=================================================================
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, 1998
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 New York Stock Exchange
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 23, 1999, there were 79,153,543 shares of the Common
Stock of the registrant outstanding. Based upon the New York
Stock Exchange closing price on March 23, 1999, the aggregate
market value of the registrant's Common Stock held by non-
affiliates was $143.7 million.
Certain portions of the registrant's annual report to
shareholders for the fiscal year ended December 31, 1998, 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 23 - 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
(713) 267-3777
(i)
TABLE OF CONTENTS
Page
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PART I 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 14
PART II 14
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 16
PART III 16
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 16
ITEM 11. EXECUTIVE COMPENSATION 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
16
PART IV 16
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 16
SCHEDULE I 18
SIGNATURES 22
INDEX OF EXHIBITS 23
EXHIBIT 21 SUBSIDIARIES 29
(ii)
PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K (the "Report") contains
statements which constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements appear in a number of places in this
Report (see, for example, Item 1. "Business - Strategic
Initiatives," " - Business Operations," " - Competition," " -
Research and Development," " - Environmental Matters," and " -
Factors Affecting Future Performance," Item 3. "Legal
Proceedings," and Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations"). Such
statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or
by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and
that actual results may vary materially from those in the
forward-looking statements as a result of various factors. These
factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, developments
in technology, new or modified statutory or regulatory
requirements, and changing prices and market conditions. This
Report and the financial portion of the Company's 1998 Annual
Report to Shareholders (see Items 6 through 8 of this Report)
identify other factors that could cause such differences. No
assurance can be given that these are all of the factors that
could cause actual results to vary materially from the forward-
looking statements.
General
Kaiser Aluminum Corporation (the "Company"), a Delaware
corporation organized in 1987, is a subsidiary of MAXXAM Inc.
("MAXXAM"). MAXXAM and one of its wholly-owned subsidiaries
together own approximately 63% of the Company's Common Stock,
with the remaining approximately 37% publicly held. 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 1998, KACC
produced approximately 2,964,000 tons* of alumina, of which
approximately 76% was sold to third parties, and produced
approximately 387,000 tons of primary aluminum, of which
approximately 68% was sold to third parties. KACC is also a
major domestic supplier of fabricated aluminum products. In
1998, KACC shipped approximately 405,000 tons of fabricated
aluminum products to third parties, which accounted for
approximately 5% of total United States domestic shipments.
The Company's operations are conducted through KACC's business
units. The following table sets forth total shipments and
intersegment transfers of KACC's alumina, primary aluminum, and
fabricated aluminum operations:
-----------
* All references to tons in this Report refer to metric tons of
2,204.6 pounds.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(in thousands of tons)
<S> <C> <C> <C>
ALUMINA:
Shipments to Third Parties 2,250.0 1,929.8 2,073.7
Intersegment Transfers 750.7 968.0 912.4
-------------- -------------- --------------
3,000.7 2,897.8 2,986.1
-------------- -------------- --------------
PRIMARY ALUMINUM:
Shipments to Third Parties 263.2 327.9 355.6
Intersegment Transfers 162.8 164.2 128.3
-------------- -------------- --------------
426.0 492.1 483.9
-------------- -------------- --------------
FLAT-ROLLED PRODUCTS: 235.6 247.9 204.8
ENGINEERED PRODUCTS: 169.4 152.1 122.3
</TABLE>
Note 11 of Notes to Consolidated Financial Statements contained
in the Company's 1998 Annual Report to Shareholders (the "Annual
Report") is incorporated herein by reference.
Labor Matters
Substantially all of KACC's hourly workforce at the Gramercy,
Louisiana, alumina refinery, Mead and Tacoma, Washington,
aluminum smelters, Trentwood, Washington, rolling mill, and
Newark, Ohio, extrusion facility were covered by a master labor
agreement with the United Steelworkers of America (the "USWA")
which expired on September 30, 1998. The parties did not reach
an agreement prior to the expiration of the master agreement and
the USWA chose to strike. In January 1999 KACC declined an offer
by the USWA to have the striking workers return to work at the
five plants without a new agreement. KACC imposed a lock-out to
support its bargaining position and continues to operate the
plants with salaried employees and other workers as it has since
the strike began. Based on operating results to date, the
Company believes that a significant business interruption will
not occur.
As a result of the USWA strike, KACC temporarily curtailed
three out of a total of eleven potlines at its Mead and Tacoma,
Washington, aluminum smelters at September 30, 1998. The
curtailed potlines represent approximately 70,000 tons of annual
production capacity out of a total combined production capacity
of 273,000 tons per year at the facilities. In February 1999,
KACC began restarting the two curtailed potlines at its Mead
smelter representing approximately 50,000 tons of the previously
idle capacity. KACC has also announced that it has completed
preparations to restart 20,000 tons of idle capacity at its
Tacoma smelter. However, the timing for any restart of the
Tacoma potline has yet to be determined and will depend upon
market conditions and other factors. Costs associated with the
preparation and restart of the potlines at the Mead and Tacoma
facilities are expected to adversely affect the Company's first
quarter results.
While the Company initially experienced an adverse strike-related
impact on its profitability in the fourth quarter of 1998, the
Company currently believes that KACC's operations at the affected
facilities have been substantially stabilized and will be able to
run at, or near, full capacity, and that the incremental costs
associated with operating the affected plants during the dispute
were eliminated or substantially reduced as of January 1999
(excluding the impacts of the restart costs discussed above and
the effect of market factors such as the continued market-related
curtailment at the Tacoma smelter). However, no assurances can
be given that KACC's efforts to run the plants on a sustained
basis, without a significant business interruption or material
adverse impact on the Company's operating results, will be
successful.
See Note 1 of Notes to Consolidated Financial Statements "- Labor
Related Costs," and Note 9 of Notes to Consolidated Financial
Statements "- Labor Matters" in the Annual Report.
Strategic Initiatives
KACC's strategic objectives include the improvement of the
earnings from its existing businesses; the redeployment of its
existing investment in assets that are not strategically
essential to continued profit growth; the addition of assets to
its growth businesses; and the improvement of its financial
structure.
In 1996, the Company set a goal of achieving $120.0 million of
pre-tax cost reductions and other profit improvements,
independent of metal price changes, with the full effect planned
to be realized in 1998 and beyond, measured against 1996 results.
The Company believes that KACC's operations had achieved the run
rate necessary to meet this objective prior to the end of the
third quarter of 1998, when the impact of such items as smelter
operating levels, the USWA strike and foreign currency changes
are excluded from the analysis. Further, the Company believes
that KACC has implemented the steps that will allow it to sustain
the stated goal over the long term. The Company remains
committed to sustaining the full $120.0 million improvement and
to generating additional profit improvements in future years;
however, no assurances can be given that the Company will be
successful in this regard. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Labor
Matters, - Strategic Initiatives, and - Valco Operating Level",
and Note 1 of Notes to Consolidated Financial Statements "- Labor
Related Costs" in the Annual Report.
In addition to working to improve the performance of the
Company's existing assets, the Company has devoted significant
efforts analyzing its existing asset portfolio with the intent of
focusing its efforts and capital in sectors of the industry that
are considered most attractive, and in which the Company believes
it is well positioned to capture value. The initial steps of
this process resulted in the June 1997 acquisition of the
Bellwood extrusion facility, the May 1997 formation of AKW L.P.
("AKW"), a joint venture that designs, manufactures and sells
heavy duty aluminum wheels, the rationalization of certain of the
Company's engineered products operations, and the Company's
investment to expand its capacity for heat treat flat-rolled
products at its Trentwood, Washington, rolling mill. The
restructuring activities resulted in the Company recording a net
pre-tax charge of $19.7 million in June 1997. See Notes 3 and 4
of Notes to Consolidated Financial Statements in the Annual
Report.
The portfolio analysis process also resulted in the Company's
fourth quarter 1998 decision to seek a strategic partner for
further development and deployment of KACC's Micromill(TM)
technology. While technological progress has been good,
management concluded that additional time and investment would be
required for success. Given the Company's other strategic
priorities, the Company believes that introducing added
commercial and financial resources is the appropriate course of
action for capturing the maximum long term value. This change in
strategic course required a different accounting treatment, and
the Company correspondingly recorded a $45.0 million impairment
charge to reduce the carrying value of the Micromill assets to
approximately $25.0 million. See Note 3 of Notes to Consolidated
Financial Statements in the Annual Report.
Another area of emphasis has been a continuing focus on managing
the Company's legacy liabilities. One element of this process
has been actively pursuing claims in respect of insurance
coverage for certain incurred and future environmental costs.
During the fourth quarter of 1998, KACC received recoveries
totaling approximately $35.0 million related to current and
future claims against certain of its insurers. Recoveries of
$12.0 million were deemed to be allocable to previously accrued
(expensed) items and were reflected in earnings during the fourth
quarter of 1998. The remaining recoveries were offset against
increases in the total amount of environmental reserves. No
assurances can be given that the Company will be successful in
other attempts to recover incurred or future costs from other
insurers or that the amount of any recoveries received will
ultimately be adequate to cover costs incurred. See Note 9 of
Notes to Consolidated Financial Statements in the Annual Report.
In early 1999, the Company's program to focus its efforts and
capital in sectors of the industry which it considers to be the
most attractive, and in which the Company believes it is well
positioned to capture value, has resulted in an agreement to sell
one joint venture interest and a separate agreement to purchase
another. In January 1999, KACC signed a letter of intent to sell
its 50% interest in AKW to its joint venture partner. The
transaction, which would result in the Company recognizing a
substantial gain, is currently expected to close on or about
March 31, 1999. However, as the transaction is subject to
negotiation of a definitive purchase agreement, no assurances can
be given that this transaction will be consummated. Also, in
February 1999, KACC completed the acquisition of the remaining
45% interest in Kaiser LaRoche Hydrate Partners, an alumina
marketing venture, from its joint venture partner for a cash
purchase price of approximately $10.0 million. See Note 12 of
Notes to Consolidated Financial Statements in the Annual Report.
Additional portfolio analysis and initiatives are continuing.
Sensitivity to Prices and Hedging Programs
The Company's operating results are sensitive to changes in the
prices of alumina, primary aluminum, and fabricated aluminum
products, and also depend to a significant degree upon the volume
and mix of all products sold and on KACC's hedging strategies.
Primary aluminum prices have historically been subject to
significant cyclical fluctuations. Alumina prices, as well as
fabricated aluminum product prices (which vary considerably among
products), are significantly influenced by changes in the price
of primary aluminum and generally lag behind primary aluminum
prices. From time to time in the ordinary course of business
KACC enters into hedging transactions to provide price risk
management in respect of its net exposure resulting from (i)
anticipated sales of alumina, primary aluminum, and fabricated
aluminum products, less (ii) expected purchases of certain items,
such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. Forward sales
contracts are used by KACC to lock-in or fix the effective price
that KACC will receive for its sales. KACC also uses option
contracts (i) to establish a minimum price for its product sales,
(ii) to establish a "collar" or range of prices for its
anticipated sales, and/or (iii) to permit KACC to realize
possible upside price movements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Market-related Factors" and Note 1 - "Derivative Financial
Instruments" and Note 10 of Notes to Consolidated Financial
Statements in the Annual Report.
Business Operations
KACC conducts its business through four main business units, each
of which is discussed below.
- Alumina Business Unit
The following table lists KACC's bauxite mining and alumina
refining facilities as of December 31, 1998:
<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 49.0% 4,500,000 4,500,000
Alpart(2) Jamaica 65.0% 2,275,000 3,500,000
-------------- --------------
6,775,000 8,000,000
============== ==============
Alumina Refining Gramercy Louisiana 100.0% 1,050,000 1,050,000
Alpart Jamaica 65.0% 942,500 1,450,000
QAL Australia 28.3% 1,032,950 3,650,000
-------------- --------------
3,025,450 6,150,000
============== ==============
</TABLE>
--------------
(1) Although KACC owns 49% of Kaiser Jamaica Bauxite Company
("KJBC"), it has the right to receive all of KJBC's output.
(2) Alumina Partners of Jamaica ("Alpart") bauxite is refined
into alumina at the Alpart refinery.
KACC's principal customers for bauxite and alumina consist of
other aluminum producers that purchase bauxite and
smelter-grade alumina, trading intermediaries who resell raw
materials to end-users, and users of chemical-grade alumina. The
Company believes that among alumina producers KACC is the world's
second largest seller of smelter-grade alumina to third parties.
KACC's strategy is to sell a substantial portion of the alumina
available to it in excess of its internal smelting requirements
under multi-year sales contracts with prices linked to the price
of primary aluminum. See "- Competition" and "- Sensitivity to
Prices and Hedging Programs" in this Report.
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. The
Gramercy, Louisiana, refinery is one of the five KACC plants
which is subject to the continuing USWA dispute. See "-Labor
Matters" in this Report, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Labor Matters" in the Annual Report.
In February 1999 KACC, through a subsidiary, purchased its
partner's 45% interest in Kaiser LaRoche Hydrate Partners, a
partnership which markets chemical-grade alumina manufactured by
KACC's Gramercy facility. These products are sold at a premium
price over smelter-grade alumina, and this acquisition will
permit KACC to expand its market position in this business in
North America. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Strategic
Initiatives" in the Annual Report.
Alpart holds bauxite reserves and owns a 1,450,000 ton per year
alumina plant located in Jamaica. KACC owns a 65% interest in
Alpart, and Hydro Aluminium Jamaica 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 up to a
capacity of 2,000,000 tons per year, through the year 2024.
In 1999, Alpart and JAMALCO, a joint venture between affiliates
of Alcoa Inc. and the government of Jamaica, reached an
agreement to form a joint venture bauxite mining operation to
consolidate their bauxite mining operations in Jamaica, with the
objective of optimizing mining operating and capital costs. The
transaction is subject to various conditions. Subject to
satisfaction of those conditions, the joint venture is expected
to commence operations during the second half of 1999.
KACC owns a 28.3% interest in Queensland Alumina Limited ("QAL"),
which owns the largest and one of the most competitive alumina
refineries in the world, located in Queensland, Australia. QAL
refines bauxite into alumina, essentially on a cost basis, for
the account of its 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 ($97.6 million at December 31, 1998) of certain debt of
QAL, as well as other QAL costs and expenses, including bauxite
shipping costs.
KACC sold alumina in 1998 to approximately 20 customers, the
largest and top five of which accounted for approximately 19% and
67% of such sales, respectively. All of KACC's third-party sales
of bauxite in 1998 were made to one customer, which represents
approximately 6% of total bauxite and alumina third party
revenues.
- Primary Aluminum Business Unit
The following table lists KACC's primary aluminum smelting
facilities as of December 31, 1998:
<TABLE>
<CAPTION>
Annual Rated Total 1998
Capacity Annual Average
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
--------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Domestic
Washington Mead 100% 200,000 200,000 103% (1)
Washington Tacoma 100% 73,000 73,000 94%
-------------- --------------
Subtotal 273,000 273,000
-------------- --------------
International
Ghana Valco 90% 180,000 200,000 25%
Wales, United
Kingdom Anglesey 49% 66,150 135,000 100%
-------------- --------------
Subtotal 246,150 335,000
-------------- --------------
Total 519,150 608,000
============== ==============
</TABLE>
---------------
(1) In recent years the Mead smelter has consistently operated
at an annual rate in excess of its rated capacity of 200,000
tons. As a result of the strike-related partial curtailment
of the Mead smelter, the 1998 average operating rate declined
from that of a year ago but remained above 100% of rated
capacity.
KACC's principal primary aluminum customers consist of large
trading intermediaries and metal brokers. In 1998, KACC sold its
primary aluminum production not utilized for internal purposes to
approximately 42 customers, the largest and top five of which
accounted for approximately 30% and 58% of such sales,
respectively. See "- Competition" in this Report. Marketing and
sales efforts are conducted by personnel located in Pleasanton,
California; Houston, Texas; and Tacoma and Spokane, Washington.
A majority of the business unit's sales are based upon long-term
relationships with metal merchants and end-users.
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, anodes and bus that conduct electricity through
reduction cells, improved feed systems that add alumina to the
cells, computerized process control and energy management
systems, and furnace technology for baking of anode carbon - has
significantly contributed to increased and more efficient
production of primary aluminum and enhanced KACC's ability to
compete more effectively with the industry's newer smelters.
KACC engages 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" in this Report.
Domestic Smelters
The Mead facility uses pre-bake technology and produces primary
aluminum. Approximately 64% of Mead's 1998 production was used
at KACC's Trentwood, Washington, rolling mill, and the balance
was sold to third parties. The Tacoma facility uses Soderberg
technology and produces primary aluminum and high-grade,
continuous-cast, redraw rod, which currently commands a premium
price in excess of the price of primary aluminum. Both smelters
have achieved significant production efficiencies through
retrofit technology and a variety of cost controls, leading to
increases in production volume and enhancing their ability to
compete with newer smelters. The Mead and Tacoma, Washington,
smelters are two of the five KACC plants which are subject to the
continuing USWA dispute. See "-Labor Matters" in this Report.
KACC has modernized and expanded the carbon baking furnace at its
Mead smelter at an estimated cost of approximately $55.3 million.
The project has improved the reliability of the carbon baking
operations, increased productivity, enhanced safety, and improved
the environmental performance of the facility. The first stage
of this project, the construction of a new $40.0 million 90,000
ton per year furnace, was completed in 1997. The remaining
modernization work was completed in 1998 and early 1999. A
portion of this project was financed with the net proceeds
(approximately $18.6 million) of 7.6% Solid Waste Disposal
Revenue Bonds due 2027 issued in March 1997 by the Industrial
Development Corporation of Spokane County, Washington.
Foreign Smelters
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
tolling contracts which provide for proportionate payments by the
participants. KACC's share of the primary aluminum is sold to
third parties.
During most of 1998, the Valco smelter operated only one of its
five potlines, as compared to 1997, when Valco operated four
potlines. Each of Valco's potlines produces approximately 40,000
tons of primary aluminum per year. Valco received compensation
(in the form of energy credits to be utilized over the last half
of 1998 and during 1999) from the Volta River Authority ("VRA")
in lieu of the power necessary to run two of the potlines that
were curtailed during 1998. The compensation substantially
mitigated the financial impact of the curtailment of such lines.
Valco did not receive any compensation from the VRA for one
additional potline which was curtailed in January 1998. Based on
Valco's proposed 1999 power allocation from the VRA, Valco has
announced that it expects to operate three lines during 1999.
The decision to operate at that level was based on the power
allocation that Valco has received from the VRA as well as
consideration of market and other factors. Valco has notified
the VRA that it believes it had the contractual rights at the
beginning of 1998 to sufficient energy to run four and one-half
potlines for the balance of the year. Valco continues to seek
compensation from the VRA with respect to the January 1998
reduction of its power allocation. Valco and the VRA also are in
continuing discussions concerning other matters, including steps
that might be taken to reduce the likelihood of power
curtailments in the future. No assurances can be given as to the
success of these discussions.
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.
Electric Power
Electric power represents an important production cost for KACC
at its aluminum smelters. For a discussion of this subject, see
"Factors Affecting Future Performance - Electric Power" in this
Report.
- Flat-Rolled Products Business Unit
----------------------------------
The flat-rolled products business unit operates the Trentwood,
Washington, rolling mill. The Trentwood facility accounted for
approximately 58% of KACC's 1998 fabricated aluminum products
shipments. The business unit supplies the aerospace and general
engineering markets (producing heat treat sheet and plate
products), the beverage container market (producing body, lid,
and tab stock), and the specialty coil markets (producing
automotive brazing sheet, wheel, and tread products), both
directly and through distributors. The Trentwood facility is one
of the five KACC plants which is subject to the continuing USWA
dispute. See "- Employees and Labor Matters" in this Report, and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Labor Matters" in the Annual Report.
KACC continues to enhance the process and product mix of its
Trentwood rolling mill in an effort to maximize its profitability
and maintain full utilization of the facility. In 1998, KACC
continued to implement a plan to improve the reliability and to
expand the annual production capacity of heat treat flat-rolled
products at the Trentwood facility by approximately one-third
over 1996 levels. Approximately $8.0 million remains to be spent
to implement the plan. Global sales of KACC's heat treat
products are made primarily to the aerospace and general
engineering markets, and remained strong in the first half of
1998 after record shipments in 1997; demand for such products
softened in the second half of 1998. In 1998, the business unit
shipped products to approximately 141 customers in the aerospace,
transportation, and industrial ("ATI") markets, most of which
were distributors who sell to a variety of industrial end-users.
The top five customers in the ATI markets for flat-rolled
products accounted for approximately 18% of the business unit's
revenue.
KACC's flat-rolled products are also sold 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, service, and
timeliness of delivery are the primary bases on which KACC
competes. KACC is one of the highest quality producers of
aluminum beverage can stock in the world. In 1998, the business
unit had approximately 21 domestic and foreign can stock
customers, supplying approximately 41 can plants worldwide. The
largest and top five of such customers accounted for
approximately 12% and 35%, respectively, of the business unit's
revenue. See "- Competition" in this Report. The marketing
staff for the business unit is located at the Trentwood facility
and in Pleasanton, California. Sales are made directly to end-
use customers and distributors from four sales offices in the
United States, from a sales office in England, and by independent
sales agents in Asia and Latin America.
The Micromill facility was constructed near Reno, Nevada, in 1996
as a demonstration and production facility. Micromill technology
is based on a proprietary thin-strip, high-speed, continuous-belt
casting technique linked directly to hot and cold rolling mills.
KACC is continuing its efforts to implement the Micromill
technology on a full-scale basis. However, the Micromill
technology has not yet been fully implemented or commercialized,
and there can be no assurance that it will be successfully
implemented and commercialized for use at full-scale facilities.
KACC has decided to seek a strategic partner for further
development and deployment of the Micromill technology. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Strategic Initiatives" and Note 3 of
Notes to Consolidated Financial Statements in the Annual Report.
- Engineered Products Business Unit
---------------------------------
The engineered products business unit operates soft-alloy and
hard-alloy extrusion facilities and engineered component
(forgings) facilities in the United States and Canada. Major
markets for extruded products are in the transportation industry,
to which the business unit 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. The business unit
supplies forged parts to customers in the automotive, commercial
vehicle and ordnance markets. The high strength-to-weight
properties of forged aluminum make it particularly well-suited
for automotive applications. The business unit maintains its
headquarters and a sales and engineering office in Southfield,
Michigan, which works with automobile makers and other customers
and plant personnel to create new automotive component designs
and to improve existing products.
Soft-alloy extrusion facilities are located in Los Angeles,
California; Sherman, Texas; Richmond, Virginia; and London,
Ontario, Canada. Each of the soft-alloy extrusion facilities has
fabricating capabilities and provides finishing services. The
Richmond, Virginia, facility was acquired in mid-1997 and
increased KACC's extruded products capacity and enhanced its
existing extrusion business due to that facility's ability to
manufacture seamless tubing and large circle size extrusions and
to serve the distribution and ground transportation industries.
Hard-alloy rod and bar extrusion facilities are located in
Newark, Ohio, and Jackson, Tennessee, and produce screw machine
stock, redraw rod, forging stock, and billet. The Newark
facility is one of the five KACC plants which is subject to the
continuing USWA dispute. See "- Labor Matters" in this Report,
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Labor Matters" in the Annual Report.
A facility located in Richland, Washington, produces seamless
tubing in both hard and soft alloys for the automotive, other
transportation, export, recreation, agriculture, and other
industrial markets. The business unit also operates a cathodic
protection business located in Tulsa, Oklahoma, that extrudes
both aluminum and magnesium. The business unit operates forging
facilities at Oxnard, California, and Greenwood, South Carolina,
and a machine shop at Greenwood, South Carolina. KACC has
entered into an agreement to sell its casting operations in
Canton, Ohio.
In 1997 KACC and Accuride Corporation formed AKW L.P. to design,
manufacture and sell heavy-duty aluminum truck wheels. In January
1999, KACC signed a letter of intent to sell its 50% interest in
AKW to its partner, which would result in the Company recognizing
a substantial gain. The Company expects the transaction to close
on or about March 31, 1999; however, as the transaction is
subject to certain conditions, no assurances can be given that
the transaction will be consummated. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Strategic Initiatives" and Note 12 of Notes to
Consolidated Financial Statements in the Annual Report.
In 1998, the engineered products business unit had approximately
445 customers, the largest and top five of which accounted for
approximately 5% and 18%, respectively, of the business unit's
revenue. See "- Competition" in this Report. Sales are made
directly from plants, as well as marketing locations elsewhere in
the United States.
Competition
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. Primary aluminum and, to some
degree, alumina are commodities with generally standard
qualities, and competition in the sale of these commodities is
based primarily upon price, quality and availability. Aluminum
competes in many markets with steel, copper, glass, plastic, and
other materials. In the United States, beverage container
materials, including aluminum, face increased competition from
plastics as increased polyethylene terephthalate ("PET")
container capacity is brought on line by plastics manufacturers.
KACC competes with numerous domestic and international
fabricators in the sale of fabricated aluminum products. KACC
manufactures and markets fabricated aluminum products for the
transportation, packaging, construction, and consumer durables
markets in the United States and abroad. Sales in these markets
are made directly and through distributors to a large number of
customers. Competition in the sale of fabricated products is
based upon quality, availability, price and service, including
delivery performance. KACC concentrates its fabricating
operations on selected products in which it has production
expertise, high-quality capability, and geographic and other
competitive advantages. The Company believes that, assuming the
current relationship between worldwide supply and demand for
alumina and primary aluminum does not change materially, the loss
of any one of KACC's customers, including intermediaries, would
not have a material adverse effect on the Company's financial
condition or results of operations.
See the discussion of competitive conditions, markets, and
principal methods of competition in the description of each
business unit under the headings "-Alumina Business Unit,"
"-Primary Aluminum Business Unit," "-Flat-Rolled Products
Business Unit," and "-Engineered Products Business Unit" in this
Report.
Research and Development
KACC conducts research and development activities principally at
two facilities - CFT in Pleasanton, California, and the Northwest
Engineering Center adjacent to the Mead smelter in Spokane,
Washington. Net expenditures for Company-sponsored research and
development activities were $13.7 million in 1998, $19.7 million
in 1997, and $20.5 million in 1996. KACC's research staff
totaled 52 at December 31, 1998. KACC estimates that research
and development net expenditures will be in the range of $10
million to $15 million in 1999.
CFT performs research and development of aluminum process and
product technologies to support KACC's business units and new
business opportunities. In 1998 patents were issued to KACC
concerning the manufacture of continuous cast can sheet, the
brazing of aluminum alloys for heat exchanger applications,
improved lead-free aluminum machining alloys, and joining methods
for aluminum extrusions used in transportation applications. In
1998 CFT continued to support the development of the Micromill
technology deployed at the Micromill facility near Reno, Nevada,
for the production of can sheet and other sheet products. The
Northwest Engineering Center maintains specialized laboratories
and a miniature carbon plant where experiments with new anode and
cathode technology are performed. The Northwest Engineering
Center supports KACC's primary aluminum smelters, and
concentrates on the development of cost-effective technical
innovations such as equipment and process improvements.
KACC licenses its technology and sells 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 and fourteen foreign
countries.
Employees
During 1998, KACC employed an average of approximately 9,200
persons, compared with an average of approximately 9,600 persons
in 1997 and 1996. At December 31, 1998, KACC employed
approximately 8,900 persons; this number does not include persons
employed temporarily during the USWA labor dispute at the five
facilities subject to the labor dispute.
In 1998, Alpart entered into a new three-year labor agreement
with workers at its refinery in Jamaica, and Valco entered into a
new three-year labor agreement with workers at its smelter in
Ghana. Each agreement includes productivity improvements.
Environmental Matters
The Company and KACC are subject to a wide variety of
international, federal, state and local environmental laws and
regulations. For a discussion of this subject, see "Factors
Affecting Future Performance - Environmental Contingencies and
Asbestos Contingencies" in this Report.
Factors Affecting Future Performance
This section discusses certain factors that could cause actual
results to vary, perhaps materially, from the results described
in forward-looking statements made in this Report. Forward-
looking statements in this Report are not guarantees of future
performance and involve significant risks and uncertainties.
Actual results may vary materially from those in such forward-
looking statements as a result of factors including the
effectiveness of management's strategies and decisions, general
economic and business conditions, developments in technology, new
or modified statutory or regulatory requirements, and changing
prices and market conditions. No assurance can be given that
these factors and the specific factors discussed below are all of
the factors that could cause actual results to vary materially
from the forward-looking statements.
- Sensitivity to Prices and Hedging Programs
------------------------------------------
The Company's operating results are sensitive to changes in the
prices of alumina, primary aluminum, and fabricated aluminum
products, and also depend to a significant degree upon the volume
and mix of all products sold and on KACC's hedging strategies.
Primary aluminum prices have historically been subject to
significant cyclical fluctuations. Alumina prices, as well as
fabricated aluminum product prices (which vary considerably among
products), are significantly influenced by changes in the price
of primary aluminum and generally lag behind primary aluminum
prices. Since 1993, the Average Midwest United States
transaction price (the "AMT Price") for primary aluminum has
ranged from approximately $.50 to $1.00 per pound.
During 1998, the AMT Price per pound of primary aluminum declined
during the year, beginning the year in the $.70 to $.75 range and
ending the year in the low $.60 range. Subsequent to 1998, the
AMT Price continued to decline, and at February 26, 1999, the AMT
Price was approximately $.58 per pound.
From time to time in the ordinary course of business, KACC enters
into hedging transactions to provide price risk management in
respect of its net exposure resulting from (i) anticipated sales
of alumina, primary aluminum, and fabricated aluminum products,
less (ii) expected purchases of certain items, such as aluminum
scrap, rolling ingot, and bauxite, whose prices fluctuate with
the price of primary aluminum. No assurance can be given that
KACC's hedging program will adequately reduce KACC's exposure to
the risk of fluctuating primary aluminum prices.
KACC is exposed to energy price risk from fluctuating prices for
fuel oil and natural gas consumed in the production process. From
time to time in the ordinary course of business, KACC enters into
hedging transactions with major suppliers of energy and energy
related financial instruments. KACC also enters into foreign
exchange contracts to hedge material cash commitments to foreign
subsidiaries and affiliates. No assurance can be given that
KACC's hedging program will adequately reduce KACC's exposure to
the risk from fluctuating prices for fuel oil, natural gas, and
foreign currencies.
Note 10 of Notes to Consolidated Financial Statements in the
Annual Report is incorporated herein by reference. See also
"Quantitative and Qualitative Disclosures about Market Risk" in
this Report, and Note 1 "- Derivative Financial Instruments" of
Notes to Consolidated Financial Statements in the Annual Report.
- Leverage
--------
The Company's ratio of consolidated indebtedness to consolidated
net worth is greater than the comparable ratio of most of its
North American competitors, who generally have greater financial
resources than the Company. Due to its highly leveraged
condition, the Company is more sensitive than less leveraged
companies to certain factors affecting its operations, including
changes in the prices for its products, changes in interest
rates, and general economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Financing Activities and Liquidity" in the Annual
Report.
- Electric Power
--------------
The process of converting alumina into aluminum requires
significant amounts of electric power, and the cost of electric
power is an important production cost for KACC at its aluminum
smelters. A portion of the electric power used at the Mead and
Tacoma, Washington, smelters, as well as the rolling mill at
Trentwood, Washington, is purchased from the Bonneville Power
Administration (the "BPA") under contracts which expire in
September 2001, and a portion of such electric power is purchased
from other suppliers. KACC has long-term arrangements, expiring
in 2015, with the BPA for the transmission of electric power by
the BPA to those facilities. The amount of electric power which
may be provided by the BPA to KACC after the expiration of the
contracts in 2001 is not yet determined; however, the Company
believes that adequate electric power will be available at that
time, from the BPA and other suppliers, for the operation of its
facilities in Washington. The electric power supplied to the
Valco smelter in Ghana is produced by hydroelectric generators,
and the delivery of electric power to the smelter is subject to
interruption from time to time because of drought and other
factors beyond the control of Valco. Such power is supplied
under an agreement with the VRA which expires in 2017. The
agreement indexes a portion of the price of power to the market
price of primary aluminum and provides for a review and
adjustment of the base power rate and the price index every five
years. Such a review is now underway together with discussions
concerning the reliability of the long-term supply of power.
Electric power for the Anglesey smelter in Wales is supplied
under an agreement which expires in 2001. KACC is working to
address these power supply and power price issues; however, there
can be no assurance that electric power at affordable prices will
be available in the future for these smelters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Valco Operating Level" in the Annual Report.
- Labor Matters
-------------
The material under the heading "Labor Matters" at page 2 of this
Report is incorporated herein by reference.
In connection with the USWA strike and subsequent lock-out by
KACC, certain allegations of unfair labor practices ("ULPs") have
been filed with the National Labor Relations Board by the USWA
and its members. KACC has responded to all such allegations and
believes that they are without merit. If the allegations were
sustained, KACC could be required to make locked-out employees
whole for back wages from the date of the lock-out in January
1999. While uncertainties are inherent in the final outcome of
such matters, the Company believes that the resolution of the
alleged ULPs should not result in a material adverse impact on
the Company's consolidated financial position, results of
operations, or liquidity.
- Environmental Contingencies and Asbestos Contingencies
------------------------------------------------------
The Company and KACC are subject to a wide variety of
international, federal, state and local environmental laws and
regulations (the "Environmental Laws"). The Environmental Laws
regulate, among other things, air and water emissions and
discharges; the generation, storage, treatment, transportation,
and disposal of solid and hazardous waste; the release of
hazardous or toxic substances, pollutants and contaminants into
the environment; and, in certain instances, the environmental
condition of industrial property prior to transfer or sale. In
addition, the Company and KACC are subject to various federal,
state, and local workplace health and safety laws and regulations
("Health Laws").
From time to time, KACC is subject, with respect to its current
and former operations, to fines or penalties assessed for alleged
breaches of the Environmental and Health Laws and to claims and
litigation brought by federal, state or local agencies and by
private parties seeking remedial or other enforcement action
under the Environmental and Health Laws or damages related to
alleged injuries to health or to the environment, including
claims with respect to certain waste disposal sites and the
remediation of sites presently or formerly operated by KACC. KACC
currently is subject to certain lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of
1986 ("CERCLA"). KACC, along with certain other entities, has
been named as a Potentially Responsible Party ("PRP") for
remedial costs at certain third-party sites listed on the
National Priorities List under CERCLA and, in certain instances,
may be exposed to joint and several liability for those costs or
damages to natural resources. KACC's Mead, Washington, facility
has been listed on the National Priorities List under CERCLA.
The Washington State Department of Ecology has advised KACC that
there are several options for remediation at the Mead facility
that would be acceptable to the Department. KACC expects that
one of these remedial options will be agreed upon and
incorporated into a Consent Decree. 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.
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, 1998,
the balance of such accruals, which are primarily included in
Long-term liabilities, was $50.7 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 to be
performed. The Company expects remediation to occur over the
next several years and estimates that annual expenditures to be
charged to these environmental accruals will be approximately
$3.0 million to $8.0 million per year for the years 1999 through
2003 and an aggregate of approximately $29.0 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. Cash
expenditures of $3.5 million in 1998, $5.6 million in 1997, and
$8.8 million in 1996 were charged to previously established
accruals relating to environmental costs. Approximately $4.5
million is expected to be charged to such accruals in 1999. In
addition to cash expenditures charged to environmental accruals,
environmental capital spending was $5.7 million in 1998, $6.8
million in 1997, and $18.4 million in 1996. Annual operating
costs for pollution control, not including corporate overhead or
depreciation, were approximately $34.3 million in 1998, $27.5
million in 1997, and $30.1 million in 1996. Legislative,
regulatory and economic uncertainties make it difficult to
project future spending for these purposes. However, the Company
currently anticipates that in the 1999-2000 period, environmental
capital spending will be approximately $11.0 million per year,
and operating costs for pollution control will be approximately
$38.0 million per year.
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, the
Company 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.
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 20 years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Commitments and
Contingencies" in the Annual Report.
The portion of Note 9 of Notes to Consolidated Financial
Statements in the Annual Report under the headings "Environmental
Contingencies" and "Asbestos Contingencies" is incorporated
herein by reference.
- Year 2000 Disclosure Statement
------------------------------
The Company utilizes software and related technologies throughout
its business that will be affected by the date change to the year
2000. There may also be technology embedded in certain of the
equipment owned or used by the Company that is susceptible to the
year 2000 date change as well. The Company has implemented a
company-wide program to coordinate the year 2000 efforts of its
individual business units and to track their progress. The
intent of the program is to make sure that critical items are
identified on a sufficiently timely basis to assure that the
necessary resources can be committed to address any material risk
areas that could prevent the Company's systems and assets from
being able to meet the Company's business needs and objectives.
In addition to addressing the Company's internal systems, the
company-wide program involves identification of key suppliers,
customers, and other third-party relationships that could be
impacted by year 2000 issues.
While the Company believes that its program is sufficient to
identify the critical issues and associated costs necessary to
address possible year 2000 problems in a timely manner, there can
be no assurances that the program, or underlying steps
implemented, will be successful in resolving all such issues by
the Company's mid-1999 goal. If the steps taken by the Company
(or critical third parties) are not made in a timely manner, or
are not successful in identifying and remediating all significant
year 2000 issues, business interruptions or delays could occur
and could have a material adverse impact on the Company's results
and financial condition. However, based on the information the
Company has gathered to date and the Company's expectations of
its ability to remediate problems encountered, the Company
currently believes that no significant business interruptions
that would have a material impact on the Company's results or
financial condition will be encountered. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000" in the Annual Report.
- Foreign Activities
------------------
The Company's operations are located in several foreign
countries, including Australia, Canada, Ghana, Jamaica, and the
United Kingdom. Foreign operations, in general, may be more
vulnerable than domestic operations because of a variety of
political or governmental actions and other factors which may,
for example, disrupt or restrict operations and markets, impose
taxes and levies, impose import or export restrictions, restrict
the movement of funds, or impose limitations on foreign exchange
transactions. While the Company believes that its relationships
with the governments of the countries in which it conducts
operations directly or through joint ventures continue to be
satisfactory, there can be no assurance as to the future
influence of the foregoing factors.
ITEM 2. PROPERTIES
The locations and general character of the principal plants,
mines, and other materially important physical properties
relating to KACC's operations are described in Item 1 "- Business
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. The
Company believes that KACC's plants are cost competitive on an
international basis.
KACC's obligations under the Credit Agreement entered into on
February 15, 1994, as amended (the "Credit Agreement"), are
secured by, among other things, mortgages on KACC's major
domestic plants (other than the Gramercy alumina refinery and
Nevada Micromill). See Note 5 of Notes to Consolidated Financial
Statements in the Annual Report.
ITEM 3. LEGAL PROCEEDINGS
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. See Item 1 in this Report for
cautionary information with respect to such forward-looking
statements.
Hammons v. Alcan Aluminum Corp. et al
On March 5, 1996, a class action complaint was filed against the
Company, Alcan Aluminum Corp., Aluminum Company of America,
Alumax, Inc, Reynolds Metal Company, and the Aluminum Association
in the Superior Court of California for the County of Los
Angeles, alleging that the defendants conspired, in violation of
the California Cartwright Act (Bus. & Prof. Code Section 16720 &
16750), in conjunction with a Memorandum of Understanding ("MOU")
entered into in 1994 by representatives of Australia, Canada, the
European Union, Norway, the Russian Federation and the United
States, to restrict the production of primary aluminum resulting
in rises in prices for primary aluminum and aluminum products.
The complaint sought 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 estimated
damages sustained by the class to be $4.4 billion during the year
1994, before trebling. On July 11, 1996, the United States
District Court granted summary judgment in favor of the Company
and other defendants and dismissed the complaint as to all
defendants. On July 18, 1996, the plaintiff filed a notice of
appeal to the United States Court of Appeals for the Ninth
Circuit. On December 11, 1997, the United States Court of
Appeals for the Ninth Circuit affirmed the decision of the
District Court. On December 23, 1997, the plaintiff filed a
petition for rehearing en banc, which was denied May 4, 1998. On
August 12, 1998, the plaintiff filed a petition with the Supreme
Court of the United States for a writ of certiorari, which
petition was denied on October 19, 1998. The plaintiff
subsequently requested reconsideration of its petition which was
also denied.
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 20 years. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Commitments and Contingencies" in the Annual Report.
The portion of Note 9 of Notes to Consolidated Financial
Statements in the Annual Report under the heading "Asbestos
Contingencies" is incorporated herein by reference.
Labor Matters
In connection with the USWA strike and subsequent lock-out by
KACC, certain allegations of unfair labor practices ("ULPs") have
been filed with the National Labor Relations Board by the USWA
and its members. KACC has responded to all such allegations and
believes that they are without merit. If the allegations were
sustained, KACC could be required to make locked-out employees
whole for back wages from the date of the lock-out in January
1999. While uncertainties are inherent in the final
outcome of such matters, the Company believes that the resolution
of the alleged ULPs should not result in a material adverse
impact on the Company's consolidated financial position, results
of operations, or liquidity.
Other Matters
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 1998.
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 23, 1999, was 337. Page 57
of the Annual Report, and the information in Note 5 of Notes to
Consolidated Financial Statements under the heading "Loan
Covenants and Restrictions" at page 39 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 Credit Agreement (Exhibits 4.12 through 4.28 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 Credit Agreement and the Indentures
(Exhibits 4.1 through 4.11 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 4.28 to this Report, Note 5 of Notes to
Consolidated Financial Statements in the Annual Report, and the
information under the headings "Financing Activities and
Liquidity" and "Capital Structure" at pages 25 - 26 of the Annual
Report, are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated herein by
reference to the table at page 1 of this Report, to the table at
pages 18 - 19 of the Annual Report, to Note 1 of Notes to
Consolidated Financial Statements in the Annual Report, and to
pages 58 - 59 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pages 18 - 28 of the Annual Report are incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
This section contains forward-looking statements that involve
risk and uncertainties. Actual results could differ materially
from those projected in these forward-looking statements.
As discussed more fully in Notes 1 and 10 of Notes to
Consolidated Financial Statements, KACC utilizes hedging
transactions to lock-in a specified price or range of prices for
certain products which it sells or consumes and to mitigate
KACC's exposure to changes in foreign currency exchange rates.
The following sets forth the impact on future earnings of adverse
market changes related to KACC's hedging positions with respect
to commodity and foreign exchange contracts described more fully
in Note 10 of Notes to Consolidated Financial Statements. The
impact of market changes on energy derivative activities is
generally not significant.
Alumina and Primary Aluminum
Alumina and primary aluminum production in excess of internal
requirements is sold in domestic and international markets,
exposing the Company to commodity price risks. KACC's hedging
transactions are intended to provide price risk management in
respect of the net exposure of earnings resulting from (i)
anticipated sales of alumina, primary aluminum and fabricated
aluminum products, less (ii) expected purchases of certain items,
such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. On average, before
consideration of hedging activities, any fixed price contracts
with fabricated aluminum products customers, variations in
production and shipment levels, and timing issues related to
price changes the Company estimates that each $.01 increase
(decrease) in the market price per price-equivalent pound of
primary aluminum increases (decreases) the Company's annual pre-
tax earnings by approximately $15 million.
Based on the December 31, 1998 London Metal Exchange cash price
for primary aluminum of approximately 56 cents per pound, the
Company estimates that it would realize approximately $100
million of net aggregate pre-tax benefits from its hedging
positions and fixed price customer contracts during 1999 and
2000. The Company also estimates that a hypothetical 10 cent
decrease from the above stated year-end 1998 price level would
result in additional net aggregate pre-tax benefits of
approximately $150 million being realized during 1999 and 2000
related to KACC's hedging positions and fixed price customer
contracts. Both amounts are versus what the Company's results
would have been without the derivative commodity contracts and
fixed price customer contracts discussed above. Conversely, the
Company estimates that a hypothetical 10 cent increase from the
above stated year-end 1998 price would result in a net
aggregate reduction to pre-tax earnings of approximately $20
million being realized during 1999 and 2000 related to KACC's
hedging positions and fixed price customer contracts. It should
be noted, however, that, since the hedging positions and fixed
price customer contracts lock-in a specified price or range or
prices, any increase or decrease in earnings attributable to
KACC's hedging positions or fixed price customer contracts would
be significantly offset by a decrease or increase in the value of
the hedged transactions.
The foregoing estimated earnings impact on 2000 excludes the
possible effect on pre-tax income of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which must be adopted by the
Company as of January 1, 2000. The foregoing estimate of a
hypothetical 10 cent-per-pound increase in primary aluminum
prices on KACC's hedging positions and fixed price customer
contracts excludes the cash impact of possible margin deposit
requirements. The Company estimates that KACC's cash exposure
related to margin deposit requirements on such positions, if such
a hypothetical price increase were to occur, would not have a
material adverse impact on the Company's current liquidity or
financial position.
Foreign Currency
KACC enters into forward exchange contracts to hedge material
cash commitments for foreign currencies. KACC's primary foreign
exchange exposure is related to KACC's Australian Dollar (A$)
commitments in respect of activities associated with its 28.3%-
owned affiliate, Queensland Alumina Limited. The Company
estimates that, before consideration of any hedging activities, a
US $0.01 increase (decrease) in the value of the A$ results in an
approximate $1-2 million (decrease) increase in the Company's
annual pre-tax earnings.
At December 31, 1998, the Company held derivative foreign
currency contracts hedging approximately 75% and 50% of its A$
currency commitments for 1999 and 2000, respectively. The
Company estimates that a hypothetical 10% reduction in the A$
exchange rate would result in the Company recognizing a net
aggregate pre-tax cost of approximately $10-15 million during
1999 and 2000 related to KACC's foreign currency hedging
positions. This cost is versus what the Company's results would
have been without the Company's derivative foreign currency
contracts. It should be noted, however, that, since the hedging
positions lock-in specified rates, any increase or decrease
in earnings attributable to currency hedging instruments would be
offset by a corresponding decrease or increase in the value of
the hedged commitments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 29 - 57 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, and such information is incorporated by reference
from such definitive proxy statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
1. Financial Statements
--------------------
The Consolidated Financial Statements of the Company,
the Notes to Consolidated Financial Statements, the
Report of Independent Public Accountants, Quarterly
Financial Data, and Five-Year Financial Data are
included on pages 29 - 59 of the Annual Report.
2. Financial Statement Schedules Page
----------------------------------
Report of Independent Public Accountants 17
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 18-21
All other schedules are inapplicable or the required
information is included in the Consolidated Financial
Statements or the Notes thereto.
3. Exhibits
--------
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 23),
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 23), which
index is incorporated herein by reference.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Kaiser Aluminum
Corporation and Subsidiary Companies' annual report to
shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 28, 1999. 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 a
required part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in our
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 28, 1999
SCHEDULE I
CONDENSED BALANCE SHEETS - PARENT COMPANY
(In millions of dollars, except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Investment in KACC $ 1,913.3 $ 1,802.8
-------------- --------------
Total $ 1,913.3 $ 1,802.8
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ - $ 3.2
Intercompany note payable to KACC, including accrued interest 1,794.1 1,682.6
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares;
issued and outstanding 79,153,543 and 78,980,881 in 1998
and 1997 .8 .8
Additional capital 535.4 533.8
Accumulated deficit (417.0) (417.6)
-------------- --------------
Total stockholders' equity 119.2 117.0
-------------- --------------
Total $ 1,913.3 $ 1,802.8
============== ==============
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
CONDENSED STATEMENTS OF INCOME - PARENT COMPANY
(In millions of dollars)
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Equity in income of KACC $ 112.5 $ 154.2 $ 108.7
Administrative and general expense (.4) (1.7) (2.2)
Interest expense (111.5) (104.5) (98.3)
-------------- -------------- --------------
Net income $ .6 $ 48.0 $ 8.2
============== ============== ==============
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
CONDENSED STATEMENTS OF CASH FLOWS - PARENT COMPANY
(In millions of dollars)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ .6 $ 48.0 $ 8.2
Adjustments to reconcile net income to net cash used
for operating activities:
Equity in income of KACC (112.5) (154.2) (108.7)
Accrued interest on intercompany note
payable to KACC 111.5 104.5 98.3
Accrued taxes paid (3.3) (1.8) (2.7)
-------------- -------------- --------------
Net cash used for operating activities (3.7) (3.5) (4.9)
-------------- -------------- --------------
Cash flows from investing activities:
Investment in KACC (.1) (.3) (.1)
-------------- -------------- --------------
Net cash used for investing activities (.1) (.3) (.1)
-------------- -------------- --------------
Cash flows from financing activities:
Dividends paid - (4.2) (10.5)
Capital stock issued .1 .4 .1
Payments from KACC on intercompany note receivable - 4.2 10.5
Tax allocation payments from KACC 3.3 1.8 2.7
Operating cost advances from KACC .4 1.6 2.0
-------------- -------------- --------------
Net cash provided by financing
activities 3.8 3.8 4.8
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents
during the year - - (.2)
Cash and cash equivalents at beginning of year - - .2
-------------- -------------- --------------
Cash and cash equivalents at end of year $ - $ - $ -
============== ============== ==============
Supplemental disclosure of non-cash investing activities:
Non-cash (decrease) increase in investment in KACC $ (1.7) $ 4.4 $ -
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY
1. BASIS OF PRESENTATION
Kaiser Aluminum Corporation (the " Company") 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. The accompanying parent company condensed
financial statements of the Company should be read in
conjunction with the 1998 consolidated financial statements
of Kaiser Aluminum Corporation and Subsidiary Companies
("Kaiser").
Certain reclassifications of prior-year information were
made to conform to the current presentation.
2. INTERCOMPANY NOTE PAYABLE
The Intercompany Note to KACC, as amended, provides for a
fixed interest rate of 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 the
Company pursuant to the terms of certain debt instruments.
The obligations of KACC in respect of the credit facilities
under the Credit Agreement are guaranteed by the Company and
substantially by all significant subsidiaries of KACC. See
Note 5 of Notes to Kaiser's Consolidated Financial
Statements.
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 30, 1999 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 30, 1999 George T. Haymaker, Jr.
George T. Haymaker, Jr.
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: March 30, 1999 John T. La Duc
John T. La Duc
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 30, 1999 Daniel D. Maddox
Daniel D. Maddox
Vice President and Controller
(Principal Accounting Officer)
Date: March 30, 1999 Robert J. Cruikshank
Robert J. Cruikshank
Director
Date: March 30, 1999 Charles E. Hurwitz
Charles E. Hurwitz
Director
Date: March 30, 1999 Ezra G. Levin
Ezra G. Levin
Director
Date: March 30, 1999 Robert Marcus
Robert Marcus
Director
Date: March 30, 1999 Robert J. Petris
Robert J. Petris
Director
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 (incorporated by reference to Exhibit 3.2 to the
Report on Form 10-K for the period ended December 31,
1995, filed by KAC, File No. 1-9447).
3.3 Certificate of Retirement of Kaiser Aluminum
Corporation, dated February 12, 1998 (incorporated by
reference to Exhibit 3.3 to the Report on From 10-K for
the period ended December 31, 1997, filed by KAC, File
No. 1-9447).
3.4 Amended and Restated By-Laws of Kaiser Aluminum
Corporation, dated October 1, 1997 (incorporated by
reference to Exhibit 3.3 to the Report on Form 10-Q for
the quarterly period ended September 30, 1997, filed by
KAC, File No. 1-9447).
4.1 Indenture, dated as of February 1, 1993, among Kaiser
Aluminum & Chemical Corporation ("KACC"), as Issuer,
Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., and Kaiser Jamaica Corporation, as Subsidiary
Guarantors, and The First National Bank of Boston, as
Trustee, regarding KACC's 12-3/4% Senior Subordinated
Notes Due 2003 (incorporated by reference to Exhibit
4.1 to Form 10-K for the period ended December 31,
1992, filed by KACC, File No. 1-3605).
4.2 First Supplemental Indenture, dated as of May 1, 1993,
to the Indenture, dated as of February 1, 1993
(incorporated by reference to Exhibit 4.2 to the Report
on Form 10-Q for the quarterly period ended June 30,
1993, filed by KACC, File No. 1-3605).
4.3 Second Supplemental Indenture, dated as of February 1,
1996, to the Indenture, dated as of February 1, 1993
(incorporated by reference to Exhibit 4.3 to the Report
on Form 10-K for the period ended December 31, 1995,
filed by KAC, File No. 1-9447).
4.4 Third Supplemental Indenture, dated as of July 15,
1997, to the Indenture, dated as of February 1, 1993
(incorporated by reference to Exhibit 4.1 to the report
on Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447).
4.5 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).
4.6 First Supplemental Indenture, dated as of February 1,
1996, to the Indenture, dated as of February 17, 1994
(incorporated by reference to Exhibit 4.5 to the Report
on Form 10-K for the period ended December 31, 1995,
filed by KAC, File No. 1-9447).
4.7 Second Supplemental Indenture, dated as of July 15,
1997, to the Indenture, dated as of February 17, 1994
(incorporated by reference to Exhibit 4.2 to the report
on Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447).
4.8 Indenture, dated as of October 23, 1996, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, Kaiser
Finance Corporation, Kaiser Micromill Holdings, LLC,
Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill
Holdings, LLC and Kaiser Texas Sierra Micromills, LLC,
as Subsidiary Guarantors, and First Trust National
Association, as Trustee, regarding KACC's 10-7/8%
Series B Senior Notes Due 2006 (incorporated by
reference to Exhibit 4.2 to the Report on Form 10-Q for
the quarterly period ended September 30, 1996, filed by
KAC, File No. 1-9447).
4.9 First Supplemental Indenture, dated as of July 15,
1997, to the Indenture, dated as of October 23, 1996
(incorporated by reference to Exhibit 4.3 to the Report
on Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447).
4.10 Indenture, dated as of December 23, 1996, among KACC,
as Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, Kaiser
Finance Corporation, Kaiser Micromill Holdings, LLC,
Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill
Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC,
as Subsidiary Guarantors, and First Trust National
Association, as Trustee, regarding KACC's 10 7/8%
Series D Senior Notes due 2006 (incorporated by
reference to Exhibit 4.4 to the Registration Statement
on Form S-4, dated January 2, 1997, filed by KACC,
Registration No. 333-19143).
4.11 First Supplemental Indenture, dated as of July 15,
1997, to the Indenture, dated as of December 23, 1996
(incorporated by reference to Exhibit 4.4 to the Report
on Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447).
4.12 Credit Agreement, dated as of February 15, 1994, among
KAC, KACC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.4 to the Report
on Form 10-K for the period ended December 31, 1993,
filed by KAC, File No. 1-9447).
4.13 First Amendment to Credit Agreement, dated as of July
21, 1994, amending the Credit Agreement, dated as of
February 15, 1994, among KAC, KACC, the financial
institutions party thereto, and BankAmerica Business
Credit, Inc., as Agent (incorporated by reference to
Exhibit 4.1 to the Report on Form 10-Q for the
quarterly period ended June 30, 1994, filed by KAC,
File No. 1-9447).
4.14 Second Amendment to Credit Agreement, dated as of March
10, 1995, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KAC, KACC, the
financial institutions party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.6 to the Report on Form 10-K for
the period ended December 31, 1994, filed by KAC, File
No. 1-9447).
4.15 Third Amendment to Credit Agreement, dated as of July
20, 1995, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KAC, KACC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.1 to the Report on Form 10-Q for
the quarterly period ended June 30, 1995, filed by KAC,
File No. 1-9447).
4.16 Fourth Amendment to Credit Agreement, dated as of
October 17, 1995, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report
on Form 10-Q for the quarterly period ended September
30, 1995, filed by KAC, File No. 1-9447).
4.17 Fifth Amendment to Credit Agreement, dated as of
December 11, 1995, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.11 to the
Report on Form 10-K for the period ended December 31,
1995, filed by KAC, File No. 1-9447).
4.18 Sixth Amendment to Credit Agreement, dated as of
October 1, 1996, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report
on Form 10-Q for the quarterly period ended September
30, 1996, filed by KAC, File No. 1-9447).
4.19 Seventh Amendment to Credit Agreement, dated as of
December 17, 1996, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.18 to the
Registration Statement on Form S-4, dated January 2,
1997, filed by KACC, Registration No. 333-19143).
4.20 Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC,
Kaiser, the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.16 to the
Report on Form 10-K for the period ended December 31,
1996, filed by KAC, File No. 1-9447).
4.21 Ninth Amendment to Credit Agreement, dated as of April
21, 1997, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KACC, KAC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.5 to the Report on From 10-Q for
the quarterly period ended June 30, 1997, filed by KAC,
File No. 1-9447).
4.22 Tenth amendment to Credit Agreement, dated as of June
25, 1997, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KACC, KAC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.6 to the Report on Form 10-Q for
the quarterly period ended June 30, 1997, filed by KAC,
File No. 1-9447).
4.23 Eleventh Amendment to Credit Agreement, dated as of
October 20, 1997, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.7 to the Report
on Form 10-Q for the quarterly period ended September
30, 1997, filed by KAC, File No. 1-9447).
4.24 Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.24 to the
Report on Form 10-K for the period ended December 31,
1997, filed by KAC, File No. 1-9447).
4.25 Thirteenth Amendment to Credit Agreement, dated as of
July 20, 1998, amending the Credit Agreement, dated as
of February 15, 1994, as amended, among KACC, KAC, the
financial institutions party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4 to the report on Form 10-Q for
the quarterly period ended June 30, 1998, filed by KAC,
File No. 1-9447).
*4.26 Fourteenth Amendment to Credit Agreement, dated as of
December 11, 1998, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions party thereto, and
BankAmerica Business Credit, Inc., as Agent.
*4.27 Fifteenth Amendment to Credit Agreement, dated as of
February 23, 1999, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions party thereto, and
BankAmerica Business Credit, Inc., as Agent.
*4.28 Sixteenth Amendment to Credit Agreement, dated as of
March 26, 1999, amending the Credit Agreement, dated as
of February 15, 1994, as amended, among KACC, KAC, the
financial institutions party thereto, and BankAmerica
Business Credit, Inc., as Agent.
4.29 Intercompany Note between KAC and KACC (incorporated by
reference to Exhibit 10.11 to the Report on Form 10-K
for the period ended December 31, 1996, filed by MAXXAM
Inc. ("MAXXAM"), File No. 1-3924).
4.30 Confirmation of Amendment of Non-Negotiable
Intercompany Note, dated as of October 6, 1993, between
KAC and KACC (incorporated by reference to Exhibit
10.12 to the Report on Form 10-K for the period ended
December 31, 1996, filed by MAXXAM, File No. 1-3924).
4.31 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).
4.32 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).
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, dated as of December 21,
1989, between MAXXAM and KACC (incorporated by
reference to Exhibit 10.21 to Amendment No. 6 to the
Registration Statement on Form S-1, dated December 14,
1989, filed by KACC, Registration No. 33-30645).
10.3 Tax Allocation Agreement, dated as of February 26,
1991, between KAC and MAXXAM (incorporated by reference
to Exhibit 10.23 to Amendment No. 2 to the Registration
Statement on Form S-1, dated June 11, 1991, filed by
KAC, Registration No. 33-37895).
10.4 Tax Allocation Agreement, dated as of June 30, 1993,
between KACC and KAC (incorporated by reference to
Exhibit 10.3 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC,
File No. 1-3605).
Executive Compensation Plans and Arrangements
[Exhibits 10.5 - 10.23, inclusive]
10.5 KACC's Bonus Plan (incorporated by reference to Exhibit
10.25 to Amendment No. 6 to the Registration Statement
on Form S-1, dated December 14, 1989, filed by KACC,
Registration No. 33-30645).
10.6 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Report on Form 10-Q
for the quarterly period ended June 30, 1993, filed by
KACC, File No. 1-3605).
10.7 Kaiser 1995 Employee Incentive Compensation Program
(incorporated by reference to Exhibit 10.1 to the
Report on Form 10-Q for the quarterly period ended
March 31, 1995, filed by KAC, File No. 1-9447).
10.8 Kaiser 1995 Executive Incentive Compensation Program
(incorporated by reference to Exhibit 99 to the Proxy
Statement, dated April 26, 1995, filed by KAC, File No.
1-9447).
10.9 Kaiser 1997 Omnibus Stock Incentive Plan (incorporated
by reference to Appendix A to the Proxy Statement,
dated April 29, 1997, filed by KAC, File No. 1-9447).
10.10 Employment Agreement, dated April 1, 1993, among KAC,
KACC, and George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10.2 to the Report on Form 10-Q
for the quarterly period ended March 31, 1993, filed by
KAC, File No. 1-9447).
10.11 First Amendment to Employment Agreement by and between
KACC, KAC and George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10 to the Report on Form 10-Q for
the quarterly period ended June 30, 1996, filed by KAC,
File No. 1-9447).
10.12 Second Amendment to Employment Agreement, dated as of
December 10, 1997, by and between KAC, KACC, and George
T. Haymaker, Jr. (incorporated by reference to Exhibit
10.12 to the Report on Form 10-K for the period ended
December 31, 1997, filed by KAC, File No. 1-9447).
10.13 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).
10.14 Employment Agreement between KACC and Raymond J.
Milchovich made effective for the period from January
1, 1998, to December 31, 2002 (incorporated by
reference to Exhibit 10.3 to the Report on Form 10-Q
for the quarterly period ended September 30, 1998,
filed by KAC, File No. 1-9447).
10.15 Time-Based Stock Option Grant Pursuant to the Kaiser
1997 Omnibus Stock Incentive Plan to Raymond J.
Milchovich, effective July 2, 1998 (incorporated by
reference to Exhibit 10.4 to the Report on Form 10-Q
for the quarterly period ended September 30, 1998,
filed by KAC, File No. 1-9447).
10.16 Employment Agreement between KACC and John T. La Duc
made effective for the period from January 1, 1998, to
December 31, 2002 (incorporated by reference to Exhibit
10.5 to the Report on From 10-Q for the quarterly
period ended September 30, 1998, filed by KAC, File No.
1-9447).
10.17 Time-Based Stock Option Grant Pursuant to the Kaiser
1997 Omnibus Stock Incentive Plan to John T. La Duc,
effective July 10, 1998 (incorporated by reference to
Exhibit 10.6 to the Report on Form 10-Q for the
quarterly period ended September 30, 1998, filed by
KAC, File No. 1-9447).
*10.18 Time-Based Stock Option Grant Pursuant to the Kaiser
1997 Omnibus Stock Incentive Plan to George T.
Haymaker, Jr., effective January 1, 1998.
*10.19 Performance-Accelerated Stock Option Grant Pursuant to
the Kaiser 1997 Omnibus Stock Incentive Plan to George
T. Haymaker, Jr., effective January 1, 1998.
*10.20 Letter Agreement, dated July 27, 1998, between KACC and
John H. Walker.
*10.21 Description of Kaiser Severance Protection and Change
of Control Benefits Program.
10.22 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).
10.23 Form of Deferred Fee Agreement between KAC, KACC, and
directors of KAC and KACC (incorporated by reference to
Exhibit 10 to the Report on Form 10-Q for the quarterly
period ended March 31, 1998, filed by KAC, File No. 1-
9447).
*13 The portions of KAC's Annual Report to shareholders for
the year ended December 31, 1998, which are
incorporated by reference into this Report.
*21 Significant Subsidiaries of KAC.
*23.1 Consent of Independent Public Accountants.
*23.2 Consent of Wharton Levin Ehrmantraut Klein & Nash, P.A.
*23.3 Consent of Heller Ehrman White & McAuliffe.
*27 Financial Data Schedule.
------------------
* Filed herewith
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 Bellwood Corporation Delaware
Kaiser Finance Corporation Delaware
Kaiser Jamaica Bauxite Company (partnership) Jamaica
Kaiser Jamaica Corporation Delaware
Queensland Alumina Limited Queensland
Volta Aluminium Company Limited Ghana
Principal California South Carolina
---------- --------------
Domestic Los Angeles (City Greenwood
of Commerce) Engineered Products
Operations Engineered Greenwood
Products Engineered Products
and Oxnard Machine Shop
Administrative Engineered Tennessee
Products ---------
Offices Pleasanton Jackson
(Partial List) R&D at the Center Engineered Products
for Technology, Texas
Administrative -----
Offices Houston
Kaiser Aluminum
Louisiana Corporation
--------- Headquarters
Baton Rouge Sherman
Alumina Business Engineered Products
Unit Offices Virginia
Gramercy --------
Alumina Richmond
Michigan Engineered Products
-------- Washington
Detroit ----------
(Southfield) Mead
Automotive Primary Aluminum,
Product Northwest Engineering
Development and Center
Sales Richland
Ohio Engineered Products
---- Tacoma
Canton* Primary Aluminum
Engineered Trentwood
Products Flat-Rolled Products
Cuyahoga Falls
(50%)*
Engineered
Products
Newark
Engineered
Products
Oklahoma
--------
Tulsa
Engineered
Products
Pennsylvania
------------
Erie (50%)*
Engineered
Products
* In separate announcements in early 1999, the Company said it
had signed agreements to sell its interests in the assets located
at Canton, Cuyahoga Falls, and Erie.
-----------------------------------------------------------------
Principal Australia Jamaica
--------- -------
Worldwide Queensland Alumina Alumina Partners of
Limited (28.3%) Jamaica (65%)
Operations Alumina Bauxite, Alumina
(Partial List) Canada Kaiser Jamaica Bauxite
------ Company (49%)
Kaiser Aluminum & Bauxite
Chemical of Wales, United Kingdom
Canada Limited ---------------------
(100%) Anglesey Aluminium
Engineered Limited (49%)
Products Primary Aluminum
Ghana
-----
Volta Aluminium
Company Limited
(90%)
Primary Aluminum
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S
O P E R A T I O N S
Kaiser Aluminum Corporation ("Kaiser" or the "Company"), through
its wholly owned subsidiary, Kaiser Aluminum & Chemical
Corporation ("KACC"), operates in all principal aspects of the
aluminum industry through the following business segments:
Bauxite and alumina, Primary aluminum, Flat-rolled products and
Engineered products. The Company uses a portion of its bauxite,
alumina, and primary aluminum production for additional
processing at certain of its downstream facilities. Intersegment
transfers are valued at estimated market prices. The table below
provides selected operational and financial information on a
consolidated basis with respect to the Company for the years
ended December 31, 1998, 1997, and 1996. This information is
presented in a different format from that used in prior years as
a result of the Company's adoption of Statement of Financial
Accounting Standards No.131 as of December 31, 1998. Prior year
information has been restated to conform to the Company's new
presentation format. The following data should be read in
conjunction with the Company's consolidated financial statements
and the notes thereto, contained elsewhere herein. See Note 11
of Notes to Consolidated Financial Statements for further
information regarding segments. (All references to tons refer to
metric tons of 2,204.6 pounds.)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
(In millions of dollars, except shipments and prices) 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shipments: (000 tons)
Alumina
Third Party 2,250.0 1,929.8 2,073.7
Intersegment 750.7 968.0 912.4
-------------- -------------- --------------
Total Alumina 3,000.7 2,897.8 2,986.1
-------------- -------------- --------------
Primary Aluminum
Third Party 263.2 327.9 355.6
Intersegment 162.8 164.2 128.3
-------------- -------------- --------------
Total Primary Aluminum 426.0 492.1 483.9
-------------- -------------- --------------
Flat-Rolled Products 235.6 247.9 204.8
-------------- -------------- --------------
Engineered Products 169.4 152.1 122.3
-------------- -------------- --------------
Average Realized Third Party Sales Price: (1)
Alumina (per ton) $ 197 $ 198 $ 195
Primary Aluminum (per pound) $ 0.71 $ 0.75 $ 0.69
Net Sales:
Bauxite and Alumina
Third Party (includes net sales of bauxite) $ 472.7 $ 411.7 $ 431.0
Intersegment 135.8 201.7 194.1
-------------- -------------- --------------
Total Bauxite & Alumina 608.5 613.4 625.1
-------------- -------------- --------------
Primary Aluminum
Third Party 409.8 543.4 538.3
Intersegment 233.5 273.8 217.4
-------------- -------------- --------------
Total Primary Aluminum 643.3 817.2 755.7
-------------- -------------- --------------
Flat-Rolled Products 714.6 743.3 626.0
Engineered Products 581.3 581.0 504.4
Minority Interests 78.0 93.8 90.8
Eliminations (369.3) (475.5) (411.5)
-------------- -------------- --------------
Total Net Sales $ 2,256.4 $ 2,373.2 $ 2,190.5
============== ============== ==============
Operating Income (Loss):
Bauxite & Alumina (2) $ 42.0 $ 54.2 $ 27.7
Primary Aluminum (2) 49.9 148.3 79.1
Flat-Rolled Products (2) (3) 70.8 28.2 35.3
Engineered Products (2) (3) 47.5 42.3 21.7
Micromill(TM) (4) (63.4) (24.5) (14.5)
Eliminations 8.9 (5.9) 8.3
Corporate (3) (65.1) (74.6) (59.8)
-------------- -------------- --------------
Total Operating Income $ 90.6 $ 168.0 $ 97.8
============== ============== ==============
Net Income $ .6 $ 48.0 $ 8.2
============== ============== ==============
Capital Expenditures $ 77.6 $ 128.5 $ 161.5
============== ============== ==============
</TABLE>
(1) Average realized prices for the Company's Flat-rolled
products and Engineered products segments are not presented
as such prices are subject to fluctuations due to changes in
product mix. Average realized third party sales prices for
alumina and primary aluminum include the impact of hedging
activities.
(2) Fourth quarter 1998 results for the Bauxite and alumina,
Primary aluminum, Flat-rolled products and Engineered
products segments included unfavorable strike-related impacts of
approximately $10.0, $24.0, $13.0, and $3.0, respectively.
(3) Second quarter 1997 results included pre-tax charges of
$2.6, $12.5 and $4.6 related to restructuring of operations
for the Flat-rolled products, Engineered products and
Corporate segments, respectively.
(4) Fourth quarter 1998 results included a non-cash charge of
$45.0 related to impairment of the Company's Micromill
assets.
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a
number of places in this section (see "Overview," "Results of
Operations," "Liquidity and Capital Resources" and "Other
Matters"). Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates" or the
negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are
cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks
and uncertainties, and that actual results may vary materially
from those in the forward-looking statements as a result of
various factors. These factors include the effectiveness of
management's strategies and decisions, general economic and
business conditions, developments in technology, year 2000
technology issues, new or modified statutory or regulatory
requirements and changing prices and market conditions. This
section and the Company's Annual Report on Form 10-K each
identify other factors that could cause such differences. No
assurance can be given that these are all of the factors that
could cause actual results to vary materially from the forward-
looking statements.
OVERVIEW
MARKET-RELATED FACTORS
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.
Primary aluminum prices have historically been subject to
significant cyclical price fluctuations. See Notes 1 and 10 of
the Notes to Consolidated Financial Statements for a discussion
of KACC's hedging activities.
During 1998, the Average Midwest United States transaction price
("AMT Price") per pound of primary aluminum experienced a steady
decline during the year, beginning the year in the $.70 to $.75
range and ending the year in the low $.60 range. During 1997,
the AMT Price remained in the $.75 to $.80 price range for the
first eleven months before declining to the low $.70 range in
December. The AMT Price for 1996 remained fairly stable,
generally in the $.70 to $.75 range, through June and then
declined during the second half of the year, reaching a low of
approximately $.65 per pound for October 1996, before recovering
late in the year.
Subsequent to December 31, 1998, the AMT Price has continued to
decline. At February 26, 1999, the AMT Price was approximately
$.58.
LABOR MATTERS
Substantially all of KACC's hourly workforce at the Gramercy,
Louisiana, alumina refinery, Mead and Tacoma, Washington,
aluminum smelters, Trentwood, Washington, rolling mill, and
Newark, Ohio, extrusion facility were covered by a master labor
agreement with the United Steelworkers of America (the "USWA")
which expired on September 30, 1998. The parties did not reach
an agreement prior to the expiration of the master agreement and
the USWA chose to strike. As previously announced, in January
1999 KACC declined an offer by the USWA to have the striking
workers return to work at the five plants without a new
agreement. KACC imposed a lock-out to support its bargaining
position and continues to operate the plants with salaried
employees and other workers as it has since the strike began.
Based on operating results to date, the Company believes that a
significant business interruption will not occur.
KACC and the USWA continue to communicate; however, no formal
schedule for bargaining sessions has been developed at this time.
The objective of the Company has been, and continues to be, to
negotiate a fair labor contract that is consistent with its
business strategy and the commercial realities of the
marketplace.
As a result of the USWA strike, the Company temporarily curtailed
three out of a total of eleven potlines at its Mead and Tacoma,
Washington, aluminum smelters at September 30, 1998. The
curtailed potlines represent approximately 70,000 tons of annual
production capacity out of a total combined production capacity
of 273,000 tons per year at the facilities. As previously
announced, in February 1999, KACC began restarting the two
curtailed potlines at its Mead smelter representing approximately
50,000 tons of the previously idle capacity. KACC has also
announced that it has completed preparations to restart 20,000
tons of idle capacity at its Tacoma smelter. However, the timing
for any restart of the Tacoma potline has yet to be determined
and will depend upon market conditions and other factors. Costs
associated with the preparation and restart of the potlines at
the Mead and Tacoma facilities are expected to adversely affect
the Company's first quarter results.
While the Company initially experienced an adverse strike-related
impact on its profitability in the fourth quarter of 1998, the
Company currently believes that KACC's operations at the affected
facilities have been substantially stabilized and will be able to
run at, or near, full capacity, and that the incremental costs
associated with operating the affected plants during the dispute
were eliminated or substantially reduced as of January 1999
(excluding the impacts of the restart costs discussed above and
the effect of market factors such as the continued market-related
curtailment at the Tacoma smelter). However, no assurances can
be given that KACC's efforts to run the plants on a sustained
basis, without a significant business interruption or material
adverse impact on the Company's operating results, will be
successful.
STRATEGIC INITIATIVES
The Company has previously disclosed that it set a goal of
achieving $120.0 million of pre-tax cost reductions and other
profit improvements, independent of metal price changes, with the
full effect planned to be realized in 1998 and beyond, measured
against 1996 results. The Company believes that KACC's
operations had achieved the run rate necessary to meet this
objective prior to the end of the third quarter of 1998, when the
impact of such items as smelter operating levels, the USWA strike
and foreign currency changes are excluded from the analysis.
Further, the Company believes that KACC has implemented the steps
that will allow it to sustain the stated goal over the long term.
The Company remains committed to sustaining the full $120.0
million improvement and to generating additional profit
improvements in future years; however, no assurances can be given
that the Company will be successful in this regard.
In addition to working to improve the performance of the
Company's existing assets, the Company has devoted significant
efforts analyzing its existing asset portfolio with the intent of
focusing its efforts and capital in sectors of the industry that
are considered most attractive, and in which the Company believes
it is well positioned to capture value. The initial steps of
this process resulted in the June 1997 acquisition of the
Bellwood extrusion facility, the May 1997 formation of AKW L.P.
("AKW"), a joint venture that designs, manufactures and sells
heavy duty aluminum wheels, the rationalization of certain of the
Company's engineered products operations and the Company's
investment to expand its capacity for heat treat flat-rolled
products at its Trentwood, Washington, rolling mill. The
restructuring activities resulted in the Company recording a net
pre-tax charge of $19.7 million in June 1997. See Notes 3 and 4
of Notes to Consolidated Financial Statements.
The portfolio analysis process also resulted in the Company's
fourth quarter 1998 decision to seek a strategic partner for
further development and deployment of KACC's Micromill(TM)
technology. While technological progress has been good,
management concluded that additional time and investment would be
required for success. Given the Company's other strategic
priorities, the Company believes that introducing added
commercial and financial resources is the appropriate course of
action for capturing the maximum long term value. This change in
strategic course required a different accounting treatment, and
the Company correspondingly recorded a $45.0 million impairment
charge to reduce the carrying value of the Micromill assets to
approximately $25.0 million.
Another area of emphasis has been a continuing focus on managing
the Company's legacy liabilities. One element of this process
has been actively pursuing claims in respect of insurance
coverage for certain incurred and future environmental costs.
During the fourth quarter of 1998, KACC received recoveries
totalling approximately $35.0 million related to current and
future claims against certain of its insurers. Recoveries of
$12.0 million were deemed to be allocable to previously accrued
(expensed) items and were reflected in earnings during the fourth
quarter of 1998. The remaining recoveries were offset against
increases in the total amount of environmental reserves. No
assurances can be given that the Company will be successful in
other attempts to recover incurred or future costs from other
insurers or that the amount of any recoveries received will
ultimately be adequate to cover costs incurred. See Note 9 of
Notes to Consolidated Financial Statements.
Additional portfolio analysis and initiatives are continuing.
In early 1999, the Company's program to focus its efforts and
capital in sectors of the industry which it considers to be the
most attractive, and in which the Company believes it is well
positioned to capture value, has resulted in an agreement to sell
one joint venture interest and a separate agreement to purchase
another. As previously announced, in January 1999, KACC signed a
letter of intent to sell its 50% interest in AKW to its joint
venture partner. The transaction, which would result in the
Company recognizing a substantial gain, is currently expected to
close on or about March 31, 1999. However, as the transaction is
subject to negotiation of a definitive purchase agreement, no
assurances can be given that this transaction will be
consummated. Also, in February 1999, as previously announced,
KACC completed the acquisition of the remaining 45% interest in
Kaiser LaRoche Hydrate Partners, an alumina marketing venture,
from its joint venture partner for a cash purchase price of
approximately $10.0 million. See Note 12 of Notes to
Consolidated Financial Statements.
VALCO OPERATING LEVEL
During most of 1998, the Company's 90%-owned Volta Aluminium
Company Limited ("Valco") smelter in Ghana operated only one of
its five potlines, as compared to 1997, when Valco operated four
potlines. Each of Valco's potlines produces approximately 40,000
tons of primary aluminum per year. Valco received compensation
(in the form of energy credits to be utilized over the last half
of 1998 and during 1999) from the Volta River Authority ("VRA")
in lieu of the power necessary to run two of the potlines that
were curtailed during 1998. The compensation substantially
mitigated the financial impact of the curtailment of such lines.
Valco did not receive any compensation from the VRA for one
additional potline which was curtailed in January 1998. Based on
Valco's proposed 1999 power allocation from the VRA, Valco has
announced that it expects to operate three lines during 1999.
The decision to operate at that level was based on the power
allocation that Valco has received from the VRA as well as
consideration of market and other factors. As previously
announced, Valco has notified the VRA that it believes it had the
contractual rights at the beginning of 1998 to sufficient energy
to run four and one-half potlines for the balance of the year.
Valco continues to seek compensation from the VRA with respect to
the January 1998 reduction of its power allocation. Valco and
the VRA also are in continuing discussions concerning other
matters, including steps that might be taken to reduce the
likelihood of power curtailments in the future. No assurances
can be given as to the success of these discussions.
RESULTS OF OPERATIONS
1998 AS COMPARED TO 1997
Summary - The Company reported net income of $.6 million, or $.01
per common share, for 1998 compared to net income of $48.0
million, or $.57 per common share, for 1997. Net sales in 1998
totaled $2,256.4 million compared to $2,373.2 million in 1997.
Net income for 1998 included the effect of certain non-recurring
items, including approximately $60.0 million of pre-tax
incremental expense and the earnings impact of lost volume
associated with a strike by members of the USWA (more fully
discussed above), a $45.0 million pre-tax non-cash charge to
reduce the carrying value of the Company's Micromill assets and
an $8.3 million non-cash tax benefit resulting from the
resolution of certain tax matters. Net income for 1997 included
the effect of two essentially offsetting non-recurring items: a
$19.7 million pre-tax restructuring charge and an approximate
$12.5 million non-cash tax benefit related to settlement of
certain tax matters.
Bauxite and Alumina - Third party net sales of alumina were up
16% in 1998 as compared to 1997 primarily due to a 17% increase
in third party shipments. The increase in 1998 third party
shipments (and offsetting decrease in 1998 intersegment
shipments) resulted from reduced shipments to Valco, due to the
production curtailment more fully discussed above and to a lesser
extent, the fourth quarter strike-related curtailment of three
potlines at the Company's Washington smelters. The average
realized price for third party alumina sales was down only
slightly as the allocated net gains from the Company's hedging
activities substantially offset the decline in market prices
related to the Company's primary aluminum-linked customer sales
contracts. In addition to being impacted by the reduced
shipments to Valco and the Washington smelters as discussed
above, intersegment sales were adversely affected by a
substantial market-related decline in intersegment average sales
prices.
Segment operating income was essentially unchanged, excluding the
impact of the approximate $11.0 million of incremental strike-related
costs. The adverse impact of reduced intersegment
realized prices was essentially offset by improved operating
performance resulting from higher production as well as lower
energy costs.
Primary Aluminum - 1998 third party net sales of primary aluminum
were down 25% as compared to 1997 primarily as a result of a 20%
reduction in shipments, caused by the 1998 potline curtailments
at Valco and the Washington smelters. A 5% reduction in average
realized third party sales prices between 1998 and 1997
(reflecting lower market prices offset, in part, by allocated net
gains from KACC's hedging activities), also adversely impacted
third party net sales. Intersegment net sales were down
approximately 15% between 1998 and 1997. While intersegment
shipments were essentially unchanged from the prior year, average
realized prices dropped by 14% reflecting lower market prices for
primary aluminum.
Segment operating income in 1998 was down significantly from
1997. The operating income impact of the Valco potline
curtailments was partially mitigated by the compensation from the
VRA for two of the three curtailed potlines. In addition to the
impact of the one uncompensated potline curtailment at Valco,
1998 results were also negatively affected by the impact of the
potline curtailments at the Company's Washington smelters,
reduced average realized prices (primarily on intersegment
sales), and an adverse strike-related impact of approximately
$29.0 million.
Flat-Rolled Products - Net sales of flat-rolled products
decreased by 4% during 1998 as compared to 1997 as a 5% reduction
in product shipments was modestly offset by the price impact of
changes in product mix. The mix of product shipments in 1998
reflects a higher demand for heat treat products, primarily in
the first half of the year, offset by reduced can sheet shipments
and an increased level of tolling, all as compared to 1997.
Segment operating income increased significantly in 1998
primarily as a result of the increased demand for heat treat
products in the first half of 1998 and improved operating
efficiencies. Segment results for 1998 were particularly strong
in light of the unfavorable strike-related impact of
approximately $16.0 million. Segment results for 1997 included a
non-cash charge recorded in the second quarter of 1997 in
connection with restructuring activities.
Engineered Products - Net sales of engineered products were
relatively flat year to year. An 11% increase in product
shipments was effectively offset by market-related reductions in
product prices as well as by the price impact of changes in
product mix. The increase in year-over-year shipments is in part
due to the impact of the Company's ownership of the Bellwood
extrusion facility in Richmond, Virginia, for all of 1998 versus
only half of 1997. This was, in part, offset by a decline in
year-over-year sales, attributable to the AKW wheels joint
venture formation in May 1997 and reduced shipments caused by
labor difficulties at two major customers.
Segment operating income declined by approximately 6% in 1998 as
compared to 1997, excluding the 1997 pre-tax net charge related
to restructuring of operations and approximately $4.0 million of
adverse incremental strike-related impact in 1998, as a result of
the market impact of the previously mentioned labor difficulties
at two major customers and due to an overall softening in demand,
particularly in the second half of the year.
Eliminations - Eliminations of intersegment profit vary from
period to period depending on fluctuations in market prices as
well as the amount and timing of the affected segments'
production and sales.
Corporate and Other - Corporate operating expenses represent
corporate general and administrative expenses which are not
allocated to the Company's business segments. Excluding the 1997
pre-tax charge associated with the Company's restructuring of
operations, corporate expenses were lower in 1998 than in 1997
primarily as a result of lower consulting and other costs
associated with the Company's ongoing profit improvement program
and portfolio review initiatives.
1997 AS COMPARED TO 1996
Summary - The Company reported net income of $48.0 million, or
$.57 per common share, for 1997 compared to net income of $8.2
million, or $.00 per common share, for 1996. Net income for 1997
included the effect of two essentially offsetting non-recurring
items: a $19.7 million pre-tax restructuring and an approximate
$12.5 million non-cash tax benefit related to settlement of
certain tax matters. Net sales in 1997 totaled $2,373.2 million
compared to $2,190.5 million in 1996.
Bauxite and Alumina - Third party net sales of alumina in 1997
decreased by 4% as compared to 1996 as a 7% decline in third
party shipments more than offset a 2% increase in average
realized prices. Third party shipment volumes were down as
compared to 1996 as a result of the timing of shipments and a 6%
increase in intersegment transfers, primarily due to the
operation in 1997 of an additional one-half of a potline at Valco
over the 1996 operating level. Intersegment net sales increased
by approximately 4% between 1996 and 1997 as a result of the
previously mentioned increase in intersegment shipments offset by
a 2% decline in intersegment prices.
Segment operating income improved substantially in 1997 from
1996, despite the reduced level of shipments and certain
increased costs in part resulting from a slowdown at the
Company's 49%-owned Kaiser Jamaica Bauxite Company, prior to the
signing of a new labor contract in December 1997, primarily due
to lower overall operating costs.
Primary Aluminum - Third party net sales of primary aluminum were
up only slightly in 1997 as compared to 1996 as a 9% increase in
average realized prices was substantially offset by an 8% decline
in third party shipments. Intersegment net sales were up 26%
year-over-year as a result of a 28% increase in intersegment
shipments offset, in part by a 2% decline in intersegment prices.
The change in intersegment shipments of primary aluminum between
1996 and 1997 was attributable to increased requirements of the
flat-rolled and engineered products segments.
Segment operating income improved significantly in 1997 from 1996
as a result of the aforementioned volume and price effects as
well as reduced power, raw material and supply costs and improved
operating efficiencies. Segment operating income for 1997 also
included $10.3 million related to the settlement of certain
energy service contract issues.
Flat-Rolled Products - Net sales of flat-rolled products in 1997
increased by 19% over 1996 levels as a 21% increase in product
shipments was only slightly offset by the pricing impact of
changes in product mix. The increase in 1997 product shipments
over 1996 was primarily the result of the increased international
shipments of can sheet and increased shipments of heat treat
products reflecting in part, increased aerospace demand.
Segment operating income in 1997 declined as a result of a second
quarter pre-tax charge related to restructuring of operations
together with reduced profitability of international can sheet
sales.
Engineered Products - Net sales of engineered products increased
15% year-to-year as a 24% increase in product shipments was
partially offset by the price impact of changes in product mix.
The increase in 1997 shipments over 1996 levels was primarily the
result of the Company's June 1997 acquisition of the Bellwood
extrusion facility in Richmond, Virginia, offset, in part, by the
formation of AKW in May 1997.
Segment operating income improved substantially over 1996,
despite a second quarter 1997 pre-tax net charge related to
restructuring of operations, as a result of the aforementioned
volume and product mix effects along with improved operating
efficiencies.
Eliminations - Eliminations of intersegment profit vary from
period to period depending on fluctuations in market prices as
well as the amount and timing of the affected segments'
production and sales.
Corporate and Other - Corporate operating results for 1997
included a second quarter pre-tax charge associated with the
Company's restructuring of operations. Corporate operating
expenses for the year ended December 31, 1997, also include
consulting and other costs associated with the Company's ongoing
profit improvement program and portfolio review initiatives.
LIQUIDITY AND CAPITAL RESOURCES
See Note 5 of Notes to Consolidated Financial Statements for a
listing of the Company's indebtedness and information concerning
certain restrictive debt covenants.
OPERATING ACTIVITIES
Cash provided by operating activities was $170.7, $45.0 and $21.9
million in 1998, 1997 and 1996, respectively. The improvement in
cash flows from operating activities between 1998 and 1997 was
due primarily to a reduced investment in working capital
(excluding cash), the receipt of $35.0 million of environmental
insurance recoveries and the impact of current year results
(excluding non-cash charges). The improvement in cash flows from
operating activities between 1996 and 1997 was primarily due to
higher earnings resulting from increased product prices and
increased sales of fabricated products partially offset by
increased investment in working capital.
INVESTING ACTIVITIES
Total consolidated capital expenditures were $77.6, $128.5 and
$161.5 million in 1998, 1997 and 1996, respectively (of which
$7.2, $6.6 and $7.4 million were funded by the minority partners
in certain foreign joint ventures), and were made primarily to
improve production efficiency, reduce operating costs, expand
capacity at existing facilities and construct or acquire new
facilities. Total consolidated capital expenditures are
currently expected to be between $70 and $90 million per annum in
each of 1999 through 2001 (of which approximately 8% is expected
to be funded by the Company's minority partners in certain
foreign joint ventures). Management continues to evaluate
numerous projects, all of which would require substantial
capital, both in the United States and overseas. The level of
capital expenditures may be adjusted from time to time depending
on the Company's price outlook for primary aluminum and other
products, KACC's ability to assure future cash flows through
hedging or other means, the Company's financial position and
other factors.
A substantial portion of the increase in capital expenditures in
1996 was attributable to the development and construction of the
Company's proprietary Micromill technology for the production of
can sheet and other sheet products from molten metal. During
1998, the Micromill facility, near Reno, Nevada, commenced
product shipments to customers, but the amount of such shipments
was nominal. As previously announced, in order to attempt to
capture the maximum long-term value and given other strategic
priorities, the Company has decided to seek a strategic partner
for the further development and deployment of the Micromill
technology. As more fully discussed in Note 3 of Notes to
Consolidated Financial Statements, this change in strategic
course required a different accounting treatment, and
accordingly, the Company recorded a $45.0 million non-cash charge
to reduce the carrying value of the Micromill assets. There can
be no assurances regarding whether the future development or
deployment of the Micromill technology will be successful.
FINANCING ACTIVITIES AND LIQUIDITY
The Company and KACC have a credit agreement (as amended, the
"Credit Agreement") under which KACC is able to borrow by means
of revolving credit advances and letters of credit (up to $125.0
million) an aggregate amount equal to the lesser of $325.0
million or a borrowing base relating to eligible accounts
receivable and eligible inventory. The Credit Agreement, which
matures in August 2001, is guaranteed by the Company and by
certain significant subsidiaries of KACC. The Credit Agreement
requires KACC to comply with certain financial covenants, places
significant restrictions on the Company and KACC, and is secured
by a substantial majority of the Company's and KACC's assets.
The Credit Agreement does not permit the Company or KACC to pay
any dividends on their common stock. KACC's public indebtedness
also include various restrictions on KACC and its subsidiaries
and repurchase obligations upon a Change of Control.
As of December 31, 1998, the Company's total consolidated
indebtedness was $963.0 million. No amounts were outstanding
under the revolving credit facility of the Credit Agreement.
KACC had $274.1 million of unused availability remaining under
the Credit Agreement at February 28, 1999, after allowances of
$50.9 million for outstanding letters of credit.
Management believes that the Company's existing cash resources,
together with cash flows from operations and borrowings under the
Credit Agreement, will be sufficient to satisfy its working
capital and capital expenditure requirements for the next year.
With respect to long-term liquidity, management believes that
operating cash flow, together with the ability to obtain both
short and long-term financing, should provide sufficient funds to
meet the Company's working capital and capital expenditure
requirements.
CAPITAL STRUCTURE
MAXXAM Inc. ("MAXXAM") and one of its wholly owned subsidiaries
collectively own approximately 63% of the Company's Common Stock,
with the remaining approximately 37% of the Company's Common
Stock being publicly held. Certain of the shares of the
Company's Common Stock beneficially owned by MAXXAM are subject
to certain pledge agreements. See Note 8 of Notes to
Consolidated Financial Statements for a further description of
the pledge agreements.
During August 1997, the remaining 8,673,850 shares of outstanding
PRIDES were converted into 7,227,848 shares of the Company's
Common Stock pursuant to the PRIDES Certificate of Designations.
See Note 8 of Notes to Consolidated Financial Statements.
The Company has an effective "shelf" registration statement
covering the offering from time to time of up to $150.0 million
of equity securities. Any such offering will only be made by
means of a prospectus. The Company also has an effective "shelf"
registration statement covering the offering of up to 10,000,000
shares of the Company's Common Stock that are owned by MAXXAM.
The Company will not receive any of the net proceeds from any
transaction initiated by MAXXAM pursuant to this registration
statement.
See Note 8 of Notes to Consolidated Financial Statements.
COMMITMENTS AND 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 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 current evaluation of these and
other environmental matters, the Company has established
environmental accruals of $50.7 million at December 31, 1998.
KACC is also a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs
allege that certain of their injuries were caused by, among other
things, exposure to asbestos during, and as a result of, their
employment or association with KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits
generally relate to products KACC has not sold for at least 20
years. Based on past experience and reasonably anticipated
future activity, the Company has established a $186.2 million
accrual for estimated asbestos-related costs for claims filed and
estimated to be filed through 2008, before consideration of
insurance recoveries. However, the Company believes that
substantial recoveries from insurance carriers are probable. The
Company reached this conclusion based on prior insurance-related
recoveries in respect of asbestos-related claims, existing
insurance policies and the advice of outside counsel with respect
to applicable insurance coverage law relating to the terms and
conditions of these policies. Accordingly, the Company has
recorded an estimated aggregate insurance recovery of $152.5
million (determined on the same basis as the asbestos-related
cost accrual) at December 31, 1998. Although the Company has
settled asbestos-related coverage matters with certain of its
insurance carriers, other carriers have not yet agreed to
settlements. The timing and amount of future recoveries from
these carriers will depend on the pace of claims review and
processing by such carriers and on the resolution of any disputes
regarding coverage under such policies that may arise.
While uncertainties are inherent in the final outcome of these
matters and it is presently impossible to determine the actual
costs that ultimately may be incurred and insurance recoveries
that ultimately may be received, management currently believes
that the resolution of these uncertainties and the incurrence of
related costs, net of any related insurance recoveries, should
not have a material adverse effect on the Company's consolidated
financial position, results of operations, or liquidity.
In connection with the USWA strike and subsequent "lock-out" by
KACC, certain allegations of unfair labor practices ("ULPs") have
been filed with the National Labor Relations Board by the USWA
and its members. KACC has responded to all such allegations and
believes that they are without merit. If the allegations were
sustained, KACC could be required to make locked-out employees
whole for back wages from the date of the lock-out in January
1999. While uncertainties are inherent in the final outcome of
such matters, the Company believes that the resolution of the
alleged ULPs should not result in a material adverse impact on
the Company's financial position, results of operations, or
liquidity.
See Note 9 of Notes to Consolidated Financial Statements for a
more detailed discussion of these contingencies and the factors
affecting management's beliefs. See also "Overview."
OTHER MATTERS
YEAR 2000 READINESS DISCLOSURE
The Company utilizes software and related technologies throughout
its business that will be affected by the date change to the year
2000. There may also be technology embedded in certain of the
equipment owned or used by the Company that is susceptible to the
year 2000 date change as well. The Company has implemented a
company-wide program to coordinate the year 2000 efforts of its
individual business units and to track their progress. The
intent of the program is to make sure that critical items are
identified on a sufficiently timely basis to assure that the
necessary resources can be committed to address any material risk
areas that could prevent the Company's systems and assets from
being able to meet the Company's business needs and objectives.
Year 2000 progress and readiness has also been the subject of the
Company's normal, recurring internal audit function.
Each of the Company's business units has developed, or is
completing, year 2000 plans specifically tailored to their
individual situations. A wide range of solutions is being
implemented, including modifying existing systems and, in limited
cases where it is cost effective, purchasing new systems. Total
spending related to these projects, which began in 1997 and is
expected to continue through 1999, is currently estimated to be
in the $10-15 million range. Approximately half of the year 2000
expenditures are expected to be made during 1999. System
modification costs are being expensed as incurred. Costs
associated with new systems are being capitalized and will be
amortized over the life of the product. The Company has
established an internal goal of having all necessary system
changes in place and tested by mid-year 1999. The Company plans
to commit the necessary resources to meet this deadline.
In addition to addressing the Company's internal systems, the
company-wide program involves identification of key suppliers,
customers, and other third-party relationships that could be
impacted by year 2000 issues. A general survey has been
conducted of the Company's supplier and customer base. Direct
contact has been made, or is in progress, with parties which are
deemed to be particularly critical including financial
institutions, power suppliers, and customers, with which the
Company has a material relationship.
Each business unit, including the corporate group, is developing
a contingency plan covering the steps that would be taken if a
year 2000 problem were to occur despite the Company's best
efforts to identify and remediate all critical at-risk items.
Each contingency plan will address, among other things, matters
such as alternative suppliers for critical inputs, incremental
standby labor requirements at the millennium to address any
problems as they occur, and backup processing capabilities for
critical equipment or processes. The goal of the contingency
plans will be to minimize any business interruptions and the
associated financial implications.
While the Company believes that its program is sufficient to
identify the critical issues and associated costs necessary to
address possible year 2000 problems in a timely manner, there can
be no assurances that the program, or underlying steps
implemented, will be successful in resolving all such issues by
the Company's mid-1999 goal or prior to the year 2000. If the
steps taken by the Company (or critical third parties) are not
made in a timely manner, or are not successful in identifying and
remediating all significant year 2000 issues, business
interruptions or delays could occur and could have a material
adverse impact on the Company's results and financial condition.
However, based on the information the Company has gathered to
date and the Company's expectations of its ability to remediate
problems encountered, the Company currently believes that
significant business interruptions that would have a material
impact on the Company's results or financial condition will not
be encountered.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS No. 130") as of
January 1, 1998. SFAS No. 130 requires the presentation of an
additional income measure (termed "comprehensive income"), which
adjusts traditional net income for certain items that previously
were only reflected as direct charges to equity (such as minimum
pension liabilities).
Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS No.
133") was issued in June 1998 and requires companies to recognize
all derivative instruments as assets or liabilities in the
balance sheet and to measure those instruments at fair value.
SFAS No. 133 must be adopted by the Company no later than January
1, 2000, although earlier application is permitted. The Company
is currently evaluating how and when to implement SFAS No. 133.
Currently, the dollar amount of the Company's comprehensive
income adjustments is not significant so there is not a
significant difference between "traditional" net income and
comprehensive income. However, differences between comprehensive
income and traditional net income may become significant in
future periods as a result of SFAS No. 133. As discussed more
fully in Notes 1 and 10 of Notes to Consolidated Financial
Statements, the intent of the Company's hedging program is to
"lock-in" a price (or range of prices) for products sold/used so
that earnings and cash flows are subject to reduced risk of
volatility. Under SFAS No. 133, the Company will be required to
"mark-to-market" its hedging positions at each period end in
advance of reflecting the physical transaction to which the hedge
relates. Pursuant to SFAS No. 130, the Company will reflect
changes in the fair value of its open hedging positions as an
increase or reduction in stockholders' equity through
comprehensive income. Under SFAS No. 130, the impact of the
changes in fair value of financial instruments will reverse out
of comprehensive income (net of any fluctuations in other "open"
positions) and will be reflected in traditional net income when
the subsequent physical transaction occurs.
The combined effect of SFAS No's. 130 and 133 will result in
fluctuations in comprehensive income and stockholders' equity in
periods of price volatility, despite the fact that the Company's
cash flow and earnings will be "fixed" to the extent hedged. The
amount of such fluctuations could be significant.
INCOME TAX MATTERS
The Company's net deferred income tax assets as of December 31,
1998, were $378.2 million, net of valuation allowances of $107.7
million. The Company believes a long-term view of profitability
is appropriate and has concluded that these net deferred income
tax assets will more likely than not be realized. See Note 6 of
Notes to Consolidated Financial Statements for a discussion of
these and other income tax matters.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
R E P O R T O F I N D E P E N D E N T P U B L I C
A C C O U N T A N T S
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, 1998 and 1997, and the related
statements of consolidated income (loss) and cash flows for each
of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 28, 1999
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
C O N S O L I D A T E D B A L A N C E S H E E T S
<TABLE>
<CAPTION>
December 31,
------------------------------
(In millions of dollars, except share amounts) 1998 1997
------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 98.3 $ 15.8
Receivables:
Trade, less allowance for doubtful receivables
of $6.2 in 1998 and $5.8 in 1997 170.1 232.9
Other 112.6 107.3
Inventories 543.5 568.3
Prepaid expenses and other current assets 105.5 121.3
-------------- --------------
Total current assets 1,030.0 1,045.6
Investments in and advances to unconsolidated affiliates 128.3 148.6
Property, plant, and equipment - net 1,108.7 1,171.8
Deferred income taxes 377.9 330.6
Other assets 346.0 317.3
-------------- --------------
Total $ 2,990.9 $ 3,013.9
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 173.3 $ 176.2
Accrued interest 37.3 37.6
Accrued salaries, wages, and related expenses 73.8 97.9
Accrued postretirement medical benefit obligation -
current portion 48.2 45.3
Other accrued liabilities 148.3 145.6
Payable to affiliates 77.1 82.7
Long-term debt - current portion .4 8.8
-------------- --------------
Total current liabilities 558.4 594.1
Long-term liabilities 532.9 491.9
Accrued postretirement medical benefit obligation 694.3 720.3
Long-term debt 962.6 962.9
Minority interests 123.5 127.7
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000
shares; issued and outstanding, 79,153,543 and
78,980,881 in 1998 and 1997 .8 .8
Additional capital 535.4 533.8
Accumulated deficit (417.0) (417.6)
-------------- --------------
Total stockholders' equity 119.2 117.0
-------------- --------------
Total $ 2,990.9 $ 3,013.9
============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
S T A T E M E N T S O F C O N S O L I D A T E D I N C O M E
( L O S S )
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
(In millions of dollars, except share amounts) 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,256.4 $ 2,373.2 $ 2,190.5
-------------- -------------- --------------
Costs and expenses:
Cost of products sold 1,906.2 1,951.2 1,857.5
Depreciation and amortization 99.1 102.5 107.6
Selling, administrative, research and development,
and general 115.5 131.8 127.6
Impairment of Micromill(TM) assets/restructuring of
operations 45.0 19.7 -
-------------- -------------- --------------
Total costs and expenses 2,165.8 2,205.2 2,092.7
-------------- -------------- --------------
Operating income 90.6 168.0 97.8
Other income (expense):
Interest expense (110.0) (110.7) (93.4)
Other - net 3.5 3.0 (2.7)
-------------- -------------- --------------
Income (loss) before income taxes and minority interests (15.9) 60.3 1.7
Benefit (provision) for income taxes 16.4 (8.8) 9.3
Minority interests .1 (3.5) (2.8)
-------------- -------------- --------------
Net income .6 48.0 8.2
Dividends on preferred stock - (5.5) (8.4)
-------------- -------------- --------------
Net income (loss) available to common shareholders $ .6 $ 42.5 $ (.2)
============== ============== ==============
Earnings per share:
Basic $ .01 $ .57 $ .00
============== ============== ==============
Diluted $ .01 $ .57 $ .00
============== ============== ==============
Weighted average shares outstanding (000):
Basic 79,115 74,221 71,644
============== ============== =============
Diluted 79,156 74,382 71,644
============== ============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
S T A T E M E N T S O F C O N S O L I D A T E D C A S H F L O W S
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
(In millions of dollars) 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ .6 $ 48.0 $ 8.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization (including deferred
financing costs) 103.0 108.6 113.2
Impairment of Micromill assets/restructuring of
operations 45.0 19.7 -
Non-cash benefit for income taxes (8.3) (12.5) -
Equity in (income) loss of unconsolidated affiliates,
net of distributions .1 7.8 3.0
Minority interests (.1) 3.5 2.8
Decrease (increase) in receivables 61.5 (92.1) 51.8
Decrease (increase) in inventories 24.8 (9.3) (36.5)
Decrease (increase) in prepaid expenses and other
assets 2.5 7.8 (39.5)
(Decrease) increase in accounts payable and accrued
interest (3.2) (11.5) 8.8
Decrease in payable to affiliates and accrued
liabilities (41.6) (19.6) (62.9)
Decrease in accrued and deferred income taxes (26.2) (17.4) (36.5)
Other 12.6 12.0 9.5
-------------- -------------- --------------
Net cash provided by operating activities 170.7 45.0 21.9
-------------- -------------- --------------
Cash flows from investing activities:
Additions to property, plant, and equipment (77.6) (128.5) (161.5)
Other 3.2 19.9 17.2
-------------- -------------- --------------
Net cash used for investing activities (74.4) (108.6) (144.3)
-------------- -------------- --------------
Cash flows from financing activities:
Repayments under revolving credit facility, net - - (13.1)
Borrowings of long-term debt - 19.0 225.9
Repayments of long-term debt (8.9) (8.8) (9.0)
Incurrence of financing costs (.6) (.9) (6.2)
Dividends paid - (4.2) (10.5)
Capital stock issued .1 .4 -
Decrease (increase) in restricted cash, net 4.3 (5.3) -
Redemption of minority interests' preference stock (8.7) (2.1) (5.3)
-------------- -------------- --------------
Net cash (used for) provided by financing
activities (13.8) (1.9) 181.8
-------------- -------------- --------------
Net increase (decrease) in Cash and cash equivalents during the year 82.5 (65.5) 59.4
Cash and cash equivalents at beginning of year 15.8 81.3 21.9
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 98.3 $ 15.8 $ 81.3
============== ============== ==============
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 106.3 $ 102.7 $ 84.2
Income taxes paid 16.8 24.4 22.7
Tax allocation payments to MAXXAM Inc. - 11.8 1.1
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
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 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 11).
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities known to exist as of the
date the financial statements are published, and the reported amounts of
revenues and expenses during the reporting period. Uncertainties, with
respect to such estimates and assumptions, are inherent in the preparation
of the Company's consolidated financial statements; accordingly, it is
possible that the actual results could differ from these estimates and
assumptions, which could have a material effect on the reported amounts of
the Company's consolidated financial position and results of operation.
Investments in 50%-or-less-owned entities are accounted for primarily by
the equity method. Intercompany balances and transactions are eliminated.
Certain reclassifications of prior-year information were made to conform to
the current presentation.
CASH AND CASH EQUIVALENTS
The Company considers only those short-term, highly liquid investments with
original maturities of 90 days or less to be cash equivalents.
INVENTORIES
Substantially all product inventories are stated at last-in, first-out
("LIFO") cost, not in excess of market value. Replacement cost is not in
excess of LIFO cost. Other inventories, principally operating supplies and
repair and maintenance parts, are stated at the lower of average cost or
market. Inventory costs consist of material, labor, and manufacturing
overhead, including depreciation. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Finished fabricated products $ 112.4 $ 103.9
Primary aluminum and work in process 205.6 226.6
Bauxite and alumina 109.5 108.4
Operating supplies and repair and maintenance parts 116.0 129.4
-------------- --------------
$ 543.5 $ 568.3
============== ==============
</TABLE>
DEPRECIATION
Depreciation is computed principally by the straight-line method at rates
based on the estimated useful lives of the various classes of assets. The
principal estimated useful lives of land improvements, buildings, and
machinery and equipment are 8 to 25 years, 15 to 45 years, and 10 to 22
years, respectively.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value method to account for a stock-based
compensation plan whereby compensation cost is recognized only to the
extent that the quoted market price of the stock at the measurement date
exceeds the amount an employee must pay to acquire the stock. No
compensation cost has been recognized for this plan as the stock options
granted in 1998 and 1997 were at the market price. No stock options were
granted in 1996. (See Note 7).
OTHER INCOME (EXPENSE)
Other expense in 1998, 1997, and 1996, includes $12.7, $8.8, and $3.1 of
pre-tax charges related principally to establishing additional litigation
reserves for asbestos claims net of estimated aggregate insurance
recoveries pertaining to operations which were discontinued prior to the
acquisition of the Company by MAXXAM in 1988. Other income in 1998
includes $12.0 attributable to insurance recoveries related to certain
incurred environmental costs. (See Note 9).
DEFERRED FINANCING COSTS
Costs incurred to obtain debt financing are deferred and amortized over the
estimated term of the related borrowing. Amortization of $3.9, $6.1, and
$5.6 is included in interest expense for the years ended December 31, 1998,
1997, and 1996, respectively.
FOREIGN CURRENCY
The Company uses the United States dollar as the functional currency for
its foreign operations.
DERIVATIVE FINANCIAL INSTRUMENTS
Hedging transactions using derivative financial instruments are primarily
designed to mitigate KACC's exposure to changes in prices for certain of
the products which KACC sells and consumes and, to a lesser extent, to
mitigate KACC's exposure to changes in foreign currency exchange rates.
KACC does not utilize derivative financial instruments for trading or other
speculative purposes. KACC's derivative activities are initiated within
guidelines established by management and approved by KACC's and the
Company's boards of directors. Hedging transactions are executed centrally
on behalf of all of KACC's business segments to minimize transaction costs,
monitor consolidated net exposures and allow for increased responsiveness
to changes in market factors.
Most of KACC's hedging activities involve the use of option contracts
(which establish a maximum and/or minimum amount to be paid or received)
and forward sales contracts (which effectively fix or lock-in the amount
KACC will pay or receive). Option contracts typically require the payment
of an up-front premium in return for the right to receive the amount (if
any) by which the price at the settlement date exceeds the strike price.
Any interim fluctuations in prices prior to the settlement date are
deferred until the settlement date of the underlying hedged transaction, at
which point they are reflected in net sales or cost of sales (as
applicable) together with the related premium cost. Forward sales
contracts do not require an up-front payment and are settled by the receipt
or payment of the amount by which the price at the settlement date varies
from the contract price. No accounting recognition is accorded to interim
fluctuations in prices of forward sales contracts.
KACC has established margin accounts and credit limits with certain
counterparties related to open forward sales and option contracts. When
unrealized gains or losses are in excess of such credit limits, KACC is
entitled to receive advances from the counterparties on open positions or
is required to make margin deposits to counterparties, as the case may be.
At December 31, 1998, KACC had received $9.9 of margin advances from
counterparties. At December 31, 1997, KACC had neither received nor made
any margin deposits. Management considers credit risk related to possible
failure of the counterparties to perform their obligations pursuant to the
derivative contracts to be minimal.
Deferred gains or losses as of December 31, 1998, are included in Prepaid
expenses and other current assets and Other accrued liabilities (See Note
10).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of its outstanding indebtedness to be
$950.0 and $1,020.0 at December 31, 1998 and 1997, respectively, based on
quoted market prices for KACC's 9-7/8% Senior Notes due 2002 (the "9-7/8%
Notes"), 12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4% Notes"),
and 10-7/8% Senior Notes due 2006 (the "10-7/8% Notes"), and the discounted
future cash flows for all other indebtedness, using the current rate for
debt of similar maturities and terms. The Company believes that the
carrying amount of other financial instruments is a reasonable estimate of
their fair value, unless otherwise noted.
EARNINGS PER SHARE
Basic - Earnings per share is computed by deducting preferred stock
dividends from net income (loss) in order to determine net income (loss)
available to common shareholders. This amount is then divided by the
weighted average number of common shares outstanding during the period,
including the weighted average impact of the shares of common stock issued
during the year from the date(s) of issuance.
Diluted - Diluted earnings per share for the years ended December 31, 1998,
and 1997 include the dilutive effect of outstanding stock options (41,000
and 161,000 shares, respectively). The impact of outstanding stock options
was excluded from the computation for the year ended December 31, 1996, as
its effect would have been antidilutive. The Company's 8.255% PRIDES,
Convertible Preferred Stock ("PRIDES"), outstanding as of December 31,
1996, have not been treated "as if" converted for purposes of the Diluted
computation in the period ended December 31, 1996, as such treatment would
have been antidilutive.
LABOR RELATED COSTS
The Company is currently operating five of its U.S. facilities with
salaried employees and other workers as a result of the September 30, 1998,
strike by the United Steelworkers of America (USWA) and the subsequent
"lock-out" by the Company in January 1999. For purposes of computing the
benefit related costs and liabilities to be reflected in the accompanying
consolidated financial statements for the year ended December 31, 1998
(such as pension and other postretirement benefit costs/liabilities), the
Company has based its accruals on the terms of the previously existing
(expired) USWA contract. Any differences between the amounts accrued and
the amounts ultimately agreed to during the collective bargaining process
will be reflected in future results during the term of any new contract.
All incremental operating costs incurred as a result of the USWA strike and
subsequent lockout are being expensed as incurred. Such costs totaled
approximately $50.0 during 1998 (approximately $40.0 of which were incurred
in the fourth quarter). The Company's fourth quarter 1998 results also
reflect reduced profitability of approximately $10.0 resulting from the
strike-related curtailment of three potlines (representing approximately
70,000 tons* of annual capacity) at the Company's Mead and Tacoma,
Washington, smelters and certain other shipment delays experienced at the
other affected facilities at the outset of the USWA strike.
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
Aluminium Limited ("Anglesey") (49.0% owned), and Kaiser Jamaica Bauxite
Company (49.0% owned). The equity in income (loss) before income taxes of
such operations is treated as a reduction (increase) in cost of products
sold. At December 31, 1998 and 1997, KACC's net receivable from these
affiliates were not material. The summary combined financial information
for the years ended December 31, 1998 and 1997, also contains the balances
and results of AKW L.P.("AKW") (50.0% owned), an aluminum wheels joint
- ------------
* All references to tons in this report refer to metric tons of 2,204.6
pounds.
venture formed with a third party in May 1997. (See Note 4). During early
1999, the Company signed a letter of intent to sell its interest in AKW.
(See Note 12).
SUMMARY OF COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 356.0 $ 393.0
Long-term assets (primarily property, plant, and equipment, net) 393.9 395.0
-------------- --------------
Total assets $ 749.9 $ 788.0
============== ==============
Current liabilities $ 92.2 $ 117.1
Long-term liabilities (primarily long-term debt) 396.6 400.8
Stockholders' equity 261.1 270.1
-------------- --------------
Total liabilities and stockholders' equity $ 749.9 $ 788.0
============== ==============
</TABLE>
SUMMARY OF COMBINED OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 659.2 $ 644.1 $ 660.5
Costs and expenses (651.7) (637.8) (631.5)
Provision for income taxes (2.7) (8.2) (8.7)
-------------- -------------- --------------
Net income (loss) $ 4.8 $ (1.9) $ 20.3
============== ============== ==============
Company's equity in income $ 5.4 $ 2.9 $ 8.8
============== ============== ==============
Dividends received $ 5.5 $ 10.7 $ 11.8
============== ============== ==============
</TABLE>
The Company's equity in income differs from the summary net income (loss)
due to varying percentage ownerships in the entities and equity method
accounting adjustments. At December 31, 1998, KACC's investment in its
unconsolidated affiliates exceeded its equity in their net assets by
approximately $18.2 which amount will be fully amortized over the next two
years. Amortization of the excess investment totaling $10.0, $11.4, and
$11.6 is included in Depreciation and amortization for the years ended
December 31, 1998, 1997, and 1996, respectively.
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 $235.1, $245.2, and $281.6 in the years ended
December 31, 1998, 1997, and 1996, respectively.
3. PROPERTY, PLANT, AND EQUIPMENT
The major classes of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 164.1 $ 163.9
Buildings 229.5 228.3
Machinery and equipment 1,549.5 1,529.1
Construction in progress 43.8 51.2
-------------- --------------
1,986.9 1,972.5
Accumulated depreciation (878.2) (800.7)
-------------- --------------
Property, plant, and equipment, net $ 1,108.7 $ 1,171.8
============== ==============
</TABLE>
During the fourth quarter of 1998, KACC decided to seek a strategic partner
for further development and deployment of its Micromill(TM) technology. While
technological progress has been good, management concluded that additional
time and investment will be required to achieve commercial success. Given
the Company's other strategic priorities, the Company believes that
bringing in added commercial and financial resources is the appropriate
course of action for capturing the maximum long-term value. This change in
strategic course required a different accounting treatment, and the Company
correspondingly recorded a $45.0 impairment charge to reduce the carrying
value of the Micromill assets to approximately $25.0.
During June 1997, Kaiser Bellwood Corporation, a newly formed, wholly owned
subsidiary of KACC, completed the acquisition of Reynolds Metals Company's
Richmond, Virginia, extrusion plant and its existing inventories for a
total purchase price of $41.6, consisting of cash payments of $38.4 and the
assumption of approximately $3.2 of employee related and other liabilities.
Upon completion of the transaction, Kaiser Bellwood Corporation became a
subsidiary guarantor under the indentures in respect of the 9-7/8% Notes,
10-7/8% Notes, and the 12-3/4% Notes. (See Note 5.)
4. RESTRUCTURING OF OPERATIONS
During the second quarter of 1997, the Company recorded a $19.7
restructuring charge to reflect actions taken and plans initiated to
achieve reduced production costs, decreased corporate selling, general and
administrative expenses, and enhanced product mix. The significant
components of the restructuring charge were: (i) a net loss of
approximately $1.4 as a result of the contribution of certain net assets of
KACC's Erie, Pennsylvania, fabrication plant in connection with the
formation of AKW and the subsequent decision to close the remainder of the
Erie plant in order to consolidate its forging operations into two other
facilities; (ii) a charge of $15.6 associated with asset dispositions
regarding product rationalization and geographical optimization; and (iii)
a charge of approximately $2.7 for benefit and other costs associated with
the consolidation or elimination of certain corporate and other staff
functions.
5. LONG-TERM DEBT
Long-term debt and its maturity schedule are as follows:
<TABLE>
<CAPTION>
2004 December 31,
----------------
and 1998 1997
1999 2000 2001 2002 2003 After Total Total
- ----------------------------------------------- ---------------- ---------------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Credit Agreement - -
9-7/8% Senior Notes due 2002, net $ 224.4 $ 224.4 $ 224.2
10-7/8% Senior Notes due 2006, net $ 225.7 225.7 225.8
12-3/4% Senior Subordinated Notes due
2003 $ 400.0 400.0 400.0
Alpart CARIFA Loans - (fixed and
variable rates) due 2007, 2008 60.0 60.0 60.0
Other borrowings (fixed and variable
rates) $ .4 $ .3$ .3 .3 .3 51.3 52.9 61.7
------- ------- ------- ------- ------- ------- ------- -------
Total $ .4 $ .3$ .3 $ 224.7$ 400.3 $ 337.0 963.0 971.7
======= ======= ======= ======= ======= =======
Less current portion .4 8.8
------- -------
Long-term debt $ 962.6 $ 962.9
======= =======
</TABLE>
CREDIT AGREEMENT
In February 1994, the Company and KACC entered into a credit agreement (as
amended, the "Credit Agreement") which provides a $325.0 secured, revolving
line of credit through August 2001. 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 and eligible inventory. As
of February 28, 1999, $274.1 (of which $74.1 could have been used for
letters of credit) was available to KACC under the Credit Agreement. The
Credit Agreement is unconditionally guaranteed by the Company and by
certain significant subsidiaries of KACC. Interest on any outstanding
balances will bear a premium (which varies based on the results of a
financial test) over either a base rate or LIBOR, at KACC's option.
LOAN COVENANTS AND RESTRICTIONS
The Credit Agreement requires KACC to comply with 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 Credit Agreement is secured
by, among other things, (i) mortgages on KACC's major domestic plants
(excluding KACC's Gramercy alumina plant and Micromill facility); (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.
The obligations of KACC with respect to its 9-7/8% Notes, its 10-7/8% Notes
and its 12-3/4% Notes are guaranteed, jointly and severally, by certain
subsidiaries of KACC. The indentures governing the 9-7/8% Notes, the
10-7/8% Notes and the 12-3/4% Notes (collectively, the "Indentures")
restrict, among other things, KACC's ability to incur debt, undertake
transactions with affiliates, and pay dividends. Further, the Indentures
provide that KACC must offer to purchase the 9-7/8% Notes, the 10-7/8%
Notes and the 12-3/4% Notes, respectively, upon the occurrence of a Change
of Control (as defined therein), and the Credit Agreement provides that the
occurrence of a Change in Control (as defined therein) shall constitute an
Event of Default thereunder.
Under the most restrictive of the covenants in the Credit Agreement,
neither the Company nor KACC currently is permitted to pay dividends on
its common stock.
In December 1991, Alumina Partners of Jamaica ("Alpart") entered into a
loan agreement with the Caribbean Basin Projects Financing Authority
("CARIFA"). Alpart's obligations under the loan agreement are secured by
two letters of credit aggregating $64.2. KACC is a party to one of the two
letters of credit in the amount of $41.7 in respect of its ownership
interest in Alpart. Alpart has also agreed to indemnify bondholders of
CARIFA for certain tax payments that could result from events, as defined,
that adversely affect the tax treatment of the interest income on the
bonds.
RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain debt instruments restrict the ability of KACC to transfer assets,
make loans and advances, and pay dividends to the Company. The restricted
net assets of KACC totaled $124.4 and $121.9 at December 31, 1998 and 1997,
respectively.
CAPITALIZED INTEREST
Interest capitalized in 1998, 1997, and 1996, was $3.0, $6.6, and $4.9,
respectively.
6. INCOME TAXES
Income (loss) before income taxes and minority interests by geographic area
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ (93.6) $ (112.6) $ (45.8)
Foreign 77.7 172.9 47.5
-------------- -------------- --------------
Total $ (15.9) $ 60.3 $ 1.7
============== ============== ==============
</TABLE>
Income taxes are classified as either domestic or foreign, based on whether
payment is made or due to the United States or a foreign country. Certain
income classified as foreign is also subject to domestic income taxes.
The (provision) benefit for income taxes on income (loss) before income
taxes and minority interests consists of:
<TABLE>
<CAPTION>
Federal Foreign State Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 Current $ (1.8) $ (16.5) $ (.2) $ (18.5)
Deferred 44.4 (12.5) 3.0 34.9
-------------- -------------- -------------- --------------
Total $ 42.6 $ (29.0) $ 2.8 $ 16.4
============== ============== ============== ==============
1997 Current $ (2.0) $ (28.7) $ (.2) $ (30.9)
Deferred 30.5 (7.0) (1.4) 22.1
-------------- -------------- -------------- --------------
Total $ 28.5 $ (35.7) $ (1.6) $ (8.8)
============== ============== ============== ==============
1996 Current $ (1.6) $ (21.8) $ (.1) $ (23.5)
Deferred 8.6 7.6 16.6 32.8
-------------- -------------- -------------- --------------
Total $ 7.0 $ (14.2) $ 16.5 $ 9.3
============== ============== ============== ==============
</TABLE>
A reconciliation between the benefit (provision) for income taxes and the
amount computed by applying the federal statutory income tax rate to income
before income taxes and minority interests is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount of federal income tax benefit (provision)based on the
statutory rate $ 5.6 $ (21.1) $ (.6)
Revision of prior years' tax estimates and other changes in
valuation allowances 8.3 12.5 10.0
Percentage depletion 3.2 4.2 3.9
Foreign taxes, net of federal tax benefit (1.9) (3.1) (5.5)
Other 1.2 (1.3) 1.5
-------------- -------------- --------------
Benefit (provision) for income taxes $ 16.4 $ (8.8) $ 9.3
============== ============== ==============
</TABLE>
Included in revision of prior years' tax estimates and other changes in
valuation allowances for 1998, 1997 and 1996 shown above are $8.3, $12.5
and $9.8, respectively, related to the resolution of certain income tax
matters.
The components of the Company's net deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions $ 279.4 $ 288.9
Loss and credit carryforwards 92.0 99.3
Other liabilities 146.4 169.3
Other 132.8 102.0
Valuation allowances (107.7) (113.3)
-------------- --------------
Total deferred income tax assets-net 542.9 546.2
-------------- --------------
Deferred income tax liabilities:
Property, plant, and equipment (109.9) (139.7)
Other (54.8) (54.8)
-------------- --------------
Total deferred income tax liabilities (164.7) (194.5)
-------------- --------------
Net deferred income tax assets $ 378.2 $ 351.7
============== ==============
</TABLE>
The principal component of the Company's net deferred income tax assets is
the tax benefit, net of certain valuation allowances, associated with the
accrued liability for postretirement benefits other than pensions. The
future tax deductions with respect to the turnaround of this accrual will
occur over a 30-to-40-year period. If such deductions create or increase a
net operating loss, the Company has the ability to carry forward such loss
for 20 taxable years. For these reasons, the Company believes that a
long-term view of profitability is appropriate and has concluded that
this net deferred income tax asset will more likely than not be realized.
A substantial portion of the valuation allowances provided by the Company
relates to loss and credit carryforwards. To determine the proper amount
of valuation allowances with respect to these carryforwards, the Company
evaluated all appropriate factors, including any limitations concerning
their use and the year the carryforwards expire, as well as the levels of
taxable income necessary for utilization. With regard to future levels of
income, the Company believes, based on the cyclical nature of its business,
its history of operating earnings, and its expectations for future years,
that it will more likely than not generate sufficient taxable income to
realize the benefit attributable to the loss and credit carryforwards for
which valuation allowances were not provided.
As of December 31, 1998 and 1997, $46.2 and $53.7, respectively, of the net
deferred income tax assets listed above are included in the Consolidated
Balance Sheets in the caption entitled Prepaid expenses and other current
assets. Certain other portions of the deferred income tax liabilities
listed above are included in the Consolidated Balance Sheets in the
captions entitled Other accrued liabilities and Long-term liabilities.
The Company and its domestic subsidiaries file consolidated federal income
tax returns. During the period from October 28, 1988, through June 30,
1993, the Company and its domestic subsidiaries were included in the
consolidated federal income tax returns of MAXXAM. During 1997 MAXXAM
reached a settlement with the Internal Revenue Service regarding all
remaining years where the Company and its subsidiaries were included in the
MAXXAM consolidated federal income tax returns. As a result of this
settlement, KACC paid $11.8 to MAXXAM during 1997, in respect of its
liabilities pursuant to its tax allocation agreement with MAXXAM. Payments
or refunds for periods prior to July 1, 1993, related to other
jurisdictions could still be required pursuant to the Company's and KACC's
respective tax allocation agreements with MAXXAM. In accordance with the
Credit Agreement, any such payments to MAXXAM by KACC would require lender
approval, except in certain specific circumstances. The tax allocation
agreements of the Company and KACC with MAXXAM terminated pursuant to their
terms, effective for taxable periods beginning after June 30, 1993.
At December 31, 1998, the Company had certain tax attributes available to
offset regular federal income tax requirements, subject to certain
limitations, including net operating loss and general business credit
carryforwards of $28.2 and $4.9, respectively, which expire periodically
through 2012 and 2011, respectively, foreign tax credit ("FTC")
carryforwards of $48.4, which expire periodically through 2003, and
alternative minimum tax ("AMT") credit carryforwards of $23.4, which have
an indefinite life. The Company also has AMT net operating loss and FTC
carryforwards of $6.2 and $87.2, respectively, available, subject to
certain limitations, to offset future alternative minimum taxable income,
which expire periodically through 2011 and 2003, respectively.
7. EMPLOYEE BENEFIT AND INCENTIVE PLANS
In the fourth quarter of 1998 the Company adopted Statement of Financial
Accounting Standard No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits ("SFAS No. 132") which amends FASB Statements
No's. 87, 88, and 106. SFAS No. 132 revises the disclosure requirements
related to pension and other postretirement benefits, but has no impact on
the computation of the reported amounts. Prior year disclosures have been
reformatted to comply with SFAS No. 132's guidelines.
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Retirement plans are non-contributory for salaried and hourly employees and
generally provide for benefits based on a formula which considers length of
service and earnings during years of service. The Company's funding
policies meet or exceed all regulatory requirements.
The Company and its subsidiaries provide postretirement health care and
life insurance benefits to eligible retired employees and their dependents.
Substantially all employees may become eligible for those benefits if they
reach retirement age while still working for the Company or its
subsidiaries. The Company has not funded the liability for these benefits
which are expected to be paid out of cash generated by operations. The
Company reserves the right, subject to applicable collective bargaining
agreements, to amend or terminate these benefits.
Assumptions used to value obligations at year-end and to determine the net
periodic benefit cost in the subsequent year are:
<TABLE>
<CAPTION>
Pension Benefits Medical/Life Benefits
---------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions as of December 31,
Discount rate 7.00% 7.25% 7.75% 7.00% 7.25% 7.75%
Expected return on plan assets 9.50% 9.50% 9.50% - - -
Rate of compensation increase 5.00% 5.00% 5.00% 4.00% 5.00% 5.00%
</TABLE>
In 1998 annual assumed rates of increase in the per capita cost of covered
benefits (i.e. health care cost trend rate) for non-HMO participants are
6.5% and 5.0% for HMO at all ages. The assumed rate of increase for
non-HMO participants is assumed to decline gradually to 5.0% in 2003 and
remain at that level thereafter.
The following table presents the funded status of the Company's pension and
other postretirement benefit plans as of December 31, 1998 and 1997, and
the corresponding amounts that are included in the Company's Consolidated
Balance Sheets:
<TABLE>
<CAPTION>
Pension Benefits Medical/Life Benefits
------------------------------ ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year $ 873.0 $ 816.2 $ 544.5 $ 602.8
Service cost 14.2 13.4 4.2 6.1
Interest cost 59.7 61.6 37.5 44.8
Currency exchange rate change (.4) (6.0) - -
Curtailments, settlements and amendments (4.6) - 4.0 -
Actuarial (gain) loss 15.2 65.5 72.0 (66.3)
Benefits paid (84.6) (77.7) (45.4) (42.9)
-------------- -------------- -------------- --------------
Benefit obligation at end of year 872.5 873.0 616.8 544.5
-------------- -------------- -------------- --------------
Change in Plan Assets:
FMV of plan assets at beginning of year 756.9 662.0 - -
Actual return on assets 106.8 131.9 - -
Settlements (5.5) - - -
Employer contributions 28.2 40.7 45.4 42.9
Benefits paid (84.6) (77.7) (45.4) (42.9)
-------------- -------------- -------------- --------------
FMV of plan assets at end of year 801.8 756.9 - -
-------------- -------------- -------------- --------------
Benefit obligations in excess of plan assets 70.7 116.1 616.8 544.5
Unrecognized net actuarial (gain) loss 23.8 - 55.9 135.0
Unrecognized prior service costs (18.5) (22.2) 69.8 86.1
Intangible asset and other 4.3 5.4 - -
-------------- -------------- -------------- --------------
Accrued benefit liability $ 80.3 $ 99.3 $ 742.5 $ 765.6
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Medical/Life Benefits
--------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Costs:
Service cost $ 14.2 $ 13.4 $ 12.9 $ 4.2 $ 6.1 $ 3.8
Interest cost 59.7 61.6 60.0 37.5 44.8 46.9
Expected return on assets (69.4) (61.8) (55.0) - - -
Amortization of prior service cost 3.2 3.4 3.5 (12.4) (12.4) (12.4)
Recognized net actuarial (gain) loss 1.4 2.6 2.0 (7.1) (.9) -
------------ ------------ ------------ ------------ ------------ ------------
Net periodic benefit cost 9.1 19.2 23.4 22.2 37.6 38.3
Curtailments, settlements, etc. 3.2 3.7 2.0 - - -
------------ ------------ ------------ ------------ ------------ ------------
Adjusted net periodic benefit costs $ 12.3 $ 22.9 $ 25.4 $ 22.2 $ 37.6 $ 38.3
============ ============ ============ ============ ============ ============
</TABLE>
The aggregate fair value of plan assets and accumulated benefit obligation
for pension plans with plan assets in excess of accumulated benefit
obligations were $293.0 and $280.7, respectively, as of December 31, 1998,
and $287.8 and $283.4, respectively, as of December 31, 1997.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change
in assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
-------------- --------------
<S> <C> <C>
Increase (decrease) to total of service and interest cost $ 5.8 $ (4.3)
Increase (decrease) to the postretirement benefit obligation $ 64.3 $ (45.4)
</TABLE>
POSTEMPLOYMENT BENEFITS
The Company provides certain benefits to former or inactive employees after
employment but before retirement.
INCENTIVE PLANS
The Company has an unfunded incentive compensation program, which provides
incentive compensation based on performance against annual plans and over
rolling three-year periods. In addition, the Company has a "nonqualified"
stock option plan and KACC has a defined contribution plan for salaried
employees. The Company's expense for all of these plans was $7.5, $8.3,
and $(2.1) for the years ended December 31, 1998, 1997, and 1996,
respectively.
Up to 8,000,000 shares of the Company's Common Stock were reserved for
issuance under its stock incentive compensation plans. At December 31,
1998, 3,634,621 shares of Common Stock remained available for issuance
under those plans. Stock options granted pursuant to the Company's
nonqualified stock option program are granted at the prevailing market
price, generally vest at a rate of 20 - 33% per year, and have a five or
ten year term. Information concerning nonqualified stock option plan
activity is shown below. The weighted average price per share for each
year is shown parenthetically.
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year ($10.45, $10.33, and
$10.32) 819,752 890,395 926,085
Granted ($9.79 and $10.06) 2,263,170 15,092 -
Exercised ($7.25, $8.33, and $8.99) (10,640) (48,410) (8,275)
Expired or forfeited ($9.60, $10.12, and $10.45) (23,160) (37,325) (27,415)
-------------- -------------- --------------
Outstanding at end of year ($9.98, $10.45, and $10.33) 3,049,122 819,752 890,395
============== ============== ==============
Exercisable at end of year ($10.09, $10.53, and $10.47) 1,261,262 601,115 436,195
============== ============== ==============
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation ("SFAS No. 123"), the Company is
required to calculate pro forma compensation cost for all stock options
granted subsequent to December 31, 1994. No stock options were granted
during 1996. However, as shown in the table above, options were granted in
1998 and 1997 which would be subject to the pro forma calculation
requirements. For SFAS No. 123 purposes, the fair value of the 1998 and
1997 stock option grants were estimated using a Black-Scholes option
pricing model. The proforma after-tax effect of the estimated fair value
of the grants would be to reduce net income in 1998 and 1997 by $1.5 and
$.1, respectively.
8. STOCKHOLDERS' EQUITY, COMPREHENSIVE INCOME AND MINORITY INTERESTS
Changes in stockholders' equity and comprehensive income were:
<TABLE>
<CAPTION>
Additional
Accu- Minimum
Preferred Common Additional mulated Pension
Stock Stock Capital Deficit Liability Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ .4 $ .7 $ 530.3 $ (459.9) $ (13.8) $ 57.7
Net income 8.2 8.2
Minimum pension liability
adjustment, net of tax 11.0 11.0
----------
Comprehensive income 19.2
Common stock issued upon redemption
and conversion of preferred
stock .1 .1
Dividends on preferred stock (8.4) (8.4)
Incentive plan accretion .7 .7
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 .4 .7 531.1 (460.1) (2.8) 69.3
Net income 48.0 48.0
Minimum pension liability
adjustment, net of tax 2.8 2.8
----------
Comprehensive income 50.8
Common stock issued upon redemption
and conversion of preferred
stock (.4) .1 1.7 1.4
Stock options exercised .4 .4
Dividends on preferred stock (5.5) (5.5)
Incentive plan accretion .6 .6
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 - .8 533.8 (417.6) - 117.0
Net income/Comprehensive income .6 .6
Stock options exercised .1 .1
Incentive plan accretion 1.5 1.5
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 $ - $ .8 $ 535.4 $ (417.0) $ - $ 119.2
========== ========== ========== ========== ========== ==========
</TABLE>
Changes in minority interest were:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Redeemable Redeemable Redeemable
Preference Preference Preference
Stock Other Stock Other Stock Other
- ----------------------------------------------------------------------------------------------------------------------------------
Beginning of period balance $ 27.7 $ 100.0 $ 27.5 $ 94.2 $ 29.7 $ 93.0
Redeemable preference stock
Accretion 1.1 2.3 3.1
Stock redemption (8.7) (2.1) (5.3)
Minority interests 3.4 5.8 1.2
-------------- -------------- -------------- -------------- -------------- --------------
End of period balance $ 20.1 $ 103.4 $ 27.7 $ 100.0 $ 27.5 $ 94.2
============== ============== ============== ============== ============== ==============
</TABLE>
REDEEMABLE PREFERENCE STOCK
In 1985, KACC issued its Cumulative (1985 Series A) Preference Stock and
its Cumulative (1985 Series B) Preference Stock (together, the "Redeemable
Preference Stock") each of which has a par value of $1 per share and a
liquidation and redemption value of $50 per share plus accrued dividends,
if any. No additional Redeemable Preference Stock is expected to be
issued. Holders of the Redeemable Preference Stock are entitled to an
annual cash dividend of $5 per share, or an amount based on a formula tied
to KACC's pre-tax income from aluminum operations, when and as declared by
the Board of Directors.
The carrying values of the Redeemable Preference Stock are increased each
year to recognize accretion between the fair value (at which the Redeemable
Preference Stock was originally issued) and the redemption value. Changes
in Redeemable Preference Stock are shown below.
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares:
Beginning of year 595,053 634,684 737,363
Redeemed (173,478) (39,631) (102,679)
-------------- -------------- --------------
End of year 421,575 595,053 634,684
============== ============== ==============
</TABLE>
Redemption fund agreements require KACC to make annual payments by March 31
of the subsequent year based on a formula tied to consolidated net income
until the redemption funds are sufficient to redeem all of the Redeemable
Preference Stock. On an annual basis, the minimum payment is $4.3 and the
maximum payment is $7.3. KACC also has certain additional repurchase
requirements which are, among other things, based upon profitability tests.
The Redeemable Preference Stock is entitled to the same voting rights as
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
Redeemable Preference Stock restricts the ability of KACC to redeem or pay
dividends on its common stock if KACC is in default on any dividends
payable on Redeemable Preference Stock.
PREFERENCE STOCK
KACC has four series of $100 par value Cumulative Convertible Preference
Stock ("$100 Preference Stock") with annual dividend requirements of
between 4-1/8% and 4-3/4%. KACC has the option to redeem the $100
Preference Stock at par value plus accrued dividends. KACC does not intend
to issue any additional shares of the $100 Preference Stock.
The $100 Preference Stock can be exchanged for per share cash amounts
between $69 - $80. KACC records the $100 Preference Stock at their
exchange amounts for financial statement presentation and the Company
includes such amounts in minority interests. At December 31, 1998 and
1997, outstanding shares of $100 Preference Stock were 19,963 and 20,543,
respectively.
PREFERRED STOCK
PRIDES Convertible - During August 1997, the remaining 8,673,850
outstanding shares of PRIDES were converted into 7,227,848 shares of Common
Stock pursuant to the terms of the PRIDES Certificate of Designations.
Further, in accordance with the PRIDES Certificate of Designations, no
dividends were paid or payable for the period June 30, 1997, to, but not
including, the date of conversion. However, in accordance with generally
accepted accounting principles, the $1.3 of accrued dividends attributable
to the period June 30, 1997, to, but not including, the conversion date
were treated as an increase in Additional capital at the date of conversion
and were reflected as a reduction of Net income available to common
shareholders.
PLEDGED SHARES
From time to time MAXXAM or certain of its subsidiaries which own the
Company's Common Stock may use such stock as collateral under various
financing arrangements. At December 31, 1998, 27,938,250 shares of the
Company's Common Stock beneficially owned by MAXXAM Group Holdings Inc.
("MGHI"), a wholly owned subsidiary of MAXXAM, were pledged as security for
$130.0 principal amount of 12% Senior Secured Notes due 2003 issued in
December 1996 by MGHI. An additional 7,915,000 shares of the Company's
Common Stock were pledged by MAXXAM under a separate agreement under which
$16.0 had been borrowed by MAXXAM at December 31, 1998. In addition to the
foregoing, MAXXAM has agreed to secure each $1.0 of borrowings with 400,000
shares of the Company's Common Stock under the terms of another $25.0
credit facility ($2.5 outstanding at December 31, 1998).
9. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
KACC has a variety of financial commitments, including purchase agreements,
tolling arrangements, forward foreign exchange and forward sales contracts
(see Note 10), letters of credit, and guarantees. Such purchase agreements
and tolling arrangements include long-term agreements for the purchase and
tolling of bauxite into alumina in Australia by QAL. These obligations
expire in 2008. Under the agreements, KACC is unconditionally obligated to
pay its proportional share of debt, operating costs, and certain other
costs of QAL. KACC's share of the aggregate minimum amount of required
future principal payments at December 31, 1998, is $97.6, of which
approximately $12.0 is due in each of 2000 and 2001 with the balance being
due thereafter. KACC's share of payments, including operating costs and
certain other expenses under the agreements, has ranged between $100.0 -
$120.0 over the past three years. KACC also has agreements to supply
alumina to and to purchase aluminum from Anglesey.
Minimum rental commitments under operating leases at December 31, 1998, are
as follows: years ending December 31, 1999 - $35.8; 2000 - $33.4; 2001 -
$31.1; 2002 - $27.3; 2003 - $26.1; thereafter - $114.7. The future minimum
rentals receivable under noncancelable subleases was $73.5 at December 31,
1998.
Rental expenses were $34.5, $30.4, and $29.6, for the years ended December
31, 1998, 1997, and 1996, 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, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 29.7 $ 33.3 $ 38.9
Additional accruals 24.5 2.0 3.2
Less expenditures (3.5) (5.6) (8.8)
-------------- -------------- --------------
Balance at end of period $ 50.7 $ 29.7 $ 33.3
============== ============== ==============
</TABLE>
These environmental accruals represent the Company's estimate of costs
reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the
Company's assessment of the likely remediation action to be taken. The
Company expects that these remediation actions will be taken over the next
several years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $3.0 to $8.0 for the years
1999 through 2003 and an aggregate of approximately $29.0 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. As the resolution of these matters is subject to
further regulatory review and approval, no specific assurance can be given
as to when the factors upon which a substantial portion of this estimate is
based can be expected to be resolved. However, the Company is currently
working to resolve certain of these matters.
The Company believes that it has insurance coverage available to recover
certain incurred and future environmental costs and is actively pursuing
claims in this regard. Through September 30, 1998, no accruals were made
for any such insurance recoveries. However, during December 1998, KACC
received recoveries totaling approximately $35.0 from certain of its
insurers related to current and future claims. Based on the Company's
analysis, a total of $12.0 of such recoveries was allocable to previously
accrued (expensed) items and, therefore, was reflected in earnings during
the fourth quarter of 1998. The remaining recoveries were offset against
increases in the total amount of environmental reserves. No assurances can
be given that the Company will be successful in other attempts to recover
incurred or future costs from other insurers or that the amount of
recoveries received will ultimately be adequate to cover costs incurred.
While uncertainties are inherent in the final outcome of these
environmental matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, management currently believes
that the resolution of such uncertainties should not have a material
adverse effect on the Company's consolidated financial position, results of
operations, or liquidity.
ASBESTOS CONTINGENCIES
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 sold for at least 20 years.
The following table presents the changes in number of such claims pending
for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of claims at beginning of period 77,400 71,100 59,700
Claims received 22,900 15,600 21,100
Claims settled or dismissed (13,900) (9,300) (9,700)
-------------- -------------- --------------
Number of claims at end of period 86,400 77,400 71,100
============== ============== ==============
</TABLE>
The foregoing claims and settlement figures as of December 31, 1998, do not
reflect the fact that KACC has reached agreements under which it will
settle approximately 30,000 of the pending asbestos-related claims over an
extended period.
Based on past experience and reasonably anticipated future activity, the
Company has established an accrual for estimated asbestos-related costs for
claims filed and estimated to be filed through 2008. There are inherent
uncertainties involved in estimating asbestos-related costs, and the
Company's actual costs could exceed these estimates. The Company's accrual
was calculated based on the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments, and the
advice of Wharton Levin Ehrmantraut Klein & Nash, P.A., with respect to the
current state of the law related to asbestos claims. Accordingly, an
estimated asbestos-related cost accrual of $186.2, before consideration of
insurance recoveries, is included primarily in Long-term liabilities at
December 31, 1998. While the Company does not presently believe there
is a reasonable basis for estimating such costs beyond 2008 and, accordingly,
no accrual has been recorded for such costs which may be incurred beyond
2008, there is a reasonable possibility that such costs may continue beyond
2008, and such costs may be substantial. The Company estimates that annual
future cash payments in connection with such litigation will be
approximately $16.0 to $28.0 for each of the years 1999 through 2003, and
an aggregate of approximately $77.0 thereafter.
The Company believes that KACC has insurance coverage available to recover
a substantial portion of its asbestos-related costs. Although the Company
has settled asbestos-related coverage matters with certain of its insurance
carriers, other carriers have not yet agreed to settlements. The timing
and amount of future recoveries from these insurance carriers will depend
on the pace of claims review and processing by such carriers and on the
resolution of any disputes regarding coverage under such policies. The
Company believes that substantial recoveries from the insurance carriers
are probable. The Company reached this conclusion after considering its
prior insurance-related recoveries in respect of asbestos-related claims;
its existing insurance policies; and the advise of Heller Ehrman White &
McAuliffe with respect to applicable insurance coverage law relating to the
terms and conditions of those policies. Accordingly, an estimated
aggregate insurance recovery of $152.5, determined on the same basis as the
asbestos-related cost accrual, is recorded primarily in Other assets at
December 31, 1998.
Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative progress, and costs
incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from the Company's underlying assumptions. While
uncertainties are inherent in the final outcome of these asbestos matters
and it is presently impossible to determine the actual costs that
ultimately may be incurred and insurance recoveries that will be received,
management currently believes that, based on the factors discussed in the
preceding paragraphs, the resolution of asbestos-related uncertainties and
the incurrence of asbestos-related costs net of related insurance
recoveries should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
LABOR MATTERS
In connection with the USWA strike and subsequent "lock-out" by KACC,
certain allegations of unfair labor practices ("ULPs") have been filed with
the National Labor Relations Board by the USWA and its members. KACC has
responded to all such allegations and believes that they are without merit.
If the allegations were sustained, KACC could be required to make locked-out
employees whole for back wages from the date of the lock-out in January 1999.
While uncertainties are inherent in the final outcome of such matters, the
Company believes that the resolution of the alleged ULPs should not result in
a material adverse impact on the Company's 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.
10. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
At December 31, 1998, the net unrealized gain on KACC's position in
aluminum forward sales and option contracts, natural gas and fuel oil
forward purchase and option contracts, and forward foreign exchange
contracts, was approximately $17.8 (based on comparisons to applicable
year-end published market prices). As KACC's hedging activities are
generally designed to lock-in a specified price or range of prices, gains
or losses on the derivative contracts utilized in these hedging activities
will be offset by losses or gains, respectively, on the transactions being
hedged.
ALUMINA AND ALUMINUM
The Company's earnings are sensitive to changes in the prices of alumina,
primary aluminum and fabricated aluminum products, and also depend to a
significant degree upon the volume and mix of all products sold. Primary
aluminum prices have historically been subject to significant cyclical
price fluctuations. Alumina prices as well as fabricated aluminum product
prices (which vary considerably among products) are significantly
influenced by changes in the price of primary aluminum but generally lag
behind primary aluminum price changes by up to three months. Since 1993,
the Average Midwest United States transaction price for primary aluminum
has ranged from approximately $.50 to $1.00 per pound.
From time to time in the ordinary course of business, KACC enters into
hedging transactions to provide price risk management in respect of the net
exposure of earnings resulting from (i) anticipated sales of alumina,
primary aluminum and fabricated aluminum products, less (ii) expected
purchases of certain items, such as aluminum scrap, rolling ingot, and
bauxite, whose prices fluctuate with the price of primary aluminum.
Forward sales contracts are used by KACC to effectively fix the price that
KACC will receive for its shipments. KACC also uses option contracts (i)
to establish a minimum price for its product shipments, (ii) to establish a
"collar" or range of price for KACC's anticipated sales, and/or (iii) to
permit KACC to realize possible upside price movements. As of December 31,
1998, KACC had sold forward, at fixed prices, approximately 24,000 tons of
primary aluminum with respect to 1999. As of December 31, 1998, KACC had
also entered into option contracts that established a price range for an
additional 125,000 and 72,000 tons of primary aluminum with respect to 1999
and 2000, respectively. Subsequent to December 31, 1998, KACC has also
entered into additional option contracts that established a price range for
an additional 201,000 tons of primary aluminum with respect to 2000.
Additionally, through December 31, 1998, KACC had also entered a series of
transactions with a counterparty that will provide KACC with a premium over
the forward market prices at the date of the transaction for 2,000 tons of
primary aluminum per month during the period July 1999 through June 2001.
KACC also contracted with the counterparty to receive certain fixed prices
(also above the forward market prices at the date of the transaction) on
4,000 tons of primary aluminum per month over a three year period
commencing October 2001, unless market prices during certain periods
decline below a stipulated "floor" price, in which case, the fixed price
sales portion of the transactions terminate. The price at which the
October 2001 and after transactions terminate is well below current market
prices. While the Company believes that the October 2001 and after
transactions are consistent with its stated hedging objectives, these
positions do not qualify for treatment as a "hedge" under current
accounting guidelines. Accordingly, these positions will be "marked to
market" each period.
As of December 31, 1998, KACC had sold forward virtually all of the alumina
available to it in excess of its projected internal smelting requirements
for 1999 and 2000 at prices indexed to future prices of primary aluminum.
ENERGY
KACC is exposed to energy price risk from fluctuating prices for fuel oil
and natural gas consumed in the production process. Accordingly, KACC from
time to time in the ordinary course of business enters into hedging
transactions with major suppliers of energy and energy related financial
instruments. As of December 31, 1998, KACC had a combination of fixed
price purchase and option contracts for the purchase of approximately
33,000 MMBtu of natural gas per day during 1999. At December 31, 1998,
KACC also held a combination of fixed price purchase and option contracts
for an average of 246,000 barrels per month of fuel oil and diesel fuel for
1999.
FOREIGN CURRENCY
KACC enters into forward exchange contracts to hedge material cash
commitments to foreign subsidiaries or affiliates. At December 31, 1998,
KACC had net forward foreign exchange contracts totaling approximately
$141.4 for the purchase of 210.6 Australian dollars from January 1999
through December 2000, in respect of its commitments for 1999 and 2000
expenditures denominated in Australian dollars.
11. SEGMENT AND GEOGRAPHICAL AREA INFORMATION
The Company's operations are located in many foreign countries, including
Australia, Canada, Ghana, Jamaica, and the United Kingdom. Foreign
operations in general may be more vulnerable than domestic operations due
to a variety of political and other risks. Sales and transfers among
geographic areas are made on a basis intended to reflect the market value
of products.
The Company's operations are organized and managed by product type. The
Company operates in four segments of the aluminum industry: Alumina and
bauxite, Primary aluminum, Flat-rolled products and Engineered products.
The Alumina and bauxite business unit's principal products are smelter
grade alumina and chemical grade alumina hydrate, a value-added product,
for which the Company receives a premium over smelter grade market prices.
The Primary aluminum business unit produces commodity grade products as
well as value-added products such as rod and billet, for which the Company
receives a premium over normal commodity market prices. The Flat-rolled
products group primarily sells rigid container sheet to can manufacturers
as well as value-added products such as heat treat aluminum sheet and plate
which are used in the aerospace and general engineering markets. The
Engineered products business unit serves a wide range of industrial
segments including the automotive, distribution, aerospace and general
engineering markets.
The Company uses a portion of its bauxite, alumina and primary aluminum
production for additional processing at its downstream facilities.
Transfers between business units are made at estimated market prices. The
accounting policies of the segments are the same as those described in Note
1. Business unit results are evaluated internally by management before any
allocation of corporate overhead and without any charge for income taxes or
interest expense.
The following segment information differs from that presented in prior
years as a result of the Company's adoption of Statement of Financial
Accounting Standard No.131, as of December 31, 1998. Prior year
information has been restated to conform to the Company's new presentation
format.
Financial information by operating segment at December 31, 1998, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Bauxite and Alumina:
Net sales to unaffiliated customers $ 472.7 $ 411.7 $ 431.0
Intersegment sales 135.8 201.7 194.1
-------------- -------------- --------------
608.5 613.4 625.1
-------------- -------------- --------------
Primary Aluminum:
Net sales to unaffiliated customers 409.8 543.4 538.3
Intersegment sales 233.5 273.8 217.4
-------------- -------------- --------------
643.3 817.2 755.7
-------------- -------------- --------------
Flat-Rolled Products 714.6 743.3 626.0
Engineered Products 581.3 581.0 504.4
Minority interests 78.0 93.8 90.8
Eliminations (369.3) (475.5) (411.5)
-------------- -------------- --------------
$ 2,256.4 $ 2,373.2 $ 2,190.5
============== ============== ==============
Equity in income (loss) of unconsolidated
affiliates:
Bauxite and Alumina $ (3.2) $ (7.0) $ 1.7
Primary Aluminum 1.2 5.1 6.7
Engineered Products 7.8 4.8 -
Corporate and Other (.4) - .4
-------------- -------------- --------------
$ 5.4 $ 2.9 $ 8.8
============== ============== ==============
Operating income (loss):
Bauxite and Alumina $ 42.0 $ 54.2 $ 27.7
Primary Aluminum 49.9 148.3 79.1
Flat-Rolled Products 70.8 28.2 35.3
Engineered Products 47.5 42.3 21.7
Micromill (1) (63.4) (24.5) (14.5)
Eliminations 8.9 (5.9) 8.3
Corporate and Other (65.1) (74.6) (59.8)
-------------- -------------- --------------
$ 90.6 $ 168.0 $ 97.8
============== ============== ==============
Depreciation and amortization:
Bauxite and Alumina $ 36.4 $ 39.4 $ 41.5
Primary Aluminum 29.9 30.4 33.0
Flat-Rolled Products 16.1 16.0 16.9
Engineered Products 10.8 11.2 12.1
Micromill 3.6 3.2 .5
Corporate and Other 2.3 2.3 3.6
-------------- -------------- --------------
$ 99.1 $ 102.5 $ 107.6
============== ============== ==============
Capital expenditures:
Bauxite and Alumina $ 26.9 $ 27.8 $ 29.9
Primary Aluminum 20.7 42.6 28.1
Flat-Rolled Products 20.4 16.8 22.7
Engineered Products 8.4 31.2 18.3
Micromill .2 8.3 56.4
Corporate and Other 1.0 1.8 6.1
-------------- -------------- --------------
$ 77.6 $ 128.5 $ 161.5
============== ============== ==============
</TABLE>
(1) 1998 includes $45.0 fourth quarter impairment charge.
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in and advances to unconsolidated affiliates:
Bauxite and Alumina $ 76.8 $ 88.3
Primary Aluminum 27.6 33.2
Engineered Products 23.9 17.5
Corporate and Other - 9.6
-------------- --------------
$ 128.3 $ 148.6
============== ==============
Segment assets:
Bauxite and Alumina $ 669.0 $ 692.8
Primary Aluminum 580.8 633.9
Flat-Rolled Products 431.2 466.5
Engineered Products 294.5 318.6
Micromill 25.3 63.4
Corporate and Other 990.1 838.7
-------------- --------------
$ 2,990.9 $ 3,013.9
============== ==============
</TABLE>
Geographical area information relative to the Company's operations is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States $ 1,698.0 $ 1,720.3 $ 1,610.0
Jamaica 237.0 204.6 201.8
Ghana 89.8 234.2 198.3
Other Foreign 231.6 214.1 180.4
-------------- -------------- --------------
$ 2,256.4 $ 2,373.2 $ 2,190.5
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Long-lived assets: (1)
United States $ 757.9 $ 809.5
Jamaica 289.2 283.4
Ghana 90.2 100.4
Other Foreign 99.7 127.1
-------------- --------------
$ 1,237.0 $ 1,320.4
============== ==============
</TABLE>
(1) Long-lived assets include Property, plant, and equipment, net, and
Investments in and advances to unconsolidated affiliates.
The aggregate foreign currency gain included in determining net income was
immaterial for the years ended December 31, 1998, 1997, and 1996.
No single customer accounted for sales in excess of 10% of total revenue in
1998, 1997, or 1996.
Export sales were less than 10% of total revenue during the years ended
December 31, 1998, 1997, and 1996.
12. SUBSEQUENT EVENTS
During the first quarter of 1999, two potlines at the Company's 90% owned
Valco facility, which were curtailed during most of 1998 (but for which
Valco received compensation from the Volta River Authority in the form of
energy credits) are being restarted. Additionally, during the first quarter
of 1999 KACC began restarting two potlines (representing approximately
50,000 tons of annual capacity) at its Mead, Washington, smelter, which
were originally curtailed in September 1998 as a result of the USWA strike.
One potline at the Company's Tacoma, Washington, smelter has been prepared
for restart, but remains curtailed due to management's consideration of
market-related and other factors. The Company's first quarter results will
be adversely impacted by the effect of the restart costs at the Valco and
Mead facilities and the restart preparations at the Tacoma facility.
During February 1999, KACC, through a subsidiary, completed the acquisition
of its joint venture partner's 45% interest in Kaiser LaRoche Hydrate
Partners ("KLHP") for a cash purchase price of approximately $10.0 subject
to post-closing adjustments. As KACC already owned 55% of KLHP, the
results of KLHP were already included in the Company's consolidated
financial statements.
During January 1999, KACC signed a letter of intent to sell its 50%
interest in AKW, an aluminum wheels joint venture, to its partner. The
sale, which will result in the Company recognizing a net substantial gain,
is expected to be completed on or about March 31, 1999. However, as the
transaction is subject to the negotiation of a definitive purchase
agreement, no assurances can be given that the transaction will be
completed. The Company's equity in income of AKW was $7.8 and $4.8 for the
years ended December 31, 1998 and 1997, respectively.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Q U A R T E R L Y F I N A N C I A L D A T A ( U N A U D I T E D )
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------
(In millions of dollars, except share amounts) March 31, June 30, September 30, December 31,
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net sales $ 597.0 $ 614.8 $ 541.6 $ 503.0
Operating income (loss) 44.8 55.3 30.8 (40.3)
Net income (loss) 12.0 16.7 10.8 (1) (38.9)(2)
Earnings (loss) per share:
Basic/Diluted .15 .21 .14 (.49)(2)
Common stock market price:
High 11 11-5/8 9-5/8 7-3/4
Low 8-1/8 8-7/8 5-5/8 4-5/8
1997
Net sales $ 547.4 $ 597.1 $634.1 $594.6
Operating income 31.3 35.3 54.5 46.9
Net income 2.6 13.7 (3) 17.5 14.2
Earnings per share:
Basic/Diluted .01 .16 .22 .18
Common stock market price:
High 13-5/8 12-1/4 16 14-7/8
Low 10-7/8 10-1/8 11-5/8 8-3/8
</TABLE>
(1) Includes two essentially offsetting non-recurring items, a favorable $8.3
non-cash tax provision benefit resulting from the
resolution of certain matters and an approximate $10.0 unfavorable gross
profit impact of preparing for a strike by employees
represented by the USWA at five locations.
(2) Includes an unfavorable pre-tax strike-related gross profit impact of
approximately $50.0, and a non-cash pre-tax charge of
$45.0 related to impairment of the Company's Micromill assets.
Excluding these items basic earnings per share would have
been approximately $.29.
(3) Includes a $19.7 pre-tax charge for restructuring of operations, an
offsetting after-tax benefit of $12.5 related to the
settlement of certain tax matters and a $5.8 pre-tax charge for
litigation matters.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
F I V E - Y E A R F I N A N C I A L D A T A
C O N S O L I D A T E D B A L A N C E S H E E T S
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------
(In millions of dollars) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 98.3 $ 15.8 $ 81.3 $ 21.9 $ 17.6
Receivables 282.7 340.2 252.4 308.6 199.2
Inventories 543.5 568.3 562.2 525.7 468.0
Prepaid expenses and other current assets 105.5 121.3 127.8 76.6 158.0
-------------- -------------- -------------- -------------- --------------
Total current assets 1,030.0 1,045.6 1,023.7 932.8 842.8
Investments in and advances to unconsolidated
affiliates 128.3 148.6 168.4 178.2 169.7
Property, plant, and equipment - net 1,108.7 1,171.8 1,168.7 1,109.6 1,133.2
Deferred income taxes 377.9 330.6 264.5 269.1 271.2
Other assets 346.0 317.3 308.7 323.5 281.2
-------------- -------------- -------------- -------------- --------------
Total $ 2,990.9 $ 3,013.9 $ 2,934.0 $ 2,813.2 $ 2,698.1
============== ============== ============== ============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accruals $ 432.7 $ 457.3 $ 453.4 $ 451.2 $ 439.3
Accrued postretirement medical benefit
obligation - current portion 48.2 45.3 50.1 46.8 47.0
Payable to affiliates 77.1 82.7 97.0 94.2 85.3
Long-term debt - current portion .4 8.8 8.9 8.9 11.5
-------------- -------------- -------------- -------------- --------------
Total current liabilities 558.4 594.1 609.4 601.1 583.1
Long-term liabilities 532.9 491.9 458.1 548.5 495.5
Accrued postretirement medical benefit obligation 694.3 720.3 722.5 734.0 734.9
Long-term debt 962.6 962.9 953.0 749.2 751.1
Minority interests 123.5 127.7 121.7 122.7 116.2
Stockholders' equity:
Preferred stock - - .4 .4 .6
Common stock .8 .8 .7 .7 .6
Additional capital 535.4 533.8 531.1 530.3 527.8
Retained earnings (accumulated deficit) (417.0) (417.6) (460.1) (459.9) (502.6)
Accumulated other comprehensive income - - (2.8) (13.8) (9.1)
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity 119.2 117.0 69.3 57.7 17.3
-------------- -------------- -------------- -------------- --------------
Total $ 2,990.9 $ 3,013.9 $ 2,934.0 $ 2,813.2 $ 2,698.1
============== ============== ============== ============== ==============
Debt-to-capital ratio(1) 76.9 77.8 81.2 78.1 82.4
</TABLE>
(1) Total of long-term debt - current portion and long-term debt
(collectively "total debt") as a ratio of total debt, deferred income
tax liabilities, minority interests, and stockholders' equity.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
F I V E - Y E A R F I N A N C I A L D A T A
S T A T E M E N T S O F C O N S O L I D A T E D I N C O M E
( L O S S )
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
(In millions of dollars, except share amounts) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 2,256.4 $ 2,373.2 $ 2,190.5 $ 2,237.8 $ 1,781.5
-------------- -------------- -------------- -------------- --------------
Costs and expenses:
Cost of products sold 1,906.2 1,951.2 1,857.5 1,787.0 1,613.9
Depreciation and amortization 99.1 102.5 107.6 105.7 107.0
Selling, administrative, research and
development, and general 115.5 131.8 127.6 134.5 116.8
Impairment of Micromill(TM) assets/
restructuring of operations 45.0 19.7 - - -
-------------- -------------- -------------- -------------- --------------
Total costs and expenses 2,165.8 2,205.2 2,092.7 2,027.2 1,837.7
-------------- -------------- -------------- -------------- --------------
Operating income (loss) (1) 90.6 168.0 97.8 210.6 (56.2)
Other income (expense):
Interest expense (110.0) (110.7) (93.4) (93.9) (88.6)
Other - net 3.5 3.0 (2.7) (14.1) (7.3)
-------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes, minority
interests, and extraordinary loss (15.9) 60.3 1.7 102.6 (152.1)
Benefit (provision) for income taxes 16.4 (8.8) 9.3 (37.2) 53.8
Minority interests .1 (3.5) (2.8) (5.1) (3.1)
-------------- -------------- -------------- -------------- --------------
Income (loss) before extraordinary loss .6 48.0 8.2 60.3 (101.4)
Extraordinary loss on early extinguishments of
debt, net of tax benefit of $2.9 - - - - (5.4)
-------------- -------------- -------------- -------------- --------------
Net income (loss) .6 48.0 8.2 60.3 (106.8)
Preferred stock dividends - (5.5) (8.4) (17.6) (20.1)
-------------- -------------- -------------- -------------- --------------
Net income (loss) available to common
shareholders $ .6 $ 42.5 $ (.2) $ 42.7 $ (126.9)
============== ============== ============== ============== ==============
Earnings (loss) per share:
Basic/Diluted $ .01 $ .57 $ .00 $ .69 $ (2.18)
Weighted average shares outstanding (000):
Basic 79,115 74,221 71,644 62,000 58,139
Diluted 79,156 74,382 71,644 62,264 58,139
</TABLE>
(1) 1998 includes an adverse strike-related impact of approximately $60.0.
EXECUTION COPY
FOURTEENTH AMENDMENT TO CREDIT AGREEMENT
----------------------------------------
THIS FOURTEENTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of December 11, 1998, is by and between
----------
KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation
(the "Company"), KAISER ALUMINUM CORPORATION, a Delaware
-------
corporation (the "Parent Guarantor"), the various financial
----------------
institutions that are or may from time to time become parties to
the Credit Agreement referred to below (collectively, the
"Lenders" and, individually, a "Lender"), and BANKAMERICA
------- ------
BUSINESS CREDIT, INC., a Delaware corporation, as agent (in such
capacity, together with its successors and assigns in such
capacity, the "Agent") for the Lenders. Capitalized terms used,
-----
but not defined, herein shall have the meanings given to such
terms in the Credit Agreement, as amended hereby.
W I T N E S S E T H:
WHEREAS, the Company, the Parent Guarantor, the Lenders
and the Agent are parties to the Credit Agreement, dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement, dated as of July 21, 1994, the Second Amendment to
Credit Agreement, dated as of March 10, 1995, the Third Amendment
to Credit Agreement and Acknowledgement, dated as of July 20,
1995, the Fourth Amendment to Credit Agreement, dated as of
October 17, 1995, the Fifth Amendment to Credit Agreement, dated
as of December 11, 1995, the Sixth Amendment to Credit Agreement,
dated as of October 1, 1996, the Seventh Amendment to Credit
Agreement, dated as of December 17, 1996, the Eighth Amendment to
Credit Agreement, dated as of February 24, 1997, the Ninth
Amendment to Credit Agreement and Acknowledgment, dated as of
April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, and the Thirteenth Amendment to Credit
Agreement, dated as of July 20, 1998 (the "Credit Agreement");
----------------
and
WHEREAS, the parties hereto have agreed to amend the
Credit Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendments to Credit Agreement.
------------------------------
1.1 Amendments to Article IX: Covenants.
------------------------------------
A. Section 9.2.4 of the Credit Agreement is hereby
-------------
amended to read in its entirety as follows:
<PAGE>
"SECTION 9.2.4. Financial Condition.
-------------------
(a) Net Worth. The Company shall not permit Net
Worth as of the end of any Fiscal Quarter set forth below to
be less than the correlative amount indicated:
Fiscal Quarter
--------------
Net Worth
---------
First Fiscal Quarter of 1994
$450,000,000
Second Fiscal Quarter of 1994
$433,000,000
Third Fiscal Quarter of 1994
$416,000,000
Fourth Fiscal Quarter of 1994
$400,000,000
First Fiscal Quarter of 1995
$396,000,000
Second Fiscal Quarter of 1995
$392,000,000
Third Fiscal Quarter of 1995
$388,000,000
Fourth Fiscal Quarter of 1995
$385,000,000
First Fiscal Quarter of 1996
$391,000,000
Second Fiscal Quarter of 1996
$397,000,000
Third Fiscal Quarter of 1996
Minimum Net Worth
and each Fiscal Quarter
thereafter
; provided that for purposes of this Section 9.2.4(a), the
-------- -----------------
calculation of Net Worth shall exclude the effect of any
non-cash charges, up to an aggregate amount of $50,000,000,
in respect of the Micromill project, including (without
limitation) any write-down of assets located at the Center
for Technology in Pleasanton, California, and at the
Micromill facility near Reno, Nevada.
(b) Interest Coverage Ratio. The Company shall
not permit the Interest Coverage Ratio (i) for the one
Fiscal Quarter period ending March 31, 1996 to be less than
1.1 to 1.0, (ii) for the two Fiscal Quarter period ending
June 30, 1996 to be less than 1.2 to 1.0, (iii) for the
three Fiscal Quarter period ending September 30, 1996 to be
less than 0.5 to 1.0, (iv) for the four Fiscal Quarter
period ending December 31, 1996 to be less than 0.3 to 1.0,
(v) for the one Fiscal Quarter period ending June 30, 1997
to be less than 0.2 to 1.0, (vi) for the two Fiscal Quarter
period ending September 30, 1997 to be less than 0.4 to 1.0,
(vii) for the three Fiscal Quarter period ending
December 31, 1997 to be less than 0.6 to 1.0 and (viii) for
the four Fiscal Quarter period ending on the last day of
each of the Fiscal Quarters set forth below to be less than
the correlative ratio indicated:
Date
----
Ratio
-----
First Fiscal Quarter of 1998
0.80 to 1.0
Second Fiscal Quarter of 1998
1.20 to 1.0
Third Fiscal Quarter of 1998
1.60 to 1.0
Fourth Fiscal Quarter of 1998
1.10 to 1.0
First Fiscal Quarter of 1999
0.90 to 1.0
Second Fiscal Quarter of 1999
0.75 to 1.0
Third Fiscal Quarter of 1999
0.75 to 1.0
Fourth Fiscal Quarter of 1999
1.00 to 1.0
First Fiscal Quarter of 2000
1.00 to 1.0
Second Fiscal Quarter of 2000
1.25 to 1.0
Third Fiscal Quarter of 2000
1.25 to 1.0
Fourth Fiscal Quarter of 2000
1.50 to 1.0
First Fiscal Quarter of 2001
1.50 to 1.0
Second Fiscal Quarter of 2001
2.00 to 1.0
; provided that for purposes of calculating the Interest
--------
Coverage Ratio under this Section 9.2.4(b), EBITDA shall
-----------------
exclude the effect of any non-cash charges, up to an
aggregate amount of $50,000,000, in respect of the Micromill
project, including (without limitation) any write-down of
assets located at the Center for Technology in Pleasanton,
California, and at the Micromill facility near Reno,
Nevada."
B. Section 9.2.22 of the Credit Agreement is hereby
--------------
amended by deleting the phrase "$300,000" contained therein and
substituting the phrase "$550,000" therefor.
Section 2. Conditions to Effectiveness.
---------------------------
This Amendment shall become effective as of the date
hereof only when the following conditions shall have been
satisfied and notice thereof shall have been given by the Agent
to the Parent Guarantor, the Company and each Lender (the date of
satisfaction of such conditions and the giving of such notice
being referred to herein as the "Fourteenth Amendment Effective
------------------------------
Date"):
- ----
A. The Agent shall have received for each Lender
counterparts hereof duly executed on behalf of the Parent
Guarantor, the Company, the Agent and the Required Lenders (or
notice of the approval of this Amendment by the Required Lenders
satisfactory to the Agent shall have been received by the Agent).
B. The Agent shall have received:
(1) Resolutions of the Board of Directors or of
the Executive Committee of the Board of Directors of the Company
and the Parent Guarantor approving and authorizing the execution,
delivery and performance of this Amendment, certified by their
respective corporate secretaries or assistant secretaries as
being in full force and effect without modification or amendment
as of the date of execution hereof by the Company or the Parent
Guarantor, as the case may be;
(2) A signature and incumbency certificate of the
officers of the Company and the Parent Guarantor executing this
Amendment;
(3) For each Lender, an opinion, addressed to the
Agent and each Lender, from Kramer, Levin, Naftalis & Frankel, in
form and substance satisfactory to the Agent; and
(4) Such other information, approvals, opinions,
documents or instruments as the Agent may reasonably request.
Section 3. Company's Representations and Warranties.
----------------------------------------
In order to induce the Lenders and the Agent to enter
into this Amendment and to amend the Credit Agreement in the
manner provided herein, the Parent Guarantor and the Company
represent and warrant to each Lender and the Agent that, as of
the Fourteenth Amendment Effective Date, after giving effect to
the effectiveness of this Amendment, the following statements are
true and correct in all material respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Amendment by the Company and the Parent
Guarantor and the performance of the Credit Agreement as amended
by this Amendment (the "Amended Agreement") by the Company and
-----------------
the Parent Guarantor are within such Obligor's corporate powers
and have been duly authorized by all necessary corporate action
on the part of the Company and the Parent Guarantor, as the case
may be.
B. No Conflict. The execution and delivery by the
------------
Company and the Parent Guarantor of this Amendment and the
performance by the Company and the Parent Guarantor of the
Amended Agreement do not:
(1) contravene such Obligor's Organic Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures, or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such Obligor or any of its Subsidiaries;
or
(3) result in, or require the creation or
imposition of, any Lien on any of such Obligor's properties or
any of the properties of any Subsidiary of such Obligor, other
than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by the Company and the Parent Guarantor
and this Amendment and the Amended Agreement constitute the
legal, valid and binding obligations of the Company and the
Parent Guarantor, enforceable against the Company and the Parent
Guarantor in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors'
rights generally and by general principles of equity.
D. Governmental Approval, Regulation, etc. No
----------------------------------------
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any
other Person is required for the due execution, delivery or
performance of this Amendment by the Company or the Parent
Guarantor.
E. Incorporation of Representations and Warranties
------------------------------------------------
from Credit Agreement. Each of the statements set forth in
- ---------------------
Section 7.2.1 of the Credit Agreement is true and correct.
- --------------<PAGE>
Section 4. Acknowledgement and Consent.
----------------------------
The Company is a party to the Company Collateral
Documents, in each case as amended through the date hereof,
pursuant to which the Company has created Liens in favor of the
Agent on certain Collateral to secure the Obligations. The
Parent Guarantor is a party to the Parent Collateral Documents,
in each case as amended through the date hereof, pursuant to
which the Parent Guarantor has created Liens in favor of the
Agent on certain Collateral and pledged certain Collateral to the
Agent to secure the Obligations of the Parent Guarantor. Certain
Subsidiaries of the Company are parties to the Subsidiary
Guaranty and/or one or more of the Subsidiary Collateral
Documents, in each case as amended through the date hereof,
pursuant to which such Subsidiaries have (i) guarantied the
Obligations and/or (ii) created Liens in favor of the Agent on
certain Collateral. The Company, the Parent Guarantor and such
Subsidiaries are collectively referred to herein as the "Credit
------
Support Parties", and the Company Collateral Documents, the
- ---------------
Parent Collateral Documents, the Subsidiary Guaranty and the
Subsidiary Collateral Documents are collectively referred to
herein as the "Credit Support Documents".
-------------------------
Each Credit Support Party hereby acknowledges that it
has reviewed the terms and provisions of the Credit Agreement as
amended by this Amendment and consents to the amendment of the
Credit Agreement effected as of the date hereof pursuant to this
Amendment.
Each Credit Support Party acknowledges and agrees that
any of the Credit Support Documents to which it is a party or
otherwise bound shall continue in full force and effect. Each
Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all
Collateral encumbered thereby will continue to guaranty or
secure, as the case may be, the payment and performance of all
obligations guaranteed or secured thereby, as the case may be.
Each Credit Support Party (other than the Company and
the Parent Guarantor) acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this
Amendment, such Credit Support Party is not required by the terms
of the Credit Agreement or any other Loan Document to consent to
the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Loan Document shall be deemed to require
the consent of such Credit Support Party to any future amendments
to the Credit Agreement.
Section 5. Miscellaneous.
-------------
A. Reference to and Effect on the Credit Agreement
-----------------------------------------------
and the Other Loan Documents.
- ----------------------------
(1) On and after the Fourteenth Amendment Effective
Date, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring
to the Credit Agreement, and each reference in the other Loan
Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean
and be a reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment, the Credit Agreement and the other Loan Documents shall
remain in full force and effect and are hereby ratified and
confirmed.
B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO
--------------
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment
--------
are inserted for convenience only and shall not affect the meaning
or interpretation of this Amendment or any provision hereof.
D. Counterparts. This Amendment may be executed by
------------
the parties hereto in several counterparts and by the different
parties on separate counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but
one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached
to the same document.
E. Severability. Any provision of this Amendment
------------
which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
<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: /s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS
INC., as Agent CREDIT, INC.
By:/s/Michael J. Jasaitis By:/s/Michael J. Jasaitis
Name: Michael J. Jasaitis Name: Michael J. Jasaitis
Its: Vice President Its: Vice President
BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS
AND SAVINGS ASSOCIATION CREDIT, INC.
By:/s/Michael Balok By:/s/Dan Hughes
Name Printed: Michael Balok Name Printed: Dan Hughes
Its: Managing Director Its: Vice President
CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC.
(WESTERN)
By:/s/Kristine Metchikian By:/s/T/ Bukowski
Name Printed: Kristine Metchikian Name Printed: T. Bukowski
Its: Vice President Its: Sr. Vice President
LA SALLE NATIONAL BANK TRANSAMERICA BUSINESS
CREDIT CORPORATION
By:/s/ Douglas C. Colletti By: /s/ R. L. Heinz
Name Printed: Douglas C. Colletti Name Printed: R. L. Heinz
Its: First Vice President Its:Senior Vice President
ABN AMRO BANK N.V.
San Francisco International Branch
By: ABN AMRO North America,
Inc., as agent
By:/s/Jeffrey A. French
Name Printed: Jeffrey A. French
Its: Group Vice President & Director
By:/s/ Michael M. Tolentino
Name Printed: Michael M. Tolentino
Its: Vice President
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM &
CHEMICAL INVESTMENT,
INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE
CORPORATION CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. KAISER JAMAICA
CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA
MICROMILLS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell
Its: Treasurer
EXECUTION COPY
FIFTEENTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------------
THIS FIFTEENTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of February 23, 1999, is by and between
---------
KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation
(the "Company"), KAISER ALUMINUM CORPORATION, a Delaware
-------
corporation (the "Parent Guarantor"), the various financial
----------------
institutions that are or may from time to time become parties to
the Credit Agreement referred to below (collectively, the
"Lenders" and, individually, a "Lender"), and BANKAMERICA
------- -------
BUSINESS CREDIT, INC., a Delaware corporation, as agent (in such
capacity, together with its successors and assigns in such
capacity, the "Agent") for the Lenders. Capitalized terms used,
-----
but not defined, herein shall have the meanings given to such
terms in the Credit Agreement, as amended hereby.
W I T N E S S E T H:
WHEREAS, the Company, the Parent Guarantor, the Lenders
and the Agent are parties to the Credit Agreement, dated as of
February 15, 1994, as amended by the First Amendment to Credit
Agreement, dated as of July 21, 1994, the Second Amendment to
Credit Agreement, dated as of March 10, 1995, the Third Amendment
to Credit Agreement and Acknowledgement, dated as of July 20,
1995, the Fourth Amendment to Credit Agreement, dated as of
October 17, 1995, the Fifth Amendment to Credit Agreement, dated
as of December 11, 1995, the Sixth Amendment to Credit Agreement,
dated as of October 1, 1996, the Seventh Amendment to Credit
Agreement, dated as of December 17, 1996, the Eighth Amendment to
Credit Agreement, dated as of February 24, 1997, the Ninth
Amendment to Credit Agreement and Acknowledgment, dated as of
April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, and the Fourteenth Amendment to Credit
Agreement, dated as of December 11, 1998 (the "Credit
------
Agreement"); and
- ----------
WHEREAS, the parties hereto have agreed to amend the
Credit Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendments to Credit Agreement.
-------------------------------
1.1 Amendments to Article I: Definitions.
--------------------------------------
Section 1.1 of the Credit Agreement is hereby amended
-----------
by adding the following definitions in the appropriate
alphabetical order:
"'KLHP' means Kaiser LaRoche Hydrate Partners, a
----
Delaware partnership."
"'Kaiser Transaction' means Kaiser Transaction Corp., a
------------------
Delaware corporation."
1.2 Amendments to Article IX: Covenants.
-------------------------------------
A. Section 9.2.2(b)(i) of the Credit Agreement is hereby
-------------------
amended by adding the phrase ", Kaiser Transaction" after the
phrase "Texas Sierra" contained therein.
B. Section 9.2.4(b) of the Credit Agreement is hereby
-----------------
amended to read in its entirety as follows:
"(b) Interest Coverage Ratio. The Company shall not
permit the Interest Coverage Ratio (i) for the one Fiscal
Quarter period ending March 31, 1996 to be less than 1.1 to
1.0, (ii) for the two Fiscal Quarter period ending June 30,
1996 to be less than 1.2 to 1.0, (iii) for the three Fiscal
Quarter period ending September 30, 1996 to be less than 0.5
to 1.0, (iv) for the four Fiscal Quarter period ending
December 31, 1996 to be less than 0.3 to 1.0, (v) for the
one Fiscal Quarter period ending June 30, 1997 to be less
than 0.2 to 1.0, (vi) for the two Fiscal Quarter period
ending September 30, 1997 to be less than 0.4 to 1.0,
(vii) for the three Fiscal Quarter period ending
December 31, 1997 to be less than 0.6 to 1.0 and (viii) for
the four Fiscal Quarter period ending on the last day of
each of the Fiscal Quarters set forth below to be less than
the correlative ratio indicated:
Date
-----
Ratio
------
First Fiscal Quarter of 1998
0.80 to 1.0
Second Fiscal Quarter of 1998
1.20 to 1.0
Third Fiscal Quarter of 1998
1.60 to 1.0
Fourth Fiscal Quarter of 1998
1.10 to 1.0
First Fiscal Quarter of 1999
0.90 to 1.0
Second Fiscal Quarter of 1999
0.75 to 1.0
Third Fiscal Quarter of 1999
0.75 to 1.0
Fourth Fiscal Quarter of 1999
1.00 to 1.0
First Fiscal Quarter of 2000
1.00 to 1.0
Second Fiscal Quarter of 2000
1.25 to 1.0
Third Fiscal Quarter of 2000
1.25 to 1.0
Fourth Fiscal Quarter of 2000
1.50 to 1.0
First Fiscal Quarter of 2001
1.50 to 1.0
Second Fiscal Quarter of 2001
2.00 to 1.0
; provided that for purposes of calculating the Interest
--------
Coverage Ratio under this Section 9.2.4(b), (x) EBITDA shall
------------------
exclude the effect of any non-cash charges, up to an
aggregate amount of $50,000,000, in respect of the Micromill
project, including (without limitation) any write-down of
assets located at the Center for Technology in Pleasanton,
California, and at the Micromill facility near Reno, Nevada,
and (y) for purposes of calculating Adjusted Capital
Expenditures, Capital Expenditures shall exclude the
purchase price paid by Kaiser Transaction to acquire the 45%
interest in KLHP owned by LaRoche Industries Inc."
C. Section 9.2.5 of the Credit Agreement is hereby amended
-------------
by (i) adding the phrase ", Kaiser Transaction, KLHP" after the
phrase "KJBC" contained in clause (f) thereof; (ii) deleting the
----------
word "and" at the end of clause (t) thereof; (iii) deleting the
----------
period at the end of clause (u) thereof and substituting "; and"
-----------
therefor; and (iv) adding the following as new clause (v)
-----------
thereof:
"(v) Investments by the Company in Kaiser
Transaction in an amount not to exceed, in the aggregate at
any one time outstanding, the lesser of (i) the purchase
price paid by Kaiser Transaction to acquire the 45% interest
in KLHP owned by LaRoche Industries Inc. and (ii)
$12,000,000; and Investments by Kaiser Transaction in KLHP
in an amount not to exceed, in the aggregate at any one time
outstanding, the lesser of (x) the purchase price paid by
Kaiser Transaction to acquire the 45% interest in KLHP owned
by LaRoche Industries Inc. and (y) $12,000,000."
D. Section 9.2.11 of the Credit Agreement is hereby
--------------
amended by (i) deleting the word "and" at the end of clause (l)
----------
thereof; (ii) deleting the period at the end of clause (m)
----------
thereof and substituting "; and" therefor; and (iii) adding the
following as new clause (n) thereof:
-----------
"(n) a sale by the Company of its partnership
interests and membership interests in AKW and AKW LLC,
respectively, to Accuride Corporation or an affiliate
thereof for an aggregate cash purchase price equal to or
greater than $60,000,000."
E. Section 9.2.13(c) of the Credit Agreement is hereby
------------------
amended by adding ", Kaiser Transaction" after the phrase "KFC"
in the parenthetical contained therein.
F. Section 9.2.18 of the Credit Agreement is hereby
--------------
amended by amending clause (vi) thereof to read in its entirety
------------
as follows:
"(vi) Investments permitted by Sections 9.2.5(f),
9.2.5(n), 9.2.5(o), 9.2.5(q), 9.2.5(r), 9.2.5(s), 9.2.5(t),
9.2.5(u), and 9.2.5(v);"
Section 2. Acknowledgement and Consent.
----------------------------
Subject to the terms and conditions set forth herein
and in reliance on the representations and warranties of the
Company herein contained, the Lenders hereby acknowledge and
consent to (i) the amendment of the lease entered into by the
Company and AKW with respect to a portion of the property owned
by the Company located in Erie, Pennsylvania to the extent
necessary to (x) change the rental rate for the first five-year
renewal of such lease from fair market rental value to $1.00 per
year in connection with the sale by the Company of its
partnership interests and membership interests in AKW and AKW
LLC, respectively, to Accuride Corporation or an affiliate
thereof and (y) include under such lease that portion of the
improved property located at the Erie, Pennsylvania site that is
not currently subject to such lease, and (ii) the execution and
delivery of a supplement to the Senior Indenture, a supplement to
the New Senior Indenture, a supplement to the Additional New
Senior Indentures 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 Kaiser Transaction
as a "Subsidiary Guarantor" (under and as defined in the Senior
Indenture, New Senior Indenture, Additional New Senior Indentures
and Subordinated Indenture).
Section 3. Supplements to Collateral Documents.
-------------------------------------
The parties hereto hereby agree that, as of the
Fifteenth Amendment Effective Date, (i) the Subsidiary Security
Agreement shall be supplemented as set forth in Exhibit A hereto,
(ii) the Subsidiary Guaranty shall be supplemented as set forth
in Exhibit B hereto, and (iii) the Subsidiary Pledge Agreement
shall be supplemented as set forth in Exhibit C hereto. The
Required Lenders hereby approve the forms of such supplements,
and hereby authorize the Agent on their behalf to accept from
Kaiser Transaction and to execute and deliver as Agent such
supplements in substantially the forms of such Exhibits A, B and
C with such changes, additions or deletions as the Agent, in its
sole and absolute discretion, may approve.
Section 4. Conditions to Effectiveness.
----------------------------
This Amendment shall become effective as of December
31, 1998 only when, except as set forth in Sections 4B(10), (11)
and (12) below, the following conditions shall have been
satisfied and notice thereof shall have been given by the Agent
to the Parent Guarantor, the Company and each Lender (the date of
satisfaction of such conditions and the giving of such notice
being referred to herein as the "Fifteenth Amendment Effective
------------------------------
Date"):
- ------
A. The Agent shall have received for each Lender
counterparts hereof duly executed on behalf of the Parent
Guarantor, the Company, the Agent and the Required Lenders (or
notice of the approval of this Amendment by the Required Lenders
satisfactory to the Agent shall have been received by the Agent).
B. The Agent shall have received:
(1) Resolutions of the Board of Directors or of
the Executive Committee of the Board of Directors of the Company
and the Parent Guarantor approving and authorizing the execution,
delivery and performance of this Amendment, and, as to the
Company, a Pledge Amendment to the Company Pledge Agreement,
dated as of February 23, 1999, with respect to the stock of
Kaiser Transaction (the "Pledge Amendment"), certified by their
-----------------
respective corporate secretaries or assistant secretaries as
being in full force and effect without modification or amendment
as of the date of execution hereof by the Company or the Parent
Guarantor, as the case may be;
(2) A signature and incumbency certificate of the
officers of the Company and the Parent Guarantor executing this
Amendment, and, as to the Company, the Pledge Amendment;
(3) Copies of the Supplement to Subsidiary
Security Agreement, dated as of February 23, 1999, by and between
Kaiser Transaction and the Agent (the "Subsidiary Security
-------------------
Supplement") duly executed on behalf of Kaiser Transaction and
- ----------
the Agent;
(4) Copies of the Supplement to Subsidiary
Guaranty, dated as of February 23, 1999, by and between Kaiser
Transaction and the Agent (the "Subsidiary Guaranty Supplement")
------------------------------
duly executed on behalf of Kaiser Transaction and the Agent;
(5) Copies of the Supplement to Subsidiary Pledge
Agreement, dated as of February 23, 1999, by and between Kaiser
Transaction and the Agent (the "Subsidiary Pledge Supplement")
----------------------------
duly executed on behalf of Kaiser Transaction and the Agent;
(6) Certified copies of the Certificate of
Incorporation of Kaiser Transaction;
(7) Copies of the Bylaws of Kaiser Transaction,
certified as of the date of delivery to the Agent by its
corporate secretary or an assistant secretary or other authorized
representative;
(8) Resolutions of the Board of Directors of
Kaiser Transaction approving and authorizing the execution,
delivery and performance of the Subsidiary Security Supplement,
the Subsidiary Guaranty Supplement and the Subsidiary Pledge
Supplement, 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 thereof by Kaiser
Transaction;
(9) A signature and incumbency certificate of the
officers of Kaiser Transaction executing the Subsidiary Security
Supplement, the Subsidiary Guaranty Supplement and the Subsidiary
Pledge Supplement;
(10) Duly executed financing statements (Form
UCC-1) naming Kaiser Transaction 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 (which
financing statements may be received by the Agent no later than
five Business Days after the Fifteenth Amendment Effective Date);
(11) Stock certificates evidencing 100% of the
issued and outstanding shares of capital stock of Kaiser
Transaction, accompanied by undated stock powers duly executed in
blank (which stock certificates may be received by the Agent no
later than five Business Days after the Fifteenth Amendment
Effective Date);
(12) Copies of the Pledge Amendment duly executed
on behalf of the Company (which Pledge Amendment may be received
by the Agent no later than five Business Days after the Fifteenth
Amendment Effective Date);
(13) For each Lender, an opinion, addressed to the
Agent and each Lender, from Kramer Levin Naftalis & Frankel LLP,
in form and substance satisfactory to the Agent; and
(14) Such other information, approvals, opinions,
documents or instruments as the Agent may reasonably request.
Section 5. Company's Representations and Warranties.
-----------------------------------------
In order to induce the Lenders and the Agent to enter
into this Amendment and to amend the Credit Agreement in the
manner provided herein, the Parent Guarantor and the Company
represent and warrant to each Lender and the Agent that, as of
the Fifteenth Amendment Effective Date, after giving effect to
the effectiveness of this Amendment, the following statements are
true and correct in all material respects:
A. Authorization of Agreements. The execution and
----------------------------
delivery of this Amendment by the Company and the Parent
Guarantor and the performance of the Credit Agreement as amended
by this Amendment (the "Amended Agreement") by the Company and
------------------
the Parent Guarantor are within such Obligor's corporate powers
and have been duly authorized by all necessary corporate action
on the part of the Company and the Parent Guarantor, as the case
may be.
B. No Conflict. The execution and delivery by the Company
-----------
and the Parent Guarantor of this Amendment and the performance by
the Company and the Parent Guarantor of the Amended Agreement do
not:
(1) contravene such Obligor's Organic Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such Obligor or any of its Subsidiaries;
or
(3) result in, or require the creation or
imposition of, any Lien on any of such Obligor's properties or
any of the properties of any Subsidiary of such Obligor, other
than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been duly
------------------
executed and delivered by the Company and the Parent Guarantor
and this Amendment and the Amended Agreement constitute the
legal, valid and binding obligations of the Company and the
Parent Guarantor, enforceable against the Company and the Parent
Guarantor in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors'
rights generally and by general principles of equity.
D. Governmental Approval, Regulation, etc. No
----------------------------------------
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any
other Person is required for the due execution, delivery or
performance of this Amendment by the Company or the Parent
Guarantor.
E. Incorporation of Representations and Warranties from
-----------------------------------------------------
Credit Agreement. Each of the statements set forth in
- ----------------
Section 7.2.1 of the Credit Agreement is true and correct.
- -------------
Section 6. Acknowledgement and Consent.
----------------------------
The Company is a party to the Company Collateral
Documents, in each case as amended through the date hereof,
pursuant to which the Company has created Liens in favor of the
Agent on certain Collateral to secure the Obligations. The
Parent Guarantor is a party to the Parent Collateral Documents,
in each case as amended through the date hereof, pursuant to
which the Parent Guarantor has created Liens in favor of the
Agent on certain Collateral and pledged certain Collateral to the
Agent to secure the Obligations of the Parent Guarantor. Certain
Subsidiaries of the Company are parties to the Subsidiary
Guaranty and/or one or more of the Subsidiary Collateral
Documents, in each case as amended through the date hereof,
pursuant to which such Subsidiaries have (i) guarantied the
Obligations and/or (ii) created Liens in favor of the Agent on
certain Collateral. The Company, the Parent Guarantor and such
Subsidiaries are collectively referred to herein as the "Credit
-------
Support Parties", and the Company Collateral Documents, the
- ---------------
Parent Collateral Documents, the Subsidiary Guaranty and the
Subsidiary Collateral Documents are collectively referred to
herein as the "Credit Support Documents".
------------------------
Each Credit Support Party hereby acknowledges that it
has reviewed the terms and provisions of the Credit Agreement as
amended by this Amendment and consents to the amendment of the
Credit Agreement effected as of the date hereof pursuant to this
Amendment.
Each Credit Support Party acknowledges and agrees that
any of the Credit Support Documents to which it is a party or
otherwise bound shall continue in full force and effect. Each
Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all
Collateral encumbered thereby will continue to guaranty or
secure, as the case may be, the payment and performance of all
obligations guaranteed or secured thereby, as the case may be.
Each Credit Support Party (other than the Company and
the Parent Guarantor) acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this
Amendment, such Credit Support Party is not required by the terms
of the Credit Agreement or any other Loan Document to consent to
the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Loan Document shall be deemed to require
the consent of such Credit Support Party to any future amendments
to the Credit Agreement.
Section 7. Miscellaneous.
--------------
A. Reference to and Effect on the Credit Agreement and the
Other Loan Documents.
(1) On and after the Fifteenth Amendment
Effective Date, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like
import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment and the amendments to the other Loan Documents executed
as of the date hereof, the Credit Agreement and the other Loan
Documents shall remain in full force and effect and are hereby
ratified and confirmed.
B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
---------------
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO
CONFLICTS OF LAWS.
C. Headings. The various headings of this Amendment are
--------
inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or any provision hereof.
D. Counterparts. This Amendment may be executed by the
------------
parties hereto in several counterparts and by the different
parties on separate counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but
one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached
to the same document.
E. Severability. Any provision of this Amendment which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such
provision and such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the
remaining provisions of this Amendment or affecting the validity
or enforceability of such provisions in any other jurisdiction.
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
KAISER ALUMINUM CORPORATION KAISER ALUMINUM &
CHEMICAL CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS
CREDIT, INC. INC., as Agent
By:/s/Michael J. Jasaitis By:/s/Michael J. Jasaitis
Name Printed: Michael J. Jasaitis Name Printed: Michael J.
Jasaitis
Its: Vice President Its: Vice President
BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS
AND SAVINGS ASSOCIATION CREDIT, INC.
By:/s/Michael Balor By:/s/Dan Hughes
Name Printed: Michael Balor Name Printed: Dan Hughes
Its: Managing Director Its: Vice President
CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC.
(WESTERN)
By:/s/Kristine Metchikian By:/s/T. Bukowski
Name Printed: Kristine Metchikian Name Printed: T. Bukowski
Its: Vice President Its: Sr. Vice President
LA SALLE NATIONAL BANK TRANSAMERICA BUSINESS
<PAGE>
CREDIT CORPORATION
By:/s/Douglas C. Colletti By:/s/Robert L. Heinz
Name Printed: Douglas C. Colletti Name Printed: Robert L.
Heinz
Its: First Vice President Its: Senior Vice
President
ABN AMRO BANK N.V.
San Francisco International Branch
By: ABN AMRO North America,
Inc., as agent
By:/s/ Jeffrey A. French
Name Printed: Jeffrey A. French
Its: Group Vice President
By:/s/ Michael M. Tolentino
Name Printed: Michael M. Tolentino
Its: Vice President
<PAGE>
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM &
CHEMICAL INVESTMENT, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE
CORPORATION CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. KAISER JAMAICA
CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA
MICROMILLS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell
Its: Treasurer
<PAGE>
EXHIBIT A
SUPPLEMENT TO SUBSIDIARY SECURITY AGREEMENT
-------------------------------------------
THIS SUPPLEMENT TO SUBSIDIARY SECURITY AGREEMENT (this
"Supplement"), dated as of February 23, 1999, is by and between
----------
Kaiser Transaction Corp., a Delaware corporation (the "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 Fifteenth Amendment (as defined below).
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, the Fourth Amendment
to Credit Agreement, dated as of October 17, 1995, the Fifth
Amendment to Credit Agreement, dated as of December 11, 1995, the
Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
the Seventh Amendment to Credit Agreement, dated as of December
17, 1996, the Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, the Ninth Amendment to Credit Agreement, dated
as of April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, and the Fourteenth Amendment to Credit
Agreement, dated as of December 11, 1998 (the "Credit
------
Agreement"); and
- ---------
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a
Fifteenth Amendment to Credit Agreement (the "Fifteenth
----------
Amendment"); and
- ---------
WHEREAS, the New Kaiser Subsidiary is required as a
condition to the effectiveness of the Fifteenth Amendment to
---------
execute this Supplement; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Supplement by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Addition of New Kaiser Subsidiary.
---------------------------------
On and after the Fifteenth Amendment Effective Date (as
----------
defined in the Fifteenth Amendment), the New Kaiser Subsidiary
---------
shall be a party 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 Subsidiary. Schedules I through VI
of the Subsidiary Security Agreement are hereby supplemented to
include the information set forth on Schedules I through VI
hereto with respect to the New Kaiser Subsidiary.
Section 2. Kaiser Subsidiary's Representations and
---------------------------------------
Warranties.
- -----------
In order to induce the Agent to enter into this
Supplement and to supplement the Subsidiary Security Agreement in
the manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, the New Kaiser Subsidiary
represents and warrants as a Kaiser Subsidiary to each Lender and
the Agent that, as of the Fifteenth Amendment Effective Date
after giving effect to the effectiveness of this Supplement, the
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Supplement by such Kaiser Subsidiary and the
performance of the Subsidiary Security Agreement as supplemented
by this Supplement (the "Supplemented Agreement") by such Kaiser
----------------------
Subsidiary are within such Kaiser Subsidiary's corporate powers
and have been duly authorized by all necessary corporate action
on the part of such Kaiser Subsidiary.
B. No Conflict. The execution and delivery by such
-----------
Kaiser Subsidiary of this Supplement and the performance by such
Kaiser Subsidiary of the Supplemented Agreement do not:
(1) contravene such Kaiser Subsidiary's Organic
Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such 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 Supplement has been duly
------------------
executed and delivered by such Kaiser Subsidiary and this
Supplement and the Supplemented 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 Supplement by such Kaiser Subsidiary, other
than the filing of appropriate financing statements.
Section 4. Miscellaneous.
--------------
A. Applicable Law. THIS SUPPLEMENT 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.
B. Headings. The various headings of this Supplement
---------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Supplement or any provision
hereof.
C. Counterparts. This Supplement 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.
D. Severability. Any provision of this Supplement
-------------
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 Supplement or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
IN WITNESS WHEREOF, this Supplement has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT, KAISER TRANSACTION CORP.
INC., as Agent
By:/s/Michael J. Jasaitis By:/s/Karen A. Twitchell
Name: Michael J. Jasaitis Name: Karen A. Twitchell
Its: Vice President Its: Treasurer
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL
INVESTMENT, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION
CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell
Its: Treasurer
<PAGE>
Supplement to the Subsidiary Security Agreement
-----------------------------------------------
Schedule I
U.S. Trademarks, Trade Names and Service Marks
As of the Fifteenth Amendment Effective Date, there are no
Trademarks registered in the name of the New Kaiser Subsidiary in
the United States Patent and Trademark Office.
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule II
U.S. Patents
As of the Fifteenth Amendment Effective Date, there are no
Patents registered in the name of the New Kaiser Subsidiary in
the United States Patent and Trademark Office.
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule III
Location of Collateral
The chief place of business and the chief executive
office of the New Kaiser Subsidiary as of the Fifteenth Amendment
Effective Date is, and for the four-month period immediately
preceding such date (or such shorter time as such New Kaiser
Subsidiary has been organized) has been, located at 6177 Sunol
Boulevard, Pleasanton, California 94566-7769 or 5847 San Felipe,
Suite 2600, Houston, Texas 77057-3010.
As of the Fifteenth Amendment Effective Date, all of
the current books and records located in the United States of the
New Kaiser Subsidiary, including its records regarding any
Accounts and contracts relating to any Accounts and all
originals, if any, of Chattel Paper and Documents (including all
Documents covering any Goods of such New Kaiser Subsidiary), and
all of the New Kaiser Subsidiary's other books and records,
contracts, Chattel Paper, Equipment, Documents, Inventory, and
other Goods located in the United States (excluding such books
and records, Documents, Equipment, contracts, Chattel Paper,
Inventory, or other Goods which are in transit or which are
otherwise temporarily off such premises in the ordinary course of
such New Kaiser Subsidiary's business) are located at:
6177 SUNOL BOULEVARD
PLEASANTON, CALIFORNIA 94566-7769
(ALAMEDA COUNTY)
5847 SAN FELIPE
SUITE 2600
HOUSTON, TEXAS 77057-3010
(HARRIS COUNTY)
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule IV
Third Party Locations of Collateral
As of the Fifteenth Amendment Effective Date,
Collateral of the New Kaiser Subsidiary may be located at the
following third party locations:
None
<PAGE>
Supplement to the Subsidiary Security Agreement
-------------------------------------------------
Schedule V
Deposit and Cash Equivalent Investment Accounts
As of the Fifteenth Amendment Effective Date, the New Kaiser
Subsidiary has no deposit accounts or accounts for holding Cash
Equivalent Investments in the United States.
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule VI
List of Trade Names and Fictitious Business Names
No additional information.
List of Filing Offices
State Office
----- ------
California Secretary of State
Texas Secretary of State
<PAGE>
EXHIBIT B
SUPPLEMENT TO SUBSIDIARY GUARANTY
----------------------------------
THIS SUPPLEMENT TO SUBSIDIARY GUARANTY (this "Supplement"),
-----------
dated as of February 23, 1999, is by and between Kaiser
Transaction Corp., a Delaware corporation (the "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 Fifteenth Amendment (as defined below).
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, the Fourth Amendment
to Credit Agreement, dated as of October 17, 1995, the Fifth
Amendment to Credit Agreement, dated as of December 11, 1995, the
Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
the Seventh Amendment to Credit Agreement, dated as of December
17, 1996, the Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, the Ninth Amendment to Credit Agreement, dated
as of April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, and the Fourteenth Amendment to Credit
Agreement, dated as of December 11, 1998; and
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a
Fifteenth Amendment to Credit Agreement (the "Fifteenth
----------
Amendment"); and
- ---------
WHEREAS, the New Kaiser Subsidiary is required as a
condition to the effectiveness of the Fifteenth Amendment to
execute this Supplement; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Supplement by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Addition of New Kaiser Subsidiary.
----------------------------------
On and after the Fifteenth Amendment Effective Date (as
defined in the Fifteenth Amendment), the New Kaiser Subsidiary
shall be party 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
Subsidiary.
Section 2. Guarantors' Representations and Warranties.
------------------------------------------
In order to induce the Agent to enter into this
Supplement and to supplement the Subsidiary Guaranty in the
manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, the New Kaiser Subsidiary
represents and warrants as a Guarantor to each Lender and the
Agent that, as of the Fifteenth Amendment Effective Date after
giving effect to the effectiveness of this Supplement, the
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
----------------------------
delivery of this Supplement by such Guarantor and the performance
of the Subsidiary Guaranty as supplemented by this Supplement
(the "Supplemented Agreement") by such Guarantor are within such
----------------------
Guarantor's corporate powers and have been duly authorized by all
necessary corporate action on the part of such Guarantor.
B. No Conflict. The execution and delivery by such
-----------
Guarantor of this Supplement and the performance by such
Guarantor of the Supplemented Agreement do not:
(1) contravene such Guarantor's Organic
Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such 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 Supplement has been duly
-------------------
executed and delivered by such Guarantor and this Supplement and
the Supplemented Agreement constitute the legal, valid and
binding obligations of such Guarantor, enforceable against such
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
other Person is required for the due execution, delivery or
performance of this Supplement by such Guarantor.
Section 3. Miscellaneous.
-------------
A. Applicable Law. THIS SUPPLEMENT 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.
B. Headings. The various headings of this Supplement
--------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Supplement or any provision
hereof.
C. Counterparts. This Supplement 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.
D. Severability. Any provision of this Supplement
------------
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 Supplement or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
IN WITNESS WHEREOF, this Supplement has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT, KAISER TRANSACTION CORP.
INC., as Agent
By:/s/Michael J. Jasaitis By:/s/Karen A. Twitchell
Name: Michael J. Jasaitis Name: Karen A. Twitchell
Its: Vice President Its: Treasurer
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM &
CHEMICAL INVESTMENT, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE
CORPORATION CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. KAISER JAMAICA
CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS,
LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell
Its: Treasurer
<PAGE>
EXHIBIT C
SUPPLEMENT TO SUBSIDIARY PLEDGE AGREEMENT
------------------------------------------
THIS SUPPLEMENT TO SUBSIDIARY PLEDGE AGREEMENT (this
"Supplement"), dated as of February 23, 1999, is by and between
----------
Kaiser Transaction Corp., a Delaware corporation (the "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 Fifteenth Amendment (as defined below).
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, the Fourth Amendment
to Credit Agreement, dated as of October 17, 1995, the Fifth
Amendment to Credit Agreement, dated as of December 11, 1995, the
Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
the Seventh Amendment to Credit Agreement, dated as of December
17, 1996, the Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, the Ninth Amendment to Credit Agreement, dated
as of April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, and the Fourteenth Amendment to Credit
Agreement, dated as of December 11, 1998; and
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a
Fifteenth Amendment to Credit Agreement (the "Fifteenth
----------
Amendment"); and
- ----------
WHEREAS, the New Kaiser Subsidiary is required as a
condition to the effectiveness of the Fifteenth Amendment to
execute this Supplement; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Supplement by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Addition of New Kaiser Subsidiary.
---------------------------------
On and after the Fifteenth Amendment Effective Date (as
defined in the Fifteenth Amendment), the New Kaiser Subsidiary
shall be a party 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 Subsidiary.
Section 2. Pledgor's Representations and Warranties.
----------------------------------------
In order to induce the Agent to enter into this
Supplement and to supplement the Subsidiary Pledge Agreement in
the manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, the New Kaiser Subsidiary
represents and warrants as a Pledgor to each Lender and the Agent
that, as of the Fifteenth Amendment Effective Date after giving
effect to the effectiveness of this Supplement, the following
statements are true and correct in all material respects:
A. Authorization of Agreements. The execution and
---------------------------
delivery of this Supplement by such Pledgor and the performance
of the Subsidiary Pledge Agreement as supplemented by this
Supplement (the "Supplemented Agreement") by such Pledgor are
-----------------------
within such Pledgor's corporate powers and have been duly
authorized by all necessary corporate action on the part of such
Pledgor.
B. No Conflict. The execution and delivery by such
-----------
Pledgor of this Supplement and the performance by such Pledgor of
the Supplemented Agreement do not:
(1) contravene such Pledgor's Organic Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such 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 Supplement has been duly
------------------
executed and delivered by such Pledgor and this Supplement and
the Supplemented Agreement constitute the legal, valid and
binding obligations of such Pledgor, enforceable against such
Pledgor 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 Supplement by such Pledgor.
Section 3. Miscellaneous.
---------------
A. Applicable Law. THIS SUPPLEMENT 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.
B. Headings. The various headings of this Supplement
---------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Supplement or any provision
hereof.
C. Counterparts. This Supplement 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.
D. Severability. Any provision of this Supplement
------------
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 Supplement or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, this Supplement has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT, KAISER TRANSACTION CORP.
INC., as Agent
By:/s/Michael J. Jasaitis By:/s/Karen A. Twitchell
Name: Michael J. Jasaitis Name: Karen A. Twitchell
Its: Vice President Its: Treasurer
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM &
CHEMICAL INVESTMENT, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE
CORPORATION CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS,
LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell
Its: Treasurer
<PAGE>
EXECUTION COPY
SUPPLEMENT TO SUBSIDIARY SECURITY AGREEMENT
---------------------------------------------
THIS SUPPLEMENT TO SUBSIDIARY SECURITY AGREEMENT (this
"Supplement"), dated as of February 23, 1999, is by and between
----------
Kaiser Transaction Corp., a Delaware corporation (the "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 Fifteenth Amendment (as defined below).
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, the Fourth Amendment
to Credit Agreement, dated as of October 17, 1995, the Fifth
Amendment to Credit Agreement, dated as of December 11, 1995, the
Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
the Seventh Amendment to Credit Agreement, dated as of December
17, 1996, the Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, the Ninth Amendment to Credit Agreement, dated
as of April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, and the Fourteenth Amendment to Credit
Agreement, dated as of December 11, 1998 (the "Credit
------
Agreement"); and
- ---------
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a
Fifteenth Amendment to Credit Agreement (the "Fifteenth
---------
Amendment"); and
------------
WHEREAS, the New Kaiser Subsidiary is required as a
condition to the effectiveness of the Fifteenth Amendment to
---------
execute this Supplement; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Supplement by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Addition of New Kaiser Subsidiary.
----------------------------------
On and after the Fifteenth Amendment Effective Date (as
---------
defined in the Fifteenth Amendment), the New Kaiser Subsidiary
---------
shall be a party 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 Subsidiary. Schedules I through VI
of the Subsidiary Security Agreement are hereby supplemented to
include the information set forth on Schedules I through VI
hereto with respect to the New Kaiser Subsidiary.
Section 2. Kaiser Subsidiary's Representations and
----------------------------------------
Warranties.
- -----------
In order to induce the Agent to enter into this
Supplement and to supplement the Subsidiary Security Agreement in
the manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, the New Kaiser Subsidiary
represents and warrants as a Kaiser Subsidiary to each Lender and
the Agent that, as of the Fifteenth Amendment Effective Date
after giving effect to the effectiveness of this Supplement, the
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
----------------------------
delivery of this Supplement by such Kaiser Subsidiary and the
performance of the Subsidiary Security Agreement as supplemented
by this Supplement (the "Supplemented Agreement") by such Kaiser
----------------------
Subsidiary are within such Kaiser Subsidiary's corporate powers
and have been duly authorized by all necessary corporate action
on the part of such Kaiser Subsidiary.
B. No Conflict. The execution and delivery by such
-----------
Kaiser Subsidiary of this Supplement and the performance by such
Kaiser Subsidiary of the Supplemented Agreement do not:
(1) contravene such Kaiser Subsidiary's Organic
Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such 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 Supplement has been duly
-------------------
executed and delivered by such Kaiser Subsidiary and this
Supplement and the Supplemented 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 Supplement by such Kaiser Subsidiary, other
than the filing of appropriate financing statements.
Section 4. Miscellaneous.
-------------
A. Applicable Law. THIS SUPPLEMENT 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.
B. Headings. The various headings of this Supplement
---------
are inserted for convenience only and shall not affect the
meaning or interpretation of this Supplement or any provision
hereof.
C. Counterparts. This Supplement 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.
D. Severability. Any provision of this Supplement
------------
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 Supplement or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
IN WITNESS WHEREOF, this Supplement has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT, KAISER TRANSACTION CORP.
INC., as Agent
By:/s/Michael J. Jasaitis By:/s/Karen A. Twitchell
Name: Michael J. Jasaitis Name: Karen A. Twitchell
Its: Vice President Its: Treasurer
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM &
CHEMICAL INVESTMENT, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/Karen A. Twitchell By:Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE
CORPORATION CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS,
LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell
Its: Treasurer
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule I
U.S. Trademarks, Trade Names and Service Marks
As of the Fifteenth Amendment Effective Date, there are no
Trademarks registered in the name of the New Kaiser Subsidiary in
the United States Patent and Trademark Office.
<PAGE>
Supplement to the Subsidiary Security Agreement
-----------------------------------------------
Schedule II
U.S. Patents
As of the Fifteenth Amendment Effective Date, there are no
Patents registered in the name of the New Kaiser Subsidiary in
the United States Patent and Trademark Office.
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule III
Location of Collateral
The chief place of business and the chief executive
office of the New Kaiser Subsidiary as of the Fifteenth Amendment
Effective Date is, and for the four-month period immediately
preceding such date (or such shorter time as such New Kaiser
Subsidiary has been organized) has been, located at 6177 Sunol
Boulevard, Pleasanton, California 94566-7769 or 5847 San Felipe,
Suite 2600, Houston, Texas 77057-3010.
As of the Fifteenth Amendment Effective Date, all of
the current books and records located in the United States of the
New Kaiser Subsidiary, including its records regarding any
Accounts and contracts relating to any Accounts and all
originals, if any, of Chattel Paper and Documents (including all
Documents covering any Goods of such New Kaiser Subsidiary), and
all of the New Kaiser Subsidiary's other books and records,
contracts, Chattel Paper, Equipment, Documents, Inventory, and
other Goods located in the United States (excluding such books
and records, Documents, Equipment, contracts, Chattel Paper,
Inventory, or other Goods which are in transit or which are
otherwise temporarily off such premises in the ordinary course of
such New Kaiser Subsidiary's business) are located at:
6177 SUNOL BOULEVARD
PLEASANTON, CALIFORNIA 94566-7769
(ALAMEDA COUNTY)
5847 SAN FELIPE
SUITE 2600
HOUSTON, TEXAS 77057-3010
(HARRIS COUNTY)
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule IV
Third Party Locations of Collateral
As of the Fifteenth Amendment Effective Date,
Collateral of the New Kaiser Subsidiary may be located at the
following third party locations:
None
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule V
Deposit and Cash Equivalent Investment Accounts
As of the Fifteenth Amendment Effective Date, the New Kaiser
Subsidiary has no deposit accounts or accounts for holding Cash
Equivalent Investments in the United States.
<PAGE>
Supplement to the Subsidiary Security Agreement
------------------------------------------------
Schedule VI
List of Trade Names and Fictitious Business Names
No additional information.
List of Filing Offices
State Office
California Secretary of State
Texas Secretary of State
<PAGE>
EXECUTION COPY
SUPPLEMENT TO SUBSIDIARY GUARANTY
THIS SUPPLEMENT TO SUBSIDIARY GUARANTY (this
"Supplement"), dated as of February 23, 1999, is by and between
Kaiser Transaction Corp., a Delaware corporation (the "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 Fifteenth Amendment (as defined below).
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, the Fourth Amendment
to Credit Agreement, dated as of October 17, 1995, the Fifth
Amendment to Credit Agreement, dated as of December 11, 1995, the
Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
the Seventh Amendment to Credit Agreement, dated as of December
17, 1996, the Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, the Ninth Amendment to Credit Agreement, dated
as of April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, and the Fourteenth Amendment to Credit
Agreement, dated as of December 11, 1998; and
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a
Fifteenth Amendment to Credit Agreement (the "Fifteenth
Amendment"); and
WHEREAS, the New Kaiser Subsidiary is required as a
condition to the effectiveness of the Fifteenth Amendment to
execute this Supplement; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Supplement by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Addition of New Kaiser Subsidiary.
On and after the Fifteenth Amendment Effective Date (as
defined in the Fifteenth Amendment), the New Kaiser Subsidiary
shall be party 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
Subsidiary.
Section 2. Guarantors' Representations and Warranties.
In order to induce the Agent to enter into this
Supplement and to supplement the Subsidiary Guaranty in the
manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, the New Kaiser Subsidiary
represents and warrants as a Guarantor to each Lender and the
Agent that, as of the Fifteenth Amendment Effective Date after
giving effect to the effectiveness of this Supplement, the
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution and
delivery of this Supplement by such Guarantor and the performance
of the Subsidiary Guaranty as supplemented by this Supplement
(the "Supplemented Agreement") by such Guarantor are within such
Guarantor's corporate powers and have been duly authorized by all
necessary corporate action on the part of such Guarantor.
B. No Conflict. The execution and delivery by such
Guarantor of this Supplement and the performance by such
Guarantor of the Supplemented Agreement do not:
(1) contravene such Guarantor's Organic
Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such 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 Supplement has been duly
executed and delivered by such Guarantor and this Supplement and
the Supplemented Agreement constitute the legal, valid and
binding obligations of such Guarantor, enforceable against such
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
other Person is required for the due execution, delivery or
performance of this Supplement by such Guarantor.
Section 3. Miscellaneous.
A. Applicable Law. THIS SUPPLEMENT 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.
B. Headings. The various headings of this Supplement
are inserted for convenience only and shall not affect the
meaning or interpretation of this Supplement or any provision
hereof.
C. Counterparts. This Supplement 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.
D. Severability. Any provision of this Supplement
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 Supplement or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, this Supplement has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT, KAISER TRANSACTION CORP.
INC., as Agent
By:/s/Michael J. Jasaitis By:/s/Karen A. Twitchell
Name: Michael J. Jasaitis Name: Karen A. Twitchell
Its: Vice President Its: Treasurer
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM &
CHEMICAL INVESTMENT,
INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE
CORPORATION CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
ALPART JAMAICA INC. KAISER JAMAICA
CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA
MICROMILLS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell
Its: Treasurer
<PAGE>
EXECUTION COPY
SUPPLEMENT TO SUBSIDIARY PLEDGE AGREEMENT
THIS SUPPLEMENT TO SUBSIDIARY PLEDGE AGREEMENT (this
"Supplement"), dated as of February 23, 1999, is by and between
Kaiser Transaction Corp., a Delaware corporation (the "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 Fifteenth Amendment (as defined below).
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, the Fourth Amendment
to Credit Agreement, dated as of October 17, 1995, the Fifth
Amendment to Credit Agreement, dated as of December 11, 1995, the
Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
the Seventh Amendment to Credit Agreement, dated as of December
17, 1996, the Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, the Ninth Amendment to Credit Agreement, dated
as of April 21, 1997, the Tenth Amendment to Credit Agreement and
Assignment, dated as of June 25, 1997, the Eleventh Amendment to
Credit Agreement and Limited Waivers, dated as of October 20,
1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, and the Fourteenth Amendment to Credit
Agreement, dated as of December 11, 1998; and
WHEREAS, as of the date hereof the Company, the Parent
Guarantor, the Lenders and the Agent are entering into a
Fifteenth Amendment to Credit Agreement (the "Fifteenth
Amendment"); and
WHEREAS, the New Kaiser Subsidiary is required as a
condition to the effectiveness of the Fifteenth Amendment to
execute this Supplement; and
WHEREAS, the Required Lenders have consented to the
execution and delivery of this Supplement by the Agent;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Addition of New Kaiser Subsidiary.
On and after the Fifteenth Amendment Effective Date (as
defined in the Fifteenth Amendment), the New Kaiser Subsidiary
shall be a party 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 Subsidiary.
Section 2. Pledgor's Representations and Warranties.
In order to induce the Agent to enter into this
Supplement and to supplement the Subsidiary Pledge Agreement in
the manner provided herein, and to induce the Required Lenders to
consent to such action by the Agent, the New Kaiser Subsidiary
represents and warrants as a Pledgor to each Lender and the Agent
that, as of the Fifteenth Amendment Effective Date after giving
effect to the effectiveness of this Supplement, the following
statements are true and correct in all material respects:
A. Authorization of Agreements. The execution and
delivery of this Supplement by such Pledgor and the performance
of the Subsidiary Pledge Agreement as supplemented by this
Supplement (the "Supplemented Agreement") by such Pledgor are
within such Pledgor's corporate powers and have been duly
authorized by all necessary corporate action on the part of such
Pledgor.
B. No Conflict. The execution and delivery by such
Pledgor of this Supplement and the performance by such Pledgor of
the Supplemented Agreement do not:
(1) contravene such Pledgor's Organic Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures or the
Subordinated Indenture or contravene any other contractual
restriction where such a contravention has a reasonable
possibility of having a Materially Adverse Effect or contravene
any law or governmental regulation or court decree or order
binding on or affecting such 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 Supplement has been duly
executed and delivered by such Pledgor and this Supplement and
the Supplemented Agreement constitute the legal, valid and
binding obligations of such Pledgor, enforceable against such
Pledgor 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 Supplement by such Pledgor.
Section 3. Miscellaneous.
A. Applicable Law. THIS SUPPLEMENT 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.
B. Headings. The various headings of this Supplement
are inserted for convenience only and shall not affect the
meaning or interpretation of this Supplement or any provision
hereof.
C. Counterparts. This Supplement 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.
D. Severability. Any provision of this Supplement
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 Supplement or
affecting the validity or enforceability of such provisions in
any other jurisdiction.
IN WITNESS WHEREOF, this Supplement has been duly
executed and delivered as of the day and year first above
written.
BANKAMERICA BUSINESS CREDIT, KAISER TRANSACTION CORP.
INC., as Agent
By:/s/ Michael J. Jasaitis By:/s/Karen A. Twitchell
Name: Michael J. Jasaitis Name: Karen A. Twitchell
Its: Vice President Its: Treasurer
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM &
CHEMICAL INVESTMENT,
INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE
CORPORATION CORPORATION
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA
MICROMILLS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/Karen A. Twitchell By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell Name Printed: Karen A.
Twitchell
Its: Treasurer Its: Treasurer
KAISER BELLWOOD CORPORATION
By:/s/Karen A. Twitchell
Name Printed: Karen A. Twitchell
Its: Treasurer
E x e c u t i o n C o p y
SIXTEENTH AMENDMENT TO CREDIT AGREEMENT
---------------------------------------
THIS SIXTEENTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of March 26, 1999, is by and between
---------
KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware
corporation (the "Company"), KAISER ALUMINUM CORPORATION, a
-------
Delaware corporation (the "Parent Guarantor"), the various
----------------
financial institutions that are or may from time to time
become parties to the Credit Agreement referred to below
(collectively, the "Lenders" and, individually, a "Lender"),
------- -------
and BANKAMERICA BUSINESS CREDIT, INC., a Delaware
corporation, as agent (in such capacity, together with its
successors and assigns in such capacity, the "Agent") for
------
the Lenders. Capitalized terms used, but not defined,
herein shall have the meanings given to such terms in the
Credit Agreement, as amended hereby.
W I T N E S S E T H:
WHEREAS, the Company, the Parent Guarantor, the
Lenders and the Agent are parties to the Credit Agreement,
dated as of February 15, 1994, as amended by the First
Amendment to Credit Agreement, dated as of July 21, 1994,
the Second Amendment to Credit Agreement, dated as of March
10, 1995, the Third Amendment to Credit Agreement and
Acknowledgement, dated as of July 20, 1995, the Fourth
Amendment to Credit Agreement, dated as of October 17, 1995,
the Fifth Amendment to Credit Agreement, dated as of
December 11, 1995, the Sixth Amendment to Credit Agreement,
dated as of October 1, 1996, the Seventh Amendment to Credit
Agreement, dated as of December 17, 1996, the Eighth
Amendment to Credit Agreement, dated as of February 24,
1997, the Ninth Amendment to Credit Agreement and
Acknowledgment, dated as of April 21, 1997, the Tenth
Amendment to Credit Agreement and Assignment, dated as of
June 25, 1997, the Eleventh Amendment to Credit Agreement
and Limited Waivers, dated as of October 20, 1997, the
Twelfth Amendment to Credit Agreement, dated as of January
13, 1998, the Thirteenth Amendment to Credit Agreement,
dated as of July 20, 1998, the Fourteenth Amendment to
Credit Agreement, dated as of December 11, 1998, and the
Fifteenth Amendment to Credit Agreement, dated as of
February 23, 1999 (the "Credit Agreement"); and
-----------------
WHEREAS, the parties hereto have agreed to amend
the Credit Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree as
follows:
Section 1. Amendments to Credit Agreement.
-------------------------------
1.1 Amendments to Article I: Definitions and
------------------------------------------
Accounting Terms.
- ----------------
Subsection 1.1 of the Credit Agreement is hereby
--------------
amended by amending the definition of "Minimum Net Worth"
-----------------
contained therein to read in its entirety as follows:
"'Minimum Net Worth' means (a) for each Fiscal
-----------------
Quarter of the Company ending on or prior to
December 31, 1998 (commencing with the Fiscal
Quarter ending September 30, 1996), $500,000,000
plus 50% of Net Income (but not loss) for each
such Fiscal Quarter and (b) for each Fiscal
Quarter of the Company ending after 1998,
$600,000,000 plus 50% of Net Income (but not loss)
for each such Fiscal Quarter."
1.2 Amendments to Article IX: Covenants.
------------------------------------
A. Section 9.2.4(a) of the Credit Agreement is
----------------
hereby amended by deleting the proviso contained therein and
substituting the following therefor: "provided that for
--------
purposes of this Section 9.2.4(a), the calculation of Net
----------------
Worth shall exclude the effect of any non-cash charges, up
to an aggregate amount of $70,000,000, in respect of the
Micromill project, including (without limitation) any write-
down of Micromill project assets located at the Center for
Technology in Pleasanton, California, and at the Micromill
facility near Reno, Nevada."
B. Section 9.2.4(b) of the Credit Agreement is
----------------
hereby amended to read in its entirety as follows:
"(b) Interest Coverage Ratio. The Company shall
not permit the Interest Coverage Ratio (i) for the one
Fiscal Quarter period ending March 31, 1996 to be less
than 1.1 to 1.0, (ii) for the two Fiscal Quarter period
ending June 30, 1996 to be less than 1.2 to 1.0,
(iii) for the three Fiscal Quarter period ending
September 30, 1996 to be less than 0.5 to 1.0, (iv) for
the four Fiscal Quarter period ending December 31, 1996
to be less than 0.3 to 1.0, (v) for the one Fiscal
Quarter period ending June 30, 1997 to be less than 0.2
to 1.0, (vi) for the two Fiscal Quarter period ending
September 30, 1997 to be less than 0.4 to 1.0,
(vii) for the three Fiscal Quarter period ending
December 31, 1997 to be less than 0.6 to 1.0 and
(viii) for the four Fiscal Quarter period ending on the
last day of each of the Fiscal Quarters set forth below
to be less than the correlative ratio indicated:
Date
----
Ratio
-----
First Fiscal Quarter of 1998
0.80 to
1.00
Second Fiscal Quarter of 1998
1.20 to
1.00
Third Fiscal Quarter of 1998
1.60 to
1.00
Fourth Fiscal Quarter of 1998
1.10 to
1.00
First Fiscal Quarter of 1999
No Test
Second Fiscal Quarter of 1999
No Test
Third Fiscal Quarter of 1999
No Test
Fourth Fiscal Quarter of 1999
No Test
First Fiscal Quarter of 2000
0.50 to
1.00
Second Fiscal Quarter of 2000
0.50 to
1.00
Third Fiscal Quarter of 2000
0.50 to
1.00
Fourth Fiscal Quarter of 2000
0.50 to
1.00
First Fiscal Quarter of 2001
0.75 to
1.00
Second Fiscal Quarter of 2001
1.00 to
1.00
; provided that for purposes of calculating the
--------
Interest Coverage Ratio under this Section 9.2.4(b),
----------------
EBITDA shall exclude the effect of any non-cash
charges, up to an aggregate amount of $70,000,000, in
respect of the Micromill project, including (without
limitation) any write-down of Micromill project assets
located at the Center for Technology in Pleasanton,
California, and at the Micromill facility near Reno,
Nevada."
C. Section 9.2.8 of the Credit Agreement is
-------------
hereby amended by deleting the term "$35,000,000"
contained therein and substituting the term
"$45,000,000" therefor.
Section 2. Conditions to Effectiveness.
---------------------------
This Amendment shall become effective as of the
date hereof only when the following conditions shall have
been satisfied and notice thereof shall have been given by
the Agent to the Parent Guarantor, the Company and each
Lender (the date of satisfaction of such conditions and the
giving of such notice being referred to herein as the
"Sixteenth Amendment Effective Date"):
-----------------------------------
A. The Agent shall have received for each Lender
counterparts hereof duly executed on behalf of the Parent
Guarantor, the Company, the Agent and the Required Lenders
(or notice of the approval of this Amendment by the Required
Lenders satisfactory to the Agent shall have been received
by the Agent).
B. The Agent shall have received:
(1) Resolutions of the Board of Directors or
of the Executive Committee of the Board of Directors of the
Company and the Parent Guarantor approving and authorizing
the execution, delivery and performance of this Amendment,
certified by their respective corporate secretaries or
assistant secretaries as being in full force and effect
without modification or amendment as of the date of
execution hereof by the Company or the Parent Guarantor, as
the case may be;
(2) A signature and incumbency certificate
of the officers of the Company and the Parent Guarantor
executing this Amendment;
(3) For each Lender, an opinion, addressed
to the Agent and each Lender, from Kramer Levin Naftalis &
Frankel LLP, in form and substance satisfactory to the
Agent;
(4) Such other information, approvals,
opinions, documents or instruments as the Agent may
reasonably request; and
(5) For the pro rata benefit of the Lenders,
a fee in the amount of $500,000.
Section 3. Company's Representations and
-----------------------------
Warranties.
- ----------
In order to induce the Lenders and the Agent to
enter into this Amendment and to amend the Credit Agreement
in the manner provided herein, the Parent Guarantor and the
Company represent and warrant to each Lender and the Agent
that, as of the Sixteenth Amendment Effective Date, after
giving effect to the effectiveness of this Amendment, the
following statements are true and correct in all material
respects:
A. Authorization of Agreements. The execution
---------------------------
and delivery of this Amendment by the Company and the Parent
Guarantor and the performance of the Credit Agreement as
amended by this Amendment (the "Amended Agreement") by the
------------------
Company and the Parent Guarantor are within such Obligor's
corporate powers and have been duly authorized by all
necessary corporate action on the part of the Company and
the Parent Guarantor, as the case may be.
B. No Conflict. The execution and delivery by
-----------
the Company and the Parent Guarantor of this Amendment and
the performance by the Company and the Parent Guarantor of
the Amended Agreement do not:
(1) contravene such Obligor's Organic
Documents;
(2) contravene the Senior Indenture, the New
Senior Indenture, the Additional New Senior Indentures, or
the Subordinated Indenture or contravene any other
contractual restriction where such a contravention has a
reasonable possibility of having a Materially Adverse Effect
or contravene any law or governmental regulation or court
decree or order binding on or affecting such Obligor or any
of its Subsidiaries; or
(3) result in, or require the creation or
imposition of, any Lien on any of such Obligor's properties
or any of the properties of any Subsidiary of such Obligor,
other than pursuant to the Loan Documents.
C. Binding Obligation. This Amendment has been
-------------------
duly executed and delivered by the Company and the Parent
Guarantor and this Amendment and the Amended Agreement
constitute the legal, valid and binding obligations of the
Company and the Parent Guarantor, enforceable against the
Company and the Parent Guarantor in accordance with their
respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally and by
general principles of equity.
D. Governmental Approval, Regulation, etc. No
---------------------------------------
authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory
body or any other Person is required for the due execution,
delivery or performance of this Amendment by the Company or
the Parent Guarantor.
E. Incorporation of Representations and
-------------------------------------
Warranties from Credit Agreement. Each of the statements
- --------------------------------
set forth in Section 7.2.1 of the Credit Agreement is true
-------------
and correct.
Section 4. Acknowledgement and Consent.
---------------------------
The Company is a party to the Company Collateral
Documents, in each case as amended through the date hereof,
pursuant to which the Company has created Liens in favor of
the Agent on certain Collateral to secure the Obligations.
The Parent Guarantor is a party to the Parent Collateral
Documents, in each case as amended through the date hereof,
pursuant to which the Parent Guarantor has created Liens in
favor of the Agent on certain Collateral and pledged certain
Collateral to the Agent to secure the Obligations of the
Parent Guarantor. Certain Subsidiaries of the Company are
parties to the Subsidiary Guaranty and/or one or more of the
Subsidiary Collateral Documents, in each case as amended
through the date hereof, pursuant to which such Subsidiaries
have (i) guarantied the Obligations and/or (ii) created
Liens in favor of the Agent on certain Collateral. The
Company, the Parent Guarantor and such Subsidiaries are
collectively referred to herein as the "Credit Support
---------------
Parties", and the Company Collateral Documents, the Parent
- -------
Collateral Documents, the Subsidiary Guaranty and the
Subsidiary Collateral Documents are collectively referred to
herein as the "Credit Support Documents".
-------------------------
Each Credit Support Party hereby acknowledges that
it has reviewed the terms and provisions of the Credit
Agreement as amended by this Amendment and consents to the
amendment of the Credit Agreement effected as of the date
hereof pursuant to this Amendment.
Each Credit Support Party acknowledges and agrees
that any of the Credit Support Documents to which it is a
party or otherwise bound shall continue in full force and
effect. Each Credit Support Party hereby confirms that each
Credit Support Document to which it is a party or otherwise
bound and all Collateral encumbered thereby will continue to
guaranty or secure, as the case may be, the payment and
performance of all obligations guaranteed or secured
thereby, as the case may be.
Each Credit Support Party (other than the Company
and the Parent Guarantor) acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by
the terms of the Credit Agreement or any other Loan Document
to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the
Credit Agreement, this Amendment or any other Loan Document
shall be deemed to require the consent of such Credit
Support Party to any future amendments to the Credit
Agreement.
Section 5. Miscellaneous.
--------------
A. Reference to and Effect on the Credit
--------------------------------------
Agreement and the Other Loan Documents.
- --------------------------------------
(1) On and after the Sixteenth Amendment
Effective Date, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof", "herein" or words
of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
(2) Except as specifically amended by this
Amendment, the Credit Agreement and the other Loan Documents
shall remain in full force and effect and are hereby
ratified and confirmed.
B. Applicable Law. THIS AMENDMENT SHALL BE
--------------
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO SUCH LAWS RELATING TO CONFLICTS OF LAWS.
C. Headings. The various headings of this
---------
Amendment are inserted for convenience only and shall not
affect the meaning or interpretation of this Amendment or
any provision hereof.
D. Counterparts. This Amendment may be executed
------------
by the parties hereto in several counterparts and by the
different parties on separate counterparts, each of which
shall be deemed to be an original and all of which shall
constitute together but one and the same instrument;
signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that
all signature pages are physically attached to the same
document.
E. Severability. Any provision of this
------------
Amendment which is prohibited or unenforceable in any
jurisdiction shall, as to such provision and such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions of this Amendment or affecting the
validity or enforceability of such provisions in any other
jurisdiction.
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered as of the day and year first above
written.
KAISER ALUMINUM CORPORATION KAISER ALUMINUM &
CHEMICAL CORPORATION
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS
INC., as Agent CREDIT, INC.
By:/s/Michael J. Jasaitis By:/s/Michael J. Jasaitis
Name: Michael J. Jasaitis Name: Michael J. Jasaitis
Its: Vice President Its: Vice President
BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS
AND SAVINGS ASSOCIATION CREDIT, INC.
By:/s/Michael Balok By:/s/Neal T. Legan
Name Printed: Michael Balok Name Printed:Neal T.
Legan
Its: Managing Director Its: Vice President
CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC.
(WESTERN)
By:/s/Kristine Metchikian By:/s/T. Bukowski
Name Printed: Kristine Metchikian Name Printed: T. Bukowski
Its: Vice President Its:Senior Vice President
LA SALLE NATIONAL BANK TRANSAMERICA BUSINESS
CREDIT CORPORATION
By:/s/Douglas C. Colletti By:/s/R. L. Heinz
Name Printed:Doublas C. Colletti Name Printed:R. L. Heinz
Its: First Vice President Its:Senior Vice President
ABN AMRO BANK N.V.
San Francisco International Branch
By: ABN AMRO North America,
Inc., as agent
By: /s/Michael M. Tolentino
Name Printed: Michael M. Tolentino
Its: Vice President
By: /s/Jeffrey A. French
Name Printed: Jeffrey A. French
Its: Group Vice President
<PAGE>
ACKNOWLEDGED AND AGREED TO:
AKRON HOLDING CORPORATION KAISER ALUMINUM &
CHEMICAL INVESTMENT, INC.
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL
INC. SERVICES, INC.
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM
INTERNATIONAL, INC.
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
KAISER ALUMINA AUSTRALIA KAISER FINANCE
CORPORATION CORPORATION
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
ALPART JAMAICA INC. KAISER JAMAICA
CORPORATION
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
KAISER BAUXITE COMPANY KAISER EXPORT COMPANY
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA
MICROMILLS, LLC
By:/s/Ronald L. Reman By:/s/David A. Cheadle
Name Printed: Ronald L. Reman Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL
LLC HOLDINGS, LLC
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
KAISER BELLWOOD CORPORATION KAISER TRANSACTION CORP.
By:/s/David A. Cheadle By:/s/David A. Cheadle
Name Printed: David A. Cheadle Name Printed: David A.
Cheadle
Its: Assistant Treasurer Its: Assistant Treasurer
July 27, 1998
Mr. John H. Walker
17908 N. Saddlehill
Colbert, WA 99005
Dear John:
I am pleased to inform you that you have been selected for
coverage under the Enhanced Severance Protection and Change of
Control Benefits Program ("Plan") for selected corporate
officers.
As you know, Kaiser Aluminum is pursuing a strategy that could
lead to various forms of corporate restructuring. In that
connection, the Plan was developed and is being made available to
selected key officers. The purposes of the Plan include all of
the following:
o Retention of top-performers and those with critical
skills both pre and post restructuring;
o Provision of appropriate protection to business unit
management in the event of job loss and/or a change of
control,1 and
o Maintenance of focus by management on key goals and
maintenance of overall energy level through a potentially
distracting period.
This letter sets forth the basic provisions of the Plan which,
subject to the limits explained below, is being offered to you in
conjunction with other benefits that otherwise may be payable to
you under the Kaiser Aluminum Termination Payment and Benefits
Plan Continuation Policy ("Policy"). For example, if you become
eligible for 6 months under the enhanced severance part of the
Plan and you already have earned 3 months severance under the
Policy, you would receive 3 months severance from the Policy and
3 months severance from the Plan.
The Plan will be in effect through the end of the 2000 calendar
year, unless earlier amended or terminated by the Compensation
Committees or Boards of Directors of Kaiser Aluminum Corporation
and Kaiser Aluminum & Chemical Corporation. No amendment or
termination of the Plan will adversely affect your right to
receive benefits provided under the Plan without your written
consent. After the year 2000, management will determine the need
for any other protection or enhanced severance programs.
- ------------
1 See page 3 for definition of "change of control".
- ------------
Enhanced Severance Protection
- -----------------------------
Under the enhanced severance protection features of the Plan, you
will qualify for such severance benefits if you are terminated
for any reason except for the following exclusions:
1. You voluntarily resign or retire.
2. You are discharged for serious cause or other reason
prejudicial to Kaiser Aluminum.
3. You are eligible for sick leave, LTD or KRP full early
disability benefits. Or, you were eligible for sick
leave or LTD benefits and (i) you did not report back to
work immediately after your eligibility for such
benefits ceased, or (ii) you were not medically released
to work at the time such benefits ceased.
4. You refuse to accept another suitable position with
Kaiser Aluminum. Suitability is determined in
accordance with guidelines established from time to time
by the personnel policy committee.
5. You terminate employment on account of death.
In the event that your employment terminates and you qualify for
enhanced severance protection under the Plan, such benefits will
be as follows:
o 12 months base salary,
o Prorated incentive awards (prorated incentive target for
all short and long term incentive programs in progress
at termination).
o Continuation of your coverage under medical, dental,
life and AD&D coverage by Kaiser Aluminum2 as if your
employment had continued uninterrupted for up to 12
months. You must continue to pay your monthly medical
and life insurance contributions (if any) for this
coverage to remain in effect.
o Continued use of your company car for the number of the
severance months. However, Kaiser Aluminum reserves the
right to offer you a reasonable cash buyout for any time
remaining, should the company decide to eliminate the
leased car program.
Change of Control
- -----------------
In the event that your employment terminates or constructively
terminates (described below), due to a change of control or
significant restructuring, during a period which commences ninety
(90) days prior to a change of control or significant
restructuring and ends on the first anniversary of
- ------------
2 As you will not actually be an active employee, your
coverage under the cafeteria plan, spending accounts for medical
and dependent care expense reimbursement and the LTD Plan will
cease. Your eligibility for COBRA coverage will commence after
the medical continuation benefits cease, and the medical
continuation period is subtracted from your COBRA eligibility
period.
- ------------
such change of control or significant restructuring, in lieu of
the enhanced severance protection benefits described above, you
will qualify for change of control benefits.
Change of control or significant restructuring is defined as: The
transfer of all or part of the assets of, or the merger,
consolidation or reorganization of, Kaiser Aluminum to or with
another organization or the transfer of all or part of the stock
of Kaiser Aluminum to another organization.
These benefits are payable as described below, if you are
terminated or constructively terminated due to a change of
control or significant restructuring, except for the following
exclusions:
1. The purchaser or new controlling entity or Kaiser
Aluminum offers you suitable employment in substantially
the same capacity and at your current level of
compensation. This exception will apply regardless of
whether you accept or reject the suitable position.
2. You voluntarily resign or retire.
3. You are discharged for serious cause or other reason
prejudicial to Kaiser Aluminum.
4. You are eligible, within the 90 days prior to a change
of control, for sick leave, LTD or KRP full early
disability benefits. Or, you were eligible for sick
leave or LTD benefits and (i) you did not report back to
work immediately after your eligibility for such
benefits ceased, or (ii) you were not medically released
to work at the time such benefits ceased.
5. You terminate employment on account of death.
The change of control benefits under the Plan will be as follows:
o 24 months base salary,
o Prorated incentive awards (prorated incentive target for
all short and long term incentive programs in progress at
termination).
o Continuation of your coverage under medical, dental, life
and AD&D coverage by Kaiser Aluminum3 as if your
employment had continued uninterrupted for up to 24
months. You must continue to pay your monthly medical
and life insurance contributions (if any) for this
coverage to remain in effect.
- ------------
3 As you will not actually be an active employee, your
coverage under the cafeteria plan, spending accounts for medical
and dependent care expense reimbursement and the LTD Plan will
cease. Your eligibility for COBRA coverage will commence after
the medical continuation benefits cease, and the medical
continuation period is subtracted from your COBRA eligibility
period.
- ------------
o Continued use of your company car for the number of the
severance months. However, Kaiser Aluminum reserves the
right to offer you a reasonable cash buyout for any time
remaining, should the company decide to eliminate the
leased car program.
For purposes of the Plan, you will be deemed to be constructively
terminated if:
o You are demoted, suffer a substantial reduction of
position responsibilities or a substantial change in
reporting responsibilities or reporting level;
o You are relocated more than fifty (50) miles from your
present office location, except for a promotion and / or
mutually agreed transfer; or
o You suffer a reduction of your base salary and / or
total incentive opportunity.
Payments of base salary and prorated incentive awards under the
Plan shall be made (net of withholding for federal, state and
local taxes) in a single sum in cash within thirty (30) days
following your termination or constructive termination of
employment. You will be responsible for timely payment of any
additional taxes that may be due on the benefits received under
the Plan. Should you feel that you have reason to contest any
settlement under the Plan, you may do so by following the same
procedures as apply to the Company's other severance pay plans,
as such claims procedures are incorporated in the Plan by this
reference.
Kaiser Aluminum shall have the sole discretion to determine which
employees shall participate in the Plan and their level of
participation. Kaiser Aluminum also has the authority to
construe, interpret and implement the Plan (including the right
to make factual determinations) and to make rules and otherwise
administer the Plan, and its determination on any matter relating
to the Plan shall be conclusive and binding on all interested
persons. To the extent not preempted by federal law, the Plan
shall be construed in accordance with and governed by the laws of
the State of Texas.
As part of your enhanced severance and benefit eligibility under
the Plan for the one year period following the termination of
your employment, you shall not, without prior written consent of
Kaiser Aluminum, directly or indirectly engage in the business of
developing products competitive with Kaiser Aluminum within the
United States of America or any other geographical area served by
Kaiser Aluminum. Nor will you engage, within this geographical
area, in the design, development, distribution, manufacture,
assembly or sale of a product or service in competition with any
product or service currently marketed or planned by Kaiser
Aluminum to the extent such activity would reveal the plans,
designs or specifications disclosed to you by Kaiser Aluminum.
This paragraph does not restrict your ownership of securities in
any enterprise or participation in the management of any non-
Kaiser competitive aspect of any enterprise. By signing this
letter in the space provided, you acknowledge that these
prohibitions are both reasonable as to time, geographical area
and scope of activity and do not impose a restriction greater
than is necessary to protect Kaiser Aluminum's good will,
proprietary information and business interests. Additionally,
your signature below acknowledges your continued commitment to
abide by the terms of paragraphs 2, 3, 4, 5, 6 and 7 of your
Employment Agreement as well as the Corporate Code of Business
conduct and Accompanying Compliance Manuals. If you have any
questions concerning your obligations under either of these
documents, please let me know.
Participation in the Plan will not give rise to any right to
continued employment, shall not in any way prohibit changes in
the terms of your employment and shall not in any way limit the
right of Kaiser Aluminum to terminate your employment at any time
for any reason with or without stating a reason.
Kaiser Aluminum may assign its rights and obligations hereunder.
In such event, such rights and obligations shall inure to the
benefit of and shall be binding upon the successors and assigns
of Kaiser Aluminum. Your rights and obligations hereunder are
personal, and such rights and obligations shall not be subject to
voluntary or involuntary assignment or other transfer by you and
any attempted alienation, assignment or other transfer of your
rights or obligations hereunder shall be void and without effect.
I congratulate you on your selection to participate in the Plan.
It indicates your importance to the performance of Kaiser
Aluminum. I would also like to thank you for your dedicated
service and contribution to the past success of Kaiser Aluminum,
and look forward to your continued contribution.
If you have any questions regarding the Plan, please feel free to
discuss them with me, or call Bill Edgley, Director, Corporate
Human Resources. If the foregoing is acceptable, please indicate
your acceptance by signing the duplicate copy of this letter and
returning the signed copy to the attention of Bill Edgley at
Kaiser Aluminum, 6177 Sunol Blvd., Pleasanton, CA 94566.
Sincerely,
/s/Ray Milchovich
Ray Milchovich
President and Chief Operating Officer
AGREED TO AND ACCEPTED BY:
/s/ John H. Walker
- -----------------------------------
Printed Name:John H. Walker
----------------------
Title: President, FRP
-----------------------------
Dated: 9/30/98
------------------------------
Walkerjh.doc
PERFORMANCE-ACCELERATED STOCK OPTION GRANT
PURSUANT TO THE KAISER
1997 OMNIBUS STOCK INCENTIVE PLAN
1. Grant of Stock Option. Kaiser Aluminum Corporation ("KAC")
---------------------
and Kaiser Aluminium & Chemical Corporation ("KACC"), both
Delaware corporations (collectively, the "Company"), hereby
evidence that the Company has granted to George T. Haymaker, Jr.
("Optionee") the right, privilege and option as herein set forth
(the "Stock Option") to purchase up to 386,000 shares of common
stock, $.01 par value per share, of KAC (as more fully defined in
Attachment A - "Definitions Applicable to Certain Terms", which
- ------------
is incorporated herein and made a part hereof, the "Option
Shares") in accordance with the terms of this document (this
"Stock Option Grant").
The Stock Option is granted pursuant to the Kaiser 1997 Omnibus
Stock Incentive Plan (the "Plan") and is subject to the
provisions of the Plan, a copy of which has been furnished to
Optionee and which is hereby incorporated in and made a part of
this Stock Option Grant, as well as to the provisions of this
Stock Option Grant. By acceptance of the Stock Option, Optionee
agrees to be bound by all of the terms, provisions, conditions
and limitations of the Plan and this Stock Option Grant.
All capitalized terms used herein shall have the meanings
provided in the Plan document unless otherwise specifically
provided in this Stock Option Grant, including Attachment A. The
-------------
Stock Option is a Nonqualified Stock Option under the Plan and is
not intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
All Option Shares, when issued to Optionee upon the exercise of
this Stock Option, shall be fully paid and nonassessable.
2. Option Term. Subject to earlier termination as provided
-----------
herein, or in the Plan, the Stock Option shall expire on January
1, 2007. The period during which the Stock Option is in effect
shall be referred to as the "Option Period".
3. Option Exercise Price. The exercise price per Option Share
---------------------
(including any Attributable Securities, as defined in Attachment
----------
A) (the "Option Price") at which Optionee may purchase such
- --
Option Shares subject to the Stock Option shall be equal to the
remainder of (i) $12.00 per Option Share minus (ii) the amount
per Option Share of Distributed Cash Value (as defined in
Attachment A) determined as of the date of exercise. Such Option
- ------------
Price shall also be subject to adjustment as provided in the Plan
and this Stock Option Grant. The Company shall notify Optionee
within thirty (30) days of each change in the Option Price.
4. Conditions to Exercise. The Stock Option may be exercised
----------------------
during the Option Period only after it has become "Effective".
For purposes of the preceding sentence, the Stock Option shall
become "Effective": (i) if Performance Hurdle Achievement (as
defined in Attachment A) occurs before March 1, 2001, then on the
------------
date Performance Hurdle Achievement occurs; (ii) if Performance
Hurdle Achievement does not occur before March 1, 2001, then on
January 1, 2007 provided Optionee's Employment has not terminated
prior to January 1, 2007; or (iii) if a Company Sale Transaction
(as defined in Attachment A) occurs during Optionee's Qualified
-------------
Service Period (as defined in Attachment A), then on the date of
------------
consummation of such Company Sale Transaction.
In addition, notwithstanding the foregoing, the Stock Option may
not be exercised as to more than one-half of the total number of
Option Shares prior to the earlier of March 1, 2001 or the
occurrence of a Company Sale Transaction.
5. Method of Exercise. To exercise the Stock Option, Optionee
------------------
shall deliver written notice to the Company stating the number of
Option Shares with respect to which the Stock Option is being
exercised together with payment for such Option Shares. Payment
shall be made (i) in cash or its equivalent, (ii) by tendering
previously acquired Shares having an aggregate Fair Market Value
(as defined in the Plan) at the time of exercise equal to the
total Option Price (provided that the Shares which are tendered
must have been held by Optionee for at least six months prior to
their tender to satisfy the Option Price) or (iii) by a
combination of (i) and (ii).
6. Termination of Optionee's Employment. Termination of
------------------------------------
Optionee's employment as a regular full-time salaried employee of
KAC, a Subsidiary (as defined in Attachment A), or any branch,
------------
unit or division of KAC or any Subsidiary ("Employment") prior to
March 1, 2001 shall affect Optionee's rights under the Stock
Option as follows:
(a) Termination by the Company for Cause. If Optionee's
Employment is terminated by the Company at any time for Cause,
then (i) the Option Period shall terminate and (ii) Optionee's
right to exercise the Stock Option shall terminate, in each case
immediately upon Optionee's becoming subject to termination of
Employment for Cause. Optionee shall be terminated for "Cause"
if terminated as a result of Optionee's breach of Optionee's
written employment or other engagement agreement, or if the Board
of Directors determines that Optionee is being terminated as a
result of misconduct, dishonesty, disloyalty, disobedience or
action that might reasonably be expected to injure KAC or any
Subsidiary or their business interests or reputation.
(b) Termination by the Company Other than for Cause. If
Optionee's Employment is terminated by the Company prior to March
1, 2001 other than for Cause, then (i) the Stock Option and the
Option Period shall not terminate and (ii) the Stock Option shall
thereafter be exercisable as to all Option Shares, but only
during the period from the date the Stock Option becomes
Effective through and including September 1, 2001; provided,
however, that such exercise may not occur after 6 months from the
date on which Performance Hurdle Achievement occurs, if
applicable.
(c) Employment Agreement Termination. If Optionee terminates
Optionee's Employment at the expiration of Optionee's Employment
Agreement (December 5, 1999), or at any time within the month of
expiration (December 1999), then (i) the Stock Option and the
Option Period shall not terminate and (ii) the Stock Option shall
thereafter be exercisable as to all Option Shares, but only
during the period from the date the Stock Option becomes
Effective through and including September 1, 2001; provided,
however, that such exercise may not occur after 6 months from the
date on which Performance Hurdle Achievement occurs, if
applicable.
(d) Other Termination. If Optionee's Employment terminates
prior to March 1, 2001 for any reason other than those set forth
in Paragraph 6(a), Paragraph 6(b) and Paragraph 6(c), then (i)
the Stock Option and the Option Period shall not terminate but
(ii) the Stock Option shall thereafter be exercisable only if the
Stock Option has become Effective as of the date of termination
of Employment and then only during the period from the date the
Stock Option becomes Effective through and including September 1,
2001; provided, however, that such exercise may not occur after 6
months from the date on which Performance Hurdle Achievement
occurs, if applicable.
(e) Death or Disability. The Stock Option may be exercised by
Optionee or, in the case of death, by the executor or
administrator of Optionee's estate, or the person or persons to
whom Optionee's rights under the Stock Option shall pass by will
or by the applicable laws of descent and distribution, or in the
case of Disability, by Optionee's personal representative.
7. Reorganizations; Repurchase of Stock Option.
-------------------------------------------
(a) Freedom to Reorganize the Company and Subsidiaries. The
existence of the Stock Option shall not affect in any way the
right or power of the Company and its Subsidiaries or the issuers
of Attributable Securities or its or their stockholders to make
or authorize any and all Distributions Events (as defined in
Attachment A) and any and all other adjustments,
- -------------
recapitalizations, reorganizations or other changes in the
capital structure or business of the Company or its Subsidiaries
or the issuers of Attributable Securities, any and all issuances
of bonds, debentures, common stock, preferred or prior preference
stock, warrants, rights or other securities, whether or not
affecting the Option Shares or the rights thereof, any
dissolution or liquidation of the Company or any Subsidiary or
any issuer of Attributable Securities, any sale or other
divestiture or transfer of all or any part of the assets or
business of the Company or any Subsidiary or any issuer of
Attributable Securities (including any Company Sale Transaction)
and any and all other corporate acts or proceedings, whether of a
similar character or otherwise (collectively, including any
Distribution Events and any Company Sale Transaction,
"Reorganizations").
(b) Spin-Offs. If the Board of Directors authorizes any
Distribution Event or other Reorganization as a result of which
holders of Shares (as defined in Attachment A) become entitled,
-------------
in their capacities as holders, to receive Marketable Securities,
the Board of Directors shall, to the extent reasonably
practicable, cause the Company to provide for or require:
(i) that the issuer(s) of such Marketable Securities shall
undertake to issue and deliver to Optionee, upon any subsequent
exercise of the Stock Option, such Marketable Securities as
Optionee would have received if Optionee had so exercised the
Stock Option prior to such Distribution Event or other
Reorganization and had participated therein (and in any and all
subsequent Distribution Events or other Reorganizations) to the
maximum extent allowed to holders of Shares (including any
Attributable Securities) outstanding at the time of such
Distribution Event or other Reorganization; (ii) that such
Marketable Securities shall be so issued and delivered to
Optionee pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or otherwise free of any
restriction on resale thereof by Optionee, other than any
restriction on resale arising from Optionee's being an Affiliate
or Insider (as such terms are defined in the Plan) of such
issuer; (iii) that such Marketable Securities shall be so issued
and delivered without any agreement, condition, payment or other
consideration being required of Optionee or the Company;
(iv) that such issuer(s) shall at all times reserve for issuance
a sufficient amount of such Marketable Securities to fulfill all
obligations contemplated hereunder; and (v) that upon each such
issuance, such Marketable Securities shall be duly authorized,
validly issued, fully paid and nonassessable. The Company shall
also provide for or require that: (x) in the event any such
issuer shall fail or be unable to issue and deliver to Optionee
any Marketable Securities as provided in the preceding sentence,
such issuer shall be obligated, in lieu of issuing and delivering
such Marketable Securities, to pay to Optionee in cash,
immediately upon exercise of the Stock Option, the Market Value
of such Marketable Securities determined as of the date of
exercise of the Stock Option; and (y) in the event the Company is
obligated to make a cash payment to Optionee pursuant to
Paragraph 8(b), such issuer shall be obligated to reimburse the
Company for a part of such payment proportionate to the
Distributed Cash Value attributable to Attributable Securities of
such issuer compared to the total amount of Distributed Cash
Value.
(c) Right to Repurchase Stock Option. Upon receipt of a notice
of exercise, the Company shall have the right but not the
obligation to repurchase, and thereby to satisfy all of the
Company's obligations under, the Stock Option as to the number of
Option Shares for which the Stock Option is exercised by paying
Optionee in cash an amount, net of any taxes required to be
withheld, equal to the sum of (A) the product of (i) the number
of Option Shares as to which the Stock Option is exercised
multiplied by (ii) the amount, determined as of such date of
exercise, equal to the remainder of (x) the Market Value of one
Option Share minus (y) the Option Price plus (B) the amount of
cash, if any, payable to Optionee pursuant to Paragraph 8(b).
8. Adjustments.
-----------
(a) In the event of any one or more Distribution Events or other
Reorganizations affecting the Stock Option and not already
adjusted for under Paragraph 7, the Option Price and the number
of Option Shares subject to the Stock Option shall be
appropriately adjusted by the Board of Directors. In addition,
the Board of Directors shall, as permitted by Section 3.2,
Section 16.2 and other provisions of the Plan, construe and
interpret the Plan and this Stock Option Grant and make all
appropriate adjustments in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be
made available to Optionee under this Stock Option Grant and the
Plan.
(b) Without limitation to the foregoing, in the event that the
amount of Distributed Cash Value as of any date of exercise of
the Stock Option is equal to or greater than $12.00 per Option
Share, the Option Price shall be deemed to be $.01 per Option
Share and the Company, in addition to issuing Option Shares to
Optionee, shall pay to Optionee in respect of each Option Share
as to which the Stock Option is exercised an amount of cash equal
to the remainder of (i) such amount of Distributed Cash Value per
Option Share minus (ii) $12.00.
9. No Rights in Option Shares. Optionee shall have no rights
--------------------------
as a stockholder in respect of Option Shares until such Optionee
becomes the holder of record of such Option Shares.
10. Option Shares Reserved. The Company shall at all times
----------------------
during the Option Period reserve and keep available such number
of Shares as will be sufficient to satisfy the requirements of
this Stock Option.
11. Nontransferability of Stock Option. The Stock Option
----------------------------------
granted pursuant to this Stock Option Grant is not transferable
other than by will, the laws of descent and distribution or by
qualified domestic relations order. The Stock Option will be
exercisable during Optionee's lifetime only by Optionee or by
Optionee's guardian or legal representative. No right or benefit
hereunder shall in any manner be liable for or subject to any
debts, contracts, liabilities, or torts of Optionee.
12. Amendment and Termination. No amendment or termination of
-------------------------
the Stock Option shall be made by the Board of Directors or the
Committee (as defined in the Plan) at any time without the
written consent of Optionee. No amendment of the Plan will
adversely affect the rights, privileges and options of Optionee
under the Stock Option without the written consent of Optionee.
13. No Guarantee of Employment. The Stock Option shall not
--------------------------
confer upon Optionee any right with respect to continuance of
Employment or other service with the Company or any Subsidiary or
Affiliate, nor shall it interfere in any way with any right the
Company or any Subsidiary or Affiliate would otherwise have to
terminate such Optionee's Employment or other service at any
time.
14. Withholding of Taxes. The Company shall have the right to
--------------------
deduct or withhold, or require Optionee to remit to the Company,
an amount sufficient to satisfy all federal, state and local
taxes, domestic or foreign, required by law or regulation to be
withheld with respect to any taxable event arising under this
Stock Option Grant or any exercise or other action or event
hereunder.
15. No Guarantee of Tax Consequences. Neither the Company nor
any Subsidiary or Affiliate, nor the Board of Directors or any
Committee, makes any commitment or guarantee that any federal or
state tax treatment will apply or be available to any person
eligible for benefits under the Stock Option.
16. Severability. In the event that any provision of the Stock
------------
Option shall be held illegal, invalid, or unenforceable for any
reason, such provision shall be fully severable, but shall not
affect the remaining provisions of the Stock Option, and the
Stock Option shall be construed and enforced as if the illegal,
invalid, or unenforceable provision had never been included
herein.
17. Governing Law. The Stock Option shall be construed in
-------------
accordance with the laws of the State of Texas to the extent
federal law does not supersede and preempt Texas law.
Executed December 23, 1998, and effective as of the 1st day of
January, 1998.
"COMPANY"
KAISER ALUMINUM CORPORATION
By: /s/ E. Bruce Butler
Printed Name: E. Bruce Butler
Title: Vice President and General
Counsel
KAISER ALUMINUM & CHEMICAL CORPORATION
By: /s/ E. Bruce Butler
Printed Name: E. Bruce Butler
Title: Vice President and General Counsel
Accepted December 24, 1998, and effective as of the 1st day
of January, 1998.
"OPTIONEE"
/s/ George T. Haymaker, Jr.
Printed Name: George T. Haymaker, Jr.
Title: Chief Executive Officer
<PAGE>
ATTACHMENT A
Performance-Accelerated Stock Option Grant
Definitions Applicable to Certain Terms
"Affiliate" see Section 2.1 of the Plan.
"Attributable Securities" see the definition of "Option Share".
"Cause" see Paragraph 6(b) of this Stock Option Grant.
"Change in Control" means a change in control of KAC that would
be required to be reported in response to item 6(e) of Schedule
14A of Regulation 14A under the Securities Exchange Act of 1934,
as amended, assuming such Schedule, Regulation and Act were
applicable to KAC as in effect on April 15, 1998.
"Company Sale Transaction" means (a) a transaction in which KAC
or KACC (if KACC is a Subsidiary of KAC immediately prior to such
transaction) (i) sells or otherwise disposes of all or
substantially all of its business or operating assets (other than
to one or more Subsidiaries) or (ii) merges or consolidates with
another entity and as a result of consummation of such merger or
consolidation a Change in Control occurs, (b) a tender offer,
exchange offer or other transaction in which all holders of
Shares have the right to receive cash, securities or other
property in respect of their Shares and as a result of
consummation of such transaction a Change in Control occurs or
(c) a transaction determined by the Board of Directors to be
similar or substantially equivalent to a transaction contemplated
by clause (a) or clause (b) of this sentence.
"Disability" see Section 2.12 of the Plan.
"Distributed Cash Value" means, as of any determination date, the
aggregate amount of cash (other than regular quarterly cash
dividends, if any) plus the aggregate value, as determined by the
Board of Directors as of the date of distribution, of all
property (other than cash and Attributable Securities)
distributed or set aside for distribution to the holder of one
Original Share and all Attributable Securities, if any, during
the period commencing January 1, 1998 and ending on the
determination date.
"Distribution Events" means any and all distributions, dividends,
recapitalizations, forward or reverse splits, reorganizations,
mergers, consolidations, spin-offs, combinations, repurchases,
share exchanges, or other similar or substantially equivalent
corporate transactions or events in which the holder of a
security becomes, as such, entitled to receive cash, securities
or other property in addition to or in exchange for or upon
conversion of such security.
"Effective" see Paragraph 4 of this Stock Option Grant.
"Employment" see Paragraph 6 of this Stock option Grant.
"Insider" see Section 2.19 of the Plan.
"KAC" see Paragraph 1 of this Stock Option Grant.
"KACC" see Paragraph 1 of this Stock Option Grant.
"Market Value" means, as of any Trading Day, the average of the
highest and lowest sales prices as reported by the consolidated
tape (or, if such prices are not quoted, the average of the
quoted closing bid and asked prices) on such Trading Day for one
Option Share (including, as applicable, the Market Values of any
Attributable Securities). In the event that sales prices or
closing bid and asked prices are not quoted on a particular
Trading Day, the Market Value for that Trading Day shall be
deemed to be the Market Value for the immediately preceding
Trading Day. In the event that any Attributable Security shall
cease to be a Marketable Security, it shall thereupon be deemed
to have no further Market Value and shall be deemed instead to
have, as of the date it ceases to be a Marketable Security, such
Distributed Cash Value as shall be determined by the Board of
Directors.
"Marketable Securities" means securities (a) of a class that is
registered under the Securities Exchange Act of 1934, as amended,
(b) for which sales prices or bid and asked prices are regularly
quoted and (c) that, if issued and delivered to Optionee upon
exercise of the Stock Option, would not be subject to any
restriction on resale, other than any restriction arising from
Optionee's being an Affiliate or Insider (as such terms are
defined in the Plan) of the issuer of such Marketable Securities.
"Option Period" see Paragraph 2 of this Stock Option Grant.
"Option Price" see Paragraph 3 of this Stock Option Grant.
"Option Share" means (a) one Share as constituted on January 1,
1998 (an "Original Share") and (b) in the event of any one or
more successive Distribution Events, all Marketable Securities
("Attributable Securities") into which or for which an Original
Share or any Attributable Securities may be converted or
exchanged or that a Stockholder may have the right to receive in
respect of such Original Share or Attributable Securities.
"Optionee" see Paragraph 1 of this Stock Option Grant.
"Original Share" see the definition of "Option Share".
"Performance Hurdle Achievement" occurs if, as of any date prior
to January 1, 2001, the Performance Measure is equal to or
greater than the remainder of (a) $18 minus (b) the Distributed
Cash Value amount.
"Performance Measure" means as of any time, the sum of (a) the
Share Performance Value plus (b) the Distributed Cash Value
amount.
"Plan" see Paragraph 1 of this Stock Option Grant.
"Qualified Service Period" means the period from and including
January 1, 1998 through and including the earlier of (a) December
31, 2000 or (b) the date immediately preceding the date of
termination of Optionee's Employment; provided, however, that if
-------- --------
Optionee's Employment has not terminated prior to the date that a
proposed Company Sale Transaction is announced by KAC and such
Company Sale Transaction is subsequently consummated, then
Optionee's Qualified Service Period shall be deemed to continue
through, and end on, the date of consummation of such Company
Sale Transaction unless, prior to the date of consummation of
such Company Sale Transaction, Optionee's Employment is
terminated by the Company for Cause or is terminated by Optionee
other than pursuant to Paragraph 6(c) of this Stock Option Grant.
"Reorganization" see Section 7(a) of this Stock Option Grant.
"Share" means one share of common stock, par value $.01 per
share, of KAC.
"Share Performance Value" means, as of any determination date,
the lesser of (a) the Market Value of one Option Share
(including, as applicable, the Market Value of any Attributable
Securities) determined as of the Trading Day immediately
preceding the determination date or (b) the average of the Market
Values of one Option Share (including, as applicable, the average
of the Market Values of any Attributable Securities) for the 40
consecutive Trading Days ended on the Trading Day immediately
preceding the determination date; provided, however, that, for
-------- -------
purposes of calculating Share Performance Value, (i) no Trading
Days shall be deemed to occur during the period commencing on the
day that a proposed Company Sale Transaction is announced by KAC
and ending on the day immediately preceding the date of
consummation or termination of the proposed Company Sale
Transaction, but (ii) 40 consecutive Trading Days shall be deemed
to occur simultaneously on and as of the Trading Day immediately
preceding the date of consummation of such Company Sale
Transaction; and provided further, that in the event an
-------- -------
Attributable Security has been trading for less than 40
consecutive Trading Days prior to the applicable determination
date, then the calculation pursuant to clause (b) above shall be
made as to such Attributable Security for such lesser number of
consecutive Trading Days that such Attributable Security has been
trading.
"Stock Option" see Paragraph 1 of this Stock Option Grant.
"Subsidiary" see Section 2.32 of the Plan. For avoidance of
doubt, KACC shall be considered a Subsidiary of KAC so long as
KAC has a majority voting interest in KACC, and KAC shall be
considered to have a majority voting interest whether it holds
such interest directly or indirectly through one or more
Subsidiaries.
"Trading Day" means as to an Option Share (including any
Attributable Securities) a day when the New York Stock Exchange
(or other principal securities exchange, including Nasdaq, on
which such securities are traded) is open.
TIME-BASED STOCK OPTION GRANT
PURSUANT TO THE KAISER
1997 OMNIBUS STOCK INCENTIVE PLAN
1. Grant of Stock Option. Kaiser Aluminum Corporation ("KAC")
----------------------
and Kaiser Aluminum & Chemical Corporation ("KACC"), both
Delaware corporations (collectively, the "Company"), hereby
evidence that the Company has granted to GEORGE T. HAYMAKER JR.
("Optionee") the right, privilege and option as herein set forth
(the "Stock Option") to purchase up to 283,000 shares of common
stock, $.01 par value per share, of KAC (as more fully defined in
Attachment A "Definitions Applicable to Certain Terms", which
------------
is incorporated herein and made a part hereof, the "Option
Shares") in accordance with the terms of this document (this
"Stock Option Grant").
The Stock Option is granted pursuant to the Kaiser 1997 Omnibus
Stock Incentive Plan (the "Plan") and is subject to the
provisions of the Plan, a copy of which has been furnished to
Optionee and which is hereby incorporated in and made a part of
this Stock Option Grant, as well as to the provisions of this
Stock Option Grant. By acceptance of the Stock Option, Optionee
agrees to be bound by all of the terms, provisions, conditions
and limitations of the Plan and this Stock Option Grant.
All capitalized terms used herein shall have the meanings
provided in the Plan document unless otherwise specifically
provided in this Stock Option Grant, including Attachment A. The
-------------
Stock Option is a Nonqualified Stock Option under the Plan and is
not intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
All Option Shares, when issued to Optionee upon the exercise of
this Stock Option, shall be fully paid and nonassessable.
2. Option Term. Subject to earlier termination as provided
-----------
herein, or in the Plan, the Stock Option shall expire on December
31, 2002. The period during which the Stock Option is in effect
shall be referred to as the "Option Period".
3. Option Exercise Price. The exercise price per Option Share
---------------------
(including any Attributable Securities, as defined in Attachment
----------
A) (the "Option Price") at which Optionee may purchase such
Option Shares subject to the Stock Option shall be equal to the
remainder of (i) $9.3594 per Option Share minus (ii) the amount
per Option Share of Distributed Cash Value (as defined in
Attachment A) determined as of the date of exercise. Such Option
------------
Price shall also be subject to adjustment as provided in the Plan
and this Stock Option Grant. The Company shall notify Optionee
within thirty (30) days of each change in the Option Price.
4. Vesting. The Stock Option may be exercised during the
-------
Option Period only to the extent it has become a "Vested Option".
Provided Optionee's Qualified Service Period (as defined in
Attachment A) has not previously terminated, the Stock Option
------------
shall become a "Vested Option" as to one-third of the Option
Shares as of 12:01 a.m. Houston time on December 31, 1998, as to
an additional one-third of the Option Shares as of 12:01 a.m.
Houston time on December 31, 1999 and as to the final one-third
of the Option Shares as of 12:01 a.m. Houston time on December
31, 2000. Notwithstanding the preceding sentence, if a Company
Sale Transaction (as defined in Attachment A) shall occur prior
-------------
to January 1, 2001 and prior to the end of Optionee's Qualified
Service Period, then the Stock Option shall become a Vested
Option, exercisable as of the date of consummation of the Company
Sale Transaction as to all Option Shares.
5. Method of Exercise. To exercise the Stock Option, Optionee
------------------
shall deliver written notice to the Company stating the number of
Option Shares with respect to which the Stock Option is being
exercised together with payment for such Option Shares. Payment
shall be made (i) in cash or its equivalent, (ii) by tendering
previously acquired Shares having an aggregate Fair Market Value
(as defined in the Plan) at the time of exercise equal to the
total Option Price (provided that the Shares which are tendered
must have been held by Optionee for at least six months prior to
their tender to satisfy the Option Price) or (iii) by a
combination of (i) and (ii).
6. Termination of Optionee's Employment. Termination of
------------------------------------
Optionee's employment as a regular full-time salaried employee of
KAC, a Subsidiary (as defined in Attachment A), or any branch,
------------
unit or division of KAC or any Subsidiary ("Employment") shall
affect Optionee's rights under the Stock Option as follows:
(a) Termination by the Company for Cause. If Optionee's
Employment is terminated by the Company at any time for Cause,
then (i) the Option Period shall terminate and (ii) Optionee's
right to exercise the Stock Option shall terminate, in each case
immediately upon Optionee's becoming subject to termination of
Employment for Cause. Optionee shall be terminated for "Cause"
if terminated as a result of Optionee's breach of Optionee's
written employment or other engagement agreement, or if the Board
of Directors determines that Optionee is being terminated as a
result of misconduct, dishonesty, disloyalty, disobedience or
action that might reasonably be expected to injure KAC or any
Subsidiary or their business interests or reputation.
(b) Termination by the Company Other than for Cause. If
Optionee's Employment is terminated by the Company prior to
January 1, 2001 other than for Cause, then (i) the Stock Option
and the Option Period shall not terminate and (ii) the Stock
Option shall thereafter be exercisable as to all Option Shares
from and including the date of such termination through a period
of 12 months from such date of termination.
(c) Employment Agreement Termination. If Optionee terminates
Optionee's Employment at the expiration of Optionee's Employment
Agreement (December 5, 1999), or at any time within the month of
expiration (December 1999), then (i) the Stock Option and the
Option Period shall not terminate and (ii) the Stock Option shall
thereafter be exercisable as to all Option Shares, but only
during the period from and including the date of such termination
through a period of 12 months from such date of termination.
(d) Other Termination. If Optionee's Employment terminates
prior to January 1, 2001 for any reason other than those set
forth in Paragraph 6(a), Paragraph 6(b) and Paragraph 6(c), then
(i) the Stock Option and the Option Period shall not terminate
but (ii) the Stock Option shall thereafter be exercisable only to
the extent it has become a Vested Option as of the date of
Optionee's Employment and otherwise is exercisable in accordance
with the provisions of this Stock Option Grant and the Plan.
(e) Death or Disability. The Stock Option may be exercised by
Optionee or, in the case of death, by the executor or
administrator of Optionee's estate, or the person or persons to
whom Optionee's rights under the Stock Option shall pass by will
or by the applicable laws of descent and distribution, or in the
case of Disability, by Optionee's personal representative.
7. Reorganizations; Repurchase of Stock Option.
-------------------------------------------
(a) Freedom to Reorganize the Company and Subsidiaries. The
existence of the Stock Option shall not affect in any way the
right or power of the Company and its Subsidiaries or the issuers
of Attributable Securities or its or their stockholders to make
or authorize any and all Distribution Events (as defined in
Attachment A) and any and all other adjustments,
------------
recapitalizations, reorganizations or other changes in the
capital structure or business of the Company or its Subsidiaries
or the issuers of Attributable Securities, any and all issuances
of bonds, debentures, common stock, preferred or prior preference
stock, warrants, rights or other securities, whether or not
affecting the Option Shares or the rights thereof, any
dissolution or liquidation of the Company or any Subsidiary, any
sale or other divestiture or transfer of all or any part of the
assets or business of the Company or any Subsidiary or any issuer
of Attributable Securities (including any Company Sale
Transaction, as defined in Attachment A) and any and all other
-------------
corporate acts or proceedings, whether of a similar character or
otherwise (collectively, including any Distribution Events and
any Company Sale Transaction, collectively, "Reorganizations").
(b) Spin-Offs. If the Board of Directors authorizes any
Distribution Event or other Reorganization as a result of which
holders of Shares (as defined in Attachment A) become entitled,
-------------
in their capacities as holders, to receive Marketable Securities,
the Board of Directors shall, to the extent reasonably
practicable, cause the Company to provide for or require:
(i) that the issuer(s) of such Marketable Securities shall
undertake to issue and deliver to Optionee, upon any subsequent
exercise of the Stock Option, such Marketable Securities as
Optionee would have received if Optionee had so exercised the
Stock Option prior to such Distribution Event or other
Reorganization and had participated therein (and in any and all
subsequent Distribution Events or other Reorganizations) to the
maximum extent allowed to holders of Shares (including any
Attributable Securities) outstanding at the time of such
Distribution Event or other Reorganization; (ii) that such
Marketable Securities shall be so issued and delivered to
Optionee pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or otherwise free of any
restriction on resale thereof by Optionee, other than any
restriction on resale arising from Optionee's being an Affiliate
or Insider (as such terms are defined in the Plan) of such
issuer; (iii) that such Marketable Securities shall be so issued
and delivered without any agreement, condition, payment or other
consideration being required of Optionee or the Company;
(iv) that such issuer(s) shall at all times reserve for issuance
a sufficient amount of such Marketable Securities to fulfill all
obligations contemplated hereunder; and (v) that upon each such
issuance, such Marketable Securities shall be duly authorized,
validly issued, fully paid and nonassessable. The Company shall
also provide for or require that: (x) in the event any such
issuer shall fail or be unable to issue and deliver to Optionee
any Marketable Securities as provided in the preceding sentence,
such issuer shall be obligated, in lieu of issuing and delivering
such Marketable Securities, to pay to Optionee in cash,
immediately upon exercise of the Stock Option, the Market Value
of such Marketable Securities determined as of the date of
exercise of the Stock Option; and (y) in the event the Company is
obligated to make a cash payment to Optionee pursuant to
Paragraph 8(b), such issuer shall be obligated to reimburse the
Company for a part of such payment proportionate to the
Distributed Cash Value attributable to Attributable Securities of
such issuer compared to the total amount of Distributed Cash
Value.
(c) Right to Repurchase Stock Option. Upon receipt of a notice
of exercise, the Company shall have the right but not the
obligation to repurchase, and thereby to satisfy all of the
Company's obligations under, the Stock Option as to the number of
Option Shares as to which the Stock Option is exercised by paying
Optionee in cash an amount, net of any taxes required to be
withheld, equal to the sum of (A) the product of (i) the number
of Option Shares as to which the Stock Option is exercised
multiplied by (ii) the amount, determined as of such date of
exercise, equal to the remainder of (x) the Market Value of one
Option Share minus (y) the Option Price plus (B) the amount of
cash, if any, payable to Optionee pursuant to Paragraph 8(b).
8. Adjustments.
-----------
(a) In the event of any one or more Distribution Events or other
Reorganizations affecting the Stock Option and not already
adjusted for under Paragraph 7, the Option Price and the number
of Option Shares subject to the Stock Option shall be
appropriately adjusted by the Board of Directors. In addition,
the Board of Directors shall, as permitted by Section 3.2,
Section 16.2 and other provisions of the Plan, construe and
interpret the Plan and this Stock Option Grant and make all
appropriate adjustments in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be
made available to Optionee under this Stock Option Grant and the
Plan.
(b) Without limitation to the foregoing, in the event that the
amount of Distributed Cash Value as of any date of exercise of
the Stock Option is equal to or greater than $9.3594 per Option
Share, the Option Price shall be deemed to be $.01 per Option
Share and the Company, in addition to issuing Option Shares to
Optionee, shall pay to Optionee in respect of each Option Share
as to which the Stock Option is exercised an amount of cash equal
to the remainder of (i) such amount of Distributed Cash Value per
Option Share minus (ii) $9.3594.
9. No Rights in Option Shares. Optionee shall have no rights
--------------------------
as a stockholder in respect of Option Shares until such Optionee
becomes the holder of record of such Option Shares.
10. Option Shares Reserved. The Company shall at all times
----------------------
during the Option Period reserve and keep available such number
of Shares as will be sufficient to satisfy the requirements of
this Stock Option.
11. Nontransferability of Stock Option. The Stock Option
----------------------------------
granted pursuant to this Stock Option Grant is not transferable
other than by will, the laws of descent and distribution or by
qualified domestic relations order. The Stock Option will be
exercisable during Optionee's lifetime only by Optionee or by
Optionee's guardian or legal representative. No right or benefit
hereunder shall in any manner be liable for or subject to any
debts, contracts, liabilities, or torts of Optionee.
12. Amendment and Termination. No amendment or termination of
-------------------------
the Stock Option shall be made by the Board of Directors or the
Committee (as defined in the Plan) at any time without the
written consent of Optionee. No amendment of the Plan will
adversely affect the rights, privileges and options of Optionee
under the Stock Option without the written consent of Optionee.
13. No Guarantee of Employment. The Stock Option shall not
--------------------------
confer upon Optionee any right with respect to continuance of
Employment or other service with the Company or any Subsidiary or
Affiliate, nor shall it interfere in any way with any right the
Company or any Subsidiary or Affiliate would otherwise have to
terminate such Optionee's Employment or other service at any
time.
14. Withholding of Taxes. The Company shall have the right to
--------------------
deduct or withhold, or require Optionee to remit to the Company,
an amount sufficient to satisfy all federal, state and local
taxes, domestic or foreign, required by law or regulation to be
withheld with respect to any taxable event arising under this
Stock Option Grant or any exercise or other action or event
hereunder.
15. No Guarantee of Tax Consequences. Neither the Company nor
--------------------------------
any Subsidiary or Affiliate, nor the Board of Directors or any
Committee, makes any commitment or guarantee that any federal or
state tax treatment will apply or be available to any person
eligible for benefits under the Stock Option.
16. Severability. In the event that any provision of the Stock
------------
Option shall be held illegal, invalid, or unenforceable for any
reason, such provision shall be fully severable, but shall not
affect the remaining provisions of the Stock Option, and the
Stock Option shall be construed and enforced as if the illegal,
invalid, or unenforceable provision had never been included
herein.
17. Governing Law. The Stock Option shall be construed in
-------------
accordance with the laws of the State of Texas to the extent
federal law does not supersede and preempt Texas law.
Executed December 23, 1998, and effective as of the 1st day of
January, 1998.
"COMPANY"
KAISER ALUMINUM CORPORATION
By:/s/E Bruce Butler
Printed Name: E. Bruce Butler
Title: Vice President
and General Counsel
KAISER ALUMINUM & CHEMICAL CORPORATION
By:/s/E. Bruce Butler
Printed Name: E. Bruce Butler
Title: Vice President
and General Counsel
Accepted December 24, 1998, and effective as of the 1st day
of January, 1998.
"OPTIONEE"
/s/ George T. Haymaker, Jr.
Printed Name: George T. Haymaker Jr
Title: Chief Executive Officer
<PAGE>
ATTACHMENT A
------------
Time-Based Stock Option Grant
Definitions Applicable to Certain Terms
"Affiliate" - see Section 2.1 of the Plan.
"Attributable Securities" - see the definition of "Option Share".
"Cause" - see Paragraph 6(a) of this Stock Option Grant.
"Change in Control" means a change in control of KAC that would
be required to be reported in response to item 6(e) of Schedule
14A of Regulation 14A under the Securities Exchange Act of 1934,
as amended, assuming such Schedule, Regulation and Act were
applicable to KAC as in effect on April 15, 1998.
"Company Sale Transaction" means (a) a transaction in which KAC
or KACC (if KACC is a Subsidiary of KAC immediately prior to such
transaction) (i) sells or otherwise disposes of all or
substantially all of its operating or business assets (other than
to one or more Subsidiaries) or (ii) merges or consolidates with
another entity and as a result of consummation of such merger or
consolidation a Change in Control occurs, (b) a tender offer,
exchange offer or other transaction in which all holders of
Shares have the right to receive cash, securities or other
property in respect of their Shares and as a result of
consummation of such transaction a Change in Control occurs or
(c) a transaction determined by the Board of Directors to be
similar or substantially equivalent to a transaction contemplated
by clause (a) or clause (b) of this sentence.
"Disability" - See Section 2.12 of the Plan.
"Distributed Cash Value" means, as of any determination date, the
aggregate amount of cash (other than regular quarterly cash
dividends, if any) plus the aggregate value, as determined by the
Board of Directors as of the date of distribution, of all
property (other than cash and Attributable Securities)
distributed or set aside for distribution to the holder of one
Original Share and all Attributable Securities, if any, during
the period commencing January 1, 1998 and ending on the
determination date.
"Distribution Events" means any and all distributions, dividends,
recapitalizations, forward or reverse splits, reorganizations,
mergers, consolidations, spin-offs, combinations, repurchases,
share exchanges, or other similar or substantially equivalent
corporate transactions or events in which the holder of a
security becomes, as such, entitled to receive cash, securities
or other property in addition to or in exchange for or upon
conversion of such security.
"Employment" - see Paragraph 6 of this Stock Option Grant.
"Insider" - see Section 2.19 of the Plan.
"KAC" - see Paragraph 1 of this Stock Option Grant.
"KACC" - see Paragraph 1 of this Stock Option Grant.
"Market Value" means, as of any Trading Day, the average of the
highest and lowest sales prices as reported by the consolidated
tape (or, if such prices are not quoted, the average of the
quoted closing bid and asked prices) on such Trading Day for one
Option Share (including, as applicable, the Market Values of any
Attributable Securities). In the event that sales prices or
closing bid and asked prices are not quoted on a particular
Trading Day, the Market Value for that Trading Day shall be
deemed to be the Market Value for the immediately preceding
Trading Day. In the event that any Attributable Security shall
cease to be a Marketable Security, it shall thereupon be deemed
to have no further Market Value and shall be deemed instead to
have, as of the date it ceases to be a Marketable Security, such
Distributed Cash Value as shall be determined by the Board of
Directors.
"Marketable Securities" means securities (a) of a class that is
registered under the Securities Exchange Act of 1934, as amended,
(b) for which sales prices or bid and asked prices are regularly
quoted and (c) that, if issued and delivered to Optionee upon
exercise of the Stock Option, would not be subject to any
restriction on resale, other than any restriction arising from
Optionee's being an Affiliate or Insider (as such terms are
defined in the Plan) of the issuer of such Marketable Securities.
"Option Period" - see Paragraph 2 of this Stock Option Grant.
"Option Price" - see Paragraph 3 of this Stock Option Grant.
"Option Share" means (a) one Share as constituted on January 1,
1998 (an "Original Share") and (b) in the event of any one or
more successive Distribution Events, all Marketable Securities
("Attributable Securities") into which or for which an Original
Share or any Attributable Securities may be converted or
exchanged or that a Stockholder may have the right to receive in
respect of such Original Share or Attributable Securities.
"Optionee" - see Paragraph 1 of this Stock Option Grant.
"Original Share" - see the definition of "Option Share".
"Plan" - see Paragraph 1 of this Stock Option Grant.
"Qualified Service Period" means the period from and including
January 1, 1998 through and including the earlier of (a) December
31, 2000 or (b) the date immediately preceding the date of
termination of Optionee's Employment; provided, however, that if
Optionee's Employment has not terminated prior to the date that a
proposed Company Sale Transaction is announced by KAC and such
Company Sale Transaction is subsequently consummated, then
Optionee's Qualified Service Period shall be deemed to continue
through, and end on, the date of consummation of such Company
Sale Transaction unless, prior to the date of consummation of
such Company Sale Transaction, Optionee's Employment is
terminated by the Company for Cause or is terminated by Optionee
other than pursuant to Paragraph 6(c) of this Stock Option Grant.
"Reorganization" - see Section 7(a) of this Stock Option Grant.
"Share" means one share of common stock, par value $.01 per
share, of KAC.
"Stock Option" - see Paragraph 1 of this Stock Option Grant.
"Subsidiary" - see Section 2.32 of the Plan. For avoidance of
doubt, KACC shall be considered a Subsidiary of KAC so long as
KAC has a majority voting interest in KACC, and KAC shall be
considered to have a majority voting interest whether it holds
such interest directly or indirectly through one or more
Subsidiaries.
"Trading Day" means as to an Option Share (including any
Attributable Securities) a day when the New York Stock Exchange
(or other principal securities exchange, including Nasdaq, on
which such securities are traded) is open.
KAISER SEVERANCE PROTECTION AND CHANGE OF CONTROL BENEFITS
PROGRAM
In 1998, Kaiser Aluminum Corporation ("KAC") and Kaiser Aluminum
& Chemical Corporation ("KACC") implemented the Kaiser Severance
Protection and Change of Control Benefits Program (the "Program")
in order to provide certain selected executive officers and key
employees of KACC (collectively, "Participants") with (i)
incentives intended to increase the likelihood of retaining the
services of the Participants and/or (ii) appropriate protection
in the event of a job loss or change of control. The Program
will generally remain in effect through December 31, 2000.
The three components of the Program, each of which is described
more fully below, consist of (i) severance payments and benefits
in the event of termination, (ii) retention payments condition
upon continued employment through specified dates, and (iii)
options relating to KAC Common Stock. Under the Program, KAC and
KACC have the sole discretion to determine which executive
officers and key employees participate in the Program and the
level of participation. Not all components of the Program were
offered or otherwise made available to all Participants.
Severance Benefits
Selected Participants are eligible for severance benefits under
the Program upon termination of employment for any reason other
than (i) the voluntary resignation or retirement of the
Participant, (ii) the discharge of the Participant for serious
cause or other reason prejudicial to KAC or KACC, (iii) the
Participant becoming eligible for sick leave, long term
disability or full early disability benefits under the Kaiser
Aluminum Salaried Employees Retirement Plan, (iv) the
Participant's refusal to accept another suitable position with
KAC or KACC, or (v) the Participant's death. The benefits
payable generally consist of a lump sum cash payment ranging from
six months to one year of base salary (including, in some
instances, prorated incentive awards based upon designated
incentive targets) less whatever severance benefits the
Participant would otherwise be eligible to receive under the
Kaiser Aluminum Termination Payment and Benefits Plan
Continuation Policy generally available to all regular salaried
employees. Participants may also be entitled under the Program
to continued medical, dental, life and accidental death and
disability coverage for designated periods after termination.
In lieu of the severance benefits described above, selected
Participants are also eligible for severance benefits in the
event the Participant's employment terminates or constructively
terminates due to a change of control(1) or significant
restructuring(2) (collectively, a "Fundamental Change") during a
period which commences ninety (90) days prior to a Fundamental
Change and ends on the first anniversary of the Fundamental
Change. These benefits are not available if (i) the purchaser,
new controlling entity, KAC or KACC offer the Participant
suitable employment in a substantially similar capacity at the
Participant's current level of compensation (regardless of
whether the Participant accepts or rejects the suitable
position), (ii) the Participant voluntarily resigns or is
terminated, (iii) the Participant is discharged for serious cause
or other reason prejudicial to KAC or KACC, (iv) the Participant
becomes eligible within ninety (90) days prior to the Fundamental
Change for sick leave, long term disability or full early
disability benefits under the Kaiser Aluminum Salaried Employees
---------
(1) For purposes of the Program, a "change of control" is
generally defined as the transfer of all or substantially all of
the assets of, or the merger, consolidation or reorganization of,
KAC or KACC to or with another organization or the transfer of
the stock of KAC or KACC to another organization in a manner such
than neither KAC or MAXXAM Inc. controls KACC.
(2) For purposes of the Program, a "significant restructuring"
is generally defined as the sale or other disposition of a
designated portion of KACC's business.
Retirement Plan, or (v) the Participant dies. If a Participant
fails to qualify for severance benefits under the Program as a
result of a termination of the Participant's employment due to a
Fundamental Change because of any of the above exclusions, the
Participant will also fail to qualify for the severance benefits
described above in the preceding paragraph.
The benefits payable under the Program as a result of a
termination of employment due to a Fundamental Change generally
consist of a lump sum cash payment ranging from nine months to
two years of base salary (including, in some instances, prorated
incentive awards based upon designated incentive targets) less
whatever severance benefits the Participant would otherwise be
eligible to receive under the Kaiser Aluminum Termination Payment
and Benefits Plan Continuation Policy generally available to all
regular salaried employees. Participants may also be entitled
under the Program to continued medical, dental, life and
accidental death and disability coverage for designated periods
after termination due to a Fundamental Change.
Retention Payments
Under the Program, selected Participants are also eligible to
receive retention payments conditioned upon continued employment
as of a designated date. In each instance, the retention payment
is also generally payable in the event a Participant's employment
is terminated prior to the designated date unless the termination
is for any reason described above which would preclude severance
payments under the program. Retention payments under the Program
generally consist of a lump sum cash payment and are generally
based upon six months of salary (including, in some instances,
prorated incentive awards based upon designated incentive
targets).
KAC Common Stock Options
Under the Program, selected Participants are also eligible to
receive options to purchase shares of KAC Common Stock. The
number of shares of KAC Common Stock subject to such options and
the specific terms of such options vary depending upon the level
of responsibility and seniority of the Participant.
Notwithstanding the foregoing, such options generally (i) replace
the long term incentive compensation targets otherwise applicable
to the Participant receiving the options for designated long term
incentive periods beginning on or after January 1, 1998, (ii)
expire three to five years after the date of grant, (iii) are
based upon market prices of KAC Common Stock on the date of
grant, (iv) vest over a period of three or five years, and (v)
terminate upon the termination for cause of the Participant.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statements
File No.'s 333-71, 333-16239 and 33-49889.
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 1999
EXHIBIT 23.2
We hereby consent to (i) any references to our firm, or (ii) any
references to advice rendered by our firm contained in Kaiser Aluminum
Corporation's Annual Report on Form 10-K for the year ended December 31,
1998, which is incorporated into the company's previously filed
Registration Statements on Form S-3 No.'s 333-16239 and 333-71 and
Registration Statement on Form S-8 No. 33-49889.
WHARTON LEVIN EHRMANTRAUT
KLEIN & NASH, P.A.
March 26, 1999
EXHIBIT 23.3
With respect to the Registration Statements on Form S-3 No.'s 33-16239
and 333-71 and Registration Statement on Form S-8 No. 33-49889 filed by
Kaiser Aluminum Corporation, a Delaware corporation (the "Registration
Statements"), we hereby consent to the use of our name, and to references
to advice rendered by our firm, incorporated by reference into the
Registration Statements from Kaiser Aluminum Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998, under the headings (i)
Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources - Commitments and
Contingencies, and (ii) Note 8 of Notes to the Consolidated Financial
Statements.
HELLER EHRMAN WHITE & McAULIFFE
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of the Company for the twelve months ended
December 31, 1998, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 98
<SECURITIES> 0
<RECEIVABLES> 289
<ALLOWANCES> 6
<INVENTORY> 544
<CURRENT-ASSETS> 1,030
<PP&E> 1,987
<DEPRECIATION> 878
<TOTAL-ASSETS> 2,991
<CURRENT-LIABILITIES> 558
<BONDS> 963
0
0
<COMMON> 1
<OTHER-SE> 118
<TOTAL-LIABILITY-AND-EQUITY> 2,991
<SALES> 2,256
<TOTAL-REVENUES> 2,256
<CGS> 1,906
<TOTAL-COSTS> 1,906
<OTHER-EXPENSES> 144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> (16)
<INCOME-TAX> (16)
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<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
