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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission file number 1-9447
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3030279
(State of Incorporation) (I.R.S. Employer
Identification No.)
5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057-3010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 267-
3777
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
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 17, 1998, there were 79,142,903 shares of the Common
Stock of the registrant outstanding. Based upon New York Stock
Exchange closing prices on March 17, 1998, the aggregate market
value of the registrant's Common Stock held by non-affiliates was
$270.5 million.
Certain portions of the registrant's annual report to
shareholders for the fiscal year ended December 31, 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 20-24
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)
TABLE OF CONTENTS
Page
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PART I 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 11
PART II 11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 11
ITEM 6. SELECTED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 12
PART III 12
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
12
ITEM 11. EXECUTIVE COMPENSATION 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
12
PART IV 12
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 12
SCHEDULE I 15
SIGNATURES 19
INDEX OF EXHIBITS 20
EXHIBIT 21 SUBSIDIARIES 25
(ii)
PART I
ITEM 1. BUSINESS
This 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 use of forward-looking
terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or
by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and
that actual results may vary materially from those in the
forward-looking statements as a result of various factors. These
factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, developments
in technology, new or modified statutory or regulatory
requirements and changing prices and market conditions. This
Report and the financial portion of the Company's 1997 Annual
Report to Shareholders (see Items 6 through 8 of this Report)
identify other factors that could cause such differences. No
assurance can be given that these are all of the factors that
could cause actual results to vary materially from the forward-
looking statements.
General
Kaiser Aluminum Corporation (the "Company"), a Delaware
corporation organized in 1987, is a subsidiary of MAXXAM Inc.
("MAXXAM"). MAXXAM and one of its wholly-owned subsidiaries
together own approximately 63% of the Company's Common Stock,
with the remaining approximately 37% publicly held. The Company,
through its subsidiary, Kaiser Aluminum & Chemical Corporation
("KACC"), operates in all principal aspects of the aluminum
industry - the mining of bauxite, the refining of bauxite into
alumina, the production of primary aluminum from alumina, and the
manufacture of fabricated (including semi-fabricated) aluminum
products. In addition to the production utilized by KACC in its
operations, KACC sells significant amounts of alumina and primary
aluminum in domestic and international markets. In 1997, KACC
produced approximately 2,945,000 tons* of alumina, of which
approximately 66% was sold to third parties, and produced
approximately 493,000 tons of primary aluminum, of which
approximately 67% was sold to third parties. KACC is also a
major domestic supplier of fabricated aluminum products. In
1997, KACC shipped approximately 400,000 tons of fabricated
aluminum products to third parties, which accounted for
approximately 5% of total United States domestic shipments. Note
11 of the Notes to Consolidated Financial Statements contained in
the Company's 1997 Annual Report to Shareholders (the "Annual
Report") is incorporated herein by reference.
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
-------------- -------------- --------------
(in thousands of tons)
ALUMINA:
Shipments to Third Parties 1,929.8 2,073.7 2,040.1
Intracompany Transfers 968.0 912.4 800.6
PRIMARY ALUMINUM:
Shipments to Third Parties 327.9 355.6 271.7
Intracompany Transfers 164.2 128.3 217.4
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties 400.0 327.1 368.2
* 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
The Company's operating results are sensitive to changes in the
prices of alumina, primary aluminum, and fabricated aluminum
products, and also depend to a significant degree upon the volume
and mix of all products sold and on KACC's hedging strategies.
Primary aluminum prices have historically been subject to
significant cyclical fluctuations. Alumina prices, as well as
fabricated aluminum product prices (which vary considerably among
products), are significantly influenced by changes in the price
of primary aluminum and generally lag behind primary aluminum
prices for periods of up to three months. From time to time in
the ordinary course of business KACC enters into hedging
transactions to provide price risk management in respect of its
net exposure resulting from (i) anticipated sales of alumina,
primary aluminum, and fabricated aluminum products, less (ii)
expected purchases of certain items, such as aluminum scrap,
rolling ingot, and bauxite, whose prices fluctuate with the price
of primary aluminum. Forward sales contracts are used by KACC to
effectively lock-in or fix the price that KACC will receive for
its shipments. KACC also uses option contracts (i) to establish
a minimum price for its product shipments, (ii) to establish a
"collar" or range of prices for its anticipated sales, and/or
(iii) to permit KACC to realize possible upside price movements.
See Notes 1 and 10 of the Notes to Consolidated Financial
Statements in the Annual Report.
ITEM 1. BUSINESS (CONTINUED)
Production Operations
- Alumina
-------
The following table lists KACC's bauxite mining and alumina
refining facilities as of December 31, 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% 1,050,000 1,050,000
Alpart Jamaica 65% 942,500 1,450,000
QAL Australia 28.3% 973,500 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 ton 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 and JAMALCO, a joint venture between
affiliates of Aluminum Company of America and the government of
Jamaica, jointly announced that they had signed a non-binding
letter of intent agreeing to consolidate their bauxite mining
operations in Jamaica, with the objective of optimizing operating
and capital costs. The transaction is subject to various
conditions, including the negotiation of definitive agreements,
third party consents, and board approvals. No assurance can be
given that the conditions will be satisfied or that the
transaction will be consummated.
KACC owns a 28.3% interest in Queensland Alumina Limited ("QAL"),
which owns the largest and one of the most competitive alumina
refineries in the world, located in Queensland, Australia. QAL
refines bauxite into alumina, essentially on a cost basis, for
the account of its stockholders under long-term tolling
contracts. The stockholders, including KACC, purchase bauxite
from another QAL stockholder under long-term supply contracts.
KACC has contracted with QAL to take approximately 792,000 tons
per year of capacity or pay standby charges. KACC is
unconditionally obligated to pay amounts calculated to service
its share ($97.6 million at December 31, 1997) of certain debt of
QAL, as well as other QAL costs and expenses, including bauxite
shipping costs.
ITEM 1. BUSINESS (CONTINUED)
KACC's principal customers for bauxite and alumina consist of
other aluminum producers that purchase bauxite and
reduction-grade alumina, trading intermediaries who resell raw
materials to end-users, and users of chemical-grade alumina. All
of KACC's third-party sales of bauxite in 1997 were made to two
customers, the largest of which accounted for approximately 91%
of such sales. KACC also sold alumina in 1997 to 29 customers,
the largest and top five of which accounted for approximately 24%
and 85% of such sales, respectively. See "- Competition." The
Company believes that among alumina producers KACC is the world's
second largest seller of smelter grade alumina to third parties.
KACC's strategy is to sell a substantial portion of the alumina
available to it in excess of its internal smelting requirements
under multi-year sales contracts with prices linked to the price
of primary aluminum. See "- Sensitivity to Prices and Hedging
Programs."
- Primary Aluminum Products
-------------------------
The following table lists KACC's primary aluminum smelting
facilities as of December 31, 1997:
Annual Rated Total 1997
Capacity Annual Average
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
------------------------------ ------------- ------------- -------------- -------------- -------------
(tons) (tons)
Domestic
Washington Mead 100% 200,000 200,000 108%
Washington Tacoma 100% 73,000 73,000 103%
-------------- --------------
Subtotal 273,000 273,000
-------------- --------------
International
Ghana Valco 90% 180,000 200,000 76%
Wales, United Kingdom Anglesey 49% 55,000 112,000 118%
-------------- --------------
Subtotal 235,000 312,000
-------------- --------------
Total 508,000 585,000
============== ==============
The Mead facility uses pre-bake technology and produces primary
aluminum. Approximately 64% of Mead's 1997 production was used
at KACC's Trentwood, Washington, rolling mill, and the balance
was sold to third parties. The Tacoma facility uses Soderberg
technology and produces primary aluminum and high-grade,
continuous-cast, redraw rod, which currently commands a premium
price in excess of the price of primary aluminum. Both smelters
have achieved significant production efficiencies through
retrofit technology and a variety of cost controls, leading to
increases in production volume and enhancing their ability to
compete with newer smelters.
KACC is modernizing and expanding the carbon baking furnace at
its Mead 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 been completed and is in
operation. The remaining modernization work is expected to be
completed in late 1998, when an existing furnace will be rebuilt.
A portion of this project was financed with the net proceeds
(approximately $18.6 million) of 7.6% Solid Waste Disposal
Revenue Bonds due 2027 issued in March 1997 by the Industrial
Development Corporation of Spokane County, Washington.
Electric power represents an important production cost for KACC
at its aluminum smelters. In 1995, KACC successfully
restructured electric power purchase agreements for its
facilities in the Pacific Northwest, which resulted in
significantly lower electric power costs in 1996 for the Mead and
Tacoma, Washington, smelters compared to 1995 electric power
costs. KACC continued to benefit from savings in electric power
costs at those facilities in 1997 and expects to continue to
benefit from such savings in 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
tolling contracts which provide for proportionate payments by the
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.
Effective January 1, 1998, the VRA reduced the allocation of
electric power to the Valco smelter. The Company announced that,
due to the reduced power allocation, Valco expected to operate
three 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
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 bus that conduct electricity through
reduction cells, improved feed systems that add alumina to the
cells, and a computerized process control and energy management
system - has significantly contributed to increased and more
efficient production of primary aluminum and enhanced KACC's
ability to compete more effectively with the industry's newer
smelters. KACC 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 1997, KACC sold its
primary aluminum production not utilized for internal purposes to
approximately 52 customers, the largest and top five of which
accounted for approximately 13% and 47% of such sales,
respectively. See "- Competition." Marketing and sales efforts
are conducted by personnel located in Pleasanton, California,
Houston, Texas, and Tacoma and Spokane, Washington. A majority
of the business unit's sales are based upon long-term
relationships with metal merchants and end-users.
- Fabricated Aluminum Products
----------------------------
KACC manufactures and markets fabricated aluminum products for
the transportation, packaging, construction, and consumer
durables markets in the United States and abroad. Sales in these
markets are made directly and through distributors to a large
number of customers. 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
operates the Trentwood, Washington, rolling mill and the
Micromill(TM) facility, near Reno, Nevada. The Trentwood
facility accounted for approximately 62% of KACC's 1997
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), and the specialty coil
markets (producing automotive brazing sheet, wheel, and tread
products), both directly and through distributors.
KACC continues to enhance the process and product mix of its
Trentwood rolling mill in an effort to maximize its profitability
and maintain full utilization of the facility. KACC is
implementing a plan to expand its annual production capacity of
heat-treated flat-rolled products 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 heat-treated operations,
enhance the quality of its heat-treat products, and improve
Trentwood's operating efficiency. The project is estimated to
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 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. In 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 such improvements
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 1997, the business unit had 37 domestic and foreign can stock
customers. The largest and top five of such customers accounted
for approximately 15% and 27%, respectively, of the business
unit's revenue. See "- Competition." The marketing staff for
the business unit is located at the Trentwood facility and in
Pleasanton, California. Sales are made directly to end-use
customers and distributors from four sales offices in the United
States, from sales offices in England and Japan, and by
independent sales agents in Europe, Asia and Latin America.
The 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 engineered products business unit
maintains its headquarters and a sales and engineering office in
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. 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 wholly-owned subsidiary of the
Company, increased KACC's extruded products capacity and enhanced
its existing extrusion business due to that facility's ability to
manufacture seamless tubing and 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. A facility located
in Richland, Washington, produces seamless tubing in both hard
and soft alloys for the automotive, other transportation, export,
recreation, agriculture, and other industrial markets. The
business unit also operates a cathodic protection business
located in Tulsa, Oklahoma, that extrudes both aluminum and
magnesium. Major markets for extruded products are in the
transportation industry, to which the business unit provides
extruded shapes for automobiles, trucks, trailers, cabs, and
shipping containers, and in the distribution, durable goods,
defense, building and construction, ordnance and electrical
markets.
The engineered products business unit operates forging facilities
at Oxnard, California, and Greenwood, South Carolina; a machine
shop at Greenwood, South Carolina; and a casting facility in
Canton, 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 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 1997, the engineered products business unit had 641 customers,
the largest and top five of which accounted for approximately 8%
and 18%, respectively, of the business unit's revenue. See "-
Competition." Sales are made directly from plants, as well as
marketing locations elsewhere in the United States.
Competition
Aluminum competes in many markets with steel, copper, glass,
plastic, and 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 & Chemicals 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 it has production
expertise, high-quality capability, and geographic and other
competitive advantages. The Company believes that, assuming the
current relationship between worldwide supply and demand for
alumina and primary aluminum does not change materially, the loss
of any one of KACC's customers, including intermediaries, would
not have a material adverse effect on the Company's financial
condition or results of operations.
Research and Development
KACC conducts research and development activities principally at
two facilities - CFT in Pleasanton, California, and the Northwest
Engineering Center adjacent to the Mead smelter in Washington.
Net expenditures for company-sponsored research and development
activities were $19.7 million in 1997, $20.5 million in 1996, and
$18.5 million in 1995. KACC's research staff totaled 133 at
December 31, 1997. KACC estimates that research and development
net expenditures will be approximately $11.6 million in 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 sheet markets, and aluminum reduction cell
models which are applied to improving cell designs and operating
conditions. The Northwest Engineering Center maintains
specialized laboratories and a miniature carbon plant where
experiments with new anode and cathode technology are performed.
The Northwest Engineering Center supports KACC's primary aluminum
smelters, and concentrates on the development of cost-effective
technical innovations such as equipment and process improvements.
CFT and the Reno, Nevada, facility are continuing their efforts
to implement 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 sells technical and managerial
assistance to other producers worldwide. KACC's technology has
been installed in alumina refineries, aluminum smelters and
rolling mills located in the United States, Jamaica, Sweden,
Germany, Russia, India, Australia, Korea, New Zealand, Ghana,
United Arab Emirates, Bahrain, Venezuela, Brazil, and the United
Kingdom. KACC has technical services contracts with smelters in
Wales, Africa, Europe, the Middle East, and India.
Employees
During 1997, KACC employed an average of 9,553 persons, compared
with an average of 9,567 employees in 1996, and 9,546 employees
in 1995. At December 31, 1997, KACC's work force was 9,597,
including a domestic work force of 6,081, of whom 4,118 were paid
at an hourly rate. Most hourly paid domestic employees are
covered by collective bargaining agreements with various labor
unions. Approximately 72% of such employees are covered by a
master agreement (the "Labor Contract") with the United
Steelworkers of America which 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 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 November 3, 1997, and an amount in respect of the cost
of living adjustment under the previous master agreement has been
phased into base wages. In the first half of 1998, KACC will
acquire up to $4,000 per employee (80 shares) of preference stock
held in a stock plan for the benefit of certain employees covered
by the Labor Contract. KACC will make comparable acquisitions of
preference stock held for the benefit of certain salaried
employees.
Management considers KACC's employee relations to be
satisfactory.
Environmental Matters
The Company and KACC are subject to a wide variety of
international, federal, state and local environmental laws and
regulations (the "Environmental Laws"). The Environmental Laws
regulate, among other things, air and water emissions and
discharges; the generation, storage, treatment, transportation,
and disposal of solid and hazardous waste; the release of
hazardous or toxic substances, pollutants and contaminants into
the environment; and, in certain instances, the environmental
condition of industrial property prior to transfer or sale. In
addition, the Company and KACC are subject to various federal,
state, and local workplace health and safety laws and regulations
("Health Laws").
From time to time, KACC is subject, with respect to its current
and former operations, to fines or penalties assessed for alleged
breaches of the Environmental and Health Laws and to claims and
litigation brought by federal, state or local agencies and by
private parties seeking remedial or other enforcement action
under the Environmental and Health Laws or damages related to
alleged injuries to health or to the environment, including
claims with respect to certain waste disposal sites and the
remediation of sites presently or formerly operated by KACC. KACC
currently is subject to certain lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of
1986 ("CERCLA"). 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 sites listed on the National Priorities List under
CERCLA and, in certain instances, may be exposed to joint and
several liability for those costs or damages to natural
resources. KACC's Mead, Washington, facility has been listed on
the National Priorities List under CERCLA. The Washington State
Department of Ecology has advised KACC that there are several
options for remediation at the Mead facility that would be
acceptable to the Department. KACC expects that one of these
remedial options will be agreed upon and incorporated into a
Consent Decree. In addition, in connection with certain of its
asset sales, KACC has agreed to indemnify the purchasers with
respect to certain liabilities (and associated expenses)
resulting from acts or omissions arising prior to such
dispositions, including environmental liabilities.
Based on the Company's evaluation of these and other
environmental matters, the Company has established environmental
accruals, primarily related to potential solid waste disposal and
soil and groundwater remediation matters. At December 31, 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 - Environmental and
Asbestos Contingencies" in the Annual Report.
The portion of Note 9 of the Notes to Consolidated Financial
Statements in the Annual Report under the headings "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. The Company believes that KACC's plants are cost
competitive on an international basis.
KACC's obligations under the Credit Agreement entered into on
February 15, 1994, as amended (the "Credit Agreement"), are
secured by, among other things, mortgages on KACC's major
domestic plants (other than the Gramercy alumina refinery and
Nevada Micromill(TM)). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Financing
Activities and 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
disposal areas from approximately the mid-1930's through the
late-1980's. The EPA issued unilateral Administrative Orders
under Section 106(a) of CERCLA ordering the respondents,
including KACC, to perform the soil remedial design and remedial
action and groundwater remediation for three of the Sites. In
March 1997, nine of the corporate respondents, including KACC,
entered into a Settlement Agreement and Participation Agreement
which 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 "DOJ") and the EPA regarding
the work to be performed by the respondents and their
responsibility for past and future response costs incurred by the
United States. This Partial Consent Decree was lodged with the
United States District Court in December 1997. Based on current
estimates of future costs, the Company believes that KACC's
aggregate financial exposure at these Sites is less that $2.0
million.
United States of America v. Kaiser Aluminum & Chemical
Corporation
In February 1989, a civil action was filed by the DOJ at the
request of the EPA against KACC in the United States District
Court alleging 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. 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
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 Washington
SIP. KACC has completed the installation of the emission control
system. If the relevant furnaces continue to show compliance
through July 15, 1998, KACC intends to request termination of the
Consent Decree.
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
Hammons v. Alcan Aluminum Corp. et al
On March 5, 1996, a class action complaint was filed against the
Company, Alcan Aluminum Corp., Aluminum Company of America,
Alumax, Inc, Reynolds Metal Company, and the Aluminum Association
in the Superior Court of California for the County of Los
Angeles, alleging that the defendants conspired, in violation of
the California Cartwright Act (Bus. & Prof. Code Section16720 &
16750), in conjunction with a Memorandum of Understanding ("MOU")
entered into in 1994 by representatives of Australia, Canada, the
European Union, Norway, the Russian Federation and the United
States, to restrict the production of primary aluminum resulting
in rises in prices for primary aluminum and aluminum products.
The complaint 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. Plaintiff's counsel has estimated damages
to be $4.4 billion per year for each of the two years the MOU was
active, which when trebled equals $26.4 billion. On April 2,
1996, the case was removed to the United States District Court
for the Central District of California. On July 11, 1996, the
Court granted summary judgment in favor of the Company and other
defendants and dismissed the complaint as to all defendants. On
July 18, 1996, the plaintiff filed a notice of appeal to the
United States Court of Appeals for the Ninth Circuit. On
December 11, 1997, the United States Court of Appeals for the
Ninth Circuit affirmed the decision of the District Court. On
December 23, 1997, the plaintiff filed a petition for rehearing
en banc.
Asbestos-related Litigation
KACC is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs
allege that certain of their injuries were caused by, among other
things, exposure to asbestos during, and as a result of, their
employment or association with KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits
generally relate to products KACC has not manufactured for at
least 20 years. Subsequent to December 31, 1997, KACC reached
agreements settling approximately 25,000 of the pending asbestos-
related claims. Also, subsequent to year-end 1997, KACC reached
agreements on asbestos-related coverage matters with two
insurance carriers under which KACC collected a total of
approximately $17.5 million. For additional information, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Environmental and Asbestos Contingencies"
in the Annual Report. The portion of Note 9 of the Notes to
Consolidated Financial Statements in the Annual Report under the
heading "Asbestos Contingencies" is incorporated herein by
reference.
Other Matters
Various other lawsuits and claims are pending against KACC.
While uncertainties are inherent in the final outcome of such
matters and it is presently impossible to determine the actual
costs that ultimately may be incurred, management believes that
the resolution of such uncertainties and the incurrence of such
costs should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the
Company during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock
Exchange under the symbol "KLU". The number of record holders of
the Company's Common Stock at March 17, 1998, was 349. Page 51
of the Annual Report, and the information in Note 5 of the Notes
to Consolidated Financial Statements under the heading "Loan
Covenants and Restrictions" at page 33 of the Annual Report, are
incorporated herein by reference. The Company has not paid any
dividends on its Common Stock during the two most recent fiscal
years.
The Credit Agreement (Exhibits 4.12 through 4.24 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, and the Credit Agreement and the Indentures
(Exhibits 4.1 through 4.11 to this Report) contain restrictions
on the ability of the Company's subsidiaries to transfer funds to
the Company in the form of cash dividends, loans or advances.
Exhibits 4.1 through 4.24 to this Report, Note 5 of the Notes to
Consolidated Financial Statements at pages 32-33 of the Annual
Report, and the information under the headings "Financing
Activities and Liquidity" and "Capital Structure" at page 20 of
the Annual Report, are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated herein by
reference to the table at page 1 of this Report, to the table at
page 14 of the Annual Report, to Note 1 of the Notes to
Consolidated Financial Statements at pages 27-29 of the Annual
Report, and to pages 49-50 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pages 14-22 of the Annual Report are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 23-48 and page 51 of the Annual Report are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Information required under PART III (Items 10, 11, 12, and 13)
has been omitted from this Report since the Company intends to
file with the Securities and Exchange Commission, not later than
120 days after the close of its fiscal year, a definitive proxy
statement pursuant to Regulation 14A which involves the election
of directors, and such information is incorporated by reference
from such definitive proxy statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
1. Financial Statements
--------------------
The Consolidated Financial Statements of the Company,
the Notes to Consolidated Financial Statements, the
Report of Independent Public Accountants, and Quarterly
Financial Data are included on pages 23-48 and 51 of
the Annual Report.
2. Financial Statement Schedules Page
----------------------------- ----
Report of Independent Public Accountants 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 15-18
All other schedules are inapplicable or the required
information is included in the Consolidated Financial
Statements or the Notes thereto.
3. Exhibits
--------
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 20),
which index is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
No Report on Form 8-K was filed by the Company during the
last quarter of the period covered by this Report.
(c) EXHIBITS
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 20), which
index is incorporated herein by reference.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Kaiser Aluminum
Corporation and Subsidiary Companies' annual report to
shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 16, 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 our
audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data
required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 16, 1998
SCHEDULE I
CONDENSED BALANCE SHEETS - PARENT COMPANY
(In millions of dollars, except share amounts)
December 31,
------------------------------
1997 1996
-------------- --------------
ASSETS
Current assets:
Note receivable from KACC $ - $ 8.6
-------------- --------------
Total current assets - 8.6
Investment in KACC 1,802.8 1,641.2
-------------- --------------
Total $ 1,802.8 $ 1,649.8
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 3.2 $ 2.4
Intercompany note payable to KACC, including accrued interest 1,682.6 1,578.1
Stockholders' equity:
PRIDES Convertible, par value $.05, issued and outstanding, - .4
8,673,850 in 1996
Common stock, par value $.01, authorized 100,000,000 shares:
issued and outstanding 78,980,881 and 71,646,789 in 1997 and
1996 .8 .7
Additional capital 533.8 531.1
Accumulated deficit (417.6) (460.1)
Additional minimum pension liability - (2.8)
-------------- --------------
Total stockholders' equity 117.0 69.3
-------------- --------------
Total $ 1,802.8 $ 1,649.8
============== ==============
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
CONDENSED STATEMENTS OF INCOME - PARENT COMPANY
(In millions of dollars)
December 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
Equity in income of KACC $ 154.2 $ 108.7 $ 152.8
Administrative and general expenses (1.7) (2.2) (.4)
Interest expense (104.5) (98.3) (92.1)
-------------- -------------- --------------
Net income $ 48.0 $ 8.2 $ 60.3
============== ============== ==============
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
CONDENSED STATEMENTS OF CASH FLOWS - PARENT COMPANY
(In millions of dollars)
December 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
Cash flows from operating activities:
Net income $ 48.0 $ 8.2 $ 60.3
Adjustments to reconcile net income to net cash used
for operating activities:
Equity in income of KACC (154.2) (108.7) (152.8)
Accrued interest on intercompany note 104.5 98.3 92.1
payable to KACC
Increase (decrease) in current liabilities 1.6 (.9) .2
-------------- -------------- --------------
Net cash used for operating activities (.1) (3.1) (.2)
-------------- -------------- --------------
Cash flows from investing activities:
Investment in KACC (.3) (.1) (1.2)
------------- ------------- -------------
Net cash used for investing activities (.3) (.1) (1.2)
------------- ------------- -------------
Cash flows from financing activities:
Dividends paid (4.2) (10.5) (20.8)
Capital stock issued .4 .1 1.2
Intercompany note issued by KACC - net 4.2 13.4 15.5
------------- ------------- -------------
Net cash provided by (used for) financing .4 3.0 (4.1)
activities ------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents - (.2) (5.5)
during the year
Cash and cash equivalents at beginning of year - .2 5.7
------------- ------------- -------------
Cash and cash equivalents at end of year $ - $ - $ .2
============= ============= =============
Supplemental disclosure of non-cash investing activities:
Non-cash investment in KACC $ 4.4 - $ 9.9
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY
1. BASIS OF PRESENTATION
Kaiser Aluminum Corporation (the " Company") is a holding
company and conducts its operations through its wholly owned
subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"),
which is reported herein using the equity method of
accounting. The accompanying parent company condensed
financial statements of the Company should be read in
conjunction with the 1997 consolidated financial statements
of Kaiser Aluminum Corporation and Subsidiary Companies
("Kaiser").
2. INTERCOMPANY NOTE PAYABLE
The Intercompany Note to KACC, as amended, provides for a
fixed interest rate of 6-5/8%. No interest or principal
payments are due until December 31, 2000, after which
interest and principal will be payable over a 15-year term
pursuant to a predetermined schedule.
3. RESTRICTED NET ASSETS
The investment in KACC is substantially unavailable to the
Company pursuant to the terms of certain debt instruments.
The obligations of KACC in respect of the credit facilities
under the Credit Agreement are guaranteed by the Company and
substantially by all significant subsidiaries of KACC. See
Note 5 of the Notes to Kaiser's Consolidated Financial
Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KAISER ALUMINUM CORPORATION
Date: March 26, 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 26, 1998 George T. Haymaker, Jr.
------------------------------
George T. Haymaker, Jr.
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: March 26, 1998 John T. La Duc
------------------------------
John T. La Duc
Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: March 26, 1998 Daniel D. Maddox
------------------------------
Daniel D. Maddox
Controller - Corporate
Consolidation and Reporting
(Principal Accounting Officer)
Date: March 26, 1998 Robert J. Cruikshank
------------------------------
Robert J. Cruikshank
Director
Date: March 26, 1998 Charles E. Hurwitz
------------------------------
Charles E. Hurwitz
Director
Date: March 26, 1998 Ezra G. Levin
------------------------------
Ezra G. Levin
Director
Date: March 26, 1998 Robert Marcus
------------------------------
Robert Marcus
Director
Date: March 26, 1998 Robert J. Petris
------------------------------
Robert J. Petris
Director
INDEX OF EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of Kaiser Aluminum
Corporation (the "Company" or "KAC"), dated February 21,
1991 (incorporated by reference to Exhibit 3.1 to Amendment
No. 2 to the Registration Statement on Form S-1, dated June
11, 1991, filed by KAC, Registration No. 33-37895).
3.2 Certificate of Retirement of KAC, dated October 24, 1995
(incorporated by reference to Exhibit 3.2 to the Report on
Form 10-K for the period ended December 31, 1995, filed by
KAC, File No. 1-9447).
*3.3 Certificate of Retirement of Kaiser Aluminum Corporation,
dated February 12, 1998.
3.4 Amended and Restated By-Laws of Kaiser Aluminum Corporation,
dated October 1, 1997 (incorporated by reference to Exhibit
3.3 to the Report on Form 10-Q for the quarterly period
ended September 30, 1997, filed by KAC, File No. 1-9447).
4.1 Indenture, dated as of February 1, 1993, among Kaiser
Aluminum & Chemical Corporation ("KACC"), as Issuer, Kaiser
Alumina Australia Corporation, Alpart Jamaica Inc., and
Kaiser Jamaica Corporation, as Subsidiary Guarantors, and
The First National Bank of Boston, as Trustee, regarding
KACC's 12-3/4% Senior Subordinated Notes Due 2003
(incorporated by reference to Exhibit 4.1 to Form 10-K for
the period ended December 31, 1992, filed by KACC, File No.
1-3605).
4.2 First Supplemental Indenture, dated as of May 1, 1993, to
the Indenture, dated as of February 1, 1993 (incorporated by
reference to Exhibit 4.2 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC, File
No. 1-3605).
4.3 Second Supplemental Indenture, dated as of February 1, 1996,
to the Indenture, dated as of February 1, 1993 (incorporated
by reference to Exhibit 4.3 to the Report on Form 10-K for
the period ended December 31, 1995, filed by KAC, File No.
1-9447).
4.4 Third Supplemental Indenture, dated as of July 15, 1997, to
the Indenture, dated as of February 1, 1993 (incorporated by
reference to Exhibit 4.1 to the report on Form 10-Q for the
quarterly period ended June 30, 1997, filed by KAC, File No.
1-9447).
4.5 Indenture, dated as of February 17, 1994, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., Kaiser Jamaica Corporation, and Kaiser Finance
Corporation, as Subsidiary Guarantors, and First Trust
National Association, as Trustee, regarding KACC's 9-7/8%
Senior Notes Due 2002 (incorporated by reference to Exhibit
4.3 to the Report on Form 10-K for the period ended
December 31, 1993, filed by KAC, File No. 1-9447).
4.6 First Supplemental Indenture, dated as of February 1, 1996,
to the Indenture, dated as of February 17, 1994
(incorporated by reference to Exhibit 4.5 to the Report on
Form 10-K for the period ended December 31, 1995, filed by
KAC, File No. 1-9447).
4.7 Second Supplemental Indenture, dated as of July 15, 1997, to
the Indenture, dated as of February 17, 1994 (incorporated
by reference to Exhibit 4.2 to the report on Form 10-Q for
the quarterly period ended June 30, 1997, filed by KAC, File
No. 1-9447).
4.8 Indenture, dated as of October 23, 1996, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., Kaiser Jamaica Corporation, Kaiser Finance
Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra
Micromills, LLC, Kaiser Texas Micromill Holdings, LLC and
Kaiser Texas Sierra Micromills, LLC, as Subsidiary
Guarantors, and First Trust National Association, as
Trustee, regarding KACC's 10-7/8% Series B Senior Notes Due
2006 (incorporated by reference to Exhibit 4.2 to the
Report on Form 10-Q for the quarterly period ended September
30, 1996, filed by KAC, File No. 1-9447).
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 15, 1994, among
KAC, KACC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.4 to the Report
on Form 10-K for the period ended December 31, 1993,
filed by KAC, File No. 1-9447).
4.13 First Amendment to Credit Agreement, dated as of July
21, 1994, amending the Credit Agreement, dated as of
February 15, 1994, among KAC, KACC, the financial
institutions party thereto, and BankAmerica Business
Credit, Inc., as Agent (incorporated by reference to
Exhibit 4.1 to the Report on Form 10-Q for the
quarterly period ended June 30, 1994, filed by KAC,
File No. 1-9447).
4.14 Second Amendment to Credit Agreement, dated as of March
10, 1995, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KAC, KACC, the
financial institutions party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.6 to the Report on Form 10-K for
the period ended December 31, 1994, filed by KAC, File
No. 1-9447).
4.15 Third Amendment to Credit Agreement, dated as of July
20, 1995, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KAC, KACC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.1 to the Report on Form 10-Q for
the quarterly period ended June 30, 1995, filed by KAC,
File No. 1-9447).
4.16 Fourth Amendment to Credit Agreement, dated as of
October 17, 1995, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report
on Form 10-Q for the quarterly period ended September
30, 1995, filed by KAC, File No. 1-9447).
4.17 Fifth Amendment to Credit Agreement, dated as of
December 11, 1995, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.11 to the
Report on Form 10-K for the period ended December 31,
1995, filed by KAC, File No. 1-9447).
4.18 Sixth Amendment to Credit Agreement, dated as of
October 1, 1996, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report
on Form 10-Q for the quarterly period ended September
30, 1996, filed by KAC, File No. 1-9447).
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, 1997, filed by KAC,
File No. 1-9447).
4.23 Eleventh Amendment to Credit Agreement, dated as of
October 20, 1997, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.7 to the Report
on Form 10-Q for the quarterly period ended September
30, 1997, filed by KAC, File No. 1-9447).
*4.24 Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent.
4.25 Intercompany Note between KAC and KACC (incorporated by
reference to Exhibit 10.11 to the Report on Form 10-K
for the period ended December 31, 1996, filed by MAXXAM
Inc. ("MAXXAM"), File No. 1-3924).
4.26 Confirmation of Amendment of Non-Negotiable
Intercompany Note, dated as of October 6, 1993, between
KAC and KACC (incorporated by reference to Exhibit
10.12 to the Report on Form 10-K for the period ended
December 31, 1996, filed by MAXXAM, File No. 1-3924).
4.27 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).
4.28 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).
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).
Executive Compensation Plans and Arrangements
[Exhibits 10.5 - 10.14, inclusive]
10.5 KACC's Bonus Plan (incorporated by reference to Exhibit
10.25 to Amendment No. 6 to the Registration Statement
on Form S-1, dated December 14, 1989, filed by KACC,
Registration No. 33-30645).
10.6 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Report on Form 10-Q
for the quarterly period ended June 30, 1993, filed by
KACC, File No. 1-3605).
10.7 Kaiser 1995 Employee Incentive Compensation Program
(incorporated by reference to Exhibit 10.1 to the
Report on Form 10-Q for the quarterly period ended
March 31, 1995, filed by KAC, File No. 1-9447).
10.8 Kaiser 1995 Executive Incentive Compensation Program
(incorporated by reference to Exhibit 99 to the Proxy
Statement, dated April 26, 1995, filed by KAC, File No.
1-9447).
10.9 Kaiser 1997 Omnibus Stock Incentive Plan (incorporated
by reference to Appendix A to the Proxy Statement,
dated April 29, 1997, filed by KAC, File No. 1-9447).
10.10 Employment Agreement, dated April 1, 1993, among KAC,
KACC, and George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10.2 to the Report on Form 10-Q
for the quarterly period ended March 31, 1993, filed by
KAC, File No. 1-9447).
10.11 First Amendment to Employment Agreement by and between
KACC, KAC and George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10 to the Report on Form 10-Q for
the quarterly period ended June 30, 1996, filed by KAC,
File No. 1-9447).
*10.12 Second Amendment to Employment Agreement, dated as of
December 10, 1997, by and between KAC, KACC, and George
T. Haymaker, Jr.
10.13 Letter Agreement, dated January 1995, between KAC and
Charles E. Hurwitz, granting Mr. Hurwitz stock options
under the Kaiser 1993 Omnibus Stock Incentive Plan
(incorporated by reference to Exhibit 10.17 to the
Report on Form 10-K for the period ended December 31,
1994, filed by KAC, File No. 1-9447).
10.14 Form of letter agreement with persons granted stock
options under the Kaiser 1993 Omnibus Stock Incentive
Plan to acquire shares of KAC Common Stock
(incorporated by reference to Exhibit 10.18 to the
Report on Form 10-K for the period ended December 31,
1994, filed by KAC, File No. 1-9447).
*13 The portions of KAC's Annual Report to shareholders for the
year ended December 31, 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
Exhibit 21
SUBSIDIARIES
Listed below are the principal subsidiaries of Kaiser Aluminum
Corporation, the jurisdiction of their incorporation or
organization, and the names under which such subsidiaries do
business. Certain subsidiaries are omitted which, considered in
the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
Place of
Incorporation
Name or Organization
---- ---------------
Alpart Jamaica Inc. Delaware
Alumina Partners of Jamaica (partnership) Delaware
Anglesey Aluminium Limited United Kingdom
Kaiser Alumina Australia Corporation Delaware
Kaiser Aluminium International, Inc. Delaware
Kaiser Aluminum & Chemical Corporation Delaware
Kaiser Aluminum & Chemical of Canada Limited Ontario
Kaiser Bauxite Company Nevada
Kaiser Finance Corporation Delaware
Kaiser Jamaica Bauxite Company (partnership) Jamaica
Kaiser Jamaica Corporation Delaware
Queensland Alumina Limited Queensland
Volta Aluminium Company Limited Ghana
Principal 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
Sodium Texas
Silicofluoride, -----
Potassium Houston
Silicofluoride 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,
------ 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 Bauxite, Alumina
(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