<PAGE>
======================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1994
Commission file number 1-3605
KAISER ALUMINUM & CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0928288
(State of Incorporation) (I.R.S. Employer Identification No.)
6177 Sunol Boulevard, Pleasanton, California 94566-7769
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 462-1122
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Cumulative Convertible Preference Stock
(par value $100)
4 1/8% Series None
4 3/4% (1957 Series) None
4 3/4% (1959 Series) None
4 3/4% (1966 Series) None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Cumulative (1985 Series A) Preference Stock
Cumulative (1985 Series B) Preference Stock
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days. Yes X
___
No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ___
As of March 15, 1995, there were 46,171,365 shares of the common stock
of the registrant outstanding, all of which were owned by Kaiser
Aluminum Corporation, the parent corporation of the registrant. As of
March 15, 1995, non-affiliates of the registrant held 726,889 shares
of Cumulative (1985 Series A) Preference Stock and 124,209 shares of
Cumulative (1985 Series B) Preference Stock of the registrant. The
aggregate value of the Cumulative (1985 Series A) Preference Stock and
the Cumulative (1985 Series B) Preference Stock, based upon the
redemption price for such stock, is $42.6 million.
Certain portions of the registrant's definitive proxy statement to be
filed not later than 120 days after the close of the registrant's
fiscal year are incorporated by reference into Part III of this Report
on Form 10-K.
======================================================================
<PAGE>
NOTE
Kaiser Aluminum & Chemical Corporation's Report on Form 10-K filed
with the Securities and Exchange Commission includes all exhibits
required to be filed with the Report. Copies of this Report on Form
10-K, including only Exhibit 21 of the exhibits listed on pages 59-62
of this Report, are available without charge upon written request.
The registrant will furnish copies of the other exhibits to this
Report on Form 10-K upon payment of a fee of 25 cents per page.
Please contact the office set forth below to request copies of this
Report on Form 10-K and for information as to the number of pages
contained in each of the other exhibits and to request copies of such
exhibits:
Corporate Secretary
Kaiser Aluminum & Chemical Corporation
6177 Sunol Boulevard
Pleasanton, California 94566-7769
(i)
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
TABLE OF CONTENTS
Page
----
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . 15
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . 15
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . 57
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . 57
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . 57
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. . . . . . . . . . . . . . . . . . . 57
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . 57
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K. . . . . . . . . . . . . . . . . . . . 57
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . 59
EXHIBIT 21 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . 63
(ii)
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
PART I
ITEM 1. BUSINESS
Industry Overview
-----------------
Primary aluminum is produced by the refining of bauxite (the major
aluminum-bearing ore) into alumina (the intermediate material) and the
reduction of alumina into primary aluminum. Approximately two pounds
of bauxite are required to produce one pound of alumina, and
approximately two pounds of alumina are required to produce one pound
of primary aluminum. Aluminum's valuable physical properties include
its light weight, corrosion resistance, thermal and electrical
conductivity, and high tensile strength.
Demand
The packaging and transportation industries are the principal
consumers of aluminum in the United States, Japan, and Western Europe.
In the packaging industry, which accounted for approximately 22% of
consumption in 1993, aluminum's recyclability and weight advantages
have enabled it to gain market share from steel and glass, primarily
in the beverage container area. Nearly all beer cans and
approximately 95% of the soft drink cans manufactured for the United
States market are made of aluminum. Growth in the packaging area is
generally expected to continue in the 1990s due to general population
increase and to further penetration of the beverage can market in Asia
and Latin America, where aluminum cans are a substantially lower
percentage of the total beverage container market than in the United
States.
In the transportation industry, which accounted for approximately 29%
of aluminum consumption in the United States, Japan, and Western
Europe in 1993, automotive manufacturers use aluminum instead of steel
or copper for an increasing number of components, including radiators,
wheels, and engines, in order to meet more stringent environmental and
fuel efficiency requirements through vehicle weight reduction.
Management believes that sales of aluminum to the transportation
industry have considerable growth potential due to projected increases
in the use of aluminum in automobiles.
Supply
As of year-end 1994, Western world aluminum capacity from 108 smelting
facilities was approximately 16.3 million tons* per year. Net exports
of aluminum from the former Sino Soviet bloc increased approximately
threefold from 1990 levels during the period from 1991 through 1994 to
approximately two million tons per year. These exports contributed to
a significant increase in London Metal Exchange stocks of primary
aluminum which peaked in mid-1994. See "-Recent Industry Trends."
Government officials from the European Union, the United States,
Canada, Norway, Australia, and the Russian Federation have ratified
as a trade agreement a Memorandum of Understanding (the "Memorandum")
which provided, in part, for (i) a reduction in Russian Federation
primary aluminum production by 300,000 tons per year within three
months of the date of ratification of the Memorandum and an additional
200,000 tons within the following three months, (ii) improved
availability of comprehensive data on Russian aluminum production, and
(iii) certain assistance to the Russian aluminum industry. The
Memorandum did not require specific levels of production cutbacks by
other producing nations. The Memorandum was finalized in February
1994 and is scheduled to remain in effect through the end of 1995.
--------------------------------
* All references to tons in this Report refer to metric tons of
2,204.6 pounds.
1
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
Based upon information currently available, management believes that
only moderate additions will be made during 1995-1996 to Western world
alumina and primary aluminum production capacity. The increases in
alumina capacity during 1995-1996 are expected to come from one new
refinery and incremental expansions of existing refineries.
Recent Industry Trends
The aluminum industry environment improved significantly in 1994
compared to 1993. Prices of primary aluminum were at historic lows in
real terms near the beginning of 1994, but nearly doubled by the end
of 1994. In response to low prices of primary aluminum in 1993 and
the first part of 1994, a number of smelting facilities were partially
or fully curtailed. Western world production of primary aluminum
declined in 1994 to approximately 14.5 million tons from approximately
15.1 million tons in 1993. Demand for aluminum products was relatively
weak in 1993, but became very strong in the United States and became firm
in Europe in 1994. Primary aluminum prices improved not only because
of improved demand, but also because the inventories of primary
aluminum on the London Metal Exchange were substantially reduced in
the second half of 1994. However, significant amounts of inventory
remained at the end of 1994, and some reduction of prices from year-
end 1994 occurred in the first quarter of 1995 to reflect that
circumstance.
When previously curtailed smelting capacity is restarted, it will
result in an increase in the demand for alumina to supply those
operations. In addition, in the last several years, large amounts of
alumina have been imported into the Commonwealth of Independent
States. Consequently, management believes that alumina demand and
prices will strengthen as smelters are restarted.
Supply and demand fundamentals for the flat-rolled aluminum products
business, particularly in the can sheet business, improved in 1994
because of higher demand and a reduction of supply. Management
believes that supply and demand for these products will move toward
being in balance. The demand for aluminum extrusions and forgings in
1994 also improved compared to 1993, and supply and demand for these
products also is expected to move toward being in balance.
Overall, management believes that there will be relatively strong
demand for aluminum for the near future, barring an economic
recession. This demand is expected to come both from continued growth
in the developed markets through increased penetration of the
automotive sector, and from general uses in emerging markets.
The Company
-----------
General
Kaiser Aluminum & Chemical Corporation ("the Company") is a direct
subsidiary of Kaiser Aluminum Corporation ("Kaiser") and is an
indirect subsidiary of MAXXAM Inc. ("MAXXAM"). The Company operates
in all principal aspects of the aluminum industry - the mining of
bauxite, the refining of bauxite into alumina, the production of
primary aluminum from alumina, and the manufacture of fabricated
(including semi-fabricated) aluminum products. In addition to the
production utilized by the Company in its operations, the Company
sells significant amounts of alumina and primary aluminum in domestic
and international markets. In 1994, the Company produced
approximately 2,928,500 tons of alumina, of which approximately 71%
was sold to third parties, and produced 415,000 tons of primary
aluminum, of which approximately 54% was sold to third parties. The
Company is also a major domestic supplier of fabricated aluminum
products. In 1994, the Company shipped approximately 399,000 tons of
fabricated aluminum products to third parties, which accounted for
approximately 6% of the total tonnage of United States domestic
shipments in 1994. A majority of the Company's fabricated products
are used by customers as components in the manufacture and assembly of
finished end-use products. Note 12 of the Notes to Consolidated
Financial Statements is incorporated herein by reference.
2
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
The following table sets forth total shipments and intracompany
transfers of the Company's alumina, primary aluminum, and fabricated
aluminum operations:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1994 1993 1992
------- ------- -------
(in thousands of tons)
<S> <C> <C> <C>
ALUMINA:
Shipments to Third Parties 2,086.7 1,997.5 2,001.3
Intracompany Transfers 820.9 807.5 878.2
PRIMARY ALUMINUM:
Shipments to Third Parties 224.0 242.5 355.4
Intracompany Transfers 225.1 233.6 224.4
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties 399.0 373.2 343.6
</TABLE>
Sensitivity to Prices and Hedging Programs
The Company's operating results 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 and on its hedging strategies. Through its variable
cost structures, forward sales, and hedging programs, the Company has
attempted to mitigate its exposure to possible declines in the market
prices of alumina, primary aluminum, and fabricated aluminum products
while retaining the ability to participate in favorable pricing
environments that may materialize. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends -
Sensitivity to Prices and Hedging Programs."
Production Operations
The Company's operations are conducted through decentralized business
units which compete throughout the aluminum industry.
O The alumina business unit, which mines bauxite and obtains
additional bauxite tonnage under long-term contracts, produced
approximately 8% of Western world alumina in 1994. During 1994,
the Company utilized approximately 80% of its bauxite production
at its alumina refineries and the remainder was either sold to
third parties or tolled into alumina by a third party. In
addition, during 1994 the Company utilized approximately 29% of
its alumina for internal purposes and sold the remainder to third
parties. The Company's share of total Western world alumina
capacity was approximately 8% in 1994.
O The primary aluminum products business unit operates two domestic
smelters wholly owned by the Company and two foreign smelters in
which the Company holds significant ownership interests. In
1994, the Company utilized approximately 46% of its primary
aluminum for internal purposes and sold the remainder to third
parties. The Company's share of total Western world primary
aluminum capacity was approximately 3% in 1994.
O Fabricated aluminum products are manufactured by three business
units - flat-rolled products, extruded products, and forgings -
which manufacture a variety of fabricated products (including
body, lid, and tab stock for beverage containers, sheet and plate
products, screw machine stock, redraw rod, forging stock, truck
wheels and hubs, air bag canisters, and other forgings and
extruded products) and operate plants located in principal
marketing areas of the United States and Canada. Substantially
all of the primary aluminum utilized in the Company's fabricated
products operations is obtained internally, with the balance of
the metal utilized in its fabricated products operations obtained
from scrap metal purchases.
3
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
Alumina
-------
The following table lists the Company's bauxite mining and alumina
refining facilities as of December 31, 1994:
<TABLE>
<CAPTION>
Annual
Production Total
Capacity Annual
Company Available to Production
Activity Facility Location Ownership the Company Capacity
-------- -------- -------- --------- ------------ ----------
(tons) (tons)
<S> <C> <C> <C> <C> <C>
Bauxite Mining KJBC <F1> Jamaica 49% 4,500,000 4,500,000
Alpart <F2> Jamaica 65% 2,275,000 3,500,000
--------- ---------
6,775,000 8,000,000
========= =========
Alumina Refining Gramercy Louisiana 100% 1,000,000 1,000,000
Alpart Jamaica 65% 943,000 1,450,000
QAL Australia 28.3% 934,000 3,300,000
--------- ---------
2,877,000 5,750,000
========= =========
<FN>
-------------------------
<F1>
Although the Company owns 49% of Kaiser Jamaica Bauxite Company, it
has the right to receive all of such entity's output.
<F2>
Alpart bauxite is refined into alumina at the Alpart refinery.
</FN>
</TABLE>
Bauxite mined in Jamaica by Kaiser Jamaica Bauxite Company ("KJBC") is
refined into alumina at the Company's plant at Gramercy, Louisiana, or
is sold to third parties. In 1979, the Government of Jamaica granted
the Company a mining lease for the mining of bauxite sufficient to
supply the Company's then-existing Louisiana alumina refineries at
their annual capacities of 1,656,000 tons per year until January 31,
2020. Alumina from the Gramercy plant is sold to third parties. The
Company has entered into a series of medium-term contracts for the
supply of natural gas to the Gramercy plant. The price of such gas
varies based upon certain spot natural gas prices. For 1995 the
Company has, however, established a fixed price for a portion of the
delivered gas through a hedging program.
Alumina Partners of Jamaica ("Alpart") holds bauxite reserves and owns
a 1,450,000 tons per year alumina plant located in Jamaica. The
Company has a 65% interest in Alpart and Hydro Aluminium a.s ("Hydro")
owns the remaining 35% interest. The Company has management
responsibility for the facility on a fee basis. The Company and Hydro
have agreed to be responsible for their proportionate shares of
Alpart's costs and expenses. The Government of Jamaica has granted
Alpart a mining lease and has entered into other agreements with
Alpart designed to assure that sufficient reserves of bauxite will be
available to Alpart to operate its refinery as it may be expanded to a
capacity of 2,000,000 tons per year through the year 2024.
Alpart has entered into an agreement for the supply of substantially
all of its fuel oil through 1996. The balance of Alpart's fuel oil
requirements through 1996 will be purchased in the spot market.
The Company holds a 28.3% interest in Queensland Alumina Limited
("QAL"), which owns the largest and one of the most efficient alumina
refineries in the world, located in Queensland, Australia. QAL
refines bauxite into alumina, essentially on a cost basis, for the
account of its stockholders pursuant to long-term tolling contracts.
The stockholders, including the Company, purchase bauxite from another
QAL stockholder pursuant to long-term supply contracts. The Company
has contracted to take approximately 751,000 tons per year of capacity
or pay standby charges. The Company is unconditionally obligated to
pay amounts calculated to service its share ($78.7 million at December
31, 1994) of certain debt of QAL, as well as other QAL costs and
expenses, including bauxite shipping costs. QAL's annual production
capacity is approximately 3,300,000 tons, of which approximately
934,000 tons are available to the Company.
4
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
The Company's principal customers for bauxite and alumina consist of
large and small domestic and international aluminum producers that
purchase bauxite and reduction-grade alumina for use in their internal
refining and smelting operations and trading intermediaries who resell
raw materials to end-users. In 1994, the Company sold all of its
bauxite to one customer, and sold alumina to 12 customers, the largest
and top five of which accounted for approximately 19% and 82% of such
sales, respectively. Among alumina producers, the Company believes it
is now the world's second largest seller of alumina to third parties.
The Company's strategy is to sell a substantial portion of the bauxite
and alumina available to it in excess of its internal refining and
smelting requirements pursuant to multi-year sales contracts.
Marketing and sales efforts are conducted by executives of the alumina
business unit and the Company. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends -
Sensitivity to Prices and Hedging Programs."
Primary Aluminum Products
-------------------------
The following table lists the Company's primary aluminum smelting
facilities as of December 31, 1994:
<TABLE>
<CAPTION>
Annual Total
Capacity Annual 1994
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
-------- --------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
(tons) (tons)
Domestic
Washington Mead 100% 200,000 200,000 80%
Washington Tacoma 100% 73,000 73,000 76%
------- -------
Subtotal 273,000 273,000
------- -------
International
Ghana Valco 90% 180,000 200,000 70%
Wales, United Kingdom Anglesey 49% 55,000 112,000 113%
------- -------
Subtotal 235,000 312,000
------- -------
Total 508,000 585,000
======= =======
</TABLE>
The Company owns two smelters located at Mead and Tacoma, Washington,
where alumina is processed into primary aluminum. The Mead facility
uses pre-bake technology and produces primary aluminum, almost all of
which is used at the Company's Trentwood fabricating facility and the
balance of which is sold to third parties. The Tacoma plant uses
Soderberg technology and produces primary aluminum and high-grade,
continuous-cast, redraw rod, which currently commands a premium price
in excess of the price of primary aluminum. Both smelters have
achieved significant production efficiencies in recent years through
retrofit technology, cost controls, and semi-variable wage and power
contracts, leading to increases in production volume and enhancing
their ability to compete with newer smelters. At the Mead plant, the
Company has converted to welded anode assemblies to increase energy
efficiency, extended the anode life-cycle in the smelting process,
changed from pencil to liquid pitch to produce carbon anodes which
achieved environmental and operating savings, and engaged in efforts
to increase production through the use of improved, higher-efficiency
reduction cells.
Electrical power represents an important production cost for the
Company at its Mead and Tacoma smelters. The basic electricity supply
contract between the Bonneville Power Administration (the "BPA") and
the Company expires in 2001. The electricity contracts between the
BPA and its direct service industry customers (which consist of 15
energy intensive companies, principally aluminum producers, including
the Company) permit the BPA to interrupt up to 25% of the amount of
power which it normally supplies to such customers. The Company has
operated its Mead and Tacoma smelters in Washington at approximately
75% of their full capacity since January 1993, when three reduction
potlines were removed from production (two at its Mead smelter and one
at its Tacoma smelter) in response to a power reduction imposed by the
5
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
BPA. Although full BPA power was restored as of April 1, 1994, a 25%
power reduction was imposed again by the BPA as of August 1, 1994,
which reduction continued through November 30, 1994. Full BPA power
was restored on December 1, 1994, and the BPA has stated that it
expects to be able to provide full service through November 30, 1995.
The Company has operated its Trentwood fabrication facility without
curtailment of its production.
Through June 1996, the Company pays for power on a basis which varies,
within certain limits, with the market price of primary aluminum, and
thereafter the Company will pay for power at rates to be negotiated.
Effective October 1, 1993, an increase in the base rate the BPA
charged to its direct service industry customers for electricity was
adopted, and that rate is expected to remain in effect through
September 1995. In February 1995, the BPA issued an initial rate
increase announcement which proposed a 5.4% increase to the direct
service industry customers. If the proposed increase becomes
effective, it would increase production costs at the Mead and Tacoma
smelters by approximately $5.0 million per year based on the current
operating rate of those smelters. A rate increase could take effect
as early as October 1995; however, there is no certainty that the
proposed rate increase, or any rate increase, will become effective in
October 1995 or at any later time.
The Company manages, and holds a 90% interest in, the Volta Aluminium
Company Limited ("Valco") aluminum smelter in Ghana. The Valco
smelter uses pre-bake technology and processes alumina supplied by the
Company and the other participant into primary aluminum under long-
term tolling contracts which provide for proportionate payments by the
participants in amounts intended to pay not less than all of Valco's
operating and financing costs. The Company's share of the primary
aluminum is sold to third parties. Power for the Valco smelter is
supplied under an agreement which expires in 2017. The agreement
indexes two-thirds of the price of the contract quantity to the market
price of primary aluminum. The agreement also provides for a review
and adjustment of the base power rate and the price index every five
years. The most recent review was completed in April 1994 for the
1994-1998 period. Valco has entered into an agreement with the
government of Ghana under which Valco has been assured (except in
cases of force majeure) that it will receive sufficient electric power
to operate at its current level of three and one-half potlines through
December 31, 1996. Management believes that with normal rainfall
during 1995 and 1996, Valco should have available sufficient electric
power to operate at its current level during 1995 and 1996.
The Company has a 49% interest in the Anglesey Aluminium Limited
("Anglesey") aluminum smelter and port facility at Holyhead, Wales.
The Anglesey smelter uses pre-bake technology. The Company supplies
49% of Anglesey's alumina requirements and purchases 49% of Anglesey's
aluminum output. The Company sells its share of Anglesey's output to
third parties. Power for the Anglesey aluminum smelter is supplied
under an agreement which expires in 2001.
The Company has developed and installed proprietary retrofit
technology in all of its smelters. This technology - which includes
the redesign of the cathodes and anodes that conduct electricity
through reduction cells, improved "feed" systems that add alumina to
the cells, and a computerized system that controls energy flow in the
cells - enhances the Company's ability to compete more effectively
with the industry's newer smelters. The Company is actively engaged
in efforts to license this technology and sell technical and
managerial assistance to other producers worldwide, and may
participate in joint ventures or similar business partnerships which
employ the Company's technical and managerial knowledge. See "-
Research and Development."
The Company's principal primary aluminum customers consist of large
trading intermediaries and metal brokers, who resell primary aluminum
to fabricated product manufacturers, and large and small international
aluminum fabricators. In 1994, the Company sold its primary aluminum
production not utilized for internal purposes to approximately 35
customers, the largest and top five of which accounted for
approximately 25% and 68% of such sales, respectively. Marketing and
sales efforts are conducted by a small staff located at the business
unit's headquarters in Pleasanton, California, and by senior
executives of the Company who participate in the structuring of major
sales transactions. A majority of the business unit's sales are based
upon long-term relationships with metal merchants and end-users. See
"MANAGEMENT'S DISCUSSION
6
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends
- Sensitivity to Prices and Hedging Programs."
Fabricated Aluminum Products
-----------------------------
The Company manufactures and markets fabricated aluminum products for
the packaging, transportation, construction, and consumer durables
markets in the United States and abroad. Sales in these markets are
made directly and through distributors to a large number of customers,
both domestic and foreign. In 1994, seven domestic beverage container
manufacturers constituted the leading customers for the Company's
fabricated products and accounted for approximately 17% of the
Company's sales revenue.
The Company's fabricated products compete with those of numerous
domestic and foreign producers and with products made with steel,
copper, glass, plastic, and other materials. Product quality, price,
and availability are the principal competitive factors in the market
for fabricated aluminum products. The Company has refocused its
fabricated products operations to concentrate on selected products in
which the Company has production expertise, high quality capability,
and geographic and other competitive advantages. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs."
Flat-Rolled Products - The flat-rolled products business unit, the
largest of the Company's fabricated products businesses, operates the
Trentwood sheet and plate mill at Spokane, Washington. The Trentwood
facility is the Company's largest fabricating plant and accounted for
substantially more than one-half of the Company's 1994 fabricated
aluminum products shipments. The business unit supplies the beverage
container market (producing body, lid, and tab stock), the aerospace
market, and the tooling plate, heat-treated alloy and common alloy
coil markets, both directly and through distributors. The Company
announced in October 1993 that it was restructuring its flat-rolled
products operation at its Trentwood plant to reduce that facility's
annual operating costs. The Trentwood restructuring is expected to
result in annual cost savings of at least $50.0 million after it has
been fully implemented (which is expected to occur by the end of
1995).
The Company's flat-rolled products are sold primarily to beverage
container manufacturers located in the western United States and in
the Asian Pacific Rim countries where the Trentwood plant's location
provides the Company with a transportation advantage. Quality of
products for the beverage container industry and timeliness of
delivery are the primary bases on which the Company competes.
Management believes that the Company's capital improvements at
Trentwood have enhanced the quality of the Company's products for the
beverage container industry and the capacity and efficiency of the
Company's manufacturing operations, and that the Company is one of the
highest quality producers of aluminum beverage can stock in the world.
In 1994, the flat-rolled products business unit had 25 foreign and
domestic can stock customers, the majority of which were beverage can
manufacturers (including five of the six major domestic beverage can
manufacturers) and the balance of which were brewers. The largest and
top five of such customers accounted for approximately 26% and 51%,
respectively, of the business unit's sales revenue. In 1994, the
business unit shipped products to over 200 customers in the aerospace,
transportation, and industrial ("ATI") markets, most of which were
distributors who sell to a variety of industrial end-users. The top
five customers in the ATI markets for flat-rolled products accounted
for approximately 13% of the business unit's sales revenue. The
marketing staff for the flat-rolled products business unit is located
at the Trentwood facility and in Pleasanton, California. Sales are
made directly to customers (including distributors) from eight sales
offices located throughout the United States. International customers
are served by sales offices in the Netherlands and Japan and by
independent sales agents in Asia and Latin America.
Extruded Products - The extruded products business unit is
headquartered in Dallas, Texas, and operates soft-alloy extrusion
facilities in Los Angeles, California; Santa Fe Springs, California;
Sherman, Texas; and London, Ontario, Canada; a cathodic protection
business located in Tulsa, Oklahoma, that also extrudes both aluminum
and magnesium; rod and bar facilities
7
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
in Newark, Ohio, a facility in Jackson, Tennessee, which produce screw
machine stock, redraw rod, forging stock, and billet, and a facility
in Richland, Washington, which is expected to be in full operation in
the second quarter of 1995 and which will produce seamless tubing in
both hard and soft alloys for the automotive, other transportation,
export, recreation, agriculture, and other industrial markets. Each
of the soft-alloy extrusion facilities has fabricating capabilities
and provides finishing services.
The extruded products business unit's major markets are in the
transportation industry, to which it provides extruded shapes for
automobiles, trucks, trailers, cabs, and shipping containers, and
distribution, durable goods, defense, building and construction,
ordnance, and electrical markets. In 1994, the extruded products
business unit had over 950 customers for its products, the largest and
top five of which accounted for approximately 6% and 20%,
respectively, of its sales revenue. Sales are made directly from
plants as well as marketing locations across the United States.
Forgings - The forgings business unit operates forging facilities at
Erie, Pennsylvania; Oxnard, California; and Greenwood, South Carolina;
and a machine shop at Greenwood, South Carolina. The forgings
business unit is one of the largest producers of aluminum forgings in
the United States and is a major supplier of high-quality forged parts
to customers in the automotive, commercial vehicle, and ordnance
markets. The high strength-to-weight properties of forged aluminum
make it particularly well suited for automotive applications.
In 1994, the forgings business unit had over 300 customers for its
products, the largest and top five of which accounted for
approximately 30% and 69%, respectively, of the forgings business
unit's sales revenue. The forgings business unit's headquarters is
located in Erie, Pennsylvania, and additional sales, marketing, and
engineering groups are located in the midwestern and western United
States.
Competition
Aluminum products compete in many markets with steel, copper, glass,
plastic, and numerous other materials. Within the aluminum business,
the Company competes with both domestic and foreign producers of
bauxite, alumina, and primary aluminum, and with domestic and foreign
fabricators. Many of the Company's competitors have greater financial
resources than the Company. The Company's principal competitors in
the sale of alumina include Alcoa of Australia Ltd., Glencore Ltd.,
and Pechiney S.A. The Company competes with most aluminum producers
in the sale of primary aluminum.
Primary aluminum and, to some degree, alumina are commodities with
generally standard qualities, and competition in the sale of these
commodities is based primarily upon price, quality, and availability.
The Company also competes with a wide range of domestic and
international fabricators in the sale of fabricated aluminum products.
Competition in the sale of fabricated products is based upon quality,
availability, price, and service, including delivery performance. The
Company concentrates its fabricating operations on selected products
in which it has production expertise, high quality capability, and
geographic and other competitive advantages. Management believes
that, assuming the current relationship between worldwide supply and
demand for alumina and primary aluminum does not change materially,
the loss of any one of the Company's customers, including
intermediaries, would not have a material adverse effect on the
Company's business or operations.
Research and Development
The Company conducts research and development activities principally
at four facilities - the Center for Technology ("CFT") in Pleasanton,
California; the Primary Aluminum Products Division Technology Center
("DTC") adjacent to the Mead smelter in Washington; the Alumina
Development Laboratory ("ADL") at the Gramercy, Louisiana refinery,
which is a part of Kaiser Alumina Technical Services ("KATS"), and the
Automotive Product Development Office located near Detroit, Michigan.
Net expenditures for Company-sponsored research and development
activities were $16.7 million in 1994, $18.5 million in 1993, and
$13.5 million in 1992. The Company's research staff totaled 166 at
December 31, 1994. The
8
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
Company estimates that research and development net expenditures will
be in the range of approximately $20.0 - $22.0 million in 1995.
CFT performs research and development across a range of aluminum
process and product technologies to support the Company's business
units and new business opportunities. It also selectively offers
technical services to third parties. A significant effort is directed
at the automotive market. One project directed at automotive sheet
development is carried out cooperatively with Furukawa Electric Co.,
Ltd. of Japan, Pechiney Rhenalu of France, and Kawasaki Steel
Corporation of Japan. The largest and most notable single project
being developed at CFT is a "micromill" process for producing can body
sheet. A pilot facility has been constructed and operated at CFT.
Based on the results achieved so far, the Company hopes to finalize in
1995 plans for construction of a full-scale commercial micromill.
DTC maintains specialized laboratories and a miniature carbon plant
where experiments with new anode and cathode technology are performed.
DTC supports the Company's primary aluminum smelters, and concentrates
on the development of cost-effective technical innovations such as
equipment and process improvements. KATS, including ADL, provides
improved alumina process technology to the Company's facilities and
technical support to new business ventures in cooperation with the
Company's international business development group. The Automotive
Product Development Office is a sales and application engineering
facility located near Detroit-area carmakers and works with customers,
CFT and plant personnel to create new automotive component designs and
improve existing products.
The Company is actively engaged in efforts to license its technology
and sell technical and managerial assistance to other producers
worldwide. Pursuant to various arrangements, the Company's technology
has been installed in alumina refineries, aluminum smelters and
rolling mills located in the United States, Jamaica, Sweden, Germany,
Russia, India, Australia, Korea, New Zealand, Ghana, Europe, and the
United Kingdom. The Company's technology sales and revenue from
technical assistance to third parties were $10.0 million in 1994,
$12.8 million in 1993, and $14.1 million in 1992.
The Company has entered into agreements with respect to the
Krasnoyarsk smelter located in Russia pursuant to which the Company
has licensed certain of its technology for use in such facility and
agreed to provide purchasing services in obtaining Western-sourced
technology and equipment to be used in such facility. These
agreements were entered into in November 1990, and the services under
them are expected to be completed in 1996. In addition, the Company
has entered into agreements with respect to the Nadvoitsy smelter
located in Russia and the Korba smelter of the Bharat Aluminum Co.
Ltd., located in India, pursuant to which the Company has licensed
certain of its technology for use in such facilities. The agreements
relating to the Nadvoitsy and Korba smelters were entered into in 1993
and the services under such agreements are expected to be completed in
1995.
Employees
During 1994, the Company employed an average of 9,744 persons,
compared with an average of 10,220 employees in 1993, and 10,130
employees in 1992. At December 31, 1994, the Company's work force was
9,468, including a domestic work force of 5,812, of whom 3,978 were
paid at an hourly rate. Most hourly paid domestic employees are
covered by collective bargaining agreements with various labor unions.
Approximately 71% of such employees are covered by a master agreement
(the "Labor Contract") with the United Steelworkers of America
("USWA") which expires on September 30, 1998. The Labor Contract
covers the Company's plants in Spokane (Trentwood and Mead) and
Tacoma, Washington; Gramercy, Louisiana; and Newark, Ohio.
The Labor Contract provides for base wages at all covered plants. In
addition, workers covered by the Labor Contract may receive quarterly
bonus payments based on various indices of profitability,
productivity, efficiency, and other aspects of specific plant
performance, as well as, in certain cases, the price of alumina or
primary aluminum. Pursuant to the Labor Contract, base wage rates
were raised effective January 2, 1995, and will be raised an
additional amount effective November 6, 1995, and November 3, 1997,
and an amount in respect of the cost of living adjustment under the
previous master
9
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. BUSINESS (continued)
agreement will be phased into base wages during the term of the Labor
Contract. In the second quarter of 1995, the Company will acquire up
to $2,000 of preference stock held in a stock plan for the benefit of
each of approximately 82% of the employees covered by the Labor
Contract and in the first half of 1998 up to an additional $4,000 of
such preference stock held in such plan for the benefit of
substantially the same employees. In addition, if a profitability
test is satisfied, the Company will acquire during 1996 or 1997 up to
an additional $1,000 of such preference stock held in such plan for
the benefit of substantially the same employees. The Company will
make comparable acquisitions of preference stock held for the benefit
of each of certain salaried employees. Management considers the
Company's employee relations to be satisfactory.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Trends - Labor Matter."
Environmental Matters
The Company is subject to a wide variety of international, state, and
local environmental laws and regulations ("Environmental Laws") which
continue to be adopted and amended. The Environmental Laws regulate,
among other things, air and water emissions and discharges; the
generation, storage, treatment, transportation, and disposal of solid
and hazardous waste; the release of hazardous or toxic substances,
pollutants and contaminants into the environment; and, in certain
instances, the environmental condition of industrial property prior to
transfer or sale. In addition, the Company is subject to various
federal, state, and local workplace health and safety laws and
regulations ("Health Laws").
From time to time, the Company is subject, with respect to its current
and former operations, to fines or penalties assessed for alleged
breaches of the Environmental and Health Laws and to claims and
litigation brought by federal, state or local agencies and by private
parties seeking remedial or other enforcement action under the
Environmental and Health Laws or damages related to alleged injuries
to health or to the environment, including claims with respect to
certain waste disposal sites and the remediation of sites presently or
formerly operated by the Company. See "LEGAL PROCEEDINGS." The
Company currently is subject to a number of lawsuits under the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization
Act of 1986 ("CERCLA"). The Company, along with certain other
entities, has been named as a Potentially Responsible Party ("PRP")
for remedial costs at certain third-party sites listed on the National
Priorities List under CERCLA and, in certain instances, may be exposed
to joint and several liability for those costs or damages to natural
resources. The Company's Mead, Washington, facility has been listed
on the National Priorities List under CERCLA. In addition, in
connection with certain of its asset sales, the Company has
indemnified the purchasers of assets with respect to certain
liabilities (and associated expenses) resulting from acts or omissions
arising prior to such dispositions, including environmental
liabilities. While uncertainties are inherent in the final outcome of
these 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 or
results of operations.
Environmental capital spending was $11.9 million in 1994, $12.6
million in 1993, and $13.1 million in 1992. Annual operating costs
for pollution control, not including corporate overhead or
depreciation, were approximately $23.1 million in 1994, $22.4 million
in 1993, and $21.6 million in 1992. Legislative, regulatory, and
economic uncertainties make it difficult to project future spending
for these purposes. However, the Company currently anticipates that
in the 1995-1996 period, environmental capital spending will be within
the range of approximately $15.0 - $18.0 million per year, and
operating costs for pollution control will be within the range of
$25.0 - $27.0 million per year. In addition, $3.6 million in cash
expenditures in 1994, $7.2 million in 1993, and $9.6 million in 1992
were charged to previously established reserves relating to
environmental costs. Approximately $11.4 million is expected to be
charged to such reserves in 1995.
The portion of Note 10 of the Notes to Consolidated Financial
Statements under the heading "Environmental Contingencies" is
incorporated herein by reference.
10
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 2. PROPERTIES
The locations and general character of the principal plants, mines,
and other materially important physical properties relating to the
Company's operations are described in "ITEM 1. BUSINESS," and those
descriptions are incorporated herein by reference. The Company owns
in fee or leases all the real estate and facilities used in connection
with its business. Plants and equipment and other facilities are
generally in good condition and suitable for their intended uses,
subject to changing environmental requirements. Although the
Company's domestic aluminum smelters and alumina facility were
initially designed early in the Company's history, they have been
modified frequently over the years to incorporate technological
advances in order to improve efficiency, increase capacity, and
achieve energy savings. Management believes that the Company's
domestic plants are cost competitive on an international basis. Due
to the Company's variable cost structure, the plants' operating costs
are relatively lower in periods of low primary aluminum prices and
relatively higher in periods of high primary aluminum prices.
The Company's obligations under the Credit Agreement entered into on
February 17, 1994, as amended (the "1994 Credit Agreement"), are
secured by, among other things, mortgages on the Company's major
domestic plants (other than the Gramercy alumina plant). See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Financial Condition and Capital Spending."
ITEM 3. LEGAL PROCEEDINGS
Aberdeen Pesticide Dumps Site Matter
The Aberdeen Pesticide Dumps Site, listed on the Superfund National
Priorities List, is composed of five separate sites around the town of
Aberdeen, North Carolina. These sites (collectively, the "Sites")
include the Farm Chemicals Site, Twin Sites, Fairway Six Site, McIver
Dump Site and the Route 211 Site. The Sites are of concern to the
United States Environmental Protection Agency (the "EPA") because of
their past use as either pesticide formulation facilities or pesticide
disposal areas from approximately the mid-1930s through the late
1980s.
The United States originally filed a cost recovery complaint (as
amended, the "Complaint") in the United States District Court for the
Middle District of North Carolina, Rockingham Division, No. C-89-231-
R, against five defendants on March 31, 1989, and subsequently amended
its complaint to add another ten defendants on February 6, 1991, and
another four defendants on August 1, 1991. The Company was not a
named defendant in the Complaint. The Complaint seeks reimbursement
for past and future response costs and a determination of liability of
the defendants under Section 107 of CERCLA. On or about October 2,
1991, the Company, along with approximately 17 other parties, was
served with third party complaints from four of the defendants named
in the Complaint (the "Third Party Plaintiffs") alleging claims
arising under various theories of contribution and indemnity. On
October 22, 1992, the United States filed a motion for leave to file
an amended complaint naming the Company as a first party defendant in
its cost recovery action. On February 16, 1993, the court granted
that motion.
The EPA has performed a Remedial Investigation/Feasibility Study and
issued a Record of Decision ("ROD") dated September 30, 1991, for the
Sites. The major remedy selected for the Sites in the ROD consisted
of excavation of contaminated soil, treatment of the contaminated soil
at a single location utilizing thermal treatment, and placement of the
treated material back into the areas of excavation. The estimated
cost of such remedy for the Sites is approximately $32 million. Other
possible remedies described in the ROD included on-site incineration
and on-site ash disposal at an estimated cost of approximately $53
million, and off-site incineration and disposal at an estimated cost
of approximately $222 million. The EPA has stated that it has
incurred past costs at the Sites in the range of $7.5 - $8 million as
of February 9, 1993, and alleges that response costs will continue to
be incurred in the future.
11
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 3. LEGAL PROCEEDINGS (continued)
On May 20, 1993, the EPA issued three unilateral Administrative Orders
under Section 106(a) of CERCLA ordering the respondents, including the
Company, to perform the remedial design and remedial action described
in the ROD for the Farm Chemicals Site (EPA Docket No. 93-13-C), Twin
Sites (EPA Docket No. 93-14-C) and Fairway Six Site (EPA Docket No.
93-15-C). The estimated cost as set forth in the ROD for the remedial
action at the three Sites is approximately $27 million. In addition
to the Company, respondents named in the Administrative Orders for all
three Sites include J. M. Taylor, Grower Service Corporation, E. I.
DuPont de Nemours & Co., Olin Corporation, UCI Holdings, Inc., PPG
Industries, Inc., and Union Carbide Corporation. Ciba-Geigy
Corporation, Hercules, Inc., Mobil Oil Corporation, Shell Oil Company,
The Boots Company (USA), Inc., Nor-Am Chemical Co., George D.
Anderson, Farm Chemicals, Inc., Partners In The Pits, Ltd., Dan F.
Maples, Pits Management Corp., Maples Golf Construction, Inc., Yadco
of Pinehurst, Inc., and Robert Trent Jones are named as respondents
for one or two of the Sites.
The Company has entered into a PRP Participation Agreement with
certain of the respondents to participate jointly in responding to the
Administrative Orders dated May 20, 1993, regarding soil remediation,
to share costs incurred on an interim basis, and to seek to reach a
final allocation of costs through agreement or to allow such final
allocation and determination of liability to be made by the United
States District Court. By letter dated July 6, 1993, the Company has
notified the EPA of its ongoing participation with such group of
respondents which, as a group, are intending to comply with the
Administrative Orders to the extent consistent with applicable law.
By letters dated December 30, 1993, the EPA notified the Company of
its potential liability for, and requested that the Company, along
with certain other named companies, undertake or agree to finance,
groundwater remediation at certain of the Sites.
On June 22, 1994, the EPA issued two Unilateral Administrative Orders
under Section 106(a) of CERCLA under U.S. EPA Docket No. 94-28-C and
U.S. EPA Docket No. 94-27-C, respectively, ordering the named
respondents to design and implement the groundwater remediation remedy
for the Farm Chemicals and Twin Sites and for the Fairway Six Site.
In addition to the Company, the Unilateral Administrative Order for
the Farm Chemicals and Twin Site areas named as respondents J. M.
Taylor, Grower Service Corporation, Farm Chemicals, Inc., E. I. Dupont
de Nemours and Company, Olin Corporation, UCI Holdings, Inc., Union
Carbide Corporation, Miles, Inc., Mobil Oil Corporation, Shell Oil
Company, Hercules, Inc., The Boots Company (USA), Inc., Nor-Am
Chemical Company, and Ciba-Geigy Corporation. Named as respondents in
addition to the Company for the Fairway Six Site area were J. M.
Taylor, George Anderson, Grower Service Corporation, Partners in the Pits,
Dan Maples, Pits Management Corporation, Maples Golf Construction, Inc.,
Yadco of Pinehurst Inc., Robert Trent Jones, E. I. Dupont de Nemours
and Company, Olin Corporation, UCI Holdings, Inc., and Ciba-Geigy
Corporation. The ROD-selected remedy for the groundwater remediation
selected by the EPA includes extraction, on site treatment by
coagulation, flocculation, precipitation, air stripping, GAC
absorption, and discharge on site for the Farm Chemicals/Twin Sites
and extraction, on-site treatment by GAC absorption and discharge on-
site for the Fairway Six Site. The EPA has estimated the total
present worth cost, including 30 years of operation and maintenance,
at $11,849,757. A definitive PRP Participation Agreement with
respect to groundwater remediation is under negotiation among certain
of the respondents, including the Company, and these respondents are
proceeding with work required under the administrative orders.
Based upon the information presently available to it, the Company is
unable to determine whether the Company has any liability with respect
to any of the Sites or, if there is any liability, the amount thereof.
Two government witnesses have testified that the Company acquired
pesticide products from the operator of the formulation site over a
two to three year period. The Company has been unable to confirm the
accuracy of this testimony.
United States of America v. Kaiser Aluminum & Chemical Corporation
On February 8, 1989, a civil action was filed by the United States
Department of Justice at the request of the EPA against the Company in
the United States District Court for the Eastern District of
Washington, Case No. C-89-106-CLQ. The complaint alleged that
emissions from certain stacks at the Company's Trentwood facility in
Spokane, Washington, intermittently violated the opacity standard
contained in the Washington State Implementation Plan ("SIP"),
approved by
12
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 3. LEGAL PROCEEDINGS (continued)
the EPA under the federal Clean Air Act. The complaint sought
injunctive relief, including an order that the Company take all
necessary action to achieve compliance with the Washington SIP opacity
limit and the assessment of civil penalties of not more than $25,000
per day.
In the course of the litigation, questions arose as to whether the
observers who recorded the alleged exceedances were qualified under
the Washington SIP to read opacity. In July 1990, the Company and the
Department of Justice agreed to a voluntary dismissal of the action.
At that time, however, the EPA had arranged for increased surveillance
of the Trentwood facility by consultants and the EPA's personnel.
From May 1990 through May 1991, these observers recorded approximately
130 alleged exceedances of the SIP opacity rule. Justice Department
representatives have stated their intent to file a second lawsuit
against the Company based on the opacity observations recorded during
that period.
The second lawsuit has not yet been filed. Instead, the Company has
entered into negotiations with the EPA to resolve the claims against
the Company through a consent decree. The EPA and the Company have
made substantial progress in negotiating the terms of the consent
decree. The terms of the consent decree currently being negotiated
include, in principle, a commitment by the Company to improve emission
control equipment at the Trentwood facility and a civil penalty
assessment against the Company. The Company anticipates that
agreement upon the terms of a consent decree will be reached during
1995. In the event the terms of a consent decree are not agreed upon,
the matter would likely be resolved in federal court.
Catellus Development Corporation v. Kaiser Aluminum & Chemical
Corporation and James L. Ferry & Son, Inc.
On January 7, 1991, the City of Richmond, et al. (the "Plaintiffs")
filed a Second Amended Complaint for Damages and Declaratory Relief
against the United States of America, the United States Maritime
Administration and Santa Fe Land Corporation (now known as Catellus
Development Corporation ("Catellus")) (collectively, the "Defendants")
alleging, among other things, that the Defendants caused or allowed
hazardous substances, pollutants, contaminants, debris, and other
solid wastes to be discharged, deposited, disposed of or released on
certain property located in Richmond, California (the "Property")
formerly owned by Catellus and leased to (i) the Company for the
purpose of shipbuilding activities conducted by the Company on behalf
of the United States during World War II, and (ii) subsequent tenants
thereafter. Plaintiffs allege, among other things, that (i) the
Defendants are jointly and severally liable for response costs and
natural resources damages under CERCLA, (ii) Defendant United States
of America is liable on grounds of negligence for damages under the
Federal Tort Claims Act, and (iii) Defendant Catellus is strictly
liable on grounds of negligence for such discharge, deposit, disposal
or release. Certain of the Plaintiffs have alleged that they had
incurred or expect to incur costs and damages in the amount of
approximately $49 million, in the aggregate.
On or about September 23, 1992, the Plaintiffs filed a Third Amended
Complaint, alleging, among other things, that (i) the Defendants are
jointly and severally liable for response costs, declaratory relief,
and natural resources damages under CERCLA; (ii) Defendant United
States of America is liable on grounds of negligence, continuing
trespass and continuing nuisance for damages under the Federal Tort
Claims Act; (iii) Defendant Catellus is strictly liable on grounds of
continuing nuisance, continuing trespass, and negligence for such
discharge, deposit, disposal or release; (iv) Catellus is liable to
indemnify Plaintiffs; and (v) Catellus is liable for fraudulent
concealment of the alleged contamination.
On February 20, 1991, Catellus filed a third party complaint (the
"Third Party Complaint") against the Company and James L. Ferry & Son,
Inc. ("Ferry") in the United States District Court for the Northern
District of California, Case No. C-89-2935 DLJ. The Third Party
Complaint was served on the Company as of April 12, 1991. The Third
Party Complaint alleges that, if the allegations of the Plaintiffs are
true, then the Company and Ferry (which is alleged to have performed
certain excavation activities on the Property and, as a result
thereof, to have released contaminants on the Property and to have
arranged for the transportation, treatment, and disposal of such
contaminants) are liable for Catellus' response costs and damages
under CERCLA and damages under other theories of negligence and
nuisance and, in the case of the Company, waste. Catellus seeks (i)
contribution from the Company and Ferry, jointly and severally, for
its costs and damages pursuant
13
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 3. LEGAL PROCEEDINGS (continued)
to CERCLA; (ii) indemnity from the Company and Ferry for any liability
or judgment imposed upon it; (iii) indemnity from the Company and
Ferry for reasonable attorneys fees and costs incurred by it; (iv)
damages for the injury to its interest in the Property; and (v) treble
damages from the Company pursuant to California Code of Civil
Procedure Section 732. On June 4, 1991, Catellus served on the
Company a first amended third party complaint which alleges, in
addition to the allegations of the Third Party Complaint, that the
Company and/or a predecessor in interest to the Company is also liable
for Catellus' damages, if any, on the basis of alleged contractual
indemnities contained in certain former leases of the Property.
The Third Party Complaint was amended on or about October 26, 1992.
The amended Third Party Complaint alleges that, if the allegations of
the Plaintiffs are true, then the Company and Ferry are liable for (i)
Catellus' response costs and natural resources damage under CERCLA;
(ii) damages under theories of negligence, trespass and nuisance;
(iii) indemnity (equitable and contractual); and (iv) attorneys fees
under California Code of Civil Procedure Section 1021.6.
By letter dated October 26, 1992, counsel for certain underwriters at
Lloyd's London and certain London Market insurance companies ("London
Insurers") advised that the London Insurers agreed to reimburse the
Company for defense expenses in the third party action filed by
Catellus, subject to a full reservation of rights.
The Plaintiffs filed a motion for leave to file a Third Amended
Complaint which would have added the Company as a first party
defendant. This motion was denied. On October 26, 1992, the
Plaintiffs served a separate Complaint against the Company for damages
and declaratory relief. The claims asserted by the Plaintiffs are for
(i) recovery of costs, natural resources damages, and declaratory
relief under CERCLA; (ii) damages for injury to the Property arising
from negligence; (iii) damages under a theory of strict liability;
(iv) continuing nuisance and continuing trespass; (v) equitable
indemnity; (vi) response costs incurred by the Richmond Redevelopment
Agency under California Health & Safety Code Section 33459.4; and
(vii) declaratory relief on the state claims. This matter has been
tendered to the London Insurers.
On June 24, 1994, the District Court approved a Consent Decree
consummating the settlement of the Plaintiffs' CERCLA and tort claims
against the United States in exchange for payment of approximately
$3.5 million plus 35% of future response costs. Trial of this matter
commenced in March 1995.
Picketville Road Landfill Matter
On July 1, 1991, the EPA served on the Company and 13 other PRPs a
Unilateral Administrative Order For Remedial Design and Remedial
Action (the "Order") at the Picketville Road Landfill site in
Jacksonville, Florida. The EPA seeks remedial design and remedial
action pursuant to CERCLA from some, but apparently not all, PRPs
based upon a Record of Decision outlining remedial cleanup measures to
be undertaken at the site adopted by the EPA on September 28, 1990.
The site was operated as a municipal and industrial waste landfill
from 1968 to 1977 by the City of Jacksonville. The Company was first
notified by the EPA on January 17, 1991, that wastes from one of the
Company's plants may have been transported to and deposited in the
site. In its Record of Decision, the EPA estimated that the total
capital, operations, and maintenance costs of its elected remedy for
the site would be approximately $9.9 million. In addition, the EPA
has reserved the right to seek recovery of its costs incurred relating
to the Order, including, but not limited to, reimbursement of the
EPA's cost of response. The Company has reached an agreement with
certain PRPs who are conducting remedial design and remedial action at
the site, under which the Company will fund $146,700 of the cost of
the remedial design and remedial action (unless remedial costs exceed
$19 million in which event the settlement agreement will be re-
opened).
14
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 3. LEGAL PROCEEDINGS (continued)
Asbestos-related Litigation
The Company is a defendant in a number of lawsuits in which the
plaintiffs allege that certain of their injuries were caused by
exposure to asbestos during, and as a result of, their employment or
association with the Company or exposure to products containing
asbestos produced or sold by the Company. The lawsuits generally
relate to products the Company has not manufactured for at least 15
years. At December 31, 1994, the number of such lawsuits pending was
approximately 25,200. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Financial Condition
and Capital Spending - Asbestos Contingencies." The portion of Note
10 of the Notes to Consolidated Financial Statements under the heading
"Asbestos Contingencies" is incorporated herein by reference.
Other
On August 24, 1994, the United States Department of Justice (the
"DOJ") issued Civil Investigative Demand No. 11356 ("CID") requesting
information from Kaiser regarding (i) its production, capacity to
produce, and sales of primary aluminum from January 1, 1991, to the
date of the response; (ii) any actual or contemplated reductions in
its production of primary aluminum during that period; and (iii) any
communications with others regarding any actual, contemplated,
possible or desired reductions in primary aluminum production by
Kaiser or any of its competitors during that period. Kaiser has
submitted documents and interrogatory answers to the DOJ responding to
the CID.
Various other lawsuits and claims are pending against the Company.
Management believes that resolution of the lawsuits and claims made
against the Company, including matters discussed above, will not have
a material adverse effect on the Company's consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of 1994.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the Company's common
stock, which is held solely by Kaiser. The information in Note 9 of
the Notes to Consolidated Financial Statements under the heading
"Dividends on Common Stock" at page 46 of this Report, are
incorporated herein by reference. The Company has not paid any
dividends on its common stock during the two most recent fiscal years.
The Indentures and the 1994 Credit Agreement (Exhibits 4.1 through 4.6
to this Report) contain restrictions on the ability of the Company to
pay dividends on or make distributions on account of the Company's
common stock and restrictions on the ability of the Company's
subsidiaries to transfer funds to the Company in the form of cash
dividends, loans or advances. Exhibits 4.1 through 4.6 to this
Report; Note 5 of the Notes to Consolidated Financial Statements at
pages 33-35 of this Report; and the information under the heading
"Financial Condition and Capital Spending - Capital Structure" at
pages 18-19 of this Report, are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated herein by
reference to the table at page 3 of this Report; to the table at page
16 of this Report; to the discussion under the heading "Results of
Operations" at page 17 of this Report; to Note 1 of the Notes to
Consolidated Financial Statements at pages 29-31 of this Report; and
to pages 54-55 of this Report.
15
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company operates in two business segments: bauxite and alumina,
and aluminum processing. Intracompany shipments and sales are
excluded from the information set forth below. The following should be
read in conjunction with the Company's consolidated financial
statements and the notes thereto, contained elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
(In millions of dollars, except shipments and prices) 1994 1993 1992
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shipments: (000 tons) <F1>
Alumina 2,086.7 1,997.5 2,001.3
Aluminum processing:
Primary aluminum 224.0 242.5 355.4
Fabricated aluminum products 399.0 373.2 343.6
-------- -------- --------
Total aluminum products 623.0 615.7 699.0
======== ======== ========
Average realized sales price:
Alumina (per ton) $ 169 $ 169 $ 195
Primary aluminum (per pound) .59 .56 .66
Net sales:
Bauxite and alumina:
Alumina $ 352.8 $ 338.2 $ 390.8
Other <F2><F3> 79.7 85.2 75.7
-------- -------- --------
Total bauxite and alumina 432.5 423.4 466.5
-------- -------- --------
Aluminum processing:
Primary aluminum 292.0 301.7 515.0
Fabricated aluminum products 1,043.0 981.4 913.7
Other <F3> 14.0 12.6 13.9
-------- -------- --------
Total aluminum processing 1,349.0 1,295.7 1,442.6
-------- -------- --------
Total net sales $1,781.5 $1,719.1 $1,909.1
======== ======== ========
Operating income (loss):
Bauxite and alumina $ 19.8 $ (4.5) $ 62.6
Aluminum processing (8.4) (46.3) 104.9
Corporate (67.3) (72.3) (77.3)
-------- -------- --------
Total operating income (loss) $ (55.9) $ (123.1) $ 90.2
======== ======== ========
Income (loss) before extraordinary loss and cumulative effect of changes
in accounting principles $ (96.2) $ (117.6) $ 29.6
Extraordinary loss on early extinguishment of debt, net of tax benefit
of $2.9 and $11.2 for 1994 and 1993, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles, net of tax
benefit of $237.7 (507.9)
-------- -------- --------
Net income (loss) $ (101.6) $ (647.3) $ 29.6
======== ======== ========
Capital expenditures $ 70.0 $ 67.7 $ 114.4
======== ======== ========
<FN>
<F1>
All references to tons refer to metric tons of 2,204.6 pounds.
<F2>
Includes net sales of bauxite.
<F3>
Includes the portion of net sales attributable to minority interests
in consolidated subsidiaries.
</FN>
</TABLE>
16
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations
The previous table provides selected operational and financial
information on a consolidated basis with respect to the Company for
the years ended December 31, 1994, 1993, and 1992. As an integrated
aluminum producer, the Company uses a portion of its bauxite, alumina,
and primary aluminum production for additional processing at certain
of its facilities.
Net Sales
Bauxite and Alumina - Revenue from net sales of bauxite and alumina to
third parties was $432.5 million in 1994, compared with $423.4 million
in 1993 and $466.5 million in 1992. Revenue from alumina increased 4%
to $352.8 million in 1994 from $338.2 million in 1993 because of
increased shipments. Revenue from alumina decreased 13% to $338.2
million in 1993 from $390.8 million in 1992 because of lower average
realized prices. The remainder of the segment's sales revenues were
from sales of bauxite, which remained about the same throughout the
three years, and the portion of sales of alumina attributable to the
minority interest in Alpart.
Aluminum Processing - Revenue from net sales to third parties for the
aluminum processing segment was $1,349.0 million in 1994, compared
with $1,295.7 million in 1993 and $1,442.6 million in 1992. The bulk
of the segment's sales represents the Company's primary aluminum and
fabricated aluminum products, with the remainder attributable to the
portion of sales of primary aluminum related to the minority interest
in Valco.
Revenue from primary aluminum decreased 3% to $292.0 million in 1994
from $301.7 million in 1993 as higher average realized prices were
more than offset by lower shipments. Average realized prices in 1994
reflected the defensive hedging of primary aluminum prices in respect
of 1994 shipments, which was initiated prior to recent improvements in
metal prices. In 1994, the Company's average realized price from sales
of primary aluminum was approximately $.59 per pound, compared to the
average Midwest United States transaction price of approximately $.72
per pound during the year. Shipments in 1994 reflected production
curtailments at the Company's smelters in the Pacific Northwest and
Ghana. Revenue from primary aluminum decreased 41% to $301.7 million
in 1993 from $515.0 million in 1992 because of lower shipments and
lower average realized prices. Shipments of primary aluminum to third
parties were approximately 36% of total aluminum products shipments in
1994, compared with approximately 39% in 1993 and 51% in 1992.
Revenue from fabricated aluminum products increased 6% to $1,043.0
million in 1994 from $981.4 million in 1993, principally due to
increased shipments of most of these products. Revenue from fabricated
aluminum products increased 7% to $981.4 million in 1993 from $913.7
million in 1992, principally due to increased shipments of most
fabricated aluminum products, partially offset by a decrease in
average realized prices of most of these products.
Operating Income (Loss)
The Company had an operating loss of $55.9 million in 1994, compared
with a loss of $123.1 million in 1993 and income of $90.2 million in
1992. In 1993, the Company recorded a pre-tax charge of $35.8 million
related to restructuring charges (see Note 2 of the Notes to
Consolidated Financial Statements) and a pre-tax charge of $19.4
million ($29.0 million in 1992) because of a reduction in the carrying
value of its inventories caused principally by prevailing lower prices
for alumina, primary aluminum, and fabricated aluminum products.
Bauxite and Alumina - This segment's operating income in 1994 was
$19.8 million, compared with a loss of $4.5 million in 1993 and income
of $62.6 million in 1992. In 1994 compared with 1993, operating income
was favorably affected by increased shipments and lower manufacturing
costs. In 1993 compared with 1992, operating income was adversely
affected principally due to a decrease in average realized prices for
alumina, which more than offset above-market prices for virtually all
of the Company's excess alumina sold forward in prior periods under
long-term contracts.
17
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Aluminum Processing - This segment's operating loss was $8.4 million
in 1994, compared with $46.3 million in 1993 and income of $104.9
million in 1992. The decrease in operating loss in 1994 compared with
1993 was caused principally by the $35.8 million restructuring charges
previously described, increased shipments of fabricated aluminum
products and higher average realized prices of primary aluminum,
partially offset by lower shipments of primary aluminum.
The decrease in 1993 compared with 1992 was caused principally by
reduced shipments and lower average realized prices of primary
aluminum, which more than offset increased shipments of fabricated
aluminum products. In 1993, the Company implemented a restructuring
plan for its flat-rolled products operation at its Trentwood plant in
response to overcapacity in the aluminum rolling industry, flat demand
in U.S. can stock markets, and declining demand for aluminum products
sold to customers in the commercial aerospace industry, all of which
resulted in declining prices in Trentwood's key markets. Additionally,
the Company implemented a plan to streamline its casting operations,
which included the shutdown of two facilities located in Ohio. This
entire restructuring is expected to be completed by the end of 1995
and will affect approximately 620 employees. The pre-tax charge for
this restructuring of $35.8 million included $25.2 million for
pension, severance, and other termination benefits at Trentwood; $8.0
million related to casting facilities; and $2.6 million for various
other items. At December 31, 1994, Trentwood was ahead of its
restructuring plan, which is expected to result in annual cost savings
of at least $50.0 million after it has been fully implemented. Other
contributing factors were lower production at the Company's smelters
in the Pacific Northwest in 1993 as a result of the removal of three
reduction potlines from production in January 1993 in response to the
BPA's reduction during the first quarter of 1993 of the amount of
power it normally provides to the Company, and the increased cost of
substitute power in such quarter. In both 1993 and 1992, the Company
realized above-market prices for significant quantities of primary
aluminum sold forward in prior periods under long-term contracts.
Corporate - Corporate operating expenses of $67.3 million, $72.3
million, and $77.3 million in 1994, 1993, and 1992, respectively,
represented corporate general and administrative expenses that were
not allocated to segments.
Income (Loss) Before Extraordinary Loss and Cumulative
Effect of Changes in Accounting Principles
Loss before extraordinary loss and cumulative effect of changes in
accounting principles was $96.2 million in 1994, compared with $117.6
million in 1993, as a result of the reduction in operating loss
previously described, partially offset by a lower credit for income
taxes. Loss before extraordinary loss and cumulative effect of changes
in accounting principles was $117.6 million in 1993, compared with
income of $29.6 million in 1992. This decrease resulted from the lower
operating income previously described and $10.8 million of other pre-
tax charges in 1993, principally related to establishing additional
litigation and environmental reserves.
Net Income (Loss)
The Company reported a net loss of $101.6 million in 1994, compared
with $647.3 million in 1993 and net income of $29.6 million in 1992.
The principal reasons for reduced net loss in 1994 compared with 1993
were the reduction in the operating loss previously described and the
cumulative effect of changes in accounting principles of $507.9
million related to adoption of Statement of Financial Accounting
Standards No. 106, 109, and 112 (see Note 1 of the Notes to
Consolidated Financial Statements). The principal reasons for the
earnings decline in 1993 compared with 1992 were the cumulative effect
of changes in accounting principles of $507.9 million (see above), the
extraordinary loss on early extinguishment of debt of $21.8 million,
and the operating losses described above.
Financial Condition and Capital Spending
Capital Structure
On February 17, 1994, the Company and its parent, Kaiser, entered into
a credit agreement with BankAmerica Business Credit, Inc. (as agent
for itself and other lenders), Bank of America National Trust and
Savings Association, and certain other lenders (as amended, the "1994
Credit Agreement"). Prior to its amendment in March 1995, the 1994
18
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Credit Agreement consisted of a $275.0 million five-year secured,
revolving line of credit, scheduled to mature in 1999. The 1994 Credit
Agreement replaced the credit agreement entered into in December
1989 by the Company and Kaiser with a syndicate of commercial banks
and other financial institutions (as amended, the "1989 Credit
Agreement"). In March 1995, the 1994 Credit Agreement was amended
pursuant to which the line of credit was increased to $325.0 million.
The Company is able to borrow under the facility by means of revolving
credit advances and letters of credit (up to $125.0 million) in an
aggregate amount equal to the lesser of $325.0 million or a borrowing
base relating to eligible accounts receivable plus eligible inventory.
The Company recorded a pre-tax extraordinary loss of $8.3 million
($5.4 million after taxes) in the first quarter of 1994, consisting
primarily of the write-off of unamortized deferred financing costs
related to the 1989 Credit Agreement. As of March 15, 1995, $199.3
million (of which $59.3 million could have been used for letters of
credit) was available to the Company under the 1994 Credit Agreement.
The 1994 Credit Agreement is unconditionally guaranteed by Kaiser and
by certain significant subsidiaries of the Company. Loans under the
1994 Credit Agreement bear interest at a rate per annum, at the
Company's election, equal to a Reference Rate (as defined) plus 1-1/2%
or LIBO Rate (Reserve Adjusted) (as defined) plus 3-1/4%. After June
30, 1995, the interest rate margins applicable to borrowings under the
1994 Credit Agreement may be reduced by up to 1-1/2% (non-
cumulatively), based upon a financial test, determined quarterly.
The 1994 Credit Agreement requires the Company to maintain certain
financial covenants and places restrictions on Kaiser's and the
Company'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 1994 Credit Agreement is secured by, among other things, (i)
mortgages on the Company's major domestic plants (excluding the
Gramercy plant); (ii) subject to certain exceptions, liens on the
accounts receivable, inventory, equipment, domestic patents and
trademarks, and substantially all other personal property of the
Company and certain of its subsidiaries; (iii) a pledge of all the
stock of the Company owned by Kaiser; and (iv) pledges of all of the
stock of a number of the Company'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.
In the first quarter of 1994, Kaiser consummated the public offering
of 8,855,550 shares of its 8.255% PRIDES, Convertible Preferred Stock
(the "PRIDES"). The net proceeds from the sale of the shares of PRIDES
were approximately $100.1 million. Kaiser used such net proceeds to
make non-interest-bearing loans to the Company in the aggregate
principal amount of $33.2 million (the aggregate dividends scheduled
to accrue on the shares of PRIDES from the issuance date until
December 31, 1997, the date on which the outstanding PRIDES will be
mandatorily converted into shares of Kaiser's common stock), evidenced
by intercompany notes, and used the balance of such net proceeds to
make capital contributions to the Company in the aggregate amount of
$66.9 million.
On February 17, 1994, the Company issued $225.0 million of its 9-7/8%
Senior Notes due 2002 (the "Senior Notes"). The net proceeds of the
offering of the Senior Notes were used to reduce outstanding
borrowings under the revolving credit facility of the 1989 Credit
Agreement immediately prior to the effectiveness of the 1994 Credit
Agreement and for working capital and general corporate purposes.
The offering of the PRIDES, the issuance of the Senior Notes, and the
replacement of the 1989 Credit Agreement were the final steps of a
comprehensive refinancing plan which the Company and Kaiser began in
January 1993 to extend the maturities of the Company's outstanding
indebtedness, enhance its liquidity, and raise new equity capital. At
December 31, 1994, the Company's total consolidated indebtedness,
including notes payable to parent, was $807.3 million, compared to
$760.9 million at December 31, 1993.
The obligations of the Company with respect to the Senior Notes and
the 12-3/4% Notes (see Note 5 of the Notes to Consolidated Financial
Statements) are guaranteed, jointly and severally, by certain
subsidiaries of the Company. The indentures governing the Senior Notes
and the 12-3/4% Notes restrict, among other things, the Company's
ability to incur debt, undertake transactions with affiliates, and pay
dividends.
19
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Cash from Operations
Cash used for operations was $40.5 million in 1994, compared with cash
provided by operations of $25.3 million in 1993 and $28.0 million in
1992. The decrease in cash provided in 1994 compared with 1993 was
primarily due to margin deposits of $50.5 million under certain
hedging contracts and an increase in inventories.
Capital Expenditures
The Company's capital expenditures of $252.1 million (of which $34.0
million was funded by the Company's minority partners in certain
foreign joint ventures) during the three years ended December 31,
1994, were made primarily to improve production efficiency, reduce
operating costs, expand capacity at existing facilities, and construct
new facilities. Total consolidated capital expenditures were $70.0
million in 1994, compared with $67.7 million in 1993 and $114.4
million in 1992 (of which $7.5, $9.4, and $17.1 million were funded by
the minority partners in certain foreign joint ventures in 1994, 1993,
and 1992, respectively). Total consolidated capital expenditures (of
which approximately 11% is expected to be funded by the minority
partners in certain foreign joint ventures) are expected to be between
$80.0 and $130.0 million per year in the years 1995-1997, subject to
necessary approvals, if required, from the lenders under the 1994
Credit Agreement.
Dividends and Distributions
The declaration and payment of dividends by the Company and Kaiser on
shares of their common stock is subject to certain covenants contained
in the 1994 Credit Agreement and, in the case of the Company, the
Senior Note Indenture and the 12-3/4% Note Indenture. The 1994 Credit
Agreement does not permit the Company or Kaiser to pay any dividends
on their common stock. The declaration and payment of dividends by
Kaiser on the shares of the Series A Mandatory Conversion Premium
Dividend Preferred Stock (the "Series A Shares") and the PRIDES is
expressly permitted by the terms of the 1994 Credit Agreement to the
extent Kaiser receives payments on the intercompany notes or certain
other permitted distributions from the Company.
Joint Venture Indebtedness
The Company historically has participated in various raw material
joint ventures outside the United States. At December 31, 1994, the
Company was unconditionally obligated for $78.7 million of
indebtedness of one such joint venture affiliate.
Environmental Contingencies
The Company and Kaiser are subject to a wide variety of environmental
laws and regulations and to fines or penalties assessed for alleged
breaches of the environmental laws and to claims and litigation based
upon such laws. The Company currently is subject to a number of
lawsuits under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendments
Reauthorization Act of 1986 ("CERCLA"), and, along with certain other
entities, has been named as a potentially responsible party for
remedial costs at certain third-party sites listed on the National
Priorities List under CERCLA.
Based 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, totaling $40.1 million at December 31, 1994.
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. 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 approximately $20.0 million. 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
20
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
that the resolution of such uncertainties should not have a material
adverse effect on the Company's consolidated financial position or
results of operations. See Note 10 of the Notes to Consolidated
Financial Statements for further description of these contingencies.
Asbestos Contingencies
The Company is a defendant in a number of lawsuits 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 the Company or exposure to products
containing asbestos produced or sold by the Company. The lawsuits
generally relate to products the Company has not manufactured for at
least 15 years. At December 31, 1994, the number of such lawsuits
pending was approximately 25,200 with approximately 14,300 received
and 12,500 settled or dismissed in 1994.
Based on past experience and reasonably anticipated future activity,
the Company has established an accrual of $102.0 million at December
31, 1994, for estimated asbestos-related costs for claims filed and
estimated to be filed and settled through 2007. The Company does not
presently believe there is a reasonable basis for estimating such
costs beyond 2007 and, accordingly, no accrual has been recorded for
such costs which may be incurred.
The Company believes that it has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While
claims for recovery from some of the Company's insurance carriers are
currently subject to pending litigation and other carriers have raised
certain defenses, the Company believes, based on prior insurance-
related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of counsel, that substantial
recoveries from the insurance carriers are probable. Accordingly, an
estimated aggregate insurance recovery of $86.4 million, determined on
the same basis as the asbestos-related cost accrual, is recorded
primarily in Other assets at December 31, 1994.
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
results of operations. See Note 10 of the Notes to Consolidated
Financial Statements for further description of this contingency.
Income Tax Matters
------------------
The Company's net deferred income tax assets as of December 31, 1994,
were $280.8 million, net of valuation allowances of $133.9 million.
Approximately $124.9 million of these net deferred income tax assets
relate to the benefit of loss and credit carryforwards, net of
valuation allowances. The Company evaluated all appropriate factors to
determine the proper valuation allowances for these carryforwards,
including any limitations concerning their use and the year the
carryforwards expire, as well as the levels of taxable income
necessary for utilization. The Company believes, based on the cyclical
nature of its business, its history of prior operating earnings, and
its expectations for future years, that it will more likely than not
generate sufficient taxable income to realize the benefit attributable
to the loss and credit carryforwards for which valuation allowances
were not provided. A principal component of the remaining amount of
the net deferred income tax assets is the tax benefit associated with
the accrual for postretirement benefits other than pensions. The
future tax deductions with respect to the turnaround of this accrual
will occur over a 30- to 40-year period. The Company believes a long-
term view of profitability is appropriate and has concluded that this
net deferred income tax asset will more likely than not be realized
despite the operating losses incurred in recent years. See Note 6 of
the Notes to Consolidated Financial Statements for a discussion of
these and other income tax matters.
21
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Trends
------
During 1994, the expansion of world economies increased the demand for
aluminum. This factor, together with primary aluminum smelter cutbacks
caused by previous excessive aluminum inventories and low prices,
resulted in lower London Metal Exchange inventories of primary
aluminum at year-end 1994 than at year-end 1993. Average Midwest U.S.
transaction prices for aluminum increased from a low of $.504 per
pound in November 1993 to $.915 per pound in December 1994. The
Company expects to be profitable in 1995, considering its hedging
program in place at December 31, 1994.
Sensitivity to Prices and Hedging Programs
The Company's operating results are sensitive to changes in the prices
of alumina, primary aluminum, and fabricated aluminum products, and
also depend to a significant degree on the volume and mix of all
products sold and on its hedging strategies. Consequently, the Company
has developed strategies to mitigate its exposure to possible declines
in the market prices of alumina, primary aluminum, and fabricated
aluminum products while retaining the ability to participate in
favorable pricing environments that may materialize. The Company
enters into a number of financial instruments with off-balance-sheet
risk in the normal course of business that are designed to reduce its
exposure to fluctuations in foreign exchange rates, alumina, primary
aluminum, and fabricated aluminum products prices, and the cost of
purchased commodities.
The Company has significant expenditures which are denominated in
foreign currencies related to long-term purchase commitments with its
affiliates in Australia and the United Kingdom, which expose it to
certain exchange rate risks. In order to mitigate its exposure, the
Company periodically enters into forward foreign exchange and currency
option contracts in Australian dollars and Pounds Sterling to hedge
these commitments. The forward foreign currency exchange contracts are
agreements to purchase or sell a foreign currency, for a price
specified at the contract date, with delivery and settlement in the
future. At December 31, 1994, the Company had net forward foreign
exchange contracts totaling approximately $74.4 million for the
purchase of 102.0 million Australian dollars through December 31,
1996.
To mitigate its exposure to declines in the market prices of alumina,
primary aluminum, and fabricated aluminum products, while retaining
the ability to participate in favorable pricing environments that may
materialize, the Company has developed strategies which include
forward sales of primary aluminum at fixed prices and the purchase or
sale of options for primary aluminum. Under the principal components
of the Company's price risk management strategy, which can be modified
at any time, (i) varying quantities of the Company's anticipated
production are sold forward at fixed prices; (ii) call options are
purchased to allow the Company to participate in certain higher market
prices, should they materialize, for a portion of the Company's
primary aluminum and alumina sold forward; (iii) option contracts are
entered into to establish a price range the Company will receive for a
portion of its primary aluminum and alumina; and (iv) put options are
purchased to establish minimum prices the Company will receive for a
portion of its primary aluminum and alumina. In this regard, in
respect of its 1995 anticipated production, as of December 31, 1994,
the Company had sold forward 170,950 metric tons of primary aluminum
at fixed prices, purchased call options in respect of 69,000 metric
tons of primary aluminum, purchased put options to establish a minimum
price for 193,500 metric tons of primary aluminum, and entered into
option contracts that established a price range for 90,000 metric tons
of primary aluminum. The Company will not receive the benefit of
market price increases to the extent (i) the quantity of production
sold forward is greater than the tonnage covered by the purchased call
options; (ii) market prices exceed the prices at which primary
aluminum is sold forward, but are less than the strike price of the
purchased call options, on the tonnage covered by the options; or
(iii) market prices exceed the maximum of the price range on the
tonnage covered by the option contracts entered to establish a price
range.
In addition, the Company enters into forward fixed price arrangements
with certain customers which provide for the delivery of a specific
quantity of fabricated aluminum products over a specified future
period of time. In order to establish the cost of primary aluminum for
a portion of such sales, the Company may enter into forward and option
22
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
contracts. In this regard, at December 31, 1994, the Company had
purchased 4,500 metric tons of primary aluminum under forward purchase
contracts at fixed prices that expire at various times through June
1995.
The Company has also entered into a natural gas pricing contract to
fix future prices of a portion (20,000 million BTUs per day) of a
plant's natural gas supply through March 1995.
At December 31, 1994, the net unrealized gain on the Company's
position in forward foreign exchange was $3.5 million and the net
unrealized loss on aluminum forward sales and option contracts and the
natural gas pricing contract was $80.4 million, based on a price of
$1,955 per metric ton of aluminum and $1.59 per million BTUs of
natural gas. See Note 11 of the Notes to Consolidated Financial
Statements.
Since December 31, 1994, the Company has entered into:
O Additional forward foreign exchange contracts totaling
approximately $44.3 million for the purchase of 60.0 million
Australian dollars from July 1995 through December 1996 in
respect of its commitments for 1995 and 1996 expenditures
denominated in Australian dollars.
O Additional hedge positions in respect of its anticipated 1995
and 1996 production. As of the date of this report, the Company
had sold forward an additional 121,025 metric tons of primary
aluminum at fixed prices.
O A natural gas pricing contract to fix future prices of a portion
(20,000 million BTUs per day) of a plant's natural gas supply
through September 1995.
At February 28, 1995, the net unrealized loss on the Company's
position in forward foreign exchange was $.7 million, and the net
unrealized loss on aluminum forward sales and option contracts and
natural gas pricing contracts was $3.6 million, based on a price of
$1,808 per metric ton of aluminum and $1.42 per million BTUs of
natural gas.
Labor Matter
On February 17, 1995, the Company's approximately 3,000 hourly-paid
employees represented by the USWA failed to ratify a proposed master
labor agreement (47 months duration effective November 1, 1994 through
September 30, 1998) with the Company which had been recommended for
ratification by the USWA, and on February 20, 1995, a strike by such
employees began which affected five plants: aluminum smelters at
Tacoma and Mead (Spokane), Washington; a sheet and plate rolling mill
at Trentwood (Spokane), Washington; an alumina refinery at Gramercy,
Louisiana; and a rod and bar plant at Newark, Ohio. The strike
continued for eight days until the agreement (including two technical
modifications) was ratified by those employees on February 28, 1995.
During the strike, operations at all five plant locations continued at
various levels of production, and all five plants continued to ship
product to customers. Management believes that the temporary
disruptions to normal production and shipments resulting from the
strike should not have a material adverse effect on the financial
condition or results of operations of the Company for 1995 and that
the Company's employee relations will continue to be satisfactory.
23
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Public Accountants . . . . . . . . . . 25
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 26
Statements of Consolidated Income (Loss) . . . . . . . . . . 27
Statements of Consolidated Cash Flows . . . . . . . . . . . 28
Notes to Consolidated Financial Statements. . . . . . . . . . 29
Five-year Financial Data. . . . . . . . . . . . . . . . . . . 54
Quarterly Financial Data. . . . . . . . . . . . . . . . . . . 56
Financial statement schedules are inapplicable or the required
information is included in the Consolidated Financial Statements or
the Notes thereto.
24
<PAGE>
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, 1994 and 1993, and the related
statements of consolidated income and cash flows for each of the three
years in the period ended December 31, 1994. 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,
1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As explained in Note 1 of the Notes to Consolidated Financial
Statements, effective January 1, 1993, the Company changed its methods
of accounting for postretirement benefits other than pensions,
postemployment benefits, and income taxes.
ARTHUR ANDERSEN LLP
San Francisco, California
February 17, 1995
25
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
-------------------
(In millions of dollars, except share amounts) 1994 1993
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 12.0 $ 14.2
Receivables:
Trade, less allowance for doubtful receivables of $4.2 in 1994 and $2.9 in 1993 150.7 156.1
Other 49.8 79.9
Inventories 468.0 426.9
Prepaid expenses and other current assets 158.0 60.7
-------- --------
Total current assets 838.5 737.8
Investments in and advances to unconsolidated affiliates 169.7 183.2
Property, plant, and equipment - net 1,133.2 1,163.7
Deferred income taxes 271.0 210.3
Other assets 281.2 233.2
-------- --------
Total $2,693.6 $2,528.2
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 152.1 $ 126.3
Accrued interest 32.6 23.6
Accrued salaries, wages, and related expenses 77.7 56.1
Accrued postretirement medical benefit obligation - current portion 47.0 47.6
Other accrued liabilities 171.7 133.1
Payable to affiliates 85.2 62.4
Short-term borrowings .5
Long-term debt - current portion 11.5 8.7
Notes payable to parent - current portion 21.2 12.6
-------- --------
Total current liabilities 599.0 470.9
Long-term liabilities 495.5 501.7
Accrued postretirement medical benefit obligation 734.9 713.1
Long-term debt 751.1 720.2
Notes payable to parent 23.5 18.9
Minority interests 85.4 69.7
Redeemable preference stock - aggregate liquidation value of $45.6 in 1994
and $54.1 in 1993 29.0 33.6
Stockholders' equity (deficit):
Preference stock - cumulative and convertible, par value $100, authorized
1,000,000 shares; issued and outstanding, 23,436 and 24,039 in 1994 and 1993 1.8 1.8
Common stock, par value 33-1/3 cents, authorized 100,000,000 shares;
issued and outstanding, 46,171,365 shares in 1994 and 1993 15.4 15.4
Additional capital 1,626.3 1,471.2
Accumulated deficit (271.5) (165.2)
Additional minimum pension liability (9.1) (21.6)
Less: Note receivable from parent (1,387.7) (1,301.5)
-------- --------
Total stockholders' equity (deficit) (24.8) .1
-------- --------
Total $2,693.6 $2,528.2
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
26
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
<CAPTION>
Year Ended December 31,
------------------------------
(In millions of dollars) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,781.5 $1,719.1 $1,909.1
-------- -------- --------
Costs and expenses:
Cost of products sold 1,625.5 1,587.7 1,619.3
Depreciation 95.4 97.1 80.3
Selling, administrative, research and development, and general 116.5 121.6 119.3
Restructuring of operations 35.8
-------- -------- --------
Total costs and expenses 1,837.4 1,842.2 1,818.9
-------- -------- --------
Operating income (loss) (55.9) (123.1) 90.2
Other income (expense):
Interest and other income - net (7.3) (1.5) 16.9
Interest expense (88.6) (84.2) (78.7)
-------- -------- --------
Income (loss) before income taxes, minority interests, extraordinary loss,
and cumulative effect of changes in accounting principles (151.8) (208.8) 28.4
Credit (provision) for income taxes 54.0 86.9 (5.3)
Minority interests 1.6 4.3 6.5
-------- -------- --------
Income (loss) before extraordinary loss and cumulative effect of changes
in accounting principles (96.2) (117.6) 29.6
Extraordinary loss on early extinguishment of debt, net of tax benefit
of $2.9 and $11.2 for 1994 and 1993, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles, net of tax benefit
of $237.7 (507.9)
-------- -------- --------
Net income (loss) $ (101.6) $ (647.3) $ 29.6
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
27
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<CAPTION>
Year Ended December 31,
--------------------------
(In millions of dollars) 1994 1993 1992
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(101.6) $(647.3) $ 29.6
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation 95.4 97.1 80.3
Amortization of deferred financing costs and discount on long-term debt 6.2 11.2 11.5
Non-cash postretirement medical benefit expenses 13.9 19.2
Restructuring of operations 35.8
Minority interests (1.6) (4.3) (6.5)
Extraordinary loss on early extinguishment of debt - net 5.4 21.8
Cumulative effect of changes in accounting principles - net 507.9
(Decrease) increase in accrued and deferred income taxes (69.2) (96.4) 3.5
Equity in losses of unconsolidated affiliates 1.9 3.3 1.9
Recognition of previously deferred income from a forward alumina sale (.6) (25.7)
Increase (decrease) in accrued interest 9.3 19.2 (.3)
Incurrence of financing costs (19.2) (12.7) (5.5)
Decrease (increase) in receivables 36.2 (6.2) (58.6)
(Increase) decrease in inventories (41.1) 13.0 58.7
(Increase) decrease in prepaid expenses and other current assets (49.7) 7.4 7.6
Increase (decrease) in accounts payable 25.8 (10.3) (5.2)
Increase (decrease) in payable to affiliates and accrued liabilities 37.7 57.2 (87.6)
Other 10.1 10.0 24.3
------- ------- -------
Net cash (used for) provided by operating activities (40.5) 25.3 28.0
------- ------- -------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 4.1 13.1 26.1
Capital expenditures (70.0) (67.7) (114.4)
------- ------- -------
Net cash used for investing activities (65.9) (54.6) (88.3)
------- ------- -------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (345.1) (1,134.) (221.4)
Borrowings of long-term debt, including revolving credit 378.9 1,068.1 303.8
Borrowings from MAXXAM Group Inc. (see supplemental disclosure below) 15.0 2.5
Tender premiums and other costs of early extinguishment of debt (27.1)
Net short-term debt repayments (.5) (4.3) (1.5)
Net borrowings from parent 13.2 31.5
Dividends paid (.7) (1.0) (12.8)
Redemption of preference stock (8.5) (4.2) (7.3)
Capital contribution 66.9 81.5
------- ------- -------
Net cash provided by financing activities 104.2 25.0 63.3
------- ------- -------
Net (decrease) increase in cash and cash equivalents during the year (2.2) (4.3) 3.0
Cash and cash equivalents at beginning of year 14.2 18.5 15.5
------- ------- -------
Cash and cash equivalents at end of year $ 12.0 $ 14.2 $ 18.5
======= ======= =======
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 73.1 $ 53.7 $ 68.1
Income taxes paid 16.0 13.5 1.8
Tax allocation payments to (from) MAXXAM Inc. (3.8) 28.1
Supplemental disclosure of non-cash financing activities:
Contribution to capital of the borrowings from MAXXAM Group Inc. $ 15.0
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
28
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
1. Summary of Significant Accounting Policies
---------------------------------------------
Principles of Consolidation
The consolidated financial statements include the statements of Kaiser
Aluminum & Chemical Corporation (the "Company" or "KACC") and its
majority-owned subsidiaries. Investments in 50%-or-less-owned entities
are accounted for primarily by the equity method. Intercompany
balances and transactions are eliminated. The Company is a wholly
owned subsidiary of Kaiser Aluminum Corporation ("Kaiser") which is a
subsidiary of MAXXAM Inc. ("MAXXAM"). Certain reclassifications of
prior-year information were made to conform to the current
presentation.
Changes in Accounting Principles
The Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"), and Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
("SFAS 112"), as of January 1, 1993. The costs of postretirement
benefits other than pensions and postemployment benefits are now
accrued over the period employees provide services to the date of
their full eligibility for such benefits. Previously, such costs were
expensed as actual claims were incurred. The cumulative effect of the
changes in accounting principles for the adoption of SFAS 106 and SFAS
112 were recorded as charges to results of operations of $497.7 and
$7.3, net of related income taxes of $234.2 and $3.5, respectively.
These deferred income tax benefits were recorded at the federal
statutory rate in effect on the date the accounting standards were
adopted, before giving effect to certain valuation allowances. The new
accounting standards had no effect on the Company's cash outlays for
postretirement or postemployment benefits, nor did these one-time
charges affect the Company's compliance with its existing debt
covenants. The Company reserves the right, subject to applicable
collective bargaining agreements and applicable legal requirements, to
amend or terminate these benefits.
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1,
1993. The adoption of SFAS 109 changes the Company's method of
accounting for income taxes to an asset and liability approach from
the deferral method prescribed by Accounting Principles Board Opinion
No. 11, "Accounting for Income Taxes" ("APB 11"). The asset and
liability approach requires the recognition of deferred income tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns. Under this method, deferred income tax assets and
liabilities are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities using
enacted tax rates. The cumulative effect of the change in accounting
principle reduced the Company's results of operations by $2.9. The
adoption of SFAS 109 required the Company to restate certain assets
and liabilities to their pre-tax amounts from their net-of-tax amounts
originally recorded in connection with the acquisition by MAXXAM in
October 1988. As a result of restating the assets and liabilities, the
loss before income taxes, minority interests, extraordinary loss, and
cumulative effect of changes in accounting principles for the year
ended December 31, 1993, was increased by $9.3.
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.
29
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Finished fabricated products $ 49.4 $ 83.7
Primary aluminum and work in process 203.1 141.4
Bauxite and alumina 102.3 94.0
Operating supplies and repair and maintenance parts 113.2 107.8
------ ------
$468.0 $426.9
====== ======
</TABLE>
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 by class of assets are:
<TABLE>
<CAPTION>
------------------------------------------------------------------
<S> <C>
Land improvements 8 to 25 years
Buildings 15 to 45 years
Machinery and equipment 10 to 22 years
</TABLE>
Other Income
Other income in 1994 and 1993 includes $10.3 and $10.8 of pre-tax
charges related principally to establishing additional litigation and
environmental reserves in the fourth quarters, respectively. Other
income in 1992 includes $14.0 of pre-tax income for non-recurring
adjustments to previously recorded liabilities and reserves in the
fourth quarter.
Deferred Financing Costs
Costs incurred to obtain debt financing are deferred and amortized
over the estimated term of the related borrowing. Amortization of
deferred financing costs of $6.0, $11.2, and $10.9 for the years ended
December 31, 1994, 1993, and 1992, respectively, are included in
interest expense.
Foreign Currency
The Company uses the United States dollar as the functional currency
for its foreign operations.
Derivative Financial Instruments
Gains and losses arising from the use of derivative financial
instruments are reflected in the Company's operating results
concurrently with the consummation of the underlying hedged
transactions. Deferred gains or losses as of December 31, 1994, are
included in Prepaid expenses and other current assets and Other
accrued liabilities. The Company does not hold or issue derivative
financial instruments for trading purposes (see Note 10).
Fair Value of Financial Instruments
The following table presents the estimated fair value of the Company's
financial instruments, together with the carrying amounts of the
related assets or liabilities. Unless otherwise noted, the carrying
amount of all financial instruments is a reasonable estimate of fair
value.
30
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
-------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt $762.6 $747.6 $728.9 $734.1
Foreign currency contracts 3.5
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Debt - The quoted market prices were used for the Senior Notes and
12-3/4% Notes (see Note 5). The fair value of all other debt is based
on discounting the future cash flows using the current rate for debt of
similar maturities and terms.
Foreign Currency Contracts - The fair value generally reflects the
estimated amounts that the Company would receive to enter into
similar contracts at the reporting date, thereby taking into account
unrealized gains or losses on open contracts (see Note 10).
2. Restructuring of Operations
--------------------------------
In 1993, the Company implemented a restructuring plan primarily for
its flat-rolled products operation at its Trentwood plant in response
to overcapacity in the aluminum rolling industry, flat demand in the
U.S. can stock markets, and declining demand for aluminum products
sold to customers in the commercial aerospace industry, all of which
had resulted in declining prices in Trentwood's key markets. As of
December 31, 1994, the costs related to the 1993 pre-tax charge for
this restructuring of $35.8 have been substantially incurred.
3. Investments In and Advances To Unconsolidated Affiliates
-------------------------------------------------------------
Summary combined financial information is provided below for
unconsolidated aluminum investments, most of which supply and process
raw materials. The investees are Queensland Alumina Limited ("QAL")
(28.3% owned), Anglesey Aluminium Limited ("Anglesey") (49.0% owned),
and Kaiser Jamaica Bauxite Company (49.0% owned). The equity in
earnings (losses) before income taxes of such operations is treated as
a reduction (increase) in cost of products sold. At December 31, 1994
and 1993, the Company's net receivables from these affiliates were not
material.
Summary of Combined Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 489.8 $510.3 $586.6
Costs and expenses (494.8) (527.2) (586.7)
Provision (credit) for income taxes (6.3) 1.9 6.9
------- ----- ------
Net income (loss) $ (11.3) $(15.0) $ 6.8
======= ====== ======
Company's equity in losses $ (1.9) $ (3.3) $ (1.9)
======= ====== ======
</TABLE>
31
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
<TABLE>
Summary of Combined Financial Position
<CAPTION>
December 31,
--------------
1994 1993
--------------------------------------------------------------------
<S> <C> <C>
Current assets $342.3 $312.3
Property, plant, and equipment - net 349.4 371.1
Other assets 42.4 46.3
------ ------
Total assets $734.1 $729.7
====== ======
Current liabilities $122.4 $130.4
Long-term debt 307.6 290.0
Other liabilities 31.0 17.8
Stockholders' equity 273.1 291.5
------ ------
Total liabilities and stockholders' equity $734.1 $729.7
====== ======
</TABLE>
The Company's equity in losses differs from the summary net income
(loss) due to various percentage ownerships in the entities and equity
method accounting adjustments.
At December 31, 1994, the Company's investment in its unconsolidated
affiliates exceeded its equity in their net assets by approximately
$67.9. The Company is amortizing this amount over a 12-year period,
which results in an annual amortization charge of approximately $11.6.
The Company and its affiliates have interrelated operations. The
Company provides some of its affiliates with services such as
financing, management, and engineering. Significant activities with
affiliates include the acquisition and processing of bauxite, alumina,
and primary aluminum. Purchases from these affiliates were $219.7,
$206.6, and $219.4 in the years ended December 31, 1994, 1993, and
1992, respectively. No dividends were received from investees in the
three years ended December 31, 1994.
4. Property, Plant, and Equipment
----------------------------------
The major classes of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1993
----------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 153.5 $ 135.1
Buildings 196.8 194.8
Machinery and equipment 1,285.0 1,223.0
Construction in progress 45.0 64.9
-------- --------
1,680.3 1,617.8
Accumulated depreciation 547.1 454.1
-------- --------
Property, plant, and equipment - net $1,133.2 $1,163.7
======== ========
</TABLE>
32
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
5. Long-Term Debt
------------------
Long-term debt and its maturity schedule are as follows:
<TABLE>
<CAPTION>
2000 December 31,
---------------
and 1994 1993
1995 1996 1997 1998 1999 After Total Total
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 Credit Agreement (10% at December 31, 1994) $6.7 $ 6.7
1989 Credit Agreement (6.59% at December 31, 1993) $188.0
9-7/8% Senior Notes, net $223.6 223.6
Pollution Control and Solid Waste Disposal
Facilities Obligations (6.00%-7.75%) $ 1.2 $1.2 $1.3 $1.4 .2 32.8 38.1 39.2
Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0 60.0
Alpart Term Loan (8.95%) 6.2 6.3 6.2 18.7 25.0
12-3/4% Senior Subordinated Notes 400.0 400.0 400.0
Other borrowings (fixed and variable rates) 4.1 1.5 1.7 7.4 .4 .4 15.5 16.7
----- ---- ---- ---- ---- ------ ---- -----
Total $11.5 $9.0 $9.2 $8.8 $7.3 $716.8 762.6 728.9
===== ==== ==== ==== ==== ======
Less current portion 11.5 8.7
------ ------
Long-term debt $751.1 $720.2
====== ======
</TABLE>
1994 Credit Agreement
On February 17, 1994, the Company and Kaiser entered into a credit
agreement with BankAmerica Business Credit, Inc. (as agent for itself
and other lenders), Bank of America National Trust and Savings
Association, and certain other lenders (as amended, the "1994 Credit
Agreement"). The 1994 Credit Agreement consists of a $275.0 five-year
secured, revolving line of credit, scheduled to mature in 1999, and
replaced the credit agreement entered into in December 1989 by the
Company and Kaiser with a syndicate of commercial banks and other
financial institutions (as amended, the "1989 Credit Agreement"). The
Company is able to borrow under the facility by means of revolving
credit advances and letters of credit (up to $125.0) in an aggregate
amount equal to the lesser of $275.0 or a borrowing base relating to
eligible accounts receivable plus eligible inventory. The Company
recorded a pre-tax extraordinary loss of $8.3 ($5.4 after taxes) in
the first quarter of 1994, consisting primarily of the write-off of
unamortized deferred financing costs related to the 1989 Credit
Agreement. As of December 31, 1994, $202.5 (of which $59.3 could have
been used for letters of credit) was available to the Company under
the 1994 Credit Agreement. The 1994 Credit Agreement is
unconditionally guaranteed by Kaiser and by certain significant
subsidiaries of the Company. Loans under the 1994 Credit Agreement
bear interest at a rate per annum, at the Company's election, equal to
a Reference Rate (as defined) plus 1-1/2% or LIBO Rate (Reserve
Adjusted) (as defined) plus 3-1/4%. After June 30, 1995, the interest
rate margins applicable to borrowings under the 1994 Credit Agreement
may be reduced by up to 1-1/2% (non-cumulatively), based on a
financial test, determined quarterly.
The 1994 Credit Agreement requires the Company to maintain certain
financial covenants and places restrictions on the Company's and
Kaiser's ability to, among other things, incur debt and liens, make
investments, pay dividends, undertake transactions with affiliates,
make capital expenditures, and enter into unrelated lines of business.
Neither the Company nor Kaiser currently is permitted to pay dividends
on its common stock. The 1994 Credit Agreement is secured by, among
other things, (i) mortgages on the Company's major domestic plants
(excluding the Gramercy plant); (ii) subject to certain exceptions,
liens on the accounts receivable, inventory, equipment, domestic
patents and trademarks, and substantially all other personal property
of the Company and certain of its subsidiaries; (iii) a pledge of all
the stock of the Company owned by Kaiser; and (iv) pledges of all of
the stock of a number of the Company's wholly
33
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
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.
Senior Notes
Concurrent with the offering by Kaiser of its 8.255% PRIDES,
Convertible Preferred Stock (the "PRIDES") (see Note 9), the Company
issued $225.0 of its 9-7/8% Senior Notes due 2002 (the "Senior
Notes"). The net proceeds of the offering of the Senior Notes were
used to reduce outstanding borrowings under the revolving credit
facility of the 1989 Credit Agreement immediately prior to the
effectiveness of the 1994 Credit Agreement and for working capital and
general corporate purposes.
Senior Subordinated Notes
On February 1, 1993, the Company issued $400.0 of 12-3/4% Senior
Subordinated Notes due 2003 (the "12-3/4% Notes"). The net proceeds
from the sale of the 12-3/4% Notes were used to retire the 14-1/4%
Senior Subordinated Notes due 1995 (the "14-1/4% Notes"), to prepay
$18.0 of the term loan, and to reduce outstanding borrowings under the
revolving credit facility of the 1989 Credit Agreement. These
transactions resulted in a pre-tax extraordinary loss of $33.0 in the
first quarter of 1993, consisting primarily of the write-off of
unamortized discount and deferred financing costs related to the 14-
1/4% Notes and the payment of premiums on the 14-1/4% Notes.
The obligations of the Company with respect to the Senior Notes and
the 12-3/4% Notes are guaranteed, jointly and severally, by certain
subsidiaries of the Company. The indentures governing the Senior Notes
and the 12-3/4% Notes restrict, among other things, the Company's
ability to incur debt, undertake transactions with affiliates, and pay
dividends.
Gramercy Revenue Bonds
In December 1992, the Company entered into an installment sale
agreement (the "Sale Agreement") with the Parish of St. James,
Louisiana (the "Louisiana Parish"), pursuant to which the Louisiana
Parish issued $20.0 aggregate principal amount of its 7-3/4% Bonds due
August 1, 2022 (the "Bonds") to finance the construction of certain
solid waste disposal facilities at the Company's Gramercy plant. The
proceeds from the sale of the Bonds were deposited into a construction
fund and may be withdrawn, from time to time, pursuant to the terms of
the Sale Agreement and the Bond indenture. At December 31, 1994, $6.4
remained in the construction fund. The Sale Agreement requires the
Company to make payments to the Louisiana Parish in installments due
on the dates and in the amounts required to permit the Louisiana
Parish to satisfy all of its payment obligations under the Bonds.
Alpart CARIFA Loan
In December 1991, Alpart entered into a loan agreement with the
Caribbean Basin Projects Financing Authority ("CARIFA") under which
CARIFA loaned Alpart the proceeds from the issuance of CARIFA's
industrial revenue bonds. The terms of the loan parallel the bonds'
repayment terms. The $38.0 aggregate principal amount of Series A
bonds matures on June 1, 2008. The Series A bonds bear interest at a
floating rate of 87% of the applicable LIBID Rate (LIBOR less 1/8 of
1%) on $37.5 of the principal amount (5.2% at December 31, 1994) with
the remaining $.5 bearing interest at a fixed rate of 6.35%. The $22.0
aggregate principal amount of Series B bonds matures on June 1, 2007,
and bears interest at a fixed rate of 8.25%.
Proceeds from the sale of the bonds were used by Alpart to refinance
interim loans from the partners in Alpart, to pay eligible project
costs for the expansion and modernization of its alumina refinery and
related port and bauxite mining facilities, and to pay certain costs
of issuance. Under the terms of the loan agreement, Alpart must remain
a qualified recipient for Caribbean Basin Initiative funds as defined
in applicable laws. Alpart has agreed to indemnify bondholders
34
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
of CARIFA for certain tax payments that could result from events, as
defined, that adversely affect the tax treatment of the interest
income on the bonds. Alpart's obligations under the loan agreement are
secured by a $64.2 letter of credit guaranteed by the partners in
Alpart (of which $22.5 is guaranteed by the Company's minority partner
in Alpart).
Capitalized Interest
Interest capitalized in 1994, 1993, and 1992 was $2.7, $3.4, and $4.4,
respectively.
6. Income Taxes
----------------
Income (loss) before income taxes, minority interests, extraordinary
loss, and cumulative effect of changes in accounting principles by
geographic area is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(168.1) $(232.3) $ (81.3)
Foreign 16.3 23.5 109.7
------- ------- -------
Total $(151.8) $(208.8) $ 28.4
======= ======= =======
</TABLE>
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 credit (provision) for income taxes on income (loss) before income
taxes, minority interests, extraordinary loss, and cumulative effect
of changes in accounting principles consists of:
<TABLE>
<CAPTION>
Federal Foreign State Total
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 Current $(18.0) $ (.1) $(18.1)
Deferred $ 71.4 .6 .1 72.1
------ ------ ------ ------
Total $ 71.4 $(17.4) $ 54.0
====== ====== ====== ======
1993 Current $ 12.5 $ (7.9) $ (.1) $ 4.5
Deferred 68.6 12.0 1.8 82.4
------ ------ ------ ------
Total $ 81.1 $ 4.1 $ 1.7 $ 86.9
====== ====== ====== ======
1992 Current $ (9.7) $(11.4) $ (.1) $(21.2)
Deferred 13.1 3.3 (.5) 15.9
------ ------ ------ ------
Total $ 3.4 $ (8.1) $ (.6) $ (5.3)
====== ====== ====== ======
</TABLE>
The 1994 federal deferred credit for income taxes of $71.4 includes
$29.2 for the benefit of operating loss carryforwards generated in
1994. The 1993 federal deferred credit for income taxes of $68.6
includes $29.1 for the benefit of operating loss carryforwards
generated in 1993 and a $3.4 benefit for increasing net deferred
income tax assets (liabilities) as of the date of enactment (August
10, 1993) of the Omnibus Budget Reconciliation Act of 1993, which
retroactively increased the federal statutory income tax rate from 34%
to 35% for periods beginning on or after January 1, 1993.
35
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
A reconciliation between the credit (provision) for income taxes and
the amount computed by applying the federal statutory income tax rate
to income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes in accounting
principles is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993 1992
----------------------------------------------------------------------------------------------------------
S> <C> <C> <C>
Amount of federal income tax based on the statutory rate $53.1 $73.1 $(9.7)
Percentage depletion 5.6 6.4 6.3
Increase in net deferred income tax assets due to tax rate change 1.8 3.4
Revision of prior years' tax estimates and other changes in valuation allowances .5 3.9 2.9
Foreign taxes, net of federal tax benefit (5.3) (2.6) (.4)
Financial reporting/tax basis differences (4.2)
Other (1.7) 2.7 (.2)
----- ----- -----
Credit (provision) for income taxes $54.0 $86.9 $(5.3)
===== ===== =====
</TABLE>
As shown in the Statements of Consolidated Income (Loss) for the years
ended December 31, 1994 and 1993, the Company reported extraordinary
losses related to the early extinguishment of debt. The Company
reported the 1994 extraordinary loss net of related deferred federal
income taxes of $2.9 and reported the 1993 extraordinary loss net of
related current federal income taxes of $11.2, which approximated the
federal statutory rate in effect on the dates the transactions
occurred.
The Company adopted SFAS 109 as of January 1, 1993, as discussed in
Note 1. The components of the Company's net deferred income tax assets
are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions $ 293.7 $ 285.4
Loss and credit carryforwards 187.4 142.5
Other liabilities 109.6 104.8
Pensions 51.0 60.6
Foreign and state deferred income tax liabilities 28.1 33.0
Property, plant, and equipment 23.1 23.1
Other 3.5 10.5
Valuation allowances (133.9) (133.5)
------- -------
Total deferred income tax assets - net 562.5 526.4
------- -------
Deferred income tax liabilities:
Property, plant, and equipment (203.2) (224.4)
Investments in and advances to unconsolidated affiliates (63.8) (60.6)
Inventories (8.3) (14.8)
Other (6.4) (20.3)
------- -------
Total deferred income tax liabilities
(281.7) (320.1)
------- -------
Net deferred income tax assets $ 280.8 $ 206.3
======= =======
</TABLE>
36
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In milliona of dollars, except share amounts)
--------------------------------------------------------------------
The valuation allowances listed above relate primarily to loss and
credit carryforwards and postretirement benefits other than pensions.
As of December 31, 1994, approximately $124.9 of the net deferred
income tax assets listed above relate to the benefit of loss and
credit carryforwards, net of valuation allowances. The Company
evaluated all appropriate factors to determine the proper valuation
allowances for these carryforwards, including any limitations
concerning their use and the year the carryforwards expire, as well as
the levels of taxable income necessary for utilization. For example,
full valuation allowances were provided for certain credit
carryforwards that expire in the near term. With regard to future
levels of income, the Company believes, based on the cyclical nature
of its business, its history of prior operating earnings, and its
expectations for future years, that it will more likely than not
generate sufficient taxable income to realize the benefit attributable
to the loss and credit carryforwards for which valuation allowances
were not provided. The remaining portion of the Company's net deferred
income tax assets at December 31, 1994, is approximately $155.9. A
principal component of this amount is the tax benefit associated with
the accrual for postretirement benefits other than pensions. The
future tax deductions with respect to the turnaround of this accrual
will occur over a 30- to 40-year period. If such deductions create or
increase a net operating loss in any one year, the Company has the
ability to carry forward such loss for 15 taxable years. For these
reasons, the Company believes a long-term view of profitability is
appropriate and has concluded that this net deferred income tax asset
will more likely than not be realized despite the operating losses
incurred in recent years.
Certain of the deferred income tax assets and liabilities listed above
are included on the Consolidated Balance Sheet in the captions
entitled Receivables, Prepaid expenses and other current assets, Other
accrued liabilities, and Long-term liabilities.
The Company and its subsidiaries (collectively, the "KACC Subgroup")
were included in the consolidated federal income tax returns of MAXXAM
for the period from October 28, 1988, through June 30, 1993. As a
consequence of the issuance of the Depositary Shares on June 30, 1993,
as discussed in Note 9, the KACC Subgroup is no longer included in the
consolidated federal income tax returns of MAXXAM. The KACC Subgroup
has become a member of a new consolidated return group of which Kaiser
is the common parent corporation (the "New Kaiser Tax Group"). The New
Kaiser Tax Group files consolidated federal income tax returns for
taxable periods beginning on or after July 1, 1993.
The tax allocation agreement between the Company and MAXXAM (the "KACC
Tax Allocation Agreement") terminated pursuant to its terms, effective
for taxable periods beginning after June 30, 1993. Any unused federal
income tax attribute carryforwards under the terms of the KACC Tax
Allocation Agreement were eliminated and are not available to offset
federal income tax liabilities for taxable periods beginning on or
after July 1, 1993. Upon the filing of MAXXAM's 1993 consolidated
federal income tax return, the tax attribute carryforwards of the
MAXXAM consolidated return group as of December 31, 1993, were
apportioned in part to Kaiser and the KACC Subgroup, based on the
provisions of the relevant consolidated return regulations. The
benefit of such tax attribute carryforwards apportioned to the KACC
Subgroup approximated the benefit of tax attribute carryforwards
eliminated under the KACC Tax Allocation Agreement. To the extent the
KACC Subgroup generates unused tax losses or tax credits for periods
beginning on or after July 1, 1993, such amounts will not be available
to obtain refunds of amounts paid by the Company to MAXXAM for periods
ending on or before June 30, 1993, pursuant to the KACC Tax Allocation
Agreement.
The Company and MAXXAM entered into the KACC Tax Allocation
Agreement, which became effective as of October 28, 1988. Under the
terms of the KACC Tax Allocation Agreement, MAXXAM computed the
federal income tax liability for the KACC Subgroup as if the KACC
Subgroup were a separate affiliated group of corporations which was
37
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
never connected with MAXXAM. The provisions of the KACC Tax Allocation
Agreement will continue to govern for periods ended prior to July 1,
1993. Therefore, payments or refunds may still be required by or
payable to the Company under the terms of the KACC Tax Allocation
Agreement for these periods due to the final resolution of audits,
amended returns, and related matters. However, the 1994 Credit
Agreement prohibits the payment by the Company to MAXXAM of any
amounts due under the KACC Tax Allocation Agreement, except for
certain payments that are required as a result of audits and only to
the extent of any amounts paid after February 17, 1994, by MAXXAM to
the Company under the KACC Tax Allocation Agreement.
On June 30, 1993, the Company and Kaiser entered into a tax allocation
agreement (the "New KACC Tax Allocation Agreement"), effective for
taxable periods beginning on or after July 1, 1993. The terms of the
New KACC Tax Allocation Agreement are similar, in all material
respects, to those of the KACC Tax Allocation Agreement except that
the Company is liable to Kaiser.
The following table presents the Company's tax attributes for federal
income tax purposes as of December 31, 1994 under the terms of the New
KACC Tax Allocation Agreement. The utilization of certain of these tax
attributes is subject to limitations:
<TABLE>
<CAPTION>
Expiring
Through
-----------------------------------------------------------------------------
<S> <C> <C>
Regular tax attribute carryforwards:
Current year net operating loss $ 83.5 2009
Prior year net operating losses 135.1 2008
General business tax credits 37.4 2006
Foreign tax credits 42.2 1999
Alternative minimum tax credits 15.3 Indefinite
Alternative minimum tax attribute carryforwards:
Current year net operating loss $ 64.1 2009
Prior year net operating losses 84.1 2008
Foreign tax credits 33.8 1999
</TABLE>
7.Employee Benefit and Incentive Plans
---------------------------------------
Retirement Plans
Retirement plans are non-contributory for salaried and hourly
employees and generally provide for benefits based on a formula which
considers length of service and earnings during years of service. The
Company's funding policies meet or exceed all regulatory requirements.
38
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
The funded status of the employee pension benefit plans and the
corresponding amounts that are included in the Company's Consolidated
Balance Sheets are as follows:
<TABLE>
<CAPTION>
Plans with Accumulated
Benefits Exceeding Assets<F1>
December 31,
-----------------------------
1994 1993
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested employees $(663.9) $(705.0)
Nonvested employees (41.1) (40.1)
------- -------
Accumulated benefit obligation (705.0) (745.1)
Additional amounts related to projected salary increases (30.0) (45.5)
------- -------
Projected benefit obligation (735.0) (790.6)
Plan assets (principally common stocks and fixed income
obligations) at fair value 524.6 569.8
------- -------
Plan assets less than projected benefit obligation (210.4) (220.8)
Unrecognized net losses 42.5 75.7
Unrecognized net obligations .8 1.6
Unrecognized prior-service cost 30.9 16.9
Adjustment required to recognize minimum liability (42.9) (47.7)
------- -------
Accrued pension obligation included in the
Consolidated Balance Sheets (principally in long-term liabilities) $(179.1) $(174.3)
======= =======
<FN>
<F1>
Includes plans with assets exceeding accumulated benefits by
approximately $.3 and $.1 in 1994 and 1993, respectively.
</FN>
</TABLE>
As required by Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions, the Company recorded an after-tax
credit (charge) to equity of $12.5 and $(14.9) at December 31, 1994
and 1993, respectively, for the reduction (excess) of the minimum
liability over the unrecognized net obligation and prior-service cost.
These amounts were recorded net of the related income tax (provision)
credit of $(7.3) and $8.7 as of December 31, 1994 and 1993,
respectively, which approximated the federal and state statutory
rates.
The components of net periodic pension cost are:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 11.2 $ 10.8 $ 11.0
Interest cost on projected benefit obligation 57.3 59.2 58.8
Return on assets:
Actual gain (.8) (70.3) (26.3)
Deferred gain (loss) (53.0) 15.9 (31.2)
Net amortization and deferral 4.1 2.3 2.1
------ ------ ------
Net periodic pension cost $ 18.8 $ 17.9 $ 14.4
====== ====== ======
</TABLE>
39
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Assumptions used to value obligations at year-end, and to determine
the net periodic pension cost in the subsequent year are:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.50% 7.50% 8.25%
Expected long-term rate of return on assets 9.50% 10.00% 10.00%
Rate of increase in compensation levels 5.00% 5.00% 5.00%
</TABLE>
Postretirement Benefits Other Than Pensions
The Company adopted SFAS 106 to account for postretirement benefits
other than pensions effective January 1, 1993 (see Note 1). The
Company and its subsidiaries provide postretirement health care and
life insurance benefits to 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. These benefits are provided through
contracts with various insurance carriers. The Company has not funded
the liability for these benefits.
The Company's accrued postretirement benefit obligation is composed of
the following:
<TABLE>
<CAPTION>
December 31,
------------------
1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(566.2) $(629.3)
Active employees eligible for postretirement benefits (30.2) (35.1)
Active employees not eligible for postretirement (98.7) (128.3)
------- -------
Accumulated postretirement benefit obligation (695.1) (792.7)
Unrecognized net (gains) losses (55.0) 67.0
Unrecognized prior-service costs (31.8) (35.0)
------- -------
Accrued postretirement benefit obligation $(781.9) $(760.7)
======= =======
</TABLE>
The components of net periodic postretirement benefit cost are:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1994 1993
----------------------------------------------------------------
<S> <C> <C>
Service cost $ 8.2 $ 7.1
Interest cost 56.9 58.5
Amortization of prior service cost (3.2)
----- -----
Net periodic postretirement benefit cost $61.9 $65.6
===== =====
</TABLE>
The 1995 annual assumed rates of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) are 9.5% and
8.0% for retirees under 65 and over 65, respectively, and are assumed
to decrease gradually to 5.5% in 2007 and remain at that level
thereafter. The health care cost trend rate has a significant effect
on the amounts reported. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 31, 1994, by
approximately $79.8 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1994 by
approximately $9.5. The weighted average discount rate used to
determine the accumulated postretirement benefit obligation at
December 31, 1994 and 1993, was 8.5% and 7.5%, respectively.
40
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Postemployment Benefits
The Company adopted the new accounting standard on postemployment
benefits effective January 1, 1993 (see Note 1). The Company provides
certain benefits to former or inactive employees after employment but
before retirement.
Incentive Plans
Effective January 1, 1989, the Company and Kaiser adopted an unfunded
Long-Term Incentive Plan (the "LTIP") for certain key employees of the
Company, Kaiser, and their consolidated subsidiaries. All compensation
vested as of December 31, 1992, under the LTIP, as amended in 1991 and
1992, has been paid to the participants in cash or common stock of the
Company as of December 31, 1993. Under the LTIP, as amended, 764,092
restricted shares were distributed to six Company executives during
1993 for benefits generally earned but not vested as of December 31,
1992. These shares generally will vest at the rate of 25% per year.
The Company will record the related expense of $6.5 over the four-year
period ending December 31, 1996. In 1993, the Company adopted the
Kaiser 1993 Omnibus Stock Incentive Plan. A total of 2,500,000 shares
of Kaiser common stock were reserved for awards or for payment of
rights granted under the Plan, of which 504,044 shares were available
to be awarded at December 31, 1994. Under the Kaiser 1993 Omnibus
Stock Incentive Plan, 102,564 restricted shares were distributed to
two Company executives during 1994, which will vest at the rate of 25%
per year. The Company will record the related expense of $1.0 over the
four-year period ending December 31, 1998.
In 1993 and 1994, the Compensation Committee of the Board of Directors
approved the award of "nonqualified stock options" to members of
management other than those participating in the LTIP. These options
to acquire Kaiser's common stock generally will vest at the rate of
20-25% per year. Information relating to nonqualified stock options is
shown below:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 664,400
Granted 494,800 664,400
Exercised (at $7.25 per share) (6,920)
Expired or forfeited (29,900)
--------- -------
Outstanding at end of year (prices ranging from $7.25 to $12.75 per share) 1,122,380 664,400
========= =======
Exercisable at end of year 119,980
=========
</TABLE>
Effective January 1, 1990, the Company adopted an unfunded Middle
Management Long-Term Incentive Plan. The Company also has a
supplemental savings and retirement plan for salaried employees, under
which the participants contribute a percentage of their base salaries.
The Company's expense for the above plans was $6.1, $5.3, and $6.6 for
the years ended December 31, 1994, 1993, and 1992, respectively.
8. Redeemable Preference Stock
-------------------------------
In March 1985, the Company entered into a three-year agreement with
the United Steelworkers of America (USWA) whereby shares of a new
series of "Cumulative (1985 Series A) Preference Stock" would be
issued to an employee stock ownership plan in exchange for certain
elements of wages and benefits. Concurrently, a similar plan was
established for certain nonbargaining employees which provided for the
issuance of "Cumulative (1985 Series B) Preference Stock."
41
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Series A Stock and Series B Stock ("Series A and B Stock") each have a
par value of $1 per share and a liquidation and redemption value of
$50 per share plus accrued dividends, if any.
For financial reporting purposes, Series A and B Stock were recorded
at fair market value when issued, based on independent appraisals,
with a corresponding charge to compensation cost. Carrying values have
been increased each year to recognize accretion of redemption values
and, in certain years, there have been other increases for reasons
described below. Changes in Series A and B Stock are shown below.
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C>
Shares:
Beginning of year 1,081,548 1,163,221 1,305,550
Redeemed (169,381) (81,673) (142,329)
--------- --------- ---------
End of year 912,167 1,081,548 1,163,221
========= ========= =========
</TABLE>
No additional Series A or B Stock will be issued based on compensation
earned in 1992 or subsequent years. While held by the plan trustee,
Series B Stock is entitled to cumulative annual dividends, when and as
declared by the Board of Directors, payable in stock or in cash at the
option of the Company on or after March 1, 1991, in respect to years
commencing January 1, 1990, based on a formula tied to the Company's
income before tax from aluminum operations. When distributed to plan
participants (generally upon separation from the Company), the Series
A and B Stocks are entitled to an annual cash dividend of $5 per
share, payable quarterly, when and as declared by the Board of
Directors.
Redemption fund agreements require the Company to make annual payments
by March 31 each year based on a formula tied to consolidated net
income until the redemption funds are sufficient to redeem all Series
A and B Stock. On an annual basis, the minimum payment is $4.3 and the
maximum payment is $7.3. In March 1993 and 1994, the Company
contributed $4.3 for each of the years 1992 and 1993, and will
contribute $4.3 in March 1995 for 1994.
Under the USWA labor contract effective November 1, 1990, the Company
was obligated to offer to purchase up to 80 shares of Series A Stock
from each active participant in 1991 at a price equal to its
redemption value of $50 per share. The Company also agreed to offer to
purchase up to an additional 40 shares from each participant in 1994.
The employees could elect to receive their shares, accept cash, or
place the proceeds into the Company's 401(k) savings plan. Under
separate action, the Company also offered to purchase 80 shares of
Series B Stock from active participants in 1991 and 40 shares in 1994.
Under the provisions of these contracts, in February 1994, the Company
purchased $4.6 and $.8 of the Series A and B Stock, respectively.
Under the USWA labor contract effective November 1, 1994, the Company
is obligated to offer to purchase up to 40 shares of Series A Stock
from each active participant in 1995 at a price equal to its
redemption value of $50 per share. The Company also agreed to offer to
purchase up to an additional 80 shares from each participant in 1998.
In addition, if a profitability test is satisfied for either 1995 or
1996, the Company will offer to purchase from each active participant
an additional 20 shares of such preference stock held in the stock
ownership plan for the benefit of substantially the same employees in
either 1996 or 1997. The employees could elect to receive their
shares, accept cash, or place the proceeds into the Company's 401(k)
savings plan. the Company will provide comparable purchases of Series
B Stock from active participants.
42
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
The Series A and B Stock is distributed in the event of death,
retirement, or in other specified circumstances. The Company also may
redeem such stock at $50 per share plus accrued dividends, if any. At
the option of the plan participant, the trustee shall redeem stock
distributed from the plans at redemption value to the extent funds are
available in the redemption fund. Under the Tax Reform Act of 1986, at
the option of the plan participant, the Company must purchase
distributed shares earned after December 31, 1985, at redemption value
on a five-year installment basis, with interest at market rates. The
obligation of the Company to make such installment payments must be
secured.
The Series A and B Stock is entitled to the same voting rights as the
Company common stock and to certain additional voting rights under
certain circumstances, including the right to elect, along with other
The Company preference stockholders, two directors whenever accrued
dividends have not been paid on two annual dividend payment dates or
when accrued dividends in an amount equivalent to six full quarterly
dividends are in arrears. The Series A and B Stock restricts the
ability of the Company to redeem or pay dividends on common stock if
the Company is in default on any dividends payable on the Series A and
B Stock.
43
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
9. Stockholders' Equity
------------------------
Changes in stockholders' equity were:
<TABLE>
<CAPTION>
Retained Additional Note
Earnings Minimum Receivable
Preference Common Additional (Accumulated Pension From
Stock Stock Capital Deficit) Liability Parent
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $2.2 $15.4 $1,118.4 $ 476.2 $(1,049.3)
Net income 29.6
Interest on note receivable from parent 136.5 (136.5)
Contribution for LTIP shares .7
Conversions (2,405 preference shares into cash) (.2)
Dividends:
Preference stock (1.4)
Common stock (11.4)
Redeemable preference stock accretion (5.1)
Additional minimum pension liability $ (6.7)
---- ----- -------- ------- ----- --------
BALANCE, DECEMBER 31, 1992 2.0 15.4 1,255.6 487.9 (6.7) (1,185.8)
Net loss (647.3)
Interest on note receivable from parent 115.7 (115.7)
Contribution for LTIP shares 3.4
Conversions (1,967 preference shares into cash) (.2)
Capital contribution 96.5
Preference stock dividends (1.0)
Redeemable preference stock accretion (4.8)
Additional minimum pension liability (14.9)
1.8 15.4 1,471.2 (165.2) (21.6) (1,301.5)
BALANCE, DECEMBER 31, 1993 ---- ----- -------- ------- ----- --------
Net loss (101.6)
Interest on note receivable from parent 86.2 (86.2)
Contribution for LTIP shares 2.0
Capital contribution 66.9
Preference stock dividends (.7)
Redeemable preference stock accretion (4.0)
Reduction of minimum pension liability 12.5
---- ----- -------- ------- ----- --------
BALANCE, DECEMBER 31, 1994 $1.8 $15.4 $1,626.3 $(271.5) $ (9.1) $(1,387.7)
==== ===== ======== ======= ====== =========
</TABLE>
Preference Stock
The Company's Cumulative Convertible Preference Stock, $100 par value
("$100 Preference Stock"), restricts acquisition of junior stock and
payment of dividends. At December 31, 1994, such provisions were less
restrictive as to the payment of cash dividends than the 1994 Credit
Agreement provisions. The Company has the option to redeem the $100
Preference
44
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Stocks at par value plus accrued dividends. The Company does not
intend to issue any additional shares of the $100 Preference Stocks.
The 4-1/8% and 4-3/4% (1957 Series, 1959 Series, and 1966 Series) $100
Preference Stock can be exchanged for per share cash amounts of
$69.30, $77.84, $78.38, and $76.46, respectively. The Company records
the $100 Preference Stock at their exchange amounts for financial
statement presentation and the Company includes such amounts in
minority interests. The outstanding shares of preference stock were:
<TABLE>
December 31,
---------------
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
4-1/8% 3,657 3,921
4-3/4% (1957 Series) 2,605 2,623
4-3/4% (1959 Series) 13,534 13,605
4-3/4% (1966 Series) 3,640 3,890
</TABLE>
Additional Capital
Series A Convertible - On June 30, 1993, Kaiser issued 17,250,000 of
its $.65 Depositary Shares (the "Depositary Shares"), each
representing one-tenth of a share of Series A Mandatory Conversion
Premium Dividend Preferred Stock (the "Series A Shares"). In
connection with the issuance of the Depositary Shares, MAXXAM Group
Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, exchanged a $15.0
promissory note of the Company (the "MAXXAM Note") for an additional
2,132,950 Depositary Shares. On August 4, 1993, MGI transferred the
2,132,950 Depositary Shares to MAXXAM in exchange for satisfaction of
a $15.0 promissory note evidencing a cash loan made to MGI by MAXXAM
in January 1993. MAXXAM sold 1,239,400 of the Depositary Shares
during 1994.
The net cash proceeds from the sale of Depositary Shares were
approximately $119.3. Kaiser used $37.8 of such net proceeds to make a
non-interest-bearing loan to the Company evidenced by an intercompany
note, which matures on June 29, 1996, and is payable in quarterly
installments. The intercompany note is designed to provide sufficient
funds to Kaiser to enable it to make dividend payments on the Series A
Shares until June 30, 1996, the date on which the outstanding Series A
Shares are mandatorily converted into shares of Kaiser's common stock.
Kaiser used $81.5 of such net proceeds and the MAXXAM Note to make a
capital contribution to the Company. The Company used $13.7 of the
funds it received from Kaiser to prepay the remaining balance of the
term loan under the 1989 Credit Agreement and $105.6 of such funds to
reduce outstanding borrowings under the revolving credit facility of
the 1989 Credit Agreement.
PRIDES Convertible - In the first quarter of 1994, Kaiser consummated
the public offering of 8,855,550 shares of the PRIDES. The net
proceeds from the sale of the shares of PRIDES were approximately
$100.1. Kaiser used such net proceeds to make non-interest-bearing
loans to the Company in the aggregate principal amount of $33.2 (the
aggregate dividends scheduled to accrue on the shares of PRIDES from
the issuance date until December 31, 1997, the date on which the
outstanding PRIDES will be mandatorily converted into shares of
Kaiser's common stock), evidenced by intercompany notes, and used the
balance of such net proceeds to make capital contributions to the
Company in the aggregate amount of $66.9.
45
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Note Receivable from Parent
The Note Receivable from Parent bears interest at a fixed rate of
6-5/8% per annum. No interest or principal payments are due until
December 21, 2000, after which interest and principal will be payable
over a 15-year term pursuant to a predetermined schedule. Accrued
interest is accounted for as additional contributed capital.
Dividends on Common Stock
The Company paid cash dividends on common stock of $2.9 in each
quarter of 1992. As required under the 1989 Credit Agreement, on
December 15, 1992, the Company issued a Pay-in-Kind Note (the "PIK
Note") to a subsidiar of MAXXAM in the principal amount of $2.5,
representing the entire amount of the dividend received by such subsidiary
in respect of the shares of Kaiser's common stock which it owned.
The PIK Note bears interest, compounded semiannually, at a rate
equal to 12% per annum, and is due and payable, together with accrued
interest thereon, on June 30, 1995.
The indentures governing the Senior Notes, the 12-3/4% Notes, and the
1994 Credit Agreement restrict, among other things, the Company's
ability to incur debt, undertake transactions with affiliates, and pay
dividends. Under the most restrictive of these covenants, the Company
is not currently permitted to pay dividends on its common stock.
10. Commitments and Contingencies
----------------------------------
Commitments
The Company has 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, the Company is unconditionally obligated to pay its
proportional share of debt, operating costs, and certain other costs
of QAL. The aggregate minimum amount of required future principal
payments at December 31, 1994, is $78.7, due in 1997. The Company's
share of payments, including operating costs and certain other
expenses under the agreement, was $85.6, $86.7, and $99.2 for the
years ended December 31, 1994, 1993, and 1992, respectively. The
Company also has agreements to supply alumina to and to purchase
aluminum from Anglesey.
Minimum rental commitments under operating leases at December 31,
1994, are as follows: years ending December 31, 1995 - $22.1; 1996 -
$21.5; 1997 - $21.0; 1998 - $24.1; 1999 - $30.4; thereafter - $213.9.
The future minimum rentals receivable under noncancelable subleases
was $73.2 at December 31, 1994.
Rental expenses were $26.8, $29.0, and $26.2 for the years ended
December 31, 1994, 1993, and 1992, respectively.
Environmental Contingencies
The Company is subject to a wide variety of environmental laws and
regulations and to fines or penalties assessed for alleged breaches of
the environmental laws and to claims and litigation based upon such
laws. The Company currently is subject to a number of lawsuits under
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments Reauthorization
Act of 1986 ("CERCLA"), and, along with certain other entities, has
been named as a potentially responsible party for remedial costs at
certain third-party sites listed on the National Priorities List under
CERCLA.
46
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
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, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $40.9 $46.4 $51.5
Additional amounts 2.8 1.7 4.5
Less expenditures (3.6) (7.2) (9.6)
----- ----- -----
Balance at end of period $40.1 $40.9 $46.4
===== ===== =====
</TABLE>
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
$11.0 for the years 1995 through 1999 and an aggregate of
approximately $11.0 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 approximately $20.0. 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 or results of operations.
Asbestos Contingencies
The Company is a defendant in a number of lawsuits 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 the Company or exposure to products
containing asbestos produced or sold by the Company. The lawsuits
generally relate to products the Company has not manufactured for at
least 15 years. At December 31, 1994, the number of such lawsuits
pending was approximately 25,200 with approximately 14,300 received
and 12,500 settled or dismissed in 1994.
Based on prior experience, the Company estimates that annual future
cash payments in connection with such litigation will be approximately
$11.0 to $14.0 for the years 1995 through 1999, and an aggregate of
approximately $95.0 thereafter through 2007. Based on past experience
and reasonably anticipated future activity, the Company has
established an accrual for estimated asbestos-related costs for claims
filed and estimated to be filed and settled through 2007. The Company
does not presently believe there is a reasonable basis for estimating
such costs beyond 2007 and, accordingly, no accrual has been recorded
for such costs which may be incurred. This accrual was calculated
based on the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments, the
current state of case law related to asbestos claims, the advice of
counsel, and the anticipated effects of inflation and discounting at
an estimated risk-free rate (8% at December 31, 1994). Accordingly, an
asbestos-related cost accrual of
47
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
$102.0 is included primarily in Long-term liabilities at December 31,
1994. The aggregate amount of the undiscounted liability at December
31, 1994 is $158.1, before considerations for insurance recoveries.
The Company believes that it has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While
claims for recovery from some of the Company's insurance carriers are
currently subject to pending litigation and other carriers have raised
certain defenses, the Company believes, based on prior insurance-
related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of counsel, that substantial
recoveries from the insurance carriers are probable. Accordingly, an
estimated aggregate insurance recovery of $86.4, determined on the
same basis as the asbestos-related cost accrual, is recorded primarily
in Other assets at December 31, 1994.
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 the insurance
recoveries that will be received, management currently believes that,
based on the factors discussed in the preceding paragraphs, the
resolution of the 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 results of operations.
Other Contingencies
The Company is involved in various other claims, lawsuits, and other
proceedings relating to a wide variety of matters. While uncertainties
are inherent in the 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 or results of operations.
11. Derivative Financial Instruments and Related Hedging Programs
------------------------------------------------------------------
The Company enters into a number of financial instruments with
off-balance-sheet risk in the normal course of business that are
designed to reduce its exposure to fluctuations in foreign exchange
rates, alumina, primary aluminum, and fabricated aluminum products
prices, and the cost of purchased commodities.
The Company has significant expenditures which are denominated in
foreign currencies related to long-term purchase commitments with its
affiliates in Australia and the United Kingdom, which expose it to
certain exchange rate risks. In order to mitigate its exposure, the
Company periodically enters into forward foreign exchange and currency
option contracts in Australian dollars and Pounds Sterling to hedge
these commitments. The forward foreign currency exchange contracts are
agreements to purchase or sell a foreign currency, for a price
specified at the contract date, with delivery and settlement in the
future. At December 31, 1994, the Company had net forward foreign
exchange contracts totaling approximately $74.4 for the purchase of
102.0 Australian dollars through December 31, 1996.
To mitigate its exposure to declines in the market prices of alumina,
primary aluminum, and fabricated aluminum products, while retaining
the ability to participate in favorable pricing environments that may
materialize, the Company has developed strategies which include
forward sales of primary aluminum at fixed prices and the purchase or
48
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
sale of options for primary aluminum. Under the principal components
of the Company's price risk management strategy, which can be modified
at any time, (i) varying quantities of the Company's anticipated
production are sold forward at fixed prices; (ii) call options are
purchased to allow the Company to participate in certain higher market
prices, should they materialize, for a portion of the Company's
primary aluminum and alumina sold forward; (iii) option contracts are
entered into to establish a price range the Company will receive for a
portion of its primary aluminum and alumina; and (iv) put options are
purchased to establish minimum prices the Company will receive for a
portion of its primary aluminum and alumina. In this regard, in
respect of its 1995 anticipated production, as of December 31, 1994,
the Company had sold forward 170,950 metric tons of primary aluminum
at fixed prices, purchased call options in respect of 69,000 metric
tons of primary aluminum, purchased put options to establish a minimum
price for 193,500 metric tons of primary aluminum, and entered into
option contracts that established a price range for 90,000 metric tons
of primary aluminum. The Company will not receive the benefit of
market price increases to the extent (i) the quantity of production
sold forward is greater than the tonnage covered by the purchased call
options; (ii) market prices exceed the prices at which primary
aluminum is sold forward, but are less than the strike price of the
purchased call options, on the tonnage covered by the options; or
(iii) market prices exceed the maximum of the price range on the
tonnage covered by the option contracts entered to establish a price
range.
In addition, the Company enters into forward fixed price arrangements
with certain customers which provide for the delivery of a specific
quantity of fabricated aluminum products over a specified future
period of time. In order to establish the cost of primary aluminum for
a portion of such sales, the Company may enter into forward and option
contracts. In this regard, at December 31, 1994, the Company had
purchased 4,500 metric tons of primary aluminum under forward purchase
contracts at fixed prices that expire at various times through June
1995.
The Company has also entered into a natural gas pricing contract to
fix future prices of a portion (20,000 million BTUs per day) of a
plant's natural gas supply through March 1995.
At December 31, 1994, the net unrealized gain on the Company's
position in forward foreign exchange was $3.5 and the net unrealized
loss on aluminum forward sales and option contracts and the natural
gas pricing contract was $80.4, based on a price of $1,955 per metric
ton of aluminum and $1.59 per million BTUs of natural gas.
The Company has established margin accounts with its counterparties
related to aluminum forward sales and option contracts. The Company is
entitled to receive advances from counterparties related to unrealized
gains and, in turn, is required to make margin deposits with
counterparties to cover unrealized losses related to these contracts.
At December 31, 1994, the Company had $50.5 on deposit with various
counterparties in respect of such unrealized losses. This amount is
recorded in Prepaid expenses and other current assets.
The Company is exposed to credit risk in the event of non-performance
by other parties to these currency and commodity contracts, but the
Company does not anticipate non-performance by any of these
counterparties, given their credit worthiness. When appropriate, the
Company arranges master netting agreements.
49
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
12. Segment and Geographical Area Information
----------------------------------------------
Sales and transfers among geographic areas are made on a basis
intended to reflect the market value of products.
The aggregate foreign currency gain included in determining net income
was $.8, $4.9, and $12.0 for the years ended December 31, 1994, 1993,
and 1992, respectively.
Sales of more than 10% of total revenue to a single customer were
$58.2, $40.7, and $135.3 of bauxite and alumina and $147.7, $145.7,
and $144.9 of aluminum processing for the years ended December 31,
1994, 1993, and 1992.
Export sales were less than 10% of total revenue during the years
ended December 31, 1994, 1993, and 1992, respectively.
Geographical area information relative to operations is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended Other
December 31, Domestic Caribbean Africa Foreign Eliminations Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers 1994 $1,263.2 $169.9 $180.0 $168.4 $1,781.5
1993 1,177.8 155.4 207.5 178.4 1,719.1
1992 1,285.0 170.1 263.5 190.5 1,909.1
Sales and transfers among 1994 $ 98.7 $139.4 $(238.1)
geographic areas 1993 88.2 79.6 (167.8)
1992 90.1 86.5 (176.6)
Equity in income (losses) of 1994 $ .2 $ (2.1) $ (1.9)
unconsolidated affiliates 1993 (3.3) (3.3)
1992 (1.9) (1.9)
Operating income (loss) 1994 $ (128.5) $ 9.9 $ 18.3 $ 44.4 $ (55.9)
1993 (145.6) (11.8) 21.9 12.4 (123.1)
1992 (36.6) 26.5 65.4 34.9 90.2
Investment in and advances to 1994 $ 1.2 $ 28.8 $139.7 $ 169.7
unconsolidated affiliates 1993 1.0 30.5 151.7 183.2
Identifiable assets 1994 $1,929.3 $364.8 $200.0 $199.5 $2,693.6
1993 1,758.3 360.4 223.0 186.5 2,528.2
</TABLE>
50
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Financial information by industry segment at December 31, 1994 and
1993, and for the years ended December 31, 1994, 1993, and 1992, is as
follows:
<TABLE>
<CAPTION>
Year Ended Bauxite & Aluminum
December 31, Alumina Processing Corporate Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers 1994 $432.5 $1,349.0 $1,781.5
1993 423.4 1,295.7 1,719.1
1992 466.5 1,442.6 1,909.1
Intersegment sales 1994 $146.8 $ 146.8
1993 129.4 129.4
1992 179.9 179.9
Equity in earnings (losses) of 1994 $ (4.7) $ 2.6 $ .2 $ (1.9)
unconsolidated affiliates 1993 (2.5) (.8) (3.3)
1992 1.8 (3.7) (1.9)
Operating income (loss) 1994 $ 19.8 $ (8.4) $(67.3) $ (55.9)
1993 (4.5) (46.3) (72.3) (123.1)
1992 62.6 104.9 (77.3) 90.2
Effect of changes in accounting
principles on operating income (loss)
SFAS 106 1993 $ (2.0) $ (16.1) $ (1.1) $ (19.2)
SFAS 109 1993 (7.7) (7.8) .3 (15.2)
Depreciation 1994 $ 33.5 $ 59.1 $ 2.8 $ 95.4
1993 35.3 59.9 1.9 97.1
1992 29.8 49.0 1.5 80.3
Capital expenditures 1994 $ 28.9 $ 39.9 $ 1.2 $ 70.0
1993 35.3 31.2 1.2 67.7
1992 50.8 39.4 24.2 114.4
Investment in and advances to 1994 $136.6 $ 31.9 $ 1.2 $ 169.7
unconsolidated affiliates 1993 151.5 30.7 1.0 183.2
Identifiable assets 1994 $749.6 $1,242.3 $701.7 $2,693.6
1993 734.0 1,214.9 579.3 2,528.2
</TABLE>
13. Subsidiary Guarantors
---------------------------
Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance
Corporation ("KFC"), Kaiser Jamaica Corporation ("KJC"), and Alpart
Jamaica Inc. ("AJI") (collectively referred to as the "Subsidiary
Guarantors") are domestic wholly owned (directly or indirectly)
subsidiaries of the Company that have provided subordinated guarantees
of the Senior Notes and the 12-3/4% Notes (see Note 5).
51
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
KAAC, KJC, and AJI are wholly owned subsidiaries, which serve as
holding companies for the Company's investments in QAL and Alpart. KFC
is a wholly owned subsidiary of KAAC, whose principal business is
making loans to the Company and its subsidiaries. Summary of combined
financial information for the Subsidiary Guarantors as of December 31,
1994 and 1993, is as follows:
Summary of Combined Financial Position
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
-----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets $ 84.2 $ 73.8
Due from the Company 683.4 665.1
Investments in and advances to unconsolidated affiliates 107.8 121.0
Property, plant, and equipment - net 258.0 256.5
Other assets 28.0 27.4
-------- --------
Total $1,161.4 $1,143.8
======== ========
Liabilities and Stockholders' Equity
Current liabilities $ 163.2 $ 141.7
Due to the Company 281.8 267.2
Other long-term liabilities 49.6 54.2
Long-term debt - net of current maturity 72.5 82.7
Minority interest 70.1 56.6
Stockholders' equity 524.2 541.4
-------- --------
Total $1,161.4 $1,143.8
======== ========
</TABLE>
Summary of Combined Operations
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1994 1993 1992
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $354.7 $326.3 $316.0
Costs and expenses 321.4 348.0 303.0
------ ------ ------
Operating income (loss) 33.3 (21.7) 13.0
Other income (expense):
Interest and other income (expense) (28.0) 26.0 24.5
Interest expense (22.3) (20.4) (24.1)
------ ------ ------
Income (loss) before income taxes, minority interests, and
cumulative effect of change in accounting principle (17.0) (16.1) 13.4
Credit (provision) for income taxes (6.9) 3.8 (2.3)
Minority interest 6.7 7.6 6.7
------ ------ ------
Income (loss) before cumulative effect of change in
accounting principle (17.2) (4.7) 17.8
Cumulative effect of change in accounting principle (11.3)
------ ------ ------
Net income (loss) $(17.2) $(16.0) $ 17.8
====== ====== ======
</TABLE>
52
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Notes to Summary of Combined Financial Information for the Subsidiary
Guarantors
Income Taxes - The Subsidiary Guarantors were included in the
consolidated federal income tax returns of MAXXAM through June 30,
1993. Effective July 1, 1993, the Subsidiary Guarantors became members
of the consolidated federal income tax return group of which Kaiser is
the common parent corporation. The taxable income (loss) of the
Subsidiary Guarantors for periods beginning on or after July 1, 1993,
is included in the consolidated federal income tax returns of Kaiser.
The credit (provision) for income taxes is computed as if each
Subsidiary Guarantor filed returns on a separate company basis.
Effective January 1, 1993, the Subsidiary Guarantors adopted SFAS 109,
which required the restatement of certain assets and liabilities to
their pre-tax amounts from their net-of-tax amounts originally
recorded in connection with the acquisition by MAXXAM in October 1988.
The cumulative effect of the change in accounting principle, as of
January 1, 1993, reduced the Subsidiary Guarantors' results of
operations by $11.3. Included in Other assets and Other long-term
liabilities at December 31, 1994, are $25.0 and $49.6 of deferred
income tax assets and liabilities, respectively.
Receivables and Payables - At December 31, 1994, receivables from and
payables to the Company include $663.8 and $272.9 of interest bearing
loans, respectively. The similar amounts at December 31, 1993 were
$635.8 and $237.3.
Inventory Valuation - Inventories are stated at first-in, first-out
(FIFO) cost, not in excess of market.
Investments - At December 31, 1993, KAAC held a 28.3% interest in QAL.
This investment is accounted for by the equity method. The equity in
QAL's loss before income taxes of $4.7 and $2.5 in 1994 and 1993,
respectively, is included in the Company's cost of products sold.
Capital Contribution - In 1993, the Company converted $200.0 and $25.0
of its receivables from KJC and AJI, respectively, into capital
contributions to these companies. These amounts are included in
Stockholders' equity as of December 31, 1993.
Foreign Currency - The functional currency of the Subsidiary
Guarantors is the United States dollar, and accordingly, translation
gains (losses) included in net income (loss) were $(42.4), $5.6, and
$27.3 for the years ended December 31, 1994, 1993, and 1992,
respectively.
53
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
(In millions of dollars) 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 12.0 $ 14.2 $ 18.5 $ 15.5 $ 23.8
Receivables 200.5 236.0 271.1 219.0 227.5
Inventories 468.0 426.9 439.9 498.6 523.9
Prepaid expenses and other current assets 158.0 60.7 37.0 84.0 48.7
-------- -------- -------- -------- --------
Total current assets 838.5 737.8 766.5 817.1 823.9
Investments in and advances to unconsolidated affiliates 169.7 183.2 150.1 161.9 184.5
Property, plant, and equipment - net 1,133.2 1,163.7 1,066.8 1,014.5 970.3
Deferred income taxes 271.0 210.3
Other assets 281.2 233.2 190.4 145.2 148.3
-------- -------- -------- -------- --------
Total $2,693.6 $2,528.2 $2,173.8 $2,138.7 $2,127.0
======== ======== ======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accruals $ 434.1 $ 339.6 $ 351.3 $ 461.3 $ 428.3
Accrued postretirement benefit obligation - current portion 47.0 47.6
Payable to affiliates 85.2 62.4 78.5 87.1 82.2
Long-term debt - current portion 11.5 8.7 25.9 26.3 32.5
Notes payable to parent - current portion 21.2 12.6
-------- -------- -------- -------- --------
Total current liabilities 599.0 470.9 455.7 574.7 543.0
Long-term liabilities 495.5 501.7 281.7 212.9 314.6
Accrued postretirement benefit obligation 734.9 713.1
Long-term debt 751.1 720.2 765.1 681.5 631.5
Notes payable to parent 23.5 18.9
Minority interests 85.4 69.7 70.1 71.9 73.0
Redeemable preferred stock 29.0 33.6 32.8 34.8 47.8
Stockholders' equity (deficit):
Preference stock 1.8 1.8 2.0 2.2 2.4
Common stock 15.4 15.4 15.4 15.4 15.0
Additional capital 1,626.3 1,471.2 1,255.6 1,118.4 975.2
Retained earnings (accumulated deficit) (271.5) (165.2) 487.9 476.2 453.5
Additional minimum pension liability (9.1) (21.6) (6.7)
Less: Note receivable from parent (1,387.7) (1,301.5) (1,185.8) (1,049.3) (929.0)
-------- -------- -------- -------- --------
Total stockholders' equity (deficit) (24.8) .1 568.4 562.9 517.1
-------- -------- -------- -------- --------
Total $2,693.6 $2,528.2 $2,173.8 $2,138.7 $2,127.0
======== ======== ======== ======== ========
</TABLE>
54
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
(In millions of dollars) 1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,781.5 $1,719.1 $1,909.1 $2,000.8 $2,095.0
-------- -------- -------- -------- --------
Costs and expenses:
Cost of products sold 1,625.5 1,587.7 1,619.3 1,594.2 1,525.2
Depreciation 95.4 97.1 80.3 73.2 70.5
Selling, administrative, research and development,
and general 116.5 121.6 119.3 117.6 122.9
Restructuring of operations 35.8
-------- -------- -------- -------- --------
Total costs and expenses 1,837.4 1,842.2 1,818.9 1,785.0 1,718.6
-------- -------- -------- -------- --------
Operating income (loss) (55.9) (123.1) 90.2 215.8 376.4
Other income (expense):
Interest and other income - net (7.3) (1.5) 16.9 16.4 11.0
Interest expense (88.6) (84.2) (78.7) (82.7) (96.6)
-------- -------- -------- -------- --------
Income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes in
accounting principles (151.8) (208.8) 28.4 149.5 290.8
Credit (provision) for income taxes 54.0 86.9 (5.3) (32.4) (75.6)
Minority interests 1.6 4.3 6.5 7.6 5.5
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss and cumulative
effect of changes in accounting principles (96.2) (117.6) 29.6 124.7 220.7
Extraordinary loss on early extinguishment of debt, net of
tax benefit of $2.9 and $11.2 for 1994 and 1993, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles,
net of tax benefit of $237.7 (507.9)
-------- -------- -------- -------- --------
Net income (loss) $ (101.6) $ (647.3) $ 29.6 $ 124.7 $220.7
======== ======== ======== ======== ========
</TABLE>
55
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
Quarter Ended
------------------------------------------------
(In millions of dollars) March 31 June 30 September 30 December 31
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Net sales $415.1 $459.5 $461.1 $445.8
Operating loss 25.6 14.1 6.8 9.4
Net loss 33.5 22.1 19.5 26.5<F1>
1993
Net sales $442.6 $432.2 $428.4 $415.9
Operating loss 9.6 14.1 17.5 81.9<F2>
Net loss 545.3 18.0 19.5 64.5<F1>
<FN>
<F1>
Includes a pre-tax charge of approximately $10.3 and $10.8 principally
related to establishing additional litigation and environmental
reserves in the fourth quarter of 1994 and 1993, respectively.
<F2>
Includes pre-tax charges of approximately $35.8 related to the
restructuring of operations and $19.4 because of a reduction in the
carrying value of inventories.
</FN>
</TABLE>
56
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
--------
Information required under PART III (Items 10, 11, 12, and 13) has
been omitted from this Report since the Company intends to file with
the Securities and Exchange Commission, not later than 120 days after
the close of its fiscal year, a definitive proxy statement pursuant to
Regulation 14A which involves the election of directors.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Index to Financial Statements and Schedules
1. Financial Statements Page
-------------------- ----
Report of Independent Public Accountants . . . . . 25
Consolidated Balance Sheets. . . . . . . . . . . . 26
Statements of Consolidated Income. . . . . . . . . 27
Statements of Consolidated Cash Flows . . . . . . . 28
Notes to Consolidated Financial Statements. . . . . 29
Five-Year Financial Data. . . . . . . . . . . . . . 54
Quarterly Financial Data. . . . . . . . . . . . . . 56
2. Financial Statement Schedules
-----------------------------
Financial statement schedules are inapplicable or the
required information is included in the Consolidated
Financial Statements or the Notes thereto.
3. Exhibits
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 59),
which index is incorporated herein by reference.
(b) Reports on Form 8-K
No Report on Form 8-K was filed by the Company during the
last quarter of the period covered by this Report.
(c) Exhibits
--------
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 59), which
index is incorporated herein by reference.
57
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
KAISER ALUMINUM & CHEMICAL CORPORATION
Date: March 24, 1995 By George T. Haymaker, Jr.
--------------------------------------
George T. Haymaker, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Date: March 24, 1995 George T. Haymaker, Jr.
--------------------------------------
George T. Haymaker, Jr.
Chairman of The Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 24, 1995 John T. La Duc
--------------------------------------
John T. La Duc
Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: March 24, 1995 Charlie Alongi
--------------------------------------
Charlie Alongi
Controller
(Principal Accounting Officer)
Date: March 24, 1995 Robert J. Cruikshank
--------------------------------------
Robert J. Cruikshank
Director
Date: March 24, 1995 Charles E. Hurwitz
--------------------------------------
Charles E. Hurwitz
Director
Date: March 24, 1995 Ezra G. Levin
--------------------------------------
Ezra G. Levin
Director
Date: March 24, 1995 Robert Marcus
--------------------------------------
Robert Marcus
Director
Date: March 24, 1995 Paul D. Rusen
--------------------------------------
Paul D. Rusen
Director
58
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
INDEX OF EXHIBITS
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation of Kaiser Aluminum &
Chemical Corporation ("KACC"), dated July 25, 1989
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1, dated August 25, 1989, filed by KACC,
Registration No. 33-30645).
3.2 Certificate of Retirement of KACC, dated February 7, 1990
(incorporated by reference to Exhibit 3.2 to Form 10-K for the
period ended December 31, 1989, filed by KACC, File No.
1-3605).
*3.3 By-laws of KACC, amended and restated as of December 15, 1994.
4.1 Indenture, dated as of February 1, 1993, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., and Kaiser Jamaica Corporation, as Subsidiary
Guarantors, and The First National Bank of Boston, as Trustee,
regarding KACC's 12-3/4%% Senior Subordinated Notes Due 2003
(incorporated by reference to Exhibit 4.1 to Form 10-K for the
period ended December 31, 1992, filed by KACC, File No. 1-
3605).
4.2 First Supplemental Indenture, dated as of May 1, 1993
(incorporated by reference to Exhibit 4.2 to the Report on
Form 10-Q for the quarterly period ended June 30, 1993, filed
by KACC, File No. 1-3605).
4.3 Indenture, dated as of February 17, 1994, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., Kaiser Jamaica Corporation, and Kaiser Finance
Corporation, as Subsidiary Guarantors, and First Trust
National Association as Trustee, regarding KACC's 9-7/8%
Senior Notes Due 2002 (incorporated by reference to Exhibit
4.3 to the Report on Form 10-K for the period ended December
31, 1993, filed by KAC, File No. 1-9447).
4.4 Credit Agreement, dated as of February 17, 1994, among KACC,
Kaiser Aluminum Corporation ("KAC"), the financial
institutions a party thereto, BankAmerica Business Credit,
Inc., as Agent (incorporated by reference to Exhibit 4.4 to
Form 10-K for the period ended December 31, 1993, filed by
KAC, File No. 1-9447).
4.5 First Amendment to Credit Agreement, dated as of July 21,
1994, amending the Credit Agreement, dated as of February 17,
1994, among KACC, KAC, the financial institutions party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report on
Form 10-Q for the quarterly period ended June 30, 1994, filed
by KAC, File No. 1-9447).
*4.6 Second Amendment to Credit Agreement, dated as of March 10,
1995, amending the Credit Agreement, dated as of February
17,] 1994, among KACC, KAC, the financial institutions party
thereto, and BankAmerica Business Credit, Inc., as Agent.
4.7 Certificate of Designations of Series A Mandatory Conversion
Premium Dividend Preferred Stock of KAC, dated June 28, 1993
(incorporated by reference to Exhibit 4.3 to the Report on
Form 10-Q for the quarterly period ended June 30, 1993, filed
by KAC, File No. 1-9447).
4.8 Deposit Agreement between KAC and The First National Bank of
Boston, dated as of June 30, 1993 (incorporated by reference
to Exhibit 4.4 to the Report on Form 10-Q for the quarterly
period ended June 30, 1993, filed by KAC, File No. 1-9447).
59
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Exhibit
Number Description
------- -----------
4.9 Intercompany Note between KAC and KACC (incorporated by
reference to Exhibit 4.2 to Amendment No. 5 to the
Registration Statement on Form S-1, dated December 13, 1989,
filed by KACC, Registration No. 33-30645).
*4.10 Pay-in-kind Note between KACC and MAXXAM Group Inc., dated
December 15, 1992.
4.11 Certificate of Designations of 8.255% PRIDES, Convertible
Preferred Stock of KAC dated February 17, 1994 (incorporated
by reference to Exhibit 4.21 to the Report on Form 10-K for
the period ended December 31, 1993, filed by KAC, File No.
1-9447).
4.12 Senior Subordinated Intercompany Note between KAC and KACC
dated February 15, 1994 (incorporated by reference to Exhibit
4.22 to the Report on Form 10-K for the period ended December
31, 1993, filed by KAC, File No. 1-9447).
4.13 Senior Subordinated Intercompany Note between KAC and KACC
dated March 17, 1994 (incorporated by reference to Exhibit
4.23 to the Report on Form 10-K for the period ended
December 31, 1993, filed by KAC, File No. 1-9447).
4.14 Senior Subordinated Intercompany Note between KAC and KACC
dated June 30, 1993 (incorporated by reference to Exhibit
4.24 to the Report on Form 10-K for the period ended
December 31, 1993, filed by KAC, File No. 1-9447).
KACC has not filed certain long-term debt instruments not
being registered with the Securities and Exchange Commission
where the total amount of indebtedness authorized under any
such instrument does not exceed 10% of the total assets of
KACC and its subsidiaries on a consolidated basis. KACC
agrees and undertakes to furnish a copy of any such instrument
to the Securities and Exchange Commission upon its request.
10.1 Form of indemnification agreement with officers and
directors (incorporated by reference to Exhibit (10)(b) to the
Registration Statement of KAC on Form S-4, File No. 33-12836).
10.2 Tax Allocation Agreement between MAXXAM and KACC (incorporated
by reference to Exhibit 10.21 to Amendment No. 6 to the
Registration Statement on Form S-1, dated December 14, 1989,
filed by KACC, Registration No. 33-30645).
10.3 Tax Allocation Agreement between KAC and MAXXAM (incorporated
by reference to Exhibit 10.23 to Amendment No. 2 to the
Registration Statement on Form S-1, dated June 11, 1991, filed
by KAC, Registration No. 33-37895).
10.4 Tax Allocation Agreement, dated as of June 30, 1993, between
KACC and KAC (incorporated by reference to Exhibit 10.3 to
the Report on Form 10-Q for the quarterly period ended June
30, 1993, filed by KACC, File No. 1-3605).
10.5 Assumption Agreement, dated as of October 28, 1988
(incorporated by reference to Exhibit HHH to the Final
Amendment to the Schedule 13D of MAXXAM Group Inc. and others
in respect of the Common Stock of KAC, par value $.33-1/3 per
share).
60
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Exhibit
Number Description
------- -----------
10.6 Agreement, dated as of June 30, 1993, between KAC and MAXXAM
(incorporated by reference to Exhibit 10.2 to the Report on
Form 10-Q for the quarterly period ended June 30, 1993, filed
by KACC, File No. 1-3605).
Executive Compensation Plans and Arrangements
---------------------------------------------
10.7 KACC's Bonus Plan (incorporated by reference to Exhibit 10.25
to Amendment No. 6 to the Registration Statement on Form S-1,
dated December 14, 1989, filed by KACC, Registration No.
33-30645).
10.8 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC, File No.
1-3605).
10.9 Employment Agreement, dated April 1, 1993, among KAC, KACC,
and George T. Haymaker, Jr. (incorporated by reference to
Exhibit 10.2 to the Report on Form 10-Q for the quarterly
period ended March 31, 1993, filed by KAC, File No. 1-9447).
10.10 Promissory Note, dated October 4, 1990, by Robert W. Irelan
and Barbara M. Irelan to KACC (incorporated by reference to
Exhibit 10.54 to Form 10-K for the period ended December 31,
1990, filed by MAXXAM, File No. 1-3924).
10.11 Promissory Note, dated February 1, 1989, by Anthony R. Pierno
and Beverly J. Pierno to MAXXAM (incorporated by reference to
Exhibit 10.30 to Form 10-K for the period ended December 31,
1988, filed by MAXXAM, File No. 1-3924).
10.12 Promissory Note, dated July 19, 1990, by Anthony R. Pierno to
MAXXAM (incorporated by reference to Exhibit 10.31 to Form
10-K for the period ended December 31, 1990, filed by MAXXAM,
File No. 1-3924).
10.13 Promissory Note, dated July 20, 1993, between MAXXAM and Byron
L. Wade (incorporated by reference to Exhibit 10.59 to Form
10-K for the period ended December 31, 1993, filed by MAXXAM,
File No. 1-3924).
10.14 Employment Agreement, dated August 20, 1993, between KACC and
Robert E. Cole (incorporated by reference to Exhibit 10.63 to
Form 10-K for the period ended December 31, 1993, filed by
MAXXAM, File No. 1-3924).
10.15 Compensation Agreement, dated July 18, 1994, between KACC and
Larry L. Watts (incorporated by reference to Exhibit 10.1 to
the Report on Form 10-Q for the quarterly period ended June
30, 1994, filed by KAC, File No. 1-9447).
10.16 Compensation Agreement, dated July 18, 1994, between KACC and
Geoff S. Smith (incorporated by reference to Exhibit 10.2 to
the Report on Form 10-Q for the quarterly period ended June
30, 1994, filed by KAC, File No. 1-9447).
*10.17 Letter Agreement, dated January 1995, between KAC and Charles
E. Hurwitz, granting Mr. Hurwitz stock options under the
Kaiser 1993 Omnibus Stock Incentive Plan.
61
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Exhibit
Number Description
------- -----------
*10.18 Form of letter agreement with persons granted stock options
under the Kaiser 1993 Omnibus Stock Incentive Plan to acquire
shares of KAC common stock.
*21 Significant Subsidiaries of KAC.
*27 Financial Data Schedule.
__________
* Filed herewith
62
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
Exhibit 21
SUBSIDIARIES
Listed below are the principal subsidiaries of Kaiser Aluminum &
Chemical Corporation, the jurisdiction of their incorporation or
organization and the names under which such subsidiaries do business.
Certain subsidiaries are omitted which, considered in the aggregate as
a single subsidiary, would not constitute a significant subsidiary.
Place of
Incorporation
Name or Organization
-------------------- ---------------
Alpart Jamaica Inc. . . . . . . . . . . . . . . Delaware
Alumina Partners of Jamaica (partnership) . . . Delaware
Anglesey Aluminium Limited. . . . . . . . . . . United Kingdom
Kaiser Alumina Australia Corporation. . . . . . Delaware
Kaiser Aluminium International, Inc. . . . . . Delaware
Kaiser Aluminum & Chemical of Canada Limited. . Ontario
Kaiser Bauxite Company. . . . . . . . . . . . . Nevada
Kaiser Finance Corporation. . . . . . . . . . . Delaware
Kaiser Jamaica Bauxite Company (partnership). . Jamaica
Kaiser Jamaica Corporation. . . . . . . . . . . Delaware
Queensland Alumina Limited. . . . . . . . . . . Queensland
Volta Aluminium Company Limited . . . . . . . . Ghana
63
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Domestic California Pennsylvania
Operations Los Angeles (City of Commerce) Erie
(Partial List) Extruded Products Forgings Plant and Offices
Los Angeles (Santa Fe Springs) South Carolina
Extruded Products Fabricating Greenwood
Oxnard Forgings
Forgings Greenwood
Pleasanton Machine Shop
R&D at the Center for Technology Tennessee
Administrative Offices Jackson
Florida Extruded Products
Mulberry Texas
Sodium Silicofluoride, Dallas
Potassium Silicofluoride Extruded products Offices
Louisiana Houston
Baton Rouge Kaiser Aluminum Corporation Headquarters
Alumina, Kaiser Alumina Technical Services, Sherman
International Business Development, and Extruded Products
Environmental Offices Washington
Gramercy Mead
Alumina Primary Aluminum
Michigan Division Technology Center
Detroit (Southfield Richland
Automotive Product Development and Sales Extruded Products
Ohio Tacoma
Canton Primary Aluminium
Castings Trentwood
Newark Flat-Rolled Products Plant and Offices
Extruded Products
Oklahoma
Tulsa
Aluminum and Magnesium Extruded
Products, anodes
------------------------------------------------------------------------------------------------------------------
Worldwide Australia Japan
Operations Queensland Alumina Limited (28.3% owned) Furukawa Kaiser Forged products Company
(Partial List) Alumina (47.5%)
Canada Sales Office
Kaiser Aluminum & Chemical of Canada Limited The Netherlands
(100%) Kaiser Aluminum Mill Products Inc. (100%)
Extruded products Sales Office
Ghana Russia
Volta Aluminium Company Limited (90%) Kaiser Aluminium Russia, Inc. (100%)
Jamaica International Business Development
Alumina Partners of Jamaica (65%) Wales, United Kingdom
Bauxite, Alumina Anglesey Aluminium Limited (49%)
Kaiser Jamaica Bauxite Company (49%) Primary Aluminum
Bauxite
</TABLE>
64
<PAGE>
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
----------------------------------------------------------------
Directors Executive Offices
--------- -----------------
Charles E. Hurwitz 6177 Sunol Boulevard
George T. Haymaker, Jr. Pleasanton, CA 94566-7769
Robert J. Cruikshank 510/462-1122
Ezra G. Levin
Robert Marcus
Paul D. Rusen Auditors
--------
Corporate officers and Business Arthur Andersen LLP
------------------------------- Spear Street Tower
Unit Managers One Market Plaza
-------------- San Francisco, CA 94015-1019
George T. Haymaker, Jr.
Chairman of the Board and
Chief Executive Officer
Charles E. Hurwitz
Vice Chairman
Charlie Alongi
Controller
Joseph A. Bonn
Vice President, Planning and Administration
Robert E. Cole
Vice President, Government Affairs
John E. Daniel
Vice President, Primary Aluminum
Richard B. Evans
Vice President, Flat-Rolled Products
Robert W. Irelan
Vice President, Public Relations
John T. La Duc
Vice President and Chief Financial Officer
Alan G. Longmuir
Vice President, Research & Development
Raymond J. Milchovich
Vice President, Flat-Rolled Products
James T. Owen
Vice President, Extruded Products
Joseph Peganoff
Vice President, Forgings
Anthony R. Pierno
Vice President and General Counsel
Geoffrey W. Smith
Vice President, Alumina
Kris S. Vasan
Treasurer
Byron L. Wade
Vice President, Secretary, and Deputy
General Counsel
Lawrence L. Watts
Vice President, International Business Development
65
<PAGE>
EXECUTION COPY
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of March 10, 1995, is by and between
---------
KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation
(the "Company"), KAISER ALUMINUM CORPORATION, a Delaware
-------
corporation (the "Parent Guarantor"), the various financial
----------------
institutions that are or may from time to time become parties to
the Credit Agreement referred to below (collectively, the
"Lenders" and, individually, a "Lender"), and BANKAMERICA
------- ------
BUSINESS CREDIT, INC., a Delaware corporation, as agent (in such
capacity, together with its successors and assigns in such
capacity, the "Agent") for the Lenders. Capitalized terms used,
-----
but not defined, herein shall have the meanings given to such
terms in the Credit Agreement, as amended hereby.
W I T N E S S E T H:
WHEREAS, the Company, the Parent Guarantor, the Lenders
and the Agent are parties to the Credit Agreement, dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement dated as of July 21, 1994 (the "Credit Agreement"); and
----------------
WHEREAS, the parties hereto have agreed to amend the
Credit Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendments to Credit Agreement.
------------------------------
1.1 Amendment to Recitals.
---------------------
The second recital to the Credit Agreement is hereby
amended by deleting the amount "$275,000,000" in the fourth line
thereof and by replacing such amount with the amount
"$325,000,000".
1.2 Amendments to Article I: Definitions and Accounting
----------------------------------------------------
Terms.
-----
A. The definition of "Revolving Commitment
Availability" contained in Section 1.1 of the Credit Agreement is
-----------
hereby amended to read in its entirety as follows:
"'Revolving Commitment Availability' means, at any
---------------------------------
time, the excess of
(a) (i) the lesser of (x) the Revolving Commitment
Amount at such time and (y) the Borrowing Base as in effect<PAGE>
<PAGE>
at such time plus (ii), during the period from March 10, 1995 to
----
and including July 10, 1995, the lesser of (x) $50,000,000 and
(y) an amount equal to two-thirds of the amount of any funds then
on deposit in transaction accounts in which agreements are
effected with respect to spot, forward, future and option
transactions entered into by the Company and its Subsidiaries in
the ordinary course of business involving (or, in the case of
futures and options, for or relating to) the purchase and sale of
aluminum, alumina, or bauxite
over
----
(b) the Revolving Credit Outstandings at such time."
B. The definition of "Cash Equivalent Investment"
contained in Section 1.1 of the Credit Agreement is hereby
-----------
amended by (i) deleting the phrase "which have substantially
similar investment policies." in clause (e) thereof and
substituting therefor ";or" and (ii) adding a new clause (f) at
the end thereof as follows:
"(f) investments in and through any Sweep Account."
C. The following definitions are hereby added to
Section 1.1 of the Credit Agreement in the appropriate
-----------
alphabetical order:
"'101 Account' is defined in the Concentration Bank
-----------
Agreement."
"'Sweep Account' means an account or other arrangement
-------------
maintained with any Lender into which funds on deposit in
the Concentration Account or the 101 Account are
automatically swept at the end of each business day,
invested overnight and automatically returned to the
Concentration Account or 101 Account, as the case may be, on
the next business day."
1.3 Amendments to Article II: Commitments and Borrowing
----------------------------------------------------
Procedures.
----------
A. Clause (b) of Section 2.1.1 of the Credit
---------- -------------
Agreement is hereby amended by deleting the amount "$275,000,000"
in the second line thereof and by replacing such amount with the
amount "$325,000,000".
B. Clause (a) of Section 2.3 of the Credit Agreement
---------- -----------
is hereby amended by inserting the phrase ", or such other
account at Bank of America as the Company shall notify the Agent
from time to time," after the phrase "account number 12339-11101
at Bank of America" contained therein.<PAGE>
<PAGE>
C. Clause (b) of Section 2.3 of the Credit Agreement
---------- -----------
is hereby amended by inserting the phrase ", or such other
account at Bank of America as the Company shall notify the Agent
from time to time," after the phrase "account number 12339-11101
at Bank of America" contained therein.
1.4 Amendment to Article III: Repayments, Prepayments,
---------------------------------------------------
Interest, and Fees.
------------------
Section 3.5.1 of the Credit Agreement is hereby amended
-------------
by adding the following thereto at the end of the second
parenthetical contained therein: "and, with respect to the
increase in the Revolving Commitment Amount provided for therein,
commencing on the date on which the Agent gives notice to the
Parent Guarantor, the Company and each Lender of the satisfaction
of certain conditions as provided in Section 3 of the Second
---------
Amendment to Credit Agreement dated as of March 10, 1995 between
the Company, the Parent Guarantor, the Lenders and the Agent".
1.5 Amendments to Article IX: Covenants.
-------------------------------------
A. Section 9.1.10(d) of the Credit Agreement is
-----------------
hereby amended by inserting the phrase ",except in the case of a
Sweep Account with Agent or any Affiliate of Agent," after the
phrase "thereof and" contained in the fourth line thereof.
B. Article IX of the Credit Agreement is hereby
----------
amended by adding the following as new Section 9.2.22 thereof:
--------------
"SECTION 9.2.22 Company Investment or Distribution
----------------------------------
to Parent Guarantor. Notwithstanding anything to the contrary
-------------------
contained herein, the Company shall be permitted to make
Investments in, or Distributions to, the Parent Guarantor in an
aggregate amount not to exceed $300,000 in each Fiscal Year."
1.6 Amendments to Signature Pages.
-----------------------------
Subject to the last paragraph of this Section 1.6, the
Percentages set forth opposite the Lenders' names on the
signature pages of the Credit Agreement are hereby amended to
read as follows:
BankAmerica Business Credit, Inc. 27.270%
Congress Financial Corporation 26.154%
LaSalle National Bank 04.769%
CIT Group/Business Credit, Inc. 06.308%
Transamerica Business Credit Corporation 06.769%
Bank of America National Trust and
Savings Association 09.090%
Heller Financial, Inc. 08.871%
National Westminster Bank PLC 06.000%<PAGE>
<PAGE>
ABN Amro N.V. 04.769%
Effective on the date on which the Agent gives notice to the
Parent Guarantor, the Company and each Lender of the satisfaction
of certain conditions as provided in Section 3 of the Second
Amendment to Credit Agreement dated as of March 10, 1995 between
the Company, the Parent Guarantor, the Lenders and the Agent and
notwithstanding anything to the contrary contained in Section 5.4
-----------
of the Credit Agreement, each Lender shall be deemed to hold an
undivided interest and participation, to the extent of such
Lender's Percentage as reflected above, in all Letters of Credit
and the Company's Reimbursement Obligations with respect thereto
outstanding as of such date.
Subject to the last paragraph of this Section 1.6, on the
Second Amendment Effective Date (as defined below) each Lender
whose Percentage is increased pursuant to this Amendment shall
make such payments to the Agent, and the Agent shall make such
distributions of such payments to the remaining Lenders, as are
necessary to adjust the amounts of the outstanding Loans of all
Lenders in accordance with the revised Percentages set forth
above in this Section 1.6.
Anything contained in this Amendment or the other Loan
Documents to the contrary notwithstanding, each Lender's
Percentage interest in any LIBO Rate Loan outstanding on the
Second Amendment Effective Date shall remain unchanged for all
purposes under the Loan Documents until the date of expiration of
the Interest Period in effect as of the Second Amendment
Effective Date with respect to such LIBO Rate Loan, at which time
(i) all payments of interest and principal, if any, made on such
date in respect of such LIBO Rate Loan shall be distributed to
Lenders in accordance with such unchanged Percentages and (ii) in
the event such LIBO Rate Loan is to remain outstanding for an
additional Interest Period commencing on such date or is to be
converted to a Reference Rate Loan on such date, Lenders shall
make such payments, and Agent shall make such distributions
thereof, on such date as are necessary to adjust the Percentage
interests of Lenders in such Loan in accordance with the revised
Percentages set forth above in this Section 1.6.
Section 2. Amendments to Collateral Documents.
----------------------------------
The parties agree that, as of the Second Amendment
Effective Date, the Company Deeds of Trust and the Company
Mortgages shall be amended or supplemented as set forth in
Exhibits B and C hereto, respectively.
Section 3. Conditions to Effectiveness.
----------------------------<PAGE>
<PAGE>
This Amendment shall become effective as of the date
hereof (the "Second Amendment Effective Date") only when the
-------------------------------
following conditions shall have been met and notice thereof shall
have been given by the Agent to the Parent Guarantor, the
Company, the Agent and each Lender:
A. The Agent shall have received for each Lender
counterparts hereof duly executed on behalf of the Parent
Guarantor, the Company, the Agent and each of the Lenders (or
notice of the approval of this Amendment by each of the Lenders
satisfactory to the Agent shall have been received by the Agent),
together with counterparts of amendments to the Company Deeds of
Trust and the Company Mortgages duly executed on behalf of the
Company and the Agent.
B. The Agent shall have received:
(1) Resolutions of the Board of Directors or of
the Executive Committee of the Company and the Parent Guarantor
approving and authorizing the execution, delivery and performance
of this Amendment, certified by its corporate secretary or an
assistant secretary as being in full force and effect without
modification or amendment as of the date of execution hereof by
the Company or the Parent Guarantor, as the case may be;
(2) A signature and incumbency certificate of the
officers of the Company and the Parent Guarantor executing this
Amendment;
(3) For each Lender an opinion, addressed to the
Agent and each Secured Lender, from Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel, in substantially the form of Exhibit A
attached hereto, with such changes therein as shall be
satisfactory to the Agent;
(4) The Agent shall have received, on behalf of
each Lender increasing its portion of the Revolving Commitment
Amount, a fee in the amount of 1.00% multiplied by the amount of
such increase; and
(5) such other information approvals, opinions,
documents, or instruments as the Agent may reasonably request.
Section 4. Company's Representations and Warranties.
----------------------------------------
In order to induce the Lenders and the Agent to enter
into this Amendment and to amend the Credit Agreement and the
other Loan Documents in the manner provided herein, the Parent
Guarantor and the Company represent and warrant to each Lender
and the Agent that, as of the Second Amendment Effective Date
after giving effect to the effectiveness of this Amendment, the<PAGE>
<PAGE>
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Amendment by the Company and the Parent
Guarantor and the performance of the Credit Agreement as amended
by this Amendment (the "Amended Agreement") by the Company and
-----------------
the Parent Guarantor are within such Obligor's corporate powers
and have been duly authorized by all necessary corporate action
on the part of the Company and the Parent Guarantor, as the case
may be.
B. No Conflict. The execution and delivery by the
-----------
Company and the Parent Guarantor of this Amendment and the
performance by the Company and the Parent Guarantor of the
Amended Agreement do not:
(1) contravene such Obligor's Organic Documents;
(2) contravene the Indenture dated as of February
1, 1993, as amended by the First Supplemental Indenture dated May
1, 1993, between the Company, and Kaiser Finance Corporation,
Kaiser Alumina Australia Corporation, Alpart Jamaica Inc. and
Kaiser Jamaica Corporation, as Subsidiary Guarantors, and The
First National Bank of Boston, as Trustee, or the Indenture dated
as of February 17, 1994, between the Company, and Kaiser Finance
Corporation, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc. and Kaiser Jamaica Corporation, as Subsidiary Guarantors,
and First Trust National Association, as Trustee, or contravene
any other contractual restriction where such a contravention has
a reasonable possibility of having a Materially Adverse Effect or
contravene any law or governmental regulation or court decree or
order binding on or affecting such Obligor or any of its
Subsidiaries; or
(3) result in, or require the creation or
imposition of, any Lien on any of such Obligor's properties or
any of the properties of any Subsidiary of such Obligor, other
than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
-------------------
executed and delivered by the Company and the Parent Guarantor
and this Amendment and the Amended Agreement constitute the
legal, valid and binding obligations of the Company and the
Parent Guarantor, enforceable against the Company and the Parent
Guarantor in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors'
rights generally and by general principles of equity.
D. Governmental Approval, Regulation, etc. No
----------------------------------------
authorization or approval or other action by, and no notice to or<PAGE>
<PAGE>
filing with, any governmental authority or regulatory body or any
other Person is required for the due execution, delivery or
performance of this Amendment by the Company or the Parent
Guarantor.
E. Incorporation of Representations and Warranties
-----------------------------------------------
from Credit Agreement. Each of the statements set forth in
---------------------
Section 7.2.1 of the Credit Agreement is true and correct.
-------------
F. Real Property. As of the date hereof, (1) the
-------------
Liens on the Collateral constituting Real Estate (as defined in
the Company Deeds of Trust and the Company Mortgages) are valid,
prior and perfected, subject only to the exceptions listed in
Exhibits B to the Company Deeds of Trust and the Company
Mortgages and in clauses (e) and (f) of Section 9.2.3 of the
-------------
Credit Agreement and (2) there are no Liens securing Indebtedness
for borrowed money (other than those in favor of the Agent) on
the Collateral constituting Real Estate (as defined in the
Company Deeds of Trust and the Company Mortgages).
Section 5. Acknowledgement and Consent.
---------------------------
The Company is a party to the Company Collateral
Documents, in each case as amended through the Second Amendment
Effective Date, pursuant to which the Company has created Liens
in favor of the Agent on certain Collateral to secure the
Obligations. The Parent Guarantor is a party to the Parent
Collateral Documents, in each case as amended through the Second
Amendment Effective Date, pursuant to which the Parent Guarantor
has created Liens in favor of the Agent on certain Collateral and
pledged certain Collateral to the Agent to secure the Obligations
of the Parent Guarantor. Certain Subsidiaries of the Company are
parties to the Subsidiary Guaranty and/or one or more of the
Subsidiary Collateral Documents, in each case as amended through
the Second Amendment Effective Date, pursuant to which such
Subsidiaries have (i) guarantied the Obligations and/or (ii)
created Liens in favor of the Agent on certain Collateral. The
Company, the Parent Guarantor and such Subsidiaries are
collectively referred to herein as the "Credit Support Parties",
----------------------
and the Company Collateral Documents, the Parent Collateral
Documents, the Subsidiary Guaranty and the Subsidiary Collateral
Documents are collectively referred to herein as the "Credit
------
Support Documents".
-----------------
Each Credit Support Party hereby acknowledges that it
has reviewed the terms and provisions of the Credit Agreement as
amended by this Amendment and consents to the amendment of the
Credit Agreement effected as of the date hereof pursuant to this
Amendment and the amendment of the other Loan Documents effected
as of the date hereof.
Each Credit Support Party acknowledges and agrees that
any of the Credit Support Documents to which it is a party or<PAGE>
<PAGE>
otherwise bound shall continue in full force and effect. Each
Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all
Collateral encumbered thereby will continue to guaranty or
secure, as the case may be, the payment and performance of all
obligations guaranteed or secured thereby, as the case may be.
Each Credit Support Party (other than the Company and
the Parent Guarantor) acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this
Amendment, such Credit Support Party is not required by the terms
of the Credit Agreement or any other Loan Document to consent to
the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Loan Document shall be deemed to require
the consent of such Credit Support Party to any future amendments
to the Credit Agreement.
Section 6. Miscellaneous.
-------------
A. Reference to and Effect on the Credit Agreement
-----------------------------------------------
and the Other Loan Documents.
----------------------------
(1) On and after the Second Amendment Effective
Date, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring
to the Credit Agreement, and each reference in the other Loan
Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean
and be a reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment and the amendments to the other Loan Documents executed
as of the date hereof, the Credit Agreement and the other Loan
Documents shall remain in full force and effect and are hereby
ratified and confirmed.
B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO
--------------
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment
--------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Amendment or any provision
hereof.
D. Counterparts. This Amendment may be executed by
------------
the parties hereto in several counterparts and by the different
parties on separate counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but
one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single<PAGE>
<PAGE>
counterpart so that all signature pages are physically attached
to the same document.
E. Severability. Any provision of this Amendment
------------
which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
F. Approval of Amendments to Loan Documents. Each of
----------------------------------------
the Lenders hereby approves the forms of the amendments attached
as Exhibits to this Amendment and hereby authorizes the Agent on
its behalf to accept from the Company and the other Obligors, as
the case may be, and authorizes the Agent to execute and deliver
as Agent, the amendments to the Collateral Documents in
substantially the form of such Exhibits, with such changes,
additions or deletions as the Agent, in its sole and absolute
discretion, may approve. <PAGE>
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
KAISER ALUMINUM CORPORATION KAISER ALUMINUM & CHEMICAL
CORPORATION
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer<PAGE>
<PAGE>
BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS CREDIT,
INC., as Agent INC.
By: _______________________ By:________________________
Name: Michael J. Jasaitis Name: Michael J. Jasaitis
Its: Vice President Its: Vice President
BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS CREDIT,
AND SAVINGS ASSOCIATION INC.
By: _______________________ By:________________________
Name Printed:______________ Name Printed:______________
Its:_______________________ Its:_______________________
CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC.
(WESTERN)
By: _______________________ By:________________________
Name Printed:______________ Name Printed:______________
Its:_______________________ Its:_______________________
LA SALLE NATIONAL BANK NATIONAL WESTMINSTER BANK PLC
By: _______________________ By:________________________
Name Printed:______________ Name Printed:______________
Its:_______________________ Its:_______________________
TRANSAMERICA BUSINESS CREDIT ABN AMRO BANK N.V.
CORPORATION
By: _______________________ By:________________________
Name Printed:______________ Name Printed:______________
Its:_______________________ Its:_______________________
S - II
<PAGE>
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. KAISER JAMAICA CORPORATION
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
S - III<PAGE>
<PAGE>
EXHIBIT A
March 10, 1995
BankAmerica Business Credit, Inc.,
as Agent
Two North Lake Avenue, Suite 400
Pasadena, California 91101
and
The Lenders Listed on Schedule A Hereto
Re: Second Amendment to Credit Agreement (the "Second
Amendment"), dated as of March 10, 1995, among
Kaiser Aluminum & Chemical Corporation, Kaiser
Aluminum Corporation, certain financial institutions,
and BankAmerica Business Credit, Inc., as Agent
-----------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Kaiser Aluminum &
Chemical Corporation, a Delaware corporation (the "Company"), and
Kaiser Aluminum Corporation, a Delaware corporation (the "Parent
Guarantor"), in connection with the Second Amendment. Capitalized
terms used but not defined herein have the meanings assigned thereto
in the Credit Agreement, as amended by the Second Amendment. As used
herein, "Credit Agreement" has the meaning ascribed thereto in the
first recital of the Second Amendment.
In rendering the opinion set forth herein, we have reviewed
the Credit Agreement and the Second Amendment, and have examined
originals or copies, certified, or otherwise identified to our
satisfaction, of (a) the Certificate of Incorporation and By-laws of
the Company and the Parent Guarantor as in effect on the date hereof,
and (b) such other documents, records, certificates and instruments
(collectively, "Documents") as in our judgment are necessary or
appropriate as the basis for the opinion expressed below.
In our examination we have assumed the genuineness of all
signatures, the authenticity of all Documents submitted to us as
originals, the conformity to original documents of all Documents
submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies. As to any facts
material to this opinion which we did not independently establish or
verify, we have relied upon statements and representations of officers
and other representatives of the Company and the Parent Guarantor and
certificates of public officials. We also have assumed (i) the valid
authorization, execution, and delivery of the Second Amendment by the
parties thereto (other than the Company and the Parent Guarantor),
(ii) that each such other party has been duly organized and is validly<PAGE>
<PAGE>
BankAmerica Business Credit, Inc., March __, 1995
Agent Page 2
and
The Lenders Listed on Schedule A Hereto
existing and in good standing under the laws of the jurisdiction of
its organization with the corporate or other organizational power to
perform its obligations thereunder, and (iii) that the Second
Amendment constitutes the legal, valid and binding obligation of each
such other party enforceable against each such other party in
accordance with its terms (subject to qualifications and limitations
similar to those set forth in clauses (a) and (b) on pages __ and __
of this opinion).
Based upon the foregoing, and subject to the qualifications
set forth herein, we are of the opinion that:
1. The execution, delivery, and performance by each of the
Company and the Parent Guarantor of the Second Amendment, and the
performance by the Company and the Parent Guarantor of the Credit
Agreement as amended by the Second Amendment, are within their
respective corporate powers, have been duly authorized by all
necessary corporation action on the part of the Company and the Parent
Guarantor, and do not:
(a) violate the Organic Documents of the Company or the
Parent Guarantor; or
(b) violate any court decree or order of any governmental
authority which, after our due inquiry, has been
specifically disclosed to us by the Company or the Parent
Guarantor.
2. The Second Amendment has been duly executed and
delivered by each of the Company and the Parent Guarantor.
3. The Second Amendment constitutes the legal, valid, and
binding obligation of each of the Company and the Parent Guarantor
enforceable against each of the Company and the Parent Guarantor in
accordance with its terms.
The opinion set forth in paragraph 3 above is subject to the
following qualifications and limitations and the other opinions set
forth above are subject to the following qualifications and
limitations, other than those set forth in clauses (a), (b) and (c)
below:<PAGE>
<PAGE>
BankAmerica Business Credit, Inc., March __, 1995
Agent Page 3
and
The Lenders Listed on Schedule A Hereto
(a) The enforceability of the Second Amendment may be
subject to or limited by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance or transfer, moratorium, or other
laws and court decisions now or hereafter in effect relating to or
affecting the rights of creditors generally;
(b) The enforceability of the Second Amendment is subject
to the application of and may be limited by general principles of
equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether
considered in a proceeding in equity or at law). Such principles of
equity are of general application and in applying such principles a
court, among other things, might not allow a creditor to accelerate
the maturity of a debt under certain circumstances, including, without
limitation, upon the occurrence of a default deemed immaterial or
might decline to order an obligor to perform covenants. Such
principles applied by a court might include a requirement that a
creditor act with reasonableness and in good faith. Thus, we express
no opinion as to the validity or enforceability of (i) provisions
restricting access to legal or equitable remedies, such as the
specific performance of executory covenants, (ii) provisions that
purport to establish evidentiary standards, (iii) provisions relating
to waivers, severability, indemnity, submissions to jurisdiction, set
off, delay or omission of enforcement of rights or remedies, and (iv)
provisions purporting to convey rights to persons other than parties
to the Credit Agreement. In addition, we express no opinion as to the
enforceability of any provision purporting to provide indemnification
or contribution relating to matters arising under Federal or State
securities laws;
(c) The remedy of specific performance and injunctive and
other forms of equitable relief are subject to equitable defenses and
to the discretion of the court before which any proceeding therefor
may be brought;
(d) We have not been requested to render, and with your
permission we do not express, any opinion as to the applicability to
any Loan Document or security interests of Section 548 of the Federal
Bankruptcy code, Article 10 of the New York Debtor & Creditor Law, or
any other fraudulent conveyance, insolvency or transfer laws or any
court decisions with respect to any of the foregoing; <PAGE>
<PAGE>
BankAmerica Business Credit, Inc., March __, 1995
Agent Page 4
and
The Lenders Listed on Schedule A Hereto
(e) Our opinion expressed herein is limited to the laws of
the State of New York, the General Corporation Law of the State of
Delaware, and the Federal laws of the United States of America, and we
do not express any opinion herein concerning any other laws. We
express no opinion as to the effects (if any) of any laws of any
jurisdiction (except the State of New York) in which any Lender is
located which limits the rate of interest that such Lender may charge
or collect.
The opinion expressed herein is based upon the laws in
effect on the date hereof, and we assume no obligation to review or
supplement this opinion should any such law be changed by legislative
action, judicial decision or otherwise.
Ezra G. Levin, a partner of our firm, is a director of the
Company and the Parent Guarantor.
This opinion is being furnished only to the addressees named
above pursuant to Section 3.B.(3) of the Second Amendment and is
solely for the benefit of such Persons in connection with the
execution, delivery and effectiveness of the Second Amendment.
Accordingly, this opinion may not be used, quoted, or relied upon by
any other person or entity or for any other purpose without, in each
instance, our express prior written consent.
Very truly yours,
<PAGE>
SCHEDULE A
BankAmerica Business Credit, Inc.
Bank of America National Trust
and Savings Association
The CIT Group/Business Credit, Inc.
Congress Financial Corporation (Western)
Heller Financial, Inc.
La Salle National Bank
National Westminster Bank PLC
Transamerica Business Credit Corporation
ABN Amro N.V.
<PAGE>
EXHIBIT B
FORM OF SECOND AMENDMENT TO DEED OF TRUST
RECORDING REQUESTED BY:
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers
275 Battery Street, 26th Floor
San Francisco, California 94111-3305
Attn: Jill H. Matichak, Esq.
(File No. 019,368-663)
-----------------------------------------------------------------
SECOND AMENDMENT TO DEED OF TRUST WITH POWER OF SALE,
ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
THIS SECOND AMENDMENT TO DEED OF TRUST WITH POWER OF SALE,
ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND
FINANCING STATEMENT (this "Second Amendment") is made as of March --,
1995 by and between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware
corporation ("Grantor"), whose address is 6177 Sunol Drive,
Pleasanton, California 94566, and BANKAMERICA BUSINESS CREDIT, INC., a
Delaware corporation ("BABC"), as agent for the Secured Lenders (as
defined in the Credit Agreement referred to below), having an office
at Two North Lake Avenue, Suite 400, Pasadena, California 91101 (BABC,
in its capacity as agent for the Secured Lenders, shall be referred to
hereinafter as "Beneficiary").
R E C I T A L S :
A. Pursuant to that certain Credit Agreement dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement dated as of July 21, 1994 (as so amended, the "Credit
Agreement") between Grantor, Kaiser Aluminum Corporation, a Delaware
corporation ("Parent Guarantor"), BABC and various other financial
institutions named therein (which financial institutions, together
with BABC in its capacity as lender, shall be referred to hereinafter
collectively as "Bank Lenders") and Beneficiary, Bank Lenders agreed
to make certain revolving loans and other financial commitments to
Grantor (the "Loans"). Except as otherwise provided in this Second
Amendment, all initially capitalized terms used herein without
definition shall have the same meaning as in the Credit Agreement, as
amended.<PAGE>
<PAGE>
B. The Loans are secured by, among other things, that certain
Deed of Trust with Power of Sale, Assignment of Leases and Rents,
Security Agreement, Fixture Filing and Financing Statement dated as of
February 15, 1994, executed by Grantor, as grantor, to Chicago Title
Insurance Company, as trustee, for the benefit of Beneficiary as agent
of Bank Lenders, as beneficiary, and recorded on February --, 1994 in
the Official Records of ---- County, ---- as Instrument No(s). ----
(the "Original Deed of Trust"), as amended by the First Amendment to
Deed of Trust with Power of Sale, Assignment of Leases and Rents,
Security Agreement, Fixture Filing and Financing Statement (the "First
Amendment") dated as of July 21, 1994 and recorded on August --, 1994
in the Official Records of ---- County, ---- as Instrument No(s). ----
(as so amended, the "Deed of Trust").
C. The Deed of Trust encumbers that certain real property
located in ------- County, --------- as more particularly described in
Exhibit A, attached hereto, and by this reference incorporated herein.
---------
D. Concurrently herewith, Grantor, Parent Guarantor and Bank
Lenders have agreed to amend the Credit Agreement to, among other
things, increase the maximum aggregate principal amount of the Loans
by Fifty Million Dollars ($50,000,000) and provide that Grantor's
obligations thereunder shall be secured by the Deed of Trust, all as
set forth in that certain Second Amendment to Credit Agreement dated
of even date herewith by and between Grantor, Parent Guarantor,
Lenders and Beneficiary (the "Second Credit Agreement Amendment").
E. Grantor and Beneficiary desire to amend the Deed of Trust to
reflect and evidence the amendments and modifications set forth in the
Second Credit Agreement Amendment.
NOW, THEREFORE, with reference to the foregoing Recitals and
for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor and Beneficiary further agree as follows:
1. Grantor's obligations evidenced by the Credit
Agreement, as amended by the Second Credit Agreement Amendment, shall
continue to be secured by the Deed of Trust. Except as amended by
this Second Amendment, the Deed of Trust shall remain unmodified and
in full force and effect. The parties hereto hereby ratify and
confirm the Deed of Trust as amended hereby.
2. It is the intent of each of the parties hereto that the
Original Deed of Trust, as modified and amended by the First Amendment
and this Second Amendment, shall have and retain the priority
established at the time of the recordation of the Original Deed of
Trust on February --, 1994 (the "Original Recording Date"). To the
extent that any court of law or equity
2<PAGE>
<PAGE>
determines that the priority of this Second Amendment may not relate
back to the Original Recording Date, then (i) this Second Amendment
shall be bifurcated from the Deed of Trust such that the obligations
of Grantor with respect to the $50,000,000 increase in the maximum
amount of the Loans, as more particularly set forth in the Second
Credit Agreement Amendment and secured by this Second Amendment, shall
have such priority as is established at the time of recordation of
this Second Amendment in the Official Records of ---- County, ----,
and (ii) the Deed of Trust, as unamended by this Second Amendment,
shall continue to secure the obligations of Grantor under the Credit
Agreement, as unamended by the Second Credit Agreement Amendment, and
the other Secured Obligations set forth in the Deed of Trust, and
shall continue to have the priority described in paragraph 2 of the
First Amendment. In no event shall this Second Amendment destroy,
impair or otherwise affect such priority of the Deed of Trust.
3. This Second Amendment shall be governed by and
construed in accordance with the laws in the State of ---- without
giving effect to the conflict of law principles of said State.
4. This Second Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which when taken
together shall constitute one and the same instrument. The signature
page of any counterpart may be detached therefrom without impairing
the legal effect of the signature(s) thereon and attached to any other
counterpart identical thereto except having additional signature pages
attached to it.
5. In the event of any inconsistencies between the
provisions of this Second Amendment and the provisions of the Deed of
Trust, the provisions of this Second Amendment shall govern and
prevail.
6. The relationship of Grantor and Beneficiary with
respect to the Loans and the matters set forth herein is that of
creditor and debtor respectively and by virtue of entering into the
Second Credit Agreement Amendment and performing their respective
obligations thereunder, Grantor and Beneficiary do not intend to form
a partnership or joint venture or any other relationship other than
that of creditor and debtor respectively.
3
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of
Grantor and Beneficiary have executed this Second Amendment as of the
date first above written.
"GRANTOR"
KAISER ALUMINUM & CHEMICAL CORPORATION,
a Delaware corporation
By: ____________________________
Name: K.S. Vasan
Its: Treasurer
"BENEFICIARY"
BANKAMERICA BUSINESS CREDIT, INC.,
a Delaware corporation
By: ____________________________
Name: Michael J. Jasaitis
Its: Vice President
4
<PAGE>
<PAGE>
ACKNOWLEDGEMENTS
STATE OF ___________________ )
)
COUNTY OF __________________ )
On March__, 1995, before me, _____________________, a Notary
Public in and for said State, personally appeared
________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
STATE OF ___________________ )
)
COUNTY OF __________________ )
On March__, 1995, before me, _____________________, a Notary
Public in and for said State, personally appeared
________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
<PAGE>
<PAGE>
EXHIBIT A
----------
LEGAL DESCRIPTION OF PROPERTY
<PAGE>
<PAGE>
EXHIBIT C
FORM OF SECOND AMENDMENT TO MORTGAGE
RECORDING REQUESTED BY:
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers
275 Battery Street, 26th Floor
San Francisco, California 94111-3305
Attn: Jill H. Matichak, Esq.
(File No. 019,368-663)
-----------------------------------------------------------------
SECOND AMENDMENT TO MORTGAGE WITH POWER OF SALE,
ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
THIS SECOND AMENDMENT TO MORTGAGE WITH POWER OF SALE,
ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND
FINANCING STATEMENT (this "Second Amendment") is made as of March --,
1995 by and between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware
corporation ("Mortgagor"), whose address is 6177 Sunol Drive,
Pleasanton, California 94566, and BANKAMERICA BUSINESS CREDIT, INC., a
Delaware corporation ("BABC"), as agent for the Secured Lenders (as
defined in the Credit Agreement referred to below), having an office
at Two North Lake Avenue, Suite 400, Pasadena, California 91101 (BABC,
in its capacity as agent for the Secured Lenders, shall be referred to
hereinafter as "Mortgagee").
R E C I T A L S :
A. Pursuant to that certain Credit Agreement dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement, dated as of July 21, 1994 (as so amended, the "Credit
Agreement") between Mortgagor, Kaiser Aluminum Corporation, a Delaware
corporation ("Parent Guarantor"), BABC and various other financial
institutions named therein (which financial institutions, together
with BABC in its capacity as lender, shall be referred to hereinafter
collectively as "Bank Lenders") and Mortgagee, Bank Lenders agreed to
make certain revolving loans and other financial commitments to
Mortgagor (the "Loans"). Except as otherwise provided in this Second
Amendment, all initially capitalized terms used herein without
definition shall have the same meaning as in the Credit Agreement, as
amended.
<PAGE>
<PAGE>
B. The Loans are secured by, among other things, that certain
Mortgage with Power of Sale, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement dated as of February
15, 1994, executed by Mortgagor, as mortgagor, to Mortgagee as agent
of Bank Lenders, as mortgagee, and recorded on February --, 1994 with
the Recorder of Deeds,
---- County, ---- in Book , Page --- (the "Original Mortgage"), as
amended by the First Amendment to Mortgage with Power of Sale,
Assignment of Leases and Rents, Security Agreement, Fixture Filing and
Financing Statement (the "First Amendment") dated as of July 21, 1994
and recorded on August --, 1994 with the Recorder of Deeds, ----
County, ----- in Book ----, Page ---- (as so amended, the "Mortgage").
C. The Mortgage encumbers that certain real property located in
----County, ----- as more particularly described in Exhibit A,
---------
attached hereto, and by this reference incorporated herein.
D. Concurrently herewith, Mortgagor, Parent Guarantor and Bank
Lenders have agreed to amend the Credit Agreement to, among other
things, increase the maximum aggregate principal amount of the Loans
by Fifty Million Dollars ($50,000,000) and provide that Mortgagor's
obligations thereunder shall be secured by the Mortgage, all as set
forth in that certain Second Amendment to Credit Agreement dated of
even date herewith by and between Mortgagor, Parent Guarantor, Lenders
and Mortgagee (the "Second Credit Agreement Amendment").
E. Mortgagor and Mortgagee desire to amend the Mortgage to
reflect and evidence the amendments and modifications set forth in the
Second Credit Agreement Amendment.
NOW, THEREFORE, with reference to the foregoing Recitals and
for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Mortgagor and Mortgagee further agree as follows:
1. Mortgagor's obligations evidenced by the Credit
Agreement, as amended by the Second Credit Agreement Amendment, shall
continue to be secured by the Mortgage. Except as amended by this
Second Amendment, the Mortgage shall remain unmodified and in full
force and effect. The parties hereto hereby ratify and confirm the
Mortgage as amended hereby.
2. It is the intent of each of the parties hereto that the
Original Mortgage, as modified and amended by the First Amendment and
this Second Amendment, shall have and retain the priority established
at the time of the recordation of the Original Mortgage on February --
, 1994 (the "Original Recording Date"). To the extent that any court
of law or equity determines that the priority of this Second Amendment
may not relate back to
2<PAGE>
<PAGE>
the Original Recording Date, then (i) this Second Amendment shall be
bifurcated from the Mortgage such that the obligations of Mortgagor
with respect to the $50,000,000 increase in the maximum amount of the
Loans, as more particularly set forth in the Second Credit Agreement
Amendment and secured by this Second Amendment, shall have such
priority as is established at the time of recordation of this Second
Amendment in the Official Records of ---- County, ----, and (ii) the
Mortgage, as unamended by this Second Amendment, shall continue to
secure the obligations of Mortgagor under the Credit Agreement, as
unamended by the Second Credit Agreement Amendment, and the other
Secured Obligations set forth in the Mortgage, and shall continue to
have the priority described in paragraph 2 of the First Amendment. In
no event shall this Second Amendment destroy, impair or otherwise
affect such priority of the Mortgage.
3. This Second Amendment shall be governed by and
construed in accordance with the laws in the State of ---- without
giving effect to the conflict of law principles of said State.
4. This Second Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which when taken
together shall constitute one and the same instrument. The signature
page of any counterpart may be detached therefrom without impairing
the legal effect of the signature(s) thereon and attached to any other
counterpart identical thereto except having additional signature pages
attached to it.
5. In the event of any inconsistencies between the
provisions of this Second Amendment and the provisions of the
Mortgage, the provisions of this Second Amendment shall govern and
prevail.
6. The relationship of Mortgagor and Mortgagee with
respect to the Loans and the matters set forth herein is that of
creditor and debtor respectively and by virtue of entering into the
Second Credit Agreement Amendment and performing their respective
obligations thereunder, Mortgagor and Mortgagee do not intend to form
a partnership or joint venture or any other relationship other than
that of creditor and debtor respectively.
3
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of
Mortgagor and Mortgagee have executed this Second Amendment as of the
date first above written.
"MORTGAGOR"
KAISER ALUMINUM & CHEMICAL CORPORATION,
Attested By: a Delaware corporation
______________________ By: ____________________________
Name:_________________
Title:________________ Name: K.S. Vasan
Its: Treasurer
[corporate seal]
"MORTGAGEE"
BANKAMERICA BUSINESS CREDIT, INC.,
a Delaware corporation
By: ____________________________
Name: Michael J. Jasaitis
Its: Vice President
4<PAGE>
ACKNOWLEDGEMENTS
STATE OF ___________________ )
)
COUNTY OF __________________ )
On March ____, 1995, before me, _____________________, a
Notary Public in and for said State, personally appeared
________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
STATE OF ___________________ )
)
COUNTY OF __________________ )
On March ____, 1995, before me, _____________________, a
Notary Public in and for said State, personally appeared
________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
<PAGE>
<PAGE>
EXHIBIT A
----------
LEGAL DESCRIPTION OF PROPERTY
<PAGE>
SENIOR SUBORDINATED INTERCOMPANY NOTE
December 15, 1992
FOR VALUE RECEIVED, the undersigned, Kaiser Aluminum &
Chemical Corporation, a Delaware corporation (the "Company"),
HEREBY PROMISES TO PAY to the order of KLU Holdings, Inc., a
Delaware corporation (the "Payee"), the principal sum of TWO
MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000.00), with
interest thereon, which shall be due and payable as hereinafter
provided.
1. This Note shall bear interest, compounded
semiannually (computed on the basis of a 360-day year of twelve
30-day months), on the unpaid principal amount outstanding
hereunder plus all accrued and unpaid interest thereon, from the
date this Note is issued (the "Issuance Date"), until such
principal amount is repaid in full, at a rate equal to twelve
percent (12%) per annum or, if New Subordinated Notes (as such
term is defined in the Credit Agreement (as hereinafter defined)
shall be issued on or prior to December 31, 1992, the stated
interest rate per annum on such New Subordinated Notes.
2. Subject to Section 5 hereon, (a) no payment of
principal or interest shall be required to be made on this Note
prior to June 30, 1995, and (b) the entire unpaid principal
amount of this Note, together with accrued interest thereon,
shall be due and payable on June 30, 1995.
3. The Company shall make each payment hereunder not
later than 5:00 p.m. (New York City time) on the day when due in
lawful money of the United States of America to the holder of
this Note by delivery of a certified or bank cashier's check in
the amount of such payment or, at such holder's option, by wire
transfer of immediately available funds.
4. Whenever any payment to be made hereunder shall be
stated to be due on a Saturday, Sunday or a public or bank
holiday or the equivalent for banks generally under the laws of
the State of New York (any other day being a "Business Day"),
such payment may be made on the next succeeding Business Day.
5. The Company shall have the right to prepay the
principal amount of, and/or interest on, this Note, in whole or
in part, at any time or from time to time, without
-1-
<PAGE>
<PAGE>
premium or penalty, but with interest on the portion of the
principal amount or interest so prepaid accrued to the date of
prepayment. This Note is one of the notes (the "PIK Notes")
issued pursuant to the requirements of Section 10.1.18 of the
Credit Agreement dated as of December 13, 1989 between Kaiser
Aluminum Corporation (formerly named KaiserTech Limited), the
Company, certain financial institutions, Bank of America National
Trust and Savings Association, as agent, and Mellon Bank, N.A.,
as collateral agent, as the same has been, or may hereafter be,
amended, supplemented, restated, or otherwise modified from time
to time (the "Credit Agreement"). The Company shall, on demand,
prepay the principal of, and/or accrued interest on, the PIK
Notes, without premium or penalty, but with interest on the
principal amount or interest so prepaid, when, as and to the
extent that such prepayment is not prohibited by the Credit
Agreement.
6. In the case one or more of the following events of
default shall have occurred and be continuing:
(a) the Company fails to pay any installment of
principal of, or interest on, any PIK Note when due; or
(b) a court having jurisdiction in the premises
shall have entered a decree or order for relief against the
Company in an involuntary case under any applicable bankruptcy,
insolvency of other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or for all or
any substantial part of its property, or ordering the winding-up
or liquidation of its affairs, and such decree or order shall
have remained unstayed and in effect for a period of ninety
consecutive days; or
(c) the Company shall have commenced a voluntary
case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or shall have consented to the
entry of an order for relief in an involuntary case under any
such law, or shall have consented to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) of the Company or
for all or any substantial part of its property, or shall have
made an assignment for the benefit of creditors, or shall have
taken any corporate action in furtherance of any of the
foregoing;
-2-
<PAGE>
<PAGE>
(d) then, in the case of an event specified in
clause (a), unless the principal of this Note shall have already
become due and payable, the holder of this Note by notice to the
Company in writing may at its option declare the principal amount
and accrued interest to the date of declaration of this Note to
be due and payable immediately. Upon any such declaration, the
same shall become and shall be immediately due and payable,
provided that any payment pursuant to such acceleration shall be
subject to Section 7(g) of this Note. If an event specified in
clause (b) or (c) above occurs, such amount shall ipso facto
become and be immediately due and payable without any declaration
or other act on the part of the holder, but subject to Section
7(g) of this Note.
7. (a) The Company, for itself, its successors and
assigns, covenants and agrees, and the Payee (and each other
holder of this Note), by its acceptance thereof, likewise
covenants and agrees, for the benefit of all present and future
holders of Senior Indebtedness of the Company (as defined in
Section 7(h) of this Note), that all direct or indirect payments
or distributions on or with respect to this Note, whether
pursuant to the terms of this Note or upon acceleration or
otherwise, including, without limitation, by way of or on account
of a "Claim" (as defined hereinbelow) or the payment of the
principal of and interest on this Note, in hereby expressly
subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full in cash
or cash equivalents of all Senior Indebtedness of the Company.
(b) Upon any direct or indirect payment or
distribution of assets or securities of the Company of any kind
or character, whether in cash, property or securities, upon any
dissolution, winding up, liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy,
insolvency, reorganization, receivership or other proceedings or
upon an assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of the Company or
otherwise,
(i) the holders of all Senior Indebtedness
of the Company shall be entitled to receive payment in full in
cash or cash equivalents of such Senior Indebtedness of the
Company (including, without limitation, interest that would
accrue but for the occurrence of any such proceeding whether or
not such interest is an allowable claim in such proceeding)
before the holder of this Note shall be entitled to receive any
direct or indirect payment with respect to this Note, whether
pursuant to the terms of this Note or upon acceleration or
otherwise, including by way of or on account of any claim against
the Company for rescission of the issuance of this Note or for
monetary damages from, or in connection with, the issuance of
this
-3-
<PAGE>
<PAGE>
Note, or for reimbursement or contribution on account of such a
claim (a "Claim"), or the payment of principal of or interest on
this Note; and
(ii) any direct or indirect payment or
distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holder of
this Note would be entitled except for the provisions of this
Section 7 shall be paid by the Company or by any liquidating
trustee or agent or other person making such payment of
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of
Senior Indebtedness of the Company or their representative or
representatives, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness of the
Company held or represented by each, to the extent necessary to
make payment in full in cash or cash equivalents of all Senior
Indebtedness of the Company (including, without limitation,
interest that would accrue but for the occurrence of any such
proceeding whether or not such interest is an allowable claim in
such proceeding) remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness of the Company; and
(iii) in the event that, notwithstanding
the foregoing, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or
securities, shall be received by the holder of this Note, whether
pursuant to the terms of this Note or upon acceleration or
otherwise, including by way of or on account of a Claim, or the
payment of principal of or interest on this Note, before all
Senior Indebtedness of the Company is paid in full in cash or
cash equivalents, such payment or distribution shall be received
and held in trust for and paid over to the holders of such Senior
Indebtedness of the Company or their representative or
representatives, ratably as aforesaid, for application to the
payment of all Senior Indebtedness of the Company remaining
unpaid until all such Senior Indebtedness of the Company shall
have been paid in full in cash or cash equivalents, after giving
effect to any concurrent payment or distribution to the holders
of such Senior Indebtedness of the Company.
The consolidation of the Company with, or the merger of
the Company into, another corporation or other entity or the
liquidation or dissolution of the Company following the sale or
conveyance of its property or assets as an entirety, or
substantially as an entirety, to another corporation or other
entity shall not be deemed a dissolution, winding up, liquidation
or reorganization of the Company for the purposes of this Section
7 provided that such transaction does not violate the terms of
the Credit Agreement.
-4-
<PAGE>
<PAGE>
Subject to the payment in full in cash or cash equivalents
of all Senior Indebtedness of the Company, the holders of PIK
Notes shall be subrogated (without any duty on the part of the
holders of Senior Indebtedness of the Company to warrant, create,
effectuate, preserve or protect such subrogation) to the rights
of the holders of Senior Indebtedness of the Company to receive
payments or distributions of cash, property or securities of the
Company applicable to Senior Indebtedness of the Company until
the principal of and interest on the PIK Notes shall be paid in
full and, for the purpose of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of the
Company of cash, property or securities otherwise distributable
to the holders of PIK Notes shall, as between the Company, its
creditors other than the holders of Senior Indebtedness of the
Company, and the holders of PIK Notes, be deemed to be a payment
by the Company to the holders of or on account of the Senior
Indebtedness of the Company. It is understood that the provisions
of this Section 7 (and of Section 7 of all other PIK Notes) are
and are intended solely for the purpose of defining the relative
rights of the holders of PIK Notes, on the one hand, and the
holders of Senior Indebtedness of the Company, on the other hand.
Nothing contained in this Section 7 or elsewhere in this Note is
intended to or shall impair, as between. the Company, its
creditors other than the holders of Senior Indebtedness of the
Company, and the holder of this Note, the obligation of the
Company, which is unconditional and absolute, to pay to the
holder of this Note the principal of and interest on this Note as
and when the same shall become due and payable in accordance with
its terms, or to affect the relative rights of the holders of PIK
Notes and creditors of the Company other than the holders of
Senior Indebtedness of the Company, nor shall anything herein
prevent the holder of this Note from exercising all remedies
otherwise permitted by applicable law upon default under this
Note, subject to the rights, if any, under this Section 7 of the
holders of Senior Indebtedness of the Company in respect of cash,
property or securities of the Company received upon the exercise
of any such remedy. Upon any payment or distribution of assets of
the Company referred to in this Section 7, the holder of this
Note shall be entitled to rely upon any order or decree of a
court of competent jurisdiction in which any proceedings of the
nature described in this Section are pending or upon a
certificate of the liquidating trustee or agent or other person
making any distribution to the holder of this Note for the
purpose of ascertaining the persons entitled to participate in
such distribution, the holders of Senior Indebtedness of the
Company and other indebtedness of the Company, the amount thereof
or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section
7.
-5-
<PAGE>
<PAGE>
(c) No direct or indirect payments or
distributions by or on behalf of the Company on or with respect
to this Note (whether pursuant to the terms of this Note or upon
acceleration or otherwise, including by way of or on account of a
Claim, or the payment of principal of or interest on this Note)
shall be made if, at the time of such payment or distribution,
such payment or distribution is prohibited by the Credit
Agreement.
In the event that, notwithstanding the foregoing,
the Company shall make any payment or distribution of assets of
the Company of any kind or character, whether in cash, property
or securities, to the holder of this Note prohibited by the
foregoing provisions of this Section 7(c) (whether pursuant to
the terms of this Note or upon acceleration or otherwise,
including by way of or on account of a Claim, or the payment of
principal of or interest on this Note), then and in any such
event such payment or distribution shall, to the extent permitted
by law, be received and held in trust for the benefit of and be
paid over and delivered forthwith to the holders of the Senior
Indebtedness of the Company or their representative or
representatives.
The provisions of this Section 7(c) shall not
apply to any payment with respect to which Section 7(b) would be
applicable.
(d) Except as provided in clause (b) or (c)
above, nothing contained in this Note shall affect the obligation
of the Company to make, or prevent the Company from making, at
any time, payments of principal or interest on this Note.
(e) The holder of this Note shall take such
action as may be necessary or appropriate to effectuate the
subordination as provided in this Section 7, including, without
limitation, in the event of any dissolution, winding up,
liquidation or bankruptcy reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon a
general assignment for the benefit of creditors or any other
similar remedy or otherwise) tending towards liquidation of the
business and assets of the Company, the immediate filing of a
claim for the unpaid balance of this Note in the form required in
such proceedings and using its best efforts to cause such claim
to be approved. If the holder of this Note does not file a proper
claim or proof of debt in the form required in such proceedings
prior to 30 days before the expiration of the time to file such
claim or claims, the holders of Senior Indebtedness of the
Company (or their representative or representatives) are hereby
authorized to file an appropriate claim for and on behalf of the
holder of this Note. Nothing herein shall be deemed to authorize
the holders of Senior Indebtedness of the Company to authorize or
consent to or accept or adopt on behalf of
-6-
<PAGE>
<PAGE>
the holder of this Note any plan of reorganization, arrangement,
adjustment or composition affecting this Note or the rights of the
holder of this Note, or to authorize the holders of Senior
Indebtedness of the Company to vote in respect of the claim of the
holder of this Note in any such proceeding.
(f) No right of any present or future holder of
any Senior Indebtedness of the Company to enforce subordination
as provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms of
this Note, regardless of any knowledge thereof which any such
holder may have or otherwise be charged with. The holders of
Senior Indebtedness of the Company may at any time and from time
to time, without the consent of or notice to the holder of this
Note, without incurring responsibility to the holder of this Note
and without impairing or releasing or otherwise affecting the
rights of any holder of Senior Indebtedness of the Company or the
respective liabilities or obligations of the Company or the
holder this Note or in any way altering or affecting any of the
provisions of this Section 7:
(1) change the amount, manner, place or terms of
payment or change or extend the time of payment of or renew,
refinance, modify, alter or restructure the terms of the
Senior Indebtedness of the Company or any document or
instrument evidencing or governing such Senior Indebtedness
of the Company in any manner or enter into or amend in any
manner any other agreement relating to Senior Indebtedness
of the Company or any security therefor;
(2) sell, exchange, release or otherwise deal with
any property by whomsoever at any time pledged or mortgaged
to secure, or howsoever securing, Senior Indebtedness of the
Company and otherwise deal freely with the Company;
(3) release anyone (including any guarantor) liable in
any manner for the payment or collection of Senior
Indebtedness of the Company;
(4) exercise or refrain from exercising any rights
against the Company and others (including any guarantor,
including releasing, selling or exchanging any security);
-7-
<PAGE>
<PAGE>
(5) apply any sums by whomsoever paid or however
realized to the Senior Indebtedness of the Company; or
(6) take any other action which otherwise might be
deemed to impair the rights of the holder of this Note.
No compromise, alteration, amendment, modification,
extension, renewal or other change of, or waiver, consent or
other action in respect of, any liabilities or obligation under
or in respect of, or of any of the terms, covenants or conditions
of any indenture or other instrument under which any Senior
Indebtedness of the Company is outstanding or of such Senior
Indebtedness of the Company, whether or not in accordance with
the provisions of any applicable document, shall in any way alter
or affect any of the provisions of this Section 7. As long as the
Credit Agreement is in effect, no amendment to, or any waiver of
the provisions of, this Section 7 which adversely affects the
rights of the holders of Senior Indebtedness of the Company under
this Section 7 shall be effective against the holders of Senior
Indebtedness of the Company who have not consented thereto.
(g) If payment of the Note is accelerated because
of an event of defaultas provided in Section 6 of this Note, the
Company shall promptly notify this Agent under the Credit
Agreement of the acceleration. The Company may not pay the Note
until five Business Days after the Agent under the Credit
Agreement receives such notice (if any Senior Indebtedness of the
Company remains outstanding) and thereafter may pay this Note
only if this Note otherwise permits the payment at that time.
(h) The term "Senior Indebtedness of the Company"
shall mean all monetary obligations of the Company under the
Credit Agreement, including all related notes, collateral
documents, and guarantees, in each case, as any of the same has
been or may be amended, supplemented, restated or otherwise
modified from time to time (in each case in whole or in part).
8. All powers and remedies given to the holder of
this Note shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other
powers and remedies available to the holder of this Note, by
judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this
Note, and no delay or omission of the holder of this Note to
exercise any right or power
-8-
<PAGE>
<PAGE>
accruing upon any default hereunder shall impair any such right
or power, or shall be construed to be a waiver of any such
default or an acquiescence therein.
9. This Note shall be binding upon the Company and
its successors and assigns, and the terms and provisions of this
Note shall inure to the benefit of Payee, the holders of Senior
Indebtedness of the Company and their respective successors and
assigns, including subsequent holders hereof.
10. The terms and provisions of this Note are
severable, and if any term or provision shall be determined to be
superseded, illegal, invalid or otherwise unenforceable in whole
or in part pursuant to applicable law by a governmental authority
having jurisdiction, such determination shall not in any manner
impair or otherwise affect the validity, legality or enforce-
ability of that term or provision in any other jurisdiction or
any of the remaining terms and provisions of this Note in any
jurisdiction.
11. Presentment for payment, notice of dishonor,
protest, notice of protest and any other notice are hereby
waived. This Note shall be governed by, and construed in
accordance with, the internal laws of the State of New York
without regard to principles of conflict of laws.
12. No amendment, modification or waiver of any term
or provision of this Note, nor consent to any departure by the
Company here from, shall be effective unless the same shall be in
writing and signed by the holder of this Note, and then such
waiver, modification or consent shall be effective only in the
specific instance and for the specific purpose for which given.
13. Nothing in this Note, expressed or implied, shall
give or be construed to give any person, firm or corporation,
other than the parties hereto and the holders of Senior
Indebtedness of the Company, any legal or equitable right, remedy
or claim under or in respect of this Note, or under any covenant,
condition or provision herein contained; all its covenants,
conditions and provisions being for the sole benefit of the
Company, the holder of this Note and the holders of Senior
Indebtedness of the Company.
IN WITNESS WHEREOF, the Company has caused this Note to be
executed and delivered to the Payee on the date and year first
above written.
-9-
<PAGE>
<PAGE>
KAISER ALUMINUM & CHEMICAL
CORPORATION
By: ___________________________
John T. La Duc
Vice President and
Chief Financial Officer
-10-
<PAGE>
January 1995
Charles E. Hurwitz
5847 San Felipe, Suite 2600
Houston, TX 77057
Dear Mr. Hurwitz:
As a valued member of the Kaiser management team, you have been
selected for a grant of stock options under the Kaiser 1993
Omnibus Stock Incentive Plan (the "Plan"). The Plan is designed
to align key employees' and shareholders' objective, retain key
employees, and offer competitive long-term compensation
opportunities.
This letter contains a brief summary description to help you
better understand the details of the Plan. The summary
description sets forth only the highlights, and is qualified in
its entirety by the complete copy of the controlling Plan, a copy
of which you may obtain upon request from the Corporate
Secretary, at the address set forth below or by calling (713)
267-3670.
On December 21, 1994, the Company's Compensation Committee
granted to you, the right and option (not qualified as an
Incentive Stock Option under the Internal Revenue Code) to
purchase, on the terms and conditions set forth in the Plan
250,000 shares of KAC common stock, $.01 par value, at the
exercise price of $12.75 per share, (20% above the closing price
on the New York Stock Exchange on the date of the grant)
exercisable from time to time in accordance with the provisions
of the Plan. The above option will vest at the rate of 25% per
year over the next 4 years, with the first 25% vesting on
December 21, 1995. The grant shall expire and cease to be
exercisable ten years from the date of grant, or on such earlier
date as may be provided for by the terms of the Plan. This grant
is subject to the Company's right to repurchase the option, in
whole or in part, within ten days of your exercise of such option
at a price equal to the difference between the exercise price and
the closing price on the date of your exercise as reported by the
New York Stock Exchange (or such other national exchange on which
the KAC common stock may be listed).
<PAGE>
<PAGE>
Each exercise of this option shall be by means of a written
notice of the exercise (using the enclosed form) delivered to the
Corporate Secretary, in Houston, at the address specified on the
form. If the notice of exercise is received after 5:00 p.m.
Houston time, the exercise will be deemed to have occurred on the
next business day. The notice of exercise must specify the
number of shares to be purchased and be accompanied by full
payment in cash, or by certified or cashier's check, payable to
the Company for the full exercise price of the shares to be
purchased. Upon payment of the full purchase price, the Company
will make a withholding for federal, state and local taxes. The
withheld amount may not be sufficient for payment of taxes owed
by you. Ordinary income is recognized by an optionee upon
exercise of a non-qualified stock option (a right granted by
employer to purchase stock at stipulated price over a specific
period of time) in an amount equal to the difference between the
market value of the shares of common stock acquired and the
exercise price paid for them.
All options terminate immediately upon termination of employment
for cause. If employment terminates on account of death or
disability, any of the options hereby granted which are
exercisable at termination may be exercised until the earlier of
the first anniversary of such termination date or its scheduled
expiration date. Any option exercisable upon the holder's
retirement may be exercised until the third anniversary of
employment termination or its scheduled expiration date. On
termination of employment in any circumstances not mentioned
above, an option exercisable at termination may be exercised for
three months thereafter, but not after its scheduled expiration
date.
The option shall become immediately exercisable on a change of
control. A change of control shall be deemed to have occurred if
at any time MAXXAM Inc. beneficially owns less than 50% (on a
fully diluted basis) of the outstanding Common Stock of KAC.
If the outstanding shares of the common stock of KAC are
increased, decreased, changed into, or exchanged for a different
number of kind of shares or securities of KAC as a result of a
reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment (to be conclusively determined by the
"Compensation Committee" of the "Boards" of Directors of KAC and
KACC) shall be made in the number and kind of securities
allocated to this option without change in the total price
applicable to the unexercised portion of this option, but with a
corresponding adjustment in the price of each share or other unit
of any security covered by this option.
The Compensation Committee has sole discretion to determine which
employees receive awards under the Plan and to establish the
terms of each award (subject to the provisions of the Plan). The
award or the option should be considered as an independent action
and is not to be construed as repeatable or ongoing. The
Compensation Committee also has authority to construe, interpret
and implement the Plan, to make rules and otherwise administer
the Plan, and its determination on any matter relating to the
Plan is conclusive. The Boards may terminate, suspend or revise
the Plan at any time, subject to stockholder approval for certain
types of amendments. However, no amendment or other action by
the Boards, including termination of the Plan, may adversely
affect any outstanding award without consent of the recipient
(or, if applicable, the recipient's heirs or estate).
<PAGE>
<PAGE>
Also enclosed is a form of Beneficiary Designation to designate a
beneficiary to receive shares of common stock of KAC, as well as
any benefits under the Plan that may become payable on account of
your death. If you wish to make or change a designation of your
beneficiary under the Plan you should complete this form promptly
and return it to Jim McKnight, Director Corporate Personnel, 6177
Sunol Boulevard, Pleasanton, CA 94566. In the absence of any
such beneficiary designation by you, all death benefits under the
Plan would be payable to your estate.
We congratulate you on your selection to participate in this
Plan. It indicates your importance to the performance of the
Company. We would also like to thank you for your dedicated
service and contribution to the past success of Kaiser, and we
look forward to your continued contribution. If you have any
questions regarding the Plan, please feel free to discuss them
with Byron Wade in Houston or with Jim McKnight in Pleasanton.
Please indicate your acceptance of this agreement by signing
below and returning such signed copy to Byron Wade, 5847 San
Felipe, Suite 2600, P.O. Box 572887, Houston, Texas 77257-2887.
Sincerely,
George T. Haymaker, Jr.
Chairman of the Board and
Chief Executive Officer
I acknowledge and accept this award under the terms specified in
this letter and the Plan.
_______________________________
Employee's Signature
_______________________________
Date
<PAGE>
BY-LAWS
OF
KAISER ALUMINUM & CHEMICAL CORPORATION
<PAGE>
Amended and Restated on
December 15, 1994
INDEX
Page
----
ARTICLE I - OFFICES
Section 1. Registered Office. . . . . . . .. . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . 1
ARTICLE II - MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. . . . . . . . . . . . . . . 1
Section 2. Annual Meetings. . . . . . . . . . . . . . . . 1
Section 3. Special Meetings . . . . . . . . . . . . . . . 1
Section 4. Adjourned Meetings, Notice . . . . . . . . . . 2
Section 5. Voting . . . . . . . . . . . . . . . . . . . . 2
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . 2
Section 7. Proxies. . . . . . . . . . . . . . . . . . . . 2
ARTICLE III - DIRECTORS
Section 1. Powers . . . . . . . . . . . . . . . . . . . . 3
Section 2. Number and Qualification of Directors. . . . . 3
Section 3. Election and Term of Office. . . . . . . . . . 3
Section 4. Vacancies. . . . . . . . . . . . . . . . . . . 3
Section 5. Place of Meeting . . . . . . . . . . . . . . . 4
Section 6. Organization Meeting . . . . . . . . . . . . . 4
Section 7. Other Regular Meetings . . . . . . . . . . . . 4
Section 8. Special Meetings . . . . . . . . . . . . . . . 4
Section 9. Quorum . . . . . . . . . . . . . . . . . . . . 4
Section 10. Adjournment. . . . . . . . . . . . . . . . . . 4
Section 11. Fees and Compensation. . . . . . . . . . . . . 5
Section 12. Directors' Action Without Meetings . . . . . . 5
Section 13. Meetings by Telecommunication. . . . . . . . . 5
ARTICLE IV - COMMITTEES
Section 1. Committees . . . . . . . . . . . . . . . . . . 5
Section 2. Committee Rules. . . . . . . . . . . . . . . . 6
ARTICLE V - OFFICERS
Section 1. Officers . . . . . . . . . . . . . . . . . . . 6
Section 2. Election . . . . . . . . . . . . . . . . . . . 6
Section 3. Removal and Resignation. . . . . . . . . . . . 6
Section 4. Vacancies. . . . . . . . . . . . . . . . . . . 7
Section 5. Chairman of the Board. . . . . . . . . . . . . 7
Section 6. Vice Chairman of the Board . . . . . . . . . . 7
Section 7. Chief Executive Officer. . . . . . . . . . . . 7
Section 8. President. . . . . . . . . . . . . . . . . . . 7
Section 9. Executive Presidents and Senior
Vice Presidents. . . . . . . . . . . . . . . 7
<PAGE>
<PAGE>
Section 10. Vice Presidents. . . . . . . . . . . . . . . . 8
Section 11. Secretary. . . . . . . . . . . . . . . . . . . 8
Section 12. Treasurer. . . . . . . . . . . . . . . . . . . 8
Section 13. Controller . . . . . . . . . . . . . . . . . . 9
ARTICLE VI - MISCELLANEOUS
Section 1. Record Dates . . . . . . . . . . . . . . . . . 9
Section 2. Checks, Drafts, Etc. . . . . . . . . . . . . . 9
Section 3. Contracts, How Executed. . . . . . . . . . . . 9
Section 4. Waiver of Notice of Meetings of Shareholders,
Directors and Committees . . . . . . . . . . 10
Section 5. Certificates of Stock. . . . . . . . . . . . . 10
Section 6. Representation of Shares Held by Other
Corporations . . . . . . . . . . . . . . . . 11
Section 7. Inspection of Stock Ledger . . . . . . . . . . 11
Section 8. Interested Directors, Quorum . . . . . . . . . 11
Section 9. Indemnification. . . . . . . . . . . . . . . . 12
ARTICLE VII - AMENDMENTS
Section 1. Adoption, Amendment or Repeal of By-laws . . . 12
<PAGE>
<PAGE>
BY-LAWS
of
KAISER ALUMINUM & CHEMICAL CORPORATION
-----------------------
Article I - OFFICES
SECTION 1. Registered Office. The registered office
-----------------
of the Corporation is hereby fixed and located at Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware. The name
of the registered agent in charge thereof is The Corporation
Trust Company.
SECTION 2. Other Offices. The Corporation shall have
-------------
its principal office in the Kaiser Center, 300 Lakeside Drive,
Oakland, California. Other offices may at any time be
established by the Board of Directors at any place or places,
within or without the State of Delaware, where the Corporation is
qualified to do business.
Article II - MEETINGS OF SHAREHOLDERS
SECTION 1. Place of Meetings. All meetings of
-----------------
Shareholders for the election of Directors shall be held at the
principal office of the Corporation or at such other place either
within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of the Shareholders for any
other purpose may be held at such place as shall be stated in the
notice of the meeting.
SECTION 2. Annual Meetings. The annual meetings of
---------------
Shareholders shall be held at such date, time and place as may be
designated by the Board of Directors from time to time. At each
annual meeting the Shareholders shall elect a Board of Directors
and transact such other business as may properly be brought
before the meeting.
SECTION 3. Special Meetings. Special meetings of
----------------
Shareholders, for any purpose or purposes whatsoever, may be
called at any time by the Chairman of the Board or by any two (2)
of the Directors.
<PAGE>
<PAGE>
SECTION 4. Adjourned Meetings, Notice. Any Sharehold-
--------------------------
ers' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time, to be reconvened at
the same or some other place, by the vote of a majority of the
shares, the holders of which are either present in person or
represented by proxy thereat. At the adjourned meeting the
Corporation may transact any business which might have been
transacted at the original meeting, but in the absence of a
quorum no other business may be transacted at any such meeting.
When any Shareholders' meeting, either annual or
special, is adjourned for thirty (30) days or more or if after
the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given as in the
case of an original meeting. Save as aforesaid, it shall not be
necessary to give any notice of an adjournment or of the business
to be transacted at an adjourned meeting, if the time and place
of the adjourned meeting are announced at the meeting at which
such adjournment is taken.
SECTION 5. Voting. At all meetings of Shareholders,
------
every Shareholder entitled to vote shall have the right to vote
in person or by proxy the number of shares standing in his own
name on the stock records of the Corporation; provided, however,
that at all elections of Directors each holder of record of stock
entitled to vote for the election of Directors shall be entitled
to one vote for each share of such stock held by such Shareholder
for each Director's position to be filled. Cumulative voting for
Directors shall not be permitted. Voting shall be conducted by
ballot.
SECTION 6. Quorum. Subject to any provisions of the
------
Certificate of Incorporation relating to a quorum at meetings at
which the holders of shares of stock of any class are entitled to
vote separately as a class, the presence in person or by proxy of
the holders of a majority of the shares entitled to vote at any
meeting shall constitute a quorum for the transaction of
business. The Shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum. Shares of its own
capital stock belonging on the record date for the meeting to the
Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such
other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for
quorum purposes; provided, however, that the foregoing shall not
limit the right of the Corporation to vote stock, including but
not limited to its own stock, held by it in a fiduciary capacity.
SECTION 7. Proxies. Every person entitled to vote at
-------
a meeting of Shareholders shall have the right to do so either in
-2-
<PAGE>
<PAGE>
person or by an agent or agents authorized by a written proxy
executed by such person or his duly authorized agent and filed
with the Secretary of the Corporation; provided that no such
proxy shall be valid after the expiration of three (3) years from
its date, unless the proxy provides for a longer period of time.
A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A
Shareholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the Corporation.
Article III - DIRECTORS
SECTION 1. Powers. Subject to the limitations of the
------
Certificate of Incorporation, the By-laws and the General
Corporation Law of the State of Delaware as to action to be
authorized or approved by the Shareholders, and subject to the
duties of Directors as prescribed by the By-laws, all corporate
powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be managed by or
under the direction of, the Board of Directors.
SECTION 2. Number and Qualification of Directors. The
--------------------------------------
Board of Directors shall consist of three (3) to fifteen (15)
members, the number thereof to be determined from time to time by
a majority of the entire Board of Directors. Directors need not
be Shareholders.
SECTION 3. Election and Term of Office. The Directors
----------------------------
shall be elected at each annual meeting of Shareholders, but if
any such annual meeting is not held, or the Directors are not
elected thereat, the Directors may be elected at any special
meeting of Shareholders held for that purpose. All Directors
shall hold office until their respective successors are elected
and qualified or until their earlier resignation or removal.
SECTION 4. Vacancies. Vacancies in the Board of
---------
Directors may be filled by a majority of the remaining Directors,
though less than a quorum, or by a sole remaining Director, and
each Director so elected shall hold office until his successor is
elected at an annual or a special meeting of the Shareholders.
Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more Directors by the
provisions of the Certificate of Incorporation, vacancies and
newly created directorships of such class or classes or series
may be filled by a majority of the Directors elected by such
class or classes or series thereof then in office, or by the sole
remaining Director so elected.
-3-
<PAGE>
<PAGE>
A vacancy or vacancies shall be deemed to exist in case
of the death, resignation or removal of any Director.
The Shareholders may at any time elect Directors to
fill any vacancy not filled by the Directors.
Any Director may resign at any time by giving written
notice to the Board of Directors, the Chief Executive Officer or
the Secretary of the Corporation. Any such resignation shall
take effect at the time of receipt of such notice or at such
later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be
necessary to make it effective. If any Director resigns, the
Board shall have power to elect a successor to take office at
such time as the resignation shall become effective.
SECTION 5. Place of Meeting. Subject to the
----------------
provisions of Section 13 of this Article III, all meetings of the
Board of Directors shall be held at the principal office of the
Corporation or at such other place in the United States
designated at any time by the Board.
SECTION 6. Organization Meeting. Immediately
--------------------
following each annual meeting of Shareholders, the Board of
Directors shall hold a regular meeting for the purpose of
organization, election of officers, and the transaction of other
business. Notice of all such regular meetings shall not be
required.
SECTION 7. Other Regular Meetings. Other regular
----------------------
meetings of the Board of Directors shall be held without call at
such times as shall from time to time be determined by the Board
of Directors. Notice of all such regular meetings shall not be
required.
SECTION 8. Special Meetings. Special meetings of the
----------------
Board of Directors, for any purpose or purposes whatsoever, shall
be called at any time by the Chairman of the Board or by any two
(2) of the Directors. Reasonable notice thereof shall be given
by the person or persons calling the meeting.
SECTION 9. Quorum. At all meetings of the Board of
------
Directors a majority of the entire Board shall be necessary and
sufficient to constitute a quorum for the transaction of
business, except to fill vacancies in the Board as hereinbefore
provided, and except to adjourn as hereinafter provided. Every
act or decision done or made by a majority of the Directors
present at a meeting duly held at which a quorum is present shall
be regarded as the act of the Board of Directors.
SECTION 10. Adjournment. A quorum of the Directors
-----------
may adjourn any Directors' meeting to meet again at a stated day
and hour; provided, however, that in the absence of a quorum a
-4-
<PAGE>
<PAGE>
majority of the Directors present at any Directors' meeting,
either regular or special, may adjourn from time to time until
the time fixed for the next regular meeting of the Board of
Directors. Notice of the time and place of holding an adjourned
meeting of a Directors' meeting, either regular or special, need
not be given to absent Directors if the time and place are fixed
at the meeting adjourned.
SECTION 11. Fees and Compensation. Directors shall
---------------------
receive such compensation for their services as Directors as
shall be determined from time to time by resolution of the Board
of Directors. Any Director may serve the Corporation in any
other capacity as an Officer, agent, employee or otherwise and
receive compensation therefor.
SECTION 12. Directors' Action Without Meetings. Any
----------------------------------
action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent thereto is signed by all
members of the Board or such committee as the case may be, and
such written consent is filed with the minutes of proceedings of
the Board or committee.
SECTION 13. Meetings by Telecommunication. Any
-----------------------------
meeting, regular or special, of the Board of Directors or of any
committee thereof may be held by conference telephone or similar
communication equipment, provided that all Directors
participating can hear one another. Participation in such a
meeting shall constitute presence in person at the meeting.
Article IV - COMMITTEES
SECTION 1. Committees. The Board of Directors may, by
----------
resolution passed by a majority of the entire Board, designate
one or more committees, each committee to consist of one or more
Directors. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in place
of any such absent or disqualified member. Any such committee,
to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and
authority of the Board in the management of the business and
affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but
no such committee shall have power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement
-5-
<PAGE>
<PAGE>
of merger or consolidation, recommending to the Shareholders the
sale, lease or exchange of all or substantially all of the Corpo-
ration's property and assets, recommending to the Shareholders a
dissolution of the Corporation or a revocation of dissolution, or
amending these By-laws; and, unless the resolution expressly so
provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
SECTION 2. Committee Rules. Unless the Board of
---------------
Directors otherwise provides, each committee designated by the
Board may adopt, amend and repeal rules for the conduct of its
business. Reasonable notice of each committee meeting (other
than regularly scheduled meetings) shall be furnished to all
members of the committee. A majority of the entire authorized
number of members of such committee shall constitute a quorum for
the transaction of business, the vote of a majority of the
members present at a meeting at the time of such vote if a quorum
is then present shall be the act of such committee, and in other
respects each committee shall conduct its business in the same
manner as the Board of Directors conducts its business pursuant
to Article III of these By-laws.
Article V - OFFICERS
SECTION 1. Officers. The Officers of the Corporation
--------
shall be a Chief Executive Officer, a President, a Secretary, a
Treasurer and a Controller. The Board of Directors may also, at
its discretion, choose from among its members a Chairman of the
Board and a Vice Chairman of the Board. The Corporation may also
have at the discretion of the Board of Directors, one or more
Executive Vice Presidents, one or more Senior Vice Presidents,
one or more Vice Presidents, one or more Assistant Secretaries,
one or more Assistant Treasurers and one or more Assistant
Controllers. One person may hold two or more offices. Unless
otherwise determined by resolution of the Board, no person
serving as the Vice Chairman of the Board, an Assistant
Secretary, an Assistant Treasurer or an Assistant Controller
shall be deemed to be an executive officer of the Corporation.
SECTION 2. Election. The Officers of the Corporation
--------
shall be elected by the Board of Directors and each shall hold
his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and
qualified.
SECTION 3. Removal and Resignation. Any Officer may
-----------------------
be removed, either with or without cause, by a majority of the
Directors at the time in office, at any regular or special
meeting of the Board of Directors, or, except in the case of an
Officer chosen by the Board, by the Chief Executive Officer.
-6-
<PAGE>
<PAGE>
Any Officer may resign at any time by giving written
notice to the Board of Directors, the Chief Executive Officer or
the Secretary of the Corporation. Any such resignation shall
take effect at the time of receipt of such notice or at any later
time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make
it effective.
SECTION 4. Vacancies. A vacancy in any office because
---------
of death, resignation, removal, disqualification or any other
cause, shall be filled in the manner prescribed in the By-laws
for regular appointments to such office.
SECTION 5. Chairman of the Board. The Chairman of the
---------------------
Board, if any, shall preside at all meetings of the Board of
Directors and of the Shareholders at which he shall be present
and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or
prescribed by the By-laws. If so designated by the Board of
Directors, the Chairman of the Board shall be the Chief Executive
Officer.
SECTION 6. Vice Chairman of the Board. In the absence
--------------------------
of the Chairman of the Board, the Vice Chairman of the Board, if
any, shall preside at all meetings of the Board of Directors and
of the Shareholders at which he shall be present. The Vice
Chairman of the Board shall exercise such other powers and duties
as may be from time to time assigned to him by the Board of
Directors or prescribed by the By-laws.
SECTION 7. Chief Executive Officer. Subject to such
-----------------------
supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board or the Vice Chairman of
the Board, if there be such Officers, the Chief Executive Officer
shall have general supervision, direction and control of the
business and affairs of the Corporation.
SECTION 8. President. If the Chairman of the Board
---------
has not been designated as the Chief Executive Officer, the
President shall be the Chief Executive Officer with the powers
and duties set forth in Section 7 of this Article V. If the
Chairman of the Board has been so designated, the President shall
have such powers and perform such duties as from time to time may
be prescribed by the Board of Directors, the Chief Executive
Officer or the By-laws.
In the absence of the Chairman of the Board and of the
Vice Chairman of the Board, the President shall preside at all
meetings of the Board of Directors and of the Shareholders at
which he shall be present.
SECTION 9. Executive Vice Presidents and Senior Vice
-----------------------------------------
Presidents. The Executive Vice Presidents and Senior Vice
----------
-7-
<PAGE>
<PAGE>
Presidents, if any, shall have such powers and perform such
duties as from time to time may be prescribed by the Board of
Directors, the Chief Executive Officer or the By-laws.
SECTION 10. Vice Presidents. The Vice Presidents
---------------
shall have such powers and perform such duties as from time to
time may be prescribed by the Board of Directors, the Chief
Executive Officer or the By-laws.
SECTION 11. Secretary. The Secretary shall keep, or
---------
cause to be kept, a book of minutes at the principal office of
the Corporation or such other place as the Board of Directors may
order, of all meetings of the Board of Directors and any
committee thereof and of the Shareholders, with the time and
place of holding, whether regular or special, and, if special,
how authorized, the notice thereof given, the names of those
present at Directors' and committee meetings, the number of
shares present or represented at Shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation and at the office of the
Corporation's transfer agent, if a transfer agent shall be
appointed, a stock ledger, or a duplicate stock ledger, showing
the names of the shareholders and their addresses; the number and
classes of shares held by each; the number and date of
certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice
of all the meetings of the Shareholders and of the Board of
Directors required by the By-laws or by law to be given, and he
shall keep the seal of the Corporation in safe custody, and shall
have such other powers and perform such other duties as may be
prescribed by the Board of Directors, the Chief Executive Officer
or the By-laws.
SECTION 12. Treasurer. The Treasurer shall keep or
---------
cause to be kept full and accurate records of all receipts and
disbursements in books of the Corporation and shall have the care
and custody of all funds and securities of the Corporation.
The Treasurer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with
such depositaries as may be designated by the Board of Directors.
He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, shall render to the Chief Executive
Officer, the President and Directors, whenever they request it,
an account of all of his transactions as Treasurer and shall have
such other powers and perform such other duties as may be
prescribed by the Board of Directors, the Chief Executive Officer
or the By-laws.
-8-
<PAGE>
<PAGE>
SECTION 13. Controller. The Controller shall be the
----------
chief accounting officer of the Corporation. He shall keep or
cause to be kept all books of accounts and accounting records of
the Corporation and shall keep and maintain, or cause to be kept
and maintained, adequate and correct accounts of the properties
and business transactions of the Corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus and shares. Any surplus, including
earned surplus, paid-in surplus and surplus arising from a
reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account
shall at all times be open to inspection by any Director. He
shall prepare or cause to be prepared appropriate financial
statements for the Corporation and shall have such other powers
and perform such other duties as may be prescribed by the Board
of Directors, the Chief Executive Officer or the By-laws.
Article VI - MISCELLANEOUS
SECTION 1. Record Dates. The Board of Directors may
------------
fix in advance a date as a record date for the determination of
the Shareholders entitled to notice of and to vote at any meeting
of Shareholders, or entitled to receive payment of any dividend,
or the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or
the date for any other lawful action, and in such case such
Shareholders, and only such Shareholders as shall be Shareholders
of record on the date so fixed, shall be entitled to such notice
of, and to vote at, such meeting and any adjournment thereof, or
to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, or to take such other
action, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date
fixed as aforesaid.
Notwithstanding any other provision hereof, the record
date established pursuant to this Section shall, with respect to
a meeting of Shareholders, be not more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor, with
respect to any other action, more than sixty (60) days prior to
such action.
SECTION 2. Checks, Drafts, Etc. All checks, drafts or
--------------------
other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the
Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
SECTION 3. Contracts, How Executed. The Board of
-----------------------
Directors may authorize any Officer or Officers, agent or agents,
-9-
<PAGE>
<PAGE>
to enter into any contracts or execute any instrument in the name
of and on behalf of the Corporation, and such authority may be
general or confined to specific instances; and unless so
authorized by the Board of Directors, no Officer, agent or
employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit
or to render it liable for any purpose or to any amount.
SECTION 4. Waiver of Notice of Meetings of
-------------------------------
Shareholders, Directors and Committees. Whenever notice is
--------------------------------------
required to be given by law or under any provision of the
Certificate of Incorporation or these By-laws, a written waiver
thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special
meeting of the Shareholders, Directors, or members of a committee
of Directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these
By-laws.
SECTION 5. Certificates of Stock. A certificate for
---------------------
shares of the capital stock of the Corporation shall be issued to
each Shareholder when any such shares are fully paid up. All
such certificates shall be signed by or in the name of the
Corporation by the Chief Executive Officer or the President or a
Vice President and the Secretary or an Assistant Secretary.
Every certificate must be countersigned by a transfer agent or
transfer clerk, and be registered by an incorporated bank or
trust company, either domestic or foreign, as a registrar of
transfers, before issuance. The transfer agent for any class of
stock may also serve as registrar of such class, and any or all
of the signatures on the certificates may be a facsimile. In
case any Officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate
shall have ceased to be such Officer, transfer agent or registrar
before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were such
Officer, transfer agent or registrar at the date of issue.
The Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it, alleged to
have been lost, stolen or destroyed, and the Corporation may
require the owner of the lost, stolen or destroyed certificate,
or such owner's legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new
certificate.
-10-
<PAGE>
<PAGE>
SECTION 6. Representation of Shares Held by Other
--------------------------------------
Corporations. Shares of the Corporation standing in the name of
------------
another corporation may be voted or represented, and all rights
incident thereto may be exercised on behalf of such other
corporation, by any officer thereof authorized so to do by
resolution of its board of directors, or by its executive
committee, or by its by-laws, or by any person authorized so to
do by proxy or power of attorney duly executed by the president
or vice president and secretary or assistant secretary of such
other corporation, or by authority of the board of directors
thereof.
SECTION 7. Inspection of Stock Ledger. The Secretary
--------------------------
shall prepare and make, at least ten (10) days before every
meeting of Shareholders, a complete list of the Shareholders
entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each Shareholder and the number of
shares registered in the name of each Shareholder. Such list
shall be open to the examination of any Shareholder, for any
purpose germane to the meeting, during ordinary business hours,
for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and
may be inspected by any Shareholder who is present.
SECTION 8. Interested Directors, Quorum. No contract
----------------------------
or transaction between the Corporation and one or more of its
Directors or Officers, or between the Corporation and any other
corporation, partnership, association or other organization in
which one or more of its Directors or Officers are directors or
officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the Director or Officer
is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or
transaction, or solely because his or her or their votes are
counted for such purpose, if: (a) the material facts as to his
or her relationship or interest and as to the contract or
transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a
majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or (b) the
material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the
Shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
Shareholders; or (c) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or
ratified, by the Board, a committee thereof or the Shareholders.
Common or interested Directors may be counted in determining the
-11-
<PAGE>
<PAGE>
presence of a quorum at a meeting of the Board or of a committee
which authorizes the contract or transaction.
SECTION 9. Indemnification. The Corporation shall
---------------
indemnify to the full extent authorized by law, whether by
statute, court decision or otherwise, any person made or
threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by
reason of the fact that such person or such person's testator or
intestate is or was a Director, Officer or employee of the
Corporation or serves or served at the request of the Corporation
any other enterprise as a director, officer or employee.
Expenses incurred by a Director or Officer of the
Corporation in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such Director or Officer to
repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation. Such expenses
incurred by other employees may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
For purposes of this By-law, the term "Corporation"
shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or
merger, the term "other enterprise" shall include any
corporation, partnership, joint venture, trust or employee
benefit plan; service "at the request of the Corporation" shall
include service as a Director, Officer or employee of the
Corporation which imposes duties on, or involves services by,
such Director, Officer or employee with respect to an employee
benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit plan
shall be deemed to be indemnifiable expenses; and action by a
person with respect to any employee benefit plan which such
person reasonably believes to be in the interest of the
participants and beneficiaries of such plan shall be deemed to be
action not opposed to the best interests of the Corporation.
Article VII - AMENDMENTS
SECTION 1. Adoption, Amendment or Repeal of By-laws.
----------------------------------------
By-laws may be made, adopted, altered, amended or repealed by the
vote of Shareholders entitled to exercise a majority of the
voting power of the Corporation. Subject to the right of
Shareholders to make, adopt, amend, alter or repeal By-laws, By-
laws may be made, adopted, amended, altered or repealed by the
Board of Directors.
-12-
<PAGE>
__________________
(date)
_____________________________
_____________________________
_____________________________
Dear ___________:
We are pleased to advise you that at a recent meeting of the
Compensation Committee of the Board of Directors, such Committee
consisting of identical members for Kaiser Aluminum Corporation
("KAC") and Kaiser Aluminum & Chemical Corporation ("KACC")
(collectively, the "Company"), you were selected for a grant of
stock options under the Kaiser 1993 Omnibus Stock Incentive Plan
(the "Plan"). The Plan is designed to align key employees' and
stockholders' objectives, retain key employees, and offer
competitive long-term compensation opportunities.
This letter is accompanied by a brief summary description to help
you better understand the details of the Plan. The summary
description sets forth only the highlights, and is qualified in
its entirety by the complete copy of the controlling Plan, a copy
of which you may also receive upon request from Byron Wade, at
the address set forth below or by calling (713) 267-3670.
The Company has granted to you on ______________, the right and
option (not qualified as an Incentive Stock Option under the
Internal Revenue Code) to purchase, on the terms and conditions
set forth in the Plan, _________ shares of KAC common stock,
$0.01 par value, at the exercise price of $___________ per share,
the closing price on the New York Stock Exchange on
________________, the date of the Compensation Committee meeting,
exercisable from time to time in accordance with the provisions
of the Plan. The above option will vest at the rate of _____%
per year over the next ___ years, with the first ____% vesting on
_________. This grant is subject to the Company's right to
repurchase the option, in whole or in part, within ten days of
your exercise of such option at a price equal to the difference
between the exercise price and the closing price on the date of
your exercise as reported by the New York Stock Exchange (or such
other national exchange on which the KAC common stock may be
listed).
<PAGE>
<PAGE>
Each exercise of this option shall be by means of a written
notice of the exercise (using the enclosed form) delivered to
Byron Wade, Corporate Secretary, in Houston, at the address
specified on the form. If the notice of exercise is received
after 5:00 p.m. Houston time, the exercise will be deemed to have
occurred on the next business day. The notice of exercise must
specify the number of shares to be purchased and be accompanied
by full payment in cash, or by certified or cashier's check,
payable to KAC for the full exercise price of the shares to be
purchased. Upon payment of the full purchase price, the Company
will make a withholding for federal, state and local taxes. The
withheld amount may not be sufficient for payment of taxes owned
by you. There will be future communications with you on how the
mechanics of withholding the required taxes at the time of
exercise will be handled. You, of course, are responsible for
any taxes incurred as a result of the options granted to you or
their exercise. Ordinary income is recognized by an optionee
upon exercise of a non-qualified stock option (a right granted by
employer to purchase stock at stipulated price over a specific
period of time) in an amount equal to the difference between the
market value of the shares of common stock acquired and the
exercise price paid for them.
All options terminate immediately upon termination of employment
for cause. If employment terminates on account of death or
disability, any of the option hereby granted which is exercisable
at termination may be exercised until the earlier of the first
anniversary of such termination date or its scheduled expiration
date. Any option exercisable upon the holder's retirement may be
exercised until the third anniversary of employment termination
or its scheduled expiration date. On termination of employment
in any circumstances not mentioned above, an option exercisable
at termination may be exercised for three months thereafter, but
not after its scheduled expiration date.
If the outstanding shares of the common stock of KAC are
increased, decreased, changed into or exchanged for a different
number of kind of shares of securities of KAC as a result of a
reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment (to be conclusively determined by the
"Compensation Committee" of the "Boards" of Directors of KAC and
KACC) shall be made in the number and kind of securities
allocated to this option without change in the total price
applicable to the unexercised portion of this option, but with a
corresponding adjustment in the price for each share or other
unit of any security covered by this option.
The Compensation Committee has sole discretion to determine which
employees receive awards under the Plan and to establish the
terms of each award (subject to the provisions of the Plan). The
award of the option should be considered as an independent action
and is not to be construed as repeatable or ongoing. The
Compensation Committee also has authority to construe, interpret
and implement the Plan, to make rules and otherwise administer
the Plan, and its determination on any matter relating to the
Plan conclusive. The Boards may terminate, suspend or revise the
Plan at any time, subject to stockholder approval for certain
types of amendments. However, no amendment or other action by
the Boards, including termination of the Plan, may adversely
affect any outstanding award without consent of the recipient
(or, if applicable, the recipient's heirs or estate).
<PAGE>
<PAGE>
Also enclosed is a form of Beneficiary Designation to designate a
beneficiary to receive shares of common stock of KAC, as well as
any benefits under the Plan that may become payable on account of
your death. If you wish to make or change a designation of your
beneficiary under the Plan you should complete this form promptly
and return it to Jim McKnight, Director Corporate Personnel, 6177
Sunol Boulevard, Pleasanton, CA 94566. In the absence of any
such beneficiary designation by you, all death benefits under the
Plan would be payable to your estate.
We congratulate you on your selection to participate in this
Plan. It indicates your importance to the performance of the
Company. We would also like to thank you for your dedicated
service and contribution to the past success of the Company, and
we look forward to your continued contribution. If you have any
questions regarding the Plan, please feel free to discuss them
with Byron Wade in Houston or with Jim McKnight in Pleasanton.
Please indicate your acceptance of this agreement by signing
below and returning such signed copy to Byron Wade, 5847 San
Felipe, Suite 2600, P. O. Box 572887, Houston, Texas 77257-2887.
Sincerely,
George T. Haymaker, Jr.
Chairman of the Board & Chief Executive Officer
I acknowledge and accept this award under the terms specified in
this letter and the Plan.
______________________________
Employee's Signature
______________________________
Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
consolidated financial statements of the Company for the twelve months ended
December 31, 1994, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000054291
<NAME> KAISER ALUMINUM & CHEMICAL CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 201
<ALLOWANCES> 0
<INVENTORY> 468
<CURRENT-ASSETS> 839
<PP&E> 1,133
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,694
<CURRENT-LIABILITIES> 599
<BONDS> 0
<COMMON> 15
2
0
<OTHER-SE> (42)
<TOTAL-LIABILITY-AND-EQUITY> 2,694
<SALES> 1,782
<TOTAL-REVENUES> 1,782
<CGS> 1,626
<TOTAL-COSTS> 1,626
<OTHER-EXPENSES> 212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> 152
<INCOME-TAX> (54)
<INCOME-CONTINUING> (96)
<DISCONTINUED> 0
<EXTRAORDINARY> (5)
<CHANGES> 0
<NET-INCOME> (102)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
