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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, 1995
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
8.255% PRIDES, Convertible Preferred Stock, New York Stock Exchange
$.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, 1996, there were 71,641,854 shares of the common stock
of the registrant outstanding. Based upon New York Stock Exchange
closing prices on March 15, 1996, the aggregate market value of the
registrant's common stock and 8.255% PRIDES held by non-affiliates was
$421.1 million.
Certain portions of the registrant's annual report to shareholders for
the fiscal year ended December 31, 1995, 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 25-28 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
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . 12
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . 16
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . 16
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . 17
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 10.. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 17
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. . . . . . . . . . . . . . . . . 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . 17
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . 17
SCHEDULE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . 25
EXHIBIT 21 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . 29
(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 into alumina 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, transportation and construction industries are the principal
consumers of aluminum in the United States, Japan, and Western Europe. In
the packaging industry, which accounted for approximately 20% of aluminum
consumption in 1994, 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 soft drink cans
manufactured for the United States market are made of aluminum. Kaiser
Aluminum Corporation ("Kaiser" or the "Company") believes that growth in
the packaging area is likely to continue through the 1990s due to general
population increase and to further penetration of the beverage container
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. Kaiser believes that growth in demand for can sheet in the United
States will follow the growth in population, offset, in part, by the
effects of the use of lighter gauge aluminum for can sheet and of plastic
container production from newly installed capacity.
In the transportation industry, which accounted for approximately 28% of
aluminum consumption in the United States, Japan, and Western Europe in
1994, automotive manufacturers use aluminum instead of steel, ductile iron,
or copper for an increasing number of components, including radiators,
wheels, suspension components, and engines, in order to meet more stringent
environmental, safety, and fuel efficiency requirements. Kaiser believes
that sales of aluminum to the transportation industry have considerable
growth potential due to projected increases in the use of aluminum in
automobiles. In addition, Kaiser believes that consumption of aluminum in
the construction industry will follow the cyclical growth pattern of that
industry, and will benefit from higher growth in Asian and Latin American
economies.
Supply
As of year-end 1995, Western world aluminum capacity from 107 smelting
facilities was approximately 16.6 million tons* per year. Western world
production of primary aluminum for 1995 increased approximately 1.8%
compared to 1994. Net exports of aluminum from the former Sino Soviet bloc
increased approximately 250% from 1990 levels during the period from 1991
through 1994 to approximately 2.2 million tons per year. These exports
contributed to a significant increase in London Metal Exchange ("LME")
stocks of primary aluminum which peaked in June 1994 at 2.7 million tons.
By the end of 1995, LME stocks of primary aluminum had declined 2.1 million
tons from this peak level and 1.1 million tons from the beginning of 1995.
See "-Recent Industry Trends."
Based upon information currently available, the Company believes that
moderate additions will be made during 1996-1998 to Western world alumina
and primary aluminum production capacity. The increases in alumina
capacity during 1996-1998 are expected to come from one new refinery which
began operations in 1995 and incremental expansions of existing
- ----------
* 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)
refineries. In addition, Kaiser believes that there is currently
approximately .9 million tons of curtailed smelting capacity that could be
restarted by aluminum producers. The increases in primary aluminum
capacity during 1996-1998 are expected to come from one new smelter, which
began operations in 1995 and is expected to reach its rated capacity of
approximately 466,000 tons per year in 1996, and the remainder principally
from incremental expansions of existing smelters.
Recent Industry Trends
Market fundamentals for aluminum improved significantly in 1994 as aluminum
producers worldwide curtailed primary aluminum production, Western world
consumption of aluminum grew strongly, and customers replenished
inventories, particularly in the United States. In 1995, production of
primary aluminum increased and consumption of aluminum continued to grow,
but at a much lower rate than in 1994. In general, the overall aluminum
market was strongest in the first half of 1995. By the second half of
1995, orders and shipments for certain products had softened and the rate
of decline in LME inventories had leveled off. By the end of 1995, some
small increases in LME inventories occurred, and prices of aluminum
weakened from first-half levels. The Midwest U.S. transaction price for
primary aluminum in 1995 averaged approximately 86 cents per pound,
compared to a 1994 annual average of approximately 72 cents per pound. The
Midwest U.S. transaction price for primary aluminum averaged approximately
79 cents per pound in December 1995.
Western world demand for alumina, and the price of alumina, declined in
1994 in response to the curtailment of Western world smelter production of
primary aluminum, partially offset by increased usage of Western world
alumina by smelters in the Commonwealth of Independent States (the "CIS")
and in the People's Republic of China (the "PRC"). Increased Western world
production of primary aluminum, as well as continued imports of Western
world alumina by the CIS and the PRC, during 1995 resulted in higher demand
for Western world alumina and significantly stronger alumina pricing.
United States shipments of domestic fabricated aluminum products in 1995
were approximately at 1994 levels, although in 1995 demand for can sheet in
the United States softened relative to 1994. Overall, Kaiser believes that
the market fundamentals for aluminum will be good for the near future,
barring prolonged economic recession, and that demand is likely to continue
growing at levels sufficient to absorb the output from restarts of industry
smelter capacity and from the limited additions of new supply under
construction.
The Company
General
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 1995, KACC produced approximately 2,838,000 tons of alumina, of which
approximately 72% was sold to third parties, and produced 413,600 tons
of primary aluminum, of which approximately 66% was sold to third parties.
KACC is also a major domestic supplier of fabricated aluminum products.
In 1995, KACC shipped approximately 368,200 tons of fabricated
aluminum products to third parties, which accounted for approximately
6% of the total tonnage of United States domestic shipments. A majority
of KACC's fabricated products are sold to distributors or used by
customers as components in the manufacture and assembly of finished
end-use products. Note 10 of the Notes to Consolidated Financial
Statements contained in the Company's 1995 Annual Report to Shareholders
(the "Annual Report") is incorporated herein by reference.
2
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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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,
-----------------------
1995 1994 1993
------- ------- -------
(in thousands of tons)
<S> <C> <C> <C>
ALUMINA:
Shipments to Third Parties 2,040.1 2,086.7 1,997.5
Intracompany Transfers 800.6 820.9 807.5
PRIMARY ALUMINUM:
Shipments to Third Parties 271.7 224.0 242.5
Intracompany Transfers 217.4 225.1 233.6
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties 368.2 399.0 373.2
</TABLE>
Sensitivity to Prices and Hedging Programs
Kaiser'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. Fabricated aluminum prices, which vary
considerably among products, are influenced by changes in the price of
primary aluminum and generally lag behind primary aluminum prices for
periods of up to six months. Changes in the market price of primary
aluminum also affect Kaiser's production costs of fabricated products
because they influence the price of aluminum scrap purchased by Kaiser and
Kaiser's labor costs, to the extent such costs are indexed to primary
aluminum prices. 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" and Note 9 of the Notes to
Consolidated Financial Statements in the Annual Report.
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 1995.
During 1995, KACC third party shipments of bauxite
represented approximately 21% of bauxite mined. In
addition, KACC third party shipments of alumina represented
approximately 72% of alumina produced. KACC's share of
total Western world alumina capacity was approximately 7% in
1995.
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. During 1995, KACC third party shipments of
primary aluminum represented approximately 66% of primary
aluminum production. KACC's share of total Western world
primary aluminum capacity was approximately 3% in 1995.
3
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
o Fabricated aluminum products are manufactured by three
business units - flat-rolled products, extruded products and
engineered components. The products include body, lid, and
tab stock for beverage containers, sheet and plate products,
heat-treated products, screw machine stock, redraw rod,
forging stock, truck wheels and hubs, air bag canisters,
engine manifolds, and other castings, forgings and extruded
products, which are manufactured at plants located in
principal marketing areas of the United States and Canada.
The aluminum utilized in KACC's fabricated products
operations is comprised of primary aluminum, obtained both
internally and from third parties, and scrap metal purchased
from third parties.
Alumina
- -------
The following table lists KACC's bauxite mining and alumina refining
facilities as of December 31, 1995:
<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(1) Jamaica 49% 4,500,000 4,500,000
Alpart(2) 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
========= =========
- ------------
(1) Although KACC owns 49% of Kaiser Jamaica Bauxite Company
("KJBC"), it has the right to receive all of such entity's
output.
(2) Alumina Partners of Jamaica ("Alpart") bauxite is refined into
alumina at the Alpart refinery.
</TABLE>
Bauxite mined in Jamaica by 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.
Alpart holds bauxite reserves and owns a 1,450,000 tons per year alumina
plant located in Jamaica. KACC owns 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.
4
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
KACC owns 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 under
long-term tolling contracts. The stockholders, including KACC, purchase
bauxite from another QAL stockholder under long-term supply contracts.
KACC has contracted with QAL to take approximately 792,000 tons per year of
capacity or pay standby charges. KACC is unconditionally obligated to pay
amounts calculated to service its share ($88.9 million at December 31,
1995) 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, trading intermediaries who resell raw materials to end-users,
and users of chemical-grade alumina. In 1995, KACC sold all of its bauxite
to two customers, the largest of which accounted for approximately 74% of
such sales. KACC also sold alumina to nine customers, the largest and top
five of which accounted for approximately 23% and 90% of such sales,
respectively. See "- Competition." The Company believes that among
alumina producers 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 under multi-year sales contracts.
Primary Aluminum Products
- -------------------------
The following table lists KACC's primary aluminum smelting facilities as of
December 31, 1995:
<TABLE>
<CAPTION>
Annual Rated Total 1995
Capacity Annual Average
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 82%
Washington Tacoma 100% 73,000 73,000 82%
------ ------
Subtotal 273,000 273,000
------- -------
International
Ghana Valco 90% 180,000 200,000 68%
Wales, United Kingdom Anglesey 49% 55,000 112,000 119%
------ -------
Subtotal 235,000 312,000
------- -------
Total 508,000 585,000
======= =======
</TABLE>
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. Approximately 71% of Mead's 1995
production was used at KACC's Trentwood fabricating facility and the
balance was 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
5
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
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.
Electric power represents an important production cost for KACC at its
aluminum smelters. In 1995 electric power purchase agreements for KACC's
facilities in the Pacific Northwest were successfully restructured, which
the Company anticipates will result in significantly lower electric power
costs in 1996 and beyond for the Mead and Tacoma, Washington, smelters and
the Trentwood, Washington, rolling mill compared to 1995 electric power
costs. From 1981 until 1995, electric power for KACC's Mead and Tacoma
smelters was purchased exclusively from the Bonneville Power Administration
(the "BPA") by KACC under a contract which expires in 2001. In April 1995
the BPA agreed to allow each of its direct service industrial customers
(the "DSIs"), which include KACC, to purchase a portion of its requirement
for electric power from sources other than the BPA beginning October 1,
1995. In June 1995 KACC entered into an agreement with The Washington
Water Power Company (the "WWP") to purchase up to 50 megawatts of electric
power for its Northwest facilities for a five-year term beginning October
1, 1995. KACC is receiving power under that contract, which power
displaces a portion of KACC's interruptible power from the BPA. In
addition, in 1995 KACC entered into a new power purchase contract with the
BPA, which amends the existing BPA power contract and which contemplates
reductions during 1996 in the amount of power which KACC is obligated to
purchase from the BPA and which the BPA is obligated to sell to KACC, and
the replacement of such power with power to be purchased from other
suppliers. KACC is negotiating power purchase agreements for such power
with suppliers other than the BPA. Contracts for the purchase of all power
required by KACC's Mead and Tacoma smelters and Trentwood rolling mill for
1996, and for approximately one-half of such power for the period 1997-2000,
have been finalized. Two lawsuits were filed in December 1995
against the BPA by various parties, one of which petitions for a review of
the BPA's "Record of Decision on Direct Service Industrial Customer
Requirements Power Sales Contract" issued on September 28, 1995, and one of
which petitions for review of, and to set aside, suspend, or modify, the
action of the BPA to decide to offer five-year "block" power sales to the
DSIs. The effect of such lawsuits, if any, on KACC's new power purchase
contract with the BPA is not known. Certain of the DSIs, including KACC,
have intervened in the two lawsuits.
In 1995 KACC also entered into agreements with the BPA and with the WWP,
with terms ending in 2001, under which the BPA and the WWP would provide to
KACC transmission services for power purchased from sources other than the
BPA. The term of the transmission services agreement with the BPA was
subsequently extended for an additional fifteen years, which extension has
been challenged. Four lawsuits have been filed against the BPA by various
parties, which lawsuits either challenge the BPA's record of decision
offering such an extension agreement to the DSIs or challenge the BPA's
Business Plan Environmental Impact Statement record of decision in
connection therewith. Certain of the DSIs, including KACC, have intervened
in the four lawsuits.
KACC began operating its Mead and Tacoma smelters in Washington at
approximately 75% of their full capacity in January 1993, when three
reduction potlines were removed from production (two at Mead and one at
Tacoma) in response to a power reduction imposed by the BPA. In March
1995, the BPA offered to its industrial customers, including KACC, surplus
firm power at a discounted rate for the period April 1, 1995, through July
31, 1995, to enable such customers to restart idle industrial loads. In
April 1995, KACC and the BPA entered into a contract for an amount of such
power, and thereafter KACC restarted one-half of an idle potline
(approximately 9,000 tons of annual capacity) at its Tacoma, Washington,
smelter. The Tacoma smelter was returned to full production in October
1995. In 1995 KACC entered into a one-year power supply contract with the
BPA, for a term ending September 30, 1996, in connection with the restart
of idled capacity at its Mead smelter. The Mead smelter returned to full
production in December 1995.
KACC manages, and owns a 90% interest in, the Volta Aluminium Company
Limited ("Valco") aluminum smelter in Ghana. The Valco smelter uses
pre-bake technology and processes alumina supplied by KACC and the other
participant into primary aluminum under long-term tolling contracts which
provide for proportionate payments by the participants
6
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
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 of power 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. Kaiser believes that, assuming normal rainfall
during 1996, Valco should have available sufficient electric power to
operate at its current level through 1996.
KACC owns 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 and control
technology in all of its smelters, as well as at third party locations.
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 1995, 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 62% of such
sales, respectively. See "- Competition." 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.
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. In 1995, four
domestic beverage container manufacturers were among the leading customers
for KACC's fabricated products and accounted for approximately 12% of
KACC's sales revenue.
KACC's fabricated products compete with those of numerous domestic and
foreign producers and with products made of 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 focused its fabricated products operations on selected
products in which KACC has production expertise, high-quality capability,
and geographic and other competitive advantages.
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 approximately 64% of KACC's
1995 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. During 1995,
KACC successfully
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ITEM 1. BUSINESS (continued)
completed the two year restructuring of its flat-rolled products operation
at its Trentwood plant to reduce that facility's annual operating costs by
at least $50.0 million.
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. Kaiser believes that 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 1995, the flat-rolled products business unit had 31 domestic and foreign
can stock customers, including the five major domestic beverage can
manufacturers. The largest and top five of such customers accounted for
approximately 14% and 41%, respectively, of the business unit's revenue.
See "- Competition." In 1995, the business unit shipped products to
approximately 150 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 revenue. The marketing staff for the flat-rolled products business
unit is located at the Trentwood facility and in Pleasanton, California.
Sales are made directly to customers (including distributors) from eight
sales offices located throughout the United States. International
customers are served by sales offices in the Netherlands and Japan and by
independent sales agents in Asia and Latin America.
Extruded Products - The extruded products business unit is headquartered in
Dallas, Texas, and operates soft-alloy extrusion facilities in Los Angeles,
California; Santa Fe Springs, California; Sherman, Texas; and London,
Ontario, Canada; a cathodic protection business located in Tulsa, Oklahoma,
that also extrudes both aluminum and magnesium; rod and bar facilities in
Newark, Ohio, and Jackson, Tennessee, which produce screw machine stock,
redraw rod, forging stock, and billet; and a facility in Richland,
Washington, which produces 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 in the
distribution, durable goods, defense, building and construction, ordnance
and electrical markets. In 1995, the extruded products business unit had
approximately 825 customers for its products, the largest and top five of
which accounted for approximately 6% and 20%, respectively, of its revenue.
See "- Competition." Sales are made directly from plants as well as
marketing locations across the United States.
Engineered Components - The engineered components business unit operates
forging facilities at Erie, Pennsylvania; Oxnard, California; and
Greenwood, South Carolina; a machine shop at Greenwood, South Carolina; and
a casting facility in Canton, Ohio. The engineered components 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 and cast aluminum make it
particularly well-suited for automotive applications. The business unit's
casting facility manufactures aluminum engine manifolds for the automobile,
truck and marine markets.
In 1995, the engineered components business unit had approximately 250
customers, the largest and top five of which accounted for approximately
34% and 77%, respectively, of the business unit's revenue. See "-
Competition." The engineered components business unit's headquarters is
located in Erie, Pennsylvania, and there is a sales and engineering office
located in Detroit, Michigan, which works with car makers and other
customers, the Center for Technology (see "-Research and Development"),
and plant personnel to create new automotive component designs and improve
existing products.
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ITEM 1. BUSINESS (continued)
Competition
Aluminum competes in many markets with steel, copper, glass, plastic, and
numerous other materials. In recent years, plastic containers have
increased and glass containers have decreased their respective shares of
the soft drink sector of the beverage container market. In the United
States, beverage container materials, including aluminum, face increased
competition from plastics as increased polyethylene ("PET") container
capacity is brought on line by plastics manufacturers. 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 Alumina and Chemicals LLC, Billiton Marketing and Trading BV, and
Alcan Aluminium Limited. 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.
Kaiser 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
financial condition or results of operations.
Research and Development
KACC conducts research and development activities principally at three
facilities - the Center for Technology ("CFT") in Pleasanton, California;
the Primary Aluminum Products Division Technology Center ("DTC") adjacent
to the Mead smelter in Washington; and the Alumina Development Laboratory
("ADL") at the Gramercy, Louisiana, refinery, which supports Kaiser Alumina
Technical Services ("KATS") and the facilities of the alumina business
unit. Net expenditures for Company-sponsored research and development
activities were $18.5 million in 1995, $16.7 million in 1994, and $18.5
million in 1993. KACC's research staff totaled 157 at December 31, 1995.
KACC estimates that research and development net expenditures will be
approximately $22.5 million in 1996.
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. Significant efforts are directed at product and process
technology for the can stock, aircraft and automotive markets, and aluminum
reduction cell models which are applied to improving cell designs and
operating conditions. The largest and most notable single project being
developed at CFT is a strip-casting micromill process for producing can
sheet. The conversion and capital costs of these micromills are expected
to be significantly lower than conventional rolling mills and to result in
improved economics compared with historical manufacturing and
transportation costs for can stock. A pilot facility has been constructed
and operated at CFT. The first micromill is being constructed in Nevada as
a demonstration production facility, and KACC expects operational startup
of the facility at the end of 1996. KACC currently intends to finance the
cost of the construction of the Nevada micromill, estimated to be
approximately $45.0 million, from general corporate funds, including
possible borrowings under the 1994 Credit Agreement (defined below),
although KACC is in discussions with third parties which might provide some
or all of such funding. 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 provides improved alumina
process technology to KACC's facilities and technical support to new
business ventures in cooperation with KACC's international business
development group.
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ITEM 1. BUSINESS (continued)
KACC is actively engaged in efforts to license its technology and sell
technical and managerial assistance to other producers worldwide. 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, United Arab Emirates,
and the United Kingdom. KACC's revenue from technology sales and technical
assistance to third parties were $5.7 million in 1995, $10.0 million in
1994, and $12.8 million in 1993.
KACC has entered into agreements with respect to the Krasnoyarsk smelter in
Russia under 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, in 1993 KACC
entered into agreements with respect to the Nadvoitsy smelter in Russia and
the Korba smelter of the Bharat Aluminum Co. Ltd., in India, under which
KACC has licensed certain of its technology for use in such facilities.
Services under the Nadvoitsy agreement were completed in 1995, and KACC
expects that services under the Korba agreement will be completed in 1996.
Operations in China
In 1994, KACC commenced efforts to increase its activities in certain
countries that are expected to be important suppliers of aluminum and large
customers for aluminum and alumina. KACC intends to use its technical
skills, together with capital investments, to form joint ventures or
acquire equity in facilities in such countries.
In 1995, Kaiser Yellow River Investment Limited ("KYRIL"), a subsidiary of
the Company, was formed to participate in the privatization, modernization,
expansion, and operation of aluminum smelting facilities in the PRC. KYRIL
has entered into a Joint Venture Agreement and related agreements (the
"Joint Venture Agreements") with the Lanzhou Aluminum Smelters ("LAS") of
the China National Nonferrous Metals Industry Corporation relating to the
formation and operation of Yellow River Aluminum Industry Company Limited,
a Sino-foreign joint equity enterprise organized under PRC law (the "Joint
Venture").
The Joint Venture constitutes the first large-scale privatization in the
Chinese aluminum smelting industry. The Joint Venture's assets and
operations are located primarily in the industrial city of Lanzhou, the
capital of Gansu Province in northwestern China, and in nearby Lianhai, a
special economic zone also in Gansu Province. The smelter at Lanzhou is
the fifth largest aluminum smelter in the PRC and produces approximately
55,000 tons of primary aluminum per year. The smelter at Lianhai produces
approximately 30,000 tons of primary aluminum per year. LAS's capital
contribution to the Joint Venture consisted primarily of the Lanzhou and
Lianhai smelters.
The Joint Venture Agreements include provisions for KYRIL to contribute up
to $59.7 million to the Joint Venture in exchange for up to a 49% interest
in the Joint Venture (the "Capital Contribution") and contemplate that such
capital may be used to expand the annual production capacity of LAS from
85,000 to 115,000 tons, construct a dry Soderberg paste plant, install and
upgrade pollution control equipment, and provide for general corporate
purposes, including working capital. KYRIL contributed $9.0 million as a
contribution to the capital of the Joint Venture in July 1995. The parties
to the Joint Venture are currently engaged in discussions concerning the
amount, timing and other conditions relating to KYRIL's additional
contributions to the Joint Venture. Governmental approval in the PRC will
be necessary in order to implement any arrangements agreed to by the
parties, and there can be no assurance such approvals will be obtained.
KACC, through its extruded products business unit, has entered into
contracts to form two small joint venture companies in the PRC. KACC will
indirectly acquire equity interests of approximately 45% and 49%,
respectively, in these two companies which will manufacture aluminum
extrusions, in exchange for the contribution to those companies of certain
used equipment, technology, services and cash. The majority equity
interests in the two companies will be owned by affiliates of Guizhou Guang
Da Construction Company.
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ITEM 1. BUSINESS (continued)
Employees
During 1995, KACC employed an average of 9,546 persons, compared with an
average of 9,744 employees in 1994, and 10,220 employees in 1993. At
December 31, 1995, KACC's work force was 9,624, including a domestic work
force of 5,946, of whom 4,010 were paid at an hourly rate. Most hourly
paid domestic employees are covered by collective bargaining agreements
with various labor unions. Approximately 74% of such employees are covered
by a master agreement (the "Labor Contract") with the United Steelworkers
of America ("USWA") expiring September 30, 1998. The Labor Contract covers
KACC's plants in Spokane (Trentwood and Mead) and Tacoma, Washington;
Gramercy, Louisiana; and Newark, Ohio. The Labor Contract replaced a
contract that expired October 31, 1994, and was reached after an eight-day
work stoppage by the USWA at these plants in February 1995.
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, were
raised again effective November 6, 1995, and will be raised an additional
amount effective 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 acquired 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 will acquire up to an
additional $4,000 of such preference stock held in such plan for the
benefit of substantially the same employees. In addition, a profitability
test was satisfied and, therefore, KACC will acquire during 1996 up to an
additional $1,000 of such preference stock held in such plan for the
benefit of substantially the same employees. KACC made and will make
comparable acquisitions of preference stock held for the benefit of each of
certain salaried employees.
In February 1995, Alpart's employees engaged in a six-day work stoppage by
its National Workers Union, which was settled by a new contract.
Management considers KACC's employee relations to be satisfactory.
Environmental Matters
Kaiser and KACC are subject to a wide variety of international, federal,
state and local environmental laws and regulations (the "Environmental
Laws"). From time to time the Environmental Laws are amended and new ones
are adopted. 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, Kaiser 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
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ITEM 1. BUSINESS (continued)
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 agreed to indemnify
the purchasers 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,
Kaiser believes that the resolution of such uncertainties should not have a
material adverse effect on KACC's consolidated financial position, results
of operations, or liquidity.
Environmental capital spending was $9.2 million in 1995, $11.9 million in
1994, and $12.6 million in 1993. Annual operating costs for pollution
control, not including corporate overhead or depreciation, were
approximately $26.0 million in 1995, $23.1 million in 1994, and $22.4
million in 1993. Legislative, regulatory, and economic uncertainties make
it difficult to project future spending for these purposes. However,
Kaiser currently anticipates that in the 1996-1997 period, environmental
capital spending will be within the range of $27.0 - $33.0 million per
year, and operating costs for pollution control will be within the range of
$28.0 - $29.0 million per year. In addition, $4.5 million in cash
expenditures in 1995, $3.6 million in 1994, and $7.2 million in 1993 were
charged to previously established reserves relating to environmental costs.
Approximately $8.4 million is expected to be charged to such reserves in
1996.
Based on Kaiser's evaluation of these and other environmental matters,
Kaiser has established environmental accruals primarily related to
potential solid waste disposal and soil and groundwater remediation
matters. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Environmental
Contingencies." The portion of Note 8 of the Notes to Consolidated
Financial Statements 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 "Business - The Company - Production
Operations" 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. Kaiser 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 - Liquidity and Capital Resources -
Capital Structure" in the Annual Report.
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 (collectively, the "Sites"). 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
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ITEM 3. LEGAL PROCEEDINGS (continued)
disposal areas from approximately the mid-1930's through the late-1980's.
The United States filed a cost recovery complaint (the "Complaint") in the
United States District Court for the Middle District of North Carolina,
Rockingham Division, No. C-89-231-R, which, as amended, includes KACC and a
number of other defendants. The Complaint, as amended, seeks reimbursement
for past and future response costs and a determination of liability of the
defendants under Section 107 of CERCLA. The EPA has performed a Remedial
Investigation/Feasibility Study and issued a Record of Decision ("ROD") for
the Sites in September 1991. The estimated cost of the major soil
remediation remedy selected for the Sites is approximately $32 million.
Other possible remedies described in the ROD would have estimated costs of
approximately $53 million and $222 million, respectively. 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 soil remedial design and remedial action described in the ROD
for three of the Sites. The estimated cost as set forth in the ROD for the
remedial action at the three Sites is approximately $27 million. A number
of other companies are also named as respondents. KACC has entered into a
PRP Participation Agreement with certain of the respondents (the "Aberdeen
Site PRP Group" or the "Group") 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 a
number of other companies, undertake or agree to finance, groundwater
remediation at certain of the Sites. The ROD-selected remedy for the
groundwater remediation selected by EPA includes a variety of techniques.
The EPA has estimated the total present worth cost, including thirty years
of operation and maintenance, at approximately $11.8 million. On June 22,
1994, the EPA issued two unilateral Administrative Orders under Section
106(a) of CERCLA ordering the respondents, including KACC, to undertake the
groundwater remediation at three of the Sites. A PRP Participation
Agreement with respect to groundwater remediation has been entered into by
certain of the respondents, including KACC.
By letter dated March 6, 1996, KACC gave notice of withdrawal from the
Aberdeen Site PRP Group pursuant to the provisions of the PRP Participation
Agreement. KACC advised the Group and the EPA that even if it were liable
for cleanup at the Sites, which it expressly denies, it had already
contributed far more than its allocable potential share of response costs.
KACC has advised the Group and the EPA that it has fully complied with the
Unilateral Orders and that should additional evidence be presented which
demonstrates KACC's liability in excess of the amount contributed to date,
KACC would be willing to discuss the matter further at that time.
United States of America v. Kaiser Aluminum & Chemical Corporation
In February 1989, a civil action was filed by the United States Department
of Justice (the "DOJ") 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 SIP opacity limit and the
assessment of civil penalties of not more than $25,000 per day.
KACC and the EPA, without adjudication of any issue of fact or law, and
without any admission of the violations alleged in the underlying
complaint, have entered into a Consent Decree, which was approved by a
Consent Order entered by the United States District Court for the Eastern
District of Washington in January 1996. As approved, the Consent Decree
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ITEM 3. LEGAL PROCEEDINGS (continued)
settles the underlying disputes and requires KACC to (i) pay a $.5 million
civil penalty (which penalty has been paid), (ii) complete a program of
plant improvements and operational changes that began in 1990 at its
Trentwood facility, including the installation of an emission control
system to capture particulate emissions from certain furnaces, and (iii)
achieve and maintain furnace compliance with the opacity standard in the
SIP by no later than February 28, 1997. The Company anticipates that
capital expenditures for the environmental upgrade of the furnace operation
at its Trentwood facility, including the improvements and changes required
by the Consent Decree, will be approximately $20.0 million.
Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation
and James L. Ferry & Son Inc.
In January 1991, the City of Richmond, et al. (the "Plaintiffs") filed a
Second Amended Complaint for Damages and Declaratory Relief against the
United States, Catellus Development Corporation ("Catellus") and other
defendants (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 KACC for the
purpose of shipbuilding activities conducted by KACC on behalf of the
United States during World War II. The Plaintiffs sought recovery of
response costs and natural resource damages under CERCLA. Certain of the
Plaintiffs alleged they had incurred or expected to incur costs and damages
of approximately $49.0 million. Catellus subsequently filed a third party
complaint (the "Third Party Complaint") against KACC in the United States
District Court for the Northern District of California, Case No. C-89-2935
DLJ. Thereafter, the Plaintiffs filed a separate complaint against KACC,
Case No. C-92-4176. The Plaintiffs settled their CERCLA and tort claims
against the United States for $3.5 million plus thirty-five percent (35%)
of future response costs.
The trial involving this case commenced in March 1995. During the trial,
Plaintiffs settled their claims against Catellus in exchange for payment of
approximately $3.25 million. Subsequently, on June 2, 1995, the United
States District Court for the Northern District of California issued an
order on the remaining claims in that action. On December 7, 1995, the
District Court issued the Final Judgment on those claims concluding that
KACC is liable for various costs and interest, aggregating approximately
$2.2 million, fifty percent (50%) of future costs of cleaning up certain
parts of the Property and certain fees and costs associated specifically
with the claim by Catellus against KACC. In January 1996, Catellus filed a
notice of appeal with respect to its indemnity judgment against KACC. KACC
has since filed a notice of cross appeal as to the Court's decision
adjudicating that KACC is obligated to indemnify Catellus. In February
1996, the Plaintiffs filed motions, which KACC intends to contest, seeking
reimbursement of fees and costs from KACC in the aggregate amount of $2.76
million. Based on KACC's estimate of future costs of cleanup, resolution
of the Catellus matter is not expected to have a material adverse effect on
Kaiser's consolidated financial condition, results of operations, or
liquidity.
Waste Inc. Superfund Site
On December 8, 1995, the EPA issued a unilateral Administrative Order for
Remedial Design and Remedial Action under CERCLA to KACC and thirty-one
other respondents for remedial design and action at the Waste Inc.
Superfund Site at Michigan City, Indiana. This site was operated as a
landfill from 1965 to 1982. KACC is alleged to have arranged for the
disposal of waste from its formerly-owned plant at Wanatah, Indiana, during
the period from 1964 to 1972. In its Record of Decision, the EPA estimated
the cost of the work to be performed to have a present value of $15.7
million. KACC's share of the total waste sent to the site is unknown. A
consultant retained by a group of PRPs estimated that KACC contributed 2.0%
of the waste sent to the site by the forty-one largest contributors.
KACC's ultimate exposure will depend on the number of PRPs that participate
and the volume of waste properly allocable to KACC. Based on the EPA's
cost estimate, KACC believes that its financial exposure for remedial
design and remedial action at this site is less than $500,000. A PRP
participation agreement is under negotiation.
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ITEM 3. LEGAL PROCEEDINGS (continued)
Hammons v. Alcan Aluminum Corp. et al
On March 5, 1996, a class action complaint was filed in California against
the Company, Alcan Aluminum Corp., Aluminum Company of America, Alumax,
Inc, Reynolds Metal Company, the Aluminum Association and others in the
Superior Court of California for the County of Los Angeles, Case No.
BC145612. The complaint claims that the defendants conspired, in violation
of state antitrust laws, to raise, stabilize and maintain the price of
primary aluminum and aluminum products through cuts in production allegedly
in connection with the ratification of a Memorandum of Understanding in
1994 by representatives of the authorities of Australia, Canada, the
European Union, Norway, the Russian Federation and the United States. The
complaint seeks certification of a class consisting of persons who at any
time between January 1, 1994, and the date of the complaint purchased
aluminum or aluminum products manufactured by one or more of the defendants
and estimates damages sustained by the class to be $4.4 billion, before
trebling.
Matheson et al v. Kaiser Aluminum Corporation et al
On September 11, 1995, Kaiser announced that it had appointed an
independent committee of its Board of Directors to consider a possible
recapitalization transaction. On February 5, 1996, Kaiser publicly
announced that it had filed a preliminary proxy statement with the
Securities and Exchange Commission relating to a proposed recapitalization.
A special shareholders' meeting to consider the recapitalization was
subsequently scheduled for April 10, 1996, and the definitive proxy
statement was mailed to shareholders commencing on March 20, 1996. See
Note 7 of the Notes to Consolidated Financial Statements of the Company,
under the heading Proposed Recapitalization, at pages 50-51 of the Annual
Report for a description of the proposed recapitalization. On March 19,
1996, a lawsuit was filed against MAXXAM, Kaiser, and Kaiser's directors
challenging and seeking to enjoin the recapitalization and the April 10,
1996, special shareholders' meeting. The suit, which is entitled Matheson
et al v. Kaiser Aluminum Corporation et al (No. 14900) and was filed in the
Delaware Court of Chancery, purports to be a class action by persons who as
of March 18, 1996 (the record date for the April 10, 1996, meeting) owned
Kaiser's outstanding common stock and 8.255% PRIDES, Convertible Preferred
Stock ("PRIDES"). Plaintiffs allege, among other things, breaches of
fiduciary duties by certain defendants and that the proposed
recapitalization violates Delaware law and the certificate of designation
for the PRIDES. Plaintiffs seek injunctive relief, rescission,
rescissory damages and other relief. A hearing on the motion for
injunctive relief is presently scheduled for April 8, 1996.
Asbestos-related Litigation
KACC is a defendant in a number of lawsuits, some of which involve claims
of multiple persons, in which the plaintiffs allege that certain of their
injuries were caused by, among other things, exposure to asbestos during,
and as a result of, their employment or association with KACC or exposure
to products containing asbestos produced or sold by KACC. The lawsuits
generally relate to products KACC has not manufactured for at least 15
years. At December 31, 1995, the number of such claims pending was
approximately 59,700, as compared with 25,200 at December 31, 1994. In
1995, approximately 41,700 of such claims were received and 7,200 settled
or dismissed. KACC has been advised by its regional counsel that, although
there can be no assurance, the recent increase in pending claims may be
attributable in part to tort reform legislation in Texas which was passed
by the legislature in March 1995 and which became effective on September 1,
1995. The legislation, among other things, is designed to restrict,
beginning September 1, 1995, the filing of cases in Texas that do not have
a sufficient nexus to that jurisdiction, and to impose, generally as of
September 1, 1996, limitations relating to joint and several liability in
tort cases. A substantial portion of the asbestos-related claims that were
filed and served on KACC between June 30, 1995, and November 30, 1995, were
filed in Texas prior to September 1, 1995. For additional information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Asbestos Contingencies."
The portion of Note 8 of the Notes to Consolidated Financial Statements in
the Annual Report under the heading "Asbestos Contingencies" is
incorporated herein by reference.
15
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS (continued)
Other Proceedings
On August 24, 1994, the DOJ issued Civil Investigative Demand No. 11356
("CID No. 11356") requesting information from Kaiser regarding (i) its
production, capacity to produce, and sales of primary aluminum from January
1, 1991, to the date of the response; (ii) any actual or contemplated
reduction in its production of primary aluminum during that period; and
(iii) any communications with others regarding any actual, contemplated,
possible or desired reductions in primary aluminum production by Kaiser or
any of its competitors during that period. Management believes that
Kaiser's actions have at all times been appropriate, and Kaiser has
submitted documents and interrogatory answers to the DOJ responding to CID
No. 11356.
On March 27, 1995, the DOJ issued Civil Investigative Demand No. 12503
("CID No. 12503"), as part of an industry-wide investigation, requesting
information from KACC regarding (i) any actual or contemplated changes in
its method of pricing can stock from January 1, 1994, through March 31,
1995, (ii) the percentage of aluminum scrap and primary aluminum ingot used
by KACC to produce can stock and the manner in which KACC's cost of
acquiring aluminum scrap is factored into its can stock prices, and (iii)
any communications with others regarding any actual or contemplated changes
in its method of pricing can stock from January 1, 1994, through March 31,
1995. Kaiser believes that KACC's actions have at all times been
appropriate, and KACC has submitted documents and interrogatory answers to
the DOJ responding to CID No. 12503.
Various other lawsuits and claims are pending against KACC. While
uncertainties are inherent in the final outcome of such matters and it is
presently impossible to determine the actual costs that ultimately may be
incurred, management believes that the resolution of such uncertainties and
the incurrence of such costs should not have a material adverse effect on
the Company's consolidated financial position, results of operations, or
liquidity.
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 1995.
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, 1996 was 169. Page 59 of the Annual Report, and the
information in Note 7 of the Notes to Consolidated Financial Statements
under the heading "Dividends on Common Stock" at page 50 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 4.6 through 4.11 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 4.5 to this
Report) contain restrictions on the ability of the Company's subsidiaries
to transfer funds to the Company in the form of cash dividends, loans or
advances. Exhibits 4.1 through 4.11 to this Report, Note 4 of the Notes to
Consolidated Financial Statements at pages 37-39 of the Annual Report, and
the information under the heading "Liquidity and Capital Resources -
Capital Structure" at pages 22-24 of the Annual Report, are incorporated
herein by reference.
16
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
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 33-35 of the Annual Report, and to pages
57-58 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pages 20-28 of the Annual Report are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 29-56 and page 59 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 29-56 and 59 of the Annual Report.
2. Financial Statement Schedules . . . . . . . . . . . . . Page
----------------------------- ----
Report of Independent Public Accountants. . . . . . . . 19
Schedule I - Condensed Balance Sheets - Parent Company,
Condensed Statements of Income - Parent
Company, Condensed Statements of Cash
Flows - Parent Company, and Notes to
Condensed Financial Statements
- Parent Company . . . . . . . . . . . .20-23
All other schedules are inapplicable or the required
information is included in the Consolidated Financial
Statements or the Notes thereto.
17
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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 25),
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 25), which
index is incorporated herein by reference.
18
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in Kaiser Aluminum Corporation and
Subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K and have issued our report thereon dated February 16, 1996. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule I listed in the index at Item 14(a)2.
above is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Houston, Texas
February 16, 1996
19
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<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
SCHEDULE I
CONDENSED BALANCE SHEETS - PARENT COMPANY
(In millions of dollars, except share amounts)
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ .2 $ 5.7
Note receivable from KACC 10.7 21.2
-------- --------
Total current assets 10.9 26.9
Note receivable from KACC 8.6 23.5
Investments - KACC 1,521.3 1,361.0
-------- --------
Total $1,540.8 $1,411.4
======== ========
Liabilities and Stockholders' Equity
Current liabilities $ 3.3 $ 6.4
Intercompany note payable to KACC, including accrued interest 1,479.8 1,387.7
Stockholders' equity:
Preferred stock, par value $.05, authorized 20,000,000 shares; Series A
Convertible, stated value $.10 issued and outstanding, nil and 1,938,295
in 1995 and 1994 .2
PRIDES Convertible, par value $.05, issued and outstanding, 8,673,850 and
8,855,550 in 1995 and 1994 .4 .4
Common stock, par value $.01, authorized 100,000,000 shares; issued and
outstanding 71,638,514 and 58,205,083 in 1995 and 1994 .7 .6
Additional capital 530.3 527.8
Accumulated deficit (459.9) (502.6)
Additional minimum pension liability (13.8) (9.1)
-------- --------
Total stockholders' equity 57.7 17.3
-------- --------
Total $1,540.8 $1,411.4
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these statements.
20
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<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
SCHEDULE I
CONDENSED STATEMENTS OF INCOME - PARENT COMPANY
(In millions of dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Equity in income (loss) of KACC $ 152.8 $ (20.4) $(537.2)
Administrative and general expenses (.4) (.3) (.4)
Other income (expense):
Interest expense (92.1) (86.1) (115.8)
Other income 1.2
------- ------- -------
Net income (loss) $ 60.3 $(106.8) $(652.2)
======= ======= =======
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these statements.
21
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
SCHEDULE I
CONDENSED STATEMENTS OF CASH FLOWS - PARENT COMPANY
(In millions of dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 60.3 $(106.8) $(652.2)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Equity in (income) loss of KACC (152.8) 20.4 537.2
Accrued interest on intercompany note payable to KACC 92.1 86.1 115.8
Increase (decrease) in other liabilities .2 .3 (1.0)
------- ------- -------
Net cash used for operating activities (.2) (.2)
------- ------- -------
Cash flows from investing activities:
Investment in KACC (1.2) (66.9) (81.5)
------- ------- -------
Net cash used for investing activities (1.2) (66.9) (81.5)
------- ------- -------
Cash flows from financing activities:
Dividends paid (20.8) (14.8) (6.3)
Capital stock issued 1.2 100.1 119.3
Intercompany notes issued by KACC - net 15.5 (13.2) (31.5)
------- ------- -------
Net cash (used for) provided by financing activities (4.1) 72.1 81.5
------- ------- -------
Net (decrease) increase in cash and cash equivalents during the year (5.5) 5.2 (.2)
Cash and cash equivalents at beginning of year 5.7 .5 .7
------- ------- -------
Cash and cash equivalents at end of year $ .2 $ 5.7 $ .5
======= ======= =======
Supplemental disclosure of non-cash investing activities:
Non-cash investment in KACC $ 9.9 $ 15.0
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of these statements.
22
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<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY
1. Basis of Presentation
The accompanying parent company financial statements of Kaiser
Aluminum Corporation ("Kaiser") should be read in conjunction
with the 1995 consolidated financial statements of Kaiser and
Subsidiary Companies.
Kaiser is a holding company and conducts its operations through
its wholly owned subsidiary, Kaiser Aluminum & Chemical
Corporation ("KACC"), which is reported herein using the equity
method of accounting.
2. Intercompany Note Payable
The Intercompany Note to KACC was amended in July 1993 to
decrease the fixed interest rate from 13% to 6-5/8%. No interest
or principal payments are due until December 31, 2000, after which
interest and principal will be payable over a 15-year term
pursuant to a predetermined schedule.
3. Restricted Net Assets
The investment in KACC is substantially unavailable to Kaiser
pursuant to the terms of certain debt instruments. The
obligations of KACC in respect of the credit facilities under the
1994 Credit Agreement are guaranteed by Kaiser and by all
significant subsidiaries of KACC. See Note 4 of the Notes to
Consolidated Financial Statements.
23
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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 27, 1996 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 27, 1996 George T. Haymaker, Jr.
-----------------------------
George T. Haymaker, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 27, 1996 John T. La Duc
-----------------------------
John T. La Duc
Vice President and Chief Financial
Officer
(Principal Financial Officer)
Date: March 27, 1996 Arthur S. Donaldson
-----------------------------
Arthur S. Donaldson
Controller
(Principal Accounting Officer)
Date: March 27, 1996 Robert J. Cruikshank
-----------------------------
Robert J. Cruikshank
Director
Date: March 27, 1996 Charles E. Hurwitz
-----------------------------
Charles E. Hurwitz
Director
Date: March 27, 1996 Ezra G. Levin
-----------------------------
Ezra G. Levin
Director
Date: March 27, 1996 Robert Marcus
-----------------------------
Robert Marcus
Director
Date: March 27, 1996 Robert J. Petris
-----------------------------
Robert J. Petris
Director
24
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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 Certificate of Retirement of KAC, dated October 24, 1995.
3.3 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, to the
Indenture, dated as of February 1, 1993 (incorporated by
reference to Exhibit 4.2 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC,
File No. 1-3605).
*4.3 Second Supplemental Indenture, dated as of February 1, 1996, to
the Indenture, dated as of February 1, 1993.
4.4 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).
*4.5 First Supplemental Indenture, dated as of February 1, 1996, to
the Indenture, dated as of February 17, 1994.
4.6 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).
4.7 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).
4.8 Second Amendment to Credit Agreement, dated as of March 10, 1995,
amending the Credit Agreement, dated as of February 17, 1994, as
amended, among KAC, KACC, the financial institutions party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.6 to the Report on Form
10-K for the period ended December 31, 1994, filed by KAC, File
No. 1-9447).
25
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
Exhibit
Number Description
- ------ ------------
4.9 Third Amendment to Credit Agreement, dated as of July 20, 1995,
amending the Credit Agreement, dated as of February 17, 1994, as
amended, among KAC, KACC, the financial institutions a party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report on Form
10-Q for the quarterly period ended June 30, 1995, filed by KAC,
File No. 1-9447).
4.10 Fourth Amendment to Credit Agreement, dated as of October 17,
1995, amending the Credit Agreement, dated as of February 17,
1994, as amended, among KAC, KACC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report on Form
10-Q for the quarterly period ended September 30, 1995, filed by
KAC, File No. 1-9447).
*4.11 Fifth Amendment to Credit Agreement, dated as of December 11,
1995, amending the Credit Agreement, dated as of February 17,
1994, as amended, among KAC, KACC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent.
4.12 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).
4.13 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).
4.14 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).
4.15 Senior Subordinated Intercompany Note between KACC and a
subsidiary of MAXXAM, dated December 15, 1992 (incorporated by
reference to Exhibit 4.10 to the Report on Form 10-K for the
period ended December 31, 1994, filed by KAC, File No. 1-9447).
4.16 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).
4.17 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).
4.18 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).
4.19 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).
26
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
Exhibit
Number Description
- ------ ------------
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).
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
[Exhibits 10.7 - 10.20, inclusive]
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 Kaiser 1995 Employee Incentive Compensation Program (incorporated
by reference to Exhibit 10.1 to the Report on Form 10-Q for the
quarterly period ended March 31, 1995, filed by KAC, File
No. 1-9447).
10.10 Kaiser 1995 Executive Incentive Compensation Program
(incorporated by reference to Exhibit 99 to the Proxy Statement,
dated April 26, 1995, filed by KAC, File No. 1-9447).
10.11 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).
27
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
Exhibit
Number Description
- ------ ------------
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 Letter Agreement, dated January 1995, between KAC and Charles E.
Hurwitz, granting Mr. Hurwitz stock options under the Kaiser
1993 Omnibus Stock Incentive Plan (incorporated by reference to
Exhibit 10.17 to the Report on Form 10-K for the period ended
December 31, 1994, filed by KAC, File No. 1-9447).
10.20 Form of letter agreement with persons granted stock options under
the Kaiser 1993 Omnibus Stock Incentive Plan to acquire shares of
KAC common stock (incorporated by reference to Exhibit 10.18 to
the Report on Form 10-K for the period ended December 31, 1994,
filed by KAC, File No. 1-9447).
*11 Computation of Earnings Per Common and Common Equivalent Share.
*13 The portions of KAC's Annual Report to shareholders for the year
ended December 31, 1995, which are incorporated by reference into
this Report.
*21 Significant Subsidiaries of KAC.
*27 Financial Data Schedule.
__________
* Filed herewith
28
<PAGE>
<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
29
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Domestic California Pennsylvania
---------- ------------
Operations Los Angeles (City of Commerce) Erie
(Partial List) Extruded Products Forgings Plant and Offices
Los Angeles (Santa Fe Springs) South Carolina
--------------
Extruded Products Fabricating Greenwood
Oxnard Forgings
Forgings Greenwood
Pleasanton Machine Shop
R&D at the Center for Technology, Tennessee
----------
Administrative Offices Jackson
Florida Extruded Products
--------
Mulberry Texas
------
Sodium Silicofluoride,
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>
30
<PAGE>
Table of Contents
- -----------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Report of Independent Public Accountants 29
Consolidated Balance Sheets 30
Statements of Consolidated Income (Loss) 31
Statements of Consolidated Cash Flows 32
Notes to Consolidated Financial Statements 33
Five-Year Financial Data 57
Quarterly Financial Data (Unaudited) 59
Corporate Information 60
19
<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) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shipments: (000 tons) (1)
Alumina 2,040.1 2,086.7 1,997.5
Aluminum products:
Primary aluminum 271.7 224.0 242.5
Fabricated aluminum products 368.2 399.0 373.2
-------- -------- --------
Total aluminum products 639.9 623.0 615.7
======== ======== ========
Average realized sales price:
Alumina (per ton) $ 208 $ 169 $ 169
Primary aluminum (per pound) .81 .59 .56
Net sales:
Bauxite and alumina:
Alumina $ 424.8 $ 352.8 $ 338.2
Other (2)(3) 89.4 79.7 85.2
-------- -------- --------
Total bauxite and alumina 514.2 432.5 423.4
-------- -------- --------
Aluminum processing:
Primary aluminum 488.0 292.0 301.7
Fabricated aluminum products 1,218.6 1,043.0 981.4
Other (3) 17.0 14.0 12.6
-------- -------- --------
Total aluminum processing 1,723.6 1,349.0 1,295.7
-------- -------- --------
Total net sales $2,237.8 $1,781.5 $1,719.1
======== ======== ========
Operating income (loss):
Bauxite and alumina $ 54.0 $ 19.8 $ (4.5)
Aluminum processing 238.9 (8.4) (46.3)
Corporate (82.3) (67.6) (72.6)
-------- -------- --------
Total operating income (loss) $ 210.6 $ (56.2) $ (123.4)
======== ======== ========
Income (loss) before extraordinary loss and cumulative effect of changes
in accounting principles $ 60.3 $ (101.4) $ (123.1)
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) $ 60.3 $ (106.8) $ (652.2)
======== ======= ========
Capital expenditures $ 79.4 $ 70.0 $ 67.7
======== ======== ========
</TABLE>
(1) All references to tons refer to metric tons of 2,204.6 pounds.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority
interests in consolidated subsidiaries.
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 Company's operating results are sensitive to changes in prices of
alumina, primary aluminum, and fabricated aluminum products, and also
depend to a significant degree on the volume and mix of all products
sold and on KACC's hedging strategies. See Note 9 of the Notes to
Consolidated Financial Statements for an explanation of KACC's hedging
strategies. The previous table provides selected operational and
financial information on a consolidated basis with respect to the
Company for the years ended December 31, 1995, 1994, and 1993. 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 to third parties for the
bauxite and alumina segment was 19% higher in 1995 than in 1994 and 2%
higher in 1994 than in 1993. Revenue from alumina increased 20% in
1995 from 1994, due to higher average realized prices partially offset
by lower shipments. The remainder of the segment's sales revenues were
from sales of bauxite and the portion of sales of alumina attributable
to the minority interest in the Company's 65%-owned Alumina Partners
of Jamaica ("Alpart") alumina refinery in Jamaica.
Aluminum Processing - Revenue from net sales to third parties for the
aluminum processing segment was 28% higher in 1995 than in 1994 and 4%
higher in 1994 than in 1993. The bulk of the segment's sales
represents Kaiser's primary aluminum and fabricated aluminum products,
with the remainder representing the portion of sales of primary
aluminum attributable to the minority interest in the Company's 90%-
owned Volta Aluminium Company Limited ("Valco") aluminum smelter in
Ghana. Revenue from primary aluminum increased 67% in 1995 from 1994,
due primarily to higher average realized prices and higher shipments.
In 1995, the Company's average realized price from sales of primary
aluminum was approximately $.81 per pound, compared to the average
Midwest United States transaction price of approximately $.86 per
pound during the year. The higher shipments of primary aluminum were
due to increased production at the Company's smelters in the Pacific
Northwest and Valco, and reduced intracompany consumption of primary
metal at the Company's fabricated products units. The increase in
revenue for 1995 was partially offset by decreased shipments caused by
the strike by the United Steelworkers of America ("USWA") discussed
below. Revenue from primary aluminum decreased 3% in 1994 from 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 then-recent improvements in metal prices.
Shipments in 1994 reflected production curtailments at the Company's
smelters in the Pacific Northwest and Valco. Shipments of primary
aluminum to third parties were approximately 42% of total aluminum
products shipments in 1995, compared with approximately 36% in 1994
and 39% in 1993. Revenue from fabricated aluminum products increased
17% in 1995 from 1994, due to higher average realized prices partially
offset by lower shipments for most of these products. Revenue from
fabricated aluminum products increased 6% in 1994 from 1993,
principally due to increased shipments of most of these products.
Operating Income (Loss)
Improved operating results in 1995 were partially offset by expenses
related to the Company's smelting joint venture in China, accelerated
expenses on the Company's micromill technology, maintenance expenses
as a result of an electrical lightning strike at the Company's
Trentwood, Washington, facility, and a work slowdown at the Company's
49%-owned Kaiser Jamaica Bauxite Company prior to the signing of a new
labor contract. The combined impact of these expenditures on the
results for 1995 was approximately $6.0 million in the aggregate (on a
pre-tax basis). Operating results in 1995 were further impacted by (i)
an eight-day strike at five major domestic locations by the USWA, (ii)
a six-day strike by the National Workers Union at Alpart, and (iii) a
four-day disruption of alumina production at Alpart caused by a boiler
failure. The combined impact of these events on the results for 1995
was approximately $17.0
21
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
million in the aggregate (on a pre-tax basis) principally from lower
production volume and other related costs. In 1993, the Company recorded
a pre-tax charge of $35.8 million related to restructuring charges and
a pre-tax charge of $19.4 million 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 was $54.0
million in 1995, compared with $19.8 million in 1994 and a loss of
$4.5 million in 1993. The increase in operating income in 1995
compared with 1994 was principally due to higher revenue, partially
offset by the effect of the strike and boiler failure. In 1994,
compared with 1993, operating income was favorably affected by
increased shipments and lower manufacturing costs.
Aluminum Processing - This segment's operating income was $238.9
million in 1995, compared with losses of $8.4 million in 1994 and
$46.3 million in 1993. Improvement in operating results in 1995
compared with 1994 was principally due to higher revenue, partially
offset by the effect of the strike by the USWA. The decrease in
operating loss in 1994 compared with 1993 was caused principally by
the $35.8 million restructuring charges, increased shipments of
fabricated aluminum products, and higher average realized prices of
primary aluminum, partially offset by lower shipments of primary
aluminum.
Corporate - Corporate operating expenses of $82.3 million, $67.6
million, and $72.6 million in 1995, 1994, and 1993, respectively,
represented corporate general and administrative expenses that were
not allocated to segments.
Net Income (Loss)
The Company reported net income of $60.3 million or $.69 per common
and common equivalent share ($.72 on a fully diluted basis) in 1995,
compared with a net loss of $106.8 million or $2.18 per common and
common equivalent share in 1994 and a net loss of $652.2 million or
$11.47 per common and common equivalent share in 1993. The principal
reason for the improvement in 1995 compared to 1994 was the improvement
in operating results previously described, partially offset by other
charges, principally related to the establishment of additional
litigation reserves. The principal reasons for the 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 as
of January 1, 1993. See Note 1 of the Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
- -------------------------------
Capital Structure
On February 17, 1994, the Company and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. and certain other
lenders (as amended, the "1994 Credit Agreement"). The 1994 Credit
Agreement consists of a $325.0 million five-year secured, revolving
line of credit, scheduled to mature in 1999. 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 $325.0 million or a borrowing base relating to eligible
accounts receivable plus eligible inventory. As of February 29, 1996,
$174.9 million (of which $72.4 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. 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 Company's Gramercy alumina plant); (ii) subject
to certain exceptions, liens on the accounts receivable, inventory,
equipment, domestic patents and trademarks,
22
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 1993, Kaiser issued
19,382,950 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"). On September
19, 1995, the Company redeemed all 1,938,295 Series A Shares, which
resulted in the simultaneous redemption of all Depositary Shares, in
exchange for (i) 13,126,521 shares of the Company's common stock and
(ii) $2.8 million in cash comprised of (a) an amount equal to all
accrued and unpaid dividends up to and including the day immediately
prior to redemption date, and (b) cash in lieu of any fractional
shares of common stock that would have otherwise been issuable.
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. On February 17,
1994, KACC issued $225.0 million of its 9-7/8% Senior Notes due 2002
(the "Senior Notes").
The obligations of KACC with respect to the Senior Notes and the
12-3/4% Notes (see Note 4 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.
Management believes that the Company's existing cash resources,
together with cash flows from operations and borrowings under the 1994
Credit Agreement, will be sufficient to satisfy its working capital
and capital expenditure requirements for the next year. With respect
to long-term liquidity, management believes that operating cash flows,
together with the ability to obtain both short and long-term
financing, should provide sufficient funds to meet the Company's
working capital and capital expenditure requirements.
On January 5, 1996, the Company announced that it filed a "shelf"
registration statement with the Securities and Exchange Commission
(the "SEC") covering up to 10 million shares of the Company's common
stock that are owned by MAXXAM Inc.
On February 5, 1996, the Company announced that it filed with the SEC
a preliminary proxy statement relating to a proposed recapitalization
and a special meeting of stockholders to consider and vote upon the
proposal. The proposed recapitalization would: (i) provide for two
classes of common stock: Class A Common Shares, $.01 par value, with
one vote per share and a new lesser-voting class designated as Common
Stock, $.01 par value, with 1/10 vote per share; (ii) redesignate as
Class A Common Shares the 100 million currently authorized shares of
existing common stock and authorize an additional 250 million shares to
be designated as Common Stock; and (iii) change each issued share of
the Company's existing common stock, par value $.01 per share, into
(a) .33 of a Class A Common Share and (b) .67 of a share of Common Stock.
The Company would pay cash in lieu of fractional shares. The Company
anticipates that both the Class A Common Shares and the Common Stock
will be approved for trading on the New York Stock Exchange. Upon the
effective date of the recapitalization, approximately 23.6 million
Class A Common Shares and 48.0 million shares of Common Stock would be
issued and outstanding. The proportionate voting power of the holders of
the PRIDES will increase immediately after the effectiveness of the
recapitalization until such shares are redeemed or converted, which will
occur on or before December 31, 1997. As of January 31, 1996, holders of the
existing common stock and the PRIDES had 91.2% and 8.8%, respectively,
of the total voting power of all
23
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
stockholders. Immediately after the recapitalization, the voting
power of such holders of the PRIDES will increase to 19.6% in the
aggregate, with a corresponding reduction in the voting power of such
holders of the existing common stock. At such time as the PRIDES are
redeemed or converted, the relative voting power of such holders of
the PRIDES will decrease and the relative voting power for both such
holders of the PRIDES and the existing common stock will be approximately
the same as it would have been had the recapitalization not occurred.
See Note 4 of the Notes to Consolidated Financial Statements.
Operating Activities
Cash provided by operations was $118.7 million in 1995, compared with
cash used for operations of $22.1 million in 1994 and cash provided by
operations of $36.9 million in 1993. The improvement in cash flows
from operations in 1995 compared with 1994 was primarily due to higher
earnings and a refund of margin deposits of $50.5 million under
certain hedging contracts.
At December 31, 1995, the Company had working capital of $331.7
million, compared with working capital of $259.7 million at December
31, 1994. The increase in working capital was due primarily to an
increase in Receivables and Inventories and a decrease in Other
accrued liabilities, partially offset by a decrease in Prepaid
expenses and other current assets (principally due to a refund of
margin deposits related to hedging activities) and an increase in
Accounts payable and Accrued salaries, wages, and related expense.
Postretirement benefits other than pensions are provided through
contracts with various insurance carriers. The Company has not funded
the liability for these benefits, which are expected to be paid out of
cash generated by operations.
Investing Activities
The Company's capital expenditures of $217.1 million (of which $25.2
million was funded by the Company's minority partners in certain
foreign joint ventures) during the three years ended December 31,
1995, were made primarily to improve production efficiency, reduce
operating costs, expand capacity at existing facilities, and construct
new facilities. Total consolidated capital expenditures were $79.4
million in 1995, compared with $70.0 million in 1994 and $67.7 million
in 1993 (of which $8.3, $7.5, and $9.4 million were funded by the
minority partners in certain foreign joint ventures in 1995, 1994, and
1993, respectively). Total consolidated capital expenditures (of which
approximately 10% is expected to be funded by the minority partners in
certain foreign joint ventures) are expected to be between $123.0 and
$143.0 million per year in the years 1996-1998, subject to necessary
approvals, if required, from the lenders under the 1994 Credit
Agreement.
The Company has developed a unique micromill for the production of can
sheet from molten metal based on a proprietary thin-strip, high-speed,
continuous-belt casting technique linked directly to hot rolling and
cold rolling mills. The first micromill will be constructed in Nevada
in 1996 as a demonstration production facility. KACC currently intends
to finance the cost of the construction of the Nevada micromill,
estimated to be $45.0 million, from general corporate funds, including
possible borrowings under the 1994 Credit Agreement, although KACC is
in discussions with third parties which might provide some or all of
such funding.
In 1995, Kaiser Yellow River Investment Limited ("KYRIL") was formed
to participate in the privatization, modernization, and operation of
aluminum smelting facilities in the People's Republic of China (the
"PRC"). KYRIL has entered into a Joint Venture Agreement and related
agreements with the Lanzhou Aluminum Smelters of the China National
Nonferrous Metals Industry Corporation relating to the formation and
operation of Yellow River Aluminum Industry Company Limited, a Sino-
foreign joint equity enterprise organized under the laws of the PRC
24
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(the "Joint Venture"). KYRIL contributed $9.0 million as a
contribution to the capital of the Joint Venture in July 1995. The
parties to the Joint Venture are currently engaged in discussion
concerning the amount, timing, and other conditions relating to
KYRIL's additional contributions to the Joint Venture. Governmental
approval in the PRC will be necessary in order to implement certain
arrangements agreed to by the parties, and there can be no assurance
such approvals will be obtained.
Financing Activities
The declaration and payment of dividends by the Company and KACC on
shares of their common stock are 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 PRIDES is expressly permitted by the terms of the 1994
Credit Agreement to the extent the Company receives payments on
certain intercompany notes or certain other permitted distributions
from KACC.
Environmental Contingencies
The Company and KACC are subject to a number of environmental laws, to
fines or penalties assessed for alleged breaches of the environmental
laws, and to claims and litigation based upon such laws. KACC
currently is subject to a number of lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments Reauthorization Act of 1986
("CERCLA"), and, along with certain other entities, has been named as
a potentially responsible party for remedial costs at certain third-
party sites listed on the National Priorities List under CERCLA.
Based on the Company's evaluation of these and other environmental
matters, the Company has established environmental accruals, primarily
related to potential solid waste disposal and soil and groundwater
remediation matters. At December 31, 1995, the balance of such
accruals, which are primarily included in Long-term liabilities, was
$38.9 million. These environmental accruals represent the Company's
estimate of costs reasonably expected to be incurred based on
presently enacted laws and regulations, currently available facts,
existing technology, and the Company's assessment of the likely
remediation action to be taken. The Company expects that these
remediation actions will be taken over the next several years and
estimates that annual expenditures to be charged to these
environmental accruals will be approximately $3.0 to $9.0 million for
the years 1996 through 2000 and an aggregate of approximately $10.0
million thereafter.
As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in
these and other factors may result in actual costs exceeding the
current environmental accruals. The Company believes that it is
reasonably possible that costs associated with these environmental
matters may exceed current accruals by amounts that could range, in
the aggregate, up to an estimated $23.0 million and that the factors
upon which a substantial portion of this estimate is based are
expected to be resolved over the next twelve months. While
uncertainties are inherent in the final outcome of these environmental
matters, and it is presently impossible to determine the actual costs
that ultimately may be incurred, management currently believes that
the resolution of such uncertainties should not have a material
adverse effect on the Company's consolidated financial position,
results of operations, or liquidity. See Note 8 of the Notes to
Consolidated Financial Statements for further description of these
contingencies.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits, some of which involve
claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure
to asbestos during, and as a result of, their employment or
association with KACC or exposure to products containing asbestos
produced or sold by KACC.
25
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The lawsuits generally relate to products KACC has not manufactured
for at least 15 years. At December 31, 1995, the number of such claims
pending was approximately 59,700, as compared with 25,200 at December 31,
1994. In 1995, approximately 41,700 of such claims were received and
7,200 settled or dismissed. KACC has been advised by its regional
counsel that, although there can be no assurance, the recent increase
in pending claims may be attributable in part to tort reform legislation
in Texas which was passed by the legislature in March 1995 and which
became effective on September 1, 1995. The legislation, among other
things, is designed to restrict, beginning September 1, 1995, the
filing of cases in Texas that do not have a sufficient nexus to that
jurisdiction, and to impose, generally as of September 1, 1996,
limitations relating to joint and several liability in tort cases.
A substantial portion of the asbestos-related claims that were filed and
served on KACC between June 30, 1995, and November 30, 1995, were filed
in Texas prior to September 1, 1995.
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
2008. There are inherent uncertainties involved in estimating
asbestos-related costs, and the Company's actual costs could exceed
these estimates. The Company's accrual was calculated based on the
current and anticipated number of asbestos-related claims, the prior
timing and amounts of asbestos-related payments, and the advice of
Wharton, Levin, Ehrmantraut, Klein & Nash, P.A. with respect to the
current state of the law related to asbestos claims. Accordingly, an
asbestos-related cost accrual of $160.1 million, before consideration
of insurance recoveries, is included primarily in Long-term
liabilities at December 31, 1995. The Company estimates that annual
future cash payments in connection with such litigation will be
approximately $13.0 to $20.0 million for each of the years 1996
through 2000, and an aggregate of approximately $78.0 million
thereafter through 2008. While the Company does not presently believe
there is a reasonable basis for estimating such costs beyond 2008 and,
accordingly, no accrual has been recorded for such costs which may be
incurred beyond 2008, there is a reasonable possibility that such
costs may continue beyond 2008, and such costs may be substantial.
The Company believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. Claims
for recovery from some of KACC's insurance carriers are currently
subject to pending litigation and other carriers have raised certain
defenses, which have resulted in delays in recovering costs from the
insurance carriers. The timing and amount of ultimate recoveries from
these insurance carriers are dependent upon the resolution of these
disputes. The Company believes, based on prior insurance-related
recoveries in respect of asbestos-related claims, existing insurance
policies, and the advice of Thelen, Marrin, Johnson & Bridges with
respect to applicable insurance coverage law relating to the terms and
conditions of those policies, that substantial recoveries from the
insurance carriers are probable. Accordingly, an estimated aggregate
insurance recovery of $137.9 million, determined on the same basis as
the asbestos-related cost accrual, is recorded primarily in Other
assets at December 31, 1995.
While uncertainties are inherent in the final outcome of these
asbestos matters and it is presently impossible to determine the
actual costs that ultimately may be incurred and insurance recoveries
that will be received, management currently believes that, based on
the factors discussed in the preceding paragraphs, the resolution of
asbestos-related uncertainties and the incurrence of asbestos-related
costs net of related insurance recoveries should not have a material
adverse effect on the Company's consolidated financial position,
results of operations, or liquidity. See Note 8 of the Notes to
Consolidated Financial Statements for further description of this
contingency.
26
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Trends
- ------
Merger with Alumax
On February 22, 1996, the Company announced that it had proposed to
acquire all of the outstanding shares of Alumax Inc. and made public a
letter urging the Board of Directors of Alumax to seriously consider
the proposal. The Company's proposal to Alumax is for a combination of
cash and equity securities of the Company at a combined value of $40
to $45 per common share, of which $30 would be paid in cash and the
balance in Kaiser shares. The proposal was first made to Alumax on
February 8, 1996. Alumax subsequently rejected the proposal. On March
2, 1996, the Company announced that it decided to withdraw its
proposal.
Sensitivity to Prices and Hedging Programs
KACC enters into primary aluminum hedging transactions in the normal
course of business. The prices realized by KACC under certain sales
contracts for alumina, primary aluminum, and fabricated aluminum
products, as well as the costs incurred by KACC for certain items,
such as aluminum scrap, rolling ingot, power, and bauxite, fluctuate
with the market price of primary aluminum, together resulting in a
"net exposure" of earnings. The primary aluminum hedging transactions
are designed to mitigate the net exposure of earnings to declines in
the market price of primary aluminum, while retaining the ability to
participate in favorable pricing environments that may materialize.
KACC has employed strategies which include forward sales of primary
aluminum at fixed prices and the purchase or sale of options for
primary aluminum. In respect of its 1996 anticipated net exposure, at
December 31, 1995, KACC had purchased approximately 53,300 tons of
primary aluminum at fixed prices as a partial hedge against
approximately 161,100 tons of fabricated aluminum products sold to
customers at fixed or capped prices and had sold forward 15,750 tons
of primary aluminum at fixed prices.
In addition, as of December 31, 1995, KACC had sold approximately 75%
and 45% of the alumina available to it in excess of its projected
internal smelting requirements for 1996 and 1997, respectively.
Approximately 56% of such alumina sold for 1996 and all of such
alumina sold for 1997 has been sold at prices linked to the future
prices of primary aluminum as a percentage of the price of primary
aluminum ("Variable Price Contracts"), and approximately 44% of such
alumina sold for 1996 has been sold at fixed prices ("Fixed Price
Contracts"). The average realized prices of alumina sold under
Variable Price Contracts will depend on future prices of primary
aluminum, and the average realized prices of alumina sold under Fixed
Price Contracts will substantially exceed the Company's manufacturing
cost of alumina.
KACC also enters into hedging transactions in the normal course of
business that are designed to reduce its exposure to fluctuations in
foreign exchange rates. At December 31, 1995, KACC had net forward
foreign exchange contracts totaling approximately $102.8 million for
the purchase of 142.4 million Australian dollars through April 30,
1997.
KACC has established margin accounts with its counterparties related
to forward aluminum sales and option contracts. KACC 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,
1995, KACC had nil, compared with $50.5 million at December 31, 1994,
on deposit with counterparties in respect of such contracts. These
amounts are recorded in Prepaid expenses and other current assets.
Since December 31, 1995, KACC has entered into:
. Additional hedge positions in respect of its anticipated 1996,
1997, and 1998 production. As of February 29, 1996, KACC had
sold forward an additional 19,500 metric tons of primary
aluminum at fixed prices, had
27
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
purchased 20,150 metric tons of primary aluminum under
forward purchase contracts at fixed prices, and had purchased
put options to establish a minimum price for 45,000 metric
tons of primary aluminum.
. Additional forward foreign exchange contracts totaling
approximately $12.8 million for the purchase of 18.0 million
Australian dollars from March 1996 through December 1997 in
respect of its commitments for 1996 and 1997 expenditures
denominated in Australian dollars.
At February 29, 1996, the net unrealized gain on KACC's position in
aluminum forward sales and option contracts, based on an average price
of $1,747 per metric ton ($.79 per pound) of primary aluminum, and
forward foreign exchange contracts was $13.3 million.
Income Tax Matters
- ------------------
The Company's net deferred income tax assets as of December 31, 1995,
were $291.8 million, net of valuation allowances of $128.5 million.
Approximately $97.7 million of these net deferred income tax assets
relate to the benefit of loss and credit carryforwards, net of
valuation allowances. 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 5 of the Notes to
Consolidated Financial Statements for a discussion of these and other
income tax matters.
Recent Accounting Pronouncements
- --------------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company is required to
adopt SFAS 121 no later than January 1, 1996. The Company does not
expect that the adoption of SFAS 121 will have a material impact on
the Company's consolidated financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
SFAS 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans, and provides for alternative
methods for an employer to recognize stock-based compensation costs.
Under the first method, an employer may continue to account for
compensation costs for stock, stock options, and other equity
instruments issued to employees, as it has historically, using the
"intrinsic value based method" (as described in SFAS 123), and such
compensation costs would be the excess, if any, of the quoted market
price of the stock subject to an option at the grant date or other
measurement date over the amount an employee must pay to acquire the
stock. The intrinsic value based method generally would not result in
the recognition of compensation costs upon the grant of stock options.
Under the second method, an employer may adopt the "fair value based
method" (as described in SFAS 123). Under the fair value based method,
such compensation costs would be valued using an option-pricing model,
and such amount would be charged to expense over the option's vesting
period. Employers which elect to continue to account for stock-based
compensation under the intrinsic value based method will be required
by SFAS 123 to disclose in the notes to their financial statements the
amount of net income and the earnings per share which would have been
reported had the employer elected to use the fair value based method.
The Company has elected to continue to account for stock-based
compensation under the intrinsic value based method, and will comply
with the disclosure requirement of SFAS 123 as of January 1, 1996.
28
<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, 1995 and 1994, and the related statements of consolidated
income and cash flows for each of the three years in the period ended
December 31, 1995. 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, 1995 and
1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Houston, Texas
February 16, 1996
29
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------
(In millions of dollars, except share amounts) 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21.9 $ 17.6
Receivables:
Trade, less allowance for doubtful receivables of $5.0 in 1995 and $4.2 in 1994 222.9 150.7
Other 85.7 48.5
Inventories 525.7 468.0
Prepaid expenses and other current assets 76.6 158.0
-------- --------
Total current assets 932.8 842.8
Investments in and advances to unconsolidated affiliates 178.2 169.7
Property, plant, and equipment - net 1,109.6 1,133.2
Deferred income taxes 269.1 271.2
Other assets 323.5 281.2
-------- --------
Total $2,813.2 $2,698.1
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 184.5 $ 152.1
Accrued interest 32.0 32.6
Accrued salaries, wages, and related expenses 105.3 77.7
Accrued postretirement medical benefit obligation - current portion 46.8 47.0
Other accrued liabilities 129.4 176.9
Payable to affiliates 94.2 85.3
Long-term debt - current portion 8.9 11.5
-------- --------
Total current liabilities 601.1 583.1
Long-term liabilities 548.5 495.5
Accrued postretirement medical benefit obligation 734.0 734.9
Long-term debt 749.2 751.1
Minority interests 122.7 116.2
Stockholders' equity:
Preferred stock, par value $.05, authorized 20,000,000 shares:
Series A Convertible, stated value $.10, issued and outstanding,
nil and 1,938,295 in 1995 and 1994 .2
PRIDES Convertible, par value $.05, issued and outstanding,
8,673,850 and 8,855,550 in 1995 and 1994 .4 .4
Common stock, par value $.01, authorized 100,000,000 shares; issued and
outstanding, 71,638,514 and 58,205,083 in 1995 and 1994 .7 .6
Additional capital 530.3 527.8
Accumulated deficit (459.9) (502.6)
Additional minimum pension liability (13.8) (9.1)
-------- --------
Total stockholders' equity 57.7 17.3
-------- --------
Total $2,813.2 $2,698.1
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
30
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
Year Ended December 31,
------------------------------
(In millions of dollars, except share amounts) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $2,237.8 $1,781.5 $1,719.1
-------- -------- --------
Costs and expenses:
Cost of products sold 1,798.4 1,625.5 1,587.7
Depreciation 94.3 95.4 97.1
Selling, administrative, research and development, and general 134.5 116.8 121.9
Restructuring of operations 35.8
-------- -------- --------
Total costs and expenses
2,027.2 1,837.7 1,842.5
-------- -------- --------
Operating income (loss): 210.6 (56.2) (123.4)
Other expense:
Interest expense (93.9) (88.6) (84.2)
Other - net (14.1) (7.3) (.9)
-------- -------- --------
Income (loss) before income taxes, minority interests, extraordinary loss, and
cumulative effect of changes in accounting principles 102.6 (152.1) (208.5)
(Provision) credit for income taxes (37.2) 53.8 86.9
Minority interests (5.1) (3.1) (1.5)
-------- -------- --------
Income (loss) before extraordinary loss and cumulative effect of changes in
accounting principles 60.3 (101.4) (123.1)
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) 60.3 (106.8) (652.2)
Dividends on preferred stock (17.6) (20.1) (6.3)
-------- -------- --------
Net income (loss) available to common shareholders $ 42.7 $ (126.9) $ (658.5)
======== ======== ========
Earnings (loss) per common and common equivalent share:
Primary:
Income (loss) before extraordinary loss and cumulative effect of changes
in accounting principles $ .69 $ (2.09) $ (2.25)
Extraordinary loss (.09) (.38)
Cumulative effect of changes in accounting principles (8.84)
-------- -------- --------
Net income (loss) $ .69 $ (2.18) $ (11.47)
======== ======== ========
Fully diluted $ .72
========
Weighted average common and common equivalent shares outstanding (000):
Primary 62,264 58,139 57,423
======== ======== ========
Fully diluted 71,809
========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
31
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
(In millions of dollars) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 60.3 $ (106.8) $ (652.2)
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities:
Depreciation 94.3 95.4 97.1
Amortization of excess investment over equity in unconsolidated affiliates 11.4 11.6 11.9
Amortization of deferred financing costs and discount on long-term debt 5.4 6.2 11.2
Equity in (income) losses of unconsolidated affiliates (19.2) 1.9 3.3
Restructuring of operations 35.8
Minority interests 5.1 3.1 1.5
Extraordinary loss on early extinguishment of debt - net 5.4 21.8
Cumulative effect of changes in accounting principles - net 507.3
(Increase) decrease in receivables (109.7) 36.4 (6.1)
(Increase) decrease in inventories (57.7) (41.1) 13.0
Decrease (increase) in prepaid expenses and other assets 82.9 (60.6) (5.2)
Increase (decrease) in accounts payable 32.4 25.8 (10.3)
(Decrease) increase in accrued interest (.6) 9.3 19.2
Increase in payable to affiliates and accrued liabilities 10.6 50.8 76.9
Decrease in accrued and deferred income taxes (7.4) (68.8) (96.4)
Other 10.9 9.3 8.1
-------- -------- --------
Net cash provided by (used for) operating activities 118.7 (22.1) 36.9
-------- -------- --------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 8.6 4.1 13.1
Capital expenditures (79.4) (70.0) (67.7)
Investments in joint ventures (9.0)
-------- -------- --------
Net cash used for investing activities (79.8) (65.9) (54.6)
-------- -------- --------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (537.7) (345.1) (1,134.5)
Borrowings of long-term debt, including revolving credit 532.3 378.9 1,068.1
Borrowings from MAXXAM Group Inc. (see supplemental disclosure below) 15.0
Tender premiums and other costs of early extinguishment of debt (27.1)
Net short-term debt repayments (.5) (4.3)
Incurrence of financing costs (.8) (19.2) (12.7)
Dividends paid (20.8) (14.8) (6.3)
Capital stock issued 1.2 100.1 119.3
Redemption of minority interests' preference stock (8.8) (8.5) (4.2)
-------- -------- --------
Net cash (used for) provided by financing activities (34.6) 90.9 13.3
-------- -------- --------
Net increase (decrease) in cash and cash equivalents during the year 4.3 2.9 (4.4)
Cash and cash equivalents at beginning of year 17.6 14.7 19.1
-------- -------- --------
Cash and cash equivalents at end of year $ 21.9 $ 17.6 $ 14.7
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 88.8 $ 73.1 $ 53.7
Income taxes paid 35.7 16.0 13.5
Tax allocation payments from MAXXAM Inc. (3.9)
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.
32
<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. The Company is a direct subsidiary of MAXXAM Inc.
("MAXXAM") and conducts its operations through its wholly owned
subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"). KACC
operates in all principal aspects of the aluminum industry - the mining
of bauxite (the major aluminum-bearing ore), the refining of bauxite
into alumina (the intermediate material), the production of primary
aluminum, and the manufacture of fabricated and semi-fabricated
aluminum products. Kaiser's production levels of alumina and primary
aluminum exceed its internal processing needs, which allows it to be a
major seller of alumina and primary aluminum to domestic and
international third parties (see Note 10).
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities known to
exist as of the date the financial statements are published, and the
reported amount of revenues and expenses during the reporting period.
Uncertainties, with respect to such estimates and assumptions, are
inherent in the preparation of the Company's consolidated financial
statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions, which could have a
material effect on the reported amounts of the Company's consolidated
financial position and results of operation.
Investments in 50%-or-less-owned entities are accounted for primarily
by the equity method. Intercompany balances and transactions are
eliminated. Certain reclassifications of prior-year information were
made to conform to the current presentation.
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 changed 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". 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
33
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share amounts) (continued)
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 these 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:
<TABLE>
<CAPTION>
December 31,
---------------
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Finished fabricated products $ 91.5 $ 49.4
Primary aluminum and work in process 195.9 203.1
Bauxite and alumina 119.6 102.3
Operating supplies and repair and maintenance parts 118.7 113.2
------ ------
$525.7 $468.0
====== ======
</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
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for a stock-based compensation plan. Accordingly, no
compensation cost has been recognized for this plan (see Note 6).
Other Expense
Other expense in 1995, 1994, and 1993 includes $17.8, $16.5, and $17.9
of pre-tax charges related principally to establishing additional:
(i) litigation reserves for asbestos claims and (ii) environmental reserves
for potential soil and groundwater remediation matters, each pertaining
to operations which were discontinued prior to the acquisition
of the Company by MAXXAM in 1988.
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 $5.3, $6.0, and $11.2 for the years ended
December 31, 1995, 1994, and 1993, respectively, are included in
interest expense.
34
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
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, 1995, 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 9).
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>
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt $758.1 $806.3 $762.6 $747.6
Foreign currency contracts 1.9 3.5
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Debt - The quoted market prices were used for the Senior Notes and
12-3/4% Notes (see Note 4). 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 9).
Earnings (Loss) per Common and Common Equivalent Share
Primary earnings (loss) per common and common equivalent share are
computed by dividing net income (loss) available to common
shareholders by the weighted average number of common and common
equivalent shares outstanding during the period. Fully diluted
earnings per common and common equivalent share are computed as if the
Series A Shares and 181,700 shares of PRIDES (the "Converted PRIDES")
had been converted to common shares at the beginning of the period.
Accordingly, for purposes of the fully diluted calculations, the
dividends attributable to the Series A shares and the Converted PRIDES
($9.2 for the year ended December 31, 1995) have not been deducted
from net income, and the weighted average number of common and common
equivalent shares outstanding includes the shares issued upon
conversion of the Series A Shares and the Converted PRIDES as if they
had been outstanding for the entire period. As a result of the
redemption of the Series A Shares and conversion of the Converted
PRIDES during the 1995 period, fully diluted earnings per share are
presented for such period, even though the result is antidilutive. For
the years ended December 31, 1994 and 1993, common equivalent shares
attributable to the preferred stock and non-qualified stock options
were excluded from the calculation of weighted average shares because
they were antidilutive.
2. 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
35
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
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, 1995 and 1994, KACC's net
receivables from these affiliates were not material.
Summary of Combined Financial Position
<TABLE>
<CAPTION>
December 31,
---------------
1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Current assets $429.0 $342.3
Property, plant, and equipment - net 330.8 349.4
Other assets 39.3 42.4
------ ------
Total assets $799.1 $734.1
====== ======
Current liabilities $125.4 $122.4
Long-term debt 331.8 307.6
Other liabilities 35.6 31.0
Stockholders' equity 306.3 273.1
------ ------
Total liabilities and stockholders' equity $799.1 $734.1
====== ======
</TABLE>
Summary of Combined Operations
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net sales $ 685.9 $ 489.8 $ 510.3
Costs and expenses (618.7) (494.8) (527.2)
(Provision) credit for income taxes (18.7) (6.3) 1.9
------- ------- -------
Net income (loss) $ 48.5 $ (11.3) $ (15.0)
======= ======= =======
Company's equity in income (loss) $ 19.2 $ (1.9) $ (3.3)
======= ======= =======
</TABLE>
The Company's equity in income (loss) differs from the summary net
income (loss) due to various percentage ownerships in the entities and
equity method accounting adjustments. At December 31, 1995, KACC's
investment in its unconsolidated affiliates exceeded its equity in their
net assets by approximately $54.9. The Company is amortizing this amount
over a 12-year period, which results in an annual amortization charge of
approximately $11.4.
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 $284.4, $219.7, and $206.6
in the years ended December 31, 1995, 1994, and 1993, respectively.
Dividends of $8.1, nil, and nil were received from investees in the years
ended December 31, 1995, 1994, and 1993, respectively.
In 1995, a subsidiary of the Company invested $9.0 in a foreign joint venture.
This amount is included in Investments in and advances to unconsolidated
affiliates.
36
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
3. Property, Plant, and Equipment
- ----------------------------------
The major classes of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 151.8 $ 153.5
Buildings 198.5 196.8
Machinery and equipment 1,337.6 1,285.0
Construction in progress 59.6 45.0
-------- --------
1,747.5 1,680.3
Accumulated depreciation 637.9 547.1
-------- --------
Property, plant, and equipment - net $1,109.6 $1,133.2
======== ========
</TABLE>
4. Long-Term Debt
- ------------------
Long-term debt and its maturity schedule are as follows:
<TABLE>
<CAPTION>
December 31,
2001 --------------
and 1995 1994
1996 1997 1998 1999 2000 After Total Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 Credit Agreement (9.00% at December 31,
1995 $ 13.1 $ 13.1 $ 6.7
9-7/8% Senior Notes, net $223.8 223.8 223.6
Pollution Control and Solid Waste Disposal
Facilities Obligations (6.00% - 7.75%) $ 1.2 $ 1.3 $ 1.4 .2 $ .2 32.6 36.9 38.1
Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0 60.0
Alpart Term Loan (8.95%) 6.3 6.2 12.5 18.7
12-3/4% Senior Subordinated Notes 400.0 400.0 400.0
Other borrowings (fixed and variable rates) 1.4 1.4 7.7 .3 .2 .8 11.8 15.5
------ ------ ------ ------ ------ ------ ------ ------
Total $ 8.9 $ 8.9 $ 9.1 $ 13.6 $ .4 $717.2 758.1 762.6
====== ====== ====== ====== ====== ======
Less current portion 8.9 11.5
------ ------
Long-term debt $749.2 $751.1
====== ======
</TABLE>
1994 Credit Agreement
On February 17, 1994, the Company and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. and certain other
lenders (as amended, the "1994 Credit Agreement"). The 1994 Credit
Agreement consists of a $325.0 five-year secured, revolving line of
credit, scheduled to mature in 1999. KACC is able to borrow under the
facility by means of revolving credit advances and letters of credit
(up to $125.0) in an aggregate amount equal to the lesser of $325.0 or
a borrowing base relating to eligible accounts receivable 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 previous credit agreement. As of December 31, 1995,
$259.3 (of which $72.4 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
37
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
test, determined quarterly. As of December 31, 1995, the financial
test permitted a reduction of 1-1/2% per annum in margins effective
January 1, 1996.
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.
Senior Notes
Concurrent with the offering by the Company of its 8.255% PRIDES,
Convertible Preferred Stock (the "PRIDES") (see Note 7), 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.
Gramercy Solid Waste Disposal 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, 1995, $3.8 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. Substantially all of the Series A bonds
bear interest at a floating rate of 87% of the applicable LIBID Rate
(LIBOR less 1/8 of 1%). 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).
38
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
Senior Subordinated Notes
On February 1, 1993, KACC issued $400.0 of its 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.
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 (the "Indentures") 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. Further, the
Indentures provide that KACC must offer to purchase the Senior Notes
and the 12-3/4% Notes, respectively, upon the occurrence of a Change
of Control (as defined therein), and the 1994 Credit Agreement
provides that the occurrence of a Change in Control (as defined
therein) shall constitute an Event of Default thereunder.
Capitalized Interest
Interest capitalized in 1995, 1994, and 1993 was $2.8, $2.7, and $3.4,
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
restricted net assets of KACC totaled $24.0 at December 31, 1995.
5. 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,
---------------------------
1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ (55.9) $(168.4) $(232.0)
Foreign 158.5 16.3 23.5
------- ------- -------
Total $ 102.6 $(152.1) $(208.5)
======= ======= =======
</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.
39
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
The (provision) credit 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>
1995 Current $ (4.3) $ (40.2) $ (.1) $ (44.6)
Deferred 15.2 (4.9) (2.9) 7.4
------- ------- ------- -------
Total $ 10.9 $ (45.1) $ (3.0) $ (37.2)
======= ======= ======= =======
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
======= ======= ======= =======
</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 (provision) credit for income taxes and
the amount computed by applying the federal statutory income tax rate
to income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes in accounting
principles is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount of federal income tax (provision) credit based on the statutory rate $(35.9) $ 53.2 $ 73.0
Percentage depletion 4.2 5.6 6.4
Revision of prior years' tax estimates and other changes in valuation allowances 1.5 .2 3.9
Foreign taxes, net of federal tax benefit (5.4) (5.3) (2.6)
Increase in net deferred income tax assets due to tax rate change 1.8 3.4
Other (1.6) (1.7) 2.8
------ ------ ------
(Provision) credit for income taxes $(37.2) $ 53.8 $ 86.9
====== ====== ======
</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.
40
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
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,
------------------
1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions $ 289.9 $ 293.7
Loss and credit carryforwards 156.1 187.6
Other liabilities 107.8 109.6
Pensions 56.0 51.0
Foreign and state deferred income tax liabilities 30.8 28.1
Property, plant, and equipment 22.9 23.1
Inventories 1.8
Other 10.7 3.5
Valuation allowances (128.5) (133.9)
------- -------
Total deferred income tax assets - net 547.5 562.7
------- -------
Deferred income tax liabilities:
Property, plant, and equipment (179.8) (203.2)
Investments in and advances to unconsolidated affiliates (66.4) (63.8)
Inventories (8.3)
Other (9.5) (6.4)
------- -------
Total deferred income tax liabilities (255.7) (281.7)
------- -------
Net deferred income tax assets $ 291.8 $ 281.0
======= =======
</TABLE>
The valuation allowances listed above relate primarily to loss and
credit carryforwards and postretirement benefits other than pensions.
As of December 31, 1995, approximately $97.7 of the net deferred
income tax assets listed above relate to the benefit of loss and
credit carryforwards, net of valuation allowances. The Company
evaluated all appropriate factors to determine the proper valuation
allowances for these carryforwards, including any limitations
concerning their use and the year the carryforwards expire, as well as
the levels of taxable income necessary for utilization. For example,
full valuation allowances were provided for certain credit
carryforwards that expire in the near term. With regard to future
levels of income, the Company believes, based on the cyclical nature
of its business, its history of prior operating earnings, and its
expectations for future years, that it will more likely than not
generate sufficient taxable income to realize the benefit attributable
to the loss and credit carryforwards for which valuation allowances
were not provided. The remaining portion of the Company's net deferred
income tax assets at December 31, 1995, is approximately $194.1. 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.
As of December 31, 1995 and 1994, $53.5 and $37.9, respectively, of
the net deferred income tax assets listed above are included on the
Consolidated Balance Sheets in the caption entitled Prepaid expenses
and other current assets. Certain other portions of the deferred
income tax assets and liabilities listed above are included on the
Consolidated Balance Sheets in the captions entitled Other accrued
liabilities and Long-term liabilities.
41
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
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 7, 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
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.
42
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
The following table presents the Company's tax attributes for federal
income tax purposes as of December 31, 1995. The utilization of
certain of these tax attributes is subject to limitations:
<TABLE>
<CAPTION>
Expiring
Through
- --------------------------------------------------------------------------
<S> <C> <C>
Regular tax attribute carryforwards:
Net operating losses $ 32.9 2007
General business tax credits 28.4 2008
Foreign tax credits 89.7 2000
Alternative minimum tax credits 19.4 Indefinite
Alternative minimum tax attribute carryforwards:
Net operating losses $ 17.1 2002
Foreign tax credits 83.5 2000
</TABLE>
6. 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 (1)
December 31,
-------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested employees $ 753.0 $ 663.9
Nonvested employees 28.7 41.1
------- -------
Accumulated benefit obligation 781.7 705.0
Additional amounts related to projected salary increases 34.2 30.0
------- -------
Projected benefit obligation 815.9 735.0
Plan assets (principally common stocks and fixed income obligations) at fair value (592.3) (524.6)
------- -------
Plan assets less than projected benefit obligation 223.6 210.4
Unrecognized net losses (54.7) (42.5)
Unrecognized net obligations (.5) (.8)
Unrecognized prior-service cost (28.2) (30.9)
Adjustment required to recognize minimum liability 49.8 42.9
------- -------
Accrued pension obligation included in the Consolidated Balance Sheets
(principally in Long-term liabilities) $ 190.0 $ 179.1
======= =======
(1) Includes plans with assets exceeding accumulated benefits by
approximately $.1 and $.3 in 1995 and 1994, respectively.
</TABLE>
As required by Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," the Company recorded an after-
tax credit (charge) to equity of $(4.7) and $12.5 at December 31, 1995
and 1994, respectively, for the reduction (excess) of the minimum
liability over the unrecognized net obligation and prior-service cost.
These amounts
43
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
were recorded net of the related income tax (provision) credit of $2.8
and $(7.3) as of December 31, 1995 and 1994, respectively, which
approximated the federal and state statutory rates.
The components of net periodic pension cost are:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 10.0 $ 11.2 $ 10.8
Interest cost on projected benefit obligation 59.8 57.3 59.2
Return on assets:
Actual gain (112.2) (.8) (70.3)
Deferred gain (loss) 64.6 (53.0) 15.9
Net amortization and deferral 4.2 4.1 2.3
------- ------- -------
Net periodic pension cost $ 26.4 $ 18.8 $ 17.9
======= ======= =======
</TABLE>
Assumptions used to value obligations at year-end, and to determine
the net periodic pension cost in the subsequent year are:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 8.5% 7.5%
Expected long-term rate of return on assets 9.5% 9.5% 10.0%
Rate of increase in compensation levels 5.0% 5.0% 5.0%
</TABLE>
Postretirement Benefits Other Than Pensions
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, which are expected to be paid out of
cash generated by operations. The Company adopted SFAS 106 to account
for Postretirement benefits other than pensions as of January 1, 1993,
as discussed in Note 1.
In 1995, the Company adopted the Kaiser Aluminum Medicare Program
("KAMP"). KAMP is mandatory for all salaried retirees over 65 and for
USWA retirees who retire after December 31, 1995, when they become 65,
and voluntary for other hourly retirees of the Company's operations in
the states of California, Louisiana, and Washington. The USWA
contract, ratified on February 28, 1995, also contained changes to the
retiree health benefits. These changes included increased retirees'
copayments, deductibles, and coinsurance, and restricted Medicare Part
B premium reimbursement to the 1995 level for employees retiring after
November 1, 1994. These changes will lower the Company's expenses for
retiree medical care.
44
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
The Company's accrued postretirement benefit obligation is composed of
the following:
<TABLE>
<CAPTION>
December 31,
----------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $557.6 $566.2
Active employees eligible for postretirement benefits 30.7 30.2
Active employees not eligible for postretirement benefits 61.1 98.7
------ ------
Accumulated postretirement benefit obligation 649.4 695.1
Unrecognized net gains 20.5 55.0
Unrecognized gains related to prior-service costs 110.9 31.8
------ ------
Accrued postretirement benefit obligation $780.8 $781.9
====== ======
</TABLE>
The components of net periodic postretirement benefit cost are:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 4.5 $ 8.2 $ 7.1
Interest cost 52.3 56.9 58.5
Amortization of prior service cost (8.9) (3.2)
------ ------ ------
Net periodic postretirement benefit cost $ 47.9 $ 61.9 $ 65.6
====== ====== ======
</TABLE>
The 1996 annual assumed rates of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) are 8.0% and
7.5% for retirees under 65 and over 65, respectively, and are assumed
to decrease gradually to 5.0% 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, 1995, by
approximately $68.7 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1995 by
approximately $7.8. The weighted average discount rate used to
determine the accumulated postretirement benefit obligation at
December 31, 1995 and 1994, was 7.5% and 8.5%, respectively.
Postemployment Benefits
The Company provides certain benefits to former or inactive employees
after employment but before retirement. The Company adopted SFAS 112
to account for postemployment benefits as of January 1, 1993, as
discussed in Note 1.
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 544,839 shares were available
to be awarded at December 31, 1995. 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
45
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
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>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 1,119,680 664,400
Granted 494,800 664,400
Exercised (at $7.25 and $9.75 per share) (155,500) (6,920)
Expired or forfeited (38,095) (32,600)
--------- --------- -------
Outstanding at end of year (prices ranging from $7.25 to $12.75 per share) 926,085 1,119,680 664,400
========= ========= =======
Exercisable at end of year 211,755 120,180
========= =========
</TABLE>
In 1995, the Company adopted the Kaiser Aluminum Total Compensation
System, an unfunded incentive compensation program. The program
provides incentive pay based on performance against plan over a three-
year period. 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 $11.9, $6.1, and $5.3
for the years ended December 31, 1995, 1994, and 1993, respectively.
46
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
7. Stockholders' Equity and Minority Interests
- -----------------------------------------------
Changes in stockholders' equity and minority interests were:
<TABLE>
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, 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)
Net income 60.3
Redeemable preference stock:
Accretion 3.9
Stock redemption (8.7)
Stock repurchase 5.4
Conversions (1,222 preference shares into cash) (.1)
Common stock issued upon redemption and
conversion of preferred stock (.2) .1 1.1
Dividends on preferred stock (17.6)
Minority interest in majority-owned subsidiaries 6.0
Incentive plans accretion 1.4
Additional minimum pension liability (4.7)
------ ------ ----- ----- ----- ------- ------
BALANCE, DECEMBER 31, 1995 $ 29.7 $ 93.0 $ .4 $ .7 $530.3 $(459.9) $(13.8)
====== ====== ===== ===== ====== ======= ======
</TABLE>
47
<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 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>
1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Shares:
Beginning of year 912,167 1,081,548 1,163,221
Redeemed (174,804) (169,381) (81,673)
-------- --------- ---------
End of year 737,363 912,167 1,081,548
======== ========= =========
</TABLE>
No additional Series A or B Stock will be issued. 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 1994 and 1995, KACC contributed $4.3 for
each of the years 1993 and 1994, and will contribute $4.3 in March
1996 for 1995.
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, a
profitability test was satisfied for 1995; therefore, 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 1996. 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.
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.
48
<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 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, 1995, 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,
---------------
1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
4-1/8% 3,237 3,657
4-3/4% (1957 Series) 2,342 2,605
4-3/4% (1959 Series) 13,162 13,534
4-3/4% (1966 Series) 3,473 3,640
</TABLE>
Preferred Stock
Series A Convertible - In 1993, Kaiser issued 19,382,950 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"). On September 19, 1995, the
Company redeemed all 1,938,295 Series A Shares, which resulted in the
simultaneous redemption of all Depositary Shares in exchange for (i)
13,126,521 shares of the Company's common stock and (ii) $2.8 in cash
comprised of (a) an amount equal to all accrued and unpaid dividends
up to and including the day immediately prior to redemption date and
(b) cash in lieu of any fractional shares of common stock that would
have otherwise been issuable.
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
49
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
the holders of any other classes or series of stock 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, at the election of the Company,
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) 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 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, 1995, 28,000,000 shares of the Company's common stock
owned by MAXXAM were pledged as security for debt of a wholly owned
subsidiary of MAXXAM, consisting of $100.0 aggregate principal amount of
11-1/4% Senior Secured Notes due 2003 and $125.7 aggregate principal
amount of 12-1/4% Senior Secured Discount Notes due 2003.
Proposed Recapitalization
On February 5, 1996, the Company announced that it filed with the SEC
a preliminary proxy statement relating to a proposed recapitalization
and a special meeting of stockholders to consider and vote upon the
proposal. The proposed recapitalization would: (i) provide for two
classes of common stock: Class A Common Shares, $.01 par value, with
one vote per share and a new lesser-voting class designated as Common
Stock, $.01 par value, with 1/10 vote per share; (ii) redesignate as
Class A Common Shares the 100 million currently authorized shares of
existing common stock and authorize an additional 250 million shares
to be designated as Common Stock; and (iii) change each issued share
of the Company's existing common stock, par value $.01 per share, into
(a) .33 of a Class A Common Share and (b) .67 of a share of Common Stock.
The Company would pay cash in lieu of fractional shares. The Company
anticipates that both the Class A Common Shares and the Common Stock will
be approved for trading on the New York Stock Exchange. Upon the effective
date of the recapitalization, approximately 23,640,000 Class A Common
Shares and 47,998,000 shares of Common Stock would be issued and
outstanding. The proportionate voting power of the holders of the PRIDES
will increase immediately after the effectiveness of the recapitalization
until such shares are redeemed or converted, which will occur on or before
December 31, 1997. As of January 31, 1996, holders of the existing
common stock and the PRIDES had 91.2% and 8.8%, respectively, of the
total voting power of all stockholders. Immediately after the
recapitalization, the
50
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
voting power of such holders of the PRIDES will increase to 19.6% in
the aggregate, with a corresponding reduction in the voting power of
such holders of the existing common stock. At such time as the PRIDES
are redeemed or converted, the relative voting power of such holders
of the PRIDES will decrease and the voting power for both such holders
of the PRIDES and the existing common stock will be approximately the
same as it would have been had the recapitalization not occurred.
8. Commitments and Contingencies
- ---------------------------------
Commitments
KACC has financial commitments, including purchase agreements, tolling
arrangements, forward foreign exchange and forward sales contracts
(see Note 9), 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, 1995, is
$88.9, of which $26.7 is due in 1997 and the rest is due in 2002. The
KACC share of payments, including operating costs and certain other
expenses under the agreement, was $77.5, $85.6, and $86.7 for the
years ended December 31, 1995, 1994, and 1993, respectively. KACC also
has agreements to supply alumina to and to purchase aluminum from
Anglesey.
Minimum rental commitments under operating leases at December 31,
1995, are as follows: years ending December 31, 1996 - $22.7; 1997 -
$21.6; 1998 - $24.6; 1999 - $29.7; 2000 - $27.3; thereafter - $187.0.
The future minimum rentals receivable under noncancelable subleases
was $67.0 at December 31, 1995.
Rental expenses were $29.0, $26.8, and $29.0 for the years ended
December 31, 1995, 1994, and 1993, respectively.
Environmental Contingencies
The Company and KACC are subject to a number of environmental laws, to
fines or penalties assessed for alleged breaches of the environmental
laws, and to claims and litigation based upon such laws. KACC
currently is subject to a number of 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. The following table presents the changes in such
accruals, which are primarily included in Long-term liabilities, for
the years ended December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 40.1 $ 40.9 $ 46.4
Additional amounts 3.3 2.8 1.7
Less expenditures (4.5) (3.6) (7.2)
------ ------ ------
Balance at end of period $ 38.9 $ 40.1 $ 40.9
====== ====== ======
</TABLE>
51
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
These environmental accruals represent the Company's estimate of costs
reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the
Company's assessment of the likely remediation action to be taken. The
Company expects that these remediation actions will be taken over the next
several years and estimates that annual expenditures to be charged to
these environmental accruals will be approximately $3.0 to $9.0 for the
years 1996 through 2000 and an aggregate of approximately $10.0
thereafter.
As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in
these and other factors may result in actual costs exceeding the
current environmental accruals. The Company believes that it is
reasonably possible that costs associated with these environmental
matters may exceed current accruals by amounts that could range, in
the aggregate, up to an estimated $23.0 and that the factors upon
which a substantial portion of this estimate is based are expected to
be resolved over the next twelve months. While uncertainties are
inherent in the final outcome of these environmental matters, and it
is presently impossible to determine the actual costs that ultimately
may be incurred, management currently believes that the resolution of
such uncertainties should not have a material adverse effect on the
Company's consolidated financial position, results of operations, or
liquidity.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits, some of which involve
claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure
to asbestos during, and as a result of, their employment or
association with KACC or exposure to products containing asbestos
produced or sold by KACC. The lawsuits generally relate to products
KACC has not manufactured for at least 15 years.
The following table presents the changes in number of such claims
pending for the years ended December 31, 1995, 1994, and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Number of claims at beginning of period 25,200 23,400 13,500
Claims received 41,700 14,300 11,400
Claims settled or dismissed (7,200) (12,500) (1,500)
------ ------- ------
Number of claims at end of period 59,700 25,200 23,400
====== ======= ======
</TABLE>
KACC has been advised by its regional counsel that, although there can
be no assurance, the recent increase in pending claims may be
attributable in part to tort reform legislation in Texas which was
passed by the legislature in March 1995 and which became effective on
September 1, 1995. The legislation, among other things, is designed to
restrict, beginning September 1, 1995, the filing of cases in Texas
that do not have a sufficient nexus to that jurisdiction, and to
impose, generally as of September 1, 1996, limitations relating to
joint and several liability in tort cases. A substantial portion of
the asbestos-related claims that were filed and served on KACC between
June 30, 1995, and November 30, 1995, were filed in Texas prior to
September 1, 1995.
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
2008. There are inherent uncertainties involved in estimating
asbestos-related costs, and the Company's actual costs could exceed
these estimates. The Company's accrual was calculated based on the
current and anticipated number of asbestos-related claims, the prior
timing and amounts of asbestos-related payments, and the advice of
Wharton, Levin, Ehrmantraut, Klein & Nash, P.A. with respect to the
current state of the law related to asbestos claims. Accordingly, an
asbestos-related cost accrual of $160.1, before
52
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
consideration of insurance recoveries, is included primarily in Long-term
liabilities at December 31, 1995. The Company estimates that annual
future cash payments in connection with such litigation will be
approximately $13.0 to $20.0 for each of the years 1996 through 2000,
and an aggregate of approximately $78.0 thereafter through 2008. While
the Company does not presently believe there is a reasonable basis for
estimating such costs beyond 2008 and, accordingly, no accrual has been
recorded for such costs which may be incurred beyond 2008, there is a
reasonable possibility that such costs may continue beyond 2008, and
such costs may be substantial.
The Company believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. Claims
for recovery from some of KACC's insurance carriers are currently
subject to pending litigation and other carriers have raised certain
defenses, which have resulted in delays in recovering costs from the
insurance carriers. The timing and amount of ultimate recoveries from
these insurance carriers are dependent upon the resolution of these
disputes. The Company believes, based on prior insurance-related
recoveries in respect of asbestos-related claims, existing insurance
policies, and the advice of Thelen, Marrin, Johnson & Bridges with
respect to applicable insurance coverage law relating to the terms and
conditions of those policies, that substantial recoveries from the
insurance carriers are probable. Accordingly, an estimated aggregate
insurance recovery of $137.9, determined on the same basis as the
asbestos-related cost accrual, is recorded primarily in Other assets
at December 31, 1995.
While uncertainties are inherent in the final outcome of these
asbestos matters and it is presently impossible to determine the
actual costs that ultimately may be incurred and insurance recoveries
that will be received, management currently believes that, based on
the factors discussed in the preceding paragraphs, the resolution of
asbestos-related uncertainties and the incurrence of asbestos-related
costs net of related insurance recoveries should not have a material
adverse effect on the Company's consolidated financial position,
results of operations, or liquidity.
Other Contingencies
The Company or KACC is involved in various other claims, lawsuits, and
other proceedings relating to a wide variety of matters. While
uncertainties are inherent in the final outcome of such matters, and
it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the
resolution of such uncertainties and the incurrence of such costs
should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
9. Derivative Financial Instruments and Related Hedging Programs
- -----------------------------------------------------------------
KACC enters into a number of financial instruments 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, 1995, KACC had net forward foreign exchange
contracts totaling approximately $102.8 for the purchase of 142.4
Australian dollars through April 30, 1997.
53
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
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 1996 anticipated production, as of
December 31, 1995, KACC had sold forward 15,750 metric tons of primary
aluminum at fixed prices.
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, 1995 KACC had purchased
53,300 metric tons of primary aluminum under forward purchase
contracts at fixed prices that expire at various times through
December 1996.
At December 31, 1995, the net unrealized gain on KACC's position in
aluminum forward sales and option contracts, based on an average price
of $1,721 per metric ton ($.78 per pound) of aluminum, and forward
foreign exchange contracts was $4.1.
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 creditworthiness. When appropriate, KACC arranges master netting
agreements.
10. 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 $5.3, $.8, and $4.9 for the years ended December 31, 1995, 1994,
and 1993, respectively.
Sales of more than 10% of total revenue to a single customer were nil
in 1995 and were $58.2 and $40.7 of bauxite and alumina and $147.7 and
$145.7 of aluminum processing for the years ended December 31, 1994,
and 1993, respectively.
Export sales were less than 10% of total revenue during the years
ended December 31, 1995, 1994, and 1993, respectively.
54
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In millions of dollars, except share amounts)
Geographical area information relative to operations is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended Other
December 31, Domestic Caribbean Africa Foreign Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers 1995 $1,589.5 $ 191.7 $ 239.4 $ 217.2 $2,237.8
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
Sales and transfers among 1995 $ 79.6 $ 191.5 $(271.1)
geographic areas 1994 98.7 139.4 (238.1)
1993 88.2 79.6 (167.8)
Equity in income (losses) of 1995 $ (.2) $ 19.4 $ 19.2
unconsolidated affiliates 1994 .2 (2.1) (1.9)
1993 (3.3) (3.3)
Operating income (loss) 1995 $ 32.0 $ 9.8 $ 83.5 $ 85.3 $ 210.6
1994 (128.8) 9.9 18.3 44.4 (56.2)
1993 (145.9) (11.8) 21.9 12.4 (123.4)
Investment in and advances to 1995 $ 1.2 $ 27.1 $ 149.9 $ 178.2
unconsolidated affiliates 1994 1.2 28.8 139.7 169.7
Identifiable assets 1995 $2,017.9 $ 381.9 $ 196.5 $ 216.9 $2,813.2
1994 1,933.8 364.8 200.0 199.5 2,698.1
</TABLE>
55
<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, 1995 and
1994, and for the years ended December 31, 1995, 1994, and 1993, 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 1995 $514.2 $1,723.6 $2,237.8
1994 432.5 1,349.0 1,781.5
1993 423.4 1,295.7 1,719.1
Intersegment sales 1995 $159.7 $ 159.7
1994 146.8 146.8
1993 129.4 129.4
Equity in income (losses) of 1995 $ 3.6 $ 15.8 $ (.2) $ 19.2
unconsolidated affiliates 1994 (4.7) 2.6 .2 (1.9)
1993 (2.5) (.8) (3.3)
Operating income (loss) 1995 $ 54.0 $ 238.9 $ (82.3) $ 210.6
1994 19.8 (8.4) (67.6) (56.2)
1993 (4.5) (46.3) (72.6) (123.4)
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 1995 $ 31.1 $ 60.4 $ 2.8 $ 94.3
1994 33.5 59.1 2.8 95.4
1993 35.3 59.9 1.9 97.1
Capital expenditures 1995 $ 27.3 $ 44.0 $ 8.1 $ 79.4
1994 28.9 39.9 1.2 70.0
1993 35.3 31.2 1.2 67.7
Investment in and advances to 1995 $129.9 $ 47.1 $ 1.2 $ 178.2
unconsolidated affiliates 1994 136.6 31.9 1.2 169.7
Identifiable assets 1995 $746.0 $1,341.2 $ 726.0 $2,813.2
1994 749.6 1,242.3 706.2 2,698.1
</TABLE>
56
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
(In millions of dollars) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21.9 $ 17.6 $ 14.7 $ 19.1 $ 15.8
Receivables 308.6 199.2 234.7 270.0 218.8
Inventories 525.7 468.0 426.9 439.9 498.6
Prepaid expenses and other current assets 76.6 158.0 60.7 37.0 84.0
-------- -------- -------- ------- --------
Total current assets 932.8 842.8 737.0 766.0 817.2
Investments in and advances to unconsolidated affiliates 178.2 169.7 183.2 150.1 161.9
Property, plant, and equipment - net 1,109.6 1,133.2 1,163.7 1,066.8 1,014.5
Deferred income taxes 269.1 271.2 210.8
Other assets 323.5 281.2 233.2 189.7 140.5
-------- -------- -------- -------- --------
Total $2,813.2 $2,698.1 $2,527.9 $2,172.6 $2,134.1
======== ======== ======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accruals $ 451.2 $ 439.3 $ 339.7 $ 351.4 $ 461.6
Accrued postretirement medical benefit obligation -
current portion 46.8 47.0 47.6
Payable to affiliates 94.2 85.3 62.4 78.4 87.1
Long-term debt - current portion 8.9 11.5 8.7 25.9 26.3
-------- -------- -------- -------- --------
Total current liabilities 601.1 583.1 458.4 455.7 575.0
Long-term liabilities 548.5 495.5 501.8 281.7 212.9
Accrued postretirement medical benefit obligation 734.0 734.9 713.1
Long-term debt 749.2 751.1 720.2 765.1 681.5
Minority interests 122.7 116.2 105.0 104.9 108.9
Stockholders' equity:
Preferred stock .4 .6 .2
Common stock .7 .6 .6 .6 .6
Additional capital 530.3 527.8 425.9 288.5 287.9
Retained earnings (accumulated deficit) (459.9) (502.6) (375.7) 282.8 267.3
Additional minimum pension liability (13.8) (9.1) (21.6) (6.7)
-------- -------- -------- -------- --------
Total stockholders' equity 57.7 17.3 29.4 565.2 555.8
-------- -------- -------- -------- --------
Total $2,813.2 $2,698.1 $2,527.9 $2,172.6 $2,134.1
======== ======== ======== ======== ========
Debt-to-capital ratio(1) 78.1 82.4 81.3 54.1 51.5
(1) Total long-term debt - current portion and long-term debt
("debt") as a ratio of total debt, deferred income tax
liabilities, minority interests, and stockholders' equity.
</TABLE>
57
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
(In millions of dollars, except share amounts) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $2,237.8 $1,781.5 $1,719.1 $1,909.1 $2,000.8
-------- -------- -------- -------- --------
Costs and expenses:
Cost of products sold 1,798.4 1,625.5 1,587.7 1,619.3 1,594.2
Depreciation 94.3 95.4 97.1 80.3 73.2
Selling, administrative, research and development,
and general 134.5 116.8 121.9 119.6 117.4
Restructuring of operations 35.8
-------- -------- -------- -------- --------
Total costs and expenses 2,027.2 1,837.7 1,842.5 1,819.2 1,784.8
-------- -------- -------- -------- --------
Operating income (loss) 210.6 (56.2) (123.4) 89.9 216.0
Other income (expense):
Interest expense (93.9) (88.6) (84.2) (78.7) (93.9)
Other - net (14.1) (7.3) (.9) 20.9 20.3
-------- -------- -------- -------- --------
Income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes
in accounting principles 102.6 (152.1) (208.5) 32.1 142.4
(Provision) credit for income taxes (37.2) 53.8 86.9 (5.3) (32.4)
Minority interests (5.1) (3.1) (1.5) .1 (1.6)
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss and cumulative
effect of changes in accounting principles 60.3 (101.4) (123.1) 26.9 108.4
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) $ 60.3 $ (106.8) $ (652.2) $ 26.9 $ 108.4
======== ======== ======== ======== ========
Per common and common equivalent share:
Net income (loss):
Primary $ .69 $ (2.18) $ (11.47) $ .47 $ 2.03
Fully diluted .72
Dividends declared .20 1.10
</TABLE>
58
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------
(In millions of dollars, except share amounts) March 31 June 30 September 30 December 31,
- --------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1995
Net sales $ 513.0 $ 583.4 $ 550.3 $ 591.1
Operating income 32.6 63.6 53.2 61.2
Net income 3.5 23.3 12.5 21.0
Earnings (loss) per common and common equivalent share:
Primary (.03)(1) .31 .13 .26
Fully diluted .14
Common stock market price:
High 11-7/8 14 21 15-3/4
Low 10-1/8 10-1/2 13-7/8 10-3/4
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 (2)
Extraordinary loss - net 5.4
Net loss 34.7 23.6 20.8 27.7 (2)
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
</TABLE>
(1) After deduction of $5.3 dividends on preferred stock from net
income.
(2) Includes pre-tax charges of approximately $10.3, principally
related to establishing additional litigation and environmental
reserves in the fourth quarter of 1994.
59
<PAGE>
<TABLE>
<CAPTION>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------------------------------
CORPORATE INFORMATION
<S> <C>
KAISER ALUMINUM CORPORATION KAISER ALUMINUM & CHEMICAL CORPORATION
- --------------------------- --------------------------------------
Directors Directors
- --------- ---------
George T. Haymaker, Jr. George T. Haymaker, Jr.
Chairman and Chief Executive Officer Charles E. Hurwitz
Charles E. Hurwitz Robert J. Cruikshank
Chairman, President, and Chief Executive Officer, Ezra G. Levin
MAXXAM Inc., Robert Marcus
Chairman and Chief Executive Officer, Robert J. Petris
Federated Development Company
Robert J. Cruikshank Corporate Officers and Business Managers
Personal Investments ----------------------------------------
Ezra G. Levin George T. Haymaker, Jr.
Partner in the law firm of Kramer, Levin, Naftalis, Chairman and Chief Executive
Nessen, Kamin & Frankel Charles E. Hurwitz
Robert Marcus Vice Chairman
Former President and Chief Executive Officer, Joseph A. Bonn
Alumax Inc. Vice President, Planning and Administration
Robert J. Petris Robert E. Cole
Assistant to the International President of the Vice President, Government Affairs
United Steelworkers of America John E. Daniel
Vice President, and President of Kaiser Primary Aluminum
Products
Corporate Officers Arthur S. Donaldson
- ------------------ Controller
George T. Haymaker, Jr. Robert W. Irelan
Chairman and Chief Executive Officer Vice President, Public Relations
Joseph A. Bonn John T. La Duc
Vice President, Planning and Administration Vice President and Chief Financial Officer
Arthur S. Donaldson Alan G. Longmuir
Controller Vice President, Research & Development
John T. La Duc Raymond J. Milchovich
Vice President and Chief Financial Officer Vice President, and President of Kaiser Flat-Rolled
Anthony R. Pierno Products
Vice President and General Counsel James T. Owen
Karen A. Twitchell Vice President, and President of Kaiser Extruded Products
Treasurer Anthony R. Pierno
Byron L. Wade Vice President and General Counsel
Vice President, Secretary, and Deputy General Counsel Geoffrey W. Smith
Vice President, and President of Kaiser Alumina
Karen A. Twitchell
Treasurer
Kris S. Vasan
Vice President, Financial Risk Management
Byron L. Wade
Vice President, Secretary, and Deputy General Counsel
Lawrence L. Watts
Vice President, and President of Kaiser Aluminum
International
</TABLE>
60
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
CORPORATE INFORMATION
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Kaiser Aluminum Corporation Auditors
- --------------------------- --------
5847 San Felipe, Suite 2600 (Zip 77057-3010) Arthur Andersen LLP
P.O. Box 572887 (Zip 77257-2887) 711 Louisiana, Suite 1300
Houston, TX Houston, TX 77002
713/267-3777
Internet at: http://www.kaiseral.com
Agents and Trustees
-------------------
Stockholder Matters The First National Bank of Boston
- ------------------- c/o Boston EquiServe
Kaiser Aluminum Corporation stock is traded on the P.O. Box 644, Mail Stop 45-02-09
New York Stock Exchange. Ticker symbols are KLU for Boston, MA 02102-0644
the Common Stock; and KLUPrD for the 8.255% 617-575-3400
PRIDES, Convertible Preferred Stock.
The Company's Annual Report on Form 10-K as filed Transfer Agent and Registrar for Kaiser
with the Securities and Exchange Commission is Aluminum Corporation Common Stock and
available, without charge, on written request. In 8.255% PRIDES, Convertible Preferred Stock
addition, a copy of the exhibits to the Form 10-K is
available upon payment of a specified fee, which fee
shall be limited to the Company's expenses in State Street Bank and Trust Company
furnishing such exhibit(s). All requests should be Corporate Trust Customer Srvice Dept.
directed to: P. O. Box 778
Boston, MA 02102
800-531-0368
Trustee for Kaiser Aluinum & Chemical Corporation
12-3/4% Senior Subordinated Notes due 2003
Kaiser Aluminum Corporation First Trust National Association
Shareholder Services 180 E. 5th Street
P.O. Box 572887 St. Paul, MN 55101
Houston, TX 77257-2887 612/244-0444
Trustee for Kaiser Aluminum & Chemical
Corporation 9-7/8% Senior Notes
This annual report is printed on recycled paper.
Additionally, the report uses vegetable-oil inks
that release fewer volatile gases into the
atmosphere than regular oil-based inks, that contain
no heavy metals, and that are not a health threat
during printing operations.
</TABLE>
61
<PAGE>
- --------------------------------------------------------------
KAISER ALUMINUM & CHEMICAL CORPORATION, as Issuer,
KAISER ALUMINA AUSTRALIA CORPORATION,
ALPART JAMAICA INC.,
KAISER JAMAICA CORPORATION,
KAISER FINANCE CORPORATION,
KAISER MICROMILL HOLDINGS, LLC,
KAISER SIERRA MICROMILLS, LLC,
KAISER TEXAS SIERRA MICROMILLS, LLC, and
KAISER TEXAS MICROMILL HOLDINGS, LLC, as
Subsidiary Guarantors
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
SECOND SUPPLEMENTAL INDENTURE
Dated as of February 1, 1996
to
INDENTURE
Dated As of February 1, 1993
12 % Senior Subordinated Notes due 2003
- -------------------------------------------------------------- <PAGE>
<PAGE>
SECOND SUPPLEMENTAL INDENTURE, dated as of February 1,
1996, between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware
corporation (the "Company"), as Issuer, KAISER ALUMINA AUSTRALIA
CORPORATION, a Delaware corporation ("KAAC"), ALPART JAMAICA
INC., a Delaware corporation ("AJI"), KAISER JAMAICA CORPORATION,
a Delaware corporation ("KJC"), KAISER FINANCE CORPORATION, a
Delaware corporation ("Kaiser Finance"), KAISER MICROMILL
HOLDINGS, LLC, a Delaware limited liability company ("KMH"),
KAISER SIERRA MICROMILLS, LLC, a Delaware limited liability
company ("KSM"),KAISER TEXAS SIERRA MICROMILLS, LLC, a Texas
limited liability company ("Texas Sierra"),and KAISER TEXAS
MICROMILL HOLDINGS, LLC, a Texas limited liability company
("Texas Holdings"),as Subsidiary Guarantors, and State Street
Bank and Trust Company (as successor to The First National Bank
of Boston), a Massachusetts trust company, as Trustee (the
"Trustee").
WHEREAS, the Company, KAAC, AJI, KJC and The First
National Bank of Boston executed an Indenture, dated as of
February 1, 1993 (the "Original Indenture"), in respect of
$400,000,000 aggregate principal amount of the Company's 12 %
Senior Subordinated Notes due 2003 (the "Securities"), and the
Original Indenture was amended by a First Supplemental Indenture,
dated as of May 1, 1993 (the Original Indenture, as amended by
such First Supplemental Indenture being hereinafter referred to
as the "Indenture"), executed by the Company, KACC, AJI, KJC and
Kaiser Finance;
WHEREAS, State Street Bank and Trust Company is the
successor to The First National Bank of Boston, as Trustee under
the Indenture;
WHEREAS, Section 5.12 of the Indenture requires, under
circumstances specified in Section 5.12, that the Company shall
cause certain Subsidiaries of the Company to execute and deliver
to the Trustee a supplemental indenture in form and substance
satisfactory to the Trustee pursuant to which such Subsidiaries
of the Company shall be named as additional Subsidiary
Guarantors; and
WHEREAS, all conditions and requirements necessary to
make this Second Supplemental Indenture a valid, binding and
legal instrument in accordance with its terms have been performed
and fulfilled and the execution and delivery hereof have been in
all respects duly authorized.
NOW, THEREFORE, in consideration of the above premises,
each party agrees, for the benefit of the other and for the equal
and ratable benefit of the Holders of the Securities, as follows:
ARTICLE I
AMENDMENTS
Section 1. The Company, KAAC, AJI, KJC, Kaiser
Finance, KMH, KSM, Texas Sierra, Texas Holdings and the Trustee
hereby amend the Indenture and agree that each of KMH, KSM, Texas
Sierra and Texas Holdings shall be a Subsidiary Guarantor for all
purposes under the Indenture and the term "Subsidiary Guarantor"
shall for all purposes under the Indenture specifically include
each of KMH, KSM, Texas Sierra and Texas Holdings.
<PAGE>
<PAGE>
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.1. Terms Defined. For all purposes of this
Second Supplemental Indenture, except as otherwise defined or
unless the context otherwise requires, terms used in capitalized
form in this Second Supplemental Indenture and defined in the
Indenture have the meanings specified in the Indenture.
Section 2.2. Indenture. Except as amended hereby, the
Indenture and the Securities are in all respects ratified and
confirmed and all their terms shall remain in full force and
effect.
Section 2.3. Governing Law. This Second Supplemental
Indenture shall be deemed to be a contract made under the laws of
the State of New York, and for all purposes shall be governed by
and construed in accordance with the laws of said state without
regard to the principles of the conflict of laws provisions
thereof.
Section 2.4. Successors and Assigns. All agreements
of the Company, KAAC, AJI, KJC, Kaiser Finance, KMH, KSM, Texas
Sierra and Texas Holdings in this Second Supplemental Indenture
and the Securities shall bind its successors and assigns.
Section 2.5. Multiple Counterparts. This Second
Supplemental Indenture may be executed in any number of
counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same
instrument.
Section 2.6. Effectiveness. The provisions of this
Second Supplemental Indenture shall become effective immediately
upon its execution and delivery by the Trustee in accordance with
the provisions of Article Eleven of the Indenture.
Section 2.7. Trustee Disclaimer. The Trustee accepts
the amendment of the Indenture effected by this Second
Supplemental Indenture and agrees to execute the trust created by
the Indenture as hereby amended, but only upon the terms and
conditions set forth in the Indenture, including the terms and
provisions defining and limiting the liabilities and
responsibilities of the Trustee, which terms and provisions shall
in like manner define and limit its liabilities and
responsibilities in the performance of the trust created by the
Indenture as hereby amended, and, without limiting the generality
of the foregoing, the Trustee shall not be responsible in any
manner whatsoever for or with respect to any of the recitals or
statements contained herein, all of which recitals or statements
are made solely by the Company, KAAC, AJI, KJC, Kaiser Finance,
KMH, KSM, Texas Sierra and Texas Holdings, or for or with respect
to (i) the validity, efficacy or sufficiency of this Second
Supplemental Indenture or any of the terms or provisions hereof,
(ii) the proper authorization hereof by the Company, KAAC, AJI,
KJC, Kaiser Finance, KMH, KSM, Texas Sierra and Texas Holdings by
corporate action or limited liability company action or
otherwise, (iii) the due execution hereof by the Company, KAAC,
AJI, KJC, Kaiser Finance, KMH, KSM, Texas Sierra and Texas
Holdings or (iv) the consequences (direct or indirect and whether
deliberate or inadvertent) of any amendment herein provided for,
and the Trustee makes no representation with respect to any such
matters.
[Remainder of Page Intentionally Blank]
-2-
<PAGE>
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Second Supplemental Indenture to be duly executed, all as of the
date first written above.
KAISER ALUMINUM & CHEMICAL
CORPORATION, as Issuer
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ________________________
Name: Byron L. Wade
Title: Secretary
KAISER ALUMINA AUSTRALIA
CORPORATION, as a Subsidiary
Guarantor
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: _________________________
Name: Byron L. Wade
Title: Secretary
ALPART JAMAICA INC.,
as a Subsidiary Guarantor
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
-3-
<PAGE>
<PAGE>
KAISER JAMAICA CORPORATION,
as a Subsidiary Guarantor
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
KAISER FINANCE CORPORATION,
as a Subsidiary Guarantor
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
KAISER MICROMILL HOLDINGS, LLC,
as a Subsidiary Guarantor
By:_____________________________
Name: John T. La Duc
Title: Manager
Dated: February 1, 1996
Attest: By: ___________________________
Name: Anthony R. Pierno
Title: Manager
-4-
<PAGE>
<PAGE>
KAISER SIERRA MICROMILLS, LLC,
as a Subsidiary Guarantor
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
KAISER TEXAS SIERRA MICROMILLS,
LLC,
as a Subsidiary Guarantor
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
KAISER TEXAS MICROMILL HOLDINGS,
LLC,
as a Subsidiary Guarantor
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
-5-
<PAGE>
<PAGE>
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:_____________________________
Name:
Title:
Dated: February 1, 1996
Attest: By: ___________________________
Name:
Title:
-6-
<PAGE>
- ---------------------------------------------------------
KAISER ALUMINUM & CHEMICAL CORPORATION, as Issuer,
KAISER ALUMINA AUSTRALIA CORPORATION,
ALPART JAMAICA INC.,
KAISER JAMAICA CORPORATION,
KAISER FINANCE CORPORATION,
KAISER MICROMILL HOLDINGS, LLC,
KAISER SIERRA MICROMILLS, LLC,
KAISER TEXAS SIERRA MICROMILLS, LLC, and
KAISER TEXAS MICROMILL HOLDINGS, LLC, as
Subsidiary Guarantors
and
FIRST NATIONAL TRUST ASSOCIATION, as Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of February 1, 1996
to
INDENTURE
Dated As of February 17, 1994
9-7/8% Senior Notes due 2002
- ----------------------------------------------------------
<PAGE>
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of February 1,
1996, between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware
corporation (the "Company"), as Issuer, KAISER ALUMINA AUSTRALIA
CORPORATION, a Delaware corporation ("KAAC"), ALPART JAMAICA
INC., a Delaware corporation ("AJI"), KAISER JAMAICA CORPORATION,
a Delaware corporation ("KJC"), KAISER FINANCE CORPORATION, a
Delaware corporation ("Kaiser Finance"), KAISER MICROMILL
HOLDINGS, LLC, a Delaware limited liability company ("KMH"),
KAISER SIERRA MICROMILLS, LLC, a Delaware limited liability
company ("KSM"),KAISER TEXAS SIERRA MICROMILLS, LLC, a Texas
limited liability company ("Texas Sierra"),and KAISER TEXAS
MICROMILL HOLDINGS, LLC, a Texas limited liability company
("Texas Holdings"),as Subsidiary Guarantors, and First National
Trust Association, a national banking association, as Trustee
(the "Trustee").
WHEREAS, the Company, KAAC, AJI, KJC, Kaiser Finance
and the Trustee executed an Indenture, dated as of February 17,
1994 (the "Indenture"), in respect of $225,000,000 aggregate
principal amount of the Company's 9-7/8% Senior Notes due 2002
(the "Securities").
WHEREAS, Section 4.12 of the Indenture requires, under
circumstances specified in Section 4.12, that the Company shall
cause certain Subsidiaries of the Company to execute and deliver
to the Trustee a supplemental indenture in form and substance
satisfactory to the Trustee pursuant to which such Subsidiaries
of the Company shall be named as additional Subsidiary
Guarantors; and
WHEREAS, all conditions and requirements necessary to
make this First Supplemental Indenture a valid, binding and legal
instrument in accordance with its terms have been performed and
fulfilled and the execution and delivery hereof have been in all
respects duly authorized.
NOW, THEREFORE, in consideration of the above premises,
each party agrees, for the benefit of the other and for the equal
and ratable benefit of the Holders of the Securities, as follows:
ARTICLE I
AMENDMENTS
Section 1. The Company, KAAC, AJI, KJC, Kaiser
Finance, KMH, KSM, Texas Sierra, Texas Holdings and the Trustee
hereby amend the Indenture and agree that each of KMH, KSM, Texas
Sierra and Texas Holdings shall be a Subsidiary Guarantor for all
purposes under the Indenture and the term "Subsidiary Guarantor"
shall for all purposes under the Indenture specifically include
each of KMH, KSM, Texas Sierra and Texas Holdings.
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.1. Terms Defined. For all purposes of this
First Supplemental Indenture, except as otherwise defined or
unless the context otherwise requires, terms used in capitalized
form in this First Supplemental Indenture and defined in the
Indenture have the meanings specified in the Indenture.<PAGE>
<PAGE>
Section 2.2. Indenture. Except as amended hereby, the
Indenture and the Securities are in all respects ratified and
confirmed and all their terms shall remain in full force and
effect.
Section 2.3. Governing Law. This First Supplemental
Indenture shall be deemed to be a contract made under the laws of
the State of New York, and for all purposes shall be governed by
and construed in accordance with the laws of said state without
regard to the principles of the conflict of laws provisions
thereof.
Section 2.4. Successors and Assigns. All agreements
of the Company, KAAC, AJI, KJC, Kaiser Finance, KMH, KSM, Texas
Sierra and Texas Holdings in this First Supplemental Indenture
and the Securities shall bind its successors and assigns.
Section 2.5. Multiple Counterparts. This First
Supplemental Indenture may be executed in any number of
counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same
instrument.
Section 2.6. Effectiveness. The provisions of this
First Supplemental Indenture shall become effective immediately
upon its execution and delivery by the Trustee in accordance with
the provisions of Article Ten of the Indenture.
Section 2.7. Trustee Disclaimer. The Trustee accepts
the amendment of the Indenture effected by this First
Supplemental Indenture and agrees to execute the trust created by
the Indenture as hereby amended, but only upon the terms and
conditions set forth in the Indenture, including the terms and
provisions defining and limiting the liabilities and
responsibilities of the Trustee, which terms and provisions shall
in like manner define and limit its liabilities and
responsibilities in the performance of the trust created by the
Indenture as hereby amended, and, without limiting the generality
of the foregoing, the Trustee shall not be responsible in any
manner whatsoever for or with respect to any of the recitals or
statements contained herein, all of which recitals or statements
are made solely by the Company, KAAC, AJI, KJC, Kaiser Finance,
KMH, KSM, Texas Sierra and Texas Holdings, or for or with respect
to (i) the validity, efficacy or sufficiency of this First
Supplemental Indenture or any of the terms or provisions hereof,
(ii) the proper authorization hereof by the Company, KAAC, AJI,
KJC, Kaiser Finance, KMH, KSM, Texas Sierra and Texas Holdings by
corporate action or limited liability company action or
otherwise, (iii) the due execution hereof by the Company, KAAC,
AJI, KJC, Kaiser Finance, KMH, KSM, Texas Sierra and Texas
Holdings or (iv) the consequences (direct or indirect and whether
deliberate or inadvertent) of any amendment herein provided for,
and the Trustee makes no representation with respect to any such
matters.
[Remainder of Page Intentionally Blank]
-2-
<PAGE>
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
First Supplemental Indenture to be duly executed, all as of the
date first written above.
KAISER ALUMINUM & CHEMICAL
CORPORATION, as Issuer
By: ____________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ________________________
Name: Byron L. Wade
Title: Secretary
KAISER ALUMINA AUSTRALIA
CORPORATION, as a Subsidiary
Guarantor
By:______________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: _________________________
Name: Byron L. Wade
Title: Secretary
ALPART JAMAICA INC.,
as a Subsidiary Guarantor
By:_____________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
-3-
<PAGE>
<PAGE>
KAISER JAMAICA CORPORATION,
as a Subsidiary Guarantor
By: ____________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
KAISER FINANCE CORPORATION,
as a Subsidiary Guarantor
By: ____________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
KAISER MICROMILL HOLDINGS, LLC,
as a Subsidiary Guarantor
By: ___________________________
Name: John T. La Duc
Title: Manager
Dated: February 1, 1996
Attest: By: ___________________________
Name: Anthony R. Pierno
Title: Manager
-4-<PAGE>
<PAGE>
KAISER SIERRA MICROMILLS, LLC,
as a Subsidiary Guarantor
By: _____________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
KAISER TEXAS SIERRA MICROMILLS,
LLC,
as a Subsidiary Guarantor
By: ____________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
KAISER TEXAS MICROMILL HOLDINGS,
LLC,
as a Subsidiary Guarantor
By: _____________________________
Name: John T. La Duc
Title: Vice President and
Chief Financial Officer
Dated: February 1, 1996
Attest: By: ___________________________
Name: Byron L. Wade
Title: Secretary
-5-
<PAGE>
<PAGE>
FIRST NATIONAL TRUST ASSOCIATION,
as Trustee
By: ____________________________
Name:
Title:
Dated: February 1, 1996
Attest: By: ___________________________
Name:
Title:
-6-
<PAGE>
CERTIFICATE OF RETIREMENT
OF
KAISER ALUMINUM CORPORATION,
A DELAWARE CORPORATION,
UNDER
SECTION 243 OF THE GENERAL CORPORATION LAW OF DELAWARE
--------------------------------------------------------
In accordance with Section 243 of the General
Corporation Law of the State of Delaware, Kaiser Aluminum
Corporation (the "Corporation"), a Delaware corporation, DOES
HEREBY CERTIFY:
FIRST: That the Corporation has redeemed and retired
one million, nine hundred thirty-eight thousand, two hundred
ninety-five (1,938,295) shares of the Series A Mandatory
Conversion Premium Dividend Preferred Stock, par value $.05
per share, of the Corporation outstanding on September 19,
1995, which constituted all of the authorized shares of the
Series A Mandatory Conversion Premium Dividend Preferred
Stock of the Corporation.
SECOND: That the Certificate of Designations of Series
A Mandatory Conversion Premium Dividend Preferred Stock of
Kaiser Aluminum Corporation prohibits the reissuance of the
shares of Series A Mandatory Conversion Premium Dividend
Preferred Stock as shares of Series A Mandatory Conversion
Premium Dividend Preferred Stock when so retired, but
provides that such retired shares shall resume the status of
authorized but unissued shares of Preferred Stock, par value
$.05 per share, of the Corporation, without designation as to
series or class, and that such shares may thereafter be
issued, but not as shares of Series A Mandatory Conversion
Premium Dividend Preferred Stock.
THIRD: That when this Certificate of Retirement
becomes effective in accordance with Section 103 of the
General Corporation Law of the State of Delaware, it shall
have the effect of amending the Restated Certificate of
Incorporation of the Corporation so as to eliminate from the
Restated Certificate of Incorporation of the Corporation all
reference to the Series A Mandatory Conversion Premium
Dividend Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Retirement to be signed by Anthony R. Pierno,
a Vice President, and attested by Byron L. Wade, its
Secretary, this 24th day of October, 1995.
____________________________
Anthony R. Pierno
Vice President
ATTEST:
__________________________________
Byron L. Wade
Secretary
[Corporate Seal]
EXECUTION COPY
FIFTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of December 11, 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 Second Amendment to
Credit Agreement, dated as of March 10, 1995, the Third Amendment
to Credit Agreement and Acknowledgement, dated as of July 20,
1995, and the Fourth Amendment to Credit Agreement, dated as of
October 17, 1995 (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 Article I: Definitions.
----------------------- -----------
A. The definition of "Joint Venture Affiliate"
contained in Section 1.1 of the Credit Agreement is hereby
-----------
amended by inserting the phrase "Guizhou Kaiser (but only at such
time as Guizhou Kaiser is not a Subsidiary of the Company and is
an Affiliate of the Company), Chengdu Kaiser (but only at such
time as Chengdu Kaiser is not a Subsidiary of the Company and is
an Affiliate of the Company)," after the term "Furukawa," in the
second line thereof.
B. The definition of "Organic Document" contained in
Section 1.1 of the Credit Agreement is hereby amended to read in
its entirety as follows:
1
<PAGE>
<PAGE>
"`Organic Document' means, with respect to any Obligor,
----------------
its articles or certificate of incorporation and its bylaws
(in the case of an Obligor that is a corporation), its
articles of organization or certificate of formation and its
regulations or limited liability company agreement (in the
case of an Obligor that is a limited liability company), and
all shareholder agreements, voting trusts, and similar
arrangements applicable to any of its authorized shares of
capital stock (in the case of an Obligor that is a
corporation) or other equity interests (in the case of an
Obligor that is a limited liability company)."
C. The following definitions are hereby added to
Section 1.1 of the Credit Agreement in the appropriate
- -----------
alphabetical order:
"`Chengdu Kaiser' means Chengdu Kaiser Aluminum
--------------
Company, Ltd., a corporation organized under the laws of the
People's Republic of China."
"`Guizhou Kaiser' means Guizhou Kaiser Aluminum
--------------
Company, Ltd., a corporation organized under the laws of the
People's Republic of China."
"`KAEII' means Kaiser Aluminum Extrusions International
-----
Inc., a corporation organized under the laws of Delaware."
"`KMH' means Kaiser Micromill Holdings, LLC, a limited
---
liability company organized under the laws of Delaware."
"`KSM' means Kaiser Sierra Micromills, LLC, a limited
---
liability company organized under the laws of Delaware."
"`Texas Holdings' means Kaiser Texas Micromill
--------------
Holdings, LLC, a limited liability company organized under the
laws of Texas."
"`Texas Sierra' means Kaiser Texas Sierra Micromills,
------------
LLC, a limited liability company organized under the laws of
Texas."
1.2 Amendments to Article IX: Covenants.
------------------------------------
A. Clause (b)(i) of Section 9.2.2 of the Credit
------------- -------------
Agreement is hereby amended to read in its entirety as follows:
"(i) Indebtedness of the Company in respect of the
Senior Debt, and Contingent Obligations of AJI, KJC, KFC,
KAAC, KMH, KSM, Texas Holdings and Texas Sierra as a
'Subsidiary Guarantor' (under and as defined in the Senior
2
<PAGE>
<PAGE>
Indenture and the Subordinated Indenture) in respect of the
Senior Debt and the Subordinated Debt, respectively;"
B. Clause (b)(ii) of Section 9.2.2 of the Credit
-------------- -------------
Agreement is hereby amended by (i) adding the phrase "Chengdu
Kaiser, Guizhou Kaiser, KAEII," after the phrase "KAAC," in the
first parenthetical contained in clause (A) thereof; (ii) adding
----------
the phrase "Chengdu Kaiser, Guizhou Kaiser, KAEII," after the
phrase "Yellow River Investment Company," in the first
parenthetical contained in clause (B) thereof; and (iii) adding
----------
the phrase "Chengdu Kaiser, Guizhou Kaiser, KAEII," after the
phrase "Yellow River Investment Company," in the first
parenthetical contained in clause (C) thereof.
----------
C. Clause (b)(xvii) of Section 9.2.2 of the Credit
---------------- -------------
Agreement is hereby amended by adding the phrase "Chengdu Kaiser,
Guizhou Kaiser, KAEII," after the term "AJI," in the
parenthetical contained therein.
D. Section 9.2.2 of the Credit Agreement is hereby
-------------
amended by (i) deleting the word "and" at the end of clause
------
(b)(xviii) thereof; and (ii) adding the following as new clause
- ---------- ------
(b)(xx) thereof:
- -------
"(xx) Indebtedness of KAEII to the Company and its
Subsidiaries in an aggregate principal amount not to exceed
$5,000,000 outstanding at any time during Fiscal Year 1996
and $7,000,000 outstanding at any time thereafter; and"
E. Clause (e) of Section 9.2.5 of the Credit
---------- -------------
Agreement is hereby amended to read in its entirety as follows:
"(e) subject to Section 9.2.18, Investments in the
--------------
ordinary course of business in the Company and its
Subsidiaries (other than Investments made prior to
October 1, 1993 by any Obligor (other than KBC and KEC) in
KBC, KEC or any Subsidiary of the Company that is not an
Obligor and other than Investments in Yellow River
Investment Company, Chengdu Kaiser, Guizhou Kaiser, KAEII,
Alwis or Alwis Acquisition);"
F. Clause (n) of Section 9.2.5 of the Credit
---------- -------------
Agreement is hereby amended to read in its entirety as follows:
"(n) Investments in Alwis and Alwis Acquisition and
Investments (other than Investments in MAXXAM, any Affiliate
of MAXXAM (other than the Company, its Subsidiaries which
are not Restricted Subsidiaries, or any Joint Venture
Affiliate), Chengdu Kaiser, Guizhou Kaiser, KAEII, Yellow
River Investment Company or Yellow River Aluminum) not
otherwise permissible hereunder; provided that the aggregate
---------
3
<PAGE>
<PAGE>
amount of all Investments (without duplication) under this
Section 9.2.5(n) does not exceed $20,000,000 at any one time
----------------
outstanding, and provided further that the aggregate amount
----------------
of Investments under this Section 9.2.5(n) in Alwis and
----------------
Alwis Acquisition (without duplication) plus the aggregate
principal amount of Indebtedness under Section 9.2.2(b)(xix)
---------------------
does not exceed $250,000 in the aggregate at any one time
outstanding;"
G. The first paragraph of clause (o) of Section 9.2.5
---------- --------------
of the Credit Agreement is hereby amended to read in its entirety
as follows:
"(o) provided (i) no Default or Event of Default shall
have occurred and be continuing (or would occur after giving
effect to such Investment) and (ii) that the Interest
Coverage Ratio for the four Fiscal Quarter period ended as
of the end of the last period for which consolidated
financial statements of the Company have been delivered
pursuant to Section 9.1.1(a) or 9.1.1(b) is greater than 2.0
---------------- ---------
to 1, Investments in Subsidiaries and Joint Venture
Affiliates (other than Alwis, Alwis Acquisition, Chengdu
Kaiser, Guizhou Kaiser, KAEII, Yellow River Investment
Company and Yellow River Aluminum) not otherwise permissible
hereunder in an aggregate amount not to exceed".
H. Clause (r) of Section 9.2.5 of the Credit
---------- -------------
Agreement is hereby amended to read in its entirety as follows:
"(r) Indebtedness which is an Investment permitted by
clause (b)(xviii), clause (b)(xix) or clause (b)(xx) of
----------------- --------------- --------------
Section 9.2.2; and"
-------------
I. Section 9.2.5 of the Credit Agreement is hereby
-------------
amended by (i) deleting the word "and" at the end of clause (q)
----------
thereof; and (ii) adding the following as new clause (s) thereof:
----------
"(s) Investments by the Company in Chengdu Kaiser,
Guizhou Kaiser and KAEII in an aggregate amount not to
exceed $5,000,000 outstanding at any time during Fiscal Year
1996 (less any Indebtedness outstanding at such time under
Section 9.2.2(b)(xx)) and $7,000,000 outstanding at any time
---------------------
thereafter (less any Indebtedness outstanding at such time
under Section 9.2.2(b)(xx)) and Investments by KAEII in
---------------------
Chengdu Kaiser and Guizhou Kaiser in an aggregate amount not
to exceed $5,000,000 outstanding at any time during Fiscal
Year 1996 and $7,000,000 outstanding at any time
thereafter."
J. Section 9.2.7 of the Credit Agreement is hereby
-------------
amended by deleting the figure "$70,000,000" from the chart for
4
<PAGE>
<PAGE>
the 1995 Fiscal Year and substituting the figure "$80,000,000"
therefor.
K. Section 9.2.11 of the Credit Agreement is hereby
--------------
amended by (i) deleting the word "and" at the end of clause (i)
----------
thereof; (ii) deleting the period at the end of clause (j)
----------
thereof and substituting the phrase "; and" therefor; and (iii)
adding the following as new clause (k) thereof:
----------
"(k) the Company may enter into an option to enter into
an oil and gas lease and an oil and gas lease with The
Clinton Oil Company with respect to real property located in
Heath, Ohio; provided that the Company's interest in such
lease is assigned as Collateral to the Agent on behalf of
the Lenders on terms and pursuant to documentation in form
and substance satisfactory to the Agent in its sole and
absolute discretion."
L. Clause (c) of Section 9.2.13 of the Credit
---------- --------------
Agreement is hereby amended by adding the phrase "KMH, KSM, Texas
Holdings, Texas Sierra," after the phrase "AJI," in the
parenthetical contained therein.
M. Section 9.2.14 of the Credit Agreement is hereby
--------------
amended by adding the following to the end of clause (d) thereof
----------
after the figure "$1,500,000":
"and provided further that in addition to such payments
----------------
in an aggregate amount not to exceed $1,500,000 permitted to
be made for each Fiscal Year, the Company shall be permitted
to make a one time payment in respect of services rendered
to the Company and the Company's allocable share of MAXXAM's
overhead expenses during Fiscal Years 1992, 1993 and 1994 in
an aggregate amount not to exceed $2,374,000"
N. Clause (vi) of Section 9.2.18 of the Credit
----------- --------------
Agreement is hereby amended to read in its entirety as follows:
"(vi) Investments permitted by Sections 9.2.5(f),
-------- ---------
9.2.5(n), 9.2.5(o), 9.2.5(q), 9.2.5(r) and 9.2.5(s); and"
--------- --------- --------- -------- ---------
Section 2. Amendments to Collateral Documents; Release
-------------------------------------------
of Collateral.
- -------------
The parties agree that, as of the Fifth Amendment
Effective Date, (i) the Company Security Agreement shall be
amended as set forth in Exhibit A hereto, (ii) the Subsidiary
Security Agreement shall be amended as set forth in Exhibit B
hereto, (iii) the Subsidiary Guaranty shall be amended as set
forth in Exhibit C hereto, and (iv) the Subsidiary Pledge
Agreement shall be amended as set forth in Exhibit D hereto. The
5
<PAGE>
<PAGE>
Required Lenders hereby approve the forms of such amendments, and
hereby authorize the Agent on their behalf to accept from the
Company and the Subsidiaries of the Company executing such
amendments and authorize the Agent to execute and deliver as
Agent, the amendment to the Company Security Agreement in
substantially the form of such Exhibit A, the amendment to the
Subsidiary Security Agreement in substantially the form of such
Exhibit B, the amendment to the Subsidiary Guaranty in
substantially the form of such Exhibit C and the amendment to the
Subsidiary Pledge Agreement in substantially the form of such
Exhibit D with such changes, additions or deletions as the Agent,
in its sole and absolute discretion, may approve. In addition,
the Lenders hereby agree that the Agent may (i) release the Lien
of the Lenders in the oil, gas and other substances subject to
the oil and gas lease with The Clinton Oil Company (the "Lessee")
referred to in Section 9.2.11(k) of the Credit Agreement (the
-----------------
"Lease"), (ii) subordinate the relevant Company Mortgage to the
interest of the Lessee in the Lease, and (iii) execute and
deliver such documents, in form and substance satisfactory to the
Agent in its sole and absolute discretion, as may be necessary or
appropriate to accomplish such release and subordination. The
Lenders hereby further agree that approval by the Agent of the
Lease shall constitute approval of the Lease by the Lenders.
Section 3. Consent of Lenders.
------------------
The Lenders hereby consent to the execution and
delivery by the Company, Kaiser Finance Corporation, Kaiser
Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser
Jamaica Corporation, KMH, KSM, Texas Holdings and Texas Sierra of
a supplement to the Senior Indenture and a supplement to the
Subordinated Indenture, in form and substance satisfactory to the
Agent in its sole and absolute discretion, for the purpose of
adding each of KMH, KSM, Texas Holdings and Texas Sierra as a
"Subsidiary Guarantor" (under and as defined in the Senior
Indenture and the Subordinated Indenture).
Section 4. Conditions to Effectiveness.
---------------------------
This Amendment shall become effective as of the date
hereof only when the following conditions shall have been
satisfied and notice thereof shall have been given by the Agent
to the Parent Guarantor, the Company, the Agent and each Lender
(the date of satisfaction of such conditions and the giving of
such notice being referred to herein as the "Fifth Amendment
---------------
Effective Date"):
- --------------
A. The Agent shall have received for each Lender
counterparts hereof duly executed on behalf of the Parent
Guarantor, the Company, the Agent and the Required Lenders (or
notice of the approval of this Amendment by the Required Lenders
6
<PAGE>
<PAGE>
satisfactory to the Agent shall have been received by the Agent),
together with counterparts of the Second Amendment to Company
Security Agreement, dated as of December 11, 1995, between the
Company and the Agent (the "Security Amendment") and a Pledge
------------------
Amendment to the Company Pledge Agreement with respect to the
stock of KAEII (the "Pledge Amendment") 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, and, as to the Company, the Security Amendment
and the Pledge 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, and, as to the Company, the Security Amendment and the
Pledge Amendment;
(3) Copies of the Second Amendment to Subsidiary
Security Agreement, dated as of December 11, 1995, between the
Subsidiaries of the Company parties thereto and the Agent (the
"Subsidiary Security Amendment") duly executed on behalf of such
-----------------------------
Subsidiaries and the Agent;
(4) Resolutions of the Board of Directors or of
the Executive Committee or other authorized governing body or
entity of each of the Subsidiaries of the Company executing the
Subsidiary Security Amendment approving and authorizing the
execution, delivery and performance of the Subsidiary Security
Amendment, certified by their respective corporate secretaries or
an assistant secretary or other authorized representative as
being in full force and effect without modification or amendment
as of the date of execution thereof by such Subsidiary;
(5) A signature and incumbency certificate of the
officers or other authorized representative of each of the
Subsidiaries of the Company executing the Subsidiary Security
Amendment;
(6) Certified copies of the Certificate of
Incorporation, Articles of Organization, or Certificate of
Formation, as applicable, of KAEII, KMH, KSM, Texas Holdings and
Texas Sierra;
7
<PAGE>
<PAGE>
(7) Copies of the Bylaws, Limited Liability
Company Agreement or Regulations, as applicable, of KAEII, KMH,
KSM, Texas Holdings and Texas Sierra, certified as of the date of
delivery to the Agent by their respective corporate secretaries
or an assistant secretary or other authorized representative;
(8) Copies of the Second Amendment to Subsidiary
Guaranty, dated as of December 11, 1995, by the Subsidiaries of
the Company parties thereto and the Agent (the "Subsidiary
----------
Guaranty Amendment") duly executed on behalf of such Subsidiaries
- ------------------
and the Agent;
(9) Copies of the Second Amendment to Subsidiary
Pledge Agreement, dated as of December 11, 1995, by the
Subsidiaries of the Company parties thereto and the Agent (the
"Subsidiary Pledge Amendment") duly executed on behalf of such
---------------------------
Subsidiaries and the Agent;
(10) Duly executed financing statements (Form UCC-1)
naming each of KMH, KSM, Texas Holdings and Texas Sierra as
the debtor and the Agent as the secured party, or other similar
instruments or documents, suitable for filing under the Uniform
Commercial Code of all jurisdictions as may be necessary or, in
the reasonable opinion of the Agent, desirable to perfect the
security interest of the Agent in the Collateral granted pursuant
to the Subsidiary Security Agreement to the extent that
perfection may be accomplished by filing under the Uniform
Commercial Code in any state in the United States or the District
of Columbia;
(11) Duly executed amendments to financing
statements naming the Company as debtor and the Agent as the
secured party, or other similar instruments or documents,
suitable for filing under the Uniform Commercial Code of Texas
and California with respect to the ownership interest of the
Company in Texas Holdings and KMH;
(12) Resolutions of the Board of Directors or of
the Executive Committee or other authorized governing body or
entity of each of KMH, KSM, Texas Holdings and Texas Sierra
approving and authorizing the execution, delivery and performance
of the Subsidiary Guaranty Amendment and the Subsidiary Pledge
Amendment, certified by their respective corporate secretaries or
an assistant secretary or other authorized representative as
being in full force and effect without modification or amendment
as of the date of execution thereof by such Subsidiary;
(13) A signature and incumbency certificate of the
officers or other authorized representative of KMH, KSM, Texas
Holdings and Texas Sierra executing the Subsidiary Guaranty
Amendment and the Subsidiary Pledge Amendment;
8
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<PAGE>
(14) Stock certificates evidencing 100% of the
issued and outstanding shares of capital stock of KAEII,
accompanied by undated stock powers duly executed in blank;
(15) For each Lender an opinion, addressed to the
Agent and each Lender, from Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel, in form and substance satisfactory to the Agent;
and
(16) Such other information approvals, opinions,
documents, or instruments as the Agent may reasonably request.
Section 5. Conditions Subsequent.
---------------------
The Company or KMH shall, as soon as reasonably
practicable, deliver to the Agent duly executed instruments or
documents, suitable for recording in the United States Patent and
Trademark Office, with respect to granting a security interest in
such patents and trademarks owned by the Company or KMH and to be
used by KMH and KSM as may be reasonably requested by the Agent.
Section 6. 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 Fifth Amendment Effective Date
after giving effect to the effectiveness of this Amendment, the
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Amendment by the Company and the Parent
Guarantor and the performance of the Credit Agreement as amended
by this Amendment (the "Amended Agreement") by the Company and
-----------------
the Parent Guarantor are within such Obligor's corporate powers
and have been duly authorized by all necessary corporate action
on the part of the Company and the Parent Guarantor, as the case
may be.
B. No Conflict. The execution and delivery by the
-----------
Company and the Parent Guarantor of this Amendment and the
performance by the Company and the Parent Guarantor of the
Amended Agreement do not:
(1) contravene such Obligor's Organic Documents;
(2) contravene the Senior Indenture or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
9
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<PAGE>
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such Obligor or any of its Subsidiaries;
or
(3) result in, or require the creation or
imposition of, any Lien on any of such Obligor's properties or
any of the properties of any Subsidiary of such Obligor, other
than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by the Company and the Parent Guarantor
and this Amendment and the Amended Agreement constitute the
legal, valid and binding obligations of the Company and the
Parent Guarantor, enforceable against the Company and the Parent
Guarantor in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors'
rights generally and by general principles of equity.
D. Governmental Approval, Regulation, etc. No
---------------------------------------
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any
other Person is required for the due execution, delivery or
performance of this Amendment by the Company or the Parent
Guarantor other than the filing of appropriate financing
statements and the filings referred to in Section 5 hereof.
E. Incorporation of Representations and Warranties
------------------------------------------------
from Credit Agreement. Each of the statements set forth in
- ---------------------
Section 7.2.1 of the Credit Agreement is true and correct.
- -------------
Section 7. Acknowledgement and Consent.
---------------------------
The Company is a party to the Company Collateral
Documents, in each case as amended through the date hereof,
pursuant to which the Company has created Liens in favor of the
Agent on certain Collateral to secure the Obligations. The
Parent Guarantor is a party to the Parent Collateral Documents,
in each case as amended through the date hereof, pursuant to
which the Parent Guarantor has created Liens in favor of the
Agent on certain Collateral and pledged certain Collateral to the
Agent to secure the Obligations of the Parent Guarantor. Certain
Subsidiaries of the Company are parties to the Subsidiary
Guaranty and/or one or more of the Subsidiary Collateral
Documents, in each case as amended through the date hereof,
pursuant to which such Subsidiaries have (i) guarantied the
Obligations and/or (ii) created Liens in favor of the Agent on
certain Collateral. The Company, the Parent Guarantor and such
Subsidiaries are collectively referred to herein as the "Credit
------
Support Parties", and the Company Collateral Documents, the
- ---------------
10
<PAGE>
<PAGE>
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
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 8. Miscellaneous.
-------------
A. Reference to and Effect on the Credit Agreement
-----------------------------------------------
and the Other Loan Documents.
- ----------------------------
(1) On and after the Fifth 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
11
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<PAGE>
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment
--------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Amendment or any provision
hereof.
D. Counterparts. This Amendment may be executed by
------------
the parties hereto in several counterparts and by the different
parties on separate counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but
one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached
to the same document.
E. Severability. Any provision of this Amendment
------------
which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
12
<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 Printed: John T. La Duc Name Printed: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
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:_______________________
13
<PAGE>
<PAGE>
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: _______________________ By:________________________
Name Printed: John T. La Duc Name Printed: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By: _______________________ By:________________________
Name Printed: John T. La Duc Name Printed: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By: _______________________ By:________________________
Name Printed: John T. La Duc Name Printed: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By: _______________________ By:________________________
Name Printed: John T. La Duc Name Printed: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
ALPART JAMAICA INC. KAISER JAMAICA CORPORATION
By: _______________________ By:________________________
Name Printed: John T. La Duc Name Printed: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
14
<PAGE>
<PAGE>
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By: _______________________ By:________________________
Name Printed: John T. La Duc Name Printed: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
15
<PAGE>
<PAGE>
EXHIBIT A
SECOND AMENDMENT TO COMPANY SECURITY AGREEMENT
-----------------------------------------------
THIS SECOND AMENDMENT TO COMPANY SECURITY AGREEMENT
(this "Amendment"), dated as of December 11, 1995, is by and
---------
between Kaiser Aluminum & Chemical Corporation, a Delaware
corporation (the "Company"), and BankAmerica Business Credit,
-------
Inc., a Delaware corporation, as agent for the Secured Lenders
(as defined in the Credit Agreement referred to below) (in such
capacity, together with its successors and assigns in such
capacity, the "Agent"). Capitalized terms used, but not defined,
-----
herein shall have the meanings given to such terms in the Credit
Agreement, as amended by the Fifth Amendment.
W I T N E S S E T H:
WHEREAS, the Company, Kaiser Aluminum Corporation, the
various financial institutions that are or may from time to time
become parties to the Credit Agreement (collectively, the
"Lenders" and, individually, a "Lender"), and the Agent are
------- ------
parties to the Credit Agreement, dated as of February 15, 1994,
as amended by the First Amendment to Credit Agreement, dated as
of July 21, 1994, the Second Amendment to Credit Agreement, dated
as of March 10, 1995, the Third Amendment to Credit Agreement and
Acknowledgment, dated as of July 20, 1995, and the Fourth
Amendment to Credit Agreement, dated as of October 17, 1995 (the
"Credit Agreement"); and
----------------
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a Fifth
Amendment to Credit Agreement (the "Fifth Amendment"); and
---------------
WHEREAS, the Company and the Agent are parties to the
Company Security Agreement, Financing Statement and Conditional
Assignment of Patents and Trademarks, dated as of February 15,
1994, as amended by the First Amendment to Company Security
Agreement, dated as of July 21, 1994 (the "Company Security
----------------
Agreement"), and have agreed to amend the Company Security
- ---------
Agreement as herein provided; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Amendment by the Agent;
A-1
<PAGE>
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendment to Company Security Agreement.
---------------------------------------
A. Clause (d) of Section 2 of the Company
---------- ---------
Security Agreement is hereby amended to read in its entirety as
follows:
"Chattel Paper, Documents (including all Documents
covering Goods of the Company), Instruments, Certificated
Securities, and Uncertificated Securities, but excluding,
however, Securities representing the Company's ownership interest
in any of its Subsidiaries (other than, to the extent provided in
clause (j) of this Section 2, KMH and Texas Holdings) or Joint
- ---------- ---------
Venture Affiliates;"
B. Section 2 of the Company Security Agreement
---------
is hereby amended by (i) deleting the word "and" at the end of
clause (h) thereof; (ii) adding the word "and" at the end of
- ----------
clause (i) thereof; and (iii) adding the following as new clause
- ---------- ------
(j) thereof:
- ---
"(j) All of the Company's right, title and interest as a
member in and to KMH and Texas Holdings (collectively,
the "Pledged Interests") to receive money due and to
-----------------
become due (including, without limitation,
distributions, interest, income from the properties and
assets of KMH and Texas Holdings and returns of
capital) under or pursuant to the certificate of
formation, articles of organization, regulations,
limited liability company agreement or any other
organizational documents of KMH and Texas Holdings
governing the rights and obligations of the members
thereof (collectively, the 'Organizational
--------------
Agreements'), to receive payments or distributions of
----------
property in kind upon termination or liquidation of KMH
or Texas Holdings or the Company's interest in KMH or
Texas Holdings and to receive any other payments or
distributions, whether cash or non-cash, in respect of
the Company's interests in KMH or Texas Holdings
(collectively, 'LLC Distributions');"
-----------------
C. Section 4 of the Company Security Agreement
---------
is hereby amended by adding the following at the end thereof:
"This Agreement shall not in any way be deemed to obligate
the Agent, any Secured Lender or any purchaser at a
foreclosure sale under this Agreement to assume any of the
Company's obligations, duties, expenses or liabilities under
the Organizational Agreements (including, without
limitation, the Company's obligations as a member for the
debts and obligations of KMH and Texas Holdings and to
A-2
<PAGE>
<PAGE>
manage the business and affairs of KMH and Texas Holdings),
unless and until the Agent, any Secured Lender or purchaser
otherwise agrees to become, and becomes in accordance with
the applicable Organizational Agreements, a member of KMH or
Texas Holdings, as the case may be."
D. The Company Security Agreement is hereby
amended by adding the following as new Section 20 thereof:
----------
"SECTION 20. LLC Distributions
-----------------
(a) Subject to the provisions of the Credit Agreement,
the Company shall be entitled to receive and retain any and
all LLC Distributions paid unless an Event of Default under
Section 10.1.1 of the Credit Agreement has occurred and is
--------------
continuing or unless and until it receives notice, given
with the consent of the Required Lenders during the
continuance of any other Event of Default, from the Agent
that such right has been suspended; provided, however, that
-------- -------
any and all
(i) LLC Distributions paid or payable other than
in cash in respect of, and instruments and other
property received, receivable, or otherwise distributed
in respect of, or in exchange for, any Pledged
Interests,
(ii) LLC Distributions paid or payable in cash in
respect of any Pledged Interests in connection with a
partial or total liquidation or dissolution or in
connection with a reduction of capital, or returns of
capital, and
(iii) cash paid, payable, or otherwise distributed
in redemption of or in exchange for any Pledged
Interests,
shall be, and shall forthwith be delivered to the Agent to hold
as, Collateral (unless such LLC Distributions or cash are (A)
otherwise subject to a Lien in favor of the Agent pursuant to any
other Loan Document, (B) in the case of cash, applied to repay
Loans under the Credit Agreement, or (C) real property, plant or
equipment which, if acquired by the Company after the date
hereof, would not be required to be subject to a Lien in favor of
the Agent under the terms of the Credit Agreement) and shall, if
received by the Company, be received in trust for the benefit of
the Agent, be segregated from the other property or funds of the
Company and be forthwith delivered (if required to be delivered
hereunder) to the Agent as Collateral in the same form as so
received (with all necessary endorsements).
A-3
<PAGE>
<PAGE>
(b) The Agent shall promptly execute and deliver (or cause
to be executed and delivered) to the Company all such documents
and instruments as the Company may from time to time reasonably
request for the purpose of enabling the Company to receive the
LLC Distributions which it is authorized to receive and retain
pursuant to clause (a) above.
----------
(c) Upon the occurrence and during the continuance of an
Event of Default under Section 10.1.1 of the Credit Agreement or
--------------
upon receipt by the Company of notice from the Agent, given with
the consent of the Required Lenders during the continuance of any
other Event of Default, all rights of the Company to receive the
LLC Distributions which it would otherwise be authorized to
receive and retain pursuant to clause (a) shall be suspended, and
----------
all such rights shall thereupon become vested in the Agent which
shall thereupon (during the continuance of such Event of Default)
have the sole right to receive and hold as Collateral such LLC
Distributions.
(d) All LLC Distributions which are received by the Company
contrary to the provisions of clause (c) shall be received in
----------
trust for the benefit of the Agent, shall be segregated from
other funds of the Company and shall forthwith be paid over to
the Agent as Collateral in the same form as so received (with any
necessary endorsements). Any and all money and other property
paid over to or received by the Agent pursuant to the provisions
of this clause (d) shall be retained by the Agent as additional
----------
Collateral hereunder and be applied in accordance with the
provisions hereof.
(e) In order to permit the Agent to receive all LLC
Distributions which it is entitled to receive under clause (a) or
----------
clause (c), the Company shall promptly execute and deliver (or
- ----------
cause to be executed and delivered) to the Agent all such
documents or instruments as the Agent may from time to time
reasonably request."
Section 2. Company's Representations and Warranties.
----------------------------------------
In order to induce the Agent to enter into this
Amendment and to amend the Company Security Agreement in the
manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, the Company represents and
warrants to each Lender and the Agent that, as of the Fifth
Amendment Effective Date (as defined in the Fifth Amendment)
after giving effect to the effectiveness of this Amendment, the
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Amendment by the Company and the performance of
A-4
<PAGE>
<PAGE>
the Company Security Agreement as amended by this Amendment (the
"Amended Agreement") by the Company are within the Company's
-----------------
corporate powers and have been duly authorized by all necessary
corporate action on the part of the Company.
B. No Conflict. The execution and delivery by the
-----------
Company of this Amendment and the performance by the Company of
the Amended Agreement do not:
(1) contravene the Company's Organic Documents or
the Organizational Agreements;
(2) contravene the Senior Indenture or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting the Company or any of its Subsidiaries;
or
(3) result in, or require the creation or
imposition of, any Lien on any of the Company's properties, other
than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by the Company and this Amendment and the
Amended Agreement constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally and by
general principles of equity.
D. Governmental Approval, Regulation, etc. No
----------------------------------------
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery or
performance of this Amendment by the Company, the pledge of and
grant by the Company of a security interest in the Company's
interest in the LLC Distributions or the perfection of such
security interest, other than the filing of appropriate financing
statements.
E. Organizational Agreements. With such exceptions,
--------------------------
if any, as are not in the aggregate material to the Collateral
taken as whole, no default by the Company or any other member
exists under any of the Organizational Agreements to which it is
a party and no event has occurred or exists which, with notice or
lapse of time or both, would constitute a default by the Company
thereunder and each of the Organizational Agreements has been
duly authorized, executed and delivered by the Company and is in
full force and effect and has not been amended or modified except
A-5
<PAGE>
<PAGE>
as disclosed to the Agent. There are no outstanding rights to
purchase, or other agreements that require the issuance of, any
membership interests in KMH or Texas Holdings. The Company's
interest in KMH and Texas Holdings are not evidenced by
certificates or instruments. The Company shall cause KMH and
Texas Holdings to register the pledge of the Company's interests
on their respective books and records.
Section 3. Miscellaneous.
-------------
A. Reference to and Effect on the Company Security
------------------------------------------------
Agreement and the Other Loan Documents.
- --------------------------------------
(1) On and after the Fifth Amendment Effective
Date, each reference in the Company Security Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like
import referring to the Company Security Agreement, and each
reference in the other Loan Documents to the "Company Security
Agreement", "thereunder", "thereof" or words of like import
referring to the Company Security Agreement shall mean and be a
reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment, the Company Security Agreement shall remain in full
force and effect and is hereby ratified and confirmed.
(3) The execution, delivery and performance of
this Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver
of any right, power or remedy of the Agent or any Lender under,
the Company Security Agreement.
B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO
--------------
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment
--------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Amendment or any provision
hereof.
D. Counterparts. This Agreement may be executed by
------------
the parties hereto in several counterparts and by the different
parties on separate counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but
one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached
to the same document.
A-6
<PAGE>
<PAGE>
E. Severability. Any provision of this Amendment
------------
which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
KAISER ALUMINUM & CHEMICAL BANKAMERICA BUSINESS CREDIT,
CORPORATION INC., as Agent
By: By:
Name: John T. La Duc Name: Michael J. Jasaitis
Its: Vice President, Its: Vice President
Chief Financial Officer
and Treasurer
A-7
<PAGE>
<PAGE>
EXHIBIT B
SECOND AMENDMENT TO SUBSIDIARY SECURITY AGREEMENT
-------------------------------------------------
THIS SECOND AMENDMENT TO SUBSIDIARY SECURITY AGREEMENT
(this "Amendment"), dated as of December 11, 1995, is by and
---------
among Akron Holding Corporation, an Ohio corporation, Kaiser
Alumina Australia Corporation, a Delaware corporation, Kaiser
Aluminium International, Inc., a Delaware corporation, Kaiser
Aluminum & Chemical Investment, Inc., a Delaware corporation,
Kaiser Aluminum Properties, Inc., a Delaware corporation, Kaiser
Aluminum Technical Services, Inc., a California corporation,
Kaiser Finance Corporation, a Delaware corporation, and Oxnard
Forge Die Company, Inc., a California corporation (collectively,
the "Existing Kaiser Subsidiaries" and individually, an "Existing
---------------------------- ---------
Kaiser Subsidiary"), Kaiser Micromill Holdings, LLC, a limited
- -----------------
liability company organized under the laws of Delaware, Kaiser
Sierra Micromills, LLC, a limited liability company organized
under the laws of Delaware, Kaiser Texas Sierra Micromills, LLC,
a limited liability company organized under the laws of Texas,
and Kaiser Texas Micromill Holdings, LLC, a limited liability
company organized under the laws of Texas (collectively, the "New
----
Kaiser Subsidiaries" and individually, a "New Kaiser
- ------------------- ----------
Subsidiary"), and BankAmerica Business Credit, Inc., a Delaware
- ----------
corporation, as agent for the Secured Lenders (as defined in the
Credit Agreement referred to below) (in such capacity, together
with its successors and assigns in such capacity, the "Agent").
-----
Capitalized terms used, but not defined, herein shall have the
meanings given to such terms in the Credit Agreement, as amended
by the Fifth Amendment.
W I T N E S S E T H:
WHEREAS, 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 (collectively, the
"Lenders" and, individually, a "Lender"), and the Agent are
------- ------
parties to the Credit Agreement, dated as of February 15, 1994,
as amended by the First Amendment to Credit Agreement, dated as
of July 21, 1994, the Second Amendment to Credit Agreement, dated
as of March 10, 1995, the Third Amendment to Credit Agreement and
Acknowledgment, dated as of July 20, 1995, and the Fourth
Amendment to Credit Agreement, dated as of October 17, 1995 (the
"Credit Agreement"); and
----------------
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a Fifth
Amendment to Credit Agreement (the "Fifth Amendment"); and
---------------
B-1
<PAGE>
<PAGE>
WHEREAS, the Existing Kaiser Subsidiaries and the Agent
are parties to the Subsidiary Security Agreement, Financing
Statement and Conditional Assignment of Patents and Trademarks,
dated as of February 15, 1994, as amended by the First Amendment
to Subsidiary Security Agreement, dated as of July 21, 1994 (the
"Subsidiary Security Agreement"), and have agreed to amend the
-----------------------------
Subsidiary Security Agreement as herein provided; and
WHEREAS, the New Kaiser Subsidiaries are required as a
condition to the effectiveness of the Fifth Amendment to execute
this Amendment; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Amendment by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendment to Subsidiary Security Agreement.
------------------------------------------
A. Clause (d) of Section 2 of the Subsidiary
---------- ---------
Security Agreement is hereby amended to read in its entirety as
follows:
"Chattel Paper, Documents (including all Documents
covering Goods of such Kaiser Subsidiary), Instruments,
Certificated Securities, and Uncertificated Securities, but
excluding, however, Securities representing such Kaiser
Subsidiary's ownership interest in any other Subsidiary of the
Company (other than, to the extent provided in clause (j) of this
----------
Section 2, KMH, KSM and Texas Sierra) or Joint Venture
- ---------
Affiliates;"
B. Section 2 of the Subsidiary Security
---------
Agreement is hereby amended by (i) deleting the word "and" at the
end of clause (h) thereof; (ii) adding the word "and" at the end
----------
of clause (i) thereof; and (iii) adding the following as new
----------
clause (j) thereof:
- ----------
"(j) All of each Kaiser Subsidiary's right, title and
interest as a member in and to KMH, KSM and Texas
Sierra (collectively, the "Pledged Interests") to
-----------------
receive money due and to become due (including, without
limitation, distributions, interest, income from the
properties and assets of KMH, KSM and Texas Sierra and
returns of capital) under or pursuant to the
certificate of formation, articles of organization,
regulations, limited liability company agreement or any
other organizational documents of KMH, KSM and Texas
Sierra governing the rights and obligations of the
members thereof (collectively, the 'Organizational
--------------
Agreements'), to receive payments or distributions of
----------
property in kind upon termination or liquidation of
B-2
<PAGE>
<PAGE>
KMH, KSM or Texas Sierra or such Kaiser Subsidiary's
interest in KMH, KSM or Texas Sierra and to receive any
other payments or distributions, whether cash or non-cash,
in respect of such Kaiser Subsidiary's interests
in KMH, KSM or Texas Sierra (collectively, `LLC
----
Distributions');"
-------------
C. Section 4 of the Subsidiary Security
---------
Agreement is hereby amended by adding the following at the end
thereof:
"This Agreement shall not in any way be deemed to obligate
the Agent, any Secured Lender or any purchaser at a
foreclosure sale under this Agreement to assume any of such
Kaiser Subsidiary's obligations, duties, expenses or
liabilities under the Organizational Agreements (including,
without limitation, such Kaiser Subsidiary's obligations as
a member for the debts and obligations of KMH, KSM and Texas
Sierra and to manage the business and affairs of KMH, KSM
and Texas Sierra), unless and until the Agent, any Secured
Lender or purchaser otherwise agrees to become, and becomes
in accordance with the applicable Organizational Agreements,
a member of KMH, KSM or Texas Sierra, as the case may be."
D. Clauses (a) and (b) of Section 5 of the
------------ --- ---------
Subsidiary Security Agreement are hereby amended to read in their
entirety as follows:
"(a) It is a corporation or a limited liability company
validly organized or formed, as the case may be, and
existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, as the case
may be, and has full corporate power or company power, as
the case may be, and authority to enter into and perform
this Agreement.
"(b) The execution, delivery, and performance of this
Agreement are within the corporate powers or company powers,
as the case may be, of such Kaiser Subsidiary and have been
duly authorized by all necessary corporate action or company
action, as the case may be, on the part of such Kaiser
Subsidiary."
E. Clause (d) of Section 7 of the Subsidiary
---------- ---------
Security Agreement is hereby amended to read in its entirety as
follows:
"(d) Notify the Agent of any change in such Kaiser
Subsidiary's name, identity or organizational structure
within 15 days of such change."
B-3
<PAGE>
<PAGE>
F. The Subsidiary Security Agreement is hereby
amended by adding the following as new Section 20 thereof:
----------
"SECTION 20. LLC Distributions
-----------------
(a) Subject to the provisions of the Credit Agreement,
each Kaiser Subsidiary shall be entitled to receive and
retain any and all LLC Distributions paid unless an Event of
Default under Section 10.1.1 of the Credit Agreement has
--------------
occurred and is continuing or unless and until it receives
notice, given with the consent of the Required Lenders
during the continuance of any other Event of Default, from
the Agent that such right has been suspended; provided,
--------
however, that any and all
-------
(i) LLC Distributions paid or payable other than
in cash in respect of, and instruments and other
property received, receivable, or otherwise distributed
in respect of, or in exchange for, any Pledged
Interests,
(ii) LLC Distributions paid or payable in cash in
respect of any Pledged Interests in connection with a
partial or total liquidation or dissolution or in
connection with a reduction of capital, or returns of
capital, and
(iii) cash paid, payable, or otherwise distributed
in redemption of or in exchange for any Pledged
Interests,
shall be, and shall forthwith be delivered to the Agent to hold
as, Collateral (unless such LLC Distributions or cash are (A)
otherwise subject to a Lien in favor of the Agent pursuant to any
other Loan Document, (B) in the case of cash, applied to repay
Loans under the Credit Agreement, or (C) real property, plant or
equipment which, if acquired by any Kaiser Subsidiary after the
date hereof, would not be required to be subject to a Lien in
favor of the Agent under the terms of the Credit Agreement) and
shall, if received by such Kaiser Subsidiary, be received in
trust for the benefit of the Agent, be segregated from the other
property or funds of such Kaiser Subsidiary and be forthwith
delivered (if required to be delivered hereunder) to the Agent as
Collateral in the same form as so received (with all necessary
endorsements).
(b) The Agent shall promptly execute and deliver (or cause
to be executed and delivered) to each Kaiser Subsidiary all such
documents and instruments as such Kaiser Subsidiary may from time
to time reasonably request for the purpose of enabling such
Kaiser Subsidiary to receive the LLC Distributions which it is
authorized to receive and retain pursuant to clause (a) above.
----------
B-4
<PAGE>
<PAGE>
(c) Upon the occurrence and during the continuance of an
Event of Default under Section 10.1.1 of the Credit Agreement or
--------------
upon receipt by the Kaiser Subsidiary of notice from the Agent,
given with the consent of the Required Lenders during the
continuance of any other Event of Default, all rights of such
Kaiser Subsidiary to receive the LLC Distributions which it would
otherwise be authorized to receive and retain pursuant to clause
------
(a) shall be suspended, and all such rights shall thereupon
- ---
become vested in the Agent which shall thereupon (during the
continuance of such Event of Default) have the sole right to
receive and hold as Collateral such LLC Distributions.
(d) All LLC Distributions which are received by any Kaiser
Subsidiary contrary to the provisions of clause (c) shall be
----------
received in trust for the benefit of the Agent, shall be
segregated from other funds of such Kaiser Subsidiary and shall
forthwith be paid over to the Agent as Collateral in the same
form as so received (with any necessary endorsements). Any and
all money and other property paid over to or received by the
Agent pursuant to the provisions of this clause (d) shall be
----------
retained by the Agent as additional Collateral hereunder and be
applied in accordance with the provisions hereof.
(e) In order to permit the Agent to receive all LLC
Distributions which it is entitled to receive under clause (a) or
----------
clause (c), each Kaiser Subsidiary shall promptly execute and
- ----------
deliver (or cause to be executed and delivered) to the Agent all
such documents or instruments as the Agent may from time to time
reasonably request."
Section 2. Addition of New Kaiser Subsidiaries.
-----------------------------------
On and after the Fifth Amendment Effective Date (as
defined in the Fifth Amendment), the New Kaiser Subsidiaries
shall be parties to the Subsidiary Security Agreement and the
terms "Kaiser Subsidiary" and "Kaiser Subsidiaries" (as used in
the Subsidiary Security Agreement) shall include and also be a
reference to the New Kaiser Subsidiaries. Schedules I through VI
of the Subsidiary Security Agreement are hereby amended to
include the information set forth on Schedules I through VI
hereto with respect to the New Kaiser Subsidiaries.
Section 3. Kaiser Subsidiaries' Representations and
----------------------------------------
Warranties.
- ----------
In order to induce the Agent to enter into this
Amendment and to amend the Subsidiary Security Agreement in the
manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, each Kaiser Subsidiary
(including each New Kaiser Subsidiary) represents and warrants to
each Lender and the Agent that, as of the Fifth Amendment
Effective Date after giving effect to the effectiveness of this
B-5
<PAGE>
<PAGE>
Amendment, the following statements are true and correct in all
material respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Amendment by such Kaiser Subsidiary and the
performance of the Subsidiary Security Agreement as amended by
this Amendment (the "Amended Agreement") by such Kaiser
-----------------
Subsidiary are within such Kaiser Subsidiary's corporate powers
or company powers, as the case may be, and have been duly
authorized by all necessary corporate action or company action,
as the case may be, on the part of such Kaiser Subsidiary.
B. No Conflict. The execution and delivery by such
-----------
Kaiser Subsidiary of this Amendment and the performance by such
Kaiser Subsidiary of the Amended Agreement do not:
(1) contravene such Kaiser Subsidiary's Organic
Documents or the Organizational Agreements;
(2) contravene the Senior Indenture or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such Kaiser Subsidiary or any of its
Subsidiaries; or
(3) result in, or require the creation or
imposition of, any Lien on any of such Kaiser Subsidiary's
properties, other than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by such Kaiser Subsidiary and this
Amendment and the Amended Agreement constitute the legal, valid
and binding obligations of such Kaiser Subsidiary, enforceable
against such Kaiser Subsidiary in accordance with their
respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally and by general
principles of equity.
D. Governmental Approval, Regulation, etc. No
---------------------------------------
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery or
performance of this Amendment by such Kaiser Subsidiary, the
pledge of and grant by such Kaiser Subsidiary of a security
interest in such Kaiser Subsidiary's interest in the LLC
Distributions or the perfection of such security interest, other
than the filing of appropriate financing statements.
B-6
<PAGE>
<PAGE>
E. Organizational Agreements. With such exceptions,
--------------------------
if any, as are not in the aggregate material to the Collateral
taken as a whole, no default by such Kaiser Subsidiary or any
other member exists under any of the Organizational Agreements to
which it is a party and no event has occurred or exists which,
with notice or lapse of time or both, would constitute a default
by such Kaiser Subsidiary thereunder and each of the
Organizational Agreements has been duly authorized, executed and
delivered by such Kaiser Subsidiary and is in full force and
effect and has not been amended or modified except as disclosed
to the Agent. There are no outstanding rights to purchase, or
other agreements that require the issuance of, any membership
interests in KHM, KSM or Texas Sierra. Such Kaiser Subsidiary's
interest in KHM, KSM and Texas Sierra are not evidenced by
certificates or instruments. Such Kaiser Subsidiary shall cause
KHM, KSM and Texas Sierra to register the pledge of such Kaiser
Subsidiary's interests on their respective books and records.
Section 4. Miscellaneous.
-------------
A. Reference to and Effect on the Subsidiary Security
--------------------------------------------------
Agreement and the Other Loan Documents.
- --------------------------------------
(1) On and after the Fifth Amendment Effective
Date, each reference in the Subsidiary Security Agreement to
"this Agreement", "hereunder", "hereof", "herein" or words of
like import referring to the Subsidiary Security Agreement, and
each reference in the other Loan Documents to the "Subsidiary
Security Agreement", "thereunder", "thereof" or words of like
import referring to the Subsidiary Security Agreement shall mean
and be a reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment, the Subsidiary Security Agreement shall remain in full
force and effect and is hereby ratified and confirmed.
(3) The execution, delivery and performance of
this Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver
of any right, power or remedy of the Agent or any Lender under,
the Subsidiary Security Agreement.
B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO
--------------
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment
--------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Amendment or any provision
hereof.
B-7
<PAGE>
<PAGE>
D. Counterparts. This Agreement may be executed by
-------------
the parties hereto in several counterparts and by the different
parties on separate counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but
one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached
to the same document.
E. Severability. Any provision of this Amendment
------------
which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT,
INC., as Agent
By:
Name:Michael J. Jasaitis
Its: Vice President
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
B-8
<PAGE>
<PAGE>
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Manager Its: Vice President,
Chief Financial Officer
and Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
B-9
<PAGE>
<PAGE>
EXHIBIT C
SECOND AMENDMENT TO SUBSIDIARY GUARANTY
---------------------------------------
THIS SECOND AMENDMENT TO SUBSIDIARY GUARANTY (this
"Amendment"), dated as of December 11, 1995, is by and among
---------
Akron Holding Corporation, an Ohio corporation, Alpart Jamaica
Inc., a Delaware corporation, Kaiser Alumina Australia
Corporation, a Delaware corporation, Kaiser Aluminium
International, Inc., a Delaware corporation, Kaiser Aluminum &
Chemical Investment, Inc., a Delaware corporation, Kaiser
Aluminum Properties, Inc., a Delaware corporation, Kaiser
Aluminum Technical Services, Inc., a California corporation,
Kaiser Finance Corporation, a Delaware corporation, Kaiser
Jamaica Corporation, a Delaware corporation, and Oxnard Forge Die
Company, Inc., a California corporation (collectively, the
"Existing Kaiser Subsidiaries" and individually, an "Existing
---------------------------- --------
Kaiser Subsidiary"), Kaiser Micromill Holdings, LLC, a limited
- -----------------
liability company organized under the laws of Delaware, Kaiser
Sierra Micromills, LLC, a limited liability company organized
under the laws of Delaware, Kaiser Texas Sierra Micromills, LLC,
a limited liability company organized under the laws of Texas,
and Kaiser Texas Micromill Holdings, LLC, a limited liability
company organized under the laws of Texas (collectively, the "New
----
Kaiser Subsidiaries" and individually, a "New Kaiser
- ------------------- ----------
Subsidiary"), and BankAmerica Business Credit, Inc., a Delaware
- ----------
corporation, as agent for the Secured Lenders (as defined in the
Credit Agreement referred to below) (in such capacity, together
with its successors and assigns in such capacity, the "Agent").
-----
Capitalized terms used, but not defined, herein shall have the
meanings given to such terms in the Credit Agreement, as amended
by the Fifth Amendment.
W I T N E S S E T H:
WHEREAS, 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 (collectively, the
"Lenders" and, individually, a "Lender"), and the Agent are
------- ------
parties to the Credit Agreement, dated as of February 15, 1994,
as amended by the First Amendment to Credit Agreement, dated as
of July 21, 1994, the Second Amendment to Credit Agreement, dated
as of March 10, 1995, the Third Amendment to Credit Agreement and
Acknowledgment, dated as of July 20, 1995, and the Fourth
Amendment to Credit Agreement, dated as of October 17, 1995 (the
"Credit Agreement"); and
----------------
C-1
<PAGE>
<PAGE>
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a Fifth
Amendment to Credit Agreement (the "Fifth Amendment"); and
---------------
WHEREAS, the Existing Kaiser Subsidiaries are parties
to the Subsidiary Guaranty, dated as of February 15, 1994, as
amended by the First Amendment to Subsidiary Guaranty, dated as
of July 21, 1994 (the "Subsidiary Guaranty"), and have agreed to
-------------------
amend the Subsidiary Guaranty as herein provided; and
WHEREAS, the New Kaiser Subsidiaries are required as a
condition to the effectiveness of the Fifth Amendment to execute
this Amendment; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Amendment by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendment to Subsidiary Guaranty.
--------------------------------
A. Section 3.1 of the Subsidiary Guaranty is
-----------
hereby amended to read in its entirety as follows:
"SECTION 3.1. Organization, etc. Such undersigned is
------------------
a corporation or a limited liability company validly
organized or formed, as the case may be, and existing and in
good standing under the laws of the jurisdiction of its
incorporation or formation, as the case may be, and has full
corporate power or company power, as the case may be, and
authority to enter into and perform its obligations under
this Guaranty."
B. Section 3.2 of the Guaranty is hereby amended
-----------
to read in its entirety as follows:
"SECTION 3.2. Due Authorization, Non-Contravention,
-------------------------------------
etc. The execution, delivery, and performance of this Guaranty
- ---
are within the corporate powers or company powers, as the case
may be, of such undersigned, have been duly authorized by all
necessary corporate action or company action, as the case may be,
on the part of such undersigned, and do not contravene such
undersigned's Organic Documents, or contravene any 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 upon or affecting such undersigned, or result in, or
require the creation or imposition of, any Lien on any of such
undersigned's properties, other than pursuant to this Guaranty or
any other Loan Document."
C-2
<PAGE>
<PAGE>
Section 2. Addition of New Kaiser Subsidiaries.
-----------------------------------
On and after the Fifth Amendment Effective Date (as
defined in the Fifth Amendment), the New Kaiser Subsidiaries
shall be parties to the Subsidiary Guaranty and the terms
"Guarantor" and "Guarantors" (as used in the Subsidiary Guaranty)
shall include and also be a reference to the New Kaiser
Subsidiaries.
Section 3. Guarantors' Representations and Warranties.
------------------------------------------
In order to induce the Agent to enter into this
Amendment and to amend the Subsidiary Guaranty in the manner
provided herein, and to induce the Required Lenders to consent to
such action by the Agent, each Guarantor (including each New
Kaiser Subsidiary) represents and warrants to each Lender and the
Agent that, as of the Fifth Amendment Effective Date after giving
effect to the effectiveness of this Amendment, the following
statements are true and correct in all material respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Amendment by such Guarantor and the performance
of the Subsidiary Guaranty as amended by this Amendment (the
"Amended Agreement") by such Guarantor are within such
------------------
Guarantor's corporate powers or company powers, as the case may
be, and have been duly authorized by all necessary corporate
action or company action, as the case may be, on the part of such
Guarantor.
B. No Conflict. The execution and delivery by such
-----------
Guarantor of this Amendment and the performance by such Guarantor
of the Amended Agreement do not:
(1) contravene such Guarantor's Organic Documents
or the Organizational Agreements;
(2) contravene the Senior Indenture or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such Guarantor or any of its
Subsidiaries; or
(3) result in, or require the creation or
imposition of, any Lien on any of such Guarantor's properties,
other than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by such Guarantor and this Amendment and
the Amended Agreement constitute the legal, valid and binding
obligations of such Guarantor, enforceable against such Guarantor
C-3
<PAGE>
<PAGE>
in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or limiting creditors' rights generally
and by general principles of equity.
D. Governmental Approval, Regulation, etc. No
---------------------------------------
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery or
performance of this Amendment by such Guarantor.
Section 4. Miscellaneous.
-------------
A. Reference to and Effect on the Subsidiary Guaranty
--------------------------------------------------
and the Other Loan Documents.
- ----------------------------
(1) On and after the Fifth Amendment Effective
Date, each reference in the Subsidiary Guaranty to "this
Agreement", "hereunder", "hereof", "herein" or words of like
import referring to the Subsidiary Guaranty, and each reference
in the other Loan Documents to the "Subsidiary Guaranty",
"thereunder", "thereof" or words of like import referring to the
Subsidiary Guaranty shall mean and be a reference to the Amended
Agreement.
(2) Except as specifically amended by this
Amendment, the Subsidiary Guaranty shall remain in full force and
effect and is hereby ratified and confirmed.
(3) The execution, delivery and performance of
this Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver
of any right, power or remedy of the Agent or any Lender under,
the Subsidiary Guaranty.
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 Agreement 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
C-4
<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.
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT,
INC., as Agent
By:
Name:Michael J. Jasaitis
Its: Vice President
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
ALPART JAMAICA, INC. KAISER JAMAICA CORPORATION
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
C-5
<PAGE>
<PAGE>
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Manager Its: Vice President,
Chief Financial Officer
and Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
C-6
<PAGE>
<PAGE>
EXHIBIT D
SECOND AMENDMENT TO SUBSIDIARY PLEDGE AGREEMENT
-----------------------------------------------
THIS SECOND AMENDMENT TO SUBSIDIARY PLEDGE AGREEMENT
(this "Amendment"), dated as of December 11, 1995, is by and
---------
among Akron Holding Corporation, an Ohio corporation, Kaiser
Alumina Australia Corporation, a Delaware corporation, Kaiser
Aluminium International, Inc., a Delaware corporation, Kaiser
Aluminum & Chemical Investment, Inc., a Delaware corporation,
Kaiser Aluminum Properties, Inc., a Delaware corporation, Kaiser
Aluminum Technical Services, Inc., a California corporation,
Kaiser Finance Corporation, a Delaware corporation, and Oxnard
Forge Die Company, Inc., a California corporation (collectively,
the "Existing Kaiser Subsidiaries" and individually, an "Existing
---------------------------- --------
Kaiser Subsidiary"), Kaiser Micromill Holdings, LLC, a limited
- -----------------
liability company organized under the laws of Delaware, Kaiser
Sierra Micromills, LLC, a limited liability company organized
under the laws of Delaware, Kaiser Texas Sierra Micromills, LLC,
a limited liability company organized under the laws of Texas,
and Kaiser Texas Micromill Holdings, LLC, a limited liability
company organized under the laws of Texas (collectively, the "New
----
Kaiser Subsidiaries" and individually, a "New Kaiser
- ------------------- -----------
Subsidiary"), and BankAmerica Business Credit, Inc., a Delaware
- ----------
corporation, as agent for the Secured Lenders (as defined in the
Credit Agreement referred to below) (in such capacity, together
with its successors and assigns in such capacity, the "Agent").
------
Capitalized terms used, but not defined, herein shall have the
meanings given to such terms in the Credit Agreement, as amended
by the Fifth Amendment.
W I T N E S S E T H:
WHEREAS, 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 (collectively, the
"Lenders" and, individually, a "Lender"), and the Agent are
------- ------
parties to the Credit Agreement, dated as of February 15, 1994,
as amended by the First Amendment to Credit Agreement, dated as
of July 21, 1994, the Second Amendment to Credit Agreement, dated
as of March 10, 1995, the Third Amendment to Credit Agreement and
Acknowledgment, dated as of July 20, 1995, and the Fourth
Amendment to Credit Agreement, dated as of October 17, 1995 (the
"Credit Agreement"); and
----------------
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a Fifth
Amendment to Credit Agreement (the "Fifth Amendment"); and
---------------
D-1
<PAGE>
<PAGE>
WHEREAS, the Existing Kaiser Subsidiaries and the Agent
are parties to the Subsidiary Pledge Agreement, dated as of
February 15, 1994, as amended by the First Amendment to
Subsidiary Pledge Agreement, dated as of July 21, 1994 (the
"Subsidiary Pledge Agreement"), and have agreed to amend the
---------------------------
Subsidiary Pledge Agreement as herein provided; and
WHEREAS, the New Kaiser Subsidiaries are required as a
condition to the effectiveness of the Fifth Amendment to execute
this Amendment; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Amendment by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendment to Subsidiary Pledge Agreement.
----------------------------------------
A. Section 3.1 of the Subsidiary Pledge
-----------
Agreement is hereby amended to read in its entirety as follows:
"SECTION 3.1. Organization, etc. Such Pledgor is a
------------------
corporation or a limited liability company validly organized
or formed, as the case may be, and existing and in good
standing under the laws of the jurisdiction of its
incorporation or formation, as the case may be, and has full
corporate power or company power, as the case may be, and
authority to enter into and perform its obligations under
this Agreement."
B. Section 3.2 of the Subsidiary Pledge
-----------
Agreement is hereby amended to read in its entirety as follows:
"SECTION 3.2. Due Authorization, Non-Contravention,
-------------------------------------
etc. The execution, delivery, and performance of this
----
Agreement are within the corporate powers or company powers,
as the case may be, of such Pledgor, have been duly
authorized by all necessary corporate action or company
action, as the case may be, on the part of such Pledgor, and
do not contravene such Pledgor's Organic Documents, or
contravene any 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
upon or affecting such Pledgor, or result in, or require the
creation or imposition of, any Lien on any of such Pledgor's
properties, other than pursuant to this Agreement or any
other Loan Document."
D-2
<PAGE>
<PAGE>
Section 2. Addition of New Kaiser Subsidiaries.
-----------------------------------
On and after the Fifth Amendment Effective Date (as
defined in the Fifth Amendment), the New Kaiser Subsidiaries
shall be parties to the Subsidiary Pledge Agreement and the terms
"Pledgor" and "Pledgors" (as used in the Subsidiary Pledge
Agreement) shall include and also be a reference to the New
Kaiser Subsidiaries.
Section 3. Pledgors' Representations and Warranties.
----------------------------------------
In order to induce the Agent to enter into this
Amendment and to amend the Subsidiary Pledge Agreement in the
manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, each Pledgor (including each
New Kaiser Subsidiary) represents and warrants to each Lender and
the Agent that, as of the Fifth Amendment Effective Date after
giving effect to the effectiveness of this Amendment, the
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
----------------------------
delivery of this Amendment by such Pledgor and the performance of
the Subsidiary Pledge Agreement as amended by this Amendment (the
"Amended Agreement") by such Pledgor are within such Pledgor's
-----------------
corporate powers or company powers, as the case may be, and have
been duly authorized by all necessary corporate action or company
action, as the case may be, on the part of such Pledgor.
B. No Conflict. The execution and delivery by such
------------
Pledgor of this Amendment and the performance by such Pledgor of
the Amended Agreement do not:
(1) contravene such Pledgor's Organic Documents
or the Organizational Agreements;
(2) contravene the Senior Indenture or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such Pledgor or any of its Subsidiaries;
or
(3) result in, or require the creation or
imposition of, any Lien on any of such Pledgor's properties,
other than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by such Pledgor and this Amendment and the
Amended Agreement constitute the legal, valid and binding
obligations of such Pledgor, enforceable against such Pledgor in
D-3
<PAGE>
<PAGE>
accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally and by
general principles of equity.
D. Governmental Approval, Regulation, etc. No
---------------------------------------
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery or
performance of this Amendment by such Pledgor.
Section 4. Miscellaneous.
--------------
A. Reference to and Effect on the Subsidiary Pledge
-------------------------------------------------
Agreement and the Other Loan Documents.
- ---------------------------------------
(1) On and after the Fifth Amendment Effective
Date, each reference in the Subsidiary Pledge Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like
import referring to the Subsidiary Pledge Agreement, and each
reference in the other Loan Documents to the "Subsidiary Pledge
Agreement", "thereunder", "thereof" or words of like import
referring to the Subsidiary Pledge Agreement shall mean and be a
reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment, the Subsidiary Pledge Agreement shall remain in full
force and effect and is hereby ratified and confirmed.
(3) The execution, delivery and performance of
this Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver
of any right, power or remedy of the Agent or any Lender under,
the Subsidiary Pledge Agreement.
B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO
--------------
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment
---------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Amendment or any provision
hereof.
D. Counterparts. This Agreement 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
D-4
<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.
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT,
INC., as Agent
By:
Name:Michael J. Jasaitis
Its: Vice President
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
D-5
<PAGE>
<PAGE>
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Manager Its: Vice President,
Chief Financial Officer
and Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By: By:
Name: John T. La Duc Name: John T. La Duc
Its: Vice President, Its: Vice President,
Chief Financial Officer Chief Financial Officer
and Treasurer and Treasurer
D-6
<PAGE>
EXHIBIT 11
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(In millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Primary:
Earnings:
Income (loss) before extraordinary loss and cumulative effect of changes
in accounting principles $ 60.3 $(101.4) $(123.1)
Dividends on preferred stock:
Series A Shares (9.1) (12.6) (6.3)
PRIDES (8.5) (7.5)
------- ------- -------
Income (loss) available to common shareholders before extraordinary loss 42.7 (121.5) (129.4)
Extraordinary loss - net (5.4) (21.8)
Cumulative effect of changes in accounting principles - net (507.3)
------- ------- -------
Net income (loss) available to common shareholders $ 42.7 $(126.9) $(658.5)
======= ======= =======
Shares (000):
Weighted average common shares outstanding 58,267 58,139 57,423
Weighted average shares arising from redemption of Series A Shares 3,705
Weighted average shares arising from conversion of PRIDES 29
Assuming exercise of nonqualified stock options 263
------- ------- -------
Weighted average common and common equivalent shares 62,264 58,139 57,423
======= ======= =======
Primary earnings (loss) per common and common equivalent share:
Income (loss) before extraordinary loss and cumulative effect of changes
in accounting principles $ .69 $ (2.09) $ (2.25)
Extraordinary loss (.09) (.38)
Cumulative effect of changes in accounting principles - net (8.84)
------- ------- -------
Net income (loss) $ .69 $ (2.18) $(11.47)
======= ======= =======
Fully diluted:(1)
Earnings:
Income before extraordinary loss $ 60.3
Dividends on PRIDES (8.5)
-------
Net income available to common and common equivalent shareholders $ 51.8
=======
Shares (000):
Weighted average common shares outstanding 58,267
Additional shares arising from redemption of Series A Shares 13,127
Additional shares arising from conversion of PRIDES 151
Assuming exercise of nonqualified stock options 264
-------
Weighted average common and common equivalent shares 71,809
=======
Fully diluted earnings per common and common equivalent share $ .72
=======
</TABLE>
(1) As a result of the redemption of the Series A Shares and
conversion of 181,700 shares of PRIDES during the 1995 period,
fully diluted earnings per share are presented for such period,
even though the result is antidilutive. For the 1994 and 1993
periods, common equivalent shares attributable to the preferred
stock and non-qualified stock options were excluded from the
calculation of weighted average shares because they were
antidilutive.
<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, 1995, 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 309
<ALLOWANCES> 0
<INVENTORY> 526
<CURRENT-ASSETS> 933
<PP&E> 1,110
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,813
<CURRENT-LIABILITIES> 601
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 57
<TOTAL-LIABILITY-AND-EQUITY> 2,813
<SALES> 2,238
<TOTAL-REVENUES> 2,238
<CGS> 1,798
<TOTAL-COSTS> 1,798
<OTHER-EXPENSES> 229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 103
<INCOME-TAX> 37
<INCOME-CONTINUING> 60
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60
<EPS-PRIMARY> .69
<EPS-DILUTED> .72
</TABLE>
