-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gv6n3VjhqErrMzV8t8l189zh5uJD/jxXUL8cdUQUqFvYlw03k9VQu4VywbBO3iS9 U6hfsNMn19hJs7TcAOOKoA== 0000811596-98-000019.txt : 19980803 0000811596-98-000019.hdr.sgml : 19980803 ACCESSION NUMBER: 0000811596-98-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980731 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER ALUMINUM & CHEMICAL CORP CENTRAL INDEX KEY: 0000054291 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 943030279 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03605 FILM NUMBER: 98675625 BUSINESS ADDRESS: STREET 1: 6177 SUNOL BOULEVARD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 BUSINESS PHONE: 5104621122 MAIL ADDRESS: STREET 1: 6177 SUNOL BLVD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 FORMER COMPANY: FORMER CONFORMED NAME: PERMANENTE METALS CORP DATE OF NAME CHANGE: 19660905 10-Q 1 KACC SECOND QUARTER 10-Q - --------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 Commission file number 1-3605 KAISER ALUMINUM & CHEMICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-0928288 (State of incorporation) (I.R.S. Employer Identification No.) 6177 SUNOL BOULEVARD, PLEASANTON, CALIFORNIA 94566-7769 (Address of principal executive offices) (Zip Code) (925) 462-1122 (Registrant's telephone number, including area code) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ----- ------ At July 27, 1998, the registrant had 46,171,365 shares of Common Stock outstanding. - --------------------------------------------------------------------------- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- CONSOLIDATED BALANCE SHEETS (In millions of dollars)
June 30, December 31, 1998 1997 ------------------------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 113.4 $ 15.8 Receivables 300.0 345.3 Inventories 506.8 568.3 Prepaid expenses and other current assets 145.6 121.3 ------------------------------ Total current assets 1,065.8 1,050.7 Investments in and advances to unconsolidated affiliates 141.3 148.6 Property, plant, and equipment - net 1,159.5 1,171.8 Deferred income taxes 320.6 329.0 Other assets 328.6 317.2 ------------------------------ Total $ 3,015.8 $ 3,017.3 ============================== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 156.7 $ 176.2 Accrued interest 37.3 37.6 Accrued salaries, wages, and related expenses 85.0 97.9 Accrued postretirement medical benefit obligation - current portion 45.3 45.3 Other accrued liabilities 160.6 145.9 Payable to affiliates 78.5 82.4 Long-term debt - current portion 2.0 8.8 ------------------------------ Total current liabilities 565.4 594.1 Long-term liabilities 507.2 492.0 Accrued postretirement medical benefit obligation 709.2 720.3 Long-term debt 962.5 962.9 Minority interests 99.3 98.4 Redeemable preference stock 19.8 27.7 Commitments and contingencies Stockholders' equity: Preference stock 1.6 1.6 Common stock 15.4 15.4 Additional capital 1,996.5 1,939.8 Accumulated deficit (123.3) (152.3) Less: Note receivable from parent (1,737.8) (1,682.6) ------------------------------ Total stockholders' equity 152.4 121.9 ------------------------------ Total $ 3,015.8 $ 3,017.3 ==============================
The accompanying notes to interim consolidated financial statements are an integral part of these statements. KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME (Unaudited) (In millions of dollars)
Quarter Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 ------------------------------ ------------------------------ Net sales $ 614.8 $ 597.1 $ 1,211.8 $ 1,144.5 ------------------------------ ------------------------------ Costs and expenses: Cost of products sold 506.1 489.3 1,005.7 950.0 Depreciation 22.3 22.8 45.2 45.9 Selling, administrative, research and development, and general 31.0 29.7 60.5 60.5 Restructuring of operations - 19.7 - 19.7 ------------------------------ ------------------------------ Total costs and expenses 559.4 561.5 1,111.4 1,076.1 ------------------------------ ------------------------------ Operating income 55.4 35.6 100.4 68.4 Other income (expense): Interest expense (26.9) (28.2) (54.9) (55.9) Other - net (2.4) (3.4) (1.8) (.8) ------------------------------ ------------------------------ Income before income taxes and minority interests 26.1 4.0 43.7 11.7 (Provision) benefit for income taxes (9.0) 11.0 (15.2) 8.1 Minority interests .3 (.4) 1.3 (.9) ------------------------------ ------------------------------ Net income $ 17.4 $ 14.6 $ 29.8 $ 18.9 ============================== ==============================
The accompanying notes to interim consolidated financial statements are an integral part of these statements. KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (In millions of dollars)
Six Months Ended June 30, ------------------------------ 1998 1997 ------------------------------ Cash flows from operating activities: Net income $ 29.8 $ 18.9 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 45.2 45.9 Restructuring of operations - 19.7 Non-cash benefit for income taxes - (12.5) Amortization of excess investment over equity in unconsolidated affiliates 5.1 5.8 Amortization of deferred financing costs and net discount on long-term debt 2.0 3.0 Undistributed equity in (income) loss of unconsolidated affiliates, net of distributions 1.5 12.0 Minority interests (1.3) .9 Decrease (increase) in receivables 33.1 (49.4) Decrease (increase) in inventories 61.5 (5.5) Decrease (increase) in prepaid expenses and other assets 18.0 (15.7) Decrease in accounts payable (19.5) (41.2) (Increase) decrease in accrued interest (0.3) 2.0 Decrease in payable to affiliates and accrued liabilities (36.1) (18.7) Increase (decrease) in accrued and deferred income taxes 5.3 (6.1) Other 7.8 (.5) ------------------------------ Net cash provided (used) by operating activities 152.1 (41.4) ------------------------------ Cash flows from investing activities: Net proceeds from disposition of property and investments .2 22.1 Capital expenditures (36.7) (68.8) Other (3.3) (2.5) ------------------------------ Net cash used by investing activities (39.8) (49.2) ------------------------------ Cash flows from financing activities: Borrowings under revolving credit facility, net (7.0) 30.0 Borrowings of long-term debt - 19.0 Repayments of long-term debt - (5.1) Decrease (increase) in restricted cash, net 1.2 (10.1) Payments to parent - (4.3) Incurrence of financing costs - (.5) Dividends paid (.4) (.3) Redemption of minority interests' preference stock (8.5) (2.0) ------------------------------ Net cash (used) provided by financing activities (14.7) 26.7 ------------------------------ Net increase (decrease) in cash and cash equivalents during the period 97.6 (63.9) Cash and cash equivalents at beginning of period 15.8 81.3 ------------------------------ Cash and cash equivalents at end of period $ 113.4 $ 17.4 ============================== Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest $ 53.2 $ 50.9 Income taxes paid 7.2 8.2 Tax allocation payments to Kaiser Aluminum Corporation 1.7 .9
The accompanying notes to interim consolidated financial statements are an integral part of these statements. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (In millions of dollars, except prices and per share amounts) 1. GENERAL Kaiser Aluminum & Chemical Corporation (the "Company") is the principal operating subsidiary of Kaiser Aluminum Corporation ("Kaiser"). Kaiser is a subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM and one of its wholly owned subsidiaries together own approximately 63% of Kaiser's Common Stock with the remaining approximately 37% publicly held. The foregoing unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1997. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company's consolidated financial position and results of operations. Operating results for the quarter and six-month period ended June 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. See Note 5 regarding recent accounting pronouncements. 2. INVENTORIES The classification of inventories is as follows:
June 30, December 31, 1998 1997 ------------------------------ Finished fabricated aluminum products $ 89.6 $ 103.9 Primary aluminum and work in process 181.4 226.6 Bauxite and alumina 111.6 108.4 Operating supplies and repair and maintenance parts 124.2 129.4 ------------------------------ Total $ 506.8 $ 568.3 ==============================
Substantially all product inventories are stated at last-in, first-out (LIFO) cost, not in excess of market. Replacement cost is not in excess of LIFO cost. 3. CONTINGENCIES ENVIRONMENTAL CONTINGENCIES The Company is subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of such environmental laws, and to claims and litigation based upon such laws. The Company currently is subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, along with certain other entities, has been named as a potentially responsible party for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA. Based on the Company's evaluation of these and other environmental matters, the Company has established environmental accruals primarily related to potential solid waste disposal and soil and groundwater remediation matters. At June 30, 1998, the balance of such accruals, which are primarily included in Long-term liabilities, was $28.6. 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 actions to be taken. The Company expects that these remediation actions will be taken over the next several years and estimates that annual expenditures to be charged to these environmental accruals will be approximately $2.0 to $9.0 for the years 1998 through 2002 and an aggregate of approximately $7.0 thereafter. The Company believes that it has insurance coverage available to recover certain incurred and future environmental costs and is actively pursuing claims in this regard. However, no accruals have been made for any such insurance recoveries and no assurances can be given that the Company will be successful in its attempt to recover incurred or future costs. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. The Company believes that it is reasonably possible that costs associated with these environmental matters may exceed current accruals by amounts that could range, in the aggregate, up to an estimated $18.0. As the resolution of these matters is subject to further regulatory review and approval, no specific assurance can be given as to when the factors upon which a substantial portion of this estimate is based can be expected to be resolved. However, the Company is currently working to resolve certain of these matters. While uncertainties are inherent in the final outcome of these environmental matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. ASBESTOS CONTINGENCIES The Company 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 the Company or exposure to products containing asbestos produced or sold by the Company. The lawsuits generally relate to products the Company has not manufactured for at least 20 years. At June 30, 1998, the number of such claims pending was approximately 83,900, as compared with 77,400 at December 31, 1997. In 1997, approximately 15,600 of such claims were received and 9,300 were settled or dismissed. During the quarter and six months ended June 30, 1998, approximately 5,100 and 10,500 of such claims were received and 2,700 and 4,000 of such claims were settled or dismissed, respectively. However, the foregoing claim and settlement figures as of June 30, 1998, do not reflect the fact that the Company has reached agreements under which it will settle approximately 22,000 of the pending asbestos-related claims over an extended period. Based on past experience and reasonably anticipated future activity, the Company has established an accrual for estimated asbestos-related costs for claims filed and estimated to be filed through 2008. There are inherent uncertainties involved in estimating asbestos-related costs, and the Company's actual costs could exceed or be less than these estimates. The Company's accrual was calculated based on the current and anticipated number of asbestos-related claims, the prior timing and amounts of asbestos-related payments, and the advice of Wharton Levin Ehrmantraut Klein & Nash, P.A. with respect to the current state of the law related to asbestos claims. Accordingly, an estimated asbestos-related cost accrual of $167.5, before consideration of insurance recoveries, is included primarily in Long-term liabilities at June 30, 1998. While the Company does not presently believe there is a reasonable basis for estimating such costs beyond 2008 and, accordingly, no accrual has been recorded for such costs which may be incurred beyond 2008, there is a reasonable possibility that such costs may continue beyond 2008, and such costs may be substantial. The Company estimates that annual future cash payments in connection with such litigation will be approximately $15.0 to $22.0 for each of the years 1998 through 2002, and an aggregate of approximately $83.0 thereafter. The Company believes that it has insurance coverage available to recover a substantial portion of its asbestos-related costs. While active coverage litigation has been concluded, the timing and amount of future recoveries from the insurance carriers that remain at risk will depend on the pace of claims review and processing by such carriers, and on the resolution of any disputes which may arise in the course of discussions regarding coverage under their policies. The Company believes, based on prior insurance-related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of Thelen Reid & Priest LLP (formerly Thelen, Marrin, Johnson & Bridges LLP) with respect to applicable insurance coverage law relating to the terms and conditions of those policies, that substantial recoveries from the insurance carriers are probable. Accordingly, an estimated aggregate insurance recovery of $128.1, determined on the same basis as the asbestos-related cost accrual, is recorded primarily in Other assets at June 30, 1998. Management continues to monitor claims activity, the status of lawsuits (including settlement initiatives), legislative progress, and costs incurred in order to ascertain whether an adjustment to the existing accruals should be made to the extent that historical experience may differ significantly from the Company's underlying assumptions. While uncertainties are inherent in the final outcome of these asbestos matters and it is presently impossible to determine the actual costs that ultimately may be incurred and insurance recoveries that will be received, management currently believes that, based on the factors discussed in the preceding paragraphs, the resolution of asbestos-related uncertainties and the incurrence of asbestos-related costs net of related insurance recoveries should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. OTHER CONTINGENCIES The Company is involved in various other claims, lawsuits, and other proceedings relating to a wide variety of matters. While uncertainties are inherent in the final outcome of such matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. See Note 10 of the Notes to Consolidated Financial Statements for the year ended December 31, 1997. 4. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS At June 30, 1998, the net unrealized gain on the Company's position in aluminum forward sales and option contracts, based on an average contract price of $.74 per pound of primary aluminum, natural gas, fuel oil and diesel fuel forward purchase and option contracts, and forward foreign exchange contracts, was approximately $28.3. Any gains or losses on the derivative contracts utilized in the Company's hedging activities are offset by losses or gains, respectively, on the transactions being hedged. However, see Note 5 regarding a recent accounting pronouncement. ALUMINA AND ALUMINUM The Company's earnings are sensitive to changes in the prices of alumina, primary aluminum and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. Primary aluminum prices have historically been subject to significant cyclical fluctuations. Since 1993, the Average Midwest United States transaction price for primary aluminum has ranged from approximately $.50 to $1.00 per pound. Alumina prices as well as fabricated aluminum product prices (which vary considerably among products) are significantly influenced by changes in the price of primary aluminum but generally lag behind primary aluminum price changes by up to three months. From time to time in the ordinary course of business, the Company enters into hedging transactions to provide price risk management in respect of the net exposure of earnings resulting from (i) anticipated sales of alumina, primary aluminum and fabricated aluminum products, less (ii) expected purchases of certain items, such as aluminum scrap, rolling ingot, and bauxite, whose prices fluctuate with the price of primary aluminum. Forward sales contracts are used by the Company to effectively fix the price that the Company will receive for its shipments. The Company also uses option contracts (i) to establish a minimum price for its product shipments, (ii) to establish a "collar" or range of prices for its anticipated sales, and/or (iii) to permit the Company to realize possible upside price movements. As of June 30, 1998, the Company had sold forward, at fixed prices, approximately 47,300 and 24,000 tons* of primary aluminum with respect to 1998 and 1999, respectively. As of June 30, 1998, the Company had also purchased put options to establish a minimum price for approximately 22,500 tons of primary aluminum with respect to 1998 and had entered into option contracts that established a price range for an additional 115,800, and 124,500 tons for 1998 and 1999, respectively. Additionally, at June 30, 1998, the Company also held fixed price purchase contracts for 42,100 tons of primary aluminum with respect to 1998. As of June 30, 1998, the Company had sold forward virtually all of the alumina available to it in excess of its projected internal smelting requirements for 1998, 1999 and 2000 at prices indexed to future prices of primary aluminum. ENERGY The Company is exposed to energy price risk from fluctuating prices for fuel oil and natural gas consumed in the production process. Accordingly, the Company from time to time in the ordinary course of business enters into hedging transactions with major suppliers of energy and energy related financial instruments. As of June 30, 1998, the Company had a combination of fixed price purchase and option contracts for the purchase of approximately 45,000 MMBtu of natural gas per day during the remainder of 1998. As of June 30, 1998, the Company also held a combination of fixed price purchase and option contracts for an average of 232,000 and 138,800 barrels per month of fuel oil and diesel fuel for 1998 and 1999, respectively. - ---------------- * All references to tons in this report refer to metric tons of 2,204.6 tons. FOREIGN CURRENCY The Company enters into forward exchange contracts to hedge material cash commitments to foreign subsidiaries or affiliates. At June 30, 1998, the Company had net forward foreign exchange contracts totaling approximately $198.6 for the purchase of 285.6 Australian dollars from July 1998 through December 2000, in respect of its commitments for 1998 through 2000 expenditures denominated in Australian dollars. See Note 11 of the Notes to Consolidated Financial Statements for the year ended December 31, 1997. 5. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130") was issued in June 1997 and was adopted by the Company as of January 1, 1998. SFAS No. 130 requires the presentation of an additional income measure (termed "comprehensive income"), which adjusts traditional net income for certain items that previously were only reflected as direct charges to equity (such as minimum pension liabilities). Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133") was issued in June 1998 and requires companies to recognize all derivative instruments as assets or liabilities in the balance sheet and to measure those instruments at fair value. SFAS No. 133 must be adopted by the Company no later than January 1, 2000, although earlier application is permitted. The Company is currently evaluating how and when to implement SFAS No. 133. Currently, the dollar amount of the Company's comprehensive income adjustments is not significant so there is not a significant difference between "traditional" net income and comprehensive income for the quarters and six-month periods ended June 30, 1998 and 1997. However, differences between comprehensive income and traditional net income may become significant in future periods as a result of SFAS No. 133. As discussed more fully in Note 5, the intent of the Company's hedging program is to "lock-in" a price (or range of prices) for products sold/used so that earnings and cash flows are subject to reduced risk of volatility. Under SFAS No. 133, the Company will be required to "mark-to-market" its hedging positions at each period end in advance of reflecting the physical transaction to which the hedge relates. Pursuant to SFAS No. 130, the Company will reflect changes in the fair value of its open hedging positions as an increase or reduction in stockholders' equity through comprehensive income. Under SFAS No. 130, the impact of the changes in fair value of financial instruments will reverse out of comprehensive income (net of any fluctuations in other "open" positions) and will be reflected in traditional net income when the subsequent physical transaction occurs. The combined result of SFAS No's. 130 and 133 will be that there will be fluctuations in comprehensive income and stockholders' equity in periods of price volatility, despite the fact that the Company's cash flow and earnings will be "fixed" to the extent hedged. The amount of such fluctuations could be significant. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- This section should be read in conjunction with the response to Item 1, Part I, of this Report. This section contains statements which constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this section (see, for example, "Recent Events and Developments," "Results of Operations," and "Liquidity and Capital Resources"). 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 section and the Company's Annual Report on Form 10-K for the year ended December 31, 1997, each identify other factors that could cause such differences. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. RECENT EVENTS AND DEVELOPMENTS The Company has previously disclosed that it set a goal of achieving $120.0 million of pre-tax cost reductions and other profit improvements, independent of metal price changes, with the full effect planned to be realized in 1998 and beyond, measured against 1996 results. Management believes that recent operating performance has been at a rate which indicates that its objective will be achieved during the second half of 1998. However, there are inherent uncertainties regarding operating factors and economic and other external forces (such as the Valco power and domestic labor matters described below), many of which are outside management's direct control, and, as such, no assurances can be given that the desired benefit of profit improvements will be achieved. In addition to working to improve the performance of the Company's existing assets, the Company has expended significant efforts on analyzing its current asset portfolio with the intent of focusing its efforts and capital in sectors of the industry that are considered most attractive. The initial steps of this process led to the formation of the AKW wheel joint venture and the acquisition of the Bellwood aluminum extrusion plant in Richmond, Virginia. Additional portfolio analysis and initiatives are ongoing. Substantially all of the Company's hourly workforce at the Gramercy, Louisiana, alumina reduction facility, Mead and Tacoma, Washington, aluminum smelters, Trentwood, Washington, rolling mill, and Newark, Ohio, extrusion facility are covered by a master agreement ("the Labor Contract") with the United Steelworkers of America which expires on September 30, 1998. Negotiations concerning the Labor Contract are expected to commence during the third quarter of 1998. During April 1998, the Company's 90%-owned Volta Aluminium Company Limited ("Valco") smelter in Ghana reached an agreement with the Volta River Authority ("VRA") to receive compensation in lieu of the power necessary to run a potline that was curtailed on April 6, 1998. The compensation is expected to substantially mitigate the financial impact of the curtailment. Valco is now operating only one if its five potlines, as compared to 1997, when Valco operated four potlines. Valco had previously curtailed two of its potlines in 1998, one in January, for which it received no compensation, and one in February, for which it will be compensated. As previously announced, the Company 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 beyond 1998. No assurances can be given as to the success of these discussions, the possibility of requests from the VRA for additional curtailments, or as to the operating level of Valco for the remainder of 1998 or beyond. RESULTS OF OPERATIONS The table on the following page provides selected operational and financial information on a consolidated basis with respect to the Company for the quarter and six months ended June 30, 1998, and 1997. As an integrated aluminum producer, the Company uses a portion of its bauxite, alumina and primary aluminum production for additional processing at certain of its other facilities. Intracompany shipments and sales are excluded from the information set forth on the following page. Interim results are not necessarily indicative of those for a full year. SELECTED OPERATIONAL AND FINANCIAL INFORMATION (Unaudited) (In millions of dollars, except shipments and prices)
Quarter Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 ------------------------------ ------------------------------ Shipments: (1) Alumina 652.5 492.3 1,077.1 877.8 Aluminum products: Primary aluminum 68.3 82.0 148.8 160.5 Fabricated aluminum products 107.8 100.4 213.3 194.3 ------------------------------ ------------------------------ Total aluminum products 176.1 182.4 362.1 354.8 ============================== ============================== Average realized sales price: Alumina (per ton) $ 197 $ 196 $ 198 $ 193 Primary aluminum (per pound) .70 .75 .71 .75 Net sales: Bauxite and alumina: Alumina $ 128.3 $ 96.5 $ 213.8 $ 169.7 Other (2) (3) 26.8 26.5 52.5 53.1 ------------------------------ ------------------------------ Total bauxite and alumina 155.1 123.0 266.3 222.8 ------------------------------ ------------------------------ Aluminum processing: Primary aluminum 105.8 135.3 232.0 264.5 Fabricated aluminum products 353.0 334.5 709.9 648.9 Other (3) .9 4.3 3.6 8.3 ------------------------------ ------------------------------ Total aluminum processing 459.7 474.1 945.5 921.7 ------------------------------ ------------------------------ Total net sales $ 614.8 $ 597.1 $ 1,211.8 $ 1,144.5 ============================== ============================== Operating income (loss): Bauxite and alumina $ 15.1 $ 7.5 $ 21.2 $ 6.0 Aluminum processing (4) 57.8 46.2 113.9 97.5 Corporate (5) (17.5) (18.1) (34.7) (35.1) ------------------------------ ------------------------------ Total operating income $ 55.4 $ 35.6 $ 100.4 $ 68.4 ============================== ============================== Net income $ 17.4 $ 14.6 $ 29.8 $ 18.9 ============================== ============================== Capital expenditures $ 23.0 $ 47.0 $ 36.7 $ 68.8 ============================== ==============================
- --------------------------------------- (1) In thousands of metric tons. (2) Includes net sales of bauxite. (3) Includes the portion of net sales attributable to minority interests in consolidated subsidiaries. (4) Includes a pre-tax charge of $15.1 related to restructuring of operations for both the quarter and six-month period ended June 30, 1997. (5) Includes a pre-tax charge of $4.6 related to restructuring of operations for both the quarter and six-month period ended June 30, 1997. OVERVIEW The Company's operating results are sensitive to changes in prices of alumina, primary aluminum, and fabricated aluminum products, and also depend to a significant degree on the volume and mix of all products sold and on the Company'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 but generally lag behind primary aluminum price changes by up to three months. During 1997, the Average Midwest Transaction Price ("AMT Price") for primary aluminum remained fairly stable generally in the $.75 $.80 range through November and then declined during December to the $.70 - $.75 range. After beginning 1998 at approximately $.73, the AMT Price for primary aluminum declined to approximately $.69 at the end of March 1998 and further declined to approximately $.63 at the end of June 1998. The AMT Price for primary aluminum for the week ended July 24, 1998, was approximately $.66 per pound. See Note 4 of the Notes to Interim Consolidated Financial Statements for a discussion of the Company's hedging activities. QUARTER AND SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 SUMMARY The Company reported net income of $17.4 million for the second quarter of 1998, compared to a net income of $14.6 million for the same period of 1997. Net sales in the second quarter of 1998 totaled $614.8 million compared to $597.1 million in the second quarter of 1997. For the six-month period ended June 30, 1998, net income was $29.8 million, compared to net income of $18.9 million, for the six-month period ended June 30, 1997. Net sales for the six months ended June 30, 1998, were $1,211.8 million compared to $1,144.5 million for the first six months of 1997. Results for the quarter and six-month periods ended June 30, 1997, include the effect of certain nonrecurring items including a $19.7 million restructuring charge and an offsetting $12.5 million non-cash tax benefit related to settlement of certain matters. Additionally, results for the quarters and six-month periods ended June 30, 1998 and 1997, include charges related to additional litigation reserves of $3.9 million and $5.8 million, respectively. BAUXITE AND ALUMINA Net sales of alumina increased by 33% for the quarter ended June 30, 1998, from the comparable prior year period, as a result of a 33% increase in alumina shipments, resulting from the timing of shipments as well as reduced intracompany shipments to Valco. For the six-month period ended June 30, 1998, net sales of alumina increased by 26%, from the comparable period in the prior year due to a 23% increase in shipments and a 3% increase in average realized prices between periods. Operating income for the quarter and six-month period ended June 30, 1998, improved substantially over the comparable prior periods due primarily to the price and volume factors discussed above, as well as reduced energy prices. ALUMINUM PROCESSING Net sales of primary aluminum for the quarter ended June 30, 1998, decreased by 22% from the comparable prior year period as a 16% decrease in shipments, primarily as a result of the aforementioned Valco potline curtailments, as well as a 6% decrease in average realized prices. Net sales of fabricated aluminum products for the quarter ended June 30, 1998, were up 6% as compared to the prior year period as a result of an 8% increase in shipments offset by a 2% decrease in average realized prices. The increase in fabricated aluminum product shipments over the second quarter of 1997 was the result of the Company's June 1997 acquisition of the Bellwood extrusion facility and increased shipments of heat-treat products from the Company's Trentwood, Washington, rolling mill, offset by reduced volumes in the Company's Engineered Products business unit, in part due to the formation of the AKW wheel manufacturing joint venture. For the six-month period ended June 30, 1998, net sales for the aluminum processing segment increased by approximately 3% as a 9% increase in net sales of fabricated aluminum products more than offset a 12% decline in net sales of primary aluminum. The increase in fabricated aluminum product net sales, and offsetting decrease in primary aluminum net sales, resulted from the same shipment and price factors discussed in the preceding paragraph. Despite a significant decline in the average realized price for primary aluminum, segment operating income for the quarter and six-month period ended June 30, 1998, was essentially flat as compared to the comparable prior year period, after adjusting 1997 results for the impact of the non-recurring items discussed below. The ability to sustain the segment's operating earnings reflects the continued demand for heat-treat products, improvements in operating performance, particularly at the Company's Trentwood, Washington, rolling mill, as well as compensation recorded by the Company (which will be received over a 18-month period beginning in July 1998) for two of the three Valco potlines curtailed during 1998. Reduced power and raw material costs in the primary aluminum operations also contributed to the Company's ability to maintain the prior year earnings level. Operating income for the quarter and six-month period ended June 30, 1997, included approximately $2.3 million and $5.2 million, respectively, of operating income related to the settlement of certain issues related to energy service contracts. Operating income for the quarter and six-month period ended June 30, 1997, also includes a $15.1 million charge resulting from the previously discussed restructuring of operations. CORPORATE Corporate operating expenses represent corporate general and administrative expenses, which are not allocated to the Company's business segments. Operating results for the quarter and six-month period ended June 30, 1997, both include a pre-tax charge of approximately $4.6 million associated with the Company's restructuring of operations. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES At June 30, 1998, the Company had working capital of $500.4 million, compared with working capital of $456.6 million at December 31, 1997. The increase in working capital primarily results from increases in Cash and cash equivalents and Prepaid and other current assets and a decrease in Accounts payable, offset, in part, by decreases in Receivables and Inventories. INVESTING ACTIVITIES Capital expenditures during the six months ended June 30, 1998, were $36.7 million and were used primarily to improve production efficiency, reduce operating costs, expand capacity at existing facilities, and construct new facilities. Total consolidated capital expenditures (of which approximately 8% is expected to be funded by the Company's minority partners in certain foreign joint ventures) are expected to be between $75.0 and $125.0 million per annum in each of 1998 through 2000. During the first quarter of 1998, the first Micromill(TM) facility, which was constructed in Nevada during 1996 as a demonstration and production facility, delivered its first commercial product shipments to customers, but the amount of such shipments was minimal. Additional product trials for international and domestic customers are ongoing. However, the Micromill(TM) technology has not yet been fully implemented or commercialized, and there can be no assurances that full implementation or commercialization will be successful. Management continues to evaluate numerous projects, including the Micromill(TM) technology, all of which would require substantial capital, both in the United States and overseas. FINANCING ACTIVITIES AND LIQUIDITY At June 30, 1998, the Company had long-term debt of $964.5 million, compared with $971.7 million at December 31, 1997. At June 30, 1998, $271.3 million (of which $71.3 million could have been used for letters of credit) was available to the Company under the Credit Agreement and no amounts were outstanding under the revolving credit facility. Loans under the Credit Agreement bear interest at a spread (which varies based on the results of a financial test) over either a base rate or LIBOR at the Company's option. During the six-month period ended June 30, 1998, the average per annum interest rates on loans outstanding under the Credit Agreement was approximately 9%. The Credit Agreement does not permit the Company or Kaiser to pay any dividends on their common stock. Management believes that the Company's existing cash resources, together with cash flows from operations and borrowings under the Credit Agreement, will be sufficient to meet its working capital and capital expenditure requirements for the next year. Additionally, with respect to long-term liquidity, management believes that operating cash flow, together with the ability to obtain both short and long-term financing, should provide sufficient funds to meet the Company's working capital and capital expenditure requirements. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- Asbestos-related Litigation The Company 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 the Company or exposure to products containing asbestos produced or sold by the Company. The portion of Note 3 of the Notes to Interim Consolidated Financial Statements contained in this report under the heading "Asbestos Contingencies" is incorporated herein by reference. See Part I, Item 3. "LEGAL PROCEEDINGS - Asbestos-related Litigation" in the Company's Form 10- K for the year ended December 31, 1997. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- The annual meeting of stockholders of the Company was held on June 4, 1998, at which meeting the stockholders voted to elect management's slate of nominees as directors of the Company. The nominees for election as directors of the Company are listed below, together with the number of votes cast for, against, and with held with respect to each such nominees, as well as the number of abstentions and broker nonvotes with respect to each such nominee: Robert J. Cruikshank Votes For: 46,566,749 Votes Against: Votes Withheld: 123,099 Abstentions: Broker Nonvotes: George T. Haymaker, Jr. Votes For: 46,564,656 Votes Against: Votes Withheld: 125,192 Abstentions: Broker Nonvotes: Charles E. Hurwitz Votes For: 46,541,723 Votes Against: Votes Withheld: 148,125 Abstentions: Broker Nonvotes: Ezra G. Levin Votes For: 46,568,263 Votes Against: Votes Withheld: 121,585 Abstentions: Broker Nonvotes: Robert Marcus Votes For: 46,566,426 Votes Against: Votes Withheld: 123,422 Abstentions: Broker Nonvotes: Robert J. Petris Votes For: 46,491,933 Votes Against: Votes Withheld: 197,915 Abstentions: Broker Nonvotes: ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits. Exhibit No. Exhibit ----------- ------- 3.1 Restated Certificate of Incorporation of Kaiser Aluminum & Chemical Corporation (the "Company" or "KACC"), dated July 25, 1989 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1, dated August 25, 1989, filed by KACC, Registration No. 33-30645). 3.2 Certificate of Retirement of KACC, dated February 7, 1990 (incorporated by reference to Exhibit 3.2 to the Report on Form 10-K for the period ended December 31, 1989, filed by KACC, File No. 1-3605). 3.3 Amended and Restated Bylaws of KACC, dated October 1, 1997. *4 Thirteenth Amendment to Credit Agreement, dated as of July 20, 1998, amending the Credit Agreement, dated as of February 15, 1994, as amended, among Kaiser Aluminum Corporation, KACC, the financial institutions party thereto, and BankAmerica Business Credit, Inc., as Agent. *10 Letter Agreement, dated July 21, 1998, between the Company and Lawrence L. Watts concerning employment and severance matters. *27 Financial Data Schedule. (b) Reports on Form 8-K. No Report on Form 8-K was filed by the Company during the quarter ended June 30, 1998. - --------------- * Filed herewith SIGNATURE Pursuant to the requirements 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, who have signed this report on behalf of the registrant as the principal financial officer and principal accounting officer of the registrant, respectively. KAISER ALUMINUM & CHEMICAL CORPORATION /s/ John T. La Duc By: ------------------------------ John T. La Duc Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Daniel D. Maddox By: ------------------------------ Daniel D. Maddox Controller - Corporate Consolidation and Reporting (Principal Accounting Officer) Dated: July 31, 1998 EX-4 2 E x e c u t i o n C o p y THIRTEENTH AMENDMENT TO CREDIT AGREEMENT ---------------------------------------- THIS THIRTEENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of July 20, 1998, is by and between KAISER --------- ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation (the "Company"), KAISER ALUMINUM CORPORATION, a Delaware corporation ------- (the "Parent Guarantor"), the various financial institutions that ---------------- are or may from time to time become parties to the Credit Agreement referred to below (collectively, the "Lenders" and, ------- individually, a "Lender"), and BANKAMERICA BUSINESS CREDIT, INC., ------ a Delaware corporation, as agent (in such capacity, together with its successors and assigns in such capacity, the "Agent") for the ----- Lenders. Capitalized terms used, but not defined, herein shall have the meanings given to such terms in the Credit Agreement, as amended hereby. W I T N E S S E T H: WHEREAS, the Company, the Parent Guarantor, the Lenders and the Agent are parties to the Credit Agreement, dated as of February 15, 1994, as amended by the First Amendment to Credit Agreement, dated as of July 21, 1994, the Second Amendment to Credit Agreement, dated as of March 10, 1995, the Third Amendment to Credit Agreement and Acknowledgement, dated as of July 20, 1995, the Fourth Amendment to Credit Agreement, dated as of October 17, 1995, the Fifth Amendment to Credit Agreement, dated as of December 11, 1995, the Sixth Amendment to Credit Agreement, dated as of October 1, 1996, the Seventh Amendment to Credit Agreement, dated as of December 17, 1996, the Eighth Amendment to Credit Agreement, dated as of February 24, 1997, the Ninth Amendment to Credit Agreement and Acknowledgment, dated as of April 21, 1997, the Tenth Amendment to Credit Agreement and Assignment, dated as of June 25, 1997, the Eleventh Amendment to Credit Agreement and Limited Waivers, dated as of October 20, 1997, and the Twelfth Amendment to Credit Agreement, dated as of January 13, 1998 (the "Credit Agreement"); and ---------------- WHEREAS, the parties hereto have agreed to amend the Credit Agreement as herein provided; NOW, THEREFORE, the parties hereto agree as follows: Section 1. Amendments to Credit Agreement. ------------------------------- 1.1 Amendments to Article I: Definitions. ------------------------------------- A. The definition of "Joint Venture Affiliate" ----------------------- contained in Section 1.1 of the Credit Agreement is hereby ----------- amended by inserting the phrase "Venezuela Aluminum Partners (but only at such time as Venezuela Aluminum Partners is not a Subsidiary of the Company and is an Affiliate of the Company), CAVSA (but only at such time as CAVSA is not a Subsidiary of the Company and is an Affiliate of the Company), ALCASA (but only at such time as ALCASA is not a Subsidiary of the Company and is an Affiliate of the Company), BAUXILUM (but only at such time as BAUXILUM is not a Subsidiary of the Company and is an Affiliate of the Company), CARBONORCA (but only at such time as CARBONORCA is not a Subsidiary of the Company and is an Affiliate of the Company), VENALUM (but only at such time as VENALUM is not a Subsidiary of the Company and is an Affiliate of the Company)," after the term "AKW LLC," in such definition. B. The definition of "Materially Adverse Effect" ------------------------- contained in Section 1.1 of the Credit Agreement is hereby ----------- amended by inserting the phrase ", Venezuela Aluminum Partners, CAVSA, ALCASA, BAUXILUM, CARBONORCA, and VENALUM" following the term "KJBC" in the parenthetical contained in clause (a) thereof. ---------- C. The following definitions are hereby added to Section 1.1 of the Credit Agreement in the appropriate - ----------- alphabetical order: "'ALCASA' means C.V.G. Aluminios del Caroni, S.A., a ------ corporation organized under the laws of Venezuela." "'BAUXILUM' means C.V.G. Bauxilum, C.A., a corporation -------- organized under the laws of Venezuela." "'CARBONORCA' means C.V.G. Carbones del Orinoco, C.A., ---------- a corporation organized under the laws of Venezuela." "'CAVSA' means Corporacion Aluminios de Venezuela, ----- S.A., a corporation organized under the laws of Venezuela." "'Maximum Letter of Credit Amount' means (a) if no ------------------------------- Venezuela Letter of Credit is issued, $125,000,000, and (b) if a Venezuela Letter of Credit is issued, then (i) during the period from and including the date of such issuance to and including the date on which the Venezuela Bid Bond Obligation is terminated, $235,000,000, (ii) from and excluding the date on which the Venezuela Bid Bond Obligation is terminated, $200,000,000 and (iii) from and excluding the date on which all Venezuela Letters of Credit have expired or are terminated, $125,000,000." "'Pricing Interest Coverage Ratio' means, for any ------------------------------- period, the ratio of (a) (i) the sum of EBITDA for all of the Fiscal Quarters comprising such period minus (ii) the aggregate ----- Adjusted Capital Expenditures for all of the Fiscal Quarters comprising such period minus (iii) the aggregate amount of ----- all Investments (including any payment under a Venezuela Letter of Credit) made by the Company in Venezuela Aluminum Partners and/or CAVSA (without duplication) during such period to - -- (b) (i) the aggregate amount of interest expense (excluding amortization of deferred financing costs and, to the extent not paid in cash, interest on the PIK Note and the Equity Proceeds Notes) of the Company and its Subsidiaries for all of the Fiscal Quarters comprising such period, calculated on a consolidated basis in accordance with GAAP, minus (ii) the amount of interest income of the ----- Company and its Subsidiaries which was included in the calculation of Net Income, in accordance with GAAP, for all of the Fiscal Quarters comprising such period, minus (iii) ----- that portion of the amount set forth in clause (i) above ---------- attributable to (A) the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, any Subsidiary or (B) if the economic burden of the amount set forth in clause (i) above is borne or to be borne ---------- by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such amount borne or to be borne by such minority owners." "'VENALUM' means C.V.G. Industria Venezolana del ------- Aluminio, C.A., a corporation organized under the laws of Venezuela." "'Venezuela Aluminum Partners' means Venezuela Aluminum --------------------------- Partners, a corporation organized under the laws of the Cayman Islands, or Aluminium Consortium Venezuela B.V., a corporation organized under the laws of the Netherlands." "'Venezuela Bid Bond Obligation' means the obligation ----------------------------- of the Company to pledge assets and/or provide one or more letters of credit to support a bid bond submitted by Venezuela Aluminum Partners in connection with a bid to purchase the capital stock of CAVSA." "'Venezuela Letter of Credit' means a Letter of Credit -------------------------- securing obligations of the Company in connection with the Company making Investments in Venezuela Aluminum Partners and/or CAVSA." "'Venezuela Letter of Credit Amount' means, at any --------------------------------- time, (a) the Maximum Letter of Credit Amount at such time minus ------ (b) $125,000,000." "'Venezuela Pledged Cash' means cash and/or Cash ---------------------- Equivalent Investments securing obligations of the Company in connection with the Company making Investments in Venezuela Aluminum Partners and/or CAVSA." 1.2 Amendments to Article II: Commitments and Borrowing ----------------------------------------------------- Procedures. - ---------- Clause (b) of Section 2.1.3 of the Credit Agreement is ---------- ------------- hereby amended to read in its entirety as follows: "(b) the Issuer Bank shall not be required to issue (i) any Letter of Credit if, after giving effect thereto, (A) the Letter of Credit Outstandings would exceed the Maximum Letter of Credit Amount; or (B) (1) the sum of the aggregate Stated Amount (without duplication) of all Venezuela Letters of Credit outstanding at such time plus the aggregate amount of Venezuela ---- Pledged Cash outstanding at such time would exceed an amount equal to (2) $210,000,000 plus the sum of the aggregate amount of ---- Venezuela Pledged Cash and Venezuela Letters of Credit outstanding at such time in respect of the Venezuela Bid Bond Obligation minus the aggregate amount of all Investments ----- (including any payment under a Venezuela Letter of Credit) made by the Company in Venezuela Aluminum Partners and/or CAVSA; or (ii) any Venezuela Letter of Credit if, after giving effect thereto, the aggregate Stated Amount (without duplication) of all Venezuela Letters of Credit outstanding at such time would exceed the Venezuela Letter of Credit Amount." 1.3 Amendments to Article III: Repayments, Prepayments, ---------------------------------------------------- Interest, and Fees. - ------------------ Section 3.4.1 of the Credit Agreement is hereby amended ------------- by deleting the phrase "Interest Coverage Ratio" each time it appears therein and substituting the phrase "Pricing Interest Coverage Ratio" therefor. 1.4 Amendments to Article V: Letter of Credit. ------------------------------------------ A. Clause (b)(ii) of Section 5.1 of the Credit -------------- ------------ Agreement is hereby amended to read in its entirety as follows: "(ii) (A) the Stated Amount thereof, when added to the Letter of Credit Outstandings immediately prior to the issuance of such Letter of Credit, would exceed the Maximum Letter of Credit Amount; or (B) if immediately after the issuance of such Letter of Credit (1) the sum of the aggregate Stated Amount (without duplication) of all Venezuela Letters of Credit outstanding at such time plus the aggregate amount of Venezuela ---- Pledged Cash outstanding at such time would exceed an amount equal to (2) $210,000,000 plus the sum of the aggregate amount ---- of Venezuela Pledged Cash and Venezuela Letters of Credit outstanding at such time in respect of the Venezuela Bid Bond Obligation minus the aggregate amount of all Investments ----- including any payment under a Venezuela Letter of Credit) made by the Company in Venezuela Aluminum Partners and/or CAVSA." B. Clause (b) of Section 5.1 of the Credit Agreement ---------- ----------- is hereby amended by adding the following as the last sentence thereof: "The Issuer Bank is under no obligation to issue any Venezuela Letter of Credit if the aggregate Stated Amount (without duplication) thereof, when added to the aggregate Stated Amount (without duplication) of all other Venezuela Letters of Credit outstanding immediately prior to the issuance of such Venezuela Letter of Credit, would exceed the Venezuela Letter of Credit Amount." 1.5 Amendments to Article IX: Covenants. ------------------------------------- A. Section 9.1.1 of the Credit Agreement is hereby ------------- amended by adding the phrase "(other than Venezuela Aluminum Partners, CAVSA, ALCASA, BAUXILUM, CARBONORCA, and VENALUM)" following the words "Joint Venture Affiliate" in clause ------- (d)(ii)(C) thereof. - ---------- B. Section 9.2.3 of the Credit Agreement is hereby ------------- amended by (i) deleting the word "and" at the end of clause (w) ---------- thereof, (ii) deleting the period at the end of clause (x) ---------- thereof and substituting the phrase "; and" therefor, and (iii) adding the following as a new clause (y) thereof: ---------- "(y) Liens on Venezuela Pledged Cash in an amount not to exceed $100,000,000 at any one time outstanding; provided, -------- however, that (i) the sum of the aggregate Stated Amount (without - ------- duplication) of all Venezuela Letters of Credit outstanding at such time plus the aggregate amount of Venezuela Pledged Cash ----- outstanding at such time may not exceed an amount equal to (ii) $210,000,000 plus the sum of the aggregate amount of Venezuela ---- Pledged Cash and Venezuela Letters of Credit outstanding at such time in respect of the Venezuela Bid Bond Obligation minus the ----- aggregate amount of all Investments (including any payment under a Venezuela Letter of Credit) made by the Company in Venezuela Aluminum Partners and/or CAVSA." C. Clause (n) of Section 9.2.5 of the Credit ---------- ------------- Agreement is hereby amended by adding the phrase "ALCASA, BAUXILUM, CARBONORCA, CAVSA, VENALUM, Venezuela Aluminum Partners," after the term "KAEII," in the first parenthetical contained therein. D. Clause (o) of Section 9.2.5 of the Credit ---------- -------------- Agreement is hereby amended by adding the phrase "ALCASA, BAUXILUM, CARBONORCA, CAVSA, VENALUM, Venezuela Aluminum Partners," after the term "KAEII," in the second parenthetical contained therein. E. Section 9.2.5 of the Credit Agreement is hereby ------------- amended by (i) deleting the word "and" at the end of clause (s) ---------- thereof, (ii) deleting the period at the end of clause (t) ---------- thereof and substituting the phrase "; and" therefor; and (iii) adding the following as a new clause (u) thereof: ---------- "(u) Investments (including any payment under a Venezuela Letter of Credit) by the Company in Venezuela Aluminum Partners and/or CAVSA in an amount not to exceed $210,000,000 in the aggregate at any one time outstanding." F. Section 9.2.18 of the Credit Agreement is hereby -------------- amended by amending clause (vi) thereof to read in its entirety ----------- as follows: "(vi) Investments permitted by Sections 9.2.5(f), ------------------ 9.2.5(n), 9.2.5(o), 9.2.5(q), 9.2.5(r), 9.2.5(s), 9.2.5(t), and - -------- -------- -------- -------- -------- -------- 9.2.5(u);". - -------- 1.6 Amendments to Article X: Events of Default. -------------------------------------------- A. Section 10.1.6 of the Credit Agreement is hereby -------------- amended by adding the phrase "(other than Venezuela Aluminum Partners, CAVSA, ALCASA, BAUXILUM, CARBONORCA, and VENALUM)" following the words "Joint Venture Affiliate" and following the words "Joint Venture Affiliates" contained therein. B. Section 10.1.10 of the Credit Agreement is hereby --------------- amended by adding the phrase ", Venezuela Aluminum Partners, CAVSA, ALCASA, BAUXILUM, CARBONORCA, and VENALUM" following the term "KJBC" in the first parenthetical contained therein. Section 2. Amendments to Collateral Documents. ---------------------------------- The parties agree that, as of the Thirteenth Amendment Effective Date, the Company Security Agreement shall be amended as set forth in Exhibit A hereto. The Required Lenders hereby approve the form of such amendment, and hereby authorize the Agent on their behalf to accept from the Company, and authorize the Agent to execute and deliver as Agent, the amendment to the Company Security Agreement in substantially the form of such Exhibit A with such changes, additions or deletions as the Agent, in its sole and absolute discretion, may approve. Section 3. Conditions to Effectiveness. --------------------------- This Amendment shall become effective as of the date hereof only when the following conditions shall have been satisfied and notice thereof shall have been given by the Agent to the Parent Guarantor, the Company and each Lender (the date of satisfaction of such conditions and the giving of such notice being referred to herein as the "Thirteenth Amendment Effective ------------------------------- Date"). - ------ A. The Agent shall have received for each Lender (1) counterparts hereof duly executed on behalf of the Parent Guarantor, the Company, the Agent and the Required Lenders (or notice of the approval of this Amendment by the Required Lenders satisfactory to the Agent shall have been received by the Agent), (2) counterparts of the Fourth Amendment to Company Security Agreement, dated as of July 20, 1998, between the Company and the Agent (the "Company Security Amendment") duly executed on behalf -------------------------- of the Company and the Agent, and (3) a letter regarding the payment of a fee in the amount of $406,250 upon the closing of the purchase by the Company or any of its Subsidiaries of the capital stock or assets of CAVSA or any of its Subsidiaries, duly executed on behalf of the Company, the Agent and the Required Lenders. B. The Agent shall have received: (1) Resolutions of the Board of Directors or of the Executive Committee of the Board of Directors of the Company and the Parent Guarantor approving and authorizing the execution, delivery and performance of this Amendment, and, in the case of the Company, the Company Security Amendment, certified by their respective corporate secretaries or assistant secretaries as being in full force and effect without modification or amendment as of the date of execution hereof by the Company or the Parent Guarantor, as the case may be; (2) A signature and incumbency certificate of the officers of the Company and the Parent Guarantor executing this Amendment and, in the case of the Company, the Company Security Amendment; (3) For each Lender an opinion, addressed to the Agent and each Lender, from Kramer, Levin, Naftalis & Frankel, in form and substance satisfactory to the Agent; (4) Such other information, approvals, opinions, documents, or instruments as the Agent may reasonably request; and (5) For the pro rata benefit of the Lenders, a fee in the amount of $406,250 and, for the benefit of the Agent, the fee set forth in that certain letter dated as of the date hereof between the Agent and the Company. Section 4. Company's Representations and Warranties. ---------------------------------------- In order to induce the Lenders and the Agent to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Parent Guarantor and the Company represent and warrant to each Lender and the Agent that, as of the Thirteenth Amendment Effective Date after giving effect to the effectiveness of this Amendment, the following statements are true and correct in all material respects: A. Authorization of Agreements. The execution and --------------------------- delivery of this Amendment by the Company and the Parent Guarantor and the performance of the Credit Agreement as amended by this Amendment (the "Amended Agreement") by the Company and ----------------- the Parent Guarantor are within such Obligor's corporate powers and have been duly authorized by all necessary corporate action on the part of the Company and the Parent Guarantor, as the case may be. B. No Conflict. The execution and delivery by the ----------- Company and the Parent Guarantor of this Amendment and the performance by the Company and the Parent Guarantor of the Amended Agreement do not: (1) contravene such Obligor's Organic Documents; (2) contravene the Senior Indenture, the New Senior Indenture, the Additional New Senior Indentures, or the Subordinated Indenture or contravene any other contractual restriction where such a contravention has a reasonable possibility of having a Materially Adverse Effect or contravene any law or governmental regulation or court decree or order binding on or affecting such Obligor or any of its Subsidiaries; or (3) result in, or require the creation or imposition of, any Lien on any of such Obligor's properties or any of the properties of any Subsidiary of such Obligor, other than pursuant to the Loan Documents. C. Binding Obligation. This Amendment has been duly ------------------ executed and delivered by the Company and the Parent Guarantor and this Amendment and the Amended Agreement constitute the legal, valid and binding obligations of the Company and the Parent Guarantor, enforceable against the Company and the Parent Guarantor in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and by general principles of equity. D. Governmental Approval, Regulation, etc. No --------------------------------------- authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other Person is required for the due execution, delivery or performance of this Amendment by the Company or the Parent Guarantor. E. Incorporation of Representations and Warranties ------------------------------------------------ from Credit Agreement. Each of the statements set forth in - --------------------- Section 7.2.1 of the Credit Agreement is true and correct. - ------------- Section 5. Acknowledgement and Consent. --------------------------- The Company is a party to the Company Collateral Documents, in each case as amended through the date hereof, pursuant to which the Company has created Liens in favor of the Agent on certain Collateral to secure the Obligations. The Parent Guarantor is a party to the Parent Collateral Documents, in each case as amended through the date hereof, pursuant to which the Parent Guarantor has created Liens in favor of the Agent on certain Collateral and pledged certain Collateral to the Agent to secure the Obligations of the Parent Guarantor. Certain Subsidiaries of the Company are parties to the Subsidiary Guaranty and/or one or more of the Subsidiary Collateral Documents, in each case as amended through the date hereof, pursuant to which such Subsidiaries have (i) guarantied the Obligations and/or (ii) created Liens in favor of the Agent on certain Collateral. The Company, the Parent Guarantor and such Subsidiaries are collectively referred to herein as the "Credit ------ Support Parties", and the Company Collateral Documents, the - --------------- Parent Collateral Documents, the Subsidiary Guaranty and the Subsidiary Collateral Documents are collectively referred to herein as the "Credit Support Documents". ------------------------ Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement as amended by this Amendment and consents to the amendment of the Credit Agreement effected as of the date hereof pursuant to this Amendment. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, the payment and performance of all obligations guaranteed or secured thereby, as the case may be. Each Credit Support Party (other than the Company and the Parent Guarantor) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. Section 6. Miscellaneous. ------------- A. Reference to and Effect on the Credit Agreement ------------------------------------------------ and the Other Loan Documents. - ---------------------------- (1) On and after the Thirteenth Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (2) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO -------------- BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO CONFLICTS OF LAWS. C. Headings. The various headings of this Amendment --------- are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provision hereof. D. Counterparts. This Amendment may be executed by ------------ the parties hereto in several counterparts and by the different parties on separate counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. E. Severability. Any provision of this Amendment ------------ which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or affecting the validity or enforceability of such provisions in any other jurisdiction. IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the day and year first above written. KAISER ALUMINUM CORPORATION KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell ----------------------- ---------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS CREDIT, INC. INC., as Agent By: /s/ Michael J. Jasaitis By: /s/ Michael J. Jasaitis ---------------------- ----------------------- Name: Michael J. Jasaitis Name: Michael J. Jasaitis Its: Vice President Its: Vice President BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS AND SAVINGS ASSOCIATION CREDIT, INC. By: /s/ James P. Johnson By: /s/ Dan Hughes ---------------------- ----------------------- Name Printed: James P. Johnson Name Printed: Dan Hughes Its: Managing Director Its: Vice President CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC. (WESTERN) By: /s/ Kristine Metchakian By: /s/ Richard J. Holston ---------------------- ----------------------- Name Printed: Kristine Metchakian Name Printed: Richard J. Holston Its: Vice President Its: Account Executive, AVP LA SALLE NATIONAL BANK TRANSAMERICA BUSINESS CREDIT CORPORATION By: /s/ Douglas C. Colletti By: /s/ Robert L. Heinz ---------------------- ----------------------- Name Printed: Douglas C. Colletti Name Printed: Robert L. Heinz Its: First Vice President Its: Senior Vice President ABN AMRO BANK N.V. San Francisco International Branch by: ABN AMRO North America, Inc., as agent By: /s/ Jeffrey A. French ----------------------- Name Printed: Jeffrey A. French Its: Group Vice President & Director By: /s/ Michael M. Tolentino ----------------------- Name Printed: Michael M. Tolentino Its: Vice President ACKNOWLEDGED AND AGREED TO: AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL INVESTMENT, INC. By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell ----------------------- ----------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL INC. SERVICES, INC. By: /s/ Karen A. Twitchell By: /s/ Karen a. Twitchell ----------------------- ----------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM INTERNATIONAL, INC. By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell ---------------------- ---------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION CORPORATION By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell ---------------------- ---------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer ALPART JAMAICA INC. KAISER JAMAICA CORPORATION By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell ---------------------- ---------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER BAUXITE COMPANY KAISER EXPORT COMPANY By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell ---------------------- ---------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell ---------------------- ---------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL LLC HOLDINGS, LLC By: /s/ Karen A. Twitchell By: /s/ Karen A. Twitchell ---------------------- ---------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER BELLWOOD CORPORATION By: /s/ Karen A. Twitchell ---------------------- Name Printed: Karen A. Twitchell Its: Treasurer EXHIBIT A FOURTH AMENDMENT TO COMPANY SECURITY AGREEMENT ----------------------------------------------- THIS FOURTH AMENDMENT TO COMPANY SECURITY AGREEMENT (this "Amendment"), dated as of July 20, 1998, is by and between --------- Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), and BankAmerica Business Credit, Inc., a ------- Delaware corporation, as agent for the Secured Lenders (as defined in the Credit Agreement referred to below) (in such capacity, together with its successors and assigns in such capacity, the "Agent"). Capitalized terms used, but not defined, ----- herein shall have the meanings given to such terms in the Credit Agreement, as amended by the Thirteenth Amendment. W I T N E S S E T H: WHEREAS, the Company, Kaiser Aluminum Corporation, a Delaware corporation (the "Parent Guarantor"), the various ---------------- financial institutions that are or may from time to time become parties to the Credit Agreement (collectively, the "Lenders" and, ------- individually, a "Lender"), and the Agent are parties to the ------ Credit Agreement, dated as of February 15, 1994, as amended by the First Amendment to Credit Agreement, dated as of July 21, 1994, the Second Amendment to Credit Agreement, dated as of March 10, 1995, the Third Amendment to Credit Agreement and Acknowledgment, dated as of July 20, 1995, the Fourth Amendment to Credit Agreement, dated as of October 17, 1995, the Fifth Amendment to Credit Agreement, dated as of December 11, 1995, the Sixth Amendment to Credit Agreement, dated as of October 1, 1996, the Seventh Amendment to Credit Agreement, dated as of December 17, 1996, the Eighth Amendment to Credit Agreement, dated as of February 24, 1997, the Ninth Amendment to Credit Agreement and Acknowledgment, dated as of April 21, 1997, the Tenth Amendment to Credit Agreement, dated as of June 25, 1997, the Eleventh Amendment to Credit Agreement and Limited Waivers, dated as of October 20, 1997, and the Twelfth Amendment to Credit Agreement, dated as of January 13, 1998 (the "Credit Agreement"); and ---------------- WHEREAS, as of the date hereof the Company, the Parent Guarantor, the Lenders and the Agent are entering into a Thirteenth Amendment to Credit Agreement (the "Thirteenth ---------- Amendment"); and - --------- WHEREAS, the Company and the Agent are parties to the Company Security Agreement, Financing Statement and Conditional Assignment of Patents and Trademarks, dated as of February 15, 1994, as amended by the First Amendment to Company Security Agreement, dated as of July 21, 1994, the Second Amendment to Company Security Agreement, dated as of December 11, 1995 and the Third Amendment to Company Security Agreement dated as of April 21, 1997 (the "Company Security Agreement"), and have agreed to --------------------------- amend the Company Security Agreement as herein provided; and WHEREAS, the Required Lenders have consented to the execution and delivery of this Amendment by the Agent; NOW, THEREFORE, the parties hereto agree as follows: Section 1. Amendment to Company Security Agreement. --------------------------------------- The proviso contained in the first paragraph of Section 2 of the Company Security Agreement is hereby amended by adding the phrase "ALCASA, BAUXILUM, CARBONORCA, CAVSA, VENALUM, Venezuela Aluminum Partners," immediately following the phrase "Furukawa," each time it appears in clause (A) thereof. Section 2. Company's Representations and Warranties. ---------------------------------------- In order to induce the Agent to enter into this Amendment and to amend the Company Security Agreement in the manner provided herein, and to induce the Required Lenders to consent to such action by the Agent, the Company represents and warrants to each Lender and the Agent that, as of the Thirteenth Amendment Effective Date (as defined in the Thirteenth Amendment) after giving effect to the effectiveness of this Amendment, the following statements are true and correct in all material respects: A. Authorization of Agreements. The execution and --------------------------- delivery of this Amendment by the Company and the performance of the Company Security Agreement as amended by this Amendment (the "Amended Agreement") by the Company are within the Company's ----------------- corporate powers and have been duly authorized by all necessary corporate action on the part of the Company. B. No Conflict. The execution and delivery by the ----------- Company of this Amendment and the performance by the Company of the Amended Agreement do not: (1) contravene the Company's Organic Documents; (2) contravene the Senior Indenture, the New Senior Indenture, the Additional New Senior Indentures, or the Subordinated Indenture or contravene any other contractual restriction where such a contravention has a reasonable possibility of having a Materially Adverse Effect or contravene any law or governmental regulation or court decree or order binding on or affecting the Company or any of its Subsidiaries; or (3) result in, or require the creation or imposition of, any Lien on any of the Company's properties, other than pursuant to the Loan Documents. C. Binding Obligation. This Amendment has been duly ------------------ executed and delivered by the Company and this Amendment and the Amended Agreement constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and by general principles of equity. D. Governmental Approval, Regulation, etc. No --------------------------------------- authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance of this Amendment by the Company. Section 3. Miscellaneous. ------------- A. Reference to and Effect on the Company Security ------------------------------------------------ Agreement and the Other Loan Documents. - -------------------------------------- (1) On and after the Thirteenth Amendment Effective Date, each reference in the Company Security Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Company Security Agreement, and each reference in the other Loan Documents to the "Company Security Agreement", "thereunder", "thereof" or words of like import referring to the Company Security Agreement shall mean and be a reference to the Amended Agreement. (2) Except as specifically amended by this Amendment, the Company Security Agreement shall remain in full force and effect and is hereby ratified and confirmed. (3) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Agent or any Lender under, the Company Security Agreement. B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO -------------- BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO CONFLICTS OF LAWS. C. Headings. The various headings of this Amendment --------- are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provision hereof. D. Counterparts. This Amendment may be executed by ------------- the parties hereto in several counterparts and by the different parties on separate counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. E. Severability. Any provision of this Amendment ------------ which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or affecting the validity or enforceability of such provisions in any other jurisdiction. IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the day and year first above written. KAISER ALUMINUM & CHEMICAL BANKAMERICA BUSINESS CREDIT, CORPORATION INC., as Agent By: By: --------------------------- --------------------------- Name: Karen A. Twitchell Name: Michael J. Jasaitis Its: Treasurer Its: Vice President EX-10 3 July 21, 1998 Mr. Lawrence L. Watts Kaiser Aluminum & Chemical Corporation 5847 San Felipe, Suite 2600 Houston, Texas 77057 Dear Larry: As we have discussed, your skills in leading and implementing constructive change in behaviors, management processes, and organizational focus and culture, as well as your intuitive and pragmatic ability to drive change in ways that reflect understanding of both business strategy and organizational and human dynamics, have been important to Company. However, as a result of the progress the Company has made through your efforts and the progress we expect to make during the remainder of the year, we have agreed that it should be possible to formally eliminate your position as of December 31, 1998. Having said that, it will be important to have yours skills, knowledge and experience available to the leadership of the Company on an enthusiastic and committed full-time basis through the end of the year. During that period, as a member of senior leadership, you will continue to work closely with me and other senior officers of the Company. While we jointly believe that it should be possible to formally eliminate your position, retaining the continued availability of your skills and experience after your termination as a full time employee is also important to the Company. Consequently, the Company wishes to retain your services as a consultant for a period of twelve months following elimination of your position and termination of your regular employment with the Company, and you have agreed to make your services available. The Company may or may not utilize your services fully throughout this period, but in recognition of both your willingness to hold yourself available to the Company through this period and your agreement not to compete with the Company or its businesses through June 30, 2000, a retainer as discussed below will be paid following the termination of your regular employment with the Company. In consideration of your willingness to commit to the terms of this agreement, and in recognition of the resulting elimination of your position and termination of your employment with the Company, we agree and acknowledge that: 1. Your position will be phased out over a period that will continue through December 31, 1998, and unless another position has been offered which you have agreed to accept at that time, your employment with the Company and service as an officer of the Company and its affiliates will terminate December 31, 1998. At that time you will be granted a full early retirement consistent with normal practices in such circumstances. 2. You will be given eighteen months severance to be paid at the time of termination but no later than December 31, 1998. 3. You will continue to participate in the 1996-1998 and 1997-1999 long term executive incentive programs on a pro rata basis through the date of your departure, but will not participate in the 1998 short term executive incentive program or any long term executive incentive program with a performance period beginning in or after 1998. In lieu of your participation in those programs and in consideration of the commitments you are making in this agreement you will receive a supplemental non-recurring 1998 annual incentive payment in an amount to be determined and mutually agreed by the Company and you. This amount will insofar as possible to reflect an incentive amount appropriate to the way in which others in senior management have been treated. 4. The payments and benefits set forth above will be subject to applicable federal, state and local taxes, and all other deductions required by law and consistent with the Company's normal practices in such circumstances. 5. The Company will enter into a consulting arrangement for your services commencing upon the date of your termination. Compensation will be paid in the form of a retainer at a monthly rate equal to your base pay prior to your termination of employment. This agreement contains the entire understanding between you and the Company with respect to your employment with, and separation from, the Company and supersedes and cancels all prior or contemporaneous communications, agreements and understandings between you and the Company, whether written or oral. Any modifications or amendments to this agreement will be effective only if they are in writing and signed by the Company and you. Please acknowledge your acceptance of this agreement and its terms in the space provided below. Upon execution, this agreement shall be effective as of May 31, 1998. Very truly yours, /s/ George T. Haymaker, Jr. George T. Haymaker, Jr. Chairman and Chief Executive Officer Agreed and accepted: /s/ Lawrence L. Watts Lawrence L. Watts July 21, 1998 EX-27 4
5 This schedule contains summary financial information extracted from the consolidated financial statements of the Company for the six months ended June 30, 1998, and is qualified in its entirety by reference to such financial statements. 0000054291 KAISER ALUMINUM & CHEMICAL CORPORATION 1,000,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 113 0 300 6 507 1,066 1,160 45 3,016 565 963 20 2 15 135 3,016 1,212 1,212 1,006 1,006 106 0 55 44 15 30 0 0 0 30 .00 .00
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