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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, 1998
Commission file number 1-9447
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3030279
(State of Incorporation) (I.R.S. Employer
Identification No.)
5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057-3010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 267-
3777
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 par New York Stock Exchange
value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
As of March 23, 1999, there were 79,153,543 shares of the Common
Stock of the registrant outstanding. Based upon the New York
Stock Exchange closing price on March 23, 1999, the aggregate
market value of the registrant's Common Stock held by non-
affiliates was $143.7 million.
Certain portions of the registrant's annual report to
shareholders for the fiscal year ended December 31, 1998, are
incorporated by reference into Parts I, II, and IV of this Report
on Form 10-K. Certain portions of the registrant's definitive
proxy statement to be filed not later than 120 days after the
close of the registrant's fiscal year are incorporated by
reference into Part III of this Report on Form 10-K.
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NOTE
Kaiser Aluminum Corporation's Report on Form 10-K filed with the
Securities and Exchange Commission includes all exhibits required
to be filed with the Report. Copies of this Report on Form 10-K,
including only Exhibit 21 of the exhibits listed on pages 23 - 28
of this Report, are available without charge upon written
request. The registrant will furnish copies of the other
exhibits to this Report on Form 10-K upon payment of a fee of 25
cents per page. Please contact the office set forth below to
request copies of this Report on Form 10-K and for information as
to the number of pages contained in each of the other exhibits
and to request copies of such exhibits:
Corporate Secretary
Kaiser Aluminum Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77057
(713) 267-3777
(i)
TABLE OF CONTENTS
Page
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PART I 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 14
PART II 14
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 16
PART III 16
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 16
ITEM 11. EXECUTIVE COMPENSATION 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
16
PART IV 16
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 16
SCHEDULE I 18
SIGNATURES 22
INDEX OF EXHIBITS 23
EXHIBIT 21 SUBSIDIARIES 29
(ii)
PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K (the "Report") contains
statements which constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements appear in a number of places in this
Report (see, for example, Item 1. "Business - Strategic
Initiatives," " - Business Operations," " - Competition," " -
Research and Development," " - Environmental Matters," and " -
Factors Affecting Future Performance," Item 3. "Legal
Proceedings," and Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations"). Such
statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or
by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and
that actual results may vary materially from those in the
forward-looking statements as a result of various factors. These
factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, developments
in technology, new or modified statutory or regulatory
requirements, and changing prices and market conditions. This
Report and the financial portion of the Company's 1998 Annual
Report to Shareholders (see Items 6 through 8 of this Report)
identify other factors that could cause such differences. No
assurance can be given that these are all of the factors that
could cause actual results to vary materially from the forward-
looking statements.
General
Kaiser Aluminum Corporation (the "Company"), a Delaware
corporation organized in 1987, is a subsidiary of MAXXAM Inc.
("MAXXAM"). MAXXAM and one of its wholly-owned subsidiaries
together own approximately 63% of the Company's Common Stock,
with the remaining approximately 37% publicly held. The Company,
through its subsidiary, Kaiser Aluminum & Chemical Corporation
("KACC"), operates in all principal aspects of the aluminum
industry - the mining of bauxite, the refining of bauxite into
alumina, the production of primary aluminum from alumina, and the
manufacture of fabricated (including semi-fabricated) aluminum
products. In addition to the production utilized by KACC in its
operations, KACC sells significant amounts of alumina and primary
aluminum in domestic and international markets. In 1998, KACC
produced approximately 2,964,000 tons* of alumina, of which
approximately 76% was sold to third parties, and produced
approximately 387,000 tons of primary aluminum, of which
approximately 68% was sold to third parties. KACC is also a
major domestic supplier of fabricated aluminum products. In
1998, KACC shipped approximately 405,000 tons of fabricated
aluminum products to third parties, which accounted for
approximately 5% of total United States domestic shipments.
The Company's operations are conducted through KACC's business
units. The following table sets forth total shipments and
intersegment transfers of KACC's alumina, primary aluminum, and
fabricated aluminum operations:
-----------
* All references to tons in this Report refer to metric tons of
2,204.6 pounds.
Year Ended December 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(in thousands of tons)
ALUMINA:
Shipments to Third Parties 2,250.0 1,929.8 2,073.7
Intersegment Transfers 750.7 968.0 912.4
-------------- -------------- --------------
3,000.7 2,897.8 2,986.1
-------------- -------------- --------------
PRIMARY ALUMINUM:
Shipments to Third Parties 263.2 327.9 355.6
Intersegment Transfers 162.8 164.2 128.3
-------------- -------------- --------------
426.0 492.1 483.9
-------------- -------------- --------------
FLAT-ROLLED PRODUCTS: 235.6 247.9 204.8
ENGINEERED PRODUCTS: 169.4 152.1 122.3
Note 11 of Notes to Consolidated Financial Statements contained
in the Company's 1998 Annual Report to Shareholders (the "Annual
Report") is incorporated herein by reference.
Labor Matters
Substantially all of KACC's hourly workforce at the Gramercy,
Louisiana, alumina refinery, Mead and Tacoma, Washington,
aluminum smelters, Trentwood, Washington, rolling mill, and
Newark, Ohio, extrusion facility were covered by a master labor
agreement with the United Steelworkers of America (the "USWA")
which expired on September 30, 1998. The parties did not reach
an agreement prior to the expiration of the master agreement and
the USWA chose to strike. In January 1999 KACC declined an offer
by the USWA to have the striking workers return to work at the
five plants without a new agreement. KACC imposed a lock-out to
support its bargaining position and continues to operate the
plants with salaried employees and other workers as it has since
the strike began. Based on operating results to date, the
Company believes that a significant business interruption will
not occur.
As a result of the USWA strike, KACC temporarily curtailed
three out of a total of eleven potlines at its Mead and Tacoma,
Washington, aluminum smelters at September 30, 1998. The
curtailed potlines represent approximately 70,000 tons of annual
production capacity out of a total combined production capacity
of 273,000 tons per year at the facilities. In February 1999,
KACC began restarting the two curtailed potlines at its Mead
smelter representing approximately 50,000 tons of the previously
idle capacity. KACC has also announced that it has completed
preparations to restart 20,000 tons of idle capacity at its
Tacoma smelter. However, the timing for any restart of the
Tacoma potline has yet to be determined and will depend upon
market conditions and other factors. Costs associated with the
preparation and restart of the potlines at the Mead and Tacoma
facilities are expected to adversely affect the Company's first
quarter results.
While the Company initially experienced an adverse strike-related
impact on its profitability in the fourth quarter of 1998, the
Company currently believes that KACC's operations at the affected
facilities have been substantially stabilized and will be able to
run at, or near, full capacity, and that the incremental costs
associated with operating the affected plants during the dispute
were eliminated or substantially reduced as of January 1999
(excluding the impacts of the restart costs discussed above and
the effect of market factors such as the continued market-related
curtailment at the Tacoma smelter). However, no assurances can
be given that KACC's efforts to run the plants on a sustained
basis, without a significant business interruption or material
adverse impact on the Company's operating results, will be
successful.
See Note 1 of Notes to Consolidated Financial Statements "- Labor
Related Costs," and Note 9 of Notes to Consolidated Financial
Statements "- Labor Matters" in the Annual Report.
Strategic Initiatives
KACC's strategic objectives include the improvement of the
earnings from its existing businesses; the redeployment of its
existing investment in assets that are not strategically
essential to continued profit growth; the addition of assets to
its growth businesses; and the improvement of its financial
structure.
In 1996, the Company set a goal of achieving $120.0 million of
pre-tax cost reductions and other profit improvements,
independent of metal price changes, with the full effect planned
to be realized in 1998 and beyond, measured against 1996 results.
The Company believes that KACC's operations had achieved the run
rate necessary to meet this objective prior to the end of the
third quarter of 1998, when the impact of such items as smelter
operating levels, the USWA strike and foreign currency changes
are excluded from the analysis. Further, the Company believes
that KACC has implemented the steps that will allow it to sustain
the stated goal over the long term. The Company remains
committed to sustaining the full $120.0 million improvement and
to generating additional profit improvements in future years;
however, no assurances can be given that the Company will be
successful in this regard. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Labor
Matters, - Strategic Initiatives, and - Valco Operating Level",
and Note 1 of Notes to Consolidated Financial Statements "- Labor
Related Costs" in the Annual Report.
In addition to working to improve the performance of the
Company's existing assets, the Company has devoted significant
efforts analyzing its existing asset portfolio with the intent of
focusing its efforts and capital in sectors of the industry that
are considered most attractive, and in which the Company believes
it is well positioned to capture value. The initial steps of
this process resulted in the June 1997 acquisition of the
Bellwood extrusion facility, the May 1997 formation of AKW L.P.
("AKW"), a joint venture that designs, manufactures and sells
heavy duty aluminum wheels, the rationalization of certain of the
Company's engineered products operations, and the Company's
investment to expand its capacity for heat treat flat-rolled
products at its Trentwood, Washington, rolling mill. The
restructuring activities resulted in the Company recording a net
pre-tax charge of $19.7 million in June 1997. See Notes 3 and 4
of Notes to Consolidated Financial Statements in the Annual
Report.
The portfolio analysis process also resulted in the Company's
fourth quarter 1998 decision to seek a strategic partner for
further development and deployment of KACC's Micromill(TM)
technology. While technological progress has been good,
management concluded that additional time and investment would be
required for success. Given the Company's other strategic
priorities, the Company believes that introducing added
commercial and financial resources is the appropriate course of
action for capturing the maximum long term value. This change in
strategic course required a different accounting treatment, and
the Company correspondingly recorded a $45.0 million impairment
charge to reduce the carrying value of the Micromill assets to
approximately $25.0 million. See Note 3 of Notes to Consolidated
Financial Statements in the Annual Report.
Another area of emphasis has been a continuing focus on managing
the Company's legacy liabilities. One element of this process
has been actively pursuing claims in respect of insurance
coverage for certain incurred and future environmental costs.
During the fourth quarter of 1998, KACC received recoveries
totaling approximately $35.0 million related to current and
future claims against certain of its insurers. Recoveries of
$12.0 million were deemed to be allocable to previously accrued
(expensed) items and were reflected in earnings during the fourth
quarter of 1998. The remaining recoveries were offset against
increases in the total amount of environmental reserves. No
assurances can be given that the Company will be successful in
other attempts to recover incurred or future costs from other
insurers or that the amount of any recoveries received will
ultimately be adequate to cover costs incurred. See Note 9 of
Notes to Consolidated Financial Statements in the Annual Report.
In early 1999, the Company's program to focus its efforts and
capital in sectors of the industry which it considers to be the
most attractive, and in which the Company believes it is well
positioned to capture value, has resulted in an agreement to sell
one joint venture interest and a separate agreement to purchase
another. In January 1999, KACC signed a letter of intent to sell
its 50% interest in AKW to its joint venture partner. The
transaction, which would result in the Company recognizing a
substantial gain, is currently expected to close on or about
March 31, 1999. However, as the transaction is subject to
negotiation of a definitive purchase agreement, no assurances can
be given that this transaction will be consummated. Also, in
February 1999, KACC completed the acquisition of the remaining
45% interest in Kaiser LaRoche Hydrate Partners, an alumina
marketing venture, from its joint venture partner for a cash
purchase price of approximately $10.0 million. See Note 12 of
Notes to Consolidated Financial Statements in the Annual Report.
Additional portfolio analysis and initiatives are continuing.
Sensitivity to Prices and Hedging Programs
The Company's operating results are sensitive to changes in the
prices of alumina, primary aluminum, and fabricated aluminum
products, and also depend to a significant degree upon the volume
and mix of all products sold and on KACC's hedging strategies.
Primary aluminum prices have historically been subject to
significant cyclical fluctuations. Alumina prices, as well as
fabricated aluminum product prices (which vary considerably among
products), are significantly influenced by changes in the price
of primary aluminum and generally lag behind primary aluminum
prices. From time to time in the ordinary course of business
KACC enters into hedging transactions to provide price risk
management in respect of its net exposure resulting from (i)
anticipated sales of alumina, primary aluminum, and fabricated
aluminum products, less (ii) expected purchases of certain items,
such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. Forward sales
contracts are used by KACC to lock-in or fix the effective price
that KACC will receive for its sales. KACC also uses option
contracts (i) to establish a minimum price for its product sales,
(ii) to establish a "collar" or range of prices for its
anticipated sales, and/or (iii) to permit KACC to realize
possible upside price movements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Market-related Factors" and Note 1 - "Derivative Financial
Instruments" and Note 10 of Notes to Consolidated Financial
Statements in the Annual Report.
Business Operations
KACC conducts its business through four main business units, each
of which is discussed below.
- Alumina Business Unit
The following table lists KACC's bauxite mining and alumina
refining facilities as of December 31, 1998:
Annual
Production Total
Capacity Annual
Company Available to Production
Activity Facility Location Ownership the Company Capacity
---------- -------------- -------------- -------------- ---------------- --------------
(tons) (tons)
Bauxite Mining KJBC(1) Jamaica 49.0% 4,500,000 4,500,000
Alpart(2) Jamaica 65.0% 2,275,000 3,500,000
-------------- --------------
6,775,000 8,000,000
============== ==============
Alumina Refining Gramercy Louisiana 100.0% 1,050,000 1,050,000
Alpart Jamaica 65.0% 942,500 1,450,000
QAL Australia 28.3% 1,032,950 3,650,000
-------------- --------------
3,025,450 6,150,000
============== ==============
--------------
(1) Although KACC owns 49% of Kaiser Jamaica Bauxite Company
("KJBC"), it has the right to receive all of KJBC's output.
(2) Alumina Partners of Jamaica ("Alpart") bauxite is refined
into alumina at the Alpart refinery.
KACC's principal customers for bauxite and alumina consist of
other aluminum producers that purchase bauxite and
smelter-grade alumina, trading intermediaries who resell raw
materials to end-users, and users of chemical-grade alumina. The
Company believes that among alumina producers KACC is the world's
second largest seller of smelter-grade alumina to third parties.
KACC's strategy is to sell a substantial portion of the alumina
available to it in excess of its internal smelting requirements
under multi-year sales contracts with prices linked to the price
of primary aluminum. See "- Competition" and "- Sensitivity to
Prices and Hedging Programs" in this Report.
Bauxite mined in Jamaica by KJBC is refined into alumina at
KACC's plant at Gramercy, Louisiana, or is sold to third parties.
In 1979, the Government of Jamaica granted KACC a mining lease
for the mining of bauxite sufficient to supply KACC's
then-existing Louisiana alumina refineries at their annual
capacities of 1,656,000 tons per year until January 31, 2020.
Alumina from the Gramercy plant is sold to third parties. The
Gramercy, Louisiana, refinery is one of the five KACC plants
which is subject to the continuing USWA dispute. See "-Labor
Matters" in this Report, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Labor Matters" in the Annual Report.
In February 1999 KACC, through a subsidiary, purchased its
partner's 45% interest in Kaiser LaRoche Hydrate Partners, a
partnership which markets chemical-grade alumina manufactured by
KACC's Gramercy facility. These products are sold at a premium
price over smelter-grade alumina, and this acquisition will
permit KACC to expand its market position in this business in
North America. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Strategic
Initiatives" in the Annual Report.
Alpart holds bauxite reserves and owns a 1,450,000 ton per year
alumina plant located in Jamaica. KACC owns a 65% interest in
Alpart, and Hydro Aluminium Jamaica a.s ("Hydro") owns the
remaining 35% interest. KACC has management responsibility for
the facility on a fee basis. KACC and Hydro have agreed to be
responsible for their proportionate shares of Alpart's costs and
expenses. The Government of Jamaica has granted Alpart a mining
lease and has entered into other agreements with Alpart designed
to assure that sufficient reserves of bauxite will be available
to Alpart to operate its refinery, as it may be expanded up to a
capacity of 2,000,000 tons per year, through the year 2024.
In 1999, Alpart and JAMALCO, a joint venture between affiliates
of Alcoa Inc. and the government of Jamaica, reached an
agreement to form a joint venture bauxite mining operation to
consolidate their bauxite mining operations in Jamaica, with the
objective of optimizing mining operating and capital costs. The
transaction is subject to various conditions. Subject to
satisfaction of those conditions, the joint venture is expected
to commence operations during the second half of 1999.
KACC owns a 28.3% interest in Queensland Alumina Limited ("QAL"),
which owns the largest and one of the most competitive alumina
refineries in the world, located in Queensland, Australia. QAL
refines bauxite into alumina, essentially on a cost basis, for
the account of its stockholders under long-term tolling
contracts. The stockholders, including KACC, purchase bauxite
from another QAL stockholder under long-term supply contracts.
KACC has contracted with QAL to take approximately 792,000 tons
per year of capacity or pay standby charges. KACC is
unconditionally obligated to pay amounts calculated to service
its share ($97.6 million at December 31, 1998) of certain debt of
QAL, as well as other QAL costs and expenses, including bauxite
shipping costs.
KACC sold alumina in 1998 to approximately 20 customers, the
largest and top five of which accounted for approximately 19% and
67% of such sales, respectively. All of KACC's third-party sales
of bauxite in 1998 were made to one customer, which represents
approximately 6% of total bauxite and alumina third party
revenues.
- Primary Aluminum Business Unit
The following table lists KACC's primary aluminum smelting
facilities as of December 31, 1998:
Annual Rated Total 1998
Capacity Annual Average
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
--------------- -------------- -------------- -------------- -------------- --------------
Domestic
Washington Mead 100% 200,000 200,000 103% (1)
Washington Tacoma 100% 73,000 73,000 94%
-------------- --------------
Subtotal 273,000 273,000
-------------- --------------
International
Ghana Valco 90% 180,000 200,000 25%
Wales, United
Kingdom Anglesey 49% 66,150 135,000 100%
-------------- --------------
Subtotal 246,150 335,000
-------------- --------------
Total 519,150 608,000
============== ==============
---------------
(1) In recent years the Mead smelter has consistently operated
at an annual rate in excess of its rated capacity of 200,000
tons. As a result of the strike-related partial curtailment
of the Mead smelter, the 1998 average operating rate declined
from that of a year ago but remained above 100% of rated
capacity.
KACC's principal primary aluminum customers consist of large
trading intermediaries and metal brokers. In 1998, KACC sold its
primary aluminum production not utilized for internal purposes to
approximately 42 customers, the largest and top five of which
accounted for approximately 30% and 58% of such sales,
respectively. See "- Competition" in this Report. Marketing and
sales efforts are conducted by personnel located in Pleasanton,
California; Houston, Texas; and Tacoma and Spokane, Washington.
A majority of the business unit's sales are based upon long-term
relationships with metal merchants and end-users.
KACC has developed and installed proprietary retrofit and control
technology in all of its smelters, as well as at third party
locations. This technology - which includes the redesign of the
cathodes, anodes and bus that conduct electricity through
reduction cells, improved feed systems that add alumina to the
cells, computerized process control and energy management
systems, and furnace technology for baking of anode carbon - has
significantly contributed to increased and more efficient
production of primary aluminum and enhanced KACC's ability to
compete more effectively with the industry's newer smelters.
KACC engages in efforts to license this technology and sell
technical and managerial assistance to other producers worldwide,
and may participate in joint ventures or similar business
partnerships which employ KACC's technical and managerial
knowledge. See "-Research and Development" in this Report.
Domestic Smelters
The Mead facility uses pre-bake technology and produces primary
aluminum. Approximately 64% of Mead's 1998 production was used
at KACC's Trentwood, Washington, rolling mill, and the balance
was sold to third parties. The Tacoma facility uses Soderberg
technology and produces primary aluminum and high-grade,
continuous-cast, redraw rod, which currently commands a premium
price in excess of the price of primary aluminum. Both smelters
have achieved significant production efficiencies through
retrofit technology and a variety of cost controls, leading to
increases in production volume and enhancing their ability to
compete with newer smelters. The Mead and Tacoma, Washington,
smelters are two of the five KACC plants which are subject to the
continuing USWA dispute. See "-Labor Matters" in this Report.
KACC has modernized and expanded the carbon baking furnace at its
Mead smelter at an estimated cost of approximately $55.3 million.
The project has improved the reliability of the carbon baking
operations, increased productivity, enhanced safety, and improved
the environmental performance of the facility. The first stage
of this project, the construction of a new $40.0 million 90,000
ton per year furnace, was completed in 1997. The remaining
modernization work was completed in 1998 and early 1999. A
portion of this project was financed with the net proceeds
(approximately $18.6 million) of 7.6% Solid Waste Disposal
Revenue Bonds due 2027 issued in March 1997 by the Industrial
Development Corporation of Spokane County, Washington.
Foreign Smelters
KACC manages, and owns a 90% interest in, the Volta Aluminium
Company Limited ("Valco") aluminum smelter in Ghana. The Valco
smelter uses pre-bake technology and processes alumina supplied
by KACC and the other participant into primary aluminum under
tolling contracts which provide for proportionate payments by the
participants. KACC's share of the primary aluminum is sold to
third parties.
During most of 1998, the Valco smelter operated only one of its
five potlines, as compared to 1997, when Valco operated four
potlines. Each of Valco's potlines produces approximately 40,000
tons of primary aluminum per year. Valco received compensation
(in the form of energy credits to be utilized over the last half
of 1998 and during 1999) from the Volta River Authority ("VRA")
in lieu of the power necessary to run two of the potlines that
were curtailed during 1998. The compensation substantially
mitigated the financial impact of the curtailment of such lines.
Valco did not receive any compensation from the VRA for one
additional potline which was curtailed in January 1998. Based on
Valco's proposed 1999 power allocation from the VRA, Valco has
announced that it expects to operate three lines during 1999.
The decision to operate at that level was based on the power
allocation that Valco has received from the VRA as well as
consideration of market and other factors. Valco has notified
the VRA that it believes it had the contractual rights at the
beginning of 1998 to sufficient energy to run four and one-half
potlines for the balance of the year. Valco continues to seek
compensation from the VRA with respect to the January 1998
reduction of its power allocation. Valco and the VRA also are in
continuing discussions concerning other matters, including steps
that might be taken to reduce the likelihood of power
curtailments in the future. No assurances can be given as to the
success of these discussions.
KACC owns a 49% interest in the Anglesey Aluminium Limited
("Anglesey") aluminum smelter and port facility at Holyhead,
Wales. The Anglesey smelter uses pre-bake technology. KACC
supplies 49% of Anglesey's alumina requirements and purchases 49%
of Anglesey's aluminum output. KACC sells its share of
Anglesey's output to third parties.
Electric Power
Electric power represents an important production cost for KACC
at its aluminum smelters. For a discussion of this subject, see
"Factors Affecting Future Performance - Electric Power" in this
Report.
- Flat-Rolled Products Business Unit
----------------------------------
The flat-rolled products business unit operates the Trentwood,
Washington, rolling mill. The Trentwood facility accounted for
approximately 58% of KACC's 1998 fabricated aluminum products
shipments. The business unit supplies the aerospace and general
engineering markets (producing heat treat sheet and plate
products), the beverage container market (producing body, lid,
and tab stock), and the specialty coil markets (producing
automotive brazing sheet, wheel, and tread products), both
directly and through distributors. The Trentwood facility is one
of the five KACC plants which is subject to the continuing USWA
dispute. See "- Employees and Labor Matters" in this Report, and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Labor Matters" in the Annual Report.
KACC continues to enhance the process and product mix of its
Trentwood rolling mill in an effort to maximize its profitability
and maintain full utilization of the facility. In 1998, KACC
continued to implement a plan to improve the reliability and to
expand the annual production capacity of heat treat flat-rolled
products at the Trentwood facility by approximately one-third
over 1996 levels. Approximately $8.0 million remains to be spent
to implement the plan. Global sales of KACC's heat treat
products are made primarily to the aerospace and general
engineering markets, and remained strong in the first half of
1998 after record shipments in 1997; demand for such products
softened in the second half of 1998. In 1998, the business unit
shipped products to approximately 141 customers in the aerospace,
transportation, and industrial ("ATI") markets, most of which
were distributors who sell to a variety of industrial end-users.
The top five customers in the ATI markets for flat-rolled
products accounted for approximately 18% of the business unit's
revenue.
KACC's flat-rolled products are also sold to beverage container
manufacturers located in the western United States and in the
Asian Pacific Rim countries where the Trentwood plant's location
provides KACC with a transportation advantage. Quality of
products for the beverage container industry, service, and
timeliness of delivery are the primary bases on which KACC
competes. KACC is one of the highest quality producers of
aluminum beverage can stock in the world. In 1998, the business
unit had approximately 21 domestic and foreign can stock
customers, supplying approximately 41 can plants worldwide. The
largest and top five of such customers accounted for
approximately 12% and 35%, respectively, of the business unit's
revenue. See "- Competition" in this Report. The marketing
staff for the business unit is located at the Trentwood facility
and in Pleasanton, California. Sales are made directly to end-
use customers and distributors from four sales offices in the
United States, from a sales office in England, and by independent
sales agents in Asia and Latin America.
The Micromill facility was constructed near Reno, Nevada, in 1996
as a demonstration and production facility. Micromill technology
is based on a proprietary thin-strip, high-speed, continuous-belt
casting technique linked directly to hot and cold rolling mills.
KACC is continuing its efforts to implement the Micromill
technology on a full-scale basis. However, the Micromill
technology has not yet been fully implemented or commercialized,
and there can be no assurance that it will be successfully
implemented and commercialized for use at full-scale facilities.
KACC has decided to seek a strategic partner for further
development and deployment of the Micromill technology. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Strategic Initiatives" and Note 3 of
Notes to Consolidated Financial Statements in the Annual Report.
- Engineered Products Business Unit
---------------------------------
The engineered products business unit operates soft-alloy and
hard-alloy extrusion facilities and engineered component
(forgings) facilities in the United States and Canada. Major
markets for extruded products are in the transportation industry,
to which the business unit provides extruded shapes for
automobiles, trucks, trailers, cabs, and shipping containers, and
in the distribution, durable goods, defense, building and
construction, ordnance and electrical markets. The business unit
supplies forged parts to customers in the automotive, commercial
vehicle and ordnance markets. The high strength-to-weight
properties of forged aluminum make it particularly well-suited
for automotive applications. The business unit maintains its
headquarters and a sales and engineering office in Southfield,
Michigan, which works with automobile makers and other customers
and plant personnel to create new automotive component designs
and to improve existing products.
Soft-alloy extrusion facilities are located in Los Angeles,
California; Sherman, Texas; Richmond, Virginia; and London,
Ontario, Canada. Each of the soft-alloy extrusion facilities has
fabricating capabilities and provides finishing services. The
Richmond, Virginia, facility was acquired in mid-1997 and
increased KACC's extruded products capacity and enhanced its
existing extrusion business due to that facility's ability to
manufacture seamless tubing and large circle size extrusions and
to serve the distribution and ground transportation industries.
Hard-alloy rod and bar extrusion facilities are located in
Newark, Ohio, and Jackson, Tennessee, and produce screw machine
stock, redraw rod, forging stock, and billet. The Newark
facility is one of the five KACC plants which is subject to the
continuing USWA dispute. See "- Labor Matters" in this Report,
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Labor Matters" in the Annual Report.
A facility located in Richland, Washington, produces seamless
tubing in both hard and soft alloys for the automotive, other
transportation, export, recreation, agriculture, and other
industrial markets. The business unit also operates a cathodic
protection business located in Tulsa, Oklahoma, that extrudes
both aluminum and magnesium. The business unit operates forging
facilities at Oxnard, California, and Greenwood, South Carolina,
and a machine shop at Greenwood, South Carolina. KACC has
entered into an agreement to sell its casting operations in
Canton, Ohio.
In 1997 KACC and Accuride Corporation formed AKW L.P. to design,
manufacture and sell heavy-duty aluminum truck wheels. In January
1999, KACC signed a letter of intent to sell its 50% interest in
AKW to its partner, which would result in the Company recognizing
a substantial gain. The Company expects the transaction to close
on or about March 31, 1999; however, as the transaction is
subject to certain conditions, no assurances can be given that
the transaction will be consummated. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Strategic Initiatives" and Note 12 of Notes to
Consolidated Financial Statements in the Annual Report.
In 1998, the engineered products business unit had approximately
445 customers, the largest and top five of which accounted for
approximately 5% and 18%, respectively, of the business unit's
revenue. See "- Competition" in this Report. Sales are made
directly from plants, as well as marketing locations elsewhere in
the United States.
Competition
KACC competes with both domestic and foreign producers of
bauxite, alumina and primary aluminum, and with domestic and
foreign fabricators. Many of KACC's competitors have greater
financial resources than KACC. Primary aluminum and, to some
degree, alumina are commodities with generally standard
qualities, and competition in the sale of these commodities is
based primarily upon price, quality and availability. Aluminum
competes in many markets with steel, copper, glass, plastic, and
other materials. In the United States, beverage container
materials, including aluminum, face increased competition from
plastics as increased polyethylene terephthalate ("PET")
container capacity is brought on line by plastics manufacturers.
KACC competes with numerous domestic and international
fabricators in the sale of fabricated aluminum products. KACC
manufactures and markets fabricated aluminum products for the
transportation, packaging, construction, and consumer durables
markets in the United States and abroad. Sales in these markets
are made directly and through distributors to a large number of
customers. Competition in the sale of fabricated products is
based upon quality, availability, price and service, including
delivery performance. KACC concentrates its fabricating
operations on selected products in which it has production
expertise, high-quality capability, and geographic and other
competitive advantages. The Company believes that, assuming the
current relationship between worldwide supply and demand for
alumina and primary aluminum does not change materially, the loss
of any one of KACC's customers, including intermediaries, would
not have a material adverse effect on the Company's financial
condition or results of operations.
See the discussion of competitive conditions, markets, and
principal methods of competition in the description of each
business unit under the headings "-Alumina Business Unit,"
"-Primary Aluminum Business Unit," "-Flat-Rolled Products
Business Unit," and "-Engineered Products Business Unit" in this
Report.
Research and Development
KACC conducts research and development activities principally at
two facilities - CFT in Pleasanton, California, and the Northwest
Engineering Center adjacent to the Mead smelter in Spokane,
Washington. Net expenditures for Company-sponsored research and
development activities were $13.7 million in 1998, $19.7 million
in 1997, and $20.5 million in 1996. KACC's research staff
totaled 52 at December 31, 1998. KACC estimates that research
and development net expenditures will be in the range of $10
million to $15 million in 1999.
CFT performs research and development of aluminum process and
product technologies to support KACC's business units and new
business opportunities. In 1998 patents were issued to KACC
concerning the manufacture of continuous cast can sheet, the
brazing of aluminum alloys for heat exchanger applications,
improved lead-free aluminum machining alloys, and joining methods
for aluminum extrusions used in transportation applications. In
1998 CFT continued to support the development of the Micromill
technology deployed at the Micromill facility near Reno, Nevada,
for the production of can sheet and other sheet products. The
Northwest Engineering Center maintains specialized laboratories
and a miniature carbon plant where experiments with new anode and
cathode technology are performed. The Northwest Engineering
Center supports KACC's primary aluminum smelters, and
concentrates on the development of cost-effective technical
innovations such as equipment and process improvements.
KACC licenses its technology and sells technical and managerial
assistance to other producers worldwide. KACC's technology has
been installed in alumina refineries, aluminum smelters and
rolling mills located in the United States and fourteen foreign
countries.
Employees
During 1998, KACC employed an average of approximately 9,200
persons, compared with an average of approximately 9,600 persons
in 1997 and 1996. At December 31, 1998, KACC employed
approximately 8,900 persons; this number does not include persons
employed temporarily during the USWA labor dispute at the five
facilities subject to the labor dispute.
In 1998, Alpart entered into a new three-year labor agreement
with workers at its refinery in Jamaica, and Valco entered into a
new three-year labor agreement with workers at its smelter in
Ghana. Each agreement includes productivity improvements.
Environmental Matters
The Company and KACC are subject to a wide variety of
international, federal, state and local environmental laws and
regulations. For a discussion of this subject, see "Factors
Affecting Future Performance - Environmental Contingencies and
Asbestos Contingencies" in this Report.
Factors Affecting Future Performance
This section discusses certain factors that could cause actual
results to vary, perhaps materially, from the results described
in forward-looking statements made in this Report. Forward-
looking statements in this Report are not guarantees of future
performance and involve significant risks and uncertainties.
Actual results may vary materially from those in such forward-
looking statements as a result of factors including the
effectiveness of management's strategies and decisions, general
economic and business conditions, developments in technology, new
or modified statutory or regulatory requirements, and changing
prices and market conditions. No assurance can be given that
these factors and the specific factors discussed below are all of
the factors that could cause actual results to vary materially
from the forward-looking statements.
- Sensitivity to Prices and Hedging Programs
------------------------------------------
The Company's operating results are sensitive to changes in the
prices of alumina, primary aluminum, and fabricated aluminum
products, and also depend to a significant degree upon the volume
and mix of all products sold and on KACC's hedging strategies.
Primary aluminum prices have historically been subject to
significant cyclical fluctuations. Alumina prices, as well as
fabricated aluminum product prices (which vary considerably among
products), are significantly influenced by changes in the price
of primary aluminum and generally lag behind primary aluminum
prices. Since 1993, the Average Midwest United States
transaction price (the "AMT Price") for primary aluminum has
ranged from approximately $.50 to $1.00 per pound.
During 1998, the AMT Price per pound of primary aluminum declined
during the year, beginning the year in the $.70 to $.75 range and
ending the year in the low $.60 range. Subsequent to 1998, the
AMT Price continued to decline, and at February 26, 1999, the AMT
Price was approximately $.58 per pound.
From time to time in the ordinary course of business, KACC enters
into hedging transactions to provide price risk management in
respect of its net exposure resulting from (i) anticipated sales
of alumina, primary aluminum, and fabricated aluminum products,
less (ii) expected purchases of certain items, such as aluminum
scrap, rolling ingot, and bauxite, whose prices fluctuate with
the price of primary aluminum. No assurance can be given that
KACC's hedging program will adequately reduce KACC's exposure to
the risk of fluctuating primary aluminum prices.
KACC is exposed to energy price risk from fluctuating prices for
fuel oil and natural gas consumed in the production process. From
time to time in the ordinary course of business, KACC enters into
hedging transactions with major suppliers of energy and energy
related financial instruments. KACC also enters into foreign
exchange contracts to hedge material cash commitments to foreign
subsidiaries and affiliates. No assurance can be given that
KACC's hedging program will adequately reduce KACC's exposure to
the risk from fluctuating prices for fuel oil, natural gas, and
foreign currencies.
Note 10 of Notes to Consolidated Financial Statements in the
Annual Report is incorporated herein by reference. See also
"Quantitative and Qualitative Disclosures about Market Risk" in
this Report, and Note 1 "- Derivative Financial Instruments" of
Notes to Consolidated Financial Statements in the Annual Report.
- Leverage
--------
The Company's ratio of consolidated indebtedness to consolidated
net worth is greater than the comparable ratio of most of its
North American competitors, who generally have greater financial
resources than the Company. Due to its highly leveraged
condition, the Company is more sensitive than less leveraged
companies to certain factors affecting its operations, including
changes in the prices for its products, changes in interest
rates, and general economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Financing Activities and Liquidity" in the Annual
Report.
- Electric Power
--------------
The process of converting alumina into aluminum requires
significant amounts of electric power, and the cost of electric
power is an important production cost for KACC at its aluminum
smelters. A portion of the electric power used at the Mead and
Tacoma, Washington, smelters, as well as the rolling mill at
Trentwood, Washington, is purchased from the Bonneville Power
Administration (the "BPA") under contracts which expire in
September 2001, and a portion of such electric power is purchased
from other suppliers. KACC has long-term arrangements, expiring
in 2015, with the BPA for the transmission of electric power by
the BPA to those facilities. The amount of electric power which
may be provided by the BPA to KACC after the expiration of the
contracts in 2001 is not yet determined; however, the Company
believes that adequate electric power will be available at that
time, from the BPA and other suppliers, for the operation of its
facilities in Washington. The electric power supplied to the
Valco smelter in Ghana is produced by hydroelectric generators,
and the delivery of electric power to the smelter is subject to
interruption from time to time because of drought and other
factors beyond the control of Valco. Such power is supplied
under an agreement with the VRA which expires in 2017. The
agreement indexes a portion of the price of power to the market
price of primary aluminum and provides for a review and
adjustment of the base power rate and the price index every five
years. Such a review is now underway together with discussions
concerning the reliability of the long-term supply of power.
Electric power for the Anglesey smelter in Wales is supplied
under an agreement which expires in 2001. KACC is working to
address these power supply and power price issues; however, there
can be no assurance that electric power at affordable prices will
be available in the future for these smelters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Valco Operating Level" in the Annual Report.
- Labor Matters
-------------
The material under the heading "Labor Matters" at page 2 of this
Report is incorporated herein by reference.
In connection with the USWA strike and subsequent lock-out by
KACC, certain allegations of unfair labor practices ("ULPs") have
been filed with the National Labor Relations Board by the USWA
and its members. KACC has responded to all such allegations and
believes that they are without merit. If the allegations were
sustained, KACC could be required to make locked-out employees
whole for back wages from the date of the lock-out in January
1999. While uncertainties are inherent in the final outcome of
such matters, the Company believes that the resolution of the
alleged ULPs should not result in a material adverse impact on
the Company's consolidated financial position, results of
operations, or liquidity.
- Environmental Contingencies and Asbestos Contingencies
------------------------------------------------------
The Company and KACC are subject to a wide variety of
international, federal, state and local environmental laws and
regulations (the "Environmental Laws"). The Environmental Laws
regulate, among other things, air and water emissions and
discharges; the generation, storage, treatment, transportation,
and disposal of solid and hazardous waste; the release of
hazardous or toxic substances, pollutants and contaminants into
the environment; and, in certain instances, the environmental
condition of industrial property prior to transfer or sale. In
addition, the Company and KACC are subject to various federal,
state, and local workplace health and safety laws and regulations
("Health Laws").
From time to time, KACC is subject, with respect to its current
and former operations, to fines or penalties assessed for alleged
breaches of the Environmental and Health Laws and to claims and
litigation brought by federal, state or local agencies and by
private parties seeking remedial or other enforcement action
under the Environmental and Health Laws or damages related to
alleged injuries to health or to the environment, including
claims with respect to certain waste disposal sites and the
remediation of sites presently or formerly operated by KACC. KACC
currently is subject to certain lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of
1986 ("CERCLA"). KACC, along with certain other entities, has
been named as a Potentially Responsible Party ("PRP") for
remedial costs at certain third-party sites listed on the
National Priorities List under CERCLA and, in certain instances,
may be exposed to joint and several liability for those costs or
damages to natural resources. KACC's Mead, Washington, facility
has been listed on the National Priorities List under CERCLA.
The Washington State Department of Ecology has advised KACC that
there are several options for remediation at the Mead facility
that would be acceptable to the Department. KACC expects that
one of these remedial options will be agreed upon and
incorporated into a Consent Decree. In addition, in connection
with certain of its asset sales, KACC has agreed to indemnify the
purchasers with respect to certain liabilities (and associated
expenses) resulting from acts or omissions arising prior to such
dispositions, including environmental liabilities.
Based on the Company's evaluation of these and other
environmental matters, the Company has established environmental
accruals, primarily related to potential solid waste disposal and
soil and groundwater remediation matters. At December 31, 1998,
the balance of such accruals, which are primarily included in
Long-term liabilities, was $50.7 million. These environmental
accruals represent the Company's estimate of costs reasonably
expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and
the Company's assessment of the likely remediation to be
performed. The Company expects remediation to occur over the
next several years and estimates that annual expenditures to be
charged to these environmental accruals will be approximately
$3.0 million to $8.0 million per year for the years 1999 through
2003 and an aggregate of approximately $29.0 million thereafter.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of
remediation are established or alternative technologies are
developed, changes in these and other factors may result in
actual costs exceeding the current environmental accruals. Cash
expenditures of $3.5 million in 1998, $5.6 million in 1997, and
$8.8 million in 1996 were charged to previously established
accruals relating to environmental costs. Approximately $4.5
million is expected to be charged to such accruals in 1999. In
addition to cash expenditures charged to environmental accruals,
environmental capital spending was $5.7 million in 1998, $6.8
million in 1997, and $18.4 million in 1996. Annual operating
costs for pollution control, not including corporate overhead or
depreciation, were approximately $34.3 million in 1998, $27.5
million in 1997, and $30.1 million in 1996. Legislative,
regulatory and economic uncertainties make it difficult to
project future spending for these purposes. However, the Company
currently anticipates that in the 1999-2000 period, environmental
capital spending will be approximately $11.0 million per year,
and operating costs for pollution control will be approximately
$38.0 million per year.
While uncertainties are inherent in the final outcome of these
environmental matters, and it is presently impossible to
determine the actual costs that ultimately may be incurred, the
Company currently believes that the resolution of such
uncertainties should not have a material adverse effect on the
Company's consolidated financial position, results of operations,
or liquidity.
KACC is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs
allege that certain of their injuries were caused by, among other
things, exposure to asbestos during, and as a result of, their
employment or association with KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits
generally relate to products KACC has not manufactured for at
least 20 years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Commitments and
Contingencies" in the Annual Report.
The portion of Note 9 of Notes to Consolidated Financial
Statements in the Annual Report under the headings "Environmental
Contingencies" and "Asbestos Contingencies" is incorporated
herein by reference.
- Year 2000 Disclosure Statement
------------------------------
The Company utilizes software and related technologies throughout
its business that will be affected by the date change to the year
2000. There may also be technology embedded in certain of the
equipment owned or used by the Company that is susceptible to the
year 2000 date change as well. The Company has implemented a
company-wide program to coordinate the year 2000 efforts of its
individual business units and to track their progress. The
intent of the program is to make sure that critical items are
identified on a sufficiently timely basis to assure that the
necessary resources can be committed to address any material risk
areas that could prevent the Company's systems and assets from
being able to meet the Company's business needs and objectives.
In addition to addressing the Company's internal systems, the
company-wide program involves identification of key suppliers,
customers, and other third-party relationships that could be
impacted by year 2000 issues.
While the Company believes that its program is sufficient to
identify the critical issues and associated costs necessary to
address possible year 2000 problems in a timely manner, there can
be no assurances that the program, or underlying steps
implemented, will be successful in resolving all such issues by
the Company's mid-1999 goal. If the steps taken by the Company
(or critical third parties) are not made in a timely manner, or
are not successful in identifying and remediating all significant
year 2000 issues, business interruptions or delays could occur
and could have a material adverse impact on the Company's results
and financial condition. However, based on the information the
Company has gathered to date and the Company's expectations of
its ability to remediate problems encountered, the Company
currently believes that no significant business interruptions
that would have a material impact on the Company's results or
financial condition will be encountered. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000" in the Annual Report.
- Foreign Activities
------------------
The Company's operations are located in several foreign
countries, including Australia, Canada, Ghana, Jamaica, and the
United Kingdom. Foreign operations, in general, may be more
vulnerable than domestic operations because of a variety of
political or governmental actions and other factors which may,
for example, disrupt or restrict operations and markets, impose
taxes and levies, impose import or export restrictions, restrict
the movement of funds, or impose limitations on foreign exchange
transactions. While the Company believes that its relationships
with the governments of the countries in which it conducts
operations directly or through joint ventures continue to be
satisfactory, there can be no assurance as to the future
influence of the foregoing factors.
ITEM 2. PROPERTIES
The locations and general character of the principal plants,
mines, and other materially important physical properties
relating to KACC's operations are described in Item 1 "- Business
Operations" and those descriptions are incorporated herein by
reference. KACC owns in fee or leases all the real estate and
facilities used in connection with its business. Plants and
equipment and other facilities are generally in good condition
and suitable for their intended uses, subject to changing
environmental requirements. Although KACC's domestic aluminum
smelters and alumina facility were initially designed early in
KACC's history, they have been modified frequently over the years
to incorporate technological advances in order to improve
efficiency, increase capacity, and achieve energy savings. The
Company believes that KACC's plants are cost competitive on an
international basis.
KACC's obligations under the Credit Agreement entered into on
February 15, 1994, as amended (the "Credit Agreement"), are
secured by, among other things, mortgages on KACC's major
domestic plants (other than the Gramercy alumina refinery and
Nevada Micromill). See Note 5 of Notes to Consolidated Financial
Statements in the Annual Report.
ITEM 3. LEGAL PROCEEDINGS
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. See Item 1 in this Report for
cautionary information with respect to such forward-looking
statements.
Hammons v. Alcan Aluminum Corp. et al
On March 5, 1996, a class action complaint was filed against the
Company, Alcan Aluminum Corp., Aluminum Company of America,
Alumax, Inc, Reynolds Metal Company, and the Aluminum Association
in the Superior Court of California for the County of Los
Angeles, alleging that the defendants conspired, in violation of
the California Cartwright Act (Bus. & Prof. Code Section 16720 &
16750), in conjunction with a Memorandum of Understanding ("MOU")
entered into in 1994 by representatives of Australia, Canada, the
European Union, Norway, the Russian Federation and the United
States, to restrict the production of primary aluminum resulting
in rises in prices for primary aluminum and aluminum products.
The complaint sought certification of a class consisting of
persons who at any time between January 1, 1994, and the date of
the complaint purchased aluminum or aluminum products
manufactured by one or more of the defendants and estimated
damages sustained by the class to be $4.4 billion during the year
1994, before trebling. On July 11, 1996, the United States
District Court granted summary judgment in favor of the Company
and other defendants and dismissed the complaint as to all
defendants. On July 18, 1996, the plaintiff filed a notice of
appeal to the United States Court of Appeals for the Ninth
Circuit. On December 11, 1997, the United States Court of
Appeals for the Ninth Circuit affirmed the decision of the
District Court. On December 23, 1997, the plaintiff filed a
petition for rehearing en banc, which was denied May 4, 1998. On
August 12, 1998, the plaintiff filed a petition with the Supreme
Court of the United States for a writ of certiorari, which
petition was denied on October 19, 1998. The plaintiff
subsequently requested reconsideration of its petition which was
also denied.
Asbestos-related Litigation
KACC is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs
allege that certain of their injuries were caused by, among other
things, exposure to asbestos during, and as a result of, their
employment or association with KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits
generally relate to products KACC has not manufactured for at
least 20 years. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Commitments and Contingencies" in the Annual Report.
The portion of Note 9 of Notes to Consolidated Financial
Statements in the Annual Report under the heading "Asbestos
Contingencies" is incorporated herein by reference.
Labor Matters
In connection with the USWA strike and subsequent lock-out by
KACC, certain allegations of unfair labor practices ("ULPs") have
been filed with the National Labor Relations Board by the USWA
and its members. KACC has responded to all such allegations and
believes that they are without merit. If the allegations were
sustained, KACC could be required to make locked-out employees
whole for back wages from the date of the lock-out in January
1999. While uncertainties are inherent in the final
outcome of such matters, the Company believes that the resolution
of the alleged ULPs should not result in a material adverse
impact on the Company's consolidated financial position, results
of operations, or liquidity.
Other Matters
Various other lawsuits and claims are pending against KACC.
While uncertainties are inherent in the final outcome of such
matters and it is presently impossible to determine the actual
costs that ultimately may be incurred, management believes that
the resolution of such uncertainties and the incurrence of such
costs should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the
Company during the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock
Exchange under the symbol "KLU". The number of record holders of
the Company's Common Stock at March 23, 1999, was 337. Page 57
of the Annual Report, and the information in Note 5 of Notes to
Consolidated Financial Statements under the heading "Loan
Covenants and Restrictions" at page 39 of the Annual Report, are
incorporated herein by reference. The Company has not paid any
dividends on its Common Stock during the two most recent fiscal
years.
The Credit Agreement (Exhibits 4.12 through 4.28 to this Report)
contains restrictions on the ability of the Company to pay
dividends on or make distributions on account of the Company's
Common Stock, and the Credit Agreement and the Indentures
(Exhibits 4.1 through 4.11 to this Report) contain restrictions
on the ability of the Company's subsidiaries to transfer funds to
the Company in the form of cash dividends, loans or advances.
Exhibits 4.1 through 4.28 to this Report, Note 5 of Notes to
Consolidated Financial Statements in the Annual Report, and the
information under the headings "Financing Activities and
Liquidity" and "Capital Structure" at pages 25 - 26 of the Annual
Report, are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated herein by
reference to the table at page 1 of this Report, to the table at
pages 18 - 19 of the Annual Report, to Note 1 of Notes to
Consolidated Financial Statements in the Annual Report, and to
pages 58 - 59 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pages 18 - 28 of the Annual Report are incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
This section contains forward-looking statements that involve
risk and uncertainties. Actual results could differ materially
from those projected in these forward-looking statements.
As discussed more fully in Notes 1 and 10 of Notes to
Consolidated Financial Statements, KACC utilizes hedging
transactions to lock-in a specified price or range of prices for
certain products which it sells or consumes and to mitigate
KACC's exposure to changes in foreign currency exchange rates.
The following sets forth the impact on future earnings of adverse
market changes related to KACC's hedging positions with respect
to commodity and foreign exchange contracts described more fully
in Note 10 of Notes to Consolidated Financial Statements. The
impact of market changes on energy derivative activities is
generally not significant.
Alumina and Primary Aluminum
Alumina and primary aluminum production in excess of internal
requirements is sold in domestic and international markets,
exposing the Company to commodity price risks. KACC's hedging
transactions are intended to provide price risk management in
respect of the net exposure of earnings resulting from (i)
anticipated sales of alumina, primary aluminum and fabricated
aluminum products, less (ii) expected purchases of certain items,
such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. On average, before
consideration of hedging activities, any fixed price contracts
with fabricated aluminum products customers, variations in
production and shipment levels, and timing issues related to
price changes the Company estimates that each $.01 increase
(decrease) in the market price per price-equivalent pound of
primary aluminum increases (decreases) the Company's annual pre-
tax earnings by approximately $15 million.
Based on the December 31, 1998 London Metal Exchange cash price
for primary aluminum of approximately 56 cents per pound, the
Company estimates that it would realize approximately $100
million of net aggregate pre-tax benefits from its hedging
positions and fixed price customer contracts during 1999 and
2000. The Company also estimates that a hypothetical 10 cent
decrease from the above stated year-end 1998 price level would
result in additional net aggregate pre-tax benefits of
approximately $150 million being realized during 1999 and 2000
related to KACC's hedging positions and fixed price customer
contracts. Both amounts are versus what the Company's results
would have been without the derivative commodity contracts and
fixed price customer contracts discussed above. Conversely, the
Company estimates that a hypothetical 10 cent increase from the
above stated year-end 1998 price would result in a net
aggregate reduction to pre-tax earnings of approximately $20
million being realized during 1999 and 2000 related to KACC's
hedging positions and fixed price customer contracts. It should
be noted, however, that, since the hedging positions and fixed
price customer contracts lock-in a specified price or range or
prices, any increase or decrease in earnings attributable to
KACC's hedging positions or fixed price customer contracts would
be significantly offset by a decrease or increase in the value of
the hedged transactions.
The foregoing estimated earnings impact on 2000 excludes the
possible effect on pre-tax income of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which must be adopted by the
Company as of January 1, 2000. The foregoing estimate of a
hypothetical 10 cent-per-pound increase in primary aluminum
prices on KACC's hedging positions and fixed price customer
contracts excludes the cash impact of possible margin deposit
requirements. The Company estimates that KACC's cash exposure
related to margin deposit requirements on such positions, if such
a hypothetical price increase were to occur, would not have a
material adverse impact on the Company's current liquidity or
financial position.
Foreign Currency
KACC enters into forward exchange contracts to hedge material
cash commitments for foreign currencies. KACC's primary foreign
exchange exposure is related to KACC's Australian Dollar (A$)
commitments in respect of activities associated with its 28.3%-
owned affiliate, Queensland Alumina Limited. The Company
estimates that, before consideration of any hedging activities, a
US $0.01 increase (decrease) in the value of the A$ results in an
approximate $1-2 million (decrease) increase in the Company's
annual pre-tax earnings.
At December 31, 1998, the Company held derivative foreign
currency contracts hedging approximately 75% and 50% of its A$
currency commitments for 1999 and 2000, respectively. The
Company estimates that a hypothetical 10% reduction in the A$
exchange rate would result in the Company recognizing a net
aggregate pre-tax cost of approximately $10-15 million during
1999 and 2000 related to KACC's foreign currency hedging
positions. This cost is versus what the Company's results would
have been without the Company's derivative foreign currency
contracts. It should be noted, however, that, since the hedging
positions lock-in specified rates, any increase or decrease
in earnings attributable to currency hedging instruments would be
offset by a corresponding decrease or increase in the value of
the hedged commitments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 29 - 57 of the Annual Report are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Information required under PART III (Items 10, 11, 12, and 13)
has been omitted from this Report since the Company intends to
file with the Securities and Exchange Commission, not later than
120 days after the close of its fiscal year, a definitive proxy
statement pursuant to Regulation 14A which involves the election
of directors, and such information is incorporated by reference
from such definitive proxy statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
1. Financial Statements
--------------------
The Consolidated Financial Statements of the Company,
the Notes to Consolidated Financial Statements, the
Report of Independent Public Accountants, Quarterly
Financial Data, and Five-Year Financial Data are
included on pages 29 - 59 of the Annual Report.
2. Financial Statement Schedules Page
----------------------------------
Report of Independent Public Accountants 17
Schedule I - Condensed Balance Sheets - Parent
Company,
Condensed Statements of Income -
Parent Company,
Condensed Statements of Cash Flows
- Parent Company, and
Notes to Condensed Financial
Statements - Parent Company 18-21
All other schedules are inapplicable or the required
information is included in the Consolidated Financial
Statements or the Notes thereto.
3. Exhibits
--------
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 23),
which index is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
No Report on Form 8-K was filed by the Company during the
last quarter of the period covered by this Report.
(c) EXHIBITS
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 23), which
index is incorporated herein by reference.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Kaiser Aluminum
Corporation and Subsidiary Companies' annual report to
shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 28, 1999. Our
audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I listed in the
index at Item 14(a)2. above is the responsibility of the
Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in our
audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data
required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 28, 1999
SCHEDULE I
CONDENSED BALANCE SHEETS - PARENT COMPANY
(In millions of dollars, except share amounts)
December 31,
------------------------------
1998 1997
-------------- --------------
ASSETS
Investment in KACC $ 1,913.3 $ 1,802.8
-------------- --------------
Total $ 1,913.3 $ 1,802.8
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ - $ 3.2
Intercompany note payable to KACC, including accrued interest 1,794.1 1,682.6
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares;
issued and outstanding 79,153,543 and 78,980,881 in 1998
and 1997 .8 .8
Additional capital 535.4 533.8
Accumulated deficit (417.0) (417.6)
-------------- --------------
Total stockholders' equity 119.2 117.0
-------------- --------------
Total $ 1,913.3 $ 1,802.8
============== ==============
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,
1998 1997 1996
-------------- -------------- --------------
Equity in income of KACC $ 112.5 $ 154.2 $ 108.7
Administrative and general expense (.4) (1.7) (2.2)
Interest expense (111.5) (104.5) (98.3)
-------------- -------------- --------------
Net income $ .6 $ 48.0 $ 8.2
============== ============== ==============
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,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
Cash flows from operating activities:
Net income $ .6 $ 48.0 $ 8.2
Adjustments to reconcile net income to net cash used
for operating activities:
Equity in income of KACC (112.5) (154.2) (108.7)
Accrued interest on intercompany note
payable to KACC 111.5 104.5 98.3
Accrued taxes paid (3.3) (1.8) (2.7)
-------------- -------------- --------------
Net cash used for operating activities (3.7) (3.5) (4.9)
-------------- -------------- --------------
Cash flows from investing activities:
Investment in KACC (.1) (.3) (.1)
-------------- -------------- --------------
Net cash used for investing activities (.1) (.3) (.1)
-------------- -------------- --------------
Cash flows from financing activities:
Dividends paid - (4.2) (10.5)
Capital stock issued .1 .4 .1
Payments from KACC on intercompany note receivable - 4.2 10.5
Tax allocation payments from KACC 3.3 1.8 2.7
Operating cost advances from KACC .4 1.6 2.0
-------------- -------------- --------------
Net cash provided by financing
activities 3.8 3.8 4.8
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents
during the year - - (.2)
Cash and cash equivalents at beginning of year - - .2
-------------- -------------- --------------
Cash and cash equivalents at end of year $ - $ - $ -
============== ============== ==============
Supplemental disclosure of non-cash investing activities:
Non-cash (decrease) increase in investment in KACC $ (1.7) $ 4.4 $ -
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY
1. BASIS OF PRESENTATION
Kaiser Aluminum Corporation (the " Company") is a holding
company and conducts its operations through its wholly owned
subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"),
which is reported herein using the equity method of
accounting. The accompanying parent company condensed
financial statements of the Company should be read in
conjunction with the 1998 consolidated financial statements
of Kaiser Aluminum Corporation and Subsidiary Companies
("Kaiser").
Certain reclassifications of prior-year information were
made to conform to the current presentation.
2. INTERCOMPANY NOTE PAYABLE
The Intercompany Note to KACC, as amended, provides for a
fixed interest rate of 6-5/8%. No interest or principal
payments are due until December 31, 2000, after which
interest and principal will be payable over a 15-year term
pursuant to a predetermined schedule.
3. RESTRICTED NET ASSETS
The investment in KACC is substantially unavailable to the
Company pursuant to the terms of certain debt instruments.
The obligations of KACC in respect of the credit facilities
under the Credit Agreement are guaranteed by the Company and
substantially by all significant subsidiaries of KACC. See
Note 5 of Notes to Kaiser's Consolidated Financial
Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KAISER ALUMINUM CORPORATION
Date: March 30, 1999 By George T. Haymaker, Jr.
George T. Haymaker, Jr.
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: March 30, 1999 George T. Haymaker, Jr.
George T. Haymaker, Jr.
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: March 30, 1999 John T. La Duc
John T. La Duc
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 30, 1999 Daniel D. Maddox
Daniel D. Maddox
Vice President and Controller
(Principal Accounting Officer)
Date: March 30, 1999 Robert J. Cruikshank
Robert J. Cruikshank
Director
Date: March 30, 1999 Charles E. Hurwitz
Charles E. Hurwitz
Director
Date: March 30, 1999 Ezra G. Levin
Ezra G. Levin
Director
Date: March 30, 1999 Robert Marcus
Robert Marcus
Director
Date: March 30, 1999 Robert J. Petris
Robert J. Petris
Director
INDEX OF EXHIBITS
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of Kaiser
Aluminum Corporation (the "Company" or "KAC"), dated
February 21,1991 (incorporated by reference to Exhibit
3.1 to Amendment No. 2 to the Registration Statement on
Form S-1, dated June 11, 1991, filed by KAC,
Registration No. 33-37895).
3.2 Certificate of Retirement of KAC, dated October 24,
1995 (incorporated by reference to Exhibit 3.2 to the
Report on Form 10-K for the period ended December 31,
1995, filed by KAC, File No. 1-9447).
3.3 Certificate of Retirement of Kaiser Aluminum
Corporation, dated February 12, 1998 (incorporated by
reference to Exhibit 3.3 to the Report on From 10-K for
the period ended December 31, 1997, filed by KAC, File
No. 1-9447).
3.4 Amended and Restated By-Laws of Kaiser Aluminum
Corporation, dated October 1, 1997 (incorporated by
reference to Exhibit 3.3 to the Report on Form 10-Q for
the quarterly period ended September 30, 1997, filed by
KAC, File No. 1-9447).
4.1 Indenture, dated as of February 1, 1993, among Kaiser
Aluminum & Chemical Corporation ("KACC"), as Issuer,
Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., and Kaiser Jamaica Corporation, as Subsidiary
Guarantors, and The First National Bank of Boston, as
Trustee, regarding KACC's 12-3/4% Senior Subordinated
Notes Due 2003 (incorporated by reference to Exhibit
4.1 to Form 10-K for the period ended December 31,
1992, filed by KACC, File No. 1-3605).
4.2 First Supplemental Indenture, dated as of May 1, 1993,
to the Indenture, dated as of February 1, 1993
(incorporated by reference to Exhibit 4.2 to the Report
on Form 10-Q for the quarterly period ended June 30,
1993, filed by KACC, File No. 1-3605).
4.3 Second Supplemental Indenture, dated as of February 1,
1996, to the Indenture, dated as of February 1, 1993
(incorporated by reference to Exhibit 4.3 to the Report
on Form 10-K for the period ended December 31, 1995,
filed by KAC, File No. 1-9447).
4.4 Third Supplemental Indenture, dated as of July 15,
1997, to the Indenture, dated as of February 1, 1993
(incorporated by reference to Exhibit 4.1 to the report
on Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447).
4.5 Indenture, dated as of February 17, 1994, among KACC,
as Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, and Kaiser
Finance Corporation, as Subsidiary Guarantors, and
First Trust National Association, as Trustee, regarding
KACC's 9-7/8% Senior Notes Due 2002 (incorporated by
reference to Exhibit 4.3 to the Report on Form 10-K for
the period ended December 31, 1993, filed by KAC, File
No. 1-9447).
4.6 First Supplemental Indenture, dated as of February 1,
1996, to the Indenture, dated as of February 17, 1994
(incorporated by reference to Exhibit 4.5 to the Report
on Form 10-K for the period ended December 31, 1995,
filed by KAC, File No. 1-9447).
4.7 Second Supplemental Indenture, dated as of July 15,
1997, to the Indenture, dated as of February 17, 1994
(incorporated by reference to Exhibit 4.2 to the report
on Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447).
4.8 Indenture, dated as of October 23, 1996, among KACC, as
Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, Kaiser
Finance Corporation, Kaiser Micromill Holdings, LLC,
Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill
Holdings, LLC and Kaiser Texas Sierra Micromills, LLC,
as Subsidiary Guarantors, and First Trust National
Association, as Trustee, regarding KACC's 10-7/8%
Series B Senior Notes Due 2006 (incorporated by
reference to Exhibit 4.2 to the Report on Form 10-Q for
the quarterly period ended September 30, 1996, filed by
KAC, File No. 1-9447).
4.9 First Supplemental Indenture, dated as of July 15,
1997, to the Indenture, dated as of October 23, 1996
(incorporated by reference to Exhibit 4.3 to the Report
on Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447).
4.10 Indenture, dated as of December 23, 1996, among KACC,
as Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, Kaiser
Finance Corporation, Kaiser Micromill Holdings, LLC,
Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill
Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC,
as Subsidiary Guarantors, and First Trust National
Association, as Trustee, regarding KACC's 10 7/8%
Series D Senior Notes due 2006 (incorporated by
reference to Exhibit 4.4 to the Registration Statement
on Form S-4, dated January 2, 1997, filed by KACC,
Registration No. 333-19143).
4.11 First Supplemental Indenture, dated as of July 15,
1997, to the Indenture, dated as of December 23, 1996
(incorporated by reference to Exhibit 4.4 to the Report
on Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447).
4.12 Credit Agreement, dated as of February 15, 1994, among
KAC, KACC, the financial institutions a party thereto,
and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.4 to the Report
on Form 10-K for the period ended December 31, 1993,
filed by KAC, File No. 1-9447).
4.13 First Amendment to Credit Agreement, dated as of July
21, 1994, amending the Credit Agreement, dated as of
February 15, 1994, among KAC, KACC, the financial
institutions party thereto, and BankAmerica Business
Credit, Inc., as Agent (incorporated by reference to
Exhibit 4.1 to the Report on Form 10-Q for the
quarterly period ended June 30, 1994, filed by KAC,
File No. 1-9447).
4.14 Second Amendment to Credit Agreement, dated as of March
10, 1995, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KAC, KACC, the
financial institutions party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.6 to the Report on Form 10-K for
the period ended December 31, 1994, filed by KAC, File
No. 1-9447).
4.15 Third Amendment to Credit Agreement, dated as of July
20, 1995, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KAC, KACC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.1 to the Report on Form 10-Q for
the quarterly period ended June 30, 1995, filed by KAC,
File No. 1-9447).
4.16 Fourth Amendment to Credit Agreement, dated as of
October 17, 1995, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report
on Form 10-Q for the quarterly period ended September
30, 1995, filed by KAC, File No. 1-9447).
4.17 Fifth Amendment to Credit Agreement, dated as of
December 11, 1995, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.11 to the
Report on Form 10-K for the period ended December 31,
1995, filed by KAC, File No. 1-9447).
4.18 Sixth Amendment to Credit Agreement, dated as of
October 1, 1996, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report
on Form 10-Q for the quarterly period ended September
30, 1996, filed by KAC, File No. 1-9447).
4.19 Seventh Amendment to Credit Agreement, dated as of
December 17, 1996, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KAC, KACC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.18 to the
Registration Statement on Form S-4, dated January 2,
1997, filed by KACC, Registration No. 333-19143).
4.20 Eighth Amendment to Credit Agreement, dated as of
February 24, 1997, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC,
Kaiser, the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.16 to the
Report on Form 10-K for the period ended December 31,
1996, filed by KAC, File No. 1-9447).
4.21 Ninth Amendment to Credit Agreement, dated as of April
21, 1997, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KACC, KAC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.5 to the Report on From 10-Q for
the quarterly period ended June 30, 1997, filed by KAC,
File No. 1-9447).
4.22 Tenth amendment to Credit Agreement, dated as of June
25, 1997, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KACC, KAC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.6 to the Report on Form 10-Q for
the quarterly period ended June 30, 1997, filed by KAC,
File No. 1-9447).
4.23 Eleventh Amendment to Credit Agreement, dated as of
October 20, 1997, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.7 to the Report
on Form 10-Q for the quarterly period ended September
30, 1997, filed by KAC, File No. 1-9447).
4.24 Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.24 to the
Report on Form 10-K for the period ended December 31,
1997, filed by KAC, File No. 1-9447).
4.25 Thirteenth Amendment to Credit Agreement, dated as of
July 20, 1998, amending the Credit Agreement, dated as
of February 15, 1994, as amended, among KACC, KAC, the
financial institutions party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4 to the report on Form 10-Q for
the quarterly period ended June 30, 1998, filed by KAC,
File No. 1-9447).
*4.26 Fourteenth Amendment to Credit Agreement, dated as of
December 11, 1998, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions party thereto, and
BankAmerica Business Credit, Inc., as Agent.
*4.27 Fifteenth Amendment to Credit Agreement, dated as of
February 23, 1999, amending the Credit Agreement, dated
as of February 15, 1994, as amended, among KACC, KAC,
the financial institutions party thereto, and
BankAmerica Business Credit, Inc., as Agent.
*4.28 Sixteenth Amendment to Credit Agreement, dated as of
March 26, 1999, amending the Credit Agreement, dated as
of February 15, 1994, as amended, among KACC, KAC, the
financial institutions party thereto, and BankAmerica
Business Credit, Inc., as Agent.
4.29 Intercompany Note between KAC and KACC (incorporated by
reference to Exhibit 10.11 to the Report on Form 10-K
for the period ended December 31, 1996, filed by MAXXAM
Inc. ("MAXXAM"), File No. 1-3924).
4.30 Confirmation of Amendment of Non-Negotiable
Intercompany Note, dated as of October 6, 1993, between
KAC and KACC (incorporated by reference to Exhibit
10.12 to the Report on Form 10-K for the period ended
December 31, 1996, filed by MAXXAM, File No. 1-3924).
4.31 Senior Subordinated Intercompany Note between KAC and
KACC dated February 15, 1994 (incorporated by reference
to Exhibit 4.22 to the Report on Form 10-K for the
period ended December 31, 1993, filed by KAC, File No.
1-9447).
4.32 Senior Subordinated Intercompany Note between KAC and
KACC dated March 17, 1994 (incorporated by reference to
Exhibit 4.23 to the Report on Form 10-K for the period
ended December 31, 1993, filed by KAC, File No. 1-
9447).
KAC has not filed certain long-term debt instruments
not being registered with the Securities and Exchange
Commission where the total amount of indebtedness
authorized under any such instrument does not exceed
10% of the total assets of KAC and its subsidiaries on
a consolidated basis. KAC agrees and undertakes to
furnish a copy of any such instrument to the Securities
and Exchange Commission upon its request.
10.1 Form of indemnification agreement with officers and
directors (incorporated by reference to Exhibit (10)(b)
to the Registration Statement of KAC on Form S-4, File
No. 33-12836).
10.2 Tax Allocation Agreement, dated as of December 21,
1989, between MAXXAM and KACC (incorporated by
reference to Exhibit 10.21 to Amendment No. 6 to the
Registration Statement on Form S-1, dated December 14,
1989, filed by KACC, Registration No. 33-30645).
10.3 Tax Allocation Agreement, dated as of February 26,
1991, between KAC and MAXXAM (incorporated by reference
to Exhibit 10.23 to Amendment No. 2 to the Registration
Statement on Form S-1, dated June 11, 1991, filed by
KAC, Registration No. 33-37895).
10.4 Tax Allocation Agreement, dated as of June 30, 1993,
between KACC and KAC (incorporated by reference to
Exhibit 10.3 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC,
File No. 1-3605).
Executive Compensation Plans and Arrangements
[Exhibits 10.5 - 10.23, inclusive]
10.5 KACC's Bonus Plan (incorporated by reference to Exhibit
10.25 to Amendment No. 6 to the Registration Statement
on Form S-1, dated December 14, 1989, filed by KACC,
Registration No. 33-30645).
10.6 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Report on Form 10-Q
for the quarterly period ended June 30, 1993, filed by
KACC, File No. 1-3605).
10.7 Kaiser 1995 Employee Incentive Compensation Program
(incorporated by reference to Exhibit 10.1 to the
Report on Form 10-Q for the quarterly period ended
March 31, 1995, filed by KAC, File No. 1-9447).
10.8 Kaiser 1995 Executive Incentive Compensation Program
(incorporated by reference to Exhibit 99 to the Proxy
Statement, dated April 26, 1995, filed by KAC, File No.
1-9447).
10.9 Kaiser 1997 Omnibus Stock Incentive Plan (incorporated
by reference to Appendix A to the Proxy Statement,
dated April 29, 1997, filed by KAC, File No. 1-9447).
10.10 Employment Agreement, dated April 1, 1993, among KAC,
KACC, and George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10.2 to the Report on Form 10-Q
for the quarterly period ended March 31, 1993, filed by
KAC, File No. 1-9447).
10.11 First Amendment to Employment Agreement by and between
KACC, KAC and George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10 to the Report on Form 10-Q for
the quarterly period ended June 30, 1996, filed by KAC,
File No. 1-9447).
10.12 Second Amendment to Employment Agreement, dated as of
December 10, 1997, by and between KAC, KACC, and George
T. Haymaker, Jr. (incorporated by reference to Exhibit
10.12 to the Report on Form 10-K for the period ended
December 31, 1997, filed by KAC, File No. 1-9447).
10.13 Letter Agreement, dated January 1995, between KAC and
Charles E. Hurwitz, granting Mr. Hurwitz stock options
under the Kaiser 1993 Omnibus Stock Incentive Plan
(incorporated by reference to Exhibit 10.17 to the
Report on Form 10-K for the period ended December 31,
1994, filed by KAC, File No. 1-9447).
10.14 Employment Agreement between KACC and Raymond J.
Milchovich made effective for the period from January
1, 1998, to December 31, 2002 (incorporated by
reference to Exhibit 10.3 to the Report on Form 10-Q
for the quarterly period ended September 30, 1998,
filed by KAC, File No. 1-9447).
10.15 Time-Based Stock Option Grant Pursuant to the Kaiser
1997 Omnibus Stock Incentive Plan to Raymond J.
Milchovich, effective July 2, 1998 (incorporated by
reference to Exhibit 10.4 to the Report on Form 10-Q
for the quarterly period ended September 30, 1998,
filed by KAC, File No. 1-9447).
10.16 Employment Agreement between KACC and John T. La Duc
made effective for the period from January 1, 1998, to
December 31, 2002 (incorporated by reference to Exhibit
10.5 to the Report on From 10-Q for the quarterly
period ended September 30, 1998, filed by KAC, File No.
1-9447).
10.17 Time-Based Stock Option Grant Pursuant to the Kaiser
1997 Omnibus Stock Incentive Plan to John T. La Duc,
effective July 10, 1998 (incorporated by reference to
Exhibit 10.6 to the Report on Form 10-Q for the
quarterly period ended September 30, 1998, filed by
KAC, File No. 1-9447).
*10.18 Time-Based Stock Option Grant Pursuant to the Kaiser
1997 Omnibus Stock Incentive Plan to George T.
Haymaker, Jr., effective January 1, 1998.
*10.19 Performance-Accelerated Stock Option Grant Pursuant to
the Kaiser 1997 Omnibus Stock Incentive Plan to George
T. Haymaker, Jr., effective January 1, 1998.
*10.20 Letter Agreement, dated July 27, 1998, between KACC and
John H. Walker.
*10.21 Description of Kaiser Severance Protection and Change
of Control Benefits Program.
10.22 Form of letter agreement with persons granted stock
options under the Kaiser 1993 Omnibus Stock Incentive
Plan to acquire shares of KAC Common Stock
(incorporated by reference to Exhibit 10.18 to the
Report on Form 10-K for the period ended December 31,
1994, filed by KAC, File No. 1-9447).
10.23 Form of Deferred Fee Agreement between KAC, KACC, and
directors of KAC and KACC (incorporated by reference to
Exhibit 10 to the Report on Form 10-Q for the quarterly
period ended March 31, 1998, filed by KAC, File No. 1-
9447).
*13 The portions of KAC's Annual Report to shareholders for
the year ended December 31, 1998, which are
incorporated by reference into this Report.
*21 Significant Subsidiaries of KAC.
*23.1 Consent of Independent Public Accountants.
*23.2 Consent of Wharton Levin Ehrmantraut Klein & Nash, P.A.
*23.3 Consent of Heller Ehrman White & McAuliffe.
*27 Financial Data Schedule.
------------------
* Filed herewith
Exhibit 21
SUBSIDIARIES
Listed below are the principal subsidiaries of Kaiser Aluminum
Corporation, the jurisdiction of their incorporation or
organization, and the names under which such subsidiaries do
business. Certain subsidiaries are omitted which, considered in
the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
Place of
Incorporation
Name or Organization
Alpart Jamaica Inc. Delaware
Alumina Partners of Jamaica (partnership) Delaware
Anglesey Aluminium Limited United Kingdom
Kaiser Alumina Australia Corporation Delaware
Kaiser Aluminium International, Inc. Delaware
Kaiser Aluminum & Chemical Corporation Delaware
Kaiser Aluminum & Chemical of Canada Limited Ontario
Kaiser Bauxite Company Nevada
Kaiser Bellwood Corporation Delaware
Kaiser Finance Corporation Delaware
Kaiser Jamaica Bauxite Company (partnership) Jamaica
Kaiser Jamaica Corporation Delaware
Queensland Alumina Limited Queensland
Volta Aluminium Company Limited Ghana
Principal California South Carolina
---------- --------------
Domestic Los Angeles (City Greenwood
of Commerce) Engineered Products
Operations Engineered Greenwood
Products Engineered Products
and Oxnard Machine Shop
Administrative Engineered Tennessee
Products ---------
Offices Pleasanton Jackson
(Partial List) R&D at the Center Engineered Products
for Technology, Texas
Administrative -----
Offices Houston
Kaiser Aluminum
Louisiana Corporation
--------- Headquarters
Baton Rouge Sherman
Alumina Business Engineered Products
Unit Offices Virginia
Gramercy --------
Alumina Richmond
Michigan Engineered Products
-------- Washington
Detroit ----------
(Southfield) Mead
Automotive Primary Aluminum,
Product Northwest Engineering
Development and Center
Sales Richland
Ohio Engineered Products
---- Tacoma
Canton* Primary Aluminum
Engineered Trentwood
Products Flat-Rolled Products
Cuyahoga Falls
(50%)*
Engineered
Products
Newark
Engineered
Products
Oklahoma
--------
Tulsa
Engineered
Products
Pennsylvania
------------
Erie (50%)*
Engineered
Products
* In separate announcements in early 1999, the Company said it
had signed agreements to sell its interests in the assets located
at Canton, Cuyahoga Falls, and Erie.
-----------------------------------------------------------------
Principal Australia Jamaica
--------- -------
Worldwide Queensland Alumina Alumina Partners of
Limited (28.3%) Jamaica (65%)
Operations Alumina Bauxite, Alumina
(Partial List) Canada Kaiser Jamaica Bauxite
------ Company (49%)
Kaiser Aluminum & Bauxite
Chemical of Wales, United Kingdom
Canada Limited ---------------------
(100%) Anglesey Aluminium
Engineered Limited (49%)
Products Primary Aluminum
Ghana
-----
Volta Aluminium
Company Limited
(90%)
Primary Aluminum