<PAGE>
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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, 1994
Commission file number 1-9447
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3030279
(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:
Name of each exchange
Title of each class on which registered
----------------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
$.65 Depositary shares, each New York Stock Exchange
representing ownership of one-tenth
of a share of Series A Mandatory
Conversion Premium Dividend
Preferred Stock
Series A Mandatory Conversion Premium None
Dividend Preferred Stock,
$.05 par value
8.255% PRIDES, Convertible New York Stock Exchange
Preferred Stock,
$.05 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ___
As of March 15, 1995, there were 58,205,083 shares of the common stock
of the registrant outstanding. Based upon New York Stock Exchange
closing prices on March 15, 1995, the aggregate market value of the
registrant's common stock, $.65 depositary shares, and 8.255% PRIDES
held by non-affiliates was $327.8 million.
Certain portions of the registrant's annual report to shareholders for
the fiscal year ended December 31, 1994, are incorporated by reference
into Parts I, II, and IV of this Report on Form 10-K. 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 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 19-22 of
this Report, are available without charge upon written request. The
registrant will furnish copies of the other exhibits to this Report on
Form 10-K upon payment of a fee of 25 cents per page. Please contact
the office set forth below to request copies of this Report on Form
10-K and for information as to the number of pages contained in each
of the other exhibits and to request copies of such exhibits:
Corporate Secretary
Kaiser Aluminum Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77057-3010
(i)
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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TABLE OF CONTENTS
Page
----
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . 11
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . 15
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . 15
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . 16
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE .
REGISTRANT 16
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 16
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 18
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . 19
EXHIBIT 21 SUBSIDIARIES . . . . . . . . . . . . . . . . . . 23
(ii)
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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PART I
ITEM 1. BUSINESS
Industry Overview
Primary aluminum is produced by the refining of bauxite (the major
aluminum-bearing ore) into alumina (the intermediate material) and the
reduction of alumina into primary aluminum. Approximately two pounds
of bauxite are required to produce one pound of alumina, and
approximately two pounds of alumina are required to produce one pound
of primary aluminum. Aluminum's valuable physical properties include
its light weight, corrosion resistance, thermal and electrical
conductivity, and high tensile strength.
Demand
The packaging and transportation industries are the principal
consumers of aluminum in the United States, Japan, and Western Europe.
In the packaging industry, which accounted for approximately 22% of
consumption in 1993, aluminum's recyclability and weight advantages
have enabled it to gain market share from steel and glass, primarily
in the beverage container area. Nearly all beer cans and
approximately 95% of the soft drink cans manufactured for the United
States market are made of aluminum. Growth in the packaging area is
generally expected to continue in the 1990s due to general population
increase and to further penetration of the beverage can market in Asia
and Latin America, where aluminum cans are a substantially lower
percentage of the total beverage container market than in the United
States.
In the transportation industry, which accounted for approximately 29%
of aluminum consumption in the United States, Japan, and Western
Europe in 1993, automotive manufacturers use aluminum instead of steel
or copper for an increasing number of components, including radiators,
wheels, and engines, in order to meet more stringent environmental and
fuel efficiency requirements through vehicle weight reduction.
Management believes that sales of aluminum to the transportation
industry have considerable growth potential due to projected increases
in the use of aluminum in automobiles.
Supply
As of year-end 1994, Western world aluminum capacity from 108 smelting
facilities was approximately 16.3 million tons* per year. Net exports
of aluminum from the former Sino Soviet bloc increased approximately
threefold from 1990 levels during the period from 1991 through 1994 to
approximately two million tons per year. These exports contributed to
a significant increase in London Metal Exchange stocks of primary
aluminum which peaked in mid-1994. See "-Recent Industry Trends."
Government officials from the European Union, the United States,
Canada, Norway, Australia, and the Russian Federation have ratified
as a trade agreement a Memorandum of Understanding (the "Memorandum")
which provided, in part, for (i) a reduction in Russian Federation
primary aluminum production by 300,000 tons per year within three
months of the date of ratification of the Memorandum and an additional
200,000 tons within the following three months, (ii) improved
availability of comprehensive data on Russian aluminum production, and
(iii) certain assistance to the Russian aluminum industry. The
Memorandum did not require specific levels of production cutbacks by
other producing nations. The Memorandum was finalized in February
1994 and is scheduled to remain in effect through the end of 1995.
_____________________
* All references to tons in this Report refer to metric tons of
2,204.6 pounds.
1
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
Based upon information currently available, management believes that
only moderate additions will be made during 1995-1996 to Western world
alumina and primary aluminum production capacity. The increases in
alumina capacity during 1995-1996 are expected to come from one new
refinery and incremental expansions of existing refineries.
Recent Industry Trends
The aluminum industry environment improved significantly in 1994
compared to 1993. Prices of primary aluminum were at historic lows in
real terms near the beginning of 1994, but nearly doubled by the end
of 1994. In response to low prices of primary aluminum in 1993 and
the first part of 1994, a number of smelting facilities were partially
or fully curtailed. Western world production of primary aluminum
declined in 1994 to approximately 14.5 million tons from approximately
15.1 million tons in 1993. Demand for aluminum products was
relatively weak in 1993, but became very strong in the United
States and became firm in Europe in 1994. Primary aluminum prices
improved not only because of improved demand, but also because the
inventories of primary aluminum on the London Metal Exchange were
substantially reduced in the second half of 1994. However,
significant amounts of inventory remained at the end of 1994, and
some reduction of prices from year-end 1994 occurred in the first
quarter of 1995 to reflect that circumstance.
When previously curtailed smelting capacity is restarted, it will
result in an increase in the demand for alumina to supply those
operations. In addition, in the last several years, large amounts of
alumina have been imported into the Commonwealth of Independent
States. Consequently, management believes that alumina demand and
prices will strengthen as smelters are restarted.
Supply and demand fundamentals for the flat-rolled aluminum products
business, particularly in the can sheet business, improved in 1994
because of higher demand and a reduction of supply. Management
believes that supply and demand for these products will move toward
being in balance. The demand for aluminum extrusions and forgings in
1994 also improved compared to 1993, and supply and demand for these
products also is expected to move toward being in balance.
Overall, management believes that there will be relatively strong
demand for aluminum for the near future, barring an economic
recession. This demand is expected to come both from continued growth
in the developed markets through increased penetration of the
automotive sector, and from general uses in emerging markets.
The Company
General
Kaiser Aluminum Corporation ("the Company") is a direct subsidiary of
MAXXAM Inc. ("MAXXAM"). The Company, through its subsidiary, Kaiser
Aluminum & Chemical Corporation ("KACC"), 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 KACC in
its operations, KACC sells significant amounts of alumina and primary
aluminum in domestic and international markets. In 1994, KACC
produced approximately 2,928,500 tons of alumina, of which
approximately 71% was sold to third parties, and produced 415,000 tons
of primary aluminum, of which approximately 54% was sold to third
parties. KACC is also a major domestic supplier of fabricated
aluminum products. In 1994, KACC shipped approximately 399,000 tons
of fabricated aluminum products to third parties, which accounted for
approximately 6% of the total tonnage of United States domestic
shipments in 1994. A majority of KACC's fabricated products are used
by customers as components in the manufacture and assembly of finished
end-use products. Note 11 of the Notes to Consolidated Financial
Statements contained in the Company's 1994 Annual Report to
Shareholders (the "Annual Report") is incorporated herein by
reference.
2
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ITEM 1. BUSINESS (continued)
The following table sets forth total shipments and intracompany
transfers of KACC's alumina, primary aluminum, and fabricated aluminum
operations:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1994 1993 1992
---------- --------- -------
(in thousands of tons)
<S> <C> <C> <C>
ALUMINA:
Shipments to Third Parties 2,086.7 1,997.5 2,001.3
Intracompany Transfers 820.9 807.5 878.2
PRIMARY ALUMINUM:
Shipments to Third Parties 224.0 242.5 355.4
Intracompany Transfers 225.1 233.6 224.4
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties 399.0 373.2 343.6
</TABLE>
Sensitivity to Prices and Hedging Programs
The Company's operating results are sensitive to changes in the prices
of alumina, primary aluminum, and fabricated aluminum products, and
also depend to a significant degree upon the volume and mix of all
products sold and on KACC's hedging strategies. Through its variable
cost structures, forward sales, and hedging programs, KACC has
attempted to mitigate its exposure to possible declines in the market
prices of alumina, primary aluminum, and fabricated aluminum products
while retaining the ability to participate in favorable pricing
environments that may materialize. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends
Sensitivity to Prices and Hedging Programs."
Production Operations
The Company's operations are conducted through KACC's decentralized
business units which compete throughout the aluminum industry.
o The alumina business unit, which mines bauxite and obtains
additional bauxite tonnage under long-term contracts, produced
approximately 8% of Western world alumina in 1994. During 1994,
KACC utilized approximately 80% of its bauxite production at its
alumina refineries and the remainder was either sold to third
parties or tolled into alumina by a third party. In addition,
during 1994 KACC utilized approximately 29% of its alumina for
internal purposes and sold the remainder to third parties. KACC's
share of total Western world alumina capacity was approximately 8%
in 1994.
o The primary aluminum products business unit operates two domestic
smelters wholly owned by KACC and two foreign smelters in which
KACC holds significant ownership interests. In 1994, KACC
utilized approximately 46% of its primary aluminum for internal
purposes and sold the remainder to third parties. KACC's share of
total Western world primary aluminum capacity was approximately 3%
in 1994.
o Fabricated aluminum products are manufactured by three business
units - flat-rolled products, extruded products, and forgings -
which manufacture a variety of fabricated products (including
body, lid, and tab stock for beverage containers, sheet and plate
products, screw machine stock, redraw rod, forging stock, truck
wheels and hubs, air bag canisters, and other forgings and
extruded products) and operate plants located in principal
marketing areas of the United States and Canada. Substantially
all of the primary aluminum utilized in KACC's fabricated products
3
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
operations is obtained internally, with the balance of the metal
utilized in its fabricated products operations obtained from scrap
metal purchases.
Alumina
-------
The following table lists KACC's bauxite mining and alumina
refining facilities as of December 31, 1994:
<TABLE>
<CAPTION>
Annual
Production Total
Capacity Annual
Company Available to Production
Activity Facility Location Ownership the Company Capacity
-------- -------- ----------- ----------- -------------- -------------
(tons) (tons)
<S> <C> <C> <C> <C> <C>
Bauxite Mining KJBC <F1> Jamaica 49% 4,500,000 4,500,000
Alpart<F2> Jamaica 65% 2,275,000 3,500,000
--------- ---------
6,775,000 8,000,000
========= =========
Alumina Refining Gramercy Louisiana 100% 1,000,000 1,000,000
Alpart Jamaica 65% 943,000 1,450,000
QAL Australia 28.3% 934,000 3,300,000
--------- ---------
2,877,000 5,750,000
========= =========
</TABLE>
____________________
<F1> Although KACC owns 49% of Kaiser Jamaica Bauxite Company, it
has the right to receive all of such entity's output.
<F2> Alpart bauxite is refined into alumina at the Alpart refinery.
Bauxite mined in Jamaica by Kaiser Jamaica Bauxite Company
("KJBC") is refined into alumina at KACC's plant at Gramercy,
Louisiana, or is sold to third parties. In 1979, the Government
of Jamaica granted KACC a mining lease for the mining of bauxite
sufficient to supply KACC's then-existing Louisiana alumina
refineries at their annual capacities of 1,656,000 tons per year
until January 31, 2020. Alumina from the Gramercy plant is sold
to third parties. KACC has entered into a series of medium-term
contracts for the supply of natural gas to the Gramercy plant.
The price of such gas varies based upon certain spot natural gas
prices. For 1995 KACC has, however, established a fixed price
for a portion of the delivered gas through a hedging program.
Alumina Partners of Jamaica ("Alpart") holds bauxite reserves and
owns a 1,450,000 tons per year alumina plant located in Jamaica.
KACC has a 65% interest in Alpart and Hydro Aluminium a.s
("Hydro") owns the remaining 35% interest. KACC has management
responsibility for the facility on a fee basis. KACC and Hydro
have agreed to be responsible for their proportionate shares of
Alpart's costs and expenses. The Government of Jamaica has
granted Alpart a mining lease and has entered into other
agreements with Alpart designed to assure that sufficient
reserves of bauxite will be available to Alpart to operate its
refinery as it may be expanded to a capacity of 2,000,000 tons
per year through the year 2024.
Alpart has entered into an agreement for the supply of
substantially all of its fuel oil through 1996. The balance of
Alpart's fuel oil requirements through 1996 will be purchased in
the spot market.
KACC holds a 28.3% interest in Queensland Alumina Limited
("QAL"), which owns the largest and one of the most efficient
alumina refineries in the world, located in Queensland,
Australia. QAL refines bauxite into alumina, essentially on a
cost basis, for the account of its stockholders pursuant to long-
term tolling contracts. The stockholders, including
4
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
KACC, purchase bauxite from another QAL stockholder pursuant to
long-term supply contracts. KACC has contracted to take
approximately 751,000 tons per year of capacity or pay standby
charges. KACC is unconditionally obligated to pay amounts
calculated to service its share ($78.7 million at December 31,
1994) of certain debt of QAL, as well as other QAL costs and
expenses, including bauxite shipping costs. QAL's annual
production capacity is approximately 3,300,000 tons, of which
approximately 934,000 tons are available to KACC.
KACC's principal customers for bauxite and alumina consist of
large and small domestic and international aluminum producers that
purchase bauxite and reduction-grade alumina for use in their
internal refining and smelting operations and trading
intermediaries who resell raw materials to end-users. In 1994,
KACC sold all of its bauxite to one customer, and sold alumina to
12 customers, the largest and top five of which accounted for
approximately 19% and 82% of such sales, respectively. Among
alumina producers, the Company believes KACC is now the world's
second largest seller of alumina to third parties. KACC's
strategy is to sell a substantial portion of the bauxite and
alumina available to it in excess of its internal refining and
smelting requirements pursuant to multi-year sales contracts.
Marketing and sales efforts are conducted by executives of the
alumina business unit and KACC. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends
- Sensitivity to Prices and Hedging Programs."
Primary Aluminum Products
-------------------------
The following table lists KACC's primary aluminum smelting
facilities as of December 31, 1994:
<TABLE>
<CAPTION>
Annual Rated Total
Capacity Annual 1994
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
---------- ---------- ----------- -------------- --------- ----------
(tons) (tons)
<S> <C> <C> <C> <C> <C>
Domestic
Washington Mead 100% 200,000 200,000 80%
Washington Tacoma 100% 73,000 73,000 76%
-------- --------
Subtotal 273,000 273,000
-------- --------
International
Ghana Valco 90% 180,000 200,000 70%
Wales, United Kingdom Anglesey 49% 55,000 112,000 113%
-------- --------
Subtotal 235,000 312,000
-------- --------
508,000 585,000
======== ========
KACC owns two smelters located at Mead and Tacoma, Washington, where
alumina is processed into primary aluminum. The Mead facility uses
pre-bake technology and produces primary aluminum, almost all of
which is used at KACC's Trentwood fabricating facility and the
balance of which is sold to third parties. The Tacoma plant uses
Soderberg technology and produces primary aluminum and high-grade,
continuous-cast, redraw rod, which currently commands a premium
price in excess of the price of primary aluminum. Both smelters
have achieved significant production efficiencies in recent years
through retrofit technology, cost controls, and semi-variable
wage and power contracts, leading to increases in production
volume and enhancing their ability to compete with newer smelters.
At the Mead plant, KACC has converted to welded anode assemblies
to increase energy efficiency, extended the anode life-cycle in
the smelting process, changed from pencil to liquid pitch to
produce carbon anodes which achieved environmental and operating
savings, and engaged in efforts to increase production through the
use of improved, higher-efficiency reduction cells.
5
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ITEM 1. BUSINESS (continued)
Electrical power represents an important production cost for KACC at
its Mead and Tacoma smelters. The basic electricity supply contract
between the Bonneville Power Administration (the "BPA") and KACC
expires in 2001. The electricity contracts between the BPA and its
direct service industry customers (which consist of 15 energy
intensive companies, principally aluminum producers, including KACC)
permit the BPA to interrupt up to 25% of the amount of power which
it normally supplies to such customers. KACC has operated its Mead
and Tacoma smelters in Washington at approximately 75% of their
full capacity since January 1993, when three reduction potlines were
removed from production (two at its Mead smelter and one at its
Tacoma smelter) in response to a power reduction imposed by the BPA.
Although full BPA power was restored as of April 1, 1994, a 25%
power reduction was imposed again by the BPA as of August 1, 1994,
which reduction continued through November 30, 1994. Full BPA
power was restored on December 1, 1994, and the BPA has stated
that it expects to be able to provide full service through November
30, 1995. KACC has operated its Trentwood fabrication facility
without curtailment of its production.
Through June 1996, KACC pays for power on a basis which varies,
within certain limits, with the market price of primary aluminum,
and thereafter KACC will pay for power at rates to be negotiated.
Effective October 1, 1993, an increase in the base rate the BPA
charged to its direct service industry customers for electricity was
adopted, and that rate is expected to remain in effect through
September 1995. In February 1995, the BPA issued an initial rate
increase announcement which proposed a 5.4% increase to the direct
service industry customers. If the proposed increase becomes
effective, it would increase production costs at the Mead and Tacoma
smelters by approximately $5.0 million per year based on the current
operating rate of those smelters. A rate increase could take effect
as early as October 1995; however, there is no certainty that the
proposed rate increase, or any rate increase, will become effective
in October 1995 or at any later time.
KACC manages, and holds a 90% interest in, the Volta Aluminium
Company Limited ("Valco") aluminum smelter in Ghana. The Valco
smelter uses pre-bake technology and processes alumina supplied by
KACC and the other participant into primary aluminum under long-term
tolling contracts which provide for proportionate payments by the
participants in amounts intended to pay not less than all of Valco's
operating and financing costs. KACC's share of the primary aluminum
is sold to third parties. Power for the Valco smelter is supplied
under an agreement which expires in 2017. The agreement indexes
two-thirds of the price of the contract quantity to the market
price of primary aluminum. The agreement also provides for a
review and adjustment of the base power rate and the price index
every five years. The most recent review was completed in April
1994 for the 1994-1998 period. Valco has entered into an agreement
with the government of Ghana under which Valco has been assured
(except in cases of force majeure) that it will receive sufficient
electric power to operate at its current level of three and one-
half potlines through December 31, 1996. Management believes that
with normal rainfall during 1995 and 1996, Valco should have
available sufficient electric power to operate at its current level
during 1995 and 1996.
KACC has a 49% interest in the Anglesey Aluminium Limited
("Anglesey") aluminum smelter and port facility at Holyhead, Wales.
The Anglesey smelter uses pre-bake technology. KACC supplies 49% of
Anglesey's alumina requirements and purchases 49% of Anglesey's
aluminum output. KACC sells its share of Anglesey's output to third
parties. Power for the Anglesey aluminum smelter is supplied under
an agreement which expires in 2001.
KACC has developed and installed proprietary retrofit technology in
all of its smelters. This technology - which includes the redesign
of the cathodes and anodes that conduct electricity through
reduction cells, improved "feed" systems that add alumina to the
cells, and a computerized system that controls energy flow in the
cells - enhances KACC's ability to compete more effectively with
the industry's newer smelters. KACC is actively engaged in efforts
to license this technology and sell technical and managerial
assistance to other producers worldwide, and may participate in
joint ventures or similar business partnerships which employ KACC's
technical and managerial knowledge. See " -Research and
Development."
KACC's principal primary aluminum customers consist of large trading
intermediaries and metal brokers, who resell primary aluminum to
fabricated product manufacturers, and large and small international
aluminum fabricators. In 1994,
6
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ITEM 1. BUSINESS (continued)
KACC sold its primary aluminum production not utilized for internal
purposes to approximately 35 customers, the largest and top five of
which accounted for approximately 25% and 68% of such sales,
respectively. Marketing and sales efforts are conducted by a small
staff located at the business unit's headquarters in Pleasanton,
California, and by senior executives of KACC who participate in the
structuring of major sales transactions. A majority of the business
unit's sales are based upon long-term relationships with metal
merchants and end-users. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends -
Sensitivity to Prices and Hedging Programs."
Fabricated Aluminum Products
----------------------------
KACC manufactures and markets fabricated aluminum products for the
packaging, transportation, construction, and consumer durables
markets in the United States and abroad. Sales in these markets are
made directly and through distributors to a large number of
customers, both domestic and foreign. In 1994, seven domestic
beverage container manufacturers constituted the leading customers
for KACC's fabricated products and accounted for approximately
17% of the Company's sales revenue.
KACC's fabricated products compete with those of numerous domestic
and foreign producers and with products made with steel, copper,
glass, plastic, and other materials. Product quality, price, and
availability are the principal competitive factors in the market for
fabricated aluminum products. KACC has refocused its fabricated
products operations to concentrate on selected products in which
KACC has production expertise, high quality capability, and
geographic and other competitive advantages. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs."
Flat-Rolled Products - The flat-rolled products business unit, the
largest of KACC's fabricated products businesses, operates the
Trentwood sheet and plate mill at Spokane, Washington. The
Trentwood facility is KACC's largest fabricating plant and
accounted for substantially more than one-half of KACC's 1994
fabricated aluminum products shipments. The business unit supplies
the beverage container market (producing body, lid, and tab stock),
the aerospace market, and the tooling plate, heat-treated alloy and
common alloy coil markets, both directly and through distributors.
KACC announced in October 1993 that it was restructuring its flat-
rolled products operation at its Trentwood plant to reduce that
facility's annual operating costs. The Trentwood restructuring is
expected to result in annual cost savings of at least $50.0 million
after it has been fully implemented (which is expected to occur by
the end of 1995).
KACC's flat-rolled products are sold primarily to beverage container
manufacturers located in the western United States and in the Asian
Pacific Rim countries where the Trentwood plant's location provides
KACC with a transportation advantage. Quality of products for the
beverage container industry and timeliness of delivery are the
primary bases on which KACC competes. Management believes that
KACC's capital improvements at Trentwood have enhanced the quality
of KACC's products for the beverage container industry and the
capacity and efficiency of KACC's manufacturing operations, and
that KACC is one of the highest quality producers of aluminum
beverage can stock in the world.
In 1994, the flat-rolled products business unit had 25 foreign and
domestic can stock customers, the majority of which were beverage
can manufacturers (including five of the six major domestic
beverage can manufacturers) and the balance of which were brewers.
The largest and top five of such customers accounted for
approximately 26% and 51%, respectively, of the business unit's
sales revenue. In 1994, the business unit shipped products to over
200 customers in the aerospace, transportation, and industrial
("ATI") markets, most of which were distributors who sell to a
variety of industrial end-users. The top five customers in the ATI
markets for flat-rolled products accounted for approximately 13% of
the business unit's sales revenue. The marketing staff for the
flat-rolled products business unit is located at the Trentwood
facility and in Pleasanton, California. Sales are made directly to
customers (including distributors) from eight sales offices located
throughout the United States. International customers are served
by sales offices in the Netherlands and Japan and by independent
sales agents in Asia and Latin America.
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ITEM 1. BUSINESS (continued)
Extruded Products - The extruded products business unit is
headquartered in Dallas, Texas, and operates soft-alloy extrusion
facilities in Los Angeles, California; Santa Fe Springs, California;
Sherman, Texas; and London, Ontario, Canada; a cathodic protection
business located in Tulsa, Oklahoma, that also extrudes both
aluminum and magnesium; rod and bar facilities in Newark, Ohio, a
facility in Jackson, Tennessee, which produce screw machine stock,
redraw rod, forging stock, and billet, and a facility in Richland,
Washington, which is expected to be in full operation in the second
quarter of 1995 and which will produce seamless tubing in both hard
and soft alloys for the automotive, other transportation, export,
recreation, agriculture, and other industrial markets. Each of the
soft-alloy extrusion facilities has fabricating capabilities and
provides finishing services.
The extruded products business unit's major markets are in the
transportation industry, to which it provides extruded shapes for
automobiles, trucks, trailers, cabs, and shipping containers, and
distribution, durable goods, defense, building and construction,
ordnance, and electrical markets. In 1994, the extruded products
business unit had over 950 customers for its products, the largest
and top five of which accounted for approximately 6% and 20%,
respectively, of its sales revenue. Sales are made directly from
plants as well as marketing locations across the United States.
Forgings - The forgings business unit operates forging facilities at
Erie, Pennsylvania; Oxnard, California; and Greenwood, South
Carolina; and a machine shop at Greenwood, South Carolina. The
forgings business unit is one of the largest producers of aluminum
forgings in the United States and is a major supplier of high-
quality forged parts to customers in the automotive, commercial
vehicle, and ordnance markets. The high strength-to-weight
properties of forged aluminum make it particularly well suited for
automotive applications.
In 1994, the forgings business unit had over 300 customers for its
products, the largest and top five of which accounted for
approximately 30% and 69%, respectively, of the forgings business
unit's sales revenue. The forgings business unit's headquarters is
located in Erie, Pennsylvania, and additional sales, marketing, and
engineering groups are located in the midwestern and western United
States.
Competition
Aluminum products compete in many markets with steel, copper, glass,
plastic, and numerous other materials. Within the aluminum
business, KACC competes with both domestic and foreign producers of
bauxite, alumina, and primary aluminum, and with domestic and
foreign fabricators. Many of KACC's competitors have greater
financial resources than KACC. KACC's principal competitors in the
sale of alumina include Alcoa of Australia Ltd., Glencore Ltd., and
Pechiney S.A. KACC competes with most aluminum producers in the
sale of primary aluminum.
Primary aluminum and, to some degree, alumina are commodities with
generally standard qualities, and competition in the sale of these
commodities is based primarily upon price, quality, and
availability. KACC also competes with a wide range of domestic and
international fabricators in the sale of fabricated aluminum
products. Competition in the sale of fabricated products is based
upon quality, availability, price, and service, including delivery
performance. KACC concentrates its fabricating operations on
selected products in which KACC has production expertise, high
quality capability, and geographic and other competitive advantages.
Management believes that, assuming the current relationship between
worldwide supply and demand for alumina and primary aluminum does
not change materially, the loss of any one of KACC's customers,
including intermediaries, would not have a material adverse effect
on the Company's business or operations.
Research and Development
KACC conducts research and development activities principally at
four facilities - the Center for Technology ("CFT") in Pleasanton,
California; the Primary Aluminum Products Division Technology Center
("DTC") adjacent to the Mead smelter
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ITEM 1. BUSINESS (continued)
in Washington; the Alumina Development Laboratory ("ADL") at the
Gramercy, Louisiana refinery, which is a part of Kaiser Alumina
Technical Services ("KATS"), and the Automotive Product Development
Office located near Detroit, Michigan. Net expenditures for
Company-sponsored research and development activities were $16.7
million in 1994, $18.5 million in 1993, and $13.5 million in 1992.
KACC's research staff totaled 166 at December 31, 1994. KACC
estimates that research and development net expenditures will be in
the range of approximately $20.0 - $22.0 million in 1995.
CFT performs research and development across a range of aluminum
process and product technologies to support KACC's business units
and new business opportunities. It also selectively offers
technical services to third parties. A significant effort is
directed at the automotive market. One project directed at
automotive sheet development is carried out cooperatively with
Furukawa Electric Co., Ltd. of Japan, Pechiney Rhenalu of France,
and Kawasaki Steel Corporation of Japan. The largest and most
notable single project being developed at CFT is a "micromill"
process for producing can body sheet. A pilot facility has been
constructed and operated at CFT. Based on the results achieved so
far, the Company hopes to finalize in 1995 plans for construction
of a full-scale commercial micromill.
DTC maintains specialized laboratories and a miniature carbon plant
where experiments with new anode and cathode technology are
performed. DTC supports KACC's primary aluminum smelters, and
concentrates on the development of cost-effective technical
innovations such as equipment and process improvements. KATS,
including ADL, provides improved alumina process technology to KACC
facilities and technical support to new business ventures in
cooperation with KACC's international business development group.
The Automotive Product Development Office is a sales and application
engineering facility located near Detroit-area carmakers and works
with customers, CFT and plant personnel to create new automotive
component designs and improve existing products.
KACC is actively engaged in efforts to license its technology and
sell technical and managerial assistance to other producers
worldwide. Pursuant to various arrangements, KACC's technology has
been installed in alumina refineries, aluminum smelters and rolling
mills located in the United States, Jamaica, Sweden, Germany,
Russia, India, Australia, Korea, New Zealand, Ghana, Europe, and
the United Kingdom. KACC's technology sales and revenue from
technical assistance to third parties were $10.0 million in 1994,
$12.8 million in 1993, and $14.1 million in 1992.
KACC has entered into agreements with respect to the Krasnoyarsk
smelter located in Russia pursuant to which KACC has licensed
certain of its technology for use in such facility and agreed to
provide purchasing services in obtaining Western-sourced
technology and equipment to be used in such facility. These
agreements were entered into in November 1990, and the services
under them are expected to be completed in 1996. In addition,
KACC has entered into agreements with respect to the Nadvoitsy
smelter located in Russia and the Korba smelter of the Bharat
Aluminum Co. Ltd., located in India, pursuant to which KACC
has licensed certain of its technology for use in such facilities.
The agreements relating to the Nadvoitsy and Korba smelters were
entered into in 1993 and the services under such agreements are
expected to be completed in 1995.
Employees
During 1994, KACC employed an average of 9,744 persons, compared
with an average of 10,220 employees in 1993, and 10,130 employees
in 1992. At December 31, 1994, KACC's work force was 9,468,
including a domestic work force of 5,812, of whom 3,978 were paid
at an hourly rate. Most hourly paid domestic employees are covered
by collective bargaining agreements with various labor unions.
Approximately 71% of such employees are covered by a master
agreement (the "Labor Contract") with the United Steelworkers of
America ("USWA") which expires on September 30, 1998. The Labor
Contract covers KACC's plants in Spokane (Trentwood and Mead) and
Tacoma, Washington; Gramercy, Louisiana; and Newark, Ohio.
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ITEM 1. BUSINESS (continued)
The Labor Contract provides for base wages at all covered plants.
In addition, workers covered by the Labor Contract may receive
quarterly bonus payments based on various indices of profitability,
productivity, efficiency, and other aspects of specific plant
performance, as well as, in certain cases, the price of alumina or
primary aluminum. Pursuant to the Labor Contract, base wage rates
were raised effective January 2, 1995, and will be raised an
additional amount effective November 6, 1995, and November 3, 1997,
and an amount in respect of the cost of living adjustment under the
previous master agreement will be phased into base wages during the
term of the Labor Contract. In the second quarter of 1995, KACC
will acquire up to $2,000 of preference stock held in a stock plan
for the benefit of each of approximately 82% of the employees
covered by the Labor Contract and in the first half of 1998 up to
an additional $4,000 of such preference stock held in such plan for
the benefit of substantially the same employees. In addition,
if a profitability test is satisfied, KACC will acquire during
1996 or 1997 up to an additional $1,000 of such preference stock
held in such plan for the benefit of substantially the same
employees. KACC will make comparable acquisitions of preference
stock held for the benefit of each of certain salaried employees.
Management considers KACC's employee relations to be satisfactory.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Trends - Labor Matter."
Environmental Matters
The Company and KACC are subject to a wide variety of international,
state, and local environmental laws and regulations ("Environmental
Laws") which continue to be adopted and amended. The Environmental
Laws regulate, among other things, air and water emissions and
discharges; the generation, storage, treatment, transportation, and
disposal of solid and hazardous waste; the release of hazardous or
toxic substances, pollutants and contaminants into the environment;
and, in certain instances, the environmental condition of industrial
property prior to transfer or sale. In addition, the Company and
KACC are subject to various federal, state, and local workplace
health and safety laws and regulations ("Health Laws").
From time to time, KACC is subject, with respect to its current and
former operations, to fines or penalties assessed for alleged
breaches of the Environmental and Health Laws and to claims and
litigation brought by federal, state or local agencies and by
private parties seeking remedial or other enforcement action under
the Environmental and Health Laws or damages related to alleged
injuries to health or to the environment, including claims with
respect to certain waste disposal sites and the remediation of
sites presently or formerly operated by KACC. See "LEGAL
PROCEEDINGS." KACC currently is subject to a number of lawsuits
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("CERCLA"). KACC, along with certain
other entities, has been named as a Potentially Responsible Party
("PRP") for remedial costs at certain third-party sites listed on
the National Priorities List under CERCLA and, in certain instances,
may be exposed to joint and several liability for those costs or
damages to natural resources.
KACC's Mead, Washington, facility has been listed on the National
Priorities List under CERCLA. In addition, in connection with
certain of its asset sales, KACC has indemnified the purchasers of
assets with respect to certain liabilities (and associated expenses)
resulting from acts or omissions arising prior to such dispositions,
including environmental liabilities. While uncertainties are
inherent in the final outcome of these matters, and it is presently
impossible to determine the actual costs that ultimately may be
incurred, management currently believes that the resolution of such
uncertainties should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Environmental capital spending was $11.9 million in 1994, $12.6
million in 1993, and $13.1 million in 1992. Annual operating costs
for pollution control, not including corporate overhead or
depreciation, were approximately $23.1 million in 1994, $22.4
million in 1993, and $21.6 million in 1992. Legislative,
regulatory, and economic uncertainties make it difficult to project
future spending for these purposes. However, the Company currently
anticipates that in the 1995-1996 period, environmental capital
spending will be within the range of approximately $15.0 - $18.0
million per year, and operating costs for pollution control will be
within the range of $25.0 - $27.0 million per year. In addition,
$3.6 million
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ITEM 1. BUSINESS (continued)
in cash expenditures in 1994, $7.2 million in 1993, and $9.6 million
in 1992 were charged to previously established reserves relating
to environmental costs. Approximately $11.4 million is expected
to be charged to such reserves in 1995.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Financial Condition and Capital Spending -
Environmental Contingencies." The portion of Note 9 of the Notes to
Consolidated Financial Statements contained in the Annual Report
under the heading "Environmental Contingencies" is incorporated
herein by reference.
ITEM 2. PROPERTIES
The locations and general character of the principal plants, mines,
and other materially important physical properties relating to
KACC's operations are described in "ITEM 1. BUSINESS," and those
descriptions are incorporated herein by reference. KACC owns in fee
or leases all the real estate and facilities used in connection with
its business. Plants and equipment and other facilities are
generally in good condition and suitable for their intended uses,
subject to changing environmental requirements. Although KACC's
domestic aluminum smelters and alumina facility were initially
designed early in KACC's history, they have been modified frequently
over the years to incorporate technological advances in order to
improve efficiency, increase capacity, and achieve energy savings.
Management believes that KACC's domestic plants are cost competitive
on an international basis. Due to KACC's variable cost structure,
the plants' operating costs are relatively lower in periods of low
primary aluminum prices and relatively higher in periods of high
primary aluminum prices.
KACC's obligations under the Credit Agreement entered into on
February 17, 1994, as amended (the "1994 Credit Agreement"), are
secured by, among other things, mortgages on KACC's major domestic
plants (other than the Gramercy alumina plant). See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Financial Condition and Capital Spending."
ITEM 3. LEGAL PROCEEDINGS
Aberdeen Pesticide Dumps Site Matter
The Aberdeen Pesticide Dumps Site, listed on the Superfund National
Priorities List, is composed of five separate sites around the town
of Aberdeen, North Carolina. These sites (collectively, the
"Sites") include the Farm Chemicals Site, Twin Sites, Fairway Six
Site, McIver Dump Site and the Route 211 Site. The Sites are of
concern to the United States Environmental Protection Agency (the
"EPA") because of their past use as either pesticide formulation
facilities or pesticide disposal areas from approximately the mid-
1930s through the late 1980s.
The United States originally filed a cost recovery complaint (as
amended, the "Complaint") in the United States District Court for
the Middle District of North Carolina, Rockingham Division, No.
C-89-231-R, against five defendants on March 31, 1989, and
subsequently amended its complaint to add another ten defendants
on February 6, 1991, and another four defendants on August 1, 1991.
Neither the Company nor KACC were defendants named in the Complaint.
The Complaint seeks reimbursement for past and future response
costs and a determination of liability of the defendants under
Section 107 of CERCLA. On or about October 2, 1991, KACC, along
with approximately 17 other parties, was served with third party
complaints from four of the defendants named in the Complaint (the
"Third Party Plaintiffs") alleging claims arising under various
theories of contribution and indemnity. On October 22, 1992, the
United States filed a motion for leave to file an amended complaint
naming KACC as a first party defendant in its cost recovery action.
On February 16, 1993, the court granted that motion.
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ITEM 3. LEGAL PROCEEDINGS (continued)
The EPA has performed a Remedial Investigation/Feasibility Study and
issued a Record of Decision ("ROD") dated September 30, 1991, for
the Sites. The major remedy selected for the Sites in the ROD
consisted of excavation of contaminated soil, treatment of the
contaminated soil at a single location utilizing thermal treatment,
and placement of the treated material back into the areas of
excavation. The estimated cost of such remedy for the Sites is
approximately $32 million. Other possible remedies described in
the ROD included on-site incineration and on-site ash disposal at
an estimated cost of approximately $53 million, and off-site
incineration and disposal at an estimated cost of approximately
$222 million. The EPA has stated that it has incurred past costs
at the Sites in the range of $7.5 - $8 million as of February 9,
1993, and alleges that response costs will continue to be incurred
in the future.
On May 20, 1993, the EPA issued three unilateral Administrative
Orders under Section 106(a) of CERCLA ordering the respondents,
including KACC, to perform the remedial design and remedial action
described in the ROD for the Farm Chemicals Site (EPA Docket No. 93-
13-C), Twin Sites (EPA Docket No. 93-14-C) and Fairway Six Site (EPA
Docket No. 93-15-C). The estimated cost as set forth in the ROD for
the remedial action at the three Sites is approximately $27 million.
In addition to KACC, respondents named in the Administrative Orders
for all three Sites include J. M. Taylor, Grower Service Corporation,
E. I. DuPont de Nemours & Co., Olin Corporation, UCI Holdings, Inc.,
PPG Industries, Inc., and Union Carbide Corporation. Ciba-Geigy
Corporation, Hercules, Inc., Mobil Oil Corporation, Shell Oil
Company, The Boots Company (USA), Inc., Nor-Am Chemical Co., George
D. Anderson, Farm Chemicals, Inc., Partners In The Pits, Ltd., Dan F.
Maples, Pits Management Corp., Maples Golf Construction, Inc., Yadco
of Pinehurst, Inc., and Robert Trent Jones are named as respondents
for one or two of the Sites.
KACC has entered into a PRP Participation Agreement with certain of
the respondents to participate jointly in responding to the
Administrative Orders dated May 20, 1993, regarding soil remediation,
to share costs incurred on an interim basis, and to seek to reach a
final allocation of costs through agreement or to allow such final
allocation and determination of liability to be made by the United
States District Court. By letter dated July 6, 1993, KACC has
notified the EPA of its ongoing participation with such group of
respondents which, as a group, are intending to comply with the
Administrative Orders to the extent consistent with applicable law.
By letters dated December 30, 1993, the EPA notified KACC of its
potential liability for, and requested that KACC, along with certain
other named companies, undertake or agree to finance, groundwater
remediation at certain of the Sites.
On June 22, 1994, the EPA issued two Unilateral Administrative
Orders under Section 106(a) of CERCLA under U.S. EPA Docket No.
94-28-C and U.S. EPA Docket No. 94-27-C, respectively, ordering
the named respondents to design and implement the groundwater
remediation remedy for the Farm Chemicals and Twin Sites and for
the Fairway Six Site. In addition to KACC, the Unilateral
Administrative Order for the Farm Chemicals and Twin Site areas
named as respondents J. M. Taylor, Grower Service Corporation, Farm
Chemicals, Inc., E. I. Dupont de Nemours and Company, Olin
Corporation, UCI Holdings, Inc., Union Carbide Corporation, Miles,
Inc., Mobil Oil Corporation, Shell Oil Company, Hercules, Inc., The
Boots Company (USA), Inc., Nor-Am Chemical Company, and Ciba-Geigy
Corporation. Named as respondents in addition to KACC for the
Fairway Six Site area were J. M. Taylor, George Anderson, Grower
Service Corporation, Partners in the Pits, Dan Maples, Pits
Management Corporation, Maples Golf Construction, Inc.,
Yadco of Pinehurst Inc., Robert Trent Jones, E. I. Dupont de Nemours
and Company, Olin Corporation, UCI Holdings, Inc., and Ciba-Geigy
Corporation. The ROD-selected remedy for the groundwater
remediation selected by the EPA includes extraction, on site
treatment by coagulation, flocculation, precipitation, air
stripping, GAC absorption, and discharge on site for the Farm
Chemicals/Twin Sites and extraction, on-site treatment by GAC
absorption and discharge on-site for the Fairway Six Site. The EPA
has estimated the total present worth cost, including 30 years of
operation and maintenance, at $11,849,757. A definitive PRP
Participation Agreement with respect to groundwater remediation
is under negotiation among certain of the respondents, including
KACC, and these respondents are proceeding with work required
under the administrative orders.
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ITEM 3. LEGAL PROCEEDINGS (continued)
Based upon the information presently available to it, the Company is
unable to determine whether KACC has any liability with respect to
any of the Sites or, if there is any liability, the amount thereof.
Two government witnesses have testified that KACC acquired pesticide
products from the operator of the formulation site over a two to
three year period. KACC has been unable to confirm the accuracy of
this testimony.
United States of America v. Kaiser Aluminum & Chemical Corporation
On February 8, 1989, a civil action was filed by the United States
Department of Justice at the request of the EPA against KACC in the
United States District Court for the Eastern District of Washington,
Case No. C-89-106-CLQ. The complaint alleged that emissions from
certain stacks at KACC's Trentwood facility in Spokane, Washington
intermittently violated the opacity standard contained in the
Washington State Implementation Plan ("SIP"), approved by the EPA
under the federal Clean Air Act. The complaint sought injunctive
relief, including an order that KACC take all necessary action to
achieve compliance with the Washington SIP opacity limit and the
assessment of civil penalties of not more than $25,000 per day.
In the course of the litigation, questions arose as to whether the
observers who recorded the alleged exceedances were qualified under
the Washington SIP to read opacity. In July 1990, KACC and the
Department of Justice agreed to a voluntary dismissal of the action.
At that time, however, the EPA had arranged for increased
surveillance of the Trentwood facility by consultants and the EPA's
personnel. From May 1990 through May 1991, these observers recorded
approximately 130 alleged exceedances of the SIP opacity rule.
Justice Department representatives have stated their intent to file
a second lawsuit against KACC based on the opacity observations
recorded during that period.
The second lawsuit has not yet been filed. Instead, KACC has
entered into negotiations with the EPA to resolve the claims
against KACC through a consent decree. The EPA and KACC have made
substantial progress in negotiating the terms of the consent
decree. The terms of the consent decree currently being negotiated
include, in principle, a commitment by KACC to improve emission
control equipment at the Trentwood facility and a civil penalty
assessment against KACC. The Company anticipates that agreement
upon the terms of a consent decree will be reached during 1995.
In the event the terms of a consent decree are not agreed upon,
the matter would likely be resolved in federal court.
Catellus Development Corporation v. Kaiser Aluminum & Chemical
Corporation and James L. Ferry & Son, Inc.
On January 7, 1991, the City of Richmond, et al. (the "Plaintiffs")
filed a Second Amended Complaint for Damages and Declaratory Relief
against the United States of America, the United States Maritime
Administration and Santa Fe Land Corporation (now known as Catellus
Development Corporation ("Catellus")) (collectively, the
"Defendants") alleging, among other things, that the Defendants
caused or allowed hazardous substances, pollutants, contaminants,
debris, and other solid wastes to be discharged, deposited, disposed
of or released on certain property located in Richmond, California
(the "Property") formerly owned by Catellus and leased to (i) KACC
for the purpose of shipbuilding activities conducted by KACC on
behalf of the United States during World War II, and (ii) subsequent
tenants thereafter. Plaintiffs allege, among other things, that (i)
the Defendants are jointly and severally liable for response costs
and natural resources damages under CERCLA, (ii) Defendant United
States of America is liable on grounds of negligence for damages
under the Federal Tort Claims Act, and (iii) Defendant Catellus is
strictly liable on grounds of negligence for such discharge,
deposit, disposal or release. Certain of the Plaintiffs have
alleged that they had incurred or expect to incur costs and
damages in the amount of approximately $49 million, in the
aggregate.
On or about September 23, 1992, the Plaintiffs filed a Third Amended
Complaint, alleging, among other things, that (i) the Defendants are
jointly and severally liable for response costs, declaratory relief,
and natural resources damages under CERCLA; (ii) Defendant United
States of America is liable on grounds of negligence, continuing
trespass and continuing nuisance for damages under the Federal Tort
Claims Act; (iii) Defendant Catellus is strictly liable on grounds
of continuing
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ITEM 3. LEGAL PROCEEDINGS (continued)
nuisance, continuing trespass, and negligence for such
discharge, deposit, disposal or release; (iv) Catellus is liable to
indemnify Plaintiffs; and (v) Catellus is liable for fraudulent
concealment of the alleged contamination.
On February 20, 1991, Catellus filed a third party complaint (the
"Third Party Complaint") against KACC and James L. Ferry & Son, Inc.
("Ferry") in the United States District Court for the Northern
District of California, Case No. C-89-2935 DLJ. The Third Party
Complaint was served on KACC as of April 12, 1991. The Third Party
Complaint alleges that, if the allegations of the Plaintiffs are
true, then KACC and Ferry (which is alleged to have performed
certain excavation activities on the Property and, as a result
thereof, to have released contaminants on the Property and to have
arranged for the transportation, treatment, and disposal of such
contaminants) are liable for Catellus' response costs and damages
under CERCLA and damages under other theories of negligence and
nuisance and, in the case of KACC, waste. Catellus seeks (i)
contribution from KACC and Ferry, jointly and severally, for its
costs and damages pursuant to CERCLA; (ii) indemnity from KACC and
Ferry for any liability or judgment imposed upon it; (iii)
indemnity from KACC and Ferry for reasonable attorneys fees and
costs incurred by it; (iv) damages for the injury to its interest
in the Property; and (v) treble damages from KACC pursuant to
California Code of Civil Procedure Section 732.
On June 4, 1991, Catellus served on KACC a first amended third party
complaint which alleges, in addition to the allegations of the Third
Party Complaint, that KACC and/or a predecessor in interest to KACC
is also liable for Catellus' damages, if any, on the basis of
alleged contractual indemnities contained in certain former leases
of the Property.
The Third Party Complaint was amended on or about October 26, 1992.
The amended Third Party Complaint alleges that, if the allegations
of the Plaintiffs are true, then KACC and Ferry are liable for (i)
Catellus' response costs and natural resources damage under CERCLA;
(ii) damages under theories of negligence, trespass and nuisance;
(iii) indemnity (equitable and contractual); and (iv) attorneys fees
under California Code of Civil Procedure Section 1021.6.
By letter dated October 26, 1992, counsel for certain underwriters
at Lloyd's London and certain London Market insurance companies
("London Insurers") advised that the London Insurers agreed to
reimburse KACC for defense expenses in the third party action
filed by Catellus, subject to a full reservation of rights.
The Plaintiffs filed a motion for leave to file a Third Amended
Complaint which would have added KACC as a first party defendant.
This motion was denied. On October 26, 1992, the Plaintiffs served
a separate Complaint against KACC for damages and declaratory
relief.
The claims asserted by the Plaintiffs are for (i) recovery
of costs, natural resources damages, and declaratory relief under
CERCLA; (ii) damages for injury to the Property arising from
negligence; (iii) damages under a theory of strict liability; (iv)
continuing nuisance and continuing trespass; (v) equitable
indemnity; (vi) response costs incurred by the Richmond
Redevelopment Agency under California Health & Safety Code Section
33459.4; and (vii) declaratory relief on the state claims. This
matter has been tendered to the London Insurers.
On June 24, 1994, the District Court approved a Consent Decree
consummating the settlement of the Plaintiffs' CERCLA and tort
claims against the United States in exchange for payment of
approximately $3.5 million plus 35% of future response costs. Trial
of this matter commenced in March 1995.
Picketville Road Landfill Matter
On July 1, 1991, the EPA served on KACC and 13 other PRPs a
Unilateral Administrative Order For Remedial Design and Remedial
Action (the "Order") at the Picketville Road Landfill site in
Jacksonville, Florida. The EPA seeks remedial design and remedial
action pursuant to CERCLA from some, but apparently not all, PRPs
based upon a Record of Decision outlining remedial cleanup measures
to be undertaken at the site adopted by the EPA on September 28,
1990. The site was operated as a municipal and industrial waste
landfill from 1968 to 1977 by the City of Jacksonville. KACC was
first notified by the EPA on January 17, 1991, that wastes from one
of KACC's plants may have been transported to and deposited in the
site. In its Record of Decision, the EPA estimated that the total
capital, operations, and maintenance costs
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ITEM 3. LEGAL PROCEEDINGS (continued)
of its elected remedy for the site would be approximately $9.9
million. In addition, the EPA has reserved the right to seek
recovery of its costs incurred relating to the Order, including,
but not limited to, reimbursement of the EPA's cost of response.
KACC has reached an agreement with certain PRPs who are conducting
remedial design and remedial action at the site, under which KACC
will fund $146,700 of the cost of the remedial design and remedial
action (unless remedial costs exceed $19 million in which event the
settlement agreement will be re-opened).
Asbestos-related Litigation
KACC is a defendant in a number of lawsuits in which the plaintiffs
allege that certain of their injuries were caused by exposure to
asbestos during, and as a result of, their employment or association
with KACC or exposure to products containing asbestos produced or
sold by KACC. The lawsuits generally relate to products KACC has
not manufactured for at least 15 years. At December 31, 1994, the
number of such lawsuits pending was approximately 25,200. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Financial Condition and Capital Spending
- Asbestos Contingencies." The portion of Note 9 of the Notes to
Consolidated Financial Statements contained in the Annual Report
under the heading "Asbestos Contingencies" is incorporated herein
by reference.
Other
On August 24, 1994, the United States Department of Justice (the
"DOJ") issued Civil Investigative Demand No. 11356 ("CID")
requesting information from the Company regarding (i) its
production, capacity to produce, and sales of primary aluminum
from January 1, 1991, to the date of the response; (ii) any actual
or contemplated reductions in its production of primary aluminum
during that period; and (iii) any communications with others
regarding any actual, contemplated, possible or desired reductions
in primary aluminum production by the Company or any of its
competitors during that period. The Company has submitted
documents and interrogatory answers to the DOJ responding to the
CID.
Various other lawsuits and claims are pending against KACC.
Management believes that resolution of the lawsuits and claims made
against KACC, including matters discussed above, will not have a
material adverse effect on the Company's consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange
under the symbol "KLU". The number of record holders of the
Company's common stock at March 15, 1995 was 123. Page 56 of the
Annual Report, and the information in Note 8 of the Notes to
Consolidated Financial Statements under the heading "Dividends on
Common Stock" at page 48 of the Annual Report, are incorporated
herein by reference. The Company has not paid any dividends on its
common stock during the two most recent fiscal years.
The 1994 Credit Agreement (Exhibits 4.4 through 4.6 to this Report)
contains restrictions on the ability of the Company to pay dividends
on or make distributions on account of the Company's common stock,
and the 1994 Credit Agreement and the Indentures (Exhibits 4.1
through 4.3 to this Report) contain restrictions on the ability of
the Company's subsidiaries
15
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
-------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS (continued)
to transfer funds to the Company in the form of cash dividends,
loans or advances. Exhibits 4.1 through 4.6 to this Report; Note 5
of the Notes to Consolidated Financial Statements at pages 36-38
of the Annual Report; and the information under the heading
"Financial Condition and Capital - Spending Capital Structure" at
pages 23-24 of the Annual Report, are incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated herein by
reference to the table at page 3 of this Report; to the table at
page 20 of the Annual Report; to the discussion under the heading
"Results of Operations" at page 21 of the Annual Report; to Note 1
of the Notes to Consolidated Financial Statements at pages 32-34 of
the Annual Report; and to pages 54-55 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pages 20-27 of the Annual Report are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 28-53 and page 56 of the Annual Report are incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Information required under PART III (Items 10, 11, 12, and 13) has
been omitted from this Report since the Company intends to file with
the Securities and Exchange Commission, not later than 120 days
after the close of its fiscal year, a definitive proxy statement
pursuant to Regulation 14A which involves the election of directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Index to Financial Statements and Schedules
1. Financial Statements
--------------------
The Consolidated Financial Statements of the Company,
the Notes to Consolidated Financial Statements, the
Report of Independent Public Accountants, and
Quarterly Financial Data are included on pages 28-53
and 56 of the Annual Report.
2. Financial Statement Schedules
-----------------------------
Financial statement schedules are inapplicable or the
required information is included in the Consolidated
Financial Statements or the Notes thereto.
16
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
-------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K (continued)
3. Exhibits
--------
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 19),
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 19),
which index is incorporated herein by reference.
17
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KAISER ALUMINUM CORPORATION
Date: March 24, 1995 By George T. Haymaker, Jr.
-----------------------------
George T. Haymaker, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Date: March 24, 1995 George T. Haymaker, Jr.
-----------------------------
George T. Haymaker, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 24, 1995 John T. La Duc
-----------------------------
John T. La Duc
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 24, 1995 Charlie Alongi
-----------------------------
Charlie Alongi
Controller
(Principal Accounting Officer)
Date: March 24, 1995 Robert J. Cruikshank
-----------------------------
Robert J. Cruikshank
Director
Date: March 24, 1995 Charles E. Hurwitz
-----------------------------
Charles E. Hurwitz
Director
Date: March 24, 1995 Ezra G. Levin
-----------------------------
Ezra G. Levin
Director
Date: March 24, 1995 Robert Marcus
-----------------------------
Robert Marcus
Director
Date: March 24, 1995 Paul D. Rusen
-----------------------------
Paul D. Rusen
Director
18
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------
INDEX OF EXHIBITS
Exhibit
Number Description
------- ------------
3.1 Restated Certificate of Incorporation of Kaiser Aluminum
Corporation (the "Company" or "KAC"), dated February 21,
1991 (incorporated by reference to Exhibit 3.1 to Amendment
No. 2 to the Registration Statement on Form S-1, dated
June 11, 1991, filed by KAC, Registration No. 33-37895).
3.2 By-laws of KAC, amended as of February 26, 1991
(incorporated by reference to Exhibit 3.2 to Amendment
No. 2 to the Registration Statement on Form S-1, dated June
11, 1991, filed by KAC, Registration No. 33-37895).
4.1 Indenture, dated as of February 1, 1993, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., and Kaiser Jamaica Corporation, as Subsidiary
Guarantors, and The First National Bank of Boston, as
Trustee, regarding KACC's 12-3/4% Senior Subordinated Notes
Due 2003 (incorporated by reference to Exhibit 4.1 to Form
10-K for the period ended December 31, 1992, filed by KACC,
File No. 1-3605).
4.2 First Supplemental Indenture, dated as of May 1, 1993
(incorporated by reference to Exhibit 4.2 to the Report on
Form 10-Q for the quarterly period ended June 30, 1993,
filed by KACC, File No. 1-3605).
4.3 Indenture, dated as of February 17, 1994, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., Kaiser Jamaica Corporation, and Kaiser Finance
Corporation, as Subsidiary Guarantors, and First Trust
National Association as Trustee, regarding KACC's 9-7/8%
Senior Notes Due 2002 (incorporated by reference to Exhibit
4.3 to the Report on Form 10-K for the period ended December
31, 1993, filed by KAC, File No. 1-9447).
4.4 Credit Agreement, dated as of February 17, 1994, among 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).
4.5 First Amendment to Credit Agreement, dated as of July 21,
1994, amending the Credit Agreement, dated as of February
17, 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).
*4.6 Second Amendment to Credit Agreement, dated as of March 10,
1995, amending the Credit Agreement, dated as of February
17, 1994, among KAC, KACC, the financial institutions party
thereto, and BankAmerica Business Credit, Inc., as Agent.
4.7 Certificate of Designations of Series A Mandatory Conversion
Premium Dividend Preferred Stock of KAC, dated June 28, 1993
(incorporated by reference to Exhibit 4.3 to the Report on
Form 10-Q for the quarterly period ended June 30, 1993,
filed by KAC, File No. 1-9447).
4.8 Deposit Agreement between KAC and The First National Bank of
Boston, dated as of June 30, 1993 (incorporated by reference
to Exhibit 4.4 to the Report on Form 10-Q for the quarterly
period ended June 30, 1993, filed by KAC, File No. 1-9447).
19
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------
Exhibit
Number Description
------- -----------
4.9 Intercompany Note between KAC and KACC (incorporated by
reference to Exhibit 4.2 to Amendment No. 5 to the
Registration Statement on Form S-1, dated December 13, 1989,
filed by KACC, Registration No. 33-30645).
*4.10 Senior Subordinated Intercompany Note between KACC and a
subsidiary of MAXXAM, dated December 15, 1992.
4.11 Certificate of Designations of 8.255% PRIDES, Convertible
Preferred Stock of KAC, dated February 17, 1994
(incorporated by reference to Exhibit 4.21 to the Report
on Form 10-K for the period ended December 31, 1993, filed
by KAC, File No. 1-9447).
4.12 Senior Subordinated Intercompany Note between KAC and KACC
dated February 15, 1994 (incorporated by reference to
Exhibit 4.22 to the Report on Form 10-K for the period ended
December 31, 1993, filed by KAC, File No. 1-9447).
4.13 Senior Subordinated Intercompany Note between KAC and KACC
dated March 17, 1994 (incorporated by reference to Exhibit
4.23 to the Report on Form 10-K for the period ended
December 31, 1993, filed by KAC, File No. 1-9447).
4.14 Senior Subordinated Intercompany Note between KAC and KACC
dated June 30, 1993 (incorporated by reference to Exhibit
4.24 to the Report on Form 10-K for the period ended
December 31, 1993, filed by KAC, File No. 1-9447).
KAC 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
KAC and its subsidiaries on a consolidated basis. KAC
agrees and undertakes to furnish a copy of any such
instrument to the Securities and Exchange Commission upon
its request.
10.1 Form of indemnification agreement with officers and
directors (incorporated by reference to Exhibit (10)(b)
to the Registration Statement of KAC on Form S-4, File No.
33-12836).
10.2 Tax Allocation Agreement between MAXXAM and KACC
(incorporated by reference to Exhibit 10.21 to Amendment No.
6 to the Registration Statement on Form S-1, dated December
14, 1989, filed by KACC, Registration No. 33-30645).
10.3 Tax Allocation Agreement between KAC and MAXXAM
(incorporated by reference to Exhibit 10.23 to Amendment
No. 2 to the Registration Statement on Form S-1, dated
June 11, 1991, filed by KAC, Registration No. 33-37895).
10.4 Tax Allocation Agreement, dated as of June 30, 1993, between
KACC and KAC (incorporated by reference to Exhibit 10.3 to
the Report on Form 10-Q for the quarterly period ended June
30, 1993, filed by KACC, File No. 1-3605).
10.5 Assumption Agreement, dated as of October 28, 1988
(incorporated by reference to Exhibit HHH to the Final
Amendment to the Schedule 13D of MAXXAM Group Inc. and
others in respect of the Common Stock of KAC, par value
$.33-1/3 per share).
20
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------
Exhibit
Number Description
------- -----------
10.6 Agreement, dated as of June 30, 1993, between KAC and MAXXAM
(incorporated by reference to Exhibit 10.2 to the Report on
Form 10-Q for the quarterly period ended June 30, 1993,
filed by KACC, File No. 1-3605).
Executive Compensation Plans and Arrangements
----------------------------------------------
10.7 KACC's Bonus Plan (incorporated by reference to Exhibit
10.25 to Amendment No. 6 to the Registration Statement on
Form S-1, dated December 14, 1989, filed by KACC,
Registration No. 33-30645).
10.8 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC, File
No. 1-3605).
10.9 Employment Agreement, dated April 1, 1993, among KAC, KACC,
and George T. Haymaker, Jr. (incorporated by reference to
Exhibit 10.2 to the Report on Form 10-Q for the quarterly
period ended March 31, 1993, filed by KAC, File No. 1-9447).
10.10 Promissory Note, dated October 4, 1990, by Robert W. Irelan
and Barbara M. Irelan to KACC (incorporated by reference to
Exhibit 10.54 to Form 10-K for the period ended December 31,
1990, filed by MAXXAM, File No. 1-3924).
10.11 Promissory Note, dated February 1, 1989, by Anthony R.
Pierno and Beverly J. Pierno to MAXXAM (incorporated by
reference to Exhibit 10.30 to Form 10-K for the period
ended December 31, 1988, filed by MAXXAM, File No. 1-3924).
10.12 Promissory Note, dated July 19, 1990, by Anthony R.
Pierno to MAXXAM (incorporated by reference to Exhibit
10.31 to Form 10-K for the period ended December 31, 1990,
filed by MAXXAM, File No. 1-3924).
10.13 Promissory Note, dated July 20, 1993, between MAXXAM and
Byron L. Wade (incorporated by reference to Exhibit 10.59 to
Form 10-K for the period ended December 31, 1993, filed by
MAXXAM, File No. 1-3924).
10.14 Employment Agreement, dated August 20, 1993, between KACC
and Robert E. Cole (incorporated by reference to Exhibit
10.63 to Form 10-K for the period ended December 31, 1993,
filed by MAXXAM, File No. 1-3924).
10.15 Compensation Agreement, dated July 18, 1994, between KACC
and Larry L. Watts (incorporated by reference to Exhibit
10.1 to the Report on Form 10-Q for the quarterly period
ended June 30, 1994, filed by KAC, File No. 1-9447).
10.16 Compensation Agreement, dated July 18, 1994, between KACC
and Geoff S. Smith (incorporated by reference to Exhibit
10.2 to the Report on Form 10-Q for the quarterly period
ended June 30, 1994, filed by KAC, File No. 1-9447).
*10.17 Letter Agreement, dated January 1995, between KAC and
Charles E. Hurwitz, granting Mr. Hurwitz stock options
under the Kaiser 1993 Omnibus Stock Incentive Plan.
*10.18 Form of letter agreement with persons granted stock options
under the Kaiser 1993 Omnibus Stock Incentive Plan to
acquire shares of KAC common stock.
21
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
--------------------------------------------------------------------
Exhibit
Number Description
------- -----------
*13 The portions of KAC's Annual Report to shareholders for the
year ended December 31, 1994, which are incorporated by
reference into this Report.
*21 Significant Subsidiaries of KAC.
*27 Financial Data Schedule.
-----------
* Filed herewith
22
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
-------------------------------------------------------------------
Exhibit 21
SUBSIDIARIES
Listed below are the principal subsidiaries of Kaiser Aluminum
Corporation, the jurisdiction of their incorporation or organization
and the names under which such subsidiaries do business. Certain
subsidiaries are omitted which, considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary.
Place of
Incorporation
Name or Organization
---- ---------------
Alpart Jamaica Inc. . . . . . . . . . . . Delaware
Alumina Partners of Jamaica (partnership) . Delaware
Anglesey Aluminium Limited . . . . . . . . United Kingdom
Kaiser Alumina Australia Corporation . . . Delaware
Kaiser Aluminium International, Inc. . . . Delaware
Kaiser Aluminum & Chemical Corporation . . Delaware
Kaiser Aluminum & Chemical of Canada Limited Ontario
Kaiser Bauxite Company . . . . . . . . . . Nevada
Kaiser Finance Corporation . . . . . . . . Delaware
Kaiser Jamaica Bauxite Company (partnership) Jamaica
Kaiser Jamaica Corporation . . . . . . . . Delaware
Queensland Alumina Limited . . . . . . . . Queensland
Volta Aluminium Company Limited . . . . . . Ghana
23
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
----------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Domestic California Pennsylvania
Operations Los Angeles (City of Commerce) Erie
(Partial List) Extruded Products Forgings Plant and Offices
Los Angeles (Santa Fe Springs) South Carolina
Extruded Products Fabricating Greenwood
Oxnard Forgings
Forgings Greenwood
Pleasanton Machine Shop
R&D at the Center for Technology; Tennessee
Administrative Offices Jackson
Florida Extruded Products
Mulberry Texas
Sodium Silicofluoride, Potassium Silicofluoride Dallas
Louisiana Extruded Products Offices
Baton Rouge Houston
Alumina, Kaiser Alumina Technical Services, Kaiser Aluminum Corporation Headquarters
International Business Development, and Sherman
Environmental Offices Extruded Products
Gramercy Washington
Alumina Mead
Michigan Primary Aluminum;
Detroit (Southfield) Division Technology Center
Automotive Product Development and Sales Richland
Ohio Extruded Products
Canton Tacoma
Castings Primary Aluminum
Newark Trentwood
Extruded Products Flat-Rolled Products Plant and Offices
Oklahoma
Tulsa
Aluminum and Magnesium Extruded Products; Anodes
---------------------------------------------------------------------------------------------------------------
Worldwide Australia Japan
Operations Queensland Alumina Limited (28.3% owned) Furukawa Kaiser Forged Products Company
(Partial List) Alumina (47.5%)
Canada Sales Office
Kaiser Aluminum & Chemical of Canada Limited The Netherlands
(100%) Kaiser Aluminum Mill Products Inc. (100%)
Extruded Products Sales Office
Ghana Russia
Volta Aluminium Company Limited (90%) Kaiser Aluminium Russia, Inc. (100%)
Primary Aluminum International Business Development
Jamaica Wales, United Kingdom
Alumina Partners of Jamaica (65%) Anglesey Aluminium Limited (49%)
Bauxite; Alumina Primary Aluminum
Kaiser Jamaica Bauxite Company (49%)
Bauxite
</TABLE>
24
<PAGE>
EXECUTION COPY
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of March 10, 1995, is by and between
---------
KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation
(the "Company"), KAISER ALUMINUM CORPORATION, a Delaware
-------
corporation (the "Parent Guarantor"), the various financial
----------------
institutions that are or may from time to time become parties to
the Credit Agreement referred to below (collectively, the
"Lenders" and, individually, a "Lender"), and BANKAMERICA
------- ------
BUSINESS CREDIT, INC., a Delaware corporation, as agent (in such
capacity, together with its successors and assigns in such
capacity, the "Agent") for the Lenders. Capitalized terms used,
-----
but not defined, herein shall have the meanings given to such
terms in the Credit Agreement, as amended hereby.
W I T N E S S E T H:
WHEREAS, the Company, the Parent Guarantor, the Lenders
and the Agent are parties to the Credit Agreement, dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement dated as of July 21, 1994 (the "Credit Agreement"); and
----------------
WHEREAS, the parties hereto have agreed to amend the
Credit Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendments to Credit Agreement.
------------------------------
1.1 Amendment to Recitals.
---------------------
The second recital to the Credit Agreement is hereby
amended by deleting the amount "$275,000,000" in the fourth line
thereof and by replacing such amount with the amount
"$325,000,000".
1.2 Amendments to Article I: Definitions and Accounting
----------------------------------------------------
Terms.
-----
A. The definition of "Revolving Commitment
Availability" contained in Section 1.1 of the Credit Agreement is
-----------
hereby amended to read in its entirety as follows:
"'Revolving Commitment Availability' means, at any
---------------------------------
time, the excess of
(a) (i) the lesser of (x) the Revolving Commitment
Amount at such time and (y) the Borrowing Base as in effect
<PAGE>
<PAGE>
at such time plus (ii), during the period from March 10, 1995 to
----
and including July 10, 1995, the lesser of (x) $50,000,000 and
(y) an amount equal to two-thirds of the amount of any funds then
on deposit in transaction accounts in which agreements are
effected with respect to spot, forward, future and option
transactions entered into by the Company and its Subsidiaries in
the ordinary course of business involving (or, in the case of
futures and options, for or relating to) the purchase and sale of
aluminum, alumina, or bauxite
over
----
(b) the Revolving Credit Outstandings at such time."
B. The definition of "Cash Equivalent Investment"
contained in Section 1.1 of the Credit Agreement is hereby
-----------
amended by (i) deleting the phrase "which have substantially
similar investment policies." in clause (e) thereof and
substituting therefor ";or" and (ii) adding a new clause (f) at
the end thereof as follows:
"(f) investments in and through any Sweep Account."
C. The following definitions are hereby added to
Section 1.1 of the Credit Agreement in the appropriate
-----------
alphabetical order:
"'101 Account' is defined in the Concentration Bank
-----------
Agreement."
"'Sweep Account' means an account or other arrangement
-------------
maintained with any Lender into which funds on deposit in
the Concentration Account or the 101 Account are
automatically swept at the end of each business day,
invested overnight and automatically returned to the
Concentration Account or 101 Account, as the case may be, on
the next business day."
1.3 Amendments to Article II: Commitments and Borrowing
----------------------------------------------------
Procedures.
----------
A. Clause (b) of Section 2.1.1 of the Credit
---------- -------------
Agreement is hereby amended by deleting the amount "$275,000,000"
in the second line thereof and by replacing such amount with the
amount "$325,000,000".
B. Clause (a) of Section 2.3 of the Credit Agreement
---------- -----------
is hereby amended by inserting the phrase ", or such other
account at Bank of America as the Company shall notify the Agent
from time to time," after the phrase "account number 12339-11101
at Bank of America" contained therein.<PAGE>
<PAGE>
C. Clause (b) of Section 2.3 of the Credit Agreement
---------- -----------
is hereby amended by inserting the phrase ", or such other
account at Bank of America as the Company shall notify the Agent
from time to time," after the phrase "account number 12339-11101
at Bank of America" contained therein.
1.4 Amendment to Article III: Repayments, Prepayments,
---------------------------------------------------
Interest, and Fees.
------------------
Section 3.5.1 of the Credit Agreement is hereby amended
-------------
by adding the following thereto at the end of the second
parenthetical contained therein: "and, with respect to the
increase in the Revolving Commitment Amount provided for therein,
commencing on the date on which the Agent gives notice to the
Parent Guarantor, the Company and each Lender of the satisfaction
of certain conditions as provided in Section 3 of the Second
---------
Amendment to Credit Agreement dated as of March 10, 1995 between
the Company, the Parent Guarantor, the Lenders and the Agent".
1.5 Amendments to Article IX: Covenants.
-------------------------------------
A. Section 9.1.10(d) of the Credit Agreement is
-----------------
hereby amended by inserting the phrase ",except in the case of a
Sweep Account with Agent or any Affiliate of Agent," after the
phrase "thereof and" contained in the fourth line thereof.
B. Article IX of the Credit Agreement is hereby
----------
amended by adding the following as new Section 9.2.22 thereof:
--------------
"SECTION 9.2.22 Company Investment or Distribution
----------------------------------
to Parent Guarantor. Notwithstanding anything to the contrary
-------------------
contained herein, the Company shall be permitted to make
Investments in, or Distributions to, the Parent Guarantor in an
aggregate amount not to exceed $300,000 in each Fiscal Year."
1.6 Amendments to Signature Pages.
-----------------------------
Subject to the last paragraph of this Section 1.6, the
Percentages set forth opposite the Lenders' names on the
signature pages of the Credit Agreement are hereby amended to
read as follows:
BankAmerica Business Credit, Inc. 27.270%
Congress Financial Corporation 26.154%
LaSalle National Bank 04.769%
CIT Group/Business Credit, Inc. 06.308%
Transamerica Business Credit Corporation 06.769%
Bank of America National Trust and
Savings Association 09.090%
Heller Financial, Inc. 08.871%
National Westminster Bank PLC 06.000%<PAGE>
<PAGE>
ABN Amro N.V. 04.769%
Effective on the date on which the Agent gives notice to the
Parent Guarantor, the Company and each Lender of the satisfaction
of certain conditions as provided in Section 3 of the Second
Amendment to Credit Agreement dated as of March 10, 1995 between
the Company, the Parent Guarantor, the Lenders and the Agent and
notwithstanding anything to the contrary contained in Section 5.4
-----------
of the Credit Agreement, each Lender shall be deemed to hold an
undivided interest and participation, to the extent of such
Lender's Percentage as reflected above, in all Letters of Credit
and the Company's Reimbursement Obligations with respect thereto
outstanding as of such date.
Subject to the last paragraph of this Section 1.6, on the
Second Amendment Effective Date (as defined below) each Lender
whose Percentage is increased pursuant to this Amendment shall
make such payments to the Agent, and the Agent shall make such
distributions of such payments to the remaining Lenders, as are
necessary to adjust the amounts of the outstanding Loans of all
Lenders in accordance with the revised Percentages set forth
above in this Section 1.6.
Anything contained in this Amendment or the other Loan
Documents to the contrary notwithstanding, each Lender's
Percentage interest in any LIBO Rate Loan outstanding on the
Second Amendment Effective Date shall remain unchanged for all
purposes under the Loan Documents until the date of expiration of
the Interest Period in effect as of the Second Amendment
Effective Date with respect to such LIBO Rate Loan, at which time
(i) all payments of interest and principal, if any, made on such
date in respect of such LIBO Rate Loan shall be distributed to
Lenders in accordance with such unchanged Percentages and (ii) in
the event such LIBO Rate Loan is to remain outstanding for an
additional Interest Period commencing on such date or is to be
converted to a Reference Rate Loan on such date, Lenders shall
make such payments, and Agent shall make such distributions
thereof, on such date as are necessary to adjust the Percentage
interests of Lenders in such Loan in accordance with the revised
Percentages set forth above in this Section 1.6.
Section 2. Amendments to Collateral Documents.
----------------------------------
The parties agree that, as of the Second Amendment
Effective Date, the Company Deeds of Trust and the Company
Mortgages shall be amended or supplemented as set forth in
Exhibits B and C hereto, respectively.
Section 3. Conditions to Effectiveness.
----------------------------<PAGE>
<PAGE>
This Amendment shall become effective as of the date
hereof (the "Second Amendment Effective Date") only when the
-------------------------------
following conditions shall have been met and notice thereof shall
have been given by the Agent to the Parent Guarantor, the
Company, the Agent and each Lender:
A. The Agent shall have received for each Lender
counterparts hereof duly executed on behalf of the Parent
Guarantor, the Company, the Agent and each of the Lenders (or
notice of the approval of this Amendment by each of the Lenders
satisfactory to the Agent shall have been received by the Agent),
together with counterparts of amendments to the Company Deeds of
Trust and the Company Mortgages duly executed on behalf of the
Company and the Agent.
B. The Agent shall have received:
(1) Resolutions of the Board of Directors or of
the Executive Committee of the Company and the Parent Guarantor
approving and authorizing the execution, delivery and performance
of this Amendment, certified by its corporate secretary or an
assistant secretary as being in full force and effect without
modification or amendment as of the date of execution hereof by
the Company or the Parent Guarantor, as the case may be;
(2) A signature and incumbency certificate of the
officers of the Company and the Parent Guarantor executing this
Amendment;
(3) For each Lender an opinion, addressed to the
Agent and each Secured Lender, from Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel, in substantially the form of Exhibit A
attached hereto, with such changes therein as shall be
satisfactory to the Agent;
(4) The Agent shall have received, on behalf of
each Lender increasing its portion of the Revolving Commitment
Amount, a fee in the amount of 1.00% multiplied by the amount of
such increase; and
(5) such other information approvals, opinions,
documents, or instruments as the Agent may reasonably request.
Section 4. Company's Representations and Warranties.
----------------------------------------
In order to induce the Lenders and the Agent to enter
into this Amendment and to amend the Credit Agreement and the
other Loan Documents in the manner provided herein, the Parent
Guarantor and the Company represent and warrant to each Lender
and the Agent that, as of the Second Amendment Effective Date
after giving effect to the effectiveness of this Amendment, the<PAGE>
<PAGE>
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Amendment by the Company and the Parent
Guarantor and the performance of the Credit Agreement as amended
by this Amendment (the "Amended Agreement") by the Company and
-----------------
the Parent Guarantor are within such Obligor's corporate powers
and have been duly authorized by all necessary corporate action
on the part of the Company and the Parent Guarantor, as the case
may be.
B. No Conflict. The execution and delivery by the
-----------
Company and the Parent Guarantor of this Amendment and the
performance by the Company and the Parent Guarantor of the
Amended Agreement do not:
(1) contravene such Obligor's Organic Documents;
(2) contravene the Indenture dated as of February
1, 1993, as amended by the First Supplemental Indenture dated May
1, 1993, between the Company, and Kaiser Finance Corporation,
Kaiser Alumina Australia Corporation, Alpart Jamaica Inc. and
Kaiser Jamaica Corporation, as Subsidiary Guarantors, and The
First National Bank of Boston, as Trustee, or the Indenture dated
as of February 17, 1994, between the Company, and Kaiser Finance
Corporation, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc. and Kaiser Jamaica Corporation, as Subsidiary Guarantors,
and First Trust National Association, as Trustee, or contravene
any other contractual restriction where such a contravention has
a reasonable possibility of having a Materially Adverse Effect or
contravene any law or governmental regulation or court decree or
order binding on or affecting such Obligor or any of its
Subsidiaries; or
(3) result in, or require the creation or
imposition of, any Lien on any of such Obligor's properties or
any of the properties of any Subsidiary of such Obligor, other
than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
-------------------
executed and delivered by the Company and the Parent Guarantor
and this Amendment and the Amended Agreement constitute the
legal, valid and binding obligations of the Company and the
Parent Guarantor, enforceable against the Company and the Parent
Guarantor in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors'
rights generally and by general principles of equity.
D. Governmental Approval, Regulation, etc. No
----------------------------------------
authorization or approval or other action by, and no notice to or<PAGE>
<PAGE>
filing with, any governmental authority or regulatory body or any
other Person is required for the due execution, delivery or
performance of this Amendment by the Company or the Parent
Guarantor.
E. Incorporation of Representations and Warranties
-----------------------------------------------
from Credit Agreement. Each of the statements set forth in
---------------------
Section 7.2.1 of the Credit Agreement is true and correct.
-------------
F. Real Property. As of the date hereof, (1) the
-------------
Liens on the Collateral constituting Real Estate (as defined in
the Company Deeds of Trust and the Company Mortgages) are valid,
prior and perfected, subject only to the exceptions listed in
Exhibits B to the Company Deeds of Trust and the Company
Mortgages and in clauses (e) and (f) of Section 9.2.3 of the
-------------
Credit Agreement and (2) there are no Liens securing Indebtedness
for borrowed money (other than those in favor of the Agent) on
the Collateral constituting Real Estate (as defined in the
Company Deeds of Trust and the Company Mortgages).
Section 5. Acknowledgement and Consent.
---------------------------
The Company is a party to the Company Collateral
Documents, in each case as amended through the Second Amendment
Effective Date, pursuant to which the Company has created Liens
in favor of the Agent on certain Collateral to secure the
Obligations. The Parent Guarantor is a party to the Parent
Collateral Documents, in each case as amended through the Second
Amendment Effective Date, pursuant to which the Parent Guarantor
has created Liens in favor of the Agent on certain Collateral and
pledged certain Collateral to the Agent to secure the Obligations
of the Parent Guarantor. Certain Subsidiaries of the Company are
parties to the Subsidiary Guaranty and/or one or more of the
Subsidiary Collateral Documents, in each case as amended through
the Second Amendment Effective Date, pursuant to which such
Subsidiaries have (i) guarantied the Obligations and/or (ii)
created Liens in favor of the Agent on certain Collateral. The
Company, the Parent Guarantor and such Subsidiaries are
collectively referred to herein as the "Credit Support Parties",
----------------------
and the Company Collateral Documents, the Parent Collateral
Documents, the Subsidiary Guaranty and the Subsidiary Collateral
Documents are collectively referred to herein as the "Credit
------
Support Documents".
-----------------
Each Credit Support Party hereby acknowledges that it
has reviewed the terms and provisions of the Credit Agreement as
amended by this Amendment and consents to the amendment of the
Credit Agreement effected as of the date hereof pursuant to this
Amendment and the amendment of the other Loan Documents effected
as of the date hereof.
Each Credit Support Party acknowledges and agrees that
any of the Credit Support Documents to which it is a party or<PAGE>
<PAGE>
otherwise bound shall continue in full force and effect. Each
Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all
Collateral encumbered thereby will continue to guaranty or
secure, as the case may be, the payment and performance of all
obligations guaranteed or secured thereby, as the case may be.
Each Credit Support Party (other than the Company and
the Parent Guarantor) acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this
Amendment, such Credit Support Party is not required by the terms
of the Credit Agreement or any other Loan Document to consent to
the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Loan Document shall be deemed to require
the consent of such Credit Support Party to any future amendments
to the Credit Agreement.
Section 6. Miscellaneous.
-------------
A. Reference to and Effect on the Credit Agreement
-----------------------------------------------
and the Other Loan Documents.
----------------------------
(1) On and after the Second Amendment Effective
Date, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring
to the Credit Agreement, and each reference in the other Loan
Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean
and be a reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment and the amendments to the other Loan Documents executed
as of the date hereof, the Credit Agreement and the other Loan
Documents shall remain in full force and effect and are hereby
ratified and confirmed.
B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO
--------------
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment
--------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Amendment or any provision
hereof.
D. Counterparts. This Amendment may be executed by
------------
the parties hereto in several counterparts and by the different
parties on separate counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but
one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single<PAGE>
<PAGE>
counterpart so that all signature pages are physically attached
to the same document.
E. Severability. Any provision of this Amendment
------------
which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
F. Approval of Amendments to Loan Documents. Each of
----------------------------------------
the Lenders hereby approves the forms of the amendments attached
as Exhibits to this Amendment and hereby authorizes the Agent on
its behalf to accept from the Company and the other Obligors, as
the case may be, and authorizes the Agent to execute and deliver
as Agent, the amendments to the Collateral Documents in
substantially the form of such Exhibits, with such changes,
additions or deletions as the Agent, in its sole and absolute
discretion, may approve. <PAGE>
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
KAISER ALUMINUM CORPORATION KAISER ALUMINUM & CHEMICAL
CORPORATION
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer<PAGE>
<PAGE>
BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS CREDIT,
INC., as Agent INC.
By: _______________________ By:________________________
Name: Michael J. Jasaitis Name: Michael J. Jasaitis
Its: Vice President Its: Vice President
BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS CREDIT,
AND SAVINGS ASSOCIATION INC.
By: _______________________ By:________________________
Name Printed:______________ Name Printed:______________
Its:_______________________ Its:_______________________
CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC.
(WESTERN)
By: _______________________ By:________________________
Name Printed:______________ Name Printed:______________
Its:_______________________ Its:_______________________
LA SALLE NATIONAL BANK NATIONAL WESTMINSTER BANK PLC
By: _______________________ By:________________________
Name Printed:______________ Name Printed:______________
Its:_______________________ Its:_______________________
TRANSAMERICA BUSINESS CREDIT ABN AMRO BANK N.V.
CORPORATION
By: _______________________ By:________________________
Name Printed:______________ Name Printed:______________
Its:_______________________ Its:_______________________
S - II
<PAGE>
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. KAISER JAMAICA CORPORATION
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By: _______________________ By:________________________
Name: K.S. Vasan Name: K.S. Vasan
Its: Treasurer Its: Treasurer
S - III<PAGE>
<PAGE>
EXHIBIT A
March 10, 1995
BankAmerica Business Credit, Inc.,
as Agent
Two North Lake Avenue, Suite 400
Pasadena, California 91101
and
The Lenders Listed on Schedule A Hereto
Re: Second Amendment to Credit Agreement (the "Second
Amendment"), dated as of March 10, 1995, among
Kaiser Aluminum & Chemical Corporation, Kaiser
Aluminum Corporation, certain financial institutions,
and BankAmerica Business Credit, Inc., as Agent
-----------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Kaiser Aluminum &
Chemical Corporation, a Delaware corporation (the "Company"), and
Kaiser Aluminum Corporation, a Delaware corporation (the "Parent
Guarantor"), in connection with the Second Amendment. Capitalized
terms used but not defined herein have the meanings assigned thereto
in the Credit Agreement, as amended by the Second Amendment. As used
herein, "Credit Agreement" has the meaning ascribed thereto in the
first recital of the Second Amendment.
In rendering the opinion set forth herein, we have reviewed
the Credit Agreement and the Second Amendment, and have examined
originals or copies, certified, or otherwise identified to our
satisfaction, of (a) the Certificate of Incorporation and By-laws of
the Company and the Parent Guarantor as in effect on the date hereof,
and (b) such other documents, records, certificates and instruments
(collectively, "Documents") as in our judgment are necessary or
appropriate as the basis for the opinion expressed below.
In our examination we have assumed the genuineness of all
signatures, the authenticity of all Documents submitted to us as
originals, the conformity to original documents of all Documents
submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies. As to any facts
material to this opinion which we did not independently establish or
verify, we have relied upon statements and representations of officers
and other representatives of the Company and the Parent Guarantor and
certificates of public officials. We also have assumed (i) the valid
authorization, execution, and delivery of the Second Amendment by the
parties thereto (other than the Company and the Parent Guarantor),
(ii) that each such other party has been duly organized and is validly<PAGE>
<PAGE>
BankAmerica Business Credit, Inc., March __, 1995
Agent Page 2
and
The Lenders Listed on Schedule A Hereto
existing and in good standing under the laws of the jurisdiction of
its organization with the corporate or other organizational power to
perform its obligations thereunder, and (iii) that the Second
Amendment constitutes the legal, valid and binding obligation of each
such other party enforceable against each such other party in
accordance with its terms (subject to qualifications and limitations
similar to those set forth in clauses (a) and (b) on pages __ and __
of this opinion).
Based upon the foregoing, and subject to the qualifications
set forth herein, we are of the opinion that:
1. The execution, delivery, and performance by each of the
Company and the Parent Guarantor of the Second Amendment, and the
performance by the Company and the Parent Guarantor of the Credit
Agreement as amended by the Second Amendment, are within their
respective corporate powers, have been duly authorized by all
necessary corporation action on the part of the Company and the Parent
Guarantor, and do not:
(a) violate the Organic Documents of the Company or the
Parent Guarantor; or
(b) violate any court decree or order of any governmental
authority which, after our due inquiry, has been
specifically disclosed to us by the Company or the Parent
Guarantor.
2. The Second Amendment has been duly executed and
delivered by each of the Company and the Parent Guarantor.
3. The Second Amendment constitutes the legal, valid, and
binding obligation of each of the Company and the Parent Guarantor
enforceable against each of the Company and the Parent Guarantor in
accordance with its terms.
The opinion set forth in paragraph 3 above is subject to the
following qualifications and limitations and the other opinions set
forth above are subject to the following qualifications and
limitations, other than those set forth in clauses (a), (b) and (c)
below:<PAGE>
<PAGE>
BankAmerica Business Credit, Inc., March __, 1995
Agent Page 3
and
The Lenders Listed on Schedule A Hereto
(a) The enforceability of the Second Amendment may be
subject to or limited by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance or transfer, moratorium, or other
laws and court decisions now or hereafter in effect relating to or
affecting the rights of creditors generally;
(b) The enforceability of the Second Amendment is subject
to the application of and may be limited by general principles of
equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether
considered in a proceeding in equity or at law). Such principles of
equity are of general application and in applying such principles a
court, among other things, might not allow a creditor to accelerate
the maturity of a debt under certain circumstances, including, without
limitation, upon the occurrence of a default deemed immaterial or
might decline to order an obligor to perform covenants. Such
principles applied by a court might include a requirement that a
creditor act with reasonableness and in good faith. Thus, we express
no opinion as to the validity or enforceability of (i) provisions
restricting access to legal or equitable remedies, such as the
specific performance of executory covenants, (ii) provisions that
purport to establish evidentiary standards, (iii) provisions relating
to waivers, severability, indemnity, submissions to jurisdiction, set
off, delay or omission of enforcement of rights or remedies, and (iv)
provisions purporting to convey rights to persons other than parties
to the Credit Agreement. In addition, we express no opinion as to the
enforceability of any provision purporting to provide indemnification
or contribution relating to matters arising under Federal or State
securities laws;
(c) The remedy of specific performance and injunctive and
other forms of equitable relief are subject to equitable defenses and
to the discretion of the court before which any proceeding therefor
may be brought;
(d) We have not been requested to render, and with your
permission we do not express, any opinion as to the applicability to
any Loan Document or security interests of Section 548 of the Federal
Bankruptcy code, Article 10 of the New York Debtor & Creditor Law, or
any other fraudulent conveyance, insolvency or transfer laws or any
court decisions with respect to any of the foregoing; <PAGE>
<PAGE>
BankAmerica Business Credit, Inc., March __, 1995
Agent Page 4
and
The Lenders Listed on Schedule A Hereto
(e) Our opinion expressed herein is limited to the laws of
the State of New York, the General Corporation Law of the State of
Delaware, and the Federal laws of the United States of America, and we
do not express any opinion herein concerning any other laws. We
express no opinion as to the effects (if any) of any laws of any
jurisdiction (except the State of New York) in which any Lender is
located which limits the rate of interest that such Lender may charge
or collect.
The opinion expressed herein is based upon the laws in
effect on the date hereof, and we assume no obligation to review or
supplement this opinion should any such law be changed by legislative
action, judicial decision or otherwise.
Ezra G. Levin, a partner of our firm, is a director of the
Company and the Parent Guarantor.
This opinion is being furnished only to the addressees named
above pursuant to Section 3.B.(3) of the Second Amendment and is
solely for the benefit of such Persons in connection with the
execution, delivery and effectiveness of the Second Amendment.
Accordingly, this opinion may not be used, quoted, or relied upon by
any other person or entity or for any other purpose without, in each
instance, our express prior written consent.
Very truly yours,
<PAGE>
SCHEDULE A
BankAmerica Business Credit, Inc.
Bank of America National Trust
and Savings Association
The CIT Group/Business Credit, Inc.
Congress Financial Corporation (Western)
Heller Financial, Inc.
La Salle National Bank
National Westminster Bank PLC
Transamerica Business Credit Corporation
ABN Amro N.V.
<PAGE>
EXHIBIT B
FORM OF SECOND AMENDMENT TO DEED OF TRUST
RECORDING REQUESTED BY:
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers
275 Battery Street, 26th Floor
San Francisco, California 94111-3305
Attn: Jill H. Matichak, Esq.
(File No. 019,368-663)
-----------------------------------------------------------------
SECOND AMENDMENT TO DEED OF TRUST WITH POWER OF SALE,
ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
THIS SECOND AMENDMENT TO DEED OF TRUST WITH POWER OF SALE,
ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND
FINANCING STATEMENT (this "Second Amendment") is made as of March --,
1995 by and between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware
corporation ("Grantor"), whose address is 6177 Sunol Drive,
Pleasanton, California 94566, and BANKAMERICA BUSINESS CREDIT, INC., a
Delaware corporation ("BABC"), as agent for the Secured Lenders (as
defined in the Credit Agreement referred to below), having an office
at Two North Lake Avenue, Suite 400, Pasadena, California 91101 (BABC,
in its capacity as agent for the Secured Lenders, shall be referred to
hereinafter as "Beneficiary").
R E C I T A L S :
A. Pursuant to that certain Credit Agreement dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement dated as of July 21, 1994 (as so amended, the "Credit
Agreement") between Grantor, Kaiser Aluminum Corporation, a Delaware
corporation ("Parent Guarantor"), BABC and various other financial
institutions named therein (which financial institutions, together
with BABC in its capacity as lender, shall be referred to hereinafter
collectively as "Bank Lenders") and Beneficiary, Bank Lenders agreed
to make certain revolving loans and other financial commitments to
Grantor (the "Loans"). Except as otherwise provided in this Second
Amendment, all initially capitalized terms used herein without
definition shall have the same meaning as in the Credit Agreement, as
amended.<PAGE>
<PAGE>
B. The Loans are secured by, among other things, that certain
Deed of Trust with Power of Sale, Assignment of Leases and Rents,
Security Agreement, Fixture Filing and Financing Statement dated as of
February 15, 1994, executed by Grantor, as grantor, to Chicago Title
Insurance Company, as trustee, for the benefit of Beneficiary as agent
of Bank Lenders, as beneficiary, and recorded on February --, 1994 in
the Official Records of ---- County, ---- as Instrument No(s). ----
(the "Original Deed of Trust"), as amended by the First Amendment to
Deed of Trust with Power of Sale, Assignment of Leases and Rents,
Security Agreement, Fixture Filing and Financing Statement (the "First
Amendment") dated as of July 21, 1994 and recorded on August --, 1994
in the Official Records of ---- County, ---- as Instrument No(s). ----
(as so amended, the "Deed of Trust").
C. The Deed of Trust encumbers that certain real property
located in ------- County, --------- as more particularly described in
Exhibit A, attached hereto, and by this reference incorporated herein.
---------
D. Concurrently herewith, Grantor, Parent Guarantor and Bank
Lenders have agreed to amend the Credit Agreement to, among other
things, increase the maximum aggregate principal amount of the Loans
by Fifty Million Dollars ($50,000,000) and provide that Grantor's
obligations thereunder shall be secured by the Deed of Trust, all as
set forth in that certain Second Amendment to Credit Agreement dated
of even date herewith by and between Grantor, Parent Guarantor,
Lenders and Beneficiary (the "Second Credit Agreement Amendment").
E. Grantor and Beneficiary desire to amend the Deed of Trust to
reflect and evidence the amendments and modifications set forth in the
Second Credit Agreement Amendment.
NOW, THEREFORE, with reference to the foregoing Recitals and
for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor and Beneficiary further agree as follows:
1. Grantor's obligations evidenced by the Credit
Agreement, as amended by the Second Credit Agreement Amendment, shall
continue to be secured by the Deed of Trust. Except as amended by
this Second Amendment, the Deed of Trust shall remain unmodified and
in full force and effect. The parties hereto hereby ratify and
confirm the Deed of Trust as amended hereby.
2. It is the intent of each of the parties hereto that the
Original Deed of Trust, as modified and amended by the First Amendment
and this Second Amendment, shall have and retain the priority
established at the time of the recordation of the Original Deed of
Trust on February --, 1994 (the "Original Recording Date"). To the
extent that any court of law or equity
2<PAGE>
<PAGE>
determines that the priority of this Second Amendment may not relate
back to the Original Recording Date, then (i) this Second Amendment
shall be bifurcated from the Deed of Trust such that the obligations
of Grantor with respect to the $50,000,000 increase in the maximum
amount of the Loans, as more particularly set forth in the Second
Credit Agreement Amendment and secured by this Second Amendment, shall
have such priority as is established at the time of recordation of
this Second Amendment in the Official Records of ---- County, ----,
and (ii) the Deed of Trust, as unamended by this Second Amendment,
shall continue to secure the obligations of Grantor under the Credit
Agreement, as unamended by the Second Credit Agreement Amendment, and
the other Secured Obligations set forth in the Deed of Trust, and
shall continue to have the priority described in paragraph 2 of the
First Amendment. In no event shall this Second Amendment destroy,
impair or otherwise affect such priority of the Deed of Trust.
3. This Second Amendment shall be governed by and
construed in accordance with the laws in the State of ---- without
giving effect to the conflict of law principles of said State.
4. This Second Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which when taken
together shall constitute one and the same instrument. The signature
page of any counterpart may be detached therefrom without impairing
the legal effect of the signature(s) thereon and attached to any other
counterpart identical thereto except having additional signature pages
attached to it.
5. In the event of any inconsistencies between the
provisions of this Second Amendment and the provisions of the Deed of
Trust, the provisions of this Second Amendment shall govern and
prevail.
6. The relationship of Grantor and Beneficiary with
respect to the Loans and the matters set forth herein is that of
creditor and debtor respectively and by virtue of entering into the
Second Credit Agreement Amendment and performing their respective
obligations thereunder, Grantor and Beneficiary do not intend to form
a partnership or joint venture or any other relationship other than
that of creditor and debtor respectively.
3
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of
Grantor and Beneficiary have executed this Second Amendment as of the
date first above written.
"GRANTOR"
KAISER ALUMINUM & CHEMICAL CORPORATION,
a Delaware corporation
By: ____________________________
Name: K.S. Vasan
Its: Treasurer
"BENEFICIARY"
BANKAMERICA BUSINESS CREDIT, INC.,
a Delaware corporation
By: ____________________________
Name: Michael J. Jasaitis
Its: Vice President
4
<PAGE>
<PAGE>
ACKNOWLEDGEMENTS
STATE OF ___________________ )
)
COUNTY OF __________________ )
On March__, 1995, before me, _____________________, a Notary
Public in and for said State, personally appeared
________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
STATE OF ___________________ )
)
COUNTY OF __________________ )
On March__, 1995, before me, _____________________, a Notary
Public in and for said State, personally appeared
________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
<PAGE>
<PAGE>
EXHIBIT A
----------
LEGAL DESCRIPTION OF PROPERTY
<PAGE>
<PAGE>
EXHIBIT C
FORM OF SECOND AMENDMENT TO MORTGAGE
RECORDING REQUESTED BY:
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers
275 Battery Street, 26th Floor
San Francisco, California 94111-3305
Attn: Jill H. Matichak, Esq.
(File No. 019,368-663)
-----------------------------------------------------------------
SECOND AMENDMENT TO MORTGAGE WITH POWER OF SALE,
ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
THIS SECOND AMENDMENT TO MORTGAGE WITH POWER OF SALE,
ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND
FINANCING STATEMENT (this "Second Amendment") is made as of March --,
1995 by and between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware
corporation ("Mortgagor"), whose address is 6177 Sunol Drive,
Pleasanton, California 94566, and BANKAMERICA BUSINESS CREDIT, INC., a
Delaware corporation ("BABC"), as agent for the Secured Lenders (as
defined in the Credit Agreement referred to below), having an office
at Two North Lake Avenue, Suite 400, Pasadena, California 91101 (BABC,
in its capacity as agent for the Secured Lenders, shall be referred to
hereinafter as "Mortgagee").
R E C I T A L S :
A. Pursuant to that certain Credit Agreement dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement, dated as of July 21, 1994 (as so amended, the "Credit
Agreement") between Mortgagor, Kaiser Aluminum Corporation, a Delaware
corporation ("Parent Guarantor"), BABC and various other financial
institutions named therein (which financial institutions, together
with BABC in its capacity as lender, shall be referred to hereinafter
collectively as "Bank Lenders") and Mortgagee, Bank Lenders agreed to
make certain revolving loans and other financial commitments to
Mortgagor (the "Loans"). Except as otherwise provided in this Second
Amendment, all initially capitalized terms used herein without
definition shall have the same meaning as in the Credit Agreement, as
amended.
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B. The Loans are secured by, among other things, that certain
Mortgage with Power of Sale, Assignment of Leases and Rents, Security
Agreement, Fixture Filing and Financing Statement dated as of February
15, 1994, executed by Mortgagor, as mortgagor, to Mortgagee as agent
of Bank Lenders, as mortgagee, and recorded on February --, 1994 with
the Recorder of Deeds,
---- County, ---- in Book , Page --- (the "Original Mortgage"), as
amended by the First Amendment to Mortgage with Power of Sale,
Assignment of Leases and Rents, Security Agreement, Fixture Filing and
Financing Statement (the "First Amendment") dated as of July 21, 1994
and recorded on August --, 1994 with the Recorder of Deeds, ----
County, ----- in Book ----, Page ---- (as so amended, the "Mortgage").
C. The Mortgage encumbers that certain real property located in
----County, ----- as more particularly described in Exhibit A,
---------
attached hereto, and by this reference incorporated herein.
D. Concurrently herewith, Mortgagor, Parent Guarantor and Bank
Lenders have agreed to amend the Credit Agreement to, among other
things, increase the maximum aggregate principal amount of the Loans
by Fifty Million Dollars ($50,000,000) and provide that Mortgagor's
obligations thereunder shall be secured by the Mortgage, all as set
forth in that certain Second Amendment to Credit Agreement dated of
even date herewith by and between Mortgagor, Parent Guarantor, Lenders
and Mortgagee (the "Second Credit Agreement Amendment").
E. Mortgagor and Mortgagee desire to amend the Mortgage to
reflect and evidence the amendments and modifications set forth in the
Second Credit Agreement Amendment.
NOW, THEREFORE, with reference to the foregoing Recitals and
for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Mortgagor and Mortgagee further agree as follows:
1. Mortgagor's obligations evidenced by the Credit
Agreement, as amended by the Second Credit Agreement Amendment, shall
continue to be secured by the Mortgage. Except as amended by this
Second Amendment, the Mortgage shall remain unmodified and in full
force and effect. The parties hereto hereby ratify and confirm the
Mortgage as amended hereby.
2. It is the intent of each of the parties hereto that the
Original Mortgage, as modified and amended by the First Amendment and
this Second Amendment, shall have and retain the priority established
at the time of the recordation of the Original Mortgage on February --
, 1994 (the "Original Recording Date"). To the extent that any court
of law or equity determines that the priority of this Second Amendment
may not relate back to
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the Original Recording Date, then (i) this Second Amendment shall be
bifurcated from the Mortgage such that the obligations of Mortgagor
with respect to the $50,000,000 increase in the maximum amount of the
Loans, as more particularly set forth in the Second Credit Agreement
Amendment and secured by this Second Amendment, shall have such
priority as is established at the time of recordation of this Second
Amendment in the Official Records of ---- County, ----, and (ii) the
Mortgage, as unamended by this Second Amendment, shall continue to
secure the obligations of Mortgagor under the Credit Agreement, as
unamended by the Second Credit Agreement Amendment, and the other
Secured Obligations set forth in the Mortgage, and shall continue to
have the priority described in paragraph 2 of the First Amendment. In
no event shall this Second Amendment destroy, impair or otherwise
affect such priority of the Mortgage.
3. This Second Amendment shall be governed by and
construed in accordance with the laws in the State of ---- without
giving effect to the conflict of law principles of said State.
4. This Second Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which when taken
together shall constitute one and the same instrument. The signature
page of any counterpart may be detached therefrom without impairing
the legal effect of the signature(s) thereon and attached to any other
counterpart identical thereto except having additional signature pages
attached to it.
5. In the event of any inconsistencies between the
provisions of this Second Amendment and the provisions of the
Mortgage, the provisions of this Second Amendment shall govern and
prevail.
6. The relationship of Mortgagor and Mortgagee with
respect to the Loans and the matters set forth herein is that of
creditor and debtor respectively and by virtue of entering into the
Second Credit Agreement Amendment and performing their respective
obligations thereunder, Mortgagor and Mortgagee do not intend to form
a partnership or joint venture or any other relationship other than
that of creditor and debtor respectively.
3
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IN WITNESS WHEREOF, the duly authorized representatives of
Mortgagor and Mortgagee have executed this Second Amendment as of the
date first above written.
"MORTGAGOR"
KAISER ALUMINUM & CHEMICAL CORPORATION,
Attested By: a Delaware corporation
______________________ By: ____________________________
Name:_________________
Title:________________ Name: K.S. Vasan
Its: Treasurer
[corporate seal]
"MORTGAGEE"
BANKAMERICA BUSINESS CREDIT, INC.,
a Delaware corporation
By: ____________________________
Name: Michael J. Jasaitis
Its: Vice President
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ACKNOWLEDGEMENTS
STATE OF ___________________ )
)
COUNTY OF __________________ )
On March ____, 1995, before me, _____________________, a
Notary Public in and for said State, personally appeared
________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
STATE OF ___________________ )
)
COUNTY OF __________________ )
On March ____, 1995, before me, _____________________, a
Notary Public in and for said State, personally appeared
________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
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EXHIBIT A
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LEGAL DESCRIPTION OF PROPERTY
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SENIOR SUBORDINATED INTERCOMPANY NOTE
December 15, 1992
FOR VALUE RECEIVED, the undersigned, Kaiser Aluminum &
Chemical Corporation, a Delaware corporation (the "Company"),
HEREBY PROMISES TO PAY to the order of KLU Holdings, Inc., a
Delaware corporation (the "Payee"), the principal sum of TWO
MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000.00), with
interest thereon, which shall be due and payable as hereinafter
provided.
1. This Note shall bear interest, compounded
semiannually (computed on the basis of a 360-day year of twelve
30-day months), on the unpaid principal amount outstanding
hereunder plus all accrued and unpaid interest thereon, from the
date this Note is issued (the "Issuance Date"), until such
principal amount is repaid in full, at a rate equal to twelve
percent (12%) per annum or, if New Subordinated Notes (as such
term is defined in the Credit Agreement (as hereinafter defined)
shall be issued on or prior to December 31, 1992, the stated
interest rate per annum on such New Subordinated Notes.
2. Subject to Section 5 hereon, (a) no payment of
principal or interest shall be required to be made on this Note
prior to June 30, 1995, and (b) the entire unpaid principal
amount of this Note, together with accrued interest thereon,
shall be due and payable on June 30, 1995.
3. The Company shall make each payment hereunder not
later than 5:00 p.m. (New York City time) on the day when due in
lawful money of the United States of America to the holder of
this Note by delivery of a certified or bank cashier's check in
the amount of such payment or, at such holder's option, by wire
transfer of immediately available funds.
4. Whenever any payment to be made hereunder shall be
stated to be due on a Saturday, Sunday or a public or bank
holiday or the equivalent for banks generally under the laws of
the State of New York (any other day being a "Business Day"),
such payment may be made on the next succeeding Business Day.
5. The Company shall have the right to prepay the
principal amount of, and/or interest on, this Note, in whole or
in part, at any time or from time to time, without
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premium or penalty, but with interest on the portion of the
principal amount or interest so prepaid accrued to the date of
prepayment. This Note is one of the notes (the "PIK Notes")
issued pursuant to the requirements of Section 10.1.18 of the
Credit Agreement dated as of December 13, 1989 between Kaiser
Aluminum Corporation (formerly named KaiserTech Limited), the
Company, certain financial institutions, Bank of America National
Trust and Savings Association, as agent, and Mellon Bank, N.A.,
as collateral agent, as the same has been, or may hereafter be,
amended, supplemented, restated, or otherwise modified from time
to time (the "Credit Agreement"). The Company shall, on demand,
prepay the principal of, and/or accrued interest on, the PIK
Notes, without premium or penalty, but with interest on the
principal amount or interest so prepaid, when, as and to the
extent that such prepayment is not prohibited by the Credit
Agreement.
6. In the case one or more of the following events of
default shall have occurred and be continuing:
(a) the Company fails to pay any installment of
principal of, or interest on, any PIK Note when due; or
(b) a court having jurisdiction in the premises
shall have entered a decree or order for relief against the
Company in an involuntary case under any applicable bankruptcy,
insolvency of other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or for all or
any substantial part of its property, or ordering the winding-up
or liquidation of its affairs, and such decree or order shall
have remained unstayed and in effect for a period of ninety
consecutive days; or
(c) the Company shall have commenced a voluntary
case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or shall have consented to the
entry of an order for relief in an involuntary case under any
such law, or shall have consented to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) of the Company or
for all or any substantial part of its property, or shall have
made an assignment for the benefit of creditors, or shall have
taken any corporate action in furtherance of any of the
foregoing;
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(d) then, in the case of an event specified in
clause (a), unless the principal of this Note shall have already
become due and payable, the holder of this Note by notice to the
Company in writing may at its option declare the principal amount
and accrued interest to the date of declaration of this Note to
be due and payable immediately. Upon any such declaration, the
same shall become and shall be immediately due and payable,
provided that any payment pursuant to such acceleration shall be
subject to Section 7(g) of this Note. If an event specified in
clause (b) or (c) above occurs, such amount shall ipso facto
become and be immediately due and payable without any declaration
or other act on the part of the holder, but subject to Section
7(g) of this Note.
7. (a) The Company, for itself, its successors and
assigns, covenants and agrees, and the Payee (and each other
holder of this Note), by its acceptance thereof, likewise
covenants and agrees, for the benefit of all present and future
holders of Senior Indebtedness of the Company (as defined in
Section 7(h) of this Note), that all direct or indirect payments
or distributions on or with respect to this Note, whether
pursuant to the terms of this Note or upon acceleration or
otherwise, including, without limitation, by way of or on account
of a "Claim" (as defined hereinbelow) or the payment of the
principal of and interest on this Note, in hereby expressly
subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full in cash
or cash equivalents of all Senior Indebtedness of the Company.
(b) Upon any direct or indirect payment or
distribution of assets or securities of the Company of any kind
or character, whether in cash, property or securities, upon any
dissolution, winding up, liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy,
insolvency, reorganization, receivership or other proceedings or
upon an assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of the Company or
otherwise,
(i) the holders of all Senior Indebtedness
of the Company shall be entitled to receive payment in full in
cash or cash equivalents of such Senior Indebtedness of the
Company (including, without limitation, interest that would
accrue but for the occurrence of any such proceeding whether or
not such interest is an allowable claim in such proceeding)
before the holder of this Note shall be entitled to receive any
direct or indirect payment with respect to this Note, whether
pursuant to the terms of this Note or upon acceleration or
otherwise, including by way of or on account of any claim against
the Company for rescission of the issuance of this Note or for
monetary damages from, or in connection with, the issuance of
this
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Note, or for reimbursement or contribution on account of such a
claim (a "Claim"), or the payment of principal of or interest on
this Note; and
(ii) any direct or indirect payment or
distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holder of
this Note would be entitled except for the provisions of this
Section 7 shall be paid by the Company or by any liquidating
trustee or agent or other person making such payment of
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of
Senior Indebtedness of the Company or their representative or
representatives, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness of the
Company held or represented by each, to the extent necessary to
make payment in full in cash or cash equivalents of all Senior
Indebtedness of the Company (including, without limitation,
interest that would accrue but for the occurrence of any such
proceeding whether or not such interest is an allowable claim in
such proceeding) remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness of the Company; and
(iii) in the event that, notwithstanding
the foregoing, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or
securities, shall be received by the holder of this Note, whether
pursuant to the terms of this Note or upon acceleration or
otherwise, including by way of or on account of a Claim, or the
payment of principal of or interest on this Note, before all
Senior Indebtedness of the Company is paid in full in cash or
cash equivalents, such payment or distribution shall be received
and held in trust for and paid over to the holders of such Senior
Indebtedness of the Company or their representative or
representatives, ratably as aforesaid, for application to the
payment of all Senior Indebtedness of the Company remaining
unpaid until all such Senior Indebtedness of the Company shall
have been paid in full in cash or cash equivalents, after giving
effect to any concurrent payment or distribution to the holders
of such Senior Indebtedness of the Company.
The consolidation of the Company with, or the merger of
the Company into, another corporation or other entity or the
liquidation or dissolution of the Company following the sale or
conveyance of its property or assets as an entirety, or
substantially as an entirety, to another corporation or other
entity shall not be deemed a dissolution, winding up, liquidation
or reorganization of the Company for the purposes of this Section
7 provided that such transaction does not violate the terms of
the Credit Agreement.
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Subject to the payment in full in cash or cash equivalents
of all Senior Indebtedness of the Company, the holders of PIK
Notes shall be subrogated (without any duty on the part of the
holders of Senior Indebtedness of the Company to warrant, create,
effectuate, preserve or protect such subrogation) to the rights
of the holders of Senior Indebtedness of the Company to receive
payments or distributions of cash, property or securities of the
Company applicable to Senior Indebtedness of the Company until
the principal of and interest on the PIK Notes shall be paid in
full and, for the purpose of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of the
Company of cash, property or securities otherwise distributable
to the holders of PIK Notes shall, as between the Company, its
creditors other than the holders of Senior Indebtedness of the
Company, and the holders of PIK Notes, be deemed to be a payment
by the Company to the holders of or on account of the Senior
Indebtedness of the Company. It is understood that the provisions
of this Section 7 (and of Section 7 of all other PIK Notes) are
and are intended solely for the purpose of defining the relative
rights of the holders of PIK Notes, on the one hand, and the
holders of Senior Indebtedness of the Company, on the other hand.
Nothing contained in this Section 7 or elsewhere in this Note is
intended to or shall impair, as between. the Company, its
creditors other than the holders of Senior Indebtedness of the
Company, and the holder of this Note, the obligation of the
Company, which is unconditional and absolute, to pay to the
holder of this Note the principal of and interest on this Note as
and when the same shall become due and payable in accordance with
its terms, or to affect the relative rights of the holders of PIK
Notes and creditors of the Company other than the holders of
Senior Indebtedness of the Company, nor shall anything herein
prevent the holder of this Note from exercising all remedies
otherwise permitted by applicable law upon default under this
Note, subject to the rights, if any, under this Section 7 of the
holders of Senior Indebtedness of the Company in respect of cash,
property or securities of the Company received upon the exercise
of any such remedy. Upon any payment or distribution of assets of
the Company referred to in this Section 7, the holder of this
Note shall be entitled to rely upon any order or decree of a
court of competent jurisdiction in which any proceedings of the
nature described in this Section are pending or upon a
certificate of the liquidating trustee or agent or other person
making any distribution to the holder of this Note for the
purpose of ascertaining the persons entitled to participate in
such distribution, the holders of Senior Indebtedness of the
Company and other indebtedness of the Company, the amount thereof
or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section
7.
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(c) No direct or indirect payments or
distributions by or on behalf of the Company on or with respect
to this Note (whether pursuant to the terms of this Note or upon
acceleration or otherwise, including by way of or on account of a
Claim, or the payment of principal of or interest on this Note)
shall be made if, at the time of such payment or distribution,
such payment or distribution is prohibited by the Credit
Agreement.
In the event that, notwithstanding the foregoing,
the Company shall make any payment or distribution of assets of
the Company of any kind or character, whether in cash, property
or securities, to the holder of this Note prohibited by the
foregoing provisions of this Section 7(c) (whether pursuant to
the terms of this Note or upon acceleration or otherwise,
including by way of or on account of a Claim, or the payment of
principal of or interest on this Note), then and in any such
event such payment or distribution shall, to the extent permitted
by law, be received and held in trust for the benefit of and be
paid over and delivered forthwith to the holders of the Senior
Indebtedness of the Company or their representative or
representatives.
The provisions of this Section 7(c) shall not
apply to any payment with respect to which Section 7(b) would be
applicable.
(d) Except as provided in clause (b) or (c)
above, nothing contained in this Note shall affect the obligation
of the Company to make, or prevent the Company from making, at
any time, payments of principal or interest on this Note.
(e) The holder of this Note shall take such
action as may be necessary or appropriate to effectuate the
subordination as provided in this Section 7, including, without
limitation, in the event of any dissolution, winding up,
liquidation or bankruptcy reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon a
general assignment for the benefit of creditors or any other
similar remedy or otherwise) tending towards liquidation of the
business and assets of the Company, the immediate filing of a
claim for the unpaid balance of this Note in the form required in
such proceedings and using its best efforts to cause such claim
to be approved. If the holder of this Note does not file a proper
claim or proof of debt in the form required in such proceedings
prior to 30 days before the expiration of the time to file such
claim or claims, the holders of Senior Indebtedness of the
Company (or their representative or representatives) are hereby
authorized to file an appropriate claim for and on behalf of the
holder of this Note. Nothing herein shall be deemed to authorize
the holders of Senior Indebtedness of the Company to authorize or
consent to or accept or adopt on behalf of
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the holder of this Note any plan of reorganization, arrangement,
adjustment or composition affecting this Note or the rights of the
holder of this Note, or to authorize the holders of Senior
Indebtedness of the Company to vote in respect of the claim of the
holder of this Note in any such proceeding.
(f) No right of any present or future holder of
any Senior Indebtedness of the Company to enforce subordination
as provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms of
this Note, regardless of any knowledge thereof which any such
holder may have or otherwise be charged with. The holders of
Senior Indebtedness of the Company may at any time and from time
to time, without the consent of or notice to the holder of this
Note, without incurring responsibility to the holder of this Note
and without impairing or releasing or otherwise affecting the
rights of any holder of Senior Indebtedness of the Company or the
respective liabilities or obligations of the Company or the
holder this Note or in any way altering or affecting any of the
provisions of this Section 7:
(1) change the amount, manner, place or terms of
payment or change or extend the time of payment of or renew,
refinance, modify, alter or restructure the terms of the
Senior Indebtedness of the Company or any document or
instrument evidencing or governing such Senior Indebtedness
of the Company in any manner or enter into or amend in any
manner any other agreement relating to Senior Indebtedness
of the Company or any security therefor;
(2) sell, exchange, release or otherwise deal with
any property by whomsoever at any time pledged or mortgaged
to secure, or howsoever securing, Senior Indebtedness of the
Company and otherwise deal freely with the Company;
(3) release anyone (including any guarantor) liable in
any manner for the payment or collection of Senior
Indebtedness of the Company;
(4) exercise or refrain from exercising any rights
against the Company and others (including any guarantor,
including releasing, selling or exchanging any security);
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(5) apply any sums by whomsoever paid or however
realized to the Senior Indebtedness of the Company; or
(6) take any other action which otherwise might be
deemed to impair the rights of the holder of this Note.
No compromise, alteration, amendment, modification,
extension, renewal or other change of, or waiver, consent or
other action in respect of, any liabilities or obligation under
or in respect of, or of any of the terms, covenants or conditions
of any indenture or other instrument under which any Senior
Indebtedness of the Company is outstanding or of such Senior
Indebtedness of the Company, whether or not in accordance with
the provisions of any applicable document, shall in any way alter
or affect any of the provisions of this Section 7. As long as the
Credit Agreement is in effect, no amendment to, or any waiver of
the provisions of, this Section 7 which adversely affects the
rights of the holders of Senior Indebtedness of the Company under
this Section 7 shall be effective against the holders of Senior
Indebtedness of the Company who have not consented thereto.
(g) If payment of the Note is accelerated because
of an event of defaultas provided in Section 6 of this Note, the
Company shall promptly notify this Agent under the Credit
Agreement of the acceleration. The Company may not pay the Note
until five Business Days after the Agent under the Credit
Agreement receives such notice (if any Senior Indebtedness of the
Company remains outstanding) and thereafter may pay this Note
only if this Note otherwise permits the payment at that time.
(h) The term "Senior Indebtedness of the Company"
shall mean all monetary obligations of the Company under the
Credit Agreement, including all related notes, collateral
documents, and guarantees, in each case, as any of the same has
been or may be amended, supplemented, restated or otherwise
modified from time to time (in each case in whole or in part).
8. All powers and remedies given to the holder of
this Note shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other
powers and remedies available to the holder of this Note, by
judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this
Note, and no delay or omission of the holder of this Note to
exercise any right or power
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accruing upon any default hereunder shall impair any such right
or power, or shall be construed to be a waiver of any such
default or an acquiescence therein.
9. This Note shall be binding upon the Company and
its successors and assigns, and the terms and provisions of this
Note shall inure to the benefit of Payee, the holders of Senior
Indebtedness of the Company and their respective successors and
assigns, including subsequent holders hereof.
10. The terms and provisions of this Note are
severable, and if any term or provision shall be determined to be
superseded, illegal, invalid or otherwise unenforceable in whole
or in part pursuant to applicable law by a governmental authority
having jurisdiction, such determination shall not in any manner
impair or otherwise affect the validity, legality or enforce-
ability of that term or provision in any other jurisdiction or
any of the remaining terms and provisions of this Note in any
jurisdiction.
11. Presentment for payment, notice of dishonor,
protest, notice of protest and any other notice are hereby
waived. This Note shall be governed by, and construed in
accordance with, the internal laws of the State of New York
without regard to principles of conflict of laws.
12. No amendment, modification or waiver of any term
or provision of this Note, nor consent to any departure by the
Company here from, shall be effective unless the same shall be in
writing and signed by the holder of this Note, and then such
waiver, modification or consent shall be effective only in the
specific instance and for the specific purpose for which given.
13. Nothing in this Note, expressed or implied, shall
give or be construed to give any person, firm or corporation,
other than the parties hereto and the holders of Senior
Indebtedness of the Company, any legal or equitable right, remedy
or claim under or in respect of this Note, or under any covenant,
condition or provision herein contained; all its covenants,
conditions and provisions being for the sole benefit of the
Company, the holder of this Note and the holders of Senior
Indebtedness of the Company.
IN WITNESS WHEREOF, the Company has caused this Note to be
executed and delivered to the Payee on the date and year first
above written.
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KAISER ALUMINUM & CHEMICAL
CORPORATION
By: ___________________________
John T. La Duc
Vice President and
Chief Financial Officer
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January 1995
Charles E. Hurwitz
5847 San Felipe, Suite 2600
Houston, TX 77057
Dear Mr. Hurwitz:
As a valued member of the Kaiser management team, you have been
selected for a grant of stock options under the Kaiser 1993
Omnibus Stock Incentive Plan (the "Plan"). The Plan is designed
to align key employees' and shareholders' objective, retain key
employees, and offer competitive long-term compensation
opportunities.
This letter contains a brief summary description to help you
better understand the details of the Plan. The summary
description sets forth only the highlights, and is qualified in
its entirety by the complete copy of the controlling Plan, a copy
of which you may obtain upon request from the Corporate
Secretary, at the address set forth below or by calling (713)
267-3670.
On December 21, 1994, the Company's Compensation Committee
granted to you, the right and option (not qualified as an
Incentive Stock Option under the Internal Revenue Code) to
purchase, on the terms and conditions set forth in the Plan
250,000 shares of KAC common stock, $.01 par value, at the
exercise price of $12.75 per share, (20% above the closing price
on the New York Stock Exchange on the date of the grant)
exercisable from time to time in accordance with the provisions
of the Plan. The above option will vest at the rate of 25% per
year over the next 4 years, with the first 25% vesting on
December 21, 1995. The grant shall expire and cease to be
exercisable ten years from the date of grant, or on such earlier
date as may be provided for by the terms of the Plan. This grant
is subject to the Company's right to repurchase the option, in
whole or in part, within ten days of your exercise of such option
at a price equal to the difference between the exercise price and
the closing price on the date of your exercise as reported by the
New York Stock Exchange (or such other national exchange on which
the KAC common stock may be listed).
<PAGE>
<PAGE>
Each exercise of this option shall be by means of a written
notice of the exercise (using the enclosed form) delivered to the
Corporate Secretary, in Houston, at the address specified on the
form. If the notice of exercise is received after 5:00 p.m.
Houston time, the exercise will be deemed to have occurred on the
next business day. The notice of exercise must specify the
number of shares to be purchased and be accompanied by full
payment in cash, or by certified or cashier's check, payable to
the Company for the full exercise price of the shares to be
purchased. Upon payment of the full purchase price, the Company
will make a withholding for federal, state and local taxes. The
withheld amount may not be sufficient for payment of taxes owed
by you. Ordinary income is recognized by an optionee upon
exercise of a non-qualified stock option (a right granted by
employer to purchase stock at stipulated price over a specific
period of time) in an amount equal to the difference between the
market value of the shares of common stock acquired and the
exercise price paid for them.
All options terminate immediately upon termination of employment
for cause. If employment terminates on account of death or
disability, any of the options hereby granted which are
exercisable at termination may be exercised until the earlier of
the first anniversary of such termination date or its scheduled
expiration date. Any option exercisable upon the holder's
retirement may be exercised until the third anniversary of
employment termination or its scheduled expiration date. On
termination of employment in any circumstances not mentioned
above, an option exercisable at termination may be exercised for
three months thereafter, but not after its scheduled expiration
date.
The option shall become immediately exercisable on a change of
control. A change of control shall be deemed to have occurred if
at any time MAXXAM Inc. beneficially owns less than 50% (on a
fully diluted basis) of the outstanding Common Stock of KAC.
If the outstanding shares of the common stock of KAC are
increased, decreased, changed into, or exchanged for a different
number of kind of shares or securities of KAC as a result of a
reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment (to be conclusively determined by the
"Compensation Committee" of the "Boards" of Directors of KAC and
KACC) shall be made in the number and kind of securities
allocated to this option without change in the total price
applicable to the unexercised portion of this option, but with a
corresponding adjustment in the price of each share or other unit
of any security covered by this option.
The Compensation Committee has sole discretion to determine which
employees receive awards under the Plan and to establish the
terms of each award (subject to the provisions of the Plan). The
award or the option should be considered as an independent action
and is not to be construed as repeatable or ongoing. The
Compensation Committee also has authority to construe, interpret
and implement the Plan, to make rules and otherwise administer
the Plan, and its determination on any matter relating to the
Plan is conclusive. The Boards may terminate, suspend or revise
the Plan at any time, subject to stockholder approval for certain
types of amendments. However, no amendment or other action by
the Boards, including termination of the Plan, may adversely
affect any outstanding award without consent of the recipient
(or, if applicable, the recipient's heirs or estate).
<PAGE>
<PAGE>
Also enclosed is a form of Beneficiary Designation to designate a
beneficiary to receive shares of common stock of KAC, as well as
any benefits under the Plan that may become payable on account of
your death. If you wish to make or change a designation of your
beneficiary under the Plan you should complete this form promptly
and return it to Jim McKnight, Director Corporate Personnel, 6177
Sunol Boulevard, Pleasanton, CA 94566. In the absence of any
such beneficiary designation by you, all death benefits under the
Plan would be payable to your estate.
We congratulate you on your selection to participate in this
Plan. It indicates your importance to the performance of the
Company. We would also like to thank you for your dedicated
service and contribution to the past success of Kaiser, and we
look forward to your continued contribution. If you have any
questions regarding the Plan, please feel free to discuss them
with Byron Wade in Houston or with Jim McKnight in Pleasanton.
Please indicate your acceptance of this agreement by signing
below and returning such signed copy to Byron Wade, 5847 San
Felipe, Suite 2600, P.O. Box 572887, Houston, Texas 77257-2887.
Sincerely,
George T. Haymaker, Jr.
Chairman of the Board and
Chief Executive Officer
I acknowledge and accept this award under the terms specified in
this letter and the Plan.
_______________________________
Employee's Signature
_______________________________
Date
<PAGE>
__________________
(date)
_____________________________
_____________________________
_____________________________
Dear ___________:
We are pleased to advise you that at a recent meeting of the
Compensation Committee of the Board of Directors, such Committee
consisting of identical members for Kaiser Aluminum Corporation
("KAC") and Kaiser Aluminum & Chemical Corporation ("KACC")
(collectively, the "Company"), you were selected for a grant of
stock options under the Kaiser 1993 Omnibus Stock Incentive Plan
(the "Plan"). The Plan is designed to align key employees' and
stockholders' objectives, retain key employees, and offer
competitive long-term compensation opportunities.
This letter is accompanied by a brief summary description to help
you better understand the details of the Plan. The summary
description sets forth only the highlights, and is qualified in
its entirety by the complete copy of the controlling Plan, a copy
of which you may also receive upon request from Byron Wade, at
the address set forth below or by calling (713) 267-3670.
The Company has granted to you on ______________, the right and
option (not qualified as an Incentive Stock Option under the
Internal Revenue Code) to purchase, on the terms and conditions
set forth in the Plan, _________ shares of KAC common stock,
$0.01 par value, at the exercise price of $___________ per share,
the closing price on the New York Stock Exchange on
________________, the date of the Compensation Committee meeting,
exercisable from time to time in accordance with the provisions
of the Plan. The above option will vest at the rate of _____%
per year over the next ___ years, with the first ____% vesting on
_________. This grant is subject to the Company's right to
repurchase the option, in whole or in part, within ten days of
your exercise of such option at a price equal to the difference
between the exercise price and the closing price on the date of
your exercise as reported by the New York Stock Exchange (or such
other national exchange on which the KAC common stock may be
listed).
<PAGE>
<PAGE>
Each exercise of this option shall be by means of a written
notice of the exercise (using the enclosed form) delivered to
Byron Wade, Corporate Secretary, in Houston, at the address
specified on the form. If the notice of exercise is received
after 5:00 p.m. Houston time, the exercise will be deemed to have
occurred on the next business day. The notice of exercise must
specify the number of shares to be purchased and be accompanied
by full payment in cash, or by certified or cashier's check,
payable to KAC for the full exercise price of the shares to be
purchased. Upon payment of the full purchase price, the Company
will make a withholding for federal, state and local taxes. The
withheld amount may not be sufficient for payment of taxes owned
by you. There will be future communications with you on how the
mechanics of withholding the required taxes at the time of
exercise will be handled. You, of course, are responsible for
any taxes incurred as a result of the options granted to you or
their exercise. Ordinary income is recognized by an optionee
upon exercise of a non-qualified stock option (a right granted by
employer to purchase stock at stipulated price over a specific
period of time) in an amount equal to the difference between the
market value of the shares of common stock acquired and the
exercise price paid for them.
All options terminate immediately upon termination of employment
for cause. If employment terminates on account of death or
disability, any of the option hereby granted which is exercisable
at termination may be exercised until the earlier of the first
anniversary of such termination date or its scheduled expiration
date. Any option exercisable upon the holder's retirement may be
exercised until the third anniversary of employment termination
or its scheduled expiration date. On termination of employment
in any circumstances not mentioned above, an option exercisable
at termination may be exercised for three months thereafter, but
not after its scheduled expiration date.
If the outstanding shares of the common stock of KAC are
increased, decreased, changed into or exchanged for a different
number of kind of shares of securities of KAC as a result of a
reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment (to be conclusively determined by the
"Compensation Committee" of the "Boards" of Directors of KAC and
KACC) shall be made in the number and kind of securities
allocated to this option without change in the total price
applicable to the unexercised portion of this option, but with a
corresponding adjustment in the price for each share or other
unit of any security covered by this option.
The Compensation Committee has sole discretion to determine which
employees receive awards under the Plan and to establish the
terms of each award (subject to the provisions of the Plan). The
award of the option should be considered as an independent action
and is not to be construed as repeatable or ongoing. The
Compensation Committee also has authority to construe, interpret
and implement the Plan, to make rules and otherwise administer
the Plan, and its determination on any matter relating to the
Plan conclusive. The Boards may terminate, suspend or revise the
Plan at any time, subject to stockholder approval for certain
types of amendments. However, no amendment or other action by
the Boards, including termination of the Plan, may adversely
affect any outstanding award without consent of the recipient
(or, if applicable, the recipient's heirs or estate).
<PAGE>
<PAGE>
Also enclosed is a form of Beneficiary Designation to designate a
beneficiary to receive shares of common stock of KAC, as well as
any benefits under the Plan that may become payable on account of
your death. If you wish to make or change a designation of your
beneficiary under the Plan you should complete this form promptly
and return it to Jim McKnight, Director Corporate Personnel, 6177
Sunol Boulevard, Pleasanton, CA 94566. In the absence of any
such beneficiary designation by you, all death benefits under the
Plan would be payable to your estate.
We congratulate you on your selection to participate in this
Plan. It indicates your importance to the performance of the
Company. We would also like to thank you for your dedicated
service and contribution to the past success of the Company, and
we look forward to your continued contribution. If you have any
questions regarding the Plan, please feel free to discuss them
with Byron Wade in Houston or with Jim McKnight in Pleasanton.
Please indicate your acceptance of this agreement by signing
below and returning such signed copy to Byron Wade, 5847 San
Felipe, Suite 2600, P. O. Box 572887, Houston, Texas 77257-2887.
Sincerely,
George T. Haymaker, Jr.
Chairman of the Board & Chief Executive Officer
I acknowledge and accept this award under the terms specified in
this letter and the Plan.
______________________________
Employee's Signature
______________________________
Date
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Kaiser Aluminum Corporation ("Kaiser" or the "Company"), through its
wholly owned subsidiary, Kaiser Aluminum & Chemical Corporation
("KACC"), operates in two business segments: bauxite and alumina, and
aluminum processing. Intracompany shipments and sales are excluded
from the information set forth below. The following should be read in
conjunction with the Company's consolidated financial statements and
the notes thereto, contained elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
(In millions of dollars, except shipments and prices) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shipments: (000 tons) <F1>
Alumina 2,086.7 1,997.5 2,001.3
Aluminum processing:
Primary aluminum 224.0 242.5 355.4
Fabricated aluminum products 399.0 373.2 343.6
-------- -------- --------
Total aluminum products 623.0 615.7 699.0
======== ======== ========
Average realized sales price:
Alumina (per ton) $ 169 $ 169 $ 195
Primary aluminum (per pound) .59 .56 .66
Net sales:
Bauxite and alumina:
Alumina $ 352.8 $ 338.2 $ 390.8
Other <F2><F3> 79.7 85.2 75.7
-------- -------- --------
Total bauxite and alumina 432.5 423.4 466.5
-------- -------- --------
Aluminum processing:
Primary aluminum 292.0 301.7 515.0
Fabricated aluminum products 1,043.0 981.4 913.7
Other <F3> 14.0 12.6 13.9
-------- -------- --------
Total aluminum processing 1,349.0 1,295.7 1,442.6
-------- -------- --------
Total net sales $1,781.5 $1,719.1 $1,909.1
======== ======== ========
Operating income (loss):
Bauxite and alumina $ 19.8 $ (4.5) $ 62.6
Aluminum processing (8.4) (46.3) 104.9
Corporate (67.6) (72.6) (77.6)
-------- -------- --------
Total operating income (loss) $ (56.2) $ (123.4) $ 89.9
======== ======== ========
Income (loss) before extraordinary loss and cumulative effect of changes
in accounting principles $ (101.4) $ (123.1) $ 26.9
Extraordinary loss on early extinguishment of debt, net of tax benefit of $2.9 and
$11.2 for 1994 and 1993, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles, net of tax benefit of $237.7 (507.3)
-------- -------- --------
Net income (loss) $ (106.8) $ (652.2) $ 26.9
======== ======== ========
Capital expenditures $ 70.0 $ 67.7 $ 114.4
======== ======== ========
<FN>
<F1>
All references to tons refer to metric tons of 2,204.6 pounds.
<F2>
Includes net sales of bauxite.
<F3>
Includes the portion of net sales attributable to minority
interests in consolidated subsidiaries.
</FN>
</TABLE>
20
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations
----------------------
The previous table provides selected operational and financial
information on a consolidated basis with respect to the Company for
the years ended December 31, 1994, 1993, and 1992. As an integrated
aluminum producer, the Company uses a portion of its bauxite, alumina,
and primary aluminum production for additional processing at certain
of its facilities.
Net Sales
Bauxite and Alumina - Revenue from net sales of bauxite and alumina to
third parties was $432.5 million in 1994, compared with $423.4 million
in 1993 and $466.5 million in 1992. Revenue from alumina increased 4%
to $352.8 million in 1994 from $338.2 million in 1993 because of
increased shipments. Revenue from alumina decreased 13% to $338.2
million in 1993 from $390.8 million in 1992 because of lower average
realized prices. The remainder of the segment's sales revenues were
from sales of bauxite, which remained about the same throughout the
three years, and the portion of sales of alumina attributable to the
minority interest in Alumina Partners of Jamaica ("Alpart").
Aluminum Processing - Revenue from net sales to third parties for the
aluminum processing segment was $1,349.0 million in 1994, compared
with $1,295.7 million in 1993 and $1,442.6 million in 1992. The bulk
of the segment's sales represents Kaiser's primary aluminum and
fabricated aluminum products, with the remainder attributable to the
portion of sales of primary aluminum related to the minority interest
in Volta Aluminium Company Limited.
Revenue from primary aluminum decreased 3% to $292.0 million in 1994
from $301.7 million in 1993 as higher average realized prices were
more than offset by lower shipments. Average realized prices in 1994
reflected the defensive hedging of primary aluminum prices in respect
of 1994 shipments, which was initiated prior to recent improvements in
metal prices. In 1994, the Company's average realized price from sales
of primary aluminum was approximately $.59 per pound, compared to the
average Midwest United States transaction price of approximately $.72
per pound during the year. Shipments in 1994 reflected production
curtailments at the Company's smelters in the Pacific Northwest and
Ghana. Revenue from primary aluminum decreased 41% to $301.7 million
in 1993 from $515.0 million in 1992 because of lower shipments and
lower average realized prices. Shipments of primary aluminum to third
parties were approximately 36% of total aluminum products shipments in
1994, compared with approximately 39% in 1993 and 51% in 1992.
Revenue from fabricated aluminum products increased 6% to $1,043.0
million in 1994 from $981.4 million in 1993, principally due to
increased shipments of most of these products. Revenue from fabricated
aluminum products increased 7% to $981.4 million in 1993 from $913.7
million in 1992, principally due to increased shipments of most
fabricated aluminum products, partially offset by a decrease in
average realized prices of most of these products.
Operating Income (Loss)
The Company had an operating loss of $56.2 million in 1994, compared
with a loss of $123.4 million in 1993 and income of $89.9 million in
1992. In 1993, the Company recorded a pre-tax charge of $35.8 million
related to restructuring charges (see Note 2 of the Notes to
Consolidated Financial Statements) and a pre-tax charge of $19.4
million ($29.0 million in 1992) because of a reduction in the carrying
value of its inventories caused principally by prevailing lower prices
for alumina, primary aluminum, and fabricated aluminum products.
Bauxite and Alumina - This segment's operating income in 1994 was
$19.8 million, compared with a loss of $4.5 million in 1993 and income
of $62.6 million in 1992. In 1994 compared with 1993, operating income
was favorably affected by increased shipments and lower manufacturing
costs. In 1993 compared with 1992, operating income was adversely
affected principally due to a decrease in average realized prices for
alumina, which more than offset above-market prices for virtually all
of the Company's excess alumina sold forward in prior periods under
long-term contracts.
21
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Aluminum Processing - This segment's operating loss was $8.4 million
in 1994, compared with $46.3 million in 1993 and income of $104.9
million in 1992. The decrease in operating loss in 1994 compared with
1993 was caused principally by the $35.8 million restructuring charges
previously described, increased shipments of fabricated aluminum
products and higher average realized prices of primary aluminum,
partially offset by lower shipments of primary aluminum.
The decrease in 1993 compared with 1992 was caused principally by
reduced shipments and lower average realized prices of primary
aluminum, which more than offset increased shipments of fabricated
aluminum products. In 1993, KACC implemented a restructuring plan for
its flat-rolled products operation at its Trentwood plant in response
to overcapacity in the aluminum rolling industry, flat demand in U.S.
can stock markets, and declining demand for aluminum products sold to
customers in the commercial aerospace industry, all of which resulted
in declining prices in Trentwood's key markets. Additionally, KACC
implemented a plan to streamline its casting operations, which
included the shutdown of two facilities located in Ohio. This entire
restructuring is expected to be completed by the end of 1995 and will
affect approximately 620 employees. The pre-tax charge for this
restructuring of $35.8 million included $25.2 million for pension,
severance, and other termination benefits at Trentwood; $8.0 million
related to casting facilities; and $2.6 million for various other
items. At December 31, 1994, Trentwood was ahead of its restructuring
plan, which is expected to result in annual cost savings of at least
$50.0 million after it has been fully implemented. Other contributing
factors were lower production at the Company's smelters in the Pacific
Northwest in 1993 as a result of the removal of three reduction
potlines from production in January 1993 in response to the Bonneville
Power Administration's (the "BPA") reduction during the first quarter
of 1993 of the amount of power it normally provides to the Company,
and the increased cost of substitute power in such quarter. In both
1993 and 1992, the Company realized above-market prices for
significant quantities of primary aluminum sold forward in prior
periods under long-term contracts.
Corporate - Corporate operating expenses of $67.6 million, $72.6
million, and $77.6 million in 1994, 1993, and 1992, respectively,
represented corporate general and administrative expenses that were
not allocated to segments.
Income (Loss) Before Extraordinary Loss and Cumulative Effect of
Changes in Accounting Principles
Loss before extraordinary loss and cumulative effect of changes in
accounting principles was $101.4 million in 1994, compared with $123.1
million in 1993, as a result of the reduction in operating loss
previously described, partially offset by a lower credit for income
taxes. Loss before extraordinary loss and cumulative effect of changes
in accounting principles was $123.1 million in 1993, compared with
income of $26.9 million in 1992. This decrease resulted from the lower
operating income previously described and $10.8 million of other pre-
tax charges in 1993, principally related to establishing additional
litigation and environmental reserves.
Net Income (Loss)
The Company reported a net loss of $106.8 million or $2.18 per common
and common equivalent share in 1994, compared with $652.2 million or
$11.47 per common and common equivalent share in 1993 and net income
of $26.9 million or $.47 per common share in 1992. The principal
reasons for reduced net loss in 1994 compared with 1993 were the
reduction in the operating loss previously described and the
cumulative effect of changes in accounting principles of $507.3
million related to adoption of Statement of Financial Accounting
Standards No. 106, 109, and 112 (see Note 1 of the Notes to
Consolidated Financial Statements). The principal reasons for the
earnings decline in 1993 compared with 1992 were the cumulative effect
of changes in accounting principles of $507.3 million (see above), the
extraordinary loss on early extinguishment of debt of $21.8 million,
and the operating losses described above.
22
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financial Condition and Capital Spending
---------------------------------------
Capital Structure
On February 17, 1994, the Company and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. (as agent for itself
and other lenders), Bank of America National Trust and Savings
Association, and certain other lenders (as amended, the "1994 Credit
Agreement"). The 1994 Credit Agreement consists of a $275.0 million
five-year secured, revolving line of credit, scheduled to mature in
1999, and replaced the credit agreement entered into in December 1989
by the Company and KACC with a syndicate of commercial banks and other
financial institutions (as amended, the "1989 Credit Agreement"). KACC
is able to borrow under the facility by means of revolving credit
advances and letters of credit (up to $125.0 million) in an aggregate
amount equal to the lesser of $275.0 million or a borrowing base
relating to eligible accounts receivable plus eligible inventory. The
Company recorded a pre-tax extraordinary loss of $8.3 million ($5.4
million after taxes) in the first quarter of 1994, consisting
primarily of the write-off of unamortized deferred financing costs
related to the 1989 Credit Agreement. As of February 17, 1995, $137.3
million (of which $59.3 million could have been used for letters of
credit) was available to KACC under the 1994 Credit Agreement. The
1994 Credit Agreement is unconditionally guaranteed by the Company and
by certain significant subsidiaries of KACC. Loans under the 1994
Credit Agreement bear interest at a rate per annum, at KACC's
election, equal to a Reference Rate (as defined) plus 1-1/2% or LIBO
Rate (Reserve Adjusted) (as defined) plus 3-1/4%. After June 30, 1995,
the interest rate margins applicable to borrowings under the 1994
Credit Agreement may be reduced by up to 1-1/2% (non-cumulatively),
based upon a financial test, determined quarterly.
The 1994 Credit Agreement requires KACC to maintain certain financial
covenants and places restrictions on the Company's and KACC's ability
to, among other things, incur debt and liens, make investments, pay
dividends, undertake transactions with affiliates, make capital
expenditures, and enter into unrelated lines of business. The 1994
Credit Agreement is secured by, among other things, (i) mortgages on
KACC's major domestic plants (excluding the Gramercy plant); (ii)
subject to certain exceptions, liens on the accounts receivable,
inventory, equipment, domestic patents and trademarks, and
substantially all other personal property of KACC and certain of its
subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser;
and (iv) pledges of all of the stock of a number of KACC's wholly
owned domestic subsidiaries, pledges of a portion of the stock of
certain foreign subsidiaries, and pledges of a portion of the stock of
certain partially owned foreign affiliates.
In the first quarter of 1994, the Company consummated the public
offering of 8,855,550 shares of its 8.255% PRIDES, Convertible
Preferred Stock (the "PRIDES"). The net proceeds from the sale of the
shares of PRIDES were approximately $100.1 million. The Company used
such net proceeds to make non-interest-bearing loans to KACC in the
aggregate principal amount of $33.2 million (the aggregate dividends
scheduled to accrue on the shares of PRIDES from the issuance date
until December 31, 1997, the date on which the outstanding PRIDES will
be mandatorily converted into shares of the Company's common stock),
evidenced by intercompany notes, and used the balance of such net
proceeds to make capital contributions to KACC in the aggregate amount
of $66.9 million.
On February 17, 1994, KACC issued $225.0 million of its 9-7/8% Senior
Notes due 2002 (the "Senior Notes"). The net proceeds of the offering
of the Senior Notes were used to reduce outstanding borrowings under
the revolving credit facility of the 1989 Credit Agreement immediately
prior to the effectiveness of the 1994 Credit Agreement and for
working capital and general corporate purposes.
The offering of the PRIDES, the issuance of the Senior Notes, and the
replacement of the 1989 Credit Agreement were the final steps of a
comprehensive refinancing plan which the Company and KACC began in
January 1993 to extend the maturities of the Company's outstanding
indebtedness, enhance its liquidity, and raise new equity capital. At
December 31, 1994, the Company's total consolidated indebtedness was
$762.6 million, compared to $729.4 million at December 31, 1993.
23
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The obligations of KACC with respect to the Senior Notes and the
12-3/4% Notes (see Note 5 of the Notes to Consolidated Financial
Statements) are guaranteed, jointly and severally, by certain
subsidiaries of KACC. The indentures governing the Senior Notes and
the 12-3/4% Notes restrict, among other things, KACC's ability to
incur debt, undertake transactions with affiliates, and pay dividends.
Cash from Operations
Cash used for operations was $41.3 million in 1994, compared with cash
provided by operations of $24.2 million in 1993 and $26.3 million in
1992. The decrease in cash provided in 1994 compared with 1993 was
primarily due to margin deposits of $50.5 million under certain
hedging contracts and an increase in inventories.
Capital Expenditures
The Company's capital expenditures of $252.1 million (of which $34.0
million was funded by the Company's minority partners in certain
foreign joint ventures) during the three years ended December 31,
1994, were made primarily to improve production efficiency, reduce
operating costs, expand capacity at existing facilities, and construct
new facilities. Total consolidated capital expenditures were $70.0
million in 1994, compared with $67.7 million in 1993 and $114.4
million in 1992 (of which $7.5, $9.4, and $17.1 million were funded by
the minority partners in certain foreign joint ventures in 1994, 1993,
and 1992, respectively). Total consolidated capital expenditures (of
which approximately 11% is expected to be funded by the minority
partners in certain foreign joint ventures) are expected to be between
$80.0 and $130.0 million per year in the years 1995-1997, subject to
necessary approvals, if required, from the lenders under the 1994
Credit Agreement.
Dividends and Distributions
The declaration and payment of dividends by the Company and KACC on
shares of their common stock is subject to certain covenants contained
in the 1994 Credit Agreement and, in the case of KACC, the Senior Note
Indenture and the 12-3/4% Note Indenture. The 1994 Credit Agreement
does not permit the Company or KACC to pay any dividends on their
common stock. The declaration and payment of dividends by the Company
on the shares of the Series A Mandatory Conversion Premium Dividend
Preferred Stock (the "Series A Shares") and the PRIDES is expressly
permitted by the terms of the 1994 Credit Agreement to the extent the
Company receives payments on the intercompany notes or certain other
permitted distributions from KACC.
Joint Venture Indebtedness
The Company historically has participated in various raw material
joint ventures outside the United States. At December 31, 1994, the
Company was unconditionally obligated for $78.7 million of
indebtedness of one such joint venture affiliate.
Environmental Contingencies
The Company and KACC are subject to a wide variety of environmental
laws and regulations and to fines or penalties assessed for alleged
breaches of the environmental laws and to claims and litigation based
upon such laws. KACC currently is subject to a number of lawsuits
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments
Reauthorization Act of 1986 ("CERCLA"), and, along with certain other
entities, has been named as a potentially responsible party for
remedial costs at certain third-party sites listed on the National
Priorities List under CERCLA.
Based on the Company's evaluation of these and other environmental
matters, the Company has established environmental accruals, primarily
related to potential solid waste disposal and soil and groundwater
remediation matters, totaling $40.1 million at December 31, 1994.
These environmental accruals represent the Company's estimate of costs
reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the
Company's assessment of the likely remediation action to be taken. As
additional facts are
24
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
developed and definitive remediation plans and necessary
regulatory approvals for implementation of remediation are
established, or alternative technologies are developed, changes in
these and other factors may result in actual costs exceeding the
current environmental accruals. The Company believes that it is
reasonably possible that costs associated with these environmental
matters may exceed current accruals by amounts that could range, in
the aggregate, up to approximately $20.0 million. While uncertainties
are inherent in the final outcome of these environmental matters, and
it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the
resolution of such uncertainties should not have a material adverse
effect on the Company's consolidated financial position or results of
operations. See Note 9 of the Notes to Consolidated Financial
Statements for further description of these contingencies.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits in which the plaintiffs
allege that certain of their injuries were caused by exposure to
asbestos during, and as a result of, their employment or association
with KACC or exposure to products containing asbestos produced or sold
by KACC. The lawsuits generally relate to products KACC has not
manufactured for at least 15 years. At December 31, 1994, the number
of such lawsuits pending was approximately 25,200 with approximately
14,300 received and 12,500 settled or dismissed in 1994.
Based on past experience and reasonably anticipated future activity,
the Company has established an accrual of $102.0 million at December
31, 1994, for estimated asbestos-related costs for claims filed and
estimated to be filed and settled through 2007. The Company does not
presently believe there is a reasonable basis for estimating such
costs beyond 2007 and, accordingly, no accrual has been recorded for
such costs which may be incurred.
The Company believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While
claims for recovery from some of KACC's insurance carriers are
currently subject to pending litigation and other carriers have raised
certain defenses, the Company believes, based on prior insurance-
related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of counsel, that substantial
recoveries from the insurance carriers are probable. Accordingly, an
estimated aggregate insurance recovery of $86.4 million, determined on
the same basis as the asbestos-related cost accrual, is recorded
primarily in Other assets at December 31, 1994.
While uncertainties are inherent in the final outcome of these
asbestos matters and it is presently impossible to determine the
actual costs that ultimately may be incurred and insurance recoveries
that will be received, management currently believes that, based on
the factors discussed in the preceding paragraphs, the resolution of
asbestos-related uncertainties and the incurrence of asbestos-related
costs net of related insurance recoveries should not have a material
adverse effect on the Company's consolidated financial position or
results of operations. See Note 9 of the Notes to Consolidated
Financial Statements for further description of this contingency.
Income Tax Matters
------------------
The Company's net deferred income tax assets as of December 31, 1994,
were $281.0 million, net of valuation allowances of $133.9 million.
Approximately $125.1 million of these net deferred income tax assets
relate to the benefit of loss and credit carryforwards, net of
valuation allowances. The Company evaluated all appropriate factors to
determine the proper valuation allowances for these carryforwards,
including any limitations concerning their use and the year the
carryforwards expire, as well as the levels of taxable income
necessary for utilization. The Company believes, based on the cyclical
nature of its business, its history of prior operating earnings, and
its expectations for future years, that it will more likely than not
generate sufficient taxable income to realize the benefit attributable
to the loss and credit carryforwards for which valuation allowances
were not provided. A principal component of the remaining amount of
25
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
the net deferred income tax assets is the tax benefit associated with
the accrual for postretirement benefits other than pensions. The
future tax deductions with respect to the turnaround of this accrual
will occur over a thirty to forty-year period. The Company believes a
long-term view of profitability is appropriate and has concluded that
this net deferred income tax asset will more likely than not be
realized despite the operating losses incurred in recent years. See
Note 6 of the Notes to Consolidated Financial Statements for a
discussion of these and other income tax matters.
Trends
------
During 1994, the expansion of world economies increased the demand for
aluminum. This factor, together with primary aluminum smelter cutbacks
caused by previous excessive aluminum inventories and low prices,
resulted in lower London Metal Exchange inventories of primary
aluminum at year-end 1994 than at year-end 1993. Average Midwest U.S.
transaction prices for aluminum increased from a low of $.504 per
pound in November 1993 to $.915 per pound in December 1994. The
Company expects to be profitable in 1995, considering KACC's hedging
program in place at December 31, 1994.
Sensitivity to Prices and Hedging Programs
The Company's operating results are sensitive to changes in the prices
of alumina, primary aluminum, and fabricated aluminum products, and
also depend to a significant degree on the volume and mix of all
products sold and on KACC's hedging strategies. Consequently, the
Company has developed strategies to mitigate its exposure to possible
declines in the market prices of alumina, primary aluminum, and
fabricated aluminum products while retaining the ability to
participate in favorable pricing environments that may materialize.
KACC enters into a number of financial instruments with
off-balance-sheet risk in the normal course of business that are
designed to reduce its exposure to fluctuations in foreign exchange
rates, alumina, primary aluminum, and fabricated aluminum products
prices, and the cost of purchased commodities.
KACC has significant expenditures which are denominated in foreign
currencies related to long-term purchase commitments with its
affiliates in Australia and the United Kingdom, which expose KACC to
certain exchange rate risks. In order to mitigate its exposure, KACC
periodically enters into forward foreign exchange and currency option
contracts in Australian dollars and Pounds Sterling to hedge these
commitments. The forward foreign currency exchange contracts are
agreements to purchase or sell a foreign currency, for a price
specified at the contract date, with delivery and settlement in the
future. At December 31, 1994, KACC had net forward foreign exchange
contracts totaling approximately $74.4 million for the purchase of
102.0 million Australian dollars through December 31, 1996.
To mitigate its exposure to declines in the market prices of alumina,
primary aluminum, and fabricated aluminum products, while retaining
the ability to participate in favorable pricing environments that may
materialize, KACC has developed strategies which include forward sales
of primary aluminum at fixed prices and the purchase or sale of
options for primary aluminum. Under the principal components of KACC's
price risk management strategy, which can be modified at any time, (i)
varying quantities of KACC's anticipated production are sold forward
at fixed prices; (ii) call options are purchased to allow KACC to
participate in certain higher market prices, should they materialize,
for a portion of KACC's primary aluminum and alumina sold forward;
(iii) option contracts are entered into to establish a price range
KACC will receive for a portion of its primary aluminum and alumina;
and (iv) put options are purchased to establish minimum prices KACC
will receive for a portion of its primary aluminum and alumina. In
this regard, in respect of its 1995 anticipated production, as of
December 31, 1994, KACC had sold forward 170,950 metric tons of
primary aluminum at fixed prices, purchased call options in respect of
69,000 metric tons of primary aluminum, purchased put options to
establish a minimum price for 193,500 metric tons of primary aluminum,
and entered into option contracts that established a price range for
90,000 metric tons of primary aluminum. KACC will not receive the
benefit of market price increases to the extent (i) the quantity of
production sold forward is greater than the tonnage covered by the
26
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
purchased call options; (ii) market prices exceed the prices at which
primary aluminum is sold forward, but are less than the strike price
of the purchased call options, on the tonnage covered by the options;
or (iii) market prices exceed the maximum of the price range on the
tonnage covered by the option contracts entered to establish a price
range.
In addition, KACC enters into forward fixed price arrangements with
certain customers which provide for the delivery of a specific
quantity of fabricated aluminum products over a specified future
period of time. In order to establish the cost of primary aluminum for
a portion of such sales, KACC may enter into forward and option
contracts. In this regard, at December 31, 1994, KACC had purchased
4,500 metric tons of primary aluminum under forward purchase contracts
at fixed prices that expire at various times through June 1995.
KACC has also entered into a natural gas pricing contract to fix
future prices of a portion (20,000 million BTUs per day) of a plant's
natural gas supply through March 1995.
At December 31, 1994, the net unrealized gain on KACC's position in
forward foreign exchange was $3.5 million and the net unrealized loss
on aluminum forward sales and option contracts and the natural gas
pricing contract was $80.4 million, based on a price of $1,955 per
metric ton of aluminum and $1.59 per million BTUs of natural gas. See
Note 10 of the Notes to Consolidated Financial Statements.
Since December 31, 1994, KACC has entered into:
o Additional forward foreign exchange contracts totaling
approximately $44.3 million for the purchase of 60.0 million
Australian dollars from July 1995 through December 1996 in
respect of its commitments for 1995 and 1996 expenditures
denominated in Australian dollars.
o Additional hedge positions in respect of its anticipated 1995
and 1996 production. As of the date of this report, KACC had
sold forward an additional 121,025 metric tons of primary
aluminum at fixed prices.
o A natural gas pricing contract to fix future prices of a
portion (20,000 million BTUs per day) of a plant's natural gas
supply through September 1995.
At February 28, 1995, the net unrealized loss on KACC's position in
forward foreign exchange was $.7 million, and the net unrealized loss
on aluminum forward sales and option contracts and natural gas pricing
contracts was $3.6 million, based on a price of $1,808 per metric ton
of aluminum and $1.42 per million BTUs of natural gas.
Labor Matter
On February 17, 1995, KACC's approximately 3,000 hourly-paid employees
represented by the United Steelworkers of America ("USWA") failed to
ratify a proposed master labor agreement (47 months duration effective
November 1, 1994 through September 30, 1998) with KACC which had been
recommended for ratification by the USWA, and on February 20, 1995, a
strike by such employees began which affected five plants: aluminum
smelters at Tacoma and Mead (Spokane), Washington; a sheet and plate
rolling mill at Trentwood (Spokane), Washington; an alumina refinery
at Gramercy, Louisiana; and a rod and bar plant at Newark, Ohio. The
strike continued for eight days until the agreement (including two
technical modifications) was ratified by those employees on February
28, 1995. During the strike, operations at all five plant locations
continued at various levels of production, and all five plants
continued to ship product to customers. Management believes that the
temporary disruptions to normal production and shipments resulting
from the strike should not have a material adverse effect on the
financial condition or results of operations of the Company for 1995
and that KACC's employee relations will continue to be satisfactory.
27
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Kaiser Aluminum
Corporation:
We have audited the accompanying consolidated balance sheets of Kaiser
Aluminum Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1994 and 1993, and the related statements
of consolidated income and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kaiser
Aluminum Corporation and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As explained in Note 1 of the Notes to Consolidated Financial
Statements, effective January 1, 1993, the Company changed its methods
of accounting for postretirement benefits other than pensions,
postemployment benefits, and income taxes.
Houston, Texas
February 17, 1995
28
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
-------------------
(In millions of dollars, except share amounts) 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 17.6 $ 14.7
Receivables:
Trade, less allowance for doubtful receivables of $4.2 in 1994 and $2.9 in 1993 150.7 156.1
Other 48.5 78.6
Inventories 468.0 426.9
Prepaid expenses and other current assets 158.0 60.7
-------- --------
Total current assets 842.8 737.0
Investments in and advances to unconsolidated affiliates 169.7 183.2
Property, plant, and equipment - net 1,133.2 1,163.7
Deferred income taxes 271.2 210.8
Other assets 281.2 233.2
-------- --------
Total $2,698.1 $2,527.9
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 152.1 $ 126.3
Accrued interest 32.6 23.6
Accrued salaries, wages, and related expenses 77.7 56.1
Accrued postretirement medical benefit obligation - current portion 47.0 47.6
Other accrued liabilities 176.9 133.2
Payable to affiliates 85.3 62.4
Short-term borrowings .5
Long-term debt - current portion 11.5 8.7
-------- --------
Total current liabilities 583.1 458.4
Long-term liabilities 495.5 501.8
Accrued postretirement medical benefit obligation 734.9 713.1
Long-term debt 751.1 720.2
Minority interests 116.2 105.0
Stockholders' equity:
Preferred stock, par value $.05, authorized 20,000,000 shares;
Series A Convertible, stated value $.10, issued and outstanding,
1,938,295 in 1994 and 1993 .2 .2
PRIDES Convertible, par value $.05, issued and outstanding,
8,855,550 and nil in 1994 and 1993 .4
Common stock, par value $.01, authorized 100,000,000 shares;
issued and outstanding, 58,205,083 and 58,095,599 shares in 1994 and 1993 .6 .6
Additional capital 527.8 425.9
Accumulated deficit (502.6) (375.7)
Additional minimum pension liability (9.1) (21.6)
-------- --------
Total stockholders' equity 17.3 29.4
-------- --------
Total $2,698.1 $2,527.9
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
29
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
<CAPTION>
Year Ended December 31,
------------------------------
(In millions of dollars, except share amounts) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,781.5 $1,719.1 $1,909.1
-------- -------- --------
Costs and expenses:
Cost of products sold 1,625.5 1,587.7 1,619.3
Depreciation 95.4 97.1 80.3
Selling, administrative, research and development, and general 116.8 121.9 119.6
Restructuring of operations 35.8
-------- -------- --------
Total costs and expenses 1,837.7 1,842.5 1,819.2
-------- -------- --------
Operating income (loss) (56.2) (123.4) 89.9
Other income (expense):
Interest and other income - net (7.3) (.9) 20.9
Interest expense (88.6) (84.2) (78.7)
-------- -------- --------
Income (loss) before income taxes, minority interests, extraordinary loss,
and cumulative effect of changes in accounting principles (152.1) (208.5) 32.1
Credit (provision) for income taxes 53.8 86.9 (5.3)
Minority interests (3.1) (1.5) .1
-------- -------- --------
Income (loss) before extraordinary loss and cumulative effect of changes
in accounting principles (101.4) (123.1) 26.9
Extraordinary loss on early extinguishment of debt, net of tax benefit
of $2.9 and $11.2 for 1994 and 1993, respectively (5.4) (21.8)
Cumulative effect of changes in accounting principles, net of tax benefit
of $237.7 (507.3)
-------- -------- --------
Net income (loss) (106.8) (652.2) 26.9
Dividends on preferred stock (20.1) (6.3)
-------- -------- --------
Net income (loss) attributable to common shareholders $ (126.9) $ (658.5) $ 26.9
======== ======== ========
Per common and common equivalent share:
Income (loss) before extraordinary loss and cumulative effect of
changes in accounting principles $ (2.09) $ (2.25) $ .47
Extraordinary loss (.09) (.38)
Cumulative effect of changes in accounting principles (8.84)
-------- -------- --------
Net income (loss) $ (2.18) $ (11.47) $ .47
======== ======== ========
Weighted average common and common equivalent shares outstanding (000) 58,139 57,423 57,250
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
30
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<CAPTION>
Year Ended December 31,
-------------------------
(In millions of dollars) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(106.8) $(652.2) $ 26.9
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities:
Depreciation 95.4 97.1 80.3
Amortization of deferred financing costs and discount on long-term debt 6.2 11.2 11.5
Non-cash postretirement medical benefit expenses 13.9 19.2
Restructuring of operations 35.8
Minority interests 3.1 1.5 (.1)
Extraordinary loss on early extinguishment of debt - net 5.4 21.8
Cumulative effect of changes in accounting principles - net 507.3
(Decrease) increase in accrued and deferred income taxes (68.8) (96.4) 3.5
Equity in losses of unconsolidated affiliates 1.9 3.3 1.9
Recognition of previously deferred income from a forward alumina sale (.6) (25.7)
Increase (decrease) in accrued interest 9.3 19.2 (.3)
Incurrence of financing costs (19.2) (12.7) (5.5)
Decrease (increase) in receivables 36.4 (6.1) (57.8)
(Increase) decrease in inventories (41.1) 13.0 58.7
(Increase) decrease in prepaid expenses and other current assets (49.7) 7.4 7.6
Increase (decrease) in accounts payable 25.8 (10.3) (5.2)
Increase (decrease) in payable to affiliates and accrued liabilities 36.9 57.7 (88.7)
Other 10.0 8.0 19.2
------- ------- -------
Net cash (used for) provided by operating activities (41.3) 24.2 26.3
------- ------- -------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 4.1 13.1 26.1
Capital expenditures (70.0) (67.7) (114.4)
------- ------- -------
Net cash used for investing activities (65.9) (54.6) (88.3)
------- ------- -------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (345.1)(1,134.5) (221.4)
Borrowings of long-term debt, including revolving credit 378.9 1,068.1 303.8
Borrowings from MAXXAM Group Inc. (see supplemental disclosure below) 15.0 2.5
Tender premiums and other costs of early extinguishment of debt (27.1)
Net short-term debt repayments (.5) (4.3) (1.5)
Dividends paid (14.8) (6.3) (11.4)
Capital stock issued 100.1 119.3 .6
Redemption of minority interests' preference stock (8.5) (4.2) (7.3)
------- ------- -------
Net cash provided by financing activities 110.1 26.0 65.3
------- ------- -------
Net increase (decrease) in cash and cash equivalents during the year 2.9 (4.4) 3.3
Cash and cash equivalents at beginning of year 14.7 19.1 15.8
------- ------- -------
Cash and cash equivalents at end of year $ 17.6 $ 14.7 $ 19.1
======= ======= =======
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 73.1 $ 53.7 $ 68.1
Income taxes paid 16.0 13.5 1.8
Tax allocation payments to (from) MAXXAM Inc. (3.9) 28.0
Supplemental disclosure of non-cash financing activities:
Exchange of the borrowings from MAXXAM Group Inc. for capital stock $ 15.0
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
31
<PAGE>
KAISER ALUMINUM 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 Corporation ("Kaiser" or the "Company") and its majority-
owned subsidiaries. Investments in 50%-or-less-owned entities are
accounted for primarily by the equity method. Intercompany balances
and transactions are eliminated. The Company is a subsidiary of MAXXAM
Inc. ("MAXXAM") and conducts its operations through its wholly owned
subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"). Certain
reclassifications of prior-year information were made to conform to
the current presentation.
Changes in Accounting Principles
The Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"), and Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
("SFAS 112"), as of January 1, 1993. The costs of postretirement
benefits other than pensions and postemployment benefits are now
accrued over the period employees provide services to the date of
their full eligibility for such benefits. Previously, such costs were
expensed as actual claims were incurred. The cumulative effect of the
changes in accounting principles for the adoption of SFAS 106 and SFAS
112 were recorded as charges to results of operations of $497.7 and
$7.3, net of related income taxes of $234.2 and $3.5, respectively.
These deferred income tax benefits were recorded at the federal
statutory rate in effect on the date the accounting standards were
adopted, before giving effect to certain valuation allowances. The new
accounting standards had no effect on the Company's cash outlays for
postretirement or postemployment benefits, nor did these one-time
charges affect the Company's compliance with its existing debt
covenants. The Company reserves the right, subject to applicable
collective bargaining agreements and applicable legal requirements, to
amend or terminate these benefits.
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1, 1993.
The adoption of SFAS 109 changes the Company's method of accounting
for income taxes to an asset and liability approach from the deferral
method prescribed by Accounting Principles Board Opinion No. 11,
"Accounting for Income Taxes" ("APB 11"). The asset and liability
approach requires the recognition of deferred income tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns. Under this method, deferred income tax assets and liabilities
are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using
enacted tax rates. The cumulative effect of the change in accounting
principle reduced the Company's results of operations by $2.3. The
adoption of SFAS 109 required the Company to restate certain assets
and liabilities to their pre-tax amounts from their net-of-tax amounts
originally recorded in connection with the acquisition by MAXXAM in
October 1988. As a result of restating the assets and liabilities, the
loss before income taxes, minority interests, extraordinary loss, and
cumulative effect of changes in accounting principles for the year
ended December 31, 1993, was increased by $9.3.
Cash and Cash Equivalents
The Company considers only those short-term, highly liquid investments
with original maturities of 90 days or less to be cash equivalents.
Inventories
Substantially all product inventories are stated at last-in, first-out
("LIFO") cost, not in excess of market value. Replacement cost is not
in excess of LIFO cost. Other inventories, principally operating
supplies and repair and maintenance parts, are stated at the lower of
average cost or market. Inventory costs consist of material, labor,
and manufacturing overhead, including depreciation. Inventories
consist of the following:
32
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
<TABLE>
<CAPTION>
December 31,
---------------
1994 1993
------ ------
<S> <C> <C>
Finished fabricated products $ 49.4 $ 83.7
Primary aluminum and work in process 203.1 141.4
Bauxite and alumina 102.3 94.0
Operating supplies and repair and maintenance parts 113.2 107.8
------ ------
$468.0 $426.9
====== ======
</TABLE>
Depreciation
Depreciation is computed principally by the straight-line method at
rates based on the estimated useful lives of the various classes of
assets. The principal estimated useful lives by class of assets are:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
<S> <C>
Land improvements 8 to 25 years
Buildings 15 to 45 years
Machinery and equipment 10 to 22 years
</TABLE>
Other Income
Other income in 1994 and 1993 includes $10.3 and $10.8 of pre-tax
charges related principally to establishing additional litigation and
environmental reserves in the fourth quarters, respectively. Other
income in 1992 includes $14.0 of pre-tax income for non-recurring
adjustments to previously recorded liabilities and reserves in the
fourth quarter.
Deferred Financing Costs
Costs incurred to obtain debt financing are deferred and amortized
over the estimated term of the related borrowing. Amortization of
deferred financing costs of $6.0, $11.2, and $10.9 for the years ended
December 31, 1994, 1993, and 1992, respectively, are included in
interest expense.
Foreign Currency
The Company uses the United States dollar as the functional currency
for its foreign operations.
Derivative Financial Instruments
Gains and losses arising from the use of derivative financial
instruments are reflected in the Company's operating results
concurrently with the consummation of the underlying hedged
transactions. Deferred gains or losses as of December 31, 1994, are
included in Prepaid expenses and other current assets and Other
accrued liabilities. The Company does not hold or issue derivative
financial instruments for trading purposes (see Note 10).
Fair Value of Financial Instruments
The following table presents the estimated fair value of the Company's
financial instruments, together with the carrying amounts of the
related assets or liabilities. Unless otherwise noted, the carrying
amount of all financial instruments is a reasonable estimate of fair
value.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------ --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Debt $762.6 $747.6 $728.9 $734.1
Foreign currency contracts 3.5
</TABLE>
33
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Debt - The quoted market prices were used for the Senior Notes and
12-3/4% Notes (see Note 5). The fair value of all other debt is based
on discounting the future cash flows using the current rate for debt
of similar maturities and terms.
Foreign Currency Contracts - The fair value generally reflects the
estimated amounts that the Company would receive to enter into
similar contracts at the reporting date, thereby taking into account
unrealized gains or losses on open contracts (see Note 10).
Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is computed
based on the weighted average number of common and common equivalent
shares outstanding during each period. For the year ended December 31,
1994, common stock equivalents of 19,382,950 attributable to the
Series A Shares, 8,855,550 shares attributable to the PRIDES, and
1,122,380 attributable to nonqualified stock options and for the year
ended December 31, 1993, common stock equivalents of 19,382,950
attributable to the Series A Shares and 664,400 attributable to
nonqualified stock options were excluded from the calculation of
weighted average shares because they were antidilutive (see Notes 7
and 8). Dividends declared on the Series A Shares and the PRIDES
($20.1 and $6.3 for the years ended December 31, 1994 and 1993) are
added to net loss for the purpose of calculating loss per common and
common equivalent share.
2. Restructuring of Operations
-------------------------------
In 1993, KACC implemented a restructuring plan primarily for its flat-
rolled products operation at its Trentwood plant in response to
overcapacity in the aluminum rolling industry, flat demand in the U.S.
can stock markets, and declining demand for aluminum products sold to
customers in the commercial aerospace industry, all of which had
resulted in declining prices in Trentwood's key markets. As of
December 31, 1994, the costs related to the 1993 pre-tax charge for
this restructuring of $35.8 have been substantially incurred.
3. Investments In and Advances To Unconsolidated Affiliates
------------------------------------------------------------
Summary combined financial information is provided below for
unconsolidated aluminum investments, most of which supply and process
raw materials. The investees are Queensland Alumina Limited ("QAL")
(28.3% owned), Anglesey Aluminium Limited ("Anglesey") (49.0% owned),
and Kaiser Jamaica Bauxite Company (49.0% owned). The equity in
earnings (losses) before income taxes of such operations is treated as
a reduction (increase) in cost of products sold. At December 31, 1994
and 1993, KACC's net receivables from these affiliates were not
material.
<TABLE>
Summary of Combined Operations
<CAPTION>
Year Ended December 31,
---------------------------
1994 1993 1992
-------------------------------------------------------------------
<C> <C> <C>
Net sales $ 489.8 $ 510.3 $ 586.6
Costs and expenses (494.8) (527.2) (586.7)
Provision (credit) for income taxes (6.3) 1.9 6.9
------- ------- -------
Net income (loss) $ (11.3) $ (15.0) $ 6.8
======= ======= =======
Company's equity in losses $ (1.9) $ (3.3) $ (1.9)
======= ======= =======
</TABLE>
34
<PAGE>
KAISER ALUMINUM 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,
---------------
1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Current assets $342.3 $312.3
Property, plant, and equipment - net 349.4 371.1
Other assets 42.4 46.3
------ ------
Total assets $734.1 $729.7
====== ======
Current liabilities $122.4 $130.4
Long-term debt 307.6 290.0
Other liabilities 31.0 17.8
Stockholders' equity 273.1 291.5
------ ------
Total liabilities and stockholders' equity $734.1 $729.7
====== ======
</TABLE>
The Company's equity in losses differs from the summary net income
(loss) due to various percentage ownerships in the entities and equity
method accounting adjustments.
At December 31, 1994, KACC's investment in its unconsolidated
affiliates exceeded its equity in their net assets by approximately
$67.9. The Company is amortizing this amount over a 12-year period,
which results in an annual amortization charge of approximately $11.6.
The Company and its affiliates have interrelated operations. KACC
provides some of its affiliates with services such as financing,
management, and engineering. Significant activities with affiliates
include the acquisition and processing of bauxite, alumina, and
primary aluminum. Purchases from these affiliates were $219.7, $206.6,
and $219.4 in the years ended December 31, 1994, 1993, and 1992,
respectively. No dividends were received from investees in the three
years ended December 31, 1994.
4. Property, Plant, and Equipment
----------------------------------
The major classes of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1993
------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 153.5 $ 135.1
Buildings 196.8 194.8
Machinery and equipment 1,285.0 1,223.0
Construction in progress 45.0 64.9
-------- --------
1,680.3 1,617.8
Accumulated depreciation 547.1 454.1
-------- --------
Property, plant, and equipment - net $1,133.2 $1,163.7
======== ========
</TABLE>
35
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
5. Long-Term Debt
------------------
Long-term debt and its maturity schedule are as follows:
<TABLE>
<CAPTION>
December 31,
2000 -------------
and 1994 1993
1995 1996 1997 1998 1999 After Total Total
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 Credit Agreement (10% at December 31, 1994) $6.7 $ 6.7
1989 Credit Agreement (6.59% at December 31, 1993) $188.0
9-7/8% Senior Notes, net $223.6 223.6
Pollution Control and Solid Waste Disposal
Facilities Obligations (6.00%-7.75%) $ 1.2 $1.2 $1.3 $1.4 .2 32.8 38.1 39.2
Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0 60.0
Alpart Term Loan (8.95%) 6.2 6.3 6.2 18.7 25.0
12-3/4% Senior Subordinated Notes 400.0 400.0 400.0
Other borrowings (fixed and variable rates) 4.1 1.5 1.7 7.4 .4 .4 15.5 16.7
----- ---- ---- ---- ---- ------ ------ ------
Total $11.5 $9.0 $9.2 $8.8 $7.3 $716.8 762.6 728.9
Less current portion ===== ==== ==== ==== ==== ====== 11.5 8.7
------ ------
Long-term debt $751.1 $720.2
====== ======
</TABLE>
1994 Credit Agreement
On February 17, 1994, the Company and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. (as agent for itself
and other lenders), Bank of America National Trust and Savings
Association, and certain other lenders (as amended, the "1994 Credit
Agreement"). The 1994 Credit Agreement consists of a $275.0 five-year
secured, revolving line of credit, scheduled to mature in 1999, and
replaced the credit agreement entered into in December 1989 by the
Company and KACC with a syndicate of commercial banks and other
financial institutions (as amended, the "1989 Credit Agreement"). KACC
is able to borrow under the facility by means of revolving credit
advances and letters of credit (up to $125.0) in an aggregate amount
equal to the lesser of $275.0 or a borrowing base relating to eligible
accounts receivable plus eligible inventory. The Company recorded a
pre-tax extraordinary loss of $8.3 ($5.4 after taxes) in the first
quarter of 1994, consisting primarily of the write-off of unamortized
deferred financing costs related to the 1989 Credit Agreement. As of
December 31, 1994, $202.5 (of which $59.3 could have been used for
letters of credit) was available to KACC under the 1994 Credit
Agreement. The 1994 Credit Agreement is unconditionally guaranteed by
the Company and by certain significant subsidiaries of KACC. Loans
under the 1994 Credit Agreement bear interest at a rate per annum, at
KACC's election, equal to a Reference Rate (as defined) plus 1-1/2% or
LIBO Rate (Reserve Adjusted) (as defined) plus 3-1/4%. After June 30,
1995, the interest rate margins applicable to borrowings under the
1994 Credit Agreement may be reduced by up to 1-1/2% (non-
cumulatively), based on a financial test, determined quarterly.
The 1994 Credit Agreement requires KACC to maintain certain financial
covenants and places restrictions on the Company's and KACC's ability
to, among other things, incur debt and liens, make investments, pay
dividends, undertake transactions with affiliates, make capital
expenditures, and enter into unrelated lines of business. Neither the
Company nor KACC currently is permitted to pay dividends on its common
stock. The 1994 Credit Agreement is secured by, among other things,
(i) mortgages on KACC's major domestic plants (excluding the Gramercy
plant); (ii) subject to certain exceptions, liens on the accounts
receivable, inventory, equipment, domestic patents and trademarks, and
substantially all other personal property of KACC and certain of its
subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser;
and (iv) pledges of all of the stock of a number of KACC's wholly
owned domestic subsidiaries, pledges of a portion of the stock of
certain foreign subsidiaries, and pledges of a portion of the stock of
certain partially owned foreign affiliates.
36
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
Senior Notes
Concurrent with the offering by the Company of its 8.255% PRIDES,
Convertible Preferred Stock (the "PRIDES") (see Note 8), KACC issued
$225.0 of its 9-7/8% Senior Notes due 2002 (the "Senior Notes"). The
net proceeds of the offering of the Senior Notes were used to reduce
outstanding borrowings under the revolving credit facility of the 1989
Credit Agreement immediately prior to the effectiveness of the 1994
Credit Agreement and for working capital and general corporate
purposes.
Senior Subordinated Notes
On February 1, 1993, KACC issued $400.0 of 12-3/4% Senior Subordinated
Notes due 2003 (the "12-3/4% Notes"). The net proceeds from the sale
of the 12-3/4% Notes were used to retire the 14-1/4% Senior
Subordinated Notes due 1995 (the "14-1/4% Notes"), to prepay $18.0 of
the term loan, and to reduce outstanding borrowings under the
revolving credit facility of the 1989 Credit Agreement. These
transactions resulted in a pre-tax extraordinary loss of $33.0 in the
first quarter of 1993, consisting primarily of the write-off of
unamortized discount and deferred financing costs related to the
14-1/4% Notes and the payment of premiums on the 14-1/4% Notes.
The obligations of KACC with respect to the Senior Notes and the
12-3/4% Notes are guaranteed, jointly and severally, by certain
subsidiaries of KACC. The indentures governing the Senior Notes and
the 12-3/4% Notes restrict, among other things, KACC's ability, and
the 1994 Credit Agreement restricts, among other things, Kaiser's and
KACC's ability, to incur debt, undertake transactions with affiliates,
and pay dividends.
Gramercy Revenue Bonds
In December 1992, KACC entered into an installment sale agreement (the
"Sale Agreement") with the Parish of St. James, Louisiana (the
"Louisiana Parish"), pursuant to which the Louisiana Parish issued
$20.0 aggregate principal amount of its 7-3/4% Bonds due August 1,
2022 (the "Bonds") to finance the construction of certain solid waste
disposal facilities at KACC's Gramercy plant. The proceeds from the
sale of the Bonds were deposited into a construction fund and may be
withdrawn, from time to time, pursuant to the terms of the Sale
Agreement and the Bond indenture. At December 31, 1994, $6.4 remained
in the construction fund. The Sale Agreement requires KACC to make
payments to the Louisiana Parish in installments due on the dates and
in the amounts required to permit the Louisiana Parish to satisfy all
of its payment obligations under the Bonds.
Alpart CARIFA Loan
In December 1991, Alpart entered into a loan agreement with the
Caribbean Basin Projects Financing Authority ("CARIFA") under which
CARIFA loaned Alpart the proceeds from the issuance of CARIFA's
industrial revenue bonds. The terms of the loan parallel the bonds'
repayment terms. The $38.0 aggregate principal amount of Series A
bonds matures on June 1, 2008. The Series A bonds bear interest at a
floating rate of 87% of the applicable LIBID Rate (LIBOR less 1/8 of
1%) on $37.5 of the principal amount (5.2% at December 31, 1994) with
the remaining $.5 bearing interest at a fixed rate of 6.35%. The $22.0
aggregate principal amount of Series B bonds matures on June 1, 2007,
and bears interest at a fixed rate of 8.25%.
Proceeds from the sale of the bonds were used by Alpart to refinance
interim loans from the partners in Alpart, to pay eligible project
costs for the expansion and modernization of its alumina refinery and
related port and bauxite mining facilities, and to pay certain costs
of issuance. Under the terms of the loan agreement, Alpart must remain
a qualified recipient for Caribbean Basin Initiative funds as defined
in applicable laws. Alpart has agreed to indemnify bondholders of
CARIFA for certain tax payments that could result from events, as
defined, that adversely affect the tax treatment of the interest
income on the bonds. Alpart's obligations under the loan agreement are
secured by a $64.2 letter of credit guaranteed by the partners in
Alpart (of which $22.5 is guaranteed by the Company's minority partner
in Alpart).
37
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
Capitalized Interest
Interest capitalized in 1994, 1993, and 1992 was $2.7, $3.4, and $4.4,
respectively.
Restricted Net Assets of Subsidiary
Certain debt instruments restrict the ability of KACC to transfer
assets, make loans and advances, and pay dividends to the Company. The
assets of KACC, which are substantially all of the Company's assets,
are restricted.
6. Income Taxes
----------------
Income (loss) before income taxes, minority interests, extraordinary
loss, and cumulative effect of changes in accounting principles by
geographic area is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(168.4) $(232.0) $ (77.6)
Foreign 16.3 23.5 109.7
------- ------- -------
Total $(152.1) $(208.5) $ 32.1
======= ======= =======
</TABLE>
Income taxes are classified as either domestic or foreign, based on
whether payment is made or due to the United States or a foreign
country. Certain income classified as foreign is also subject to
domestic income taxes.
The credit (provision) for income taxes on income (loss) before income
taxes, minority interests, extraordinary loss, and cumulative effect
of changes in accounting principles consists of:
<TABLE>
<CAPTION>
Federal Foreign State Total
---------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 Current $(18.0) $(.1) $(18.1)
Deferred $71.2 .6 .1 71.9
----- ------ ---- ------
Total $71.2 $(17.4) $ 53.8
===== ====== ==== ======
1993 Current $12.6 $ (7.9) $(.1) $ 4.6
Deferred 68.5 12.0 1.8 82.3
----- ------ ---- ------
Total $81.1 $ 4.1 $1.7 $ 86.9
===== ====== ==== ======
1992 Current $(9.7) $(11.4) $(.1) $(21.2)
Deferred 13.1 3.3 (.5) 15.9
----- ------ ---- ------
Total $ 3.4 $ (8.1) $(.6) $ (5.3)
===== ====== ==== ======
</TABLE>
The 1994 federal deferred credit for income taxes of $71.2 includes
$29.3 for the benefit of operating loss carryforwards generated in
1994. The 1993 federal deferred credit for income taxes of $68.5
includes $29.2 for the benefit of operating loss carryforwards
generated in 1993 and a $3.4 benefit for increasing net deferred
income tax assets (liabilities) as of the date of enactment (August
10, 1993) of the Omnibus Budget Reconciliation Act of 1993, which
retroactively increased the federal statutory income tax rate from 34%
to 35% for periods beginning on or after January 1, 1993.
A reconciliation between the credit (provision) for income taxes and
the amount computed by applying the federal statutory income tax rate
to income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes in accounting
principles is as follows:
38
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount of federal income tax based on the statutory rate $53.2 $73.0 $(10.9)
Percentage depletion 5.6 6.4 6.3
Increase in net deferred income tax assets due to tax rate change 1.8 3.4
Revision of prior years' tax estimates and other changes in valuation allowances .2 3.9 2.9
Foreign taxes, net of federal tax benefit (5.3) (2.6) (.4)
Financial reporting/tax basis differences (3.0)
Other (1.7) 2.8 (.2)
----- ----- ------
Credit (provision) for income taxes $53.8 $86.9 $ (5.3)
===== ===== ======
</TABLE>
As shown in the Statements of Consolidated Income (Loss) for the years
ended December 31, 1994 and 1993, the Company reported extraordinary
losses related to the early extinguishment of debt. The Company
reported the 1994 extraordinary loss net of related deferred federal
income taxes of $2.9 and reported the 1993 extraordinary loss net of
related current federal income taxes of $11.2, which approximated the
federal statutory rate in effect on the dates the transactions
occurred.
The Company adopted SFAS 109 as of January 1, 1993, as discussed in
Note 1. The components of the Company's net deferred income tax assets
are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions $ 293.7 $ 285.4
Loss and credit carryforwards 187.6 142.6
Other liabilities 109.6 105.2
Pensions 51.0 60.6
Foreign and state deferred income tax liabilities 28.1 33.0
Property, plant, and equipment 23.1 23.1
Other 3.5 10.5
Valuation allowances (133.9) (133.5)
------- -------
Total deferred income tax assets - net 562.7 526.9
======= =======
Deferred income tax liabilities:
Property, plant, and equipment (203.2) (224.4)
Investments in and advances to unconsolidated affiliates (63.8) (60.6)
Inventories (8.3) (14.8)
Other (6.4) (20.3)
------- -------
Total deferred income tax liabilities (281.7) (320.1)
------- -------
Net deferred income tax assets $ 281.0 $ 206.8
======= =======
</TABLE>
The valuation allowances listed above relate primarily to loss and
credit carryforwards and postretirement benefits other than pensions.
As of December 31, 1994, approximately $125.1 of the net deferred
income tax assets listed above relate to the benefit of loss and
credit carryforwards, net of valuation allowances. The Company
evaluated all appropriate factors to determine the proper valuation
allowances for these carryforwards, including any limitations
concerning their use and the year the carryforwards expire, as well as
the levels of taxable income necessary for utilization. For example,
full valuation allowances were provided for certain credit
carryforwards that expire in the near term. With regard to future
levels of income, the Company believes, based on the cyclical nature
of its business, its history of prior operating earnings, and its
39
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
expectations for future years, that it will more likely than not
generate sufficient taxable income to realize the benefit attributable
to the loss and credit carryforwards for which valuation allowances
were not provided. The remaining portion of the Company's net deferred
income tax assets at December 31, 1994, is approximately $155.9. A
principal component of this amount is the tax benefit associated with
the accrual for postretirement benefits other than pensions. The
future tax deductions with respect to the turnaround of this accrual
will occur over a 30- to 40-year period. If such deductions create or
increase a net operating loss in any one year, the Company has the
ability to carry forward such loss for 15 taxable years. For these
reasons, the Company believes a long-term view of profitability is
appropriate and has concluded that this net deferred income tax asset
will more likely than not be realized despite the operating losses
incurred in recent years.
Certain of the deferred income tax assets and liabilities listed above
are included on the Consolidated Balance Sheet in the captions
entitled Receivables, Prepaid expenses and other current assets, Other
accrued liabilities, and Long-term liabilities.
The Company and its subsidiaries were included in the consolidated
federal income tax returns of MAXXAM for the period from October 28,
1988, through June 30, 1993. As a consequence of the issuance of the
Depositary Shares on June 30, 1993, as discussed in Note 8, the
Company and its subsidiaries are no longer included in the
consolidated federal income tax returns of MAXXAM. The Company and its
subsidiaries have become members of a new consolidated return group of
which the Company is the common parent corporation (the "New Kaiser
Tax Group"). The New Kaiser Tax Group files consolidated federal
income tax returns for taxable periods beginning on or after July 1,
1993.
The tax allocation agreement between the Company and MAXXAM (the
"Company Tax Allocation Agreement") and the tax allocation agreement
between KACC and MAXXAM (the "KACC Tax Allocation Agreement")
(collectively, the "Tax Allocation Agreements"), terminated pursuant
to their terms, effective for taxable periods beginning after June 30,
1993. Any unused federal income tax attribute carryforwards under the
terms of the Tax Allocation Agreements were eliminated and are not
available to offset federal income tax liabilities for taxable periods
beginning on or after July 1, 1993. Upon the filing of MAXXAM's 1993
consolidated federal income tax return, the tax attribute
carryforwards of the MAXXAM consolidated return group as of
December 31, 1993, were apportioned in part to the New Kaiser Tax
Group, based on the provisions of the relevant consolidated return
regulations. The benefit of such tax attribute carryforwards
apportioned to the New Kaiser Tax Group approximated the benefit of
tax attribute carryforwards eliminated under the Tax Allocation
Agreements. To the extent the New Kaiser Tax Group generates unused
tax losses or tax credits for periods beginning on or after July 1,
1993, such amounts will not be available to obtain refunds of amounts
paid by the Company or KACC to MAXXAM for periods ending on or before
June 30, 1993, pursuant to the Tax Allocation Agreements.
KACC and MAXXAM entered into the KACC Tax Allocation Agreement, which
became effective as of October 28, 1988. Under the terms of the KACC
Tax Allocation Agreement, MAXXAM computed the federal income tax
liability for KACC and its subsidiaries (collectively, the "Subgroup")
as if the Subgroup were a separate affiliated group of corporations
which was never connected with MAXXAM. During 1991, the Company and
MAXXAM entered into the Company Tax Allocation Agreement, which became
effective as of January 1, 1991. Under the terms of the Company Tax
Allocation Agreement, MAXXAM computed a tentative federal income tax
liability for the Company as if it and its subsidiaries, including
KACC and its subsidiaries, were a separate affiliated group of
corporations which was never connected with MAXXAM. The federal income
tax liability of the Company was the difference between the tentative
federal income tax liability and the liability computed under the KACC
Tax Allocation Agreement.
The provisions of the Tax Allocation Agreements will continue to
govern for periods ended prior to July 1, 1993. Therefore, payments or
refunds may still be required by or payable to the Company or KACC
under the terms of their respective tax allocation agreements for
these periods due to the final resolution of audits, amended returns,
and related matters. However, the 1994 Credit Agreement prohibits the
payment by KACC to MAXXAM of any amounts due under the KACC Tax
40
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
Allocation Agreement, except for certain payments that are required as
a result of audits and only to the extent of any amounts paid after
February 17, 1994, by MAXXAM to KACC under the KACC Tax Allocation
Agreement.
The following table presents the Company's tax attributes for federal
income tax purposes as of December 31, 1994. The utilization of
certain of these tax attributes is subject to limitations:
<TABLE>
<CAPTION>
Expiring
Through
---------------------------------------------------------------------------
<S> <C> <C>
Regular tax attribute carryforwards:
Current year net operating loss $ 83.7 2009
Prior year net operating losses 135.4 2008
General business tax credits 37.4 2006
Foreign tax credits 42.2 1999
Alternative minimum tax credits 15.3 Indefinite
Alternative minimum tax attribute carryforwards:
Current year net operating loss $ 64.3 2009
Prior year net operating losses 84.4 2008
Foreign tax credits 33.8 1999
</TABLE>
7. Employee Benefit and Incentive Plans
----------------------------------------
Retirement Plans
Retirement plans are non-contributory for salaried and hourly
employees and generally provide for benefits based on a formula which
considers length of service and earnings during years of service. The
Company's funding policies meet or exceed all regulatory requirements.
The funded status of the employee pension benefit plans and the
corresponding amounts that are included in the Company's Consolidated
Balance Sheets are as follows:
<TABLE>
<CAPTION>
Plans with Accumulated
Benefits Exceeding Assets<F1>
December 31,
1994 1993
-----------------------------------------------------------------------------------------------------------------------
<S>
Accumulated benefit obligation: <C> <C>
Vested employees $(663.9) $(705.0)
Nonvested employees (41.1) (40.1)
------- -------
Accumulated benefit obligation (705.0) (745.1)
Additional amounts related to projected salary increases (30.0) (45.5)
------- -------
Projected benefit obligation (735.0) (790.6)
Plan assets (principally common stocks and fixed income obligations) at fair value 524.6 569.8
------- -------
Plan assets less than projected benefit obligation (210.4) (220.8)
Unrecognized net losses 42.5 75.7
Unrecognized net obligations .8 1.6
Unrecognized prior-service cost 30.9 16.9
Adjustment required to recognize minimum liability (42.9) (47.7)
------- -------
Accrued pension obligation included in the
Consolidated Balance Sheets (principally in long-term liabilities) $(179.1) $(174.3)
======= =======
<FN>
<F1>
Includes plans with assets exceeding accumulated benefits by
approximately $.3 and $.1 in 1994 and 1993, respectively.
</FN>
</TABLE>
41
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
As required by Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions, the Company recorded an after-tax
credit (charge) to equity of $12.5 and $(14.9) at December 31, 1994
and 1993, respectively, for the reduction (excess) of the minimum
liability over the unrecognized net obligation and prior-service cost.
These amounts were recorded net of the related income tax (provision)
credit of $(7.3) and $8.7 as of December 31, 1994 and 1993,
respectively, which approximated the federal and state statutory
rates.
The components of net periodic pension cost are:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 11.2 $ 10.8 $ 11.0
Interest cost on projected benefit obligation 57.3 59.2 58.8
Return on assets:
Actual gain (.8) (70.3) (26.3)
Deferred gain (loss) (53.0) 15.9 (31.2)
Net amortization and deferral 4.1 2.3 2.1
------ ------ ------
Net periodic pension cost $ 18.8 $ 17.9 $ 14.4
====== ====== ======
</TABLE>
Assumptions used to value obligations at year-end, and to determine
the net periodic pension cost in the subsequent year are:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.50% 7.50% 8.25%
Expected long-term rate of return on assets 9.50% 10.00% 10.00%
Rate of increase in compensation levels 5.00% 5.00% 5.00%
</TABLE>
Postretirement Benefits Other Than Pensions
Kaiser adopted SFAS 106 to account for postretirement benefits other
than pensions effective January 1, 1993 (see Note 1). The Company and
its subsidiaries provide postretirement health care and life insurance
benefits to eligible retired employees and their dependents.
Substantially all employees may become eligible for those benefits if
they reach retirement age while still working for the Company or its
subsidiaries. These benefits are provided through contracts with
various insurance carriers. The Company has not funded the liability
for these benefits.
The Company's accrued postretirement benefit obligation is composed of
the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1994 1993
----------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(566.2) $(629.3)
Active employees eligible for postretirement benefits (30.2) (35.1)
Active employees not eligible for postretirement benefits (98.7) (128.3)
------- -------
Accumulated postretirement benefit obligation (695.1) (792.7)
Unrecognized net (gains) losses (55.0) 67.0
Unrecognized prior-service costs (31.8) (35.0)
------- -------
Accrued postretirement benefit obligation $(781.9) $(760.7)
======= =======
</TABLE>
42
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
The components of net periodic postretirement benefit cost are:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1994 1993
------------------------------------------------------------------
<S> <C> <C>
Service cost $ 8.2 $ 7.1
Interest cost 56.9 58.5
Amortization of prior service cost (3.2)
----- -----
Net periodic postretirement benefit cost $61.9 $65.6
===== =====
</TABLE>
The 1995 annual assumed rates of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) are 9.5% and
8.0% for retirees under 65 and over 65, respectively, and are assumed
to decrease gradually to 5.5% in 2007 and remain at that level
thereafter. The health care cost trend rate has a significant effect
on the amounts reported. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 31, 1994, by
approximately $79.8 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1994 by
approximately $9.5. The weighted average discount rate used to
determine the accumulated postretirement benefit obligation at
December 31, 1994 and 1993, was 8.5% and 7.5%, respectively.
Postemployment Benefits
Kaiser adopted the new accounting standard on postemployment benefits
effective January 1, 1993 (see Note 1). The Company provides certain
benefits to former or inactive employees after employment but before
retirement.
Incentive Plans
Effective January 1, 1989, the Company and KACC adopted an unfunded
Long-Term Incentive Plan (the "LTIP") for certain key employees of the
Company, KACC, and their consolidated subsidiaries. All compensation
vested as of December 31, 1992, under the LTIP, as amended in 1991 and
1992, has been paid to the participants in cash or common stock of the
Company as of December 31, 1993. Under the LTIP, as amended, 764,092
restricted shares were distributed to six Company executives during
1993 for benefits generally earned but not vested as of December 31,
1992. These shares generally will vest at the rate of 25% per year.
The Company will record the related expense of $6.5 over the four-year
period ending December 31, 1996. In 1993, the Company adopted the
Kaiser 1993 Omnibus Stock Incentive Plan. A total of 2,500,000 shares
of Kaiser common stock were reserved for awards or for payment of
rights granted under the Plan, of which 504,044 shares were available
to be awarded at December 31, 1994. Under the Kaiser 1993 Omnibus
Stock Incentive Plan, 102,564 restricted shares were distributed to
two Company executives during 1994, which will vest at the rate of 25%
per year. The Company will record the related expense of $1.0 over the
four-year period ending December 31, 1998.
In 1993 and 1994, the Compensation Committee of the Board of Directors
approved the award of "nonqualified stock options" to members of
management other than those participating in the LTIP. These options
generally will vest at the rate of 20-25% per year. Information
relating to nonqualified stock options is shown below:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 664,400
Granted 494,800 664,400
Exercised (at $7.25 per share) (6,920)
Expired or forfeited (29,900)
--------- -------
Outstanding at end of year (prices ranging from $7.25 to $12.75 per share) 1,122,380 664,400
========= =======
Exercisable at end of year 119,980
=========
</TABLE>
43
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
Effective January 1, 1990, KACC adopted an unfunded Middle Management
Long-Term Incentive Plan. KACC also has a supplemental savings and
retirement plan for salaried employees, under which the participants
contribute a percentage of their base salaries.
The Company's expense for the above plans was $6.1, $5.3, and $6.6 for
the years ended December 31, 1994, 1993, and 1992, respectively.
8. Stockholders' Equity and Minority Interests
-----------------------------------------------
Changes in stockholders' equity and minority interests were:
<TABLE>
<CAPTION>
Minority Interests Stockholders' Equity
------------------ ------------------------------------------------
Retained
Earnings Additional
Redeemable (Accu- Minimum
Preference Preferred Common Additional mulated Pension
Stock Other Stock Stock Capital Deficit) Liability
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $34.8 $74.1 $ .6 $287.9 $ 267.3
Net income 26.9
Redeemable preference stock:
Accretion 5.1
Stock redemption (7.1)
Dividends on common stock (11.4)
Conversions (2,405 preference shares into cash) (.2)
Common stock issued .6
Minority interest in majority-owned subsidiaries (1.8)
Additional minimum pension liability $(6.7)
----- ----- ----- ------ ------- -----
BALANCE, DECEMBER 31, 1992 32.8 72.1 .6 288.5 282.8 (6.7)
Net loss (652.2)
Redeemable preference stock:
Accretion 4.8
Stock redemption (4.0)
Conversions (1,967 preference shares into cash) (.2)
Common stock issued 3.3
Preferred stock issued $ .2 134.1
Dividends on preferred stock (6.3)
Minority interest in majority-owned subsidiaries (.5)
Additional minimum pension liability (14.9)
----- ----- ----- ----- ------ ------- ------
BALANCE, DECEMBER 31, 1993 33.6 71.4 .2 .6 425.9 (375.7) (21.6)
Net loss (106.8)
Redeemable preference stock:
Accretion 4.0
Stock redemption (8.5)
Common stock issued 2.2
Preferred stock issued .4 99.7
Dividends on preferred stock (20.1)
Minority interest in majority-owned subsidiaries 15.7
Reduction of minimum pension liability 12.5
----- ----- ----- ----- ------ ------ ------
BALANCE, DECEMBER 31, 1994 $29.1 $87.1 $ .6 $ .6 $527.8 $(502.6) $ (9.1)
===== ===== ===== ===== ====== ======= ======
</TABLE>
44
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
Redeemable Preference Stock
In March 1985, KACC entered into a three-year agreement with the
United Steelworkers of America (USWA) whereby shares of a new series
of "Cumulative (1985 Series A) Preference Stock" would be issued to an
employee stock ownership plan in exchange for certain elements of
wages and benefits. Concurrently, a similar plan was established for
certain nonbargaining employees which provided for the issuance of
"Cumulative (1985 Series B) Preference Stock." Series A Stock and
Series B Stock ("Series A and B Stock") each have a par value of $1
per share and a liquidation and redemption value of $50 per share plus
accrued dividends, if any.
For financial reporting purposes, Series A and B Stock were recorded
at fair market value when issued, based on independent appraisals,
with a corresponding charge to compensation cost. Carrying values have
been increased each year to recognize accretion of redemption values
and, in certain years, there have been other increases for reasons
described below. Changes in Series A and B Stock are shown below.
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C>
Shares:
Beginning of year 1,081,548 1,163,221 1,305,550
Redeemed (169,381) (81,673) (142,329)
--------- --------- ---------
End of year 912,167 1,081,548 1,163,221
========= ========= =========
</TABLE>
No additional Series A or B Stock will be issued based on compensation
earned in 1992 or subsequent years. While held by the plan trustee,
Series B Stock is entitled to cumulative annual dividends, when and as
declared by the Board of Directors, payable in stock or in cash at the
option of KACC on or after March 1, 1991, in respect to years
commencing January 1, 1990, based on a formula tied to KACC's income
before tax from aluminum operations. When distributed to plan
participants (generally upon separation from KACC), the Series A and B
Stocks are entitled to an annual cash dividend of $5 per share,
payable quarterly, when and as declared by the Board of Directors.
Redemption fund agreements require KACC to make annual payments by
March 31 each year based on a formula tied to consolidated net income
until the redemption funds are sufficient to redeem all Series A and B
Stock. On an annual basis, the minimum payment is $4.3 and the maximum
payment is $7.3. In March 1993 and 1994, KACC contributed $4.3 for
each of the years 1992 and 1993, and will contribute $4.3 in March
1995 for 1994.
Under the USWA labor contract effective November 1, 1990, KACC was
obligated to offer to purchase up to 80 shares of Series A Stock from
each active participant in 1991 at a price equal to its redemption
value of $50 per share. KACC also agreed to offer to purchase up to an
additional 40 shares from each participant in 1994. The employees
could elect to receive their shares, accept cash, or place the
proceeds into KACC's 401(k) savings plan. Under separate action, KACC
also offered to purchase 80 shares of Series B Stock from active
participants in 1991 and 40 shares in 1994. Under the provisions of
these contracts, in February 1994, KACC purchased $4.6 and $.8 of the
Series A and B Stock, respectively.
Under the USWA labor contract effective November 1, 1994, KACC is
obligated to offer to purchase up to 40 shares of Series A Stock from
each active participant in 1995 at a price equal to its redemption
value of $50 per share. KACC also agreed to offer to purchase up to an
additional 80 shares from each participant in 1998. In addition, if a
profitability test is satisfied for either 1995 or 1996, KACC will
offer to purchase from each active participant an additional 20 shares
of such preference stock held in the stock ownership plan for the
benefit of substantially the same employees in either 1996 or 1997.
The employees could elect to receive their shares, accept cash, or
place the proceeds into KACC's 401(k) savings plan. KACC will provide
comparable purchases of Series B Stock from active participants.
45
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
The Series A and B Stock is distributed in the event of death,
retirement, or in other specified circumstances. KACC also may redeem
such stock at $50 per share plus accrued dividends, if any. At the
option of the plan participant, the trustee shall redeem stock
distributed from the plans at redemption value to the extent funds are
available in the redemption fund. Under the Tax Reform Act of 1986, at
the option of the plan participant, KACC must purchase distributed
shares earned after December 31, 1985, at redemption value on a five-
year installment basis, with interest at market rates. The obligation
of KACC to make such installment payments must be secured.
The Series A and B Stock is entitled to the same voting rights as KACC
common stock and to certain additional voting rights under certain
circumstances, including the right to elect, along with other KACC
preference stockholders, two directors whenever accrued dividends have
not been paid on two annual dividend payment dates or when accrued
dividends in an amount equivalent to six full quarterly dividends are
in arrears. The Series A and B Stock restricts the ability of KACC to
redeem or pay dividends on common stock if KACC is in default on any
dividends payable on the Series A and B Stock.
Preference Stock
KACC Cumulative Convertible Preference Stock, $100 par value ("$100
Preference Stock"), restricts acquisition of junior stock and payment
of dividends. At December 31, 1994, such provisions were less
restrictive as to the payment of cash dividends than the 1994 Credit
Agreement provisions. KACC has the option to redeem the $100
Preference Stocks at par value plus accrued dividends. KACC does not
intend to issue any additional shares of the $100 Preference Stocks.
The 4-1/8% and 4-3/4% (1957 Series, 1959 Series, and 1966 Series) $100
Preference Stock can be exchanged for per share cash amounts of
$69.30, $77.84, $78.38, and $76.46, respectively. KACC records the
$100 Preference Stock at their exchange amounts for financial
statement presentation and the Company includes such amounts in
minority interests. The outstanding shares of KACC preference stock
were:
<TABLE>
<CAPTION>
December 31,
--------------
1994 1993
----------------------------------------------------------------
<S> <C> <C>
4-1/8% 3,657 3,921
4-3/4% (1957 Series) 2,605 2,623
4-3/4% (1959 Series) 13,534 13,605
4-3/4% (1966 Series) 3,640 3,890
</TABLE>
Preferred Stock
Series A Convertible - On June 30, 1993, Kaiser issued 17,250,000 of
its $.65 Depositary Shares (the "Depositary Shares"), each
representing one-tenth of a share of Series A Mandatory Conversion
Premium Dividend Preferred Stock (the "Series A Shares"). In
connection with the issuance of the Depositary Shares, MAXXAM Group
Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, exchanged a $15.0
promissory note of KACC (the "MAXXAM Note") for an additional
2,132,950 Depositary Shares. On August 4, 1993, MGI transferred the
2,132,950 Depositary Shares to MAXXAM in exchange for satisfaction of
a $15.0 promissory note evidencing a cash loan made to MGI by MAXXAM
in January 1993. MAXXAM sold 1,239,400 of the Depositary Shares
during 1994.
The net cash proceeds from the sale of Depositary Shares were
approximately $119.3. Kaiser used $37.8 of such net proceeds to make a
non-interest-bearing loan to KACC evidenced by an intercompany note,
which matures on June 29, 1996, and is payable in quarterly
installments. The intercompany note is designed to provide sufficient
funds to Kaiser to enable it to make dividend payments on the Series A
Shares until June 30, 1996, the date on which the outstanding Series A
Shares are mandatorily converted into shares of the Company's common
stock. Kaiser used $81.5 of such net proceeds and the MAXXAM Note to
make a capital contribution to KACC. KACC used $13.7 of the funds it
received from Kaiser to prepay the remaining balance of the term loan
46
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
under the 1989 Credit Agreement and $105.6 of such funds to reduce
outstanding borrowings under the revolving credit facility of the 1989
Credit Agreement.
The owners of Depositary Shares are entitled to receive (when, as, and
if the Board of Directors declares dividends on the Series A Shares)
cumulative preferential cash dividends from the date of issue,
accruing at the rate of $.65 per annum for each of the Depositary
Shares, payable quarterly in arrears on the last day of each March,
June, September, and December, commencing September 30, 1993. Holders
of Depositary Shares (based on the voting rights of the Series A
Shares) have one vote for each Depositary Share held of record, except
as required by law, and are entitled to vote with the holders of
common stock on all matters submitted to a vote of common
stockholders.
On June 30, 1996, each of the outstanding Depositary Shares
automatically will convert (upon the automatic conversion of the
Series A Shares) into one share of common stock, plus the right to
receive an amount in cash equal to the accrued and unpaid dividends
payable with respect to such Depositary Share. Automatic conversion of
the outstanding Depositary Shares (and the Series A Shares) will occur
upon certain mergers or consolidations of the Company (as defined). At
any time or from time to time prior to June 30, 1996, the Company may
call the outstanding Depositary Shares (by calling the Series A
Shares) for redemption, in whole or in part, at a call price per
Depositary Share initially equal to $12.46, declining by $.0018 on
each day following the date of issue to $10.624 on April 30, 1996, and
equal to $10.51 thereafter, payable in shares of common stock having
an aggregate Current Market Price (as defined) equal to the applicable
call price, plus an amount in cash equal to all accrued and unpaid
dividends payable with respect to such Depositary Share.
PRIDES Convertible - In the first quarter of 1994, the Company
consummated the public offering of 8,855,550 shares of the PRIDES. The
net proceeds from the sale of the shares of PRIDES were approximately
$100.1. The Company used such net proceeds to make non-interest-
bearing loans to KACC in the aggregate principal amount of $33.2 (the
aggregate dividends scheduled to accrue on the shares of PRIDES from
the issuance date until December 31, 1997, the date on which the
outstanding PRIDES will be mandatorily converted into shares of the
Company's common stock), evidenced by intercompany notes, and used the
balance of such net proceeds to make capital contributions to KACC in
the aggregate amount of $66.9.
Holders of shares of PRIDES are entitled to receive (when, as, and if
the Board of Directors declares dividends on the PRIDES) cumulative
preferential cash dividends at a rate per annum of 8.255% of the per
share offering price (equivalent to $.97 per annum for each share of
PRIDES), from the date of initial issuance, payable quarterly in
arrears on the last day of March, June, September, and December of
each year. Holders of shares of PRIDES have a 4/5 vote for each share
held of record and, except as required by law, are entitled to vote
together with the holders of common stock and together with the
holders of any other classes or series of stock (including the Series
A Shares) who are entitled to vote in such manner on all matters
submitted to a vote of common stockholders.
On December 31, 1997, unless either previously redeemed or converted
at the option of the holder, each of the outstanding shares of PRIDES
will mandatorily convert into one share of the Company's common stock,
subject to adjustment in certain events, and the right to receive an
amount in cash equal to all accrued and unpaid dividends thereon
(other than previously declared dividends payable to a holder of
record on a prior date).
Shares of PRIDES are not redeemable prior to December 31, 1996. At any
time and from time to time on or after December 31, 1996, the Company
may redeem any or all of the outstanding shares of PRIDES. Upon any
such redemption, each holder will receive, in exchange for each share
of PRIDES, the number of shares of common stock equal to (A) the sum
of $11.9925, declining after December 31, 1996, to $11.75 until
December 31, 1997, plus, in the event the Company does not elect to
pay cash dividends to the redemption date, all accrued and unpaid
dividends thereon divided by (B) the Current Market Price (as defined)
47
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
on the applicable date of determination, but in no event less than
.8333 of a share of common stock, subject to adjustment in certain
events. At any time prior to December 31, 1997, unless previously
redeemed, each share of PRIDES is convertible at the option of the
holder thereof into .8333 of a share of common stock (equivalent to a
conversion price of $14.10 per share of common stock), subject to
adjustment in certain events. The number of shares of common stock a
holder will receive upon redemption, and the value of the shares
received upon conversion, will vary depending on the market price of
the common stock from time to time.
Dividends on Common Stock
The Company paid cash dividends on common stock of $2.9 in each
quarter of 1992. As required under the 1989 Credit Agreement, on
December 15, 1992, KACC issued a Pay-in-Kind Note (the "PIK Note") to
MGI in the principal amount of $2.5, representing the entire amount of
the dividend received by MGI in respect of the shares of the Company's
common stock which it owned. The PIK Note bears interest, compounded
semiannually, at a rate equal to 12% per annum, and is due and
payable, together with accrued interest thereon, on June 30, 1995.
The indentures governing the Senior Notes and the 12-3/4% Notes
restrict, among other things, KACC's ability, and the 1994 Credit
Agreement restricts, among other things, Kaiser's and KACC's ability,
to incur debt, undertake transactions with affiliates, and pay
dividends. Under the most restrictive of these covenants, neither the
Company nor KACC currently is permitted to pay dividends on its common
stock.
At December 31, 1994, 28,000,000 shares of the Company's common stock
owned by MAXXAM were pledged as security for debt issued by MGI,
consisting of $100.0 aggregate principal amount of 11-1/4% Senior
Secured Notes due 2003 and $126.7 aggregate principal amount of
12-1/4% Senior Secured Discount Notes due 2003.
9. Commitments and Contingencies
---------------------------------
Commitments
KACC has financial commitments, including purchase agreements, tolling
arrangements, forward foreign exchange and forward sales contracts
(see Note 10), letters of credit, and guarantees. Such purchase
agreements and tolling arrangements include long-term agreements for
the purchase and tolling of bauxite into alumina in Australia by QAL.
These obligations expire in 2008. Under the agreements, KACC is
unconditionally obligated to pay its proportional share of debt,
operating costs, and certain other costs of QAL. The aggregate minimum
amount of required future principal payments at December 31, 1994, is
$78.7, due in 1997. The KACC share of payments, including operating
costs and certain other expenses under the agreement, was $85.6,
$86.7, and $99.2 for the years ended December 31, 1994, 1993, and
1992, respectively. KACC also has agreements to supply alumina to and
to purchase aluminum from Anglesey.
Minimum rental commitments under operating leases at December 31,
1994, are as follows: years ending December 31, 1995 - $22.1; 1996 -
$21.5; 1997 - $21.0; 1998 - $24.1; 1999 - $30.4; thereafter - $213.9.
The future minimum rentals receivable under noncancelable subleases
was $73.2 at December 31, 1994.
Rental expenses were $26.8, $29.0, and $26.2 for the years ended
December 31, 1994, 1993, and 1992, respectively.
Environmental Contingencies
The Company and KACC are subject to a wide variety of environmental
laws and regulations and to fines or penalties assessed for alleged
breaches of the environmental laws and to claims and litigation based
upon such laws. KACC currently is subject to a number of lawsuits
under the Comprehensive Environmental Response, Compensation and
48
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
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, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $40.9 $46.4 $51.5
Additional amounts 2.8 1.7 4.5
Less expenditures (3.6) (7.2) (9.6)
----- ----- -----
Balance at end of period $40.1 $40.9 $46.4
===== ===== =====
</TABLE>
These environmental accruals represent the Company's estimate of costs
reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the
Company's assessment of the likely remediation action to be taken. The
Company expects that these remediation actions will be taken over the
next several years and estimates that annual expenditures to be
charged to these environmental accruals will be approximately $3.0 to
$11.0 for the years 1995 through 1999 and an aggregate of
approximately $11.0 thereafter.
As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established, or alternative technologies are developed, changes in
these and other factors may result in actual costs exceeding the
current environmental accruals. The Company believes that it is
reasonably possible that costs associated with these environmental
matters may exceed current accruals by amounts that could range, in
the aggregate, up to approximately $20.0. While uncertainties are
inherent in the final outcome of these environmental matters, and it
is presently impossible to determine the actual costs that ultimately
may be incurred, management currently believes that the resolution of
such uncertainties should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits in which the plaintiffs
allege that certain of their injuries were caused by exposure to
asbestos during, and as a result of, their employment or association
with KACC or exposure to products containing asbestos produced or sold
by KACC. The lawsuits generally relate to products KACC has not
manufactured for at least 15 years. At December 31, 1994, the number
of such lawsuits pending was approximately 25,200 with approximately
14,300 received and 12,500 settled or dismissed in 1994.
Based on prior experience, KACC estimates that annual future cash
payments in connection with such litigation will be approximately
$11.0 to $14.0 for the years 1995 through 1999, and an aggregate of
approximately $95.0 thereafter through 2007. Based on past experience
and reasonably anticipated future activity, the Company has
established an accrual for estimated asbestos-related costs for claims
filed and estimated to be filed and settled through 2007. The Company
does not presently believe there is a reasonable basis for estimating
such costs beyond 2007 and, accordingly, no accrual has been recorded
for such costs which may be incurred. This accrual was calculated
based on the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments, the
current state of case law related to asbestos claims, the advice of
counsel, and the anticipated effects of inflation and discounting at
49
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
an estimated risk-free rate (8% at December 31, 1994). Accordingly, an
asbestos-related cost accrual of $102.0 is included primarily in
Long-term liabilities at December 31, 1994. The aggregate amount of
the undiscounted liability at December 31, 1994 is $158.1, before
considerations for insurance recoveries.
The Company believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While
claims for recovery from some of KACC's insurance carriers are
currently subject to pending litigation and other carriers have raised
certain defenses, the Company believes, based on prior insurance-
related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of counsel, that substantial
recoveries from the insurance carriers are probable. Accordingly, an
estimated aggregate insurance recovery of $86.4, determined on the
same basis as the asbestos-related cost accrual, is recorded primarily
in Other assets at December 31, 1994.
While uncertainties are inherent in the final outcome of these
asbestos matters and it is presently impossible to determine the
actual costs that ultimately may be incurred and the insurance
recoveries that will be received, management currently believes that,
based on the factors discussed in the preceding paragraphs, the
resolution of the asbestos-related uncertainties and the incurrence of
asbestos-related costs net of related insurance recoveries should not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
Other Contingencies
The Company or KACC is involved in various other claims, lawsuits, and
other proceedings relating to a wide variety of matters. While
uncertainties are inherent in the final outcome of such matters, and
it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the
resolution of such uncertainties and the incurrence of such costs
should not have a material adverse effect on the Company's
consolidated financial position or results of operations.
10. Derivative Financial Instruments and Related Hedging Programs
------------------------------------------------------------------
KACC enters into a number of financial instruments with
off-balance-sheet risk in the normal course of business that are
designed to reduce its exposure to fluctuations in foreign exchange
rates, alumina, primary aluminum, and fabricated aluminum products
prices, and the cost of purchased commodities.
KACC has significant expenditures which are denominated in foreign
currencies related to long-term purchase commitments with its
affiliates in Australia and the United Kingdom, which expose KACC to
certain exchange rate risks. In order to mitigate its exposure, KACC
periodically enters into forward foreign exchange and currency option
contracts in Australian dollars and Pounds Sterling to hedge these
commitments. The forward foreign currency exchange contracts are
agreements to purchase or sell a foreign currency, for a price
specified at the contract date, with delivery and settlement in the
future. At December 31, 1994, KACC had net forward foreign exchange
contracts totaling approximately $74.4 for the purchase of 102.0
Australian dollars through December 31, 1996.
To mitigate its exposure to declines in the market prices of alumina,
primary aluminum, and fabricated aluminum products, while retaining
the ability to participate in favorable pricing environments that may
materialize, KACC has developed strategies which include forward sales
of primary aluminum at fixed prices and the purchase or sale of
options for primary aluminum. Under the principal components of KACC's
price risk management strategy, which can be modified at any time, (i)
varying quantities of KACC's anticipated production are sold forward
at fixed prices; (ii) call options are purchased to allow KACC to
participate in certain higher market prices, should they materialize,
for a portion of KACC's primary aluminum and alumina sold forward;
(iii) option contracts are entered into to establish a price range
50
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
KACC will receive for a portion of its primary aluminum and alumina;
and (iv) put options are purchased to establish minimum prices KACC
will receive for a portion of its primary aluminum and alumina. In
this regard, in respect of its 1995 anticipated production, as of
December 31, 1994, KACC had sold forward 170,950 metric tons of
primary aluminum at fixed prices, purchased call options in respect of
69,000 metric tons of primary aluminum, purchased put options to
establish a minimum price for 193,500 metric tons of primary aluminum,
and entered into option contracts that established a price range for
90,000 metric tons of primary aluminum. KACC will not receive the
benefit of market price increases to the extent (i) the quantity of
production sold forward is greater than the tonnage covered by the
purchased call options; (ii) market prices exceed the prices at which
primary aluminum is sold forward, but are less than the strike price
of the purchased call options, on the tonnage covered by the options;
or (iii) market prices exceed the maximum of the price range on the
tonnage covered by the option contracts entered to establish a price
range.
In addition, KACC enters into forward fixed price arrangements with
certain customers which provide for the delivery of a specific
quantity of fabricated aluminum products over a specified future
period of time. In order to establish the cost of primary aluminum for
a portion of such sales, KACC may enter into forward and option
contracts. In this regard, at December 31, 1994, KACC had purchased
4,500 metric tons of primary aluminum under forward purchase contracts
at fixed prices that expire at various times through June 1995.
KACC has also entered into a natural gas pricing contract to fix
future prices of a portion (20,000 million BTUs per day) of a plant's
natural gas supply through March 1995.
At December 31, 1994, the net unrealized gain on KACC's position in
forward foreign exchange was $3.5 and the net unrealized loss on
aluminum forward sales and option contracts and the natural gas
pricing contract was $80.4, based on a price of $1,955 per metric ton
of aluminum and $1.59 per million BTUs of natural gas.
The Company has established margin accounts with its counterparties
related to aluminum forward sales and option contracts. The Company is
entitled to receive advances from counterparties related to unrealized
gains and, in turn, is required to make margin deposits with
counterparties to cover unrealized losses related to these contracts.
At December 31, 1994, the Company had $50.5 on deposit with various
counterparties in respect of such unrealized losses. This amount is
recorded in Prepaid expenses and other current assets.
KACC is exposed to credit risk in the event of non-performance by
other parties to these currency and commodity contracts, but KACC does
not anticipate non-performance by any of these counterparties, given
their credit worthiness. When appropriate, KACC arranges master
netting agreements.
51
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
11. Segment and Geographical Area Information
Sales and transfers among geographic areas are made on a basis
intended to reflect the market value of products.
The aggregate foreign currency gain included in determining net income
was $.8, $4.9, and $12.0 for the years ended December 31, 1994, 1993,
and 1992, respectively.
Sales of more than 10% of total revenue to a single customer were
$58.2, $40.7, and $135.3 of bauxite and alumina and $147.7, $145.7,
and $144.9 of aluminum processing for the years ended December 31,
1994, 1993, and 1992.
Export sales were less than 10% of total revenue during the years
ended December 31, 1994, 1993, and 1992, respectively.
Geographical area information relative to operations is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended Other
December 31, Domestic Caribbean Africa Foreign Eliminations Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers 1994 $1,263.2 $169.9 $180.0 $168.4 $1,781.5
1993 1,177.8 155.4 207.5 178.4 1,719.1
1992 1,285.0 170.1 263.5 190.5 1,909.1
Sales and transfers among 1994 $ 98.7 $139.4 $(238.1)
geographic areas 1993 88.2 79.6 (167.8)
1992 90.1 86.5 (176.6)
Equity in income (losses) of 1994 $ .2 $ (2.1) $ (1.9)
unconsolidated affiliates 1993 (3.3) (3.3)
1992 (1.9) (1.9)
Operating income (loss) 1994 $ (128.8) $ 9.9 $ 18.3 $ 44.4 $ (56.2)
1993 (145.9) (11.8) 21.9 12.4 (123.4)
1992 (36.9) 26.5 65.4 34.9 89.9
Investment in and advances to 1994 $ 1.2 $ 28.8 $139.7 $ 169.7
unconsolidated affiliates 1993 1.0 30.5 151.7 183.2
Identifiable assets 1994 $1,933.8 $364.8 $200.0 $199.5 $2,698.1
1993 1,758.0 360.4 223.0 186.5 2,527.9
</TABLE>
52
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
Financial information by industry segment at December 31, 1994 and
1993, and for the years ended December 31, 1994, 1993, and 1992, is as
follows:
<TABLE>
<CAPTION>
Year Ended Bauxite & Aluminum
December 31, Alumina Processing Corporate Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers 1994 $432.5 $1,349.0 $1,781.5
1993 423.4 1,295.7 1,719.1
1992 466.5 1,442.6 1,909.1
Intersegment sales 1994 $146.8 $ 146.8
1993 129.4 129.4
1992 179.9 179.9
Equity in earnings (losses) of 1994 $ (4.7) $ 2.6 $ .2 $ (1.9)
unconsolidated affiliates 1993 (2.5) (.8) (3.3)
1992 1.8 (3.7) (1.9)
Operating income (loss) 1994 $ 19.8 $ (8.4) $(67.6) $ (56.2)
1993 (4.5) (46.3) (72.6) (123.4)
1992 62.6 104.9 (77.6) 89.9
Effect of changes in accounting principles
on operating income (loss)
SFAS 106 1993 $ (2.0) $ (16.1) $ (1.1) $ (19.2)
SFAS 109 1993 (7.7) (7.8) .3 (15.2)
Depreciation 1994 $ 33.5 $ 59.1 $ 2.8 $ 95.4
1993 35.3 59.9 1.9 97.1
1992 29.8 49.0 1.5 80.3
Capital expenditures 1994 $ 28.9 $ 39.9 $ 1.2 $ 70.0
1993 35.3 31.2 1.2 67.7
1992 50.8 39.4 24.2 114.4
Investment in and advances to 1994 $136.6 $ 31.9 $ 1.2 $ 169.7
unconsolidated affiliates 1993 151.5 30.7 1.0 183.2
Identifiable assets 1994 $749.6 $1,242.3 $706.2 $2,698.1
1993 734.0 1,214.9 579.0 2,527.9
</TABLE>
53
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
FIVE-YEAR FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
------------------------------------------------
(In millions of dollars) 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 17.6 $ 14.7 $ 19.1 $ 15.8 $ 23.9
Receivables 199.2 234.7 270.0 218.8 227.5
Inventories 468.0 426.9 439.9 498.6 523.9
Prepaid expenses and other current assets 158.0 60.7 37.0 84.0 36.1
-------- -------- -------- -------- --------
Total current assets 842.8 737.0 766.0 817.2 811.4
-------- -------- -------- -------- --------
Investments in and advances to unconsolidated
affiliates 169.7 183.2 150.1 161.9 184.5
Property, plant, and equipment - net 1,133.2 1,163.7 1,066.8 1,014.5 970.3
Deferred income taxes 271.2 210.8
Other assets 281.2 233.2 189.7 140.5 152.3
-------- -------- -------- -------- --------
Total $2,698.1 $2,527.9 $2,172.6 $2,134.1 $2,118.5
======== ======== ======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accruals $ 439.3 $ 339.7 $ 351.4 $ 461.6 $ 432.1
Accrued postretirement medical benefit obligation -
current portion 47.0 47.6
Payable to affiliates 85.3 62.4 78.4 87.1 82.4
Long-term debt - current portion 11.5 8.7 25.9 26.3 32.5
-------- -------- -------- -------- --------
Total current liabilities 583.1 458.4 455.7 575.0 547.0
Long-term liabilities 495.5 501.8 281.7 212.9 310.8
Accrued postretirement medical benefit obligation 734.9 713.1
Long-term debt 751.1 720.2 765.1 681.5 631.5
Note payable to parent 150.0
Minority interests 116.2 105.0 104.9 108.9 123.2
Stockholders' equity:
Preferred stock .6 .2
Common stock .6 .6 .6 .6 .5
Additional capital 527.8 425.9 288.5 287.9 140.9
Retained earnings (accumulated deficit) (502.6) (375.7) 282.8 267.3 214.6
Additional minimum pension liability (9.1) (21.6) (6.7)
-------- -------- -------- -------- --------
Total stockholders' equity 17.3 29.4 565.2 555.8 356.0
-------- -------- -------- -------- --------
Total $2,698.1 $2,527.9 $2,172.6 $2,134.1 $2,118.5
======== ======== ======== ======== ========
Debt-to-capital ratio<F1> 82.4 81.3 54.1 51.5 51.1<F2>
<FN>
<F1>
Total debt as a ratio of total debt, deferred income tax
liabilities, minority interests, and stockholders' equity.
<F2>
Excludes the effect of a $150.0 dividend paid in the form of an
intercompany promissory note to parent.
</FN>
</TABLE>
54
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
FIVE-YEAR FINANCIAL DATA
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
<CAPTION>
Year Ended December 31,
---------------------------------------------------
(In millions of dollars, except share amounts) 1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,781.5 $1,719.1 $1,909.1 $2,000.8 $2,095.0
-------- -------- -------- -------- --------
Costs and expenses:
Cost of products sold 1,625.5 1,587.7 1,619.3 1,594.2 1,525.2
Depreciation 95.4 97.1 80.3 73.2 70.5
Selling, administrative, research and
development, and general 116.8 121.9 119.6 117.4 123.2
Restructuring of operations 35.8
-------- -------- -------- -------- --------
Total costs and expenses 1,837.7 1,842.5 1,819.2 1,784.8 1,718.9
-------- -------- -------- -------- --------
Operating income (loss) (56.2) (123.4) 89.9 216.0 376.1
Other income (expense):
Interest and other income - net (7.3) (.9) 20.9 20.3 17.6
Interest expense (88.6) (84.2) (78.7) (93.9) (96.6)
-------- -------- -------- -------- --------
Income (loss) before income taxes, minority
interests, extraordinary loss and cumulative
effect of changes in accounting principles (152.1) (208.5) 32.1 142.4 297.1
Credit (provision) for income taxes 53.8 86.9 (5.3) (32.4) (75.6)
Minority interests (3.1) (1.5) .1 (1.6) (7.8)
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss and
cumulative effect of changes in accounting
principles (101.4) (123.1) 26.9 108.4 213.7
Extraordinary loss on early extinguishment of
debt, net of tax benefit of $2.9 and $11.2
for 1994 and 1993, respectively (5.4) (21.8)
Cumulative effect of changes in accounting
principles net of tax benefit of $237.7 (507.3)
-------- -------- -------- -------- --------
Net income (loss) $ (106.8) $ (652.2) $ 26.9 $ 108.4 $ 213.7
======== ======== ======== ======== ========
Per common and common equivalent share:
Net income (loss) $ (2.18) $ (11.47) $ .47 $ 2.03 $ 4.27
Dividends declared .20 1.10 3.00
</TABLE>
55
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
Quarter Ended
----------------------------------------------
(In millions of dollars, except share amounts) March 31 June 30 September 30 December 31
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Net sales $415.1 $459.5 $461.1 $445.8
Operating loss 25.6 14.2 6.9 9.5
Loss before extraordinary loss 29.3 23.6 20.8 27.7 <F1>
Extraordinary loss - net 5.4
Net loss 34.7 23.6 20.8 28.4
Per common and common equivalent share:
Loss before extraordinary loss .58 .50 .45 .57
Extraordinary loss - net .09
Net loss .67 .50 .45 .57
Common stock market price:
High 12-1/2 10-1/2 11-5/8 12-3/8
Low 9 8-1/4 9-1/2 9-3/4
1993
Net sales $442.6 $432.2 $428.4 $415.9
Operating loss 9.7 14.2 17.5 82.0 <F2>
Loss before extraordinary loss and cumulative effect of
changes in accounting principles 16.6 19.4 21.0 66.1 <F1>
Extraordinary loss - net 21.8
Cumulative effect of changes in accounting principles - net 507.3
Net loss 545.7 19.4 21.0 66.1
Per common and common equivalent share:
Loss before extraordinary loss and cumulative effect of
changes in accounting principles .29 .34 .42 1.20
Extraordinary loss - net .38
Cumulative effect of changes in accounting principles - net 8.85
Net loss 9.52 .34 .42 1.20
Common stock market price:
High 9-7/8 8 8-5/8 10-1/2
Low 7-3/8 6-3/8 6-5/8 6-7/8
<FN>
<F1>
Includes pre-tax charges of approximately $10.3 and $10.8
principally related to establishing additional litigation and
environmental reserves in the fourth quarters of 1994 and 1993,
respectively.
<F2>
Includes pre-tax charges of approximately $35.8 related to the
restructuring of operations and $19.4 because of a reduction in
the carrying value of inventories.
</FN>
</TABLE>
56
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
consolidated financial statements of the Company for twelve months ended
December 31, 1994, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000811596
<NAME> KAISER ALUMINUM CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 199
<ALLOWANCES> 0
<INVENTORY> 468
<CURRENT-ASSETS> 843
<PP&E> 1,133
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,698
<CURRENT-LIABILITIES> 583
<BONDS> 0
<COMMON> 1
1
0
<OTHER-SE> 15
<TOTAL-LIABILITY-AND-EQUITY> 2,698
<SALES> 1,782
<TOTAL-REVENUES> 1,782
<CGS> 1,626
<TOTAL-COSTS> 1,626
<OTHER-EXPENSES> 212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> (152)
<INCOME-TAX> 54
<INCOME-CONTINUING> (101)
<DISCONTINUED> 0
<EXTRAORDINARY> (5)
<CHANGES> 0
<NET-INCOME> (107)
<EPS-PRIMARY> (2.18)
<EPS-DILUTED> (2.18)
</TABLE>
