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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington,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, 19951997
Commission file number 1-9447
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
DelawareDELAWARE 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) 267-3777267-
3777
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------------------------
Common Stock, $.01 par value New York Stock Exchange
8.255% PRIDES, Convertible Preferred Stock, New York Stock Exchange
$.05 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes X ---
No
----___ ____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ---___
As of March 15, 1996,17, 1998, there were 71,641,85479,142,903 shares of the common stockCommon
Stock of the registrant outstanding. Based upon New York Stock
Exchange closing prices on March 15, 1996,17, 1998, the aggregate market
value of the registrant's common stock and 8.255% PRIDESCommon Stock held by non-affiliates was
$421.1$270.5 million.
Certain portions of the registrant's annual report to
shareholders for the fiscal year ended December 31, 1995,1997, are
incorporated by reference into Parts I, II, and IV of this Report
on Form 10-K. Certain portions of the registrant's definitive
proxy statement to be filed not later than 120 days after the
close of the registrant's fiscal year are incorporated by
reference into Part III of this Report on Form 10-K.
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NOTE
Kaiser Aluminum Corporation's Report on Form 10-K filed with the
Securities and Exchange Commission includes all exhibits required
to be filed with the Report. Copies of this Report on Form 10-K,
including only Exhibit 21 of the exhibits listed on pages 25-2820-24
of this Report, are available without charge upon written
request. The registrant will furnish copies of the other
exhibits to this Report on Form 10-K upon payment of a fee of 25
cents per page. Please contact the office set forth below to
request copies of this Report on Form 10-K and for information as
to the number of pages contained in each of the other exhibits
and to request copies of such exhibits:
Corporate Secretary
Kaiser Aluminum Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77057-3010
(i)
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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TABLE OF CONTENTS
Page
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . .BUSINESS 1
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . 12PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . 1210
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . 1611
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1611
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . 16MATTERS 11
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . 1712
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . 17OPERATIONS 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . 1712
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . 17DISCLOSURE 12
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1712
ITEM 10..10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
1712
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . 17COMPENSATION 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. . . . . . . . . . . . . . . . . 17MANAGEMENT 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . 17TRANSACTIONS
12
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1712
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . 1712
SCHEDULE I . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
SIGNATURES 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . 25EXHIBITS 20
EXHIBIT 21 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . 29SUBSIDIARIES 25
(ii)
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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PART I
ITEM 1. BUSINESS
Industry Overview
Primary aluminum is producedThis Annual Report on Form 10-K 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 - Profit Improvement Program," " -
Business Development in Strategic Areas," " - Production
Operations," " - Competition," " - Research and Development," and
" - Environmental Matters," and Item 3. "Legal Proceedings").
Such statements can be identified by the refininguse of bauxite into aluminaforward-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 reductionfinancial portion of alumina into primary aluminum. Approximately two poundsthe Company's 1997 Annual
Report to Shareholders (see Items 6 through 8 of bauxitethis Report)
identify other factors that could cause such differences. No
assurance can be given that these are requiredall of the factors that
could cause actual results to produce one pound of alumina, and approximately
two pounds of alumina are required to produce one pound of primary
aluminum. Aluminum's valuable physical properties include its light
weight, corrosion resistance, thermal and electrical conductivity, and high
tensile strength.
Demand
The packaging, transportation and construction industries arevary materially from the principal
consumers of aluminum in the United States, Japan, and Western Europe. In
the packaging industry, which accounted for approximately 20% of aluminum
consumption in 1994, aluminum's recyclability and weight advantages have
enabled it to gain market share from steel and glass, primarily in the
beverage container area. Nearly all beer cans and soft drink cans
manufactured for the United States market are made of aluminum.forward-
looking statements.
General
Kaiser Aluminum Corporation ("Kaiser" or the(the "Company") believes that growth, a Delaware
corporation organized in the packaging area1987, is likely to continue through the 1990s due to general
population increase and to further penetration of the beverage container
market in Asia and Latin America, where aluminum cans are a substantially
lower percentage of the total beverage container market than in the United
States. Kaiser believes that growth in demand for can sheet in the United
States will follow the growth in population, offset, in part, by the
effects of the use of lighter gauge aluminum for can sheet and of plastic
container production from newly installed capacity.
In the transportation industry, which accounted for approximately 28% of
aluminum consumption in the United States, Japan, and Western Europe in
1994, automotive manufacturers use aluminum instead of steel, ductile iron,
or copper for an increasing number of components, including radiators,
wheels, suspension components, and engines, in order to meet more stringent
environmental, safety, and fuel efficiency requirements. Kaiser believes
that sales of aluminum to the transportation industry have considerable
growth potential due to projected increases in the use of aluminum in
automobiles. In addition, Kaiser believes that consumption of aluminum in
the construction industry will follow the cyclical growth pattern of that
industry, and will benefit from higher growth in Asian and Latin American
economies.
Supply
As of year-end 1995, Western world aluminum capacity from 107 smelting
facilities was approximately 16.6 million tons* per year. Western world
production of primary aluminum for 1995 increased approximately 1.8%
compared to 1994. Net exports of aluminum from the former Sino Soviet bloc
increased approximately 250% from 1990 levels during the period from 1991
through 1994 to approximately 2.2 million tons per year. These exports
contributed to a significant increase in London Metal Exchange ("LME")
stocks of primary aluminum which peaked in June 1994 at 2.7 million tons.
By the end of 1995, LME stocks of primary aluminum had declined 2.1 million
tons from this peak level and 1.1 million tons from the beginning of 1995.
See "-Recent Industry Trends."
Based upon information currently available, the Company believes that
moderate additions will be made during 1996-1998 to Western world alumina
and primary aluminum production capacity. The increases in alumina
capacity during 1996-1998 are expected to come from one new refinery which
began operations in 1995 and incremental expansions of existing
- ----------
* All references to tons in this Report refer to metric tons of
2,204.6 pounds.
1
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
refineries. In addition, Kaiser believes that there is currently
approximately .9 million tons of curtailed smelting capacity that could be
restarted by aluminum producers. The increases in primary aluminum
capacity during 1996-1998 are expected to come from one new smelter, which
began operations in 1995 and is expected to reach its rated capacity of
approximately 466,000 tons per year in 1996, and the remainder principally
from incremental expansions of existing smelters.
Recent Industry Trends
Market fundamentals for aluminum improved significantly in 1994 as aluminum
producers worldwide curtailed primary aluminum production, Western world
consumption of aluminum grew strongly, and customers replenished
inventories, particularly in the United States. In 1995, production of
primary aluminum increased and consumption of aluminum continued to grow,
but at a much lower rate than in 1994. In general, the overall aluminum
market was strongest in the first half of 1995. By the second half of
1995, orders and shipments for certain products had softened and the rate
of decline in LME inventories had leveled off. By the end of 1995, some
small increases in LME inventories occurred, and prices of aluminum
weakened from first-half levels. The Midwest U.S. transaction price for
primary aluminum in 1995 averaged approximately 86 cents per pound,
compared to a 1994 annual average of approximately 72 cents per pound. The
Midwest U.S. transaction price for primary aluminum averaged approximately
79 cents per pound in December 1995.
Western world demand for alumina, and the price of alumina, declined in
1994 in response to the curtailment of Western world smelter production of
primary aluminum, partially offset by increased usage of Western world
alumina by smelters in the Commonwealth of Independent States (the "CIS")
and in the People's Republic of China (the "PRC"). Increased Western world
production of primary aluminum, as well as continued imports of Western
world alumina by the CIS and the PRC, during 1995 resulted in higher demand
for Western world alumina and significantly stronger alumina pricing.
United States shipments of domestic fabricated aluminum products in 1995
were approximately at 1994 levels, although in 1995 demand for can sheet in
the United States softened relative to 1994. Overall, Kaiser believes that
the market fundamentals for aluminum will be good for the near future,
barring prolonged economic recession, and that demand is likely to continue
growing at levels sufficient to absorb the output from restarts of industry
smelter capacity and from the limited additions of new supply under
construction.
The Company
General
The Company is a direct subsidiary of MAXXAM Inc.
("MAXXAM"). 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 1995,1997, KACC
produced approximately 2,838,000 tons2,945,000 tons* of alumina, of which
approximately 72%66% was sold to third parties, and produced
413,600approximately 493,000 tons of primary aluminum, of which
approximately 66%67% was sold to third parties. KACC is also a
major domestic supplier of fabricated aluminum products. In
1995,1997, KACC shipped approximately 368,200400,000 tons of fabricated
aluminum products to third parties, which accounted for
approximately 6%5% of the total tonnage of United States domestic shipments. A majority
of KACC's fabricated products are sold to distributors or used by
customers as components in the manufacture and assembly of finished
end-use products. Note
1011 of the Notes to Consolidated Financial Statements contained in
the Company's 19951997 Annual Report to Shareholders (the "Annual
Report") is incorporated herein by reference.
2
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)The Company's operations are conducted through KACC's business
units which compete throughout the aluminum industry. The
following table sets forth total shipments and intracompany
transfers of KACC's alumina, primary aluminum, and fabricated
aluminum operations:
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995
1994 1993
------- ------- --------------------- -------------- --------------
(in thousands of tons)
ALUMINA:
Shipments to Third Parties 1,929.8 2,073.7 2,040.1 2,086.7 1,997.5
Intracompany Transfers 968.0 912.4 800.6 820.9 807.5
PRIMARY ALUMINUM:
Shipments to Third Parties 327.9 355.6 271.7 224.0 242.5
Intracompany Transfers 164.2 128.3 217.4 225.1 233.6
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties 400.0 327.1 368.2 399.0 373.2
* All references to tons in this Report refer to metric tons of
2,204.6 pounds.
ITEM 1. BUSINESS (CONTINUED)
Profit Improvement Program
In October 1996, KACC established a goal of achieving $120
million per year 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. At the end of 1997, KACC had achieved
approximately half of the desired profit improvement. This
program is being effected through reductions in production costs,
decreases in corporate general and administrative expenses, and
enhancements to product mix and volume throughput. There can be
no assurance that the initiative will result in the desired cost
reductions and other profit improvements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Recent Events and Developments" and Note 4 of the
Notes to Consolidated Financial Statements in the Annual Report.
Business Development in Strategic Areas
KACC's strategic objectives include both improving the financial
performance of its existing facilities (see "-Profit Improvement
Program") and implementing modifications to its existing
portfolio of businesses and assets in an effort to focus its
business activities in areas which hold the best potential for
improving KACC's financial performance. KACC is actively
pursuing opportunities to increase its participation in
businesses and assets in targeted areas of its portfolio
consistent with its strategic objectives, by internal investment
and by acquisition, both domestically and internationally, by
using its technical expertise and capital to form joint ventures
or to acquire equity in aluminum-related facilities. Recent
examples of such activities include the formation with Accuride
Corporation of a joint venture to design, manufacture and market
heavy duty aluminum wheels for the commercial transportation
industry, and the acquisition of an aluminum extrusion plant in
Richmond, Virginia, from Reynolds Metals Company, in the second
quarter of 1997. See "-Production Operations."
Sensitivity to Prices and Hedging Programs
Kaiser'sThe 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.
FabricatedPrimary aluminum prices whichhave historically been subject to
significant cyclical fluctuations. Alumina prices, as well as
fabricated aluminum product prices (which vary considerably among
products,products), are significantly influenced by changes in the price
of primary aluminum and generally lag behind primary aluminum
prices for periods of up to sixthree months. ChangesFrom time to time in
the marketordinary course of business KACC enters into hedging
transactions to provide price risk management in respect of primary
aluminum also affect Kaiser's production costs of fabricated products
because they influence the price of aluminum scrap purchased by Kaiser and
Kaiser's labor costs, to the extent such costs are indexed to primary
aluminum prices. Through its
variable cost structures, forwardnet exposure resulting from (i) anticipated sales and
hedging programs, KACC has attempted to mitigate its exposure to possible
declines in the market prices of alumina,
primary aluminum, and fabricated aluminum products, while retainingless (ii)
expected purchases of certain items, such as aluminum scrap,
rolling ingot, and bauxite, whose prices fluctuate with the abilityprice
of primary aluminum. Forward sales contracts are used by KACC to
participate in favorable
pricing environmentseffectively lock-in or fix the price that may materialize.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 prices for its anticipated sales, and/or
(iii) to permit KACC to realize possible upside price movements.
See "Management's DiscussionNotes 1 and Analysis of Financial Condition and Results of Operations - Trends -
Sensitivity to Prices and Hedging Programs" and Note 910 of the Notes to Consolidated Financial
Statements in the Annual Report.
Production Operations
The Company's operations are conducted through KACC's decentralized
business units which compete throughout the aluminum industry.
o The alumina business unit, which mines bauxite and obtains
additional bauxite tonnage under long-term contracts,
produced approximately 8% of Western world alumina in 1995.
During 1995, KACC third party shipments of bauxite
represented approximately 21% of bauxite mined. In
addition, KACC third party shipments of alumina represented
approximately 72% of alumina produced. KACC's share of
total Western world alumina capacity was approximately 7% in
1995.
o The primary aluminum products business unit operates two
domestic smelters wholly owned by KACC and two foreign
smelters in which KACC holds significant ownership
interests. During 1995, KACC third party shipments of
primary aluminum represented approximately 66% of primary
aluminum production. KACC's share of total Western world
primary aluminum capacity was approximately 3% in 1995.
3
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)
o Fabricated aluminum products are manufactured by three
business units(CONTINUED)
Production Operations
- flat-rolled products, extruded products and
engineered components. The products include body, lid, and
tab stock for beverage containers, sheet and plate products,
heat-treated products, screw machine stock, redraw rod,
forging stock, truck wheels and hubs, air bag canisters,
engine manifolds, and other castings, forgings and extruded
products, which are manufactured at plants located in
principal marketing areas of the United States and Canada.
The aluminum utilized in KACC's fabricated products
operations is comprised of primary aluminum, obtained both
internally and from third parties, and scrap metal purchased
from third parties.
Alumina
-
-------
The following table lists KACC's bauxite mining and alumina
refining facilities as of December 31, 1995:1997:
Annual
Production Total
Capacity Annual
Company Available to Production
Activity Facility Location Ownership the Company Capacity
- -------- -------- -------- --------- ----------- ---------------------- -------------- -------------- -------------- -------------- --------------
(tons) (tons)
Bauxite Mining KJBC(1) Jamaica 49% 4,500,000 4,500,000
Alpart(2) Jamaica 65% 2,275,000 3,500,000
--------- ----------------------- --------------
6,775,000 8,000,000
========= ======================= ==============
Alumina Refining Gramercy Louisiana 100% 1,000,000 1,000,0001,050,000 1,050,000
Alpart Jamaica 65% 943,000942,500 1,450,000
QAL Australia 28.3% 934,000 3,300,000
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2,877,000 5,750,000
========= =========
- ------------
(1) Although KACC owns 49% of Kaiser Jamaica Bauxite Company
("KJBC"), it has the right to receive all of such entity's973,500 3,440,000
-------------- --------------
2,966,000 5,940,000
============== ==============
------------
(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.
Bauxite mined in Jamaica by KJBC is refined into alumina at
KACC's plant at Gramercy, Louisiana, or is sold to third parties.
In 1979, the Government of Jamaica granted KACC a mining lease
for the mining of bauxite sufficient to supply KACC's
then-existing Louisiana alumina refineries at their annual
capacities of 1,656,000 tons per year until January 31, 2020.
Alumina from the Gramercy plant is sold to third parties.
Alpart holds bauxite reserves and owns a 1,450,000 tonston per year
alumina plant located in Jamaica. KACC owns a 65% interest in
Alpart, and Hydro Aluminium a.s ("Hydro") owns the remaining 35%
interest. KACC has management responsibility for the facility on
a fee basis. KACC and Hydro have agreed to be responsible for
their proportionate shares of Alpart's costs and expenses. The
Government of Jamaica has granted Alpart a mining lease and has
entered into other agreements with Alpart designed to assure that
sufficient reserves of bauxite will be available to Alpart to
operate its refinery, as it may be expanded up to a capacity of
2,000,000 tons per year, through the year 2024.
In June 1997, Alpart has entered into an agreement forand JAMALCO, a joint venture between
affiliates of Aluminum Company of America and the supplygovernment of
substantially allJamaica, jointly announced that they had signed a non-binding
letter of its fuel oil through 1996.intent agreeing to consolidate their bauxite mining
operations in Jamaica, with the objective of optimizing operating
and capital costs. The balancetransaction is subject to various
conditions, including the negotiation of Alpart's
fuel oil requirements through 1996definitive agreements,
third party consents, and board approvals. No assurance can be
given that the conditions will be purchased insatisfied or that the
spot market.
4
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)transaction will be consummated.
KACC owns a 28.3% interest in Queensland Alumina Limited ("QAL"),
which owns the largest and one of the most efficientcompetitive alumina
refineries in the world, located in Queensland, Australia. QAL
refines bauxite into alumina, essentially on a cost basis, for
the account of its stockholders under long-term tolling
contracts. The stockholders, including KACC, purchase bauxite
from another QAL stockholder under long-term supply contracts.
KACC has contracted with QAL to take approximately 792,000 tons
per year of capacity or pay standby charges. KACC is
unconditionally obligated to pay amounts calculated to service
its share ($88.997.6 million at December 31, 1995)1997) of certain debt of
QAL, as well as other QAL costs and expenses, including bauxite
shipping costs.
QAL's annual production capacity is
approximately 3,300,000 tons, of which approximately 934,000 tons are
available to KACC.ITEM 1. BUSINESS (CONTINUED)
KACC's principal customers for bauxite and alumina consist of
large and
small domestic and internationalother aluminum producers that purchase bauxite and
reduction-grade alumina, for use in their internal refining and smelting
operations, trading intermediaries who resell raw
materials to end-users, and users of chemical-grade alumina. In 1995, KACC sold allAll
of itsKACC's third-party sales of bauxite in 1997 were made to two
customers, the largest of which accounted for approximately 74%91%
of such sales. KACC also sold alumina in 1997 to nine29 customers,
the largest and top five of which accounted for approximately 23%24%
and 90%85% of such sales, respectively. See "- Competition." The
Company believes that among alumina producers KACC is now the world's
second largest seller of smelter grade alumina to third parties.
KACC's strategy is to sell a substantial portion of the bauxite and alumina
available to it in excess of its internal refining and
smelting requirements
under multi-year sales contracts.contracts with prices linked to the price
of primary aluminum. See "- Sensitivity to Prices and Hedging
Programs."
- Primary Aluminum Products
-
-------------------------
The following table lists KACC's primary aluminum smelting
facilities as of December 31, 1995:1997:
Annual Rated Total 19951997
Capacity Annual Average
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
- -------- -------- --------- ----------- -------- ---------------------------------- ------------- ------------- -------------- -------------- -------------
(tons) (tons)
Domestic
Washington Mead 100% 200,000 200,000 82%108%
Washington Tacoma 100% 73,000 73,000 82%
------ ------103%
-------------- --------------
Subtotal 273,000 273,000
------- --------------------- --------------
International
Ghana Valco 90% 180,000 200,000 68%76%
Wales, United Kingdom Anglesey 49% 55,000 112,000 119%
------ -------118%
-------------- --------------
Subtotal 235,000 312,000
------- --------------------- --------------
Total 508,000 585,000
======= ===================== ==============
KACC owns two smelters located at Mead and Tacoma, Washington, where
alumina is processed into primary aluminum.
The Mead facility uses pre-bake technology and produces primary
aluminum. Approximately 71%64% of Mead's 19951997 production was used
at KACC's Trentwood, fabricating facilityWashington, rolling mill, and the balance
was sold to third parties. The Tacoma plantfacility uses Soderberg
technology and produces primary aluminum and high-grade,
continuous-cast, redraw rod, which currently commands a premium
price in excess of the price of primary aluminum. Both smelters
have achieved significant production efficiencies in recent years through
retrofit technology and a variety of cost controls,
and semi-variable wage and power contracts, leading to
increases in production volume and enhancing their ability to
compete with newer smelters.
AtKACC is modernizing and expanding the carbon baking furnace at
its Mead plant, KACC
5
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)smelter at an estimated cost of approximately $54.5
million. The project will improve the reliability of the carbon
baking operations, increase productivity, enhance safety, and
improve 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, has convertedbeen completed and is in
operation. The remaining modernization work is expected to welded anode assemblies to increase energy efficiency,
extendedbe
completed in late 1998, when an existing furnace will be rebuilt.
A portion of this project was financed with the anode life-cyclenet proceeds
(approximately $18.6 million) of 7.6% Solid Waste Disposal
Revenue Bonds due 2027 issued in March 1997 by the smelting process,
changed from pencil to liquid pitch to produce carbon anodes which achieved
environmental and operating savings, and engaged in efforts to increase
production through the useIndustrial
Development Corporation of improved, higher-efficiency reduction cells.Spokane County, Washington.
Electric power represents an important production cost for KACC
at its aluminum smelters. In 1995, KACC successfully
restructured electric power purchase agreements for KACC'sits
facilities in the Pacific Northwest, were successfully restructured, which the Company anticipates will resultresulted in
significantly lower electric power costs in 1996 and beyond for the Mead and
Tacoma, Washington, smelters and
the Trentwood, Washington, rolling mill compared to 1995 electric power
costs. From 1981 until 1995,KACC continued to benefit from savings in electric power
for KACC's Meadcosts at those facilities in 1997 and Tacoma
smelters was purchased exclusivelyexpects to continue to
benefit from the Bonneville Power Administration
(the "BPA") by KACC under a contract which expiressuch savings in 2001. In April 1995
the BPA agreed to allow each of its direct service industrial customers
(the "DSIs"), which include KACC, to purchase a portion of its requirement
for electric power from sources other than the BPA beginning October 1,
1995. In June 1995 KACC entered into an agreement with The Washington
Water Power Company (the "WWP") to purchase up to 50 megawatts of electric
power for its Northwest facilities for a five-year term beginning October
1, 1995. KACC is receiving power under that contract, which power
displaces a portion of KACC's interruptible power from the BPA. In
addition, in 1995 KACC entered into a new power purchase contract with the
BPA, which amends the existing BPA power contract and which contemplates
reductions during 1996 in the amount of power which KACC is obligated to
purchase from the BPA and which the BPA is obligated to sell to KACC, and
the replacement of such power with power to be purchased from other
suppliers. KACC is negotiating power purchase agreements for such power
with suppliers other than the BPA. Contracts for the purchase of all power
required by KACC's Mead and Tacoma smelters and Trentwood rolling mill for
1996, and for approximately one-half of such power for the period 1997-2000,
have been finalized. Two lawsuits were filed in December 1995
against the BPA by various parties, one of which petitions for a review of
the BPA's "Record of Decision on Direct Service Industrial Customer
Requirements Power Sales Contract" issued on September 28, 1995, and one of
which petitions for review of, and to set aside, suspend, or modify, the
action of the BPA to decide to offer five-year "block" power sales to the
DSIs. The effect of such lawsuits, if any, on KACC's new power purchase
contract with the BPA is not known. Certain of the DSIs, including KACC,
have intervened in the two lawsuits.
In 1995 KACC also entered into agreements with the BPA and with the WWP,
with terms ending in 2001, under which the BPA and the WWP would provide to
KACC transmission services for power purchased from sources other than the
BPA. The term of the transmission services agreement with the BPA was
subsequently extended for an additional fifteen years, which extension has
been challenged. Four lawsuits have been filed against the BPA by various
parties, which lawsuits either challenge the BPA's record of decision
offering such an extension agreement to the DSIs or challenge the BPA's
Business Plan Environmental Impact Statement record of decision in
connection therewith. Certain of the DSIs, including KACC, have intervened
in the four lawsuits.
KACC began operating its Mead and Tacoma smelters in Washington at
approximately 75% of their full capacity in January 1993, when three
reduction potlines were removed from production (two at Mead and one at
Tacoma) in response to a power reduction imposed by the BPA. In March
1995, the BPA offered to its industrial customers, including KACC, surplus
firm power at a discounted rate for the period April 1, 1995, through July
31, 1995, to enable such customers to restart idle industrial loads. In
April 1995, KACC and the BPA entered into a contract for an amount of such
power, and thereafter KACC restarted one-half of an idle potline
(approximately 9,000 tons of annual capacity) at its Tacoma, Washington,
smelter. The Tacoma smelter was returned to full production in October
1995. In 1995 KACC entered into a one-year power supply contract with the
BPA, for a term ending September 30, 1996, in connection with the restart
of idled capacity at its Mead smelter. The Mead smelter returned to full
production in December 1995.future years.
ITEM 1. BUSINESS (CONTINUED)
KACC manages, and owns a 90% interest in, the Volta Aluminium
Company Limited ("Valco") aluminum smelter in Ghana. The Valco
smelter uses pre-bake technology and processes alumina supplied
by KACC and the other participant into primary aluminum under
long-term tolling contracts which provide for proportionate payments by the
participants
6
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 1. BUSINESS (continued)
in amounts intended to pay not less than all of Valco's operating and
financing costs.participants. KACC's share of the primary aluminum is sold to
third parties. Power for the Valco smelter is supplied under an
agreement with the Volta River Authority (the "VRA") which
expires in 2017. The agreement indexes two-thirds of the price
of the contract quantity of power to the market price of primary
aluminum. The agreement also provides for a review and
adjustment of the base power rate and the price index every five
years. The most recent review was completed in April 1994 for
the 1994-1998 period.
Valco has entered into an
agreement withEffective January 1, 1998, the governmentVRA reduced the allocation of Ghana under which Valco has been assured
(except in cases of force majeure) that it will receive sufficient
electric power to operate at its current level of three and one-half potlines
through December 31, 1996. Kaiser believesthe Valco smelter. The Company announced that,
assuming normal rainfall
during 1996,due to the reduced power allocation, Valco should have available sufficient electric powerexpected to operate
atthree potlines in 1998 compared to the four potlines which were
operated throughout 1997. During February 1998, Valco and the
VRA reached an agreement whereby Valco agreed to receive
compensation in lieu of the power necessary to operate one of its
current level through 1996.three remaining operating potlines. Compensation under the
agreement is expected to substantially offset the financial
impact of the curtailment of that potline. As a result of the
curtailment, Valco said that it expected to operate two of its
five potlines after February 25, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Recent Events and Developments" in the Annual
Report.
KACC owns a 49% interest in the Anglesey Aluminium Limited
("Anglesey") aluminum smelter and port facility at Holyhead,
Wales. The Anglesey smelter uses pre-bake technology. KACC
supplies 49% of Anglesey's alumina requirements and purchases 49%
of Anglesey's aluminum output. KACC sells its share of
Anglesey's output to third parties. Power for the Anglesey
aluminum smelter is supplied under an agreement which expires in
2001.
KACC has developed and installed proprietary retrofit and control
technology in all of its smelters, as well as at third party
locations. This technology - which includes the redesign of the
cathodes, anodes and anodesbus that conduct electricity through
reduction cells, improved feed systems that add alumina to the
cells, and a computerized process control and energy management
system that controls
energy flow in the cells - enhanceshas 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 is actively engaged in efforts to license this
technology and sell technical and managerial assistance to other
producers worldwide, and may participate in joint ventures or
similar business partnerships which employ KACC's technical and
managerial knowledge. See "-Research and Development."
During October 1997, a joint decision was made by a KACC
subsidiary and its joint venture partner to terminate and
dissolve the Sino-foreign aluminum joint venture formed in 1995.
In January 1998, the KACC subsidiary reached an agreement to sell
its interests in the venture to its partner. The terms of the
agreement are subject to certain governmental approvals by
officials of the People's Republic of China.
KACC's principal primary aluminum customers consist of large
trading intermediaries and metal brokers, who resell primary
aluminum to fabricated product manufacturers, and large and small
international aluminum fabricators. In 1995,1997, KACC sold its
primary aluminum production not utilized for internal purposes to
approximately 3552 customers, the largest and top five of which
accounted for approximately 25%13% and 62%47% of such sales,
respectively. See "- Competition." Marketing and sales efforts
are conducted by a small staffpersonnel located at the business unit's headquarters in Pleasanton, California,
Houston, Texas, and by senior executives of KACC who participate in
the structuring of major sales transactions.Tacoma and Spokane, Washington. A majority
of the business unit's sales are based upon long-term
relationships with metal merchants and end-users.
- Fabricated Aluminum Products
-
----------------------------
KACC manufactures and markets fabricated aluminum products for
the transportation, packaging, transportation, construction, and consumer
durables markets in the United States and abroad. Sales in these
markets are made directly and through distributors to a large
number of customers. In 1995, four
domestic beverage container manufacturers were among the leading customers
for KACC's fabricated products and accounted for approximately 12% of
KACC's sales revenue. KACC's fabricated products compete with
those of numerous domestic and foreign producers and with
products made of steel, copper, glass, plastic, and other
materials. Product quality, price, and availability are the
principal competitive factors in the market for fabricated
aluminum products. KACC has focused its fabricated products
operations on selected products in which KACC has production
expertise, high-quality capability, and geographic and other
competitive advantages.
ITEM 1. BUSINESS (CONTINUED)
Fabricated aluminum products are manufactured by two business
units - flat-rolled products and engineered products. The
products include heat-treated products; body, lid, and tab stock
for beverage containers; sheet and plate products; screw machine
stock; redraw rod; forging stock; truck wheels and hubs; air bag
canisters; engine manifolds; and other castings, forgings and
extruded products, which are manufactured at plants located in
principal marketing areas of the United States and Canada. The
aluminum utilized in KACC's fabricated products operations is
comprised of primary aluminum, obtained both internally and from
third parties, and scrap metal purchased from third parties.
Flat-Rolled Products - The flat-rolled products business unit
the largest
of KACC's fabricated products businesses, operates the Trentwood, sheetWashington, rolling mill and plate mill at Spokane, Washington.the
Micromill(TM) facility, near Reno, Nevada. The Trentwood
facility is KACC's
largest fabricating plant and accounted for approximately 64%62% of KACC's 19951997
fabricated aluminum products shipments. The business unit
supplies the aerospace and general engineering markets
(producing heat-treat products), the beverage container market
(producing body, lid, and tab stock), the
aerospace market, and the tooling plate, heat-treated alloyspecialty coil
markets (producing automotive brazing sheet, wheel, and common
alloy coil markets,tread
products), both directly and through distributors.
During 1995,
KACC successfully
7
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 1. BUSINESS (continued)
completedcontinues to enhance the two year restructuringprocess and product mix of its
Trentwood rolling mill in an effort to maximize its profitability
and maintain full utilization of the facility. KACC is
implementing a plan to expand its annual production capacity of
heat-treated flat-rolled products operation
at the Trentwood facility by
approximately one-third over 1996 levels, most of which was
achieved in 1997. Implementation of the plan also will enable
KACC to improve the reliability of its Trentwood plantheat-treated operations,
enhance the quality of its heat-treat products, and improve
Trentwood's operating efficiency. The project is estimated to
reduce that facility's annual operating costs by
at least $50.0 million.cost approximately $22.0 million and is expected to be completed
in late 1998. Global sales of KACC's heat-treat products have
increased significantly over the last several years and are made
primarily to the aerospace and general engineering markets, which
have been experiencing growth in demand. In 1997, 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 17% of the
business unit's revenue.
KACC's flat-rolled products are also sold primarily to beverage container
manufacturers located in the western United States and in the
Asian Pacific Rim countries where the Trentwood plant's location
provides KACC with a transportation advantage. Quality of
products for the beverage container industry, service, and
timeliness of delivery are the primary bases on which KACC
competes. KaiserIn recent years KACC has made significant capital
expenditures at Trentwood in rolling technology and process
control to improve the metal integrity, shape and gauge control
of its products. The Company believes that capitalsuch improvements at Trentwood
have enhanced the quality of KACC's products for the beverage
container industry and the capacity and efficiency of KACC's
manufacturing operations, and that KACC is one of the highest
quality producers of aluminum beverage can stock in the world.
In 1995,1997, the flat-rolled products business unit had 3137 domestic and foreign can stock
customers, including the five major domestic beverage can
manufacturers.customers. The largest and top five of such customers accounted
for approximately 14%15% and 41%27%, respectively, of the business
unit's revenue. See "- Competition." In 1995, the business unit shipped products to
approximately 150 customers in the aerospace, transportation, and
industrial ("ATI") markets, most of which were distributors who sell to a
variety of industrial end-users. The top five customers in the ATI markets
for flat-rolled products accounted for approximately 13% of the business
unit's revenue. The marketing staff for
the flat-rolled products business unit is located at the Trentwood facility and in
Pleasanton, California. Sales are made directly to end-use
customers (including distributors)and distributors from eight
sales offices located throughout the United States. International
customers are served byfour sales offices in the NetherlandsUnited
States, from sales offices in England and Japan, and by
independent sales agents in Europe, Asia and Latin America.
ExtrudedThe first Micromill(TM) facility, constructed in 1996 as a
demonstration and production facility, was in a start-up mode
during 1997. Micromill(TM) technology is based on a proprietary
thin-strip, high-speed, continuous-belt casting technique linked
directly to hot and cold rolling mills. Assuming the successful
implementation and commercialization of the Micromill(TM)
technology, the capital and conversion costs of Micromill(TM)
facilities are expected to be significantly lower than
conventional rolling mills. KACC is continuing its efforts to
implement the Micromill(TM) technology on a full-scale basis.
The facility is currently shipping qualification quantities of
product to various customers. However, the Micromill(TM)
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.
Engineered Products - The extrudedengineered products business unit
is headquarteredmaintains its headquarters and a sales and engineering office in
Dallas, Texas,Southfield, Michigan, which works with car makers and other
customers, the Company's Center for Technology ("CFT," see
"-Research and Development"), and plant personnel to create new
automotive component designs and to improve existing products.
The business unit operates soft-alloy and hard-alloy extrusion
facilities and engineered component (forging and casting)
facilities in the United States and in Canada. Soft-alloy
extrusion facilities are located in Los Angeles, California;
Santa Fe Springs, California; Sherman, Texas; Richmond, Virginia;
and London, Ontario, Canada;Canada. Each of the soft-alloy extrusion
facilities has fabricating capabilities and provides finishing
services. The Richmond, Virginia, facility, acquired in mid-1997
by Kaiser Bellwood Corporation, a cathodic protectionwholly-owned subsidiary of the
Company, increased KACC's extruded products capacity and enhanced
its existing extrusion business located in Tulsa, Oklahoma,due to that also extrudes both aluminumfacility's ability to
manufacture seamless tubing and magnesium;large circular 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, which produce screw machine
stock, redraw rod, forging stock, and billet; and abillet. A facility located
in Richland, Washington, which produces seamless tubing in both hard
and soft alloys for the automotive, other transportation, export,
recreation, agriculture, and other industrial markets. Each of the soft-alloy extrusion facilities has
fabricating capabilitiesThe
business unit also operates a cathodic protection business
located in Tulsa, Oklahoma, that extrudes both aluminum and
provides finishing services.
Themagnesium. Major markets for extruded products business unit's major markets are in the
transportation industry, to which itthe 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.
In 1995, the extruded products business unit had
approximately 825 customers for its products, the largest and top five of
which accounted for approximately 6% and 20%, respectively, of its revenue.
See "- Competition." Sales are made directly from plants as well as
marketing locations across the United States.
Engineered Components - The engineered componentsproducts business unit operates forging facilities
at Erie, Pennsylvania; Oxnard, California;California, and Greenwood, South Carolina; a machine
shop at Greenwood, South Carolina; and a casting facility in
Canton, Ohio.Ohio; and participates in a joint venture with Accuride
Corporation, located in Erie, Pennsylvania, and Cuyahoga Falls,
Ohio, that designs, manufactures and markets aluminum wheels for
the commercial transportation industry. The engineered components business unit is one
of the largest producers of aluminum forgings in the United
States and is a major supplier of high-quality forged parts to
customers in the automotive, commercial vehicle and ordnance
markets. The high strength-to-weight properties of forged and
cast aluminum make it particularly well-suited for automotive
applications. The business unit's casting facility manufactures
aluminum engine manifolds for the automobile, truck and marine
markets.
In 1995,1997, the engineered componentsproducts business unit had approximately 250641 customers,
the largest and top five of which accounted for approximately 34%8%
and 77%18%, respectively, of the business unit's revenue. See "-
Competition." The engineered components business unit's headquarters is
locatedSales are made directly from plants, as well as
marketing locations elsewhere in Erie, Pennsylvania, and there is a sales and engineering office
located in Detroit, Michigan, which works with car makers and other
customers, the Center for Technology (see "-Research and Development"),
and plant personnel to create new automotive component designs and improve
existing products.
8
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1. BUSINESS (continued)United States.
Competition
Aluminum competes in many markets with steel, copper, glass,
plastic, and
numerous other materials. In recent years, plastic
containers have increased and glass containers have decreased
their respective shares of the soft drink sector of the beverage
container market. In the United States, beverage container
materials, including aluminum, face increased competition from
plastics as increased polyethylene terephthalate ("PET")
container capacity is brought on line by plastics manufacturers.
Within the aluminum business, KACC competes with both domestic
and foreign producers of bauxite, alumina and primary aluminum,
and with domestic and foreign fabricators. Many of KACC's
competitors have greater financial resources than KACC. KACC's
principal competitors in the sale of alumina include Alcoa
Alumina and& Chemicals LLC,L.L.C., Billiton Marketing and Trading BV,
and Alcan Aluminium Limited. KACC competes with most aluminum
producers in the sale of primary aluminum.
Primary aluminum and, to some degree, alumina are commodities
with generally standard qualities, and competition in the sale of
these commodities is based primarily upon price, quality and
availability. KACC also competes with a wide range of domestic
and international fabricators in the sale of fabricated aluminum
products. Competition in the sale of fabricated products is
based upon quality, availability, price and service, including
delivery performance. KACC concentrates its fabricating
operations on selected products in which KACCit has production
expertise, high-quality capability, and geographic and other
competitive advantages. KaiserThe 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.
Research and Development
KACC conducts research and development activities principally at
threetwo facilities - the Center for Technology ("CFT")CFT in Pleasanton, California;California, and the Primary Aluminum Products Division TechnologyNorthwest
Engineering Center ("DTC") adjacent to the Mead smelter in Washington; and the Alumina Development Laboratory
("ADL") at the Gramercy, Louisiana, refinery, which supports Kaiser Alumina
Technical Services ("KATS") and the facilities of the alumina business
unit.Washington.
Net expenditures for Company-sponsoredcompany-sponsored research and development
activities were $18.5$19.7 million in 1995, $16.71997, $20.5 million in 1994,1996, and
$18.5 million in 1993.1995. KACC's research staff totaled 157133 at
December 31, 1995.1997. KACC estimates that research and development
net expenditures will be approximately $22.5$11.6 million in 1996.1998.
ITEM 1. BUSINESS (CONTINUED)
CFT performs research and development across a range of aluminum
process and product technologies to support KACC's business units
and new business opportunities. It also selectively offers
technical services to third parties. Significant efforts are
directed at product and process technology for the aircraft,
automotive, and can stock, aircraft and automotivesheet markets, and aluminum reduction cell
models which are applied to improving cell designs and operating
conditions. The largest and most notable single project being
developed at CFT is a strip-casting micromill process for producing can
sheet. The conversion and capital costs of these micromills are expected
to be significantly lower than conventional rolling mills and to result in
improved economics compared with historical manufacturing and
transportation costs for can stock. A pilot facility has been constructed
and operated at CFT. The first micromill is being constructed in Nevada as
a demonstration production facility, and KACC expects operational startup
of the facility at the end of 1996. KACC currently intends to finance the
cost of the construction of the Nevada micromill, estimated to be
approximately $45.0 million, from general corporate funds, including
possible borrowings under the 1994 Credit Agreement (defined below),
although KACC is in discussions with third parties which might provide some
or all of such funding. DTCNorthwest Engineering Center maintains
specialized laboratories and a miniature carbon plant where
experiments with new anode and cathode technology are performed.
DTCThe 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.
KATS provides improved alumina
process technology to KACC's facilitiesCFT and technical support to new
business ventures in cooperation with KACC's international business
development group.
9
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 1. BUSINESS (continued)
KACC is actively engaged inthe Reno, Nevada, facility are continuing their efforts
to licenseimplement the Micromill(TM) technology for the production of
can sheet and other sheet products. See "-Production Operations
- Fabricated Aluminum Products - Flat-Rolled Products."
KACC licenses its technology and sellsells technical and managerial
assistance to other producers worldwide. KACC's technology has
been installed in alumina refineries, aluminum smelters and
rolling mills located in the United States, Jamaica, Sweden,
Germany, Russia, India, Australia, Korea, New Zealand, Ghana,
United Arab Emirates, Bahrain, Venezuela, Brazil, and the United
Kingdom. KACC's revenue from technology sales and technical
assistance to third parties were $5.7 million in 1995, $10.0 million in
1994, and $12.8 million in 1993.
KACC has entered into agreementstechnical services contracts with respect tosmelters in
Wales, Africa, Europe, the Krasnoyarsk smelter in
Russia under which KACC has licensed certain of its technology for use in
such facilityMiddle East, and agreed to provide purchasing services in obtaining
Western-sourced technology and equipment to be used in such facility.
These agreements were entered into in November 1990, and the services under
them are expected to be completed in 1996. In addition, in 1993 KACC
entered into agreements with respect to the Nadvoitsy smelter in Russia and
the Korba smelter of the Bharat Aluminum Co. Ltd., in India, under which
KACC has licensed certain of its technology for use in such facilities.
Services under the Nadvoitsy agreement were completed in 1995, and KACC
expects that services under the Korba agreement will be completed in 1996.
Operations in China
In 1994, KACC commenced efforts to increase its activities in certain
countries that are expected to be important suppliers of aluminum and large
customers for aluminum and alumina. KACC intends to use its technical
skills, together with capital investments, to form joint ventures or
acquire equity in facilities in such countries.
In 1995, Kaiser Yellow River Investment Limited ("KYRIL"), a subsidiary of
the Company, was formed to participate in the privatization, modernization,
expansion, and operation of aluminum smelting facilities in the PRC. KYRIL
has entered into a Joint Venture Agreement and related agreements (the
"Joint Venture Agreements") with the Lanzhou Aluminum Smelters ("LAS") of
the China National Nonferrous Metals Industry Corporation relating to the
formation and operation of Yellow River Aluminum Industry Company Limited,
a Sino-foreign joint equity enterprise organized under PRC law (the "Joint
Venture").
The Joint Venture constitutes the first large-scale privatization in the
Chinese aluminum smelting industry. The Joint Venture's assets and
operations are located primarily in the industrial city of Lanzhou, the
capital of Gansu Province in northwestern China, and in nearby Lianhai, a
special economic zone also in Gansu Province. The smelter at Lanzhou is
the fifth largest aluminum smelter in the PRC and produces approximately
55,000 tons of primary aluminum per year. The smelter at Lianhai produces
approximately 30,000 tons of primary aluminum per year. LAS's capital
contribution to the Joint Venture consisted primarily of the Lanzhou and
Lianhai smelters.
The Joint Venture Agreements include provisions for KYRIL to contribute up
to $59.7 million to the Joint Venture in exchange for up to a 49% interest
in the Joint Venture (the "Capital Contribution") and contemplate that such
capital may be used to expand the annual production capacity of LAS from
85,000 to 115,000 tons, construct a dry Soderberg paste plant, install and
upgrade pollution control equipment, and provide for general corporate
purposes, including working capital. KYRIL contributed $9.0 million as a
contribution to the capital of the Joint Venture in July 1995. The parties
to the Joint Venture are currently engaged in discussions concerning the
amount, timing and other conditions relating to KYRIL's additional
contributions to the Joint Venture. Governmental approval in the PRC will
be necessary in order to implement any arrangements agreed to by the
parties, and there can be no assurance such approvals will be obtained.
KACC, through its extruded products business unit, has entered into
contracts to form two small joint venture companies in the PRC. KACC will
indirectly acquire equity interests of approximately 45% and 49%,
respectively, in these two companies which will manufacture aluminum
extrusions, in exchange for the contribution to those companies of certain
used equipment, technology, services and cash. The majority equity
interests in the two companies will be owned by affiliates of Guizhou Guang
Da Construction Company.
10
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 1. BUSINESS (continued)India.
Employees
During 1995,1997, KACC employed an average of 9,5469,553 persons, compared
with an average of 9,7449,567 employees in 1994,1996, and 10,2209,546 employees
in 1993.1995. At December 31, 1995,1997, KACC's work force was 9,624,9,597,
including a domestic work force of 5,946,6,081, of whom 4,0104,118 were paid
at an hourly rate. Most hourly paid domestic employees are
covered by collective bargaining agreements with various labor
unions. Approximately 74%72% of such employees are covered by a
master agreement (the "Labor Contract") with the United
Steelworkers of America ("USWA") expiringwhich expires September 30, 1998. The
Labor Contract covers KACC's plants in Spokane (Trentwood and
Mead) and Tacoma, Washington; Gramercy, Louisiana; and Newark,
Ohio. The Company anticipates that the Labor Contract replaced a
contract that expired October 31, 1994, and was reached after an eight-day
work stoppage by the USWA at these plants in February 1995.will be
renegotiated during 1998.
The Labor Contract provides for base wages at all covered plants.
In addition, workers covered by the Labor Contract may receive
quarterly or more frequent bonus payments based on various
indices of profitability, productivity, efficiency, and other
aspects of specific plant or departmental performance, as well
as, in certain cases, the price of alumina or primary aluminum.
Pursuant to the Labor Contract, base wage rates were raised
effective January 2, 1995, were
raised again effective November 6, 1995, and will be raised an additional
amount effective November 3, 1997, and an amount in respect of the cost
of living adjustment under the previous master agreement will behas been
phased into base wages during the term of the Labor Contract.wages. In the second quarterfirst half of 1995,1998, KACC acquiredwill
acquire up to $2,000$4,000 per employee (80 shares) of preference stock
held in a stock plan for the benefit of each of approximately 82% of thecertain employees covered
by the Labor Contract and in the first half of 1998 will acquire up to an
additional $4,000 of such preference stock held in such plan for the
benefit of substantially the same employees. In addition, a profitability
test was satisfied and, therefore,Contract. KACC will acquire during 1996 up to an
additional $1,000 of such preference stock held in such plan for the
benefit of substantially the same employees. KACC made and will make comparable acquisitions of
preference stock held for the benefit of each of
certain salaried
employees.
In February 1995, Alpart's employees engaged in a six-day work stoppage by
its National Workers Union, which was settled by a new contract.
Management considers KACC's employee relations to be
satisfactory.
Environmental Matters
KaiserThe Company and KACC are subject to a wide variety of
international, federal, state and local environmental laws and
regulations (the "Environmental Laws"). From time to time the Environmental Laws are amended and new ones
are adopted. The Environmental Laws
regulate, among other things, air and water emissions and
discharges; the generation, storage, treatment, transportation,
and disposal of solid and hazardous waste; the release of
hazardous or toxic substances, pollutants and contaminants into
the environment; and, in certain instances, the environmental
condition of industrial property prior to transfer or sale. In
addition, Kaiserthe Company and KACC are subject to various federal,
state, and local workplace health and safety laws and regulations
("Health Laws").
From time to time, KACC is subject, with respect to its current
and former operations, to fines or penalties assessed for alleged
breaches of the Environmental and Health Laws and to claims and
litigation brought by federal, state or local agencies and by
private parties seeking remedial or other enforcement action
under the Environmental and Health Laws or damages related to
alleged injuries to health or to the environment, including
claims with respect to certain waste disposal sites and the
remediation of sites presently or formerly operated by KACC. See "Legal Proceedings."
KACC
currently is subject to a number ofcertain lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of
1986 ("CERCLA"). See "Legal Proceedings." KACC, along with
certain other entities, has been named as a Potentially
Responsible Party ("PRP") for remedial costs at certain
third-party
11
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 1. BUSINESS (continued) sites listed on the National Priorities List under
CERCLA and, in certain instances, may be exposed to joint and
several liability for those costs or damages to natural
resources. KACC's Mead, Washington, facility has been listed on
the National Priorities List under CERCLA. 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.
While uncertainties are
inherent in the final outcome of these matters, and it is presently
impossible to determine the actual costs that ultimately may be incurred,
Kaiser believes that the resolution of such uncertainties should not have a
material adverse effect on KACC's consolidated financial position, results
of operations, or liquidity.
Environmental capital spending was $9.2 million in 1995, $11.9 million in
1994, and $12.6 million in 1993. Annual operating costs for pollution
control, not including corporate overhead or depreciation, were
approximately $26.0 million in 1995, $23.1 million in 1994, and $22.4
million in 1993. Legislative, regulatory, and economic uncertainties make
it difficult to project future spending for these purposes. However,
Kaiser currently anticipates that in the 1996-1997 period, environmental
capital spending will be within the range of $27.0 - $33.0 million per
year, and operating costs for pollution control will be within the range of
$28.0 - $29.0 million per year. In addition, $4.5 million in cash
expenditures in 1995, $3.6 million in 1994, and $7.2 million in 1993 were
charged to previously established reserves relating to environmental costs.
Approximately $8.4 million is expected to be charged to such reserves in
1996.
Based on Kaiser'sthe Company's evaluation of these and other
environmental matters, Kaiserthe Company has established environmental
accruals, primarily related to potential solid waste disposal and
soil and groundwater remediation matters. At December 31, 1997,
the balance of such accruals, which are primarily included in
Long-term liabilities, was $29.7 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 1998 through
2002 and an aggregate of approximately $8.0 million thereafter.
Cash expenditures of $5.6 million in 1997, $8.8 million in 1996,
and $4.5 million in 1995 were charged to previously established
accruals relating to environmental costs. Approximately $5.1
million is expected to be charged to such accruals in 1998.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of
remediation are established or alternative technologies are
developed, changes in these and other factors may result in
actual costs exceeding the current environmental accruals. The
Company believes that it is reasonably possible that costs
associated with these environmental matters may exceed current
accruals by amounts that could range, in the aggregate, up to an
estimated $18.0 million. While uncertainties are inherent in the
final outcome of these environmental matters, and it is presently
impossible to determine the actual costs that ultimately may be
incurred, 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. In addition to cash expenditures
charged to environmental accruals, environmental capital spending
was $6.8 million in 1997, $18.4 million in 1996, and $9.2 million
in 1995. Annual operating costs for pollution control, not
including corporate overhead or depreciation, were approximately
$27.5 million in 1997, $30.1 million in 1996, and $26.0 million
in 1995. Legislative, regulatory and economic uncertainties make
it difficult to project future spending for these purposes.
However, the Company currently anticipates that in the 1998-1999
period, environmental capital spending will be within the range
of approximately $5.0 million to $7.0 million per year, and
operating costs for pollution control will be approximately $35.0
million per year.
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 - LiquidityEnvironmental and
Capital Resources - Environmental
Contingencies."Asbestos Contingencies" in the Annual Report.
The portion of Note 89 of the Notes to Consolidated Financial
Statements in the Annual Report under the headingheadings "Environmental
Contingencies" and "Asbestos Contingencies" is incorporated
herein by reference.
ITEM 2. PROPERTIES
The locations and general character of the principal plants,
mines, and other materially important physical properties
relating to KACC's operations are described in "Business - The
Company - Production Operations" and those descriptions are
incorporated herein by reference. KACC owns in fee or leases all
the real estate and facilities used in connection with its
business. Plants and equipment and other facilities are
generally in good condition and suitable for their intended uses,
subject to changing environmental requirements. Although KACC's
domestic aluminum smelters and alumina facility were initially
designed early in KACC's history, they have been modified
frequently over the years to incorporate technological advances
in order to improve efficiency, increase capacity, and achieve
energy savings. KaiserThe Company believes that KACC's domestic plants are cost
competitive on an international basis. Due to KACC's
variable cost structure, the plants' operating costs are relatively lower
in periods of low primary aluminum prices and relatively higher in periods
of high primary aluminum prices.
KACC's obligations under the Credit Agreement entered into on
February 17,15, 1994, as amended (the "1994 Credit"Credit Agreement"), are
secured by, among other things, mortgages on KACC's major
domestic plants (other than the Gramercy alumina plant)refinery and
Nevada Micromill(TM)). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - LiquidityFinancing
Activities and Capital Resources -
Capital Structure"Liquidity" and Note 5 of the 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, above, for cautionary
information with respect to such forward-looking statements.
Aberdeen Pesticide Dumps Site Matter
The Aberdeen Pesticide Dumps Site, listed on the Superfund
National Priorities List, is composed of five separate sites
around the town of Aberdeen, North Carolina (collectively, the
"Sites"). The Sites are of concern to the United States
Environmental Protection Agency (the "EPA") because of their past
use as either pesticide formulation facilities or pesticide
12
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS (continued)
disposal areas from approximately the mid-1930's through the
late-1980's. The United States filed a cost recovery complaint (the "Complaint") in the
United States District Court for the Middle District of North Carolina,
Rockingham Division, No. C-89-231-R, which, as amended, includes KACC and a
number of other defendants. The Complaint, as amended, seeks reimbursement
for past and future response costs and a determination of liability of the
defendants under Section 107 of CERCLA. The EPA has performed a Remedial
Investigation/Feasibility Study and issued a Record of Decision ("ROD") for
the Sites in September 1991. The estimated cost of the major soil
remediation remedy selected for the Sites is approximately $32 million.
Other possible remedies described in the ROD would have estimated costs of
approximately $53 million and $222 million, respectively. The EPA has
stated that it has incurred past costs at the Sites in the range of $7.5-$8
million as of February 9, 1993, and alleges that response costs will
continue to be incurred in the future.
On May 20, 1993, the EPA issued three unilateral Administrative Orders
under Section 106(a) of CERCLA ordering the respondents,
including KACC, to perform the soil remedial design and remedial
action described in the RODand groundwater remediation for three of the Sites. The estimated cost as set forth inIn
March 1997, nine of the ROD for the
remedial action at the three Sites is approximately $27 million. A number
of other companies are also named as respondents.corporate respondents, including KACC, has
entered into a PRPSettlement Agreement and Participation Agreement
with certainwhich allocates one hundred percent of all costs incurred or to
be incurred at each of the Sites. Thereafter, the nine
respondents entered into a Partial Consent Decree with the United
States Department of Justice (the "Aberdeen
Site PRP Group" or"DOJ") and the "Group")EPA regarding
the work to participate jointly in responding tobe performed by the Administrative Orders dated May 20, 1993, regarding soil remediation, to
sharerespondents and their
responsibility for past and future response costs incurred on an interim basis, and to seek to reach a final
allocation of costs through agreement or to allow such final allocation and
determination of liability to be made by the
United States. This Partial Consent Decree was lodged with the
United States District Court.
By letter dated July 6, 1993, KACC has notifiedCourt in December 1997. Based on current
estimates of future costs, the EPA of its ongoing
participation with such group of respondents which, as a group, are
intending to comply with the Administrative Orders to the extent consistent
with applicable law. By letters dated December 30, 1993, the EPA notified
KACC of its potential liability for, and requestedCompany believes that KACC, along with a
number of other companies, undertake or agree to finance, groundwater
remediationKACC's
aggregate financial exposure at certain of the Sites. The ROD-selected remedy for the
groundwater remediation selected by EPA includes a variety of techniques.
The EPA has estimated the total present worth cost, including thirty years
of operation and maintenance, at approximately $11.8these Sites is less that $2.0
million. On June 22,
1994, the EPA issued two unilateral Administrative Orders under Section
106(a) of CERCLA ordering the respondents, including KACC, to undertake the
groundwater remediation at three of the Sites. A PRP Participation
Agreement with respect to groundwater remediation has been entered into by
certain of the respondents, including KACC.
By letter dated March 6, 1996, KACC gave notice of withdrawal from the
Aberdeen Site PRP Group pursuant to the provisions of the PRP Participation
Agreement. KACC advised the Group and the EPA that even if it were liable
for cleanup at the Sites, which it expressly denies, it had already
contributed far more than its allocable potential share of response costs.
KACC has advised the Group and the EPA that it has fully complied with the
Unilateral Orders and that should additional evidence be presented which
demonstrates KACC's liability in excess of the amount contributed to date,
KACC would be willing to discuss the matter further at that time.
United States of America v. Kaiser Aluminum & Chemical
Corporation
In February 1989, a civil action was filed by the United States Department
of Justice (the "DOJ")DOJ at the
request of the EPA against KACC in the United States District
Court for the Eastern District of Washington, Case No.
C-89-106-CLQ. The complaint allegedalleging that emissions from certain stacks at KACC's
Trentwood facility in Spokane, Washington, intermittently
violated the opacity standard contained in the Washington State
Implementation Plan ("SIP"), approved by the EPA under the
federal Clean Air Act. The
complaint sought injunctive relief, including an order that KACC take all
necessary action to achieve compliance with the SIP opacity limit and the
assessment of civil penalties of not more than $25,000 per day. KACC and the EPA, without adjudication of
any issue of fact or law, and without any admission of the
violations alleged in the underlying complaint, have entered into
a Consent Decree, which was approved by a Consent Order entered
by the United States District Court for the Eastern District of
Washington in January 1996. As approved, the Consent Decree
13
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS (continued)
settles the underlying disputes and requires KACC to (i) pay a
$.5 million civil penalty (which penalty has been paid), (ii)
complete a program of plant improvements and operational changes
that began in 1990 at its Trentwood facility, including the
installation of an emission control system to capture particulate
emissions from certain furnaces, and (iii) achieve and maintain
furnace compliance with the opacity standard in the SIP by no later than February 28, 1997. The Company anticipates that
capital expenditures forWashington
SIP. KACC has completed the environmental upgradeinstallation of the furnace operation
at its Trentwood facility, includingemission control
system. If the improvements and changes required
by the Consent Decree, will be approximately $20.0 million.
Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation
and James L. Ferry & Son Inc.
In January 1991, the City of Richmond, et al. (the "Plaintiffs") filed a
Second Amended Complaint for Damages and Declaratory Relief against the
United States, Catellus Development Corporation ("Catellus") and other
defendants (collectively, the "Defendants") alleging, among other things,
that the Defendants caused or allowed hazardous substances, pollutants,
contaminants, debris and other solid wastesrelevant furnaces continue to be discharged, deposited,
disposed of or released on certain property located in Richmond, California
(the "Property") formerly owned by Catellus and leased to KACC for the
purpose of shipbuilding activities conducted by KACC on behalf of the
United States during World War II. The Plaintiffs sought recovery of
response costs and natural resource damages under CERCLA. Certain of the
Plaintiffs alleged they had incurred or expected to incur costs and damages
of approximately $49.0 million. Catellus subsequently filed a third party
complaint (the "Third Party Complaint") against KACC in the United States
District Court for the Northern District of California, Case No. C-89-2935
DLJ. Thereafter, the Plaintiffs filed a separate complaint against KACC,
Case No. C-92-4176. The Plaintiffs settled their CERCLA and tort claims
against the United States for $3.5 million plus thirty-five percent (35%)
of future response costs.
The trial involving this case commenced in March 1995. During the trial,
Plaintiffs settled their claims against Catellus in exchange for payment of
approximately $3.25 million. Subsequently, on June 2, 1995, the United
States District Court for the Northern District of California issued an
order on the remaining claims in that action. On December 7, 1995, the
District Court issued the Final Judgment on those claims concluding that
KACC is liable for various costs and interest, aggregating approximately
$2.2 million, fifty percent (50%) of future costs of cleaning up certain
parts of the Property and certain fees and costs associated specifically
with the claim by Catellus against KACC. In January 1996, Catellus filed a
notice of appeal with respect to its indemnity judgment against KACC. KACC
has since filed a notice of cross appeal as to the Court's decision
adjudicating that KACC is obligated to indemnify Catellus. In February
1996, the Plaintiffs filed motions, whichshow compliance
through July 15, 1998, KACC intends to contest, seeking
reimbursement of fees and costs from KACC in the aggregate amount of $2.76
million. Based on KACC's estimate of future costs of cleanup, resolutionrequest termination of the
Catellus matter is not expected to have a material adverse effect on
Kaiser's consolidated financial condition, results of operations, or
liquidity.
Waste Inc. Superfund Site
On December 8, 1995, the EPA issued a unilateral Administrative Order for
Remedial Design and Remedial Action under CERCLA to KACC and thirty-one
other respondents for remedial design and action at the Waste Inc.
Superfund Site at Michigan City, Indiana. This site was operated as a
landfill from 1965 to 1982. KACC is alleged to have arranged for the
disposal of waste from its formerly-owned plant at Wanatah, Indiana, during
the period from 1964 to 1972. In its Record of Decision, the EPA estimated
the cost of the work to be performed to have a present value of $15.7
million. KACC's share of the total waste sent to the site is unknown. A
consultant retained by a group of PRPs estimated that KACC contributed 2.0%
of the waste sent to the site by the forty-one largest contributors.
KACC's ultimate exposure will depend on the number of PRPs that participate
and the volume of waste properly allocable to KACC. Based on the EPA's
cost estimate, KACC believes that its financial exposure for remedial
design and remedial action at this site is less than $500,000. A PRP
participation agreement is under negotiation.
14
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------Consent Decree.
ITEM 3. LEGAL PROCEEDINGS (continued)(CONTINUED)
Hammons v. Alcan Aluminum Corp. et al
On March 5, 1996, a class action complaint was filed in California against the
Company, Alcan Aluminum Corp., Aluminum Company of America,
Alumax, Inc, Reynolds Metal Company, and the Aluminum Association and others
in the Superior Court of California for the County of Los
Angeles, Case No.
BC145612. The complaint claimsalleging that the defendants conspired, in violation of
state antitrust laws, to raise, stabilize and maintain the price of
primary aluminum and aluminum products through cutsCalifornia Cartwright Act (Bus. & Prof. Code Section16720 &
16750), in production allegedly
in connectionconjunction with the ratification of a Memorandum of Understanding ("MOU")
entered into in 1994 by representatives of the authorities of Australia, Canada, the
European Union, Norway, the Russian Federation and the United
States.States, to restrict the production of primary aluminum resulting
in rises in prices for primary aluminum and aluminum products.
The complaint seeks certification of a class consisting of
persons who at any time between January 1, 1994, and the date of
the complaint purchased aluminum or aluminum products
manufactured by one or more of the defendants and estimates
damages sustained by the class to be $4.4 billion during the year
1994, before trebling. Matheson et al v. Kaiser Aluminum Corporation et al
On September 11, 1995, Kaiser announced that it had appointed an
independent committee of its Board of DirectorsPlaintiff's counsel has estimated damages
to consider a possible
recapitalization transaction. On February 5, 1996, Kaiser publicly
announced that it had filed a preliminary proxy statement with the
Securities and Exchange Commission relating to a proposed recapitalization.
A special shareholders' meeting to consider the recapitalization was
subsequently scheduledbe $4.4 billion per year for April 10, 1996, and the definitive proxy
statement was mailed to shareholders commencing on March 20, 1996. See
Note 7each of the Notestwo years the MOU was
active, which when trebled equals $26.4 billion. On April 2,
1996, the case was removed to Consolidated Financial Statementsthe United States District Court
for the Central District of California. On July 11, 1996, the
Court granted summary judgment in favor of the Company underand other
defendants and dismissed the heading Proposed Recapitalization, at pages 50-51complaint 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 Annual
ReportDistrict Court. On
December 23, 1997, the plaintiff filed a petition for a description of the proposed recapitalization. On March 19,
1996, a lawsuit was filed against MAXXAM, Kaiser, and Kaiser's directors
challenging and seeking to enjoin the recapitalization and the April 10,
1996, special shareholders' meeting. The suit, which is entitled Matheson
et al v. Kaiser Aluminum Corporation et al (No. 14900) and was filed in the
Delaware Court of Chancery, purports to be a class action by persons who as
of March 18, 1996 (the record date for the April 10, 1996, meeting) owned
Kaiser's outstanding common stock and 8.255% PRIDES, Convertible Preferred
Stock ("PRIDES"). Plaintiffs allege, among other things, breaches of
fiduciary duties by certain defendants and that the proposed
recapitalization violates Delaware law and the certificate of designation
for the PRIDES. Plaintiffs seek injunctive relief, rescission,
rescissory damages and other relief. A hearing on the motion for
injunctive relief is presently scheduled for April 8, 1996.rehearing
en banc.
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 1520 years. AtSubsequent to December 31, 1995, the number of such claims pending was1997, KACC reached
agreements settling approximately 59,700, as compared with 25,200 at December 31, 1994. In
1995, approximately 41,700 of such claims were received and 7,200 settled
or dismissed. KACC has been advised by its regional counsel that, although
there can be no assurance, the recent increase in pending claims may be
attributable in part to tort reform legislation in Texas which was passed
by the legislature in March 1995 and which became effective on September 1,
1995. The legislation, among other things, is designed to restrict,
beginning September 1, 1995, the filing of cases in Texas that do not have
a sufficient nexus to that jurisdiction, and to impose, generally as of
September 1, 1996, limitations relating to joint and several liability in
tort cases. A substantial portion25,000 of the pending asbestos-
related claims. Also, subsequent to year-end 1997, KACC reached
agreements on asbestos-related claims that were
filed and served oncoverage matters with two
insurance carriers under which KACC between June 30, 1995, and November 30, 1995, were
filed in Texas prior to September 1, 1995.collected a total of
approximately $17.5 million. For additional information, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - LiquidityEnvironmental and Capital Resources - Asbestos Contingencies."Contingencies"
in the Annual Report. The portion of Note 89 of the Notes to
Consolidated Financial Statements in the Annual Report under the
heading "Asbestos Contingencies" is incorporated herein by
reference.
15
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS (continued)
Other Proceedings
On August 24, 1994, the DOJ issued Civil Investigative Demand No. 11356
("CID No. 11356") requesting information from Kaiser regarding (i) its
production, capacity to produce, and sales of primary aluminum from January
1, 1991, to the date of the response; (ii) any actual or contemplated
reduction in its production of primary aluminum during that period; and
(iii) any communications with others regarding any actual, contemplated,
possible or desired reductions in primary aluminum production by Kaiser or
any of its competitors during that period. Management believes that
Kaiser's actions have at all times been appropriate, and Kaiser has
submitted documents and interrogatory answers to the DOJ responding to CID
No. 11356.
On March 27, 1995, the DOJ issued Civil Investigative Demand No. 12503
("CID No. 12503"), as part of an industry-wide investigation, requesting
information from KACC regarding (i) any actual or contemplated changes in
its method of pricing can stock from January 1, 1994, through March 31,
1995, (ii) the percentage of aluminum scrap and primary aluminum ingot used
by KACC to produce can stock and the manner in which KACC's cost of
acquiring aluminum scrap is factored into its can stock prices, and (iii)
any communications with others regarding any actual or contemplated changes
in its method of pricing can stock from January 1, 1994, through March 31,
1995. Kaiser believes that KACC's actions have at all times been
appropriate, and KACC has submitted documents and interrogatory answers to
the DOJ responding to CID No. 12503.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 1995.1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stockCommon Stock is traded on the New York Stock
Exchange under the symbol "KLU". The number of record holders of
the Company's common
stockCommon Stock at March 15, 199617, 1998, was 169.349. Page 5951
of the Annual Report, and the information in Note 75 of the Notes
to Consolidated Financial Statements under the heading "Dividends on Common Stock""Loan
Covenants and Restrictions" at page 5033 of the Annual Report, are
incorporated herein by reference. The Company has not paid any
dividends on its common stockCommon Stock during the two most recent fiscal
years.
The 1994 Credit Agreement (Exhibits 4.64.12 through 4.114.24 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,Common Stock, and the 1994 Credit Agreement and the Indentures
(Exhibits 4.1 through 4.54.11 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 4.114.24 to this Report, Note 45 of the Notes to
Consolidated Financial Statements at pages 37-3932-33 of the Annual
Report, and the information under the heading "Liquidityheadings "Financing
Activities and Capital Resources -
CapitalLiquidity" and "Capital Structure" at pages 22-24page 20 of
the Annual Report, are incorporated herein by reference.
16
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated herein by
reference to the table at page 31 of this Report, to the table at
page 20 of the
Annual Report, to the discussion under the heading "Results of Operations"
at page 2114 of the Annual Report, to Note 1 of the Notes to
Consolidated Financial Statements at pages 33-3527-29 of the Annual
Report, and to pages 57-5849-50 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pages 20-2814-22 of the Annual Report are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 29-5623-48 and page 5951 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.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 SchedulesINDEX TO FINANCIAL STATEMENTS AND SCHEDULES
1. Financial Statements
--------------------
The Consolidated Financial Statements of the Company,
the Notes to Consolidated Financial Statements, the
Report of Independent Public Accountants, and Quarterly
Financial Data are included on pages 29-5623-48 and 5951 of
the Annual Report.
2. Financial Statement Schedules . . . . . . . . . . . . . Page
----------------------------- ----
Report of Independent Public Accountants. . . . . . . . 19Accountants 14
Schedule I -
Condensed Balance Sheets - Parent Company,
Condensed Statements of Income - Parent Company,
Condensed Statements of Cash Flows - Parent Company,
and Notes to Condensed Financial Statements - Parent
Company . . . . . . . . . . . .20-2315-18
All other schedules are inapplicable or the required
information is included in the Consolidated Financial
Statements or the Notes thereto.
17
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K (continued)
3. Exhibits
--------
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 25)20),
which index is incorporated herein by reference.
(b) Reports on FormREPORTS 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) ExhibitsEXHIBITS
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 25)20), which
index is incorporated herein by reference.
18
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Kaiser Aluminum
Corporation and Subsidiaries'Subsidiary Companies' annual report to
shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 16, 1996.1998. 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 theour
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 AndersenARTHUR ANDERSEN LLP
Houston, Texas
February 16, 1996
19
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- -----------------------------------------------------1998
SCHEDULE I
CONDENSED BALANCE SHEETS - PARENT COMPANY
(In millions of dollars, except share amounts)
December 31,
--------------------
1995 1994
-------- --------------------------------------
1997 1996
-------------- --------------
AssetsASSETS
Current assets:
Cash and cash equivalents $ .2 $ 5.7
Note receivable from KACC 10.7 21.2
-------- --------$ - $ 8.6
-------------- --------------
Total current assets 10.9 26.9
Note receivable from- 8.6
Investment in KACC 8.6 23.5
Investments - KACC 1,521.3 1,361.0
-------- --------1,802.8 1,641.2
-------------- --------------
Total $1,540.8 $1,411.4
======== ========
Liabilities and Stockholders' Equity$ 1,802.8 $ 1,649.8
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 3.33.2 $ 6.42.4
Intercompany note payable to KACC, including accrued interest 1,479.8 1,387.71,682.6 1,578.1
Stockholders' equity:
Preferred stock, par value $.05, authorized 20,000,000 shares; Series A
Convertible, stated value $.10 issued and outstanding, nil and 1,938,295
in 1995 and 1994 .2
PRIDES Convertible, par value $.05, issued and outstanding, - .4
8,673,850 and
8,855,550 in 1995 and 1994 .4 .41996
Common stock, par value $.01, authorized 100,000,000 shares;shares:
issued and outstanding 71,638,51478,980,881 and 58,205,08371,646,789 in 19951997 and
19941996 .8 .7 .6
Additional capital 530.3 527.8533.8 531.1
Accumulated deficit (459.9) (502.6)(417.6) (460.1)
Additional minimum pension liability (13.8) (9.1)
-------- --------- (2.8)
-------------- --------------
Total stockholders' equity 57.7 17.3
-------- --------117.0 69.3
-------------- --------------
Total $1,540.8 $1,411.4
======== ========$ 1,802.8 $ 1,649.8
============== ==============
The accompanying notes to condensed financial statements are an
integral part of these statements.
20
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
SCHEDULE I
CONDENSED STATEMENTS OF INCOME - PARENT COMPANY
(In millions of dollars)
December 31,
---------------------------------------------------------------------------
1997 1996 1995
1994 1993
------- ------- --------------------- -------------- --------------
Equity in income (loss) of KACC $ 152.8154.2 $ (20.4) $(537.2)108.7 $ 152.8
Administrative and general expenses (1.7) (2.2) (.4) (.3) (.4)
Other income (expense):
Interest expense (104.5) (98.3) (92.1)
(86.1) (115.8)
Other income 1.2
------- ------- --------------------- -------------- --------------
Net income (loss)$ 48.0 $ 8.2 $ 60.3
$(106.8) $(652.2)
======= ======= ===================== ============== ==============
The accompanying notes to condensed financial statements are an
integral part of these statements.
21
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
SCHEDULE I
CONDENSED STATEMENTS OF CASH FLOWS - PARENT COMPANY
(In millions of dollars)
December 31,
---------------------------------------------------------------------------
1997 1996 1995
1994 1993
------- ------- --------------------- -------------- --------------
Cash flows from operating activities:
Net income (loss)$ 48.0 $ 8.2 $ 60.3 $(106.8) $(652.2)
Adjustments to reconcile net income (loss) to net cash provided by
(used for)used
for operating activities:
Equity in (income) lossincome of KACC (154.2) (108.7) (152.8) 20.4 537.2
Accrued interest on intercompany note 104.5 98.3 92.1
payable to KACC
92.1 86.1 115.8
Increase (decrease) in othercurrent liabilities 1.6 (.9) .2
.3 (1.0)
------- ------- --------------------- -------------- --------------
Net cash used for operating activities (.1) (3.1) (.2)
(.2)
------- ------- --------------------- -------------- --------------
Cash flows from investing activities:
Investment in KACC (.3) (.1) (1.2)
(66.9) (81.5)
------- ------- -------------------- ------------- -------------
Net cash used for investing activities (.3) (.1) (1.2)
(66.9) (81.5)
------- ------- -------------------- ------------- -------------
Cash flows from financing activities:
Dividends paid (4.2) (10.5) (20.8) (14.8) (6.3)
Capital stock issued .4 .1 1.2
100.1 119.3
Intercompany notesnote issued by KACC - net 4.2 13.4 15.5
(13.2) (31.5)
------- ------- -------------------- ------------- -------------
Net cash provided by (used for) provided by financing .4 3.0 (4.1)
activities (4.1) 72.1 81.5
------- ------- -------------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents - (.2) (5.5)
during the year (5.5) 5.2 (.2)
Cash and cash equivalents at beginning of year - .2 5.7
.5 .7
------- ------- -------------------- ------------- -------------
Cash and cash equivalents at end of year $ - $ - $ .2
$ 5.7 $ .5
======= ======= ==================== ============= =============
Supplemental disclosure of non-cash investing activities:
Non-cash investment in KACC $ 9.94.4 - $ 15.09.9
The accompanying notes to condensed financial statements are an
integral part of these statements.
22
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY
1. Basis of Presentation
The accompanying parent company financial statements ofBASIS OF PRESENTATION
Kaiser Aluminum Corporation ("Kaiser"(the " Company") should be read in conjunction
with the 1995 consolidated financial statements of Kaiser and
Subsidiary Companies.
Kaiser is a holding
company and conducts its operations through its wholly owned
subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"),
which is reported herein using the equity method of
accounting. The accompanying parent company condensed
financial statements of the Company should be read in
conjunction with the 1997 consolidated financial statements
of Kaiser Aluminum Corporation and Subsidiary Companies
("Kaiser").
2. Intercompany Note PayableINTERCOMPANY NOTE PAYABLE
The Intercompany Note to KACC, wasas amended, in July 1993 to
decrease theprovides for a
fixed interest rate from 13% toof 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 AssetsRESTRICTED NET ASSETS
The investment in KACC is substantially unavailable to Kaiserthe
Company pursuant to the terms of certain debt instruments.
The obligations of KACC in respect of the credit facilities
under the 1994 Credit Agreement are guaranteed by Kaiserthe Company and
substantially by all significant subsidiaries of KACC. See
Note 45 of the Notes to Kaiser's Consolidated Financial
Statements.
23
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KAISER ALUMINUM CORPORATION
Date: March 27, 199626, 1998 By George T. Haymaker, Jr.
-----------------------------------------------------------
George T. Haymaker, Jr.
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: March 27, 199626, 1998 George T. Haymaker, Jr.
-----------------------------------------------------------
George T. Haymaker, Jr.
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: March 27, 199626, 1998 John T. La Duc
-----------------------------------------------------------
John T. La Duc
Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: March 27, 1996 Arthur S. Donaldson
-----------------------------
Arthur S. Donaldson26, 1998 Daniel D. Maddox
------------------------------
Daniel D. Maddox
Controller - Corporate
Consolidation and Reporting
(Principal Accounting Officer)
Date: March 27, 199626, 1998 Robert J. Cruikshank
-----------------------------------------------------------
Robert J. Cruikshank
Director
Date: March 27, 199626, 1998 Charles E. Hurwitz
-----------------------------------------------------------
Charles E. Hurwitz
Director
Date: March 27, 199626, 1998 Ezra G. Levin
-----------------------------------------------------------
Ezra G. Levin
Director
Date: March 27, 199626, 1998 Robert Marcus
-----------------------------------------------------------
Robert Marcus
Director
Date: March 27, 199626, 1998 Robert J. Petris
-----------------------------------------------------------
Robert J. Petris
Director
24
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
INDEX OF EXHIBITS
Exhibit
Number Description
- ------ -----------------------
3.1 Restated Certificate of Incorporation of Kaiser Aluminum
Corporation (the "Company" or "KAC"), dated February 21,
1991 (incorporated by reference to Exhibit 3.1 to Amendment
No. 2 to the Registration Statement on Form S-1, dated June
11, 1991, filed by KAC, Registration No. 33-37895).
*3.23.2 Certificate of Retirement of KAC, dated October 24, 1995.
3.3 By-laws of KAC, amended as of February 26, 19911995
(incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Registration
StatementReport on
Form S-1, dated June 11, 1991,10-K for the period ended December 31, 1995, filed by
KAC, RegistrationFile No. 33-37895)1-9447).
*3.3 Certificate of Retirement of Kaiser Aluminum Corporation,
dated February 12, 1998.
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 KACC,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).
*4.34.3 Second Supplemental Indenture, dated as of February 1, 1996,
to the Indenture, dated as of February 1, 1993.1993 (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).
*4.54.6 First Supplemental Indenture, dated as of February 1, 1996,
to the Indenture, dated as of February 17, 1994.
4.61994
(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).
Exhibit
Number Description
------ -----------
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 17,15, 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).
4.74.13 First Amendment to Credit Agreement, dated as of July
21, 1994, amending the Credit Agreement, dated as of
February 17,15, 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).
4.84.14 Second Amendment to Credit Agreement, dated as of March
10, 1995, amending the Credit Agreement, dated as of
February 17,15, 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).
25
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
Exhibit
Number Description
- ------ ------------
4.94.15 Third Amendment to Credit Agreement, dated as of July
20, 1995, amending the Credit Agreement, dated as of
February 17,15, 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).
4.104.16 Fourth Amendment to Credit Agreement, dated as of
October 17, 1995, amending the Credit Agreement, dated
as of February 17,15, 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).
*4.114.17 Fifth Amendment to Credit Agreement, dated as of
December 11, 1995, amending the Credit Agreement, dated
as of February 17,15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent.
4.12 Certificate of Designations of Series A Mandatory Conversion
Premium Dividend Preferred Stock of KAC, dated June 28, 1993Agent
(incorporated by reference to Exhibit 4.34.11 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).
Exhibit
Number Description
------ -----------
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, 1993,1997, filed by KAC,
File No. 1-9447).
4.13 Deposit4.23 Eleventh Amendment to Credit Agreement, between KAC and The First National Bank of
Boston, dated as of
June 30, 1993October 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 4.44.7 to the Report
on Form 10-Q for the quarterly period ended JuneSeptember
30, 1993,1997, filed by KAC, File No. 1-9447).
4.14*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.
4.25 Intercompany Note between KAC and KACC (incorporated by
reference to Exhibit 4.2 to Amendment No. 5 to the Registration Statement
on Form S-1, dated December 13, 1989, filed by KACC, Registration
No. 33-30645).
4.15 Senior Subordinated Intercompany Note between KACC and a
subsidiary of MAXXAM, dated December 15, 1992 (incorporated by
reference to Exhibit 4.1010.11 to the Report on Form 10-K
for the period ended December 31, 1994,1996, filed by KAC,MAXXAM
Inc. ("MAXXAM"), File No. 1-9447)1-3924).
4.16 Certificate4.26 Confirmation of DesignationsAmendment of 8.255% PRIDES, Convertible
Preferred StockNon-Negotiable
Intercompany Note, dated as of October 6, 1993, between
KAC dated February 17, 1994and KACC (incorporated by reference to Exhibit
4.2110.12 to the Report on Form 10-K for the period ended
December 31, 1993,1996, filed by KAC,MAXXAM, File No. 1-9447)1-3924).
4.174.27 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).
4.184.28 Senior Subordinated Intercompany Note between KAC and
KACC dated March 17, 1994 (incorporated by reference to
Exhibit 4.23 to the Report on Form 10-K for the period
ended December 31, 1993, filed by KAC, File No. 1-9447).
4.19 Senior Subordinated Intercompany Note between KAC and KACC dated
June 30, 1993 (incorporated by reference to Exhibit 4.24 to the
Report on Form 10-K for the period ended December 31, 1993,
filed by KAC, File No. 1-9447).
26
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
Exhibit
Number Description
- ------ ------------
KAC has not filed certain long-term debt instruments not
being registered with the Securities and Exchange Commission
where the total amount of indebtedness authorized under any
such instrument does not exceed 10% of the total assets of
KAC and its subsidiaries on a consolidated basis. KAC
agrees and undertakes to furnish a copy of any such
instrument to the Securities and Exchange Commission upon
its request.
10.1 Form of indemnification agreement with officers and
directors (incorporated by reference to Exhibit (10)(b)
to the Registration Statement of KAC on Form S-4, File
No. 33-12836).
Exhibit
Number Description
------ -----------
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).
10.5 Assumption Agreement, dated as of October 28, 1988 (incorporated
by reference to Exhibit HHH to the Final Amendment to the
Schedule 13D of MAXXAM Group Inc. and others in respect of the
Common Stock of KAC, par value $.33-1/3 per share).
10.6 Agreement, dated as of June 30, 1993, between KAC and MAXXAM
(incorporated by reference to Exhibit 10.2 to the Report on Form
10-Q for the quarterly period ended June 30, 1993, filed by KACC,
File No. 1-3605).
Executive Compensation Plans and Arrangements
[Exhibits 10.710.5 - 10.20,10.14, inclusive]
10.710.5 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).
10.810.6 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).
10.910.7 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).
10.1010.8 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).
10.1110.9 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).
27
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
Exhibit
Number Description
- ------ ------------
10.12 Promissory Note, dated October 4, 1990,10.11 First Amendment to Employment Agreement by Robert W. Irelan and Barbara M. Irelan tobetween
KACC, KAC and George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10.54 to Form 10-K for the period ended December 31, 1990, filed
by MAXXAM, File No. 1-3924).
10.13 Promissory Note, dated February 1, 1989, by Anthony R. Pierno and
Beverly J. Pierno to MAXXAM (incorporated by reference to Exhibit
10.30 to Form 10-K for the period ended December 31, 1988, filed
by MAXXAM, File No. 1-3924).
10.14 Promissory Note, dated July 19, 1990, by Anthony R. Pierno to
MAXXAM (incorporated by reference to Exhibit 10.31 to Form 10-K
for the period ended December 31, 1990, filed by MAXXAM, File No.
1-3924).
10.15 Promissory Note, dated July 20, 1993, between MAXXAM and Byron L.
Wade (incorporated by reference to Exhibit 10.59 to Form 10-K for
the period ended December 31, 1993, filed by MAXXAM,
File No. 1-3924).
10.16 Employment Agreement, dated August 20, 1993, between KACC and
Robert E. Cole (incorporated by reference to Exhibit 10.63 to
Form 10-K for the period ended December 31, 1993, filed by
MAXXAM, File No. 1-3924).
10.17 Compensation Agreement, dated July 18, 1994, between KACC and
Larry L. Watts (incorporated by reference to Exhibit 10.110 to the Report on Form 10-Q for
the quarterly period ended June 30, 1994,1996, filed by KAC,
File No. 1-9447).
10.18 Compensation*10.12 Second Amendment to Employment Agreement, dated July 18, 1994,as of
December 10, 1997, by and between KAC, KACC, and Geoff S. Smith (incorporated by reference to Exhibit 10.2 to the
Report on Form 10-Q for the quarterly period ended June 30, 1994,
filed by KAC, File No. 1-9447).
10.19George
T. Haymaker, Jr.
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).
10.2010.14 Form of letter agreement with persons granted stock
options under the Kaiser 1993 Omnibus Stock Incentive
Plan to acquire shares of KAC common stockCommon Stock
(incorporated by reference to Exhibit 10.18 to the
Report on Form 10-K for the period ended December 31,
1994, filed by KAC, File No. 1-9447).
*11 Computation of Earnings Per Common and Common Equivalent Share.
*13 The portions of KAC's Annual Report to shareholders for the
year ended December 31, 1995,1997, which are incorporated by
reference into this Report.
Exhibit
Number Description
------ -----------
*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 Thelen, Marrin, Johnson & Bridges LLP.
*27 Financial Data Schedule.
__________----------
* Filed herewith
28
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
Exhibit 21
SUBSIDIARIES
Listed below are the principal subsidiaries of Kaiser Aluminum
Corporation, the jurisdiction of their incorporation or
organization, and the names under which such subsidiaries do
business. Certain subsidiaries are omitted which, considered in
the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
Place of
Incorporation
Name or Organization
--------- ---------------
Alpart Jamaica Inc. . . . . . . . . . . . . Delaware
Alumina Partners of Jamaica (partnership). . Delaware
Anglesey Aluminium Limited . . . . . . . . . United Kingdom
Kaiser Alumina Australia Corporation . . . . Delaware
Kaiser Aluminium International, Inc. . . . . Delaware
Kaiser Aluminum & Chemical Corporation . . . Delaware
Kaiser Aluminum & Chemical of Canada Limited Ontario
Kaiser Bauxite Company . . . . . . . . . . . Nevada
Kaiser Finance Corporation . . . . . . . . . Delaware
Kaiser Jamaica Bauxite Company (partnership) Jamaica
Kaiser Jamaica Corporation . . . . . . . . . Delaware
Queensland Alumina Limited . . . . . . . . . Queensland
Volta Aluminium Company Limited. . . . . . .Limited Ghana
29
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- ----------------------------------------------------
Domestic California Pennsylvania
---------- ------------
Operations Los Angeles (City of Commerce) Erie
(Partial List) ExtrudedPrincipal California Oklahoma
Domestic ---------- --------
Operations Los Angeles (City Tulsa
(Partial List) of Commerce) Engineered
Engineered Products
Products Pennsylvania
Los Angeles (Santa ------------
Fe Springs) Erie (50%)
Engineered Engineered
Products Products
Fabricating South Carolina
Oxnard --------------
Engineered Greenwood
Products Engineered
Pleasanton Products
R&D at the Greenwood
Center Engineered
for Products
Technology, Machine Shop
Administrative Tennessee
Offices ---------
Florida Jackson
------- Engineered
Mulberry Products Forgings Plant and Offices
Los Angeles (Santa Fe Springs) South Carolina
--------------
Extruded Products Fabricating Greenwood
Oxnard Forgings
Forgings Greenwood
Pleasanton Machine Shop
R&D at the Center for Technology, Tennessee
----------
Administrative Offices Jackson
Florida Extruded Products
--------
Mulberry Texas
------
Sodium Texas
Silicofluoride, -----
Potassium Houston
Silicofluoride
Potassium Silicofluoride Dallas
Louisiana Extruded Products Offices
----------
Baton Rouge Houston
Alumina, Kaiser Alumina
Technical Services, Kaiser
Louisiana Aluminum
--------- Corporation
Baton Rouge Headquarters
Environmental Sherman
Offices Engineered
Gramercy Products
Alumina Virginia
Michigan --------
-------- Richmond
Detroit Engineered
(Southfield) Products
Automotive Washington
Product ----------
Development Mead
and Sales Primary
Nevada Aluminum, Corporation
Headquarters
International Business
Development, and Sherman
Environmental Offices Extruded Products
Gramercy Washington
-----------
Alumina Mead
Michigan Primary Aluminum,
---------
Detroit (Southfield) Division Technology Center
Automotive Product Development
and Sales Richland
Ohio Extruded Products
-----
Canton Tacoma
Castings Primary Aluminum
Newark Trentwood
Extruded Products Flat-Rolled Products Plant and Offices
Oklahoma
---------
Tulsa
Aluminum and Magnesium
Extruded Products; Anodes
- ----------------------------------------------------------------------------------------------------
Worldwide Australia Japan
----------
------ Northwest
Reno Engineering
Micromill(TM) Center
Ohio Richland
---- Engineered
Canton Products
Engineered Tacoma
Products Primary
Cuyahoga Falls Aluminum
(50%) Trentwood
Engineered Flat-Rolled
Products Products
Newark
Engineered
Products
-----------------------------------------------------------------
Principal Australia Jamaica
Worldwide --------- -------
Operations Queensland Alumina Partners of
(Partial List) Alumina Jamaica (65%)
Limited
(28.3% owned) Furukawa Kaiser Forged Products Company
(Partial List) Alumina (47.5%)
Canada Sales Office
-------
Kaiser Aluminum & Chemical
of Canada Limited The Netherlands
----------------
(100%) Kaiser Aluminum Mill Products Inc. (100%)
Extruded Products Sales Office
Ghana Russia
------ -------
Volta Aluminium Company Limited (90%) Kaiser Aluminium Russia, Inc. (100%)
Primary Aluminum International Business Development
Jamaica Wales, United Kingdom
-------- ----------------------
Alumina Partners of Jamaica (65%) Anglesey Aluminium Limited (49%)
Bauxite, Alumina Primary Aluminum
Kaiser Jamaica Bauxite Company (49%) Bauxite,
30Alumina
(28.3%) Kaiser Jamaica
Alumina Bauxite Company
Canada (49%)
------ Bauxite
Kaiser Russia
Aluminum & ------
Chemical of Kaiser Aluminium
Canada Limited Russia, Inc. (100%)
(100%) International
Engineered Business
Products Development
Ghana Wales, United Kingdom
----- ---------------------
Volta Aluminium Anglesey Aluminium
Company Limited Limited (49%)
(90%) Primary Aluminum
Primary Aluminum