<PAGE> 1
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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, 1999
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.)
5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057-3010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 267-3777
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -------------------
<S> <C>
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
</TABLE>
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 January 28, 2000, 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 January 28, 2000, nonaffiliates
of the registrant held 350,167 shares of Cumulative (1985 Series A) Preference
Stock and 40,086 shares of Cumulative (1985 Series B) Preference Stock of the
registrant. The aggregate value of such Cumulative (1985 Series A) Preference
Stock and Cumulative (1985 Series B) Preference Stock, based upon the redemption
price for such stock, is $19.5 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.
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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 65-71 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
exhibits and to request copies of such exhibits:
Corporate Secretary
Kaiser Aluminum & Chemical Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77057-3010
(713) 267-3777
(i)
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I........................................................................................................ 1
ITEM 1. BUSINESS.................................................................................... 1
ITEM 2. PROPERTIES.................................................................................. 16
ITEM 3. LEGAL PROCEEDINGS........................................................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 17
PART II....................................................................................................... 17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................................................... 17
ITEM 6. SELECTED FINANCIAL DATA..................................................................... 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................................... 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................. 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................. 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................................................... 63
PART III...................................................................................................... 63
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................... 63
ITEM 11. EXECUTIVE COMPENSATION...................................................................... 63
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................................................ 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................. 63
PART IV....................................................................................................... 63
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K....................................................................... 63
SIGNATURES.................................................................................................... 64
INDEX OF EXHIBITS............................................................................................. 65
EXHIBIT 21 SUBSIDIARIES................................................................................ 72
</TABLE>
(ii)
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K (the "Report") 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 Report (see, for example, Item 1. "Business - Incident at
Gramercy Facility," "- Strategic Initiatives," "- Business Operations," "-
Competition," "- Research and Development," "- Environmental Matters," and "-
Factors Affecting Future Performance," Item 3. "Legal Proceedings," and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"). 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. Certain sections of
this Report identify other factors that could cause differences between such
forward-looking statements and actual results. 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.
General
Kaiser Aluminum & Chemical Corporation (the "Company"), a Delaware corporation
organized in 1940, is a direct subsidiary of Kaiser Aluminum Corporation
("Kaiser") and an indirect subsidiary of MAXXAM Inc. ("MAXXAM"). Kaiser owns all
of the Company's Common Stock, and 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 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 1999, the Company produced approximately 2,524,000
tons1 of alumina, of which approximately 83% was sold to third parties, and
produced approximately 426,400 tons of primary aluminum, of which approximately
62% was sold to third parties. In 1999, the Company shipped approximately
389,000 tons of fabricated aluminum products to third parties, which accounted
for approximately 5% of total United States domestic shipments.
The Company's operations are conducted through its business units. The following
table sets forth total shipments and intersegment transfers of the Company's
alumina, primary aluminum, and fabricated aluminum operations:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
------- ------- -------
(in thousands of tons)
<S> <C> <C> <C>
ALUMINA: (1)
Shipments to Third Parties 2,093.9 2,250.0 1,929.8
Intersegment Transfers 757.3 750.7 968.0
------- ------- -------
PRIMARY ALUMINUM: 2,851.2 3,000.7 2,897.8
------- ------- -------
Shipments to Third Parties 295.6 263.2 327.9
Intersegment Transfers 171.2 162.8 164.2
------- ------- -------
466.8 426.0 492.1
------- ------- -------
FLAT-ROLLED PRODUCTS 217.9 235.6 247.9
ENGINEERED PRODUCTS 171.1 169.4 152.1
</TABLE>
(1) As a result of the explosion at the Gramercy alumina refinery in July 1999,
which completely curtailed production ("the Gramercy incident"), shipments
to third parties and intersegment transfers for 1999 include approximately
264,000 tons of
- ------------------------
(1) All references to tons in this Report refer to metric tons of
2,204.6 pounds.
1
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (CONTINUED)
alumina purchased and resold to certain unaffiliated customers and 131,000
tons of alumina purchased and transferred to the Company's primary aluminum
business unit. See Note 2 of Notes to Consolidated Financial Statements for
additional information regarding the impact of the Gramercy incident.
See Note 13 of Notes to Consolidated Financial Statements for segment and
geographical financial information.
Incident at Gramercy Facility
On July 5, 1999, the Company's Gramercy, Louisiana alumina refinery was
extensively damaged by an explosion in the digestion area of the plant.
Twenty-four employees were injured in the incident, several of them severely. As
a result of the incident, alumina production at the facility was completely
curtailed. Production at the plant is currently expected to remain completely
curtailed until the third quarter of 2000 when the Company expects to begin
partial production. Based on current estimates, full production is expected to
be achieved during the first quarter of 2001 or shortly thereafter. The Company
has received the regulatory permit required to operate the plant once the
facility is ready to resume production. In the interim, the Company is
purchasing alumina from third parties, in excess of the amounts of alumina
available from other Company-owned facilities, to supply major customers' needs
and to meet intersegment requirements.
The cause of the incident is under investigation by the Company and governmental
agencies. In January 2000, the U.S. Mine Safety and Health Administration
("MSHA") issued 21 citations in connection with its investigation of the
incident. The citations allege, among other things, that certain aspects of the
plant's operations were unsafe and that such mode of operation contributed to
the explosion. To date, no monetary penalty has been proposed by MSHA. Although
the Company expects that a fine will be levied, the Company cannot predict the
amount of any such fine(s). It is possible that other civil or criminal fines or
penalties could be levied against the Company. The Company has previously
announced that it disagrees with the substance of the citations and has
challenged them. However, as more fully explained below, based on what is known
to date and discussions with the Company's advisors, the Company believes that
the financial impact of this incident (in excess of insurance deductibles and
self-retention provisions) will be largely offset by insurance coverage.
Deductibles and self-retention provisions under the insurance coverage for the
incident total $5.0 million, which amounts have been charged to Cost of products
sold in 1999.
As of December 31, 1999, the Company had recorded estimated recoveries for
clean-up, site preparation and business interruption costs incurred of
approximately $55.0 million. As of December 31, 1999, approximately $50.0
million of insurance recoveries had been received. Additionally through February
29, 2000, the Company had received approximately $25.0 million of additional
insurance recoveries. Also, based on discussions with the insurance carriers and
their representatives and third party engineering reports, the Company recorded
a pretax gain of $85.0 million, representing the difference between the minimum
expected property damage reimbursement amount and the net carrying value of the
damaged property of $15.0 million. The Company continues to work with the
insurance carriers to maximize the amount of recoveries and to minimize, to the
extent possible, the period of time between when the Company expends funds and
when it is reimbursed. However, the Company will likely have to fund an average
of 30 - 60 days of property damage and business interruption activity, unless
some other arrangement is agreed with the insurance carriers, and such amounts
will be significant. The Company believes it has sufficient financial resources
to fund the construction and business interruption costs on an interim basis.
However, no assurances can be given in this regard. If insurance recoveries were
to be delayed or if there were to be other significant uses of the Company's
existing Credit Agreement capacity, delays in the rebuilding of the Gramercy
refinery could occur and could have a material adverse impact on the Company's
liquidity and operating results.
See Note 2 of Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financing Activities and Liquidity" for more detailed information regarding the
impacts of the Gramercy incident.
Labor Matters
Substantially all of the Company's hourly workforce at the Gramercy, Louisiana,
alumina refinery, Mead and Tacoma, Washington, aluminum smelters, Trentwood,
Washington, rolling mill, and Newark, Ohio, extrusion facility were covered by a
master labor agreement with the United Steelworkers of America (the "USWA")
which expired on September 30, 1998. The parties did not reach an agreement
prior to the expiration of the master agreement and the USWA chose to strike. In
January 1999, the Company declined an offer by the USWA to have the striking
workers return to work at the five plants without a new
2
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (CONTINUED)
agreement. The Company imposed a lock-out to support its bargaining position and
continues to operate the plants with salaried employees and other workers as it
has since the strike began.
While the Company initially experienced an adverse strike-related impact on its
profitability, the Company currently believes that the Company's operations at
the affected facilities, excluding the Gramercy facility (see "- Incident at
Gramercy Facility" above), have been substantially stabilized and will be able
to run at, or near, full capacity, and that the incremental costs associated
with operating the affected plants during the dispute were virtually eliminated
in early 1999 (excluding the impacts of the restart costs and the effect of
market factors such as the continued partial curtailment at the Tacoma smelter
(see "- Business Operations - Primary Aluminum Business Unit" in this Report).
However, no assurances can be given that the Company's efforts to run the plants
on a sustained basis, without a significant business interruption or material
adverse impact on the Company's operating results, will be successful.
Further, the Company believes that charges of unfair labor practices made
against it by the USWA are without merit. See Note 11 of Notes to Consolidated
Financial Statements.
The Company and the USWA continue to communicate. The objective of the Company
has been, and continues to be, to negotiate a fair labor contract that is
consistent with its business strategy and the commercial realities of the
marketplace.
See Note 1 of Notes to Consolidated Financial Statements, "- Labor Related
Costs," Note 11 of Notes to Consolidated Financial Statements, "- Labor Matters"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Labor Matters" for additional information with respect to the USWA
dispute.
Strategic Initiatives
The Company's strategy is to improve its financial results by: increasing the
competitiveness of its existing plants; continuing its cost reduction
initiatives; adding assets to businesses it expects to grow; pursuing
divestitures of non-core businesses; and strengthening its financial position.
In 1999, the Company completed the acquisition of the remaining 45% interest in
Kaiser LaRoche Hydrate Partners ("KLHP"), an alumina marketing venture, for a
purchase price of approximately $10.0 million and the sale of its 50% interest
in AKW L.P. ("AKW") to its partner for $70.4 million. The strategic analysis
process also resulted in the Company's agreement in January 2000 to sell its
Micromill(TM) assets and technology. See Notes 3 and 4 of Notes to Consolidated
Financial Statements for information on the AKW and Micromill sales.
Another area of emphasis has been a continuing focus on managing the Company's
legacy liabilities. The Company believes that it has insurance coverage
available to recover certain incurred and future environmental costs and a
substantial portion of its asbestos-related costs and is actively pursuing
claims in this regard. During 1998, the Company received recoveries totaling
approximately $35.0 million from certain of its insurers related to current and
future environmental claims. The timing and amount of future recoveries of
asbestos-related claims from insurance carriers remains a major priority of the
Company, but will depend on the pace of claims review and processing by such
carriers and the resolution of any disputes regarding coverage under the
insurance policies that may arise. However, during 1999, the Company reached
preliminary agreements under which it expects to collect a substantial portion
of its 2000 expected asbestos-related payments from certain insurance carriers.
See Note 11 of Notes to Consolidated Financial Statements for additional
information regarding the legacy liabilities and related insurance coverages.
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. 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 and generally lag behind primary
aluminum prices by up to three months. In addition, the Company's operations are
exposed to risks from fluctuating energy prices for fuels used in the production
process and from foreign currency movements in respect of material cash
3
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (CONTINUED)
commitments to foreign subsidiaries and affiliates. From time to time in the
ordinary course of business, the Company enters into hedging transactions to
provide risk management in respect of its net exposure of earnings and cash flow
related to the above items. While such hedging activities typically are designed
to provide protection against unfavorable price charges, they can, in certain
circumstances, limit the Company's ability to realize favorable price changes
and can also impact the Company's liquidity. See Note 1 of Notes to Consolidated
Financial Statements, "- Derivative Financial Instruments," Note 12 of Notes to
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Activities and
Liquidity," for additional information.
Business Operations
The Company conducts its business through four main business units, each of
which is discussed below.
o Alumina Business Unit
The following table lists the Company's bauxite mining and alumina refining
facilities as of December 31, 1999:
<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 Jamaica 49.0% 4,500,000 4,500,000
Alpart(1) Jamaica 65.0% 2,275,000 3,500,000
--------- ---------
6,775,000 8,000,000
========= =========
Alumina Refining Gramercy(2) Louisiana 100.0% 1,075,000 1,075,000
Alpart Jamaica 65.0% 942,500 1,450,000
QAL Australia 28.3% 1,032,950 3,650,000
--------- ---------
3,050,450 6,175,000
========= =========
</TABLE>
- ------------
(1) Alumina Partners of Jamaica ("Alpart") bauxite is refined into alumina
at the Alpart refinery.
(2) Production is currently completely curtailed. See discussion below.
The Company is a major producer of alumina and sells significant amounts of its
alumina production in domestic and international markets. The Company's strategy
is to sell a substantial portion of the alumina available to it in excess of its
internal smelting requirements under multi-year sales contracts with prices
linked to the price of primary aluminum. See "- Competition" and "- Sensitivity
to Prices and Hedging Programs" in this Report.
The Government of Jamaica has granted the Company a mining lease for the mining
of bauxite which will, at a minimum, satisfy the bauxite requirements of the
Company's Gramercy, Louisiana alumina refinery so that it will be able to
produce at its current rated capacity until 2020. Kaiser Jamaica Bauxite Company
("KJBC") mines bauxite from the land which is subject to the mining lease as an
agent for the Company. Although the Company owns 49% of KJBC, it is entitled to,
and generally takes, all of its bauxite output. A substantial majority of the
bauxite mined by KJBC is refined into alumina at the Gramercy facility and the
remainder is sold to a third party. KJBC's operations have been impacted by the
Gramercy incident. Subject to the rebuilding of the Gramercy facility with a
double digest bauxite system, the Government of Jamaica has recently agreed to
grant the Company an additional bauxite mining lease. The new mining lease will
be effective upon the expiration of the current lease in 2020 and will enable
the Gramercy facility to produce at its rated capacity for an additional ten
year period. See Note 2 of Notes to Consolidated Financial Statements for a
detailed discussion of the Gramercy incident.
4
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (CONTINUED)
Alumina produced by the Gramercy plant is primarily sold to third parties but a
portion is used by the Company in its operations. Production at the Gramercy
refinery is currently completely curtailed as it was extensively damaged by an
explosion in the digestion area of the plant in July 1999. Production at the
plant is currently expected to remain curtailed until the third quarter of 2000
when partial production is expected to begin. Based on current estimates, full
production is expected to be achieved during the first quarter of 2001 or
shortly thereafter. In the interim, the Company is purchasing alumina from third
parties, in excess of the amounts of alumina available from other Company-owned
facilities, to supply major customers' needs as well as to meet intersegment
requirements. The Company believes that the cost to rebuild the Gramercy
facility and the adverse impact of the incident on operations will be largely
offset by insurance coverage. See Note 2 of Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financing Activities and Liquidity" for additional
information regarding the impacts of the Gramercy incident. Also, the Gramercy
refinery is one of the five Company plants which is subject to the continuing
USWA dispute. See Note 11 of Notes to Consolidated Financial Statements, "-
Labor Matters" for a discussion of the labor dispute.
In February 1999, the Company, through a subsidiary, purchased its partner's 45%
interest in KLHP, a partnership which markets chemical grade alumina
manufactured at the Company's Gramercy facility. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Overview -
Strategic Initiatives" for additional information. Chemical grade alumina is
sold at a premium price over smelter grade alumina, and this acquisition will
permit the Company to expand its market position in this business in North
America. However, these operations have been impacted by the Gramercy incident.
The Company has entered into the necessary arrangements to allow it to supply a
significant portion of its customers' chemical grade alumina needs. The Company
believes that any incremental costs incurred in connection with such
arrangements, as well as lost profits, will be substantially covered by its
insurance.
Alpart holds bauxite reserves and owns a 1,450,000 ton per year alumina plant
located in Jamaica. The Company owns 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 up to a capacity of 2,000,000 tons per year, through the year
2024.
In 1999, Alpart and JAMALCO, a joint venture between affiliates of Alcoa Inc.
and the Government of Jamaica, agreed to form a bauxite mining operation joint
venture that will consolidate their bauxite mining operations in Jamaica, with
the objective of optimizing mining operating and capital costs. The joint
venture agreement also grants Alpart certain rights to acquire bauxite mined
from JAMALCO's reserves. The joint venture will commence operations in the first
quarter of 2000.
The Company owns a 28.3% interest in Queensland Alumina Limited ("QAL"), which
owns the largest and one of the most competitive alumina refineries in the
world, located in Queensland, Australia. QAL refines bauxite into alumina,
essentially on a cost basis, for the account of its shareholders under long-term
tolling contracts. The shareholders, including the Company, purchase bauxite
from another QAL shareholder under long-term supply contracts. The Company has
contracted with QAL to take approximately 868,000 tons per year of alumina or
pay standby charges. The Company is unconditionally obligated to pay amounts
calculated to service its share ($103.6 million at December 31, 1999) of certain
debt of QAL, as well as other QAL costs and expenses, including bauxite shipping
costs.
In 1999, the Company sold alumina to approximately 21 customers, the largest and
top five of which accounted for approximately 23% and 72% of net sales,
respectively. All of the Company's third-party sales of bauxite in 1999 were
made to one customer, which sales represent approximately 7% of total bauxite
and alumina third party net sales. The Company's principal customers for bauxite
and alumina consist of other aluminum producers that purchase bauxite and
smelter grade alumina, trading intermediaries who resell raw materials to
end-users, and users of chemical grade alumina.
5
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (CONTINUED)
o Primary Aluminum Business Unit
The following table lists the Company's primary aluminum smelting facilities as
of December 31, 1999:
<TABLE>
<CAPTION>
Annual Rated Total 1999
Capacity Annual Average
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
- -------------- -------- --------- ------------ -------- ---------
(tons) (tons)
<S> <C> <C> <C> <C> <C>
United States
Washington Mead 100% 200,000 200,000 102%(1)
Washington Tacoma 100% 73,000 73,000 73%(1)
------- -------
Subtotal 273,000 273,000
------- -------
International
Ghana Valco 90% 180,000 200,000 57%(2)
Wales, United Kingdom Anglesey 49% 66,150 135,000 102%
------- -------
Subtotal 246,150 335,000
------- -------
Total 519,150 608,000
======= =======
</TABLE>
- ------------------
(1) 1999 operating rates were affected by the continuing USWA dispute. See
discussion below.
(2) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview - Valco Operating Level" for
additional information regarding recent and future operating levels.
The Company has developed and installed proprietary retrofit and control
technology in all of its smelters, as well as at third party locations. This
technology - which includes the redesign of the cathodes, anodes and bus that
conduct electricity through reduction cells, improved feed systems that add
alumina to the cells, computerized process control and energy management
systems, and furnace technology for baking of anode carbon - has significantly
contributed to increased and more efficient production of primary aluminum and
enhanced the Company's ability to compete more effectively with the industry's
newer smelters.
The Mead facility uses pre-bake technology. Approximately 77% of Mead's 1999
production was used at the Company's Trentwood, Washington, rolling mill, and
the balance was sold to third parties. The Company has modernized and expanded
the carbon baking furnace at its Mead smelter. The project has improved the
reliability of the carbon baking operations, increased productivity, enhanced
safety, and improved the environmental performance of the facility. The first
stage of this project, the construction of a new 90,000 ton per year furnace,
was completed in 1997. The remaining modernization work was completed in early
1999. The Tacoma facility 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 through retrofit technology and a
variety of cost controls, leading to increases in production volume and
enhancing their ability to compete with newer smelters. The business unit
maintains specialized laboratories and a miniature carbon plant in the state of
Washington which concentrate on the development of cost-effective technical
innovations such as equipment and process improvements.
The Mead and Tacoma, Washington, smelters are two of the five Company plants
which are subject to the continuing USWA dispute. KACC temporarily curtailed
three out of a total of eleven potlines at its Mead and Tacoma, Washington,
aluminum smelters at September 30, 1998, as a result of the USWA strike. The
curtailed potlines represented approximately 70,000 tons of annual production
capacity out of a total combined production capacity of 273,000 tons per year at
the facilities. Restarts of the two Mead potlines were completed during
mid-1999. While a portion of the curtailed potline at Tacoma has been restarted
to meet internal requirements, the timing for a complete restart of the potline
(representing approximately 10,000 tons of idle production capacity) has yet to
be determined and will depend upon market conditions and other factors. See Note
11 of Notes to Consolidated Financial Statements, "- Labor Matters" for a
discussion of the labor dispute on smelting production rates.
6
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (CONTINUED)
The Company manages, and owns 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 tolling contracts which provide for
proportionate payments by the participants. The Company's share of the primary
aluminum is sold to third parties. Valco's operating level has been subject to
fluctuations resulting from the amount of power it is allocated by the Volta
River Authority ("VRA"). The operating level over the last five years has ranged
from one to four out of a total of five potlines. During 1999, Valco operated an
average of three potlines. The Company expects Valco to operate four potlines
during 2000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Overview - Valco Operating Level" for additional
information regarding past and future operating levels.
The Company owns a 49% interest in the Anglesey Aluminium Limited ("Anglesey")
aluminum smelter 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.
The Company's principal primary aluminum customers consist of large trading
intermediaries and metal brokers. In 1999, the Company sold its primary aluminum
production not utilized for internal purposes to approximately 42 customers, the
largest and top five of which accounted for approximately 29% and 68% of net
sales, respectively. See "- Competition" in this Report. Marketing and sales
efforts are conducted by personnel located in Houston, Texas; and Tacoma and
Spokane, Washington.
Electric Power
Electric power represents an important production cost for the Company at its
aluminum smelters. For information on this subject, see "- Factors Affecting
Future Performance - The operations of our smelters depend on attaining reliable
and affordable electric power" in this Report.
o Flat-Rolled Products Business Unit
The flat-rolled products business unit operates the Trentwood, Washington,
rolling mill. The business unit sells to the aerospace and general engineering
markets (producing heat treat sheet and plate products), the beverage container
market (producing body, lid, and tab stock), and the specialty coil markets
(producing automotive brazing sheet, wheel, and tread products), both directly
and through distributors. The Trentwood facility is one of the five Company
plants which is subject to the continuing USWA dispute. See Note 11 of Notes to
Consolidated Financial Statements, "- Labor Matters" for additional information
on the labor dispute.
The Company continues to shift the product mix of its Trentwood rolling mill
away from beverage can body stock toward higher value added product lines, such
as heat treat, beverage can lid and tab stock, automotive, and other niche
businesses in an effort to maximize its profitability. Global sales of the
Company's heat treat products are made primarily to the aerospace and general
engineering markets. In 1999, the business unit shipped products to
approximately 147 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 18% of the business unit's net sales.
The Company's flat-rolled products are also sold to beverage container
manufacturers located primarily in western North America and in the Asian
Pacific Rim countries. Quality of products for the beverage container industry,
service, price, and timeliness of delivery are the primary bases on which the
Company competes. In 1999, the business unit had approximately 25 domestic and
foreign can stock customers, supplying approximately 35 can plants worldwide.
The largest and top five of such customers accounted for approximately 12% and
36%, respectively, of the business unit's net sales. See "- Competition" in this
Report. The marketing staff for the business unit is located at the Trentwood
facility. Sales are made directly to end-use customers and distributors from
four sales offices in the United States, from a sales office in England, and by
independent sales agents in Asia and Latin America.
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ITEM 1. BUSINESS (CONTINUED)
o Engineered Products Business Unit
The engineered products business unit operates soft-alloy and hard-alloy
extrusion facilities and engineered component (forgings) facilities in the
United States and Canada. Major markets for extruded products are in the
transportation industry, to which the business unit sells extruded shapes for
automobiles, light-duty vehicles, heavy duty trucks and trailers, and shipping
containers, and in the distribution, durable goods, defense, building and
construction, ordnance and electrical markets.
The business unit sells forged parts to customers in the automotive, heavy-duty
truck, general aviation, rail, machinery and equipment, and ordnance markets.
The high strength-to-weight properties of forged aluminum make it particularly
well-suited for automotive applications. The business unit maintains a sales and
engineering office in Southfield, Michigan, which works with automobile makers
and other customers and plant personnel to create new automotive component
designs and to improve existing products.
Soft-alloy extrusion facilities are located in Los Angeles, California; Sherman,
Texas; Richmond, Virginia; and London, Ontario, Canada. Each of the soft-alloy
extrusion facilities has fabricating capabilities and provides finishing
services. Products manufactured at these facilities include rod, bar, tube,
shapes, and billet. The Richmond, Virginia, facility was acquired in mid- 1997
and increased the Company's extruded products capacity and enhanced its existing
extrusion business due to that facility's ability to manufacture seamless tubing
and large circle size extrusions and to serve the distribution and ground
transportation industries. A 1999 acquisition of an extrusion press in the Los
Angeles area also increased capacity in both seamless tube and rod and bar
products. Hard-alloy rod and bar extrusion facilities are located in Newark,
Ohio, and Jackson, Tennessee, and produce screw machine stock, redraw rod,
forging stock, and billet. The Newark facility is one of the five Company plants
which is subject to the continuing USWA dispute. See Note 11 of Notes to
Consolidated Financial Statements, "- Labor Matters" for additional information
on the labor dispute. A facility located in Richland, Washington, produces
seamless tubing in both hard and soft alloys. The business unit also operates an
aluminum cathodic protection business located in Tulsa, Oklahoma. The business
unit operates forging facilities at Oxnard, California, and Greenwood, South
Carolina, and a machine shop at Greenwood, South Carolina. The Company sold a
small casting operations in Canton, Ohio in May 1999.
In 1997, the Company and Accuride Corporation ("Accuride") formed AKW to design,
manufacture and sell heavy aluminum truck wheels. In April 1999, the Company
sold its 50% interest in AKW to Accuride for $70.4 million, which resulted in a
net pre-tax gain of $50.5 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Strategic Initiatives" and Note
3 of Notes to Consolidated Financial Statements.
In 1999, the engineered products business unit had approximately 400 customers,
the largest and top five of which accounted for approximately 5% and 18%,
respectively, of the business unit's net sales. See "- Competition" below. Sales
are made directly from plants and from marketing locations elsewhere in the
United States.
Competition
The Company competes globally with producers of bauxite, alumina, primary
aluminum, and fabricated aluminum products. Many of the Company's competitors
have greater financial resources than the Company. 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. Aluminum competes in many markets with steel, copper,
glass, plastic, and other materials. Beverage container materials, including
aluminum, face increased competition from plastics as increased polyethylene
terephthalate ("PET") container capacity is brought on line by plastics
manufacturers. The Company competes with numerous domestic and international
fabricators in the sale of fabricated aluminum products. The Company
manufactures and markets fabricated aluminum products for the transportation,
packaging, 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. 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 believes it has production expertise, high-quality
capability, and geographic and other competitive advantages. The Company
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 its customers, including intermediaries, would not have a material
adverse effect on the Company's financial condition or results of operations.
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ITEM 1. BUSINESS (CONTINUED)
See the discussion of competitive conditions, markets, and principal methods of
competition in the description of each business unit under the headings
"-Alumina Business Unit," "-Primary Aluminum Business Unit," "-Flat-Rolled
Products Business Unit," and "-Engineered Products Business Unit" in this
Report.
Research and Development
Net expenditures for Company-sponsored research and development activities were
$11.0 million in 1999, $13.7 million in 1998, and $19.7 million in 1997.
Approximately $.8 million of the 1999 research and development net expenditures
were attributable to the development of the Micromill assets and technology,
which were sold in January 2000 (see Note 4 of Notes to Consolidated Financial
Statements). The Company's research staff totaled 50 at December 31, 1999. The
Company estimates that research and development net expenditures will be in the
range of $9.0 million to $11.0 million in 2000.
Employees
During 1999, the Company employed an average of approximately 8,600 persons,
compared with an average of approximately 9,200 persons in 1998 and
approximately 9,600 persons in 1997. At December 31, 1999, the Company employed
approximately 8,300 persons. The foregoing employee counts for 1999 and 1998
include the USWA workers who are currently subject to the lockout imposed by the
Company as a result of the continuing labor dispute. Since the inception of the
labor dispute, the Company has operated the five affected facilities with
temporary workers who are not included in the employee counts for 1999 and 1998.
The average number of temporary workers employed during 1999 at the five plants
affected by the USWA labor dispute was approximately 25% less than the average
number of USWA workers employed prior to the labor dispute.
The labor agreements with employees at the Alpart refinery in Jamaica and the
Valco smelter in Ghana both expire in 2001.
Environmental Matters
The Company is subject to a wide variety of international, federal, state and
local environmental laws and regulations. For a discussion of this subject, see
"Factors Affecting Future Performance - our current or past operations subject
us to environmental compliance, clean-up and damage claims that may be costly"
below.
Factors Affecting Future Performance
This section discusses certain factors that could cause actual results to vary,
perhaps materially, from the results described in forward-looking statements
made in this Report. Forward-looking statements in this Report are not
guarantees of future performance and involve significant risks and
uncertainties. In addition to the factors identified below, actual results may
vary materially from those in such forward-looking statements as a result of a
variety of other factors including 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 Report also identifies other factors that
could cause such differences. No assurance can be given that these factors are
all of the factors that could cause actual results to vary materially from the
forward-looking statements.
o Our earnings are sensitive to a number of variables
Our operating earnings are sensitive to a number of variables over which we have
no direct control. Two key variables in this regard are commodity prices for
primary aluminum and general economic conditions.
The commodity price of primary aluminum significantly affects our financial
results. Primary aluminum prices historically have been subject to significant
cyclical price fluctuations. We believe the timing of changes in the market
price of aluminum are largely unpredictable. Since 1993, the Average Midwest
United States transaction price (the "AMT price") has ranged from approximately
$.50 to $1.00 per pound. During 1999, the AMT price averaged $.66 per pound. At
January 28, 2000, the AMT price was $.84 per pound. Although we attempt to
mitigate the impact of low prices through hedging activity (as described below),
changes in market prices for primary aluminum typically influence the realized
prices for our products, most directly in the alumina and primary aluminum
businesses.
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ITEM 1. BUSINESS (CONTINUED)
Changes in global, regional, or country-specific economic conditions can have a
significant impact on overall demand for aluminum-intensive fabricated products
in the transportation, distribution, and packaging markets. Such changes in
demand can directly affect our earnings by impacting the overall volume and mix
of such products sold. To the extent that these end-use markets weaken, demand
can also diminish for alumina and primary aluminum.
o Our profits and cash flows may be adversely impacted by the results of our
hedging programs
We are exposed to the risk of fluctuating aluminum prices, which influence the
prices at which we sell our products. We enter into hedging transactions to
limit our net exposure resulting from (1) our anticipated sales of alumina,
primary aluminum, and fabricated aluminum products, less (2) our expected costs
of purchasing certain items such as aluminum scrap, bauxite and rolling ingot,
whose prices fluctuate with the price of primary aluminum. Such hedging
transactions may involve the use of forward sales contracts, which effectively
fix the price at which we sell our products, or the use of option contracts,
which set a floor or a ceiling or both on the price at which we sell our
products. To the extent that the prices for primary aluminum exceed the fixed or
ceiling prices established by our hedging transactions, our profits and cash
flow would be lower than they otherwise would have been. As a result of our
hedging activities, at December 31, 1999, approximately 70% and 40% of our net
hedgeable volume with respect to 2000 and 2001, respectively, is subject to
minimum and maximum contract prices. The average minimum contract price with
respect to each period is significantly below the average AMT price for the week
ended January 28, 2000. The average maximum contract price with respect to 2000
is below the average AMT price for the week ended January 28, 2000. The average
maximum contract price with respect to 2001 approximates the AMT price for the
week ended January 28, 2000. Because the average maximum contract price of our
2000 and 2001 hedging positions approximates or is below the AMT price for the
week ended January 28, 2000, we will not realize the full benefit of such AMT
price or any subsequent price increases that may occur with respect to the
volumes covered by our 2000 and 2001 hedging positions.
Hedging activities can also have a temporary adverse impact on our liquidity. We
have established credit limits with certain counterparties related to open
forward sales and option contracts. When unrealized gains or losses on open
positions are in excess of such credit limits, we are entitled to receive margin
advances from the counterparties or are required to make margin advances to
counterparties, as the case may be. At December 31, 1999, we had made margin
advances of $38.0 million and had posted letters of credit totaling $40.0
million in lieu of making margin advances. Increases in primary aluminum prices
subsequent to December 31, 1999, could result in our having to make additional
margin advances or post additional letters of credit and such amounts could be
significant. Our exposure to margin advances is expected to improve throughout
2000 as our year 2000 positions, which have a lower average maximum contract
price than our 2001 positions, expire. We are considering various financing and
hedging strategies to limit our exposure to further margin advances in the event
of aluminum price increases. However, we cannot assure you we will be successful
in this regard.
A portion of the metal hedging transactions we have entered into do not qualify
for "hedge" accounting under current accounting guidelines, even though they are
consistent with its hedging objectives. Accordingly, we must reflect the change
in the market value of these transactions in each period's earnings. This can
cause material swings in our reported financial results when period-end to
period-end movements in prices are large. A total of approximately $32.8 million
of net pre-tax mark-to-market charges was reflected in our 1999 results. If the
forward price for primary aluminum were to increase further from the year-end
price, additional mark-to-market charges would be required and the charges could
be significant.
We from time to time in the ordinary course of business also enter into hedging
transactions with major suppliers of energy and energy related financial
instruments to reduce our exposure to the energy price risk from fluctuating
prices for fuel oil and diesel oil used in our production process. In addition,
we enter into foreign exchange contracts to hedge our cash commitments in
respect of foreign subsidiaries and affiliates. However, we cannot assure you
that our hedging strategies will reduce our exposure to the risk of fluctuating
prices for fuel oil, diesel oil and foreign currencies or that the results of
such hedging transactions will be more favorable than if we had not entered into
such transactions.
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ITEM 1. BUSINESS (CONTINUED)
o Our substantial indebtedness and high leverage could adversely affect us
We are highly leveraged and have significant debt services requirements. As of
December 31, 1999, our total debt was approximately $972.8 million which does
not give effect to $103.6 million of our guaranteed debt of unconsolidated
affiliates and $57.6 million of other guarantees and letters of credit. The
ratio of our total debt to stockholders' equity was approximately 14 to 1. In
addition, we expect to borrow additional amounts under our credit agreement, as
amended (the "Credit Agreement"), or from other sources in the future, if
available.
Our high level of debt affects our operations in several important ways:
o a large portion of the cash we generate is used to pay interest;
o the agreements governing such debt may limit our flexibility in planning
for and reacting to changes in our business conditions;
o we may be more vulnerable in the event of a downturn in our business, the
aluminum industry or general economic conditions;
o some or all of the agreements governing such debt limit our ability to
borrow additional money, to pay dividends and to consolidate or merge with
other companies;
o a high level of debt may impair our ability to obtain additional financing
for working capital, capital expenditures, acquisitions, general corporate
and other purposes;
o we may experience a competitive disadvantage because we are more highly
leveraged than some of our competitors; and
o the agreements governing such debt permit our creditors to accelerate
payments if we default or experience a change in the control of our
ownership as set forth in such agreements.
Our ability to make payments on and to refinance such debt depends on our
ability to generate cash in the future. This, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond our control.
We will need to refinance all or a substantial portion of such debt on or before
its maturity. We have a $325.0 million Credit Agreement which expires in August
2001. As of February 29, 2000, we had $212.6 million of unused availability
remaining under the Credit Agreement after allowing for $30.0 million of
outstanding borrowings and $82.4 million for outstanding letters of credit. In
addition, as of December 31, 1999, we had $850.2 million of public notes
outstanding, of which $224.6 million principal amount of senior notes are due in
2002, $400.0 million principal amount of senior subordinated notes are due in
2003 and $225.6 million principal amount of senior notes are due in 2006. We
cannot assure you that we will be able to refinance such debt on acceptable
terms, if at all.
o The explosion at the Gramercy alumina refinery could result in adverse
consequences to us
On July 5, 1999, our Gramercy, Louisiana, alumina refinery was extensively
damaged by an explosion. The cause of the explosion is under investigation by
various governmental agencies. In January 2000, the U.S. Mine Safety and Health
Administration ("MSHA") issued 21 citations in connection with its investigation
of the Gramercy incident. The citations allege, among other things, that certain
aspects of the plant's operations were unsafe and that such mode of operation
contributed to the explosion. Additional civil or criminal fines or penalties
are still possible. To date, no monetary penalty has been proposed by MSHA.
Although we expect that a fine will be levied, we cannot predict the amount of
any such fine(s). It is possible that other civil or criminal fines or penalties
could be levied against us. We previously announced that we disagree with the
substance of the citations and have challenged them. Twenty-four employees were
injured in the incident, several of them severely. We may be liable for claims
relating to the injured employees. The incident has also resulted in thirty-six
class action lawsuits being filed against us alleging, among other things,
property damage and personal injury. The aggregate amount of damages sought in
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ITEM 1. BUSINESS (CONTINUED)
the lawsuits cannot be determined at this time. While we believe our insurance
will cover the majority of these lawsuits and claims relating to the injured
employees, it is anticipated that any civil or criminal fines or penalties will
not be covered by such insurance.
Production at the plant is expected to be completely curtailed until the third
quarter of 2000 when we expect partial production to begin and, based on our
current estimates, we expect full production to be achieved during the first
quarter of 2001 or shortly thereafter. We have received the regulatory permit
required to operate the plant once the facility is ready to resume production.
In addition, shortly after the incident, we declared force majeure with respect
to certain of our sales contracts with customers. We could experience the loss
of one or more customers as a result of the Gramercy incident. Such a loss would
adversely affect the plant's competitive position unless we are able to gain new
customers. We are working with our customers to ensure a continued supply of
alumina by purchasing alumina for our customers in the open market at prices in
excess of the prices we are currently receiving from our customers. We are also
currently purchasing alumina in the open market for a portion of our internal
requirements. While the excess cost of such open market purchases is expected to
be substantially offset by insurance recoveries, if, in the future, we are not
successful in assuring an adequate supply of alumina at a competitive price for
our smelters or if delays in the rebuild were to occur and certain sublimits
within our insurance coverage were deemed to apply, our results could be
negatively affected.
We continue to work with the insurance carriers to maximize the amount of
recoveries and to minimize, to the extent possible, the period of time between
when we expend funds and when we are reimbursed. However, we will likely have to
fund an average of 30 - 60 days of property damage and business interruption
activity, unless some other arrangement is agreed with the insurance carriers,
and such amounts could be significant. If insurance recoveries were to be
delayed or if there were other significant uses of our existing Credit Agreement
capacity, delays in the rebuilding of the Gramercy refinery could occur and
could have a material adverse impact on our liquidity and operating results.
Based on what is known to date, we believe that the financial impact of this
incident (in excess of the $5 million of insurance deductibles and
self-retention provisions, which has already been recorded) will be largely
offset by insurance coverage. However, delays in receiving insurance proceeds
could adversely affect the timing of rebuilding the Gramercy refinery and could
temporarily adversely impact our liquidity and operating results.
o Our labor dispute could adversely affect us
Substantially all of our hourly work force at our Gramercy, Louisiana, alumina
refinery; Mead and Tacoma, Washington aluminum smelters, Trentwood, Washington,
rolling mill; and Newark, Ohio, extrusion facility were covered by a master
labor agreement with the USWA which expired on September 30, 1998. The parties
did not reach an agreement prior to the expiration of the master agreement and
the USWA chose to strike. In January 1999, we declined an offer by the USWA to
have the striking workers return to work at the five plants without a new
agreement. We imposed a lock-out to support our bargaining position and continue
to operate the plants (excluding our Gramercy facility) with salaried employees
and other workers as we have since the strike began.
The labor dispute with the USWA involves a number of uncertainties, including
the ultimate cost of a settlement with the USWA and the resolution of the USWA's
appeal of a ruling by the Oakland, California, regional office of the National
Labor Relations Board (the "NLRB") that was favorable to us. Although we are
satisfied with the productivity improvements achieved by the temporary work
force at these plants and although turnover rates have declined significantly
since the beginning of the dispute, there can be no assurance about our ability
to retain and motivate such a work force for an indefinite period.
Since the beginning of the dispute, we have held periodic but unsuccessful talks
with the USWA to seek a new labor agreement. Our proposal to the union has
encompassed wage and benefit increases in exchange for productivity
improvements. We believe such a proposal would result in a significant net
reduction in operating costs for the affected plants compared to pre-strike
levels. However, upon settlement, our earnings may reflect a one-time charge for
certain costs associated with the new labor agreement. There can be no assurance
that this proposal will be accepted.
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ITEM 1. BUSINESS (CONTINUED)
In July 1999, the Oakland, California regional office of the NLRB dismissed the
USWA's allegations of unfair labor practices against the Company. In September
1999, the union filed an appeal of this ruling with the NLRB general counsel's
office in Washington, D.C. If the original decision were to be reversed, the
matter would be referred to an administrative judge for a hearing whose outcome
would be subject to additional appeal either by the USWA or the Company. This
process could take months or years. There can be no certainty that the original
NLRB decision will be upheld. If these proceedings eventually resulted in a
definitive ruling against us, we could be obligated to provide back pay to USWA
members at the five plants. The amount of such back pay could be significant.
Back pay, if any, would not cover the period prior to the USWA's January 1999
offer to return to work.
The USWA has publicly stated that it is conducting a corporate campaign against
us. Such campaigns are often conducted by unions during a labor dispute and are
designed to bring public pressure to bear on a company in the belief that such
pressure will expedite the settlement of the dispute. As part of its corporate
campaign against us, the USWA has engaged in a number of activities, including
contacting our customers, suppliers, members of the investment community,
clergymen, and various public agencies with whom we have ongoing relationships.
Although such efforts on the part of the USWA have generated publicity in the
news media, we believe that they have had little or no material impact on our
operations. We do not know if the corporate campaign will continue or, if so,
how long it might continue, or what specific actions the USWA may take. We do
not know if such efforts may have a material impact on our operations in the
future.
o The asbestos-related lawsuits against us could continue to increase and could
adversely impact our financial position
We are a defendant in numerous lawsuits in which the plaintiffs allege that they
have injuries caused by exposure to asbestos during, and as a result of, their
employment or association with us, or exposure to products containing asbestos
produced or sold by us. The lawsuits generally relate to products we sold twenty
or more years ago. On December 31, 1999, there were 100,000 claims pending,
compared with 86,400 claims at December 31, 1998. We have reached agreements
under which we expect to settle approximately 31,900 of the claims pending on
December 31, 1999 over an extended period.
Our December 31, 1999, balance sheet includes a liability for estimated
asbestos-related costs of $387.8 million. We cannot assure you that this
liability will not increase in the future. In determining the amount of the
liability, we have only included estimates for the cost of claims for a ten year
period through 2009 because we do not have a reasonable basis for estimating
costs beyond that period. However, we expect that these costs may continue
beyond 2009 and that they could be substantial.
We believe we have insurance coverage for a substantial portion of such
asbestos-related costs. Accordingly, our December 31, 1999, balance sheet
incudes a long term receivable for estimated insurance recoveries of $315.5
million.
As a result of the net increases in our estimates for such asbestos-related
liabilities and receivables during 1999, we recorded pre- tax charges of $53.2
million during the year ended December 31, 1999.
Prior to insurance recoveries, we estimate that our annual cash payments for
asbestos-related costs will be approximately $75.0 - $85.0 million for each of
the years 2000 through 2002, approximately $35.0 - $55.0 million for each of the
years 2003 and 2004, and a total of $58.0 million beyond 2004. We believe that
we will recover a substantial portion of these payments from insurance, but
cannot assure you that we will receive substantial insurance payments or that
the timing of such payments will occur in the year we are required to make the
payments. However, we have reached preliminary agreements with certain insurance
carriers under which we expect to collect a substantial portion of our
anticipated 2000 asbestos-related payments. However, delays in receiving these
or future repayments would have an adverse impact on our liquidity.
We continue to monitor claims activity, the status of lawsuits, legislative
developments and other factors. We cannot assure you that our estimates of
liabilities and recoveries will not change in the future. We also cannot assure
you that the amounts related to future asbestos-related claims will not exceed
our aggregate insurance coverage.
o We have recently experienced net losses
We reported a net loss of $52.4 million for the year ended December 31, 1999.
There can be no assurance that we will operate profitability in future periods.
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ITEM 1. BUSINESS (CONTINUED)
o We operate in a highly competitive industry
The production of alumina, primary and fabricated aluminum products is highly
competitive. There are numerous companies who operate in the aluminum industry.
Certain of our competitors are substantially larger, have greater financial
resources than we do and may have other strategic advantages.
o The operation of our smelters depends on obtaining reliable and affordable
electric power
The process of converting alumina into aluminum requires significant amounts of
electric power. The cost of electric power is an important production cost of
our aluminum smelters. We have smelters located in Mead and Tacoma, Washington,
Ghana, and Wales, the United Kingdom.
Pacific Northwest
o We purchase electric power for the Mead and Tacoma, Washington, smelters
from the Bonneville Power Administration ("BPA"), which supplies
approximately half of the electric power for the two plants, and from other
suppliers. The power contracts with the BPA expire in September 2001, and
the power contracts with other suppliers expire at various times though
September 2001.
The BPA is engaged in the process of determining the allocation and price
of electric power to its customers for the period October 2001 to September
2006. We believe that adequate electric power will be available during that
period, from the BPA and from other suppliers, for the operation of our
smelters in Washington. The price of power purchased from the BPA could be
significantly greater than the current price for such power, which would
have an adverse effect on the profitability of such facilities.
Ghana
o Electric power for the 90%-owned Valco smelter is produced by hydroelectric
generators operated by the Volta River Authority ("VRA"). The delivery of
electric power to the smelter is subject to interruption periodically
because of drought and other factors beyond the control of Valco. Electric
power is supplied under a contract with the VRA which expires in 2017. The
power contract indexes a portion of the price of power to the market price
of primary aluminum, and provides for a review and adjustment of the base
power rate and the price index every five years. In December 1999, Valco
and the VRA reached an agreement that provides for sufficient power to
operate four of Valco's five potlines in 2000 and 2001. In addition, the
agreement provides a framework for resolving longer-term issues. This
framework, among other things, is anticipated to result in an improvement
in the reliability of Valco's long-term power supply and an increase in the
price of power beginning in 2000, which increase will be partially offset
in 2000 and 2001 by compensation Valco will receive from the VRA with
respect to the provision of power in 1998 and 1999. However, we cannot
provide assurance that in the long-term Valco will continue to be
allocated sufficient power to operate at the desired operating levels past
2001 or that such power will be available at an affordable price.
Wales
o Electric power for the 49%-owned Anglesey smelter is supplied under a
contract which expires in 2001. Anglesey expects to enter into a new power
agreement during the first quarter of 2000 under which the existing
contract would terminate early, in April 2000, and the new agreement would
replace it for the period April 2000 through September 2005. We expect that
the price of power under the new agreement will be significantly greater
than the price under the present contract, which would have an adverse
effect on our financial results associated with the Anglesey smelter.
However, Anglesey has ongoing initiatives to offset the impact of increased
energy costs through cost reduction and revenue enhancement initiatives by
2001. However, we cannot assure you that these initiatives will be
successful in fully offsetting such increased energy costs.
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ITEM 1. BUSINESS (CONTINUED)
We cannot provide assurance that electric power at affordable prices will be
available in the future for these smelters.
o Our current or past operations subject us to environmental compliance,
clean-up and damage claims that may be costly
The operations of our facilities are regulated by a wide variety of
international, federal, state and local environmental laws. These environmental
laws regulate, among other things:
o air and water emissions and discharges;
o the generation, storage, treatment, transportation and disposal of solid
and hazardous waste; and
o the release of hazardous or toxic substances, pollutants and contaminants
into the environment.
Compliance with these environmental laws is costly. While legislative,
regulatory and economic uncertainties make it difficult for us to project future
spending for these purposes, we currently anticipate that in the 2000 - 2001
period our environmental capital spending will be approximately $13.0 million
per year and that our operating costs will include pollution control costs
totaling approximately $35.0 million per year. However, subsequent changes in
environmental laws may change the way we must operate and may force us to spend
more then we currently project.
Additionally, our current and former operations can subject us to fines or
penalties for alleged breaches of environmental laws and to other actions
seeking clean-up or other remedies under these environmental laws. We also may
be subject to damages related to alleged injuries to health or to the
environment, including claims with respect to certain waste disposal sites and
the clean-up of sites currently or formerly used by us.
Currently, we are subject to certain lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"). We, along
with certain other companies, have been named as a Potentially Responsible Party
for clean-up costs at certain third-party sites listed on the National
Priorities List under CERCLA. As a result, we may be exposed not only to our
assessed share of clean-up but also the costs of others if they are unable to
pay. Additionally, our Mead, Washington, facility has been listed on the
National Priorities List under CERCLA and we will be required to implement one
of several acceptable remedial options suggested by the regulatory authorities.
In response to environmental concerns, we have established environmental
accruals representing our estimate of the costs we reasonably expect we will
incur in connection with these matters. Our estimates are based on presently
enacted laws, existing technology, and our assessment of the likely remediation
to be performed in each case. At December 31, 1999, the balance of our accruals,
which are primarily included in our long-term liabilities, was $48.9 million. We
estimate that the annual costs charged to these environmental accruals will be
approximately $3.0 million to $9.0 million per year for the years 2000 through
2004 and an aggregate of approximately $23.0 million thereafter. However, we
cannot assure you that our actual costs will not exceed our current estimates.
As additional facts develop, definitive clean-up plans are established, the
necessary regulatory approvals are received, or other technologies are
developed, changes in these and other factors may result in our costs exceeding
our current expectations. We believe that it is reasonably possible that costs
associated with these environmental matters may exceed current accruals by
amounts that could range, in the aggregate, up to an estimated $30.0 million. As
the resolution of these matters is subject to further regulatory review and
approval, no 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, we are currently working to resolve certain of these matters.
o We are subject to political and regulatory risks in a number of countries
We operate facilities in the U.S. and in a number of other countries, including
Australia, Canada, Ghana, Jamaica, and the United Kingdom. While we believe our
relationships in the countries in which it operates are generally satisfactory,
we cannot assure you that future country developments or governmental actions
will not adversely affect our operations particularly or the aluminum industry
generally. Among the risks inherent in our operations are unexpected changes in
regulatory requirements, unfavorable legal rulings, new or increased taxes and
levies, and new or increased import or export restrictions. Our operations
outside of the
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ITEM 1. BUSINESS (CONTINUED)
U.S. are subject to a number of additional risks, including but not limited to
currency exchange rate fluctuations, currency restrictions, and nationalization
of assets.
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 Operations" 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, other than the Gramercy, Louisiana alumina refinery (see
Item 1 "- Incident at Gramercy Facility"), 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. The
Company believes that its plants are cost competitive on an international basis.
The Company's obligations under the Credit Agreement are secured by, among other
things, mortgages on its major domestic plants (other than the Gramercy alumina
refinery). See Note 5 of Notes to Consolidated Financial Statements for further
discussion.
ITEM 3. LEGAL PROCEEDINGS
This section contains statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. See
Item 1 of this Report for cautionary information with respect to such
forward-looking statements.
Gramercy Litigation
On July 5, 1999, the Company's Gramercy, Louisiana, alumina refinery was
extensively damaged by an explosion in the digestion area of the plant. The
cause of the accident is under investigation by the Company and various
governmental agencies. In January 2000, MSHA issued 21 citations in connection
with its investigation of the Gramercy incident. The citations allege, among
other things, that certain aspects of the plant's operations were unsafe and
that such mode of operation contributed to the explosion. To date, no monetary
penalty has been proposed by MSHA. Although the Company expects that a fine will
be levied, it cannot predict the amount of any such fine(s). It is possible that
other civil or criminal fines or penalties could be levied against the Company.
The Company has previously announced that it disagrees with the substance of the
citations and has challenged them.
Twenty-four employees were injured in the incident, several of them severely.
The Company may be liable for claims relating to the injured employees. The
incident has also resulted in thirty-six lawsuits, most of which were styled as
class action suits, being filed against the Company on behalf of more than
13,000 claimants. The lawsuits allege, among other things, property damage and
personal injury. Such lawsuits were initially filed, on dates ranging from July
5, 1999, through December 26, 1999, in the Fortieth Judicial District Court for
the Parish of St. John the Baptist, State of Louisiana, or in the Twenty-Third
Judicial District Court for the Parish of St. James, State of Louisiana, and
such lawsuits have been removed to the United Stated District Court, Eastern
District of Louisiana, and are consolidated under the caption Carl Bell, et al.
v. Kaiser Aluminum & Chemical Corporation, No. 99-2078, et seq. Plaintiffs have
filed motions to remand the actions to state court, and the federal court has
taken the matter under advisement. The cases are currently stayed pending
mediation between the parties. The aggregate amount of damages sought in the
lawsuits cannot be determined at this time. See Note 2 of Notes to Consolidated
Financial Statements.
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 lawsuits
generally relate to products the Company has not manufactured for at least 20
years. The portion of Note 11 of Notes to Consolidated Financial Statements
under the heading "Asbestos Contingencies" is incorporated herein by reference.
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Labor Matters
In connection with the USWA strike and subsequent lock-out by the Company,
certain allegations of unfair labor practices ("ULPs") were filed by the USWA
with the National Labor Relations Board ("NLRB"). In July 1999, the Oakland,
California, regional office of the NLRB dismissed all material charges filed
against the Company. In September 1999, the union filed an appeal of this ruling
with the NLRB general counsel's office in Washington, D.C. The portion of Note
11 of Notes to Consolidated Financial Statements under the heading "Labor
Matters" is incorporated herein by reference.
Other Matters
Various other lawsuits and claims are pending against the Company. 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 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 11 of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders of the Company during
the fourth quarter of 1999.
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 5 of Notes to
Consolidated Financial Statements under the heading "Debt Covenants and
Restrictions" at page 42 of this Report is 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 Credit Agreement (Exhibits 4.1 through 4.35 to the
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 4.35 to this
Report, Note 5 of Notes to Consolidated Financial Statements in this Report, and
the information under the heading, "Financing Activities and Liquidity" at page
26 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 1 of this Report, to the table at pages 18 - 19 of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, to Note 1 of Notes to Consolidated Financial Statements, and to The
Five-Year Financial Data on pages 61 - 62 in this Report.
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company operates in all principal aspects of the aluminum industry through
the following business segments: Bauxite and alumina, Primary aluminum,
Flat-rolled products and Engineered products. The Company uses a portion of its
bauxite, alumina, and primary aluminum production for additional processing at
certain of its downstream facilities. Intersegment transfers are valued at
estimated market prices. The table below provides selected operational and
financial information on a consolidated basis with respect to the Company for
the years ended December 31, 1999, 1998, and 1997. The following data should be
read in conjunction with the Company's consolidated financial statements and the
notes thereto, contained elsewhere herein. See Note 13 of Notes to Consolidated
Financial Statements for further information regarding segments. (All references
to tons refer to metric tons of 2,204.6 pounds.)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
(In millions of dollars, except shipments and prices) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shipments: (000 tons)
Alumina
Third Party 2,093.9(1) 2,250.0 1,929.8
Intersegment 757.3(1) 750.7 968.0
------------ ------------ ------------
Total Alumina 2,851.2 3,000.7 2,897.8
------------ ------------ ------------
Primary Aluminum
Third Party 295.6 263.2 327.9
Intersegment 171.2 162.8 164.2
------------ ------------ ------------
Total Primary Aluminum 466.8 426.0 492.1
------------ ------------ ------------
Flat-Rolled Products 217.9 235.6 247.9
------------ ------------ ------------
Engineered Products 171.1 169.4 152.1
------------ ------------ ------------
Average Realized Third Party Sales Price: (2)
Alumina (per ton) $ 177 $ 197 $ 198
Primary Aluminum (per pound) $ .67 $ .71 $ .75
Net Sales:
Bauxite and Alumina
Third Party (includes net sales of bauxite) $ 397.9(1) $ 472.7 $ 411.7
Intersegment 129.0(1) 135.8 201.7
------------ ------------ ------------
Total Bauxite & Alumina 526.9 608.5 613.4
------------ ------------ ------------
Primary Aluminum
Third Party 439.1 409.8 543.4
Intersegment 240.6 233.5 273.8
------------ ------------ ------------
Total Primary Aluminum 679.7 643.3 817.2
------------ ------------ ------------
Flat-Rolled Products 576.2 714.6 743.3
Engineered Products 542.6 581.3 581.0
Minority Interests 88.5 78.0 93.8
Eliminations (369.6) (369.3) (475.5)
------------ ------------ ------------
Total Net Sales $ 2,044.3 $ 2,256.4 $ 2,373.2
============ ============ ============
Operating Income (Loss):
Bauxite & Alumina $ (6.0)(3) $ 42.0(7) $ 54.2
Primary Aluminum 8.0 49.9(7) 148.3
Flat-Rolled Products 17.1 70.8(7) 28.2(8)
Engineered Products 38.6 47.5(7) 42.3(8)
Micromill (30.7)(5) (63.4)(5) (24.5)
Eliminations 6.9 8.9 (5.9)
Corporate (62.5) (64.7) (72.7)
------------ ------------ ------------
Total Operating Income (Loss) $ (28.6) $ 91.0 $ 169.9
============ ============ ============
Net Income (Loss) $ (52.4)(6) $ 2.7 $ 52.1
============ ============ ============
Capital Expenditures $ 68.4 $ 77.6 $ 128.5
============ ============ ============
</TABLE>
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(1) Net sales for the year ended December 31, 1999, included approximately 264
tons of alumina purchased from third parties and resold to certain
unaffiliated customers and 131 tons of alumina purchased from third
parties and transferred to the Company's primary aluminum business unit.
(2) Average realized prices for the Company's Flat-rolled products and
Engineered products segments are not presented as such prices are subject
to fluctuations due to changes in product mix. Average realized third
party sales prices for alumina and primary aluminum include the impact of
hedging activities.
(3) Operating income (loss) for the year ended December 31, 1999, included
charges of $5.0 related to insurance deductibles and self-insurance
provisions and estimated business interruption insurance recoveries
totaling $41.0. Additionally, depreciation was suspended for the Gramercy,
Louisiana alumina refinery for the last six months of 1999, as a result of
the July 5, 1999, incident. Depreciation expense for the Gramercy refinery
for the six months ended June 30, 1999, was approximately $6.0.
(4) Operating income (loss) for the year ended December 31, 1999, included
potline restart costs of $12.8.
(5) Operating income (loss) for the years ended December 31, 1999 and 1998
included non-cash charges of $19.1 and $45.0, respectively, related to the
impairment of the Company's Micromill assets.
(6) Net income (loss) for the year ended December 31, 1999, included a pre-tax
gain of $85.0 on involuntary conversion at Gramercy facility, which amount
represents the difference between the minimum expected property damage
reimbursement amount for the Gramercy alumina refinery and the net
carrying value of the damaged property.
(7) Operating income (loss) for the year ended December 31, 1998, for the
Bauxite and alumina, Primary aluminum, Flat-rolled products and Engineered
products segments included unfavorable strike-related impacts of
approximately $11.0, $29.0, $16.0, and $4.0, respectively.
(7) Operating income (loss) for the year ended December 31, 1997, included
pre-tax charges of $2.6, $12.5 and $4.6 related to restructuring of
operations for the Flat-rolled products, Engineered products and Corporate
segments, respectively.
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 "Overview,"
"Results of Operations," "Liquidity and Capital Resources" and "Other Matters").
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. 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.
OVERVIEW
Market-related Factors
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 the
Company's hedging strategies. Primary aluminum prices have historically been
subject to significant cyclical price fluctuations. See Notes 1 and 12 of Notes
to Consolidated Financial Statements for a discussion of the Company's hedging
activities.
Changes in global, regional, or country-specific economic conditions can have a
significant impact on overall demand for aluminum-intensive fabricated products
in the transportation, distribution, and packaging markets. Such changes in
demand can directly affect the Company's earnings by impacting the overall
volume and mix of such products sold. To the extent that these end-use markets
weaken, demand can also diminish for what the Company sometimes refers to as the
"upstream" products: alumina and primary aluminum.
During 1999, the Average Midwest United States transaction price ("AMT price")
per pound of primary aluminum declined to a low of approximately $.57 per pound
in February 1999 and then began a steady increase ending 1999 at $.79 per pound.
During 1998, the AMT price per pound of primary aluminum experienced a steady
decline during the year, beginning the year in the $.70 to $.75 range and ending
the year in the low $.60 range. During 1997, the AMT price remained in the $.75
to $.80 price range for the first eleven months before declining to the low $.70
range in December.
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Subsequent to December 31, 1999, the AMT price continued to rise. At January 28,
2000, the AMT price was approximately $.84 per pound.
Incident at Gramercy Facility
On July 5, 1999, the Company's Gramercy, Louisiana alumina refinery was
extensively damaged by an explosion in the digestion area of the plant.
Twenty-four employees were injured in the incident, several of them severely. As
a result of the incident, alumina production at the facility was completely
curtailed. Production at the plant is currently expected to remain completely
curtailed until the third quarter of 2000 when the Company expects to begin
partial production. Based on current estimates, full production is expected to
be achieved during the first quarter of 2001 or shortly thereafter. The Company
has received the regulatory permit required to operate the plant once the
facility is ready to resume production.
The cause of the incident is under investigation by the Company and governmental
agencies. In January 2000, the U.S. Mine Safety and Health Administration
("MSHA") issued 21 citations in connection with its investigation of the
incident. The citations allege, among other things, that certain aspects of the
plant's operations were unsafe and that such mode of operation contributed to
the explosion. To date, no monetary penalty has been proposed by MSHA. Although
the Company expects that a fine will be levied, the Company cannot predict the
amount of any such fine(s). It is possible that other civil or criminal fines or
penalties could be levied against the Company. The Company has previously
announced that it disagrees with the substance of the citations and has
challenged them. However, as more fully explained below, based on what is known
to date and discussions with the Company's advisors, the Company believes that
the financial impact of this incident (in excess of insurance deductibles and
self-retention provisions) will be largely offset by insurance coverage.
Deductibles and self-retention provisions under the insurance coverage for the
incident total $5.0 million, which amounts were charged to Cost of products sold
in 1999.
The Company's insurance policies provide that the Company will be reimbursed for
the costs of repairing or rebuilding the damaged portion of the facility using
new materials of like kind and quality with no deduction for depreciation. Based
on discussions with the insurance carriers and their representatives and third
party engineering reports, the Company recorded a pretax gain of $85.0,
representing the difference between the minimum expected property damage
reimbursement amount and the net carrying value of the damaged property of
$15.0. The receivable attributable to the minimum expected property damage
reimbursement has been classified as a long-term item in Other assets, despite
the fact that substantially all such amounts are expected to be spent during
2000, as such proceeds will be invested in property, plant and equipment. The
overall impact of recognizing the gain will be a significant increase in
stockholders' equity and an increase in deprecation expense in future years once
production is restored.
The Gramercy facility has incurred incremental costs for clean-up and other
activities during 1999 and will continue to incur such costs in 2000. These
clean-up and site preparation activities have been offset by accruals of
approximately $14.0 million for estimated insurance recoveries.
The Company's insurance policies provide for the reimbursement of specified
continuing expenses incurred during the interruption period plus lost profits
(or less expected losses) plus other expenses incurred as a result of the
incident. The Company had recorded expected business interruption insurance
recoveries totaling $19.0 million and $41.0 million in the quarter and year
ended December 31, 1999, as a reduction of Cost of products sold, which amounts
substantially offset actual expenses incurred during these periods. However, the
business interruption insurance amounts recorded represent estimates of the
Company's business interruption coverage, based on preliminary discussions with
the insurance carriers and their representatives, and are, therefore, subject to
change. The Company currently believes that additional amounts may be
recoverable. Any adjustments to the recorded amounts of expected recovery will
be reflected from time to time as such amounts are agreed to by the insurance
carriers. The amounts of such adjustments could be material.
Since production has been curtailed at the Gramercy facility, the Company has,
for the time being, suspended depreciation of the facility. Depreciation expense
for the first six months of 1999 was approximately $6.0 million. However, the
Company believes that the depreciation expense that would have been incurred
may, at least in part, be recoverable under its business interruption insurance
coverage.
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The incident has also resulted in thirty-six class action lawsuits being filed
against the Company alleging, among other things, property damage and personal
injury. In addition, a claim for alleged business interruption losses has been
made by a neighboring business. The aggregate amount of damages sought in the
lawsuits and other claims cannot be determined at this time; however, the
Company does not currently believe the damages will exceed the amount of
coverage under its liability policies.
Claims relating to all of the injured employees are expected to be covered under
the Company's workers' compensation or liability policies. However, the
aggregate amount of workers' compensation claims cannot be determined at this
time and it is possible that such claims could exceed the Company's coverage
limitations. While it is presently impossible to determine the aggregate amount
of claims that may be incurred, or whether they will exceed the Company's
coverage limitations, the Company currently believes that any amount in excess
of the coverage limitations will not have a material effect on the Company's
consolidated financial position or liquidity. However, it is possible that as
additional facts become available, additional charges may be required and such
charges could be material to the period in which they are recorded.
Labor Matters
Substantially all of the Company's hourly workforce at the Gramercy, Louisiana,
alumina refinery, Mead and Tacoma, Washington, aluminum smelters, Trentwood,
Washington, rolling mill, and Newark, Ohio, extrusion facility were covered by a
master labor agreement with the United Steelworkers of America (the "USWA")
which expired on September 30, 1998. The parties did not reach an agreement
prior to the expiration of the master agreement and the USWA chose to strike. In
January 1999, the Company declined an offer by the USWA to have the striking
workers return to work at the five plants without a new agreement. The Company
imposed a lock-out to support its bargaining position and continues to operate
the plants with salaried employees and other workers as it has since the strike
began.
As a result of the USWA strike, the Company temporarily curtailed three out of a
total of eleven potlines at its Mead and Tacoma, Washington, aluminum smelters
at September 30, 1998 (representing approximately 70,000 tons per year of
production capacity out of a total combined production capacity of 273,000 tons
per year at the facilities). Restarts of the two Mead potlines were completed
during mid-1999. While a portion of the curtailed potline at Tacoma has been
restarted to meet internal requirements, the timing for a complete restart of
the potline (representing approximately 10,000 tons of idle production capacity)
has yet to be determined and will depend upon market conditions and other
factors.
While the Company initially experienced an adverse strike-related impact on its
profitability in the fourth quarter of 1998, the Company currently believes that
its operations at the affected facilities have been substantially stabilized and
will be able to run at, or near, full capacity, and that the incremental costs
associated with operating the affected plants during the dispute were virtually
eliminated as of January 1999 (excluding the impacts of the restart costs
discussed above and the effect of market factors such as the continued
market-related curtailment at the Tacoma smelter). However, no assurances can be
given that the Company's efforts to run the plants on a sustained basis, without
a significant business interruption or material adverse impact on its operating
results, will be successful.
The Company and the USWA continue to communicate. The objective of the Company
has been, and continues to be, to negotiate a fair labor contract that is
consistent with its business strategy and the commercial realities of the
marketplace.
Strategic Initiatives
The Company's strategy is to improve its financial results by: increasing the
competitiveness of its existing plants; continuing its cost reduction
initiatives; adding assets to businesses it expects to grow; pursuing
divestitures of its non-core businesses; and strengthening its financial
position.
In addition to working to improve the performance of its existing assets, the
Company has devoted significant efforts analyzing its existing asset portfolio
with the intent of focusing its efforts and capital in sectors of the industry
that are considered most attractive, and in which the Company believes it is
well positioned to capture value. The initial steps of this process resulted in
the June 1997 acquisition of the Bellwood extrusion facility, the May 1997
formation of AKW L.P. ("AKW"), the rationalization of certain of the Company's
engineered products operations and the Company's investment to expand its
production capacity for heat treat flat-rolled products at its Trentwood,
Washington, rolling mill.
This process has continued in 1999. In February 1999, the Company completed the
acquisition of the remaining 45% interest in Kaiser LaRoche Hydrate Partners
("KLHP"), an alumina marketing venture, from its joint venture partner for a
cash purchase price of approximately $10.0 million. Additionally, in April 1999,
the Company completed the sale of its 50% interest in AKW,
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
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to its partner for $70.4 million. The strategic analysis process also resulted
in the Company's decision in the latter part of 1998 to seek a strategic partner
for the further development and deployment of its Micromill(TM) technology and
to the Company's later agreement in January 2000 to sell the Micromill assets
and technology, for a nominal payment at closing and future payments based on
subsequent performance and profitability of the Micromill technology.
Another area of emphasis has been a continuing focus on managing the Company's
legacy liabilities. The Company believes that it has insurance coverage
available to recover certain incurred and future environmental costs and a
substantial portion of its asbestos-related costs and is actively pursing claims
in this regard. During 1998, the Company received recoveries totaling
approximately $35.0 million from certain of its insurers related to current and
future environmental claims. The timing and amount of future recoveries of
asbestos-related claims from insurance carriers remain a major priority of the
Company, but will depend on the pace of claims review and processing by such
carriers and the resolution of any disputes regarding coverage under the
insurance policies. However, during 1999, the Company reached preliminary
agreements under which it expects to collect a substantial portion of its
expected asbestos-related payments from certain insurance carriers in 2000.
Additional portfolio analysis and initiatives are continuing.
Valco Operating Level
In 1999, the power allocation for the Company's 90%-owned Volta Aluminium
Company Limited ("Valco") smelter in Ghana was sufficient for the smelter to
operate three out of a total of five potlines as of January 1. Each of Valco's
potlines is capable of producing approximately 40,000 tons per year of primary
aluminum. However, production was well below this level in the first half of the
year due to the timing of restarts for the two incremental potlines.
Consequently, to compensate for the low production in the first half of the
year, Valco operated above an equivalent three-potline annual rate during the
last six months of 1999. At December 31, 1999, Valco was operating four
potlines.
Valco operated only one potline during most of 1998. However, Valco earned
compensation in 1998 (in the form of energy credits to be utilized over the last
half of 1998 and during 1999) from the Volta River Authority ("VRA") in lieu of
the power necessary to run two of the potlines that were curtailed during 1998.
The compensation substantially mitigated the financial impact in 1998 of the
curtailment of such lines. However, Valco did not receive any compensation from
the VRA for one additional potline which was curtailed in January 1998.
Under a December 1999 agreement between Valco and the VRA, Valco's power
allocation for 2000 and 2001 will be sufficient for the smelter to operate four
of its five potlines. Valco and the VRA also reached an agreement in December
1999 that provides a framework for resolving longer-term issues. This framework,
among other things, is anticipated to result in an improvement in the
reliability of Valco's long-term power supply and an increase in the price for
power beginning in 2000. The increase in the price for power will be partially
offset by net payments of approximately $13 million Valco will receive from the
VRA over the period 2000 to 2001 with respect to the provision of power in 1998
and 1999.
Flat-Rolled Products
In December 1999, the Company announced that its flat-rolled products business
unit expects to accelerate its product mix shift toward higher value added
product lines such as heat-treat, beverage can lid and tab stock, automotive and
other niche businesses, and away from beverage can body stock. The initial steps
of this process should be completed by early 2000, at which point the Company
will assess related issues such as employment levels at the Trentwood facility.
Although the shift in product mix is expected to have a favorable impact on the
Company's results and financial position over the long term, it is possible that
such a product mix shift may result in certain non-recurring charges that would
have an adverse impact on the Company's near term results.
RESULTS OF OPERATIONS
1999 AS COMPARED TO 1998
Summary - The Company reported a net loss of $52.4 million for 1999 compared to
net income of $2.7 million for 1998. Net sales in 1999 totaled $2,044.3 million
compared to $2,256.4 million in 1998.
Net loss for 1999 included a non-cash pre-tax charge of $19.1 million to reduce
the carrying value of the Company's Micromill assets, pre-tax charges of $32.8
million to reflect mark-to-market adjustments on certain primary aluminum
hedging transactions and non-cash pre-tax charges of $53.2 million for
asbestos-related claims. The 1999 charges were offset by a gain on involuntary
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conversion at Gramercy facility of $85.0 million, a pre-tax gain of $50.5
million on the sale of the Company's 50% interests in AKW and a non-cash tax
benefit of $4.0 million resulting from the resolution of certain tax matters.
Net income for 1998 included approximately $60.0 million of pre-tax incremental
expense and the earnings impact of lost volume associated with the strike by
members of the USWA (more fully discussed above), a non-cash pre-tax charge of
$45.0 million to reduce the carrying value of the Company's Micromill assets,
(more fully discussed above) and a non-cash tax benefit of $8.3 million
resulting from the resolution of certain tax matters.
Bauxite and Alumina - Third party net sales were down 16% in 1999 as compared to
1998 as a result of a 10% decline in third party average realized prices and a
7% decrease in third party alumina shipments. The decline in the average
realized prices in 1999 as compared to 1998 was primarily attributable to a
decrease in net gains from the Company's hedging activities. The decrease in
year-over-year shipments was primarily the net effect of the Gramercy incident
after considering the 264,000 tons of alumina purchased by the Company from
third parties to fulfill third party sales contract.
Intersegment net sales for 1999 declined 5% as compared to 1998. The decline was
primarily due to a 6% decline in the intersegment average realized price, offset
in part by a 1% increase in intersegment shipments, resulting from potline
restarts at Valco and at the Company's Washington smelters. Intersegment net
sales include approximately 131,000 tons of alumina purchased from third-parties
and transferred to the primary aluminum business unit.
Segment operating income was down in 1999 as compared to 1998 primarily as a
result of the price and volume factors discussed above. Segment operating income
for 1999 was also adversely affected by the $5.0 million cost of insurance
deductibles and self- retention provisions related to the Gramercy incident and
was favorably impacted by the fact that depreciation on the Gramercy facility
was suspended in July 1999. Segment operating income for 1998 included the
adverse impact of approximately $11.0 million of incremental strike-related
costs.
Primary Aluminum - Third party net sales of primary aluminum were up 7% as
compared to 1998 as a result of a 12% increase in third party shipments offset
by a 6% decrease in the average realized third party sales prices. The increase
in shipments was primarily due to the favorable impact of Valco operating three
potlines in 1999 as compared to one potline in 1998. While average primary
aluminum market prices for 1999 were approximately the same as 1998, the Company
experienced a reduction in third party average realized prices as a result of a
decrease in net gains from the Company hedging activities.
Intersegment net sales for 1999 were up 3% as compared to 1998. Intersegment
shipments increased 5% due to the timing of shipments to the Company's
fabricated business units while intersegment average realized prices were down
2%.
Segment operating income for 1999 was down compared to 1998. The most
significant component of this decline was the reduction in the average realized
prices discussed above. Results for 1999 were also adversely impacted by costs
of approximately $1.3 million and $12.8 million for the fourth quarter and the
year, respectively, associated with preparing and restarting potlines at Valco
and the Washington smelters. The favorable impact of Valco operating at a higher
rate in 1999 (as compared to 1998) was substantially offset by the fact that
Valco earned mitigating compensation of approximately $29.0 million in 1998 for
two of its curtailed potlines. Segment operating income for 1998 included the
adverse impact of approximately $29.0 million of incremental strike-related
costs and the favorable impact of the previously mentioned compensation earned
by Valco as a result of the curtailment of two of its potlines.
Flat-Rolled Products - Net sales of flat-rolled products for 1999 declined by
19% compared to 1998 as a result of a 13% decline in average realized prices and
an 8% decline in product shipments. The decline in average realized prices
resulted primarily from a shift in product mix (from aerospace products, which
have a higher price and operating margin, to other products) and a reduction in
prices resulting from reduced demand for heat treat products. The reduction in
shipments was primarily due to reduced demand in 1999 for aerospace heat treat
products offset, in small part, by increased shipments of general engineered
products.
The decline in 1999 prices and shipments as compared to 1998 was responsible for
the decline in segment operating income for 1999. Segment operating income for
1998 included the adverse impact of approximately $16.0 million of incremental
strike- related costs.
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Engineered Products - Net sales of engineered products for 1999 decreased 7%
compared to 1998 primarily due to an 8% decline in average realized prices.
Product shipments were essentially flat. The decline in the average sales
realized prices in 1999 was attributable to a change in product mix (higher
ground transportation products offset by lower aerospace shipments). While there
was a strong increase in 1999 in the demand for ground transportation products
it was offset by a reduced demand for aerospace products.
Segment operating income for 1999 decreased compared to 1998 as a result of the
factors discussed above as well as the reduced equity in earnings from AKW
(which partnership interests were sold in April 1999). Segment operating income
for 1998 included the adverse impact of approximately $4.0 million of
incremental strike-related costs.
Eliminations - Eliminations of intersegment profits vary from period to period
depending on fluctuations in market prices as well as the amount and timing of
the affected segments' production and sales.
Corporate and Other - Corporate operating expenses represent corporate general
and administrative expenses which are not allocated to the Company's business
segments. Corporate operating expenses for 1999 were lower than 1998 primarily
due to reduced incentive compensation expense resulting from the decline in
operating results.
1998 AS COMPARED TO 1997
Summary - The Company reported net income of $2.7 million for 1998 compared to
net income of $52.1 million for 1997. Net sales in 1998 totaled $2,256.4 million
compared to $2,373.2 million in 1997.
Net income for 1998 included the effect of certain non-recurring items,
including approximately $60.0 million of pre-tax incremental expense and the
earnings impact of lost volume associated with a strike by members of the USWA
(more fully discussed above), a pre-tax non-cash charge of $45.0 million to
reduce the carrying value of the Company's Micromill assets and a non-cash tax
benefit of $8.3 million resulting from the resolution of certain tax matters.
Net income for 1997 included the effect of two essentially offsetting
non-recurring items: a $19.7 million pre-tax restructuring charge and a non-cash
tax benefit of approximately $12.5 million related to the settlement of certain
tax matters.
Bauxite and Alumina - Third party net sales of alumina were up 16% in 1998 as
compared to 1997 primarily due to a 17% increase in third party shipments. The
increase in 1998 third party shipments (and offsetting decrease in 1998
intersegment shipments) resulted from reduced shipments to Valco, due to the
production curtailment more fully discussed above and to a lesser extent, the
fourth quarter strike-related curtailment of three potlines at the Company's
Washington smelters. The average realized price for third party alumina sales
was down only slightly as the allocated net gains from the Company's hedging
activities substantially offset the decline in market prices related to the
Company's primary aluminum-linked customer sales contracts. In addition to being
impacted by the reduced shipments to Valco and the Washington smelters as
discussed above, intersegment sales were adversely affected by a substantial
market-related decline in intersegment average sales prices.
Segment operating income was essentially unchanged, excluding the impact of the
approximate $11.0 million of incremental strike-related costs. The adverse
impact of reduced intersegment realized prices was essentially offset by
improved operating performance resulting from higher production as well as lower
energy costs.
Primary Aluminum - 1998 third party net sales of primary aluminum were down 25%
as compared to 1997 primarily as a result of a 20% reduction in shipments,
caused by the 1998 potline curtailments at Valco and the Washington smelters. A
5% reduction in average realized third party sales prices between 1998 and 1997
(reflecting lower market prices offset, in part, by allocated net gains from the
Company's hedging activities), also adversely impacted third party net sales.
Intersegment net sales were down approximately 15% between 1998 and 1997. While
intersegment shipments were essentially unchanged from the prior year, average
realized prices dropped by 14% reflecting lower market prices for primary
aluminum.
Segment operating income in 1998 was down significantly from 1997. The operating
income impact of the Valco potline curtailments was partially mitigated by the
compensation from the VRA for two of the three curtailed potlines. In addition
to the impact of the one uncompensated potline curtailment at Valco, 1998
results were also negatively affected by the impact of the potline curtailments
at the Company's Washington smelters, reduced average realized prices (primarily
on intersegment sales), and an adverse strike-related impact of approximately
$29.0 million.
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Flat-Rolled Products - Net sales of flat-rolled products decreased by 4% during
1998 as compared to 1997 as a 5% reduction in product shipments was modestly
offset by the price impact of changes in product mix. The mix of product
shipments in 1998 reflects a higher demand for heat treat products, primarily in
the first half of the year, offset by reduced can sheet shipments and an
increased level of tolling, all as compared to 1997.
Segment operating income increased significantly in 1998 primarily as a result
of the increased demand for heat treat products in the first half of 1998 and
improved operating efficiencies. Segment results for 1998 were particularly
strong in light of the unfavorable strike-related impact of approximately $16.0
million. Segment results for 1997 included a non-cash charge recorded in the
second quarter of 1997 in connection with restructuring activities.
Engineered Products - Net sales of engineered products were relatively flat year
to year. An 11% increase in product shipments was effectively offset by
market-related reductions in product prices as well as by the price impact of
changes in product mix. The increase in year-over-year shipments is in part due
to the impact of the Company's ownership of the Bellwood extrusion facility in
Richmond, Virginia, for all of 1998 versus only half of 1997. This was, in part,
offset by a decline in year-over-year sales, attributable to the AKW wheels
joint venture formation in May 1997 and reduced shipments caused by labor
difficulties at two major customers.
Segment operating income declined by approximately 6% in 1998 as compared to
1997, excluding the 1997 pre-tax net charge related to restructuring of
operations and approximately $4.0 million of adverse incremental strike-related
impact in 1998, as a result of the market impact of the previously mentioned
labor difficulties at two major customers and due to an overall softening in
demand, particularly in the second half of the year.
Eliminations - Eliminations of intersegment profit vary from period to period
depending on fluctuations in market prices as well as the amount and timing of
the affected segments' production and sales.
Corporate and Other - Corporate operating expenses represent corporate general
and administrative expenses which are not allocated to the Company's business
segments. Excluding the 1997 pre-tax charge associated with the Company's
restructuring of operations, corporate expenses were lower in 1998 than in 1997
primarily as a result of lower consulting and other costs associated with the
Company's ongoing profit improvement program and portfolio review initiatives.
LIQUIDITY AND CAPITAL RESOURCES
See Note 5 of Notes to Consolidated Financial Statements for a listing of the
Company's indebtedness and information concerning certain restrictive debt
covenants.
Operating Activities
In 1999, operating activities used $90.1 of cash. This amount compares with 1998
and 1997 when operating activities provided cash of $171.2 and $45.6 million,
respectively. The decrease in cash flows from operating activities between 1999
and 1998 was due primarily to the impact of 1999 results, excluding non-cash
charges, and an increased investment in working capital (excluding cash). The
increase in cash flows from operating activities between 1998 and 1997 was due
primarily to a reduced investment in working capital (excluding cash), the
receipt of $35.0 million of environmental insurance recoveries and the impact of
1998 results (excluding non-cash charges).
Investing Activities
Total consolidated capital expenditures were $68.4, $77.6, and $128.5 million in
1999, 1998, and 1997, respectively (of which $4.8, $7.2, and $6.6 million were
funded by the minority partners in certain foreign joint ventures). Except for
the purchase in 1999 of the remaining 45% interest in KLHP for approximately
$10.0 million, capital expenditures were made primarily to improve production
efficiency, reduce operating costs and expand capacity at existing facilities.
Total consolidated capital expenditures, excluding the expenditures to rebuild
the Gramercy, Louisiana facility which will be partially funded with insurance
proceeds (see "- Overview - Incident at Gramercy Facility" above,) are
currently expected to be between $80.0 and $115.0 million per year in each of
2000 through 2002 (of which approximately 10% is expected to be funded by the
Company's minority partners in certain foreign joint ventures). See "-
Financing Activities and Liquidity" below for a discussion of Gramercy related
capital spending. Management continues to evaluate numerous projects, all of
which would require substantial capital, both in the United States and overseas.
The level of capital expenditures may be adjusted from time to time depending on
the Company's
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price outlook for primary aluminum and other products, the Company's ability to
assure future cash flows through hedging or other means, the Company's financial
position and other factors.
Financing Activities and Liquidity
As of December 31, 1999, the Company's total consolidated indebtedness was
$972.8 million, including $10.4 million outstanding under the Company's credit
agreement, as amended, (the "Credit Agreement"). At February 29, 2000, the
Company had $212.6 million of unused availability remaining under the Credit
Agreement after allowing for $30.0 million of outstanding borrowings and $82.4
million for outstanding letters of credit.
Under the Credit Agreement, the Company is able to borrow by means of revolving
credit advances and letters of credit (up to $125.0 million) an aggregate amount
equal to the lesser of $325.0 million or a borrowing base relating to eligible
accounts receivable and eligible inventory. The Credit Agreement, which matures
in August 2001, is guaranteed by Kaiser and by certain significant subsidiaries
of the Company. The Credit Agreement requires the Company to comply with certain
financial covenants, places significant restrictions on the Company, and is
secured by a substantial majority of the Company's assets. The Credit Agreement
significantly restricts the Company's ability, and does not permit Kaiser, to
pay any dividends on their common stock. The indentures governing the Company's
public debt includes various restrictions on the Company and its subsidiaries
and repurchase obligations upon a Change of Control (as defined).
The Company's near-term liquidity will be, as more fully discussed below,
affected by three significant items: the Gramercy incident, aluminum hedging
margin requirements and the amount of net payments for asbestos liabilities.
As of December 31, 1999, the Company had recorded estimated recoveries for
clean-up, site preparation and business interruption costs incurred relating to
the Gramercy incident of approximately $55.0 million. As of December 31, 1999,
approximately $50.0 million of insurance recoveries had been received.
Additionally, through February 29, 2000, the Company had received approximately
$25.0 million of additional insurance recoveries. During 2000, capital spending
related to rebuilding the Gramercy facility is expected to be approximately
$200.0 million. The Company believes that between 50% and 80% of such
expenditures will ultimately be funded by proceeds from the Company's insurance
contracts. The remainder of the Gramercy-related capital expenditures will be
funded by the Company using existing cash resources, funds from operations
and/or borrowings under the Company's Credit Agreement. The amount of capital
expenditures to be funded by the Company will depend on, among other things, the
ultimate cost and timing of the rebuild and negotiations with the insurance
carriers. In addition, the Company will incur continuing expenses and experience
lost profits subsequent to 1999 as a result of the Gramercy incident which
amounts (based on current primary aluminum prices and available facts and
circumstances) are expected to total another $100.0 million, which amount is
expected to be largely offset by insurance recoveries.
The Company continues to work with the insurance carriers to maximize the amount
of recoveries and to minimize, to the extent possible, the period of time
between when the Company expends funds and when it is reimbursed. The Company
will likely have to fund an average of 30 - 60 days of property damage and
business interruption activity, unless some other arrangement is agreed with the
insurance carriers, and such amounts will be significant. The Company believes
it has sufficient financial resources to fund the construction and business
interruption costs on an interim basis. However, no assurances can be given in
this regard. If insurance recoveries were to be delayed or if there were other
significant uses of the Company's existing Credit Agreement capacity, delays in
the rebuilding of the Gramercy refinery could occur and could have a material
adverse impact on the Company's liquidity and operating results.
Hedging activities could also have an adverse impact on the Company's near-term
liquidity. At December 31, 1999, the Company had made margin advances of $38.0
million and had posted letters of credit totaling $40.0 million in lieu of
making margin advances. Increases in primary aluminum prices subsequent to
December 31, 1999, could result in the Company having to make additional margin
advances or post additional letters of credit and such amounts could be
significant. The Company's exposure to margin advances is expected to improve
throughout 2000 as its year 2000 positions, which have a lower average maximum
contract price than the Company's 2001 positions, expire. The Company is
considering various financing and hedging strategies to limit its exposure to
further margin advances in the event of aluminum price increases. However, no
assurance can be given that the Company will be successful in this regard.
The Company's estimated annual cash payments, prior to insurance recoveries, for
asbestos-related costs will be approximately $75.0 million to $85.0 million for
each of the years 2000 through 2002. The Company believes that it will recover a
substantial portion of these payments from insurance. Preliminary agreements
have been reached with certain insurance carriers under which
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it expects to collect a substantial portion of its 2000 asbestos-related
payments. However, delays in receiving these or future insurance repayments
would have an adverse impact on the Company's liquidity.
While no assurance can be given that existing cash sources will be sufficient to
meet the Company's short-term liquidity requirements, 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 satisfy its
working capital and capital expenditure requirements for the next year.
The Company's ability to make payments on and to refinance its debt on a
long-term basis depends on its ability to generate cash in the future. This, to
a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond the Company's control. The
Company will need to refinance all or a substantial portion of its debt on or
before its maturity. No assurance can be given that the Company will be able to
refinance its debt on acceptable terms. However, 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.
Commitments and Contingencies
The Company is subject to a number of environmental laws, to fines or penalties
assessed for alleged breaches of the environmental laws, and to claims and
litigation based upon such laws. The Company currently is subject to a number of
claims under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments 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 of $48.9 million at December 31, 1999. However, the
Company believes that it is reasonably possible that changes in various factors
could cause costs associated with these environmental matters to exceed current
accruals by amounts that could range, in the aggregate, up to an estimated $30.0
million.
The Company is also 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 sold for at least 20 years.
Based on past experience and reasonably anticipated future activity, the Company
has established a $387.8 million accrual at December 31, 1999, for estimated
asbestos-related costs for claims filed and estimated to be filed through 2009,
before consideration of insurance recoveries. However, the Company believes that
substantial recoveries from insurance carriers are probable. The Company reached
this conclusion based on prior insurance-related recoveries in respect of
asbestos-related claims, existing insurance policies and the advice of outside
counsel with respect to applicable insurance coverage law relating to the terms
and conditions of these policies. Accordingly, the Company has recorded an
estimated aggregate insurance recovery of $315.5 million (determined on the same
basis as the asbestos-related cost accrual) at December 31, 1999. Although the
Company has settled asbestos-related coverage matters with certain of its
insurance carriers, other carriers have not yet agreed to settlements. The
timing and amount of future recoveries from these carriers will depend on the
pace of claims review and processing by such carriers and on the resolution of
any disputes regarding coverage under such policies that may arise.
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 and insurance recoveries that ultimately may be received, management
currently believes that the resolution of these uncertainties and the incurrence
of related costs, net of any related insurance recoveries, should not have a
material adverse effect on the Company's consolidated financial position,
results of operations, or liquidity.
In connection with the USWA strike and subsequent lock-out by the Company,
certain allegations of unfair labor practices ("ULPs") have been filed with the
National Labor Relations Board ("NLRB")by the USWA. The Company responded to all
such allegations and believes that they are without merit. In July 1999, the
Oakland, California, regional office of the NLRB dismissed all material charges
filed against the Company. In September 1999, the union filed an appeal of this
ruling with the NLRB general counsel's office in Washington, D.C. If the
original decision were to be reversed, the matter would be referred to an
administrative law judge for a hearing whose outcome would be subject to an
additional appeal either by the USWA or the Company. This process could take
months or years. There can be no certainty that the original NLRB decision will
be upheld. If these proceedings eventually resulted in a definitive ruling
against the Company, it could be obligated to provide back pay to USWA members
at the five plants and such amount could be significant. However, while
uncertainties are inherent in the final outcome
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of such matters, the Company believes that the resolution of the alleged ULPs
should not result in a material adverse effect on the Company's consolidated
financial position, results of operations, or liquidity.
See Note 11 of Notes to Consolidated Financial Statements for a more detailed
discussion of these contingencies and the factors affecting management's
beliefs. See also "Overview."
OTHER MATTERS
Year 2000 Readiness Disclosure
Although the Company did experience some minor inconveniences in connection with
the year 2000 date change, such inconveniences did not have any material adverse
impacts on the Company's results of operations or financial condition. The
Company had a company-wide program which coordinated the year 2000 efforts of
its individual business units and tracked their progress. Each of the Company's
business units developed year 2000 plans specifically tailored to its individual
situation. A wide range of solutions were implemented, including modifying
existing systems and, in limited cases where it was cost effective, purchasing
new systems. Total spending related to these projects, which began in 1997 and
continued through 1999, was $8.3 million. System modification costs were
expensed as incurred. Costs associated with new systems were capitalized and
will be amortized over the life of the system.
Income Tax Matters
The Company's net deferred income tax assets as of December 31, 1999, were
$435.6 million, net of valuation allowances of $125.6 million. The Company
believes a long-term view of profitability is appropriate and has concluded that
these net deferred income tax assets will more likely than not be realized. See
Note 6 of Notes to Consolidated Financial Statements for a discussion of these
and other income tax matters.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This section contains forward-looking statements that involve risk and
uncertainties. Actual results could differ materially from those projected in
these forward-looking statements.
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. As discussed
more fully in Notes 1 and 12 of Notes to Consolidated Financial Statements, the
Company utilizes hedging transactions to lock-in a specified price or range of
prices for certain products which it sells or consumes and to mitigate the
Company's exposure to changes in foreign currency exchange rates. The following
sets forth the impact on future earnings of adverse market changes related to
the Company's hedging positions with respect to commodity and foreign exchange
contracts described more fully in Note 12 of Notes to Consolidated Financial
Statements. The impact of market changes on energy derivative activities is
generally not significant.
Alumina and Primary Aluminum
Alumina and primary aluminum production in excess of internal requirements is
sold in domestic and international markets, exposing the Company to commodity
price opportunities and risks. The Company's hedging transactions are intended
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. On average, before consideration of hedging
activities, any fixed price contracts with fabricated aluminum products
customers, variations in production and shipment levels, and timing issues
related to price changes the Company estimates that each $.01 increase
(decrease) in the market price per price-equivalent pound of primary aluminum
increases (decreases) the Company's annual pre-tax earnings by approximately
$15.0 million.
As of December 31, 1999, approximately 65% and 45% of the Company's net
hedgeable volume with respect to 2000 and 2001, respectively, is subject to a
minimum and maximum contract price. Based on the average December 1999 London
Metal Exchange ("LME") cash price for primary aluminum of approximately $.71 per
pound, the Company estimates that it would realize a net aggregate pre-tax
reduction in operating income of approximately $70.0 million from its hedging
positions and fixed price customer contracts during 2000 and 2001. The Company
estimates that a hypothetical $.10 increase from the above stated December 1999
price would result in an additional net aggregate pre-tax reduction in operating
income of approximately $130.0 million being realized during 2000 and 2001
related to the Company's hedging positions and fixed price customer contracts.
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Approximately 40% of the total reductions in operating income would occur in the
first half of 2000. Both amounts are versus what the Company's results would
have been without the derivative commodity contracts and fixed price customer
contracts discussed above. Conversely, the Company estimates that a hypothetical
$.10 decrease from the above stated December 1999 price level would result in an
aggregate pre-tax increase in operating income of approximately $30.0 million
being realized during 2000 and 2001 related to the Company's hedging positions
and fixed price customer contracts. It should be noted, however, that, since the
hedging positions and fixed price customer contracts lock-in a specified price
or range of prices, any increase or decrease in earnings attributable to the
Company's hedging positions or fixed price customer contracts would be
significantly offset by a decrease or increase in the value of the hedged
transactions.
As stated in Note 12 of Notes to the Consolidated Financial Statements, the
Company has certain hedging positions which do not qualify for treatment as a
"hedge" under current accounting guidelines and thus must be marked-to-market
each period. Fluctuations in forward market prices for primary aluminum would
likely result in additional earnings volatility as a result of these positions.
The Company estimates that a hypothetical $.10 increase in spot market prices
from the December 31, 1999, LME cash price of $.74 per pound would, if the
forward market were in a "contango" position (i.e., where future prices exceed
spot prices), result in additional aggregate mark-to-market charges of between
$20.0 - $30.0 million during 2000 and 2001. Conversely, the Company estimates
that a hypothetical $.10 decrease in year-end 1999 spot market prices would
result in aggregate mark-to-market income of between $20.0 - $30.0 million
during 2000 and 2001. For purposes of this computation, the Company assumed that
the forward market would be essentially "flat" (i.e., future prices would
approximate the current forward market price).
The foregoing estimated earnings impact on 2001 excludes the possible effect on
pre-tax income of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which must be
adopted by the Company as of January 1, 2001.
In addition to having an impact on the Company's earnings, a hypothetical
$.10-per-pound change in primary aluminum prices would also impact the Company's
cash flows and liquidity through changes in possible margin advance
requirements. At December 31, 1999, the Company had made margin advances of
$38.0 million and had posted letters of credit totaling $40.0 million in lieu of
paying margin advances. Increases in primary aluminum prices subsequent to
December 31, 1999, could result in the Company having to make additional margin
advances or post additional letters of credit and such amounts could be
significant. If primary aluminum prices increased by $.10 per pound (from the
year-end 1999 price) by March 31, 2000 and the forward curve were as described
above, it is estimated that the Company could be required to make additional
margin advances in the range of $75 to $100 million. On the other hand, a
hypothetical $.10 decrease in primary aluminum prices by March 31, 2000, using
the same forward curve assumptions stated above, would be expected to result in
the Company receiving a substantial majority of its previous margin advances.
The Company's exposure to margin advances is expected to improve throughout 2000
as its year 2000 positions, which have a lower average maximum contract price
than the Company's 2001 positions, expire. The Company is considering various
financing and hedging strategies to limit its exposure to further margin
advances in the event of aluminum price increases. However, no assurance can be
given that the Company will be successful in this regard.
Foreign Currency
The Company enters into forward exchange contracts to hedge material cash
commitments for foreign currencies. The Company's primary foreign exchange
exposure is related to the Company's Australian Dollar (A$) commitments in
respect of activities associated with its 28.3%-owned affiliate, Queensland
Alumina Limited. The Company estimates that, before consideration of any hedging
activities, a US $0.01 increase (decrease) in the value of the A$ results in an
approximate $1-$2 million (decrease) increase in the Company's annual pre-tax
earnings.
At December 31, 1999, the Company held derivative foreign currency contracts
hedging approximately 82% and 27% of its A$ currency commitments for 2000 and
2001, respectively. The Company estimates that a hypothetical 10% reduction in
the A$ exchange rate would result in the Company recognizing a net aggregate
pre-tax cost of approximately $3 - $10 million during 2000 and 2001 related to
the Company's foreign currency hedging positions. This cost is versus what the
Company's results would have been without the Company's derivative foreign
currency contracts. It should be noted, however, that, since the hedging
positions lock-in specified rates, any increase or decrease in earnings
attributable to currency hedging instruments would be offset by a corresponding
decrease or increase in the value of the hedged commitments.
29
<PAGE> 33
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE
----
<S> <C>
Report of Independent Public Accountants..........................................................................31
Consolidated Balance Sheets.......................................................................................32
Statements of Consolidated Income (Loss)..........................................................................33
Statements of Consolidated Cash Flows.............................................................................34
Notes to Consolidated Financial Statements........................................................................35
Quarterly Financial Data (Unaudited)..............................................................................60
Five-Year Financial Data..........................................................................................61
</TABLE>
30
<PAGE> 34
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, 1999 and 1998, and the related statements of consolidated income (loss) and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kaiser Aluminum & Chemical
Corporation and subsidiaries as of December 31, 1999, and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 7, 2000
<PAGE> 35
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
(In millions of dollars, except share amounts) 1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21.2 $ 98.3
Receivables:
Trade, less allowance for doubtful receivables of $5.9 in 1999 and $6.2 in 1998 154.1 170.1
Other 112.8 118.1
Inventories 546.1 543.5
Prepaid expenses and other current assets 145.6 104.9
---------- ----------
Total current assets 979.8 1,034.9
Investments in and advances to unconsolidated affiliates 96.9 128.3
Property, plant, and equipment - net 1,053.7 1,108.7
Deferred income taxes 438.2 376.9
Other assets 634.3 346.0
---------- ----------
Total $ 3,202.9 $ 2,994.8
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 231.7 $ 173.3
Accrued interest 37.7 37.3
Accrued salaries, wages, and related expenses 62.1 73.8
Accrued postretirement medical benefit obligation - current portion 51.5 48.2
Other accrued liabilities 170.0 150.2
Payable to affiliates 84.6 75.3
Long-term debt - current portion .3 .4
---------- ----------
Total current liabilities 637.9 558.5
Long-term liabilities 727.3 533.0
Accrued postretirement medical benefit obligation 678.3 694.3
Long-term debt 972.5 962.6
Minority interests 96.7 101.9
Redeemable preference stock - aggregate liquidation value of $ 19.5 in 1999 and
$21.1 in 1998 19.5 20.1
Commitments and contingencies
Stockholders' equity:
Preference stock - cumulative and convertible, par value $100, authorized
1,000,000 shares, issued and outstanding, 19,538 and 19,963 in 1999 and 1998 1.5 1.5
Common stock, par value 331/3 cents, authorized 100,000,000 shares;
issued and outstanding, 46,171,365 15.4 15.4
Additional capital 2,173.0 2,052.8
Accumulated deficit (205.1) (151.2)
Accumulated other comprehensive income - additional minimum pension liability (1.2) -
Note receivable from parent (1,912.9) (1,794.1)
---------- ----------
Total stockholders' equity 70.7 124.4
---------- ----------
Total $ 3,202.9 $ 2,994.8
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
32
<PAGE> 36
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(In millions of dollars) 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 2,044.3 $ 2,256.4 $ 2,373.2
---------- ---------- ----------
Costs and expenses:
Cost of products sold 1,859.2 1,906.2 1,951.2
Depreciation and amortization 89.5 99.1 102.5
Selling, administrative, research and development, and general 105.1 115.1 129.9
Non-cash impairment of Micromill assets/restructuring of operations 19.1 45.0 19.7
---------- ---------- ----------
Total costs and expenses 2,072.9 2,165.4 2,203.3
---------- ---------- ----------
Operating income (loss) (28.6) 91.0 169.9
Other income (expense):
Interest expense (110.1) (110.0) (110.7)
Gain on involuntary conversion at Gramercy facility 85.0 -- --
Other - net (35.8) 3.5 2.8
---------- ---------- ----------
Income (loss) before income taxes and minority interests (89.5) (15.5) 62.0
Benefit (provision) for income taxes 32.6 16.4 (9.4)
Minority interests 4.5 1.8 (.5)
---------- ---------- ----------
Net income (loss) $ (52.4) $ 2.7 $ 52.1
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
33
<PAGE> 37
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(In millions of dollars) 1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (52.4) $ 2.7 $ 52.1
Adjustments to reconcile net income to net cash (used) provided by operating
activities:
Depreciation and amortization (including deferred financing costs of $4.3,
$3.9, and $6.1) 93.8 103.0 108.6
Non-cash impairment of Micromill assets/restructuring of operations 19.1 45.0 19.7
Gain on involuntary conversion at Gramercy facility (85.0) -- --
Gain on sale of interest in AKW joint venture (50.5) -- --
Non-cash benefit for income taxes -- (8.3) (12.5)
Equity in (income) loss of unconsolidated affiliates, net of distributions (4.9) .1 7.8
Minority interests (4.5) (1.8) .5
Decrease (increase) in receivables 21.3 61.0 (94.0)
(Increase) decrease in inventories (2.6) 24.8 (9.3)
(Increase) decrease in prepaid expenses and other current assets (66.9) 30.1 (10.1)
Increase (decrease) in accounts payable and accrued interest 58.8 (3.2) (11.1)
Increase (decrease) in payable to affiliates and accrued liabilities 19.6 (45.2) (23.9)
Decrease in accrued and deferred income taxes (55.1) (26.2) (16.8)
Increase (decrease) in net long-term assets and liabilities 15.7 (23.9) 28.8
Other 3.5 13.1 5.8
--------- -------- ---------
Net cash (used) provided by operating activities (90.1) 171.2 45.6
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of interest in AKW joint venture 70.4 -- --
Additions to property, plant, and equipment (68.4) (77.6) (128.5)
Other 1.1 3.2 19.9
--------- -------- ---------
Net cash provided (used) by investing activities 3.1 (74.4) (108.6)
--------- ---------- ----------
Cash flows from financing activities:
Borrowings under credit facility, net 10.4 -- --
Borrowings of long-term debt -- -- 19.0
Repayments of long-term debt (.6) (8.9) (8.8)
Net payments to parent -- -- (4.2)
Decrease (increase) in restricted cash, net .8 4.4 (5.2)
Incurrence of financing costs -- (.6) (.9)
Preference stock dividends paid (.5) (.6) (.6)
Capital contributions 1.4 .1 .3
Redemption of preference stock (1.6) (8.7) (2.1)
--------- -------- ----------
Net cash provided (used) by financing activities 9.9 (14.3) (2.5)
--------- --------- ----------
Net (decrease) increase in Cash and cash equivalents during the year (77.1) 82.5 (65.5)
Cash and cash equivalents at beginning of year 98.3 15.8 81.3
--------- -------- ---------
Cash and cash equivalents at end of year $ 21.2 $ 98.3 $ 15.8
========= ======== =========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 105.4 $ 106.3 $ 102.7
Income taxes paid 24.1 13.5 22.6
Tax allocation payments to Kaiser Aluminum Corporation -- 3.3 1.8
Tax allocation payments to MAXXAM Inc. -- -- 11.8
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
34
<PAGE> 38
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") and its majority owned subsidiaries. The
Company is a wholly owned subsidiary of Kaiser Aluminum Corporation ("Kaiser")
which is a subsidiary of MAXXAM Inc. ("MAXXAM"). The Company operates in all
principal aspects of the aluminum industry-the mining of bauxite (the major
aluminum bearing ore), the refining of bauxite into alumina (the intermediate
material), the production of primary aluminum, and the manufacture of
fabricated and semi-fabricated aluminum products. The Company's production
levels of alumina, before consideration of the Gramercy incident (see Note 2),
and primary aluminum exceed its internal processing needs, which allows it to
be a major seller of alumina and primary aluminum to domestic and international
third parties (see Note 13).
The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities known to exist as of the date the financial statements are
published, and the reported amounts of revenues and expenses during the
reporting period. Uncertainties, with respect to such estimates and
assumptions, are inherent in the preparation of the Company's consolidated
financial statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions, which could have a material effect
on the reported amounts of the Company's consolidated financial position and
results of operation.
Investments in 50%-or-less-owned entities are accounted for primarily by the
equity method. Intercompany balances and transactions are eliminated.
Certain reclassifications of prior-year information were made to conform to the
current presentation.
CASH AND CASH EQUIVALENTS
The Company considers only those short-term, highly liquid investments with
original maturities of 90 days or less to be cash equivalents.
INVENTORIES
Substantially all product inventories are stated at last-in, first-out ("LIFO")
cost, not in excess of market value. Replacement cost is not in excess of LIFO
cost. Other inventories, principally operating supplies and repair and
maintenance parts, are stated at the lower of average cost or market. Inventory
costs consist of material, labor, and manufacturing overhead, including
depreciation. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
------- -------
<S> <C> <C>
Finished fabricated products $ 118.5 $ 112.4
Primary aluminum and work in process 189.4 205.6
Bauxite and alumina 124.1 109.5
Operating supplies and repair and maintenance parts 114.1 116.0
------- -------
$ 546.1 $ 543.5
======= =======
</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 of land improvements, buildings, and machinery and
equipment are 8 to 25 years, 15 to 45 years, and 10 to 22 years, respectively.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value method to account for a stock-based
compensation plan whereby compensation cost is recognized only to the extent
that the quoted market price of the stock at the measurement date exceeds the
amount an employee
35
<PAGE> 39
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
must pay to acquire the stock. No compensation cost has been recognized for
this plan as the exercise price of the stock options granted in 1999, 1998 and
1997 were at or above the market price (see Note 7).
OTHER INCOME (EXPENSE)
Other expense in 1999, 1998, and 1997, includes $53.2, $12.7, and $8.8, of
pre-tax charges related principally to establishing additional litigation
reserves for asbestos claims net of estimated aggregate insurance recoveries
pertaining to operations which were discontinued prior to the acquisition of
the Company by MAXXAM in 1988. Other expense in 1999 also includes $32.8 of
pre-tax charges to reflect mark-to-market adjustments on certain primary
aluminum hedging transactions and a net pre-tax gain of $50.5 on the sale of
the Company's 50% interest in AKW L.P. (see Note 3). Other income in 1998
includes $12.0 attributable to insurance recoveries related to certain incurred
environmental costs (see Note 11).
DEFERRED FINANCING COSTS
Costs incurred to obtain debt financing are deferred and amortized over the
estimated term of the related borrowing.
FOREIGN CURRENCY
The Company uses the United States dollar as the functional currency for its
foreign operations.
DERIVATIVE FINANCIAL INSTRUMENTS
Hedging transactions using derivative financial instruments are primarily
designed to mitigate the Company's exposure to changes in prices for certain of
the products which the Company sells and consumes and, to a lesser extent, to
mitigate the Company's exposure to changes in foreign currency exchange rates.
The Company does not utilize derivative financial instruments for trading or
other speculative purposes. The Company's derivative activities are initiated
within guidelines established by management and approved by the Company's
boards of directors. Hedging transactions are executed centrally on behalf of
all of the Company's business segments to minimize transaction costs, monitor
consolidated net exposures and allow for increased responsiveness to changes in
market factors.
Most of the Company's hedging activities involve the use of option contracts
(which establish a maximum and/or minimum amount to be paid or received) and
forward sales contracts (which effectively fix or lock-in the amount the
Company will pay or receive). Option contracts typically require the payment of
an up-front premium in return for the right to receive the amount (if any) by
which the price at the settlement date exceeds the strike price. Any interim
fluctuations in prices prior to the settlement date are deferred until the
settlement date of the underlying hedged transaction, at which point they are
reflected in net sales or cost of sales (as applicable) together with the
related premium cost. Forward sales contracts do not require an up-front
payment and are settled by the receipt or payment of the amount by which the
price at the settlement date varies from the contract price. No accounting
recognition is accorded to interim fluctuations in prices of forward sales
contracts.
The Company has established margin accounts and credit limits with certain
counterparties related to open forward sales and option contracts. When
unrealized gains or losses are in excess of such credit limits, the Company is
entitled to receive advances from the counterparties on open positions or is
required to make margin advances to counterparties, as the case may be. At
December 31, 1999, the Company had made margin advances of $38.0 and had posted
letters of credit totaling $40.0 in lieu of paying margin advances. At December
31, 1998, the Company had received $9.9 of margin advances. Increases in
primary aluminum prices subsequent to December 31, 1999, could result in the
Company having to make additional margin advances or post additional letters of
credit and such amounts could be significant. Management considers credit risk
related to possible failure of the counterparties to perform their obligations
pursuant to the derivative contracts to be minimal.
Deferred gains or losses as of December 31, 1999, are included in Prepaid
expenses and other current assets and Other accrued liabilities (see Note 12).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of its outstanding indebtedness to be
$970.5 and $950.0 at December 31, 1999 and 1998, respectively, based on quoted
market prices for the Company's 9 7/8% Senior Notes due 2002 (the "9 7/8%
Notes"), 12 3/4% Senior Subordinated Notes due 2003 (the "12 3/4% Notes"), and
10 7/8% Senior Notes due 2006 (the "10 7/8% Notes"), and the discounted
36
<PAGE> 40
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
future cash flows for all other indebtedness, using the current rate for debt
of similar maturities and terms. The Company believes that the carrying amount
of other financial instruments is a reasonable estimate of their fair value,
unless otherwise noted.
LABOR RELATED COSTS
The Company is currently operating five of its U.S. facilities with salaried
employees and other workers as a result of the September 30, 1998, strike by
the United Steelworkers of America ("USWA") and the subsequent "lock-out" by
the Company in January 1999. However, the Company has continued to accrue
certain benefits (such as pension and other postretirement benefit
costs/liabilities), for the USWA members during the period of the strike and
subsequent lock-out. For purposes of computing the benefit-related costs and
liabilities to be reflected in the accompanying consolidated financial
statements for the year ended December 31, 1999, the Company has based its
accruals on the terms of the previously existing (expired) USWA contract. Any
differences between the amounts accrued and the amounts ultimately agreed to
during the collective bargaining process will be reflected in future results
during the term of any new contract.
All incremental operating costs incurred as a result of the USWA strike and
subsequent lockout are being expensed as incurred. During 1998, such costs were
substantial, totaling approximately $50.0. The Company's 1998 results also
reflect reduced profitability of approximately $10.0 resulting from the
strike-related curtailment of three potlines (representing approximately 70,000
tons* of annual capacity) at the Company's Mead and Tacoma, Washington,
smelters and certain other shipment delays experienced at the other affected
facilities at the outset of the USWA strike. During 1999, strike related costs
were virtually eliminated except for the restart costs of approximately $12.8
associated with restarting potlines at the Company's smelters and the impact of
reduced volume.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to
recognize all derivative instruments as assets or liabilities in the balance
sheet and to measure those instruments at fair value. Under SFAS No. 133, the
Company will be required to "mark-to-market" its hedging positions at each
period-end in advance of recording the physical transactions to which the
hedges relate. Changes in the fair value of the Company's open hedging
positions will be reflected as an increase or reduction in stockholders' equity
through comprehensive income. The impact of the changes in fair value of the
Company's hedging positions will reverse out of comprehensive income (net of
any fluctuations in other "open" positions) and will be reflected in
traditional net income when the subsequent physical transactions occur.
Currently, the dollar amount of the Company's comprehensive income adjustments
is not significant so there is not a significant difference between
"traditional" net income and comprehensive income. However, differences between
comprehensive income and traditional net income may become significant in
future periods as SFAS No. 133 will result in fluctuations in comprehensive
income and stockholders' equity in periods of price volatility, despite the
fact that the Company's cash flow and earnings will be "fixed" to the extent
hedged. This result is contrary to the intent of the Company's hedging program,
which is to "lock-in" a price (or range of prices) for products sold/used so
that earnings and cash flows are subject to reduced risk of volatility.
Adoption of SFAS No. 133 was initially required on or before January 1, 2000.
However, in June 1999, the FASB issued SFAS No. 137 which delayed the required
implementation date of SFAS No. 133 to no later than January 1, 2001. The
Company is currently evaluating how and when to implement SFAS No. 133.
2. INCIDENT AT GRAMERCY FACILITY
On July 5, 1999, the Company's Gramercy, Louisiana alumina refinery was
extensively damaged by an explosion in the digestion area of the plant.
Twenty-four employees were injured in the incident, several of them severely.
As a result of the incident, alumina production at the facility was completely
curtailed. Production at the plant is currently expected to remain completely
curtailed until the third quarter of 2000 when the Company expects to begin
partial production. Based on current estimates, full
- ------------
*All references to tons in this report refer to metric tons of 2,204.6
pounds.
37
<PAGE> 41
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
production is expected to be achieved during the first quarter of 2001 or
shortly thereafter. KACC has received the regulatory permit required to operate
the plant once the facility is ready to resume production.
The cause of the incident is under investigation by the Company and governmental
agencies. In January 2000, the U.S. Mine Safety and Health Administration
("MSHA") issued 21 citations in connection with its investigation of the
incident. The citations allege, among other things, that certain aspects of the
plant's operations were unsafe and that such mode of operation contributed to
the explosion. To date, no monetary penalty has been proposed by MSHA. Although
the Company expects that a fine will be levied, the Company cannot predict the
amount of any such fine(s). It is possible that other civil or criminal fines or
penalties could be levied against the Company. The Company has previously
announced that it disagrees with the substance of the citations and has
challenged them. However, as more fully explained below, based on what is known
to date and discussions with the Company's advisors, the Company believes that
the financial impact of this incident (in excess of insurance deductibles and
self-retention provisions) will be largely offset by insurance coverage.
Deductibles and self-retention provisions under the insurance coverage for the
incident total $5.0, which amounts have been charged to Cost of products sold in
1999.
The Company has significant amounts of insurance coverage related to the
Gramercy incident. The Company's insurance coverage has five separate
components: property damage, clean-up and site preparation, business
interruption, liability and workers' compensation. The insurance coverage
components are discussed below.
Property Damage. The Company's insurance policies provide that the Company will
be reimbursed for the costs of repairing or rebuilding the damaged portion of
the facility using new materials of like kind and quality with no deduction for
depreciation. Based on discussions with the insurance carriers and their
representatives and third party engineering reports, the Company recorded a
pretax gain of $85.0, representing the difference between the minimum expected
property damage reimbursement amount and the net carrying value of the damaged
property of $15.0. The receivable attributable to the minimum expected property
damage reimbursement has been classified as a long-term item in Other assets,
despite the fact that substantially all such amounts are expected to be spent
during 2000, as such proceeds will be invested in property, plant and
equipment. The overall impact of recognizing the gain will be a significant
increase in stockholders' equity and an increase in depreciation expense in
future years once production is restored.
Clean-up and Site Preparation. The Gramercy facility has incurred incremental
costs for clean up and other activities during 1999 and will continue to incur
such costs in 2000. These clean-up and site preparation activities have been
offset by accruals of approximately $14.0 for estimated insurance recoveries.
Business Interruption. The Company's insurance policies provide for the
reimbursement of specified continuing expenses incurred during the interruption
period plus lost profits (or less expected losses) plus other expenses incurred
as a result of the incident. Operations at the Gramercy facility and a sister
facility in Jamaica, which supplies bauxite to Gramercy, will continue to incur
operating expenses until production at the Gramercy facility is restored. The
Company will also incur increased costs as a result of agreements to supply
certain of Gramercy's major customers with alumina, despite the fact that the
Company had declared force majeure with respect to the contracts shortly after
the incident. The Company is purchasing alumina from third parties, in excess
of the amounts of alumina available from other Company-owned facilities, to
supply these customers' needs as well as to meet intersegment requirements. In
consideration of the foregoing items, the Company recorded expected business
interruption insurance recoveries totaling $19.0 and $41.0 in the quarter and
year ended December 31, 1999, as a reduction of Cost of products sold, which
amounts substantially offset actual expenses incurred during these periods.
Such business interruption insurance amounts represent estimates of the
Company's business interruption coverage based on discussions with the
insurance carriers and their representatives and are therefore subject to
change.
Since production has been completely curtailed at the Gramercy facility, the
Company has, for the time being, suspended depreciation of the facility.
Depreciation expense for the first six months of 1999 was approximately $6.0.
Liability. The incident has also resulted in thirty-six class action lawsuits
being filed against the Company alleging, among other things, property damage
and personal injury. In addition, a claim for alleged business interruption
losses has been made by a
38
<PAGE> 42
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
neighboring business. The aggregate amount of damages sought in the lawsuits
and other claims cannot be determined at this time; however, the Company does
not currently believe the damages will exceed the amount of coverage under its
liability policies.
Workers' Compensation. Claims relating to all of the injured employees are
expected to be covered under the Company's workers' compensation or liability
policies. However, the aggregate amount of workers' compensation claims cannot
be determined at this time and it is possible that such claims could exceed the
Company's coverage limitations. While it is presently impossible to determine
the aggregate amount of claims that may be incurred, or whether they will
exceed the Company's coverage limitations, the Company currently believes that
any amount in excess of the coverage limitations will not have a material
effect on the Company's consolidated financial position or liquidity. However,
it is possible that as additional facts become available, additional charges
may be required and such charges could be material to the period in which they
are recorded.
Timing of Insurance Recoveries. As of December 31, 1999, the Company had
recorded estimated recoveries for clean-up, site preparation and business
interruption costs incurred of approximately $55.0. As of December 31, 1999,
approximately $50.0 of insurance recoveries had been received. Additionally
through February 29, 2000, the Company had received approximately $25.0 of
additional insurance recoveries. The Company continues to work with the
insurance carriers to maximize the amount of recoveries and to minimize, to the
extent possible, the period of time between when the Company expends funds and
when it is reimbursed. However, the Company will likely have to fund an average
of 30 - 60 days of property damage and business interruption activity, unless
some other arrangement is agreed with the insurance carriers, and such amounts
will be significant. The Company believes it has sufficient financial resources
to fund the construction and business interruption costs on an interim basis.
However, no assurances can be given in this regard. If insurance recoveries were
to be delayed or if there were to be other significant uses of the Company's
existing Credit Agreement capacity, delays in the rebuilding of the Gramercy
refinery could occur and could have a material adverse impact on the Company's
liquidity and operating results.
3. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Summary of combined financial information is provided below for unconsolidated
aluminum investments, most of which supply and process raw materials. The
investees are Queensland Alumina Limited ("QAL") (28.3% owned), Anglesey
Aluminium Limited ("Anglesey") (49.0% owned), Kaiser Jamaica Bauxite Company
(49.0% owned), and AKW L.P ("AKW") (50% owned). The equity in income (loss)
before income taxes of such operations is treated as a reduction (increase) in
cost of products sold. At December 31, 1999 and 1998, the Company's net
receivables from these affiliates were not material. On April 1, 1999, the
Company sold its 50% interest in AKW to its partner for $70.4, which resulted
in the Company recognizing a net pre-tax gain of $50.5 (included in Other
income/expense). The Company's equity in income of AKW was $2.5, $7.8, and $4.8
for the years ended December 31, 1999, 1998, and 1997, respectively.
39
<PAGE> 43
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
SUMMARY OF COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------ ------
<S> <C> <C>
Current assets $370.4 $356.0
Long-term assets (primarily property, plant, and equipment, net) 344.1 393.9
------ ------
Total assets $714.5 $749.9
====== ======
Current liabilities $120.4 $ 92.2
Long-term liabilities (primarily long-term debt) 368.3 396.6
Stockholders' equity 225.8 261.1
------ ------
Total liabilities and stockholders' equity $714.5 $749.9
====== ======
</TABLE>
SUMMARY OF COMBINED OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales $594.9 $659.2 $644.1
Costs and expenses (582.9) (651.7) (637.8)
Benefit (provision) for income taxes .8 (2.7) (8.2)
------ ------ ------
Net income (loss) $ 12.8 $ 4.8 $ (1.9)
====== ====== ======
Company's equity in income $ 4.9 $ 5.4 $ 2.9
====== ====== ======
Dividends received $ -- $ 5.5 $ 10.7
====== ====== ======
</TABLE>
The Company's equity in income differs from the summary net income (loss) due
to varying percentage ownerships in the entities and equity method accounting
adjustments. At December 31, 1999, the Company's investment in its
unconsolidated affiliates exceeded its equity in their net assets by
approximately $9.2. Amortization of the excess investment totaling $9.9, $10.0,
and $11.4 is included in Depreciation and amortization for the years ended
December 31, 1999, 1998, and 1997, respectively.
The Company and its affiliates have interrelated operations. 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 $152.9, $235.1, and $245.2, in the years ended December 31,
1999, 1998, and 1997, respectively.
40
<PAGE> 44
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
4. PROPERTY, PLANT, AND EQUIPMENT
The major classes of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Land and improvements $ 166.1 $ 164.1
Buildings 230.0 229.5
Machinery and equipment 1,519.7 1,549.5
Construction in progress 67.7 43.8
-------- --------
1,983.5 1,986.9
Accumulated depreciation (929.8) (878.2)
-------- --------
Property, plant, and equipment, net $1,053.7 $1,108.7
======== ========
</TABLE>
In the latter part of 1998, the Company decided to seek a strategic partner for
the further development and deployment of its Micromill(TM) technology. This
change in strategic course was based on management's conclusion that additional
time and investment would be required to achieve a commercial success. Given
the Company's other strategic priorities, the Company believed that introducing
added commercial and financial resources was the appropriate course of action
for capturing the maximum long-term value. A number of third parties were
contacted regarding joint ventures or other arrangements. In September 1999,
based on negotiations with these third parties, the Company concluded that a
sale of the Micromill assets and technology was more likely than a partnership.
The Company ultimately signed an agreement to sell the Micromill assets and
technology in January 2000 for a nominal payment at closing and future payments
based on subsequent performance and profitability of the Micromill technology.
As a result of the changes in strategic course in 1999 and 1998, the carrying
value of the Micromill assets was reduced by recording impairment charges of
$19.1 and $45.0, respectively.
5. LONG-TERM DEBT
Long-term debt and its maturity schedule are as follows:
<TABLE>
<CAPTION>
December 31,
2005 ---------------
and 1999 1998
2000 2001 2002 2003 2004 After Total Total
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Credit Agreement $ 10.4 $ 10.4 --
9 7/8% Senior Notes due 2002, net $224.6 224.6 $224.4
10 7/8% Senior Notes due 2006, net $225.6 225.6 225.7
12 3/4% Senior Subordinated Notes due 2003 $400.0 400.0 400.0
Alpart CARIFA Loans - (fixed and variable rates)
due 2007, 2008 60.0 60.0 60.0
Other borrowings (fixed and variable rates) $ .3 .3 .3 .3 $ .2 50.8 52.2 52.9
------ ------ ------ ------ ------ ------ ------ ------
Total $ .3 $ 10.7 $224.9 $400.3 $ .2 $336.4 972.8 963.0
====== ====== ====== ====== ====== ======
Less current portion .3 .4
------ ------
Long-term debt $972.5 $962.6
====== ======
</TABLE>
41
<PAGE> 45
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
CREDIT AGREEMENT
In February 1994, the Company and Kaiser entered into a credit agreement, as
amended, (the "Credit Agreement") which provides a $325.0 secured, revolving
line of credit through August 2001. 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 $325.0 or a borrowing
base relating to eligible accounts receivable and eligible inventory. As of
February 29, 2000, $212.6 (of which $42.6 could have been used for letters of
credit) was available to the Company under the Credit Agreement. The Credit
Agreement is unconditionally guaranteed by Kaiser and by certain significant
subsidiaries of the Company. Interest on any outstanding balances will bear a
premium (which varies based on the results of a financial test) over either a
base rate or LIBOR, at the Company's option.
DEBT COVENANTS AND RESTRICTIONS
The Credit Agreement requires the Company to comply with 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. The Credit Agreement is secured by, among
other things, (i) mortgages on the Company's major domestic plants (excluding
the Company's Gramercy alumina plant); (ii) subject to certain exceptions,
liens on the accounts receivable, inventory, equipment, domestic patents and
trademarks, and substantially all other personal property of 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.
The obligations of the Company with respect to its 9 7/8% Notes, its 10 7/8%
Notes and its 12 3/4% Notes are guaranteed, jointly and severally, by certain
subsidiaries of the Company. The indentures governing the 9 7/8% Notes, the
10 7/8% Notes and the 12 3/4% Notes (collectively, the "Indentures") restrict,
among other things, the Company's ability to incur debt, undertake transactions
with affiliates, and pay dividends. Further, the Indentures provide that the
Company must offer to purchase the 9 7/8% Notes, the 10 7/8% Notes and the
12 3/4% Notes, respectively, upon the occurrence of a Change of Control (as
defined therein), and the Credit Agreement provides that the occurrence of a
Change in Control (as defined therein) shall constitute an Event of Default
thereunder.
The Credit Agreement significantly restricts the Company's ability, and does
not permit Kaiser, to pay dividends on their common stock.
In December 1991, Alumina Partners of Jamaica ("Alpart") entered into a loan
agreement with the Caribbean Basin Projects Financing Authority ("CARIFA").
Alpart's obligations under the loan agreement are secured by two letters of
credit aggregating $64.2. The Company is a party to one of the two letters of
credit in the amount of $41.7 in respect of its ownership interest in Alpart.
Alpart has also agreed to indemnify bondholders of CARIFA for certain tax
payments that could result from events, as defined, that adversely affect the
tax treatment of the interest income on the bonds.
RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain debt instruments restrict the ability of the Company to transfer
assets, make loans and advances, and pay dividends to Kaiser. The restricted
net assets of the Company totaled $15.7 and $124.4 at December 31, 1999 and
1998, respectively.
CAPITALIZED INTEREST
Interest capitalized in 1999, 1998, and 1997, was $3.4, $3.0, and $6.6,
respectively.
42
<PAGE> 46
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
6. INCOME TAXES
Income (loss) before income taxes and minority interests by geographic area is
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Domestic $ (81.4) $ (93.2) $(110.9)
Foreign (8.1) 77.7 172.9
------- ------- -------
Total $ (89.5) $ (15.5) $ 62.0
======= ======= =======
</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 benefit (provision) for income taxes on income (loss) before income taxes
and minority interests consists of:
<TABLE>
<CAPTION>
Federal Foreign State Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999 Current $ (.5) $ (23.1) $ (.3) $ (23.9)
Deferred 43.7 7.1 5.7 56.5
------- ------- ------- -------
Total $ 43.2 $ (16.0) $ 5.4 $ 32.6
======= ======= ======= =======
1998 Current $ (1.7) $ (16.5) $ (.2) $ (18.4)
Deferred 44.3 (12.5) 3.0 34.8
------- ------- ------- -------
Total $ 42.6 $ (29.0) $ 2.8 $ 16.4
======= ======= ======= =======
1997 Current $ (2.0) $ (28.7) $ (.2) $ (30.9)
Deferred 30.0 (7.0) (1.5) 21.5
------- ------- ------- -------
Total $ 28.0 $ (35.7) $ (1.7) $ (9.4)
======= ======= ======= =======
</TABLE>
A reconciliation between the benefit (provision) for income taxes and the
amount computed by applying the federal statutory income tax rate to income
(loss) before income taxes and minority interests is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Amount of federal income tax benefit (provision) based on the statutory rate $ 31.4 $ 5.4 $(21.7)
Revision of prior years' tax estimates and other changes in valuation allowances 1.1 8.3 12.5
Percentage depletion 2.8 3.2 4.2
Foreign taxes, net of federal tax benefit (3.2) (1.9) (3.1)
Other .5 1.4 (1.3)
------ ------ ------
Benefit (provision) for income taxes $ 32.6 $ 16.4 $ (9.4)
====== ====== ======
</TABLE>
43
<PAGE> 47
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
The components of the Company's net deferred income tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions $274.7 $279.4
Loss and credit carryforwards 118.1 91.0
Other liabilities 146.3 146.4
Other 193.3 132.1
Valuation allowances (125.6) (107.7)
------ ------
Total deferred income tax assets-net 606.8 541.2
------ ------
Deferred income tax liabilities:
Property, plant, and equipment (101.6) (109.9)
Other (69.6) (54.8)
------ ------
Total deferred income tax liabilities (171.2) (164.7)
------ ------
Net deferred income tax assets $435.6 $376.5
====== ======
</TABLE>
The principal component of the Company's net deferred income tax assets is the
tax benefit, net of certain valuation allowances, associated with the accrued
liability for postretirement benefits other than pensions. The future tax
deductions with respect to the turnaround of this accrual will occur over a
30-to-40-year period. If such deductions create or increase a net operating
loss, the Company has the ability to carry forward such loss for 20 taxable
years. For these reasons, the Company believes that a long-term view of
profitability is appropriate and has concluded that this net deferred income
tax asset will more likely than not be realized.
A substantial portion of the valuation allowances provided by the Company
relates to loss and credit carryforwards. To determine the proper amount of
valuation allowances with respect to these carryforwards, the Company evaluated
all appropriate factors, including any limitations concerning their use and the
year the carryforwards expire, as well as the levels of taxable income
necessary for utilization. With regard to future levels of income, the Company
believes, based on the cyclical nature of its business, its history of
operating earnings, and its expectations for future years, that it will more
likely than not generate sufficient taxable income to realize the benefit
attributable to the loss and credit carryforwards for which valuation
allowances were not provided.
As of December 31, 1999 and 1998, $39.1 and $45.5, respectively, of the net
deferred income tax assets listed above are included in the Consolidated
Balance Sheets in the caption entitled Prepaid expenses and other current
assets. Certain other portions of the deferred income tax liabilities listed
above are included in the Consolidated Balance Sheets in the captions entitled
Other accrued liabilities and Long-term liabilities.
The Company and its domestic subsidiaries (collectively, the "KACC Subgroup")
are members of the consolidated return group of which Kaiser is the common
parent corporation and are included in Kaiser's consolidated federal income tax
returns. During the period from October 28, 1988, through June 30, 1993, the
KACC Subgroup was included in the consolidated federal income tax returns of
MAXXAM. The tax allocation agreements of the KACC Subgroup with MAXXAM
terminated pursuant to their terms, effective for taxable periods beginning
after June 30, 1993. During 1997, MAXXAM reached a settlement with the Internal
Revenue Service regarding all remaining years where the KACC Subgroup was
included in the MAXXAM consolidated federal income tax returns. As a result of
this settlement, the Company paid $11.8 to MAXXAM during 1997, in respect of
its liabilities pursuant to its tax allocation agreement with MAXXAM. Payments
or refunds for periods prior to July 1, 1993, related to other jurisdictions
could still be required pursuant to the Company's tax allocation agreement with
MAXXAM. In accordance with the Credit Agreement, any such payments to MAXXAM by
the Company would require lender approval, except in certain specific
circumstances.
44
<PAGE> 48
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
At December 31, 1999, the Company had certain tax attributes available to
offset regular federal income tax requirements, subject to certain limitations,
including net operating loss and general business credit carryforwards of
$145.7 and $2.5, respectively, which expire periodically through 2019 and 2011,
respectively, foreign tax credit ("FTC") carryforwards of $32.3, which expire
periodically through 2004, and alternative minimum tax ("AMT") credit
carryforwards of $24.3, which have an indefinite life. The Company also has AMT
net operating loss and FTC carryforwards of $106.4 and $66.9, respectively,
available, subject to certain limitations, to offset future alternative minimum
taxable income, which expire periodically through 2019 and 2004, respectively.
7. EMPLOYEE BENEFIT AND INCENTIVE PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Retirement plans are non-contributory for salaried and hourly employees and
generally provide for benefits based on a formula which considers length of
service and earnings during years of service. The Company's funding policies
meet or exceed all regulatory requirements.
The Company and its subsidiaries provide postretirement health care and life
insurance benefits to eligible retired employees and their dependents.
Substantially all employees may become eligible for those benefits if they
reach retirement age while still working for the Company or its subsidiaries.
The Company has not funded the liability for these benefits which are expected
to be paid out of cash generated by operations. The Company reserves the right,
subject to applicable collective bargaining agreements, to amend or terminate
these benefits.
Assumptions used to value obligations at year-end and to determine the net
periodic benefit cost in the subsequent year are:
<TABLE>
<CAPTION>
Pension Benefits Medical/Life Benefits
-------------------- ---------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions as of December 31,
Discount rate 7.75% 7.00% 7.25% 7.75% 7.00% 7.25%
Expected return on plan assets 9.50% 9.50% 9.50% -- -- --
Rate of compensation increase 4.00% 5.00% 5.00% 4.00% 4.00% 5.00%
</TABLE>
In 1999, annual assumed rates of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) for non-HMO participants are 6.5%
and 7.5% for HMO at all ages. The assumed rates of increase are assumed to
decline gradually to 5.0% in 2002 for non-HMO participants and in 2004 for HMO
participants and remain at that level thereafter.
45
<PAGE> 49
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
The following table presents the funded status of the Company's pension and
other postretirement benefit plans as of December 31, 1999 and 1998, and the
corresponding amounts that are included in the Company's Consolidated Balance
Sheets:
<TABLE>
<CAPTION>
Pension Benefits Medical/Life Benefits
---------------- ---------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year $872.5 $873.0 $616.8 $544.5
Service cost 14.6 14.2 5.2 4.2
Interest cost 59.7 59.7 41.5 37.5
Currency exchange rate change (5.7) (.4) -- --
Curtailments, settlements and amendments .4 (4.6) -- 4.0
Actuarial (gain) loss (44.5) 15.2 .1 72.0
Benefits paid (91.0) (84.6) (48.2) (45.4)
------ ------ ------ ------
Benefit obligation at end of year 806.0 872.5 615.4 616.8
------ ------ ------ ------
Change in Plan Assets:
FMV of plan assets at beginning of year 801.8 756.9 -- --
Actual return on assets 133.0 106.8 -- --
Settlements -- (5.5) -- --
Employer contributions 14.0 28.2 48.2 45.4
Benefits paid (91.0) (84.6) (48.2) (45.4)
------ ------ ------ ------
FMV of plan assets at end of year 857.8 801.8 -- --
------ ------ ------ ------
Benefit obligations in excess of (less than) plan assets (51.8) 70.7 615.4 616.8
Unrecognized net actuarial gain 131.9 23.8 56.7 55.9
Unrecognized prior service costs (15.2) (18.5) 57.7 69.8
Adjustment required to recognize minimum liability 1.2 -- -- --
Intangible asset and other 2.6 4.3 -- --
------ ------ ------ ------
Accrued benefit liability $ 68.7 $ 80.3 $729.8 $742.5
====== ====== ====== ======
</TABLE>
The aggregate fair value of plan assets and accumulated benefit obligation for
pension plans with plan assets in excess of accumulated benefit obligations
were $778.1 and $679.0, respectively, as of December 31, 1999, and $293.0 and
$280.7, respectively, as of December 31, 1998.
<TABLE>
<CAPTION>
Pension Benefits Medical/Life Benefits
-------------------------- --------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Costs:
Service cost $ 14.6 $ 14.2 $ 13.4 $ 5.2 $ 4.2 $ 6.1
Interest cost 59.7 59.7 61.6 41.5 37.5 44.8
Expected return on assets (72.9) (69.4) (61.8) -- -- --
Amortization of prior service cost 3.3 3.2 3.4 (12.1) (12.4) (12.4)
Recognized net actuarial (gain) loss .7 1.4 2.6 -- (7.1) (.9)
------ ------ ------ ------ ------ ------
Net periodic benefit cost 5.4 9.1 19.2 34.6 22.2 37.6
Curtailments, settlements, etc .4 3.2 3.7 -- -- --
------ ------ ------ ------ ------ ------
Adjusted net periodic benefit costs $ 5.8 $ 12.3 $ 22.9 $ 34.6 $ 22.2 $ 37.6
====== ====== ====== ====== ====== ======
</TABLE>
46
<PAGE> 50
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage- point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
----------- -----------
<S> <C> <C>
Increase (decrease) to total of service and interest cost $ 6.3 $ (4.6)
Increase (decrease) to the postretirement benefit obligation $ 62.9 $ (44.0)
</TABLE>
POSTEMPLOYMENT BENEFITS
The Company provides certain benefits to former or inactive employees after
employment but before retirement.
INCENTIVE PLANS
The Company has an unfunded incentive compensation program, which provides
incentive compensation based on performance against annual plans and over
rolling three-year periods. In addition, Kaiser has a "nonqualified" stock
option plan and the Company has a defined contribution plan for salaried
employees. The Company's expense for all of these plans was $6.0, $7.5, and
$8.3 for the years ended December 31, 1999, 1998, and 1997, respectively.
Up to 8,000,000 shares of Kaiser's Common Stock were reserved for issuance
under its stock incentive compensation plans. At December 31, 1999, 2,192,713
shares of Kaiser's Common Stock remained available for issuance under those
plans. Stock options granted pursuant to the Company's nonqualified stock
option program are granted at or above the prevailing market price, generally
vest at a rate of 20 - 33% per year, and have a five or ten year term.
Information concerning nonqualified stock option plan activity is shown below.
The weighted average price per share for each year is shown parenthetically.
<TABLE>
<CAPTION>
1999 1998 1997
--------- ----------- ----------
<S> <C> <C> <C>
Outstanding at beginning of year ($9.98, $10.45, and $10.33) 3,049,122 819,752 890,395
Granted ($11.15, $9.79 and $10.06) 1,218,068 2,263,170 15,092
Exercised ($7.25, $7.25, and $8.33) (7,920) (10,640) (48,410)
Expired or forfeited ($11.02, $9.60, and $10.12) (20,060) (23,160) (37,325)
--------- ----------- ----------
Outstanding at end of year ($10.24, $9.98, and $10.45) 4,239,210 3,049,122 819,752
========= =========== ==========
Exercisable at end of year ($10.17, $10.09, and $10.53) 1,763,852 1,261,262 601,115
========= =========== ==========
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation ("SFAS No. 123"), the Company is
required to calculate pro forma compensation cost for all stock options granted
subsequent to December 31, 1994. For SFAS No. 123 purposes, the fair value of
the 1999, 1998, and 1997 stock option grants were estimated using a
Black-Scholes option pricing model. The pro forma after-tax effect of the
estimated fair value of the grants would be to increase the net loss in 1999 by
$1.8 and reduce net income in 1998 and 1997 by $1.5 and $.1, respectively.
47
<PAGE> 51
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
8. REDEEMABLE PREFERENCE STOCK
In 1985, the Company issued its Cumulative (1985 Series A) Preference Stock and
its Cumulative (1985 Series B) Preference Stock (together, the "Redeemable
Preference Stock") each of which has a par value of $1 per share and a
liquidation and redemption value of $50 per share plus accrued dividends, if
any. No additional Redeemable Preference Stock is expected to be issued.
Holders of the Redeemable Preference Stock are entitled to an annual cash
dividend of $5 per share, or an amount based on a formula tied to the Company's
pre-tax income from aluminum operations, when and as declared by the Board of
Directors.
The carrying values of the Redeemable Preference Stock are increased each year
to recognize accretion between the fair value (at which the Redeemable
Preference Stock was originally issued) and the redemption value. Changes in
Redeemable Preference Stock are shown below.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Shares:
Beginning of year 421,575 595,053 634,684
Redeemed (31,322) (173,478) (39,631)
-------- -------- --------
End of year 390,253 421,575 595,053
======== ======== ========
</TABLE>
Redemption fund agreements require the Company to make annual payments by March
31 of the subsequent year based on a formula tied to consolidated net income
until the redemption funds are sufficient to redeem all of the Redeemable
Preference Stock. On an annual basis, the minimum payment is $4.3 and the
maximum payment is $7.3. At December 31, 1999, the balance in the redemption
fund was $12.5 (included in Other Assets). The Company also has certain
additional repurchase requirements which are, among other things, based upon
profitability tests.
The Redeemable Preference Stock is entitled to the same voting rights as the
Company's common stock and to certain additional voting rights under certain
circumstances, including the right to elect, along with the other Company's
preference stockholders, two directors whenever accrued dividends have not been
paid on two annual dividend payment dates or when accrued dividends in an
amount equivalent to six full quarterly dividends are in arrears. The
Redeemable Preference Stock restricts the ability of the Company to redeem or
pay dividends on its common stock if the Company is in default on any dividends
payable on Redeemable Preference Stock.
48
<PAGE> 52
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
9. STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Changes in stockholders' equity and comprehensive income were:
<TABLE>
<CAPTION>
Additional Note
Accu- Minimum Receivable
Preference Common Additional mulated Pension From
Stock Stock Capital Deficit Liability Parent Total
---------- ------ ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 1.7 $ 15.4 $ 1,829.8 $ (201.3) $ (2.8) $ (1,578.1) $ 64.7
Net income 52.1 52.1
Minimum pension liability adjustment,
net of tax 2.8 2.8
-------
Comprehensive income 54.9
Interest on note receivable from parent 104.5 (104.5) --
Contribution for LTIP shares .6 .6
Capital contributions 4.9 4.9
Conversions (.1) (.1)
Dividends (.7) (.7)
Redeemable preference stock accretion (2.4) (2.4)
----- ------ --------- -------- ------ ---------- -------
BALANCE, DECEMBER 31, 1997 1.6 15.4 1,939.8 (152.3) -- (1,682.6) 121.9
Net income/Comprehensive income 2.7 2.7
Interest on note receivable from parent 111.5 (111.5) --
Contribution for LTIP shares 1.5 1.5
Conversions (.1) (.1)
Dividends (.6) (.6)
Redeemable preference stock accretion (1.0) (1.0)
----- ------ --------- -------- ------ ---------- -------
BALANCE, DECEMBER 31, 1998 1.5 15.4 2,052.8 (151.2) -- (1,794.1) 124.4
Net income (loss)/Comprehensive
income (52.4) (52.4)
Minimum pension liability adjustment,
net of tax (1.2) (1.2)
-------
Comprehensive income (53.6)
Interest on note receivable from parent 118.8 (118.8) --
Contribution for LTIP shares 1.3 1.3
Capital contributions .1 .1
Dividends (.5) (.5)
Redeemable preference stock accretion (1.0) (1.0)
----- ------ --------- -------- ------ ---------- -------
BALANCE, DECEMBER 31, 1999 $ 1.5 $ 15.4 $ 2,173.0 $ (205.1) $ (1.2) $ (1,912.9) $ 70.7
===== ====== ========= ======== ====== ========== =======
</TABLE>
PREFERENCE STOCK
The Company has four series of $100 par value Cumulative Convertible Preference
Stock ("$100 Preference Stock") with annual dividend requirements of between
4 1/8% and 4 3/4%. The Company has the option to redeem the $100 Preference
Stock at par value plus accrued dividends. The Company does not intend to issue
any additional shares of the $100 Preference Stock.
The $100 Preference Stock can be exchanged for per share cash amounts between
$69 - $80. The Company records the $100 Preference Stock at their exchange
amounts for financial statement presentation.
49
<PAGE> 53
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
KAISER PREFERRED STOCK
PRIDES Convertible - During 1994, Kaiser issued 8,855,550 shares of Kaiser's
8.255% PRIDES Convertible Preferred Stock ("PRIDES") and received net proceeds
for 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
were to 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.
During August 1997, the remaining 8,673,850 outstanding shares of PRIDES were
converted into 7,227,848 shares of Kaiser Common Stock pursuant to the terms of
the PRIDES Certificate of Designations. Further in accordance with the PRIDES
Certificate of Designations, no dividends were paid or payable for the period
June 30, 1997, to, but not including, the date of conversion. The remaining
balance of the intercompany notes of $4.4 associated with dividend payments
that Kaiser did not have to make due to early conversion has been reflected as
a capital contribution.
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 31, 2000, after
which interest and principal will be payable on a 15-year term pursuant to a
predetermined schedule. Accrued interest is accounted for as additional
contribution to capital.
10. RESTRUCTURING OF OPERATIONS
During the second quarter of 1997, the Company recorded a $19.7 restructuring
charge to reflect actions taken and plans initiated to achieve reduced
production costs, decreased corporate selling, general and administrative
expenses, and enhanced product mix. The significant components of the
restructuring charge were: (i) a net loss of approximately $1.4 as a result of
the contribution of certain net assets of the Company's Erie, Pennsylvania,
fabrication plant in connection with the formation of AKW and the subsequent
decision to close the remainder of the Erie plant in order to consolidate its
forging operations into two other facilities; (ii) a charge of $15.6 associated
with asset dispositions regarding product rationalization and geographical
optimization; and (iii) a charge of approximately $2.7 for benefit and other
costs associated with the consolidation or elimination of certain corporate and
other staff functions.
11. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company has a variety of financial commitments, including purchase
agreements, tolling arrangements, forward foreign exchange and forward sales
contracts (see Note 12), 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 Company's share of the aggregate
minimum amount of required future principal payments at December 31, 1999, is
$103.6 which matures as follows: $11.3 in 2000, $14.1 in 2001, $43.0 in 2002,
and $35.2 in 2003. The Company's share of payments, including operating costs
and certain other expenses under the agreements, has ranged between $92.0 -
$100.0 over the past three years. The Company also has agreements to supply
alumina to and to purchase aluminum from Anglesey.
Minimum rental commitments under operating leases at December 31, 1999, are as
follows: years ending December 31, 2000 - $36.0; 2001 - $33.6; 2002 - $29.3;
2003 - $26.2; 2004 - $24.7; thereafter - $88.7. The future minimum rentals
receivable under noncancelable subleases was $82.3 at December 31, 1999.
Rental expenses were $41.1, $34.5, and $30.4, for the years ended December 31,
1999, 1998, and 1997, respectively.
50
<PAGE> 54
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
ENVIRONMENTAL CONTINGENCIES
The Company is subject to a number of environmental laws, to fines or penalties
assessed for alleged breaches of the environmental laws, and to claims and
litigation based upon such laws. The Company currently is subject to a number
of claims under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments Reauthorization
Act of 1986 ("CERCLA"), and, along with certain other entities, has been named
as a potentially responsible party for remedial costs at certain third-party
sites listed on the National Priorities List under CERCLA.
Based on the Company's evaluation of these and other environmental matters, the
Company has established environmental accruals, primarily related to potential
solid waste disposal and soil and groundwater remediation matters. The
following table presents the changes in such accruals, which are primarily
included in Long-term liabilities, for the years ended December 31, 1999, 1998,
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period $ 50.7 $ 29.7 $ 33.3
Additional accruals 1.6 24.5 2.0
Less expenditures (3.4) (3.5) (5.6)
------ ------ ------
Balance at end of period $ 48.9 $ 50.7 $ 29.7
====== ====== ======
</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 $9.0 for the years 2000 through 2004 and
an aggregate of approximately $23.0 thereafter.
As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in these and
other factors may result in actual costs exceeding the current environmental
accruals. The Company believes that it is reasonably possible that costs
associated with these environmental matters may exceed current accruals by
amounts that could range, in the aggregate, up to an estimated $30.0. As the
resolution of these matters is subject to further regulatory review and
approval, no specific assurance can be given as to when the factors upon which
a substantial portion of this estimate is based can be expected to be resolved.
However, the Company is currently working to resolve certain of these matters.
The Company believes that it has insurance coverage available to recover
certain incurred and future environmental costs and is pursuing claims in this
regard. During December 1998, the Company received recoveries totaling
approximately $35.0 from certain of its insurers related to current and future
claims. Based on the Company's analysis, a total of $12.0 of such recoveries
was allocable to previously accrued (expensed) items and, therefore, was
reflected in earnings during 1998. The remaining recoveries were offset against
increases in the total amount of environmental reserves. No assurances can be
given that the Company will be successful in other attempts to recover incurred
or future costs from other insurers or that the amount of recoveries received
will ultimately be adequate to cover costs incurred.
While uncertainties are inherent in the final outcome of these environmental
matters, and it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the resolution
of such uncertainties should not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
ASBESTOS CONTINGENCIES
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 sold for at least 20
years.
51
<PAGE> 55
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
The following table presents the changes in number of such claims pending for
the years ended December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Number of claims at beginning of period 86,400 77,400 71,100
Claims received 29,300 22,900 15,600
Claims settled or dismissed (15,700) (13,900) (9,300)
-------- -------- --------
Number of claims at end of period 100,000 86,400 77,400
======== ======== ========
</TABLE>
The foregoing claims and settlement figures as of December 31, 1999, do not
reflect the fact that the Company has reached agreements under which it expects
to settle approximately 31,900 of the pending asbestos-related claims over an
extended period.
The Company maintains a liability for estimated asbestos-related costs for
claims filed to date and an estimate of claims to be filed over a 10 year
period (i.e., through 2009). The Company's estimate is based on the Company's
view, at each balance sheet date, of the current and anticipated number of
asbestos-related claims, the timing and amounts of asbestos-related payments,
the status of ongoing litigation and settlement initiatives, and the advice of
Wharton Levin Ehrmantraut Klein & Nash, P.A., with respect to the current state
of the law related to asbestos claims. However, there are inherent
uncertainties involved in estimating asbestos-related costs and the Company's
actual costs could exceed the Company's estimates due to changes in facts and
circumstances after the date of each estimate. Further, while the Company does
not presently believe there is a reasonable basis for estimating
asbestos-related costs beyond 2009 and, accordingly, no accrual has been
recorded for any costs which may be incurred beyond 2009, the Company expects
that such costs may continue beyond 2009, and that such costs could be
substantial. As of December 31, 1999, an estimated asbestos-related cost
accrual of $387.8, before consideration of insurance recoveries, has been
reflected in the accompanying financial statements primarily in Long-term
liabilities. The Company estimates that annual future cash payments for
asbestos-related costs will range from approximately $75.0 to $85.0 in the
years 2000 to 2002, approximately $35.0 to $55.0 for each of the years 2003 and
2004, and an aggregate of approximately $58.0 thereafter.
The Company believes that it has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Although the Company has
settled asbestos-related coverage matters with certain of its insurance
carriers, other carriers have not yet agreed to settlements. The Company has
reached preliminary agreements with certain insurance carriers under which it
expects to collect a substantial portion of its 2000 asbestos-related payments.
The timing and amount of future recoveries from these and other insurance
carriers will depend on the pace of claims review and processing by such
carriers and on the resolution of any disputes regarding coverage under such
policies. The Company believes that substantial recoveries from the insurance
carriers are probable. The Company reached this conclusion after considering
its prior insurance-related recoveries in respect of asbestos- related claims,
existing insurance policies, and the advice of Heller Ehrman White & McAuliffe
LLP with respect to applicable insurance coverage law relating to the terms and
conditions of those policies. Accordingly, an estimated aggregate insurance
recovery of $315.5, determined on the same basis as the asbestos-related cost
accrual, is recorded primarily in Other assets at December 31, 1999. However,
no assurances can be given that the Company will be able to project similar
recovery percentages for future asbestos-related claims or that the amounts
related to future asbestos-related claims will not exceed the Company's
aggregate insurance coverage.
Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative developments, and costs
incurred in order to ascertain whether an adjustment to the existing accruals
should be made to the extent that historical experience may differ
significantly from the Company's underlying assumptions. This process resulted
in the Company reflecting charges of $53.2, $12.7, and $8.8 (included in Other
income(expense)) in the years ended December 31, 1999, 1998, and 1997,
respectively, for asbestos-related claims, net of expected insurance
recoveries, based on recent cost and other trends experienced by the Company
and other companies. While uncertainties are inherent in the final outcome of
these asbestos matters and it is presently impossible to determine the actual
costs that ultimately may be incurred and insurance recoveries that will be
received, management currently believes that, based on the factors discussed in
the preceding paragraphs, the resolution of asbestos-related uncertainties and
the incurrence of asbestos-related costs net of related insurance recoveries
should not have a material adverse
52
<PAGE> 56
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
effect on the Company's consolidated financial position or liquidity. However,
as the Company's estimates are periodically re- evaluated, additional charges
may be necessary and such charges could be material to the results of the
period in which they are recorded.
LABOR MATTERS
In connection with the USWA strike and subsequent lock-out by the Company,
certain allegations of unfair labor practices ("ULPs") were filed with the
National Labor Relations Board ("NLRB") by the USWA. As previously disclosed,
the Company responded to all such allegations and believed that they were
without merit. In July 1999, the Oakland, California, regional office of the
NLRB dismissed all material charges filed against the Company. In September
1999, the union filed an appeal of this ruling with the NLRB general counsel's
office in Washington, D.C. If the original decision were to be reversed, the
matter would be referred to an administrative law judge for a hearing whose
outcome would be subject to an additional appeal either by the USWA or the
Company. This process could take months or years. If these proceedings
eventually resulted in a definitive ruling against the Company, it could be
obligated to provide back pay to USWA members at the five plants and such
amount could be significant. However, while uncertainties are inherent in the
final outcome of such matters, the Company believes that the resolution of the
alleged ULPs should not result in a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
OTHER CONTINGENCIES
The Company 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.
12. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
At December 31, 1999, the net unrealized loss on the Company's position in
aluminum forward sales and option contracts (excluding the impact of those
contracts discussed below which have been marked to market), energy forward
purchase and option contracts, and forward foreign exchange contracts, was
approximately $73.9 (based on comparisons to applicable year-end published
market prices). As the Company's hedging activities are generally designed to
lock-in a specified price or range of prices, gains or losses on the derivative
contracts utilized in these hedging activities will be offset by losses or
gains, respectively, on the transactions being hedged.
ALUMINA AND ALUMINUM
The Company's earnings are sensitive to changes in the prices of alumina,
primary aluminum and fabricated aluminum products, and also depend to a
significant degree upon the volume and mix of all products sold. Primary
aluminum prices have historically been subject to significant cyclical price
fluctuations. Alumina prices as well as fabricated aluminum product prices
(which vary considerably among products) are significantly influenced by
changes in the price of primary aluminum but generally lag behind primary
aluminum price changes by up to three months. Since 1993, the Average Midwest
United States transaction price for primary aluminum has ranged from
approximately $.50 to $1.00 per pound.
From time to time in the ordinary course of business, the Company enters into
hedging transactions to provide price risk management in respect of the net
exposure of earnings and cash flows resulting from (i) anticipated sales of
alumina, primary aluminum and fabricated aluminum products, less (ii) expected
purchases of certain items, such as aluminum scrap, rolling ingot, and bauxite,
whose prices fluctuate with the price of primary aluminum. Forward sales
contracts are used by 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 the Company's anticipated sales, and/or (iii)
to permit the Company to realize possible upside price movements. As of
December 31, 1999, the Company had entered into option contracts that
established a price range for 341,000 and 317,000 tons of primary aluminum with
respect to 2000 and 2001, respectively.
53
<PAGE> 57
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
Additionally, through December 31, 1999, the Company had also entered a series
of transactions with a counterparty that will provide the Company with a
premium over the forward market prices at the date of the transaction for 2,000
tons of primary aluminum per month during the period January 2000 through June
2001. The Company also contracted with the counterparty to receive certain
fixed prices (also above the forward market prices at the date of the
transaction) on 4,000 tons of primary aluminum per month over a three year
period commencing October 2001, unless market prices during certain periods
decline below a stipulated "floor" price, in which case the fixed price sales
portion of the transactions terminate. The price at which the October 2001 and
after transactions terminate is well below current market prices. While the
Company believes that the October 2001 and after transactions are consistent
with its stated hedging objectives, these positions do not qualify for
treatment as a "hedge" under current accounting guidelines. Accordingly, these
positions will be "marked-to-market" each period. For the year ended December
31, 1999, the Company recorded mark-to-market pre-tax charges of $32.8 in Other
income (expense) associated with the transactions described in this paragraph.
As of December 31, 1999, the Company had sold forward virtually all of the
alumina available to it in excess of its projected internal smelting
requirements for 2000 and 2001 at prices indexed to future prices of primary
aluminum.
ENERGY
The Company is exposed to energy price risk from fluctuating prices for fuel
oil and diesel oil consumed in the production process. 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
December 31, 1999, the Company held a combination of fixed price purchase and
option contracts for an average of 232,000 barrels per month of fuel oil for
2000.
FOREIGN CURRENCY
The Company enters into forward exchange contracts to hedge material cash
commitments to foreign subsidiaries or affiliates. At December 31, 1999, the
Company had net forward foreign exchange contracts totaling approximately $88.5
for the purchase of 133.0 Australian dollars from January 2000 through May
2001, in respect of its Australian dollar denominated commitments from January
2000 through May 2001. In addition, the Company has entered into an option
contract to purchase 42.0 Australian dollars for the period from January 2000
through June 2001.
13. SEGMENT AND GEOGRAPHICAL AREA INFORMATION
The Company's operations are located in many foreign countries, including
Australia, Canada, Ghana, Jamaica, and the United Kingdom. Foreign operations
in general may be more vulnerable than domestic operations due to a variety of
political and other risks. Sales and transfers among geographic areas are made
on a basis intended to reflect the market value of products.
The Company's operations are organized and managed by product type. The Company
operates in four segments of the aluminum industry: Alumina and bauxite,
Primary aluminum, Flat-rolled products and Engineered products. The Alumina and
bauxite business unit's principal products are smelter grade alumina and
chemical grade alumina hydrate, a value-added product, for which the Company
receives a premium over smelter grade market prices. The Primary aluminum
business unit produces commodity grade products as well as value-added products
such as rod and billet, for which the Company receives a premium over normal
commodity market prices. The Flat-rolled products group sells to the beverage
container and specialty coil markets as well as value-added products such as
heat treat aluminum sheet and plate which are used in the aerospace and general
engineering markets. The Engineered products business unit serves a wide range
of industrial segments including the automotive, distribution, aerospace and
general engineering markets.
The Company uses a portion of its bauxite, alumina and primary aluminum
production for additional processing at its downstream facilities. Transfers
between business units are made at estimated market prices. The accounting
policies of the segments are the same as those described in Note 1. Business
unit results are evaluated internally by management before any allocation of
corporate overhead and without any charge for income taxes or interest expense.
54
<PAGE> 58
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
Financial information by operating segment at December 31, 1999, 1998, and 1997
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
Bauxite and Alumina:
Net sales to unaffiliated customers $ 397.9 (1) $ 472.7 $ 411.7
Intersegment sales 129.0 (1) 135.8 201.7
--------- ---------- ----------
526.9 608.5 613.4
--------- ---------- ----------
Primary Aluminum:
Net sales to unaffiliated customers 439.1 409.8 543.4
Intersegment sales 240.6 233.5 273.8
--------- ---------- ----------
679.7 643.3 817.2
--------- ---------- ----------
Flat-Rolled Products 576.2 714.6 743.3
Engineered Products 542.6 581.3 581.0
Minority interests 88.5 78.0 93.8
Eliminations (369.6) (369.3) (475.5)
--------- ---------- ----------
$ 2,044.3 $ 2,256.4 $ 2,373.2
========= ========== ==========
Equity in income (loss) of unconsolidated affiliates:
Bauxite and Alumina $ 3.4 $ (3.2) $ (7.0)
Primary Aluminum (1.0) 1.2 5.1
Engineered Products 2.5 7.8 4.8
Corporate and Other -- (.4) --
--------- ---------- ----------
$ 4.9 $ 5.4 $ 2.9
========= ========== ==========
Operating income (loss):
Bauxite and Alumina $ (6.0)(2) $ 42.0 (6) $ 54.2
Primary Aluminum 8.0 (3) 49.9 (6) 148.3
Flat-Rolled Products 17.1 70.8 (6) 28.2 (7)
Engineered Products 38.6 47.5 (6) 42.3 (7)
Micromill (30.7)(4) (63.4)(4) (24.5)
Eliminations 6.9 8.9 (5.9)
Corporate and Other (62.5) (64.7) (72.7)(7)
--------- ---------- ----------
$ (28.6) $ 91.0 $ 169.9
========= ========== ==========
Depreciation and amortization:
Bauxite and Alumina $ 29.7 (5) $ 36.4 $ 39.4
Primary Aluminum 27.8 29.9 30.4
Flat-Rolled Products 16.2 16.1 16.0
Engineered Products 10.7 10.8 11.2
Micromill 2.3 3.6 3.2
Corporate and Other 2.8 2.3 2.3
--------- ---------- ----------
$ 89.5 $ 99.1 $ 102.5
========= ========== ==========
Capital expenditures:
Bauxite and Alumina $ 30.4 $ 26.9 $ 27.8
Primary Aluminum 12.8 20.7 42.6
Flat-Rolled Products 16.6 20.4 16.8
Engineered Products 7.8 8.4 31.2
Micromill -- .2 8.3
Corporate and Other .8 1.0 1.8
--------- ---------- ----------
$ 68.4 $ 77.6 $ 128.5
========= ========== ==========
</TABLE>
(1) Net sales for 1999 include approximately 264 tons of alumina purchased
from third parties and resold to certain unaffiliated customers of the
Gramercy facility and 131 tons of alumina purchased from third parties and
resold to the Company's primary business unit.
55
<PAGE> 59
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
(2) Operating income (loss) for 1999 included estimated business interruption
insurance recoveries of $41.0.
(3) Operating income (loss) for 1999 included potline preparation and restart
costs of $12.8.
(4) Operating income (loss) for 1999 and 1998 included impairment charges of
$19.1 and $45.0, respectively.
(5) Depreciation was suspended for the Gramercy facility for the last six
months of 1999 as a result of the July 5, 1999, incident. Depreciation
expense for the Gramercy facility for the six months ended June 30, 1999,
was approximately $6.0.
(6) Operating income (loss) for 1998 for the Bauxite and alumina, Primary
aluminum, Flat-rolled products and Engineered products segments included
unfavorable strike-related impacts of approximately $11.0, $29.0, $16.0,
and $4.0, respectively.
(7) Operating income (loss) for 1997 included pre-tax charge of $2.6, $12.5
and $4.6 related to the restructuring of operations for the Flat-rolled
products, Engineered products and Corporate segments, respectively.
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Investments in and advances to unconsolidated affiliates:
Bauxite and Alumina $ 71.6 $ 76.8
Primary Aluminum 25.3 27.6
Engineered Products -- 23.9
-------- --------
$ 96.9 $ 128.3
======== ========
Segment assets:
Bauxite and Alumina $ 777.7 $ 669.0
Primary Aluminum 560.8 580.8
Flat-Rolled Products 423.2 431.2
Engineered Products 253.1 294.5
Micromill 3.0 25.3
Corporate and Other 1,185.1 994.0
-------- --------
$3,202.9 $2,994.8
======== ========
</TABLE>
Geographical information for net sales, based on country of origin, and
long-lived assets follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States $1,401.8 $1,698.0 $1,720.3
Jamaica 233.1 237.0 204.6
Ghana 153.2 89.8 234.2
Other Foreign 256.2 231.6 214.1
-------- -------- --------
$2,044.3 $2,256.4 $2,373.2
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
-------- --------
Long-lived assets: (1)
<S> <C> <C>
United States $ 688.1 $ 757.9
Jamaica 288.2 289.2
Ghana 84.1 90.2
Other Foreign 90.2 99.7
-------- --------
$1,150.6 $1,237.0
======== ========
</TABLE>
(1) Long-lived assets include Property, plant, and equipment, net, and
Investments in and advances to unconsolidated affiliates.
56
<PAGE> 60
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
The aggregate foreign currency gain included in determining net income was
immaterial for the years ended December 31, 1999, 1998, and 1997.
No single customer accounted for sales in excess of 10% of total revenue in
1999, 1998, and 1997.
Export sales were less than 10% of total revenue during the years ended
December 31, 1999, 1998, and 1997.
14. SUBSIDIARY GUARANTORS
Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance Corporation
("KFC"), Kaiser Jamaica Corporation ("KJC"), Alpart Jamaica Inc. ("AJI"),
Kaiser Bellwood Corporation ("Bellwood"), and Kaiser Micromill Holding, LLC,
Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser
Texas Sierra Micromills, LLC (collectively referred to as the "Micromill
Subsidiaries") are domestic wholly owned (direct or indirect) subsidiaries of
the Company that have provided subordinated guarantees of the 9 7/8% Notes, the
10 7/8% Notes and the 12 3/4% Notes (the "Notes") (see Note 5). KAAC and KJC and
AJI are direct subsidiaries, which serve as holding companies for the Company's
investments in QAL and Alpart, respectively. KFC is a wholly owned subsidiary
of KAAC, whose principal business is making loans to the Company and its
subsidiaries. Bellwood is a wholly owned subsidiary formed in June 1997 to
acquire an extrusion plant located in Richmond, Virginia from Reynolds Metals
Company. The Micromill Subsidiaries are domestic wholly owned (direct or
indirect) subsidiaries of the Company which were formed to hold (directly or
indirectly) certain of the Company's interests in the Reno, Nevada and certain
possible future Micromill facilities and related projects, if any. As the
Company sold the Micromill assets in early 2000, the only assets of the
Micromill Subsidiaries will be a investment of future payments based on
subsequent performance and profitability of the Micromill technology (see Note
4).
Additionally, in March 1999 Kaiser Transaction Corp. ("KTC"), a wholly-owned
subsidiary who acquired the remaining 45% in an alumina marketing venture from
the Company's joint venture partner, also became a subsidiary guarantor of the
Notes pursuant to the indentures to the Notes. KAAC, KFC, KJC, AJI, Bellwood,
the Micromill Subsidiaries and KTC are hereinafter collectively referred to as
the "Subsidiary Guarantors."
Summary combined financial information for the Subsidiary Guarantors as of
December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and
1997, is shown below. Such summary combined financial information only includes
the balances and results of KTC from March 1, 1999 and Bellwood from July 1,
1997, the dates of acquisition.
57
<PAGE> 61
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
Summary of Combined Financial Position
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets $ 142.2 $ 156.5
Due from the Company 896.8 806.4
Investments in and advances to unconsolidated affiliates 75.4 52.9
Property, plant, and equipment - net 299.8 323.6
Other assets 39.6 34.8
-------- --------
Total $1,453.8 $1,374.2
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 174.7 $ 144.8
Due to the Company 518.2 453.9
Other long-term liabilities 55.3 59.7
Long-term debt - net of current maturity 60.0 60.0
Minority interests 80.5 81.5
Stockholders' equity 565.1 574.3
-------- --------
Total $1,453.8 $1,374.2
======== ========
</TABLE>
Summary of Combined Operations
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales $528.4 $522.3 $495.1
Costs and expenses 517.4 526.0 452.2
------ ------ ------
Operating income 11.0 (3.7) 42.9
Other income (expense):
Interest and other income 10.9 34.8 49.4
Interest expense (15.1) (14.6) (18.5)
------ ------ ------
Income before income taxes and minority interests 6.8 16.5 73.8
Provision for income taxes (21.9) (22.6) (43.8)
Minority interests 5.1 5.3 5.8
------ ------ ------
Net income (loss) $(10.0) $ (.8) $ 35.8
====== ====== ======
</TABLE>
Notes to Summary of Combined Financial Information for the Subsidiary Guarantors
Costs and Expenses -- Costs and expenses for the years ended December 31, 1999
and 1998, include impairment charges of $19.1 and $45.0, respectively, to
reduce the carrying value of the Micromill assets to fair value (see Note 4).
Income Taxes -- The Subsidiary Guarantors, excluding the Micromill Subsidiaries,
are all members of the KACC Subgroup (see Note 6). The provision for income
taxes reflected in the Summary of Combined Operations for these entities was
computed as if each of these entities filed tax returns on a separate company
basis. No provision for income taxes has been reflected for the Micromill
Subsidiaries for the 1999, 1998 or 1997 pre-tax net losses of approximately
$31.0, $52.7 and $24.5, as the entities are not subject to income tax. However,
taxable income or loss of the Micromill Subsidiaries is included in the taxable
income (loss) of the Company. Included in Other assets and Other long-term
liabilities at December 31, 1999, are $37.8 and $35.7 of deferred income tax
assets and liabilities, respectively, related to the Subsidiary Guarantors,
excluding the Micromill subsidiaries.
58
<PAGE> 62
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
Receivables and Payables -- At December 31, 1999, receivables from and payables
to the Company reflected in the Summary of Combined Financial Position include
$861.7 and $229.2 of interest bearing loans, respectively. The similar amounts
at December 31, 1998 were $747.9 and $213.3.
Inventory Valuation -- Inventories are stated at first-in, first-out (FIFO)
cost, not in excess of market.
Investments -- At December 31, 1999, KAAC held a 28.3% interest in QAL. This
investment is accounted for by the equity method. The equity in QAL's income
before income taxes of $3.4 in 1999 and loss before income taxes of $3.2 in
1998 is reflected in the Summary of Combined Operations in other income
(expense).
Foreign Currency -- The functional currency of the Subsidiary Guarantors is the
United States Dollar, and accordingly, translation gains (losses) are included
in net income (loss) in the Summary of Combined Operations. Such amounts
totaled ($16.4), $17.2, and $44.1 for the years ended December 31, 1999, 1998,
and 1997, respectively.
59
<PAGE> 63
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
(In millions of dollars, except share amounts) March 31, June 30, September 30, December 31,
----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
1999
Net sales $ 479.4 $ 525.0 $ 520.3 $ 519.6
Operating income (loss) (32.9) .8 (12.0) 15.5
Net income (loss) (37.7) (15.3)(1) (38.8)(2) 39.4(3)
1998
Net sales $ 597.0 $ 614.8 $ 541.6 $ 503.0
Operating income (loss) 45.0 55.4 30.9 (40.3)
Net income (loss) 12.4 17.4 11.2(4) (38.3)(5)
1997
Net sales $ 547.4 $ 597.1 $ 634.1 $ 594.6
Operating income 32.8 35.6 54.6 46.9
Net income 4.3 14.6(6) 18.4 14.8
</TABLE>
(1) Includes three essentially offsetting items, a pre-tax gain of $50.5 on
the sale of the Company's interests in AKW, a non-cash pre- tax charge of
$38.0 for asbestos-related claims and a pre-tax charge of $13.5 to reflect
a mark-to-market adjustment on certain primary aluminum hedging
transactions.
(2) Includes a non-cash pre-tax charge of $19.1 to reduce the carrying value
of the Company's Micromill assets, a non-cash pre-tax charge of $15.2 for
asbestos-related claims and a pre-tax charge of $5.9 to reflect a
mark-to-market adjustment on certain primary aluminum hedging
transactions.
(3) Includes a pre-tax gain of $85.0 on involuntary conversion at Gramercy
facility, which amount represents the difference between the minimum
expected property damage reimbursement amount for the Gramercy alumina
refinery and the net carrying value of the damaged property.
(4) Includes two essentially offsetting non-recurring items, a favorable $8.3
non-cash tax provision benefit resulting from the resolution of certain
matters and an approximate $10.0 unfavorable gross profit impact of
preparing for a strike by employees represented by the USWA at five
locations.
(5) Includes an unfavorable pre-tax strike-related gross profit impact of
approximately $50.0, and a non-cash pre-tax charge of $45.0 related to
impairment of the Company's Micromill assets.
(6) Includes a $19.7 pre-tax charge for restructuring of operations, an
offsetting after-tax benefit of $12.5 related to the settlement of certain
tax matters and a $5.8 pre-tax charge for litigation matters.
60
<PAGE> 64
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
(In millions of dollars) 1999 1998 1997 1996 1995
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21.2 $ 98.3 $ 15.8 $ 81.3 $ 21.7
Receivables 266.9 288.2 345.3 255.6 310.2
Inventories 546.1 543.5 568.3 562.2 525.7
Prepaid expenses and other current assets 145.6 104.9 121.3 127.8 76.6
---------- ---------- --------- ---------- ---------
Total current assets 979.8 1,034.9 1,050.7 1,026.9 934.2
Investments in and advances to unconsolidated affiliates 96.9 128.3 148.6 168.4 178.2
Property, plant, and equipment - net 1,053.7 1,108.7 1,171.8 1,168.7 1,109.6
Deferred income taxes 438.2 376.9 329.0 263.3 268.8
Other assets 634.3 346.0 317.2 308.6 323.5
---------- ---------- --------- ---------- ---------
Total $ 3,202.9 $ 2,994.8 $ 3,017.3 $ 2,935.9 $ 2,814.3
========== ========== ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals $ 501.5 $ 434.6 $ 457.6 $ 453.1 $ 448.0
Accrued postretirement medical benefit obligation -
current portion 51.5 48.2 45.3 50.1 46.8
Payable to affiliates 84.6 75.3 82.4 96.9 95.3
Long-term debt - current portion .3 .4 8.8 8.9 8.9
Notes payable to parent - current portion -- -- -- 8.6 10.7
---------- ---------- --------- ---------- ---------
Total current liabilities 637.9 558.5 594.1 617.6 609.7
Long-term liabilities 727.3 533.0 492.0 458.1 548.5
Accrued postretirement medical benefit obligation 678.3 694.3 720.3 722.5 734.0
Long-term debt 972.5 962.6 962.9 953.0 749.2
Notes payable to Parent -- -- -- -- 8.6
Minority interests 96.7 101.9 98.4 92.5 91.4
Redeemable preference stock 19.5 20.1 27.7 27.5 29.6
Stockholders' equity:
Preference stock 1.5 1.5 1.6 1.7 1.7
Common stock 15.4 15.4 15.4 15.4 15.4
Additional capital 2,173.0 2,052.8 1,939.8 1,829.8 1,730.7
Retained earnings (accumulated deficit) (205.1) (151.2) (152.3) (201.3) (210.9)
Accumulated other comprehensive income - additional
minimum pension liability (1.2) -- -- (2.8) (13.8)
Less: Note receivable from parent (1,912.9) (1,794.1) (1,682.6) (1,578.1) (1,479.8)
---------- ---------- --------- ---------- ---------
Total stockholders' equity 70.7 124.4 121.9 64.7 43.3
---------- ---------- --------- ---------- ---------
Total $ 3,202.9 $ 2,994.8 $ 3,017.3 $ 2,935.9 $ 2,814.3
========== ========== ========= ========== =========
</TABLE>
61
<PAGE> 65
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, except share amounts) 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 2,044.3 $ 2,256.4 $ 2,373.2 $ 2,190.5 $ 2,237.8
Costs and expenses: --------- --------- --------- --------- ---------
Cost of products sold 1,859.2 1,906.2 1,951.2 1,857.5 1,787.0
Depreciation and amortization 89.5 99.1 102.5 107.6 105.7
Selling, administrative, research and development, and
general 105.1 115.1 129.9 125.3 134.0
Impairment of Micromill(TM)assets/restructuring of operations 19.1 45.0 19.7 -- --
--------- --------- --------- --------- ---------
Total costs and expenses 2,072.9 2,165.4 2,203.3 2,090.4 2,026.7
--------- --------- --------- --------- ---------
Operating income (loss) (2) (28.6) 91.0 169.9 100.1 211.1
Other income (expense):
Interest expense (110.1) (110.0) (110.7) (93.4) (93.9)
Gain on involuntary conversion at Gramercy facility 85.0 -- -- -- --
Other - net (1) (35.8) 3.5 2.8 (2.6) (14.1)
--------- --------- --------- --------- ---------
Income (loss) before income taxes, minority interests, and
extraordinary loss (89.5) (15.5) 62.0 4.1 103.1
Benefit (provision) for income taxes 32.6 16.4 (9.4) 8.4 (37.4)
Minority interests 4.5 1.8 (.5) .7 (.4)
--------- --------- --------- --------- ---------
Net income (loss) $ (52.4) $ 2.7 $ 52.1 $ 13.2 $ 65.3
========= ========= ========= ========= ==========
</TABLE>
(1) 1999 includes a gain of $50.5 on the sale of the Company's interests in
AKW, non-cash charges of $53.2 for asbestos-related claims and charges of
$32.8 to reflect mark-to-market adjustments on certain primary aluminum
hedging transactions.
(2) 1998 includes an adverse strike-related impact of approximately $60.0.
62
<PAGE> 66
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, and such information is incorporated by reference from
such definitive proxy statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Financial Statements and Schedules
<TABLE>
<CAPTION>
1. Financial Statements....................................................................Page
<S> <C>
Report of Independent Public Accountants......................................................31
Consolidated Balance Sheets...................................................................32
Statements of Consolidated Income (Loss)......................................................33
Statements of Consolidated Cash Flows.........................................................34
Notes to Consolidated Financial Statements....................................................35
Quarterly Financial Data (Unaudited)..........................................................60
Five-Year Financial Data......................................................................61
</TABLE>
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 65), 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 65), which index is
incorporated herein by reference.
63
<PAGE> 67
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.
<TABLE>
<S> <C>
KAISER ALUMINUM & CHEMICAL CORPORATION
Date: March 10, 2000 By Raymond J. Milchovich
-----------------------------------------------------
Raymond J. Milchovich
President, Chief Executive Officer,
Chief Operating Officer and Director
</TABLE>
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.
<TABLE>
<S> <C>
Date: March 10, 2000
Raymond J. Milchovich
-----------------------------------------------------
Raymond J. Milchovich
President, Chief Executive Officer,
Chief Operating Officer and Director
Date: March 10, 2000
John T. La Duc
-----------------------------------------------------
John T. La Duc
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: March 10, 2000
Daniel D. Maddox
-----------------------------------------------------
Daniel D. Maddox
Vice President and Controller
(Principal Accounting Officer)
Date: March 10, 2000
George T. Haymaker, Jr.
-----------------------------------------------------
George T. Haymaker, Jr.
Chairman of the Board
Date: March 10, 2000
Robert J. Cruikshank
-----------------------------------------------------
Robert J. Cruikshank
Director
Date: March 10, 2000
Charles E. Hurwitz
-----------------------------------------------------
Charles E. Hurwitz
Director
Date: March 10, 2000
Ezra G. Levin
-----------------------------------------------------
Ezra G. Levin
Director
Date: March 10, 2000
James D. Woods
-----------------------------------------------------
James D. Woods
Director
</TABLE>
64
<PAGE> 68
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
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, 1991, 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 By-Laws of Kaiser Aluminum & Chemical
Corporation, dated October 1, 1997 (incorporated by reference to
Exhibit 3.3 to the Report on Form 10-Q for the quarterly period ended
September 30, 1997, filed by KACC, File No. 1-3605).
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, to the
Indenture, dated as of February 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 Second Supplemental Indenture, dated as of February 1, 1996, to the
Indenture, dated as of February 1, 1993 (incorporated by reference to
Exhibit 4.3 to the Report on Form 10-K for the period ended December
31, 1995, filed by Kaiser Aluminum Corporation ("Kaiser" or "KAC"),
File No. 1-9447).
4.4 Third Supplemental Indenture, dated as of July 15, 1997, to the
Indenture, dated as of February 1, 1993 (incorporated by reference to
Exhibit 4.1 to the report on Form 10-Q for the quarterly period ended
June 30, 1997, filed by KAC, File No. 1-9447).
4.5 Fourth Supplemental Indenture, dated as of March 31, 1999, to the
Indenture, dated as of February 1, 1993 (incorporated by reference to
Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended
March 31, 1999, filed by KAC, File No. 1-9447).
4.6 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 97/8% 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).
4.7 First Supplemental Indenture, dated as of February 1, 1996, to the
Indenture, dated as of February 17, 1994 (incorporated by reference
to Exhibit 4.5 to the Report on Form 10-K for the period ended
December 31, 1995, filed by KAC, File No. 1-9447).
4.8 Second Supplemental Indenture, dated as of July 15, 1997, to the
Indenture, dated as of February 17, 1994 (incorporated by reference
to Exhibit 4.2 to the report on Form 10-Q for the quarterly period
ended June 30, 1997, filed by KAC, File No. 1-9447).
4.9 Third Supplemental Indenture, dated as of March 31, 1999, to the
Indenture, dated as of February 17, 1994 (incorporated by reference
to Exhibit 4.2 to the Report on From 10-Q for the quarterly period
ended March 31, 1999, filed by KAC, File No. 1-9447).
</TABLE>
65
<PAGE> 69
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.10 Indenture, dated as of October 23, 1996, among KACC, as Issuer,
Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser
Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill
Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill
Holdings, LLC and Kaiser Texas Sierra Micromills, LLC, as Subsidiary
Guarantors, and First Trust National Association, as Trustee,
regarding KACC's 107/8% Series B Senior Notes Due 2006 (incorporated
by reference to Exhibit 4.2 to the Report on Form 10-Q for the
quarterly period ended September 30, 1996, filed by KAC, File No.
1-9447).
4.11 First Supplemental Indenture, dated as of July 15, 1997, to the
Indenture, dated as of October 23, 1996 (incorporated by reference to
Exhibit 4.3 to the Report on Form 10-Q for the quarterly period ended
June 30, 1997, filed by KAC, File No. 1-9447).
4.12 Second Supplemental Indenture, dated as of March 31, 1999, to the
Indenture, dated as of October 23, 1996 (incorporated by reference to
Exhibit 4.3 to the Report on Form 10-Q for the quarterly period ended
March 31, 1999, filed by KAC, File No. 1-9447).
4.13 Indenture, dated as of December 23, 1996, among KACC, as Issuer,
Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser
Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill
Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill
Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary
Guarantors, and First Trust National Association, as Trustee,
regarding KACC's 10 7/8% Series D Senior Notes due 2006 (incorporated
by reference to Exhibit 4.4 to the Registration Statement on Form
S-4, dated January 2, 1997, filed by KACC, Registration No.
333-19143).
4.14 First Supplemental Indenture, dated as of July 15, 1997, to the
Indenture, dated as of December 23, 1996 (incorporated by reference
to Exhibit 4.4 to the Report on Form 10-Q for the quarterly period
ended June 30, 1997, filed by KAC, File No. 1-9447).
4.15 Second Supplemental Indenture, dated as of March 31, 1999, to the
Indenture, dated as of December 23, 1996 (incorporated by reference
to Exhibit 4.4 to the Report on From 10-Q for the quarterly period
ended March 31, 1999, filed by KAC, File No. 1-9447).
4.16 Credit Agreement, dated as of February 15, 1994, among KAC, KACC, the
financial institutions a party thereto, and BankAmerica Business
Credit, Inc., as Agent (incorporated by reference to Exhibit 4.4 to
the Report on Form 10-K for the period ended December 31, 1993, filed
by KAC, File No. 1-9447).
4.17 First Amendment to Credit Agreement, dated as of July 21, 1994,
amending the Credit Agreement, dated as of February 15, 1994, among
KAC, KACC, 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).
4.18 Second Amendment to Credit Agreement, dated as of March 10, 1995,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KAC, KACC, the financial institutions party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.6 to the Report on Form 10-K for the period
ended December 31, 1994, filed by KAC, File No. 1-9447).
4.19 Third Amendment to Credit Agreement, dated as of July 20, 1995,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KAC, KACC, the financial institutions a 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, 1995, filed by KAC, File No. 1-9447).
</TABLE>
66
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.20 Fourth Amendment to Credit Agreement, dated as of October 17, 1995,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KAC, KACC, the financial institutions a 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 September 30, 1995, filed by KAC, File No. 1-9447).
4.21 Fifth Amendment to Credit Agreement, dated as of December 11, 1995,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KAC, KACC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.11 to the Report on Form 10-K for the period
ended December 31, 1995, filed by KAC, File No. 1-9447).
4.22 Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KAC, KACC, the financial institutions a 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 September 30, 1996, filed by KAC, File No. 1-9447).
4.23 Seventh Amendment to Credit Agreement, dated as of December 17, 1996,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KAC, KACC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.18 to the Registration Statement on Form S-4,
dated January 2, 1997, filed by KACC, Registration No. 333-19143).
4.24 Eighth Amendment to Credit Agreement, dated as of February 24, 1997,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, Kaiser, the financial institutions a party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.16 to the Report on Form 10-K
for the period ended December 31, 1996, filed by KAC, File No.
1-9447).
4.25 Ninth Amendment to Credit Agreement, dated as of April 21, 1997,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, KAC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.5 to the Report on From 10-Q for the quarterly
period ended June 30, 1997, filed by KAC, File No. 1-9447).
4.26 Tenth amendment to Credit Agreement, dated as of June 25, 1997,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, KAC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.6 to the Report on Form 10-Q for the quarterly
period ended June 30, 1997, filed by KAC, File No. 1-9447).
4.27 Eleventh Amendment to Credit Agreement, dated as of October 20, 1997,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, KAC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.7 to the Report on Form 10-Q for the quarterly
period ended September 30, 1997, filed by KAC, File No. 1-9447).
4.28 Twelfth Amendment to Credit Agreement, dated as of January 13, 1998,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, KAC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.24 to the Report on Form 10-K for the period
ended December 31, 1997, filed by KAC, File No. 1-9447).
4.29 Thirteenth Amendment to Credit Agreement, dated as of July 20, 1998,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, KAC, the financial institutions party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4 to the report on Form 10-Q for the quarterly
period ended June 30, 1998, filed by KAC, File No. 1-9447).
</TABLE>
67
<PAGE> 71
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.30 Fourteenth Amendment to Credit Agreement, dated as of December 11,
1998, amending the Credit Agreement, dated as of February 15, 1994,
as amended, among KACC, KAC, the financial institutions party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.26 to the Report on Form 10-K
for the period ended December 31, 1998, filed by KAC, File No.
1-9447).
4.31 Fifteenth Amendment to Credit Agreement, dated as of February 23,
1999, amending the Credit Agreement, dated as of February 15, 1994,
as amended, among KACC, KAC, the financial institutions party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.27 to the Report on Form 10-K
for the period ended December 31, 1998, filed by KAC, File No.
1-9447).
4.32 Sixteenth Amendment to Credit Agreement, dated as of March 26, 1999,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, KAC, the financial institutions party thereto,
and BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.28 to the Report on Form 10-K for the period
ended December 31, 1998, filed by KAC, File No. 1-9447).
4.33 Seventeenth Amendment to Credit Agreement, dated as of September 24,
1999, amending the Credit Agreement, dated as February 15, 1994, as
amended, among KACC, KAC, the financial institutions party thereto
and BankAmerica Business Credit, as Agent (incorporated by reference
to Exhibit 4.1 to the Report on From 10-Q for the quarterly period
ended September 30, 1999, filed by KAC, File No. 1-9447).
*4.34 Eighteenth Amendment to Credit Agreement, dated as of February 11,
2000, amending the Credit Agreement, dated as of February 15, 1994,
as amended, among KACC, KAC, the financial institutions party
thereto, and Bank of America, N.A. (Successor to BankAmerica Business
Credit, Inc.), as Agent.
*4.35 Limited Waiver Regarding Repayment of CARIFA Bonds, dated February
17, 2000, among KAC, KACC, the financial institutions party thereto,
and Bank of America, N.A., as Agent.
4.36 Intercompany Note between KAC and KACC (incorporated by reference to
Exhibit 10.11 to the Report on Form 10-K for the period ended
December 31, 1996, filed by MAXXAM Inc. ("MAXXAM"), File No. 1-3924).
4.37 Confirmation of Amendment of Non-Negotiable Intercompany Note, dated
as of October 6, 1993, between KAC and KACC (incorporated by
reference to Exhibit 10.12 to the Report on Form 10-K for the period
ended December 31, 1996, filed by MAXXAM, File No. 1-3924).
4.38 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).
4.39 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).
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).
</TABLE>
68
<PAGE> 72
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.2 Tax Allocation Agreement, dated as of December 21, 1989, 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, dated as of February 26, 1991, 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).
Executive Compensation Plans and Arrangements
[Exhibits 10.5 - 10.30, inclusive]
10.5 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).
10.6 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).
10.7 Kaiser 1995 Employee Incentive Compensation Program (incorporated by
reference to Exhibit 10.1 to the Report on Form 10-Q for the
quarterly period ended March 31, 1995, filed by KAC, File No.
1-9447).
10.8 Kaiser 1995 Executive Incentive Compensation Program (incorporated by
reference to Exhibit 99 to the Proxy Statement, dated April 26, 1995,
filed by KAC, File No. 1-9447).
10.9 Kaiser 1997 Omnibus Stock Incentive Plan (incorporated by reference
to Appendix A to the Proxy Statement, dated April 29, 1997, filed by
KAC, File No. 1-9447).
10.10 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).
10.11 First Amendment to Employment Agreement by and between KACC, KAC and
George T. Haymaker, Jr. (incorporated by reference to Exhibit 10 to
the Report on Form 10-Q for the quarterly period ended June 30, 1996,
filed by KAC, File No. 1-9447).
10.12 Second Amendment to Employment Agreement, dated as of December 10,
1997, by and between KAC, KACC, and George T. Haymaker, Jr.
(incorporated by reference to Exhibit 10.12 to the Report on Form
10-K for the period ended December 31, 1997, filed by KAC, File No.
1-9447).
*10.13 Director and Non-Executive Chairman Agreement, dated January 1, 2000,
among KAC, KACC and George T. Haymaker, Jr.
10.14 Letter Agreement, dated January 1995, between KAC and Charles E.
Hurwitz, granting Mr. Hurwitz stock options under the Kaiser 1993
Omnibus Stock Incentive Plan (incorporated by reference to Exhibit
10.17 to the Report on Form 10-K for the period ended December 31,
1994, filed by KAC, File No. 1-9447).
10.15 Employment Agreement between KACC and Raymond J. Milchovich made
effective for the period from January 1, 1998, to December 31, 2002
(incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q
for the quarterly period ended September 30, 1998, filed by KAC, File
No. 1-9447).
</TABLE>
69
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.16 Employment Agreement, dated as of June 1, 1999, between the Company
and Raymond J. Milchovich (incorporated by reference to Exhibit 10.1
to the Report on From 10-Q for the quarterly period ended June 30,
1999, filed by KAC, File No. 1-9447).
10.17 Time-Based Stock Option Grant Pursuant to the Kaiser 1997 Omnibus
Stock Incentive Plan to Raymond J. Milchovich, effective July 2, 1998
(incorporated by reference to Exhibit 10.4 to the Report on Form 10-Q
for the quarterly period ended September 30, 1998, filed by KAC, File
No. 1-9447).
10.18 Restated Promissory Note, dated June 14, 1999, from Raymond J.
Milchovich to the Company (incorporated by reference to Exhibit 10.2
to the Report on Form 10-Q for the quarterly period ended June 30,
1999, filed by KAC, File No. 1-9447).
10.19 Employment Agreement between KACC and John T. La Duc made effective
for the period from January 1, 1998, to December 31, 2002
(incorporated by reference to Exhibit 10.5 to the Report on From 10-Q
for the quarterly period ended September 30, 1998, filed by KAC, File
No. 1-9447).
10.20 Time-Based Stock Option Grant Pursuant to the Kaiser 1997 Omnibus
Stock Incentive Plan to John T. La Duc, effective July 10, 1998
(incorporated by reference to Exhibit 10.6 to the Report on Form 10-Q
for the quarterly period ended September 30, 1998, filed by KAC, File
No. 1-9447).
10.21 Time-Based Stock Option Grant Pursuant to the Kaiser 1997 Omnibus
Stock Incentive Plan to George T. Haymaker, Jr., effective January 1,
1998 (incorporated by reference to Exhibit 10.18 to the Report on
Form 10-K for the period ended December 31, 1998, filed by KAC, File
No. 1-9447).
10.22 Performance-Accelerated Stock Option Grant Pursuant to the Kaiser
1997 Omnibus Stock Incentive Plan to George T. Haymaker, Jr.,
effective January 1, 1998 (incorporated by reference to Exhibit 10.19
to the Report on Form 10-K for the period ended December 31, 1998,
filed by KAC, File No. 1-9447).
10.23 Letter Agreement, dated July 27, 1998, between KACC and John H.
Walker (incorporated by reference to Exhibit 10.20 to the Report on
Form 10-K for the period ended December 31, 1998, filed by KAC, File
No. 1-9447).
10.24 Executive Employment Agreement, effective December 1, 1999, between
MAXXAM and J. Kent Friedman (incorporated by reference to Exhibit
10.52 to the Report on Form 10-K for the period ended December 31,
1999, filed by MAXXAM, File No. 1-3924).
10.25 Employment Agreement made and entered into as of September 1, 1996,
by and between KACC and Jack A. Hockema (incorporated by reference to
Exhibit 10 to the Report on Form 10-Q for the quarterly period ended
September 30, 1996, filed by KAC, File No. 1-9447).
*10.26 Letter Agreement, dated April 15, 1999, amending the Employment
Agreement made and entered into as of September 1, 1996, by and
between KACC and Jack A. Hockema.
*10.27 Description of compensation arrangements among KACC, KAC and Jack A.
Hockema.
10.28 Description of Kaiser Severance Protection and Change of Control
Benefits Program (incorporated by reference to Exhibit 10.21 to the
Report on Form 10-K for the period ended December 31, 1998, filed by
KAC, File No. 1-9447).
10.29 Form of letter agreement with persons granted stock options under the
Kaiser 1993 Omnibus Stock Incentive Plan to acquire shares of KAC
Common Stock (incorporated by reference to Exhibit 10.18 to the
Report on Form 10-K for the period ended December 31, 1994, filed by
KAC, File No. 1-9447).
</TABLE>
70
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.30 Form of Deferred Fee Agreement between KAC, KACC, and directors of
KAC and KACC (incorporated by reference to Exhibit 10 to the Report
on Form 10-Q for the quarterly period ended March 31, 1998, filed by
KAC, File No. 1-9447).
*21 Significant Subsidiaries of KACC.
*27 Financial Data Schedule.
</TABLE>
- ------------------------------------
* Filed herewith
71
<PAGE> 1
EXHIBIT 4.34
EIGHTEENTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTEENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated
as of February 11, 2000, 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 Bank of America, N.A. (successor to 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, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement, dated as of July
20, 1998, the Fourteenth Amendment to Credit Agreement, dated as of December 11,
1998, the Fifteenth Amendment to Credit Agreement, dated as of February 23,
1999, the Sixteenth Amendment to Credit Agreement, dated as of March 26, 1999;
and the Seventeenth Amendment to Credit Agreement, dated as of September 24,
1999 (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 and Accounting Terms.
A. Subsection 1.1 of the Credit Agreement is hereby amended by amending
subsection (a) of the definition of "Change of Control" contained therein to
read in its entirety as follows:
"(a) MAXXAM not owning (other than by reason of the existence of a Lien
or other encumbrance but including by reason of the foreclosure of or other
realization upon a Lien or other encumbrance) direct or indirect sole beneficial
ownership (as defined under Regulation 13d-3 of the Securities Exchange Act of
1934 as in effect on the date of this Agreement) of at least 40% of the total
common equity, on a fully diluted basis, of the Parent Guarantor or the Company;
or"
B. Subsection 1.1 of the Credit Agreement is hereby amended by amending
the definition of "Minimum Net Worth" contained therein to read in its entirety
as follows:
"'Minimum Net Worth' means (a) for each Fiscal Quarter of the Company
ending on or prior to December 31, 1998 (commencing with the Fiscal Quarter
ending September 30, 1996), $500,000,000 plus 50% of Net Income (but not loss)
for each such Fiscal Quarter, (b) for the two Fiscal Quarters of the Company
ending on March 31, 1999 and June 30, 1999, $600,000,000 plus 50% of Net Income
(but not loss) for each such Fiscal Quarter, and (c) for each Fiscal Quarter of
the Company ending thereafter, $550,000,000 plus 50% of Net Income (but not
loss) for each such Fiscal Quarter; provided that the calculation of Minimum Net
Worth shall exclude (i) the effect of any non-cash charges, up to an aggregate
amount of $70,000,000, in respect of the Micromill project, including (without
limitation) any write-down of Micromill project assets located at the Center for
Technology in Pleasanton, California, and at the Micromill facility near Reno,
Nevada, (ii) the net cumulative effect of any mark-to-market gains or losses
incurred after December 31, 1998, up to an aggregate net amount of $50,000,000
of losses, on aluminum hedging agreements of the Company and its Subsidiaries
that do not qualify for hedging treatment under GAAP, (iii) the effect of any
non-cash charges, up to an aggregate amount of $30,000,000, in respect of the
settlement of the Company's labor dispute with the United Steelworkers of
America, and (iv) the net cumulative effect of any gains or losses, up to an
aggregate net amount of $50,000,000 of losses, in respect of adjustments to the
net cost basis of the assets of the Gramercy, Louisiana facility as a result of
the explosion at such facility, all of the above adjustments to be reflected on
the relevant Compliance Certificate."
<PAGE> 2
Section 2. 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 "Eighteenth Amendment Effective Date"):
A. The Agent shall have received for each Lender 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).
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, 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;
(3) For each Lender, an opinion, addressed to the Agent and
each Lender, from Kramer Levin Naftalis & Frankel LLP, in form and substance
satisfactory to the Agent; and
(4) Such other information, approvals, opinions,
documents or instruments as the Agent may reasonably request.
Section 3. 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 Eighteenth 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 4. 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
<PAGE> 3
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 5. Miscellaneous.
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(1) On and after the Eighteenth 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
BANK OF AMERICA, N.A. (successor to BANK OF AMERICA, N.A. (successor to
BankAmerica Business Credit, Inc.), BankAmerica Business Credit, 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
<PAGE> 4
BANK OF AMERICA, N.A. (formerly known THE CIT GROUP/BUSINESS
as Bank of America National Trust and CREDIT, INC.
Savings Association)
By: /S/ Michael Balok By: /S/ Grant Weiss
Name Printed: Michael Balok Name Printed: Grant Weiss
Its: Managing Director Its: Assistant Vice President
CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC.
(WESTERN)
By: /S/ Kristine Metchikian By: /S/ Richard J. Holston
Name Printed: Kristine Metchikian Name Printed: Richard J. Holston
Its: Vice President Its: Assistant Vice President
LA SALLE BANK NATIONAL TRANSAMERICA BUSINESS CREDIT
ASSOCIATION (formerly known as CORPORATION
La Salle National Bank)
By: /S/ Douglas C. Colletti By: /S/ Robert Heinz
Name Printed: Douglas C. Colletti Name Printed: Robert Heinz
Its: First Vice President Its: Senior Vice President
ABN AMRO BANK N.V.
By: /S/ Jeffrey A. French
Name Printed: Jeffrey A. French
Its: Senior Vice President
By: /S/ Robert S. Sheppard
Name Printed: Robert S. Sheppard
Its: Vice President
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 KAISER TRANSACTION CORP.
By: /S/ Karen A. Twitchell By: /S/ Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell
Its: Treasurer Its: Treasurer
<PAGE> 1
Exhibit 4.35
LIMITED WAIVER REGARDING REPAYMENT OF CARIFA BONDS
February 17, 2000
Kaiser Aluminum & Chemical Corporation
Kaiser Aluminum Corporation
5847 Sa Felipe, Suite 2600
Houston, TX 77057
Attention: John T. LaDuc
Karen A. Twitchell
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of February
15, 1994, as amended by First Amendment to Credit Agreement dated as of July 21,
1994; Second Amendment to Credit Agreement dated as of March 10, 1995; Third
Amendment to Credit Agreement and Acknowledgment dated as of July 20, 1995;
Fourth Amendment to Credit Agreement dated as of October 17, 1995; Fifth
Amendment to Credit Agreement dated as of December 11, 1995; Sixth Amendment to
Credit Agreement dated as of October 1, 1996; Seventh Amendment to Credit
Agreement dated as of December 17, 1996; Eighth Amendment to Credit Agreement
dated as of February 24, 1997; Ninth Amendment to Credit Agreement and
Acknowledgment dated as of April 21, 1997; Tenth Amendment to Credit Agreement
and Assignment dated as of June 25, 1997; Eleventh Amendment to Credit Agreement
and Limited Waivers dated as of October 20, 1997; Twelfth Amendment to Credit
Agreement dated as of January 13, 1998; Thirteenth Amendment to Credit Agreement
dated as of July 20, 1998; Fourteenth Amendment to Credit Agreement dated as of
December 11, 1998; Fifteenth Amendment to Credit Agreement dated as of February
23, 1999; Sixteenth Amendment to Credit Agreement dated as of March 26, 1999;
Seventeenth Amendment to Credit Agreement dated as of September 24, 1999; and
Eighteenth Amendment to Credit Agreement dated as of February 11, 2000 (said
Credit Agreement, as amended, being the "CREDIT AGREEMENT", the terms defined
therein being used herein as therein defined), among Kaiser Aluminum & Chemical
Corporation, a Delaware corporation ("COMPANY"), Kaiser Aluminum Corporation, a
Delaware corporation ("PARENT GUARANTOR"), the financial institutions listed on
the signature pages hereof ("LENDERS") and Bank of America, N.A., as Agent
("AGENT").
Company has informed Agent that Alumina Partners of Jamaica, a
Subsidiary of Company, intends to elect to purchase and cancel a portion of its
Caribbean Basin Projects Financing Authority Bonds in the aggregate principal
amount of $4,000,000 and to pay accrued interest thereon. At the request of
Company the undersigned Lenders, constituting Required Lenders under the Credit
Agreement, hereby waive compliance with the provisions of Section 9.2.6(b)(ii)
of the Credit Agreement to the extent, and only to the extent, necessary to
permit the transaction described above.
Without limiting the generality of the provisions of Section 12.1 of
the Credit Agreement, the waiver set forth herein shall be limited precisely as
written and relates solely to the noncompliance by Company with the provisions
of Section 9.2.6(b)(ii) of the Credit Agreement in the manner and to the extent
described above, and nothing in this Limited Waiver shall be deemed to (a)
constitute a waiver of compliance by Company with respect to Section
9.2.6(b)(ii) of the Credit Agreement in any other instance or (ii) any other
term, provision or condition of the Credit Agreement or any other instrument or
agreement referred to therein or (b) prejudice any right or remedy that Agent or
any Lender may now have or may have in the future under or in connection with
the Credit Agreement or any other instrument or agreement referred to therein.
Except as expressly set forth herein, the terms, provisions and conditions of
the Credit Agreement and the other Loan Documents shall remain in full force and
effect and in all other respects are hereby ratified and confirmed.
This Limited Waiver may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
THIS LIMITED WAIVER 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.
IN WITNESS WHEREOF, the parties hereto have caused this Limited Waiver
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
KAISER ALUMINUM KAISER ALUMINUM & CHEMICAL
CORPORATION CORPORATION
By: /S/ KAREN A. TWITCHELL By: /S/ KAREN A. TWITCHELL
Name: Karen A. Twitchell Name: Karen A. Twitchell
Its: Treasurer Its: Treasurer
BANK OF AMERICA, N.A. (successor BANK OF AMERICA, N.A. (successor
to BankAmerica Business Credit, Inc.), to BankAmerica Business Credit, Inc.)
as Agent
<PAGE> 2
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, N.A. (formerly THE CIT GROUP/BUSINESS
known as Bank of America National CREDIT, INC.
Trust and Savings Association)
By: /S/ MICHAEL BALOK By: /S/ GRANT WEISS
Name: Michael Balok Name: Grant Weiss
Its: Managing Director Its: Assistant Vice President
CONGRESS FINANCIAL HELLER FINANCIAL, INC.
CORPORATION (WESTERN)
By: /S/ KRISTINE METCHIKIAN By: /S/ RICHARD J. HOLSTON
Name: Kristine Metchikian Name: Richard J. Holston
Its: Vice President Its: Assistant Vice President
LA SALLE BANK NATIONAL TRANSAMERICA BUSINESS
ASSOCIATION (formerly La Salle CREDIT CORPORATION
National Bank)
By: /S/ ANN KAPLAN
By: /S/ DOUGLAS C. COLLETTI Name: Ann Kaplan
Name: Douglas C. Colletti Its: Vice President
Its: First Vice President
ABN AMRO BANK N.V.
By: /S/ AMANDA COX
Name: Amanda Cox
Its: Vice President
By: /S/ TAMIRA TREFFERS-HERRERA
Name: Tamira Treffers-Herrera
Its: Group Vice President
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: /S/ KAREN A. TWITCHELL By: /S/ KAREN A. TWITCHELL
Name: Karen A. Twitchell Name: 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: Karen A. Twitchell Name: 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: Karen A. Twitchell Name: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA CORPORATION KAISER FINANCE CORPORATION
By: /S/ KAREN A. TWITCHELL By: /S/ KAREN A. TWITCHELL
Name: Karen A. Twitchell Name: Karen A. Twitchell
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. INC. KAISER JAMAICA CORPORATION
By: /S/ KAREN A. TWITCHELL By: /S/ KAREN A. TWITCHELL
Name: Karen A. Twitchell Name: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By: /S/ KAREN A. TWITCHELL By: /S/ KAREN A. TWITCHELL
Name: Karen A. Twitchell Name: Karen A. Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL KAISER SIERRA
HOLDINGS, LLC MICROMILLS, LLC
By: /S/ KAREN A. TWITCHELL By: /S/ KAREN A. TWITCHELL
Name: Karen A. Twitchell Name: Karen A. Twitchell
Treasurer of Kaiser Aluminum & Its: Treasurer
Chemical Corporation
KAISER TEXAS SIERRA KAISER TEXAS MICROMILL
MICROMILLS, LLC HOLDINGS, LLC
<PAGE> 3
By: /S/ KAREN A. TWITCHELL By: /S/ KAREN A. TWITCHELL
Name: Karen A. Twitchell Name: Karen A. Twitchell
Its: Treasurer Its: Treasurer
<PAGE> 1
Exhibit 10.13
January 1, 2000
Mr. George T. Haymaker, Jr.
President and Chief Executive Officer
Kaiser Aluminum Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77057
RE: DIRECTOR AND NON-EXECUTIVE CHAIRMAN AGREEMENT
Dear George:
Reference is hereby made to the oral agreement that in October, 1999
was entered into by and between the Boards of Directors (the "Boards") of Kaiser
Aluminum Corporation ("KAC"), Kaiser Aluminum & Chemical Corporation ("KACC")
and you regarding the terms and conditions upon which you are to serve as a
Director and non-executive Chairman of the Boards for the period commencing
immediately after your retirement from employment by KACC in December, 1999, and
ending on the date of the annual meeting of shareholders of KAC in May, 2001.
The purpose of this letter agreement is to set forth and memorialize the terms
and conditions of our oral agreement. The terms and conditions of our agreement
are set forth below.
1. The Boards hereby engage you and you hereby agree to perform
services as a Director and non-executive Chairman of the
Boards of KAC and KACC.
2. In addition to your duties as a Director of the Boards, you
shall devote up to forty (40) hours each calendar month to the
affairs of KAC and KACC as directed by the Chief Executive
Officer (or acting Chief Executive Officer) of KAC and KACC,
with particular focus on assisting with implementation of
strategic plans that have been developed (or will be
developed) for KAC and KACC.
3. The term of this letter agreement shall commence on the date
immediately after the date of your retirement from employment
by KACC in December, 1999, and will expire on the date of the
annual meeting of shareholders of KAC in May, 2001, unless
earlier terminated by (i) your death or disability (as defined
in KAC's Long Term Disability Plan that covers executives and
directors of KAC), (ii) for cause (as defined below) or (iii)
the mutual agreement of the parties hereto. For purposes of
this letter agreement, the term "cause" shall mean:
(i) Your conviction for, or plea of nolo contendere to,
a felony; or
(ii) Your commission of an act involving fraud or
intentional dishonesty, which act is intended to
result in substantial personal enrichment at the
expense of KAC or any of its subsidiaries; or
(iii) Your material breach of any material provision of
this letter agreement which remains uncorrected for
30 days after written notice from the Boards or the
Chief Executive Officer and an opportunity to
correct; or
(iv) Your knowing and willful misconduct in the
performance of your duties, which continues for 30
days after written notice from the Board or the Chief
Executive Officer and which results in material
injury to the reputation, business or operation of
KAC or any of its subsidiaries.
The existence of "cause" shall be determined by an affirmative vote of
not less than two-thirds of the members of each of the Boards. If the
requisite affirmative vote by two-thirds of the members of each of the
Boards is not obtained, this letter agreement may not be terminated for
cause.
4. Your base compensation for services as a Director and
non-executive Chairman of both Boards shall be at a rate of
$250,000 for a full twelve consecutive month year, which
shall include an amount of $40,000 per year representing base
Director's fees, which may be deferred as described in
paragraph 5, and any amounts due for performance on any
Committees of the Boards, including the Executive Committee.
Absent any deferrals as described in paragraph 5, base
compensation shall be paid in cash in quarterly increments of
$62,500 during the first month following the completion of
the quarter in which fees were earned. Notwithstanding the
immediately preceding sentence, but subject to the following
provisions of paragraph 5, with respect to the final quarter
of the term of this letter agreement in which this letter
<PAGE> 2
agreement shall expire or terminate, the parties hereby
expressly agree that you shall be entitled to a pro rata
portion of the $62,500 quarterly increment determined by
multiplying such amount by a fraction, the numerator of which
shall be the number of hours in which you performed services
hereunder and the denominator shall be 120 hours. You shall
be solely liable and responsible for complying with all laws,
rules and regulations regarding timely payment of applicable
taxes including, without limitation, federal and state
income, self-employment and/or disability taxes that may
apply to such compensation.
5. Some or all of the following amounts attributable to your fees
as a Director may be deferred at your option into a "phantom
stock" and/or interest-bearing account to the same extent as
other Directors of KAC and KACC are permitted an election to
do so. Your deferral rights hereunder pertain to the $10,000
in quarterly payments of Director's fees as shall be due in
cash following the relevant calendar quarter for required
services rendered for an entire calendar quarter.
Notwithstanding the immediately preceding sentence, with
respect to the final quarter of the term of this
letter agreement in which this letter agreement shall expire
or terminate, the parties agree that you shall be entitled to
a pro rata portion of the $10,000 quarterly Director's fees
determined by the portion of the quarter in which you serve as
a Director.
6. You will be paid incentive compensation with a target amount
of $50,000 upon KAC's achievement of such benchmark or
benchmarks as shall be determined in the discretion of the
Board. Any such incentive compensation for the year 2000
shall be paid in cash in the first calendar quarter of 2001.
Any such incentive compensation for 2001 shall be paid in
cash in the third quarter of 2001. Notwithstanding the
immediately preceding sentence, the parties agree that any
such incentive compensation for a year in which this letter
agreement shall expire or terminate shall be determined by
multiplying the full amount of incentive compensation for the
year by a fraction, the numerator of which is the number of
hours in which you performed services hereunder and the
denominator of which shall be 480 hours. You shall be solely
liable and responsible for complying with all laws, rules and
regulations regarding timely payment of applicable taxes
including, without limitation, federal and state income,
self-employment and/or disability taxes that may apply to any
such incentive compensation payment or payments.
7. In order to further assure that your interests are aligned
with those of KAC's and KACC's stockholders, and in order to
ensure that your right to exercise the options described below
is not adversely affected by your agreement to serve as
non-executive Chairman of the Board, the following stock
option agreements are hereby amended as set forth below.
a. Each of the agreement evidencing an option grant
made as of May 18, 1993 and dated August 1993
pursuant to which you were granted an option to
purchase 100,000 shares of common stock of KAC under
the Kaiser 1993 Omnibus Stock Incentive Plan (the
"1993 Plan") and the agreement evidencing an option
grant made as of December 21, 1994 and dated April
1995 pursuant to which you were granted an option to
purchase 26,700 shares of common stock of KAC under
the 1993 Plan, is amended by providing at the end of
the fifth paragraph thereof the following sentence:
Solely for purposes of this letter
agreement, your employment shall not be
deemed to have terminated during any period
of time you serve as the salaried Chairman
of the Board of Directors of the Company,
whether or not you serve as an officer of
the Company or hold any other position with
the Company.
b. Each of the agreement effective as of January 1, 1998
pursuant to which you were granted an option to
purchase 283,000 shares of KAC common stock under the
Kaiser 1997 Omnibus Stock Incentive Plan (the "1997
Plan") and the agreement effective as of January 1,
1998 pursuant to which you were granted an option to
purchase 386,000 shares of KAC common stock under the
1997 Plan, is amended by amending the introductory
sentence of Paragraph 6 thereof to read in its
entirety as follows:
6. Termination of Optionee's
Employment. Termination of Optionee's
employment with KAC or any Subsidiary (as
defined in Attachment A), and any branch,
unit or division of KAC or any Subsidiary
<PAGE> 3
(the "KAC Group") ("Employment") prior to
March 1, 2001 shall affect Optionee's rights
under the Stock Option as provided in this
Section 6. Solely for purposes of this Stock
Option Grant (including Section 4 hereof),
Optionee's Employment shall be deemed to
have been terminated on the later of the
date: (i) Optionee no longer serves as a
regular full-time salaried employee of any
member of the KAC Group; and (ii) Optionee
no longer serves as the salaried Chairman of
the Board of Directors of the Company.
8. The relationship between the parties shall be that of
independent contracting parties and shall not constitute or be
deemed for any purpose to be that of employer and employee.
The Boards and KAC and KACC expressly acknowledge and agree
that neither shall have the right to direct you with respect
to the means or manner in which you fulfill your obligations
and responsibilities under this letter agreement. The Boards
and KAC and KACC are solely interested in the results obtained
by you in connection with your performance of services
required hereunder.
9. The parties hereby agree that the following provisions shall
generally govern this letter agreement.
a. The compensation to which you may be entitled
hereunder shall not be subject to your debts or other
obligations and shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, garnishment, or
other legal or equitable process.
b. This letter agreement shall not be construed to
confer upon you any right to receive any, or any
particular rate of, base or incentive compensation
for services rendered hereunder (other than the base
and incentive compensation payable under this letter
agreement).
c. This letter agreement contains the entire
understanding and agreement between the parties with
respect to the subject matter hereof. Accordingly,
this letter agreement supersedes any and all other
agreements, contracts, plans or other arrangements
by, between, among or involving you and KAC and KACC
whereunder you are to serve as a Director and
non-executive Chairman of KAC and KACC.
d. This letter agreement may not be amended, modified
or supplemented in any respect except by a
subsequent written agreement entered into by both
parties.
e. This letter agreement may not be terminated prior
to expiration of the specified term except as
otherwise provided in Paragraph 3 hereof.
f. This letter agreement shall be binding upon, and
shall inure to the benefit of, KAC and its successors
and assigns, KACC and its successors and assigns, and
you and your heirs, executors, administrators and
personal representatives.
g. No term or condition of this letter agreement shall
be deemed to have been waived, nor shall there be an
estoppel against the enforcement of any provision of
this letter agreement, except by written instrument
of the party charged with such waiver or estoppel.
Any waiver by either party hereto of a breach of any
provision of this letter agreement by the other party
shall not operate or be construed as a waiver by such
party of any subsequent breach thereof.
h. In the event that any provision of this letter
agreement is declared invalid and not binding on the
parties hereto in a final decree or order issued by a
court of competent jurisdiction, such declaration
shall not affect the validity of the other provisions
of this letter agreement to which such declaration of
invalidity does not relate and such other provisions
shall remain in full force and effect.
i. Any notice required or permitted to be given under
this letter agreement shall be sufficient if in
writing and hand-delivered with appropriate proof of
same, or sent by registered or certified mail, return
receipt requested, to the affected party or other
person or entity at the address last furnished by
such party, person or entity. Such notice shall be
deemed given as of the date of delivery or, if
<PAGE> 4
delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or
certification.
j. This letter agreement shall be governed and
construed in accordance with the laws of the state
of Texas, without regard to principles of choice
of law.
If the foregoing accurately sets forth your understanding of our
agreement on the matters set forth herein, please indicate acceptance of this
letter agreement by signing this letter agreement in the space indicated below.
Very truly yours,
KAISER ALUMINUM CORPORATION
By: /S/ RAYMOND J. MILCHOVICH
Printed Name: Raymond J. Milchovich
Title: President, CEO and COO
KAISER ALUMINUM & CHEMICAL
CORPORATION
By: /S/ RAYMOND J. MILCHOVICH
Printed Name: Raymond J. Milchovich
Title: President, CEO and COO
Accepted and Agreed to as of the 22nd day of January, 2000.
/S/ GEORGE T. HAYMAKER, JR.
Printed Name: George T. Haymaker, Jr.
Title: Chairman of the Board
<PAGE> 1
Exhibit 10.26
April 15, 1999
Mr. Jack Hockema
30041 Saddleridge Drive
San Juan Capistrano, CA 92675
Dear Jack:
This letter will extend your current Employment Agreement for two years beyond
the current expiration date of December 31, 1998 to December 31, 2000. Also,
your Employment Agreement will be modified as outlined below:
- - Your annual base salary will be raised to two hundred sixty-five
thousand dollars ($265,000) effective January 1, 1999.
- - You will participate in the Engineered Products Business Unit 1999 and
2000 annual incentive plans with an annual target incentive opportunity
of one hundred thirty-five thousand dollars ($135,000) and will not
participate in the EVA incentive compensation arrangement set forth in
your Employment Agreement.
- - You will participate in the Engineered Products 1997-1999 and 1998-2000
Long-Term incentive plans, with an incentive target opportunity of two
hundred thousand dollars ($200,000) and will not participate in the EVA
incentive compensation arrangement set forth in your Employment
Agreement.
- - For both the annual and long-term incentive plans the Engineered
Products plan multiplier will be used to calculate your award, however
your target will not affect the award pool as it applies to other
participants.
- - Your automobile allowance will be increased to nine hundred dollars
($900) per month, effective January 1, 1999.
- - The "Growing the Business Bonus" will be modified per Attachment I to
provide a method for calculating a lump sum payment in the event of a
transfer or sale of all or substantially all of the assets of the
Engineered Products to a party not controlled by MAXXAM, Kaiser
Aluminum Corporation or Kaiser Aluminum & Chemical Corporation. In
cases other than a sale or transfer, the "Growing the Business Bonus"
will be applied as set forth in your Employment Agreement.
- - For clarification purposes in calculating the "Growing the Business
Bonus" as it pertains to Attachment I and your Employment Agreement,
Engineered Products Ebit and net assets will be the reported Ebit and
net assets adjusted as follows:
(a) Certain 1997 AKW and restructuring adjustments
(b) Amortization of Newark strike costs from 8/15/98
through 8/15/2001
- - You will participate in the "Enhanced Severance Protection and Change
of Control Benefits Program" as described in the letter set forth in
Attachment II.
Except for the above modifications, all other conditions of your Employment
Agreement remain unchanged.
Sincerely, Agreed To and Accepted By:
/s/ Raymond J. Milchovich /s/ Jack A. Hockema
Raymond J. Milchovich Printed Name Jack A. Hockema
President and Chief Operating Officer Title Vice President, President EP
Date 4-18-99
ATTACHMENT I
If during the period January 1, 1999 through December 31, 2000 all or
substantially all of the assets of the Engineered Products Business Unit are
sold to a party not controlled by MAXXAM, Kaiser Aluminum Corporation or Kaiser
Aluminum & Chemical Corporation, the "Growing the Business Bonus" will be
calculated as follows:
- - The performance through the date of the sale or transfer shall be
determined as follows. Note that the "plan" amounts are the specific
threshold, target and maximum amounts or percentages, for both
Engineered Products and KAC, as agreed to in the original 1996
agreement. Refer to Example I.
- - If the sale or transfer is in the year 1999, performance will be
determined based on the ratio of actual year to date 1999 performance
to plan for Engineered Products (EP) EBIT, EP EBIT RONA and KAC EBIT
RONA, and applied to the remainder of the 1999 and 2000 year periods.
The average multiple is determined after applying such ratio to the
plan for each of the components, for each of the years.
- - If the sale or transfer is in the year 2000, performance will be
determined as: (a) for the year 1999, the actual performance against
<PAGE> 2
plan for EP EBIT, EP EBIT RONA and KAC EBIT RONA; (b) for the year 2000
the ratio of actual year to date EP EBIT, EP EBIT RONA and KAC EBIT
RONA, is applied to the remainder of the 2000 year. The average
multiple is determined based on the actual performance against the plan
for the year 1999 and the applied performance against the plan for the
year 2000.
EXAMPLE I
J. Hockema - 1999 Agreement - "Growing the Business Bonus" Example For
Illustration Only
<TABLE>
<CAPTION>
EP EP EBIT KAC EBIT
EBIT RONA RONA Totals
<S> <C> <C> <C> <C>
Plan - 1999 $ 65.0 20.0% 8.0%
Plan - 2000 $ 85.0 20.0% 11.0%
Net Assets $ 240.0 $ 1,600.0
SCENARIO 1 - SELL 6/30/99
Estimated Actual to 6/30/99 $ 25.0 10.4% 3.0%
Plan at 6/30/99 $ 32.5 10.0% 4.0%
Ratio Actual to Plan 76.9% 104.0% 75.0%
"Applied" Performance 1999 $ 50.0 20.8% 6.0% ratio x plan
"Applied" Performance 2000 $ 65.4 20.8% 8.3% ratio x plan
Award multiple 1999 0.750 1.080 0.461 (1)
Award multiple 2000 0.778 1.080 0.666 (1)
Average multiple 1999 - 2000 0.764 1.08 0.564
Weighting 25% 25% 50%
Total weighted multiple 0.191 0.27 0.282 0.743
Target $ 600.0
Total Award $ 445.8
SCENARIO 2 - SELL 6/30/00
Estimated Actual 1999 $ 50.0 20.8% 6.0% assume same as above
Award multiple 1999 0.833 1.080 0.461 (1)
Estimated Actual to 6/30/00 $ 34.0 14.2% 4.0%
Plan at 6/30/00 $ 42.5 10.0% 5.5%
Ratio Actual to Plan 80.0% 142.0% 72.7%
"Applied" Performance 2000 $ 68.0 28.4% 8.0% ratio x plan
Award multiple 2000 0.811 1.925 0.666 (1)
Average multiple 1999 - 2000 0.822 1.503 0.564
Weighting 25% 25% 50%
Total weighted multiple 0.206 0.376 0.282 0.864
Target $ 600.0
Total Award $ 518.4
</TABLE>
(1) As per original agreement - plan EP EBIT RONA 1999 is $65 million, and
2000 is $85 million. EP EBIT RONA plan target is 20%. KAC EBIT RONA
scale based on award matrix C from original Corporate Lti programs
(with 15% as plan target), and multiple based on actual performance
against that year's plan performance.
ATTACHMENT II
April 15,1999
Mr. Jack Hockema
30041 Saddleridge Drive
San Juan Capistrano, CA 92675
Dear Jack:
I am pleased to inform you that you have been selected for coverage under the
Enhanced Severance Protection and Change of Control Benefits Program ("Plan")
for selected corporate officers.
As you know, Kaiser Aluminum is pursuing a strategy that could lead to various
forms of corporate restructuring. In that connection, the Plan was developed and
is being made available to selected key officers. The purposes of the Plan
include all of the following:
- Retention of top-performers and those with critical skills
both pre and post restructuring;
- Provision of appropriate protection to business unit
management in the event of job loss and/or a change of
control, 1 and
- Maintenance of focus by management on key goals and
maintenance of overall energy level through a potentially
distracting period.
<PAGE> 3
This letter sets forth the basic provisions of the Plan which, subject to the
limits explained below, is being offered to you in conjunction with other
benefits that otherwise may be payable to you under the Kaiser Aluminum
Termination Payment and Benefits Plan Continuation Policy ("Policy"). For
example, if you become eligible for 6 months under the enhanced severance part
of the Plan and you already have earned 3 months severance under the Policy, you
would receive 3 months severance from the Policy and 3 months severance from the
Plan.
The Plan will be in effect through the end of the 2000 calendar year, unless
earlier amended or terminated by the Compensation Committees or Boards of
Directors of Kaiser Aluminum Corporation and Kaiser Aluminum & Chemical
Corporation. No amendment or termination of the Plan will adversely affect your
right to receive benefits provided under the Plan without your written consent.
After the year 2000, management will determine the need for any other protection
or enhanced severance programs.
- --------
(1) See page 3 for definition of "change of control".
ENHANCED SEVERANCE PROTECTION
Under the enhanced severance protection features of the Plan, you will qualify
for such severance benefits if you are terminated for any reason except for the
following exclusions:
1. You voluntarily resign or retire.
2. You are discharged for serious cause or other reason
prejudicial to Kaiser Aluminum.
3. You are eligible for sick leave, LTD or KRP full early
disability benefits. Or, you were eligible for sick leave or
LTD benefits and (i) you did not report back to work
immediately after your eligibility for such benefits ceased,
or (ii) you were not medically released to work at the time
such benefits ceased.
4. You refuse to accept another suitable position with Kaiser
Aluminum. Suitability is determined in accordance with
guidelines established from time to time by the personnel
policy committee.
5. You terminate employment on account of death.
In the event that your employment terminates and you qualify for enhanced
severance protection under the Plan, such benefits will be as follows:
- 12 months base salary,
- Prorated incentive awards (prorated incentive target for all
short and long term incentive programs in progress at
termination).
- Continuation of your coverage under medical, dental, life and
AD&D coverage by Kaiser Aluminum(2) as if your employment had
continued uninterrupted for up to 12 months. You must continue
to pay your monthly medical and life insurance contributions
(if any) for this coverage to remain in effect.
- Payment of your automobile allowance for the number of the
severance months.
CHANGE OF CONTROL
In the event that your employment terminates or constructively terminates
(described below), due to a change of control or significant restructuring,
during a period which commences ninety (90) days prior to a change of control or
significant restructuring and ends on the first anniversary of such change of
control or significant restructuring, in lieu of the enhanced severance
protection benefits described above, you will qualify for change of control
benefits.
- --------
(2) As you will not actually be an active employee, your coverage under the
cafeteria plan, spending accounts for medical and dependent care expense
reimbursement and the LTD Plan will cease. Your eligibility for COBRA coverage
will commence after the medical continuation benefits cease, and the medical
continuation period is subtracted from your COBRA eligibility period.
Change of control or significant restructuring is defined as: The transfer of
all or part of the assets of, or the merger, consolidation or reorganization of,
Kaiser Aluminum to or with another organization or the transfer of all or part
of the stock of Kaiser Aluminum to another organization.
These benefits are payable as described below, if you are terminated or
constructively terminated due to a change of control or significant
restructuring, except for the following exclusions:
<PAGE> 4
1. The purchaser or new controlling entity or Kaiser Aluminum
offers you suitable employment in substantially the same
capacity and at your current level of compensation. This
exception will apply regardless of whether you accept or
reject the suitable position.
2. You voluntarily resign or retire.
3. You are discharged for serious cause or other reason
prejudicial to Kaiser Aluminum.
4. You are eligible, within the 90 days prior to a change of
control, for sick leave, LTD or KRP full early disability
benefits. Or, you were eligible for sick leave or LTD benefits
and (i) you did not report back to work immediately after your
eligibility for such benefits ceased, or (ii) you were not
medically released to work at the time such benefits ceased.
5. You terminate employment on account of death.
The change of control benefits under the Plan will be as follows:
- 24 months base salary,
- Prorated incentive awards (prorated incentive target for all
short and long term incentive programs in progress at
termination).
- Continuation of your coverage under medical, dental, life and
AD&D coverage by Kaiser Aluminum(3) as if your employment had
continued uninterrupted for up to 24 months. You must continue
to pay your monthly medical and life insurance contributions
(if any) for this coverage to remain in effect.
- Payment of your automobile allowance for the number of the
severance months.
- --------
(3) As you will not actually be an active employee, your coverage under the
cafeteria plan, spending accounts for medical and dependent care expense
reimbursement and the LTD Plan will cease. Your eligibility for COBRA coverage
will commence after the medical continuation benefits cease, and the medical
continuation period is subtracted from your COBRA eligibility period.
For purposes of the Plan, you will be deemed to be constructively terminated if:
- You are demoted, suffer a substantial reduction of position
responsibilities or a substantial change in reporting
responsibilities or reporting level;
- You are relocated more than fifty (50) miles from your present
office location, except for a promotion and / or mutually
agreed transfer; or
- You suffer a reduction of your base salary and / or total
incentive opportunity.
Payments of base salary and prorated incentive awards under the Plan shall be
made (net of withholding for federal, state and local taxes) in a single sum in
cash within thirty (30) days following your termination or constructive
termination of employment. You will be responsible for timely payment of any
additional taxes that may be due on the benefits received under the Plan. Should
you feel that you have reason to contest any settlement under the Plan, you may
do so by following the same procedures as apply to the Company's other severance
pay plans, as such claims procedures are incorporated in the Plan by this
reference.
Kaiser Aluminum shall have the sole discretion to determine which employees
shall participate in the Plan and their level of participation. Kaiser Aluminum
also has the authority to construe, interpret and implement the Plan (including
the right to make factual determinations) and to make rules and otherwise
administer the Plan, and its determination on any matter relating to the Plan
shall be conclusive and binding on all interested persons. To the extent not
preempted by federal law, the Plan shall be construed in accordance with and
governed by the laws of the State of Texas.
As part of your enhanced severance and benefit eligibility under the Plan for
the one year period following the termination of your employment, you shall not,
without prior written consent of Kaiser Aluminum, directly or indirectly engage
in the business of developing products competitive with Kaiser Aluminum within
the United States of America or any other geographical area served by Kaiser
Aluminum. Nor will you engage, within this geographical area, in the design,
development, distribution, manufacture, assembly or sale of a product or service
in competition with any product or service currently marketed or planned by
Kaiser Aluminum to the extent such activity would reveal the plans, designs or
specifications disclosed to you by Kaiser Aluminum. This paragraph does not
restrict your ownership of securities in any enterprise or participation in the
management of any non-Kaiser competitive aspect of any enterprise. By signing
<PAGE> 5
this letter in the space provided, you acknowledge that these prohibitions are
both reasonable as to time, geographical area and scope of activity and do not
impose a restriction greater than is necessary to protect Kaiser Aluminum's good
will, proprietary information and business interests. Additionally, your
signature below acknowledges your continued commitment to abide by the terms of
paragraphs 2, 3, 4, 5, 6 and 7 of your Employment Agreement as well as the
Corporate Code of Business conduct and Accompanying Compliance Manuals. If you
have any questions concerning your obligations under either of these documents,
please let me know.
Participation in the Plan will not give rise to any right to continued
employment, shall not in any way prohibit changes in the terms of your
employment and shall not in any way limit the right of Kaiser Aluminum to
terminate your employment at any time for any reason with or without stating a
reason.
Kaiser Aluminum may assign its rights and obligations hereunder. In such event,
such rights and obligations shall inure to the benefit of and shall be binding
upon the successors and assigns of Kaiser Aluminum. Your rights and obligations
hereunder are personal, and such rights and obligations shall not be subject to
voluntary or involuntary assignment or other transfer by you and any attempted
alienation, assignment or other transfer of your rights or obligations hereunder
shall be void and without effect.
I congratulate you on your selection to participate in the Plan. It indicates
your importance to the performance of Kaiser Aluminum. I would also like to
thank you for your dedicated service and contribution to the past success of
Kaiser Aluminum, and look forward to your continued contribution.
If you have any questions regarding the Plan, please feel free to discuss them
with me, or call Bill Edgley, Director, Corporate Human Resources. If the
foregoing is acceptable, please indicate your acceptance by signing the
duplicate copy of this letter and returning the signed copy to the attention of
Bill Edgley at Kaiser Aluminum, 6177 Sunol Blvd., Pleasanton, CA 94566.
Sincerely,
/s/ Raymond J. Milchovich
Raymond J. Milchovich
President and Chief Operating Officer
AGREED TO AND ACCEPTED BY:
/s/ Jack A. Hockema
Printed Name: Jack A. Hockema
Title: Vice President, President EP
Dated: 4-18-99
<PAGE> 1
Exhibit 10.27
Description of Compensation Arrangements
Jack A. Hockema
Effective as of January 24, 2000, Jack A. Hockema was elected Executive
Vice President, and President of Kaiser Fabricated Products, of Kaiser Aluminum
& Chemical Corporation ("KACC"). In connection with such election, new
compensation arrangements for 2000 and 2001 were approved for Mr. Hockema. The
compensation arrangements have three components: base pay, short-term incentive
("STI"), and long-term incentive ("LTI").
Mr. Hockema's base pay for 2000 was set at $315,000. Mr. Hockema's STI
for 2000 has two components. The first component has a target amount of
$135,000, and any award under this first component will be made based on that
target amount and on the performance of the engineered products business unit
under the provisions of the Engineered Products Business Unit Short-Term
Incentive Plan. The second component has a target amount of $30,000, and any
award will be made based on that target amount and on the performance of the
flat-rolled products business unit as determined by the Chief Executive Officer
of KACC.
Mr. Hockema's LTI for 2000 has two components. The first component has
a target amount of $200,000, and any award under this first component will be
made based on that target amount and on the performance of the engineered
products business unit under the provisions of the Engineered Products Business
Unit Long-Term Incentive Plan. The second component has a value of $135,000,
which award has been made in the form of a grant of a stock option to purchase
shares of the Common Stock of Kaiser Aluminum Corporation.
Mr. Hockema will qualify for a cash bonus of $500,000 in the event of
the sale of a specified portion of the business units under his management on or
before July 1, 2002. Payment of such a bonus would be made in three equal annual
installments, with the first payment occurring within 30 days of the closing of
such sale.
Mr. Hockema's base pay for 2001 was set at $375,000. The target amounts
of Mr. Hockema's STI and LTI for 2001 were established at $200,000 and $475,000,
respectively; however, the other terms and conditions of such STI and LTI awards
have not been determined.
<PAGE> 1
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.
<TABLE>
<CAPTION>
Place of
Incorporation
Name or Organization
---- ---------------
<S> <C>
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 Bellwood Corporation.................................................... Delaware
Kaiser Finance Corporation .................................................... Delaware
Kaiser Jamaica Bauxite Company (partnership)................................... Jamaica
Kaiser Jamaica Corporation..................................................... Delaware
Queensland Alumina Limited..................................................... Queensland
Volta Aluminium Company Limited................................................ Ghana
</TABLE>
<PAGE> 2
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
Principal California
Domestic Laguna Niguel
Operations Administrative Offices
and Los Angeles (City of Commerce)
Administrative Engineered Products
Offices Oxnard
(Partial List) Engineered Products
Pleasanton
R&D at the Center for Technology,
Administrative Offices
Louisiana
Baton Rouge
Alumina Business Unit Offices
Gramercy
Alumina
Michigan
Detroit (Southfield)
Automotive Product Development and
Sales
Ohio
Newark
Engineered Products
Oklahoma
Tulsa
Engineered Products
South Carolina
Greenwood
Engineered Products
Greenwood
Engineered Products Machine Shop
Tennessee
Jackson
Engineered Products
Texas
Houston
Kaiser Aluminum Corporation
Headquarters
Sherman
Engineered Products
Virginia
Richmond
Engineered Products
Washington
Mead
Primary Aluminum,
Northwest Engineering Center
Richland
Engineered Products
Tacoma
Primary Aluminum
Trentwood
Flat-Rolled Products
- --------------------------------------------------------------------------------
Principal Australia
Worldwide Queensland Alumina Limited (28.3%)
Operations Alumina
(Partial List) Canada
Kaiser Aluminum & Chemical of
Canada Limited (100%)
Engineered Products
Ghana
Volta Aluminium Company Limited (90%)
Primary Aluminum
Jamaica
Alumina Partners of Jamaica (65%)
Bauxite, Alumina
Kaiser Jamaica Bauxite Company (49%)
Bauxite
Wales, United Kingdom
Anglesey Aluminium Limited (49%)
Primary Aluminum
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of the Company for the twelve months ended
December 31, 1999, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 273
<ALLOWANCES> 6
<INVENTORY> 546
<CURRENT-ASSETS> 980
<PP&E> 1,984
<DEPRECIATION> 930
<TOTAL-ASSETS> 3,203
<CURRENT-LIABILITIES> 638
<BONDS> 973
20
2
<COMMON> 15
<OTHER-SE> 54
<TOTAL-LIABILITY-AND-EQUITY> 3,203
<SALES> 2,044
<TOTAL-REVENUES> 2,044
<CGS> 1,859
<TOTAL-COSTS> 1,859
<OTHER-EXPENSES> 109
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> (90)
<INCOME-TAX> (33)
<INCOME-CONTINUING> (52)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
