company by MAXXAM in 1988. Other expense in 1999 also includes $32.8 of pre-tax
charges to reflect mark-to-market adjustments on certain primary aluminum
hedging transactions and a net pre-tax gain of $50.5 on the sale of the
Company's 50% interest in AKW L.P. (see Note 3). Other income in 1998 includes
$12.0 attributable to insurance recoveries related to certain incurred
environmental costs (see Note 10).
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.
DERIVATIVE FINANCIAL INSTRUMENTS
Hedging transactions using derivative financial instruments are primarily
designed to mitigate KACC's exposure to changes in prices for certain of the
products which KACC sells and consumes and, to a lesser extent, to mitigate
KACC's exposure to changes in foreign currency exchange rates. KACC does not
utilize derivative financial instruments for trading or other speculative
purposes. KACC's derivative activities are initiated within guidelines
established by management and approved by KACC's and the Company's boards of
directors. Hedging transactions are executed centrally on behalf of all of
KACC's business segments to minimize transaction costs, monitor consolidated net
exposures and allow for increased responsiveness to changes in market factors.
Most of KACC's hedging activities involve the use of option contracts (which
establish a maximum and/or minimum amount to be paid or received) and forward
sales contracts (which effectively fix or lock-in the amount KACC will pay or
receive). Option contracts typically require the payment of an up-front premium
in return for the right to receive the amount (if any) by which the price at the
settlement date exceeds the strike price. Any interim fluctuations in prices
prior to the settlement date are deferred until the settlement date of the
underlying hedged transaction, at which point they are reflected in net sales or
cost of sales (as applicable) together with the related premium cost. Forward
sales contracts do not require an up-front payment and are settled by the
receipt or payment of the amount by which the price at the settlement date
varies from the contract price. No accounting recognition is accorded to interim
fluctuations in prices of forward sales contracts.
KACC has established margin accounts and credit limits with certain
counterparties related to open forward sales and option contracts. When
unrealized gains or losses are in excess of such credit limits, KACC is entitled
to receive advances from the counterparties on open positions or is required to
make margin advances to counterparties, as the case may be. At December 31,
1999, KACC had made margin advances of $38.0 and had posted letters of credit
totaling $40.0 in lieu of paying margin advances. At December 31, 1998, KACC had
received $9.9 of margin advances. Increases in primary aluminum prices
subsequent to December 31, 1999, could result in KACC having to make additional
margin advances or post additional letters of credit and such amounts could be
significant. Management considers credit risk related to possible failure of the
counterparties to perform their obligations pursuant to the derivative contracts
to be minimal.
Deferred gains or losses as of December 31, 1999, are included in Prepaid
expenses and other current assets and Other accrued liabilities (see Note 11).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of its outstanding indebtedness to be
$970.5 and $950.0 at December 31, 1999 and 1998, respectively, based on quoted
market prices for KACC's 97/8% Senior Notes due 2002 (the "97/8% Notes"), 12
3/4% Senior Subordinated Notes due 2003 (the "12 3/4% Notes"), and 107/8% Senior
Notes due 2006 (the "107/8% Notes"), and the discounted future cash flows for
all other indebtedness, using the current rate for debt of similar maturities
and terms. The Company believes that the carrying amount of other financial
instruments is a reasonable estimate of their fair value, unless otherwise
noted.
EARNINGS PER SHARE
Basic - Earnings per share is computed by deducting preferred stock dividends
from net income (loss) in order to determine net income (loss) available to
common shareholders. This amount is then divided by the weighted average number
of common shares outstanding during the period, including the weighted average
impact of the shares of common stock issued during the year from the date(s) of
issuance.
Diluted - The impact of outstanding stock options was excluded from the
computation of Diluted loss per share for the year ended December 31, 1999, as
its effect would have been antidilutive. Diluted earnings per share for the
years ended December 31, 1998 and 1997, include the dilutive effect of
outstanding stock options (41,000 and 161,000 shares, respectively).
LABOR RELATED COSTS
The Company is currently operating five of its U.S. facilities with salaried
employees and other workers as a result of the September 30, 1998, strike by the
United Steelworkers of America ("USWA") and the subsequent "lock-out" by the
Company in January 1999. However, the Company has continued to accrue certain
benefits (such as pension and other postretirement benefit costs/liabilities),
for the USWA members during the period of the strike and subsequent lock-out.
For purposes of computing the benefit-related costs and liabilities to be
reflected in the accompanying consolidated financial statements for the year
ended December 31, 1999, the Company has based its accruals on the terms of the
previously existing (expired) USWA contract. Any differences between the amounts
accrued and the amounts ultimately agreed to during the collective bargaining
process will be reflected in future results during the term of any new contract.
All incremental operating costs incurred as a result of the USWA strike and
subsequent lockout are being expensed as incurred. During 1998, such costs were
substantial, totaling approximately $50.0. The Company's 1998 results also
reflect reduced profitability of approximately $10.0 resulting from the
strike-related curtailment of three potlines (representing approximately 70,000
tons* of annual capacity) at the Company's Mead and Tacoma, Washington, smelters
and certain other shipment delays experienced at the other affected facilities
at the outset of the USWA strike. During 1999, strike related costs were
virtually eliminated except for the restart costs of approximately $12.8
associated with restarting potlines at the Company's smelters and the impact of
reduced volume.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize
all derivative instruments as assets or liabilities in the balance sheet and to
measure those instruments at fair value. Under SFAS No. 133, the Company will be
required to "mark-to-market" its hedging positions at each period-end in advance
of recording the physical transactions to which the hedges relate. Changes in
the fair value of the Company's open hedging positions will be reflected as an
increase or reduction in stockholders' equity through comprehensive income. The
impact of the changes in fair value of the Company's hedging positions will
reverse out of comprehensive income (net of any fluctuations in other "open"
positions) and will be reflected in traditional net income when the subsequent
physical transactions occur. Currently, the dollar amount of the Company's
comprehensive income adjustments is not significant so there is not a
significant difference between "traditional" net income and comprehensive
income. However, differences between comprehensive income and traditional net
income may become significant in future periods as SFAS No. 133 will result in
fluctuations in comprehensive income and stockholders' equity in periods of
price volatility, despite the fact that the Company's cash flow and earnings
will be "fixed" to the extent hedged. This result is contrary to the intent of
the Company's hedging program, which is to "lock-in" a price (or range of
prices) for products sold/used so that earnings and cash flows are subject to
reduced risk of volatility.
[FN]
- --------
*All references to tons in this report refer to metric tons of 2,204.6 pounds.
</FN>
Adoption of SFAS No. 133 was initially required on or before January 1, 2000.
However, in June 1999, the FASB issued SFAS No. 137 which delayed the
required implementation date of SFAS No. 133 to no later than January 1, 2001.
The Company is currently evaluating how and when to implement SFAS No. 133.
2. INCIDENT AT GRAMERCY FACILITY
On July 5, 1999, KACC's Gramercy, Louisiana alumina refinery was extensively
damaged by an explosion in the digestion area of the plant. Twenty-four
employees were injured in the incident, several of them severely. As a result of
the incident, alumina production at the facility was completely curtailed.
Production at the plant is currently expected to remain completely curtailed
until the third quarter of 2000 when KACC expects to begin partial production.
Based on current estimates, full production is expected to be achieved during
the first quarter of 2001 or shortly thereafter. KACC has received the
regulatory permit required to operate the plant once the facility is ready to
resume production.
The cause of the incident is under investigation by KACC and governmental
agencies. In January 2000, the U.S. Mine Safety and Health Administration
("MSHA") issued 21 citations in connection with its investigation of the
incident. The citations allege, among other things, that certain aspects of the
plant's operations were unsafe and that such mode of operation contributed to
the explosion. To date, no monetary penalty has been proposed by MSHA. Although
the Company expects that a fine will be levied, the Company cannot predict the
amount of any such fine(s). It is possible that other civil or criminal fines or
penalties could be levied against KACC. KACC has previously announced that it
disagrees with the substance of the citations and has challenged them. However,
as more fully explained below, based on what is known to date and discussions
with the Company's advisors, the Company believes that the financial impact of
this incident (in excess of insurance deductibles and self-retention provisions)
will be largely offset by insurance coverage. Deductibles and self-retention
provisions under the insurance coverage for the incident total $5.0, which
amounts have been charged to Cost of products sold in 1999.
KACC has significant amounts of insurance coverage related to the Gramercy
incident. KACC's insurance coverage has five separate components: property
damage, clean-up and site preparation, business interruption, liability and
workers' compensation. The insurance coverage components are discussed below.
Property Damage. KACC's insurance policies provide that KACC will be reimbursed
for the costs of repairing or rebuilding the damaged portion of the facility
using new materials of like kind and quality with no deduction for depreciation.
Based on discussions with the insurance carriers and their representatives and
third party engineering reports, KACC recorded a pretax gain of $85.0,
representing the difference between the minimum expected property damage
reimbursement amount and the net carrying value of the damaged property of
$15.0. The receivable attributable to the minimum expected property damage
reimbursement has been classified as a long-term item in Other assets, despite
the fact that substantially all such amounts are expected to be spent during
2000, as such proceeds will be invested in property, plant and equipment. The
overall impact of recognizing the gain will be a significant increase in
stockholders' equity and an increase in depreciation expense in future years
once production is restored.
Clean-up and Site Preparation. The Gramercy facility has incurred incremental
costs for clean up and other activities during 1999 and will continue to incur
such costs in 2000. These clean-up and site preparation activities have been
offset by accruals of approximately $14.0 for estimated insurance recoveries.
Business Interruption. KACC's insurance policies provide for the reimbursement
of specified continuing expenses incurred during the interruption period
plus lost profits (or less expected losses) plus other expenses incurred as
a result of the incident. Operations at the Gramercy facility and a sister
facility in Jamaica, which supplies bauxite to Gramercy, will continue to incur
operating expenses until production at the Gramercy facility is restored. KACC
will also incur increased costs as a result of agreements to supply certain of
Gramercy's major customers with alumina, despite the fact that KACC had declared
force majeure with respect to the contracts shortly after the incident. KACC is
purchasing alumina from third parties, in excess of the amounts of alumina
available from other KACC-owned facilities, to supply these customers' needs as
well as to meet intersegment requirements. In consideration of the foregoing
items, KACC recorded expected business interruption insurance recoveries
totaling $19.0 and $41.0 in the quarter and year ended December 31, 1999, as a
reduction of Cost of products sold, which amounts substantially offset actual
expenses incurred during these periods. Such business interruption insurance
amounts represent estimates of KACC's business interruption coverage based on
discussions with the insurance carriers and their representatives and are
therefore subject to change.
Since production has been completely curtailed at the Gramercy facility, KACC
has, for the time being, suspended depreciation of the facility. Depreciation
expense for the first six months of 1999 was approximately $6.0.
Liability. The incident has also resulted in thirty-six class action lawsuits
being filed against KACC alleging, among other things, property damage and
personal injury. In addition, a claim for alleged business interruption losses
has been made by a neighboring business. The aggregate amount of damages sought
in the lawsuits and other claims cannot be determined at this time; however,
KACC does not currently believe the damages will exceed the amount of coverage
under its liability policies.
Workers' Compensation. Claims relating to all of the injured employees are
expected to be covered under KACC's workers' compensation or liability policies.
However, the aggregate amount of workers' compensation claims cannot be
determined at this time and it is possible that such claims could exceed KACC's
coverage limitations. While it is presently impossible to determine the
aggregate amount of claims that may be incurred, or whether they will exceed
KACC's coverage limitations, KACC currently believes that any amount in excess
of the coverage limitations will not have a material effect on the Company's
consolidated financial position or liquidity. However, it is possible that as
additional facts become available, additional charges may be required and such
charges could be material to the period in which they are recorded.
Timing of Insurance Recoveries. As of December 31, 1999, the Company had
recorded estimated recoveries for clean-up, site preparation and business
interruption costs incurred of approximately $55.0. As of December 31, 1999,
approximately $50.0 of insurance recoveries had been received. Additionally
though February 29, 2000, KACC had received approximately $25.0 of additional
insurance recoveries. KACC continues to work with the insurance carriers to
maximize the amount of recoveries and to minimize, to the extent possible, the
period of time between when KACC expends funds and when it is reimbursed.
However, KACC will likely have to fund an average of 30 - 60 days of property
damage and business interruption activity, unless some other arrangement is
agreed with the insurance carriers, and such amounts will be significant. The
Company believes it has sufficient financial resources to fund the construction
and business interruption costs on an interim basis. However, no assurances can
be given in this regard. If insurance recoveries were to be delayed or if there
were to be other significant uses of KACC's existing Credit Agreement capacity,
delays in the rebuilding of the Gramercy refinery could occur and could have a
material adverse impact on the Company's and KACC's liquidity and operating
results.
3. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Summary of 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), Kaiser Jamaica Bauxite Company
(49.0% owned), and AKW L.P ("AKW") (50% owned). The equity in income (loss)
before income taxes of such operations is treated as a reduction (increase) in
cost of products sold. At December 31, 1999 and 1998, KACC's net receivables
from these affiliates were not material. On April 1, 1999, KACC sold its 50%
interest in AKW to its partner for $70.4, which resulted in the Company
recognizing a net pre-tax gain of $50.5 (included in Other income/expense). The
Company's equity in income of AKW was $2.5, $7.8, and $4.8 for the years ended
December 31, 1999, 1998, and 1997, respectively.
SUMMARY OF COMBINED FINANCIAL POSITION
December 31,
--------------------------
1999 1998
- -------------------------------------------------------------------------------
Current assets $ 370.4 $ 356.0
Long-term assets (primarily property,
plant, and equipment, net) 344.1 393.9
---------- ----------
Total assets $ 714.5 $ 749.9
========== ==========
Current liabilities $ 120.4 $ 92.2
Long-term liabilities (primarily long-term debt) 368.3 396.6
Stockholders' equity 225.8 261.1
---------- ----------
Total liabilities and stockholders' equity $ 714.5 $ 749.9
========== ==========
SUMMARY OF COMBINED OPERATIONS
Year Ended December 31,
-----------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $ 594.9 $ 659.2 $ 644.1
Costs and expenses (582.9) (651.7) (637.8)
Benefit (provision) for income taxes .8 (2.7) (8.2)
------- ------- -------
Net income (loss) $ 12.8 $ 4.8 $ (1.9)
======= ======= =======
Company's equity in income $ 4.9 $ 5.4 $ 2.9
======= ======= =======
Dividends received $ - $ 5.5 $ 10.7
======= ======= =======
The Company's equity in income differs from the summary net income (loss) due to
varying percentage ownerships in the entities and equity method accounting
adjustments. At December 31, 1999, KACC's investment in its unconsolidated
affiliates exceeded its equity in their net assets by approximately $9.2.
Amortization of the excess investment totaling $9.9, $10.0, and $11.4 is
included in Depreciation and amortization for the years ended December 31, 1999,
1998, and 1997, respectively.
The Company and its affiliates have interrelated operations. KACC 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
$152.9, $235.1, and $245.2, in the years ended December 31, 1999, 1998, and
1997, respectively.
4. PROPERTY, PLANT, AND EQUIPMENT
The major classes of property, plant, and equipment are as follows:
December 31,
-------------------------
1999 1998
- -------------------------------------------------------------------------------
Land and improvements $ 166.1 $ 164.1
Buildings 230.0 229.5
Machinery and equipment 1,519.7 1,549.5
Construction in progress 67.7 43.8
--------- ---------
1,983.5 1,986.9
Accumulated depreciation (929.8) (878.2)
--------- ---------
Property, plant, and equipment, net $ 1,053.7 $ 1,108.7
========= =========
In the latter part of 1998, the Company decided to seek a strategic partner for
the further development and deployment of KACC's Micromill(TM) technology. This
change in strategic course was based on management's conclusion that additional
time and investment would be required to achieve a commercial success. Given the
Company's other strategic priorities, the Company believed that introducing
added commercial and financial resources was the appropriate course of action
for capturing the maximum long-term value. A number of third parties were
contacted regarding joint ventures or other arrangements. In September 1999,
based on negotiations with these third parties, KACC concluded that a sale of
the Micromill assets and technology was more likely than a partnership. KACC
ultimately signed an agreement to sell the Micromill assets and technology in
January 2000 for a nominal payment at closing and future payments based on
subsequent performance and profitability of the Micromill technology. As a
result of the changes in strategic course in 1999 and 1998, the carrying value
of the Micromill assets was reduced by recording impairment charges of $19.1 and
$45.0, respectively.
5. LONG-TERM DEBT
Long-term debt and its maturity schedule are as follows:
December 31,
2005 ----------------
and 1999 1998
2000 2001 2002 2003 2004 After Total Total
- ----------------------------------------------------------------------------------------------------------------------------
Credit Agreement $ 10.4 $ 10.4 -
97/8% Senior Notes due 2002, net $ 224.6 224.6 $ 224.4
107/8% Senior Notes due 2006, net $ 225.6 225.6 225.7
12 3/4% Senior Subordinated Notes due 2003 $ 400.0 400.0 400.0
Alpart CARIFA Loans - (fixed and variable rates)
due 2007, 2008 60.0 60.0 60.0
Other borrowings (fixed and variable rates) $ .3 .3 .3 .3 $ .2 50.8 52.2 52.9
------ ------- ------- ------- ------- ------- ------- -------
Total $ .3 $ 10.7 $ 224.9 $ 400.3 $ .2 $ 336.4 972.8 963.0
====== ======= ======= ======= ======= =======
Less current portion .3 .4
------- -------
Long-term debt $ 972.5 $ 962.6
======= =======
CREDIT AGREEMENT
In February 1994, the Company and KACC entered into a credit agreement, as
amended, (the "Credit Agreement") which provides a $325.0 secured, revolving
line of credit through August 2001. KACC 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 $325.0 or a borrowing base relating to
eligible accounts receivable and eligible inventory. As of February 29, 2000,
$212.6 (of which $42.6 could have been used for letters of credit) was available
to KACC under the Credit Agreement. The Credit Agreement is unconditionally
guaranteed by the Company and by certain significant subsidiaries of KACC.
Interest on any outstanding balances will bear a premium (which varies based on
the results of a financial test) over either a base rate or LIBOR, at KACC's
option.
DEBT COVENANTS AND RESTRICTIONS
The Credit Agreement requires KACC to comply with 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 dividends, undertake
transactions with affiliates, make capital expenditures, and enter into
unrelated lines of business. The Credit Agreement is secured by, among other
things, (i) mortgages on KACC's major domestic plants (excluding KACC's Gramercy
alumina 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 obligations of KACC with respect to its 97/8% Notes, its 107/8% Notes and
its 12 3/4% Notes are guaranteed, jointly and severally, by certain subsidiaries
of KACC. The indentures governing the 97/8% Notes, the 107/8% Notes and the 12
3/4% Notes (collectively, the "Indentures") restrict, among other things, KACC's
ability to incur debt, undertake transactions with affiliates, and pay
dividends. Further, the Indentures provide that KACC must offer to purchase the
97/8% Notes, the 107/8% Notes and the 12 3/4% Notes, respectively, upon the
occurrence of a Change of Control (as defined therein), and the Credit Agreement
provides that the occurrence of a Change in Control (as defined therein) shall
constitute an Event of Default thereunder.
The Credit Agreement does not permit the Company, and significantly restricts
KACC's ability, to pay dividends on their common stock.
In December 1991, Alumina Partners of Jamaica ("Alpart") entered into a loan
agreement with the Caribbean Basin Projects Financing Authority ("CARIFA").
Alpart's obligations under the loan agreement are secured by two letters of
credit aggregating $64.2. KACC is a party to one of the two letters of credit in
the amount of $41.7 in respect of its ownership interest in Alpart. Alpart has
also 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.
RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain debt instruments restrict the ability of KACC to transfer assets, make
loans and advances, and pay dividends to the Company. The restricted net assets
of KACC totaled $15.7 and $124.4 at December 31, 1999 and 1998, respectively.
CAPITALIZED INTEREST
Interest capitalized in 1999, 1998, and 1997, was $3.4, $3.0, and $6.6,
respectively.
6. INCOME TAXES
Income (loss) before income taxes and minority interests by geographic area is
as follows:
Year Ended December 31,
--------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Domestic $ (81.8) $ (93.6) $ (112.6)
Foreign (8.1) 77.7 172.9
--------- ---------- ---------
Total $ (89.9) $ (15.9) $ 60.3
========= ========== =========
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 benefit (provision) for income taxes on income (loss) before income taxes
and minority interests consists of:
Federal Foreign State Total
- ----------------------------------------------------------------------------------------------
1999 Current $ (.5) $ (23.1) $ (.3) $ (23.9)
Deferred 43.8 7.1 5.7 56.6
----------- ----------- ---------- ---------
Total $ 43.3 $ (16.0) $ 5.4 $ 32.7
=========== =========== ========== =========
1998 Current $ (1.8) $ (16.5) $ (.2) $ (18.5)
Deferred 44.4 (12.5) 3.0 34.9
----------- ----------- ---------- ---------
Total $ 42.6 $ (29.0) $ 2.8 $ 16.4
=========== =========== ========== =========
1997 Current $ (2.0) $ (28.7) $ (.2) $ (30.9)
Deferred 30.5 (7.0) (1.4) 22.1
----------- ----------- ---------- ---------
Total $ 28.5 $ (35.7) $ (1.6) $ (8.8)
=========== =========== ========== =========
A reconciliation between the benefit (provision) for income taxes and the amount
computed by applying the federal statutory income tax rate to income (loss)
before income taxes and minority interests is as follows:
Year Ended December 31,
-----------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Amount of federal income tax benefit (provision) based on the statutory rate $ 31.2 $ 5.6 $ (21.1)
Revision of prior years' tax estimates and other changes in valuation allowances 1.1 8.3 12.5
Percentage depletion 2.8 3.2 4.2
Foreign taxes, net of federal tax benefit (3.2) (1.9) (3.1)
Other .8 1.2 (1.3)
------- ------- -------
Benefit (provision) for income taxes $ 32.7 $ 16.4 $ (8.8)
======= ======= =======
The components of the Company's net deferred income tax assets are as follows:
December 31,
-----------------------------
1999 1998
- --------------------------------------------------------------------------------
Deferred income tax assets:
Postretirement benefits other
than pensions $ 274.7 $ 279.4
Loss and credit carryforwards 119.3 92.0
Other liabilities 146.3 146.4
Other 193.9 132.8
Valuation allowances (125.6) (107.7)
----------- ----------
Total deferred income tax assets-net 608.6 542.9
=========== ==========
Deferred income tax liabilities:
Property, plant, and equipment (101.6) (109.9)
Other (69.6) (54.8)
----------- ----------
Total deferred income tax liabilities (171.2) (164.7)
----------- ----------
Net deferred income tax assets $ 437.4 $ 378.2
=========== ==========
The principal component of the Company's net deferred income tax assets is the
tax benefit, net of certain valuation allowances, associated with the accrued
liability 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, the Company has the ability to carry forward such loss for 20 taxable
years. For these reasons, the Company believes that 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.
A substantial portion of the valuation allowances provided by the Company
relates to loss and credit carryforwards. To determine the proper amount of
valuation allowances with respect to these carryforwards, the Company evaluated
all appropriate factors, including any limitations concerning their use and the
year the carryforwards expire, as well as the levels of taxable income necessary
for utilization. With regard to future levels of income, the Company believes,
based on the cyclical nature of its business, its history of 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.
As of December 31, 1999 and 1998, $39.1 and $46.2, respectively, of the net
deferred income tax assets listed above are included in the Consolidated Balance
Sheets in the caption entitled Prepaid expenses and other current assets.
Certain other portions of the deferred income tax liabilities listed above are
included in the Consolidated Balance Sheets in the captions entitled Other
accrued liabilities and Long-term liabilities.
The Company and its domestic subsidiaries file consolidated federal income tax
returns. During the period from October 28, 1988, through June 30, 1993, the
Company and its domestic subsidiaries were included in the consolidated federal
income tax returns of MAXXAM. The tax allocation agreements of the Company and
KACC with MAXXAM terminated pursuant to their terms, effective for taxable
periods beginning after June 30, 1993. During 1997, MAXXAM reached a settlement
with the Internal Revenue Service regarding all remaining years where the
Company and its subsidiaries were included in the MAXXAM consolidated federal
income tax returns. As a result of this settlement, KACC paid $11.8 to MAXXAM
during 1997, in respect of its liabilities pursuant to its tax allocation
agreement with MAXXAM. Payments or refunds for periods prior to July 1, 1993
related to other jurisdictions could still be required pursuant to the Company's
and KACC's respective tax allocation agreements with MAXXAM. In accordance with
the Credit Agreement, any such payments to MAXXAM by KACC would require lender
approval, except in certain specific circumstances.
At December 31, 1999, the Company had certain tax attributes available to offset
regular federal income tax requirements, subject to certain limitations,
including net operating loss and general business credit carryforwards of $146.1
and $2.5, respectively, which expire periodically through 2019 and 2011,
respectively, foreign tax credit ("FTC") carryforwards of $33.7, which expire
periodically through 2004, and alternative minimum tax ("AMT") credit
carryforwards of $24.0, which have an indefinite life. The Company also has AMT
net operating loss and FTC carryforwards of $106.7 and $66.9, respectively,
available, subject to certain limitations, to offset future alternative minimum
taxable income, which expire periodically through 2019 and 2004, respectively.
7. EMPLOYEE BENEFIT AND INCENTIVE PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT 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.
The Company and its subsidiaries provide postretirement health care and life
insurance benefits to eligible retired employees and their dependents.
Substantially all employees may become eligible for those benefits if they reach
retirement age while still working for the Company or its subsidiaries. The
Company has not funded the liability for these benefits which are expected to be
paid out of cash generated by operations. The Company reserves the right,
subject to applicable collective bargaining agreements, to amend or terminate
these benefits.
Assumptions used to value obligations at year-end and to determine the net
periodic benefit cost in the subsequent year are:
Pension Benefits Medical/Life Benefits
------------------------------ ----------------------------
1999 1998 1997 1999 1998 1997
------------------------------ ----------------------------
Weighted-average assumptions as of December 31,
Discount rate 7.75% 7.00% 7.25% 7.75% 7.00% 7.25%
Expected return on plan assets 9.50% 9.50% 9.50% - - -
Rate of compensation increase 4.00% 5.00% 5.00% 4.00% 4.00% 5.00%
In 1999, annual assumed rates of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) for non-HMO participants are 6.5%
and 7.5% for HMO at all ages. The assumed rates of increase are assumed to
decline gradually to 5.0% in 2002 for non-HMO participants and in 2004 for HMO
participants and remain at that level thereafter.
The following table presents the funded status of the Company's pension and
other postretirement benefit plans as of December 31, 1999 and 1998, and the
corresponding amounts that are included in the Company's Consolidated Balance
Sheets:
Pension Benefits Medical/Life Benefits
------------------------------ --------------------------------
1999 1998 1999 1998
------------------------------ --------------------------------
Change in Benefit Obligation:
Benefit obligation at beginning of year $ 872.5 $ 873.0 $ 616.8 $ 544.5
Service cost 14.6 14.2 5.2 4.2
Interest cost 59.7 59.7 41.5 37.5
Currency exchange rate change (5.7) (.4) - -
Curtailments, settlements and amendments .4 (4.6) - 4.0
Actuarial (gain) loss (44.5) 15.2 .1 72.0
Benefits paid (91.0) (84.6) (48.2) (45.4)
------------- ------------- ------------- ------------
Benefit obligation at end of year 806.0 872.5 615.4 616.8
------------- ------------- ------------- ------------
Change in Plan Assets:
FMV of plan assets at beginning of year 801.8 756.9 - -
Actual return on assets 133.0 106.8 - -
Settlements - (5.5) - -
Employer contributions 14.0 28.2 48.2 45.4
Benefits paid (91.0) (84.6) (48.2) (45.4)
------------- ------------- ------------- ------------
FMV of plan assets at end of year 857.8 801.8 - -
------------- ------------- ------------- ------------
Benefit obligations in excess of (less than)
plan assets (51.8) 70.7 615.4 616.8
Unrecognized net actuarial gain 131.9 23.8 56.7 55.9
Unrecognized prior service costs (15.2) (18.5) 57.7 69.8
Adjustment required to recognize minimum liability 1.2 - - -
Intangible asset and other 2.6 4.3 - -
------------- ------------- ------------- ------------
Accrued benefit liability $ 68.7 $ 80.3 $ 729.8 $ 742.5
============= ============= ============= ============
The aggregate fair value of plan assets and accumulated benefit obligation for
pension plans with plan assets in excess of accumulated benefit obligations were
$778.1 and $679.0, respectively, as of December 31, 1999, and $293.0 and $280.7,
respectively, as of December 31, 1998.
Pension Benefits Medical/Life Benefits
-------------------------------- -------------------------------
1999 1998 1997 1999 1998 1997
--------- ---------- --------- --------- -------- ---------
Components of Net Periodic Benefit Costs:
Service cost $ 14.6 $ 14.2 $ 13.4 $ 5.2 $ 4.2 $ 6.1
Interest cost 59.7 59.7 61.6 41.5 37.5 44.8
Expected return on assets (72.9) (69.4) (61.8) - - -
Amortization of prior service cost 3.3 3.2 3.4 (12.1) (12.4) (12.4)
Recognized net actuarial (gain) loss .7 1.4 2.6 - (7.1) (.9)
--------- ---------- --------- --------- --------- ---------
Net periodic benefit cost 5.4 9.1 19.2 34.6 22.2 37.6
Curtailments, settlements, etc. .4 3.2 3.7 - - -
--------- ---------- --------- --------- --------- ---------
Adjusted net periodic benefit costs $ 5.8 $ 12.3 $ 22.9 $ 34.6 $ 22.2 $ 37.6
========= ========== ========= ========= ========= =========
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage- point change in assumed
health care cost trend rates would have the following effects:
1% Increase 1% Decrease
------------ ------------
Increase (decrease) to total of
service and interest cost $ 6.3 $ (4.6)
Increase (decrease) to the
postretirement benefit obligation $ 62.9 $ (44.0)
POSTEMPLOYMENT BENEFITS
The Company provides certain benefits to former or inactive employees after
employment but before retirement.
INCENTIVE PLANS
The Company has an unfunded incentive compensation program, which provides
incentive compensation based on performance against annual plans and over
rolling three-year periods. In addition, the Company has a "nonqualified" stock
option plan and KACC has a defined contribution plan for salaried employees. The
Company's expense for all of these plans was $6.0, $7.5, and $8.3 for the years
ended December 31, 1999, 1998, and 1997, respectively.
Up to 8,000,000 shares of the Company's Common Stock were reserved for issuance
under its stock incentive compensation plans. At December 31, 1999, 2,192,713
shares of Common Stock remained available for issuance under those plans. Stock
options granted pursuant to the Company's nonqualified stock option program are
granted at or above the prevailing market price, generally vest at a rate of 20
- - 33% per year, and have a five or ten year term. Information concerning
nonqualified stock option plan activity is shown below. The weighted average
price per share for each year is shown parenthetically.
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year ($9.98, $10.45, and $10.33) 3,049,122 819,752 890,395
Granted ($11.15, $9.79 and $10.06) 1,218,068 2,263,170 15,092
Exercised ($7.25, $7.25, and $8.33) (7,920) (10,640) (48,410)
Expired or forfeited ($11.02, $9.60, and $10.12) (20,060) (23,160) (37,325)
--------- ------- -------
Outstanding at end of year ($10.24, $9.98, and $10.45) 4,239,210 3,049,122 819,752
========= ========= =======
Exercisable at end of year ($10.17, $10.09, and $10.53) 1,763,852 1,261,262 601,115
========= ========= =======
In accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation ("SFAS No. 123"), the Company is
required to calculate pro forma compensation cost for all stock options granted
subsequent to December 31, 1994. For SFAS No. 123 purposes, the fair value of
the 1999, 1998, and 1997 stock option grants were estimated using a
Black-Scholes option pricing model. The pro forma after-tax effect of the
estimated fair value of the grants would be to increase the net loss in 1999 by
$1.8 and reduce net income in 1998 and 1997 by $1.5 and $.1, respectively.
8. STOCKHOLDERS' EQUITY, COMPREHENSIVE INCOME AND MINORITY INTERESTS
Changes in stockholders' equity and comprehensive income were:
Accumulated
Accu- Other
Preferred Common Additional mulated Comprehensive
Stock Stock Capital Deficit Income Total
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ .4 $ .7 $ 531.1 $ (460.1) $ (2.8) $ 69.3
Net income 48.0 48.0
Minimum pension liability
adjustment, net of tax 2.8 2.8
Comprehensive income 50.8
Common stock issued upon redemption
and conversion of preferred stock (.4) .1 1.7 1.4
Stock options exercised .4 .4
Dividends on preferred stock (5.5) (5.5)
Incentive plan accretion .6 .6
--------- --------- ---------- --------- ------------- ---------
BALANCE, DECEMBER 31, 1997 - .8 533.8 (417.6) - 117.0
Net income/Comprehensive income .6 .6
Stock options exercised .1 .1
Incentive plan accretion 1.5 1.5
--------- --------- ---------- --------- ------------- ---------
BALANCE, DECEMBER 31, 1998 - .8 535.4 (417.0) - 119.2
Net income (loss)/Comprehensive
income (54.1) (54.1)
Minimum pension liability
adjustment, net of tax (1.2) (1.2)
Comprehensive income (55.3)
Stock options exercised .1 .1
Incentive plan accretion 1.3 1.3
--------- --------- ---------- --------- ------------- ---------
BALANCE, DECEMBER 31, 1999 $ - $ .8 $ 536.8 $ (471.1) $ (1.2) $ 65.3
========= ========= ========== ========= ============= =========
Changes in minority interest were:
1999 1998 1997
-------------------------- -------------------------- --------------------------
Redeemable Redeemable Redeemable
Preference Preference Preference
Stock Other Stock Other Stock Other
- --------------------------------------------------------------------------------------------------------------------------
Beginning of period balance $ 20.1 $ 103.4 $ 27.7 $ 100.0 $ 27.5 $ 94.2
Redeemable preference stock
Accretion 1.0 1.1 2.3
Stock redemption (1.6) (8.7) (2.1)
Minority interests (5.2) 3.4 5.8
------------- --------- ------------- ---------- ------------- ---------
End of period balance $ 19.5 $ 98.2 $ 20.1 $ 103.4 $ 27.7 $ 100.0
============= ========= ============= ========== ============= =========
COMMON STOCK
In January 2000, the Company increased the number of authorized shares of Common
Stock to 125,000,000 from 100,000,000.
REDEEMABLE PREFERENCE STOCK
In 1985, KACC issued its Cumulative (1985 Series A) Preference Stock and its
Cumulative (1985 Series B) Preference Stock (together, the "Redeemable
Preference Stock") each of which has a par value of $1 per share and a
liquidation and redemption value of $50 per share plus accrued dividends, if
any. No additional Redeemable Preference Stock is expected to be issued. Holders
of the Redeemable Preference Stock are entitled to an annual cash dividend of $5
per share, or an amount based on a formula tied to KACC's pre-tax income from
aluminum operations, when and as declared by the Board of Directors.
The carrying values of the Redeemable Preference Stock are increased each year
to recognize accretion between the fair value (at which the Redeemable
Preference Stock was originally issued) and the redemption value. Changes in
Redeemable Preference Stock are shown below.
1999 1998 1997
- --------------------------------------------------------------------------------
Shares:
Beginning of year 421,575 595,053 634,684
Redeemed (31,322) (173,478) (39,631)
------- -------- -------
End of year 390,253 421,575 595,053
======= ======== =======
Redemption fund agreements require KACC to make annual payments by March 31 of
the subsequent year based on a formula tied to consolidated net income until the
redemption funds are sufficient to redeem all of the Redeemable Preference
Stock. On an annual basis, the minimum payment is $4.3 and the maximum payment
is $7.3. At December 31, 1999, the balance in the redemption fund was $12.5
(included in Other Assets). KACC also has certain additional repurchase
requirements which are, among other things, based upon profitability tests.
The Redeemable Preference 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 Redeemable Preference Stock
restricts the ability of KACC to redeem or pay dividends on its common stock if
KACC is in default on any dividends payable on Redeemable Preference Stock.
PREFERENCE STOCK
KACC has four series of $100 par value Cumulative Convertible Preference Stock
("$100 Preference Stock") with annual dividend requirements of between 41/8% and
4 3/4%. KACC has the option to redeem the $100 Preference Stock at par value
plus accrued dividends. KACC does not intend to issue any additional shares of
the $100 Preference Stock.
The $100 Preference Stock can be exchanged for per share cash amounts between
$69 - $80. KACC records the $100 Preference Stock at their exchange amounts for
financial statement presentation and the Company includes such amounts in
minority interests. At December 31, 1999 and 1998, outstanding shares of $100
Preference Stock were 19,538 and 19,963, respectively.
PREFERRED STOCK
PRIDES Convertible - During August 1997, the remaining 8,673,850 outstanding
shares of PRIDES were converted into 7,227,848 shares of Common Stock pursuant
to the terms of the PRIDES Certificate of Designations. Further in accordance
with the PRIDES Certificate of Designations, no dividends were paid or payable
for the period June 30, 1997, to, but not including, the date of conversion.
However, in accordance with generally accepted accounting principles, the $1.3
of accrued dividends attributable to the period June 30, 1997, to, but not
including, the conversion date were treated as an increase in Additional capital
at the date of conversion and were reflected as a reduction of Net income
available to common shareholders.
PLEDGED SHARES
From time to time MAXXAM or certain of its subsidiaries which own the Company's
Common Stock may use such stock as collateral under various financing
arrangements. At December 31, 1999, 27,938,250 shares of the Company's Common
Stock beneficially owned by MAXXAM Group Holdings Inc. ("MGHI"), a wholly owned
subsidiary of MAXXAM, were pledged as security for $130.0 principal amount of
12% Senior Secured Notes due 2003 issued in December 1996 by MGHI. An additional
8,915,000 shares of the Company's Common Stock were pledged by MAXXAM under a
separate agreement under which $18.5 had been borrowed by MAXXAM at December 31,
1999. In addition to the foregoing, MAXXAM has agreed to secure each $1.0 of
borrowings with 400,000 shares of the Company's Common Stock under the terms of
another $25.0 credit facility ($2.5 outstanding at December 31, 1999).
9. RESTRUCTURING OF OPERATIONS
During the second quarter of 1997, the Company recorded a $19.7 restructuring
charge to reflect actions taken and plans initiated to achieve reduced
production costs, decreased corporate selling, general and administrative
expenses, and enhanced product mix. The significant components of the
restructuring charge were: (i) a net loss of approximately $1.4 as a result of
the contribution of certain net assets of KACC's Erie, Pennsylvania, fabrication
plant in connection with the formation of AKW and the subsequent decision to
close the remainder of the Erie plant in order to consolidate its forging
operations into two other facilities; (ii) a charge of $15.6 associated with
asset dispositions regarding product rationalization and geographical
optimization; and (iii) a charge of approximately $2.7 for benefit and other
costs associated with the consolidation or elimination of certain corporate and
other staff functions.
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
KACC has a variety of financial commitments, including purchase agreements,
tolling arrangements, forward foreign exchange and forward sales contracts (see
Note 11), letters of credit, and guarantees. Such purchase agreements and
tolling arrangements include 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. KACC's share of
the aggregate minimum amount of required future principal payments at December
31, 1999, is $103.6 which matures as follows: $11.3 in 2000, $14.1 in 2001,
$43.0 in 2002, and $35.2 in 2003. KACC's share of payments, including operating
costs and certain other expenses under the agreements, has ranged between $92.0
- - $100.0 over the past three years. KACC also has agreements to supply alumina
to and to purchase aluminum from Anglesey.
Minimum rental commitments under operating leases at December 31, 1999, are as
follows: years ending December 31, 2000 - $36.0; 2001 - $33.6; 2002 - $29.3;
2003 - $26.2; 2004 - $24.7; thereafter - $88.7. The future minimum rentals
receivable under noncancelable subleases was $82.3 at December 31, 1999.
Rental expenses were $41.1, $34.5, and $30.4, for the years ended December 31,
1999, 1998, and 1997, respectively.
ENVIRONMENTAL CONTINGENCIES
The Company and KACC are subject to a number of environmental laws, to fines or
penalties assessed for alleged breaches of the environmental laws, and to claims
and litigation based upon such laws. KACC currently is subject to a number of
claims 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 on 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, 1999, 1998, and 1997:
1999 1998 1997
- --------------------------------------------------------------------------------
Balance at beginning of period $ 50.7 $ 29.7 $ 33.3
Additional accruals 1.6 24.5 2.0
Less expenditures (3.4) (3.5) (5.6)
------ ------ ------
Balance at end of period $ 48.9 $ 50.7 $ 29.7
====== ====== ======
These environmental accruals represent the Company's estimate of costs
reasonably expected to be incurred based on 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 annual expenditures to be charged to these environmental accruals
will be approximately $3.0 to $9.0 for the years 2000 through 2004 and an
aggregate of approximately $23.0 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. The Company
believes that it is reasonably possible that costs associated with these
environmental matters may exceed current accruals by amounts that could range,
in the aggregate, up to an estimated $30.0. As the resolution of these matters
is subject to further regulatory review and approval, no specific assurance can
be given as to when the factors upon which a substantial portion of this
estimate is based can be expected to be resolved. However, the Company is
currently working to resolve certain of these matters.
The Company believes that KACC has insurance coverage available to recover
certain incurred and future environmental costs and is pursuing claims in this
regard. During December 1998, KACC received recoveries totaling approximately
$35.0 from certain of its insurers related to current and future claims. Based
on the Company's analysis, a total of $12.0 of such recoveries was allocable to
previously accrued (expensed) items and, therefore, was reflected in earnings
during 1998. The remaining recoveries were offset against increases in the total
amount of environmental reserves. No assurances can be given that the Company
will be successful in other attempts to recover incurred or future costs from
other insurers or that the amount of recoveries received will ultimately be
adequate to cover costs incurred.
While uncertainties are inherent in the final outcome of these environmental
matters, and it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the resolution of
such uncertainties should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
ASBESTOS CONTINGENCIES
KACC is a defendant in a number of lawsuits, some of which involve claims of
multiple persons, in which the plaintiffs allege that certain of their injuries
were caused by, among other things, exposure to asbestos during, and as a result
of, their employment or association with KACC or exposure to products containing
asbestos produced or sold by KACC. The lawsuits generally relate to products
KACC has not sold for at least 20 years.
The following table presents the changes in number of such claims pending for
the years ended December 31, 1999, 1998, and 1997.
1999 1998 1997
- --------------------------------------------------------------------------------
Number of claims at beginning of period 86,400 77,400 71,100
Claims received 29,300 22,900 15,600
Claims settled or dismissed (15,700) (13,900) (9,300)
------- ------- ------
Number of claims at end of period 100,000 86,400 77,400
======= ====== ======
The foregoing claims and settlement figures as of December 31, 1999, do not
reflect the fact that KACC has reached agreements under which it expects to
settle approximately 31,900 of the pending asbestos-related claims over an
extended period.
The Company maintains a liability for estimated asbestos-related costs for
claims filed to date and an estimate of claims to be filed over a 10 year period
(i.e., through 2009). The Company's estimate is based on the Company's view, at
each balance sheet date, of the current and anticipated number of
asbestos-related claims, the timing and amounts of asbestos-related payments,
the status of ongoing litigation and settlement initiatives, and the advice of
Wharton Levin Ehrmantraut Klein & Nash, P.A., with respect to the current state
of the law related to asbestos claims. However, there are inherent uncertainties
involved in estimating asbestos- related costs and the Company's actual costs
could exceed the Company's estimates due to changes in facts and circumstances
after the date of each estimate. Further, while the Company does not presently
believe there is a reasonable basis for estimating asbestos-related costs beyond
2009 and, accordingly, no accrual has been recorded for any costs which may be
incurred beyond 2009, the Company expects that such costs may continue beyond
2009, and that such costs could be substantial. As of December 31, 1999, an
estimated asbestos-related cost accrual of $387.8, before consideration of
insurance recoveries, has been reflected in the accompanying financial
statements primarily in Long-term liabilities. The Company estimates that annual
future cash payments for asbestos-related costs will range from approximately
$75.0 to $85.0 in the years 2000 to 2002, approximately $35.0 to $55.0 for each
of the years 2003 and 2004, and an aggregate of approximately $58.0 thereafter.
The Company believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Although the Company has
settled asbestos-related coverage matters with certain of its insurance
carriers, other carriers have not yet agreed to settlements. KACC has reached
preliminary agreements with certain insurance carriers under which it expects to
collect a substantial portion of its 2000 asbestos-related payments. The timing
and amount of future recoveries from these and other insurance carriers will
depend on the pace of claims review and processing by such carriers and on the
resolution of any disputes regarding coverage under such policies. The Company
believes that substantial recoveries from the insurance carriers are probable.
The Company reached this conclusion after considering its prior
insurance-related recoveries in respect of asbestos- related claims, existing
insurance policies, and the advice of Heller Ehrman White & McAuliffe LLP with
respect to applicable insurance coverage law relating to the terms and
conditions of those policies. Accordingly, an estimated aggregate insurance
recovery of $315.5, determined on the same basis as the asbestos-related cost
accrual, is recorded primarily in Other assets at December 31, 1999. However, no
assurances can be given that KACC will be able to project similar recovery
percentages for future asbestos-related claims or that the amounts related to
future asbestos-related claims will not exceed KACC's aggregate insurance
coverage.
Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative developments, and costs incurred
in order to ascertain whether an adjustment to the existing accruals should be
made to the extent that historical experience may differ significantly from the
Company's underlying assumptions. This process resulted in the Company
reflecting charges of $53.2, $12.7, and $8.8 (included in Other income(expense))
in the years ended December 31, 1999, 1998, and 1997, respectively, for
asbestos-related claims, net of expected insurance recoveries, based on recent
cost and other trends experienced by KACC and other companies. While
uncertainties are inherent in the final outcome of these asbestos matters and it
is presently impossible to determine the actual costs that ultimately may be
incurred and insurance recoveries that will be received, management currently
believes that, based on the factors discussed in the preceding paragraphs, the
resolution of asbestos-related uncertainties and the incurrence of
asbestos-related costs net of related insurance recoveries should not have a
material adverse effect on the Company's consolidated financial position or
liquidity. However, as the Company's estimates are periodically re- evaluated,
additional charges may be necessary and such charges could be material to the
results of the period in which they are recorded.
LABOR MATTERS
In connection with the USWA strike and subsequent lock-out by KACC, certain
allegations of unfair labor practices ("ULPs") were filed with the National
Labor Relations Board ("NLRB") by the USWA. As previously disclosed, KACC
responded to all such allegations and believed that they were without merit. In
July 1999, the Oakland, California, regional office of the NLRB dismissed all
material charges filed against KACC. In September 1999, the union filed an
appeal of this ruling with the NLRB general counsel's office in Washington, D.C.
If the original decision were to be reversed, the matter would be referred to an
administrative law judge for a hearing whose outcome would be subject to an
additional appeal either by the USWA or KACC.
This process could take months or years. If these proceedings eventually
resulted in a definitive ruling against KACC, it could be obligated to provide
back pay to USWA members at the five plants and such amount could be
significant. However, while uncertainties are inherent in the final outcome of
such matters, the Company believes that the resolution of the alleged ULPs
should not result in a material adverse effect on the Company's consolidated
financial position, results of operations, or liquidity.
OTHER CONTINGENCIES
The Company or KACC is involved in various other claims, lawsuits, and other
proceedings relating to a wide variety of matters. While uncertainties are
inherent in the final outcome of such matters, and it is presently impossible to
determine the actual costs that ultimately may be incurred, management currently
believes that the resolution of such uncertainties and the incurrence of such
costs should not have a material adverse effect on the Company's consolidated
financial position, results of operations, or liquidity.
11. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
At December 31, 1999, the net unrealized loss on KACC's position in aluminum
forward sales and option contracts (excluding the impact of those contracts
discussed below which have been marked to market), energy forward purchase and
option contracts, and forward foreign exchange contracts, was approximately
$73.9 (based on comparisons to applicable year-end published market prices). As
KACC's hedging activities are generally designed to lock-in a specified price or
range of prices, gains or losses on the derivative contracts utilized in these
hedging activities will be offset by losses or gains, respectively, on the
transactions being hedged.
ALUMINA AND ALUMINUM
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. Primary
aluminum prices have historically been subject to significant cyclical price
fluctuations. Alumina prices as well as fabricated aluminum product prices
(which vary considerably among products) are significantly influenced by changes
in the price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months. Since 1993, the Average Midwest United States
transaction price for primary aluminum has ranged from approximately $.50 to
$1.00 per pound.
From time to time in the ordinary course of business, KACC enters into hedging
transactions to provide price risk management in respect of the net exposure of
earnings and cash flows resulting from (i) anticipated sales of alumina, primary
aluminum and fabricated aluminum products, less (ii) expected purchases of
certain items, such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. Forward sales contracts are used
by KACC to effectively fix the price that KACC will receive for its shipments.
KACC also uses option contracts (i) to establish a minimum price for its product
shipments, (ii) to establish a "collar" or range of prices for KACC's
anticipated sales, and/or (iii) to permit KACC to realize possible upside price
movements. As of December 31, 1999, KACC had entered into option contracts that
established a price range for 341,000 and 317,000 tons of primary aluminum with
respect to 2000 and 2001, respectively.
Additionally, through December 31, 1999, KACC had also entered a series of
transactions with a counterparty that will provide KACC with a premium over the
forward market prices at the date of the transaction for 2,000 tons of primary
aluminum per month during the period January 2000 through June 2001. KACC also
contracted with the counterparty to receive certain fixed prices (also above the
forward market prices at the date of the transaction) on 4,000 tons of primary
aluminum per month over a three year period commencing October 2001, unless
market prices during certain periods decline below a stipulated "floor" price,
in which case the fixed price sales portion of the transactions terminate. The
price at which the October 2001 and after transactions terminate is well below
current market prices. While the Company believes that the October 2001 and
after transactions are consistent with its stated hedging objectives, these
positions do not qualify for treatment as a "hedge" under current accounting
guidelines. Accordingly, these positions will be "marked-to-market" each period.
For the year ended December 31, 1999, the Company recorded mark-to-market
pre-tax charges of $32.8 in Other income (expense) associated with the
transactions described in this paragraph.
As of December 31, 1999, KACC had sold forward virtually all of the alumina
available to it in excess of its projected internal smelting requirements for
2000 and 2001 at prices indexed to future prices of primary aluminum.
ENERGY
KACC is exposed to energy price risk from fluctuating prices for fuel oil and
diesel oil consumed in the production process. KACC from time to time in the
ordinary course of business enters into hedging transactions with major
suppliers of energy and energy related financial instruments. As of December 31,
1999, KACC held a combination of fixed price purchase and option contracts for
an average of 232,000 barrels per month of fuel oil for 2000.
FOREIGN CURRENCY
KACC enters into forward exchange contracts to hedge material cash commitments
to foreign subsidiaries or affiliates. At December 31, 1999, KACC had net
forward foreign exchange contracts totaling approximately $88.5 for the purchase
of 133.0 Australian dollars from January 2000 through May 2001, in respect of
its Australian dollar denominated commitments from January 2000 through May
2001. In addition, KACC has entered into an option contract to purchase 42.0
Australian dollars for the period from January 2000 through June 2001.
12. SEGMENT AND GEOGRAPHICAL AREA INFORMATION
The Company's operations are located in many foreign countries, including
Australia, Canada, Ghana, Jamaica, and the United Kingdom. Foreign operations in
general may be more vulnerable than domestic operations due to a variety of
political and other risks. Sales and transfers among geographic areas are made
on a basis intended to reflect the market value of products.
The Company's operations are organized and managed by product type. The Company
operates in four segments of the aluminum industry: Alumina and bauxite, Primary
aluminum, Flat-rolled products and Engineered products. The Alumina and bauxite
business unit's principal products are smelter grade alumina and chemical grade
alumina hydrate, a value-added product, for which the Company receives a premium
over smelter grade market prices. The Primary aluminum business unit produces
commodity grade products as well as value-added products such as rod and billet,
for which the Company receives a premium over normal commodity market prices.
The Flat-rolled products group sells to the beverage container and specialty
coil markets as well as value-added products such as heat treat aluminum sheet
and plate which are used in the aerospace and general engineering markets. The
Engineered products business unit serves a wide range of industrial segments
including the automotive, distribution, aerospace and general engineering
markets.
The Company uses a portion of its bauxite, alumina and primary aluminum
production for additional processing at its downstream facilities. Transfers
between business units are made at estimated market prices. The accounting
policies of the segments are the same as those described in Note 1. Business
unit results are evaluated internally by management before any allocation of
corporate overhead and without any charge for income taxes or interest expense.
Financial information by operating segment at December 31, 1999, 1998, and 1997
is as follows:
Year Ended December 31,
------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net Sales:
Bauxite and Alumina:
Net sales to unaffiliated
customers $ 397.9(1) $ 472.7 $ 411.7
--------- ---------- ----------
Intersegment sales 129.0(1) 135.8 201.7
--------- ---------- ----------
526.9 608.5 613.4
--------- ---------- ----------
Primary Aluminum:
Net sales to unaffiliated
customers 439.1 409.8 543.4
Intersegment sales 240.6 233.5 273.8
--------- ---------- ----------
679.7 643.3 817.2
--------- ---------- ----------
Flat-Rolled Products 576.2 714.6 743.3
Engineered Products 542.6 581.3 581.0
Minority interests 88.5 78.0 93.8
Eliminations (369.6) (369.3) (475.5)
--------- ---------- ----------
$ 2,044.3 $ 2,256.4 $ 2,373.2
========= ========== ==========
Equity in income (loss) of
unconsolidated affiliates:
Bauxite and Alumina $ 3.4 $ (3.2) $ (7.0)
Primary Aluminum (1.0) 1.2 5.1
Engineered Products 2.5 7.8 4.8
Corporate and Other - (.4) -
--------- ---------- ----------
$ 4.9 $ 5.4 $ 2.9
========= ========== ==========
Operating income (loss):
Bauxite and Alumina $ (6.0)(2) $ 42.0 (6) $ 54.2
Primary Aluminum 8.0 (3) 49.9 (6) 148.3
Flat-Rolled Products 17.1 70.8 (6) 28.2 (7)
Engineered Products 38.6 47.5 (6) 42.3 (7)
Micromill (30.7)(4) (63.4)(4) (24.5)
Eliminations 6.9 8.9 (5.9)
Corporate and Other (62.8) (65.1) (74.6)(7)
--------- ---------- ----------
$ (28.9) $ 90.6 $ 168.0
========= ========== ==========
Depreciation and amortization:
Bauxite and Alumina $ 29.7(5) $ 36.4 $ 39.4
Primary Aluminum 27.8 29.9 30.4
Flat-Rolled Products 16.2 16.1 16.0
Engineered Products 10.7 10.8 11.2
Micromill 2.3 3.6 3.2
Corporate and Other 2.8 2.3 2.3
--------- ---------- ----------
$ 89.5 $ 99.1 $ 102.5
========= ========== ==========
Capital expenditures:
Bauxite and Alumina $ 30.4 $ 26.9 $ 27.8
Primary Aluminum 12.8 20.7 42.6
Flat-Rolled Products 16.6 20.4 16.8
Engineered Products 7.8 8.4 31.2
Micromill - .2 8.3
Corporate and Other .8 1.0 1.8
--------- ---------- ----------
$ 68.4 $ 77.6 $ 128.5
========= ========== ==========
[FN]
(1) Net sales for 1999 include approximately 264 tons of alumina purchased from
third parties and resold to certain unaffiliated customers of the Gramercy
facility and 131 tons of alumina purchased from third parties and resold to
the Company's primary business unit.
(2) Operating income (loss) for 1999 included estimated business interruption
insurance recoveries of $41.0.
(3) Operating income (loss) for 1999 included potline preparation and restart
costs of $12.8.
(4) Operating income (loss) for 1999 and 1998 included impairment charges of
$19.1 and $45.0, respectively.
(5) Depreciation was suspended for the Gramercy facility for the last six
months of 1999 as a result of the July 5, 1999, incident. Depreciation
expense for the Gramercy facility for the six months ended June 30, 1999,
was approximately $6.0.
(6) Operating income (loss) for 1998 for the Bauxite and alumina, Primary
aluminum, Flat-rolled products and Engineered products segments included
unfavorable strike-related impacts of approximately $11.0, $29.0, $16.0,
and $4.0, respectively.
(7) Operating income (loss) for 1997 included pre-tax charge of $2.6, $12.5
and $4.6 related to the restructuring of operations for the Flat-rolled
products, Engineered products and Corporate segments, respectively.
</FN>
December 31,
-----------------------------
1999 1998
- --------------------------------------------------------------------------------
Investments in and advances
to unconsolidated affiliates:
Bauxite and Alumina $ 71.6 $ 76.8
Primary Aluminum 25.3 27.6
Engineered Products - 23.9
------------- -------------
$ 96.9 $ 128.3
============= =============
Segment assets:
Bauxite and Alumina $ 777.7 $ 669.0
Primary Aluminum 560.8 580.8
Flat-Rolled Products 423.2 431.2
Engineered Products 253.1 294.5
Micromill 3.0 25.3
Corporate and Other 1,181.0 990.1
------------- -------------
$ 3,198.8 $ 2,990.9
============= =============
Geographical information for net sales, based on country of origin, and
long-lived assets follows:
Year Ended December 31,
---------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales to unaffiliated
customers:
United States $ 1,401.8 $ 1,698.0 $ 1,720.3
Jamaica 233.1 237.0 204.6
Ghana 153.2 89.8 234.2
Other Foreign 256.2 231.6 214.1
------------ ------------- ------------
$ 2,044.3 $ 2,256.4 $ 2,373.2
============ ============= ============
December 31,
--------------------------------
1999 1998
- --------------------------------------------------------------------------------
Long-lived assets: (1)
United States $ 688.1 $ 757.9
Jamaica 288.2 289.2
Ghana 84.1 90.2
Other Foreign 90.2 99.7
------------- ------------
$ 1,150.6 $ 1,237.0
============= ============
[FN]
(1) Long-lived assets include Property, plant, and equipment, net, and
Investments in and advances to unconsolidated affiliates.
</FN>
The aggregate foreign currency gain included in determining net income was
immaterial for the years ended December 31, 1999, 1998, and 1997.
No single customer accounted for sales in excess of 10% of total revenue in
1999, 1998, and 1997.
Export sales were less than 10% of total revenue during the years ended December
31, 1999, 1998, and 1997.