- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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)
(925) 462-1122
(Registrant's telephone number, including area code)
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 (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No
----- ------
At July 27, 1998, the registrant had 46,171,365 shares of Common Stock
outstanding.
- ---------------------------------------------------------------------------
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 113.4 $ 15.8
Receivables 300.0 345.3
Inventories 506.8 568.3
Prepaid expenses and other current assets 145.6 121.3
------------------------------
Total current assets 1,065.8 1,050.7
Investments in and advances to unconsolidated
affiliates 141.3 148.6
Property, plant, and equipment - net 1,159.5 1,171.8
Deferred income taxes 320.6 329.0
Other assets 328.6 317.2
------------------------------
Total $ 3,015.8 $ 3,017.3
==============================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 156.7 $ 176.2
Accrued interest 37.3 37.6
Accrued salaries, wages, and related expenses 85.0 97.9
Accrued postretirement medical benefit obligation
- current portion 45.3 45.3
Other accrued liabilities 160.6 145.9
Payable to affiliates 78.5 82.4
Long-term debt - current portion 2.0 8.8
------------------------------
Total current liabilities 565.4 594.1
Long-term liabilities 507.2 492.0
Accrued postretirement medical benefit obligation 709.2 720.3
Long-term debt 962.5 962.9
Minority interests 99.3 98.4
Redeemable preference stock 19.8 27.7
Commitments and contingencies
Stockholders' equity:
Preference stock 1.6 1.6
Common stock 15.4 15.4
Additional capital 1,996.5 1,939.8
Accumulated deficit (123.3) (152.3)
Less: Note receivable from parent (1,737.8) (1,682.6)
------------------------------
Total stockholders' equity 152.4 121.9
------------------------------
Total $ 3,015.8 $ 3,017.3
==============================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(In millions of dollars)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net sales $ 614.8 $ 597.1 $ 1,211.8 $ 1,144.5
------------------------------ ------------------------------
Costs and expenses:
Cost of products sold 506.1 489.3 1,005.7 950.0
Depreciation 22.3 22.8 45.2 45.9
Selling, administrative, research and
development, and general 31.0 29.7 60.5 60.5
Restructuring of operations - 19.7 - 19.7
------------------------------ ------------------------------
Total costs and expenses 559.4 561.5 1,111.4 1,076.1
------------------------------ ------------------------------
Operating income 55.4 35.6 100.4 68.4
Other income (expense):
Interest expense (26.9) (28.2) (54.9) (55.9)
Other - net (2.4) (3.4) (1.8) (.8)
------------------------------ ------------------------------
Income before income taxes and minority interests 26.1 4.0 43.7 11.7
(Provision) benefit for income taxes (9.0) 11.0 (15.2) 8.1
Minority interests .3 (.4) 1.3 (.9)
------------------------------ ------------------------------
Net income $ 17.4 $ 14.6 $ 29.8 $ 18.9
============================== ==============================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 29.8 $ 18.9
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 45.2 45.9
Restructuring of operations - 19.7
Non-cash benefit for income taxes - (12.5)
Amortization of excess investment over equity
in unconsolidated affiliates 5.1 5.8
Amortization of deferred financing costs and
net discount on long-term debt 2.0 3.0
Undistributed equity in (income) loss of
unconsolidated affiliates, net of
distributions 1.5 12.0
Minority interests (1.3) .9
Decrease (increase) in receivables 33.1 (49.4)
Decrease (increase) in inventories 61.5 (5.5)
Decrease (increase) in prepaid expenses and
other assets 18.0 (15.7)
Decrease in accounts payable (19.5) (41.2)
(Increase) decrease in accrued interest (0.3) 2.0
Decrease in payable to affiliates and accrued
liabilities (36.1) (18.7)
Increase (decrease) in accrued and deferred
income taxes 5.3 (6.1)
Other 7.8 (.5)
------------------------------
Net cash provided (used) by operating
activities 152.1 (41.4)
------------------------------
Cash flows from investing activities:
Net proceeds from disposition of property and
investments .2 22.1
Capital expenditures (36.7) (68.8)
Other (3.3) (2.5)
------------------------------
Net cash used by investing activities (39.8) (49.2)
------------------------------
Cash flows from financing activities:
Borrowings under revolving credit facility, net (7.0) 30.0
Borrowings of long-term debt - 19.0
Repayments of long-term debt - (5.1)
Decrease (increase) in restricted cash, net 1.2 (10.1)
Payments to parent - (4.3)
Incurrence of financing costs - (.5)
Dividends paid (.4) (.3)
Redemption of minority interests' preference stock (8.5) (2.0)
------------------------------
Net cash (used) provided by financing
activities (14.7) 26.7
------------------------------
Net increase (decrease) in cash and cash equivalents
during the period 97.6 (63.9)
Cash and cash equivalents at beginning of period 15.8 81.3
------------------------------
Cash and cash equivalents at end of period $ 113.4 $ 17.4
==============================
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 53.2 $ 50.9
Income taxes paid 7.2 8.2
Tax allocation payments to Kaiser Aluminum Corporation 1.7 .9
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except prices and per share amounts)
1. GENERAL
Kaiser Aluminum & Chemical Corporation (the "Company") is the
principal operating subsidiary of Kaiser Aluminum Corporation ("Kaiser").
Kaiser is a subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM and one of its
wholly owned subsidiaries together own approximately 63% of Kaiser's Common
Stock with the remaining approximately 37% publicly held.
The foregoing unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X as promulgated by the Securities and
Exchange Commission. Accordingly, these financial statements do not
include all of the disclosures required by generally accepted accounting
principles for complete financial statements. These unaudited interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31,
1997. In the opinion of management, the unaudited interim consolidated
financial statements furnished herein include all adjustments, all of which
are of a normal recurring nature, necessary for a fair statement of the
results for the interim periods presented.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities known to exist as of the
date the financial statements are published, and the reported amounts of
revenues and expenses during the reporting period. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation
of the Company's consolidated financial statements; accordingly, it is
possible that the actual results could differ from these estimates and
assumptions, which could have a material effect on the reported amounts of
the Company's consolidated financial position and results of operations.
Operating results for the quarter and six-month period ended June 30,
1998, are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998.
See Note 5 regarding recent accounting pronouncements.
2. INVENTORIES
The classification of inventories is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------------------
<S> <C> <C>
Finished fabricated aluminum products $ 89.6 $ 103.9
Primary aluminum and work in process 181.4 226.6
Bauxite and alumina 111.6 108.4
Operating supplies and repair and maintenance parts 124.2 129.4
------------------------------
Total $ 506.8 $ 568.3
==============================
</TABLE>
Substantially all product inventories are stated at last-in, first-out
(LIFO) cost, not in excess of market. Replacement cost is not in excess of
LIFO cost.
3. CONTINGENCIES
ENVIRONMENTAL CONTINGENCIES
The Company is subject to a number of environmental laws, to fines or
penalties assessed for alleged breaches of such 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. At June 30, 1998, the balance of such accruals, which
are primarily included in Long-term liabilities, was $28.6. 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 actions 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 $2.0 to $9.0 for the years
1998 through 2002 and an aggregate of approximately $7.0 thereafter.
The Company believes that it has insurance coverage available to
recover certain incurred and future environmental costs and is actively
pursuing claims in this regard. However, no accruals have been made for
any such insurance recoveries and no assurances can be given that the
Company will be successful in its attempt to recover incurred or future
costs.
As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in these and
other factors may result in actual costs exceeding the current
environmental accruals. The Company believes that it is reasonably
possible that costs associated with these environmental matters may exceed
current accruals by amounts that could range, in the aggregate, up to an
estimated $18.0. As the resolution of these matters is subject to further
regulatory review and approval, no specific assurance can be given as to
when the factors upon which a substantial portion of this estimate is based
can be expected to be resolved. However, the Company is currently working
to resolve certain of these matters.
While uncertainties are inherent in the final outcome of these
environmental matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, management currently believes
that the resolution of such uncertainties should not have a material
adverse effect on the Company's consolidated financial position, results of
operations, or liquidity.
ASBESTOS CONTINGENCIES
The Company is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure to
asbestos during, and as a result of, their employment or association with
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 20 years. At June 30, 1998, the number of such
claims pending was approximately 83,900, as compared with 77,400 at
December 31, 1997. In 1997, approximately 15,600 of such claims were
received and 9,300 were settled or dismissed. During the quarter and six
months ended June 30, 1998, approximately 5,100 and 10,500 of such claims
were received and 2,700 and 4,000 of such claims were settled or dismissed,
respectively. However, the foregoing claim and settlement figures as of
June 30, 1998, do not reflect the fact that the Company has reached
agreements under which it will settle approximately 22,000 of the pending
asbestos-related claims over an extended period.
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 through 2008. There are
inherent uncertainties involved in estimating asbestos-related costs, and
the Company's actual costs could exceed or be less than these estimates.
The Company's accrual was calculated based on the current and anticipated
number of asbestos-related claims, the prior timing and amounts of
asbestos-related payments, and the advice of Wharton Levin Ehrmantraut
Klein & Nash, P.A. with respect to the current state of the law related to
asbestos claims. Accordingly, an estimated asbestos-related cost accrual
of $167.5, before consideration of insurance recoveries, is included
primarily in Long-term liabilities at June 30, 1998. While the Company does
not presently believe there is a reasonable basis for estimating such costs
beyond 2008 and, accordingly, no accrual has been recorded for such costs
which may be incurred beyond 2008, there is a reasonable possibility that
such costs may continue beyond 2008, and such costs may be substantial.
The Company estimates that annual future cash payments in connection with
such litigation will be approximately $15.0 to $22.0 for each of the years
1998 through 2002, and an aggregate of approximately $83.0 thereafter.
The Company believes that it has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While active
coverage litigation has been concluded, the timing and amount of future
recoveries from the insurance carriers that remain at risk will depend on
the pace of claims review and processing by such carriers, and on the
resolution of any disputes which may arise in the course of discussions
regarding coverage under their policies. The Company believes, based on
prior insurance-related recoveries in respect of asbestos-related claims,
existing insurance policies, and the advice of Thelen Reid & Priest LLP
(formerly Thelen, Marrin, Johnson & Bridges LLP) with respect to applicable
insurance coverage law relating to the terms and conditions of those
policies, that substantial recoveries from the insurance carriers are
probable. Accordingly, an estimated aggregate insurance recovery of $128.1,
determined on the same basis as the asbestos-related cost accrual, is
recorded primarily in Other assets at June 30, 1998.
Management continues to monitor claims activity, the status of
lawsuits (including settlement initiatives), legislative progress, and
costs incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from the Company's underlying assumptions. 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, results of operations, or liquidity.
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, results of operations, or
liquidity.
See Note 10 of the Notes to Consolidated Financial Statements for the
year ended December 31, 1997.
4. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
At June 30, 1998, the net unrealized gain on the Company's position in
aluminum forward sales and option contracts, based on an average contract
price of $.74 per pound of primary aluminum, natural gas, fuel oil and
diesel fuel forward purchase and option contracts, and forward foreign
exchange contracts, was approximately $28.3. Any gains or losses on the
derivative contracts utilized in the Company's hedging activities are
offset by losses or gains, respectively, on the transactions being hedged.
However, see Note 5 regarding a recent accounting pronouncement.
ALUMINA AND ALUMINUM
The Company's earnings are sensitive to changes in the prices of
alumina, primary aluminum and fabricated aluminum products, and also depend
to a significant degree upon the volume and mix of all products sold.
Primary aluminum prices have historically been subject to significant
cyclical fluctuations. Since 1993, the Average Midwest United States
transaction price for primary aluminum has ranged from approximately $.50
to $1.00 per pound. Alumina prices as well as fabricated aluminum product
prices (which vary considerably among products) are significantly
influenced by changes in the price of primary aluminum but generally lag
behind primary aluminum price changes by up to three months.
From time to time in the ordinary course of business, the Company
enters into hedging transactions to provide price risk management in
respect of the net exposure of earnings resulting from (i) anticipated
sales of alumina, primary aluminum and fabricated aluminum products, less
(ii) expected purchases of certain items, such as aluminum scrap, rolling
ingot, and bauxite, whose prices fluctuate with the price of primary
aluminum. Forward sales contracts are used by the Company to effectively
fix the price that the Company will receive for its shipments. The Company
also uses option contracts (i) to establish a minimum price for its product
shipments, (ii) to establish a "collar" or range of prices for its
anticipated sales, and/or (iii) to permit the Company to realize possible
upside price movements. As of June 30, 1998, the Company had sold forward,
at fixed prices, approximately 47,300 and 24,000 tons* of primary aluminum
with respect to 1998 and 1999, respectively. As of June 30, 1998, the
Company had also purchased put options to establish a minimum price for
approximately 22,500 tons of primary aluminum with respect to 1998 and had
entered into option contracts that established a price range for an
additional 115,800, and 124,500 tons for 1998 and 1999, respectively.
Additionally, at June 30, 1998, the Company also held fixed price purchase
contracts for 42,100 tons of primary aluminum with respect to 1998.
As of June 30, 1998, the Company had sold forward virtually all of the
alumina available to it in excess of its projected internal smelting
requirements for 1998, 1999 and 2000 at prices indexed to future prices of
primary aluminum.
ENERGY
The Company is exposed to energy price risk from fluctuating prices
for fuel oil and natural gas consumed in the production process.
Accordingly, the Company from time to time in the ordinary course of
business enters into hedging transactions with major suppliers of energy
and energy related financial instruments. As of June 30, 1998, the Company
had a combination of fixed price purchase and option contracts for the
purchase of approximately 45,000 MMBtu of natural gas per day during the
remainder of 1998. As of June 30, 1998, the Company also held a
combination of fixed price purchase and option contracts for an average of
232,000 and 138,800 barrels per month of fuel oil and diesel fuel for 1998
and 1999, respectively.
- ----------------
* All references to tons in this report refer to metric tons of 2,204.6
tons.
FOREIGN CURRENCY
The Company enters into forward exchange contracts to hedge material
cash commitments to foreign subsidiaries or affiliates. At June 30, 1998,
the Company had net forward foreign exchange contracts totaling
approximately $198.6 for the purchase of 285.6 Australian dollars from July
1998 through December 2000, in respect of its commitments for 1998 through
2000 expenditures denominated in Australian dollars.
See Note 11 of the Notes to Consolidated Financial Statements for the
year ended December 31, 1997.
5. RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS No. 130") was issued in June 1997 and was
adopted by the Company as of January 1, 1998. SFAS No. 130 requires the
presentation of an additional income measure (termed "comprehensive
income"), which adjusts traditional net income for certain items that
previously were only reflected as direct charges to equity (such as minimum
pension liabilities).
Statement of Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133") was issued
in June 1998 and requires companies to recognize all derivative instruments
as assets or liabilities in the balance sheet and to measure those
instruments at fair value. SFAS No. 133 must be adopted by the Company no
later than January 1, 2000, although earlier application is permitted. The
Company is currently evaluating how and when to implement SFAS No. 133.
Currently, the dollar amount of the Company's comprehensive income
adjustments is not significant so there is not a significant difference
between "traditional" net income and comprehensive income for the quarters
and six-month periods ended June 30, 1998 and 1997. However, differences
between comprehensive income and traditional net income may become
significant in future periods as a result of SFAS No. 133. As discussed
more fully in Note 5, the intent of the Company's hedging program is to
"lock-in" a price (or range of prices) for products sold/used so that
earnings and cash flows are subject to reduced risk of volatility. Under
SFAS No. 133, the Company will be required to "mark-to-market" its hedging
positions at each period end in advance of reflecting the physical
transaction to which the hedge relates. Pursuant to SFAS No. 130, the
Company will reflect changes in the fair value of its open hedging
positions as an increase or reduction in stockholders' equity through
comprehensive income. Under SFAS No. 130, the impact of the changes in
fair value of financial instruments will reverse out of comprehensive
income (net of any fluctuations in other "open" positions) and will be
reflected in traditional net income when the subsequent physical
transaction occurs.
The combined result of SFAS No's. 130 and 133 will be that there will
be fluctuations in comprehensive income and stockholders' equity in periods
of price volatility, despite the fact that the Company's cash flow and
earnings will be "fixed" to the extent hedged. The amount of such
fluctuations could be significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
This section should be read in conjunction with the response to Item
1, Part I, of this Report.
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements appear in a number of places in this section
(see, for example, "Recent Events and Developments," "Results of
Operations," and "Liquidity and Capital Resources"). Such statements can
be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans" or "anticipates"
or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any
such forward-looking statements are not guarantees of future performance
and involve significant risks and uncertainties, and that actual results
may vary materially from those in the forward-looking statements as a
result of various factors. These factors include the effectiveness of
management's strategies and decisions, general economic and business
conditions, developments in technology, new or modified statutory or
regulatory requirements, and changing prices and market conditions. This
section and the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, each identify other factors that could cause such
differences. No assurance can be given that these are all of the factors
that could cause actual results to vary materially from the forward-looking
statements.
RECENT EVENTS AND DEVELOPMENTS
The Company has previously disclosed that it set a goal of achieving
$120.0 million of pre-tax cost reductions and other profit improvements,
independent of metal price changes, with the full effect planned to be
realized in 1998 and beyond, measured against 1996 results. Management
believes that recent operating performance has been at a rate which
indicates that its objective will be achieved during the second half of
1998. However, there are inherent uncertainties regarding operating
factors and economic and other external forces (such as the Valco power and
domestic labor matters described below), many of which are outside
management's direct control, and, as such, no assurances can be given that
the desired benefit of profit improvements will be achieved.
In addition to working to improve the performance of the Company's
existing assets, the Company has expended significant efforts on analyzing
its current asset portfolio with the intent of focusing its efforts and
capital in sectors of the industry that are considered most attractive.
The initial steps of this process led to the formation of the AKW wheel
joint venture and the acquisition of the Bellwood aluminum extrusion plant
in Richmond, Virginia. Additional portfolio analysis and initiatives are
ongoing.
Substantially all of the Company's hourly workforce at the Gramercy,
Louisiana, alumina reduction facility, Mead and Tacoma, Washington,
aluminum smelters, Trentwood, Washington, rolling mill, and Newark, Ohio,
extrusion facility are covered by a master agreement ("the Labor Contract")
with the United Steelworkers of America which expires on September 30,
1998. Negotiations concerning the Labor Contract are expected to commence
during the third quarter of 1998.
During April 1998, the Company's 90%-owned Volta Aluminium Company
Limited ("Valco") smelter in Ghana reached an agreement with the Volta
River Authority ("VRA") to receive compensation in lieu of the power
necessary to run a potline that was curtailed on April 6, 1998. The
compensation is expected to substantially mitigate the financial impact of
the curtailment. Valco is now operating only one if its five potlines, as
compared to 1997, when Valco operated four potlines. Valco had previously
curtailed two of its potlines in 1998, one in January, for which it
received no compensation, and one in February, for which it will be
compensated. As previously announced, the Company has notified the VRA
that it believes it had the contractual rights at the beginning of 1998 to
sufficient energy to run four and one-half potlines for the balance of the
year. Valco continues to seek compensation from the VRA with respect to
the January 1998 reduction of its power allocation. Valco and the VRA also
are in continuing discussions concerning other matters, including steps
that might be taken to reduce the likelihood of power curtailments beyond
1998. No assurances can be given as to the success of these discussions,
the possibility of requests from the VRA for additional curtailments, or as
to the operating level of Valco for the remainder of 1998 or beyond.
RESULTS OF OPERATIONS
The table on the following page provides selected operational and
financial information on a consolidated basis with respect to the Company
for the quarter and six months ended June 30, 1998, and 1997. As an
integrated aluminum producer, the Company uses a portion of its bauxite,
alumina and primary aluminum production for additional processing at
certain of its other facilities. Intracompany shipments and sales are
excluded from the information set forth on the following page.
Interim results are not necessarily indicative of those for a full
year.
SELECTED OPERATIONAL AND FINANCIAL INFORMATION
(Unaudited)
(In millions of dollars, except shipments and prices)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Shipments: (1)
Alumina 652.5 492.3 1,077.1 877.8
Aluminum products:
Primary aluminum 68.3 82.0 148.8 160.5
Fabricated aluminum products 107.8 100.4 213.3 194.3
------------------------------ ------------------------------
Total aluminum products 176.1 182.4 362.1 354.8
============================== ==============================
Average realized sales price:
Alumina (per ton) $ 197 $ 196 $ 198 $ 193
Primary aluminum (per pound) .70 .75 .71 .75
Net sales:
Bauxite and alumina:
Alumina $ 128.3 $ 96.5 $ 213.8 $ 169.7
Other (2) (3) 26.8 26.5 52.5 53.1
------------------------------ ------------------------------
Total bauxite and alumina 155.1 123.0 266.3 222.8
------------------------------ ------------------------------
Aluminum processing:
Primary aluminum 105.8 135.3 232.0 264.5
Fabricated aluminum products 353.0 334.5 709.9 648.9
Other (3) .9 4.3 3.6 8.3
------------------------------ ------------------------------
Total aluminum processing 459.7 474.1 945.5 921.7
------------------------------ ------------------------------
Total net sales $ 614.8 $ 597.1 $ 1,211.8 $ 1,144.5
============================== ==============================
Operating income (loss):
Bauxite and alumina $ 15.1 $ 7.5 $ 21.2 $ 6.0
Aluminum processing (4) 57.8 46.2 113.9 97.5
Corporate (5) (17.5) (18.1) (34.7) (35.1)
------------------------------ ------------------------------
Total operating income $ 55.4 $ 35.6 $ 100.4 $ 68.4
============================== ==============================
Net income $ 17.4 $ 14.6 $ 29.8 $ 18.9
============================== ==============================
Capital expenditures $ 23.0 $ 47.0 $ 36.7 $ 68.8
============================== ==============================
</TABLE>
- ---------------------------------------
(1) In thousands of metric tons.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests
in consolidated subsidiaries.
(4) Includes a pre-tax charge of $15.1 related to restructuring of
operations for both the quarter and six-month period ended June 30,
1997.
(5) Includes a pre-tax charge of $4.6 related to restructuring of
operations for both the quarter and six-month period ended June 30,
1997.
OVERVIEW
The Company's operating results are sensitive to changes in prices of
alumina, primary aluminum, and fabricated aluminum products, and also
depend to a significant degree on the volume and mix of all products sold
and on the Company's hedging strategies. Primary aluminum prices have
historically been subject to significant cyclical fluctuations. Alumina
prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.
During 1997, the Average Midwest Transaction Price ("AMT Price") for
primary aluminum remained fairly stable generally in the $.75 $.80 range
through November and then declined during December to the $.70 - $.75
range. After beginning 1998 at approximately $.73, the AMT Price for
primary aluminum declined to approximately $.69 at the end of March 1998
and further declined to approximately $.63 at the end of June 1998. The
AMT Price for primary aluminum for the week ended July 24, 1998, was
approximately $.66 per pound.
See Note 4 of the Notes to Interim Consolidated Financial Statements
for a discussion of the Company's hedging activities.
QUARTER AND SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO QUARTER AND SIX
MONTHS ENDED JUNE 30, 1997
SUMMARY
The Company reported net income of $17.4 million for the second
quarter of 1998, compared to a net income of $14.6 million for the same
period of 1997. Net sales in the second quarter of 1998 totaled $614.8
million compared to $597.1 million in the second quarter of 1997.
For the six-month period ended June 30, 1998, net income was $29.8
million, compared to net income of $18.9 million, for the six-month period
ended June 30, 1997. Net sales for the six months ended June 30, 1998,
were $1,211.8 million compared to $1,144.5 million for the first six months
of 1997.
Results for the quarter and six-month periods ended June 30, 1997,
include the effect of certain nonrecurring items including a $19.7 million
restructuring charge and an offsetting $12.5 million non-cash tax benefit
related to settlement of certain matters. Additionally, results for the
quarters and six-month periods ended June 30, 1998 and 1997, include
charges related to additional litigation reserves of $3.9 million and $5.8
million, respectively.
BAUXITE AND ALUMINA
Net sales of alumina increased by 33% for the quarter ended June 30,
1998, from the comparable prior year period, as a result of a 33% increase
in alumina shipments, resulting from the timing of shipments as well
as reduced intracompany shipments to Valco. For the six-month period ended
June 30, 1998, net sales of alumina increased by 26%, from the comparable
period in the prior year due to a 23% increase in shipments and a 3%
increase in average realized prices between periods.
Operating income for the quarter and six-month period ended June 30,
1998, improved substantially over the comparable prior periods due
primarily to the price and volume factors discussed above, as well as
reduced energy prices.
ALUMINUM PROCESSING
Net sales of primary aluminum for the quarter ended June 30, 1998,
decreased by 22% from the comparable prior year period as a 16% decrease in
shipments, primarily as a result of the aforementioned Valco potline
curtailments, as well as a 6% decrease in average realized prices. Net
sales of fabricated aluminum products for the quarter ended June 30, 1998,
were up 6% as compared to the prior year period as a result of an 8%
increase in shipments offset by a 2% decrease in average realized prices.
The increase in fabricated aluminum product shipments over the second
quarter of 1997 was the result of the Company's June 1997 acquisition of
the Bellwood extrusion facility and increased shipments of heat-treat
products from the Company's Trentwood, Washington, rolling mill, offset by
reduced volumes in the Company's Engineered Products business unit, in part
due to the formation of the AKW wheel manufacturing joint venture.
For the six-month period ended June 30, 1998, net sales for the
aluminum processing segment increased by approximately 3% as a 9% increase
in net sales of fabricated aluminum products more than offset a 12% decline
in net sales of primary aluminum. The increase in fabricated aluminum
product net sales, and offsetting decrease in primary aluminum net sales,
resulted from the same shipment and price factors discussed in the
preceding paragraph.
Despite a significant decline in the average realized price for
primary aluminum, segment operating income for the quarter and six-month
period ended June 30, 1998, was essentially flat as compared to the
comparable prior year period, after adjusting 1997 results for the impact
of the non-recurring items discussed below. The ability to sustain the
segment's operating earnings reflects the continued demand for heat-treat
products, improvements in operating performance, particularly at the
Company's Trentwood, Washington, rolling mill, as well as compensation
recorded by the Company (which will be received over a 18-month period
beginning in July 1998) for two of the three Valco potlines curtailed
during 1998. Reduced power and raw material costs in the primary aluminum
operations also contributed to the Company's ability to maintain the prior
year earnings level.
Operating income for the quarter and six-month period ended June 30,
1997, included approximately $2.3 million and $5.2 million, respectively,
of operating income related to the settlement of certain issues related to
energy service contracts. Operating income for the quarter and six-month
period ended June 30, 1997, also includes a $15.1 million charge resulting
from the previously discussed restructuring of operations.
CORPORATE
Corporate operating expenses represent corporate general and
administrative expenses, which are not allocated to the Company's business
segments. Operating results for the quarter and six-month period ended
June 30, 1997, both include a pre-tax charge of approximately $4.6 million
associated with the Company's restructuring of operations.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
At June 30, 1998, the Company had working capital of $500.4 million,
compared with working capital of $456.6 million at December 31, 1997. The
increase in working capital primarily results from increases in Cash and
cash equivalents and Prepaid and other current assets and a decrease in
Accounts payable, offset, in part, by decreases in Receivables and
Inventories.
INVESTING ACTIVITIES
Capital expenditures during the six months ended June 30, 1998, were
$36.7 million and were used primarily to improve production efficiency,
reduce operating costs, expand capacity at existing facilities, and
construct new facilities. Total consolidated capital expenditures (of
which approximately 8% is expected to be funded by the Company's minority
partners in certain foreign joint ventures) are expected to be between
$75.0 and $125.0 million per annum in each of 1998 through 2000.
During the first quarter of 1998, the first Micromill(TM) facility,
which was constructed in Nevada during 1996 as a demonstration and
production facility, delivered its first commercial product shipments to
customers, but the amount of such shipments was minimal. Additional
product trials for international and domestic customers are ongoing.
However, the Micromill(TM) technology has not yet been fully implemented or
commercialized, and there can be no assurances that full implementation or
commercialization will be successful.
Management continues to evaluate numerous projects, including the
Micromill(TM) technology, all of which would require substantial capital,
both in the United States and overseas.
FINANCING ACTIVITIES AND LIQUIDITY
At June 30, 1998, the Company had long-term debt of $964.5 million,
compared with $971.7 million at December 31, 1997.
At June 30, 1998, $271.3 million (of which $71.3 million could have
been used for letters of credit) was available to the Company under the
Credit Agreement and no amounts were outstanding under the revolving credit
facility. Loans under the Credit Agreement bear interest at a spread
(which varies based on the results of a financial test) over either a base
rate or LIBOR at the Company's option. During the six-month period ended
June 30, 1998, the average per annum interest rates on loans outstanding
under the Credit Agreement was approximately 9%. The Credit Agreement does
not permit the Company or Kaiser to pay any dividends on their common
stock.
Management believes that the Company's existing cash resources,
together with cash flows from operations and borrowings under the Credit
Agreement, will be sufficient to meet its working capital and capital
expenditure requirements for the next year. Additionally, with respect to
long-term liquidity, management believes that operating cash flow, together
with the ability to obtain both short and long-term financing, should
provide sufficient funds to meet the Company's working capital and capital
expenditure requirements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Asbestos-related Litigation
The Company is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure to
asbestos during, and as a result of, their employment or association with
the Company or exposure to products containing asbestos produced or sold by
the Company. The portion of Note 3 of the Notes to Interim Consolidated
Financial Statements contained in this report under the heading "Asbestos
Contingencies" is incorporated herein by reference. See Part I, Item 3.
"LEGAL PROCEEDINGS - Asbestos-related Litigation" in the Company's Form 10-
K for the year ended December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The annual meeting of stockholders of the Company was held on June 4,
1998, at which meeting the stockholders voted to elect management's slate
of nominees as directors of the Company. The nominees for election as
directors of the Company are listed below, together with the number of
votes cast for, against, and with held with respect to each such nominees,
as well as the number of abstentions and broker nonvotes with respect to
each such nominee:
Robert J. Cruikshank
Votes For: 46,566,749
Votes Against:
Votes Withheld: 123,099
Abstentions:
Broker Nonvotes:
George T. Haymaker, Jr.
Votes For: 46,564,656
Votes Against:
Votes Withheld: 125,192
Abstentions:
Broker Nonvotes:
Charles E. Hurwitz
Votes For: 46,541,723
Votes Against:
Votes Withheld: 148,125
Abstentions:
Broker Nonvotes:
Ezra G. Levin
Votes For: 46,568,263
Votes Against:
Votes Withheld: 121,585
Abstentions:
Broker Nonvotes:
Robert Marcus
Votes For: 46,566,426
Votes Against:
Votes Withheld: 123,422
Abstentions:
Broker Nonvotes:
Robert J. Petris
Votes For: 46,491,933
Votes Against:
Votes Withheld: 197,915
Abstentions:
Broker Nonvotes:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
3.1 Restated Certificate of Incorporation of Kaiser Aluminum &
Chemical Corporation (the "Company" or "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 the Report on Form
10-K for the period ended December 31, 1989, filed by KACC, File
No. 1-3605).
3.3 Amended and Restated Bylaws of KACC, dated October 1, 1997.
*4 Thirteenth Amendment to Credit Agreement, dated as of July 20,
1998, amending the Credit Agreement, dated as of February 15,
1994, as amended, among Kaiser Aluminum Corporation, KACC, the
financial institutions party thereto, and BankAmerica Business
Credit, Inc., as Agent.
*10 Letter Agreement, dated July 21, 1998, between the Company and
Lawrence L. Watts concerning employment and severance matters.
*27 Financial Data Schedule.
(b) Reports on Form 8-K.
No Report on Form 8-K was filed by the Company during the quarter
ended June 30, 1998.
- ---------------
* Filed herewith
SIGNATURE
Pursuant to the requirements 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, who have signed this report on
behalf of the registrant as the principal financial officer and principal
accounting officer of the registrant, respectively.
KAISER ALUMINUM & CHEMICAL
CORPORATION
/s/ John T. La Duc
By: ------------------------------
John T. La Duc
Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Daniel D. Maddox
By: ------------------------------
Daniel D. Maddox
Controller - Corporate
Consolidation and Reporting
(Principal Accounting Officer)
Dated: July 31, 1998<PAGE>
E x e c u t i o n C o p y
THIRTEENTH AMENDMENT TO CREDIT AGREEMENT
----------------------------------------
THIS THIRTEENTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of July 20, 1998, 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 Second Amendment to
Credit Agreement, dated as of March 10, 1995, the Third Amendment
to Credit Agreement and Acknowledgement, dated as of July 20,
1995, the Fourth Amendment to Credit Agreement, dated as of
October 17, 1995, the Fifth Amendment to Credit Agreement, dated
as of December 11, 1995, the Sixth Amendment to Credit Agreement,
dated as of October 1, 1996, the Seventh Amendment to Credit
Agreement, dated as of December 17, 1996, the Eighth Amendment to
Credit Agreement, dated as of February 24, 1997, the Ninth
Amendment to Credit Agreement and Acknowledgment, dated as of
April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, and the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998 (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 Amendments to Article I: Definitions.
-------------------------------------
A. The definition of "Joint Venture Affiliate"
-----------------------
contained in Section 1.1 of the Credit Agreement is hereby
-----------
amended by inserting the phrase "Venezuela Aluminum Partners (but
only at such time as Venezuela Aluminum Partners is not a
Subsidiary of the Company and is an Affiliate of the Company),
CAVSA (but only at such time as CAVSA is not a Subsidiary of the
Company and is an Affiliate of the Company), ALCASA (but only at
such time as ALCASA is not a Subsidiary of the Company and is an
Affiliate of the Company), BAUXILUM (but only at such time as
BAUXILUM is not a Subsidiary of the Company and is an Affiliate
of the Company), CARBONORCA (but only at such time as CARBONORCA
is not a Subsidiary of the Company and is an Affiliate of the
Company), VENALUM (but only at such time as VENALUM is not a
Subsidiary of the Company and is an Affiliate of the Company),"
after the term "AKW LLC," in such definition.
B. The definition of "Materially Adverse Effect"
-------------------------
contained in Section 1.1 of the Credit Agreement is hereby
-----------
amended by inserting the phrase ", Venezuela Aluminum Partners,
CAVSA, ALCASA, BAUXILUM, CARBONORCA, and VENALUM" following the
term "KJBC" in the parenthetical contained in clause (a) thereof.
----------
C. The following definitions are hereby added to
Section 1.1 of the Credit Agreement in the appropriate
- -----------
alphabetical order:
"'ALCASA' means C.V.G. Aluminios del Caroni, S.A., a
------
corporation organized under the laws of Venezuela."
"'BAUXILUM' means C.V.G. Bauxilum, C.A., a corporation
--------
organized under the laws of Venezuela."
"'CARBONORCA' means C.V.G. Carbones del Orinoco, C.A.,
----------
a corporation organized under the laws of Venezuela."
"'CAVSA' means Corporacion Aluminios de Venezuela,
-----
S.A., a corporation organized under the laws of Venezuela."
"'Maximum Letter of Credit Amount' means (a) if no
-------------------------------
Venezuela Letter of Credit is issued, $125,000,000, and (b) if a
Venezuela Letter of Credit is issued, then (i) during the period
from and including the date of such issuance to and including the
date on which the Venezuela Bid Bond Obligation is terminated,
$235,000,000, (ii) from and excluding the date on which the
Venezuela Bid Bond Obligation is terminated, $200,000,000 and
(iii) from and excluding the date on which all Venezuela Letters
of Credit have expired or are terminated, $125,000,000."
"'Pricing Interest Coverage Ratio' means, for any
-------------------------------
period, the ratio of
(a) (i) the sum of EBITDA for all of the Fiscal
Quarters comprising such period minus (ii) the aggregate
-----
Adjusted Capital Expenditures for all of the Fiscal Quarters
comprising such period minus (iii) the aggregate amount of
-----
all Investments (including any payment under a Venezuela
Letter of Credit) made by the Company in Venezuela Aluminum
Partners and/or CAVSA (without duplication) during such
period
to
- --
(b) (i) the aggregate amount of interest expense
(excluding amortization of deferred financing costs and, to
the extent not paid in cash, interest on the PIK Note and
the Equity Proceeds Notes) of the Company and its
Subsidiaries for all of the Fiscal Quarters comprising such
period, calculated on a consolidated basis in accordance
with GAAP, minus (ii) the amount of interest income of the
-----
Company and its Subsidiaries which was included in the
calculation of Net Income, in accordance with GAAP, for all
of the Fiscal Quarters comprising such period, minus (iii)
-----
that portion of the amount set forth in clause (i) above
----------
attributable to (A) the proportionate direct or indirect
ownership of Persons other than the Company and its
Subsidiaries of the voting stock of, or partnership interest
in, any Subsidiary or (B) if the economic burden of the
amount set forth in clause (i) above is borne or to be borne
----------
by minority owners of such Subsidiary (other than the
Company and its Subsidiaries) in a proportion other than the
proportion of their direct or indirect ownership of the
voting stock of, or partnership interest in, such
Subsidiary, the proportionate share of the economic burden
of such amount borne or to be borne by such minority
owners."
"'VENALUM' means C.V.G. Industria Venezolana del
-------
Aluminio, C.A., a corporation organized under the laws of
Venezuela."
"'Venezuela Aluminum Partners' means Venezuela Aluminum
---------------------------
Partners, a corporation organized under the laws of the Cayman
Islands, or Aluminium Consortium Venezuela B.V., a corporation
organized under the laws of the Netherlands."
"'Venezuela Bid Bond Obligation' means the obligation
-----------------------------
of the Company to pledge assets and/or provide one or more
letters of credit to support a bid bond submitted by Venezuela
Aluminum Partners in connection with a bid to purchase the
capital stock of CAVSA."
"'Venezuela Letter of Credit' means a Letter of Credit
--------------------------
securing obligations of the Company in connection with the
Company making Investments in Venezuela Aluminum Partners and/or
CAVSA."
"'Venezuela Letter of Credit Amount' means, at any
---------------------------------
time, (a) the Maximum Letter of Credit Amount at such time minus
------
(b) $125,000,000."
"'Venezuela Pledged Cash' means cash and/or Cash
----------------------
Equivalent Investments securing obligations of the Company in
connection with the Company making Investments in Venezuela
Aluminum Partners and/or CAVSA."
1.2 Amendments to Article II: Commitments and Borrowing
-----------------------------------------------------
Procedures.
- ----------
Clause (b) of Section 2.1.3 of the Credit Agreement is
---------- -------------
hereby amended to read in its entirety as follows:
"(b) the Issuer Bank shall not be required to issue (i)
any Letter of Credit if, after giving effect thereto, (A) the
Letter of Credit Outstandings would exceed the Maximum Letter of
Credit Amount; or (B) (1) the sum of the aggregate Stated Amount
(without duplication) of all Venezuela Letters of Credit
outstanding at such time plus the aggregate amount of Venezuela
----
Pledged Cash outstanding at such time would exceed an amount
equal to (2) $210,000,000 plus the sum of the aggregate amount of
----
Venezuela Pledged Cash and Venezuela Letters of Credit
outstanding at such time in respect of the Venezuela Bid Bond
Obligation minus the aggregate amount of all Investments
-----
(including any payment under a Venezuela Letter of Credit) made
by the Company in Venezuela Aluminum Partners and/or CAVSA; or
(ii) any Venezuela Letter of Credit if, after giving effect
thereto, the aggregate Stated Amount (without duplication) of all
Venezuela Letters of Credit outstanding at such time would exceed
the Venezuela Letter of Credit Amount."
1.3 Amendments to Article III: Repayments, Prepayments,
----------------------------------------------------
Interest, and Fees.
- ------------------
Section 3.4.1 of the Credit Agreement is hereby amended
-------------
by deleting the phrase "Interest Coverage Ratio" each time it
appears therein and substituting the phrase "Pricing Interest
Coverage Ratio" therefor.
1.4 Amendments to Article V: Letter of Credit.
------------------------------------------
A. Clause (b)(ii) of Section 5.1 of the Credit
-------------- ------------
Agreement is hereby amended to read in its entirety as follows:
"(ii) (A) the Stated Amount thereof, when added to the
Letter of Credit Outstandings immediately prior to the issuance
of such Letter of Credit, would exceed the Maximum Letter of
Credit Amount; or (B) if immediately after the issuance of such
Letter of Credit (1) the sum of the aggregate Stated Amount
(without duplication) of all Venezuela Letters of Credit
outstanding at such time plus the aggregate amount of Venezuela
----
Pledged Cash outstanding at such time would exceed an amount
equal to (2) $210,000,000 plus the sum of the aggregate amount
----
of Venezuela Pledged Cash and Venezuela Letters of Credit
outstanding at such time in respect of the Venezuela Bid Bond
Obligation minus the aggregate amount of all Investments
-----
including any payment under a Venezuela Letter of Credit) made by
the Company in Venezuela Aluminum Partners and/or CAVSA."
B. Clause (b) of Section 5.1 of the Credit Agreement
---------- -----------
is hereby amended by adding the following as the last sentence
thereof:
"The Issuer Bank is under no obligation to issue any
Venezuela Letter of Credit if the aggregate Stated Amount
(without duplication) thereof, when added to the aggregate Stated
Amount (without duplication) of all other Venezuela Letters of
Credit outstanding immediately prior to the issuance of such
Venezuela Letter of Credit, would exceed the Venezuela Letter of
Credit Amount."
1.5 Amendments to Article IX: Covenants.
-------------------------------------
A. Section 9.1.1 of the Credit Agreement is hereby
-------------
amended by adding the phrase "(other than Venezuela Aluminum
Partners, CAVSA, ALCASA, BAUXILUM, CARBONORCA, and VENALUM)"
following the words "Joint Venture Affiliate" in clause
-------
(d)(ii)(C) thereof.
- ----------
B. Section 9.2.3 of the Credit Agreement is hereby
-------------
amended by (i) deleting the word "and" at the end of clause (w)
----------
thereof, (ii) deleting the period at the end of clause (x)
----------
thereof and substituting the phrase "; and" therefor, and (iii)
adding the following as a new clause (y) thereof:
----------
"(y) Liens on Venezuela Pledged Cash in an amount not
to exceed $100,000,000 at any one time outstanding; provided,
--------
however, that (i) the sum of the aggregate Stated Amount (without
- -------
duplication) of all Venezuela Letters of Credit outstanding at
such time plus the aggregate amount of Venezuela Pledged Cash
-----
outstanding at such time may not exceed an amount equal to (ii)
$210,000,000 plus the sum of the aggregate amount of Venezuela
----
Pledged Cash and Venezuela Letters of Credit outstanding at such
time in respect of the Venezuela Bid Bond Obligation minus the
-----
aggregate amount of all Investments (including any payment under
a Venezuela Letter of Credit) made by the Company in Venezuela
Aluminum Partners and/or CAVSA."
C. Clause (n) of Section 9.2.5 of the Credit
---------- -------------
Agreement is hereby amended by adding the phrase "ALCASA,
BAUXILUM, CARBONORCA, CAVSA, VENALUM, Venezuela Aluminum
Partners," after the term "KAEII," in the first parenthetical
contained therein.
D. Clause (o) of Section 9.2.5 of the Credit
---------- --------------
Agreement is hereby amended by adding the phrase "ALCASA,
BAUXILUM, CARBONORCA, CAVSA, VENALUM, Venezuela Aluminum
Partners," after the term "KAEII," in the second parenthetical
contained therein.
E. Section 9.2.5 of the Credit Agreement is hereby
-------------
amended by (i) deleting the word "and" at the end of clause (s)
----------
thereof, (ii) deleting the period at the end of clause (t)
----------
thereof and substituting the phrase "; and" therefor; and (iii)
adding the following as a new clause (u) thereof:
----------
"(u) Investments (including any payment under a
Venezuela Letter of Credit) by the Company in Venezuela Aluminum
Partners and/or CAVSA in an amount not to exceed $210,000,000 in
the aggregate at any one time outstanding."
F. Section 9.2.18 of the Credit Agreement is hereby
--------------
amended by amending clause (vi) thereof to read in its entirety
-----------
as follows:
"(vi) Investments permitted by Sections 9.2.5(f),
------------------
9.2.5(n), 9.2.5(o), 9.2.5(q), 9.2.5(r), 9.2.5(s), 9.2.5(t), and
- -------- -------- -------- -------- -------- --------
9.2.5(u);".
- --------
1.6 Amendments to Article X: Events of Default.
--------------------------------------------
A. Section 10.1.6 of the Credit Agreement is hereby
--------------
amended by adding the phrase "(other than Venezuela Aluminum
Partners, CAVSA, ALCASA, BAUXILUM, CARBONORCA, and VENALUM)"
following the words "Joint Venture Affiliate" and following the
words "Joint Venture Affiliates" contained therein.
B. Section 10.1.10 of the Credit Agreement is hereby
---------------
amended by adding the phrase ", Venezuela Aluminum Partners,
CAVSA, ALCASA, BAUXILUM, CARBONORCA, and VENALUM" following the
term "KJBC" in the first parenthetical contained therein.
Section 2. Amendments to Collateral Documents.
----------------------------------
The parties agree that, as of the Thirteenth Amendment
Effective Date, the Company Security Agreement shall be amended
as set forth in Exhibit A hereto. The Required Lenders hereby
approve the form of such amendment, and hereby authorize the
Agent on their behalf to accept from the Company, and authorize
the Agent to execute and deliver as Agent, the amendment to the
Company Security Agreement in substantially the form of such
Exhibit A with such changes, additions or deletions as the Agent,
in its sole and absolute discretion, may approve.
Section 3. Conditions to Effectiveness.
---------------------------
This Amendment shall become effective as of the date
hereof only when the following conditions shall have been
satisfied and notice thereof shall have been given by the Agent
to the Parent Guarantor, the Company and each Lender (the date of
satisfaction of such conditions and the giving of such notice
being referred to herein as the "Thirteenth Amendment Effective
-------------------------------
Date").
- ------
A. The Agent shall have received for each Lender (1)
counterparts hereof duly executed on behalf of the Parent
Guarantor, the Company, the Agent and the Required Lenders (or
notice of the approval of this Amendment by the Required Lenders
satisfactory to the Agent shall have been received by the Agent),
(2) counterparts of the Fourth Amendment to Company Security
Agreement, dated as of July 20, 1998, between the Company and the
Agent (the "Company Security Amendment") duly executed on behalf
--------------------------
of the Company and the Agent, and (3) a letter regarding the
payment of a fee in the amount of $406,250 upon the closing of
the purchase by the Company or any of its Subsidiaries of the
capital stock or assets of CAVSA or any of its Subsidiaries, duly
executed on behalf of the Company, the Agent and the Required
Lenders.
B. The Agent shall have received:
(1) Resolutions of the Board of Directors or of
the Executive Committee of the Board of Directors of the Company
and the Parent Guarantor approving and authorizing the execution,
delivery and performance of this Amendment, and, in the case of
the Company, the Company Security Amendment, certified by their
respective corporate secretaries or assistant secretaries 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 and, in the case of the Company, the Company Security
Amendment;
(3) For each Lender an opinion, addressed to the
Agent and each Lender, from Kramer, Levin, Naftalis & Frankel, in
form and substance satisfactory to the Agent;
(4) Such other information, approvals, opinions,
documents, or instruments as the Agent may reasonably request;
and
(5) For the pro rata benefit of the Lenders, a
fee in the amount of $406,250 and, for the benefit of the Agent,
the fee set forth in that certain letter dated as of the date
hereof between the Agent and the Company.
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 in the
manner provided herein, the Parent Guarantor and the Company
represent and warrant to each Lender and the Agent that, as of
the Thirteenth Amendment Effective Date after giving effect to
the effectiveness of this Amendment, the 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 Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures, or the
Subordinated Indenture 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
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.
- -------------
Section 5. Acknowledgement and Consent.
---------------------------
The Company is a party to the Company Collateral
Documents, in each case as amended through the date hereof,
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 date hereof, 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 date hereof,
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.
Each Credit Support Party acknowledges and agrees that
any of the Credit Support Documents to which it is a party or
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 Thirteenth 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, 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
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.
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: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell
----------------------- ----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS CREDIT,
INC. INC., as Agent
By: /s/ Michael J. Jasaitis By: /s/ Michael J. Jasaitis
---------------------- -----------------------
Name: Michael J. Jasaitis Name: Michael J. Jasaitis
Its: Vice President Its: Vice President
BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS
AND SAVINGS ASSOCIATION CREDIT, INC.
By: /s/ James P. Johnson By: /s/ Dan Hughes
---------------------- -----------------------
Name Printed: James P. Johnson Name Printed: Dan Hughes
Its: Managing Director Its: Vice President
CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC.
(WESTERN)
By: /s/ Kristine Metchakian By: /s/ Richard J. Holston
---------------------- -----------------------
Name Printed: Kristine Metchakian Name Printed: Richard J. Holston
Its: Vice President Its: Account Executive, AVP
LA SALLE NATIONAL BANK TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Douglas C. Colletti By: /s/ Robert L. Heinz
---------------------- -----------------------
Name Printed: Douglas C. Colletti Name Printed: Robert L. Heinz
Its: First Vice President Its: Senior Vice President
ABN AMRO BANK N.V.
San Francisco International Branch
by: ABN AMRO North America,
Inc., as agent
By: /s/ Jeffrey A. French
-----------------------
Name Printed: Jeffrey A. French
Its: Group Vice President & Director
By: /s/ Michael M. Tolentino
-----------------------
Name Printed: Michael M. Tolentino
Its: Vice President
<PAGE>
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell
----------------------- -----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By: /s/ Karen A. Twitchell By: /s/ Karen a. Twitchell
----------------------- -----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell
---------------------- ----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell
---------------------- ----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. KAISER JAMAICA CORPORATION
By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell
---------------------- ----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell
---------------------- ----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC
By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell
---------------------- ----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell
---------------------- ----------------------
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By: /s/ Karen A. Twitchell
----------------------
Name Printed: Karen A. Twitchell
Its: Treasurer
EXHIBIT A
FOURTH AMENDMENT TO COMPANY SECURITY AGREEMENT
-----------------------------------------------
THIS FOURTH AMENDMENT TO COMPANY SECURITY AGREEMENT
(this "Amendment"), dated as of July 20, 1998, is by and between
---------
Kaiser Aluminum & Chemical Corporation, a Delaware corporation
(the "Company"), and BankAmerica Business Credit, Inc., a
-------
Delaware corporation, as agent for the Secured Lenders (as
defined in the Credit Agreement referred to below) (in such
capacity, together with its successors and assigns in such
capacity, the "Agent"). Capitalized terms used, but not defined,
-----
herein shall have the meanings given to such terms in the Credit
Agreement, as amended by the Thirteenth Amendment.
W I T N E S S E T H:
WHEREAS, 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 (collectively, the "Lenders" and,
-------
individually, a "Lender"), 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 Second Amendment to Credit Agreement, dated as of March
10, 1995, the Third Amendment to Credit Agreement and
Acknowledgment, dated as of July 20, 1995, the Fourth Amendment
to Credit Agreement, dated as of October 17, 1995, the Fifth
Amendment to Credit Agreement, dated as of December 11, 1995, the
Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
the Seventh Amendment to Credit Agreement, dated as of December
17, 1996, the Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, the Ninth Amendment to Credit Agreement and
Acknowledgment, dated as of April 21, 1997, the Tenth Amendment
to Credit Agreement, dated as of June 25, 1997, the Eleventh
Amendment to Credit Agreement and Limited Waivers, dated as of
October 20, 1997, and the Twelfth Amendment to Credit Agreement,
dated as of January 13, 1998 (the "Credit Agreement"); and
----------------
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a
Thirteenth Amendment to Credit Agreement (the "Thirteenth
----------
Amendment"); and
- ---------
WHEREAS, the Company and the Agent are parties to the
Company Security Agreement, Financing Statement and Conditional
Assignment of Patents and Trademarks, dated as of February 15,
1994, as amended by the First Amendment to Company Security
Agreement, dated as of July 21, 1994, the Second Amendment to
Company Security Agreement, dated as of December 11, 1995 and the
Third Amendment to Company Security Agreement dated as of April
21, 1997 (the "Company Security Agreement"), and have agreed to
---------------------------
amend the Company Security Agreement as herein provided; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Amendment by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendment to Company Security Agreement.
---------------------------------------
The proviso contained in the first paragraph of
Section 2 of the Company Security Agreement is hereby amended by
adding the phrase "ALCASA, BAUXILUM, CARBONORCA, CAVSA, VENALUM,
Venezuela Aluminum Partners," immediately following the phrase
"Furukawa," each time it appears in clause (A) thereof.
Section 2. Company's Representations and Warranties.
----------------------------------------
In order to induce the Agent to enter into this
Amendment and to amend the Company Security Agreement in the
manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, the Company represents and
warrants to each Lender and the Agent that, as of the Thirteenth
Amendment Effective Date (as defined in the Thirteenth Amendment)
after giving effect to the effectiveness of this Amendment, the
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 performance of
the Company Security Agreement as amended by this Amendment (the
"Amended Agreement") by the Company are within the Company's
-----------------
corporate powers and have been duly authorized by all necessary
corporate action on the part of the Company.
B. No Conflict. The execution and delivery by the
-----------
Company of this Amendment and the performance by the Company of
the Amended Agreement do not:
(1) contravene the Company's Organic Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures, or the
Subordinated Indenture 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 the Company or any of its Subsidiaries;
or
(3) result in, or require the creation or
imposition of, any Lien on any of the Company's properties, other
than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by the Company and this Amendment and the
Amended Agreement constitute the legal, valid and binding
obligations of the Company, enforceable against the Company 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
filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery or
performance of this Amendment by the Company.
Section 3. Miscellaneous.
-------------
A. Reference to and Effect on the Company Security
------------------------------------------------
Agreement and the Other Loan Documents.
- --------------------------------------
(1) On and after the Thirteenth Amendment
Effective Date, each reference in the Company Security Agreement
to "this Agreement", "hereunder", "hereof", "herein" or words of
like import referring to the Company Security Agreement, and each
reference in the other Loan Documents to the "Company Security
Agreement", "thereunder", "thereof" or words of like import
referring to the Company Security Agreement shall mean and be a
reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment, the Company Security Agreement shall remain in full
force and effect and is hereby ratified and confirmed.
(3) The execution, delivery and performance of
this Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver
of any right, power or remedy of the Agent or any Lender under,
the Company Security Agreement.
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
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.
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
KAISER ALUMINUM & CHEMICAL BANKAMERICA BUSINESS CREDIT,
CORPORATION INC., as Agent
By: By:
--------------------------- ---------------------------
Name: Karen A. Twitchell Name: Michael J. Jasaitis
Its: Treasurer Its: Vice President
July 21, 1998
Mr. Lawrence L. Watts
Kaiser Aluminum & Chemical Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77057
Dear Larry:
As we have discussed, your skills in leading and
implementing constructive change in behaviors, management
processes, and organizational focus and culture, as well as your
intuitive and pragmatic ability to drive change in ways that
reflect understanding of both business strategy and
organizational and human dynamics, have been important to
Company. However, as a result of the progress the Company has
made through your efforts and the progress we expect to make
during the remainder of the year, we have agreed that it should
be possible to formally eliminate your position as of December
31, 1998. Having said that, it will be important to have yours
skills, knowledge and experience available to the leadership of
the Company on an enthusiastic and committed full-time basis
through the end of the year. During that period, as a member of
senior leadership, you will continue to work closely with me and
other senior officers of the Company.
While we jointly believe that it should be possible to
formally eliminate your position, retaining the continued
availability of your skills and experience after your termination
as a full time employee is also important to the Company.
Consequently, the Company wishes to retain your services as a
consultant for a period of twelve months following elimination of
your position and termination of your regular employment with the
Company, and you have agreed to make your services available.
The Company may or may not utilize your services fully throughout
this period, but in recognition of both your willingness to hold
yourself available to the Company through this period and your
agreement not to compete with the Company or its businesses
through June 30, 2000, a retainer as discussed below will be paid
following the termination of your regular employment with the
Company.
In consideration of your willingness to commit to the terms
of this agreement, and in recognition of the resulting
elimination of your position and termination of your employment
with the Company, we agree and acknowledge that:
1. Your position will be phased out over a period that will
continue through December 31, 1998, and unless another
position has been offered which you have agreed to accept at
that time, your employment with the Company and service as
an officer of the Company and its affiliates will terminate
December 31, 1998. At that time you will be granted a full
early retirement consistent with normal practices in such
circumstances.
2. You will be given eighteen months severance to be paid at
the time of termination but no later than December 31, 1998.
3. You will continue to participate in the 1996-1998 and
1997-1999 long term executive incentive programs on a pro
rata basis through the date of your departure, but will not
participate in the 1998 short term executive incentive
program or any long term executive incentive program with a
performance period beginning in or after 1998. In lieu of
your participation in those programs and in consideration of
the commitments you are making in this agreement you will
receive a supplemental non-recurring 1998 annual incentive
payment in an amount to be determined and mutually agreed by
the Company and you. This amount will insofar as possible
to reflect an incentive amount appropriate to the way in
which others in senior management have been treated.
4. The payments and benefits set forth above will be subject to
applicable federal, state and local taxes, and all other
deductions required by law and consistent with the Company's
normal practices in such circumstances.
5. The Company will enter into a consulting arrangement for
your services commencing upon the date of your termination.
Compensation will be paid in the form of a retainer at a
monthly rate equal to your base pay prior to your
termination of employment.
This agreement contains the entire understanding between you
and the Company with respect to your employment with, and
separation from, the Company and supersedes and cancels all prior
or contemporaneous communications, agreements and understandings
between you and the Company, whether written or oral. Any
modifications or amendments to this agreement will be effective
only if they are in writing and signed by the Company and you.
Please acknowledge your acceptance of this agreement and its
terms in the space provided below. Upon execution, this
agreement shall be effective as of May 31, 1998.
Very truly yours,
/s/ George T. Haymaker, Jr.
George T. Haymaker, Jr.
Chairman and Chief Executive
Officer
Agreed and accepted:
/s/ Lawrence L. Watts
Lawrence L. Watts
July 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of the Company for the six months ended
June 30, 1998, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 113
<SECURITIES> 0
<RECEIVABLES> 300
<ALLOWANCES> 6
<INVENTORY> 507
<CURRENT-ASSETS> 1,066
<PP&E> 1,160
<DEPRECIATION> 45
<TOTAL-ASSETS> 3,016
<CURRENT-LIABILITIES> 565
<BONDS> 963
20
2
<COMMON> 15
<OTHER-SE> 135
<TOTAL-LIABILITY-AND-EQUITY> 3,016
<SALES> 1,212
<TOTAL-REVENUES> 1,212
<CGS> 1,006
<TOTAL-COSTS> 1,006
<OTHER-EXPENSES> 106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 44
<INCOME-TAX> 15
<INCOME-CONTINUING> 30
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
