10-K 1 ===================================================================== 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, 1994 Commission file number 1-9447 KAISER ALUMINUM CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3030279 (State of Incorporation) (I.R.S. Employer Identification No.) 5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057-3010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 267-3777 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ----------------------------- ------------------------ Common Stock, $.01 par value New York Stock Exchange $.65 Depositary shares, each New York Stock Exchange representing ownership of one-tenth of a share of Series A Mandatory Conversion Premium Dividend Preferred Stock Series A Mandatory Conversion Premium None Dividend Preferred Stock, $.05 par value 8.255% PRIDES, Convertible New York Stock Exchange Preferred Stock, $.05 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___ As of March 15, 1995, there were 58,205,083 shares of the common stock of the registrant outstanding. Based upon New York Stock Exchange closing prices on March 15, 1995, the aggregate market value of the registrant's common stock, $.65 depositary shares, and 8.255% PRIDES held by non-affiliates was $327.8 million. Certain portions of the registrant's annual report to shareholders for the fiscal year ended December 31, 1994, 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. ======================================================================== 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 19-22 of this Report, are available without charge upon written request. The registrant will furnish copies of the other exhibits to this Report on Form 10-K upon payment of a fee of 25 cents per page. Please contact the office set forth below to request copies of this Report on Form 10-K and for information as to the number of pages contained in each of the other exhibits and to request copies of such exhibits: Corporate Secretary Kaiser Aluminum Corporation 5847 San Felipe, Suite 2600 Houston, Texas 77057-3010 (i) KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- TABLE OF CONTENTS Page ---- PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . 1 ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . 11 ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 15 PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . 15 ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . 16 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 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 18 INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . 19 EXHIBIT 21 SUBSIDIARIES . . . . . . . . . . . . . . . . . . 23 (ii) KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- PART I ITEM 1. BUSINESS Industry Overview Primary aluminum is produced by the refining of bauxite (the major aluminum-bearing ore) into alumina (the intermediate material) and the reduction of alumina into primary aluminum. Approximately two pounds of bauxite are required to produce one pound of alumina, and approximately two pounds of alumina are required to produce one pound of primary aluminum. Aluminum's valuable physical properties include its light weight, corrosion resistance, thermal and electrical conductivity, and high tensile strength. Demand The packaging and transportation industries are the principal consumers of aluminum in the United States, Japan, and Western Europe. In the packaging industry, which accounted for approximately 22% of consumption in 1993, aluminum's recyclability and weight advantages have enabled it to gain market share from steel and glass, primarily in the beverage container area. Nearly all beer cans and approximately 95% of the soft drink cans manufactured for the United States market are made of aluminum. Growth in the packaging area is generally expected to continue in the 1990s due to general population increase and to further penetration of the beverage can market in Asia and Latin America, where aluminum cans are a substantially lower percentage of the total beverage container market than in the United States. In the transportation industry, which accounted for approximately 29% of aluminum consumption in the United States, Japan, and Western Europe in 1993, automotive manufacturers use aluminum instead of steel or copper for an increasing number of components, including radiators, wheels, and engines, in order to meet more stringent environmental and fuel efficiency requirements through vehicle weight reduction. Management believes that sales of aluminum to the transportation industry have considerable growth potential due to projected increases in the use of aluminum in automobiles. Supply As of year-end 1994, Western world aluminum capacity from 108 smelting facilities was approximately 16.3 million tons* per year. Net exports of aluminum from the former Sino Soviet bloc increased approximately threefold from 1990 levels during the period from 1991 through 1994 to approximately two million tons per year. These exports contributed to a significant increase in London Metal Exchange stocks of primary aluminum which peaked in mid-1994. See "-Recent Industry Trends." Government officials from the European Union, the United States, Canada, Norway, Australia, and the Russian Federation have ratified as a trade agreement a Memorandum of Understanding (the "Memorandum") which provided, in part, for (i) a reduction in Russian Federation primary aluminum production by 300,000 tons per year within three months of the date of ratification of the Memorandum and an additional 200,000 tons within the following three months, (ii) improved availability of comprehensive data on Russian aluminum production, and (iii) certain assistance to the Russian aluminum industry. The Memorandum did not require specific levels of production cutbacks by other producing nations. The Memorandum was finalized in February 1994 and is scheduled to remain in effect through the end of 1995. _____________________ * All references to tons in this Report refer to metric tons of 2,204.6 pounds. 1 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) Based upon information currently available, management believes that only moderate additions will be made during 1995-1996 to Western world alumina and primary aluminum production capacity. The increases in alumina capacity during 1995-1996 are expected to come from one new refinery and incremental expansions of existing refineries. Recent Industry Trends The aluminum industry environment improved significantly in 1994 compared to 1993. Prices of primary aluminum were at historic lows in real terms near the beginning of 1994, but nearly doubled by the end of 1994. In response to low prices of primary aluminum in 1993 and the first part of 1994, a number of smelting facilities were partially or fully curtailed. Western world production of primary aluminum declined in 1994 to approximately 14.5 million tons from approximately 15.1 million tons in 1993. Demand for aluminum products was relatively weak in 1993, but became very strong in the United States and became firm in Europe in 1994. Primary aluminum prices improved not only because of improved demand, but also because the inventories of primary aluminum on the London Metal Exchange were substantially reduced in the second half of 1994. However, significant amounts of inventory remained at the end of 1994, and some reduction of prices from year-end 1994 occurred in the first quarter of 1995 to reflect that circumstance. When previously curtailed smelting capacity is restarted, it will result in an increase in the demand for alumina to supply those operations. In addition, in the last several years, large amounts of alumina have been imported into the Commonwealth of Independent States. Consequently, management believes that alumina demand and prices will strengthen as smelters are restarted. Supply and demand fundamentals for the flat-rolled aluminum products business, particularly in the can sheet business, improved in 1994 because of higher demand and a reduction of supply. Management believes that supply and demand for these products will move toward being in balance. The demand for aluminum extrusions and forgings in 1994 also improved compared to 1993, and supply and demand for these products also is expected to move toward being in balance. Overall, management believes that there will be relatively strong demand for aluminum for the near future, barring an economic recession. This demand is expected to come both from continued growth in the developed markets through increased penetration of the automotive sector, and from general uses in emerging markets. The Company General Kaiser Aluminum Corporation ("the Company") is a direct subsidiary of MAXXAM Inc. ("MAXXAM"). 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 1994, KACC produced approximately 2,928,500 tons of alumina, of which approximately 71% was sold to third parties, and produced 415,000 tons of primary aluminum, of which approximately 54% was sold to third parties. KACC is also a major domestic supplier of fabricated aluminum products. In 1994, KACC shipped approximately 399,000 tons of fabricated aluminum products to third parties, which accounted for approximately 6% of the total tonnage of United States domestic shipments in 1994. A majority of KACC's fabricated products are used by customers as components in the manufacture and assembly of finished end-use products. Note 11 of the Notes to Consolidated Financial Statements contained in the Company's 1994 Annual Report to Shareholders (the "Annual Report") is incorporated herein by reference. 2 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES --------------------------------------------------------------------- ITEM 1. BUSINESS (continued) The following table sets forth total shipments and intracompany transfers of KACC's alumina, primary aluminum, and fabricated aluminum operations:
Year Ended December 31, --------------------------------- 1994 1993 1992 ---------- --------- ------- (in thousands of tons) ALUMINA: Shipments to Third Parties 2,086.7 1,997.5 2,001.3 Intracompany Transfers 820.9 807.5 878.2 PRIMARY ALUMINUM: Shipments to Third Parties 224.0 242.5 355.4 Intracompany Transfers 225.1 233.6 224.4 FABRICATED ALUMINUM PRODUCTS: Shipments to Third Parties 399.0 373.2 343.6
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. Through its variable cost structures, forward sales, and hedging programs, KACC has attempted to mitigate its exposure to possible declines in the market prices of alumina, primary aluminum, and fabricated aluminum products while retaining the ability to participate in favorable pricing environments that may materialize. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends Sensitivity to Prices and Hedging Programs." Production Operations The Company's operations are conducted through KACC's decentralized business units which compete throughout the aluminum industry. o The alumina business unit, which mines bauxite and obtains additional bauxite tonnage under long-term contracts, produced approximately 8% of Western world alumina in 1994. During 1994, KACC utilized approximately 80% of its bauxite production at its alumina refineries and the remainder was either sold to third parties or tolled into alumina by a third party. In addition, during 1994 KACC utilized approximately 29% of its alumina for internal purposes and sold the remainder to third parties. KACC's share of total Western world alumina capacity was approximately 8% in 1994. o The primary aluminum products business unit operates two domestic smelters wholly owned by KACC and two foreign smelters in which KACC holds significant ownership interests. In 1994, KACC utilized approximately 46% of its primary aluminum for internal purposes and sold the remainder to third parties. KACC's share of total Western world primary aluminum capacity was approximately 3% in 1994. o Fabricated aluminum products are manufactured by three business units - flat-rolled products, extruded products, and forgings - which manufacture a variety of fabricated products (including body, lid, and tab stock for beverage containers, sheet and plate products, screw machine stock, redraw rod, forging stock, truck wheels and hubs, air bag canisters, and other forgings and extruded products) and operate plants located in principal marketing areas of the United States and Canada. Substantially all of the primary aluminum utilized in KACC's fabricated products 3 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------ ITEM 1. BUSINESS (continued) operations is obtained internally, with the balance of the metal utilized in its fabricated products operations obtained from scrap metal purchases. Alumina ------- The following table lists KACC's bauxite mining and alumina refining facilities as of December 31, 1994:
Annual Production Total Capacity Annual Company Available to Production Activity Facility Location Ownership the Company Capacity -------- -------- ----------- ----------- -------------- ------------- (tons) (tons) Bauxite Mining KJBC Jamaica 49% 4,500,000 4,500,000 Alpart Jamaica 65% 2,275,000 3,500,000 --------- --------- 6,775,000 8,000,000 ========= ========= Alumina Refining Gramercy Louisiana 100% 1,000,000 1,000,000 Alpart Jamaica 65% 943,000 1,450,000 QAL Australia 28.3% 934,000 3,300,000 --------- --------- 2,877,000 5,750,000 ========= =========
____________________ Although KACC owns 49% of Kaiser Jamaica Bauxite Company, it has the right to receive all of such entity's output. Alpart bauxite is refined into alumina at the Alpart refinery. Bauxite mined in Jamaica by Kaiser Jamaica Bauxite Company ("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. KACC has entered into a series of medium-term contracts for the supply of natural gas to the Gramercy plant. The price of such gas varies based upon certain spot natural gas prices. For 1995 KACC has, however, established a fixed price for a portion of the delivered gas through a hedging program. Alumina Partners of Jamaica ("Alpart") holds bauxite reserves and owns a 1,450,000 tons per year alumina plant located in Jamaica. KACC has a 65% interest in Alpart and Hydro Aluminium a.s ("Hydro") owns the remaining 35% interest. KACC has management responsibility for the facility on a fee basis. KACC and Hydro have agreed to be responsible for their proportionate shares of Alpart's costs and expenses. The Government of Jamaica has granted Alpart a mining lease and has entered into other agreements with Alpart designed to assure that sufficient reserves of bauxite will be available to Alpart to operate its refinery as it may be expanded to a capacity of 2,000,000 tons per year through the year 2024. Alpart has entered into an agreement for the supply of substantially all of its fuel oil through 1996. The balance of Alpart's fuel oil requirements through 1996 will be purchased in the spot market. KACC holds a 28.3% interest in Queensland Alumina Limited ("QAL"), which owns the largest and one of the most efficient 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 pursuant to long- term tolling contracts. The stockholders, including 4 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------ ITEM 1. BUSINESS (continued) KACC, purchase bauxite from another QAL stockholder pursuant to long-term supply contracts. KACC has contracted to take approximately 751,000 tons per year of capacity or pay standby charges. KACC is unconditionally obligated to pay amounts calculated to service its share ($78.7 million at December 31, 1994) of certain debt of QAL, as well as other QAL costs and expenses, including bauxite shipping costs. QAL's annual production capacity is approximately 3,300,000 tons, of which approximately 934,000 tons are available to KACC. KACC's principal customers for bauxite and alumina consist of large and small domestic and international aluminum producers that purchase bauxite and reduction-grade alumina for use in their internal refining and smelting operations and trading intermediaries who resell raw materials to end-users. In 1994, KACC sold all of its bauxite to one customer, and sold alumina to 12 customers, the largest and top five of which accounted for approximately 19% and 82% of such sales, respectively. Among alumina producers, the Company believes KACC is now the world's second largest seller of alumina to third parties. KACC's strategy is to sell a substantial portion of the bauxite and alumina available to it in excess of its internal refining and smelting requirements pursuant to multi-year sales contracts. Marketing and sales efforts are conducted by executives of the alumina business unit and KACC. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs." Primary Aluminum Products ------------------------- The following table lists KACC's primary aluminum smelting facilities as of December 31, 1994:
Annual Rated Total Capacity Annual 1994 Company Available to Rated Operating Location Facility Ownership the Company Capacity Rate ---------- ---------- ----------- -------------- --------- ---------- (tons) (tons) Domestic Washington Mead 100% 200,000 200,000 80% Washington Tacoma 100% 73,000 73,000 76% -------- -------- Subtotal 273,000 273,000 -------- -------- International Ghana Valco 90% 180,000 200,000 70% Wales, United Kingdom Anglesey 49% 55,000 112,000 113% -------- -------- Subtotal 235,000 312,000 -------- -------- 508,000 585,000 ======== ======== KACC owns two smelters located at Mead and Tacoma, Washington, where alumina is processed into primary aluminum. The Mead facility uses pre-bake technology and produces primary aluminum, almost all of which is used at KACC's Trentwood fabricating facility and the balance of which is sold to third parties. The Tacoma plant uses Soderberg technology and produces primary aluminum and high-grade, continuous-cast, redraw rod, which currently commands a premium price in excess of the price of primary aluminum. Both smelters have achieved significant production efficiencies in recent years through retrofit technology, cost controls, and semi-variable wage and power contracts, leading to increases in production volume and enhancing their ability to compete with newer smelters. At the Mead plant, KACC has converted to welded anode assemblies to increase energy efficiency, extended the anode life-cycle in the smelting process, changed from pencil to liquid pitch to produce carbon anodes which achieved environmental and operating savings, and engaged in efforts to increase production through the use of improved, higher-efficiency reduction cells. 5 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------ ITEM 1. BUSINESS (continued) Electrical power represents an important production cost for KACC at its Mead and Tacoma smelters. The basic electricity supply contract between the Bonneville Power Administration (the "BPA") and KACC expires in 2001. The electricity contracts between the BPA and its direct service industry customers (which consist of 15 energy intensive companies, principally aluminum producers, including KACC) permit the BPA to interrupt up to 25% of the amount of power which it normally supplies to such customers. KACC has operated its Mead and Tacoma smelters in Washington at approximately 75% of their full capacity since January 1993, when three reduction potlines were removed from production (two at its Mead smelter and one at its Tacoma smelter) in response to a power reduction imposed by the BPA. Although full BPA power was restored as of April 1, 1994, a 25% power reduction was imposed again by the BPA as of August 1, 1994, which reduction continued through November 30, 1994. Full BPA power was restored on December 1, 1994, and the BPA has stated that it expects to be able to provide full service through November 30, 1995. KACC has operated its Trentwood fabrication facility without curtailment of its production. Through June 1996, KACC pays for power on a basis which varies, within certain limits, with the market price of primary aluminum, and thereafter KACC will pay for power at rates to be negotiated. Effective October 1, 1993, an increase in the base rate the BPA charged to its direct service industry customers for electricity was adopted, and that rate is expected to remain in effect through September 1995. In February 1995, the BPA issued an initial rate increase announcement which proposed a 5.4% increase to the direct service industry customers. If the proposed increase becomes effective, it would increase production costs at the Mead and Tacoma smelters by approximately $5.0 million per year based on the current operating rate of those smelters. A rate increase could take effect as early as October 1995; however, there is no certainty that the proposed rate increase, or any rate increase, will become effective in October 1995 or at any later time. KACC manages, and holds a 90% interest in, the Volta Aluminium Company Limited ("Valco") aluminum smelter in Ghana. The Valco smelter uses pre-bake technology and processes alumina supplied by KACC and the other participant into primary aluminum under long-term tolling contracts which provide for proportionate payments by the participants in amounts intended to pay not less than all of Valco's operating and financing costs. KACC's share of the primary aluminum is sold to third parties. Power for the Valco smelter is supplied under an agreement which expires in 2017. The agreement indexes two-thirds of the price of the contract quantity to the market price of primary aluminum. The agreement also provides for a review and adjustment of the base power rate and the price index every five years. The most recent review was completed in April 1994 for the 1994-1998 period. Valco has entered into an agreement with the government of Ghana under which Valco has been assured (except in cases of force majeure) that it will receive sufficient electric power to operate at its current level of three and one- half potlines through December 31, 1996. Management believes that with normal rainfall during 1995 and 1996, Valco should have available sufficient electric power to operate at its current level during 1995 and 1996. KACC has a 49% interest in the Anglesey Aluminium Limited ("Anglesey") aluminum smelter and port facility at Holyhead, Wales. The Anglesey smelter uses pre-bake technology. KACC supplies 49% of Anglesey's alumina requirements and purchases 49% of Anglesey's aluminum output. KACC sells its share of Anglesey's output to third parties. Power for the Anglesey aluminum smelter is supplied under an agreement which expires in 2001. KACC has developed and installed proprietary retrofit technology in all of its smelters. This technology - which includes the redesign of the cathodes and anodes that conduct electricity through reduction cells, improved "feed" systems that add alumina to the cells, and a computerized system that controls energy flow in the cells - enhances KACC's ability to compete more effectively with the industry's newer smelters. KACC is actively engaged in efforts to license this technology and sell technical and managerial assistance to other producers worldwide, and may participate in joint ventures or similar business partnerships which employ KACC's technical and managerial knowledge. See " -Research and Development." KACC's principal primary aluminum customers consist of large trading intermediaries and metal brokers, who resell primary aluminum to fabricated product manufacturers, and large and small international aluminum fabricators. In 1994, 6 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------ ITEM 1. BUSINESS (continued) KACC sold its primary aluminum production not utilized for internal purposes to approximately 35 customers, the largest and top five of which accounted for approximately 25% and 68% of such sales, respectively. Marketing and sales efforts are conducted by a small staff located at the business unit's headquarters in Pleasanton, California, and by senior executives of KACC who participate in the structuring of major sales transactions. A majority of the business unit's sales are based upon long-term relationships with metal merchants and end-users. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs." Fabricated Aluminum Products ---------------------------- KACC manufactures and markets fabricated aluminum products for the packaging, transportation, construction, and consumer durables markets in the United States and abroad. Sales in these markets are made directly and through distributors to a large number of customers, both domestic and foreign. In 1994, seven domestic beverage container manufacturers constituted the leading customers for KACC's fabricated products and accounted for approximately 17% of the Company's sales revenue. KACC's fabricated products compete with those of numerous domestic and foreign producers and with products made with steel, copper, glass, plastic, and other materials. Product quality, price, and availability are the principal competitive factors in the market for fabricated aluminum products. KACC has refocused its fabricated products operations to concentrate on selected products in which KACC has production expertise, high quality capability, and geographic and other competitive advantages. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs." Flat-Rolled Products - The flat-rolled products business unit, the largest of KACC's fabricated products businesses, operates the Trentwood sheet and plate mill at Spokane, Washington. The Trentwood facility is KACC's largest fabricating plant and accounted for substantially more than one-half of KACC's 1994 fabricated aluminum products shipments. The business unit supplies the beverage container market (producing body, lid, and tab stock), the aerospace market, and the tooling plate, heat-treated alloy and common alloy coil markets, both directly and through distributors. KACC announced in October 1993 that it was restructuring its flat- rolled products operation at its Trentwood plant to reduce that facility's annual operating costs. The Trentwood restructuring is expected to result in annual cost savings of at least $50.0 million after it has been fully implemented (which is expected to occur by the end of 1995). KACC's flat-rolled products are sold primarily to beverage container manufacturers located in the western United States and in the Asian Pacific Rim countries where the Trentwood plant's location provides KACC with a transportation advantage. Quality of products for the beverage container industry and timeliness of delivery are the primary bases on which KACC competes. Management believes that KACC's capital improvements at Trentwood have enhanced the quality of KACC's products for the beverage container industry and the capacity and efficiency of KACC's manufacturing operations, and that KACC is one of the highest quality producers of aluminum beverage can stock in the world. In 1994, the flat-rolled products business unit had 25 foreign and domestic can stock customers, the majority of which were beverage can manufacturers (including five of the six major domestic beverage can manufacturers) and the balance of which were brewers. The largest and top five of such customers accounted for approximately 26% and 51%, respectively, of the business unit's sales revenue. In 1994, the business unit shipped products to over 200 customers in the aerospace, transportation, and industrial ("ATI") markets, most of which were distributors who sell to a variety of industrial end-users. The top five customers in the ATI markets for flat-rolled products accounted for approximately 13% of the business unit's sales revenue. The marketing staff for the flat-rolled products business unit is located at the Trentwood facility and in Pleasanton, California. Sales are made directly to customers (including distributors) from eight sales offices located throughout the United States. International customers are served by sales offices in the Netherlands and Japan and by independent sales agents in Asia and Latin America. 7 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------- ITEM 1. BUSINESS (continued) Extruded Products - The extruded products business unit is headquartered in Dallas, Texas, and operates soft-alloy extrusion facilities in Los Angeles, California; Santa Fe Springs, California; Sherman, Texas; and London, Ontario, Canada; a cathodic protection business located in Tulsa, Oklahoma, that also extrudes both aluminum and magnesium; rod and bar facilities in Newark, Ohio, a facility in Jackson, Tennessee, which produce screw machine stock, redraw rod, forging stock, and billet, and a facility in Richland, Washington, which is expected to be in full operation in the second quarter of 1995 and which will produce seamless tubing in both hard and soft alloys for the automotive, other transportation, export, recreation, agriculture, and other industrial markets. Each of the soft-alloy extrusion facilities has fabricating capabilities and provides finishing services. The extruded products business unit's major markets are in the transportation industry, to which it provides extruded shapes for automobiles, trucks, trailers, cabs, and shipping containers, and distribution, durable goods, defense, building and construction, ordnance, and electrical markets. In 1994, the extruded products business unit had over 950 customers for its products, the largest and top five of which accounted for approximately 6% and 20%, respectively, of its sales revenue. Sales are made directly from plants as well as marketing locations across the United States. Forgings - The forgings business unit operates forging facilities at Erie, Pennsylvania; Oxnard, California; and Greenwood, South Carolina; and a machine shop at Greenwood, South Carolina. The forgings business unit is one of the largest producers of aluminum forgings in the United States and is a major supplier of high- quality forged parts to customers in the automotive, commercial vehicle, and ordnance markets. The high strength-to-weight properties of forged aluminum make it particularly well suited for automotive applications. In 1994, the forgings business unit had over 300 customers for its products, the largest and top five of which accounted for approximately 30% and 69%, respectively, of the forgings business unit's sales revenue. The forgings business unit's headquarters is located in Erie, Pennsylvania, and additional sales, marketing, and engineering groups are located in the midwestern and western United States. Competition Aluminum products compete in many markets with steel, copper, glass, plastic, and numerous other materials. Within the aluminum business, KACC competes with both domestic and foreign producers of bauxite, alumina, and primary aluminum, and with domestic and foreign fabricators. Many of KACC's competitors have greater financial resources than KACC. KACC's principal competitors in the sale of alumina include Alcoa of Australia Ltd., Glencore Ltd., and Pechiney S.A. KACC competes with most aluminum producers in the sale of primary aluminum. Primary aluminum and, to some degree, alumina are commodities with generally standard qualities, and competition in the sale of these commodities is based primarily upon price, quality, and availability. KACC also competes with a wide range of domestic and international fabricators in the sale of fabricated aluminum products. Competition in the sale of fabricated products is based upon quality, availability, price, and service, including delivery performance. KACC concentrates its fabricating operations on selected products in which KACC has production expertise, high quality capability, and geographic and other competitive advantages. Management 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 business or operations. Research and Development KACC conducts research and development activities principally at four facilities - the Center for Technology ("CFT") in Pleasanton, California; the Primary Aluminum Products Division Technology Center ("DTC") adjacent to the Mead smelter 8 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------ ITEM 1. BUSINESS (continued) in Washington; the Alumina Development Laboratory ("ADL") at the Gramercy, Louisiana refinery, which is a part of Kaiser Alumina Technical Services ("KATS"), and the Automotive Product Development Office located near Detroit, Michigan. Net expenditures for Company-sponsored research and development activities were $16.7 million in 1994, $18.5 million in 1993, and $13.5 million in 1992. KACC's research staff totaled 166 at December 31, 1994. KACC estimates that research and development net expenditures will be in the range of approximately $20.0 - $22.0 million in 1995. CFT performs research and development across a range of aluminum process and product technologies to support KACC's business units and new business opportunities. It also selectively offers technical services to third parties. A significant effort is directed at the automotive market. One project directed at automotive sheet development is carried out cooperatively with Furukawa Electric Co., Ltd. of Japan, Pechiney Rhenalu of France, and Kawasaki Steel Corporation of Japan. The largest and most notable single project being developed at CFT is a "micromill" process for producing can body sheet. A pilot facility has been constructed and operated at CFT. Based on the results achieved so far, the Company hopes to finalize in 1995 plans for construction of a full-scale commercial micromill. DTC maintains specialized laboratories and a miniature carbon plant where experiments with new anode and cathode technology are performed. DTC supports KACC's primary aluminum smelters, and concentrates on the development of cost-effective technical innovations such as equipment and process improvements. KATS, including ADL, provides improved alumina process technology to KACC facilities and technical support to new business ventures in cooperation with KACC's international business development group. The Automotive Product Development Office is a sales and application engineering facility located near Detroit-area carmakers and works with customers, CFT and plant personnel to create new automotive component designs and improve existing products. KACC is actively engaged in efforts to license its technology and sell technical and managerial assistance to other producers worldwide. Pursuant to various arrangements, KACC's technology has been installed in alumina refineries, aluminum smelters and rolling mills located in the United States, Jamaica, Sweden, Germany, Russia, India, Australia, Korea, New Zealand, Ghana, Europe, and the United Kingdom. KACC's technology sales and revenue from technical assistance to third parties were $10.0 million in 1994, $12.8 million in 1993, and $14.1 million in 1992. KACC has entered into agreements with respect to the Krasnoyarsk smelter located in Russia pursuant to which KACC has licensed certain of its technology for use in such facility and agreed to provide purchasing services in obtaining Western-sourced technology and equipment to be used in such facility. These agreements were entered into in November 1990, and the services under them are expected to be completed in 1996. In addition, KACC has entered into agreements with respect to the Nadvoitsy smelter located in Russia and the Korba smelter of the Bharat Aluminum Co. Ltd., located in India, pursuant to which KACC has licensed certain of its technology for use in such facilities. The agreements relating to the Nadvoitsy and Korba smelters were entered into in 1993 and the services under such agreements are expected to be completed in 1995. Employees During 1994, KACC employed an average of 9,744 persons, compared with an average of 10,220 employees in 1993, and 10,130 employees in 1992. At December 31, 1994, KACC's work force was 9,468, including a domestic work force of 5,812, of whom 3,978 were paid at an hourly rate. Most hourly paid domestic employees are covered by collective bargaining agreements with various labor unions. Approximately 71% of such employees are covered by a master agreement (the "Labor Contract") with the United Steelworkers of America ("USWA") which expires on September 30, 1998. The Labor Contract covers KACC's plants in Spokane (Trentwood and Mead) and Tacoma, Washington; Gramercy, Louisiana; and Newark, Ohio. 9 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------- ITEM 1. BUSINESS (continued) The Labor Contract provides for base wages at all covered plants. In addition, workers covered by the Labor Contract may receive quarterly bonus payments based on various indices of profitability, productivity, efficiency, and other aspects of specific plant performance, as well as, in certain cases, the price of alumina or primary aluminum. Pursuant to the Labor Contract, base wage rates were raised effective January 2, 1995, and will be raised an additional amount effective November 6, 1995, and November 3, 1997, and an amount in respect of the cost of living adjustment under the previous master agreement will be phased into base wages during the term of the Labor Contract. In the second quarter of 1995, KACC will acquire up to $2,000 of preference stock held in a stock plan for the benefit of each of approximately 82% of the employees covered by the Labor Contract and in the first half of 1998 up to an additional $4,000 of such preference stock held in such plan for the benefit of substantially the same employees. In addition, if a profitability test is satisfied, KACC will acquire during 1996 or 1997 up to an additional $1,000 of such preference stock held in such plan for the benefit of substantially the same employees. KACC will make comparable acquisitions of preference stock held for the benefit of each of certain salaried employees. Management considers KACC's employee relations to be satisfactory. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends - Labor Matter." Environmental Matters The Company and KACC are subject to a wide variety of international, state, and local environmental laws and regulations ("Environmental Laws") which continue to be adopted and amended. 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. See "LEGAL PROCEEDINGS." KACC currently is subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments 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. In addition, in connection with certain of its asset sales, KACC has indemnified the purchasers of assets with respect to certain liabilities (and associated expenses) resulting from acts or omissions arising prior to such dispositions, including environmental liabilities. While uncertainties are inherent in the final outcome of these matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties should not have a material adverse effect on the Company's consolidated financial position or results of operations. Environmental capital spending was $11.9 million in 1994, $12.6 million in 1993, and $13.1 million in 1992. Annual operating costs for pollution control, not including corporate overhead or depreciation, were approximately $23.1 million in 1994, $22.4 million in 1993, and $21.6 million in 1992. Legislative, regulatory, and economic uncertainties make it difficult to project future spending for these purposes. However, the Company currently anticipates that in the 1995-1996 period, environmental capital spending will be within the range of approximately $15.0 - $18.0 million per year, and operating costs for pollution control will be within the range of $25.0 - $27.0 million per year. In addition, $3.6 million 10 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------ ITEM 1. BUSINESS (continued) in cash expenditures in 1994, $7.2 million in 1993, and $9.6 million in 1992 were charged to previously established reserves relating to environmental costs. Approximately $11.4 million is expected to be charged to such reserves in 1995. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Financial Condition and Capital Spending - Environmental Contingencies." The portion of Note 9 of the Notes to Consolidated Financial Statements contained in the Annual Report under the heading "Environmental Contingencies" is incorporated herein by reference. ITEM 2. PROPERTIES The locations and general character of the principal plants, mines, and other materially important physical properties relating to KACC's operations are described in "ITEM 1. BUSINESS," 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. Management believes that KACC's domestic plants are cost competitive on an international basis. Due to KACC's variable cost structure, the plants' operating costs are relatively lower in periods of low primary aluminum prices and relatively higher in periods of high primary aluminum prices. KACC's obligations under the Credit Agreement entered into on February 17, 1994, as amended (the "1994 Credit Agreement"), are secured by, among other things, mortgages on KACC's major domestic plants (other than the Gramercy alumina plant). See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Financial Condition and Capital Spending." ITEM 3. LEGAL PROCEEDINGS Aberdeen Pesticide Dumps Site Matter The Aberdeen Pesticide Dumps Site, listed on the Superfund National Priorities List, is composed of five separate sites around the town of Aberdeen, North Carolina. These sites (collectively, the "Sites") include the Farm Chemicals Site, Twin Sites, Fairway Six Site, McIver Dump Site and the Route 211 Site. The Sites are of concern to the United States Environmental Protection Agency (the "EPA") because of their past use as either pesticide formulation facilities or pesticide disposal areas from approximately the mid- 1930s through the late 1980s. The United States originally filed a cost recovery complaint (as amended, the "Complaint") in the United States District Court for the Middle District of North Carolina, Rockingham Division, No. C-89-231-R, against five defendants on March 31, 1989, and subsequently amended its complaint to add another ten defendants on February 6, 1991, and another four defendants on August 1, 1991. Neither the Company nor KACC were defendants named in the Complaint. The Complaint seeks reimbursement for past and future response costs and a determination of liability of the defendants under Section 107 of CERCLA. On or about October 2, 1991, KACC, along with approximately 17 other parties, was served with third party complaints from four of the defendants named in the Complaint (the "Third Party Plaintiffs") alleging claims arising under various theories of contribution and indemnity. On October 22, 1992, the United States filed a motion for leave to file an amended complaint naming KACC as a first party defendant in its cost recovery action. On February 16, 1993, the court granted that motion. 11 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS (continued) The EPA has performed a Remedial Investigation/Feasibility Study and issued a Record of Decision ("ROD") dated September 30, 1991, for the Sites. The major remedy selected for the Sites in the ROD consisted of excavation of contaminated soil, treatment of the contaminated soil at a single location utilizing thermal treatment, and placement of the treated material back into the areas of excavation. The estimated cost of such remedy for the Sites is approximately $32 million. Other possible remedies described in the ROD included on-site incineration and on-site ash disposal at an estimated cost of approximately $53 million, and off-site incineration and disposal at an estimated cost of approximately $222 million. The EPA has stated that it has incurred past costs at the Sites in the range of $7.5 - $8 million as of February 9, 1993, and alleges that response costs will continue to be incurred in the future. On May 20, 1993, the EPA issued three unilateral Administrative Orders under Section 106(a) of CERCLA ordering the respondents, including KACC, to perform the remedial design and remedial action described in the ROD for the Farm Chemicals Site (EPA Docket No. 93- 13-C), Twin Sites (EPA Docket No. 93-14-C) and Fairway Six Site (EPA Docket No. 93-15-C). The estimated cost as set forth in the ROD for the remedial action at the three Sites is approximately $27 million. In addition to KACC, respondents named in the Administrative Orders for all three Sites include J. M. Taylor, Grower Service Corporation, E. I. DuPont de Nemours & Co., Olin Corporation, UCI Holdings, Inc., PPG Industries, Inc., and Union Carbide Corporation. Ciba-Geigy Corporation, Hercules, Inc., Mobil Oil Corporation, Shell Oil Company, The Boots Company (USA), Inc., Nor-Am Chemical Co., George D. Anderson, Farm Chemicals, Inc., Partners In The Pits, Ltd., Dan F. Maples, Pits Management Corp., Maples Golf Construction, Inc., Yadco of Pinehurst, Inc., and Robert Trent Jones are named as respondents for one or two of the Sites. KACC has entered into a PRP Participation Agreement with certain of the respondents to participate jointly in responding to the Administrative Orders dated May 20, 1993, regarding soil remediation, to share costs incurred on an interim basis, and to seek to reach a final allocation of costs through agreement or to allow such final allocation and determination of liability to be made by the United States District Court. By letter dated July 6, 1993, KACC has notified the EPA of its ongoing participation with such group of respondents which, as a group, are intending to comply with the Administrative Orders to the extent consistent with applicable law. By letters dated December 30, 1993, the EPA notified KACC of its potential liability for, and requested that KACC, along with certain other named companies, undertake or agree to finance, groundwater remediation at certain of the Sites. On June 22, 1994, the EPA issued two Unilateral Administrative Orders under Section 106(a) of CERCLA under U.S. EPA Docket No. 94-28-C and U.S. EPA Docket No. 94-27-C, respectively, ordering the named respondents to design and implement the groundwater remediation remedy for the Farm Chemicals and Twin Sites and for the Fairway Six Site. In addition to KACC, the Unilateral Administrative Order for the Farm Chemicals and Twin Site areas named as respondents J. M. Taylor, Grower Service Corporation, Farm Chemicals, Inc., E. I. Dupont de Nemours and Company, Olin Corporation, UCI Holdings, Inc., Union Carbide Corporation, Miles, Inc., Mobil Oil Corporation, Shell Oil Company, Hercules, Inc., The Boots Company (USA), Inc., Nor-Am Chemical Company, and Ciba-Geigy Corporation. Named as respondents in addition to KACC for the Fairway Six Site area were J. M. Taylor, George Anderson, Grower Service Corporation, Partners in the Pits, Dan Maples, Pits Management Corporation, Maples Golf Construction, Inc., Yadco of Pinehurst Inc., Robert Trent Jones, E. I. Dupont de Nemours and Company, Olin Corporation, UCI Holdings, Inc., and Ciba-Geigy Corporation. The ROD-selected remedy for the groundwater remediation selected by the EPA includes extraction, on site treatment by coagulation, flocculation, precipitation, air stripping, GAC absorption, and discharge on site for the Farm Chemicals/Twin Sites and extraction, on-site treatment by GAC absorption and discharge on-site for the Fairway Six Site. The EPA has estimated the total present worth cost, including 30 years of operation and maintenance, at $11,849,757. A definitive PRP Participation Agreement with respect to groundwater remediation is under negotiation among certain of the respondents, including KACC, and these respondents are proceeding with work required under the administrative orders. 12 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS (continued) Based upon the information presently available to it, the Company is unable to determine whether KACC has any liability with respect to any of the Sites or, if there is any liability, the amount thereof. Two government witnesses have testified that KACC acquired pesticide products from the operator of the formulation site over a two to three year period. KACC has been unable to confirm the accuracy of this testimony. United States of America v. Kaiser Aluminum & Chemical Corporation On February 8, 1989, a civil action was filed by the United States Department of Justice at the request of the EPA against KACC in the United States District Court for the Eastern District of Washington, Case No. C-89-106-CLQ. The complaint alleged that emissions from certain stacks at KACC's Trentwood facility in Spokane, Washington intermittently violated the opacity standard contained in the Washington State Implementation Plan ("SIP"), approved by the EPA under the federal Clean Air Act. The complaint sought injunctive relief, including an order that KACC take all necessary action to achieve compliance with the Washington SIP opacity limit and the assessment of civil penalties of not more than $25,000 per day. In the course of the litigation, questions arose as to whether the observers who recorded the alleged exceedances were qualified under the Washington SIP to read opacity. In July 1990, KACC and the Department of Justice agreed to a voluntary dismissal of the action. At that time, however, the EPA had arranged for increased surveillance of the Trentwood facility by consultants and the EPA's personnel. From May 1990 through May 1991, these observers recorded approximately 130 alleged exceedances of the SIP opacity rule. Justice Department representatives have stated their intent to file a second lawsuit against KACC based on the opacity observations recorded during that period. The second lawsuit has not yet been filed. Instead, KACC has entered into negotiations with the EPA to resolve the claims against KACC through a consent decree. The EPA and KACC have made substantial progress in negotiating the terms of the consent decree. The terms of the consent decree currently being negotiated include, in principle, a commitment by KACC to improve emission control equipment at the Trentwood facility and a civil penalty assessment against KACC. The Company anticipates that agreement upon the terms of a consent decree will be reached during 1995. In the event the terms of a consent decree are not agreed upon, the matter would likely be resolved in federal court. Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation and James L. Ferry & Son, Inc. On January 7, 1991, the City of Richmond, et al. (the "Plaintiffs") filed a Second Amended Complaint for Damages and Declaratory Relief against the United States of America, the United States Maritime Administration and Santa Fe Land Corporation (now known as Catellus Development Corporation ("Catellus")) (collectively, the "Defendants") alleging, among other things, that the Defendants caused or allowed hazardous substances, pollutants, contaminants, debris, and other solid wastes to be discharged, deposited, disposed of or released on certain property located in Richmond, California (the "Property") formerly owned by Catellus and leased to (i) KACC for the purpose of shipbuilding activities conducted by KACC on behalf of the United States during World War II, and (ii) subsequent tenants thereafter. Plaintiffs allege, among other things, that (i) the Defendants are jointly and severally liable for response costs and natural resources damages under CERCLA, (ii) Defendant United States of America is liable on grounds of negligence for damages under the Federal Tort Claims Act, and (iii) Defendant Catellus is strictly liable on grounds of negligence for such discharge, deposit, disposal or release. Certain of the Plaintiffs have alleged that they had incurred or expect to incur costs and damages in the amount of approximately $49 million, in the aggregate. On or about September 23, 1992, the Plaintiffs filed a Third Amended Complaint, alleging, among other things, that (i) the Defendants are jointly and severally liable for response costs, declaratory relief, and natural resources damages under CERCLA; (ii) Defendant United States of America is liable on grounds of negligence, continuing trespass and continuing nuisance for damages under the Federal Tort Claims Act; (iii) Defendant Catellus is strictly liable on grounds of continuing 13 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------ ITEM 3. LEGAL PROCEEDINGS (continued) nuisance, continuing trespass, and negligence for such discharge, deposit, disposal or release; (iv) Catellus is liable to indemnify Plaintiffs; and (v) Catellus is liable for fraudulent concealment of the alleged contamination. On February 20, 1991, Catellus filed a third party complaint (the "Third Party Complaint") against KACC and James L. Ferry & Son, Inc. ("Ferry") in the United States District Court for the Northern District of California, Case No. C-89-2935 DLJ. The Third Party Complaint was served on KACC as of April 12, 1991. The Third Party Complaint alleges that, if the allegations of the Plaintiffs are true, then KACC and Ferry (which is alleged to have performed certain excavation activities on the Property and, as a result thereof, to have released contaminants on the Property and to have arranged for the transportation, treatment, and disposal of such contaminants) are liable for Catellus' response costs and damages under CERCLA and damages under other theories of negligence and nuisance and, in the case of KACC, waste. Catellus seeks (i) contribution from KACC and Ferry, jointly and severally, for its costs and damages pursuant to CERCLA; (ii) indemnity from KACC and Ferry for any liability or judgment imposed upon it; (iii) indemnity from KACC and Ferry for reasonable attorneys fees and costs incurred by it; (iv) damages for the injury to its interest in the Property; and (v) treble damages from KACC pursuant to California Code of Civil Procedure Section 732. On June 4, 1991, Catellus served on KACC a first amended third party complaint which alleges, in addition to the allegations of the Third Party Complaint, that KACC and/or a predecessor in interest to KACC is also liable for Catellus' damages, if any, on the basis of alleged contractual indemnities contained in certain former leases of the Property. The Third Party Complaint was amended on or about October 26, 1992. The amended Third Party Complaint alleges that, if the allegations of the Plaintiffs are true, then KACC and Ferry are liable for (i) Catellus' response costs and natural resources damage under CERCLA; (ii) damages under theories of negligence, trespass and nuisance; (iii) indemnity (equitable and contractual); and (iv) attorneys fees under California Code of Civil Procedure Section 1021.6. By letter dated October 26, 1992, counsel for certain underwriters at Lloyd's London and certain London Market insurance companies ("London Insurers") advised that the London Insurers agreed to reimburse KACC for defense expenses in the third party action filed by Catellus, subject to a full reservation of rights. The Plaintiffs filed a motion for leave to file a Third Amended Complaint which would have added KACC as a first party defendant. This motion was denied. On October 26, 1992, the Plaintiffs served a separate Complaint against KACC for damages and declaratory relief. The claims asserted by the Plaintiffs are for (i) recovery of costs, natural resources damages, and declaratory relief under CERCLA; (ii) damages for injury to the Property arising from negligence; (iii) damages under a theory of strict liability; (iv) continuing nuisance and continuing trespass; (v) equitable indemnity; (vi) response costs incurred by the Richmond Redevelopment Agency under California Health & Safety Code Section 33459.4; and (vii) declaratory relief on the state claims. This matter has been tendered to the London Insurers. On June 24, 1994, the District Court approved a Consent Decree consummating the settlement of the Plaintiffs' CERCLA and tort claims against the United States in exchange for payment of approximately $3.5 million plus 35% of future response costs. Trial of this matter commenced in March 1995. Picketville Road Landfill Matter On July 1, 1991, the EPA served on KACC and 13 other PRPs a Unilateral Administrative Order For Remedial Design and Remedial Action (the "Order") at the Picketville Road Landfill site in Jacksonville, Florida. The EPA seeks remedial design and remedial action pursuant to CERCLA from some, but apparently not all, PRPs based upon a Record of Decision outlining remedial cleanup measures to be undertaken at the site adopted by the EPA on September 28, 1990. The site was operated as a municipal and industrial waste landfill from 1968 to 1977 by the City of Jacksonville. KACC was first notified by the EPA on January 17, 1991, that wastes from one of KACC's plants may have been transported to and deposited in the site. In its Record of Decision, the EPA estimated that the total capital, operations, and maintenance costs 14 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------ ITEM 3. LEGAL PROCEEDINGS (continued) of its elected remedy for the site would be approximately $9.9 million. In addition, the EPA has reserved the right to seek recovery of its costs incurred relating to the Order, including, but not limited to, reimbursement of the EPA's cost of response. KACC has reached an agreement with certain PRPs who are conducting remedial design and remedial action at the site, under which KACC will fund $146,700 of the cost of the remedial design and remedial action (unless remedial costs exceed $19 million in which event the settlement agreement will be re-opened). Asbestos-related Litigation KACC is a defendant in a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by 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 15 years. At December 31, 1994, the number of such lawsuits pending was approximately 25,200. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Financial Condition and Capital Spending - Asbestos Contingencies." The portion of Note 9 of the Notes to Consolidated Financial Statements contained in the Annual Report under the heading "Asbestos Contingencies" is incorporated herein by reference. Other On August 24, 1994, the United States Department of Justice (the "DOJ") issued Civil Investigative Demand No. 11356 ("CID") requesting information from the Company regarding (i) its production, capacity to produce, and sales of primary aluminum from January 1, 1991, to the date of the response; (ii) any actual or contemplated reductions in its production of primary aluminum during that period; and (iii) any communications with others regarding any actual, contemplated, possible or desired reductions in primary aluminum production by the Company or any of its competitors during that period. The Company has submitted documents and interrogatory answers to the DOJ responding to the CID. Various other lawsuits and claims are pending against KACC. Management believes that resolution of the lawsuits and claims made against KACC, including matters discussed above, will not have a material adverse effect on the Company's consolidated financial position or results of operations. 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 1994. 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 15, 1995 was 123. Page 56 of the Annual Report, and the information in Note 8 of the Notes to Consolidated Financial Statements under the heading "Dividends on Common Stock" at page 48 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 1994 Credit Agreement (Exhibits 4.4 through 4.6 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 1994 Credit Agreement and the Indentures (Exhibits 4.1 through 4.3 to this Report) contain restrictions on the ability of the Company's subsidiaries 15 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (continued) to transfer funds to the Company in the form of cash dividends, loans or advances. Exhibits 4.1 through 4.6 to this Report; Note 5 of the Notes to Consolidated Financial Statements at pages 36-38 of the Annual Report; and the information under the heading "Financial Condition and Capital - Spending Capital Structure" at pages 23-24 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 3 of this Report; to the table at page 20 of the Annual Report; to the discussion under the heading "Results of Operations" at page 21 of the Annual Report; to Note 1 of the Notes to Consolidated Financial Statements at pages 32-34 of the Annual Report; and to pages 54-55 of the Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pages 20-27 of the Annual Report are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 28-53 and page 56 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. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Index to Financial Statements and Schedules 1. Financial Statements -------------------- The Consolidated Financial Statements of the Company, the Notes to Consolidated Financial Statements, the Report of Independent Public Accountants, and Quarterly Financial Data are included on pages 28-53 and 56 of the Annual Report. 2. Financial Statement Schedules ----------------------------- Financial statement schedules are inapplicable or the required information is included in the Consolidated Financial Statements or the Notes thereto. 16 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (continued) 3. Exhibits -------- Reference is made to the Index of Exhibits immediately preceding the exhibits hereto (beginning on page 19), 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 19), which index is incorporated herein by reference. 17 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES -------------------------------------------------------------------- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KAISER ALUMINUM CORPORATION Date: March 24, 1995 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 24, 1995 George T. Haymaker, Jr. ----------------------------- George T. Haymaker, Jr. Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: March 24, 1995 John T. La Duc ----------------------------- John T. La Duc Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 24, 1995 Charlie Alongi ----------------------------- Charlie Alongi Controller (Principal Accounting Officer) Date: March 24, 1995 Robert J. Cruikshank ----------------------------- Robert J. Cruikshank Director Date: March 24, 1995 Charles E. Hurwitz ----------------------------- Charles E. Hurwitz Director Date: March 24, 1995 Ezra G. Levin ----------------------------- Ezra G. Levin Director Date: March 24, 1995 Robert Marcus ----------------------------- Robert Marcus Director Date: March 24, 1995 Paul D. Rusen ----------------------------- Paul D. Rusen Director 18 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES -------------------------------------------------------------------- INDEX OF EXHIBITS Exhibit Number Description ------- ------------ 3.1 Restated Certificate of Incorporation of Kaiser Aluminum Corporation (the "Company" or "KAC"), dated February 21, 1991 (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registration Statement on Form S-1, dated June 11, 1991, filed by KAC, Registration No. 33-37895). 3.2 By-laws of KAC, amended as of February 26, 1991 (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Registration Statement on Form S-1, dated June 11, 1991, filed by KAC, Registration No. 33-37895). 4.1 Indenture, dated as of February 1, 1993, among 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 (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 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). 4.4 Credit Agreement, dated as of February 17, 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). 4.5 First Amendment to Credit Agreement, dated as of July 21, 1994, amending the Credit Agreement, dated as of February 17, 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). *4.6 Second Amendment to Credit Agreement, dated as of March 10, 1995, amending the Credit Agreement, dated as of February 17, 1994, among KAC, KACC, the financial institutions party thereto, and BankAmerica Business Credit, Inc., as Agent. 4.7 Certificate of Designations of Series A Mandatory Conversion Premium Dividend Preferred Stock of KAC, dated June 28, 1993 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KAC, File No. 1-9447). 4.8 Deposit Agreement between KAC and The First National Bank of Boston, dated as of June 30, 1993 (incorporated by reference to Exhibit 4.4 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KAC, File No. 1-9447). 19 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES -------------------------------------------------------------------- Exhibit Number Description ------- ----------- 4.9 Intercompany Note between KAC and KACC (incorporated by reference to Exhibit 4.2 to Amendment No. 5 to the Registration Statement on Form S-1, dated December 13, 1989, filed by KACC, Registration No. 33-30645). *4.10 Senior Subordinated Intercompany Note between KACC and a subsidiary of MAXXAM, dated December 15, 1992. 4.11 Certificate of Designations of 8.255% PRIDES, Convertible Preferred Stock of KAC, dated February 17, 1994 (incorporated by reference to Exhibit 4.21 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 4.12 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). 4.13 Senior Subordinated Intercompany Note between KAC and KACC dated March 17, 1994 (incorporated by reference to Exhibit 4.23 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 4.14 Senior Subordinated Intercompany Note between KAC and KACC dated June 30, 1993 (incorporated by reference to Exhibit 4.24 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 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 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 between KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to Amendment No. 2 to the Registration Statement on Form S-1, dated June 11, 1991, filed by KAC, Registration No. 33-37895). 10.4 Tax Allocation Agreement, dated as of June 30, 1993, between KACC and KAC (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 10.5 Assumption Agreement, dated as of October 28, 1988 (incorporated by reference to Exhibit HHH to the Final Amendment to the Schedule 13D of MAXXAM Group Inc. and others in respect of the Common Stock of KAC, par value $.33-1/3 per share). 20 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES -------------------------------------------------------------------- Exhibit Number Description ------- ----------- 10.6 Agreement, dated as of June 30, 1993, between KAC and MAXXAM (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). Executive Compensation Plans and Arrangements ---------------------------------------------- 10.7 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). 10.8 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). 10.9 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). 10.10 Promissory Note, dated October 4, 1990, by Robert W. Irelan and Barbara M. Irelan to KACC (incorporated by reference to Exhibit 10.54 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.11 Promissory Note, dated February 1, 1989, by Anthony R. Pierno and Beverly J. Pierno to MAXXAM (incorporated by reference to Exhibit 10.30 to Form 10-K for the period ended December 31, 1988, filed by MAXXAM, File No. 1-3924). 10.12 Promissory Note, dated July 19, 1990, by Anthony R. Pierno to MAXXAM (incorporated by reference to Exhibit 10.31 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.13 Promissory Note, dated July 20, 1993, between MAXXAM and Byron L. Wade (incorporated by reference to Exhibit 10.59 to Form 10-K for the period ended December 31, 1993, filed by MAXXAM, File No. 1-3924). 10.14 Employment Agreement, dated August 20, 1993, between KACC and Robert E. Cole (incorporated by reference to Exhibit 10.63 to Form 10-K for the period ended December 31, 1993, filed by MAXXAM, File No. 1-3924). 10.15 Compensation Agreement, dated July 18, 1994, between KACC and Larry L. Watts (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1994, filed by KAC, File No. 1-9447). 10.16 Compensation Agreement, dated July 18, 1994, between KACC and Geoff S. Smith (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1994, filed by KAC, File No. 1-9447). *10.17 Letter Agreement, dated January 1995, between KAC and Charles E. Hurwitz, granting Mr. Hurwitz stock options under the Kaiser 1993 Omnibus Stock Incentive Plan. *10.18 Form of letter agreement with persons granted stock options under the Kaiser 1993 Omnibus Stock Incentive Plan to acquire shares of KAC common stock. 21 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES -------------------------------------------------------------------- Exhibit Number Description ------- ----------- *13 The portions of KAC's Annual Report to shareholders for the year ended December 31, 1994, which are incorporated by reference into this Report. *21 Significant Subsidiaries of KAC. *27 Financial Data Schedule. ----------- * Filed herewith 22 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------- Exhibit 21 SUBSIDIARIES Listed below are the principal subsidiaries of Kaiser Aluminum Corporation, the jurisdiction of their incorporation or organization and the names under which such subsidiaries do business. Certain subsidiaries are omitted which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. Place of Incorporation Name or Organization ---- --------------- Alpart Jamaica Inc. . . . . . . . . . . . Delaware Alumina Partners of Jamaica (partnership) . Delaware Anglesey Aluminium Limited . . . . . . . . United Kingdom Kaiser Alumina Australia Corporation . . . Delaware Kaiser Aluminium International, Inc. . . . Delaware Kaiser Aluminum & Chemical Corporation . . Delaware Kaiser Aluminum & Chemical of Canada Limited Ontario Kaiser Bauxite Company . . . . . . . . . . Nevada Kaiser Finance Corporation . . . . . . . . Delaware Kaiser Jamaica Bauxite Company (partnership) Jamaica Kaiser Jamaica Corporation . . . . . . . . Delaware Queensland Alumina Limited . . . . . . . . Queensland Volta Aluminium Company Limited . . . . . . Ghana 23 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ----------------------------------------------------
Domestic California Pennsylvania Operations Los Angeles (City of Commerce) Erie (Partial List) Extruded Products Forgings Plant and Offices Los Angeles (Santa Fe Springs) South Carolina Extruded Products Fabricating Greenwood Oxnard Forgings Forgings Greenwood Pleasanton Machine Shop R&D at the Center for Technology; Tennessee Administrative Offices Jackson Florida Extruded Products Mulberry Texas Sodium Silicofluoride, Potassium Silicofluoride Dallas Louisiana Extruded Products Offices Baton Rouge Houston Alumina, Kaiser Alumina Technical Services, Kaiser Aluminum Corporation Headquarters International Business Development, and Sherman Environmental Offices Extruded Products Gramercy Washington Alumina Mead Michigan Primary Aluminum; Detroit (Southfield) Division Technology Center Automotive Product Development and Sales Richland Ohio Extruded Products Canton Tacoma Castings Primary Aluminum Newark Trentwood Extruded Products Flat-Rolled Products Plant and Offices Oklahoma Tulsa Aluminum and Magnesium Extruded Products; Anodes --------------------------------------------------------------------------------------------------------------- Worldwide Australia Japan Operations Queensland Alumina Limited (28.3% owned) Furukawa Kaiser Forged Products Company (Partial List) Alumina (47.5%) Canada Sales Office Kaiser Aluminum & Chemical of Canada Limited The Netherlands (100%) Kaiser Aluminum Mill Products Inc. (100%) Extruded Products Sales Office Ghana Russia Volta Aluminium Company Limited (90%) Kaiser Aluminium Russia, Inc. (100%) Primary Aluminum International Business Development Jamaica Wales, United Kingdom Alumina Partners of Jamaica (65%) Anglesey Aluminium Limited (49%) Bauxite; Alumina Primary Aluminum Kaiser Jamaica Bauxite Company (49%) Bauxite
24 EX-4.6 2 EXECUTION COPY SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of March 10, 1995, 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 "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 Amendment to Recitals. --------------------- The second recital to the Credit Agreement is hereby amended by deleting the amount "$275,000,000" in the fourth line thereof and by replacing such amount with the amount "$325,000,000". 1.2 Amendments to Article I: Definitions and Accounting ---------------------------------------------------- Terms. ----- A. The definition of "Revolving Commitment Availability" contained in Section 1.1 of the Credit Agreement is ----------- hereby amended to read in its entirety as follows: "'Revolving Commitment Availability' means, at any --------------------------------- time, the excess of (a) (i) the lesser of (x) the Revolving Commitment Amount at such time and (y) the Borrowing Base as in effect at such time plus (ii), during the period from March 10, 1995 to ---- and including July 10, 1995, the lesser of (x) $50,000,000 and (y) an amount equal to two-thirds of the amount of any funds then on deposit in transaction accounts in which agreements are effected with respect to spot, forward, future and option transactions entered into by the Company and its Subsidiaries in the ordinary course of business involving (or, in the case of futures and options, for or relating to) the purchase and sale of aluminum, alumina, or bauxite over ---- (b) the Revolving Credit Outstandings at such time." B. The definition of "Cash Equivalent Investment" contained in Section 1.1 of the Credit Agreement is hereby ----------- amended by (i) deleting the phrase "which have substantially similar investment policies." in clause (e) thereof and substituting therefor ";or" and (ii) adding a new clause (f) at the end thereof as follows: "(f) investments in and through any Sweep Account." C. The following definitions are hereby added to Section 1.1 of the Credit Agreement in the appropriate ----------- alphabetical order: "'101 Account' is defined in the Concentration Bank ----------- Agreement." "'Sweep Account' means an account or other arrangement ------------- maintained with any Lender into which funds on deposit in the Concentration Account or the 101 Account are automatically swept at the end of each business day, invested overnight and automatically returned to the Concentration Account or 101 Account, as the case may be, on the next business day." 1.3 Amendments to Article II: Commitments and Borrowing ---------------------------------------------------- Procedures. ---------- A. Clause (b) of Section 2.1.1 of the Credit ---------- ------------- Agreement is hereby amended by deleting the amount "$275,000,000" in the second line thereof and by replacing such amount with the amount "$325,000,000". B. Clause (a) of Section 2.3 of the Credit Agreement ---------- ----------- is hereby amended by inserting the phrase ", or such other account at Bank of America as the Company shall notify the Agent from time to time," after the phrase "account number 12339-11101 at Bank of America" contained therein. C. Clause (b) of Section 2.3 of the Credit Agreement ---------- ----------- is hereby amended by inserting the phrase ", or such other account at Bank of America as the Company shall notify the Agent from time to time," after the phrase "account number 12339-11101 at Bank of America" contained therein. 1.4 Amendment to Article III: Repayments, Prepayments, --------------------------------------------------- Interest, and Fees. ------------------ Section 3.5.1 of the Credit Agreement is hereby amended ------------- by adding the following thereto at the end of the second parenthetical contained therein: "and, with respect to the increase in the Revolving Commitment Amount provided for therein, commencing on the date on which the Agent gives notice to the Parent Guarantor, the Company and each Lender of the satisfaction of certain conditions as provided in Section 3 of the Second --------- Amendment to Credit Agreement dated as of March 10, 1995 between the Company, the Parent Guarantor, the Lenders and the Agent". 1.5 Amendments to Article IX: Covenants. ------------------------------------- A. Section 9.1.10(d) of the Credit Agreement is ----------------- hereby amended by inserting the phrase ",except in the case of a Sweep Account with Agent or any Affiliate of Agent," after the phrase "thereof and" contained in the fourth line thereof. B. Article IX of the Credit Agreement is hereby ---------- amended by adding the following as new Section 9.2.22 thereof: -------------- "SECTION 9.2.22 Company Investment or Distribution ---------------------------------- to Parent Guarantor. Notwithstanding anything to the contrary ------------------- contained herein, the Company shall be permitted to make Investments in, or Distributions to, the Parent Guarantor in an aggregate amount not to exceed $300,000 in each Fiscal Year." 1.6 Amendments to Signature Pages. ----------------------------- Subject to the last paragraph of this Section 1.6, the Percentages set forth opposite the Lenders' names on the signature pages of the Credit Agreement are hereby amended to read as follows: BankAmerica Business Credit, Inc. 27.270% Congress Financial Corporation 26.154% LaSalle National Bank 04.769% CIT Group/Business Credit, Inc. 06.308% Transamerica Business Credit Corporation 06.769% Bank of America National Trust and Savings Association 09.090% Heller Financial, Inc. 08.871% National Westminster Bank PLC 06.000% ABN Amro N.V. 04.769% Effective on the date on which the Agent gives notice to the Parent Guarantor, the Company and each Lender of the satisfaction of certain conditions as provided in Section 3 of the Second Amendment to Credit Agreement dated as of March 10, 1995 between the Company, the Parent Guarantor, the Lenders and the Agent and notwithstanding anything to the contrary contained in Section 5.4 ----------- of the Credit Agreement, each Lender shall be deemed to hold an undivided interest and participation, to the extent of such Lender's Percentage as reflected above, in all Letters of Credit and the Company's Reimbursement Obligations with respect thereto outstanding as of such date. Subject to the last paragraph of this Section 1.6, on the Second Amendment Effective Date (as defined below) each Lender whose Percentage is increased pursuant to this Amendment shall make such payments to the Agent, and the Agent shall make such distributions of such payments to the remaining Lenders, as are necessary to adjust the amounts of the outstanding Loans of all Lenders in accordance with the revised Percentages set forth above in this Section 1.6. Anything contained in this Amendment or the other Loan Documents to the contrary notwithstanding, each Lender's Percentage interest in any LIBO Rate Loan outstanding on the Second Amendment Effective Date shall remain unchanged for all purposes under the Loan Documents until the date of expiration of the Interest Period in effect as of the Second Amendment Effective Date with respect to such LIBO Rate Loan, at which time (i) all payments of interest and principal, if any, made on such date in respect of such LIBO Rate Loan shall be distributed to Lenders in accordance with such unchanged Percentages and (ii) in the event such LIBO Rate Loan is to remain outstanding for an additional Interest Period commencing on such date or is to be converted to a Reference Rate Loan on such date, Lenders shall make such payments, and Agent shall make such distributions thereof, on such date as are necessary to adjust the Percentage interests of Lenders in such Loan in accordance with the revised Percentages set forth above in this Section 1.6. Section 2. Amendments to Collateral Documents. ---------------------------------- The parties agree that, as of the Second Amendment Effective Date, the Company Deeds of Trust and the Company Mortgages shall be amended or supplemented as set forth in Exhibits B and C hereto, respectively. Section 3. Conditions to Effectiveness. ---------------------------- This Amendment shall become effective as of the date hereof (the "Second Amendment Effective Date") only when the ------------------------------- following conditions shall have been met and notice thereof shall have been given by the Agent to the Parent Guarantor, the Company, the Agent and each Lender: A. The Agent shall have received for each Lender counterparts hereof duly executed on behalf of the Parent Guarantor, the Company, the Agent and each of the Lenders (or notice of the approval of this Amendment by each of the Lenders satisfactory to the Agent shall have been received by the Agent), together with counterparts of amendments to the Company Deeds of Trust and the Company Mortgages duly executed on behalf of the Company and the Agent. B. The Agent shall have received: (1) Resolutions of the Board of Directors or of the Executive Committee of the Company and the Parent Guarantor approving and authorizing the execution, delivery and performance of this Amendment, certified by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment as of the date of execution hereof by the Company or the Parent Guarantor, as the case may be; (2) A signature and incumbency certificate of the officers of the Company and the Parent Guarantor executing this Amendment; (3) For each Lender an opinion, addressed to the Agent and each Secured Lender, from Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, in substantially the form of Exhibit A attached hereto, with such changes therein as shall be satisfactory to the Agent; (4) The Agent shall have received, on behalf of each Lender increasing its portion of the Revolving Commitment Amount, a fee in the amount of 1.00% multiplied by the amount of such increase; and (5) such other information approvals, opinions, documents, or instruments as the Agent may reasonably request. 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 and the other Loan Documents in the manner provided herein, the Parent Guarantor and the Company represent and warrant to each Lender and the Agent that, as of the Second 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 Indenture dated as of February 1, 1993, as amended by the First Supplemental Indenture dated May 1, 1993, between the Company, and Kaiser Finance Corporation, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc. and Kaiser Jamaica Corporation, as Subsidiary Guarantors, and The First National Bank of Boston, as Trustee, or the Indenture dated as of February 17, 1994, between the Company, and Kaiser Finance Corporation, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc. and Kaiser Jamaica Corporation, as Subsidiary Guarantors, and First Trust National Association, as Trustee, 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. ------------- F. Real Property. As of the date hereof, (1) the ------------- Liens on the Collateral constituting Real Estate (as defined in the Company Deeds of Trust and the Company Mortgages) are valid, prior and perfected, subject only to the exceptions listed in Exhibits B to the Company Deeds of Trust and the Company Mortgages and in clauses (e) and (f) of Section 9.2.3 of the ------------- Credit Agreement and (2) there are no Liens securing Indebtedness for borrowed money (other than those in favor of the Agent) on the Collateral constituting Real Estate (as defined in the Company Deeds of Trust and the Company Mortgages). Section 5. Acknowledgement and Consent. --------------------------- The Company is a party to the Company Collateral Documents, in each case as amended through the Second Amendment Effective Date, 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 Second Amendment Effective Date, 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 Second Amendment Effective Date, 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 and the amendment of the other Loan Documents effected as of the date hereof. 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 Second Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (2) Except as specifically amended by this Amendment and the amendments to the other Loan Documents executed as of the date hereof, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. B. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO -------------- BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO CONFLICTS OF LAWS. C. Headings. The various headings of this Amendment -------- are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provision hereof. D. Counterparts. This Amendment may be executed by ------------ the parties hereto in several counterparts and by the different parties on separate counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. E. Severability. Any provision of this Amendment ------------ which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or affecting the validity or enforceability of such provisions in any other jurisdiction. F. Approval of Amendments to Loan Documents. Each of ---------------------------------------- the Lenders hereby approves the forms of the amendments attached as Exhibits to this Amendment and hereby authorizes the Agent on its behalf to accept from the Company and the other Obligors, as the case may be, and authorizes the Agent to execute and deliver as Agent, the amendments to the Collateral Documents in substantially the form of such Exhibits, with such changes, additions or deletions as the Agent, in its sole and absolute discretion, may approve. 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: _______________________ By:________________________ Name: K.S. Vasan Name: K.S. Vasan Its: Treasurer Its: Treasurer BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS CREDIT, INC., as Agent INC. By: _______________________ By:________________________ Name: Michael J. Jasaitis Name: Michael J. Jasaitis Its: Vice President Its: Vice President BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS CREDIT, AND SAVINGS ASSOCIATION INC. By: _______________________ By:________________________ Name Printed:______________ Name Printed:______________ Its:_______________________ Its:_______________________ CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC. (WESTERN) By: _______________________ By:________________________ Name Printed:______________ Name Printed:______________ Its:_______________________ Its:_______________________ LA SALLE NATIONAL BANK NATIONAL WESTMINSTER BANK PLC By: _______________________ By:________________________ Name Printed:______________ Name Printed:______________ Its:_______________________ Its:_______________________ TRANSAMERICA BUSINESS CREDIT ABN AMRO BANK N.V. CORPORATION By: _______________________ By:________________________ Name Printed:______________ Name Printed:______________ Its:_______________________ Its:_______________________ S - II ACKNOWLEDGED AND AGREED TO: AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL INVESTMENT, INC. By: _______________________ By:________________________ Name: K.S. Vasan Name: K.S. Vasan Its: Treasurer Its: Treasurer KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL INC. SERVICES, INC. By: _______________________ By:________________________ Name: K.S. Vasan Name: K.S. Vasan Its: Treasurer Its: Treasurer OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM INTERNATIONAL, INC. By: _______________________ By:________________________ Name: K.S. Vasan Name: K.S. Vasan Its: Treasurer Its: Treasurer KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION CORPORATION By: _______________________ By:________________________ Name: K.S. Vasan Name: K.S. Vasan Its: Treasurer Its: Treasurer ALPART JAMAICA INC. KAISER JAMAICA CORPORATION By: _______________________ By:________________________ Name: K.S. Vasan Name: K.S. Vasan Its: Treasurer Its: Treasurer KAISER BAUXITE COMPANY KAISER EXPORT COMPANY By: _______________________ By:________________________ Name: K.S. Vasan Name: K.S. Vasan Its: Treasurer Its: Treasurer S - III EXHIBIT A March 10, 1995 BankAmerica Business Credit, Inc., as Agent Two North Lake Avenue, Suite 400 Pasadena, California 91101 and The Lenders Listed on Schedule A Hereto Re: Second Amendment to Credit Agreement (the "Second Amendment"), dated as of March 10, 1995, among Kaiser Aluminum & Chemical Corporation, Kaiser Aluminum Corporation, certain financial institutions, and BankAmerica Business Credit, Inc., as Agent ----------------------------------------------------- Ladies and Gentlemen: We have acted as special counsel to Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), and Kaiser Aluminum Corporation, a Delaware corporation (the "Parent Guarantor"), in connection with the Second Amendment. Capitalized terms used but not defined herein have the meanings assigned thereto in the Credit Agreement, as amended by the Second Amendment. As used herein, "Credit Agreement" has the meaning ascribed thereto in the first recital of the Second Amendment. In rendering the opinion set forth herein, we have reviewed the Credit Agreement and the Second Amendment, and have examined originals or copies, certified, or otherwise identified to our satisfaction, of (a) the Certificate of Incorporation and By-laws of the Company and the Parent Guarantor as in effect on the date hereof, and (b) such other documents, records, certificates and instruments (collectively, "Documents") as in our judgment are necessary or appropriate as the basis for the opinion expressed below. In our examination we have assumed the genuineness of all signatures, the authenticity of all Documents submitted to us as originals, the conformity to original documents of all Documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such copies. As to any facts material to this opinion which we did not independently establish or verify, we have relied upon statements and representations of officers and other representatives of the Company and the Parent Guarantor and certificates of public officials. We also have assumed (i) the valid authorization, execution, and delivery of the Second Amendment by the parties thereto (other than the Company and the Parent Guarantor), (ii) that each such other party has been duly organized and is validly BankAmerica Business Credit, Inc., March __, 1995 Agent Page 2 and The Lenders Listed on Schedule A Hereto existing and in good standing under the laws of the jurisdiction of its organization with the corporate or other organizational power to perform its obligations thereunder, and (iii) that the Second Amendment constitutes the legal, valid and binding obligation of each such other party enforceable against each such other party in accordance with its terms (subject to qualifications and limitations similar to those set forth in clauses (a) and (b) on pages __ and __ of this opinion). Based upon the foregoing, and subject to the qualifications set forth herein, we are of the opinion that: 1. The execution, delivery, and performance by each of the Company and the Parent Guarantor of the Second Amendment, and the performance by the Company and the Parent Guarantor of the Credit Agreement as amended by the Second Amendment, are within their respective corporate powers, have been duly authorized by all necessary corporation action on the part of the Company and the Parent Guarantor, and do not: (a) violate the Organic Documents of the Company or the Parent Guarantor; or (b) violate any court decree or order of any governmental authority which, after our due inquiry, has been specifically disclosed to us by the Company or the Parent Guarantor. 2. The Second Amendment has been duly executed and delivered by each of the Company and the Parent Guarantor. 3. The Second Amendment constitutes the legal, valid, and binding obligation of each of the Company and the Parent Guarantor enforceable against each of the Company and the Parent Guarantor in accordance with its terms. The opinion set forth in paragraph 3 above is subject to the following qualifications and limitations and the other opinions set forth above are subject to the following qualifications and limitations, other than those set forth in clauses (a), (b) and (c) below: BankAmerica Business Credit, Inc., March __, 1995 Agent Page 3 and The Lenders Listed on Schedule A Hereto (a) The enforceability of the Second Amendment may be subject to or limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance or transfer, moratorium, or other laws and court decisions now or hereafter in effect relating to or affecting the rights of creditors generally; (b) The enforceability of the Second Amendment is subject to the application of and may be limited by general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). Such principles of equity are of general application and in applying such principles a court, among other things, might not allow a creditor to accelerate the maturity of a debt under certain circumstances, including, without limitation, upon the occurrence of a default deemed immaterial or might decline to order an obligor to perform covenants. Such principles applied by a court might include a requirement that a creditor act with reasonableness and in good faith. Thus, we express no opinion as to the validity or enforceability of (i) provisions restricting access to legal or equitable remedies, such as the specific performance of executory covenants, (ii) provisions that purport to establish evidentiary standards, (iii) provisions relating to waivers, severability, indemnity, submissions to jurisdiction, set off, delay or omission of enforcement of rights or remedies, and (iv) provisions purporting to convey rights to persons other than parties to the Credit Agreement. In addition, we express no opinion as to the enforceability of any provision purporting to provide indemnification or contribution relating to matters arising under Federal or State securities laws; (c) The remedy of specific performance and injunctive and other forms of equitable relief are subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; (d) We have not been requested to render, and with your permission we do not express, any opinion as to the applicability to any Loan Document or security interests of Section 548 of the Federal Bankruptcy code, Article 10 of the New York Debtor & Creditor Law, or any other fraudulent conveyance, insolvency or transfer laws or any court decisions with respect to any of the foregoing; BankAmerica Business Credit, Inc., March __, 1995 Agent Page 4 and The Lenders Listed on Schedule A Hereto (e) Our opinion expressed herein is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware, and the Federal laws of the United States of America, and we do not express any opinion herein concerning any other laws. We express no opinion as to the effects (if any) of any laws of any jurisdiction (except the State of New York) in which any Lender is located which limits the rate of interest that such Lender may charge or collect. The opinion expressed herein is based upon the laws in effect on the date hereof, and we assume no obligation to review or supplement this opinion should any such law be changed by legislative action, judicial decision or otherwise. Ezra G. Levin, a partner of our firm, is a director of the Company and the Parent Guarantor. This opinion is being furnished only to the addressees named above pursuant to Section 3.B.(3) of the Second Amendment and is solely for the benefit of such Persons in connection with the execution, delivery and effectiveness of the Second Amendment. Accordingly, this opinion may not be used, quoted, or relied upon by any other person or entity or for any other purpose without, in each instance, our express prior written consent. Very truly yours, SCHEDULE A BankAmerica Business Credit, Inc. Bank of America National Trust and Savings Association The CIT Group/Business Credit, Inc. Congress Financial Corporation (Western) Heller Financial, Inc. La Salle National Bank National Westminster Bank PLC Transamerica Business Credit Corporation ABN Amro N.V. EXHIBIT B FORM OF SECOND AMENDMENT TO DEED OF TRUST RECORDING REQUESTED BY: AND WHEN RECORDED MAIL TO: O'Melveny & Myers 275 Battery Street, 26th Floor San Francisco, California 94111-3305 Attn: Jill H. Matichak, Esq. (File No. 019,368-663) ----------------------------------------------------------------- SECOND AMENDMENT TO DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT THIS SECOND AMENDMENT TO DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "Second Amendment") is made as of March --, 1995 by and between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation ("Grantor"), whose address is 6177 Sunol Drive, Pleasanton, California 94566, and BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), as agent for the Secured Lenders (as defined in the Credit Agreement referred to below), having an office at Two North Lake Avenue, Suite 400, Pasadena, California 91101 (BABC, in its capacity as agent for the Secured Lenders, shall be referred to hereinafter as "Beneficiary"). R E C I T A L S : A. Pursuant to that certain Credit Agreement dated as of February 15, 1994, as amended by the First Amendment to Credit Agreement dated as of July 21, 1994 (as so amended, the "Credit Agreement") between Grantor, Kaiser Aluminum Corporation, a Delaware corporation ("Parent Guarantor"), BABC and various other financial institutions named therein (which financial institutions, together with BABC in its capacity as lender, shall be referred to hereinafter collectively as "Bank Lenders") and Beneficiary, Bank Lenders agreed to make certain revolving loans and other financial commitments to Grantor (the "Loans"). Except as otherwise provided in this Second Amendment, all initially capitalized terms used herein without definition shall have the same meaning as in the Credit Agreement, as amended. B. The Loans are secured by, among other things, that certain Deed of Trust with Power of Sale, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement dated as of February 15, 1994, executed by Grantor, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of Beneficiary as agent of Bank Lenders, as beneficiary, and recorded on February --, 1994 in the Official Records of ---- County, ---- as Instrument No(s). ---- (the "Original Deed of Trust"), as amended by the First Amendment to Deed of Trust with Power of Sale, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement (the "First Amendment") dated as of July 21, 1994 and recorded on August --, 1994 in the Official Records of ---- County, ---- as Instrument No(s). ---- (as so amended, the "Deed of Trust"). C. The Deed of Trust encumbers that certain real property located in ------- County, --------- as more particularly described in Exhibit A, attached hereto, and by this reference incorporated herein. --------- D. Concurrently herewith, Grantor, Parent Guarantor and Bank Lenders have agreed to amend the Credit Agreement to, among other things, increase the maximum aggregate principal amount of the Loans by Fifty Million Dollars ($50,000,000) and provide that Grantor's obligations thereunder shall be secured by the Deed of Trust, all as set forth in that certain Second Amendment to Credit Agreement dated of even date herewith by and between Grantor, Parent Guarantor, Lenders and Beneficiary (the "Second Credit Agreement Amendment"). E. Grantor and Beneficiary desire to amend the Deed of Trust to reflect and evidence the amendments and modifications set forth in the Second Credit Agreement Amendment. NOW, THEREFORE, with reference to the foregoing Recitals and for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor and Beneficiary further agree as follows: 1. Grantor's obligations evidenced by the Credit Agreement, as amended by the Second Credit Agreement Amendment, shall continue to be secured by the Deed of Trust. Except as amended by this Second Amendment, the Deed of Trust shall remain unmodified and in full force and effect. The parties hereto hereby ratify and confirm the Deed of Trust as amended hereby. 2. It is the intent of each of the parties hereto that the Original Deed of Trust, as modified and amended by the First Amendment and this Second Amendment, shall have and retain the priority established at the time of the recordation of the Original Deed of Trust on February --, 1994 (the "Original Recording Date"). To the extent that any court of law or equity 2 determines that the priority of this Second Amendment may not relate back to the Original Recording Date, then (i) this Second Amendment shall be bifurcated from the Deed of Trust such that the obligations of Grantor with respect to the $50,000,000 increase in the maximum amount of the Loans, as more particularly set forth in the Second Credit Agreement Amendment and secured by this Second Amendment, shall have such priority as is established at the time of recordation of this Second Amendment in the Official Records of ---- County, ----, and (ii) the Deed of Trust, as unamended by this Second Amendment, shall continue to secure the obligations of Grantor under the Credit Agreement, as unamended by the Second Credit Agreement Amendment, and the other Secured Obligations set forth in the Deed of Trust, and shall continue to have the priority described in paragraph 2 of the First Amendment. In no event shall this Second Amendment destroy, impair or otherwise affect such priority of the Deed of Trust. 3. This Second Amendment shall be governed by and construed in accordance with the laws in the State of ---- without giving effect to the conflict of law principles of said State. 4. This Second Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon and attached to any other counterpart identical thereto except having additional signature pages attached to it. 5. In the event of any inconsistencies between the provisions of this Second Amendment and the provisions of the Deed of Trust, the provisions of this Second Amendment shall govern and prevail. 6. The relationship of Grantor and Beneficiary with respect to the Loans and the matters set forth herein is that of creditor and debtor respectively and by virtue of entering into the Second Credit Agreement Amendment and performing their respective obligations thereunder, Grantor and Beneficiary do not intend to form a partnership or joint venture or any other relationship other than that of creditor and debtor respectively. 3 IN WITNESS WHEREOF, the duly authorized representatives of Grantor and Beneficiary have executed this Second Amendment as of the date first above written. "GRANTOR" KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation By: ____________________________ Name: K.S. Vasan Its: Treasurer "BENEFICIARY" BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation By: ____________________________ Name: Michael J. Jasaitis Its: Vice President 4 ACKNOWLEDGEMENTS STATE OF ___________________ ) ) COUNTY OF __________________ ) On March__, 1995, before me, _____________________, a Notary Public in and for said State, personally appeared ________________________________________________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature ________________________________ (Seal) STATE OF ___________________ ) ) COUNTY OF __________________ ) On March__, 1995, before me, _____________________, a Notary Public in and for said State, personally appeared ________________________________________________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature ________________________________ (Seal) EXHIBIT A ---------- LEGAL DESCRIPTION OF PROPERTY EXHIBIT C FORM OF SECOND AMENDMENT TO MORTGAGE RECORDING REQUESTED BY: AND WHEN RECORDED MAIL TO: O'Melveny & Myers 275 Battery Street, 26th Floor San Francisco, California 94111-3305 Attn: Jill H. Matichak, Esq. (File No. 019,368-663) ----------------------------------------------------------------- SECOND AMENDMENT TO MORTGAGE WITH POWER OF SALE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT THIS SECOND AMENDMENT TO MORTGAGE WITH POWER OF SALE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "Second Amendment") is made as of March --, 1995 by and between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation ("Mortgagor"), whose address is 6177 Sunol Drive, Pleasanton, California 94566, and BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), as agent for the Secured Lenders (as defined in the Credit Agreement referred to below), having an office at Two North Lake Avenue, Suite 400, Pasadena, California 91101 (BABC, in its capacity as agent for the Secured Lenders, shall be referred to hereinafter as "Mortgagee"). R E C I T A L S : A. Pursuant to that certain Credit Agreement dated as of February 15, 1994, as amended by the First Amendment to Credit Agreement, dated as of July 21, 1994 (as so amended, the "Credit Agreement") between Mortgagor, Kaiser Aluminum Corporation, a Delaware corporation ("Parent Guarantor"), BABC and various other financial institutions named therein (which financial institutions, together with BABC in its capacity as lender, shall be referred to hereinafter collectively as "Bank Lenders") and Mortgagee, Bank Lenders agreed to make certain revolving loans and other financial commitments to Mortgagor (the "Loans"). Except as otherwise provided in this Second Amendment, all initially capitalized terms used herein without definition shall have the same meaning as in the Credit Agreement, as amended. B. The Loans are secured by, among other things, that certain Mortgage with Power of Sale, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement dated as of February 15, 1994, executed by Mortgagor, as mortgagor, to Mortgagee as agent of Bank Lenders, as mortgagee, and recorded on February --, 1994 with the Recorder of Deeds, ---- County, ---- in Book , Page --- (the "Original Mortgage"), as amended by the First Amendment to Mortgage with Power of Sale, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement (the "First Amendment") dated as of July 21, 1994 and recorded on August --, 1994 with the Recorder of Deeds, ---- County, ----- in Book ----, Page ---- (as so amended, the "Mortgage"). C. The Mortgage encumbers that certain real property located in ----County, ----- as more particularly described in Exhibit A, --------- attached hereto, and by this reference incorporated herein. D. Concurrently herewith, Mortgagor, Parent Guarantor and Bank Lenders have agreed to amend the Credit Agreement to, among other things, increase the maximum aggregate principal amount of the Loans by Fifty Million Dollars ($50,000,000) and provide that Mortgagor's obligations thereunder shall be secured by the Mortgage, all as set forth in that certain Second Amendment to Credit Agreement dated of even date herewith by and between Mortgagor, Parent Guarantor, Lenders and Mortgagee (the "Second Credit Agreement Amendment"). E. Mortgagor and Mortgagee desire to amend the Mortgage to reflect and evidence the amendments and modifications set forth in the Second Credit Agreement Amendment. NOW, THEREFORE, with reference to the foregoing Recitals and for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mortgagor and Mortgagee further agree as follows: 1. Mortgagor's obligations evidenced by the Credit Agreement, as amended by the Second Credit Agreement Amendment, shall continue to be secured by the Mortgage. Except as amended by this Second Amendment, the Mortgage shall remain unmodified and in full force and effect. The parties hereto hereby ratify and confirm the Mortgage as amended hereby. 2. It is the intent of each of the parties hereto that the Original Mortgage, as modified and amended by the First Amendment and this Second Amendment, shall have and retain the priority established at the time of the recordation of the Original Mortgage on February -- , 1994 (the "Original Recording Date"). To the extent that any court of law or equity determines that the priority of this Second Amendment may not relate back to 2 the Original Recording Date, then (i) this Second Amendment shall be bifurcated from the Mortgage such that the obligations of Mortgagor with respect to the $50,000,000 increase in the maximum amount of the Loans, as more particularly set forth in the Second Credit Agreement Amendment and secured by this Second Amendment, shall have such priority as is established at the time of recordation of this Second Amendment in the Official Records of ---- County, ----, and (ii) the Mortgage, as unamended by this Second Amendment, shall continue to secure the obligations of Mortgagor under the Credit Agreement, as unamended by the Second Credit Agreement Amendment, and the other Secured Obligations set forth in the Mortgage, and shall continue to have the priority described in paragraph 2 of the First Amendment. In no event shall this Second Amendment destroy, impair or otherwise affect such priority of the Mortgage. 3. This Second Amendment shall be governed by and construed in accordance with the laws in the State of ---- without giving effect to the conflict of law principles of said State. 4. This Second Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon and attached to any other counterpart identical thereto except having additional signature pages attached to it. 5. In the event of any inconsistencies between the provisions of this Second Amendment and the provisions of the Mortgage, the provisions of this Second Amendment shall govern and prevail. 6. The relationship of Mortgagor and Mortgagee with respect to the Loans and the matters set forth herein is that of creditor and debtor respectively and by virtue of entering into the Second Credit Agreement Amendment and performing their respective obligations thereunder, Mortgagor and Mortgagee do not intend to form a partnership or joint venture or any other relationship other than that of creditor and debtor respectively. 3 IN WITNESS WHEREOF, the duly authorized representatives of Mortgagor and Mortgagee have executed this Second Amendment as of the date first above written. "MORTGAGOR" KAISER ALUMINUM & CHEMICAL CORPORATION, Attested By: a Delaware corporation ______________________ By: ____________________________ Name:_________________ Title:________________ Name: K.S. Vasan Its: Treasurer [corporate seal] "MORTGAGEE" BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation By: ____________________________ Name: Michael J. Jasaitis Its: Vice President 4 ACKNOWLEDGEMENTS STATE OF ___________________ ) ) COUNTY OF __________________ ) On March ____, 1995, before me, _____________________, a Notary Public in and for said State, personally appeared ________________________________________________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature ________________________________ (Seal) STATE OF ___________________ ) ) COUNTY OF __________________ ) On March ____, 1995, before me, _____________________, a Notary Public in and for said State, personally appeared ________________________________________________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature ________________________________ (Seal) EXHIBIT A ---------- LEGAL DESCRIPTION OF PROPERTY EX-4.10 3 SENIOR SUBORDINATED INTERCOMPANY NOTE December 15, 1992 FOR VALUE RECEIVED, the undersigned, Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of KLU Holdings, Inc., a Delaware corporation (the "Payee"), the principal sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000.00), with interest thereon, which shall be due and payable as hereinafter provided. 1. This Note shall bear interest, compounded semiannually (computed on the basis of a 360-day year of twelve 30-day months), on the unpaid principal amount outstanding hereunder plus all accrued and unpaid interest thereon, from the date this Note is issued (the "Issuance Date"), until such principal amount is repaid in full, at a rate equal to twelve percent (12%) per annum or, if New Subordinated Notes (as such term is defined in the Credit Agreement (as hereinafter defined) shall be issued on or prior to December 31, 1992, the stated interest rate per annum on such New Subordinated Notes. 2. Subject to Section 5 hereon, (a) no payment of principal or interest shall be required to be made on this Note prior to June 30, 1995, and (b) the entire unpaid principal amount of this Note, together with accrued interest thereon, shall be due and payable on June 30, 1995. 3. The Company shall make each payment hereunder not later than 5:00 p.m. (New York City time) on the day when due in lawful money of the United States of America to the holder of this Note by delivery of a certified or bank cashier's check in the amount of such payment or, at such holder's option, by wire transfer of immediately available funds. 4. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or a public or bank holiday or the equivalent for banks generally under the laws of the State of New York (any other day being a "Business Day"), such payment may be made on the next succeeding Business Day. 5. The Company shall have the right to prepay the principal amount of, and/or interest on, this Note, in whole or in part, at any time or from time to time, without -1- premium or penalty, but with interest on the portion of the principal amount or interest so prepaid accrued to the date of prepayment. This Note is one of the notes (the "PIK Notes") issued pursuant to the requirements of Section 10.1.18 of the Credit Agreement dated as of December 13, 1989 between Kaiser Aluminum Corporation (formerly named KaiserTech Limited), the Company, certain financial institutions, Bank of America National Trust and Savings Association, as agent, and Mellon Bank, N.A., as collateral agent, as the same has been, or may hereafter be, amended, supplemented, restated, or otherwise modified from time to time (the "Credit Agreement"). The Company shall, on demand, prepay the principal of, and/or accrued interest on, the PIK Notes, without premium or penalty, but with interest on the principal amount or interest so prepaid, when, as and to the extent that such prepayment is not prohibited by the Credit Agreement. 6. In the case one or more of the following events of default shall have occurred and be continuing: (a) the Company fails to pay any installment of principal of, or interest on, any PIK Note when due; or (b) a court having jurisdiction in the premises shall have entered a decree or order for relief against the Company in an involuntary case under any applicable bankruptcy, insolvency of other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall have remained unstayed and in effect for a period of ninety consecutive days; or (c) the Company shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in an involuntary case under any such law, or shall have consented to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or shall have made an assignment for the benefit of creditors, or shall have taken any corporate action in furtherance of any of the foregoing; -2- (d) then, in the case of an event specified in clause (a), unless the principal of this Note shall have already become due and payable, the holder of this Note by notice to the Company in writing may at its option declare the principal amount and accrued interest to the date of declaration of this Note to be due and payable immediately. Upon any such declaration, the same shall become and shall be immediately due and payable, provided that any payment pursuant to such acceleration shall be subject to Section 7(g) of this Note. If an event specified in clause (b) or (c) above occurs, such amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the holder, but subject to Section 7(g) of this Note. 7. (a) The Company, for itself, its successors and assigns, covenants and agrees, and the Payee (and each other holder of this Note), by its acceptance thereof, likewise covenants and agrees, for the benefit of all present and future holders of Senior Indebtedness of the Company (as defined in Section 7(h) of this Note), that all direct or indirect payments or distributions on or with respect to this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including, without limitation, by way of or on account of a "Claim" (as defined hereinbelow) or the payment of the principal of and interest on this Note, in hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full in cash or cash equivalents of all Senior Indebtedness of the Company. (b) Upon any direct or indirect payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, upon any dissolution, winding up, liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, reorganization, receivership or other proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Company or otherwise, (i) the holders of all Senior Indebtedness of the Company shall be entitled to receive payment in full in cash or cash equivalents of such Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any such proceeding whether or not such interest is an allowable claim in such proceeding) before the holder of this Note shall be entitled to receive any direct or indirect payment with respect to this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of any claim against the Company for rescission of the issuance of this Note or for monetary damages from, or in connection with, the issuance of this -3- Note, or for reimbursement or contribution on account of such a claim (a "Claim"), or the payment of principal of or interest on this Note; and (ii) any direct or indirect payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Note would be entitled except for the provisions of this Section 7 shall be paid by the Company or by any liquidating trustee or agent or other person making such payment of distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness of the Company or their representative or representatives, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness of the Company held or represented by each, to the extent necessary to make payment in full in cash or cash equivalents of all Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any such proceeding whether or not such interest is an allowable claim in such proceeding) remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company; and (iii) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the holder of this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note, before all Senior Indebtedness of the Company is paid in full in cash or cash equivalents, such payment or distribution shall be received and held in trust for and paid over to the holders of such Senior Indebtedness of the Company or their representative or representatives, ratably as aforesaid, for application to the payment of all Senior Indebtedness of the Company remaining unpaid until all such Senior Indebtedness of the Company shall have been paid in full in cash or cash equivalents, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company. The consolidation of the Company with, or the merger of the Company into, another corporation or other entity or the liquidation or dissolution of the Company following the sale or conveyance of its property or assets as an entirety, or substantially as an entirety, to another corporation or other entity shall not be deemed a dissolution, winding up, liquidation or reorganization of the Company for the purposes of this Section 7 provided that such transaction does not violate the terms of the Credit Agreement. -4- Subject to the payment in full in cash or cash equivalents of all Senior Indebtedness of the Company, the holders of PIK Notes shall be subrogated (without any duty on the part of the holders of Senior Indebtedness of the Company to warrant, create, effectuate, preserve or protect such subrogation) to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property or securities of the Company applicable to Senior Indebtedness of the Company until the principal of and interest on the PIK Notes shall be paid in full and, for the purpose of such subrogation, no payments or distributions to the holders of Senior Indebtedness of the Company of cash, property or securities otherwise distributable to the holders of PIK Notes shall, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holders of PIK Notes, be deemed to be a payment by the Company to the holders of or on account of the Senior Indebtedness of the Company. It is understood that the provisions of this Section 7 (and of Section 7 of all other PIK Notes) are and are intended solely for the purpose of defining the relative rights of the holders of PIK Notes, on the one hand, and the holders of Senior Indebtedness of the Company, on the other hand. Nothing contained in this Section 7 or elsewhere in this Note is intended to or shall impair, as between. the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or to affect the relative rights of the holders of PIK Notes and creditors of the Company other than the holders of Senior Indebtedness of the Company, nor shall anything herein prevent the holder of this Note from exercising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, under this Section 7 of the holders of Senior Indebtedness of the Company in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Section 7, the holder of this Note shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature described in this Section are pending or upon a certificate of the liquidating trustee or agent or other person making any distribution to the holder of this Note for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness of the Company and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 7. -5- (c) No direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) shall be made if, at the time of such payment or distribution, such payment or distribution is prohibited by the Credit Agreement. In the event that, notwithstanding the foregoing, the Company shall make any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to the holder of this Note prohibited by the foregoing provisions of this Section 7(c) (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note), then and in any such event such payment or distribution shall, to the extent permitted by law, be received and held in trust for the benefit of and be paid over and delivered forthwith to the holders of the Senior Indebtedness of the Company or their representative or representatives. The provisions of this Section 7(c) shall not apply to any payment with respect to which Section 7(b) would be applicable. (d) Except as provided in clause (b) or (c) above, nothing contained in this Note shall affect the obligation of the Company to make, or prevent the Company from making, at any time, payments of principal or interest on this Note. (e) The holder of this Note shall take such action as may be necessary or appropriate to effectuate the subordination as provided in this Section 7, including, without limitation, in the event of any dissolution, winding up, liquidation or bankruptcy reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon a general assignment for the benefit of creditors or any other similar remedy or otherwise) tending towards liquidation of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of this Note in the form required in such proceedings and using its best efforts to cause such claim to be approved. If the holder of this Note does not file a proper claim or proof of debt in the form required in such proceedings prior to 30 days before the expiration of the time to file such claim or claims, the holders of Senior Indebtedness of the Company (or their representative or representatives) are hereby authorized to file an appropriate claim for and on behalf of the holder of this Note. Nothing herein shall be deemed to authorize the holders of Senior Indebtedness of the Company to authorize or consent to or accept or adopt on behalf of -6- the holder of this Note any plan of reorganization, arrangement, adjustment or composition affecting this Note or the rights of the holder of this Note, or to authorize the holders of Senior Indebtedness of the Company to vote in respect of the claim of the holder of this Note in any such proceeding. (f) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Note, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The holders of Senior Indebtedness of the Company may at any time and from time to time, without the consent of or notice to the holder of this Note, without incurring responsibility to the holder of this Note and without impairing or releasing or otherwise affecting the rights of any holder of Senior Indebtedness of the Company or the respective liabilities or obligations of the Company or the holder this Note or in any way altering or affecting any of the provisions of this Section 7: (1) change the amount, manner, place or terms of payment or change or extend the time of payment of or renew, refinance, modify, alter or restructure the terms of the Senior Indebtedness of the Company or any document or instrument evidencing or governing such Senior Indebtedness of the Company in any manner or enter into or amend in any manner any other agreement relating to Senior Indebtedness of the Company or any security therefor; (2) sell, exchange, release or otherwise deal with any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, Senior Indebtedness of the Company and otherwise deal freely with the Company; (3) release anyone (including any guarantor) liable in any manner for the payment or collection of Senior Indebtedness of the Company; (4) exercise or refrain from exercising any rights against the Company and others (including any guarantor, including releasing, selling or exchanging any security); -7- (5) apply any sums by whomsoever paid or however realized to the Senior Indebtedness of the Company; or (6) take any other action which otherwise might be deemed to impair the rights of the holder of this Note. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liabilities or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Indebtedness of the Company is outstanding or of such Senior Indebtedness of the Company, whether or not in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Section 7. As long as the Credit Agreement is in effect, no amendment to, or any waiver of the provisions of, this Section 7 which adversely affects the rights of the holders of Senior Indebtedness of the Company under this Section 7 shall be effective against the holders of Senior Indebtedness of the Company who have not consented thereto. (g) If payment of the Note is accelerated because of an event of defaultas provided in Section 6 of this Note, the Company shall promptly notify this Agent under the Credit Agreement of the acceleration. The Company may not pay the Note until five Business Days after the Agent under the Credit Agreement receives such notice (if any Senior Indebtedness of the Company remains outstanding) and thereafter may pay this Note only if this Note otherwise permits the payment at that time. (h) The term "Senior Indebtedness of the Company" shall mean all monetary obligations of the Company under the Credit Agreement, including all related notes, collateral documents, and guarantees, in each case, as any of the same has been or may be amended, supplemented, restated or otherwise modified from time to time (in each case in whole or in part). 8. All powers and remedies given to the holder of this Note shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the holder of this Note, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Note, and no delay or omission of the holder of this Note to exercise any right or power -8- accruing upon any default hereunder shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein. 9. This Note shall be binding upon the Company and its successors and assigns, and the terms and provisions of this Note shall inure to the benefit of Payee, the holders of Senior Indebtedness of the Company and their respective successors and assigns, including subsequent holders hereof. 10. The terms and provisions of this Note are severable, and if any term or provision shall be determined to be superseded, illegal, invalid or otherwise unenforceable in whole or in part pursuant to applicable law by a governmental authority having jurisdiction, such determination shall not in any manner impair or otherwise affect the validity, legality or enforce- ability of that term or provision in any other jurisdiction or any of the remaining terms and provisions of this Note in any jurisdiction. 11. Presentment for payment, notice of dishonor, protest, notice of protest and any other notice are hereby waived. This Note shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to principles of conflict of laws. 12. No amendment, modification or waiver of any term or provision of this Note, nor consent to any departure by the Company here from, shall be effective unless the same shall be in writing and signed by the holder of this Note, and then such waiver, modification or consent shall be effective only in the specific instance and for the specific purpose for which given. 13. Nothing in this Note, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto and the holders of Senior Indebtedness of the Company, any legal or equitable right, remedy or claim under or in respect of this Note, or under any covenant, condition or provision herein contained; all its covenants, conditions and provisions being for the sole benefit of the Company, the holder of this Note and the holders of Senior Indebtedness of the Company. IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered to the Payee on the date and year first above written. -9- KAISER ALUMINUM & CHEMICAL CORPORATION By: ___________________________ John T. La Duc Vice President and Chief Financial Officer -10- EX-10.17 4 January 1995 Charles E. Hurwitz 5847 San Felipe, Suite 2600 Houston, TX 77057 Dear Mr. Hurwitz: As a valued member of the Kaiser management team, you have been selected for a grant of stock options under the Kaiser 1993 Omnibus Stock Incentive Plan (the "Plan"). The Plan is designed to align key employees' and shareholders' objective, retain key employees, and offer competitive long-term compensation opportunities. This letter contains a brief summary description to help you better understand the details of the Plan. The summary description sets forth only the highlights, and is qualified in its entirety by the complete copy of the controlling Plan, a copy of which you may obtain upon request from the Corporate Secretary, at the address set forth below or by calling (713) 267-3670. On December 21, 1994, the Company's Compensation Committee granted to you, the right and option (not qualified as an Incentive Stock Option under the Internal Revenue Code) to purchase, on the terms and conditions set forth in the Plan 250,000 shares of KAC common stock, $.01 par value, at the exercise price of $12.75 per share, (20% above the closing price on the New York Stock Exchange on the date of the grant) exercisable from time to time in accordance with the provisions of the Plan. The above option will vest at the rate of 25% per year over the next 4 years, with the first 25% vesting on December 21, 1995. The grant shall expire and cease to be exercisable ten years from the date of grant, or on such earlier date as may be provided for by the terms of the Plan. This grant is subject to the Company's right to repurchase the option, in whole or in part, within ten days of your exercise of such option at a price equal to the difference between the exercise price and the closing price on the date of your exercise as reported by the New York Stock Exchange (or such other national exchange on which the KAC common stock may be listed). Each exercise of this option shall be by means of a written notice of the exercise (using the enclosed form) delivered to the Corporate Secretary, in Houston, at the address specified on the form. If the notice of exercise is received after 5:00 p.m. Houston time, the exercise will be deemed to have occurred on the next business day. The notice of exercise must specify the number of shares to be purchased and be accompanied by full payment in cash, or by certified or cashier's check, payable to the Company for the full exercise price of the shares to be purchased. Upon payment of the full purchase price, the Company will make a withholding for federal, state and local taxes. The withheld amount may not be sufficient for payment of taxes owed by you. Ordinary income is recognized by an optionee upon exercise of a non-qualified stock option (a right granted by employer to purchase stock at stipulated price over a specific period of time) in an amount equal to the difference between the market value of the shares of common stock acquired and the exercise price paid for them. All options terminate immediately upon termination of employment for cause. If employment terminates on account of death or disability, any of the options hereby granted which are exercisable at termination may be exercised until the earlier of the first anniversary of such termination date or its scheduled expiration date. Any option exercisable upon the holder's retirement may be exercised until the third anniversary of employment termination or its scheduled expiration date. On termination of employment in any circumstances not mentioned above, an option exercisable at termination may be exercised for three months thereafter, but not after its scheduled expiration date. The option shall become immediately exercisable on a change of control. A change of control shall be deemed to have occurred if at any time MAXXAM Inc. beneficially owns less than 50% (on a fully diluted basis) of the outstanding Common Stock of KAC. If the outstanding shares of the common stock of KAC are increased, decreased, changed into, or exchanged for a different number of kind of shares or securities of KAC as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, an appropriate and proportionate adjustment (to be conclusively determined by the "Compensation Committee" of the "Boards" of Directors of KAC and KACC) shall be made in the number and kind of securities allocated to this option without change in the total price applicable to the unexercised portion of this option, but with a corresponding adjustment in the price of each share or other unit of any security covered by this option. The Compensation Committee has sole discretion to determine which employees receive awards under the Plan and to establish the terms of each award (subject to the provisions of the Plan). The award or the option should be considered as an independent action and is not to be construed as repeatable or ongoing. The Compensation Committee also has authority to construe, interpret and implement the Plan, to make rules and otherwise administer the Plan, and its determination on any matter relating to the Plan is conclusive. The Boards may terminate, suspend or revise the Plan at any time, subject to stockholder approval for certain types of amendments. However, no amendment or other action by the Boards, including termination of the Plan, may adversely affect any outstanding award without consent of the recipient (or, if applicable, the recipient's heirs or estate). Also enclosed is a form of Beneficiary Designation to designate a beneficiary to receive shares of common stock of KAC, as well as any benefits under the Plan that may become payable on account of your death. If you wish to make or change a designation of your beneficiary under the Plan you should complete this form promptly and return it to Jim McKnight, Director Corporate Personnel, 6177 Sunol Boulevard, Pleasanton, CA 94566. In the absence of any such beneficiary designation by you, all death benefits under the Plan would be payable to your estate. We congratulate you on your selection to participate in this Plan. It indicates your importance to the performance of the Company. We would also like to thank you for your dedicated service and contribution to the past success of Kaiser, and we look forward to your continued contribution. If you have any questions regarding the Plan, please feel free to discuss them with Byron Wade in Houston or with Jim McKnight in Pleasanton. Please indicate your acceptance of this agreement by signing below and returning such signed copy to Byron Wade, 5847 San Felipe, Suite 2600, P.O. Box 572887, Houston, Texas 77257-2887. Sincerely, George T. Haymaker, Jr. Chairman of the Board and Chief Executive Officer I acknowledge and accept this award under the terms specified in this letter and the Plan. _______________________________ Employee's Signature _______________________________ Date EX-10.18 5 __________________ (date) _____________________________ _____________________________ _____________________________ Dear ___________: We are pleased to advise you that at a recent meeting of the Compensation Committee of the Board of Directors, such Committee consisting of identical members for Kaiser Aluminum Corporation ("KAC") and Kaiser Aluminum & Chemical Corporation ("KACC") (collectively, the "Company"), you were selected for a grant of stock options under the Kaiser 1993 Omnibus Stock Incentive Plan (the "Plan"). The Plan is designed to align key employees' and stockholders' objectives, retain key employees, and offer competitive long-term compensation opportunities. This letter is accompanied by a brief summary description to help you better understand the details of the Plan. The summary description sets forth only the highlights, and is qualified in its entirety by the complete copy of the controlling Plan, a copy of which you may also receive upon request from Byron Wade, at the address set forth below or by calling (713) 267-3670. The Company has granted to you on ______________, the right and option (not qualified as an Incentive Stock Option under the Internal Revenue Code) to purchase, on the terms and conditions set forth in the Plan, _________ shares of KAC common stock, $0.01 par value, at the exercise price of $___________ per share, the closing price on the New York Stock Exchange on ________________, the date of the Compensation Committee meeting, exercisable from time to time in accordance with the provisions of the Plan. The above option will vest at the rate of _____% per year over the next ___ years, with the first ____% vesting on _________. This grant is subject to the Company's right to repurchase the option, in whole or in part, within ten days of your exercise of such option at a price equal to the difference between the exercise price and the closing price on the date of your exercise as reported by the New York Stock Exchange (or such other national exchange on which the KAC common stock may be listed). Each exercise of this option shall be by means of a written notice of the exercise (using the enclosed form) delivered to Byron Wade, Corporate Secretary, in Houston, at the address specified on the form. If the notice of exercise is received after 5:00 p.m. Houston time, the exercise will be deemed to have occurred on the next business day. The notice of exercise must specify the number of shares to be purchased and be accompanied by full payment in cash, or by certified or cashier's check, payable to KAC for the full exercise price of the shares to be purchased. Upon payment of the full purchase price, the Company will make a withholding for federal, state and local taxes. The withheld amount may not be sufficient for payment of taxes owned by you. There will be future communications with you on how the mechanics of withholding the required taxes at the time of exercise will be handled. You, of course, are responsible for any taxes incurred as a result of the options granted to you or their exercise. Ordinary income is recognized by an optionee upon exercise of a non-qualified stock option (a right granted by employer to purchase stock at stipulated price over a specific period of time) in an amount equal to the difference between the market value of the shares of common stock acquired and the exercise price paid for them. All options terminate immediately upon termination of employment for cause. If employment terminates on account of death or disability, any of the option hereby granted which is exercisable at termination may be exercised until the earlier of the first anniversary of such termination date or its scheduled expiration date. Any option exercisable upon the holder's retirement may be exercised until the third anniversary of employment termination or its scheduled expiration date. On termination of employment in any circumstances not mentioned above, an option exercisable at termination may be exercised for three months thereafter, but not after its scheduled expiration date. If the outstanding shares of the common stock of KAC are increased, decreased, changed into or exchanged for a different number of kind of shares of securities of KAC as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, an appropriate and proportionate adjustment (to be conclusively determined by the "Compensation Committee" of the "Boards" of Directors of KAC and KACC) shall be made in the number and kind of securities allocated to this option without change in the total price applicable to the unexercised portion of this option, but with a corresponding adjustment in the price for each share or other unit of any security covered by this option. The Compensation Committee has sole discretion to determine which employees receive awards under the Plan and to establish the terms of each award (subject to the provisions of the Plan). The award of the option should be considered as an independent action and is not to be construed as repeatable or ongoing. The Compensation Committee also has authority to construe, interpret and implement the Plan, to make rules and otherwise administer the Plan, and its determination on any matter relating to the Plan conclusive. The Boards may terminate, suspend or revise the Plan at any time, subject to stockholder approval for certain types of amendments. However, no amendment or other action by the Boards, including termination of the Plan, may adversely affect any outstanding award without consent of the recipient (or, if applicable, the recipient's heirs or estate). Also enclosed is a form of Beneficiary Designation to designate a beneficiary to receive shares of common stock of KAC, as well as any benefits under the Plan that may become payable on account of your death. If you wish to make or change a designation of your beneficiary under the Plan you should complete this form promptly and return it to Jim McKnight, Director Corporate Personnel, 6177 Sunol Boulevard, Pleasanton, CA 94566. In the absence of any such beneficiary designation by you, all death benefits under the Plan would be payable to your estate. We congratulate you on your selection to participate in this Plan. It indicates your importance to the performance of the Company. We would also like to thank you for your dedicated service and contribution to the past success of the Company, and we look forward to your continued contribution. If you have any questions regarding the Plan, please feel free to discuss them with Byron Wade in Houston or with Jim McKnight in Pleasanton. Please indicate your acceptance of this agreement by signing below and returning such signed copy to Byron Wade, 5847 San Felipe, Suite 2600, P. O. Box 572887, Houston, Texas 77257-2887. Sincerely, George T. Haymaker, Jr. Chairman of the Board & Chief Executive Officer I acknowledge and accept this award under the terms specified in this letter and the Plan. ______________________________ Employee's Signature ______________________________ Date EX-13 6 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Kaiser Aluminum Corporation ("Kaiser" or the "Company"), through its wholly owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"), operates in two business segments: bauxite and alumina, and aluminum processing. Intracompany shipments and sales are excluded from the information set forth below. The following should be read in conjunction with the Company's consolidated financial statements and the notes thereto, contained elsewhere herein.
Year Ended December 31, ------------------------------ (In millions of dollars, except shipments and prices) 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Shipments: (000 tons) Alumina 2,086.7 1,997.5 2,001.3 Aluminum processing: Primary aluminum 224.0 242.5 355.4 Fabricated aluminum products 399.0 373.2 343.6 -------- -------- -------- Total aluminum products 623.0 615.7 699.0 ======== ======== ======== Average realized sales price: Alumina (per ton) $ 169 $ 169 $ 195 Primary aluminum (per pound) .59 .56 .66 Net sales: Bauxite and alumina: Alumina $ 352.8 $ 338.2 $ 390.8 Other 79.7 85.2 75.7 -------- -------- -------- Total bauxite and alumina 432.5 423.4 466.5 -------- -------- -------- Aluminum processing: Primary aluminum 292.0 301.7 515.0 Fabricated aluminum products 1,043.0 981.4 913.7 Other 14.0 12.6 13.9 -------- -------- -------- Total aluminum processing 1,349.0 1,295.7 1,442.6 -------- -------- -------- Total net sales $1,781.5 $1,719.1 $1,909.1 ======== ======== ======== Operating income (loss): Bauxite and alumina $ 19.8 $ (4.5) $ 62.6 Aluminum processing (8.4) (46.3) 104.9 Corporate (67.6) (72.6) (77.6) -------- -------- -------- Total operating income (loss) $ (56.2) $ (123.4) $ 89.9 ======== ======== ======== Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles $ (101.4) $ (123.1) $ 26.9 Extraordinary loss on early extinguishment of debt, net of tax benefit of $2.9 and $11.2 for 1994 and 1993, respectively (5.4) (21.8) Cumulative effect of changes in accounting principles, net of tax benefit of $237.7 (507.3) -------- -------- -------- Net income (loss) $ (106.8) $ (652.2) $ 26.9 ======== ======== ======== Capital expenditures $ 70.0 $ 67.7 $ 114.4 ======== ======== ======== All references to tons refer to metric tons of 2,204.6 pounds. Includes net sales of bauxite. Includes the portion of net sales attributable to minority interests in consolidated subsidiaries.
20 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Results of Operations ---------------------- The previous table provides selected operational and financial information on a consolidated basis with respect to the Company for the years ended December 31, 1994, 1993, and 1992. 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 facilities. Net Sales Bauxite and Alumina - Revenue from net sales of bauxite and alumina to third parties was $432.5 million in 1994, compared with $423.4 million in 1993 and $466.5 million in 1992. Revenue from alumina increased 4% to $352.8 million in 1994 from $338.2 million in 1993 because of increased shipments. Revenue from alumina decreased 13% to $338.2 million in 1993 from $390.8 million in 1992 because of lower average realized prices. The remainder of the segment's sales revenues were from sales of bauxite, which remained about the same throughout the three years, and the portion of sales of alumina attributable to the minority interest in Alumina Partners of Jamaica ("Alpart"). Aluminum Processing - Revenue from net sales to third parties for the aluminum processing segment was $1,349.0 million in 1994, compared with $1,295.7 million in 1993 and $1,442.6 million in 1992. The bulk of the segment's sales represents Kaiser's primary aluminum and fabricated aluminum products, with the remainder attributable to the portion of sales of primary aluminum related to the minority interest in Volta Aluminium Company Limited. Revenue from primary aluminum decreased 3% to $292.0 million in 1994 from $301.7 million in 1993 as higher average realized prices were more than offset by lower shipments. Average realized prices in 1994 reflected the defensive hedging of primary aluminum prices in respect of 1994 shipments, which was initiated prior to recent improvements in metal prices. In 1994, the Company's average realized price from sales of primary aluminum was approximately $.59 per pound, compared to the average Midwest United States transaction price of approximately $.72 per pound during the year. Shipments in 1994 reflected production curtailments at the Company's smelters in the Pacific Northwest and Ghana. Revenue from primary aluminum decreased 41% to $301.7 million in 1993 from $515.0 million in 1992 because of lower shipments and lower average realized prices. Shipments of primary aluminum to third parties were approximately 36% of total aluminum products shipments in 1994, compared with approximately 39% in 1993 and 51% in 1992. Revenue from fabricated aluminum products increased 6% to $1,043.0 million in 1994 from $981.4 million in 1993, principally due to increased shipments of most of these products. Revenue from fabricated aluminum products increased 7% to $981.4 million in 1993 from $913.7 million in 1992, principally due to increased shipments of most fabricated aluminum products, partially offset by a decrease in average realized prices of most of these products. Operating Income (Loss) The Company had an operating loss of $56.2 million in 1994, compared with a loss of $123.4 million in 1993 and income of $89.9 million in 1992. In 1993, the Company recorded a pre-tax charge of $35.8 million related to restructuring charges (see Note 2 of the Notes to Consolidated Financial Statements) and a pre-tax charge of $19.4 million ($29.0 million in 1992) because of a reduction in the carrying value of its inventories caused principally by prevailing lower prices for alumina, primary aluminum, and fabricated aluminum products. Bauxite and Alumina - This segment's operating income in 1994 was $19.8 million, compared with a loss of $4.5 million in 1993 and income of $62.6 million in 1992. In 1994 compared with 1993, operating income was favorably affected by increased shipments and lower manufacturing costs. In 1993 compared with 1992, operating income was adversely affected principally due to a decrease in average realized prices for alumina, which more than offset above-market prices for virtually all of the Company's excess alumina sold forward in prior periods under long-term contracts. 21 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Aluminum Processing - This segment's operating loss was $8.4 million in 1994, compared with $46.3 million in 1993 and income of $104.9 million in 1992. The decrease in operating loss in 1994 compared with 1993 was caused principally by the $35.8 million restructuring charges previously described, increased shipments of fabricated aluminum products and higher average realized prices of primary aluminum, partially offset by lower shipments of primary aluminum. The decrease in 1993 compared with 1992 was caused principally by reduced shipments and lower average realized prices of primary aluminum, which more than offset increased shipments of fabricated aluminum products. In 1993, KACC implemented a restructuring plan for its flat-rolled products operation at its Trentwood plant in response to overcapacity in the aluminum rolling industry, flat demand in U.S. can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which resulted in declining prices in Trentwood's key markets. Additionally, KACC implemented a plan to streamline its casting operations, which included the shutdown of two facilities located in Ohio. This entire restructuring is expected to be completed by the end of 1995 and will affect approximately 620 employees. The pre-tax charge for this restructuring of $35.8 million included $25.2 million for pension, severance, and other termination benefits at Trentwood; $8.0 million related to casting facilities; and $2.6 million for various other items. At December 31, 1994, Trentwood was ahead of its restructuring plan, which is expected to result in annual cost savings of at least $50.0 million after it has been fully implemented. Other contributing factors were lower production at the Company's smelters in the Pacific Northwest in 1993 as a result of the removal of three reduction potlines from production in January 1993 in response to the Bonneville Power Administration's (the "BPA") reduction during the first quarter of 1993 of the amount of power it normally provides to the Company, and the increased cost of substitute power in such quarter. In both 1993 and 1992, the Company realized above-market prices for significant quantities of primary aluminum sold forward in prior periods under long-term contracts. Corporate - Corporate operating expenses of $67.6 million, $72.6 million, and $77.6 million in 1994, 1993, and 1992, respectively, represented corporate general and administrative expenses that were not allocated to segments. Income (Loss) Before Extraordinary Loss and Cumulative Effect of Changes in Accounting Principles Loss before extraordinary loss and cumulative effect of changes in accounting principles was $101.4 million in 1994, compared with $123.1 million in 1993, as a result of the reduction in operating loss previously described, partially offset by a lower credit for income taxes. Loss before extraordinary loss and cumulative effect of changes in accounting principles was $123.1 million in 1993, compared with income of $26.9 million in 1992. This decrease resulted from the lower operating income previously described and $10.8 million of other pre- tax charges in 1993, principally related to establishing additional litigation and environmental reserves. Net Income (Loss) The Company reported a net loss of $106.8 million or $2.18 per common and common equivalent share in 1994, compared with $652.2 million or $11.47 per common and common equivalent share in 1993 and net income of $26.9 million or $.47 per common share in 1992. The principal reasons for reduced net loss in 1994 compared with 1993 were the reduction in the operating loss previously described and the cumulative effect of changes in accounting principles of $507.3 million related to adoption of Statement of Financial Accounting Standards No. 106, 109, and 112 (see Note 1 of the Notes to Consolidated Financial Statements). The principal reasons for the earnings decline in 1993 compared with 1992 were the cumulative effect of changes in accounting principles of $507.3 million (see above), the extraordinary loss on early extinguishment of debt of $21.8 million, and the operating losses described above. 22 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Financial Condition and Capital Spending --------------------------------------- Capital Structure On February 17, 1994, the Company and KACC entered into a credit agreement with BankAmerica Business Credit, Inc. (as agent for itself and other lenders), Bank of America National Trust and Savings Association, and certain other lenders (as amended, the "1994 Credit Agreement"). The 1994 Credit Agreement consists of a $275.0 million five-year secured, revolving line of credit, scheduled to mature in 1999, and replaced the credit agreement entered into in December 1989 by the Company and KACC with a syndicate of commercial banks and other financial institutions (as amended, the "1989 Credit Agreement"). KACC is able to borrow under the facility by means of revolving credit advances and letters of credit (up to $125.0 million) in an aggregate amount equal to the lesser of $275.0 million or a borrowing base relating to eligible accounts receivable plus eligible inventory. The Company recorded a pre-tax extraordinary loss of $8.3 million ($5.4 million after taxes) in the first quarter of 1994, consisting primarily of the write-off of unamortized deferred financing costs related to the 1989 Credit Agreement. As of February 17, 1995, $137.3 million (of which $59.3 million could have been used for letters of credit) was available to KACC under the 1994 Credit Agreement. The 1994 Credit Agreement is unconditionally guaranteed by the Company and by certain significant subsidiaries of KACC. Loans under the 1994 Credit Agreement bear interest at a rate per annum, at KACC's election, equal to a Reference Rate (as defined) plus 1-1/2% or LIBO Rate (Reserve Adjusted) (as defined) plus 3-1/4%. After June 30, 1995, the interest rate margins applicable to borrowings under the 1994 Credit Agreement may be reduced by up to 1-1/2% (non-cumulatively), based upon a financial test, determined quarterly. The 1994 Credit Agreement requires KACC to maintain certain financial covenants and places restrictions on the Company's and KACC's ability to, among other things, incur debt and liens, make investments, pay dividends, undertake transactions with affiliates, make capital expenditures, and enter into unrelated lines of business. The 1994 Credit Agreement is secured by, among other things, (i) mortgages on KACC's major domestic plants (excluding the Gramercy plant); (ii) subject to certain exceptions, liens on the accounts receivable, inventory, equipment, domestic patents and trademarks, and substantially all other personal property of KACC and certain of its subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser; and (iv) pledges of all of the stock of a number of KACC's wholly owned domestic subsidiaries, pledges of a portion of the stock of certain foreign subsidiaries, and pledges of a portion of the stock of certain partially owned foreign affiliates. In the first quarter of 1994, the Company consummated the public offering of 8,855,550 shares of its 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES"). The net proceeds from the sale of the shares of PRIDES were approximately $100.1 million. The Company used such net proceeds to make non-interest-bearing loans to KACC in the aggregate principal amount of $33.2 million (the aggregate dividends scheduled to accrue on the shares of PRIDES from the issuance date until December 31, 1997, the date on which the outstanding PRIDES will be mandatorily converted into shares of the Company's common stock), evidenced by intercompany notes, and used the balance of such net proceeds to make capital contributions to KACC in the aggregate amount of $66.9 million. On February 17, 1994, KACC issued $225.0 million of its 9-7/8% Senior Notes due 2002 (the "Senior Notes"). The net proceeds of the offering of the Senior Notes were used to reduce outstanding borrowings under the revolving credit facility of the 1989 Credit Agreement immediately prior to the effectiveness of the 1994 Credit Agreement and for working capital and general corporate purposes. The offering of the PRIDES, the issuance of the Senior Notes, and the replacement of the 1989 Credit Agreement were the final steps of a comprehensive refinancing plan which the Company and KACC began in January 1993 to extend the maturities of the Company's outstanding indebtedness, enhance its liquidity, and raise new equity capital. At December 31, 1994, the Company's total consolidated indebtedness was $762.6 million, compared to $729.4 million at December 31, 1993. 23 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The obligations of KACC with respect to the Senior Notes and the 12-3/4% Notes (see Note 5 of the Notes to Consolidated Financial Statements) are guaranteed, jointly and severally, by certain subsidiaries of KACC. The indentures governing the Senior Notes and the 12-3/4% Notes restrict, among other things, KACC's ability to incur debt, undertake transactions with affiliates, and pay dividends. Cash from Operations Cash used for operations was $41.3 million in 1994, compared with cash provided by operations of $24.2 million in 1993 and $26.3 million in 1992. The decrease in cash provided in 1994 compared with 1993 was primarily due to margin deposits of $50.5 million under certain hedging contracts and an increase in inventories. Capital Expenditures The Company's capital expenditures of $252.1 million (of which $34.0 million was funded by the Company's minority partners in certain foreign joint ventures) during the three years ended December 31, 1994, were made primarily to improve production efficiency, reduce operating costs, expand capacity at existing facilities, and construct new facilities. Total consolidated capital expenditures were $70.0 million in 1994, compared with $67.7 million in 1993 and $114.4 million in 1992 (of which $7.5, $9.4, and $17.1 million were funded by the minority partners in certain foreign joint ventures in 1994, 1993, and 1992, respectively). Total consolidated capital expenditures (of which approximately 11% is expected to be funded by the minority partners in certain foreign joint ventures) are expected to be between $80.0 and $130.0 million per year in the years 1995-1997, subject to necessary approvals, if required, from the lenders under the 1994 Credit Agreement. Dividends and Distributions The declaration and payment of dividends by the Company and KACC on shares of their common stock is subject to certain covenants contained in the 1994 Credit Agreement and, in the case of KACC, the Senior Note Indenture and the 12-3/4% Note Indenture. The 1994 Credit Agreement does not permit the Company or KACC to pay any dividends on their common stock. The declaration and payment of dividends by the Company on the shares of the Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Shares") and the PRIDES is expressly permitted by the terms of the 1994 Credit Agreement to the extent the Company receives payments on the intercompany notes or certain other permitted distributions from KACC. Joint Venture Indebtedness The Company historically has participated in various raw material joint ventures outside the United States. At December 31, 1994, the Company was unconditionally obligated for $78.7 million of indebtedness of one such joint venture affiliate. Environmental Contingencies The Company and KACC are subject to a wide variety of environmental laws and regulations and to fines or penalties assessed for alleged breaches of the environmental laws and to claims and litigation based upon such laws. KACC currently is subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, along with certain other entities, has been named as a potentially responsible party for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA. Based on the Company's evaluation of these and other environmental matters, the Company has established environmental accruals, primarily related to potential solid waste disposal and soil and groundwater remediation matters, totaling $40.1 million at December 31, 1994. These environmental accruals represent the Company's estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing technology, and the Company's assessment of the likely remediation action to be taken. As additional facts are 24 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 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 approximately $20.0 million. While uncertainties are inherent in the final outcome of these environmental matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties should not have a material adverse effect on the Company's consolidated financial position or results of operations. See Note 9 of the Notes to Consolidated Financial Statements for further description of these contingencies. Asbestos Contingencies KACC is a defendant in a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by 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 15 years. At December 31, 1994, the number of such lawsuits pending was approximately 25,200 with approximately 14,300 received and 12,500 settled or dismissed in 1994. Based on past experience and reasonably anticipated future activity, the Company has established an accrual of $102.0 million at December 31, 1994, for estimated asbestos-related costs for claims filed and estimated to be filed and settled through 2007. The Company does not presently believe there is a reasonable basis for estimating such costs beyond 2007 and, accordingly, no accrual has been recorded for such costs which may be incurred. The Company believes that KACC has insurance coverage available to recover a substantial portion of its asbestos-related costs. While claims for recovery from some of KACC's insurance carriers are currently subject to pending litigation and other carriers have raised certain defenses, the Company believes, based on prior insurance- related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of counsel, that substantial recoveries from the insurance carriers are probable. Accordingly, an estimated aggregate insurance recovery of $86.4 million, determined on the same basis as the asbestos-related cost accrual, is recorded primarily in Other assets at December 31, 1994. 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 or results of operations. See Note 9 of the Notes to Consolidated Financial Statements for further description of this contingency. Income Tax Matters ------------------ The Company's net deferred income tax assets as of December 31, 1994, were $281.0 million, net of valuation allowances of $133.9 million. Approximately $125.1 million of these net deferred income tax assets relate to the benefit of loss and credit carryforwards, net of valuation allowances. The Company evaluated all appropriate factors to determine the proper valuation allowances for these carryforwards, including any limitations concerning their use and the year the carryforwards expire, as well as the levels of taxable income necessary for utilization. The Company believes, based on the cyclical nature of its business, its history of prior operating earnings, and its expectations for future years, that it will more likely than not generate sufficient taxable income to realize the benefit attributable to the loss and credit carryforwards for which valuation allowances were not provided. A principal component of the remaining amount of 25 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) the net deferred income tax assets is the tax benefit associated with the accrual for postretirement benefits other than pensions. The future tax deductions with respect to the turnaround of this accrual will occur over a thirty to forty-year period. The Company believes a long-term view of profitability is appropriate and has concluded that this net deferred income tax asset will more likely than not be realized despite the operating losses incurred in recent years. See Note 6 of the Notes to Consolidated Financial Statements for a discussion of these and other income tax matters. Trends ------ During 1994, the expansion of world economies increased the demand for aluminum. This factor, together with primary aluminum smelter cutbacks caused by previous excessive aluminum inventories and low prices, resulted in lower London Metal Exchange inventories of primary aluminum at year-end 1994 than at year-end 1993. Average Midwest U.S. transaction prices for aluminum increased from a low of $.504 per pound in November 1993 to $.915 per pound in December 1994. The Company expects to be profitable in 1995, considering KACC's hedging program in place at December 31, 1994. 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 on the volume and mix of all products sold and on KACC's hedging strategies. Consequently, the Company has developed strategies to mitigate its exposure to possible declines in the market prices of alumina, primary aluminum, and fabricated aluminum products while retaining the ability to participate in favorable pricing environments that may materialize. KACC enters into a number of financial instruments with off-balance-sheet risk in the normal course of business that are designed to reduce its exposure to fluctuations in foreign exchange rates, alumina, primary aluminum, and fabricated aluminum products prices, and the cost of purchased commodities. KACC has significant expenditures which are denominated in foreign currencies related to long-term purchase commitments with its affiliates in Australia and the United Kingdom, which expose KACC to certain exchange rate risks. In order to mitigate its exposure, KACC periodically enters into forward foreign exchange and currency option contracts in Australian dollars and Pounds Sterling to hedge these commitments. The forward foreign currency exchange contracts are agreements to purchase or sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. At December 31, 1994, KACC had net forward foreign exchange contracts totaling approximately $74.4 million for the purchase of 102.0 million Australian dollars through December 31, 1996. To mitigate its exposure to declines in the market prices of alumina, primary aluminum, and fabricated aluminum products, while retaining the ability to participate in favorable pricing environments that may materialize, KACC has developed strategies which include forward sales of primary aluminum at fixed prices and the purchase or sale of options for primary aluminum. Under the principal components of KACC's price risk management strategy, which can be modified at any time, (i) varying quantities of KACC's anticipated production are sold forward at fixed prices; (ii) call options are purchased to allow KACC to participate in certain higher market prices, should they materialize, for a portion of KACC's primary aluminum and alumina sold forward; (iii) option contracts are entered into to establish a price range KACC will receive for a portion of its primary aluminum and alumina; and (iv) put options are purchased to establish minimum prices KACC will receive for a portion of its primary aluminum and alumina. In this regard, in respect of its 1995 anticipated production, as of December 31, 1994, KACC had sold forward 170,950 metric tons of primary aluminum at fixed prices, purchased call options in respect of 69,000 metric tons of primary aluminum, purchased put options to establish a minimum price for 193,500 metric tons of primary aluminum, and entered into option contracts that established a price range for 90,000 metric tons of primary aluminum. KACC will not receive the benefit of market price increases to the extent (i) the quantity of production sold forward is greater than the tonnage covered by the 26 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) purchased call options; (ii) market prices exceed the prices at which primary aluminum is sold forward, but are less than the strike price of the purchased call options, on the tonnage covered by the options; or (iii) market prices exceed the maximum of the price range on the tonnage covered by the option contracts entered to establish a price range. In addition, KACC enters into forward fixed price arrangements with certain customers which provide for the delivery of a specific quantity of fabricated aluminum products over a specified future period of time. In order to establish the cost of primary aluminum for a portion of such sales, KACC may enter into forward and option contracts. In this regard, at December 31, 1994, KACC had purchased 4,500 metric tons of primary aluminum under forward purchase contracts at fixed prices that expire at various times through June 1995. KACC has also entered into a natural gas pricing contract to fix future prices of a portion (20,000 million BTUs per day) of a plant's natural gas supply through March 1995. At December 31, 1994, the net unrealized gain on KACC's position in forward foreign exchange was $3.5 million and the net unrealized loss on aluminum forward sales and option contracts and the natural gas pricing contract was $80.4 million, based on a price of $1,955 per metric ton of aluminum and $1.59 per million BTUs of natural gas. See Note 10 of the Notes to Consolidated Financial Statements. Since December 31, 1994, KACC has entered into: o Additional forward foreign exchange contracts totaling approximately $44.3 million for the purchase of 60.0 million Australian dollars from July 1995 through December 1996 in respect of its commitments for 1995 and 1996 expenditures denominated in Australian dollars. o Additional hedge positions in respect of its anticipated 1995 and 1996 production. As of the date of this report, KACC had sold forward an additional 121,025 metric tons of primary aluminum at fixed prices. o A natural gas pricing contract to fix future prices of a portion (20,000 million BTUs per day) of a plant's natural gas supply through September 1995. At February 28, 1995, the net unrealized loss on KACC's position in forward foreign exchange was $.7 million, and the net unrealized loss on aluminum forward sales and option contracts and natural gas pricing contracts was $3.6 million, based on a price of $1,808 per metric ton of aluminum and $1.42 per million BTUs of natural gas. Labor Matter On February 17, 1995, KACC's approximately 3,000 hourly-paid employees represented by the United Steelworkers of America ("USWA") failed to ratify a proposed master labor agreement (47 months duration effective November 1, 1994 through September 30, 1998) with KACC which had been recommended for ratification by the USWA, and on February 20, 1995, a strike by such employees began which affected five plants: aluminum smelters at Tacoma and Mead (Spokane), Washington; a sheet and plate rolling mill at Trentwood (Spokane), Washington; an alumina refinery at Gramercy, Louisiana; and a rod and bar plant at Newark, Ohio. The strike continued for eight days until the agreement (including two technical modifications) was ratified by those employees on February 28, 1995. During the strike, operations at all five plant locations continued at various levels of production, and all five plants continued to ship product to customers. Management believes that the temporary disruptions to normal production and shipments resulting from the strike should not have a material adverse effect on the financial condition or results of operations of the Company for 1995 and that KACC's employee relations will continue to be satisfactory. 27 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors of Kaiser Aluminum Corporation: We have audited the accompanying consolidated balance sheets of Kaiser Aluminum Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related statements of consolidated income and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kaiser Aluminum Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As explained in Note 1 of the Notes to Consolidated Financial Statements, effective January 1, 1993, the Company changed its methods of accounting for postretirement benefits other than pensions, postemployment benefits, and income taxes. Houston, Texas February 17, 1995 28 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
December 31, ------------------- (In millions of dollars, except share amounts) 1994 1993 -------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 17.6 $ 14.7 Receivables: Trade, less allowance for doubtful receivables of $4.2 in 1994 and $2.9 in 1993 150.7 156.1 Other 48.5 78.6 Inventories 468.0 426.9 Prepaid expenses and other current assets 158.0 60.7 -------- -------- Total current assets 842.8 737.0 Investments in and advances to unconsolidated affiliates 169.7 183.2 Property, plant, and equipment - net 1,133.2 1,163.7 Deferred income taxes 271.2 210.8 Other assets 281.2 233.2 -------- -------- Total $2,698.1 $2,527.9 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 152.1 $ 126.3 Accrued interest 32.6 23.6 Accrued salaries, wages, and related expenses 77.7 56.1 Accrued postretirement medical benefit obligation - current portion 47.0 47.6 Other accrued liabilities 176.9 133.2 Payable to affiliates 85.3 62.4 Short-term borrowings .5 Long-term debt - current portion 11.5 8.7 -------- -------- Total current liabilities 583.1 458.4 Long-term liabilities 495.5 501.8 Accrued postretirement medical benefit obligation 734.9 713.1 Long-term debt 751.1 720.2 Minority interests 116.2 105.0 Stockholders' equity: Preferred stock, par value $.05, authorized 20,000,000 shares; Series A Convertible, stated value $.10, issued and outstanding, 1,938,295 in 1994 and 1993 .2 .2 PRIDES Convertible, par value $.05, issued and outstanding, 8,855,550 and nil in 1994 and 1993 .4 Common stock, par value $.01, authorized 100,000,000 shares; issued and outstanding, 58,205,083 and 58,095,599 shares in 1994 and 1993 .6 .6 Additional capital 527.8 425.9 Accumulated deficit (502.6) (375.7) Additional minimum pension liability (9.1) (21.6) -------- -------- Total stockholders' equity 17.3 29.4 -------- -------- Total $2,698.1 $2,527.9 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 29 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME (LOSS)
Year Ended December 31, ------------------------------ (In millions of dollars, except share amounts) 1994 1993 1992 -------------------------------------------------------------------------------------------------------------- Net sales $1,781.5 $1,719.1 $1,909.1 -------- -------- -------- Costs and expenses: Cost of products sold 1,625.5 1,587.7 1,619.3 Depreciation 95.4 97.1 80.3 Selling, administrative, research and development, and general 116.8 121.9 119.6 Restructuring of operations 35.8 -------- -------- -------- Total costs and expenses 1,837.7 1,842.5 1,819.2 -------- -------- -------- Operating income (loss) (56.2) (123.4) 89.9 Other income (expense): Interest and other income - net (7.3) (.9) 20.9 Interest expense (88.6) (84.2) (78.7) -------- -------- -------- Income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles (152.1) (208.5) 32.1 Credit (provision) for income taxes 53.8 86.9 (5.3) Minority interests (3.1) (1.5) .1 -------- -------- -------- Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles (101.4) (123.1) 26.9 Extraordinary loss on early extinguishment of debt, net of tax benefit of $2.9 and $11.2 for 1994 and 1993, respectively (5.4) (21.8) Cumulative effect of changes in accounting principles, net of tax benefit of $237.7 (507.3) -------- -------- -------- Net income (loss) (106.8) (652.2) 26.9 Dividends on preferred stock (20.1) (6.3) -------- -------- -------- Net income (loss) attributable to common shareholders $ (126.9) $ (658.5) $ 26.9 ======== ======== ======== Per common and common equivalent share: Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles $ (2.09) $ (2.25) $ .47 Extraordinary loss (.09) (.38) Cumulative effect of changes in accounting principles (8.84) -------- -------- -------- Net income (loss) $ (2.18) $ (11.47) $ .47 ======== ======== ======== Weighted average common and common equivalent shares outstanding (000) 58,139 57,423 57,250 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 30 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31, ------------------------- (In millions of dollars) 1994 1993 1992 -------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $(106.8) $(652.2) $ 26.9 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation 95.4 97.1 80.3 Amortization of deferred financing costs and discount on long-term debt 6.2 11.2 11.5 Non-cash postretirement medical benefit expenses 13.9 19.2 Restructuring of operations 35.8 Minority interests 3.1 1.5 (.1) Extraordinary loss on early extinguishment of debt - net 5.4 21.8 Cumulative effect of changes in accounting principles - net 507.3 (Decrease) increase in accrued and deferred income taxes (68.8) (96.4) 3.5 Equity in losses of unconsolidated affiliates 1.9 3.3 1.9 Recognition of previously deferred income from a forward alumina sale (.6) (25.7) Increase (decrease) in accrued interest 9.3 19.2 (.3) Incurrence of financing costs (19.2) (12.7) (5.5) Decrease (increase) in receivables 36.4 (6.1) (57.8) (Increase) decrease in inventories (41.1) 13.0 58.7 (Increase) decrease in prepaid expenses and other current assets (49.7) 7.4 7.6 Increase (decrease) in accounts payable 25.8 (10.3) (5.2) Increase (decrease) in payable to affiliates and accrued liabilities 36.9 57.7 (88.7) Other 10.0 8.0 19.2 ------- ------- ------- Net cash (used for) provided by operating activities (41.3) 24.2 26.3 ------- ------- ------- Cash flows from investing activities: Net proceeds from disposition of property and investments 4.1 13.1 26.1 Capital expenditures (70.0) (67.7) (114.4) ------- ------- ------- Net cash used for investing activities (65.9) (54.6) (88.3) ------- ------- ------- Cash flows from financing activities: Repayments of long-term debt, including revolving credit (345.1)(1,134.5) (221.4) Borrowings of long-term debt, including revolving credit 378.9 1,068.1 303.8 Borrowings from MAXXAM Group Inc. (see supplemental disclosure below) 15.0 2.5 Tender premiums and other costs of early extinguishment of debt (27.1) Net short-term debt repayments (.5) (4.3) (1.5) Dividends paid (14.8) (6.3) (11.4) Capital stock issued 100.1 119.3 .6 Redemption of minority interests' preference stock (8.5) (4.2) (7.3) ------- ------- ------- Net cash provided by financing activities 110.1 26.0 65.3 ------- ------- ------- Net increase (decrease) in cash and cash equivalents during the year 2.9 (4.4) 3.3 Cash and cash equivalents at beginning of year 14.7 19.1 15.8 ------- ------- ------- Cash and cash equivalents at end of year $ 17.6 $ 14.7 $ 19.1 ======= ======= ======= Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest $ 73.1 $ 53.7 $ 68.1 Income taxes paid 16.0 13.5 1.8 Tax allocation payments to (from) MAXXAM Inc. (3.9) 28.0 Supplemental disclosure of non-cash financing activities: Exchange of the borrowings from MAXXAM Group Inc. for capital stock $ 15.0
The accompanying notes to consolidated financial statements are an integral part of these statements. 31 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions of dollars, except share amounts) 1. Summary of Significant Accounting Policies ---------------------------------------------- Principles of Consolidation The consolidated financial statements include the statements of Kaiser Aluminum Corporation ("Kaiser" or the "Company") and its majority- owned subsidiaries. Investments in 50%-or-less-owned entities are accounted for primarily by the equity method. Intercompany balances and transactions are eliminated. The Company is a subsidiary of MAXXAM Inc. ("MAXXAM") and conducts its operations through its wholly owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"). Certain reclassifications of prior-year information were made to conform to the current presentation. Changes in Accounting Principles The Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"), and Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), as of January 1, 1993. The costs of postretirement benefits other than pensions and postemployment benefits are now accrued over the period employees provide services to the date of their full eligibility for such benefits. Previously, such costs were expensed as actual claims were incurred. The cumulative effect of the changes in accounting principles for the adoption of SFAS 106 and SFAS 112 were recorded as charges to results of operations of $497.7 and $7.3, net of related income taxes of $234.2 and $3.5, respectively. These deferred income tax benefits were recorded at the federal statutory rate in effect on the date the accounting standards were adopted, before giving effect to certain valuation allowances. The new accounting standards had no effect on the Company's cash outlays for postretirement or postemployment benefits, nor did these one-time charges affect the Company's compliance with its existing debt covenants. The Company reserves the right, subject to applicable collective bargaining agreements and applicable legal requirements, to amend or terminate these benefits. The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1, 1993. The adoption of SFAS 109 changes the Company's method of accounting for income taxes to an asset and liability approach from the deferral method prescribed by Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes" ("APB 11"). The asset and liability approach requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Under this method, deferred income tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. The cumulative effect of the change in accounting principle reduced the Company's results of operations by $2.3. The adoption of SFAS 109 required the Company to restate certain assets and liabilities to their pre-tax amounts from their net-of-tax amounts originally recorded in connection with the acquisition by MAXXAM in October 1988. As a result of restating the assets and liabilities, the loss before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles for the year ended December 31, 1993, was increased by $9.3. Cash and Cash Equivalents The Company considers only those short-term, highly liquid investments with original maturities of 90 days or less to be cash equivalents. Inventories Substantially all product inventories are stated at last-in, first-out ("LIFO") cost, not in excess of market value. Replacement cost is not in excess of LIFO cost. Other inventories, principally operating supplies and repair and maintenance parts, are stated at the lower of average cost or market. Inventory costs consist of material, labor, and manufacturing overhead, including depreciation. Inventories consist of the following: 32 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts)
December 31, --------------- 1994 1993 ------ ------ Finished fabricated products $ 49.4 $ 83.7 Primary aluminum and work in process 203.1 141.4 Bauxite and alumina 102.3 94.0 Operating supplies and repair and maintenance parts 113.2 107.8 ------ ------ $468.0 $426.9 ====== ======
Depreciation Depreciation is computed principally by the straight-line method at rates based on the estimated useful lives of the various classes of assets. The principal estimated useful lives by class of assets are:
--------------------------------------------------------------------- Land improvements 8 to 25 years Buildings 15 to 45 years Machinery and equipment 10 to 22 years
Other Income Other income in 1994 and 1993 includes $10.3 and $10.8 of pre-tax charges related principally to establishing additional litigation and environmental reserves in the fourth quarters, respectively. Other income in 1992 includes $14.0 of pre-tax income for non-recurring adjustments to previously recorded liabilities and reserves in the fourth quarter. Deferred Financing Costs Costs incurred to obtain debt financing are deferred and amortized over the estimated term of the related borrowing. Amortization of deferred financing costs of $6.0, $11.2, and $10.9 for the years ended December 31, 1994, 1993, and 1992, respectively, are included in interest expense. Foreign Currency The Company uses the United States dollar as the functional currency for its foreign operations. Derivative Financial Instruments Gains and losses arising from the use of derivative financial instruments are reflected in the Company's operating results concurrently with the consummation of the underlying hedged transactions. Deferred gains or losses as of December 31, 1994, are included in Prepaid expenses and other current assets and Other accrued liabilities. The Company does not hold or issue derivative financial instruments for trading purposes (see Note 10). Fair Value of Financial Instruments The following table presents the estimated fair value of the Company's financial instruments, together with the carrying amounts of the related assets or liabilities. Unless otherwise noted, the carrying amount of all financial instruments is a reasonable estimate of fair value.
December 31, 1994 December 31, 1993 ------------------ -------------------- Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- -------- --------- Debt $762.6 $747.6 $728.9 $734.1 Foreign currency contracts 3.5
33 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Debt - The quoted market prices were used for the Senior Notes and 12-3/4% Notes (see Note 5). The fair value of all other debt is based on discounting the future cash flows using the current rate for debt of similar maturities and terms. Foreign Currency Contracts - The fair value generally reflects the estimated amounts that the Company would receive to enter into similar contracts at the reporting date, thereby taking into account unrealized gains or losses on open contracts (see Note 10). Net Income (Loss) per Common and Common Equivalent Share Net income (loss) per common and common equivalent share is computed based on the weighted average number of common and common equivalent shares outstanding during each period. For the year ended December 31, 1994, common stock equivalents of 19,382,950 attributable to the Series A Shares, 8,855,550 shares attributable to the PRIDES, and 1,122,380 attributable to nonqualified stock options and for the year ended December 31, 1993, common stock equivalents of 19,382,950 attributable to the Series A Shares and 664,400 attributable to nonqualified stock options were excluded from the calculation of weighted average shares because they were antidilutive (see Notes 7 and 8). Dividends declared on the Series A Shares and the PRIDES ($20.1 and $6.3 for the years ended December 31, 1994 and 1993) are added to net loss for the purpose of calculating loss per common and common equivalent share. 2. Restructuring of Operations ------------------------------- In 1993, KACC implemented a restructuring plan primarily for its flat- rolled products operation at its Trentwood plant in response to overcapacity in the aluminum rolling industry, flat demand in the U.S. can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which had resulted in declining prices in Trentwood's key markets. As of December 31, 1994, the costs related to the 1993 pre-tax charge for this restructuring of $35.8 have been substantially incurred. 3. Investments In and Advances To Unconsolidated Affiliates ------------------------------------------------------------ Summary combined financial information is provided below for unconsolidated aluminum investments, most of which supply and process raw materials. The investees are Queensland Alumina Limited ("QAL") (28.3% owned), Anglesey Aluminium Limited ("Anglesey") (49.0% owned), and Kaiser Jamaica Bauxite Company (49.0% owned). The equity in earnings (losses) before income taxes of such operations is treated as a reduction (increase) in cost of products sold. At December 31, 1994 and 1993, KACC's net receivables from these affiliates were not material. Summary of Combined Operations
Year Ended December 31, --------------------------- 1994 1993 1992 ------------------------------------------------------------------- Net sales $ 489.8 $ 510.3 $ 586.6 Costs and expenses (494.8) (527.2) (586.7) Provision (credit) for income taxes (6.3) 1.9 6.9 ------- ------- ------- Net income (loss) $ (11.3) $ (15.0) $ 6.8 ======= ======= ======= Company's equity in losses $ (1.9) $ (3.3) $ (1.9) ======= ======= =======
34 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) Summary of Combined Financial Position
December 31, --------------- 1994 1993 ---------------------------------------------------------------------- Current assets $342.3 $312.3 Property, plant, and equipment - net 349.4 371.1 Other assets 42.4 46.3 ------ ------ Total assets $734.1 $729.7 ====== ====== Current liabilities $122.4 $130.4 Long-term debt 307.6 290.0 Other liabilities 31.0 17.8 Stockholders' equity 273.1 291.5 ------ ------ Total liabilities and stockholders' equity $734.1 $729.7 ====== ======
The Company's equity in losses differs from the summary net income (loss) due to various percentage ownerships in the entities and equity method accounting adjustments. At December 31, 1994, KACC's investment in its unconsolidated affiliates exceeded its equity in their net assets by approximately $67.9. The Company is amortizing this amount over a 12-year period, which results in an annual amortization charge of approximately $11.6. The Company and its affiliates have interrelated operations. KACC provides some of its affiliates with services such as financing, management, and engineering. Significant activities with affiliates include the acquisition and processing of bauxite, alumina, and primary aluminum. Purchases from these affiliates were $219.7, $206.6, and $219.4 in the years ended December 31, 1994, 1993, and 1992, respectively. No dividends were received from investees in the three years ended December 31, 1994. 4. Property, Plant, and Equipment ---------------------------------- The major classes of property, plant, and equipment are as follows:
December 31, ------------------- 1994 1993 ------------------------------------------------------------------ Land and improvements $ 153.5 $ 135.1 Buildings 196.8 194.8 Machinery and equipment 1,285.0 1,223.0 Construction in progress 45.0 64.9 -------- -------- 1,680.3 1,617.8 Accumulated depreciation 547.1 454.1 -------- -------- Property, plant, and equipment - net $1,133.2 $1,163.7 ======== ========
35 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) 5. Long-Term Debt ------------------ Long-term debt and its maturity schedule are as follows:
December 31, 2000 ------------- and 1994 1993 1995 1996 1997 1998 1999 After Total Total --------------------------------------------------------------------------------------------------------- 1994 Credit Agreement (10% at December 31, 1994) $6.7 $ 6.7 1989 Credit Agreement (6.59% at December 31, 1993) $188.0 9-7/8% Senior Notes, net $223.6 223.6 Pollution Control and Solid Waste Disposal Facilities Obligations (6.00%-7.75%) $ 1.2 $1.2 $1.3 $1.4 .2 32.8 38.1 39.2 Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0 60.0 Alpart Term Loan (8.95%) 6.2 6.3 6.2 18.7 25.0 12-3/4% Senior Subordinated Notes 400.0 400.0 400.0 Other borrowings (fixed and variable rates) 4.1 1.5 1.7 7.4 .4 .4 15.5 16.7 ----- ---- ---- ---- ---- ------ ------ ------ Total $11.5 $9.0 $9.2 $8.8 $7.3 $716.8 762.6 728.9 Less current portion ===== ==== ==== ==== ==== ====== 11.5 8.7 ------ ------ Long-term debt $751.1 $720.2 ====== ======
1994 Credit Agreement On February 17, 1994, the Company and KACC entered into a credit agreement with BankAmerica Business Credit, Inc. (as agent for itself and other lenders), Bank of America National Trust and Savings Association, and certain other lenders (as amended, the "1994 Credit Agreement"). The 1994 Credit Agreement consists of a $275.0 five-year secured, revolving line of credit, scheduled to mature in 1999, and replaced the credit agreement entered into in December 1989 by the Company and KACC with a syndicate of commercial banks and other financial institutions (as amended, the "1989 Credit Agreement"). KACC is able to borrow under the facility by means of revolving credit advances and letters of credit (up to $125.0) in an aggregate amount equal to the lesser of $275.0 or a borrowing base relating to eligible accounts receivable plus eligible inventory. The Company recorded a pre-tax extraordinary loss of $8.3 ($5.4 after taxes) in the first quarter of 1994, consisting primarily of the write-off of unamortized deferred financing costs related to the 1989 Credit Agreement. As of December 31, 1994, $202.5 (of which $59.3 could have been used for letters of credit) was available to KACC under the 1994 Credit Agreement. The 1994 Credit Agreement is unconditionally guaranteed by the Company and by certain significant subsidiaries of KACC. Loans under the 1994 Credit Agreement bear interest at a rate per annum, at KACC's election, equal to a Reference Rate (as defined) plus 1-1/2% or LIBO Rate (Reserve Adjusted) (as defined) plus 3-1/4%. After June 30, 1995, the interest rate margins applicable to borrowings under the 1994 Credit Agreement may be reduced by up to 1-1/2% (non- cumulatively), based on a financial test, determined quarterly. The 1994 Credit Agreement requires KACC to maintain certain financial covenants and places restrictions on the Company's and KACC's ability to, among other things, incur debt and liens, make investments, pay dividends, undertake transactions with affiliates, make capital expenditures, and enter into unrelated lines of business. Neither the Company nor KACC currently is permitted to pay dividends on its common stock. The 1994 Credit Agreement is secured by, among other things, (i) mortgages on KACC's major domestic plants (excluding the Gramercy plant); (ii) subject to certain exceptions, liens on the accounts receivable, inventory, equipment, domestic patents and trademarks, and substantially all other personal property of KACC and certain of its subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser; and (iv) pledges of all of the stock of a number of KACC's wholly owned domestic subsidiaries, pledges of a portion of the stock of certain foreign subsidiaries, and pledges of a portion of the stock of certain partially owned foreign affiliates. 36 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) Senior Notes Concurrent with the offering by the Company of its 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES") (see Note 8), KACC issued $225.0 of its 9-7/8% Senior Notes due 2002 (the "Senior Notes"). The net proceeds of the offering of the Senior Notes were used to reduce outstanding borrowings under the revolving credit facility of the 1989 Credit Agreement immediately prior to the effectiveness of the 1994 Credit Agreement and for working capital and general corporate purposes. Senior Subordinated Notes On February 1, 1993, KACC issued $400.0 of 12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4% Notes"). The net proceeds from the sale of the 12-3/4% Notes were used to retire the 14-1/4% Senior Subordinated Notes due 1995 (the "14-1/4% Notes"), to prepay $18.0 of the term loan, and to reduce outstanding borrowings under the revolving credit facility of the 1989 Credit Agreement. These transactions resulted in a pre-tax extraordinary loss of $33.0 in the first quarter of 1993, consisting primarily of the write-off of unamortized discount and deferred financing costs related to the 14-1/4% Notes and the payment of premiums on the 14-1/4% Notes. The obligations of KACC with respect to the Senior Notes and the 12-3/4% Notes are guaranteed, jointly and severally, by certain subsidiaries of KACC. The indentures governing the Senior Notes and the 12-3/4% Notes restrict, among other things, KACC's ability, and the 1994 Credit Agreement restricts, among other things, Kaiser's and KACC's ability, to incur debt, undertake transactions with affiliates, and pay dividends. Gramercy Revenue Bonds In December 1992, KACC entered into an installment sale agreement (the "Sale Agreement") with the Parish of St. James, Louisiana (the "Louisiana Parish"), pursuant to which the Louisiana Parish issued $20.0 aggregate principal amount of its 7-3/4% Bonds due August 1, 2022 (the "Bonds") to finance the construction of certain solid waste disposal facilities at KACC's Gramercy plant. The proceeds from the sale of the Bonds were deposited into a construction fund and may be withdrawn, from time to time, pursuant to the terms of the Sale Agreement and the Bond indenture. At December 31, 1994, $6.4 remained in the construction fund. The Sale Agreement requires KACC to make payments to the Louisiana Parish in installments due on the dates and in the amounts required to permit the Louisiana Parish to satisfy all of its payment obligations under the Bonds. Alpart CARIFA Loan In December 1991, Alpart entered into a loan agreement with the Caribbean Basin Projects Financing Authority ("CARIFA") under which CARIFA loaned Alpart the proceeds from the issuance of CARIFA's industrial revenue bonds. The terms of the loan parallel the bonds' repayment terms. The $38.0 aggregate principal amount of Series A bonds matures on June 1, 2008. The Series A bonds bear interest at a floating rate of 87% of the applicable LIBID Rate (LIBOR less 1/8 of 1%) on $37.5 of the principal amount (5.2% at December 31, 1994) with the remaining $.5 bearing interest at a fixed rate of 6.35%. The $22.0 aggregate principal amount of Series B bonds matures on June 1, 2007, and bears interest at a fixed rate of 8.25%. Proceeds from the sale of the bonds were used by Alpart to refinance interim loans from the partners in Alpart, to pay eligible project costs for the expansion and modernization of its alumina refinery and related port and bauxite mining facilities, and to pay certain costs of issuance. Under the terms of the loan agreement, Alpart must remain a qualified recipient for Caribbean Basin Initiative funds as defined in applicable laws. Alpart has agreed to indemnify bondholders of CARIFA for certain tax payments that could result from events, as defined, that adversely affect the tax treatment of the interest income on the bonds. Alpart's obligations under the loan agreement are secured by a $64.2 letter of credit guaranteed by the partners in Alpart (of which $22.5 is guaranteed by the Company's minority partner in Alpart). 37 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) Capitalized Interest Interest capitalized in 1994, 1993, and 1992 was $2.7, $3.4, and $4.4, respectively. Restricted Net Assets of Subsidiary Certain debt instruments restrict the ability of KACC to transfer assets, make loans and advances, and pay dividends to the Company. The assets of KACC, which are substantially all of the Company's assets, are restricted. 6. Income Taxes ---------------- Income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles by geographic area is as follows:
Year Ended December 31, --------------------------- 1994 1993 1992 ------------------------------------------------------------------- Domestic $(168.4) $(232.0) $ (77.6) Foreign 16.3 23.5 109.7 ------- ------- ------- Total $(152.1) $(208.5) $ 32.1 ======= ======= =======
Income taxes are classified as either domestic or foreign, based on whether payment is made or due to the United States or a foreign country. Certain income classified as foreign is also subject to domestic income taxes. The credit (provision) for income taxes on income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles consists of:
Federal Foreign State Total --------------------------------------------------------------- 1994 Current $(18.0) $(.1) $(18.1) Deferred $71.2 .6 .1 71.9 ----- ------ ---- ------ Total $71.2 $(17.4) $ 53.8 ===== ====== ==== ====== 1993 Current $12.6 $ (7.9) $(.1) $ 4.6 Deferred 68.5 12.0 1.8 82.3 ----- ------ ---- ------ Total $81.1 $ 4.1 $1.7 $ 86.9 ===== ====== ==== ====== 1992 Current $(9.7) $(11.4) $(.1) $(21.2) Deferred 13.1 3.3 (.5) 15.9 ----- ------ ---- ------ Total $ 3.4 $ (8.1) $(.6) $ (5.3) ===== ====== ==== ======
The 1994 federal deferred credit for income taxes of $71.2 includes $29.3 for the benefit of operating loss carryforwards generated in 1994. The 1993 federal deferred credit for income taxes of $68.5 includes $29.2 for the benefit of operating loss carryforwards generated in 1993 and a $3.4 benefit for increasing net deferred income tax assets (liabilities) as of the date of enactment (August 10, 1993) of the Omnibus Budget Reconciliation Act of 1993, which retroactively increased the federal statutory income tax rate from 34% to 35% for periods beginning on or after January 1, 1993. A reconciliation between the credit (provision) for income taxes and the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles is as follows: 38 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts)
Year Ended December 31, ------------------------- 1994 1993 1992 -------------------------------------------------------------------------------------------------------------- Amount of federal income tax based on the statutory rate $53.2 $73.0 $(10.9) Percentage depletion 5.6 6.4 6.3 Increase in net deferred income tax assets due to tax rate change 1.8 3.4 Revision of prior years' tax estimates and other changes in valuation allowances .2 3.9 2.9 Foreign taxes, net of federal tax benefit (5.3) (2.6) (.4) Financial reporting/tax basis differences (3.0) Other (1.7) 2.8 (.2) ----- ----- ------ Credit (provision) for income taxes $53.8 $86.9 $ (5.3) ===== ===== ======
As shown in the Statements of Consolidated Income (Loss) for the years ended December 31, 1994 and 1993, the Company reported extraordinary losses related to the early extinguishment of debt. The Company reported the 1994 extraordinary loss net of related deferred federal income taxes of $2.9 and reported the 1993 extraordinary loss net of related current federal income taxes of $11.2, which approximated the federal statutory rate in effect on the dates the transactions occurred. The Company adopted SFAS 109 as of January 1, 1993, as discussed in Note 1. The components of the Company's net deferred income tax assets are as follows:
December 31, December 31, 1994 1993 ---------------------------------------------------------------------------------------------- Deferred income tax assets: Postretirement benefits other than pensions $ 293.7 $ 285.4 Loss and credit carryforwards 187.6 142.6 Other liabilities 109.6 105.2 Pensions 51.0 60.6 Foreign and state deferred income tax liabilities 28.1 33.0 Property, plant, and equipment 23.1 23.1 Other 3.5 10.5 Valuation allowances (133.9) (133.5) ------- ------- Total deferred income tax assets - net 562.7 526.9 ======= ======= Deferred income tax liabilities: Property, plant, and equipment (203.2) (224.4) Investments in and advances to unconsolidated affiliates (63.8) (60.6) Inventories (8.3) (14.8) Other (6.4) (20.3) ------- ------- Total deferred income tax liabilities (281.7) (320.1) ------- ------- Net deferred income tax assets $ 281.0 $ 206.8 ======= =======
The valuation allowances listed above relate primarily to loss and credit carryforwards and postretirement benefits other than pensions. As of December 31, 1994, approximately $125.1 of the net deferred income tax assets listed above relate to the benefit of loss and credit carryforwards, net of valuation allowances. The Company evaluated all appropriate factors to determine the proper valuation allowances for these carryforwards, including any limitations concerning their use and the year the carryforwards expire, as well as the levels of taxable income necessary for utilization. For example, full valuation allowances were provided for certain credit carryforwards that expire in the near term. With regard to future levels of income, the Company believes, based on the cyclical nature of its business, its history of prior operating earnings, and its 39 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) expectations for future years, that it will more likely than not generate sufficient taxable income to realize the benefit attributable to the loss and credit carryforwards for which valuation allowances were not provided. The remaining portion of the Company's net deferred income tax assets at December 31, 1994, is approximately $155.9. A principal component of this amount is the tax benefit associated with the accrual for postretirement benefits other than pensions. The future tax deductions with respect to the turnaround of this accrual will occur over a 30- to 40-year period. If such deductions create or increase a net operating loss in any one year, the Company has the ability to carry forward such loss for 15 taxable years. For these reasons, the Company believes a long-term view of profitability is appropriate and has concluded that this net deferred income tax asset will more likely than not be realized despite the operating losses incurred in recent years. Certain of the deferred income tax assets and liabilities listed above are included on the Consolidated Balance Sheet in the captions entitled Receivables, Prepaid expenses and other current assets, Other accrued liabilities, and Long-term liabilities. The Company and its subsidiaries were included in the consolidated federal income tax returns of MAXXAM for the period from October 28, 1988, through June 30, 1993. As a consequence of the issuance of the Depositary Shares on June 30, 1993, as discussed in Note 8, the Company and its subsidiaries are no longer included in the consolidated federal income tax returns of MAXXAM. The Company and its subsidiaries have become members of a new consolidated return group of which the Company is the common parent corporation (the "New Kaiser Tax Group"). The New Kaiser Tax Group files consolidated federal income tax returns for taxable periods beginning on or after July 1, 1993. The tax allocation agreement between the Company and MAXXAM (the "Company Tax Allocation Agreement") and the tax allocation agreement between KACC and MAXXAM (the "KACC Tax Allocation Agreement") (collectively, the "Tax Allocation Agreements"), terminated pursuant to their terms, effective for taxable periods beginning after June 30, 1993. Any unused federal income tax attribute carryforwards under the terms of the Tax Allocation Agreements were eliminated and are not available to offset federal income tax liabilities for taxable periods beginning on or after July 1, 1993. Upon the filing of MAXXAM's 1993 consolidated federal income tax return, the tax attribute carryforwards of the MAXXAM consolidated return group as of December 31, 1993, were apportioned in part to the New Kaiser Tax Group, based on the provisions of the relevant consolidated return regulations. The benefit of such tax attribute carryforwards apportioned to the New Kaiser Tax Group approximated the benefit of tax attribute carryforwards eliminated under the Tax Allocation Agreements. To the extent the New Kaiser Tax Group generates unused tax losses or tax credits for periods beginning on or after July 1, 1993, such amounts will not be available to obtain refunds of amounts paid by the Company or KACC to MAXXAM for periods ending on or before June 30, 1993, pursuant to the Tax Allocation Agreements. KACC and MAXXAM entered into the KACC Tax Allocation Agreement, which became effective as of October 28, 1988. Under the terms of the KACC Tax Allocation Agreement, MAXXAM computed the federal income tax liability for KACC and its subsidiaries (collectively, the "Subgroup") as if the Subgroup were a separate affiliated group of corporations which was never connected with MAXXAM. During 1991, the Company and MAXXAM entered into the Company Tax Allocation Agreement, which became effective as of January 1, 1991. Under the terms of the Company Tax Allocation Agreement, MAXXAM computed a tentative federal income tax liability for the Company as if it and its subsidiaries, including KACC and its subsidiaries, were a separate affiliated group of corporations which was never connected with MAXXAM. The federal income tax liability of the Company was the difference between the tentative federal income tax liability and the liability computed under the KACC Tax Allocation Agreement. The provisions of the Tax Allocation Agreements will continue to govern for periods ended prior to July 1, 1993. Therefore, payments or refunds may still be required by or payable to the Company or KACC under the terms of their respective tax allocation agreements for these periods due to the final resolution of audits, amended returns, and related matters. However, the 1994 Credit Agreement prohibits the payment by KACC to MAXXAM of any amounts due under the KACC Tax 40 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) Allocation Agreement, except for certain payments that are required as a result of audits and only to the extent of any amounts paid after February 17, 1994, by MAXXAM to KACC under the KACC Tax Allocation Agreement. The following table presents the Company's tax attributes for federal income tax purposes as of December 31, 1994. The utilization of certain of these tax attributes is subject to limitations:
Expiring Through --------------------------------------------------------------------------- Regular tax attribute carryforwards: Current year net operating loss $ 83.7 2009 Prior year net operating losses 135.4 2008 General business tax credits 37.4 2006 Foreign tax credits 42.2 1999 Alternative minimum tax credits 15.3 Indefinite Alternative minimum tax attribute carryforwards: Current year net operating loss $ 64.3 2009 Prior year net operating losses 84.4 2008 Foreign tax credits 33.8 1999
7. Employee Benefit and Incentive Plans ---------------------------------------- Retirement Plans Retirement plans are non-contributory for salaried and hourly employees and generally provide for benefits based on a formula which considers length of service and earnings during years of service. The Company's funding policies meet or exceed all regulatory requirements. The funded status of the employee pension benefit plans and the corresponding amounts that are included in the Company's Consolidated Balance Sheets are as follows:
Plans with Accumulated Benefits Exceeding Assets December 31, 1994 1993 ----------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation: Vested employees $(663.9) $(705.0) Nonvested employees (41.1) (40.1) ------- ------- Accumulated benefit obligation (705.0) (745.1) Additional amounts related to projected salary increases (30.0) (45.5) ------- ------- Projected benefit obligation (735.0) (790.6) Plan assets (principally common stocks and fixed income obligations) at fair value 524.6 569.8 ------- ------- Plan assets less than projected benefit obligation (210.4) (220.8) Unrecognized net losses 42.5 75.7 Unrecognized net obligations .8 1.6 Unrecognized prior-service cost 30.9 16.9 Adjustment required to recognize minimum liability (42.9) (47.7) ------- ------- Accrued pension obligation included in the Consolidated Balance Sheets (principally in long-term liabilities) $(179.1) $(174.3) ======= ======= Includes plans with assets exceeding accumulated benefits by approximately $.3 and $.1 in 1994 and 1993, respectively.
41 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) As required by Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions, the Company recorded an after-tax credit (charge) to equity of $12.5 and $(14.9) at December 31, 1994 and 1993, respectively, for the reduction (excess) of the minimum liability over the unrecognized net obligation and prior-service cost. These amounts were recorded net of the related income tax (provision) credit of $(7.3) and $8.7 as of December 31, 1994 and 1993, respectively, which approximated the federal and state statutory rates. The components of net periodic pension cost are:
Year Ended December 31, --------------------------- 1994 1993 1992 ------------------------------------------------------------------------------ Service cost - benefits earned during the period $ 11.2 $ 10.8 $ 11.0 Interest cost on projected benefit obligation 57.3 59.2 58.8 Return on assets: Actual gain (.8) (70.3) (26.3) Deferred gain (loss) (53.0) 15.9 (31.2) Net amortization and deferral 4.1 2.3 2.1 ------ ------ ------ Net periodic pension cost $ 18.8 $ 17.9 $ 14.4 ====== ====== ======
Assumptions used to value obligations at year-end, and to determine the net periodic pension cost in the subsequent year are:
1994 1993 1992 --------------------------------------------------------------------------- Discount rate 8.50% 7.50% 8.25% Expected long-term rate of return on assets 9.50% 10.00% 10.00% Rate of increase in compensation levels 5.00% 5.00% 5.00%
Postretirement Benefits Other Than Pensions Kaiser adopted SFAS 106 to account for postretirement benefits other than pensions effective January 1, 1993 (see Note 1). The Company and its subsidiaries provide postretirement health care and life insurance benefits to eligible retired employees and their dependents. Substantially all employees may become eligible for those benefits if they reach retirement age while still working for the Company or its subsidiaries. These benefits are provided through contracts with various insurance carriers. The Company has not funded the liability for these benefits. The Company's accrued postretirement benefit obligation is composed of the following:
December 31, ----------------- 1994 1993 ---------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $(566.2) $(629.3) Active employees eligible for postretirement benefits (30.2) (35.1) Active employees not eligible for postretirement benefits (98.7) (128.3) ------- ------- Accumulated postretirement benefit obligation (695.1) (792.7) Unrecognized net (gains) losses (55.0) 67.0 Unrecognized prior-service costs (31.8) (35.0) ------- ------- Accrued postretirement benefit obligation $(781.9) $(760.7) ======= =======
42 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) The components of net periodic postretirement benefit cost are:
Year Ended December 31, ------------- 1994 1993 ------------------------------------------------------------------ Service cost $ 8.2 $ 7.1 Interest cost 56.9 58.5 Amortization of prior service cost (3.2) ----- ----- Net periodic postretirement benefit cost $61.9 $65.6 ===== =====
The 1995 annual assumed rates of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) are 9.5% and 8.0% for retirees under 65 and over 65, respectively, and are assumed to decrease gradually to 5.5% in 2007 and remain at that level thereafter. The health care cost trend rate has a significant effect on the amounts reported. A one percentage point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1994, by approximately $79.8 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1994 by approximately $9.5. The weighted average discount rate used to determine the accumulated postretirement benefit obligation at December 31, 1994 and 1993, was 8.5% and 7.5%, respectively. Postemployment Benefits Kaiser adopted the new accounting standard on postemployment benefits effective January 1, 1993 (see Note 1). The Company provides certain benefits to former or inactive employees after employment but before retirement. Incentive Plans Effective January 1, 1989, the Company and KACC adopted an unfunded Long-Term Incentive Plan (the "LTIP") for certain key employees of the Company, KACC, and their consolidated subsidiaries. All compensation vested as of December 31, 1992, under the LTIP, as amended in 1991 and 1992, has been paid to the participants in cash or common stock of the Company as of December 31, 1993. Under the LTIP, as amended, 764,092 restricted shares were distributed to six Company executives during 1993 for benefits generally earned but not vested as of December 31, 1992. These shares generally will vest at the rate of 25% per year. The Company will record the related expense of $6.5 over the four-year period ending December 31, 1996. In 1993, the Company adopted the Kaiser 1993 Omnibus Stock Incentive Plan. A total of 2,500,000 shares of Kaiser common stock were reserved for awards or for payment of rights granted under the Plan, of which 504,044 shares were available to be awarded at December 31, 1994. Under the Kaiser 1993 Omnibus Stock Incentive Plan, 102,564 restricted shares were distributed to two Company executives during 1994, which will vest at the rate of 25% per year. The Company will record the related expense of $1.0 over the four-year period ending December 31, 1998. In 1993 and 1994, the Compensation Committee of the Board of Directors approved the award of "nonqualified stock options" to members of management other than those participating in the LTIP. These options generally will vest at the rate of 20-25% per year. Information relating to nonqualified stock options is shown below:
1994 1993 --------------------------------------------------------------------------------------------------- Outstanding at beginning of year 664,400 Granted 494,800 664,400 Exercised (at $7.25 per share) (6,920) Expired or forfeited (29,900) --------- ------- Outstanding at end of year (prices ranging from $7.25 to $12.75 per share) 1,122,380 664,400 ========= ======= Exercisable at end of year 119,980 =========
43 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) Effective January 1, 1990, KACC adopted an unfunded Middle Management Long-Term Incentive Plan. KACC also has a supplemental savings and retirement plan for salaried employees, under which the participants contribute a percentage of their base salaries. The Company's expense for the above plans was $6.1, $5.3, and $6.6 for the years ended December 31, 1994, 1993, and 1992, respectively. 8. Stockholders' Equity and Minority Interests ----------------------------------------------- Changes in stockholders' equity and minority interests were:
Minority Interests Stockholders' Equity ------------------ ------------------------------------------------ Retained Earnings Additional Redeemable (Accu- Minimum Preference Preferred Common Additional mulated Pension Stock Other Stock Stock Capital Deficit) Liability ------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1992 $34.8 $74.1 $ .6 $287.9 $ 267.3 Net income 26.9 Redeemable preference stock: Accretion 5.1 Stock redemption (7.1) Dividends on common stock (11.4) Conversions (2,405 preference shares into cash) (.2) Common stock issued .6 Minority interest in majority-owned subsidiaries (1.8) Additional minimum pension liability $(6.7) ----- ----- ----- ------ ------- ----- BALANCE, DECEMBER 31, 1992 32.8 72.1 .6 288.5 282.8 (6.7) Net loss (652.2) Redeemable preference stock: Accretion 4.8 Stock redemption (4.0) Conversions (1,967 preference shares into cash) (.2) Common stock issued 3.3 Preferred stock issued $ .2 134.1 Dividends on preferred stock (6.3) Minority interest in majority-owned subsidiaries (.5) Additional minimum pension liability (14.9) ----- ----- ----- ----- ------ ------- ------ BALANCE, DECEMBER 31, 1993 33.6 71.4 .2 .6 425.9 (375.7) (21.6) Net loss (106.8) Redeemable preference stock: Accretion 4.0 Stock redemption (8.5) Common stock issued 2.2 Preferred stock issued .4 99.7 Dividends on preferred stock (20.1) Minority interest in majority-owned subsidiaries 15.7 Reduction of minimum pension liability 12.5 ----- ----- ----- ----- ------ ------ ------ BALANCE, DECEMBER 31, 1994 $29.1 $87.1 $ .6 $ .6 $527.8 $(502.6) $ (9.1) ===== ===== ===== ===== ====== ======= ======
44 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) Redeemable Preference Stock In March 1985, KACC entered into a three-year agreement with the United Steelworkers of America (USWA) whereby shares of a new series of "Cumulative (1985 Series A) Preference Stock" would be issued to an employee stock ownership plan in exchange for certain elements of wages and benefits. Concurrently, a similar plan was established for certain nonbargaining employees which provided for the issuance of "Cumulative (1985 Series B) Preference Stock." Series A Stock and Series B Stock ("Series A and B Stock") each have a par value of $1 per share and a liquidation and redemption value of $50 per share plus accrued dividends, if any. For financial reporting purposes, Series A and B Stock were recorded at fair market value when issued, based on independent appraisals, with a corresponding charge to compensation cost. Carrying values have been increased each year to recognize accretion of redemption values and, in certain years, there have been other increases for reasons described below. Changes in Series A and B Stock are shown below.
1994 1993 1992 ---------------------------------------------------------------- Shares: Beginning of year 1,081,548 1,163,221 1,305,550 Redeemed (169,381) (81,673) (142,329) --------- --------- --------- End of year 912,167 1,081,548 1,163,221 ========= ========= =========
No additional Series A or B Stock will be issued based on compensation earned in 1992 or subsequent years. While held by the plan trustee, Series B Stock is entitled to cumulative annual dividends, when and as declared by the Board of Directors, payable in stock or in cash at the option of KACC on or after March 1, 1991, in respect to years commencing January 1, 1990, based on a formula tied to KACC's income before tax from aluminum operations. When distributed to plan participants (generally upon separation from KACC), the Series A and B Stocks are entitled to an annual cash dividend of $5 per share, payable quarterly, when and as declared by the Board of Directors. Redemption fund agreements require KACC to make annual payments by March 31 each year based on a formula tied to consolidated net income until the redemption funds are sufficient to redeem all Series A and B Stock. On an annual basis, the minimum payment is $4.3 and the maximum payment is $7.3. In March 1993 and 1994, KACC contributed $4.3 for each of the years 1992 and 1993, and will contribute $4.3 in March 1995 for 1994. Under the USWA labor contract effective November 1, 1990, KACC was obligated to offer to purchase up to 80 shares of Series A Stock from each active participant in 1991 at a price equal to its redemption value of $50 per share. KACC also agreed to offer to purchase up to an additional 40 shares from each participant in 1994. The employees could elect to receive their shares, accept cash, or place the proceeds into KACC's 401(k) savings plan. Under separate action, KACC also offered to purchase 80 shares of Series B Stock from active participants in 1991 and 40 shares in 1994. Under the provisions of these contracts, in February 1994, KACC purchased $4.6 and $.8 of the Series A and B Stock, respectively. Under the USWA labor contract effective November 1, 1994, KACC is obligated to offer to purchase up to 40 shares of Series A Stock from each active participant in 1995 at a price equal to its redemption value of $50 per share. KACC also agreed to offer to purchase up to an additional 80 shares from each participant in 1998. In addition, if a profitability test is satisfied for either 1995 or 1996, KACC will offer to purchase from each active participant an additional 20 shares of such preference stock held in the stock ownership plan for the benefit of substantially the same employees in either 1996 or 1997. The employees could elect to receive their shares, accept cash, or place the proceeds into KACC's 401(k) savings plan. KACC will provide comparable purchases of Series B Stock from active participants. 45 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) The Series A and B Stock is distributed in the event of death, retirement, or in other specified circumstances. KACC also may redeem such stock at $50 per share plus accrued dividends, if any. At the option of the plan participant, the trustee shall redeem stock distributed from the plans at redemption value to the extent funds are available in the redemption fund. Under the Tax Reform Act of 1986, at the option of the plan participant, KACC must purchase distributed shares earned after December 31, 1985, at redemption value on a five- year installment basis, with interest at market rates. The obligation of KACC to make such installment payments must be secured. The Series A and B Stock is entitled to the same voting rights as KACC common stock and to certain additional voting rights under certain circumstances, including the right to elect, along with other KACC preference stockholders, two directors whenever accrued dividends have not been paid on two annual dividend payment dates or when accrued dividends in an amount equivalent to six full quarterly dividends are in arrears. The Series A and B Stock restricts the ability of KACC to redeem or pay dividends on common stock if KACC is in default on any dividends payable on the Series A and B Stock. Preference Stock KACC Cumulative Convertible Preference Stock, $100 par value ("$100 Preference Stock"), restricts acquisition of junior stock and payment of dividends. At December 31, 1994, such provisions were less restrictive as to the payment of cash dividends than the 1994 Credit Agreement provisions. KACC has the option to redeem the $100 Preference Stocks at par value plus accrued dividends. KACC does not intend to issue any additional shares of the $100 Preference Stocks. The 4-1/8% and 4-3/4% (1957 Series, 1959 Series, and 1966 Series) $100 Preference Stock can be exchanged for per share cash amounts of $69.30, $77.84, $78.38, and $76.46, respectively. KACC records the $100 Preference Stock at their exchange amounts for financial statement presentation and the Company includes such amounts in minority interests. The outstanding shares of KACC preference stock were:
December 31, -------------- 1994 1993 ---------------------------------------------------------------- 4-1/8% 3,657 3,921 4-3/4% (1957 Series) 2,605 2,623 4-3/4% (1959 Series) 13,534 13,605 4-3/4% (1966 Series) 3,640 3,890
Preferred Stock Series A Convertible - On June 30, 1993, Kaiser issued 17,250,000 of its $.65 Depositary Shares (the "Depositary Shares"), each representing one-tenth of a share of Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Shares"). In connection with the issuance of the Depositary Shares, MAXXAM Group Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, exchanged a $15.0 promissory note of KACC (the "MAXXAM Note") for an additional 2,132,950 Depositary Shares. On August 4, 1993, MGI transferred the 2,132,950 Depositary Shares to MAXXAM in exchange for satisfaction of a $15.0 promissory note evidencing a cash loan made to MGI by MAXXAM in January 1993. MAXXAM sold 1,239,400 of the Depositary Shares during 1994. The net cash proceeds from the sale of Depositary Shares were approximately $119.3. Kaiser used $37.8 of such net proceeds to make a non-interest-bearing loan to KACC evidenced by an intercompany note, which matures on June 29, 1996, and is payable in quarterly installments. The intercompany note is designed to provide sufficient funds to Kaiser to enable it to make dividend payments on the Series A Shares until June 30, 1996, the date on which the outstanding Series A Shares are mandatorily converted into shares of the Company's common stock. Kaiser used $81.5 of such net proceeds and the MAXXAM Note to make a capital contribution to KACC. KACC used $13.7 of the funds it received from Kaiser to prepay the remaining balance of the term loan 46 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) under the 1989 Credit Agreement and $105.6 of such funds to reduce outstanding borrowings under the revolving credit facility of the 1989 Credit Agreement. The owners of Depositary Shares are entitled to receive (when, as, and if the Board of Directors declares dividends on the Series A Shares) cumulative preferential cash dividends from the date of issue, accruing at the rate of $.65 per annum for each of the Depositary Shares, payable quarterly in arrears on the last day of each March, June, September, and December, commencing September 30, 1993. Holders of Depositary Shares (based on the voting rights of the Series A Shares) have one vote for each Depositary Share held of record, except as required by law, and are entitled to vote with the holders of common stock on all matters submitted to a vote of common stockholders. On June 30, 1996, each of the outstanding Depositary Shares automatically will convert (upon the automatic conversion of the Series A Shares) into one share of common stock, plus the right to receive an amount in cash equal to the accrued and unpaid dividends payable with respect to such Depositary Share. Automatic conversion of the outstanding Depositary Shares (and the Series A Shares) will occur upon certain mergers or consolidations of the Company (as defined). At any time or from time to time prior to June 30, 1996, the Company may call the outstanding Depositary Shares (by calling the Series A Shares) for redemption, in whole or in part, at a call price per Depositary Share initially equal to $12.46, declining by $.0018 on each day following the date of issue to $10.624 on April 30, 1996, and equal to $10.51 thereafter, payable in shares of common stock having an aggregate Current Market Price (as defined) equal to the applicable call price, plus an amount in cash equal to all accrued and unpaid dividends payable with respect to such Depositary Share. PRIDES Convertible - In the first quarter of 1994, the Company consummated the public offering of 8,855,550 shares of the PRIDES. The net proceeds from the sale of the shares of PRIDES were approximately $100.1. The Company used such net proceeds to make non-interest- bearing loans to KACC in the aggregate principal amount of $33.2 (the aggregate dividends scheduled to accrue on the shares of PRIDES from the issuance date until December 31, 1997, the date on which the outstanding PRIDES will be mandatorily converted into shares of the Company's common stock), evidenced by intercompany notes, and used the balance of such net proceeds to make capital contributions to KACC in the aggregate amount of $66.9. Holders of shares of PRIDES are entitled to receive (when, as, and if the Board of Directors declares dividends on the PRIDES) cumulative preferential cash dividends at a rate per annum of 8.255% of the per share offering price (equivalent to $.97 per annum for each share of PRIDES), from the date of initial issuance, payable quarterly in arrears on the last day of March, June, September, and December of each year. Holders of shares of PRIDES have a 4/5 vote for each share held of record and, except as required by law, are entitled to vote together with the holders of common stock and together with the holders of any other classes or series of stock (including the Series A Shares) who are entitled to vote in such manner on all matters submitted to a vote of common stockholders. On December 31, 1997, unless either previously redeemed or converted at the option of the holder, each of the outstanding shares of PRIDES will mandatorily convert into one share of the Company's common stock, subject to adjustment in certain events, and the right to receive an amount in cash equal to all accrued and unpaid dividends thereon (other than previously declared dividends payable to a holder of record on a prior date). Shares of PRIDES are not redeemable prior to December 31, 1996. At any time and from time to time on or after December 31, 1996, the Company may redeem any or all of the outstanding shares of PRIDES. Upon any such redemption, each holder will receive, in exchange for each share of PRIDES, the number of shares of common stock equal to (A) the sum of $11.9925, declining after December 31, 1996, to $11.75 until December 31, 1997, plus, in the event the Company does not elect to pay cash dividends to the redemption date, all accrued and unpaid dividends thereon divided by (B) the Current Market Price (as defined) 47 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) on the applicable date of determination, but in no event less than .8333 of a share of common stock, subject to adjustment in certain events. At any time prior to December 31, 1997, unless previously redeemed, each share of PRIDES is convertible at the option of the holder thereof into .8333 of a share of common stock (equivalent to a conversion price of $14.10 per share of common stock), subject to adjustment in certain events. The number of shares of common stock a holder will receive upon redemption, and the value of the shares received upon conversion, will vary depending on the market price of the common stock from time to time. Dividends on Common Stock The Company paid cash dividends on common stock of $2.9 in each quarter of 1992. As required under the 1989 Credit Agreement, on December 15, 1992, KACC issued a Pay-in-Kind Note (the "PIK Note") to MGI in the principal amount of $2.5, representing the entire amount of the dividend received by MGI in respect of the shares of the Company's common stock which it owned. The PIK Note bears interest, compounded semiannually, at a rate equal to 12% per annum, and is due and payable, together with accrued interest thereon, on June 30, 1995. The indentures governing the Senior Notes and the 12-3/4% Notes restrict, among other things, KACC's ability, and the 1994 Credit Agreement restricts, among other things, Kaiser's and KACC's ability, to incur debt, undertake transactions with affiliates, and pay dividends. Under the most restrictive of these covenants, neither the Company nor KACC currently is permitted to pay dividends on its common stock. At December 31, 1994, 28,000,000 shares of the Company's common stock owned by MAXXAM were pledged as security for debt issued by MGI, consisting of $100.0 aggregate principal amount of 11-1/4% Senior Secured Notes due 2003 and $126.7 aggregate principal amount of 12-1/4% Senior Secured Discount Notes due 2003. 9. Commitments and Contingencies --------------------------------- Commitments KACC has financial commitments, including purchase agreements, tolling arrangements, forward foreign exchange and forward sales contracts (see Note 10), letters of credit, and guarantees. Such purchase agreements and tolling arrangements include long-term agreements for the purchase and tolling of bauxite into alumina in Australia by QAL. These obligations expire in 2008. Under the agreements, KACC is unconditionally obligated to pay its proportional share of debt, operating costs, and certain other costs of QAL. The aggregate minimum amount of required future principal payments at December 31, 1994, is $78.7, due in 1997. The KACC share of payments, including operating costs and certain other expenses under the agreement, was $85.6, $86.7, and $99.2 for the years ended December 31, 1994, 1993, and 1992, respectively. KACC also has agreements to supply alumina to and to purchase aluminum from Anglesey. Minimum rental commitments under operating leases at December 31, 1994, are as follows: years ending December 31, 1995 - $22.1; 1996 - $21.5; 1997 - $21.0; 1998 - $24.1; 1999 - $30.4; thereafter - $213.9. The future minimum rentals receivable under noncancelable subleases was $73.2 at December 31, 1994. Rental expenses were $26.8, $29.0, and $26.2 for the years ended December 31, 1994, 1993, and 1992, respectively. Environmental Contingencies The Company and KACC are subject to a wide variety of environmental laws and regulations and to fines or penalties assessed for alleged breaches of the environmental laws and to claims and litigation based upon such laws. KACC currently is subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and 48 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, along with certain other entities, has been named as a potentially responsible party for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA. Based on the Company's evaluation of these and other environmental matters, the Company has established environmental accruals primarily related to potential solid waste disposal and soil and groundwater remediation matters. The following table presents the changes in such accruals, which are primarily included in Long-term liabilities, for the years ended December 31, 1994, 1993, and 1992:
1994 1993 1992 ------------------------------------------------------------------- Balance at beginning of period $40.9 $46.4 $51.5 Additional amounts 2.8 1.7 4.5 Less expenditures (3.6) (7.2) (9.6) ----- ----- ----- Balance at end of period $40.1 $40.9 $46.4 ===== ===== =====
These environmental accruals represent the Company's estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing technology, and the Company's assessment of the likely remediation action to be taken. The Company expects that these remediation actions will be taken over the next several years and estimates that annual expenditures to be charged to these environmental accruals will be approximately $3.0 to $11.0 for the years 1995 through 1999 and an aggregate of approximately $11.0 thereafter. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established, or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. 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 approximately $20.0. 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 or results of operations. Asbestos Contingencies KACC is a defendant in a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by 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 15 years. At December 31, 1994, the number of such lawsuits pending was approximately 25,200 with approximately 14,300 received and 12,500 settled or dismissed in 1994. Based on prior experience, KACC estimates that annual future cash payments in connection with such litigation will be approximately $11.0 to $14.0 for the years 1995 through 1999, and an aggregate of approximately $95.0 thereafter through 2007. 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 and settled through 2007. The Company does not presently believe there is a reasonable basis for estimating such costs beyond 2007 and, accordingly, no accrual has been recorded for such costs which may be incurred. This accrual was calculated based on the current and anticipated number of asbestos-related claims, the prior timing and amounts of asbestos-related payments, the current state of case law related to asbestos claims, the advice of counsel, and the anticipated effects of inflation and discounting at 49 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) an estimated risk-free rate (8% at December 31, 1994). Accordingly, an asbestos-related cost accrual of $102.0 is included primarily in Long-term liabilities at December 31, 1994. The aggregate amount of the undiscounted liability at December 31, 1994 is $158.1, before considerations for insurance recoveries. The Company believes that KACC has insurance coverage available to recover a substantial portion of its asbestos-related costs. While claims for recovery from some of KACC's insurance carriers are currently subject to pending litigation and other carriers have raised certain defenses, the Company believes, based on prior insurance- related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of counsel, that substantial recoveries from the insurance carriers are probable. Accordingly, an estimated aggregate insurance recovery of $86.4, determined on the same basis as the asbestos-related cost accrual, is recorded primarily in Other assets at December 31, 1994. 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 the insurance recoveries that will be received, management currently believes that, based on the factors discussed in the preceding paragraphs, the resolution of the 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 or results of operations. Other Contingencies The Company or KACC is involved in various other claims, lawsuits, and other proceedings relating to a wide variety of matters. While uncertainties are inherent in the final outcome of such matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position or results of operations. 10. Derivative Financial Instruments and Related Hedging Programs ------------------------------------------------------------------ KACC enters into a number of financial instruments with off-balance-sheet risk in the normal course of business that are designed to reduce its exposure to fluctuations in foreign exchange rates, alumina, primary aluminum, and fabricated aluminum products prices, and the cost of purchased commodities. KACC has significant expenditures which are denominated in foreign currencies related to long-term purchase commitments with its affiliates in Australia and the United Kingdom, which expose KACC to certain exchange rate risks. In order to mitigate its exposure, KACC periodically enters into forward foreign exchange and currency option contracts in Australian dollars and Pounds Sterling to hedge these commitments. The forward foreign currency exchange contracts are agreements to purchase or sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. At December 31, 1994, KACC had net forward foreign exchange contracts totaling approximately $74.4 for the purchase of 102.0 Australian dollars through December 31, 1996. To mitigate its exposure to declines in the market prices of alumina, primary aluminum, and fabricated aluminum products, while retaining the ability to participate in favorable pricing environments that may materialize, KACC has developed strategies which include forward sales of primary aluminum at fixed prices and the purchase or sale of options for primary aluminum. Under the principal components of KACC's price risk management strategy, which can be modified at any time, (i) varying quantities of KACC's anticipated production are sold forward at fixed prices; (ii) call options are purchased to allow KACC to participate in certain higher market prices, should they materialize, for a portion of KACC's primary aluminum and alumina sold forward; (iii) option contracts are entered into to establish a price range 50 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) KACC will receive for a portion of its primary aluminum and alumina; and (iv) put options are purchased to establish minimum prices KACC will receive for a portion of its primary aluminum and alumina. In this regard, in respect of its 1995 anticipated production, as of December 31, 1994, KACC had sold forward 170,950 metric tons of primary aluminum at fixed prices, purchased call options in respect of 69,000 metric tons of primary aluminum, purchased put options to establish a minimum price for 193,500 metric tons of primary aluminum, and entered into option contracts that established a price range for 90,000 metric tons of primary aluminum. KACC will not receive the benefit of market price increases to the extent (i) the quantity of production sold forward is greater than the tonnage covered by the purchased call options; (ii) market prices exceed the prices at which primary aluminum is sold forward, but are less than the strike price of the purchased call options, on the tonnage covered by the options; or (iii) market prices exceed the maximum of the price range on the tonnage covered by the option contracts entered to establish a price range. In addition, KACC enters into forward fixed price arrangements with certain customers which provide for the delivery of a specific quantity of fabricated aluminum products over a specified future period of time. In order to establish the cost of primary aluminum for a portion of such sales, KACC may enter into forward and option contracts. In this regard, at December 31, 1994, KACC had purchased 4,500 metric tons of primary aluminum under forward purchase contracts at fixed prices that expire at various times through June 1995. KACC has also entered into a natural gas pricing contract to fix future prices of a portion (20,000 million BTUs per day) of a plant's natural gas supply through March 1995. At December 31, 1994, the net unrealized gain on KACC's position in forward foreign exchange was $3.5 and the net unrealized loss on aluminum forward sales and option contracts and the natural gas pricing contract was $80.4, based on a price of $1,955 per metric ton of aluminum and $1.59 per million BTUs of natural gas. The Company has established margin accounts with its counterparties related to aluminum forward sales and option contracts. The Company is entitled to receive advances from counterparties related to unrealized gains and, in turn, is required to make margin deposits with counterparties to cover unrealized losses related to these contracts. At December 31, 1994, the Company had $50.5 on deposit with various counterparties in respect of such unrealized losses. This amount is recorded in Prepaid expenses and other current assets. KACC is exposed to credit risk in the event of non-performance by other parties to these currency and commodity contracts, but KACC does not anticipate non-performance by any of these counterparties, given their credit worthiness. When appropriate, KACC arranges master netting agreements. 51 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) 11. Segment and Geographical Area Information Sales and transfers among geographic areas are made on a basis intended to reflect the market value of products. The aggregate foreign currency gain included in determining net income was $.8, $4.9, and $12.0 for the years ended December 31, 1994, 1993, and 1992, respectively. Sales of more than 10% of total revenue to a single customer were $58.2, $40.7, and $135.3 of bauxite and alumina and $147.7, $145.7, and $144.9 of aluminum processing for the years ended December 31, 1994, 1993, and 1992. Export sales were less than 10% of total revenue during the years ended December 31, 1994, 1993, and 1992, respectively. Geographical area information relative to operations is summarized as follows:
Year Ended Other December 31, Domestic Caribbean Africa Foreign Eliminations Total ------------------------------------------------------------------------------------------------------------------ Net sales to unaffiliated customers 1994 $1,263.2 $169.9 $180.0 $168.4 $1,781.5 1993 1,177.8 155.4 207.5 178.4 1,719.1 1992 1,285.0 170.1 263.5 190.5 1,909.1 Sales and transfers among 1994 $ 98.7 $139.4 $(238.1) geographic areas 1993 88.2 79.6 (167.8) 1992 90.1 86.5 (176.6) Equity in income (losses) of 1994 $ .2 $ (2.1) $ (1.9) unconsolidated affiliates 1993 (3.3) (3.3) 1992 (1.9) (1.9) Operating income (loss) 1994 $ (128.8) $ 9.9 $ 18.3 $ 44.4 $ (56.2) 1993 (145.9) (11.8) 21.9 12.4 (123.4) 1992 (36.9) 26.5 65.4 34.9 89.9 Investment in and advances to 1994 $ 1.2 $ 28.8 $139.7 $ 169.7 unconsolidated affiliates 1993 1.0 30.5 151.7 183.2 Identifiable assets 1994 $1,933.8 $364.8 $200.0 $199.5 $2,698.1 1993 1,758.0 360.4 223.0 186.5 2,527.9
52 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In millions of dollars, except share amounts) Financial information by industry segment at December 31, 1994 and 1993, and for the years ended December 31, 1994, 1993, and 1992, is as follows:
Year Ended Bauxite & Aluminum December 31, Alumina Processing Corporate Total ---------------------------------------------------------------------------------------------- Net sales to unaffiliated customers 1994 $432.5 $1,349.0 $1,781.5 1993 423.4 1,295.7 1,719.1 1992 466.5 1,442.6 1,909.1 Intersegment sales 1994 $146.8 $ 146.8 1993 129.4 129.4 1992 179.9 179.9 Equity in earnings (losses) of 1994 $ (4.7) $ 2.6 $ .2 $ (1.9) unconsolidated affiliates 1993 (2.5) (.8) (3.3) 1992 1.8 (3.7) (1.9) Operating income (loss) 1994 $ 19.8 $ (8.4) $(67.6) $ (56.2) 1993 (4.5) (46.3) (72.6) (123.4) 1992 62.6 104.9 (77.6) 89.9 Effect of changes in accounting principles on operating income (loss) SFAS 106 1993 $ (2.0) $ (16.1) $ (1.1) $ (19.2) SFAS 109 1993 (7.7) (7.8) .3 (15.2) Depreciation 1994 $ 33.5 $ 59.1 $ 2.8 $ 95.4 1993 35.3 59.9 1.9 97.1 1992 29.8 49.0 1.5 80.3 Capital expenditures 1994 $ 28.9 $ 39.9 $ 1.2 $ 70.0 1993 35.3 31.2 1.2 67.7 1992 50.8 39.4 24.2 114.4 Investment in and advances to 1994 $136.6 $ 31.9 $ 1.2 $ 169.7 unconsolidated affiliates 1993 151.5 30.7 1.0 183.2 Identifiable assets 1994 $749.6 $1,242.3 $706.2 $2,698.1 1993 734.0 1,214.9 579.0 2,527.9
53 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES FIVE-YEAR FINANCIAL DATA CONSOLIDATED BALANCE SHEETS
December 31, ------------------------------------------------ (In millions of dollars) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 17.6 $ 14.7 $ 19.1 $ 15.8 $ 23.9 Receivables 199.2 234.7 270.0 218.8 227.5 Inventories 468.0 426.9 439.9 498.6 523.9 Prepaid expenses and other current assets 158.0 60.7 37.0 84.0 36.1 -------- -------- -------- -------- -------- Total current assets 842.8 737.0 766.0 817.2 811.4 -------- -------- -------- -------- -------- Investments in and advances to unconsolidated affiliates 169.7 183.2 150.1 161.9 184.5 Property, plant, and equipment - net 1,133.2 1,163.7 1,066.8 1,014.5 970.3 Deferred income taxes 271.2 210.8 Other assets 281.2 233.2 189.7 140.5 152.3 -------- -------- -------- -------- -------- Total $2,698.1 $2,527.9 $2,172.6 $2,134.1 $2,118.5 ======== ======== ======== ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accruals $ 439.3 $ 339.7 $ 351.4 $ 461.6 $ 432.1 Accrued postretirement medical benefit obligation - current portion 47.0 47.6 Payable to affiliates 85.3 62.4 78.4 87.1 82.4 Long-term debt - current portion 11.5 8.7 25.9 26.3 32.5 -------- -------- -------- -------- -------- Total current liabilities 583.1 458.4 455.7 575.0 547.0 Long-term liabilities 495.5 501.8 281.7 212.9 310.8 Accrued postretirement medical benefit obligation 734.9 713.1 Long-term debt 751.1 720.2 765.1 681.5 631.5 Note payable to parent 150.0 Minority interests 116.2 105.0 104.9 108.9 123.2 Stockholders' equity: Preferred stock .6 .2 Common stock .6 .6 .6 .6 .5 Additional capital 527.8 425.9 288.5 287.9 140.9 Retained earnings (accumulated deficit) (502.6) (375.7) 282.8 267.3 214.6 Additional minimum pension liability (9.1) (21.6) (6.7) -------- -------- -------- -------- -------- Total stockholders' equity 17.3 29.4 565.2 555.8 356.0 -------- -------- -------- -------- -------- Total $2,698.1 $2,527.9 $2,172.6 $2,134.1 $2,118.5 ======== ======== ======== ======== ======== Debt-to-capital ratio 82.4 81.3 54.1 51.5 51.1 Total debt as a ratio of total debt, deferred income tax liabilities, minority interests, and stockholders' equity. Excludes the effect of a $150.0 dividend paid in the form of an intercompany promissory note to parent.
54 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES FIVE-YEAR FINANCIAL DATA STATEMENTS OF CONSOLIDATED INCOME (LOSS)
Year Ended December 31, --------------------------------------------------- (In millions of dollars, except share amounts) 1994 1993 1992 1991 1990 ----------------------------------------------------------------------------------------------------- Net sales $1,781.5 $1,719.1 $1,909.1 $2,000.8 $2,095.0 -------- -------- -------- -------- -------- Costs and expenses: Cost of products sold 1,625.5 1,587.7 1,619.3 1,594.2 1,525.2 Depreciation 95.4 97.1 80.3 73.2 70.5 Selling, administrative, research and development, and general 116.8 121.9 119.6 117.4 123.2 Restructuring of operations 35.8 -------- -------- -------- -------- -------- Total costs and expenses 1,837.7 1,842.5 1,819.2 1,784.8 1,718.9 -------- -------- -------- -------- -------- Operating income (loss) (56.2) (123.4) 89.9 216.0 376.1 Other income (expense): Interest and other income - net (7.3) (.9) 20.9 20.3 17.6 Interest expense (88.6) (84.2) (78.7) (93.9) (96.6) -------- -------- -------- -------- -------- Income (loss) before income taxes, minority interests, extraordinary loss and cumulative effect of changes in accounting principles (152.1) (208.5) 32.1 142.4 297.1 Credit (provision) for income taxes 53.8 86.9 (5.3) (32.4) (75.6) Minority interests (3.1) (1.5) .1 (1.6) (7.8) -------- -------- -------- -------- -------- Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles (101.4) (123.1) 26.9 108.4 213.7 Extraordinary loss on early extinguishment of debt, net of tax benefit of $2.9 and $11.2 for 1994 and 1993, respectively (5.4) (21.8) Cumulative effect of changes in accounting principles net of tax benefit of $237.7 (507.3) -------- -------- -------- -------- -------- Net income (loss) $ (106.8) $ (652.2) $ 26.9 $ 108.4 $ 213.7 ======== ======== ======== ======== ======== Per common and common equivalent share: Net income (loss) $ (2.18) $ (11.47) $ .47 $ 2.03 $ 4.27 Dividends declared .20 1.10 3.00
55 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended ---------------------------------------------- (In millions of dollars, except share amounts) March 31 June 30 September 30 December 31 -------------------------------------------------------------------------------------------------------------- 1994 Net sales $415.1 $459.5 $461.1 $445.8 Operating loss 25.6 14.2 6.9 9.5 Loss before extraordinary loss 29.3 23.6 20.8 27.7 Extraordinary loss - net 5.4 Net loss 34.7 23.6 20.8 28.4 Per common and common equivalent share: Loss before extraordinary loss .58 .50 .45 .57 Extraordinary loss - net .09 Net loss .67 .50 .45 .57 Common stock market price: High 12-1/2 10-1/2 11-5/8 12-3/8 Low 9 8-1/4 9-1/2 9-3/4 1993 Net sales $442.6 $432.2 $428.4 $415.9 Operating loss 9.7 14.2 17.5 82.0 Loss before extraordinary loss and cumulative effect of changes in accounting principles 16.6 19.4 21.0 66.1 Extraordinary loss - net 21.8 Cumulative effect of changes in accounting principles - net 507.3 Net loss 545.7 19.4 21.0 66.1 Per common and common equivalent share: Loss before extraordinary loss and cumulative effect of changes in accounting principles .29 .34 .42 1.20 Extraordinary loss - net .38 Cumulative effect of changes in accounting principles - net 8.85 Net loss 9.52 .34 .42 1.20 Common stock market price: High 9-7/8 8 8-5/8 10-1/2 Low 7-3/8 6-3/8 6-5/8 6-7/8 Includes pre-tax charges of approximately $10.3 and $10.8 principally related to establishing additional litigation and environmental reserves in the fourth quarters of 1994 and 1993, respectively. Includes pre-tax charges of approximately $35.8 related to the restructuring of operations and $19.4 because of a reduction in the carrying value of inventories.
56 EX-27 7
5 This schedule contains summary financial information extracted from the interim consolidated financial statements of the Company for twelve months ended December 31, 1994, and is qualified in its entirety by reference to such financial statements. 0000811596 KAISER ALUMINUM CORPORATION 1,000,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 18 0 199 0 468 843 1,133 0 2,698 583 0 1 1 0 15 2,698 1,782 1,782 1,626 1,626 212 0 89 (152) 54 (101) 0 (5) 0 (107) (2.18) (2.18)