=================================================================- --------------------------------------------------------------------------------
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, 19982001 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-
3777267-3777
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $.01 par value New York Stock Exchange
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/X/ No --- ----/ /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___/ /
As of March 23, 1999,15, 2002, there were 79,153,54380,627,624 shares of the Common Stock of the
registrant outstanding. Based upon the New York Stock Exchange closing price on
March 23, 1999,15, 2002, the aggregate market value of the registrant's Common Stock held
by non-
affiliatesnon-affiliates was $143.7$7.6 million.
Certain portions of the registrant's annual report to
shareholders for the fiscal year ended December 31, 1998, are
incorporated by reference into Parts I, II, and IV of this Report
on Form 10-K. Certain portions of the registrant's definitive
proxy statement to be filed not later than 120 days after the
close of the registrant's fiscal year are incorporated by
reference into Part III of this Report on Form 10-K.
=================================================================Documents Incorporated By Reference
None
- --------------------------------------------------------------------------------
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 23101 - 28110 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 7705777057-3010
(713) 267-3777
(i)
TABLE OF CONTENTS
Page
----
PART I 1
ITEM 1. BUSINESS
1
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
14
PART II 14
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
14
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
16
PART III 16
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
16
ITEM 11. EXECUTIVE COMPENSATION 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
16
PART IV 16
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
16
SCHEDULE I
18
SIGNATURES 22
INDEX OF EXHIBITS
23
EXHIBIT 21 SUBSIDIARIES 29
(ii)
PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K (the "Report") contains statements which
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Report (see, for example, Item 1. "Business - Strategic
Initiatives," " - Business
Operations," " - Competition," " -
Research and Development," " - Environmental Matters," and " - Factors
Affecting Future Performance," Item 3. "Legal Proceedings," and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"). Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will," "should,"
"plans" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. Readers are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results may vary materially from those in the forward-looking statements as a
result of various factors. These factors include the effectiveness of
management's strategies and decisions, general economic and business conditions,
developments in technology, new or modified statutory or regulatory
requirements, and changing prices and market conditions. This
Report and the financial portion of the Company's 1998 Annual
Report to Shareholders (see Items 6 through 8Certain sections of
this Report)Report identify other factors that could cause differences between such
differences.forward-looking statements and actual results (see Item 1. "Business - Factors
Affecting Future Performance"). No assurance can be given that these are all of
the factors that could cause actual results to vary materially from the
forward-
lookingforward-looking statements.
GeneralGENERAL
Kaiser Aluminum Corporation (the "Company"), a Delaware corporation organized in
1987, is a subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM and one of its wholly-ownedwholly
owned subsidiaries together own approximately 63%62% of the Company's Common Stock,
with the remaining approximately 37%38% publicly held. The Company, through its
wholly owned 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.
REORGANIZATION PROCEEDINGS
On February 12, 2002, the Company, KACC and 13 of KACC's wholly owned
subsidiaries filed separate voluntary petitions in the United States Bankruptcy
Court for the District of Delaware (the "Court") for reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Code"). On March 15, 2002,
two additional wholly owned subsidiaries of KACC filed petitions. The Company,
KACC and the 15 subsidiaries of KACC that have filed petitions are collectively
referred to herein as the "Debtors" and the Chapter 11 proceedings of these
entities are collectively referred to herein as the "Cases." For purposes of
this Report, the term "Filing Date" shall mean, with respect to any particular
Debtor, the date on which such Debtor filed its Case. The wholly owned
subsidiaries of KACC included in the Cases are: Kaiser Bellwood Corporation,
Kaiser Aluminium International, Inc., Kaiser Aluminum Technical Services, Inc.,
Kaiser Alumina Australia Corporation (and its wholly owned subsidiary, Kaiser
Finance Corporation) and ten other entities with limited balances or activities.
None of KACC's non-U.S. affiliates were included in the Cases. The Cases are
being jointly administered with the Debtors managing their businesses in the
ordinary course as debtors-in-possession subject to the control and supervision
of the Court.
The necessity for filing the Cases was attributable to the liquidity and cash
flow problems of the Company arising in late 2001 and early 2002. The Company
was facing significant near-term debt maturities at a time of unusually weak
aluminum industry business conditions, depressed aluminum prices and a broad
economic slowdown that was further exacerbated by the events of September 11. In
addition, the Company had become increasingly burdened by the asbestos
litigation and growing legacy obligations for retiree medical and pension costs.
The confluence of these factors created the prospect of continuing operating
losses and negative cash flow, resulting in lower credit ratings and an
inability to access the capital markets.
The outstanding principal of, and accrued interest on, all long-term debt of the
Debtors became immediately due and payable as a result of the commencement of
the Cases. However, the vast majority of the claims in existence at the Filing
Date (including claims for principal and accrued interest and substantially all
legal proceedings) are stayed (deferred) while the Company and KACC continue to
manage the businesses. The Court, however, upon motion by the Debtors, has
permitted the Debtors to pay or otherwise honor certain unsecured pre-Filing
Date claims, including employee wages and benefits and customer claims in the
ordinary course of business, subject to certain limitations, and to fund, on an
interim basis pending a final determination on the issue by the Court, its joint
ventures in the ordinary course of business. The Debtors also have the right to
assume or reject executory contracts, subject to Court approval and certain
other limitations. In this context, "assumption" means that the Debtors agree to
perform their obligations and cure certain existing defaults under an executory
contract and "rejection" means that the Debtors are relieved from their
obligations to perform further under an executory contract and are subject only
to a claim for damages for the breach thereof. Any claim for damages resulting
from the rejection of an executory contract is treated as a general unsecured
claim in the Cases.
Generally, pre-Filing Date claims against the Debtors will fall into two
categories: secured and unsecured, including certain contingent or unliquidated
claims. Under the Code, a creditor's claim is treated as secured only to the
production utilizedextent of the value of the collateral securing such claim, with the balance of
such claim being treated as unsecured. Unsecured and partially secured claims do
not accrue interest after the Filing Date. A fully secured claim, however, may
accrue interest after the Filing Date until the amount due and owing to the
secured creditor, including interest accrued after the Filing Date, is equal to
the value of the collateral securing such claim. The amount and validity of
pre-Filing Date contingent or unliquidated claims, although presently unknown,
ultimately may be established by the Court or by agreement of the parties. As a
result of the Cases, additional pre-Filing Date claims and liabilities may be
asserted, some of which may be significant. No provision has been included in
the accompanying financial statements for such potential claims and additional
liabilities that may be filed on or before a date to be fixed by the Court as
the last day to file proofs of claim.
The following table sets forth certain 2001 financial information for the
Debtors and non-Debtors.
Consolidation/
Elimination
Debtors Non-Debtors Entries Consolidated
---------------- ---------------- -------------- --------------
Net sales $ 1,252.8 $ 592.7 $ (112.8) $ 1,732.7
Operating income 66.0 11.3 (12.4) 64.9
Net income (loss) (445.9) 11.7 (25.2) (459.4)
Current assets $ 607.6 $ 151.6 $ - $ 759.2
Current liabilities 702.0 101.4 - 803.4
Total assets $ 2,449.8 $ 1,654.7 $ (1,360.8) $ 2,743.7
Total liabilities and minority interests 2,890.9 274.2 19.7 3,184.8
Total equity (441.1) 1,380.5 (1,380.5) (441.1)
On February 12, 2002, in order to fund cash requirements during the pendency of
the Cases, the Company and KACC entered into a post-petition credit agreement
with a group of lenders for debtor-in-possession financing (the "DIP Facility")
which provides for a secured, revolving line of credit through the earlier of
February 12, 2004, the effective date of a plan of reorganization or voluntary
termination by the Company. KACC is able to borrow under the DIP Facility by
means of revolving credit advances and letters of credit (up to $125.0 million)
in its
operations,an aggregate amount equal to the lesser of $300.0 million or a borrowing base
relating to eligible accounts receivable, eligible inventory and eligible fixed
assets reduced by certain reserves, as defined in the DIP Facility agreement.
The DIP Facility is guaranteed by the Company and certain significant
subsidiaries of KACC. Interest on any outstanding balances will bear a spread
over either a base rate or LIBOR, at KACC's option. The Court signed a final
order approving the DIP Facility on March 19, 2002.
The Company's and KACC's objective is to achieve the highest possible recoveries
for all creditors and stockholders, consistent with the Debtors' abilities to
pay and the continuation of their businesses. However, there can be no assurance
that the Debtors will be able to attain these objectives or achieve a successful
reorganization. Further, there can be no assurance that the liabilities of the
Debtors will not be found in the Cases to exceed the fair value of their assets.
This could result in claims being paid at less than 100% of their face value and
the equity of the Company's stockholders being diluted or cancelled. At this
time, it is not possible to predict the outcome of the Cases, in general, or the
effect of the Cases on the businesses of the Debtors or on the interests of
creditors and stockholders.
Two creditors' committees, one representing the unsecured creditors and the
other representing the asbestos claimants, have been appointed as official
committees in the Cases and, in accordance with the provisions of the Code, will
have the right to be heard on all matters that come before the Court. The
Debtors expect that the appointed committees, together with a legal
representative of potential future asbestos claimants to be appointed by the
Court, will play important roles in the Cases and the negotiation of the terms
of any plan or plans of reorganization. The Debtors are required to bear certain
of the committees' costs and expenses, including those of their counsel and
other advisors.
The Debtors anticipate that substantially all liabilities of the Debtors as of
the Filing Date will be resolved under one or more plans of reorganization to be
proposed and voted on in the Cases in accordance with the provisions of the
Code. Although the Debtors intend to file and seek confirmation of such a plan
or plans, there can be no assurance as to when the Debtors will file such a plan
or plans, or that such plan or plans will be confirmed by the Court and
consummated.
As provided by the Code, the Debtors initially have the exclusive right to
propose a plan of reorganization for 120 days following the Filing Date. If the
Debtors fail to file a plan of reorganization during such period or any
extension thereof, or if such plan is not accepted by the requisite numbers of
creditors and equity holders entitled to vote on the plan, other parties in
interest in the Cases may be permitted to propose their own plan(s) of
reorganization for the Debtors.
SUMMARY OF OPERATIONS
KACC sells significant amounts of alumina and primary aluminum in domestic and
international markets. In 1998, KACC
produced approximately 2,964,000 tons*markets in excess of alumina, of which
approximately 76% was sold to third parties, and produced
approximately 387,000 tons of primary aluminum, of which
approximately 68% was sold to third parties. KACC is also a
major domestic supplier of fabricated aluminum products. In
1998, KACC shipped approximately 405,000 tons of fabricated
aluminum products to third parties, which accounted for
approximately 5% of total United States domestic shipments.
The Company's operations are conducted through KACC's business
units.its internal requirements. The following
table sets forth totalproduction and third party purchases of bauxite, alumina and
primary aluminum and third party shipments and intersegment transfers of
KACC'sbauxite, alumina, primary aluminum and fabricated products for the years ended
December 31, 2001, 2000 and 1999:
Sources(3) Uses(3)
------------------------------------ ----------------------------------
Third Party Third Party Intersegment
Production Purchases Shipments Transfers
------------------ ---------------- ----------------- ---------------
(in thousands of tons*)
Bauxite -
2001 5,628.3 1,916.3 1,512.2 4,355.4
2000 4,305.0 2,290.0 2,007.0 2,342.0
1999 5,261.0 2,251.6 1,497.0 3,515.0
Alumina -
2001 2,813.9(1) 115.0 2,582.7 422.8
2000 2,042.9 322.0 1,927.1 751.9
1999 2,524.0 395.0 2,093.9 757.3
Primary Aluminum -
2001 214.3 214.4 437.2(2) -
2000 411.4 206.5 672.4(2) -
1999 426.4 260.1 684.6(2) -
(1) During September 2001, KACC sold an 8.3% interest in Queensland Alumina
Limited ("QAL"). See "Business Operations--Bauxite and Alumina Business
Unit--QAL" below for a discussion of effects of the sale on alumina
production.
(2) Includes both primary aluminum operations:
-----------shipments and pounds of aluminum contained
in fabricated aluminum product shipments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Selected
Operational and Financial Information" for an allocation of shipments
between primary aluminum and pounds of aluminum in fabricated aluminum
products.
(3) Sources and uses will not equal due to the impact of inventory changes and
alumina and primary aluminum swaps.
- ---------------------------
* All references to tons in this Report refer to metric tons of 2,204.6 pounds.
Year Ended December 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(in thousands of tons)
ALUMINA:
Shipments to Third Parties 2,250.0 1,929.8 2,073.7
Intersegment Transfers 750.7 968.0 912.4
-------------- -------------- --------------
3,000.7 2,897.8 2,986.1
-------------- -------------- --------------
PRIMARY ALUMINUM:
Shipments to Third Parties 263.2 327.9 355.6
Intersegment Transfers 162.8 164.2 128.3
-------------- -------------- --------------
426.0 492.1 483.9
-------------- -------------- --------------
FLAT-ROLLED PRODUCTS: 235.6 247.9 204.8
ENGINEERED PRODUCTS: 169.4 152.1 122.3
Note 11 of Notes to Consolidated Financial Statements contained
in the Company's 1998 Annual Report to Shareholders (the "Annual
Report") is incorporated herein by reference.
Labor Matters
Substantially all of KACC's hourly workforce at the Gramercy,
Louisiana, alumina refinery, Mead and Tacoma, Washington,
aluminum smelters, Trentwood, Washington, rolling mill, and
Newark, Ohio, extrusion facility were covered by a master labor
agreement with the United Steelworkers of America (the "USWA")
which expired on September 30, 1998. The parties did not reach
an agreement prior to the expiration of the master agreement and
the USWA chose to strike. In January 1999 KACC declined an offer
by the USWA to have the striking workers return to work at the
five plants without a new agreement. KACC imposed a lock-out to
support its bargaining position and continues to operate the
plants with salaried employees and other workers as it has since
the strike began. Based on operating results to date, the
Company believes that a significant business interruption will
not occur.
As a result of the USWA strike, KACC temporarily curtailed
three out of a total of eleven potlines at its Mead and Tacoma,
Washington, aluminum smelters at September 30, 1998. The
curtailed potlines represent approximately 70,000 tons of annual
production capacity out of a total combined production capacity
of 273,000 tons per year at the facilities. In February 1999,
KACC began restarting the two curtailed potlines at its Mead
smelter representing approximately 50,000 tons of the previously
idle capacity. KACC has also announced that it has completed
preparations to restart 20,000 tons of idle capacity at its
Tacoma smelter. However, the timing for any restart of the
Tacoma potline has yet to be determined and will depend upon
market conditions and other factors. Costs associated with the
preparation and restart of the potlines at the Mead and Tacoma
facilities are expected to adversely affect the Company's first
quarter results.
While the Company initially experienced an adverse strike-related
impact on its profitability in the fourth quarter of 1998, the
Company currently believes that KACC's operations at the affected
facilities have been substantially stabilized and will be able to
run at, or near, full capacity, and that the incremental costs
associated with operating the affected plants during the dispute
were eliminated or substantially reduced as of January 1999
(excluding the impacts of the restart costs discussed above and
the effect of market factors such as the continued market-related
curtailment at the Tacoma smelter). However, no assurances can
be given that KACC's efforts to run the plants on a sustained
basis, without a significant business interruption or material
adverse impact on the Company's operating results, will be
successful.
See Note 1 of Notes to Consolidated Financial Statements "- Labor
Related Costs," and Note 9 of Notes to Consolidated Financial
Statements "- Labor Matters" in the Annual Report.
Strategic Initiatives
KACC's strategic objectives include the improvement of the
earnings from its existing businesses; the redeployment of its
existing investment in assets that are not strategically
essential to continued profit growth; the addition of assets to
its growth businesses; and the improvement of its financial
structure.
In 1996, the Company set a goal of achieving $120.0 million of
pre-tax cost reductions and other profit improvements,
independent of metal price changes, with the full effect planned
to be realized in 1998 and beyond, measured against 1996 results.
The Company believes that KACC's operations had achieved the run
rate necessary to meet this objective prior to the end of the
third quarter of 1998, when the impact of such items as smelter
operating levels, the USWA strike and foreign currency changes
are excluded from the analysis. Further, the Company believes
that KACC has implemented the steps that will allow it to sustain
the stated goal over the long term. The Company remains
committed to sustaining the full $120.0 million improvement and
to generating additional profit improvements in future years;
however, no assurances can be given that the Company will be
successful in this regard. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Labor
Matters, - Strategic Initiatives, and - Valco Operating Level",
and Note 1 of Notes to Consolidated Financial Statements "- Labor
Related Costs" in the Annual Report.
In addition to working to improve the performance of the
Company's existing assets, the Company has devoted significant
efforts analyzing its existing asset portfolio with the intent of
focusing its efforts and capital in sectors of the industry that
are considered most attractive, and in which the Company believes
it is well positioned to capture value. The initial steps of
this process resulted in the June 1997 acquisition of the
Bellwood extrusion facility, the May 1997 formation of AKW L.P.
("AKW"), a joint venture that designs, manufactures and sells
heavy duty aluminum wheels, the rationalization of certain of the
Company's engineered products operations, and the Company's
investment to expand its capacity for heat treat flat-rolled
products at its Trentwood, Washington, rolling mill. The
restructuring activities resulted in the Company recording a net
pre-tax charge of $19.7 million in June 1997. See Notes 3 and 4
of Notes to Consolidated Financial Statements in the Annual
Report.
The portfolio analysis process also resulted in the Company's
fourth quarter 1998 decision to seek a strategic partner for
further development and deployment of KACC's Micromill(TM)
technology. While technological progress has been good,
management concluded that additional time and investment would be
required for success. Given the Company's other strategic
priorities, the Company believes that introducing added
commercial and financial resources is the appropriate course of
action for capturing the maximum long term value. This change in
strategic course required a different accounting treatment, and
the Company correspondingly recorded a $45.0 million impairment
charge to reduce the carrying value of the Micromill assets to
approximately $25.0 million. See Note 3 of Notes to Consolidated
Financial Statements in the Annual Report.
Another area of emphasis has been a continuing focus on managing
the Company's legacy liabilities. One element of this process
has been actively pursuing claims in respect of insurance
coverage for certain incurred and future environmental costs.
During the fourth quarter of 1998, KACC received recoveries
totaling approximately $35.0 million related to current and
future claims against certain of its insurers. Recoveries of
$12.0 million were deemed to be allocable to previously accrued
(expensed) items and were reflected in earnings during the fourth
quarter of 1998. The remaining recoveries were offset against
increases in the total amount of environmental reserves. No
assurances can be given that the Company will be successful in
other attempts to recover incurred or future costs from other
insurers or that the amount of any recoveries received will
ultimately be adequate to cover costs incurred. See Note 9 of
Notes to Consolidated Financial Statements in the Annual Report.
In early 1999, the Company's program to focus its efforts and
capital in sectors of the industry which it considers to be the
most attractive, and in which the Company believes it is well
positioned to capture value, has resulted in an agreement to sell
one joint venture interest and a separate agreement to purchase
another. In January 1999, KACC signed a letter of intent to sell
its 50% interest in AKW to its joint venture partner. The
transaction, which would result in the Company recognizing a
substantial gain, is currently expected to close on or about
March 31, 1999. However, as the transaction is subject to
negotiation of a definitive purchase agreement, no assurances can
be given that this transaction will be consummated. Also, in
February 1999, KACC completed the acquisition of the remaining
45% interest in Kaiser LaRoche Hydrate Partners, an alumina
marketing venture, from its joint venture partner for a cash
purchase price of approximately $10.0 million. See Note 12 of
Notes to Consolidated Financial Statements in the Annual Report.
Additional portfolio analysis and initiatives are continuing.
Sensitivity to Prices and Hedging Programs
The Company's operating results are sensitive to changes in the
prices of alumina, primary aluminum, and fabricated aluminum
products, and also depend to a significant degree upon the volume
and mix of all products sold and on KACC's hedging strategies.
Primary aluminum prices have historically been subject to
significant cyclical fluctuations. Alumina prices, as well as
fabricated aluminum product prices (which vary considerably among
products), are significantly influenced by changes in the price
of primary aluminum and generally lag behind primary aluminum
prices. From time to time in the ordinary course of business
KACC enters into hedging transactions to provide price risk
management in respect of its net exposure resulting from (i)
anticipated sales of alumina, primary aluminum, and fabricated
aluminum products, less (ii) expected purchases of certain items,
such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. Forward sales
contracts are used by KACC to lock-in or fix the effective price
that KACC will receive for its sales. KACC also uses option
contracts (i) to establish a minimum price for its product sales,
(ii) to establish a "collar" or range of prices for its
anticipated sales, and/or (iii) to permit KACC to realize
possible upside price movements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Market-related Factors" and Note 1 - "Derivative Financial
Instruments" and Note 10 of Notes to Consolidated Financial
Statements in the Annual Report.
Business OperationsBUSINESS OPERATIONS
KACC conducts its business through fourits five main business units (Bauxite and
alumina, Primary aluminum, Commodities marketing, Flat-rolled products and
Engineered products), each of which is discussed below.
- - Bauxite and Alumina Business Unit
The following table lists KACC's bauxite mining and alumina refining facilities
as of December 31, 1998:
Annual
Production Total
Capacity Annual
Company Available to Production
Activity Facility Location Ownership the Company Capacity
---------- -------------- -------------- -------------- ---------------- --------------
(tons) (tons)
Bauxite Mining KJBC(1) Jamaica 49.0% 4,500,000 4,500,000
Alpart(2) Jamaica 65.0% 2,275,000 3,500,000
-------------- --------------
6,775,000 8,000,000
============== ==============
Alumina Refining Gramercy Louisiana 100.0% 1,050,000 1,050,000
Alpart Jamaica 65.0% 942,500 1,450,000
QAL Australia 28.3% 1,032,950 3,650,000
-------------- --------------
3,025,450 6,150,000
============== ==============
2001:
Annual
Production Total
Capacity Annual
Company Available to Production
Activity Facility Location Ownership the Company Capacity
- ------------------ ------------ -------------- (1) Although KACC owns 49% of Kaiser---------------- ----------------- ----------------
(tons) (tons)
Bauxite Mining KJBC Jamaica Bauxite Company
("KJBC"), it has the right to receive all of KJBC's output.
49.0% 4,500,000 4,500,000
Alpart(1) Jamaica 65.0% 2,275,000 3,500,000
----------------- ----------------
6,775,000 8,000,000
================= ================
Alumina Refining Gramercy Louisiana 100.0% 1,250,000 1,250,000
Alpart Jamaica 65.0% 942,500 1,450,000
QAL Australia 20.0%(2) 730,000 3,650,000
----------------- ----------------
2,922,500 6,350,000
================= ================
- ------------
(1) Alumina Partners of Jamaica ("Alpart") bauxite is refined into alumina at
the Alpart refinery.
KACC's principal customers for bauxite and alumina consist of
other aluminum producers that purchase bauxite and
smelter-grade alumina, trading intermediaries who resell raw
materials to end-users, and users of chemical-grade alumina. The
Company believes that among alumina producers(2) During September 2001, KACC sold an 8.3% interest in QAL. See discussion
below.
KACC is the world's
second largest sellera major producer of smelter-grade alumina to third parties.and sells significant amounts of its alumina
production in domestic and international markets. KACC's strategy is to sell a
substantial portion of the alumina available to it in excess of its internal
smelting requirements under multi-year sales contracts with prices linked to the
price of primary aluminum. See "- Competition""-Competition" and "- Sensitivity to
Prices and Hedging Programs""-Commodity Marketing" in
this Report. Bauxite minedDuring 2001, KACC sold alumina to approximately 12 customers, the
largest and top five of which accounted for approximately 21% and 64%,
respectively, of the business unit's third-party net sales. All of KACC's
third-party sales of bauxite in Jamaica by KJBC is refined into2001 were made to one customer, which sales
represent approximately 6% of the business unit's third-party net sales. KACC's
principal customers for bauxite and alumina at
KACC's plant at Gramercy, Louisiana, or is soldconsist of other aluminum producers,
trading intermediaries who resell raw materials to third parties.
In 1979, theend-users, and users of
chemical grade alumina.
KJBC. The Government of Jamaica has granted KACC a mining lease for the mining
of bauxite sufficient to supplywhich will, at a minimum, satisfy the bauxite requirements of KACC's
then-existingGramercy, Louisiana, alumina refineriesrefinery so that it will be able to produce at their annual
capacities of 1,656,000 tons per yearits
current rated capacity until January 31, 2020. AluminaKaiser Jamaica Bauxite Company ("KJBC") mines
bauxite from the land which is subject to the mining lease as an agent for KACC.
Although KACC owns 49% of KJBC, it is entitled to, and generally takes, all of
its bauxite output. A substantial majority of the bauxite mined by KJBC is
refined into alumina at the Gramercy plantfacility and the remainder is sold to one
third-party customer. KJBC's operations have been impacted by the Gramercy
incident (see Gramercy below). The Government of Jamaica, which owns 51% of
KJBC, has agreed to grant KACC an additional bauxite mining lease. The new
mining lease will be effective upon the expiration of the current lease in 2020
and will enable the Gramercy facility to produce at its rated capacity for an
additional ten year period. KACC holds its interest in KJBC through Kaiser
Bauxite Company ("KBC"), a wholly owned subsidiary. Neither KJBC nor KBC filed a
petition for reorganization under the Code. The Debtors currently have the
authority from the Court to continue to fund KJBC's cash requirements in the
ordinary course of business.
Gramercy. Alumina produced by the Gramercy refinery is primarily sold to third
parties. The Gramercy Louisiana, refinery produces two products: smelter grade alumina and
chemical grade alumina (e.g. hydrate). Smelter grade alumina is one of the five KACC plants
whichsold under
long-term contracts typically linked to London Metal Exchange prices ("LME
prices") for primary aluminum. Chemical grade alumina is subject to the continuing USWA dispute. See "-Labor
Matters" in this Report, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Labor Matters" in the Annual Report.
In February 1999 KACC, through a subsidiary, purchased its
partner's 45% interest in Kaiser LaRoche Hydrate Partners, a
partnership which markets chemical-grade alumina manufactured by
KACC's Gramercy facility. These products are sold at a premium price
over smelter-grade alumina, and this acquisition will
permit KACC to expand its market positionsmelter grade alumina. Production at the Gramercy refinery was completely
curtailed in this business in
North America. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Strategic
Initiatives"July 1999 when it was extensively damaged by an explosion in the
Annual Report.digestion area of the plant. Production at the plant remained curtailed until
the middle of December 2000 at which time partial production commenced.
Construction at the facility was substantially completed in the third quarter of
2001. During 2001, the Gramercy facility incurred abnormal related start-up
costs of approximately $64.9 million. These abnormal costs resulted from
operating the plant in an interim and less efficient mode pending the completion
of construction and reaching the plant's intended production rates and
efficiency. During the first nine months of 2001, the plant operated at
approximately 68% of its newly rated estimated annual capacity of 1,250,000
tons. During the fourth quarter of 2001, the plant operated at approximately 90%
of its newly-rated capacity. By the end of February 2002, the plant was
operating at just below 100% of its newly-rated capacity. The facility is now
focusing its efforts on achieving its full operating efficiency. While
production was curtailed, KACC purchased alumina from third parties, in excess
of the amounts of alumina available from other KACC-owned facilities, to supply
major customers' needs as well as to meet intersegment requirements.
Alpart. KACC owns a 65% interest in Alpart, and Hydro Aluminium a.s ("Hydro")
owns the remaining 35% interest. KACC holds its interests in Alpart through two
wholly owned subsidiaries (Kaiser Jamaica Corporation - "KJC" and Alpart Jamaica
Inc. - "AJI") which did not file petitions for reorganization under the Code.
The Debtors currently have the authority from the Court to continue to fund KJC
and AJI and, thus, fund Alpart's cash requirements in the ordinary course of
business. Alpart holds bauxite reserves and owns a 1,450,000 ton per year
alumina plant located in Jamaica. KACC owns a 65% interest in
Alpart, and Hydro Aluminium Jamaica a.s ("Hydro") owns the
remaining 35% interest. KACC has management responsibility for the
facility on a fee basis. KACC and Hydro have agreed to be responsible for their
proportionate shares of Alpart's costs and expenses. The Government of Jamaica
has granted Alpart a mining lease and has entered into other agreements with
Alpart designed to assure that sufficient reserves of bauxite will be available
to Alpart to operate its refinery, as it may be expanded up to a capacity of
2,000,000 tons per year, through the year 2024. In 1999, Alpart and JAMALCO, a joint
venture between affiliates of Alcoa Inc. and the governmentGovernment of Jamaica, reached an
agreement to formhave
been operating a joint venture bauxite mining operation to
consolidatejoint venture that consolidated their
bauxite mining operations in Jamaica since the first half of 2000. The joint
venture agreement also grants Alpart certain rights to acquire bauxite mined
from JAMALCO's reserves with the objective of optimizingto optimize mining operatingoperations and
capital costs. The
transaction is subjectAs part of the Company's performance improvement initiative
launched in 2001 (see Note 6 of Notes to various conditions. Subject to
satisfaction of those conditions, the joint ventureConsolidated Financial Statements),
Alpart's annual production capacity is expected to commence operationsincrease to 1,700,000 tons
per year during the second half2003, which would equate to an increase in KACC's share of
1999.annual production of approximately 160,000 tons per year.
QAL. KACC owns a 28.3%20% interest in QAL, after selling an approximate 8.3% interest
in September 2001. KACC holds its interest in QAL through a wholly owned
subsidiary (Kaiser Alumina Australia Corporation - "KAAC") which was one of
KACC's subsidiaries that filed a petition for reorganization under the Code. The
Debtors currently have the authority from the Court to fund QAL's cash
requirements in the ordinary course of business. QAL, which is located in
Queensland, Alumina Limited ("QAL"),
whichAustralia, owns one of the largest and one of the most competitive alumina
refineries in the world, located in Queensland, Australia.world. QAL refines bauxite into alumina, essentially on a cost
basis, for the account of its stockholdersshareholders under long-term tolling contracts.
The stockholders,shareholders, including KACC,KAAC, purchase bauxite from another QAL stockholdershareholder
under long-term supply contracts. KACCKAAC has contracted with QAL to take
approximately 792,000614,000 tons per year of capacityalumina or pay standby charges. KACCKAAC is
unconditionally obligated to pay amounts calculated to service its share ($97.679.4
million at December 31, 1998)2001) of certain debt of QAL, as well as other QAL costs
and expenses, including bauxite shipping costs. KAAC's share of QAL's production
for the first eight months of 2001 was approximately 668,000 tons. Had the sale
of the QAL interest been effective as of the beginning of 2001, KAAC's share of
QAL's production for 2001 would have been reduced by approximately 196,000 tons.
Historically, KACC has sold about half of its share of QAL's production to third
parties and has used the remainder to supply its Northwest smelters, which are
temporarily curtailed. The reduction in KACC's alumina supply associated with
its sale of the QAL interest is expected to be substantially offset by the
return of its Gramercy alumina refinery to full operations at a higher capacity
and by the previously noted planned increase in 1998capacity at its Alpart alumina
refinery in Jamaica. Accordingly, the QAL transaction is not expected to approximately 20 customers, the
largest and top five of which accounted for approximately 19% and
67% of such sales, respectively. All ofhave an
adverse impact on KACC's ability to satisfy existing third-party sales
of bauxite in 1998 were made to one customer
which represents
approximately 6% of total bauxite and alumina third party
revenues.contracts.
- - Primary Aluminum Business Unit
The following table lists KACC's primary aluminum smelting facilities as of
December 31, 1998:
Annual Rated Total 1998
Capacity Annual Average
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
--------------- -------------- -------------- -------------- -------------- --------------
Domestic
Washington Mead 100% 200,000 200,000 103% (1)
Washington Tacoma 100% 73,000 73,000 94%
-------------- --------------
Subtotal 273,000 273,000
-------------- --------------
International
Ghana Valco 90% 180,000 200,000 25%
Wales, United
Kingdom Anglesey 49% 66,150 135,000 100%
-------------- --------------
Subtotal 246,150 335,000
-------------- --------------
Total 519,150 608,000
============== ==============
---------------2001:
Annual Rated Total 2001
Capacity Annual Average
Company Available to Rated Operating
Location Facility Ownership the Company Capacity Rate
- ----------------- ---------- ------------ ---------------- ----------- ------------
(tons) (tons)
United States
Washington Mead 100% 200,000 200,000 -(1)
Washington Tacoma 100% 73,000 73,000 -(1)
---------------- -----------
Subtotal 273,000 273,000
---------------- -----------
International
Ghana Valco 90% 180,000 200,000 81%
Wales, United Kingdom Anglesey 49% 66,150 135,000 102%
---------------- -----------
Subtotal 246,150 335,000
---------------- -----------
Total 519,150 608,000
================ ===========
- --------
(1) In recent years the Mead smelter has consistently operated
at an annual rate in excessProduction was completely curtailed during 2001. For a discussion of its rated capacitythese
matters see "Availability of 200,000
tons. As a result of the strike-related partial curtailment
of the Mead smelter, the 1998 average operating rate declined
from that of a year ago but remained above 100% of rated
capacity.
KACC's principal primary aluminum customers consist of large
trading intermediaries and metal brokers. In 1998,Affordable Electric Power" below.
KACC sold its
primary aluminum production not utilized for internal purposes to
approximately 42 customers, the largest and top five of which
accounted for approximately 30% and 58% of such sales,
respectively. See "- Competition" in this Report. Marketing and
sales efforts are conducted by personnel located in Pleasanton,
California; Houston, Texas; and Tacoma and Spokane, Washington.
A majority of the business unit's sales are based upon long-term
relationships with metal merchants and end-users.
KACC has developed and installeduses proprietary retrofit and control technology in all of its smelters, as well as at third party
locations.smelters.
This technology - which includes the redesign of the cathodes, anodes and bus
that conduct electricity through reduction cells, improved feed systems that add
alumina to the cells, computerized process control and energy management
systems, and furnace technology for baking of anode carbon - has significantly
contributed to increased and more efficient production of primary aluminum and
enhanced KACC's ability to compete more effectively with the industry's newer
smelters.
KACC's principal primary aluminum customers consist of large trading
intermediaries and metal brokers. In 2001, KACC engages in effortssold its primary aluminum
production not utilized for internal purposes to license this technologyapproximately 96 customers, the
largest and sell
technicaltop five of which accounted for approximately 72% and managerial assistance to other producers worldwide,
and may participate in joint ventures or similar92%,
respectively, of the business partnerships which employ KACC's technical and managerial
knowledge.unit's third-party net sales. See "-Research and Development""-Competition"
in this Report. Domestic SmeltersMarketing and sales efforts are conducted by personnel located
in Houston, Texas; and Tacoma and Spokane, Washington.
Operations in the United States. During 2001, both the Mead and Tacoma smelters
were completely curtailed and are expected to remain curtailed at least through
early 2003. The Mead facility uses pre-bake technology and produces primary
aluminum. Approximately 64% of Mead's 1998 production was used
at KACC's Trentwood, Washington, rolling mill, and the balance
was sold to third parties.technology. The Tacoma facility uses
Soderberg technology and produces primary aluminum and high-grade,
continuous-cast, redraw rod, which currently commands a premium price in excess
of the price of primary aluminum. Both smelters
have achieved significant production efficiencies through
retrofit technologyThe business unit maintains specialized
laboratories and a varietyminiature carbon plant in the State of cost controls, leading to
increases in production volumeWashington which
concentrate on the development of cost-effective technical innovations such as
equipment and enhancing their ability to
compete with newer smelters. The Mead and Tacoma, Washington,
smelters are two of the five KACC plants which are subject to the
continuing USWA dispute. See "-Labor Matters" in this Report.
KACC has modernized and expanded the carbon baking furnace at its
Mead smelter at an estimated cost of approximately $55.3 million.
The project has improved the reliability of the carbon baking
operations, increased productivity, enhanced safety, and improved
the environmental performance of the facility. The first stage
of this project, the construction of a new $40.0 million 90,000
ton per year furnace, was completed in 1997. The remaining
modernization work was completed in 1998 and early 1999. A
portion of this project was financed with the net proceeds
(approximately $18.6 million) of 7.6% Solid Waste Disposal
Revenue Bonds due 2027 issued in March 1997 by the Industrial
Development Corporation of Spokane County, Washington.
Foreign Smeltersprocess improvements.
International Operations. KACC manages, and directly owns a 90% interest in, the
Volta Aluminium Company Limited ("Valco") aluminum smelter in Ghana. The Valco
smelter uses pre-bake technology and processes alumina supplied by KACC and the
other participant into primary aluminum under tolling contracts which provide
for proportionate payments by the participants. KACC's share of the primary
aluminum is sold to third parties. During mostValco's operating level has been subject to
fluctuations resulting from the amount of 1998, the Valco smelter operated only one of its
five potlines, as compared to 1997, when Valco operated four
potlines. Each of Valco's potlines produces approximately 40,000
tons of primary aluminum per year. Valco received compensation
(in the form of energy credits to be utilized over the last half
of 1998 and during 1999) frompower it is allocated by the Volta
River Authority ("VRA")
in lieu. The operating level over the last five years has ranged
from one to four out of the power necessary to run twoa total of the potlines that
were curtailed during 1998. The compensation substantially
mitigated the financial impactfive potlines. During 2001 and 2000, Valco
operated an average of the curtailmentfour potlines. As of such lines.March 31, 2002, Valco did not receive any compensation from the VRA for one
additional potline which was curtailed in January 1998. Based on
Valco's proposed 1999 power allocation from the VRA, Valco has
announced that it expects to operateoperating
three lines during 1999.
The decision to operate at that level was based on the power
allocation that Valco has received from the VRA as well as
considerationpotlines. See Availability of market and other factors. Valco has notified
the VRA that it believes it had the contractual rights at the
beginning of 1998 to sufficient energy to run four and one-half
potlines for the balance of the year. Valco continues to seek
compensation from the VRA with respect to the January 1998
reduction of its power allocation. Valco and the VRAAffordable Electric Power below.
KACC also are in
continuing discussions concerning other matters, including steps
that might be taken to reduce the likelihood of power
curtailments in the future. No assurances can be given as to the
success of these discussions.
KACC owns a 49% interest in the Anglesey Aluminium Limited ("Anglesey")
aluminum smelter and port facility at Holyhead, Wales. The Anglesey smelter uses pre-bake
technology. KACC supplies 49% of Anglesey's alumina requirements and purchases
49% of Anglesey's aluminum output. KACC sells its share of Anglesey's output to
third parties.
KACC does not expect Valco's or Anglesey's operations to be adversely affected
as a result of the Cases as the Debtors have received the authority from the
Court to fund Valco's and Anglesey's cash requirements in the ordinary course of
business.
Availability of Affordable Electric Power - Electric power represents an
important production costinput for KACC at its aluminum smelters and its cost can
significantly affect KACC's profitability.
United States. KACC has historically purchased a significant portion of its
electric power for the Mead and Tacoma, Washington, smelters from the Bonneville
Power Association ("BPA"). Over recent years, the BPA has supplied approximately
half of the electric power for the two plants, with the balance coming from
other suppliers. In response to the unprecedented high market prices for power
in the Pacific Northwest, KACC curtailed primary aluminum production at the
Tacoma and Mead, Washington, smelters during the last half of 2000 and all of
2001. During this same period, as permitted under the BPA contract, KACC sold
the available power that it had under contract through September 30, 2001. As a
result of the curtailments, KACC avoided the need to purchase power on a
variable market price basis and received cash proceeds sufficient to more than
offset the cash impact of the potline curtailments over the period for which the
power was sold.
During October 2000, KACC signed a new power contract with the BPA under which
the BPA, starting October 1, 2001, provides KACC's operations in the State of
Washington with up to approximately 290 megawatts of power through September
2006. The contract provides KACC with sufficient power to fully operate the
Flat-Rolled Products Business Unit's Trentwood facility (which requires up to an
approximate 40 megawatts) as well as approximately 40% of the combined capacity
of KACC's Mead and Tacoma smelting operations. The BPA has announced that it
currently intends to set rates under the contract in six month increments. The
rate for the initial period (from October 1, 2001 through March 31, 2002) was
approximately 46% higher than power costs under the prior contract. Power prices
for the April 2002 through September 2002 period are essentially unchanged from
the prior six-month rate. KACC cannot predict what rates will be charged in
future periods. Such rates will be dependent on such factors as the availability
of and demand for electrical power, which are largely dependent on weather, the
price for alternative fuels, particularly natural gas, as well as general and
regional economic and ecological factors. The contract also includes a
take-or-pay requirement and clauses under which KACC's power allocation could be
curtailed, or its costs increased, in certain instances. Under the contract,
KACC can only remarket its power allocation to reduce or eliminate take-or-pay
requirements. KACC is not entitled to receive any profits from any such
remarketing efforts. During October 2001, KACC and the BPA reached an agreement
whereby: (a) KACC would not be obligated to pay for potential take-or-pay
obligations in the first year of the contract and (b) KACC retained its rights
to restart its smelter operations at any time. In return for the foregoing, KACC
granted the BPA certain limited power interruption rights in the first year of
the contract if KACC is operating its Northwest smelters. The Department of
Energy has acknowledged that capital spending in respect of the Gramercy
refinery was consistent with the contractual provisions of the prior contract
with respect to the use of power sale proceeds. Beginning October 2002, unless
there is a further amendment of KACC's obligations, KACC could be liable for
take-or-pay costs under the BPA contract and such amounts could be significant.
KACC is reviewing its rights and obligations in respect of the BPA contract in
light of the filing of the Cases. See Note 7 of Notes to Consolidated Financial
Statements for additional information regarding the BPA contract.
Subject to the limited interruption rights granted to the BPA (described above),
KACC has sufficient power under contract, and retains the ability, to restart up
to 40% (4.75 potlines) of its Northwest smelting capacity. Were KACC to restart
additional capacity (in excess of 4.75 potlines), it would have to purchase
additional power from the BPA or other suppliers. For KACC to make such a
discussiondecision, it would have to be able to purchase such power at a reasonable price
in relation to current and expected market conditions for a sufficient term to
justify its restart costs, which could be significant depending on the number of
thislines restarted and the length of time between the shutdown and restart. Given
recent primary aluminum prices and the forward price of power in the Northwest,
it is unlikely that KACC would operate more than a portion of its Northwest
smelting capacity in the near future. Were KACC to restart all or a portion of
its Northwest smelting capacity, it would take between three to six months to
reach the full operating rate for such operations, depending upon the number of
lines restarted. Even after achieving the full operating rate, operating only a
portion of the Northwest capacity would result in production/cost inefficiencies
such that operating results would, at best be breakeven to modestly negative at
long-term primary aluminum prices. However, operating at such a reduced rate
could, depending on prevailing economics, result in improved cash flows as
opposed to remaining curtailed and incurring the Company's fixed and continuing
labor and other costs. This is because KACC is contractually liable for certain
severance, supplemental unemployment benefits and early retirement benefits for
laid-off workers under KACC's contract with the United Steelworkers of America
("USWA") during periods of curtailment. As of December 31, 2001, all such
contractual compensation costs have been accrued for all USWA workers in excess
of those expected to be required to run the Northwest smelters at a rate up to
the above stated 40% smelter operating rate. These costs are expected to be
incurred periodically through September 2002. Costs associated with the USWA
workers that KACC estimates would be required to operate the smelters at an
operating rate of up to 40% have been accrued through early 2003 as KACC does
not currently expect to restart the Northwest smelters prior to that date. If
such workers are not recalled prior to the end of the first quarter of 2003,
KACC could become liable for additional early retirement costs. Such costs could
be significant and could adversely impact the Company's operating results and
liquidity. The present value of such costs could be in the $50.0 to $60.0
million range. However, such costs would likely be paid out over an extended
period.
International. During late 2000, Valco, the Government of Ghana ("GoG") and the
VRA reached an agreement, subject see
"Factors Affecting Future Performanceto Parliamentary approval, that would provide
sufficient power for Valco to operate at least three and one-half of its five
potlines through 2017. However, Parliamentary approval has not been received
and, effective March 3, 2002, the GoG reduced Valco's power allocation forcing
Valco to curtail one of its four operating potlines. Valco has objected to the
power curtailment and expects to seek remedies from the GoG. Valco has met with
the GoG and the VRA and anticipates such discussions will continue in respect of
the current and future power situation. Valco currently expects to operate
approximately three potlines during the remainder of 2002. However, no
assurances can be provided that Valco will continue to receive sufficient power
to operate three potlines for the balance of 2002 or thereafter.
During early 2000, Anglesey entered into a new power agreement that provides
sufficient power to sustain its operations at full capacity through September
2009.
- Electric Power"- Commodities Marketing Business Unit
The Company's operating results are sensitive to changes in this
Report.the prices of
alumina, primary aluminum, and fabricated aluminum products, and also depend to
a significant degree upon the volume and mix of all products sold. Primary
aluminum prices have historically been subject to significant cyclical
fluctuations. Alumina prices, as well as fabricated aluminum product prices
(which vary considerably among products), are significantly influenced by
changes in the price of primary aluminum and generally lag behind primary
aluminum prices by up to three months. From time to time in the ordinary course
of business, KACC enters into hedging transactions to provide risk management in
respect of its net exposure of earnings and cash flow related to primary
aluminum price changes. Given the significance of primary aluminum hedging
activities to the Company and KACC, the Company reports its primary
aluminum-related hedging activities as a separate segment. Primary
aluminum-related hedging activities are managed centrally on behalf of all of
KACC's business segments to minimize transaction costs, to monitor consolidated
net exposures and to allow for increased responsiveness to changes in market
factors.
Because the agreements underlying KACC's hedging positions provided that the
counterparties to the hedging contracts could liquidate KACC's hedging positions
if KACC filed for reorganization, KACC chose to liquidate these positions in
advance of the Filing Date. Gains or losses associated with these liquidated
positions have been deferred and are being recognized over the original hedging
periods as the underlying purchases/sales are still expected to occur. The
Company anticipates that, subject to the approval of the Court and prevailing
economic conditions, it may reinstitute an active hedging program to protect the
interests of its constituents. However, no assurance can be given as to when or
if the appropriate Court approval will be obtained or when or if such hedging
activities will restart.
Hedging activities conducted in respect of the Company's cost exposure to energy
prices and foreign exchange rates are not considered a part of the Commodity
marketing segment. Rather, such activities are included in the results of the
business unit to which they relate.
- - Flat-Rolled Products Business Unit
----------------------------------
The flat-rolledFlat-rolled products business unit operates the Trentwood, Washington,
rolling mill. The Trentwood facility accounted for
approximately 58% of KACC's 1998 fabricated aluminum products
shipments. The business unit supplies the aerospace and general
engineering markets (producing heat treat sheet and plate
products), the beverage container market (producing body, lid,
and tab stock), and the specialty coil markets (producing
automotive brazing sheet, wheel, and tread products), both
directly and through distributors. The Trentwood facility is one
of the five KACC plants which is subject to the continuing USWA
dispute. See "- Employees and Labor Matters" in this Report, and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Labor Matters" in the Annual Report.
KACC continues to enhance the process and product mix of its
Trentwood rolling mill in an effort to maximize its profitability
and maintain full utilization of the facility. In 1998, KACC
continued to implement a plan to improve the reliability and to
expand the annual production capacity of heat treat flat-rolled
products at the Trentwood facility by approximately one-third
over 1996 levels. Approximately $8.0 million remains to be spent
to implement the plan. Global sales of KACC's heat treat
products are made primarily to the aerospace and general
engineering markets, and remained strong in the first half of
1998 after record shipments in 1997; demand for such products
softened in the second half of 1998. In 1998,During recent years, the business unit shipped productshas sold to approximately 141 customers in the aerospace,
transportation and industrial ("ATI") markets (producing heat-treat sheet and
plate products and automotive brazing sheet) and the beverage container market
(producing lid and tab stock), both directly and through distributors.
During 2000, KACC shifted the product mix of its Trentwood rolling mill toward
higher value-added product lines, and exited beverage can body stock, wheel and
common alloy products in an effort to enhance its profitability. The Company
continues to reassess the product mix of its Trentwood rolling mill, and has
concluded that the business unit's profitability can be enhanced by further
focusing resources on its core, heat-treat business and by exiting lid and tab
stock product lines used in the beverage container market and brazing sheet for
the automotive market. As a result of this decision, the Company plans to sell
or idle several pieces of equipment resulting in an impairment charge of
approximately $17.7 million at December 31, 2001. Additional charges are likely
as the Company works through all of the operational impacts of the decision to
exit the lid, tab and brazing sheet product lines.
In 2001, the business unit sold to approximately 101 customers in the ATI
markets, most of which wererepresented heat-treat product shipments to distributors
who sell to a variety of industrial end-users. The largest and top five
customers in the ATI markets for flat-rolled products accounted for
approximately 18%17% and 35%, respectively, of the business unit's revenue.
KACC's flat-rolled products arethird-party net
sales. The business unit also sold lid and tab stock to beverage container
manufacturers locatedmanufacturing locations in the western United States and in the
Asian Pacific Rim countries where the Trentwood plant's location
provides KACC with a transportation advantage. Quality of
products for the beverage container industry, service, and
timeliness of delivery are the primary bases on which KACC
competes. KACC is one of the highest quality producers of
aluminum beverage can stock in the world. In 1998, the business
unit had approximately 21 domestic and foreign can stock
customers, supplying approximately 41 can plants worldwide.States. The largest and top five of such
customers accounted for approximately 12%9% and 35%16%, respectively, of the business
unit's revenue.third-party net sales. See "- Competition""-Competition" in this Report. The marketing
staff for the business unit is located at the Trentwood facility
and in Pleasanton, California. Sales are made
directly to end-
useend-use customers and distributors from fourby KACC sales officesrepresentatives
located in the United States from a sales office in England,and Europe, and by independent sales agents in
Asia and Latin America.
The Micromill facility was constructed near Reno, Nevada, in 1996
as a demonstration and production facility. Micromill technology
is based on a proprietary thin-strip, high-speed, continuous-belt
casting technique linked directly to hot and cold rolling mills.
KACC is continuing its efforts to implement the Micromill
technology on a full-scale basis. However, the Micromill
technology has not yet been fully implemented or commercialized,
and there can be no assurance that it will be successfully
implemented and commercialized for use at full-scale facilities.
KACC has decided to seek a strategic partner for further
development and deployment of the Micromill technology. See
"Management's Discussion and Analysis of Financial Condition and
Results of OperationsAsia.
- Strategic Initiatives" and Note 3 of
Notes to Consolidated Financial Statements in the Annual Report. - Engineered Products Business Unit
---------------------------------
The engineeredEngineered products business unit operates soft-alloy and hard-alloy
extrusion facilities and engineered component (forgings) facilities in the
United States and Canada. Major markets for extruded products are in the ground
transportation industry, to which the business unit providessells extruded shapes for
automobiles, light-duty vehicles, heavy duty trucks and trailers, cabs, and shipping
containers, and in the distribution, durable goods, defense, building and
construction, ordnance and electrical markets.
Soft-alloy extrusion facilities are located in Los Angeles, California; Sherman,
Texas; Tulsa, Oklahoma; Richmond, Virginia; and London, Ontario, Canada.
Products manufactured at these facilities include rod, bar, tube, shapes and
billet. Hard-alloy extrusion facilities are located in Newark, Ohio, and
Jackson, Tennessee, and produce rod, bar, screw machine stock, redraw rod,
forging stock and billet. The business unit suppliesalso extrudes seamless tubing in
both hard- and soft-alloys at a facility in Richland, Washington and produces
drawn tube in both hard- and soft-alloys at its operations in Chandler, Arizona,
that it purchased in May 2000. Soft-alloy extruded seamless and drawn tubing is
also produced at the Richmond, Virginia facility.
The business unit sells forged parts to customers in the automotive, commercial
vehicleheavy-duty
truck, general aviation, rail, machinery and equipment, and ordnance markets.
The high strength-to-weight properties of forged aluminum make it particularly
well-suited for automotive applications. The business unit maintainsForging facilities are located in
Oxnard, California, and Greenwood, South Carolina. Through its
headquarters and a sales and
engineering office in Southfield, Michigan, whichthe business unit staff works with
automobile makers and other customers and plant personnel to create new
automotive component designs and to improve existing products.
Soft-alloy extrusion facilities are located in Los Angeles,
California; Sherman, Texas; Richmond, Virginia; andKACC's London, Ontario Canada. Each of the soft-alloy extrusion facilities has
fabricating capabilities and provides finishing services. The
Richmond, Virginia, facility was acquired in mid-1997 and
increased KACC's extruded products capacity and enhanced its
existing extrusion business due to that facility's ability to
manufacture seamless tubing and large circle size extrusions and
to serve the distribution and ground transportation industries.
Hard-alloy rod and bar extrusion facilities are located in
Newark, Ohio, and Jackson, Tennessee, and produce screw machine
stock, redraw rod, forging stock, and billet. The Newark
facility is oneowned by a wholly owned subsidiary (Kaiser
Aluminum & Chemical of Canada Limited - "KACCL") that did not file a
petition for reorganization under the five KACC plants which is subjectCode. The Debtors have received the
authority to the
continuing USWA dispute. See "- Labor Matters" in this Report,
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Labor Matters"continue to fund KACCL's cash requirements in the Annual Report.
A facility located in Richland, Washington, produces seamless
tubing in both hard and soft alloys for the automotive, other
transportation, export, recreation, agriculture, and other
industrial markets. The business unit also operates a cathodic
protection business located in Tulsa, Oklahoma, that extrudes
both aluminum and magnesium. The business unit operates forging
facilities at Oxnard, California, and Greenwood, South Carolina,
and a machine shop at Greenwood, South Carolina. KACC has
entered into an agreement to sell its casting operations in
Canton, Ohio.
In 1997 KACC and Accuride Corporation formed AKW L.P. to design,
manufacture and sell heavy-duty aluminum truck wheels. In January
1999, KACC signed a letterordinary course
of intent to sell its 50% interest in
AKW to its partner, which would result inbusiness. Accordingly, the Company recognizing
a substantial gain. The Company expects the transaction to close
on or about March 31, 1999; however, as the transaction is
subject to certain conditions, no assurances can be given that
the transactiondoes not believe KACCL's operations will
be consummated. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Strategic Initiatives" and Note 12 of Notes to
Consolidated Financial Statements inadversely affected by the Annual Report.Cases.
In 1998,2001, the engineeredEngineered products business unit had approximately 445400 customers,
the largest and top five of which accounted for approximately 5%10% and 18%24%,
respectively, of the business unit's revenue.third-party net sales. See "- Competition" in this Report."-Competition"
below. Sales are made directly from plants, as well as marketing locations elsewhere into end-use customers and distributors by KACC
sales representatives located across the United States.
CompetitionCOMPETITION
KACC competes globally with both domestic and foreign producers of bauxite, alumina, and primary aluminum, and
with domestic and
foreign fabricators.fabricated aluminum products. Many of KACC's competitors have greater financial
resources than KACC. Primary aluminum and, to some degree, alumina are
commodities with generally standard qualities, and competition in the sale of
these commodities is based primarily upon price, quality and availability.
Aluminum competes in many markets with steel, copper, glass, plastic, and other
materials. In the United States, beverage container
materials, including aluminum, face increased competition from
plastics as increased polyethylene terephthalate ("PET")
container capacity is brought on line by plastics manufacturers.
KACC competes with numerous domestic and international fabricators in
the sale of fabricated aluminum products. KACC manufactures and markets fabricated aluminum
products for the
transportation, packaging, construction, and consumer durables
marketsit manufactures in the United States and abroad. Sales in these markets are made
directly and through distributors to a large number of customers. Competition in
the sale of fabricated products is based upon quality, availability, price and
service, including delivery performance. KACC concentrates its fabricating
operations on selected products in which it believes it has production
expertise, high-quality capability, and geographic and other competitive
advantages. The Company believes that, assuming the current relationship between
worldwide supply and demand for alumina and primary aluminum does not change
materially, the loss of any one of KACC's customers, including intermediaries,
would not have a material adverse effect on the Company's financial condition or
results of operations.
See the discussion of competitive conditions, markets, and
principal methods of competition in the description of each
business unit under the headings "-Alumina Business Unit,"
"-Primary Aluminum Business Unit," "-Flat-Rolled Products
Business Unit," and "-Engineered Products Business Unit" in this
Report.
Research and Development
KACC conducts research and development activities principally at
two facilities - CFT in Pleasanton, California, and the Northwest
Engineering Center adjacent to the Mead smelter in Spokane,
Washington.RESEARCH AND DEVELOPMENT
Net expenditures for Company-sponsored research and development activities were $13.7$4.0 million in
1998, $19.72001, $5.6 million in 1997,2000, and $20.5$11.0 million in 1996. KACC's research staff
totaled 52 at December 31, 1998.1999. KACC estimates that
research and development net expenditures will be in the range of $10$3.0 million
to $15$5.0 million in 1999.
CFT performs research2002.
EMPLOYEES
During 2001, the Company and development of aluminum process and
product technologies to support KACC's business units and new
business opportunities. In 1998 patents were issued to KACC
concerning the manufacture of continuous cast can sheet, the
brazing of aluminum alloys for heat exchanger applications,
improved lead-free aluminum machining alloys, and joining methods
for aluminum extrusions used in transportation applications. In
1998 CFT continued to support the development of the Micromill
technology deployed at the Micromill facility near Reno, Nevada,
for the production of can sheet and other sheet products. The
Northwest Engineering Center maintains specialized laboratories
and a miniature carbon plant where experiments with new anode and
cathode technology are performed. The Northwest Engineering
Center supports KACC's primary aluminum smelters, and
concentrates on the development of cost-effective technical
innovations such as equipment and process improvements.
KACC licenses its technology and sells technical and managerial
assistance to other producers worldwide. KACC's technology has
been installed in alumina refineries, aluminum smelters and
rolling mills located in the United States and fourteen foreign
countries.
Employees
During 1998, KACCconsolidated affiliates employed an average of
approximately 9,2006,500 persons, compared with an average of approximately 9,6007,800
persons in 19972000 and 1996.approximately 8,600 persons in 1999. At December 31, 1998,2001,
KACC employed approximately 8,900 persons; this number does not5,800 persons (excluding approximately 1,100
employees on layoff status), of which approximately 3,100 were employed by the
Debtors and 2,700 were employed by non-Debtors. The foregoing employee counts
for 2000 and 1999 include persons
employed temporarily during the USWA labor dispute at the five
facilitiesworkers who were subject to the lockout
imposed by KACC as a result of the labor dispute.
In 1998, Alpart entered into a new three-yeardispute that was settled in September
2000. During the labor dispute, KACC operated the five affected facilities with
temporary workers who were not included in the employee counts for 2000 and
1999.
The labor agreements with hourly employees at the Los Angeles, California, and
Richmond, Virginia, Engineered products facilities were renewed in 2001. The
labor agreement with workersthe employees at itsthe Valco smelter in Ghana was renewed
during the first quarter of 2002 and the labor agreement with the employees at
the Alpart refinery in Jamaica and Valco entered into a
new three-year labor agreement with workers at its smelter in
Ghana. Each agreement includes productivity improvements.
Environmental Mattersis expected to be renewed during the second
quarter of 2002.
ENVIRONMENTAL MATTERS
The Company and KACC are subject to a wide variety of international, federal,
state and local environmental laws and regulations. For a discussion of this
subject, see "Factors Affecting Future Performance - Environmental ContingenciesKACC's current or past
operations subject it to environmental compliance, clean-up and Asbestos Contingencies" in this Report.
Factors Affecting Future Performancedamage claims
that may be costly" below. During the pendency of the Cases, substantially all
pending litigation, except certain environmental claims and litigation, against
the Debtors is stayed.
FACTORS AFFECTING FUTURE PERFORMANCE
This section discusses certain factors that could cause actual results to vary,
perhaps materially, from the results described in forward-looking statements
made in this Report. Forward-
lookingForward-looking statements in this Report are not
guarantees of future performance and involve significant risks and
uncertainties. ActualIn addition to the factors identified below, actual results may
vary materially from those in such forward-
lookingforward-looking statements as a result of a
variety of other factors including the effectiveness of management's strategies
and decisions, general economic and business conditions, developments in
technology, new or modified statutory or regulatory requirements, and changing
prices and market conditions. This Report also identifies other factors that
could cause such differences. No assurance can be given that these factors and the specific factors discussed below are
all of the factors that could cause actual results to vary materially from the
forward-looking statements.
- Sensitivity- The Cases and any plan of reorganization may have adverse consequences on the
Company and its stakeholders and/or our reorganization from the Cases may
not be successful
Our objective is to Pricesachieve the highest possible recoveries for all creditors
and Hedging Programs
------------------------------------------stockholders, consistent with our ability to pay and the continuation of our
businesses. However, there can be no assurance that we will be able to attain
these objectives or achieve a successful reorganization and remain a going
concern. The consolidated financial statements included elsewhere in this Report
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amount and classification of liabilities or the
effect on existing stockholders' equity that may result from any plans,
arrangements or other actions arising from the Cases, or the possible inability
of the Company to continue in existence. Adjustments necessitated by such plans,
arrangements or other actions could materially change the consolidated financial
statements included elsewhere in this Report. Further, there can be no assurance
that the rights of, and the ultimate payments to, pre-Filing Date creditors will
not be substantially altered. The interests of holders of the Company's operating resultsCommon
Stock may also be diluted or cancelled under a plan of reorganization. Because
of such possibility, the value of the Common Stock is speculative and any
investment in the Common Stock would pose a high degree of risk.
Additionally, while the Debtors operate their businesses as
debtors-in-possession pursuant to the Code during the pendency of the Cases, the
Debtors will be required to obtain the approval of the Court prior to engaging
in any transaction outside the ordinary course of business. In connection with
any such approval, creditors and other parties in interest may raise objections
to such approval and may appear and be heard at any hearing with respect to any
such approval. Accordingly, the Debtors may be prevented from engaging in
transactions that might otherwise be considered beneficial to the Company. The
Court also has the authority to oversee and exert control over the Debtors'
ordinary course operations.
- - Our earnings are sensitive to changesa number of variables
Our operating earnings are sensitive to a number of variables over which we have
no direct control. Two key variables in thethis regard are prices of alumina,for primary
aluminum and fabricatedgeneral economic conditions.
The price of primary aluminum products, and also depend to a significant degree upon the volume
and mix of all products sold and on KACC's hedging strategies.significantly affects our financial results.
Primary aluminum prices historically have historically been subject to significant cyclical
price fluctuations. Alumina prices, as well as
fabricated aluminum product prices (which vary considerably among
products), are significantly influenced byThe Company believes the timing of changes in the market
price of primary aluminum and generally lag behind primary aluminum
prices.are largely unpredictable. Since 1993, the Average Midwest
United States transaction price (the "AMT Price"price") for primary aluminum has ranged from approximately
$.50 to $1.00 per pound.
During 1998,Electric power represents an important production input for us at our aluminum
smelters and its cost can significantly affect our profitability. Power
contracts for our smelters have varying contractual terms. See
"Business--Primary Aluminum Business Unit--Availability of Affordable Electric
Power." Our earnings are also sensitive to changes in the AMT Price per poundprices for natural
gas, fuel oil and diesel oil which are used in our production processes, and to
foreign exchange rates in respect of our cash commitments to our foreign
subsidiaries and affiliates.
Changes in global, regional, or country-specific economic conditions can have a
significant impact on overall demand for aluminum-intensive fabricated products
in the transportation, distribution, and packaging markets. Such changes in
demand can directly affect our earnings by impacting the overall volume and mix
of such products sold. To the extent that these end-use markets weaken, demand
can also diminish for alumina and primary aluminum.
- - We may not have electric power in sufficient amounts and/or at affordable
costs available for our smelting operations Electric power represents an
important production input at our aluminum smelters and its cost can
significantly affect our profitability. Power contracts for our smelters have
varying contractual terms. In March 2002, the GoG reduced the power allocation
for our 90% owned Valco smelter forcing Valco to curtail one of its four
operating potlines. See "Business--Primary Aluminum Business Unit--Availability
of Affordable Electric Power." We cannot provide assurance that electric power
will be available in the future, at affordable prices, for our smelters.
- - The operating rate of our northwest United States smelters is subject to
substantial uncertainty and may subject us to significant costs that could
have an adverse impact on our liquidity
Our smelters in the United States, located in Mead and Tacoma, Washington, have
historically purchased electric power from the BPA, which has supplied
approximately half of the electric power for the two plants over recent years,
and from other suppliers. As a result of unprecedented high market prices for
electric power in the Pacific Northwest, we curtailed primary aluminum
declined
duringproduction at the year, beginningMead and Tacoma smelters and sold the year inavailable power that we
had under contract through September 30, 2001 (the end of the $.70previous contract
period). Both the Mead and Tacoma smelters are expected to $.75 rangeremain curtailed
through at least early 2003. We cannot predict when or whether power rates will
improve sufficiently for us to restart this capacity.
Under a new contract, which runs from October 2001 through September 2006, the
BPA will provide KACC with sufficient power to operate its Trentwood facility as
well as approximately 40% of the combined capacity of the Mead and endingTacoma
smelters. The BPA has announced that it currently intends to set rates under the
year innew contract for six month increments. The rate for the low $.60 range. Subsequent to 1998, the
AMT Price continued to decline, and at February 26, 1999, the AMT
Priceinitial period (from
October 1, 2001 through March 31, 2002) was approximately $.58 per pound.46% higher than power
costs under the prior contract. Power prices for the April 2002 through
September 2002 period are essentially unchanged from the prior six-month rate.
We cannot predict what rates will be charged in future periods. Such rates will
depend on factors such as the availability of and demand for electrical power,
which are largely dependent on weather, the price for alternative fuels,
particularly natural gas, as well as general and regional economic and
ecological factors. Beginning October 2002, unless there is a further amendment
of KACC's obligations, KACC could be liable for take-or-pay costs under the BPA
contract and such amounts could be significant. KACC is reviewing its rights and
obligations in respect of the BPA contract in light of the filing of the Cases.
- - Our profits and cash flows may be adversely impacted by the results of KACC's
hedging programs
From time to time in the ordinary course of business, KACC enters into hedging
transactions to provide price risk management in
respect oflimit its net exposure resulting from (i)(1) its anticipated sales of
alumina, primary aluminum, and fabricated aluminum products, less (ii)net of expected
purchases of certainpurchase costs for items such as aluminum
scrap, rolling ingot, and bauxite, whose pricesthat fluctuate with the price of primary aluminum. No assurance can be given that
KACC's hedging program will adequately reduce KACC's exposure to
the risk of fluctuating primary aluminum prices.
KACC is exposed toprices, (2) energy
price risk from fluctuating prices for natural gas, fuel oil and natural gas consumeddiesel oil used
in theits production process. From
timeprocess, and (3) foreign currency requirements with respect to
time in the ordinary course of business, KACC enters into
hedging transactions with major suppliers of energy and energy
related financial instruments. KACC also enters into foreign
exchange contracts to hedge materialits cash commitments towith foreign subsidiaries and affiliates. NoTo the extent
that the prices for primary aluminum exceed the fixed or ceiling prices
established by KACC's hedging transactions or that energy costs or foreign
exchange rates are below the fixed or floor prices, our profits and cash flow
would be lower than they otherwise would have been.
Hedging activities can also have a temporary impact on our and KACC's liquidity.
KACC may establish credit limits with certain counterparties related to open
forward sales and option contracts. When unrealized gains or losses on open
positions are in excess of such credit lines, KACC would be entitled to receive
margin advances from the counterparties or would be required to make margin
advances to counterparties, as the case may be. For example, during the period
from January 1, 2000, through December 31, 2001, margin advances (or letters of
credit) to counterparties were as high as approximately $63.5 million (which
occurred in January 2000) and margin advances from counterparties have been as
high as $62.1 million (which occurred in November 2001).
Because the agreements underlying KACC's hedging positions at December 31, 2001,
provided that the counterparties to the hedging contracts could liquidate KACC's
hedging positions if KACC filed for reorganization, KACC chose to liquidate
these positions in advance of the Filing Date. The Company anticipates that,
subject to the approval of the Court and prevailing economic conditions, it may
reinstitute an active hedging program to protect the interests of its
constituents. However, no assurance can be given that
KACC's hedging program will adequately reduce KACC's exposureas to when or if the
risk from fluctuating prices for fuel oil, natural gas, and
foreign currencies.
Note 10 of Notes to Consolidated Financial Statements in the
Annual Report is incorporated herein by reference. See also
"Quantitative and Qualitative Disclosures about Market Risk" in
this Report, and Note 1 "- Derivative Financial Instruments" of
Notes to Consolidated Financial Statements in the Annual Report.
- Leverage
--------
The Company's ratio of consolidated indebtedness to consolidated
net worth is greater than the comparable ratio of most of its
North American competitors, who generally have greater financial
resources than the Company. Due to its highly leveraged
condition, the Company is more sensitive than less leveraged
companies to certain factors affecting its operations, including
changes in the prices for its products, changes in interest
rates, and general economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Financing Activities and Liquidity" in the Annual
Report.
- Electric Power
--------------
The process of converting alumina into aluminum requires
significant amounts of electric power, and the cost of electric
power is an important production cost for KACC at its aluminum
smelters. A portion of the electric power used at the Mead and
Tacoma, Washington, smelters, as well as the rolling mill at
Trentwood, Washington, is purchased from the Bonneville Power
Administration (the "BPA") under contracts which expire in
September 2001, and a portion of such electric power is purchased
from other suppliers. KACC has long-term arrangements, expiring
in 2015, with the BPA for the transmission of electric power by
the BPA to those facilities. The amount of electric power which
may be provided by the BPA to KACC after the expiration of the
contracts in 2001 is not yet determined; however, the Company
believes that adequate electric powerappropriate Court approvals will be available atobtained or when or if such hedging
activities will restart.
- - KACC's current or past operations subject it to environmental compliance,
clean-up and damage claims that
time, from the BPA and other suppliers, for the operation of its
facilities in Washington. The electric power supplied to the
Valco smelter in Ghana is produced by hydroelectric generators,
and the delivery of electric power to the smelter is subject to
interruption from time to time because of drought and other
factors beyond the control of Valco. Such power is supplied
under an agreement with the VRA which expires in 2017. The
agreement indexes a portion of the price of power to the market
price of primary aluminum and provides for a review and
adjustment of the base power rate and the price index every five
years. Such a review is now underway together with discussions
concerning the reliability of the long-term supply of power.
Electric power for the Anglesey smelter in Wales is supplied
under an agreement which expires in 2001. KACC is working to
address these power supply and power price issues; however, there
can be no assurance that electric power at affordable prices will
be available in the future for these smelters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Valco Operating Level" in the Annual Report.
- Labor Matters
-------------
The material under the heading "Labor Matters" at page 2 of this
Report is incorporated herein by reference.
In connection with the USWA strike and subsequent lock-out by
KACC, certain allegations of unfair labor practices ("ULPs") have been filed with the National Labor Relations Boardand continue to be costly
The operations of KACC's facilities are regulated by the USWA
and its members. KACC has responded to all such allegations and
believes that they are without merit. If the allegations were
sustained, KACC could be required to make locked-out employees
whole for back wages from the date of the lock-out in January
1999. While uncertainties are inherent in the final outcome of
such matters, the Company believes that the resolution of the
alleged ULPs should not result in a material adverse impact on
the Company's consolidated financial position, results of
operations, or liquidity.
- Environmental Contingencies and Asbestos Contingencies
------------------------------------------------------
The Company and KACC are subject to a wide variety of
international, federal, state and local environmental laws. These environmental
laws and
regulations (the "Environmental Laws"). The Environmental Laws regulate, among other things, air and water emissions and discharges; the
generation, storage, treatment, transportation and disposal of solid and
hazardous waste; and the release of hazardous or toxic substances, pollutants
and contaminants into the environment;environment. Compliance with these environmental laws
is costly. While legislative, regulatory and economic uncertainties make it
difficult for us to project future spending for these purposes, we currently
anticipate that in certain instances, the 2002 - 2003 period, KACC's environmental condition of industrial property priorcapital spending
will be approximately $6.0 million per year and that KACC's operating costs will
include pollution control costs totaling approximately $16.4 million per year.
However, subsequent changes in environmental laws may change the way KACC must
operate and may force KACC 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 itsspend more than we currently project.
Additionally, KACC's current and former operations can subject it to fines or
penalties assessed for alleged breaches of the Environmental and Health Lawsenvironmental laws and to claims and
litigation brought by federal, state or local agencies and by
private partiesother actions
seeking remedialclean-up or other enforcement actionremedies under the Environmental and Health Laws orthese environmental laws. KACC also may
be subject to damages related to alleged injuries to health or to the
environment, including claims with respect to certain waste disposal sites and
the remediationclean-up of sites presentlycurrently or formerly operatedused by KACC.
Currently, KACC
currently is subject to certain lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"). KACC, along
with certain other entities,companies, has been named as a Potentially Responsible Party
("PRP") for remedialclean-up costs at certain third-party sites listed on the National
Priorities List under CERCLA and, in certain instances,CERCLA. As a result, KACC may be exposed not only to joint and several liability for thoseits
assessed share of clean-up but also to the costs or
damagesof others if they are unable to
natural resources.pay. Additionally, KACC's Mead, Washington, facility has been listed on the
National Priorities List under CERCLA. The Washington State DepartmentKACC and the regulatory authorities
agreed to a plan of Ecology has advisedremediation in January 2000.
In response to environmental concerns, we have established environmental
accruals representing our estimate of the costs we reasonably expect KACC that
there are several options for remediation at the Mead facility
that would be acceptable to
the Department. KACC expects that
one of these remedial options will be agreed upon and
incorporated into a Consent Decree. In addition,incur in connection with certain of its asset sales, KACC has agreed to indemnify the
purchasers with respect to certain liabilities (and associated
expenses) resulting from acts or omissions arising prior to such
dispositions, including environmental liabilities.
Based on the Company's evaluation of these and other
environmental matters, the Company has established environmental
accruals, primarily related to potential solid waste disposal and
soil and groundwater remediation matters. At December 31, 1998,2001, the balance of suchour
accruals, which are primarily included in Long-termour long-term liabilities, was $50.7$61.2
million. These environmental
accruals representWe estimate that the Company's estimate ofannual costs reasonably
expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and
the Company's assessment of the likely remediation to be
performed. The Company expects remediation to occur over the
next several years and estimates that annual expenditures to be charged to these environmental
accruals will be approximately $3.0$1.3 million to $8.0$12.2 million per year for the
years 19992002 through 20032006 and an aggregate of approximately $29.0$24.8 million
thereafter. As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of
remediation are established or alternative technologies are
developed, changes in these and other factors may result inHowever, we cannot assure you that KACC's actual costs exceeding thewill not
exceed our current environmental accruals. Cash
expenditures of $3.5 million in 1998, $5.6 million in 1997, and
$8.8 million in 1996 were charged to previously established
accruals relating to environmental costs. Approximately $4.5
millionestimates. We believe that it is expected to be charged to such accruals in 1999. In
addition to cash expenditures charged to environmental accruals,
environmental capital spending was $5.7 million in 1998, $6.8
million in 1997, and $18.4 million in 1996. Annual operatingreasonably possible that
costs for pollution control, not including corporate overhead or
depreciation, were approximately $34.3 million in 1998, $27.5
million in 1997, and $30.1 million in 1996. Legislative,
regulatory and economic uncertainties make it difficult to
project future spending for these purposes. However, the Company
currently anticipates that in the 1999-2000 period, environmental
capital spending will be approximately $11.0 million per year,
and operating costs for pollution control will be approximately
$38.0 million per year.
While uncertainties are inherent in the final outcome ofassociated with these environmental matters may exceed current accruals by
amounts that could range, in the aggregate, up to an estimated $27.0 million.
See Note 12 of Notes to Consolidated Financial Statements for additional
information.
- - The net cash outflows with respect to asbestos-related matters could adversely
affect our financial position KACC has been one of many defendants in numerous
lawsuits in which the plaintiffs allege that they have injuries caused by
exposure to asbestos during, and it is presently impossibleas a result of, their employment or association
with KACC, or exposure to determineproducts containing asbestos produced or sold by KACC.
The lawsuits generally relate to products KACC sold more than 20 years ago. Due
to the actualCases, existing lawsuits are stayed and new lawsuits cannot be commenced
against us or KACC. However, during the pendency of the Cases, we expect that
additional claims will be filed as part of the claims process.
Our December 31, 2001, balance sheet includes a liability for estimated
asbestos-related costs that ultimately may be incurred,of $621.3 million. In determining the Company currently believes thatamount of the
resolutionliability, we have included estimates only for the costs of such
uncertainties shouldclaims for a
ten-year period through 2011 because we do not have a material adverse effect onreasonable basis for
estimating costs beyond that period. However, the plan of reorganization process
may require an estimation of KACC's entire asbestos-related liability, which may
go beyond 2011. Additional asbestos-related claims are likely to be filed
against KACC as a part of the Chapter 11 process. Management cannot reasonably
predict the ultimate number of such claims or the amount of the associated
liability. However, it is likely that such amounts could exceed, perhaps
significantly, the liability amounts reflected in the Company's consolidated
financial position,statements, which (as previously stated) is only reflective of an
estimate of claims over the next ten-year period. KACC's obligations in respect
of the currently pending and future asbestos-related claims will ultimately be
determined (and resolved) as a part of the overall Chapter 11 proceedings. It is
anticipated that resolution of these matters will be a lengthy process.
Management will continue to periodically reassess its asbestos-related
liabilities and estimated insurance recoveries as the Cases proceed. However,
absent unanticipated developments such as asbestos-related legislation, material
developments in other asbestos-related proceedings or in the Company's or KACC's
Chapter 11 proceedings, it is not anticipated that the Company will have
sufficient information to reevaluate its asbestos-related obligations and
estimated insurance recoveries until much later in the Cases. Any adjustments
ultimately deemed to be required as a result of the reevaluation of KACC's
asbestos-related liabilities or estimated insurance recoveries could have a
material impact on the Company's future financial statements.
We believe KACC has insurance coverage for a substantial portion of such
asbestos-related costs. Accordingly, our December 31, 2001, balance sheet
includes a long-term receivable for estimated insurance recoveries of $501.2
million. We believe that recovery of this amount is probable and additional
amounts may be recoverable in the future if additional claims are added.
However, we cannot assure you that all such amounts will be collected. The
timing and amount of future recoveries from KACC's insurance carriers will
depend on the pendency of the Cases and on the resolution of disputes regarding
coverage under the applicable insurance policies. During October 2001, the court
ruled favorably on a number of issues, and during February 2002, an intermediate
appellate court also ruled favorably on an issue involving coverage. The rulings
did not result in any changes to our estimates of current and future
asbestos-related insurance recoveries. Other courts may hear additional issues
from time to time. Given the expected significance of probable future
asbestos-related payments, the receipt of timely and appropriate payments from
KACC's insurers is critical to a successful plan of reorganization and our
long-term liquidity.
- - The outcome of the unfair labor practices ("ULPs") action filed by the USWA
could adversely affect us
In connection with the strike by the USWA and their subsequent lock-out by KACC,
the USWA filed twenty-four allegations of ULPs. Twenty-two of the allegations
were dismissed. A trial before an administrative law judge for the two remaining
allegations concluded in September 2001. A decision is not expected until
sometime after the second quarter of 2002. If this trial eventually results in a
final ruling against KACC, it could be liable for back pay to USWA members at
the five plants affected by the labor dispute for an approximate twenty-month
period (plus interest and minus any wages the USWA workers earned during the
twenty-month period). Such amount could be significant. However, any outcome
from the trial before the administrative law judge would be subject to
additional appeals by the general counsel of the National Labor Relations Board
("NLRB"), the USWA or KACC. This process could take months or years. This matter
is currently not stayed by the Cases. Any liability ultimately determined to
exist in this matter will be dealt with in the overall context of the Debtors'
plan of reorganization.
- - We may not operate profitably in the future
We reported a net loss of $459.4 million for the year ended December 31, 2001,
which included an increase of $505.4 million in the valuation allowances for net
deferred income tax assets, as a result of the Cases, and other material special
items. Even if such increase in the valuation allowances and other special items
were excluded from the results for 2001 (see "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Summary" for a
summary of special items), results for the year ended December 31, 2001 would
have been a net loss. There can be no assurance that we will generate a profit
from recurring operations or liquidity.that we will operate profitably in future periods.
- - We operate in a highly competitive industry
The production of alumina, primary and fabricated aluminum products is highly
competitive. There are numerous companies who operate in the aluminum industry.
Certain of our competitors are substantially larger, have greater financial
resources than we do and may have other strategic advantages.
- - KACC is subject to political and regulatory risks in a number of countries
KACC operates facilities in the United States and in a number of other
countries, including Australia, Canada, Ghana, Jamaica, and the United Kingdom.
While we believe KACC's relationships in the countries in which it operates are
generally satisfactory, we cannot assure you that future developments or
governmental actions in these countries will not adversely affect KACC's
operations particularly or the aluminum industry generally. Among the risks
inherent in KACC's operations are unexpected changes in regulatory requirements,
unfavorable legal rulings, new or increased taxes and levies, and new or
increased import or export restrictions. KACC's operations outside of the United
States are subject to a number of additional risks, including but not limited to
currency exchange rate fluctuations, currency restrictions, and nationalization
of assets.
ITEM 2. PROPERTIES
The locations and general character of the principal plants, mines, and other
materially important physical properties relating to KACC's operations are
described in Item 1 "-Business Operations" and those descriptions are
incorporated herein by reference. KACC owns in fee or leases all the real estate
and facilities used in connection with its business. Plants and equipment and
other facilities are generally in good condition and suitable for their intended
uses, subject to changing environmental requirements. Although KACC's domestic
aluminum smelters were initially designed early in KACC's history, they have
been modified frequently over the years to incorporate technological advances in
order to improve efficiency, increase capacity, and achieve energy savings. The
Company believes that KACC's plants are cost competitive on an international
basis. However, the long-term viability of KACC's Pacific Northwest smelters
may be adversely impacted if an adequate supply of power at reasonable prices is
not ultimately available.
KACC's obligations under the DIP Facility are secured by, among other things,
mortgages on KACC's major domestic plants. See Note 8 of Notes to Consolidated
Financial Statements for further discussion.
ITEM 3. LEGAL PROCEEDINGS
This section contains statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. See
Item 1 of this Report for cautionary information with respect to such
forward-looking statements.
REORGANIZATION PROCEEDINGS
During the pendency of the Cases, substantially all pending litigation against
the Debtors is stayed. Generally, claims arising from actions or omissions prior
to the Filing Date will be settled in connection with the plan of
reorganization. See Item 1. "Business - Reorganization Proceedings" for a
discussion of the reorganization proceedings. Such discussion is incorporated
herein by reference.
ASBESTOS-RELATED LITIGATION
KACC is a defendant in a number of lawsuits, some of which involve claims of
multiple persons, in which the plaintiffs allege that certain of their injuries
were caused by, among other things, exposure to asbestos during, and as a result
of, their employment or association with KACC or exposure to products containing
asbestos produced or sold by KACC. The lawsuits generally relate to products
KACC has not manufactured for at
leastmore than 20 years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Commitments and
Contingencies" in the Annual Report. The portion of Note 912 of
Notes to Consolidated Financial Statements in the Annual Report under the headings "Environmental
Contingencies" and "Asbestos Contingencies" is incorporated
herein by reference.
- Year 2000 Disclosure Statement
------------------------------
The Company utilizes software and related technologies throughout
its business that will be affected by the date change to the year
2000. There may also be technology embedded in certain of the
equipment owned or used by the Company that is susceptible to the
year 2000 date change as well. The Company has implemented a
company-wide program to coordinate the year 2000 efforts of its
individual business units and to track their progress. The
intent of the program is to make sure that critical items are
identified on a sufficiently timely basis to assure that the
necessary resources can be committed to address any material risk
areas that could prevent the Company's systems and assets from
being able to meet the Company's business needs and objectives.
In addition to addressing the Company's internal systems, the
company-wide program involves identification of key suppliers,
customers, and other third-party relationships that could be
impacted by year 2000 issues.
While the Company believes that its program is sufficient to
identify the critical issues and associated costs necessary to
address possible year 2000 problems in a timely manner, there can
be no assurances that the program, or underlying steps
implemented, will be successful in resolving all such issues by
the Company's mid-1999 goal. If the steps taken by the Company
(or critical third parties) are not made in a timely manner, or
are not successful in identifying and remediating all significant
year 2000 issues, business interruptions or delays could occur
and could have a material adverse impact on the Company's results
and financial condition. However, based on the information the
Company has gathered to date and the Company's expectations of
its ability to remediate problems encountered, the Company
currently believes that no significant business interruptions
that would have a material impact on the Company's results or
financial condition will be encountered. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000" in the Annual Report.
- Foreign Activities
------------------
The Company's operations are located in several foreign
countries, including Australia, Canada, Ghana, Jamaica, and the
United Kingdom. Foreign operations, in general, may be more
vulnerable than domestic operations because of a variety of
political or governmental actions and other factors which may,
for example, disrupt or restrict operations and markets, impose
taxes and levies, impose import or export restrictions, restrict
the movement of funds, or impose limitations on foreign exchange
transactions. While the Company believes that its relationships
with the governments of the countries in which it conducts
operations directly or through joint ventures continue to be
satisfactory, there can be no assurance as to the future
influence of the foregoing factors.
ITEM 2. PROPERTIES
The locations and general character of the principal plants,
mines, and other materially important physical properties
relating to KACC's operations are described in Item 1 "- Business
Operations" and those descriptions are incorporated herein by
reference. KACC owns in fee or leases all the real estate and
facilities used in connection with its business. Plants and
equipment and other facilities are generally in good condition
and suitable for their intended uses, subject to changing
environmental requirements. Although KACC's domestic aluminum
smelters and alumina facility were initially designed early in
KACC's history, they have been modified frequently over the years
to incorporate technological advances in order to improve
efficiency, increase capacity, and achieve energy savings. The
Company believes that KACC's plants are cost competitive on an
international basis.
KACC's obligations under the Credit Agreement entered into on
February 15, 1994, as amended (the "Credit Agreement"), are
secured by, among other things, mortgages on KACC's major
domestic plants (other than the Gramercy alumina refinery and
Nevada Micromill). See Note 5 of Notes to Consolidated Financial
Statements in the Annual Report.
ITEM 3. LEGAL PROCEEDINGS
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. See Item 1 in this Report for
cautionary information with respect to such forward-looking
statements.
Hammons v. Alcan Aluminum Corp. et al
On March 5, 1996, a class action complaint was filed against the
Company, Alcan Aluminum Corp., Aluminum Company of America,
Alumax, Inc, Reynolds Metal Company, and the Aluminum Association
in the Superior Court of California for the County of Los
Angeles, alleging that the defendants conspired, in violation of
the California Cartwright Act (Bus. & Prof. Code Section 16720 &
16750), in conjunction with a Memorandum of Understanding ("MOU")
entered into in 1994 by representatives of Australia, Canada, the
European Union, Norway, the Russian Federation and the United
States, to restrict the production of primary aluminum resulting
in rises in prices for primary aluminum and aluminum products.
The complaint sought certification of a class consisting of
persons who at any time between January 1, 1994, and the date of
the complaint purchased aluminum or aluminum products
manufactured by one or more of the defendants and estimated
damages sustained by the class to be $4.4 billion during the year
1994, before trebling. On July 11, 1996, the United States
District Court granted summary judgment in favor of the Company
and other defendants and dismissed the complaint as to all
defendants. On July 18, 1996, the plaintiff filed a notice of
appeal to the United States Court of Appeals for the Ninth
Circuit. On December 11, 1997, the United States Court of
Appeals for the Ninth Circuit affirmed the decision of the
District Court. On December 23, 1997, the plaintiff filed a
petition for rehearing en banc, which was denied May 4, 1998. On
August 12, 1998, the plaintiff filed a petition with the Supreme
Court of the United States for a writ of certiorari, which
petition was denied on October 19, 1998. The plaintiff
subsequently requested reconsideration of its petition which was
also denied.
Asbestos-related Litigation
KACC is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs
allege that certain of their injuries were caused by, among other
things, exposure to asbestos during, and as a result of, their
employment or association with KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits
generally relate to products KACC has not manufactured for at
least 20 years. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Commitments and Contingencies" in the Annual Report.
The portion of Note 9 of Notes to Consolidated Financial
Statements in the Annual Report under the heading "Asbestos
Contingencies" is incorporated herein by reference.
Labor MattersLABOR MATTERS
In connection with the USWA strike and subsequent lock-out by KACC, certain
allegations of unfair labor practices ("ULPs") have
beenULPs were filed with the National Labor Relations Board by the USWA and its members.with the NLRB. Twenty-two of the
twenty-four allegations of ULPs brought against KACC has responded to all suchby the USWA have been
dismissed. A trial on the remaining two allegations and
believes that they are without merit.before an administrative law
judge concluded in September 2001. A decision is not expected until sometime
after the second quarter of 2002. If the outcome of either of these two
allegations were
sustained,eventually results in a final ruling against KACC, it could be
required to make locked-out employees
wholeliable for back wagespay to the USWA members and such amount could be significant.
Any outcome from the datetrial would be subject to additional appeals by the general
counsel of the lock-outNLRB, the USWA or KACC. This process could take months or years.
This matter is currently not stayed by the Cases. Any liability ultimately
determined to exist in January
1999. While uncertainties are inherentthis matter will be dealt with in the final
outcomeoverall context of
suchthe Debtors' plan of reorganization. The portion of Note 12 of Notes to
Consolidated Financial Statements under the heading "Labor Matters" is
incorporated herein by reference.
GRAMERCY LITIGATION
On July 5, 1999, KACC's Gramercy, Louisiana, alumina refinery was extensively
damaged by an explosion in the digestion area of the plant. A number of
employees were injured in the incident, several of them severely. The incident
resulted in a significant number of individual and class action lawsuits being
filed against KACC and others alleging, among other things, property damage,
business interruption losses by other businesses and personal injury. After
these matters were consolidated, the individual claims against KACC were settled
for amounts which, after the application of insurance, were not material to
KACC. Further, an agreement has been reached with the class plaintiffs for an
amount which, after the application of insurance, is not material to KACC. While
the class settlement remains subject to court approval and while certain
plaintiffs may opt out of the settlement, the Company believesdoes not currently believe
that this presents any material risk to KACC. Finally, KACC faces new claims
from certain parties to the resolutionlitigation regarding the interpretation of and
alleged claims concerning certain settlement and other agreements made during
the course of the alleged ULPs shouldlitigation. The aggregate amount of damages threatened in
these claims could, in certain circumstances, be substantial. However, KACC does
not currently believe these claims will result in aany material adverse
impact onliability to the
Company's consolidated financial position, results
of operations, or liquidity.
Other MattersCompany.
OTHER MATTERS
Various other lawsuits and claims are pending against KACC. While uncertainties
are inherent in the final outcome of such matters and it is presently impossible
to determine the actual costs that ultimately may be incurred, management
believes that the resolution of such uncertainties and the incurrence of such
costs should not have a material adverse effect on the Company's consolidated
financial position, results of operations, or liquidity.
See Note 12 of Notes to Consolidated Financial Statements for discussion of
additional litigation. Such discussion under the heading "Dispute with MAXXAM"
is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company during the
fourth quarter of 1998.2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
TheThrough April 2, 2002, the Company's Common Stock iswas traded on the New York
Stock Exchange under the symbol "KLU"."KLU." However, on April 2, 2002, the New York
Stock Exchange announced that it was suspending trading of the Company's Common
Stock because the price of the Common Stock had fallen below the New York Stock
Exchange's continued listing standard regarding the average closing price of a
security for a consecutive 30 trading day period. As of April 3, 2002, the
Company's Common Stock began trading on the OTC Bulletin Board under the symbol
"KLUCQ." The number of record holders of the Company's Common Stock at March 23,31,
2002, was 397. The high and low sales prices for the Company's Common Stock for
each quarterly period of 2001, 2000 and 1999, was 337. Page 57
ofas reported on the AnnualNew York Stock
Exchange is set forth in the Quarterly Financial Data on page 66 in this Report
and the information in Note 5 of Notes to
Consolidated Financial Statements under the heading "Loan
Covenants and Restrictions" at page 39 of the Annual Report, areis incorporated herein by reference. It is possible that, as a part of a
plan of reorganization, the interests of the Company's existing stockholders
could be diluted or cancelled.
The Company has not paid any dividends on its Common Stock during the two most
recent fiscal years. The Credit Agreement (Exhibits 4.12 through 4.28 to this Report)
contains restrictions onIn accordance with the ability ofCode and the DIP Facility, the
Company is not permitted to pay any dividends on or make distributions on accountpurchase any of the Company's
Common Stock, and the Credit Agreement and the Indentures
(Exhibits 4.1 through 4.11 to this Report) contain restrictions
on the ability of the Company's subsidiaries to transfer funds to
the Company in the form of cash dividends, loans or advances.
Exhibits 4.1 through 4.28 to this Report,its stock.
See Note 58 of Notes to Consolidated Financial Statements inunder the Annual Report,heading "Debt
Covenants and Restrictions" and the " Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
- - Capital Structure" for additional information under the headings "Financing Activities and
Liquidity" and "Capital Structure" at pages 25 - 26 of the Annual
Report,which are incorporated herein by reference.herein.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated herein by reference to
the table at page 13 of this Report, to the table at pages 18 - 19page 16 of the Annual Report,Management's
Discussion and Analysis of Financial Condition and Results of Operations, to
Note 12 of Notes to Consolidated Financial Statements, in the Annual Report, and to the Five-Year
Financial Data on pages 5868 - 59 of the Annual69 in this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pages 18 - 28REORGANIZATION PROCEEDINGS
On February 12, 2002, the Company, KACC and 13 of KACC's wholly owned
subsidiaries, filed separate voluntary petitions in the United States Bankruptcy
Court for the District of Delaware for reorganization under Chapter 11 of the
Annual ReportUnited States Bankruptcy Code. On March 15, 2002, two additional subsidiaries of
KACC filed petitions. None of KACC's non-U.S. affiliates were included in the
Cases. The Cases are incorporatedbeing jointly administered with the Debtors managing their
businesses in the ordinary course as debtors-in-possession subject to the
control and supervision of the Court.
The necessity for filing the Cases was attributable to the liquidity and cash
flow problems of the Company arising in late 2001 and early 2002. The Company
was facing significant near-term debt maturities at a time of unusually weak
aluminum industry business conditions, depressed aluminum prices and a broad
economic slowdown that was further exacerbated by the events of September 11. In
addition, the Company had become increasingly burdened by the asbestos
litigation (see Note 12 of Notes to Consolidated Financial Statements for
additional information) and growing legacy obligations for retiree medical and
pension costs (see Note 10 of Notes to Consolidated Financial Statements for
additional information). The confluence of these factors has created the
prospect of continuing operating losses and negative cash flow, resulting in
lower credit ratings and an inability to access the capital markets.
The Company's and KACC's objective is to achieve the highest possible
recoveries for all creditors and stockholders, consistent with the Debtors'
abilities to pay and the continuation of their businesses. However, there can be
no assurance that the Debtors will be able to attain these objectives or achieve
a successful reorganization. Further, there can be no assurance that the
liabilities of the Debtors will not be found in the Cases to exceed the fair
value of their assets. This could result in claims being paid at less than 100%
of their face value and the equity of the Company's stockholders being diluted
or cancelled. At this time, it is not possible to predict the outcome of the
Cases, in general, or the effect of the Cases on the businesses of the Debtors
or on the interests of creditors and stockholders.
The accompanying financial information of the Company and related discussions of
financial condition and results of operations are based on the assumption that
the Company will continue as a "going concern" which contemplates the
realization of assets and the liquidation of liabilities in the ordinary course
of business; however, as a result of the commencement of the Cases, such
realization of assets and liquidation of liabilities are subject to a
significant number of uncertainties. Financial information for periods ending
after the Filing Date will include adjustments and reclassifications to reflect
the liabilities which have been deferred as a result of the commencement of the
Cases. Specifically, but not all inclusive, the financial information for the
year ended December 31, 2001, contained herein does not present: (a) the
classification of any long-term debt which is in default as a current liability,
(b) the realizable value of assets on a liquidation basis or the availability of
such assets to satisfy liabilities, (c) the amount which will ultimately be paid
to settle liabilities and contingencies which may be allowed in the Cases, or
(d) the effect of any changes which may be made in connection with the Debtors'
capitalizations or operations resulting from a plan of reorganization. Because
of the ongoing nature of the Cases, the discussions and consolidated financial
statements contained herein are subject to material uncertainties.
OVERVIEW
The Company, through its wholly owned subsidiary, KACC, operates in the
following business segments: Bauxite and alumina, Primary aluminum, Flat-rolled
products, Engineered products and Commodities marketing. The Company uses a
portion of its bauxite, alumina, and primary aluminum production for additional
processing at certain of its downstream facilities. The table below provides
selected operational and financial information on a consolidated basis with
respect to the Company for the years ended December 31, 2001, 2000 and 1999. The
following data should be read in conjunction with the Company's consolidated
financial statements and the notes thereto contained elsewhere herein. See Note
15 of Notes to Consolidated Financial Statements for further information
regarding segments. (All references to tons refer to metric tons of 2,204.6
pounds.) Intersegment transfers are valued at estimated market prices.
Year Ended December 31,
-----------------------------------------------
(In millions of dollars, except shipments and prices) 2001 2000 1999
- ------------------------------------------------------------------------- ------------- --------------- --------------
Shipments: (000 tons)
Alumina(1)
Third Party 2,582.7 1,927.1 2,093.9
Intersegment 422.8 751.9 757.3
------------- --------------- --------------
Total Alumina 3,005.5 2,679.0 2,851.2
------------- --------------- --------------
Primary Aluminum(2)
Third Party 244.7 345.5 295.6
Intersegment 2.3 148.9 171.2
------------- --------------- --------------
Total Primary Aluminum 247.0 494.4 466.8
------------- --------------- --------------
Flat-Rolled Products 74.4 162.3 217.9
------------- --------------- --------------
Engineered Products 118.1 164.6 171.1
------------- --------------- --------------
Average Realized Third Party Sales Price:(3)
Alumina (per ton) $ 186 $ 209 $ 176
Primary Aluminum (per pound) $ .67 $ .74 $ .66
Net Sales:
Bauxite and Alumina(1)
Third Party (includes net sales of bauxite) $ 508.3 $ 442.2 $ 395.8
Intersegment 77.9 148.3 129.0
------------- --------------- --------------
Total Bauxite & Alumina 586.2 590.5 524.8
------------- --------------- --------------
Primary Aluminum(2)
Third Party 358.9 563.7 432.9
Intersegment 3.8 242.3 240.6
------------- --------------- --------------
Total Primary Aluminum 362.7 806.0 673.5
------------- --------------- --------------
Flat-Rolled Products 308.0 521.0 591.3
Engineered Products 429.5 564.9 556.8
Commodities Marketing 22.9 (25.4) 18.3
Minority Interests 105.1 103.4 88.5
Eliminations (81.7) (390.6) (369.6)
------------- --------------- --------------
Total Net Sales $ 1,732.7 $ 2,169.8 $ 2,083.6
============= =============== ==============
Operating Income (Loss):
Bauxite & Alumina (4) $ (46.9) $ 57.2 $ (10.5)
Primary Aluminum (5) 5.1 100.1 (4.8)
Flat-Rolled Products .4 16.6 17.1
Engineered Products 4.6 34.1 38.6
Commodities Marketing 5.6 (48.7) 21.3
Micromill - (.6) (11.6)
Eliminations 1.0 .1 6.9
Corporate and Other (68.5) (61.4) (61.8)
Non-recurring Operating Items(6) 163.6 41.9 (24.1)
------------- --------------- --------------
Total Operating Income (Loss) $ 64.9 $ 139.3 $ (28.9)
============= =============== ==============
Net Income (Loss) $ (459.4) $ 16.8 $ (54.1)
============= =============== ==============
Capital Expenditures $ 148.7 $ 296.5 $ 68.4
============= =============== ==============
(1) Net sales for 2001, 2000 and 1999 included approximately 115,000 tons,
322,000 tons and 395,000 tons, respectively, of alumina purchased
from third parties.
(2) Beginning in the first quarter of 2001, as a result of the continuing
curtailment of KACC's Northwest smelters, the Flat-rolled products
business unit began purchasing its own primary aluminum rather than
relying on the Primary aluminum business unit to supply its aluminum
requirements through production or third party purchases. The Engineered
products business unit was already responsible for purchasing the majority
of its primary aluminum requirements. During the years ended December 31,
2001, 2000 and 1999, the Primary aluminum business unit purchased
approximately 27,300 tons, 56,100 tons and 12,000 tons, respectively, of
primary aluminum from third parties to meet existing third party
commitments.
(3) Average realized prices for the Company's Flat-rolled products and
Engineered products segments are not presented as such prices are
subject to fluctuations due to changes in product mix.
(4) Operating income (loss) for 2001, 2000 and 1999 included numerous unusual
items as a result of the Gramercy incident. See Note 3 of Notes
to Consolidated Financial Statements for a recap of the unusual items.
(5) Operating income (loss) for 1999 included potline preparation and restart
costs of $12.8.
(6) See Note 6 of Notes to Consolidated Financial Statements for a detailed
summary of the components of non-recurring operating items and the
business segment to which the items relate.
This section contains statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements appear in a number of places in this section (see "Overview,"
"Results of Operations," "Liquidity and Capital Resources" and "Other Matters").
Such statements can be identified by reference.the use of forward-looking terminology
such as "believes," "expects," "may," "estimates," "will," "should," "plans" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may vary materially
from those in the forward-looking statements as a result of various factors.
These factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, developments in technology,
new or modified statutory or regulatory requirements and changing prices and
market conditions. See Item 1. "Business - Factors Affecting Future
Performance." No assurance can be given that these are all of the factors that
could cause actual results to vary materially from the forward-looking
statements.
SIGNIFICANT ITEMS
Market-related Factors. 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. Primary aluminum prices have historically
been subject to significant cyclical price fluctuations. See Notes 2 and 13 of
Notes to Consolidated Financial Statements for a discussion of KACC's hedging
activities.
Changes in global, regional, or country-specific economic conditions can have a
significant impact on overall demand for aluminum-intensive fabricated products
in the transportation, distribution, and packaging markets. Such changes in
demand can directly affect the Company's earnings by impacting the overall
volume and mix of such products sold. To the extent that these end-use markets
weaken, demand can also diminish for what the Company sometimes refers to as the
"upstream" products: alumina and primary aluminum.
During 2001, the Average Midwest United States transaction price ("AMT price")
per pound of primary aluminum began the year at $.75 per pound and then began a
steady decrease ending 2001 at $.64 per pound. During 2000, the average AMT
price was $.75 per pound. During 1999, the AMT price declined to a low of
approximately $.57 per pound in February 1999 and then began a steady increase
ending 1999 at $.79 per pound. At February 28, 2002, the AMT price was
approximately $.66 per pound.
Pension Plans. The assets of the Company sponsored pension plans are, to a
substantial degree, invested in the capital markets and managed by a third
party. Given the performance of the financial markets during 2001, the Company
was required to reflect an additional minimum pension liability of $64.5 million
(net of income tax benefit of $38.0 million) in its 2001 financial statements as
a result of a decline in the value of the assets held by the Company's pension
plans. The Company also anticipates that the decline in the value of the pension
plans' assets will unfavorably impact pension costs reflected in its 2002
operating results and could, over the longer term, increase pension funding
requirements. See Note 10 of Notes to Consolidated Financial Statements for
additional discussions of these matters.
Sale of 8.3% Interest in QAL. In September 2001, KACC sold an approximate 8.3%
interest in QAL and recorded a pre-tax gain of approximately $163.6 million
(included in Other income/(expense) in the Consolidated Statements of Income
(Loss)). As a result of the transaction, KACC now owns a 20% interest in QAL.
See Note 4 of Notes to Consolidated Financial Statements for additional
discussion of the September 2001 sale.
Start-up Related Costs at Gramercy Facility. Initial production at KACC's
Gramercy, Louisiana, alumina refinery, which had been curtailed since July 1999
as a result of an explosion in the digestion area of the plant, commenced during
the middle of December 2000. Construction at the facility was substantially
completed during the third quarter of 2001. During 2001, the Gramercy facility
incurred abnormal related start-up costs of approximately $64.9 million. These
abnormal costs resulted from operating the plant in an interim and less
efficient mode pending the completion of construction and reaching the plant's
intended production rate and efficiency. During the first nine months of 2001,
the plant operated at approximately 68% of its newly-rated estimated capacity of
1,250,000 tons. During the fourth quarter of 2001, the plant operated at
approximately 90% of its newly-rated capacity. By the end of February 2002, the
plant was operating at just below 100% of its newly-rated capacity. The facility
is now focusing its efforts on achieving its full operating efficiency. See Note
3 of Notes to Consolidated Financial Statements for additional discussion of the
incident at the Gramercy facility and the financial statement impact of
Gramercy-related insurance recoveries.
Labor Matters. From September 1998 through September 2000, KACC and the USWA
were involved in a labor dispute as a result of the September 1998 USWA strike
and the subsequent "lock-out" by KACC in February 1999. Although the USWA
dispute has been settled and the workers have returned to the facilities, two
allegations of ULPs in connection with the USWA strike and subsequent lock-out
by KACC remain to be resolved. The Company believes that the remaining charges
made against KACC by the USWA are without merit. See Note 12 of Notes to
Consolidated Financial Statements for additional discussion on the ULP charges.
Pacific Northwest Power Sales and Operating Level. During 2001, KACC kept its
Northwest smelters curtailed and sold the remaining power available that it had
under contract through September 2001. KACC has the right to purchase sufficient
power from the BPA to operate its Trentwood facility as well as approximately
40% of the capacity of its Northwest aluminum smelting operations. Given recent
primary aluminum prices and the forward price of power in the Northwest, it is
unlikely that KACC would operate more than a portion of its Northwest smelting
capacity in the near future. Operating only a portion of the Northwest capacity
would result in production/cost inefficiencies such that operating results
would, at best be breakeven to modestly negative at long-term primary aluminum
prices. However, operating at such a reduced rate could, depending on prevailing
economics, result in improved cash flows as opposed to remaining curtailed and
incurring the Company's fixed and continuing labor and other costs. This is
because KACC is liable for certain severance, supplemental unemployment and
early retirement benefits for the USWA workers at the curtailed smelters. A
substantial portion of such costs have been accrued through early 2003. However,
additional accruals may be required depending on when the USWA workers are
recalled and when the smelting operations are restarted. Such amounts could be
material with a present value in the $50.0 to $60.0 million range. However, most
of such costs would be related to pension and post-retirement medical benefits
and would likely be paid out over an extended period. Additionally, beginning
October 2002, KACC could be liable for certain take-or-pay obligations under the
BPA contract and such amounts could be significant. See Note 7 of Notes to
Consolidated Financial Statements for additional information on the power sales,
KACC's contract rights and obligations and additional detail regarding possible
incremental liabilities with respect to the USWA workers.
Strategic Initiatives. KACC's strategy is to improve its financial results by:
increasing the competitiveness of its existing plants; continuing its cost
reduction initiatives; adding assets to businesses it expects to grow; pursuing
divestitures of its non-core businesses; and strengthening its financial
position by divesting of part or all of its interests in certain operating
assets.
In May 2001, the Company announced that it had launched a performance
improvement initiative (the "program") designed to increase operating cash flow,
generate cash from inventory reduction and improve the Company's financial
flexibility.
The program aims to achieve the following five specific objectives:
- Significant and systemic reductions in unit production costs through the
expanded use of lean manufacturing initiatives at Company-managed
facilities. The Company expects to see the biggest incremental
improvements at the Alpart alumina refinery in Jamaica and the Valco
primary aluminum smelter in Ghana;
- Additional efficiencies at the Gramercy facility that are incremental to
those efficiencies already included in the Company's adjusted first
quarter 2001 annual operating cash flow run rate;
- Increased production at the Alpart alumina refinery through improved
efficiency and de-bottlenecking. Alpart's production is expected to reach
an annualized run rate of more than 1.7 million tons during 2003, up from
the facility's current annual rated capacity of 1.45 million tons. As a
result, KACC's share of Alpart's annual production would increase by more
than 160,000 tons. This would substantially offset the impact of the
September 2001 sale of an 8.3% interest in QAL on alumina available to
KACC for internal use or third party sales;
- A sustained reduction in annualized overhead-related expenses or related
cash outflows at the Corporate office and in the commodities businesses
through redesign of work and consolidation of functions primarily in the
Corporate office; and
- A one-time cash benefit from reduction in inventories, primarily at the
Company's majority-owned, non-U.S. commodity operations, and through
disposition of non-operating properties and equipment.
During 2001, the Company recorded charges of $35.2 million (see Note 6 of Notes
to Consolidated Financial Statements) in connection with the program. Additional
cash and non-cash charges may be required in the future as the program
continues. Such additional charges could be material.
RESULTS OF OPERATIONS
Summary. The Company reported a net loss of $459.4 million, $5.73 of basic loss
per common share, compared to net income of $16.8 million, or $.21 of basic
income per common share, for 2000 and a net loss of $54.1 million, or $.68 of
basic loss per common share, for 1999. However, results for 2001, 2000 and 1999
included material special items as summarized below:
Year Ended December 31,
-----------------------------------------
2001 2000 1999
--------- --------- ---------
As reported, income (loss) per common share $ (5.73) $ .21 $ (.68)
Less material special (gains) losses:
Non-recurring year-end income tax adjustments 6.36 - -
Gain on sale of QAL interest (1.19) - -
Non-recurring operating charges (income) (1.24) (.32) .20
Other (income) expense - special items, net .24 (.05) .29
Abnormal Gramercy start-up and other costs .54 - -
Gramercy business interruption recoveries (.28) - -
Increase in allowance for doubtful accounts receivable .02 - -
Excess overhead and other costs associated with
curtailed Northwest smelting operations .11 - -
LIFO inventory adjustment .06 - -
Gain on involuntary conversion - - (.71)
Operating profit foregone as a result of power sales - .20 -
--------- --------- ---------
$ (1.11) $ .04 $ (.90)
========= ========= =========
Net sales in 2001 totaled $1,732.7 million compared to $2,169.8 million in 2000
and $2,083.6 million in 1999.
2001 AS COMPARED TO 2000
Bauxite and Alumina. Third-party net sales of alumina in 2001 were 15% higher
than in 2000 as a 34% increase in third-party shipments was only partially
offset by an 11% decrease in third-party average realized prices. The increase
in period-over-period shipments resulted primarily from (1) higher third-party
sales due to reduced internal alumina requirements as a result of the
curtailment of the Washington smelters, (2) the restart of production at the
Gramercy refinery in December 2000 and (3) the timing of shipments. The decrease
in average realized prices was due to a decrease in primary aluminum market
prices to which our third-party alumina sales contracts are linked, typically on
a lagged basis of three months.
Intersegment net sales for 2001, decreased 47% as compared to 2000. The decrease
was due to a 44% decrease in the intersegment shipments and a 7% decrease in
intersegment average realized prices. The decrease in shipments was primarily
due to the curtailments of the Company's Washington smelters. The decrease in
the intersegment average realized prices was the result of the decrease in
primary aluminum prices from period to period as intersegment transfers are made
on the basis of primary aluminum market prices on a lagged basis of one month.
Net sales for 2001 and 2000 included approximately 115,000 tons and 322,000
tons, respectively, of alumina purchased from third parties to satisfy third
party sales and transfers to the Primary aluminum business unit.
Segment operating results (excluding non-recurring items) for 2001 were down
significantly from 2000. Increased net shipments only partially offset the
decrease in the average realized sales prices. Additionally, operating income
for 2001 was adversely affected by abnormal Gramercy related start-up costs and
litigation costs of approximately $71.4 million, less than satisfactory bauxite
mining cost performance at KJBC and a LIFO inventory charge of $3.7 million.
These charges were offset in part by $36.6 million of additional insurance
benefits related to the Gramercy incident.
Segment operating income for 2001 discussed above, excludes non-recurring costs
of $15.8 million incurred in connection with the performance improvements
initiative program. Segment operating income for 2000 excludes labor settlement
charges of $2.1 million and three Gramercy-related items: a $7.0 million
non-cash LIFO inventory charge, incremental maintenance spending of $11.5
million and an $.8 million non-cash restructuring charge.
Primary Aluminum. Third party sales of primary aluminum for 2001 decreased
approximately 36% from 2000, reflecting a 29% decrease in third-party shipments
and a 9% decrease in third-party average realized prices. The decrease in
shipments was primarily due to the complete curtailment of the Washington
smelters during 2001, as compared to 2000 when these smelters operated during a
significant portion of the year. The decrease in the average realized prices was
primarily due to the decrease in primary aluminum market prices. Intersegment
net sales of primary aluminum for 2001 decreased significantly compared to 2000
primarily as a result of a substantial decrease in intersegment shipments. This
change resulted primarily from a change in the Company's methodology for
handling aluminum supply logistics for the Flat-rolled products business unit as
a result of the continuing curtailment of the Northwest smelters. Beginning in
the first quarter of 2001, the Flat-rolled products business unit began
purchasing its own primary aluminum rather than relying on the Primary aluminum
business unit to supply its aluminum requirements through production or third
party purchases. The Engineered products business unit was already responsible
for purchasing the majority of its primary aluminum requirements. The
intersegment average realized price for 2001 was approximately the same as 2000
because substantially all of the intersegment shipments occurred in the first
quarter of 2001 when the intersegment average realized price approximated the
2000 intersegment average realized price.
Segment operating income (excluding non-recurring items) for 2001 decreased
significantly versus 2000. The primary reasons for the decrease were the
decreases in the average realized prices and shipments discussed above as well
as overhead and other fixed costs associated with the curtailed Northwest
smelting operations, which totaled approximately $30.0 million during 2001. The
Company believes that approximately half of such costs incurred are "excess" to
the run rate that can be achieved during a prolonged curtailment period. During
the third quarter of 2001, management took actions to minimize the excess
outflows associated with the curtailed operations. These actions should result
in the elimination of most of the excess cost by early 2002. Period-over-period
results were also unfavorably impacted by higher energy costs at the Anglesey
aluminum smelter, resulting from a new power contract entered into by Anglesey
at the end of the first quarter of 2000.
Segment operating income for 2001, discussed above, excludes non-recurring net
power sale gains of $229.2 million. These gains were offset by costs of $7.5
million incurred in connection with the Company's performance improvement
initiative program and contractual labor costs related to the Northwest smelter
curtailment of $12.7 million. Segment operating income for 2000 excludes net
power sale gains of $159.5 million. These gains were offset by a non-cash
smelter impairment charge of $33.0 million, labor settlement charges of $15.9
million and costs related to staff reduction initiatives of $3.1 million.
Flat-Rolled Products. Net sales of flat-rolled products for 2001 decreased by
approximately 41% as compared to 2000 as a 54% decrease in shipments was
partially offset by a 29% increase in average realized prices. The decrease in
shipments was primarily due to reduced shipments of can body stock, as a part of
the planned exit from this product line. Current period shipments were also
adversely affected by the reduced demand for general engineering heat-treat
products and can lid and tab stock, due to a weak market. These decreases were
only modestly offset by a strong aerospace demand during the first nine months
of 2001. However, after the events of September 11, 2001, aerospace demand and
the price for aerospace products declined substantially. The increase in average
realized prices primarily reflects the change in product mix from the can body
stock to heat-treat products, particularly aerospace heat-treat (which have a
higher price and operating margin as compared to other products).
Segment operating income (excluding non-recurring items) for 2001 was down
significantly from 2000. The primary reasons for the decrease were the
substantial decrease in shipments and weakened pricing for heat treat products
as a result of the weaker U.S. economy which were worsened after September 11,
2001 to the point that fourth quarter operating results were a loss. Operating
results were also adversely impacted by increased operating costs, mainly due to
a lag in the ability to scale back costs to reflect the revised product mix and
the substantial volume decline caused by weakened demand. Operating results for
2001 also included a LIFO inventory charge of $3.0 million and higher metal
sourcing costs due to plant curtailments.
Segment operating income for 2001, discussed above, excludes a non-cash
impairment charge of $17.7 million associated with certain equipment that the
Company plans to sell or idle as the result of a planned 2002 exit from the
brazing heat-treat and lid and tab stock for the beverage container market and
non-recurring costs of $10.7 million incurred in connection with the performance
improvement program. Segment operating income for 2000 excludes labor settlement
charges of $18.2 million, an $11.1 million non-cash LIFO inventory charge and
non-cash impairment charges associated with a product line exit of $1.5 million.
Engineered Products. Net sales of engineered products for 2001 decreased by
approximately 24% as a 28% decrease in product shipments was offset by a 6%
increase in average realized prices. The decrease in product shipments was the
result of reduced transportation and electrical product shipments due to weak
U.S. market demand. The increase in average realized prices reflects a shift in
product mix to higher value-added products.
Segment operating income (excluding non-recurring items) for 2001 decreased as
compared to 2000 primarily due to the volume and price factors described above.
The segment's operating results were also adversely impacted by a LIFO inventory
charge of $1.5 million and because cost reduction lagged the substantial volume
decline.
Segment operating income for 2000, discussed above, excludes a non-recurring
non-cash impairment charge associated with product line exit of $5.6 million and
a labor settlement charge of $2.3 million.
Commodities Marketing. Net sales for this segment represent net settlements with
third-party brokers for maturing derivative positions. Operating income
represents the combined effect of such net settlements, any net premium costs
associated with maturing options, as well as net results of internal hedging
activities with our fabricated products segments. The minimum (and maximum)
price of the hedges in any given period is primarily the result of the timing of
the execution of the hedging contracts.
Segment operating income for 2001 increased compared to the comparable period in
2000. This is primarily the result of 2001 hedging positions having higher
minimum prices than the positions in 2000, combined with the fact that 2000
market prices were higher than those experienced in 2001.
Eliminations. Eliminations of intersegment profit vary from period to period
depending on fluctuations in market prices as well as the amount and timing of
the affected segments' production and sales.
Corporate and Other. Corporate operating expenses (excluding non-recurring
items) represent corporate general and administrative expenses which are not
allocated to the Company's business segments. The increase in corporate
operating expenses in 2001, as compared to 2000 was primarily due to higher
medical and pension costs accruals for active and retired employees.
Corporate operating results for 2001, discussed above, exclude costs of $1.2
million incurred in connection with the Company's performance improvement
program. Corporate operating results for 2000 excludes costs related to staff
reduction and efficiency initiatives of $5.5 million.
2000 AS COMPARED TO 1999
Bauxite and Alumina. Third party net sales of alumina were up 12% in 2000 as
compared to 1999 as a 19% increase in third party average realized price was
partially offset by an 8% decrease in third party shipments. The increase in
average realized price was because the sales prices for alumina under the
Company's third-party alumina sales contracts are linked to primary aluminum
prices and primary aluminum prices increased year over year. The decrease in
year-over-year shipments resulted primarily from differences in the timing of
shipments and, to a lesser extent, the net effect of the Gramercy incident,
after considering the 267,000 tons of alumina purchased by KACC in 2000 from
third parties to fulfill third party sales contracts.
Intersegment net sales for 2000 increased 15% as compared to 1999. The increase
was primarily due to a 16% increase in the intersegment average realized price
resulting from increases in primary aluminum prices from period to period as
intersegment transfers are made on the basis of primary aluminum market prices
on a lagged basis of one month. Intersegment shipments were essentially flat.
The favorable impact on intersegment alumina shipments of operating more
potlines at the Company's smelters during the first half of 2000 as compared to
the same period in 1999 was offset by the unfavorable impact of the potline
curtailments at the Company's Washington smelters in the last half of 2000.
Intersegment shipments for 2000 included approximately 55,000 tons of alumina
purchased by KACC from third-parties and transferred to the Primary aluminum
business unit.
Segment operating income (before non-recurring items) for 2000 was up
significantly as compared to 1999 primarily as a result of the factors discussed
above. Segment operating income for 2000 excludes non-recurring labor settlement
charges of $2.1 million and three Gramercy-related items; a $7.0 million
non-cash LIFO inventory charge, incremental maintenance spending of $11.5
million and an $.8 million non-cash restructuring charge. Segment operating
income for 1999 excludes the segment's allocated share of the expense of
insurance deductibles related to the Gramercy incident of $4.0 million.
See Note 3 of Notes to Consolidated Financial Statements for additional
discussion of the effect of the Gramercy incident on the Bauxite and Alumina
business unit's operations.
Primary Aluminum. Third party net sales of primary aluminum were up 30% for 2000
as compared to 1999 as a result of a 17% increase in third party shipments and a
12% increase in third party averaged realized prices. The increase in shipments
was primarily due to the favorable impact of the increased operating rate at the
Valco smelter throughout 2000 and the Washington smelters (during the first six
months of 2000). These shipment increases were offset, in part, by curtailments
of the potlines at the Washington smelters during the second half of 2000, net
of approximately 206,500 tons of primary aluminum purchased from third-parties
to meet third-party and internal commitments. The increase in the average
realized prices reflects the 14% increase in primary aluminum market prices.
Intersegment net sales for 2000 were up modestly when compared to 1999. A 16%
increase in intersegment average realized prices was offset by a 13% decrease in
intersegment shipments. The increase in the intersegment average realized price
was due to higher market prices for primary aluminum as intersegment transfers
are made on the basis of market prices. The decrease in shipments was primarily
due to the potline curtailments at the Washington smelters, the reduced
requirements of the Flat-rolled products segment due to the can body stock exit
and the reduced requirements of the Engineered products segment due to the
softening of the ground transportation and distribution markets.
Segment operating income (before non-recurring items) for 2000 was up
significantly from 1999. The primary reason for the increase was the
improvements in average realized prices and net shipments discussed above.
However, segment operating income for 2000 was adversely affected by increased
alumina prices, higher electric power costs and reduced profitability resulting
from metal purchased and resold to the Flat-rolled products and Engineered
products business units. The increase in alumina costs is the result of higher
primary aluminum prices in 2000 because transfers of alumina from KACC's alumina
business unit are made on a metal-linked basis. Power costs have generally
increased, even after excluding the higher than normal power costs experienced
by the Company in the Pacific Northwest. As previously reported, new agreements
entered into in both Ghana and Wales provide for increased power stability but
at increased costs. The reduced profitability on sales to the Flat-rolled
products and Engineered products segments is due to the lack of a profit margin
on metal that was purchased and resold at cost to the segments versus the profit
margin that would have existed had the metal been produced.
Segment operating income for 2000, discussed above, excludes non-recurring net
power sales gains of $159.5 million. Segment operating income for 2000 also
excludes a non-cash smelter impairment charge of $33.0 million, the segment's
share of the non-recurring labor settlement charge of $15.9 million and costs
related to staff reduction initiatives of $3.1 million. Operating income in 1999
included costs of approximately $12.8 million associated with preparing and
restarting potlines at Valco and the Washington smelters.
Flat-Rolled Products. Net sales of flat-rolled products decreased by 12% in 2000
as compared to 1999 as a 26% decrease in shipments was only partially offset by
a 14% increase in average realized prices. The decrease in shipments was
primarily due to reduced shipments of can body stock as a part of the Company's
planned exit from this product line. Offsetting the reduced can body stock
shipments was a modest year over year improvement in shipments of heat-treat
products. The increase in average realized prices primarily reflects the change
in product mix (resulting from the can body stock exit) as well as the pass
through to customers of increased market prices for primary aluminum.
Segment operating income (before non-recurring items) for 2000 was essentially
flat when compared to 1999 as the increase in price and volume for heat-treat
products offset the impacts of the can body stock exit. Segment operating income
for 2000, discussed above, excludes the segment's share of the non-recurring
labor settlement charge of $18.2 million. Segment operating income also excludes
an $11.1 million non-cash LIFO inventory charge and $1.5 million of non-cash
impairment charges associated with KACC's exit from the can body stock product
line.
Results for 2000 for the Flat-rolled products segment were also adversely
affected late in the year by the Washington smelter curtailments as the business
unit no longer had a supply of hot metal. While the impact of this change was
modest in 2000, the business unit will be adversely affected by this situation
in 2001. The amount of the impact will depend on the cost of acquiring the
necessary metal units and the energy costs incurred to melt the purchased metal.
Engineered Products. Net sales of engineered products for 2000 were essentially
flat as compared to 1999 as a 5% increase in average realized prices was offset
by a 4% decrease in product shipments. The increase in average realized prices
reflects increased prices for soft alloy extrusions, offset, in part, by a shift
in product mix. The decrease in product shipments in 2000 over 1999 reflects a
substantial weakening in ground transportation and distribution markets in the
last half of 2000.
The changes in segment operating income (before non-recurring items) for 2000 as
compared to 1999 were primarily attributable to increased energy costs. Segment
operating income for 2000 excludes a non-recurring non-cash impairment charge
associated with product line exit of $5.6 million and labor settlement charges
of $2.3 million. Segment operating income for 1999 included equity in earnings
of $2.5 million from the Company's 50% interest in AKW L.P., which was sold in
April 1999.
Commodities Marketing. Commodities marketing includes the results of KACC's
aluminum hedging activities. Its hedging activities include: (1) metal hedging
on behalf of the Bauxite and alumina and Primary aluminum business segments with
third-party brokers (other than mark-to-market charges on certain
non-qualifying hedges which are reflected in Other income (expense) - see Notes
2 and 13 of Notes to Consolidated Financial Statements) and (2) internal hedging
with Flat-rolled products and Engineered products business segments so as to
eliminate the commodity price risk on the underlying aluminum whenever these
segments enter into a fixed price contract with a third-party customer.
Net sales for this segment represent net settlements with third-party brokers
for derivative positions. Operating income represents the combined effect of
such net settlements, any net premium costs associated with the purchase or sale
of options, as well as net results of internal hedging activities with KACC's
fabricated products segments. The decrease in net sales as well as a decrease in
operating income in 2000 as compared to 1999 results from the 2000 hedging
positions having lower ceilings than the positions in 1999. This is primarily
the result of the timing of when the hedging position activities were completed.
Eliminations. Eliminations of intersegment profit vary from period to period
depending on fluctuations in market prices as well as the amount and timing of
the affected segments' production and sales.
Corporate and Other. Corporate operating expenses (excluding non-recurring
items) represent corporate general and administrative expenses which are not
allocated to the Company's business segments. Corporate operating results for
2000 exclude costs related to staff reduction and efficiency initiatives of $5.5
million. Corporate operating results for 1999 exclude the expense of insurance
deductibles related to the Gramercy incident allocated to the Corporate segment
of $1.0 million.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the filing of the Cases, claims against the Debtors for principal
and accrued interest on secured and unsecured indebtedness existing on the
Filing Date are stayed while the Debtors continue business operations as
debtors-in-possession, subject to the control and supervision of the Court. See
Note 1 of Notes to Consolidated Financial Statements for additional discussion
of the Cases. At this time, it is not possible to predict the effect of the
Cases on the businesses of the Debtors.
Operating Activities. In 2001, operating activities provided $249.8 million of
cash. This amount compares with 2000 when operating activities provided cash of
$83.1 million and 1999 when operating activities used cash of $89.3 million. The
increase in cash flows from operating activities between 2001 and 2000 resulted
primarily from the impact of improved 2001 operating results, excluding non-cash
items, driven primarily by power sales and a decline in Gramercy-related
receivables. The increase in cash flows from operating activities between 2000
and 1999 resulted primarily from the impact of the improved 2000 operating
results, driven primarily by the 2000 power sales and a decline in inventories,
offset in part by an increase in receivables. The decrease in inventories was
primarily due to improved inventory management and the exit from the can body
product line at the Flat-rolled products business unit. The increase in
receivables was primarily due to power sale proceeds that were received in the
first quarter of 2001 and Gramercy-related items.
Investing Activities. Total consolidated capital expenditures were $148.7,
$296.5 and $68.4 million in 2001, 2000 and 1999, respectively (of which $10.4,
$5.4 and $4.8 million were funded by the minority partners in certain foreign
joint ventures). Capital expenditures in 2001 and 2000 included $78.6 and $239.1
million spent with respect to rebuilding the Gramercy facility. Capital
expenditures in 2000 also included $13.3 million spent with respect to the
purchase of the non-working capital assets of the Chandler, Arizona drawn tube
aluminum fabricating operation. The remaining capital expenditures in 2001 and
2000 and the capital expenditures in 1999 were made primarily to improve
production efficiency, reduce operating costs and expand capacity at existing
facilities. Total consolidated capital expenditures are currently expected to be
between $40.0 and $75.0 million per year in each of 2002 and 2003 (of which
approximately 15% is expected to be funded by the Company's minority partners in
certain foreign joint ventures). Management continues to evaluate numerous
projects, all of which would require substantial capital, both in the United
States and overseas. The level of capital expenditures may be adjusted from time
to time depending on the Company's price outlook for primary aluminum and other
products, KACC's ability to assure future cash flows through hedging or other
means, the Company's financial position and other factors.
Financing Activities and Liquidity. On February 12, 2002, the Company and KACC
entered into the DIP Facility which provides for a secured, revolving line of
credit through the earlier of February 12, 2004, the effective date of a plan of
reorganization or voluntary termination by the Company. KACC is able to borrow
under the DIP Facility by means of revolving credit advances and letters of
credit (up to $125.0) in an aggregate amount equal to the lesser of $300.0 or a
borrowing base relating to eligible accounts receivable, eligible inventory and
eligible fixed assets reduced by certain reserves, as defined in the DIP
Facility agreement. The DIP Facility is guaranteed by the Company and certain
significant subsidiaries of KACC. Interest on any outstanding balances will bear
a spread over either a base rate or LIBOR, at KACC's option. The Court signed a
final order approving the DIP Facility on March 19, 2002.
The Company and KACC believe that the cash and cash equivalents of $153.3
million at December 31, 2001, cash flows from operations and cash available from
the DIP Facility will provide sufficient working capital to allow the Company to
meet its obligations during the pendency of the Cases. At March 31, 2002, there
were no outstanding borrowings under the revolving credit facility and there
were outstanding letters of credit of approximately $54.1 million. As of March
31, 2002, $121.0 million (of which $70.9 million could be used for additional
letters of credit) was available to the Company under the DIP Facility. The
Company expects that the borrowing base amount will increase by approximately
$50.0 million once certain appraisal information is provided to the lenders.
Capital Structure. MAXXAM and one of its wholly owned subsidiaries collectively
own approximately 62% of the Company's Common Stock, with the remaining
approximately 38% of the Company's Common Stock being publicly held. Certain of
the shares of the Company's Common Stock beneficially owned by MAXXAM are
subject to certain pledge agreements. See Note 10 of Notes to Consolidated
Financial Statements for a further description of the pledge agreements. At this
time, it is not possible to predict the outcome of the Cases, in general, or the
effect of the Cases on the interests of the stockholders. However, it is
possible that all or a portion of MAXXAM's interests may be diluted or cancelled
as a part of a plan of reorganization.
Commitments and Contingencies. During the pendency of the Cases, substantially
all pending litigation, except that relating to certain environmental matters,
against the Debtors is stayed. Generally, claims arising from actions or
omissions prior to the Filing Date will be settled in connection with the plan
of reorganization.
The Company and KACC are subject to a number of environmental laws, to fines or
penalties assessed for alleged breaches of the environmental laws, and to claims
and litigation based upon such laws. Based on the Company's evaluation of these
and other environmental matters, the Company has established environmental
accruals of $61.2 million at December 31, 2001. However, the Company believes
that it is reasonably possible that changes in various factors could cause costs
associated with these environmental matters to exceed current accruals by
amounts that could range, in the aggregate, up to an estimated $27.0 million.
KACC is also a defendant in a number of asbestos-related lawsuits that generally
relate to products KACC has not sold for more than 20 years. Based on past
experience and reasonably anticipated future activity, the Company has
established a $621.3 million accrual at December 31, 2001, for estimated
asbestos-related costs for claims filed and estimated to be filed through 2011,
before consideration of insurance recoveries. However, the Company believes that
substantial recoveries from insurance carriers are probable. The Company reached
this conclusion based on prior insurance-related recoveries in respect of
asbestos-related claims, existing insurance policies and the advice of outside
counsel with respect to applicable insurance coverage law relating to the terms
and conditions of these policies. Accordingly, the Company has recorded an
estimated aggregate insurance recovery of $501.2 million (determined on the same
basis as the asbestos-related cost accrual) at December 31, 2001. Although the
Company has settled asbestos-related coverage matters with certain of its
insurance carriers, other carriers have not yet agreed to settlements and
disputes with certain carriers exist. The timing and amount of future recoveries
from these insurance carriers will depend on the pendency of the Cases and on
the resolution of disputes regarding coverage under the applicable insurance
policies.
In connection with the USWA strike and subsequent lock-out by KACC which was
settled in September 2000, certain allegations of ULPs have been filed with the
NLRB by the USWA. KACC believes that all such allegations are without merit.
Twenty-two of twenty-four allegations of ULPs previously brought against it by
the USWA have been dismissed. A trial before an administrative law judge for the
two remaining allegations concluded in September 2001. A decision is not
expected until sometime after the second quarter of 2002. Any outcome from the
trial before an administrative judge would be subject to additional appeals by
the general counsel of the NLRB, the USWA or KACC. This process could take
months or years. This matter is currently not stayed by the Cases. If these
proceedings eventually resulted in a final ruling against KACC with respect to
either allegation, it could be obligated to provide back pay to USWA members at
the five plants and such amount could be significant. Any liability ultimately
determined to exist in this matter will be dealt with in the overall context of
the Debtors' plan of reorganization.
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 and insurance recoveries that ultimately may be received, management
currently believes that the resolution of these uncertainties and the incurrence
of related costs, net of any related insurance recoveries, should not have a
material adverse effect on the Company's consolidated financial position or
liquidity. However, amounts paid, if any, in satisfaction of these matters could
be significant to the results of the period in which they are recorded. See Note
12 of Notes to Consolidated Financial Statements for a more detailed discussion
of these contingencies and the factors affecting management's beliefs.
OTHER MATTERS
Income Tax Matters. In light of the Cases, the Company has provided valuation
allowances for all of its net deferred income tax assets as the Company no
longer believes that the "more likely than not" recognition criteria were
appropriate. See Note 9 of Notes to Consolidated Financial Statements for a
discussion of these and other income tax matters.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are both very important to the
portrayal of the Company's financial condition and results, and require
management's most difficult, subjective, and/or complex judgments. Typically,
the circumstances that make these judgments difficult, subjective and/or complex
have to do with the need to make estimates about the effect of matters that are
inherently uncertain. While the Company believes that all aspect of its
financial statements should be studied and understood in assessing its current
(and expected future) financial condition and results, the Company believes that
the accounting policies that warrant additional attention include-
1. The fact that the consolidated financial statements as of (and for the
year ending) December 31, 2001 have been prepared on a "going concern"
basis and do not include possible impacts arising in respect of the Cases.
See Note 2 of Notes to Consolidated Financial Statements.
2. The Company's judgments and estimates with respect to commitments and
contingencies; in particular: (a) future environmental costs, (b) future
asbestos related costs and obligations as well as estimated insurance
recoveries; and (c) possible liability in respect of claims of ULPs which
were not resolved as a part of the Company's September 2000 labor
settlement. See Note 12 of Notes to Consolidated Financial Statements.
3. The Company's judgments and estimates in respect of ongoing and future
costs and obligations associated with its smelter curtailments in the
State of Washington and any related impacts on the Company's ability to
realize recorded asset values in the ordinary course. See Note 7 of Notes
to Consolidated Financial Statements.
4. The Company's judgments and estimates in respect of its employee benefit
plans. See Note 10 of Notes to Consolidated Financial Statements.
5. The accounting methodologies employed by the Company in respect of
non-recurring items and the impacts of the Gramercy incident. See Notes 3
and 6 of Notes to Consolidated Financial Statements, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This section contains forward-looking statements that involve
riskThe Company's operating results are sensitive to changes in the prices of
alumina, primary aluminum, and uncertainties. Actual results could differ materially
from those projected in these forward-looking statements.fabricated aluminum products, and also depend to
a significant degree upon the volume and mix of all products sold. As discussed
more fully in Notes 12 and 1013 of Notes to Consolidated Financial Statements, KACC
utilizes hedging transactions to lock-in a specified price or range of prices
for certain products which it sells or consumes in its production process and to
mitigate KACC's exposure to changes in foreign currency exchange rates.
The following sets forth the impact on future earnings of adverse
market changes related to KACC's hedging positions with respect
to commodity and foreign exchange contracts described more fully
in Note 10 of Notes to Consolidated Financial Statements. The
impact of market changes on energy derivative activities is
generally not significant.SENSITIVITY
Alumina and Primary AluminumAluminum. Alumina and primary aluminum production in excess
of internal requirements is sold in domestic and international markets, exposing
the Company to commodity price opportunities and risks. KACC's hedging
transactions are intended to provide price risk management in respect of the net
exposure of earnings resulting from (i) anticipated sales of alumina, primary
aluminum and fabricated aluminum products, less (ii) expected purchases of
certain items, such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. On average, before consideration
of hedging activities, any fixed price contracts with fabricated aluminum
products customers, variations in production and shipment levels, and timing
issues related to price changes, the Company estimates that each $.01 increase
(decrease) in the market price per price-equivalent pound of primary aluminum
increases (decreases) the Company's annual pre-
taxpre-tax earnings by approximately
$15 million.
Based$10.0 million, based on the December 31, 1998 London Metal Exchange cash price
for primary aluminum of approximately 56 cents per pound, the
Company estimates that it would realize approximately $100
million of net aggregate pre-tax benefits from its hedging
positions and fixed price customer contracts during 1999 and
2000. The Company also estimates that a hypothetical 10 cent
decrease from the above stated year-end 1998 price level would
resultrecent fluctuations in additional net aggregate pre-tax benefits of
approximately $150 million being realized during 1999 and 2000
related to KACC's hedging positions and fixed price customer
contracts. Both amounts are versus what the Company's results
would have been without the derivative commodity contracts and
fixed price customer contracts discussed above. Conversely, the
Company estimates that a hypothetical 10 cent increase from the
above stated year-end 1998 price would result in a net
aggregate reduction to pre-tax earnings of approximately $20
million being realized during 1999 and 2000 related to KACC's
hedging positions and fixed price customer contracts. It should
be noted, however, that, since the hedging positions and fixed
price customer contracts lock-in a specified price or range or
prices, any increase or decrease in earnings attributable to
KACC's hedging positions or fixed price customer contracts would
be significantly offset by a decrease or increase in the value of
the hedged transactions.
The foregoing estimated earnings impact on 2000 excludes the
possible effect on pre-tax income of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which must be adopted by the
Company as of January 1, 2000. The foregoing estimate of a
hypothetical 10 cent-per-pound increase in primary aluminum
prices on KACC's hedging positions and fixed price customer
contracts excludes the cash impact of possible margin deposit
requirements. The Company estimates that KACC's cash exposure
related to margin deposit requirements on such positions, if such
a hypothetical price increase were to occur, would not have a
material adverse impact on the Company's current liquidity or
financial position.operating levels.
Foreign CurrencyCurrency. KACC enters into forward exchange contracts to hedge material
cash commitments for foreign currencies. KACC's primary foreign exchange
exposure is related to KACC's Australian Dollar (A$) commitments in respect of
activities associated with its 28.3%-
owned20.0%-owned affiliate, Queensland Alumina Limited.QAL. The Company estimates
that, before consideration of any hedging activities, a US $0.01 increase
(decrease) in the value of the A$ results in an approximate $1-2$1.0 - $2.0 million
(decrease) increase in the Company's annual pre-tax earnings.
At December 31, 1998,operating income.
Energy. KACC is exposed to energy price risk from fluctuating prices for natural
gas, fuel oil and diesel oil consumed in the Company held derivative foreign
currency contracts hedging approximately 75% and 50% of its A$
currency commitments for 1999 and 2000, respectively.production process. The Company
estimates that a hypothetical 10% reductioneach $1.00 change in natural gas prices (per mcf) impacts the
A$
exchange rate would result inCompany's pre-tax operating results by approximately $20.0 million. Further, the
Company recognizing a net
aggregate pre-tax cost of approximately $10-15 million during
1999 and 2000 related to KACC's foreign currency hedging
positions. This cost is versus whatestimates that each $1.00 change in fuel oil prices (per barrel) impacts
the Company's pre-tax operating results wouldby approximately $3.0 million.
HEDGING POSITIONS
Because the agreements underlying KACC's hedging positions provided that the
counterparties to the hedging contracts could liquidate KACC's hedging positions
if KACC filed for reorganization, KACC chose to liquidate these positions in
advance of the February 12, 2002 Filing Date. Proceeds from the liquidation
totaled approximately $42.2 million. Gains or losses associated with these
liquidated positions have been withoutdeferred and are being recognized over the
Company's derivative foreign currencyoriginal hedging periods as the underlying purchases/sales are still expected to
occur. The amount of gains/losses deferred are as follows: gains of $30.2
million for aluminum contracts, losses of $5.0 million for Australian dollars
and $1.9 million for energy contracts.
It should be noted, however,The Company anticipates that, sincesubject to the hedging
positions lock-in specified rates, any increase or decrease
in earnings attributable to currency hedging instruments would be
offset by a corresponding decrease or increase in the valueapproval of the hedged commitments.Court and
prevailing economic conditions, it may reinstitute an active hedging program to
protect the interests of its constituents. However, no assurance can be given as
to when or if the appropriate Court approval will be obtained or when or if such
hedging activities will restart.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 29Report of Independent Public Accountants
Consolidated Balance Sheets
Statements of Consolidated Income (Loss)
Statements of Consolidated Stockholders' Equity and Comprehensive Income (Loss)
Statements of Consolidated Cash Flows
Notes to Consolidated Financial Statements
Quarterly Financial Data (Unaudited)
Five-Year Financial Data
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- 57--------------------------------------------------------------------------------
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, 2001
and 2000, and the related statements of consolidated income (loss),
stockholders' equity and comprehensive income (loss) and cash flows for each of
the Annual Reportthree years in the period ended December 31, 2001. These financial
statements are incorporatedthe 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 auditing standards generally accepted
in the United States. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to a going
concern which contemplate among other things, realization of assets and payment
of liabilities in the normal course of business. As discussed in Note 1 to the
consolidated financial statements, on February 12, 2002, the Company, its wholly
owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC") and certain of
KACC's subsidiaries filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. This action raises substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of liabilities or the
effects on existing stockholders' equity that may result from any plans,
arrangements or other actions arising from the aforementioned proceedings, or
the possible inability of the Company to continue in existence.
ARTHUR ANDERSEN LLP
Houston, Texas
April 10, 2002
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
--------------------------
(In millions of dollars, except share amounts) 2001 2000
- ------------------------------------------------------------------------------------ ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 153.3 $ 23.4
Receivables:
Trade, less allowance for doubtful receivables of $7.0 and $5.8 124.1 188.7
Other 82.3 241.1
Inventories 313.3 396.2
Prepaid expenses and other current assets 86.2 162.7
------------ -----------
Total current assets 759.2 1,012.1
Investments in and advances to unconsolidated affiliates 63.0 77.8
Property, plant, and equipment - net 1,215.4 1,176.1
Deferred income taxes - 454.2
Other assets 706.1 622.9
------------ -----------
Total $ 2,743.7 $ 3,343.1
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 167.4 $ 236.8
Accrued interest 35.4 37.5
Accrued salaries, wages, and related expenses 88.9 110.3
Accrued postretirement medical benefit obligation - current portion 62.0 58.0
Other accrued liabilities 223.3 288.9
Payable to affiliates 52.9 78.3
Long-term debt - current portion 173.5 31.6
------------ -----------
Total current liabilities 803.4 841.4
Long-term liabilities 919.9 703.7
Accrued postretirement medical benefit obligation 642.2 656.9
Long-term debt 700.8 957.8
Minority interests 118.5 101.1
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01, authorized 125,000,000 shares; issued
and outstanding 80,698,066 and 79,599,557 shares .8 .8
Additional capital 539.1 537.5
Accumulated deficit (913.7) (454.3)
Accumulated other comprehensive income (loss) (67.3) (1.8)
------------ -----------
Total stockholders' equity (441.1) 82.2
------------ -----------
Total $ 2,743.7 $ 3,343.1
============ ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
- --------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------
(In millions of dollars, except share amounts) 2001 2000 1999
- --------------------------------------------------------------------------------- ----------- ----------- -----------
Net sales $ 1,732.7 $ 2,169.8 $ 2,083.6
----------- ----------- -----------
Costs and expenses:
Cost of products sold 1,638.4 1,891.4 1,893.5
Depreciation and amortization 90.2 76.9 89.5
Selling, administrative, research and development, and general 102.8 104.1 105.4
Non-recurring operating items (163.6) (41.9) 24.1
----------- ----------- -----------
Total costs and expenses 1,667.8 2,030.5 2,112.5
----------- ----------- -----------
Operating income (loss) 64.9 139.3 (28.9)
Other income (expense):
Interest expense (109.0) (109.6) (110.1)
Gain on sale of interest in QAL 163.6 - -
Gain on involuntary conversion at Gramercy facility - - 85.0
Other - net (32.8) (4.3) (35.9)
----------- ----------- -----------
Income (loss) before income taxes and minority interests 86.7 25.4 (89.9)
(Provision) benefit for income taxes (550.2) (11.6) 32.7
Minority interests 4.1 3.0 3.1
----------- ----------- -----------
Net income (loss) $ (459.4) $ 16.8 $ (54.1)
=========== =========== ===========
Earnings (loss) per share:
Basic/Diluted $ (5.73) $ .21 $ (.68)
=========== =========== ===========
Weighted average shares outstanding (000):
Basic 80,235 79,520 79,336
=========== =========== ===========
Diluted 80,235 79,523 79,336
=========== =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
- --------------------------------------------------------------------------------
(In millions of dollars)
- --------------------------------------------------------------------------------
Accumulated
Other
Common Additional Accumulated Comprehensive
Stock Capital Deficit Income (Loss) Total
---------------- ---------------- -------------- ---------------- -----------
BALANCE, December 31, 1998 $ .8 $ 535.4 $ (417.0) $ - $ 119.2
Net income (loss) - - (54.1) - (54.1)
Minimum pension liability adjustment,
net of income tax benefit of $.7 - - - (1.2) (1.2)
-----------
Comprehensive income (loss) - - - - (55.3)
Stock options exercised - .1 - - .1
Incentive plan accretion - 1.3 - - 1.3
---------------- ---------------- -------------- ---------------- -----------
BALANCE, December 31, 1999 .8 536.8 (471.1) (1.2) 65.3
Net income - - 16.8 - 16.8
Minimum pension liability adjustment,
net of income tax benefit of $.4 - - - (.6) (.6)
-----------
Comprehensive income - - - - 16.2
Incentive plan accretion - .7 - - .7
---------------- ---------------- -------------- ---------------- -----------
BALANCE, December 31, 2000 .8 537.5 (454.3) (1.8) 82.2
Net income (loss) - - (459.4) - (459.4)
Minimum pension liability
adjustment, net of income tax
benefit of $38.0 - - - (64.5) (64.5)
Cumulative effect of accounting
change, net of income tax
provision of $.5 - - - 1.8 1.8
Unrealized net gain on derivative
instruments arising during the
period, net of income tax
provision of $19.4 - - - 33.1 33.1
Less reclassification adjustment for
realized net gain on derivative
instruments included in net
income, net of income tax
benefit of $5.8 - - - (10.9) (10.9)
Adjustment of valuation allowances for
net deferred income tax assets provided
in respect of items reflected in Other
comprehensive income - - - (25.0) (25.0)
-----------
Comprehensive income (524.9)
Incentive plan and restricted stock
accretion - 1.6 - - 1.6
---------------- ---------------- -------------- ---------------- -----------
BALANCE, December 31, 2001 $ .8 $ 539.1 $ (913.7) $ (67.3) $ (441.1)
================ ================ ============== ================ ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------
(In millions of dollars) 2001 2000 1999
- --------------------------------------------------------------------------------- -------------- -------------- ------------
Cash flows from operating activities:
Net income (loss) $ (459.4) $ 16.8 $ (54.1)
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Depreciation and amortization (including deferred financing costs of $5.1,
$4.4 and $4.3) 95.3 81.3 93.8
Non-cash restructuring and impairment charges (Notes 2 and 6) 41.7 63.3 19.1
Gain on involuntary conversion at Gramercy facility - - (85.0)
Gains - sale of QAL interest and real estate in 2001, real estate in 2000,
and interests in AKW L.P. in 1999 (173.6) (39.0) (50.5)
Equity in loss (income) of unconsolidated affiliates, net of distributions 1.1 13.1 (4.9)
Minority interests (4.1) (3.0) (3.1)
Decrease (increase) in trade and other receivables 226.0 (168.8) 21.7
Decrease (increase) in inventories 66.7 125.8 (2.6)
Decrease (increase) in prepaid expenses and other current assets 23.2 20.8 (66.9)
(Decrease) increase in accounts payable (associated with operating activities)
and accrued interest (39.1) (29.7) 58.8
(Decrease) increase in payable to affiliates and other accrued liabilities (48.5) 68.9 19.6
Increase (decrease) in accrued and deferred income taxes 521.8 (10.2) (55.2)
Net cash impact of changes in long-term assets and liabilities (12.5) (69.4) 15.7
Other 11.2 13.2 4.3
-------------- -------------- ------------
Net cash provided (used) by operating activities 249.8 83.1 (89.3)
-------------- -------------- ------------
Cash flows from investing activities:
Capital expenditures (including $78.6, $239.1 and $4.8 related to the Gramercy
facility) (148.7) (296.5) (68.4)
(Decrease) increase in accounts payable - Gramercy-related capital expenditures (34.6) 34.6 -
Gramercy-related property damage insurance recoveries - 100.0 -
Net proceeds from dispositions; primarily QAL interest in 2001, real estate in
2000 and AKW L.P. interests in 1999 171.6 66.9 74.8
Other 2.4 .2 (3.3)
-------------- -------------- ------------
Net cash (used) provided by investing activities (9.3) (94.8) 3.1
-------------- -------------- ------------
Cash flows from financing activities:
(Repayments) borrowings under credit agreement, net (30.4) 20.0 10.4
Repayments of other debt (74.7) (2.9) (.6)
Redemption of minority interests' preference stocks (5.5) (2.8) (1.6)
Incurrence of financing costs - (.4) -
Capital stock issued - - .1
Decrease in restricted cash, net - - .8
-------------- -------------- ------------
Net cash (used) provided by financing activities (110.6) 13.9 9.1
-------------- -------------- ------------
Net increase (decrease) in Cash and cash equivalents during the year 129.9 2.2 (77.1)
Cash and cash equivalents at beginning of year 23.4 21.2 98.3
-------------- -------------- ------------
Cash and cash equivalents at end of year $ 153.3 $ 23.4 $ 21.2
============== ============== ============
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest of $3.5, $6.5 and $3.4 $ 106.0 $ 105.3 $ 105.4
Income taxes paid 52.1 19.6 24.1
The accompanying notes to consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------
1. REORGANIZATION PROCEEDINGS
On February 12, 2002, Kaiser Aluminum Corporation ("Kaiser" or the "Company"),
its wholly owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC")
and 13 of KACC's wholly owned subsidiaries filed separate voluntary petitions in
the United States Bankruptcy Court for the District of Delaware (the "Court")
for reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Code"). On March 15, 2002, two additional wholly owned subsidiaries of KACC
filed petitions. The Company, KACC and the 15 subsidiaries of KACC that have
filed petitions are collectively referred to herein as the "Debtors" and the
Chapter 11 proceedings of these entities are collectively referred to herein as
the "Cases." For purposes of these financial statements, the term "Filing Date"
shall mean with respect to any particular Debtor, the date on which such Debtor
filed its Case. The wholly owned subsidiaries of KACC included in the Cases are:
Kaiser Bellwood Corporation, Kaiser Aluminium International, Inc., Kaiser
Aluminum Technical Services, Inc., Kaiser Alumina Australia Corporation (and its
wholly owned subsidiary, Kaiser Finance Corporation) and ten other entities with
limited balances or activities. None of KACC's non-U.S. affiliates were included
in the Cases. The Cases are being jointly administered with the Debtors managing
their businesses in the ordinary course as debtors-in-possession subject to the
control and supervision of the Court.
The necessity for filing the Cases was attributable to the liquidity and cash
flow problems of the Company arising in late 2001 and early 2002. The Company
was facing significant near-term debt maturities at a time of unusually weak
aluminum industry business conditions, depressed aluminum prices and a broad
economic slowdown that was further exacerbated by reference.the events of September 11. In
addition, the Company had become increasingly burdened by the asbestos
litigation (see Note 12) and growing legacy obligations for retiree medical and
pension costs (see Note 10). The confluence of these factors created the
prospect of continuing operating losses and negative cash flow, resulting in
lower credit ratings and an inability to access the capital markets.
The outstanding principal of, and accrued interest on, all long-term debt of the
Company became immediately due and payable as a result of the commencement of
the Cases. However, the vast majority of the claims in existence at the Filing
Date (including claims for principal and accrued interest and substantially all
legal proceedings) are stayed (deferred) while the Company and KACC continue to
manage the businesses. The Court has, however, upon motion by the Debtors,
permitted the Debtors to pay or otherwise honor certain unsecured pre-Filing
Date claims, including employee wages and benefits and customer claims in the
ordinary course of business, subject to certain limitations, and to fund, on an
interim basis pending a final determination of the issue by the Court, its joint
ventures in the ordinary course of business. The Debtors also have the right to
assume or reject executory contracts, subject to Court approval and certain
other limitations. In this context, "assumption" means that the Debtors agree to
perform their obligations and cure certain existing defaults under an executory
contract and "rejection" means that the Debtors are relieved from their
obligations to perform further under an executory contract and are subject only
to a claim for damages for the breach thereof. Any claim for damages resulting
from the rejection of an executory contract is treated as a general unsecured
claim in the Cases.
Generally, pre-Filing Date claims against the Debtors will fall into two
categories: secured and unsecured, including certain contingent or unliquidated
claims. Under the Code, a creditor's claim is treated as secured only to the
extent of the value of the collateral securing such claim, with the balance of
such claim being treated as unsecured. Unsecured and partially secured claims do
not accrue interest after the Filing Date. A fully secured claim, however, does
accrue interest after the Filing Date until the amount due and owing to the
secured creditor, including interest accrued after the Filing Date, is equal to
the value of the collateral securing such claim. The amount and validity of
pre-Filing Date contingent or unliquidated claims, although presently unknown,
ultimately may be established by the Court or by agreement of the parties. As a
result of the Cases, additional pre-Filing Date claims and liabilities may be
asserted, some of which may be significant. No provision has been included in
the accompanying financial statements for such potential claims and additional
liabilities that may be filed on or before a date to be fixed by the Court as
the last day to file proofs of claim.
The following table sets forth certain 2001 financial information for the
Debtors and non-Debtors.
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
Consolidation/
Elimination
Debtors Non-Debtors Entries Consolidated
---------------- --------------- ---------------- --------------
Current assets $ 607.6 $ 151.6 $ - $ 759.2
Investments in subsidiaries 1,390.4 33.4 (1,360.8) 63.0
Intercompany receivables (payables) (1,004.0) 1,004.0 - -
Property and equipment, net 825.5 389.9 - 1,215.4
Deferred income taxes (66.6) 66.6 - -
Other assets 696.9 9.2 - 706.1
---------------- --------------- ---------------- --------------
$ 2,449.8 $ 1,654.7 $ (1,360.8) $ 2,743.7
================ =============== ================ ==============
Current liabilities $ 702.0 $ 101.4 $ - $ 803.4
Other long-term liabilities 1,510.2 51.9 - 1,562.1
Long-term debt 678.7 22.1 - 700.8
Minority interests - 98.8 19.7 118.5
Stockholders' equity (441.1) 1,380.5 (1,380.5) (441.1)
---------------- --------------- ---------------- --------------
$ 2,449.8 $ 1,654.7 $ (1,360.8) $ 2,743.7
================ =============== ================ ==============
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
Consolidation/
Elimination
Debtors Non-Debtors Entries Consolidated
---------------- --------------- ---------------- --------------
Net sales $ 1,252.8 $ 592.7 $ (112.8) $ 1,732.7
Costs and expenses:
Operating costs and expenses 1,354.0 577.8 (100.4) 1,831.4
Non-recurring operating items (167.2) 3.6 - (163.6)
---------------- --------------- ---------------- --------------
Operating income 66.0 11.3 (12.4) 64.9
Interest expense (106.5) (2.5) - (109.0)
Other income (expense), net 131.8 (1.0) - 130.8
Benefit (provision) for income tax (548.9) (1.3) - (550.2)
Minority interests - 5.2 (1.1) 4.1
Equity in income of subsidiaries 11.7 - (11.7) -
---------------- --------------- ---------------- --------------
Net income (loss) $ (445.9) $ 11.7 $ (25.2) $ (459.4)
================ =============== ================ ==============
The Company's and KACC's objective is to achieve the highest possible recoveries
for all creditors and stockholders, consistent with the Debtors' abilities to
pay and the continuation of their businesses. However, there can be no assurance
that the Debtors will be able to attain these objectives or achieve a successful
reorganization. Further, there can be no assurance that the liabilities of the
Debtors will not be found in the Cases to exceed the fair value of their assets.
This could result in claims being paid at less than 100% of their face value and
the equity of the Company's stockholders being diluted or cancelled.
Under the Code, the rights of and ultimate payments to pre-Filing Date creditors
and stockholders may be substantially altered. At this time, it is not possible
to predict the outcome of the Cases, in general, or the effect of the Cases on
the businesses of the Debtors or on the interests of creditors and stockholders.
Two creditors' committees, one representing the unsecured creditors and the
other representing the asbestos claimants, have been appointed as official
committees in the Cases and, in accordance with the provisions of the Code, will
have the right to be heard on all matters that come before the Court. The
Debtors expect that the appointed committees, together with a legal
representative of potential future asbestos claimants to be appointed by the
Court, will play important roles in the Cases and the negotiation of the terms
of any plan or plans of reorganization. The Debtors are required to bear certain
of the committees' costs and expenses, including those of their counsel and
other advisors.
The Debtors anticipate that substantially all liabilities of the Debtors as of
the date of the Filing will be resolved under one or more plans of
reorganization to be proposed and voted on in the Cases in accordance with the
provisions of the Code. Although the Debtors intend to file and seek
confirmation of such a plan or plans, there can be no assurance as to when the
Debtors will file such a plan or plans, or that such plan or plans will be
confirmed by the Court and consummated.
As provided by the Code, the Debtors initially have the exclusive right to
propose a plan of reorganization for 120 days following the Filing Date. If the
Debtors fail to file a plan of reorganization during such period or any
extension thereof, or if such plan is not accepted by the requisite numbers of
creditors and equity holders entitled to vote on the plan, other parties in
interest in the Cases may be permitted to propose their own plan(s) of
reorganization for the Debtors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern. The consolidated financial statements of the Company have been
prepared on a "going concern" basis which contemplates the realization of assets
and the liquidation of liabilities in the ordinary course of business; however,
as a result of the commencement of the Cases, such realization of assets and
liquidation of liabilities are subject to a significant number of uncertainties.
The financial statements for periods ending after the Filing Date will include
adjustments and reclassifications to reflect the liabilities which have been
deferred as a result of the commencement of the Cases. Specifically, but not all
inclusive, the consolidated financial statements do not present: (a) the
classification of any long-term debt which is in default as a current liability,
(b) the realizable value of assets on a liquidation basis or the availability of
such assets to satisfy liabilities, (c) the amount which will ultimately be paid
to settle liabilities and contingencies which may be allowed in the Cases, or
(d) the effect of any changes which may be made in connection with the Debtors'
capitalizations or operations resulting from a plan of reorganization. Because
of the ongoing nature of the Cases, the discussions and consolidated financial
statements contained herein are subject to material uncertainties.
Future financial statements of the Company and the Debtors will be reported in
accordance with Statement of Position 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code ("SOP 90-7"). The more significant
impacts on the Company's future financial reporting (prior to any plan of
reorganization that may be approved by the Court) will be -
- The balance sheet will distinguish between pre-Filing Date liabilities
that are subject to compromise from those that are not (such as fully
secured liabilities that are expected not to be compromised) and
post-Filing Date obligations. (See Note 8 for a break-down of secured vs.
unsecured debt).
- Interest expense will only be reflected for fully secured debt.
Contractual interest expense for debt subject to compromise will be
reported parenthetically on the face of the statement of consolidated
income (loss) but will not be deducted in determining net income.
- Revenues, gains and losses, costs and expenses (including professional
fees) and provisions for losses resulting directly from the Cases will be
separately reported as "Reorganization Items" in the statement of
consolidated income (loss). Interest income earned by the Debtors that
would not have otherwise been earned during the pendency of the Cases will
also be reported as a "reorganization item." The amounts of reorganization
items that will be incurred during the pendency of the Cases cannot be
predicted at this time, but such amounts are expected to be significant.
Principles of Consolidation. The consolidated financial statements include the
statements of the Company and its majority owned subsidiaries. The Company is a
subsidiary of MAXXAM Inc. ("MAXXAM") and conducts its operations through its
wholly owned subsidiary, KACC. KACC operates in all principal aspects of the
aluminum industry-the mining of bauxite (the major aluminum bearing ore), the
refining of bauxite into alumina (the intermediate material), the production of
primary aluminum, and the manufacture of fabricated and semi-fabricated aluminum
products. Kaiser's production levels of alumina, before consideration of the
Gramercy incident (see Note 3), and primary aluminum exceed its internal
processing needs, which allows it to be a major seller of alumina and primary
aluminum to domestic and international third parties (see Note 15).
The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities known to exist as of the date the financial statements are
published, and the reported amounts of revenues and expenses during the
reporting period. Uncertainties, with respect to such estimates and assumptions,
are inherent in the preparation of the Company's consolidated financial
statements; accordingly, it is possible that the actual results could differ
from these estimates and assumptions, which could have a material effect on the
reported amounts of the Company's consolidated financial position and results of
operation.
Investments in 50%-or-less-owned entities are accounted for primarily by the
equity method. Intercompany balances and transactions are eliminated.
Recognition of Sales. Sales are recognized when title, ownership and risk of
loss pass to the buyer.
Earnings per Share. Basic earnings per share is computed by dividing the
weighted average number of common shares outstanding during the period,
including the weighted average impact of the shares of common stock issued
during the year from the date(s) of issuance. However, earnings per share may
not be meaningful, because as a part of a plan of reorganization, it is possible
that the interests of the Company's existing stockholders could be diluted or
cancelled.
Diluted earnings per share for the year ended December 31, 2000 included the
dilutive effect of outstanding stock options ( 3,000 shares). The impact of
outstanding stock options was excluded from the computation of diluted loss per
share for the years ended December 31, 2001 and 1999, as their effect would have
been antidilutive.
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. Inventories at December 31, 2001, have been reduced by
(a) a $5.6 charge (in non-recurring operating items) to write-down certain
excess operating supplies and repairs and maintenance parts that will be sold,
rather than used in production, as part of the Company's performance improvement
initiative to generate one-time cash and (b) $8.2 of LIFO inventory charges (in
cost of products sold) as reductions of inventory volumes were in inventory
layers with higher costs than current market prices ($3.2 of which was recorded
in the fourth quarter of 2001). Inventories at December 31, 2000, were reduced
by LIFO inventory charges totaling $24.1 ($.6 in cost of products sold and $23.5
in non-recurring operating items). The non-recurring LIFO charges result
primarily from the Washington smelters' curtailment ($4.5), the exit from the
can body stock product line ($11.1) and the delayed restart of the Gramercy
facility ($7.0). 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:
December 31,
----------------------------
2001 2000
- -------------------------------------------------------------------- ------------ -------------
Finished fabricated products $ 30.4 $ 54.6
Primary aluminum and work in process 108.3 126.9
Bauxite and alumina 77.7 88.6
Operating supplies and repair and maintenance parts 96.9 126.1
------------ -------------
$ 313.3 $ 396.2
============ =============
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 of land improvements, buildings, and
machinery and equipment are 8 to 25 years, 15 to 45 years, and 10 to 22 years,
respectively.
Stock-Based Compensation. The Company applies the intrinsic value method to
account for a stock-based compensation plan whereby compensation cost is
recognized only to the extent that the quoted market price of the stock at the
measurement date exceeds the amount an employee must pay to acquire the stock.
No compensation cost has been recognized for this plan as the exercise price of
the stock options granted in 2001, 2000 and 1999 were at or above the market
price. The pro forma after-tax effect of the estimated fair value of the grants
would be to reduce net income in 2001 by $.3, reduce net income in 2000 by $2.2
and increase the net loss in 1999 by $1.8. The fair value of the 2001, 2000 and
1999 stock option grants were estimated using a Black-Scholes option pricing
model.
Other Income (Expense). Amounts included in other income (expense) in 2001, 2000
and 1999, other than interest expense, gain on sale of QAL interest and gain on
involuntary conversion at the Gramercy facility, included the following pre-tax
gains (losses):
Year Ended December 31,
-------------------------------------------
2001 2000 1999
- ---------------------------------------------------------------- ------------- ------------ --------------
Asbestos-related charges (Note 12) $ (57.2) $ (43.0) $ (53.2)
Gains on sale of real estate (Note 5) 6.9 22.0 -
Mark-to-market gains (losses) (Note 13) 35.6 11.0 (32.8)
Adjustment to environmental liabilities (Note 12) (13.5) - -
MetalSpectrum investment write-off (Note 4) (2.8) - -
Lease obligation adjustment (Note 12) - 17.0 -
Gain on sale of interests in AKW L.P. (Note 4) - - 50.5
------------- ------------ --------------
Special items, net (31.0) 7.0 (35.5)
All other, net (1.8) (11.3) (.4)
------------- ------------ --------------
$ (32.8) $ (4.3) $ (35.9)
============= ============ ==============
Deferred Financing Costs. Costs incurred to obtain debt financing are deferred
and amortized over the estimated term of the related borrowing. Such
amortization is included in Interest expense. As a result of the Cases, the
amortization of the deferred financing costs related to the Debtors' unsecured
debt was discontinued on the Filing Date.
Goodwill. Through the year ended December 31, 2001, the goodwill associated with
the acquisition of the Chandler, Arizona facility (see Note 5) was being
amortized on a straight-line basis over 20 years. Beginning with the first
quarter of 2002, the Company discontinued the amortization of goodwill
consistent with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets ("SFAS No. 142"). However, the discontinuance of
amortization of goodwill will not have a material effect on the Company's
results of operations or financial condition (the amount of amortization in 2001
was less than $.8). In accordance with SFAS No. 142, which was adopted as of
January 1, 2002, the Company will review goodwill for impairment at least
annually. The adoption of SFAS No. 142 will not have a material impact on the
Company's future operating results. As of December 31, 2001, unamortized
goodwill was approximately $11.4 and was included in Other assets in the
accompanying consolidated balance sheets.
Foreign Currency. The Company uses the United States dollar as the functional
currency for its foreign operations.
Derivative Financial Instruments. Hedging transactions using derivative
financial instruments are primarily designed to mitigate KACC's exposure to
changes in prices for certain of the products which KACC sells and consumes and,
to a lesser extent, to mitigate KACC's exposure to changes in foreign currency
exchange rates. KACC does not utilize derivative financial instruments for
trading or other speculative purposes. KACC's derivative activities are
initiated within guidelines established by management and approved by KACC's and
the Company's boards of directors. Hedging transactions are executed centrally
on behalf of all of KACC's business segments to minimize transaction costs,
monitor consolidated net exposures and allow for increased responsiveness to
changes in market factors.
Pre-2001 Accounting. Accounting guidelines in place through December 31, 2000,
provided that any interim fluctuations in option prices prior to the settlement
date were deferred until the settlement date of the underlying hedged
transaction, at which time they were recorded in net sales or cost of products
sold (as applicable) together with the related premium cost. No accounting
recognition was accorded to interim fluctuations in prices of forward sales
contracts. Hedge (deferral) accounting would have been terminated (resulting in
the applicable derivative positions being marked-to-market) if the level of
underlying physical transactions ever fell below the net exposure hedged. This
did not occur in 1999 or 2000.
Current Accounting. Effective January 1, 2001, the Company began reporting
derivative activities pursuant to Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 requires companies to recognize all derivative instruments as
assets or liabilities in the balance sheet and to measure those instruments at
fair value by "marking-to-market" all of their hedging positions at each
period-end (see Note 13). This contrasts with pre-2001 accounting principles,
which generally only required certain "non-qualifying" hedging positions to be
marked-to- market. Changes in the market value of the Company's open hedging
positions resulting from the mark-to-market process represent unrealized gains
or losses. Such unrealized gains or losses will fluctuate, based on prevailing
market prices at each subsequent balance sheet date, until the transaction date
occurs. Under SFAS No. 133, these changes are recorded as an increase or
reduction in stockholders' equity through either other comprehensive income or
net income, depending on the facts and circumstances with respect to the hedge
and its documentation. To the extent that changes in market values of the
Company's hedging positions are initially recorded in other comprehensive
income, such changes reverse out of other comprehensive income (offset by any
fluctuations in other "open" positions) and are recorded in net income (included
in net sales or cost of products sold, as applicable) when the subsequent
physical transactions occur. Additionally, under SFAS No. 133, if the level of
physical transactions ever falls below the net exposure hedged, "hedge"
accounting must be terminated for such "excess" hedges. In such an instance, the
mark-to-market changes on such excess hedges would be recorded in the income
statement rather than in other comprehensive income. This did not occur during
2001.
Differences between comprehensive income and net income, which have historically
been small, may become significant in future periods as a result of SFAS No.
133. In general, SFAS No. 133 will result in material fluctuations in
comprehensive income and stockholders' equity in periods of price volatility,
despite the fact that the Company's cash flow and earnings will be "fixed" to
the extent hedged. This result is contrary to the intent of the Company's
hedging program, which is to "lock-in" a price (or range of prices) for products
sold/used so that earnings and cash flows are subject to reduced risk of
volatility.
SFAS No. 133 requires that, as of the date of the initial adoption, the
difference between the market value of derivative instruments recorded on the
Company's consolidated balance sheet and the previous carrying amount of those
derivatives be reported in net income or other comprehensive income, as
appropriate, as the cumulative effect of a change in accounting principle. Based
on authoritative accounting literature issued during the first quarter of 2001,
it was determined that all of the cumulative impact of adopting SFAS No. 133
should be recorded in other comprehensive income. The cumulative effect amount
was reclassified to earnings during 2001.
Fair Value of Financial Instruments. Given the fact that the fair value of
substantially all of the Company's outstanding indebtedness will be determined
as part of the plan of reorganization, it is impracticable and inappropriate to
estimate the fair value of these financial instruments at December 31, 2001.
New Accounting Pronouncements. Statement of Financial Accounting Standard No.
143, Accounting for Asset Retirement Obligations ("SFAS No. 143"), was issued in
June 2001 and must be first applied to the Company's consolidated financial
statements beginning January 1, 2003, although earlier adoption is permitted. In
general terms, SFAS No. 143 requires the recognition of a liability resulting
from anticipated retirement obligations, offset by an increase in the value of
the associated productive asset for such anticipated costs. Over the life of the
asset, depreciation expense is to include the ratable expensing of the
retirement cost included with the asset value. The statement applies to all
legal obligations associated with the retirement of a tangible long-lived asset
that results from the acquisition, construction, or development and (or) the
normal operation of a long-lived asset, except for certain lease obligations.
Excluded from this statement are obligations arising solely from a plan to
dispose of a long-lived asset and obligations that result from the improper
operation of an asset (i.e. the type of environmental obligations discussed in
Note 12).
The Company's consolidated financial statements already reflect reclamation
obligations by its bauxite mining operations in accordance with accounting
policies consistent with SFAS No. 143. At December 31, 2001, the amount of the
accrued reclamation obligations included in the consolidated financial
statements was approximately $3.1 after considering expenditures in 2001 of
approximately $3.0. The Company is continuing its evaluation of SFAS No. 143.
The Company expects that the costs associated with the accrued reclamation
obligations as of December 31, 2001 will be incurred, in the ordinary course,
during the ensuing 12 to 18 months. At the same time, additional accruals in
respect of future mining will be incurred. A decision as to the formal adoption
of SFAS No. 143 has not been made in respect of any other items that may be
applicable. However, the Company does not currently expect the adoption of SFAS
No. 143 to have a material impact on its future financial statements.
Statement of Financial Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144") was issued in
August 2001. In general terms, SFAS No. 144 establishes a single accounting
model for impairment or disposal of long-lived assets, and supersedes prior
rules in this regard. SFAS No. 144 retains the existing accounting requirements
for recognizing impairments on long-lived assets that are to be held and used.
However, it provides additional guidelines such as a "probability-weighted cash
flow estimation" approach to deal with situations where alternative and
undecided courses of action exist. Under SFAS No. 144, long-lived assets to be
disposed of by sale are to be recorded at the lower of their carrying amount or
fair value less cost to sell. SFAS No. 144 must be first applied to the
Company's consolidated financial statements beginning January 1, 2002. The
adoption of SFAS No. 144 did not have a material impact on the Company's
financial statements.
3. INCIDENT AT GRAMERCY FACILITY
In July 1999, KACC's Gramercy, Louisiana alumina refinery was extensively
damaged by an explosion in the digestion area of the plant. A number of
employees were injured in the incident, several of them severely. As a result of
the incident, alumina production at the facility was completely curtailed.
Construction on the damaged part of the facility began during the first quarter
of 2000. Initial production at the plant commenced during the middle of December
2000. However, construction was not substantially completed until the third
quarter of 2001. During the first nine months of 2001, the plant operated at
approximately 68% of its newly-rated estimated capacity of 1,250,000 tons.
During the fourth quarter of 2001, the plant operated at approximately 90% of
its newly-rated capacity. By the end of February 2002, the plant was operating
at just below 100% of its newly-rated capacity. The facility is now focusing its
efforts on achieving its full operating efficiency.
Property Damage. KACC's insurance policies provided that KACC would be
reimbursed for the costs of repairing or rebuilding the damaged portion of the
facility using new materials of like kind and quality with no deduction for
depreciation. In 1999, based on discussions with the insurance carriers and
their representatives and third party engineering reports, KACC recorded a
pre-tax gain of $85.0, representing the difference between the minimum expected
property damage reimbursement amount of $100.0 and the net carrying value of the
damaged property of $15.0. The reimbursement amount was collected in 2000.
Clean-up, Site Preparation and Other Costs/Losses. The following table recaps
clean-up, site preparation and other costs/losses associated with the Gramercy
incident:
1999 2000 2001 Total
- ---------------------------------------------------------- ------------ ------------ ----------- ----------
Clean-up and site preparation $ 14.0 $ 10.0 $ - $ 24.0
Business interruption costs 41.0 110.0 36.6 187.6
Abnormal start-up costs - - 64.9 64.9
Litigation costs - - 6.5 6.5
------------ ------------ ----------- ----------
55.0 120.0 108.0 283.0
Offsetting business interruption insurance recoveries (55.0) (120.0) (36.6) (211.6)
------------ ------------ ----------- ----------
Net impacts reflected in Cost of products sold $ - $ - $ 71.4 $ 71.4
============ ============ =========== ==========
During July 2001, KACC and its insurers reached a global settlement agreement in
respect of all of KACC's business interruption and property damage claims. The
Company does not expect any additional insurance recoveries.
Depreciation expense for the first six months of 1999 was approximately $6.0.
KACC suspended depreciation at the facility starting in July 1999 since
production was completely curtailed. However, in accordance with an agreement
with KACC's insurers, during 2000, the Company recorded a depreciation charge of
$14.3, representing the previously unrecorded depreciation related to the
undamaged portion of the facility for the period from July 1999 through November
2000. However, this charge did not have any impact on the Company's operating
results as the Company had reflected (as a reduction of depreciation expense) an
equal and offsetting insurance receivable (incremental to the amounts discussed
in the preceding paragraph) since the insurers agreed to reimburse the Company
this amount. Since production at the facility was partially restored during
December 2000, normal depreciation commenced in December 2000.
Contingencies. The Gramercy incident resulted in a significant number of
individual and class action lawsuits being filed against KACC and others
alleging, among other things, property damage, business interruption losses by
other businesses and personal injury. After these matters were consolidated, the
individual claims against KACC were settled for amounts which, after the
application of insurance, were not material to KACC. Further, an agreement has
been reached with the class plaintiffs for an amount which, after the
application of insurance, is not material to KACC. While the class settlement
remains subject to court approval and while certain plaintiffs may opt out of
the settlement, the Company does not currently believe that this presents any
material risk to KACC. Finally, KACC faces new claims from certain parties to
the litigation regarding the interpretation of and alleged claims concerning
certain settlement and other agreements made during the course of the
litigation. The aggregate amount of damages threatened in these claims could, in
certain circumstances, be substantial. However, KACC does not currently believe
these claims will result in any material liability to the Company.
KACC currently believes that any amount from unsettled workers' compensation
claims from the Gramercy incident in excess of the coverage limitations will not
have a material effect on the Company's consolidated financial position or
liquidity. However, while unlikely, it is possible that as additional facts
become available, additional charges may be required and such charges could be
material to the period in which they are recorded.
4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Summary of 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") (20.0% owned), Anglesey
Aluminium Limited ("Anglesey") (49.0% owned) and Kaiser Jamaica Bauxite Company
(49.0% owned). The equity in income (loss) before income taxes of such
operations is treated as a reduction (increase) in Cost of products sold. At
December 31, 2001 and 2000, KACC's net receivables from these affiliates were
not material.
In September 2001, KACC sold an approximate 8.3% interest in QAL and recorded a
pre-tax gain of approximately $163.6 (included in Other income/(expense) in the
accompanying consolidated statements of income (loss)). As a result of the
transaction, KACC now owns a 20% interest in QAL. The total value of the
transaction was approximately $189.0, consisting of a cash payment of
approximately $159.0 plus the purchaser's assumption of approximately $30.0 of
off-balance sheet QAL indebtedness guaranteed by KACC prior to the sale. KACC's
share of QAL's production for the first eight months of 2001 and for the years
ended December 31, 2000 and 1999 was approximately 668,000 tons, 1,064,000 tons
and 1,033,000 tons, respectively. Had the sale of the QAL interest been
effective as of the beginning of 1999, KACC's share of QAL's production for
2001, 2000 and 1999 would have been reduced by approximately 196,000 tons,
312,000 tons and 304,000 tons, respectively. Historically, KACC has sold about
half of its share of QAL's production to third parties and has used the
remainder to supply its Northwest smelters, which are temporarily curtailed (see
Note 7). The reduction in KACC's alumina supply associated with this transaction
is expected to be substantially offset by the return of its Gramercy alumina
refinery to full operations during the first quarter of 2002 at a higher
capacity and by planned increases during 2003 in capacity at its Alpart alumina
refinery in Jamaica. The QAL transaction is not expected to have an adverse
impact on KACC's ability to satisfy existing third-party alumina customer
contracts.
In June 2001, KACC wrote-off its investment of $2.8 in MetalSpectrum, LLC, a
start-up, e-commerce entity in which KACC was a founding partner (in 2000).
MetalSpectrum ceased operations during the second quarter of 2001.
In 1999, KACC sold its 50% interest in AKW L.P. ("AKW") to its partner for
$70.4, which resulted in the Company recognizing a net pre-tax gain of $50.5
(included in Other income (expense) - Note 2). The Company's equity in income of
AKW was $2.5 for the year ended December 31, 1999.
Summary of Combined Financial Position
December 31,
---------------------------
2001 2000
- --------------------------------------------------------------------- ----------- -----------
Current assets $ 362.4 $ 350.1
Long-term assets (primarily property, plant, and equipment, net) 345.7 327.3
----------- -----------
Total assets $ 708.1 $ 677.4
=========== ===========
Current liabilities $ 237.6 $ 144.1
Long-term liabilities (primarily long-term debt) 271.2 331.4
Stockholders' equity 199.3 201.9
----------- -----------
Total liabilities and stockholders' equity $ 708.1 $ 677.4
=========== ===========
Summary of Combined Operations
Year Ended December 31,
-----------------------------------
2001 2000 1999
- ----------------------------------------------------------- -------- -------- --------
Net sales $ 633.5 $ 602.9 $ 594.9
Costs and expenses (621.5) (617.1) (582.9)
(Provision) benefit for income taxes (3.9) (4.5) .8
-------- -------- --------
Net income (loss) $ 8.1 $ (18.7) $ 12.8
======== ======== ========
Company's equity in income (loss) $ 1.7 $ (4.8) $ 4.9
======== ======== ========
Dividends received $ 2.8 $ 8.3 $ -
======== ======== ========
The Company's equity in income differs from the summary net income (loss) due to
varying percentage ownerships in the entities and equity method accounting
adjustments. Prior to December 31, 2000, KACC's investment in its unconsolidated
affiliates exceeded its equity in their net assets and such excess was being
amortized to Depreciation and amortization. At December 31, 2000, the excess
investment had been fully amortized. Such amortization was approximately $10.0
for each of the years ended December 31, 2000 and 1999.
The Company and its affiliates have interrelated operations. KACC provides some
of its affiliates with services such as management and engineering. Significant
activities with affiliates include the acquisition and processing of bauxite,
alumina, and primary aluminum. Purchases from these affiliates were $266.0,
$235.7 and $223.7, in the years ended December 31, 2001, 2000 and 1999,
respectively.
5. PROPERTY, PLANT, AND EQUIPMENT
The major classes of property, plant, and equipment are as follows:
December 31,
--------------------------
2001 2000
- ---------------------------------------------------------------------- ---------- ----------
Land and improvements $ 130.9 $ 130.7
Buildings 207.0 197.2
Machinery and equipment 1,881.3 1,702.8
Construction in progress 46.4 130.3
---------- ----------
2,265.6 2,161.0
Accumulated depreciation (1,050.2) (984.9)
---------- ----------
Property, plant, and equipment, net $ 1,215.4 $ 1,176.1
========== ==========
During the period from 1999 to 2001, the Company completed several acquisitions
and dispositions and, based on changes in circumstances, recorded impairment
charges as discussed below:
Acquisition and Disposition Activity -
- - During 2001, as part of its ongoing initiatives to generate cash benefits,
KACC sold certain non-operating real estate for net proceeds totaling
approximately $7.9, resulting in a pre-tax gain of $6.9 (included in Other
income (expense) - see Note 2).
- - During 2000, KACC sold (a) its Pleasanton, California office complex,
because the complex had become surplus to the Company's needs, for net
proceeds of approximately $51.6, which resulted in a net pre-tax gain of
$22.0 (included in Other income (expense) - see Note 2); (b) certain
non-operating properties, in the ordinary course of business, for total
proceeds of approximately $12.0; and (c) the Micromill assets and
technology for a nominal payment at closing and possible future payments
based on subsequent performance and profitability of the Micromill
technology. The sale of the non-operating properties and Micromill assets
did not have a material impact on the Company's 2000 operating results.
- - In May 2000, KACC acquired the assets of a drawn tube aluminum fabricating
operation in Chandler, Arizona. Total consideration for the acquisition was
$16.1 ($1.1 of property, plant and equipment $2.8 of accounts receivables,
inventory and prepaid expenses and $12.2 of goodwill).
Impairment Charges -
- - The Company concluded that the profitability of its Trentwood facility can
be enhanced by further focusing resources on its core, heat-treat business
and by exiting lid and tab stock product lines used in the beverage
container market and brazing sheet for the automotive market. As a result
of this decision, the Company plans to sell or idle several pieces of
equipment resulting in an impairment charge of approximately $17.7 at
December 31, 2001 (which amount was reflected in Non-recurring operating
items - see Note 6). Additional charges are likely as the Company works
through all of the operational impacts of this decision to exit the lid,
tab and brazing sheet product lines.
- - During 2000, KACC evaluated the recoverability of the approximate $200.0
carrying value of its Washington smelters, as a result of the change in the
economic environment of the Pacific Northwest associated with the reduced
power availability and higher power costs for KACC's Washington smelters
under the terms of the contract with the Bonneville Power Administration
("BPA") starting in October 2001 (see Note 7). The Company determined that
the expected future undiscounted cash flows of the Washington smelters were
below their carrying value. Accordingly, KACC adjusted the carrying value
of its Washington smelting assets to their estimated fair value, which
resulted in a non-cash impairment charge of approximately $33.0 (which
amount was reflected in Non-recurring operating items - see Note 6). The
estimated fair value was based on anticipated future cash flows discounted
at a rate commensurate with the risk involved.
- - In 1999, based on negotiations with third parties, KACC concluded to sell
the Micromill assets and technology for less than the then existing
carrying value. Accordingly, the carrying value of the Micromill assets
were reduced by recording an impairment charge of $19.1 in 1999 (see Note
6).
6. NON-RECURRING OPERATING ITEMS
The income (loss) impact associated with non-recurring operating items for 2001,
2000 and 1999 was as follows:
Year Ended December 31,
-----------------------------------------
Business Segment 2001 2000 1999
- ------------------------------------------------- ---------------------------- -------------- ------------ ----------
Net gains from power sales (Note 7) Primary Aluminum $ 229.2 $ 159.5 $ -
Restructuring charges Bauxite & Alumina (15.8) (.8) -
Primary Aluminum (7.5) (3.1) -
Flat-Rolled Products (10.7) - -
Corporate (1.2) (5.5) -
Contractual labor costs related to smelter
curtailments (Note 7) Primary Aluminum (12.7) - -
Labor settlement charge See below - (38.5) -
Impairment charges associated with
product line exits Flat-Rolled Products - (12.6) -
Engineered Products - (5.6) -
Other impairment charges (Note 5):
Trentwood equipment Flat-Rolled Products (17.7) - -
Washington smelters Primary Aluminum - (33.0) -
Micromill Micromill - - (19.1)
Gramercy related items:
Incremental maintenance Bauxite & Alumina - (11.5) -
Insurance deductibles, etc. Bauxite & Alumina - - (4.0)
Corporate - - (1.0)
LIFO inventory charge (Note 2) Bauxite & Alumina - (7.0) -
-------------- ------------ ----------
$ 163.6 $ 41.9 $ (24.1)
============== ============ ==========
During 2001, the Company launched a performance improvement initiative (the
"program") designed to increase operating cash flow, generate benefits and
improve the Company's financial flexibility. The program resulted in
restructuring charges totaling $35.2 which consisted of $17.9 of employee
benefit and related costs for a group of approximately 355 salaried and hourly
job eliminations ($3.8 of costs and job eliminations of 230 in the fourth
quarter of 2001), an inventory charge of $5.6 (see Note 2) and third party
consulting costs of $11.7 ($4.4 in the fourth quarter of 2001). As of December
31, 2001, approximately 340 of the job eliminations had occurred. It is
anticipated that the remaining job eliminations will occur during the first
quarter of 2002 or soon thereafter. Approximately $7.7 of the employee benefit
and related costs were cash costs that have been incurred or will be incurred
during the first quarter of 2002. The balance of the employee benefit and
related costs represent increased pension and post-retirement medical costs that
will be funded over longer periods. Additional cash and non-cash charges may be
required in the future as the program continues. Such additional charges could
be material.
The 2000 restructuring charges were associated with the Primary aluminum and
Corporate segments' ongoing cost reduction initiatives. During 2000, these
initiative resulted in restructuring charges for employee benefit and other
costs for approximately 50 job eliminations at the Company's Tacoma facility and
approximately 50 employee eliminations due to consolidation or elimination of
certain corporate staff functions. At December 31, 2001, all job eliminations
associated with these initiatives had occurred.
From September 1998 through September 2000, KACC and the United Steelworkers of
America ("USWA") were involved in a labor dispute as a result of the September
1998 USWA strike and the subsequent "lock-out" by KACC in February 1999. The
labor dispute was settled in September 2000. Under the terms of the settlement,
USWA members generally returned to the affected plants during October 2000. The
Company recorded a one-time pre-tax charge of $38.5 in 2000 to reflect the
incremental, non-recurring impacts of the labor settlement, including severance
and other contractual obligations for non-returning workers. The allocation of
the labor settlement charge to the business units was: Bauxite and alumina -
$2.1, Primary aluminum - $15.9, Flat-rolled products - $18.2 and Engineered
products - $2.3. At December 31, 2001, approximately $30.0 of such costs had
been paid. It is anticipated that substantially all remaining costs will be
incurred during 2002.
The $12.6 impairment charge reflected by KACC's Flat-Rolled products segment in
2000 included a $11.1 LIFO inventory charge (see Note 2) and a $1.5 charge to
reduce the carrying value of certain assets to their estimated net realizable
value as a result of the segment's decision to exit the can body stock product
line. The $5.6 impairment charge recorded by KACC's Engineered products segment
in 2000 included a $.9 LIFO inventory charge and a $4.7 charge to reduce the
carrying value of certain machining facilities and assets, which were no longer
required as a result of the segment's decision to exit a marginal product line,
to their estimated net realizable value.
The incremental maintenance charge in 2000 consisted of normal recurring
maintenance expenditures for the Gramercy facility that otherwise would have
been incurred in the ordinary course of business over a one to three year
period. The Company chose to incur the expenditures prior to the restart of the
facility to avoid normal operational outages that otherwise would have occurred
once the facility resumed production.
The insurance deductible charges in 1999 consist of deductible and
self-retention provisions under the insurance coverage related to the Gramercy
facility incident. See Note 3.
7. PACIFIC NORTHWEST POWER SALES AND OPERATING LEVEL
Power Sales. In response to the unprecedented high market prices for power in
the Pacific Northwest, KACC (first partially and then fully) curtailed the
primary aluminum production at the Tacoma and Mead, Washington smelters during
the last half of 2000 and all of 2001. As a result of the curtailments, as
permitted under the BPA contract, the Company sold the power that it had under
contract through September 30, 2001 (the end of the contract period). In
connection with such power sales, the Company recorded net pre-tax gains of
approximately $229.2 in 2001 and $159.5 in 2000. Gross proceeds were offset by
employee-related expenses, a non-cash LIFO inventory charge and other fixed
commitments. The resulting net gains have been reflected as Non-recurring
operating items (see Note 6). The net gain amounts were composed of gross
proceeds of $259.5 in 2001 and $207.8 in 2000, of which $347.5 was received in
2001 and $119.8 was received in 2000 (although a portion of such proceeds
represent a replacement of the profit that would have otherwise been generated
through operations).
Future Power Supply and its Impact on Future Operating Rate. During October
2000, KACC signed a new power contract with the BPA under which the BPA,
starting October 1, 2001, was to provide KACC's operations in the State of
Washington with approximately 290 megawatts of power through September 2006. The
contract provides KACC with sufficient power to fully operate KACC's Trentwood
facility (which requires up to an approximate 40 megawatts) as well as
approximately 40% of the combined capacity of KACC's Mead and Tacoma aluminum
smelting operations. The BPA has announced that it currently intends to set
rates under the contract in six month increments. The rate for the initial
period (from October 1, 2001 through March 31, 2002) was approximately 46%
higher than power costs under the prior contract. Power prices for the April
2002 through September 2002 period are essentially unchanged from the prior
six-month rate. KACC cannot predict what rates will be charged in future
periods. Such rates will be dependent on such factors as the availability of and
demand for electrical power, which are largely dependent on weather, the price
for alternative fuels, particularly natural gas, as well as general and regional
economic and ecological factors. The contract also includes a take-or-pay
requirement and clauses under which KACC's power allocation could be curtailed,
or its costs increased, in certain instances. Under the contract, KACC can only
remarket its power allocation to reduce or eliminate take-or-pay requirements.
KACC is not entitled to receive any profits from any such remarketing efforts.
During October 2001, KACC and the BPA reached an agreement whereby: (a) KACC
would not be obligated to pay for potential take-or-pay obligations in the first
year of the contract; and (b) KACC retained its rights to restart its smelter
operations at any time. In return for the foregoing, KACC granted the BPA
certain limited power interruption rights in the first year of the contract if
KACC is operating its Northwest smelters. The Department of Energy acknowledged
that capital spending in respect of the Gramercy refinery was consistent with
the contractual provisions of the prior contract with respect to the use of
power sale proceeds. Beginning October 2002, unless there is a further amendment
of KACC's obligations, KACC could be liable for take-or-pay costs under the BPA
contract, and such amounts could be significant. KACC is reviewing its rights
and obligations in respect of the BPA contract in light of Chapter 11 filings.
Subject to the limited interruption rights granted to the BPA (described above),
or any impact resulting from the Cases, KACC has sufficient power under
contract, and retains the ability, to restart up to 40% (4.75 potlines) of its
Northwest smelting capacity. Were KACC to want to restart additional capacity
(in excess of 4.75 potlines), it would have to purchase additional power from
the BPA or other suppliers. For KACC to make such a decision, it would have to
be able to purchase such power at a reasonable price in relation to current and
expected market conditions for a sufficient term to justify its restart costs,
which could be significant depending on the number of lines restarted and the
length of time between the shutdown and restart. Given recent primary aluminum
prices and the forward price of power in the Northwest, it is unlikely that KACC
would operate more than a portion of its Northwest smelter capacity in the near
future. Were KACC to restart all or a portion of its Northwest smelting
capacity, it would take between three to six months to reach the full operating
rate for such operations, depending upon the number of lines restarted. Even
after achieving the full operating rate, operating only a portion of the
Northwest capacity would result in production/cost inefficiencies such that
operating results would, at best be breakeven to modestly negative at long-term
primary aluminum prices. However, operating at such a reduced rate could,
depending on prevailing economics, result in improved cash flows as opposed to
remaining curtailed and incurring the Company's fixed and continuing labor and
other costs. This is because KACC is contractually liable for certain severance,
supplemental unemployment benefits and early retirement benefits for laid-off
workers under KACC's contract with the USWA during periods of curtailment. As of
December 31, 2001, all such contractual compensation costs have been accrued for
all USWA workers in excess of those expected to be required to run the Northwest
smelters at a rate up to the above stated 40% smelter operating rate. These
costs are expected to be incurred periodically through September 2002. Costs
associated with the USWA workers that KACC estimates would be required to
operate the smelters at an operating rate of up to 40% ($12.7 in 2001; $9.4 of
which was reflected in the fourth quarter) have been accrued through early 2003,
as KACC does not currently expect to restart the Northwest smelters prior to
that date. If such workers are not recalled prior to the end of the first
quarter of 2003, KACC could become liable for additional early retirement costs.
Such costs could be significant and could adversely impact the Company's
operating results and liquidity. The present value of such costs could be in the
$50.0 to $60.0 range. However, such costs would likely be paid out over an
extended period.
8. LONG-TERM DEBT
Long-term debt and its maturity schedule are as follows (before considering any
impacts of the Debtors' Chapter 11 filings in February 2002 as discussed below):
December 31,
----------------
2007
and 2001 2000
2002 2003 2004 2005 2006 After Total Total
- -------------------------------------------------- ------- -------- ------- ------- ------- -------- ------- -------
Secured:
Credit Agreement $ - $ 30.4
Alpart CARIFA Loans - (fixed and variable
rates) due 2007, 2008 $ 22.0 22.0 56.0
7.6% Solid Waste Disposal Revenue Bonds
due 2027 19.0 19.0 19.0
Unsecured:
9 7/8% Senior Notes due 2002, net $ 172.8 172.8 224.8
10 7/8% Senior Notes due 2006, net $ 225.4 225.4 225.5
12 3/4% Senior Subordinated Notes due 2003 $ 400.0 400.0 400.0
Other borrowings (fixed and variable rates) .7 .8 $ .7 $ .8 .8 31.3 35.1 33.7
------- -------- ------- ------- ------- -------- ------- -------
Total $ 173.5 $ 400.8 $ .7 $ .8 $ 226.2 $ 72.3 874.3 989.4
======= ======== ======= ======= ======= ========
Less current portion 173.5 31.6
------- -------
Long-term debt $ 700.8 $ 957.8
======= =======
DIP Facility. On February 12, 2002, the Company and KACC entered into a
post-petition credit agreement with a group of lenders for debtor-in-possession
financing (the "DIP Facility") which provides for a secured, revolving line of
credit through the earlier of February 12, 2004, the effective date of a plan of
reorganization or voluntary termination by the Company. The DIP Facility
contains substantially similar terms and conditions to those that were included
in the Credit Agreement (see below). KACC is able to borrow under the DIP
Facility by means of revolving credit advances and letters of credit (up to
$125.0) in an aggregate amount equal to the lesser of $300.0 or a borrowing base
relating to eligible accounts receivable, eligible inventory and eligible fixed
assets reduced by certain reserves, as defined in the DIP Facility agreement.
The DIP Facility is guaranteed by the Company, the Debtor subsidiaries and two
non-debtor wholly owned subsidiaries, Kaiser Jamaica Corporation and Alpart
Jamaica Inc. Interest on any outstanding balances will bear a spread over either
a base rate or LIBOR, at KACC's option. The Court signed a final order approving
the DIP Facility on March 19, 2002. At March 31, 2002, there were no outstanding
borrowings under the revolving credit facility and there were outstanding
letters of credit of approximately $54.1. As of March 31, 2002, $121.0 (of which
$70.9 could be used for additional letters of credit) was available to the
Company under the DIP Facility. The Company expects that the borrowing base
amount will increase by approximately $50.0 once certain appraisal information
is provided to the lenders.
Credit Agreement. Prior to the February 12, 2002 Filing Date, the Company and
KACC had a credit agreement, as amended (the "Credit Agreement") which provided
a secured, revolving line of credit. The Credit Agreement was secured by, among
other things, (i) mortgages on KACC's major domestic plants (excluding KACC's
Gramercy alumina 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. The Credit Agreement terminated on the Filing Date and was replaced
by the DIP Facility discussed above. During the last six months of 2001, there
were no borrowings under the Credit Agreement. During the first six months of
2001, month-end borrowings under the Credit Agreement were as high as
approximately $94.0, which occurred in February 2001, primarily as a result of
costs incurred and capital spending related to the Gramercy rebuild, net of
insurance reimbursements. The average amount of borrowings outstanding under the
Credit Agreement during 2001 was approximately $11.8. The average interest rate
on loans outstanding under the Credit Agreement during 2001 was approximately
10.0% per annum. As of the Filing Date, outstanding letters of credit were
approximately $43.3 and there were no borrowings outstanding under the Credit
Agreement.
9 7/8% Notes, 10 7/8% Notes and 12 3/4% Notes. The obligations of KACC with
respect to its 9 7/8% Senior Notes due 2002 (the 9 7/8% Notes), its 10 7/8%
Senior Notes due 2006 (the "10 7/8% Notes") and its 12 3/4% Senior Subordinated
Notes due 2003 (the "12 3/4% Notes") are guaranteed, jointly and severally, by
certain subsidiaries of KACC. Prior to concluding that, as a result of the
events outlined in Note 1, the Company should file the Cases, KACC had purchased
$52.2 of the 9 7/8% Notes. The net gain from the purchase of the notes was less
than $1.1 and has been included in Other income (expense) in the accompanying
statements of consolidated income (loss).
Alpart CARIFA Loans. In December 1991, Alumina Partners of Jamaica ("Alpart")
entered into a loan agreement with the Caribbean Basin Projects Financing
Authority ("CARIFA"). As of December 31, 2001, Alpart's obligations under the
loan agreement were secured by two letters of credit aggregating $23.5. KACC was
a party to one of the two letters of credit in the amount of $15.3 in respect of
its 65% ownership interest in Alpart. Alpart has also 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.
During the first quarter of 2001, Alpart redeemed $34.0 principal amount of the
CARIFA loans. The redemption had a modest beneficial effect on the unused
availability remaining under the Credit Agreement as the additional Credit
Agreement borrowings of $22.1 required for KACC's share of the redemption were
more than offset by a reduction in the amount of letters of credit outstanding
that supported the loan.
7.6% Solid Waste Disposal Revenue Bonds. The sold waste disposal revenue bonds
are secured by a first mortgage on certain machinery at KACC's Mead smelter.
Debt Covenants and Restrictions. The DIP Facility requires KACC to comply with
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 DIP Facility is secured by,
among other things, (i) mortgages on KACC's major domestic plants; (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.
The indentures governing the 9 7/8% Notes, the 10 7/8% Notes and the 12 3/4%
Notes (collectively, the "Indentures") restrict, among other things, KACC's
ability to incur debt, undertake transactions with affiliates, and pay
dividends. Further, the Indentures provide that KACC must offer to purchase the
9 7/8% Notes, the 10 7/8% Notes and the 12 3/4% Notes, respectively, upon the
occurrence of a Change of Control (as defined therein).
9. INCOME TAXES
Income (loss) before income taxes and minority interests by geographic area is
as follows:
Year Ended December 31,
-------------------------------------------
2001 2000 1999
- -------------------------------------------- ---------- ----------- ----------
Domestic $ (126.5) $ (96.6) $ (81.8)
Foreign 213.2 122.0 (8.1)
---------- ----------- ----------
Total $ 86.7 $ 25.4 $ (89.9)
========== =========== ==========
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 (provision) benefit for income taxes on income (loss) before income taxes
and minority interests consists of:
Federal Foreign State Total
- -------------------------------------------------------- ------------ ------------ ----------- ----------
2001 Current $ (1.1) $ (40.6) $ - $ (41.7)
Deferred (484.3) .5 (24.7) (508.5)
------------ ------------ ----------- ----------
Total $ (485.4) $ (40.1) $ (24.7) $ (550.2)
============ ============ =========== ==========
2000 Current $ (1.9) $ (35.3) $ (.3) $ (37.5)
Deferred 35.5 (8.9) (.7) 25.9
------------ ------------ ----------- ----------
Total $ 33.6 $ (44.2) $ (1.0) $ (11.6)
============ ============ =========== ==========
1999 Current $ (.5) $ (23.1) $ (.3) $ (23.9)
Deferred 43.8 7.1 5.7 56.6
------------ ------------ ----------- ----------
Total $ 43.3 $ (16.0) $ 5.4 $ 32.7
============ ============ =========== ==========
A reconciliation between the (provision) benefit for income taxes and the amount
computed by applying the federal statutory income tax rate to income (loss)
before income taxes and minority interests is as follows:
Year Ended December 31,
---------------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------------- ------------ ------------ -----------
Amount of federal income tax (provision) benefit based on the statutory rate $ (30.3) $ (8.9) $ 31.2
Increase in valuation allowances and revision of prior years' tax estimates (513.9) (1.8) 1.1
Percentage depletion 4.9 3.0 2.8
Foreign taxes, net of federal tax benefit (9.6) (3.2) (3.2)
Other (1.3) (.7) .8
------------ ------------ -----------
(Provision) benefit for income taxes $ (550.2) $ (11.6) $ 32.7
============ ============ ===========
The components of the Company's net deferred income tax assets are as follows:
December 31,
-----------------------------
2001 2000
- ------------------------------------------------------------------------------------------ ------------ -----------
Deferred income tax assets:
Postretirement benefits other than pensions $ 264.0 $ 267.4
Loss and credit carryforwards 150.0 125.2
Other liabilities 192.7 143.7
Other 170.5 181.5
Valuation allowances (652.7) (122.3)
------------ -----------
Total deferred income tax assets-net 124.5 595.5
------------ -----------
Deferred income tax liabilities:
Property, plant, and equipment (122.3) (105.1)
Other (41.6) (26.2)
------------ -----------
Total deferred income tax liabilities (163.9) (131.3)
------------ -----------
Net deferred income tax assets (liabilities)(1) $ (39.4) $ 464.2
============ ===========
(1) Net deferred income tax assets of $56.0 are included in the Consolidated
Balance Sheets as of December 31, 2000 in the caption entitled Prepaid
expenses and other current assets. Net deferred income tax liabilities of
$39.4 and $46.0 are included in the Consolidated Balance Sheets as of
December 31, 2001 and 2000, respectively, in the caption entitled Long-term
liabilities.
The principal component of the Company's deferred income tax assets is the tax
benefit associated with the accrued liability 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, the Company has the ability to carry forward such
loss for 20 taxable years. Accordingly, prior to the Cases, the Company believed
that a long-term view of profitability was appropriate and had concluded that
the net deferred income tax asset would more likely than not be realized.
However, in light of the Cases, the Company provided additional valuation
allowances of $530.4 during the fourth quarter of 2001 of which $505.4 was
recorded in (Provision) benefit for income taxes in the accompanying statements
of consolidated income (loss) and $25.0 was recorded in Other comprehensive
income (loss) in the accompanying consolidated balance sheet. The additional
valuation allowances were provided as the Company no longer believes that the
"more likely than not" recognition criteria were appropriate given a combination
of factors including: (a) the expiration date of the loss and credit
carryforwards; (b) the possibility that all or a substantial portion of the loss
and credit carryforwards and tax basis of assets could be reduced to the extent
of cancellation of indebtedness occurring as a part of a reorganization plan;
(c) the possibility that all or a substantial portion of the loss and credit
carryforwards could become limited if a change of ownership occurs as a result
of the Debtors reorganization; and (d) due to updated near-term expectations
regarding near-term taxable income. In prior periods, the Company had concluded
that a substantial portion of these items would more likely than not be realized
(to the extent not covered by valuation allowances), based on the cyclical
nature of its business, its history of operating earnings, and its then existing
expectations for future years. The valuation allowances adjustment has no impact
on the Company's or KACC's liquidity, operations or loan compliance and is not
intended, in any way, to be indicative of their long-term prospects or ability
to successfully reorganize.
At December 31, 2001, the Company had certain tax attributes available to offset
regular federal income tax requirements, subject to certain limitations,
including net operating loss and general business credit carryforwards of $60.3
and $1.0, respectively, which expire periodically through 2019 and 2011,
respectively, foreign tax credit ("FTC") carryforwards of $93.6, which expire
primarily from 2004 through 2006, and alternative minimum tax ("AMT") credit
carryforwards of $26.9, which have an indefinite life. The Company also has AMT
net operating loss and FTC carryforwards of $1.0 and $105.0, respectively,
available, subject to certain limitations, to offset future alternative minimum
taxable income, which expire periodically through 2011 and 2006, respectively.
The Company and its domestic subsidiaries file consolidated federal income tax
returns. During the period from October 28, 1988, through June 30, 1993, the
Company and its domestic subsidiaries were included in the consolidated federal
income tax returns of MAXXAM. The tax allocation agreements of the Company and
KACC with MAXXAM terminated pursuant to their terms, effective for taxable
periods beginning after June 30, 1993. However, payments or refunds for periods
prior to July 1, 1993 related to certain jurisdictions could still be required
pursuant to the Company's and KACC's respective tax allocation agreements with
MAXXAM. Any such payments to MAXXAM by KACC would require approval by the DIP
Facility lenders and the Court.
See Note 12 concerning commitments and contingencies.
10. EMPLOYEE BENEFIT AND INCENTIVE PLANS
Pension and Other Postretirement Benefit Plans. Retirement plans are generally
non-contributory for salaried and hourly employees and generally provide for
benefits based on formulas which consider such items as length of service and
earnings during years of service. The Company's funding policies meet or exceed
all regulatory requirements.
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. The
Company has not funded the liability for these benefits, which are expected to
be paid out of cash generated by operations. The Company reserves the right,
subject to applicable collective bargaining agreements, to amend or terminate
these benefits. Assumptions used to value obligations at year-end and to
determine the net periodic benefit cost in the subsequent year are:
Pension Benefits Medical/Life Benefits
--------------------------------- --------------------------------
2001 2000 1999 2001 2000 1999
---------- ----------- ---------- ---------- ---------- ----------
Weighted-average assumptions as of December 31,
Discount rate 7.25% 7.75% 7.75% 7.25% 7.75% 7.75%
Expected return on plan assets 9.50% 9.50% 9.50% - - -
Rate of compensation increase 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
In 2001, the average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 7.5% for all
participants. The assumed rate of increase is assumed to decline gradually to
5.0% in 2006 for all participants and remain at that level thereafter.
The following table presents the funded status of the Company's pension and
other postretirement benefit plans as of December 31, 2001 and 2000, and the
corresponding amounts that are included in the Company's Consolidated Balance
Sheets. The December 31, 2000, pension benefit amounts in the following table
have been revised from previous disclosures to include the balances of Alumina
Partners of Jamaica ("Alpart") and Kaiser Bauxite Company ("KBC") that were
already fully reflected in the consolidated balance sheet as of December 31,
2000.
Pension Benefits Medical/Life Benefits
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- -------------
Change in Benefit Obligation:
Obligation at beginning of year $ 871.4 $ 840.6 $ 658.2 $ 615.4
Service cost 38.6 20.6 12.1 5.3
Interest cost 63.6 63.4 48.7 45.0
Currency exchange rate change (1.4) (3.4) - -
Plan participants contributions 2.0 1.7 - -
Curtailments, settlements and amendments .3 33.7 (13.3) (33.4)
Actuarial (gain) loss 33.5 12.0 219.3 79.5
Benefits paid (92.4) (97.2) (56.8) (53.6)
-------------- -------------- -------------- -------------
Obligation at end of year 915.6 871.4 868.2 658.2
-------------- -------------- -------------- -------------
Change in Plan Assets:
FMV of plan assets at beginning of year 791.1 890.6 - -
Actual return on assets (48.5) (14.4) - -
Currency exchange rate change (1.1) (2.8) - -
Employer contributions 21.7 14.9 56.8 53.6
Benefits paid (92.4) (97.2) (56.8) (53.6)
-------------- -------------- -------------- -------------
FMV of plan assets at end of year 670.8 791.1 - -
-------------- -------------- -------------- -------------
Obligation in excess of plan assets 244.8 80.3 868.2 658.2
Unrecognized net actuarial gain (loss) (128.4) 25.4 (240.5) (21.6)
Unrecognized prior service costs (39.9) (45.1) 76.5 78.3
Adjustment required to recognize minimum liability 105.5 3.0 - -
Intangible asset and other 40.3 1.8 - -
-------------- -------------- -------------- -------------
Accrued benefit liability $ 222.3 $ 65.4 $ 704.2 $ 714.9
============== ============== ============== =============
The assets of the Company sponsored pension plans, like numerous other
companies' plans, are, to a substantial degree, invested in the capital markets
and managed by a third party. Given the performance of the stock market during
2001, the Company was required to reflect an additional minimum pension
liability of $64.5 (net of income tax benefit of $38.0) in its 2001 financial
statements as a result of a decline in the value of the assets held by the
Company's pension plans. Minimum pension liability adjustments are non-cash
adjustments that are reflected as an increase in pension liability and an
offsetting charge to stockholders' equity (net of income tax) through
comprehensive income (rather than net income). The Company also anticipates that
the decline in the value of the pension plans' assets will unfavorably impact
pension costs reflected in its 2002 operating results. However, absent a
decision by the Company to increase its contributions to the pension plans as a
result of the 2001 asset performance, such asset performance is not expected to
have a material impact on the Company's near-term liquidity as pension funding
requirements generally allow for such impacts to be spread over multiple years.
Increases in post-2002 pension funding requirements could occur, however, if
capital market performance in future periods does not more closely approximate
the long-term rate of return assumed by the Company, and the amount of such
increases could be material.
The aggregate accumulated benefit obligation and fair value of plan assets for
pension plans with accumulated benefit obligation in excess of plan assets were
$856.1 and $634.7, respectively, as of December 31, 2001, and $789.3 and $748.5,
respectively, as of December 31, 2000. The December 31, 2000 net periodic
benefit costs in the following table have been revised from previous disclosures
to include the balances of Alpart and KBC that were fully reflected in the
statement of consolidated income (loss) for the year ended December 31, 2000.
The costs in the table for 1999 were not revised because the amounts were not
material.
Pension Benefits Medical/Life Benefits
--------------------------------- --------------------------------
2001 2000 1999 2001 2000 1999
---------- ----------- ---------- ---------- ---------- ----------
Components of Net Periodic Benefit Costs:
Service cost $ 38.6 $ 20.6 $ 14.6 $ 12.1 $ 5.3 $ 5.2
Interest cost 63.6 63.4 59.7 48.7 45.0 41.5
Expected return on assets (70.9) (80.8) (72.9) - - -
Amortization of prior service cost 5.5 3.9 3.3 (15.1) (12.8) (12.1)
Recognized net actuarial (gain) loss (.5) (1.9) .7 - - -
---------- ----------- ---------- ---------- ---------- ----------
Net periodic benefit cost 36.3 5.2 5.4 45.7 37.5 34.6
Curtailments, settlements, etc. - .1 .4 - - -
---------- ----------- ---------- ---------- ---------- ----------
Adjusted net periodic benefit costs(1) $ 36.3 $ 5.3 $ 5.8 $ 45.7 $ 37.5 $ 34.6
========== =========== ========== ========== ========== ==========
(1) Approximately $24.5 of the $36.3 adjusted net periodic benefit costs in
2001 and $6.1 of the $5.3 adjusted net periodic benefit costs in 2000
related to pension accruals that were provided in respect to headcount
reductions resulting from the performance improvement program (see Note 6)
and the Pacific Northwest power sales (see Note 7).
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
1% Increase 1% Decrease
------------- -------------
Increase (decrease) to total of service and interest cost $ 6.8 $ (5.0)
Increase (decrease) to the postretirement benefit obligation $ 91.6 $ (64.3)
The foregoing medical benefit liability and cost data does not reflect the fact
that in February 2002, KACC notified its salaried retirees that, given the
significant escalation in medical costs and the increased burden it was
creating, KACC was going to require such retirees to fund a portion of their
medical costs beginning May 1, 2002. The impact of such changes will be to
reduce the estimated cash payments by the Company by approximately $10.0 per
year. The financial statement benefits of this change will, however, be
reflected over the remaining employment period of the Company's employees in
accordance with generally accepted accounting principles.
Postemployment Benefits. The Company provides certain benefits to former or
inactive employees after employment but before retirement.
Restricted Common Stock. During 2001, the Company completed an exchange with
certain employees who held stock options to purchase the Company's Common Stock
whereby a total of approximately 3,617,000 options were exchanged (on a fair
value basis) for approximately 1,086,000 restricted shares of the Company's
Common Stock. The fair value of the restricted shares issued is being amortized
to expense over the three-year period during which the restrictions lapse. In
March 2002, approximately 155,000 restricted shares, all of which had not been
vested, were voluntarily forfeited by certain employees.
Incentive Plans. The Company has an unfunded incentive compensation program,
which provides incentive compensation based on performance against annual plans
and over rolling three-year periods. In addition, the Company has a
"nonqualified" stock option plan and KACC has a defined contribution plan for
salaried employees. The Company's expense for all of these plans was $4.5, $5.7
and $6.0 for the years ended December 31, 2001, 2000 and 1999, respectively.
Up to 8,000,000 shares of the Company's Common Stock were reserved for issuance
under its stock incentive compensation plans. At December 31, 2001, 3,573,728
shares of Common Stock remained available for issuance under those plans. Stock
options granted pursuant to the Company's nonqualified stock option program are
granted at or above the prevailing market price, generally vest at a rate of 20
- - 33% per year, and have a five or ten year term. Information concerning
nonqualified stock option plan activity is shown below. The weighted average
price per share for each year is shown parenthetically.
2001 2000 1999
- ------------------------------------------------------------------------ ------------- -------------- -------------
Outstanding at beginning of year ($10.24, $10.24 and $9.98) 4,375,947 4,239,210 3,049,122
Granted ($2.89, $10.23 and $11.15) 874,280 757,335 1,218,068
Exercised ($7.25) - - (7,920)
Expired or forfeited ($10.39, $11.08 and $11.02) (3,689,520) (620,598) (20,060)
------------- -------------- -------------
Outstanding at end of year ($8.37, $10.24 and $10.24) 1,560,707 4,375,947 4,239,210
============= ============== =============
Exercisable at end of year ($9.09, $10.18 and $10.17) 695,183 2,380,491 1,763,852
============= ============== =============
Options exercisable at December 31, 2001 had exercisable prices ranging from
$1.72 to $12.75 and a weighted average remaining contractual life of 2.7 years.
As a part of a plan of reorganization, it is possible that the interests of the
holders of outstanding options could be diluted or cancelled.
11. MINORITY INTERESTS AND PLEDGED SHARES OF COMMON STOCK
Minority Interests. The Company owns a 90% interest in Volta Aluminium Company
Limited ("Valco") and a 65% interest in Alpart. These companies' financial
statements are fully consolidated into the Company's consolidated financial
statements because they are majority-owned. Interests of Alpart's and Valco's
minority shareholders' (included in "Other" in 2000 and 1999 in the table below)
are included in minority interests together with KACC's Redeemable Preference
Stock, which was redeemed in 2001, and KACC's Preference Stock discussed below.
Changes in minority interests were:
2000 1999
--------------------------- ---------------------------
Redeemable Redeemable
Preference Preference
2001 Stock Other Stock Other
- ------------------------------------------ ------------- -------------- ----------- -------------- ----------
Beginning of period balance $ 101.1 $ 19.5 $ 98.2 $ 20.1 $ 103.4
Redeemable preference stock -
Accretion - - - 1.0 -
Stock redemption - (2.0) (.8) (1.6) -
Reclassification (see below) - (17.5) - - -
Minority interests 17.4 - 3.7 - (5.2)
------------- -------------- ----------- -------------- ----------
End of period balance $ 118.5 $ - $ 101.1 $ 19.5 $ 98.2
============= ============== =========== ============== ==========
In 1985, KACC issued certain of its Redeemable Preference Stock with a par value
of $1 per share and a liquidation and redemption value of $50 per share plus
accrued dividends, if any. In connection with the USWA settlement agreement in
September 2000, KACC redeemed all of the remaining Redeemable Preference Stock
(350,872 shares outstanding at December 31, 2000) during March 2001. At December
31, 2000, given the pending redemption, the redemption value of the unredeemed
shares ($17.5) was classified in Other accrued liabilities. The net cash impact
of the redemption on KACC was only approximately $5.5 because approximately
$12.0 of the redemption amount had previously been funded into redemption funds
(included in Prepaid expenses).
KACC has four series of $100 par value Cumulative Convertible Preference Stock
("$100 Preference Stock") outstanding with annual dividend requirements of
between 4 1/8% and 4 3/4% (included in "Other" in the above table). KACC has the
option to redeem the $100 Preference Stock at par value plus accrued dividends.
KACC does not intend to issue any additional shares of the $100 Preference
Stock. The $100 Preference Stock can be exchanged for per share cash amounts
between $69 - $80. KACC records the $100 Preference Stock at their exchange
amounts for financial statement presentation and the Company includes such
amounts in minority interests. At December 31, 2001 and 2000, outstanding shares
of $100 Preference Stock were 8,969 and 9,250, respectively. In accordance with
the Code and DIP Facility, KACC is not permitted to repurchase any of its stock.
Further, as a part of a plan of reorganization, it is possible that the
interests of the holders of the $100 Preference Stock could be diluted or
cancelled.
Pledged Shares. From time to time MAXXAM or certain of its subsidiaries which
own the Company's Common Stock may use such stock as collateral under various
financing arrangements. At December 31, 2001, 23,443,953 shares of the Company's
Common Stock beneficially owned by MAXXAM Group Holdings Inc. ("MGHI"), a wholly
owned subsidiary of MAXXAM, were pledged as security for $88.2 principal amount
of 12% Senior Secured Notes due 2003 issued by MGHI.
12. COMMITMENTS AND CONTINGENCIES
Impact of Reorganization Proceedings. During the pendency of the Cases,
substantially all pending litigation, except certain environmental claims and
litigation, against the Debtors is stayed. Generally, claims arising from
actions or omissions prior to the Filing Date will be settled in connection with
the plan of reorganization.
Commitments. KACC has a variety of financial commitments, including purchase
agreements, tolling arrangements, forward foreign exchange and forward sales
contracts (see Note 13), 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 are scheduled to 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. KACC's share of the aggregate minimum
amount of required future principal payments at December 31, 2001, is $79.4
which matures as follows: $30.4 in 2002, $32.0 in 2003 and $17.0 in 2006. KACC's
share of payments, including operating costs and certain other expenses under
the agreements, has ranged between $92.0 - $103.0 over the past three years.
KACC also has agreements to supply alumina to and to purchase aluminum from
Anglesey.
Minimum rental commitments under operating leases at December 31, 2001, are as
follows: years ending December 31, 2002 - $35.9; 2003 - $32.0; 2004 - $29.2;
2005 - $28.2; 2006 - $27.9; thereafter - $44.6. Pursuant to the Code, the
Debtors may elect to reject or assume unexpired pre-petition leases. At this
time, no decisions have been made as to which significant leases will be
accepted or rejected (see Note 1).
Rental expenses were $41.0, $42.5 and $41.1, for the years ended December 31,
2001, 2000 and 1999, respectively.
KACC has a long-term liability, net of estimated subleases income (included in
Long-term liabilities), on a building in which KACC has not maintained offices
for a number of years, but for which it is responsible for lease payments as
master tenant through 2008 under a sale-and-leaseback agreement. The future
minimum rentals receivable under subleases was $104.5 at December 31, 2001.
During 2000, KACC reduced its net lease obligation by $17.0 (see Note 2) to
reflect new third-party sublease agreements which resulted in occupancy and
lease rates above those previously projected.
Environmental Contingencies. The Company and KACC are subject to a number of
environmental laws, 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 claims 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. During the
year ended December 31, 2001, KACC's ongoing assessment process resulted in KACC
recording charges of $13.5 (of which $4.5 was recorded in the fourth quarter of
2001 and is included in Other income (expense) - see Note 2) to increase its
environmental accrual. Additionally, KACC's environmental accruals were
increased during the year ended December 31, 2001, by approximately $6.0 in
connection with purchase of certain property. The following table presents the
changes in such accruals, which are primarily included in Long-term liabilities,
for the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
- ----------------------------------------------------------- ------- ------- -------
Balance at beginning of period $ 46.1 $ 48.9 $ 50.7
Additional accruals 23.1 2.6 1.6
Less expenditures (8.0) (5.4) (3.4)
------- ------- -------
Balance at end of period $ 61.2 $ 46.1 $ 48.9
======= ======= =======
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 $1.3 to $12.2 for the years 2002 through 2006 and an
aggregate of approximately $24.8 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 an estimated $27.0. As the resolution of these matters
is subject to further regulatory review and approval, no specific assurance can
be given as to when the factors upon which a substantial portion of this
estimate is based can be expected to be resolved. However, the Company is
currently working to resolve certain of these matters.
The Company believes that KACC has insurance coverage available to recover
certain incurred and future environmental costs and is pursuing claims in this
regard. However, no amounts have been accrued in the financial statements with
respect to such potential recoveries.
While uncertainties are inherent in the final outcome of these environmental
matters, and it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the resolution of
such uncertainties should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
Asbestos Contingencies. KACC has been one of many defendants in a number of
lawsuits, some of which involve claims of multiple persons, in which the
plaintiffs allege that certain of their injuries were caused by, among other
things, exposure to asbestos during, and as a result of, their employment or
association with KACC or exposure to products containing asbestos produced or
sold by KACC. The lawsuits generally relate to products KACC has not sold for
more than 20 years.
The following table presents the changes in number of such claims pending for
the years ended December 31, 2001, 2000 and 1999.
2001 2000 1999
- --------------------------------------------------------------------------------- ---------- --------- --------
Number of claims at beginning of period 110,800 100,000 86,400
Claims received 34,000 30,600 29,300
Claims settled or dismissed (32,000) (19,800) (15,700)
---------- --------- --------
Number of claims at end of period 112,800 110,800 100,000
========== ========= ========
Number of claims at end of period (included above) covered by agreements under
which KACC expects to settle over an extended period 49,700 66,900 31,900
========== ========= ========
Due to the Cases, holders of asbestos claims are stayed from continuing to
prosecute pending litigation and from commencing new lawsuits against the
Debtors. However, during the pendency of the Cases, KACC expects additional
asbestos claims will be filed as part of the claims process. A separate
creditors' committee representing the interests of the asbestos claimants has
been appointed. The Debtors' obligations with respect to present and future
asbestos claims will be resolved pursuant to a plan of reorganization.
The Company maintains a liability for estimated asbestos-related costs for
claims filed to date and an estimate of claims to be filed over a 10 year period
(i.e., through 2011). The Company's estimate is based on the Company's view, at
each balance sheet date, of the current and anticipated number of
asbestos-related claims, the timing and amounts of asbestos-related payments,
the status of ongoing litigation and settlement initiatives, and the advice of
Wharton Levin Ehrmantraut Klein & Nash, P.A., with respect to the current
state of the law related to asbestos claims. However, there are inherent
uncertainties involved in estimating asbestos-related costs and the Company's
actual costs could exceed the Company's estimates due to changes in facts and
circumstances after the date of each estimate. Further, while the Company does
not presently believe there is a reasonable basis for estimating
asbestos-related costs beyond 2011 and, accordingly, no accrual has been
recorded for any costs which may be incurred beyond 2011, the Company expects
that the plan of reorganization process may require an estimation of KACC's
entire asbestos-related liability, which may go beyond 2011, and that such costs
could be substantial.
The Company believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Although the Company has
settled asbestos-related coverage matters with certain of its insurance
carriers, other carriers have not yet agreed to settlements and disputes with
certain carriers exist. The timing and amount of future recoveries from these
and other insurance carriers will depend on the pendency of the Cases and on the
resolution of any disputes regarding coverage under the applicable insurance
policies. The Company believes that substantial recoveries from the insurance
carriers are probable and additional amounts may be recoverable in the future if
additional claims are added. The Company reached this conclusion after
considering its prior insurance-related recoveries in respect of
asbestos-related claims, existing insurance policies, and the advice of Heller
Ehrman White & McAuliffe LLP with respect to applicable insurance coverage
law relating to the terms and conditions of those policies. During 2000, KACC
filed suit against a group of its insurers, after negotiations with certain of
the insurers regarding an agreement covering both reimbursement amounts and the
timing of reimbursement payments were unsuccessful. During October 2001, the
court ruled favorably on a number of issues, and during February 2002, an
intermediate appellate court also ruled favorably on an issue involving
coverage. The rulings did not result in any changes to the Company's estimates
of its current or future asbestos-related insurance recoveries. Other courts may
hear additional issues from time to time. Moreover, KACC expects to amend its
lawsuit during the second quarter of 2002 to add additional insurers who may
have responsibility to respond for asbestos-related costs. Given the expected
significance of probable future asbestos-related payments, the receipt of timely
and appropriate payments from such insurers is critical to a successful plan of
reorganization and KACC's long-term liquidity.
The following tables present historical information regarding KACC's
asbestos-related balances and cash flows:
December 31,
--------------------------------
2001 2000
- ---------------------------------------------------------------- -------------- --------------
Liability (current portion of $130.0 in both years) $ 621.3 $ 492.4
Receivable (included in Other assets)(1) 501.2 406.3
-------------- --------------
$ 120.1 $ 86.1
============== ==============
(1) The asbestos-related receivable was determined on the same basis as the
asbestos-related cost accrual. However, no assurances can be given that
KACC will be able to project similar recovery percentages for future
asbestos-related claims or that the amounts related to future
asbestos-related claims will not exceed KACC's aggregate insurance
coverage. As of December 31, 2001 and 2000, $33.0 and $36.9, respectively,
of the receivable amounts relate to costs paid. The remaining receivable
amounts relate to costs that are expected to be paid by KACC in the future.
Year Ended December 31, Inception
-------------------------------------------
2001 2000 1999 To Date
------------ ------------ ------------- ---------------
Payments made, including related legal costs................ $ 118.1 $ 99.5 $ 24.6 $ 338.6
Insurance recoveries........................................ 90.3 62.8 6.6 221.6
------------ ------------ ------------- ---------------
$ 27.8 $ 36.7 $ 18.0 $ 117.0
============ ============ ============= ===============
During the pendency of the Cases, all asbestos litigation is stayed. As a
result, the Company does not expect to make any asbestos payments in the near
term. Despite the Cases, the Company continues to pursue insurance collections
in respect of asbestos-related amounts paid prior to the Filing Date.
Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative developments, and costs incurred
in order to ascertain whether an adjustment to the existing accruals should be
made to the extent that historical experience may differ significantly from the
Company's underlying assumptions. This process resulted in the Company
reflecting charges of $57.2, $43.0 and $53.2 (included in Other income (expense)
- - see Note 2) in the years ended December 31, 2001, 2000 and 1999, respectively,
for asbestos-related claims, net of expected insurance recoveries, based on
recent cost and other trends experienced by KACC and other companies. Additional
asbestos-related claims are likely to be filed against KACC as a part of the
Chapter 11 process. Management cannot reasonably predict the ultimate number of
such claims or the amount of the associated liability. However, it is likely
that such amounts could exceed, perhaps significantly, the liability amounts
reflected in the Company's consolidated financial statements, which (as
previously stated) is only reflective of an estimate of claims over the next
ten-year period. KACC's obligations in respect of the currently pending and
future asbestos-related claims will ultimately be determined (and resolved) as a
part of the overall Chapter 11 proceedings. It is anticipated that resolution of
these matters will be a lengthy process. Management will continue to
periodically reassess its asbestos-related liabilities and estimated insurance
recoveries as the Cases proceed. However, absent unanticipated developments such
as asbestos-related legislation, material developments in other asbestos-related
proceedings or in the Company's or KACC's Chapter 11 proceedings, it is not
anticipated that the Company will have sufficient information to reevaluate its
asbestos-related obligations and estimated insurance recoveries until much later
in the Cases. Any adjustments ultimately deemed to be required as a result of
the reevaluation of KACC's asbestos-related liabilities or estimated insurance
recoveries could have a material impact on the Company's future financial
statements.
Labor Matters. In connection with the USWA strike and subsequent lock-out by
KACC, which was settled in September 2000, certain allegations of unfair labor
practices ("ULPs") were filed with the National Labor Relations Board ("NLRB")
by the USWA. As previously disclosed, KACC responded to all such allegations and
believes that they were without merit. Twenty-two of twenty-four allegations of
ULPs previously brought against KACC by the USWA have been dismissed. A trial
before an administrative law judge for the two remaining allegations concluded
in September 2001. A decision is not expected until sometime after the second
quarter of 2002. Any outcome from the trial before the administrative law judge
would be subject to additional appeals by the general counsel of the NLRB, the
USWA or KACC. This process could take months or years. This matter is currently
not stayed by the Cases. The Company continues to believe that the charges are
without merit. While uncertainties are inherent in matters such as this and it
is presently impossible to determine the remedy, if any, that may ultimately
arise in connection with this matter, the Company does not believe that the
ultimate outcome of this matter will have a material adverse impact on the
Company's liquidity or financial position. However, no assurances can be given
in this regard. Amounts due, if any, in satisfaction of this matter could be
significant to the results of the period in which they are recorded. If these
proceedings eventually resulted in a final ruling against KACC with respect to
either allegation, it could be liable for back pay to USWA members at the five
plants and such amount could be significant. Any liability ultimately determined
to exist in this matter will be dealt with in the overall context of the
Debtors' plan of reorganization.
Dispute with MAXXAM. In March 2002, MAXXAM filed a declaratory action with the
Court asking the Court to find that it has no further obligations to the Debtors
under the tax allocation agreements discussed in Note 9. MAXXAM asserts that the
agreements are personal contracts and financial accommodations which cannot be
assumed under the Code. At December 31, 2001, the Company had a receivable from
MAXXAM of $35.0 (included in Other assets) outstanding under the tax allocation
agreement in respect of various tax contingencies in an equal amount (reflected
in Long-term liabilities). The Company believes that MAXXAM's position is
without merit and that MAXXAM will be required to satisfy its obligations under
the tax allocation agreements.
Other Contingencies. The Company or KACC is involved in various other claims,
lawsuits, and other proceedings relating to a wide variety of matters related to
past or present operations. While uncertainties are inherent in the final
outcome of such matters, and it is presently impossible to determine the actual
costs that ultimately may be incurred, management currently believes that the
resolution of such uncertainties and the incurrence of such costs should not
have a material adverse effect on the Company's consolidated financial position,
results of operations, or liquidity.
13. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
In conducting its business, KACC uses various instruments, including forward
contracts and options, to manage the risks arising from fluctuations in aluminum
prices, energy prices and exchange rates. KACC enters into hedging transactions
from time to time to limit its exposure resulting from (1) its anticipated sales
of alumina, primary aluminum, and fabricated aluminum products, net of expected
purchase costs for items that fluctuate with aluminum prices, (2) the energy
price risk from fluctuating prices for natural gas, fuel oil and diesel oil used
in its production process, and (3) foreign currency requirements with respect to
its cash commitments with foreign subsidiaries and affiliates.
As KACC's hedging activities are generally designed to lock-in a specified price
or range of prices, gains or losses on the derivative contracts utilized in
these hedging activities (except the impact of those contracts discussed below
which have been marked to market) will generally offset at least a portion of
any losses or gains, respectively, on the transactions being hedged. See Note 2
for a discussion of the effects of the new accounting requirements under SFAS
No. 133, which is being used for reporting results beginning with the first
quarter of 2001.
Because the agreements underlying KACC's hedging positions provided that the
counterparties to the hedging contracts could liquidate KACC's hedging positions
if KACC filed for reorganization, KACC chose to liquidate these positions in
advance of the Filing Date. Proceeds from the liquidation totaled approximately
$42.2. Gains or losses associated with these liquidated positions have been
deferred and are being recognized over the original hedging periods as the
underlying purchases/sales are still expected to occur. The amount of
gains/losses deferred are as follows: gains of $30.2 for aluminum contracts,
losses of $5.0 for Australian dollars and $1.9 for energy contracts. The
following table summarizes KACC's derivative hedging positions at December 31,
2001:
Carrying/
Market
Commodity Period Value
- ------------------------------------------------------------ ---------------- --------------
Aluminum -
Option contracts and swaps 2002 $ 40.8
Option contracts 2003 11.9
Australian dollars - Option contracts 2002 to 2005 4.0
Energy -
Natural gas - Option contracts and swaps 1/02 to 3/02 (1.2)
Fuel Oil - Swaps 1/02 to 3/02 .7
During the first quarter of 2001, the Company recorded a mark-to-market benefit
of $6.8 (included in Other income (expense)) related to the application of SFAS
No. 133. However, starting in the second quarter of 2001, the income statement
impact of mark-to-market changes was essentially eliminated as unrealized gains
or losses resulting from changes in the value of these hedges began being
recorded in other comprehensive income (see Note 2) based on changes in SFAS No.
133 enacted in April 2001.
During late 1999 and early 2000, KACC entered into certain aluminum contracts
with a counterparty. While the Company believed that the transactions were
consistent with its stated hedging objectives, these positions did not qualify
for treatment as a "hedge" under accounting guidelines. Accordingly, the
positions were marked-to-market each period. A recap of mark-to-market pre-tax
gains (losses) for these positions, together with the amount discussed in the
paragraph above, is provided in Note 2. During the fourth quarter of 2001, KACC
liquidated all of the remaining positions. This resulted in the recognition of
approximately $3.3 of additional mark-to-market income during the fourth quarter
of 2001.
As of December 31, 2001, KACC had sold forward substantially all of the alumina
available to it in excess of its projected internal smelting requirements for
2002 and 2003, respectively, at prices indexed to future prices of primary
aluminum.
The Company anticipates that, subject to the approval of the Court and
prevailing economic conditions, it may reinstitute an active hedging program to
protect the interests of its constituents. However, no assurance can be given as
to when or if the appropriate Court approval will be obtained or when or if such
hedging activities will restart.
14. SUBSEQUENT EVENT
Subsequent to December 31, 2001, KACC paid an aggregate of $10.0 into two
separate trusts funds in respect of (a) potential liability obligations of
directors and officers and (b) certain obligations attributable to certain
management compensation agreements. These payments will result in an approximate
$5.0 increase in Other assets and an approximate $5.0 charge to selling,
administrative, research and development, and general expenses in 2002.
15. SEGMENT AND GEOGRAPHICAL AREA INFORMATION
The Company's operations are located in many foreign countries, including
Australia, Canada, Ghana, Jamaica, and the United Kingdom. Foreign operations in
general may be more vulnerable than domestic operations due to a variety of
political and other risks. Sales and transfers among geographic areas are made
on a basis intended to reflect the market value of products.
The Company's operations are organized and managed by product type. The Company
operations include four operating segments of the aluminum industry and its
commodities marketing and corporate segments. The aluminum industry segments
include: Alumina and bauxite, Primary aluminum, Flat-rolled products and
Engineered products. The Alumina and bauxite business unit's principal products
are smelter grade alumina and chemical grade alumina hydrate, a value-added
product, for which the Company receives a premium over smelter grade market
prices. The Primary aluminum business unit produces commodity grade products as
well as value-added products such as rod and billet, for which the Company
receives a premium over normal commodity market prices. The Flat-rolled products
group sells value-added products such as heat treat aluminum sheet and plate
which are used in the aerospace and general engineering markets as well as
selling to the beverage container and specialty coil markets. The Engineered
products business unit serves a wide range of industrial segments including the
automotive, distribution, aerospace and general engineering markets. The Company
uses a portion of its bauxite, alumina and primary aluminum production for
additional processing at its downstream facilities. Transfers between business
units are made at estimated market prices. The Commodities marketing segment
includes the results of KACC's alumina and aluminum hedging activities (see Note
13). The accounting policies of the segments are the same as those described in
Note 2. Business unit results are evaluated internally by management before any
allocation of corporate overhead and without any charge for income taxes,
interest expense or non-recurring charges.
Financial information by operating segment at December 31, 2001, 2000 and 1999
is as follows:
Year Ended December 31,
-----------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------- ----------- ----------- -----------
Net Sales:
Bauxite and Alumina:(1)
Net sales to unaffiliated customers $ 508.3 $ 442.2 $ 395.8
Intersegment sales 77.9 148.3 129.0
----------- ----------- -----------
586.2 590.5 524.8
----------- ----------- -----------
Primary Aluminum:(2)
Net sales to unaffiliated customers 358.9 563.7 432.9
Intersegment sales 3.8 242.3 240.6
----------- ----------- -----------
362.7 806.0 673.5
----------- ----------- -----------
Flat-Rolled Products 308.0 521.0 591.3
Engineered Products 429.5 564.9 556.8
Commodities Marketing 22.9 (25.4) 18.3
Minority Interests 105.1 103.4 88.5
Eliminations (81.7) (390.6) (369.6)
----------- ----------- -----------
$ 1,732.7 $ 2,169.8 $ 2,083.6
=========== =========== ===========
Equity in income (loss) of unconsolidated affiliates:
Bauxite and Alumina $ (2.3) $ (8.4) $ 3.4
Primary Aluminum 4.0 3.6 (1.0)
Engineered Products and Other - - 2.5
----------- ----------- -----------
$ 1.7 $ (4.8) $ 4.9
=========== =========== ===========
Operating income (loss):
Bauxite and Alumina - Note 3 $ (46.9) $ 57.2 $ (10.5)
Primary Aluminum (3) 5.1 100.1 (4.8)
Flat-Rolled Products .4 16.6 17.1
Engineered Products 4.6 34.1 38.6
Commodities Marketing 5.6 (48.7) 21.3
Micromill - (.6) (11.6)
Eliminations 1.0 .1 6.9
Corporate and Other (68.5) (61.4) (61.8)
Non-Recurring Operating Items - Note 6 163.6 41.9 (24.1)
----------- ----------- -----------
$ 64.9 $ 139.3 $ (28.9)
=========== =========== ===========
(1) Net sales for 2001, 2000 and 1999, included approximately 115,000 tons,
322,000 tons and 395,000 tons, respectively, of alumina purchased from
third parties.
(2) Beginning in the first quarter of 2001, as a result of the continuing
curtailment of KACC's Northwest smelters, the Flat-rolled products business
unit began purchasing its own primary aluminum rather than relying on the
Primary aluminum business unit to supply its aluminum requirements through
production or third party purchases. The Engineered products business unit
was already responsible for purchasing the majority of its primary aluminum
requirements. During the years ended December 31, 2001, 2000 and 1999, the
Primary aluminum business unit purchased approximately 27,300 tons, 56,100
tons and 12,000 tons, respectively, of primary aluminum from third parties
to meet existing third party commitments.
(3) Operating income (loss) for 1999 included potline preparation and restart
costs of $12.8.
Year Ended December 31,
-----------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------- ----------- ----------- -----------
Depreciation and amortization:
Bauxite and Alumina - Note 3 $ 37.8 $ 22.2 $ 29.7
Primary Aluminum 21.6 24.8 27.8
Flat-Rolled Products 16.9 16.7 16.2
Engineered Products 12.8 11.5 10.7
Corporate and Other (includes Micromill in 1999) 1.1 1.7 5.1
----------- ----------- -----------
$ 90.2 $ 76.9 $ 89.5
=========== =========== ===========
Capital expenditures:
Bauxite and Alumina - Note 3 $ 117.8 $ 254.6 $ 30.4
Primary Aluminum 8.7 9.6 12.8
Flat-Rolled Products 1.5 7.6 16.6
Engineered Products - Note 5 19.9 23.6 7.8
Corporate and Other .8 1.1 .8
----------- ----------- -----------
$ 148.7 $ 296.5 $ 68.4
=========== =========== ===========
December 31,
--------------------------------
2001 2000
- ---------------------------------------------------------------------- -------------- --------------
Investments in and advances to unconsolidated affiliates:
Bauxite and Alumina - Note 4 $ 43.9 $ 56.0
Primary Aluminum 18.8 19.0
Corporate and Other - Note 4 .3 2.8
-------------- --------------
$ 63.0 $ 77.8
============== ==============
Segment assets:
Bauxite and Alumina $ 922.5 $ 957.0
Primary Aluminum - Note 7 467.0 623.3
Flat-Rolled Products 261.5 337.7
Engineered Products 233.8 232.9
Commodities Marketing 48.4 62.1
Corporate and Other - Note 9 810.5 1,130.1
-------------- --------------
$ 2,743.7 $ 3,343.1
============== ==============
Geographical information for net sales, based on country of origin, and
long-lived assets follows:
Year Ended December 31,
---------------------------------------------
2001 2000 1999
- --------------------------------------------------------- ------------ ------------- ------------
Net sales to unaffiliated customers:
United States $ 1,017.3 $ 1,350.1 $ 1,439.6
Jamaica 219.4 298.5 233.1
Ghana 221.3 237.5 153.2
Other Foreign 274.7 283.7 257.7
------------ ------------- ------------
$ 1,732.7 $ 2,169.8 $ 2,083.6
============ ============= ============
December 31,
-----------------------------
2001 2000
- ------------------------------------------------------- ------------ -------------
Long-lived assets: (1)
United States $ 832.5 $ 809.0
Jamaica 303.8 290.3
Ghana 83.3 80.8
Other Foreign 58.8 73.8
------------ -------------
$ 1,278.4 $ 1,253.9
============ =============
(1) Long-lived assets include Property, plant, and equipment, net and
Investments in and advances to unconsolidated affiliates.
The aggregate foreign currency gain included in determining net income was
immaterial for the years ended December 31, 2001, 2000 and 1999. No single
customer accounted for sales in excess of 10% of total revenue in 2001, 2000 and
1999. Export sales were less than 10% of total revenue during the years ended
December 31, 2001, 2000 and 1999.
Quarter Ended
-------------------------------------------------------------
(In millions of dollars, except share amounts) March 31, June 30, September 30, December 31,
- -------------------------------------------------------- -------------- ---------- -------------- --------------
2001
Net sales $ 480.3 $ 446.8 $ 430.3 $ 375.3
Operating income (loss) 215.4 (27.6) (36.1) (86.8)
Net income (loss) 119.6 (1) (64.1)(2) 68.4 (3) (583.3)(4)
Basic/Diluted Earnings per share 1.50 (1) (.80)(2) .85 (3) (7.23)(4)
Common stock market price:(11)
High 4.44 4.90 4.45 3.34
Low 3.23 3.25 2.57 1.56
2000
Net sales $ 575.7 $ 552.8 $ 545.2 $ 496.1
Operating income 36.9 51.5 2.8 48.1
Net income (loss) 11.7 (5) 11.0 (6) (16.8)(7) 10.9 (8)
Basic/Diluted Earnings (loss) per share .15 (5) .14 (6) (.21)(7) .14 (8)
Common stock market price:(11)
High 8.88 5.13 6.06 5.94
Low 4.13 2.94 3.50 3.50
1999
Net sales $ 490.3 $ 536.2 $ 528.7 $ 528.4
Operating income (loss) (33.0) .7 (12.1) 15.5
Net income (loss) (38.2) (15.7) (39.2)(9) 39.0 (10)
Basic/Diluted Earnings (loss) per share (.48) (.20) (.49)(9) .49 (10)
Common stock market price:(11)
High 6.94 10.13 9.69 8.25
Low 4.75 5.00 6.63 6.00
(1) Includes the following pre-tax items: a gain of $228.2 from the sale of
power and $15.3 of mark-to-market ("MTM") non-operating gains offset by
a non-cash charge of $7.5 for asbestos-related claims, abnormal Gramercy
start-up costs of $19.0 and excess overhead and other costs associated
with curtailed Northwest smelting operations of $6.0. Excluding these
items, results would have been a basic loss per share of approximately
$.12.
(2) Includes the following pre-tax items: a non-cash charge of $45.8 for
asbestos-related claims, a non-cash charge of $8.0 for an adjustment to
environmental liabilities, abnormal Gramercy start-up costs of $22.0 and
certain other net non-recurring charges totaling $12.2 offset by a gain
of $15.2 for Gramercy business interruption recoveries. Excluding these
items, results would have been a basic loss per share of approximately
$.25.
(3) Includes the following pre-tax items: a gain of $163.6 from sale of QAL
interest, $13.9 of MTM non-operating gains and a gain of $21.4 for
Gramercy business interruption recoveries offset by charges of $24.5 for
restructuring, abnormal Gramercy start-up costs of $13.9 and certain
other net non-recurring charges totaling $1.6. Excluding these items,
results would have been a basic loss per share of approximately $.31.
(4) Includes increase in valuation allowances for net deferred income tax
assets of $505.4 and the following pre-tax items: charges for
restructuring of $8.2, abnormal Gramercy start-up and other costs of
$16.5, contract labor costs related to smelter curtailment of $9.4,
impairment charges related to Trentwood equipment of $17.7 and certain
other net non-recurring charges totaling $9.6. Excluding these items,
results would have been basic loss per share of approximately $.43.
(5) Includes the following pre-tax items: MTM non-operating gains of $14.4
offset by a charge of $2.0 for restructuring. Excluding these items,
results would have been basic income per share of approximately $.05.
(6) Includes the following pre-tax items: a gain of $15.8 from the sale of
power offset by certain other non-recurring charges totaling $7.9.
Excluding these items, results would have been basic income per share of
approximately $.08.
(7) Includes the following pre-tax items: a labor settlement charge of
$38.5, a non-cash charge of $43.0 for asbestos-related claims, a charge
of $11.5 for incremental maintenance spending and charges of $18.1 for
non-recurring impairment and restructuring charges offset by a gain of
$40.5 from the sale of power, gains of $39.0 related to real estate
transactions and $.9 of MTM non-operating gains. Excluding these items,
results would have been basic income per share of approximately $.03.
(8) Includes the following pre-tax items: a gain of $103.2 from the sale of
power offset by a non-cash impairment loss of approximately $33.0, a
charge of $26.2 for operating profit foregone as a result of power sales
and certain other net non-operating charges totaling $10.9. Excluding
these items, but giving effect to operating profit foregone as a result
of these power sales, results would have been basic loss per share of
approximately $.19.
(9) Includes the following pre-tax items: a non-cash charge of $19.1 to
reduce the carrying value of the Company's Micromill assets, a non-cash
charge of $15.2 for asbestos-related claims and certain other
non-operating charges totaling $10.9. Excluding these items, results
would have been basic loss per share of approximately $.11.
(10) Includes the following pre-tax items: a gain of $85.0 on involuntary
conversion at Gramercy facility (see Note 3) offset by $12.8 of MTM
non-operating charges. Excluding this item, results would have been
basic loss per share of approximately $.11.
(11) As part of a plan of reorganization, it is possible that the interests
of the Company's existing stockholders could be diluted or cancelled.
FIVE-YEAR FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
------------------------------------------------------------
(In millions of dollars) 2001 2000 1999 1998 1997
- ----------------------------------------------------------- ----------- ----------- ---------- ----------- ----------
ASSETS (1)
Current assets:
Cash and cash equivalents $ 153.3 $ 23.4 $ 21.2 $ 98.3 $ 15.8
Receivables 206.4 429.8 261.0 282.7 340.2
Inventories 313.3 396.2 546.1 543.5 568.3
Prepaid expenses and other current assets 86.2 162.7 145.6 105.5 121.3
----------- ----------- ---------- ----------- ----------
Total current assets 759.2 1,012.1 973.9 1,030.0 1,045.6
Investments in and advances to unconsolidated affiliates 63.0 77.8 96.9 128.3 148.6
Property, plant, and equipment - net 1,215.4 1,176.1 1,053.7 1,108.7 1,171.8
Deferred income taxes - 454.2 440.0 377.9 330.6
Other assets 706.1 622.9 634.3 346.0 317.3
----------- ----------- ---------- ----------- ----------
Total $ 2,743.7 $ 3,343.1 $ 3,198.8 $ 2,990.9 $ 3,013.9
=========== =========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals $ 515.0 $ 673.5 $ 500.3 $ 432.7 $ 457.3
Accrued postretirement medical benefit obligation -
current portion 62.0 58.0 51.5 48.2 45.3
Payable to affiliates 52.9 78.3 85.8 77.1 82.7
Long-term debt - current portion 173.5 31.6 .3 .4 8.8
----------- ----------- ---------- ----------- ----------
Total current liabilities 803.4 841.4 637.9 558.4 594.1
Long-term liabilities 919.9 703.7 727.1 532.9 491.9
Accrued postretirement medical benefit obligation 642.2 656.9 678.3 694.3 720.3
Long-term debt 700.8 957.8 972.5 962.6 962.9
Minority interests 118.5 101.1 117.7 123.5 127.7
Stockholders' equity:
Common stock .8 .8 .8 .8 .8
Additional capital 539.1 537.5 536.8 535.4 533.8
Retained earnings (accumulated deficit) (913.7) (454.3) (471.1) (417.0) (417.6)
Accumulated other comprehensive income (loss) (67.3) (1.8) (1.2) - -
----------- ----------- ---------- ----------- ----------
Total stockholders' equity (441.1) 82.2 65.3 119.2 117.0
----------- ----------- ---------- ----------- ----------
Total $ 2,743.7 $ 3,343.1 $ 3,198.8 $ 2,990.9 $ 3,013.9
=========== =========== ========== =========== ==========
Debt-to-capital ratio(2) 147.9 81.2 81.2 76.9 77.8
(1) Prepared on a "going concern" basis. See Notes 1 and 2 of Notes to
Consolidated Financial Statements for a discussion of the possible impact
of the Cases.
(2) Total of long-term debt - current portion and long-term debt (collectively
"total debt") as a ratio of total debt, deferred income tax liabilities,
minority interests, and stockholders' equity.
FIVE-YEAR FINANCIAL DATA
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------
(In millions of dollars, except share amounts) 2001 2000 1999 1998 1997
- ----------------------------------------------------- ------------ ----------- ----------- ----------- -----------
(1)
Net sales $ 1,732.7 $ 2,169.8 $ 2,083.6 $ 2,302.4 $ 2,423.3
------------ ----------- ----------- ----------- -----------
Costs and expenses:
Cost of products sold 1,638.4 1,891.4 1,893.5 1,892.2 2,001.3
Depreciation and amortization 90.2 76.9 89.5 99.1 102.5
Selling, administrative, research and development,
and general 102.8 104.1 105.4 115.5 131.8
Non-recurring operating items (163.6) (41.9) 24.1 105.0 19.7
------------ ----------- ----------- ----------- -----------
Total costs and expenses 1,667.8 2,030.5 2,112.5 2,211.8 2,255.3
------------ ----------- ----------- ----------- -----------
Operating income (loss) 64.9 139.3 (28.9) 90.6 168.0
Other income (expense):
Interest expense (109.0) (109.6) (110.1) (110.0) (110.7)
Gain on sale of interest in QAL 163.6 - - - -
Gain on involuntary conversion at Gramercy facility - - 85.0 - -
Other - net (32.8) (4.3) (35.9) 3.5 3.0
------------ ----------- ----------- ----------- -----------
Income (loss) before income taxes, minority interests 86.7 25.4 (89.9) (15.9) 60.3
(Provision) benefit for income taxes (550.2) (11.6) 32.7 16.4 (8.8)
Minority interests 4.1 3.0 3.1 .1 (3.5)
------------ ----------- ----------- ----------- -----------
Net income (loss) (459.4) 16.8 (54.1) .6 48.0
Preferred stock dividends - - - - (5.5)
------------ ----------- ----------- ----------- -----------
Net income (loss) available to common shareholders $ (459.4) $ 16.8 $ (54.1) $ .6 $ 42.5
============ =========== =========== =========== ===========
Earnings (loss) per share:
Basic/Diluted $ (5.73) $ .21 $ (.68) $ .01 $ .57
============ =========== =========== =========== ===========
Dividends per common share $ - $ - $ - $ - $ -
============ =========== =========== =========== ===========
Weighted average shares outstanding (000):
Basic 80,235 79,520 79,336 79,115 74,221
Diluted 80,235 79,523 79,336 79,156 74,382
(1) Prepared on a "going concern" basis. See Notes 1 and 2 of Notes to
Consolidated Financial Statements for a discussion of the possible impact
of the Cases.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Information required under PART III (Items 10,ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information, as of April 11, 12,2002, with
respect to the executive officers and 13)directors of the Company and the executive
officers of KACC. All officers and directors hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal.
NAME POSITIONS AND OFFICES WITH THE COMPANY AND KACC*
- ------------------------------ ------------------------------------------------------------------------
Jack A. Hockema President, Chief Executive Officer and Director
Joseph A. Bonn Executive Vice President, Corporate Development
John T. La Duc Executive Vice President and Chief Financial Officer
Harvey L. Perry Executive Vice President of the Company and KACC and President of
Global Commodity Products of KACC
John Barneson Senior Vice President and Chief Administrative Officer
Kris S. Vasan Senior Vice President, Strategic Risk Management
James L. Chapman Vice President of Primary Aluminum Operations**
Robert E. Cole Vice President, Government Affairs**
Edward F. Houff Vice President and General Counsel
Edward A. Kaplan Vice President of Taxes
W. Scott Lamb Vice President, Investor Relations and Corporate Communications
Daniel D. Maddox Vice President and Controller
Daniel J. Rinkenberger Vice President of Economic Analysis and Planning
Kerry A. Shiba Vice President and Treasurer
Robert W. Warnock Vice President, Performance Measurement and Analysis
John Wm. Niemand II Secretary
Robert J. Cruikshank Director
James T. Hackett Director
George T. Haymaker, Jr. Chairman of the Board and Director
Charles E. Hurwitz Director
Ezra G. Levin Director
- ---------------------------
* Except as otherwise indicated, positions are with both the Company and KACC
** KACC only
Jack A. Hockema. Mr. Hockema, age 55, was elected to the position of President
and Chief Executive Officer and as a director of the Company and KACC in October
2001. He previously served as Executive Vice President and President of Kaiser
Fabricated Products of KACC from January 2000 until October 2001 and Executive
Vice President of the Company from May 2000 until October 2001. He served as
Vice President of the Company from May 1997 until May 2000. Mr. Hockema was Vice
President of KACC and President of Kaiser Engineered Products from March 1997
until January 2000. He served as President of Kaiser Extruded Products and
Engineered Components from September 1996 to March 1997. Mr. Hockema served as a
consultant to KACC and acting President of Kaiser Engineered Components from
September 1995 until September 1996. Mr. Hockema was an employee of KACC from
1977 to 1982, working at KACC's Trentwood facility, and serving as plant manager
of its former Union City, California, can plant and as operations manager for
Kaiser Extruded Products. Mr. Hockema left KACC to become Vice President and
General Manager of Bohn Extruded Products, a division of Gulf+Western, and later
served as Group Vice President of American Brass Specialty Products until June
1992. From June 1992 until September 1996, Mr. Hockema provided consulting and
investment advisory services to individuals and companies in the metals
industry.
Joseph A. Bonn. Mr. Bonn, age 58, was elected to the position of Executive Vice
President, Corporate Development of the Company and KACC effective August 2001.
He previously served as Vice President, Commodities Marketing, Corporate
Planning and Development of the Company from May 2000 through August 2001 and of
KACC from September 1999 through August 2001. He served as Vice President,
Planning and Development of KACC from March 1997 through September 1999 and as
Vice President of the Company from May 1997 through May 2000. He served as Vice
President, Planning and Administration of the Company and KACC from February
1992 and July 1989, respectively, through May 1997 and July 1997, respectively.
Mr. Bonn was first elected a Vice President of KACC in April 1987. He served as
Senior Vice President--Administration of MAXXAM from September 1991 through
December 1992. He was also KACC's Director of Strategic Planning from April 1987
until July 1989. From September 1982 to April 1987, Mr. Bonn served as General
Manager of various aluminum fabricating divisions of KACC. Mr. Bonn also serves
as a director of National Refractories Corporation.
John T. La Duc. Mr. La Duc, age 59, was elected Executive Vice President and
Chief Financial Officer of the Company effective September 1998, and of KACC
effective July 1998. Mr. La Duc served as Vice President and Chief Financial
Officer of the Company from June 1989 and May 1990, and was Treasurer of the
Company from August 1995 until February 1996 and from January 1993 until April
1993. He also was Treasurer of KACC from June 1995 until February 1996, and
served as Vice President and Chief Financial Officer of KACC from June 1989 and
January 1990, respectively. He previously served as Senior Vice President of
MAXXAM from September 1990 through December 2001. Until December 2001, Mr. La
Duc also served as a Vice President and a director of MAXXAM Group Holdings
Inc., a wholly owned subsidiary of MAXXAM and parent of MAXXAM's forest products
operations ("MGHI"), as a Vice President and manager on the Board of Managers of
Scotia Pacific Company LLC ("Scopac LLC"), a wholly owned subsidiary of MAXXAM
engaged in forest product operations and successor by merger in July 1998 to
Scotia Pacific Holding Company, and as a director and Vice President of The
Pacific Lumber Company, the parent of Scopac LLC ("Pacific Lumber").
Harvey L. Perry. Mr. Perry, age 47, was elected to the position of Executive
Vice President of the Company and as Executive Vice President and President of
Global Commodity Products of KACC effective August 2001. Prior to joining the
Company, Mr. Perry held a number of operation management positions with Johns
Manville Corporation, a manufacturer of insulation and building products, where
he most recently served as Senior Vice President of the Engineered Products
Group from January 1996 through April 2001.
John Barneson. Mr. Barneson, age 51, was elected to the position of Senior Vice
President and Chief Administrative Officer of the Company and KACC effective
August 2001. He previously served as Vice President and Chief Administrative
Officer of the Company and KACC from December 1999 through August 2001. He
served as Engineered Products Vice President of Business Development and
Planning from September 1997 until December 1999. Mr. Barneson served as
Flat-Rolled Products Vice President of Business Development and Planning from
April 1996 until September 1997. Mr. Barneson has been an employee of KACC since
September 1975 and has held a number of staff and operation management positions
within the flat-rolled and engineered products business units.
Kris S. Vasan. Mr. Vasan, age 52, was elected to the position of Senior Vice
President, Strategic Risk Management of the Company and KACC effective August
2001. In March 2002, he also was appointed Senior Vice President of Strategic
Planning, Energy and Hedging of KACC's commodities business unit. Mr. Vasan
previously served as Vice President, Strategic Risk Management of KACC from June
2000 through August 2001 and of the Company from August 2000 through August
2001. He served as Vice President, Financial Risk Management of KACC from June
1995 through June 2000. Mr. Vasan served as Treasurer of the Company from April
1993 until August 1995 and as Treasurer of KACC from April 1993 until June 1995.
Prior to that, Mr. Vasan served the Company and KACC as Corporate Director of
Financial Planning and Analysis from June 1990 until April 1993. From October
1987 until June 1990, he served as Associate Director of Financial Planning and
Analysis.
James L. Chapman. Mr. Chapman, age 52, was elected to the position of Vice
President of Primary Aluminum Operations of KACC effective July 2000. He served
as special assistant to the Company's and KACC's Chief Executive Officer from
March 2000 through July 2000, served as Northwest Operations Manager from August
1999 through March 2000, and held plant manager positions at the Mead and Newark
plants of KACC from June 1996 through August 1999. Mr. Chapman has been an
employee of KACC for 27 years and has held various operation management
positions within flat-rolled products, engineered products and the commodity
business units.
Robert E. Cole. Mr. Cole, age 55, has been a Vice President of KACC since March
1981. From September 1990 through February 2002, Mr. Cole served as Vice
President--Federal Government Affairs of MAXXAM. From September 1990 until May
2000, Mr. Cole also served as a Vice President of Pacific Lumber. Mr. Cole
currently is a member of the United States Auto Parts Advisory Committee to the
United States Government and is Chairman of the Industry Sector Advisory
Committee on Non-ferrous Ores and Metals to the United States Department of
Commerce and the United States Trade Representative.
Edward F. Houff. Mr. Houff, age 55, was elected to the position of Vice
President and General Counsel of the Company and KACC effective April 2002. He
served as Acting General Counsel of the Company and KACC from February 2002
until April 2002 and Deputy General Counsel for Litigation of the Company and
KACC from October 2001 until February 2002. Mr. Houff was President and Managing
Shareholder of Church & Houff, P.A. in Baltimore, Maryland from April 1989
through September 2001.
Edward A. Kaplan. Mr. Kaplan, age 43, was elected to the position of Vice
President of Taxes of the Company and KACC effective March 2001. Mr. Kaplan
previously served as Director of Taxes of the Company and KACC from October 1999
through February 2001. From July 1997 to September 1999, he served as Director
of Tax Planning of the Company and KACC, and from January 1995 through June
1997, he served as Associate Director of Tax Planning of the Company and KACC.
W. Scott Lamb. Mr. Lamb, age 47, was elected Vice President, Investor Relations
and Corporate Communications of the Company effective September 1998, and of
KACC effective July 1998. Mr. Lamb previously served as Director of Investor
Relations and Corporate Communications of the Company and KACC from June 1997
through July 1998. From July 1995 through June 1997, he served as Director of
Investor Relations of the Company and KACC and from January 1995 through July
1995, he served as Director of Public Relations of the Company and KACC.
Daniel D. Maddox. Mr. Maddox, age 42, was elected to the position of Vice
President and Controller of the Company effective September 1998, and of KACC
effective July 1998. He served as Controller, Corporate Consolidation and
Reporting of the Company and KACC from October 1997 through September 1998 and
July 1998, respectively. Mr. Maddox previously served as Assistant Corporate
Controller of the Company from May 1997 to September 1997 and KACC from June
1997 to September 1997 and Director--External Reporting of KACC from June 1996
to May 1997. Mr. Maddox was with Arthur Andersen LLP from 1982 until joining
KACC in June 1996.
Daniel J. Rinkenberger. Mr. Rinkenberger, age 43, was elected to the position of
Vice President of Economic Analysis and Planning of the Company and KACC
effective February 2002. Mr. Rinkenberger previously served as Vice President,
Planning and Business Development of Kaiser Fabricated Products of KACC from
June 2000 through February 2002. Prior to that, he served as Vice President,
Finance and Business Planning of Kaiser Flat Rolled Products of KACC from
February 1998 to February 2000 and as Assistant Treasurer of the Company and
KACC from January 1995 through February 1998.
Kerry A. Shiba. Mr. Shiba, age 47, was elected to the position of Vice President
and Treasurer of the Company and KACC effective February 2002. Mr. Shiba
previously served as Vice President, Controller and Information Technology of
Kaiser Fabricated Products of KACC from January 2000 to February 2002, and as
Vice President and Controller of Kaiser Engineered Products of KACC from June
1998 through January 2000. Prior to joining the Company, Mr. Shiba was with the
BF Goodrich Company for 16 years, holding various financial positions.
Robert W. Warnock. Mr. Warnock, age 55, was elected to the position of Vice
President, Performance Measurement and Analysis of the Company and KACC
effective September 1999. In October 2001, he also was appointed Vice President
and Chief Administrative Officer of KACC's commodities business unit. He
previously served as Controller, Corporate Operations from October 1997, and
served as Controller of KACC's flat-rolled products business unit from 1993 to
1997. Mr. Warnock has been an employee of KACC since May 1969 and has held
numerous financial positions.
John Wm. Niemand II. Mr. Niemand, age 57, became Secretary of the Company in May
1997 and Secretary of KACC in June 1997. He served as an Assistant Secretary of
the Company and KACC from July 1988 until May 1997 and June 1997, respectively.
Mr. Niemand has served as Senior Assistant General Counsel of the Company and
KACC since February 2000. He previously served as Senior Corporate Counsel of
the Company and KACC from May 1992 through December 1995, and as Assistant
General Counsel of the Company and KACC from January 1996 through January 2000.
Robert J. Cruikshank. Mr. Cruikshank, age 71, has served as a director of the
Company and KACC since January 1994. In addition, Mr. Cruikshank has been a
director of MAXXAM since May 1993. Mr. Cruikshank was a Senior Partner in the
international public accounting firm of Deloitte & Touche from December 1989
until his retirement in March 1993. Mr. Cruikshank served on the board of
directors of Deloitte Haskins & Sells from 1981 to 1985 and as Managing
Partner of the Houston office from June 1974 until its merger with Touche Ross
& Co. in December 1989. Mr. Cruikshank also serves as a director of Reliant
Energy Incorporated (formerly Houston Industries Incorporated), a public utility
holding company with interests in electric and natural gas utilities, coal and
transportation businesses; a director of Texas Biotechnology Incorporated; a
trust manager of Weingarten Realty Investors; and as advisory director of
Compass Bank--Houston.
James T. Hackett. Mr. Hackett, age 48, has been a director of the Company since
May 2000 and of KACC since June 2000. Since January 2000, Mr. Hackett has been
Chairman, President and Chief Executive Officer of Ocean Energy, Inc., a company
engaged in oil and natural gas exploration and production worldwide. From 1990
through 1995, Mr. Hackett worked for NGC Corporation, now known as Dynegy, Inc.,
serving as Senior Vice President and President of the Trident Division in 1995.
From January 1996 until June 1997, Mr. Hackett served as Executive Vice
President of PanEnergy Corporation and was responsible for integrated
international energy development, domestic power operations, and various
corporate staff functions. PanEnergy Corporation merged with Duke Energy
Corporation in June 1997. From June 1997 until September 1998, Mr. Hackett
served as President - Energy Services Group of Duke Energy Corporation, and was
responsible for the non-regulated operations of Duke Energy, including energy
trading, risk management, and international midstream energy infrastructure
development and engineering services. From September 1998 through December 1998,
Mr. Hackett was Chief Executive Officer of Seagull Energy Corporation, a company
that was listed on the New York Stock Exchange, which was engaged primarily in
exploration and production of oil and natural gas. From January 1999 through
March 1999, Mr. Hackett assumed the additional title of Chairman of Seagull
Energy Corporation, and when Seagull Energy Corporation merged with Ocean
Energy, Inc. in March 1999, he was appointed President and Chief Executive
Officer of Ocean Energy, Inc. Mr. Hackett also serves as a director of Temple
Inland Inc., New Jersey Resources Corporation and Fluor Corporation.
George T. Haymaker, Jr. Mr. Haymaker, age 64, was named as non-executive
Chairman of the Board of the Company and KACC effective October 2001. Mr.
Haymaker previously served as Chairman of the Board of the Company and KACC from
January 1, 1994 (non-executive Chairman from January 1, 2000) through May 2001.
He served as Chief Executive Officer of the Company and KACC from January 1994
through December 1999, and served as President of the Company and KACC from May
1996 and June 1996, respectively, through July 1997. From May 1993 to December
1993, Mr. Haymaker served as President and Chief Operating Officer of the
Company and KACC. Mr. Haymaker became a director of the Company in May 1993, and
a director of KACC in June 1993. Mr. Haymaker also is a director of Flowserve
Corporation, a provider of valves, pumps and seals; a director of CII Carbon,
LLC., a producer of calcined coke; and non-executive Chairman of the Board of
Directors of Safelite Glass Corp., a provider of automotive replacement glass.
Since July 1987, Mr. Haymaker has been a director, and from February 1992
through March 1993 was President, of Midamerica Holdings (formerly Metalmark
Corporation), which is in the business of semi-fabrication of aluminum
extrusions.
Charles E. Hurwitz. Mr. Hurwitz, age 61, has served as a director of the Company
and KACC since October and November 1988, respectively. From December 1994 until
April 2002, he served as Vice Chairman of KACC. Mr. Hurwitz has also served as a
member of the Board of Directors and the Executive Committee of MAXXAM since
August 1978 and was elected Chairman of the Board and Chief Executive Officer of
MAXXAM in March 1980. From January 1993 to January 1998, he also served MAXXAM
as President. Mr. Hurwitz was Chairman of the Board and Chief Executive Officer
of Federated Development Company, a Texas corporation, from January 1974 until
its merger in February 2002 into Federated Development, LLC ("FDLLC"), a wholly
owned subsidiary of Giddeon Holdings, Inc. ("Giddeon Holdings"), at which time
Mr. Hurwitz became Chairman of the Board and Chief Executive Officer of FDLLC.
Mr. Hurwitz is the President and Director of Giddeon Holdings, a principal
stockholder of MAXXAM which is primarily engaged in the management of real
estate investments. Mr. Hurwitz has also been, since its formation in November
1996, Chairman of the Board, President and Chief Executive Officer of MGHI.
Ezra G. Levin. Mr. Levin, age 68, has been a director of the Company since July
1991. He has been a director of KACC since November 1988, and a director of
MAXXAM since May 1978. Mr. Levin also served as a director of the Company from
April 1988 to May 1990. Mr. Levin has served as a director of Pacific Lumber
since February 1993, and as a manager on the Board of Managers of Scopac LLC
since June 1998. Mr. Levin is a member of the law firm of Kramer Levin Naftalis
& Frankel LLP. He has held leadership roles in various legal and
philanthropic capacities and also has served as visiting professor at the
University of Wisconsin Law School and Columbia College.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of the copies of the Forms 3, 4 and 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year,
and written representations from reporting persons that no other Forms 5 were
required, the Company believes that all filing requirements were complied with
which were applicable to its officers, directors and greater than 10% beneficial
owners except as to Mr. Milchovich. In 1996, Mr. Milchovich inadvertently
omitted from this Report sincehis May 1996 Form 4 the sale of 5,000 shares of Company Common
Stock on May 6, 1996. Mr. Milchovich filed an amended Form 4 in 2001 reporting
the sale.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Although certain plans or programs in which executive officers of the Company
intendsparticipate are jointly sponsored by the Company and KACC, executive officers of
the Company generally are directly employed and compensated by KACC. The
following table sets forth compensation information, cash and non-cash, for each
of the Company's last three completed fiscal years with respect to fileeach person
who served as the Company's Chief Executive Officer during 2001 and the four
most highly compensated executive officers other than the Chief Executive
Officer for the year 2001 (collectively referred to as the "Named Executive
Officers").
ANNUAL COMPENSATION
--------------------------------------
(A) (B) (C) (D) (E)
OTHER
ANNUAL
COMPENSATION
NAME AND SALARY BONUS ($)(1)
PRINCIPAL POSITION YEAR ($) ($)
- -------------------------- ------ --------- -------------- -------------
Raymond J. Milchovich 2001 547,833 96,022(3) -
Former President and 2000 630,000 987,336 -
Chief Executive Officer 1999 518,502 174,144 -
(Chief Executive Officer
January 2000- October 2001)
Jack A. Hockema 2001 455,390 159,135 -
President and Chief 2000 315,000 250,000 -
Executive Officer 1999 265,000 212,085 -
(Chief Executive Officer
beginning October 2001)
J. Kent Friedman 2001 468,000 324,000 79,878(10)
Former Senior Vice President 2000 450,000 360,000 98,053(10)
and General Counsel(9) 1999 37,500 -0- -
John T. La Duc 2001 387,393 171,000 -
Executive Vice President and 2000 372,493 435,000 -
Chief Financial Officer 1999 358,167 171,928(14) -
Joseph A. Bonn 2001 322,350 126,464 -
Executive Vice President, 2000 296,250 290,716 -
Corporate Development 1999 259,585 78,721 -
James L. Chapman 2001 203,667 143,312 -
Vice President of Primary 2000 177,080 201,699 -
Aluminum Operations 1999 140,917 39,940 -
LONG-TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
----------------------- -----------
(A) (F) (G) (H) (I)
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/ LTIP ALL OTHER
NAME AND AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION ($) # ($)(2) ($)
- -------------------------- ------------ ---------- ----------- ---------------
Raymond J. Milchovich -0-(4) -0- 7,112 2,122,265(5)(6)
Former President and 117,525(7) 385,000 75,254 31,500(6)
Chief Executive Officer -0- 500,000 134,515 389,520(6)(8)
(Chief Executive Officer
January 2000-October 2001)
Jack A. Hockema 467,104(4) 375,770 887,600 22,770(6)
President and Chief -0- 28,184 235,600 15,750(6)
Executive Officer -0- -0- 165,270 13,250(6)
(Chief Executive Officer
beginning October 2001)
J. Kent Friedman -0-(4) 20,900(11) -0- 29,556(12)
Former Senior Vice President -0- 18,800(11) -0- 14,777(12)
and General Counsel(9) -0- 184,500(13) -0- 47(12)
John T. La Duc -0-(4) -0- 4,628 19,370(6)
Executive Vice President and -0- -0- 59,065 18,625(6)
Chief Financial Officer -0- -0- 120,990 17,908(6)
Joseph A. Bonn -0-(4) -0- 148,829 16,118(6)
Executive Vice President, -0- -0- 44,747 164,813(6)(8)
Corporate Development -0- 163,190 79,760 12,979(6)
James L. Chapman -0-(4) -0- 55,517 19,140(6)(8)
Vice President of Primary -0- -0- 38,623 45,797(6)(8)
Aluminum Operations -0- -0- 9,911 23,463(6)(8)(15)
- ------------------------------------
(1) Excludes perquisites and other personal benefits which in the aggregate
amount do not exceed the lesser of either $50,000 or 10% of the
total of annual salary and bonus reported for the Named Executive Officer.
(2) Amounts reflect the value of the actual payment received during the year
indicated in connection with awards made under the Company's long-term
incentive program for the rolling three-year performance periods
1995-1997, 1996-1998, 1997-1999 and 1998-2000. The awards for the periods
1995-1997, 1996-1998, and 1997-1999 generally were paid in two equal
installments, with the Securitiesfirst paid during the year following the end of the
three-year performance period and the second during the next following
year. Awards for the 1998-2000 performance period were either paid in cash
or by the grant of stock options. The cash awards were paid in 2001. For
the performance periods 1995-1997 and 1996-1998, the awards generally were
made 57% in shares of the Company's Common Stock (based on the average
closing price of the Company's Common Stock during the last December of
each such performance period) and 43% in cash. For the 1997-1999
performance period, awards generally were made entirely in shares of
Company Common Stock (based on the average closing price of the Company's
Common Stock during the last December of such performance period for
one-half of the award and on a target price of $15.00 per share for the
other half.) Pursuant to the terms of Mr. Hockema's previous employment
agreement, the full amount of his award for the 1997-1999 performance
period was paid in cash during 2000. The value of shares included in the
above table was determined for each payout by multiplying the number of
shares paid by the average of the high and low market price of a share of
Company Common Stock on the New York Stock Exchange Commission,on the date of such
payment.
(3) On each of February 21, 2001 and April 10, 2001, Mr. Milchovich was
awarded a stock bonus of 13,281 shares of Company Common Stock. The value
of such shares included in the above table was determined by multiplying
the number of shares by the closing price of a share of Company Common
Stock on the New York Stock Exchange on the respective award dates.
(4) The restricted shares issued to the Named Executive Officers in connection
with the exchange offer described under "Option/SAR Exercises and Fiscal
Year End Value Table" below are not included in the above table. Effective
June 28, 2001, Mr. Hockema was granted 53,552 restricted shares of Company
Common Stock as part of his annual long-term incentive. In connection with
Mr. Hockema's promotion to President and Chief Executive Officer, he was
granted an additional 146,448 shares of restricted Company Common Stock
effective as of October 31, 2001. The restrictions on 33 1/3% of the
53,552 shares lapsed and such shares vested on December 31, 2001. The
restrictions are scheduled to lapse as to an additional 33 1/3% of such
shares on each of December 31, 2002 and December 31, 2003. The
restrictions on 33 1/3% of the 146,448 shares are scheduled to lapse and
the shares vest on each of October 11, 2002, October 11, 2003 and October
11, 2004. Vesting is subject to Mr. Hockema being an employee of the
Company, KACC or an affiliate or subsidiary of the Company or KACC as of
the applicable vesting date. Vesting may be accelerated under certain
circumstances. Any dividends payable on the shares prior to the lapse of
the restrictions are payable to Mr. Hockema. The above table includes the
value of the restricted shares granted to Mr. Hockema in 2001 and was
determined for each such grant by multiplying the number of such shares in
such grant by the closing market price of a share of the Company's Common
Stock on the New York Stock Exchange on the effective date.
As of December 31, 2001, Messrs. Hockema, Friedman, La Duc, Bonn and
Chapman owned 182,149, 93,894, 34,511, 91,133, and 440 restricted shares
of Company Common Stock, respectively, valued at $295,081, $152,108,
$55,908, $147,635 and $713, respectively, based on the closing price on
the New York Stock Exchange of $1.62 per share. As of December 31, 2001,
Mr. Milchovich owned no restricted shares of Company Common Stock, all of
his restricted shares having been canceled prior to vesting upon his
retirement from the Company in October 2001, in accordance with the terms
of his Restricted Stock Agreements.
(5) Includes a $89,747 payment for accrued vacation through the date of
retirement; a $437,795 lump sum payment from the Kaiser Retirement Plan
(as defined below); and a $1,567,331 benefit payable in semi-annual
installments over a five-year period under the Kaiser Supplemental
Benefits Plan (as defined below).
(6) Includes accruals by KACC of $27,392, $31,500 and $25,925 for Mr.
Milchovich; $22,770, $15,750, and $13,250 for Mr. Hockema; $19,370,
$18,625, and $17,980 for Mr. La Duc; $16,118, $14,813, and $12,979 for Mr.
Bonn; and $10,183, $8,854 and $7,071 for Mr. Chapman under its
Supplemental Savings and Retirement Plan and Supplemental Benefits Plan
for 2001, 2000, and 1999, respectively.
(7) On August 15, 2000, Mr. Milchovich was granted 26,116 shares of restricted
Company Common Stock. The value of such shares included in the above table
was determined by multiplying the number of shares by the closing market
price of a share of the Company's Common Stock on the New York Stock
Exchange on the grant date. Upon Mr. Milchovich's retirement, the shares
were cancelled in accordance with the terms of his Restricted Stock
Agreement with respect to such shares.
(8) Includes moving-related items of $363,595 for Mr. Milchovich for 1999;
$150,000 for Mr. Bonn for 2000; and $8,957, $36,943 and $5,000 for Mr.
Chapman for years 2001, 2000 and 1999, respectively.
(9) Mr. Friedman was an executive officer of the Company from December 1999
through February 2002. During that period, he received his compensation
from MAXXAM and the Company reimbursed MAXXAM for certain allocable costs
associated with his performance of services for the Company. The table
reflects Mr. Friedman's total compensation for the years indicated. For
the years 2001 and 2000, 50% of the amounts in columns (c) and (d) and
approximately 50% of the amounts in columns (e) and (i) with respect to
Mr. Friedman were allocated to the Company.
(10) Includes in each of 2001 and 2000 annual forgiveness of $50,000 of the
outstanding principal balance of the loan made to Mr. Friedman pursuant to
the terms of his employment agreement with MAXXAM. Additional information
with respect to the loan is set forth below in the discussion of Mr.
Friedman's employment agreement under "Employment Contracts, Retention
Plan and Agreements and Termination of Employment and Change-in-Control
Arrangements."
(11) Represents options with tandem stock appreciation rights ("SARs") for
shares of MAXXAM common stock.
(12) Represents matching contributions by MAXXAM during 2001 and 2000 under its
401(k) savings plan of $6,800 and $6,800, respectively; and $22,756,
$7,977 and $47 accrued by MAXXAM for 2001, 2000 and 1999, respectively, in
respect of MAXXAM's Revised Capital Accumulation Plan of 1988, pursuant to
which, in general, benefits vest 10% annually and with respect to
contributions during 1998 or after, are payable upon the earlier of (a)
January 1, 1998 (with respect to participants who were also participants
under a former plan on December 31, 1987), or (b) termination of
employment with MAXXAM.
(13) Represents options for 167,000 shares of Company Common Stock and options
(with tandem SARs) for 17,500 shares of MAXXAM common stock.
(14) Includes $75,000 (paid over a three-year period) for 1999, which has been
reimbursed by MAXXAM.
(15) Includes pay in lieu of vacation of $10,892 and strike pay of $500.
OPTION/SAR GRANTS
The following table sets forth certain information concerning stock options or
SARs granted in fiscal year 2001 to any of the Named Executive Officers:
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------------------------- ---------------
(A) (B) (C) (D) (E) (F)
# OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTS 2001 ($/SHARE) DATE ($)
- -------------------------------------- ------------------ ---------------- --------------- ------------ ---------------
Jack A. Hockema 306,122(1)(2) 37.6 $ 3.10 10/11/11 $750,000(3)
Jack A. Hockema 69,648(1)(4) 8.5 $ 4.435 5/23/11 $237,500(5)
J. Kent Friedman 20,900(6)(7) 8.9(8) $ 17.95 12/12/11 $180,490(9)
- ------------------------------------
(1) Represents shares of Company Common Stock underlying stock options.
(2) The options generally vest at the rate of 33 1/3% per year, beginning on
October 11, 2002, with an additional 33 1/3% vesting each October 11
thereafter until fully vested. Vesting may be accelerated in certain
circumstances.
(3) Valuation utilizing the Black-Scholes option pricing method with the
following assumptions: 3-year weekly volatility for Company Common Stock,
4.54% risk-free rate (based on U.S. Treasury strip rate on the date of
grant with a term equal to that of the option), no dividend yield and
10-year exercise date. No adjustments were made for non-transferability or
risk of forfeiture.
(4) The options generally vest at the rate of 33 1/3% per year, beginning on
December 31, 2001, with an additional 33 1/3% vesting each December 31
thereafter until fully vested. Vesting may be accelerated in certain
circumstances.
(5) Valuation utilizing the Black-Scholes option pricing method with the
following assumptions: 3-year weekly volatility for Company Common Stock,
5.66% risk-free rate (based on U.S. Treasury strip rate on the date of
grant with a term equal to that of the option), no dividend yield and
10-year exercise date. No adjustments were made for non-transferability or
risk of forfeiture.
(6) Represents shares of MAXXAM common stock underlying stock options with
tandem SARs.
(7) The options generally vest at the rate of 20% per year, beginning on
December 12, 2002, with an additional 20% vesting each December 12
thereafter until fully vested.
(8) Represents the percentage of total options/SARs granted to employees of
MAXXAM.
(9) Valuation utilizing Black-Scholes option pricing method with the following
assumptions: 5-year daily volatility for MAXXAM common stock, 5.016%
risk-free rate (10-year Government Bond as of the grant date), no dividend
yield and 6.59-year exercise date. No adjustments were made for
non-transferability or risk of forfeiture.
The stock options with respect to the Company's Common Stock set forth in the
above table were granted under the Kaiser 1997 Omnibus Stock Incentive Plan (the
"1997 Omnibus Plan") and are exercisable for cash, Company Common Stock or a
combination thereof. The stock options with respect to the MAXXAM common stock
set forth in the above table were granted under the MAXXAM 1994 Omnibus Employee
Incentive Plan and are exercisable for cash, MAXXAM common stock or a
combination thereof, at MAXXAM's discretion.
OPTION/SAR EXERCISES AND FISCAL YEAR END VALUE TABLE
The table below provides information on an aggregated basis concerning each
exercise of stock options (or tandem SARs) and freestanding SARs during the
fiscal year ended December 31, 2001, by each of the Company's Named Executive
Officers, and the 2001 fiscal year-end value of unexercised options and SARs,
including SARs exercisable for cash only.
(A) (B) (C) (D) (E)
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT YEAR END (#) AT FISCAL YEAR-END ($)
----------------------------- -----------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- -------------- -------------- ------------- -------------- -------------- --------------
Jack A. Hockema -0- -0- 23,216(1) 380,738(1) --(2) --(2)
John T. La Duc -0- -0- 187,500(1) 46,875(1) --(2) --(2)
-0- -0- 4,000(3) -0- --(4) -0-
J. Kent Friedman -0- -0- 10,760(5) 46,440(5) --(4) --(4)
- ------------------------------------
(1) Represents stock options for shares of Company Common Stock.
(2) Valued at $1.62, the closing price on the New York Stock Exchange of the
Company's Common Stock on December 31, 2001, less the exercise price. No
value is shown because the exercise price is higher than such closing
price.
(3) Represents SARs relating to MAXXAM common stock. The SARs relating to
MAXXAM common stock set forth in the above table for Mr. La Duc were
granted under MAXXAM's 1984 Phantom Share Plan (the "MAXXAM Phantom
Plan"). All of Mr. La Duc's SARs under the MAXXAM Phantom Plan are
exercisable for cash only.
(4) Valued at $17.50 per share, the closing price on the American Stock
Exchange of MAXXAM common stock on December 31, 2001, less the exercise
price. No value is shown because the exercise price is higher than such
closing price.
(5) Represents stock options (with tandem SARs) for MAXXAM common stock.
In April 2001, the Company and Kaiser made an offer to current employees and
directors to exchange their outstanding options to acquire shares of the
Company's Common Stock for restricted shares of Company Common Stock (the
"Exchange Offer"). Pursuant to the Exchange Offer, Messrs. Milchovich, Friedman,
Bonn and Chapman exchanged all of their then outstanding options to acquire
Company Common Stock (i.e., 1,392,200, 167,000, 171,690 and 2,460 options,
respectively) for 447,940, 93,894, 91,133 and 440 restricted shares of Company
Common Stock, respectively, and Mr. La Duc exchanged approximately 51% of his
outstanding options to acquire Company Common Stock (i.e., 243,575 options) for
34,511 restricted shares of Company Common Stock. The restrictions on 33 1/3% of
the shares issued pursuant to the Exchange Offer generally lapsed and such
shares vested on March 5, 2002. The restrictions are generally scheduled to
lapse and the shares vest as to an additional 33 1/3% of such shares on each of
March 5, 2003 and March 5, 2004, subject to the grantee being an employee of the
Company, KACC or an affiliate or subsidiary of the Company or KACC on the
applicable vesting date. Vesting may be accelerated under certain circumstances.
Any dividends payable on the shares prior to the lapse of the restrictions are
payable to the grantee. As of December 31, 2001, Mr. Milchovich owned no
restricted shares of Company Common Stock, all of his restricted shares having
been canceled prior to vesting upon his retirement from the Company in October
2001, in accordance with the terms of his Restricted Stock Agreements. Prior to
March 5, 2002, Messrs. La Duc, Bonn and Chapman elected to cancel that portion
of their restricted shares issued pursuant to the Exchange Offer for which the
restrictions would have lifted on that date.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
Each of the Company's Named Executive Officers listed below received a
distribution in 2001 under the long-term component of the Company's incentive
compensation program for the 1997-1999 three-year, long-term performance period.
The following table and accompanying footnotes describe the distributions
received by each of such Named Executive Officers in 2001.
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE BASED PLANS (2)
-------------------------------------------------
(A) (B) (C) (D) (E) (F)
PERFORMANCE OR
OTHER PERIODS UNTIL
NUMBER OF MATURATION
NAME SHARES OR PAYOUT THRESHOLD TARGET MAXIMUM
- ------------------------------ ------------------- ------------------ -------------- --------------- --------------
Raymond J. Milchovich 1,812(1) -- -- -- --
John T. La Duc 1,179(1) -- -- -- --
Joseph A. Bonn 716(1) -- -- -- --
- ------------------------------------
(1) Represents the stock portion of the second installment of long-term
incentive award distributed in February 2001 in connection with the
1997-1999 three-year, long-term performance period. The average closing
price of the Company's Common Stock during December 1999 was $6.809 per
share. The total awards for the 1997-1999 long-term performance period for
Messrs. Milchovich, La Duc, and Bonn were $33,925, $22,081, and $13,395,
respectively.
(2) All payments in connection with the 1997-1999 three-year, long-term
performance period have been made.
The amount of the awards earned for a performance period for which awards are
included in the above table were dependent upon the level of satisfaction of
performance criteria established for that period. During the 1997-1999
performance period, target incentives were based upon earnings per share targets
established in 1997.
DEFINED BENEFIT PLANS
Kaiser Retirement Plan. KACC maintains a qualified, defined-benefit retirement
plan (the "Kaiser Retirement Plan") for salaried employees of KACC and
co-sponsoring subsidiaries who meet certain eligibility requirements. The table
below shows estimated annual retirement benefits payable under the terms of the
Kaiser Retirement Plan to participants with the indicated years of credited
service. These benefits are reflected without reduction for the limitations
imposed by the Internal Revenue Code of 1986, as amended (the "Tax Code") on
qualified plans and before adjustment for the Social Security offset, thereby
reflecting aggregate benefits to be received, subject to Social Security
offsets, under the Kaiser Retirement Plan and the Kaiser Supplemental Benefits
Plan (as defined below).
AVERAGE ANNUAL
REMUNERATION YEARS OF SERVICE
- ------------------ ------------------------------------------------------------------------------------
15 20 25 30 35
------------- --------------- ---------------- ---------------- ---------------
$ 250,000 $ 56,250 $ 75,000 $ 93,750 $ 112,500 $ 131,250
350,000 78,750 105,000 131,250 157,500 183,750
450,000 101,250 135,000 168,750 202,500 236,250
550,000 123,750 165,000 206,250 247,500 288,750
650,000 146,250 195,000 243,750 292,500 341,250
750,000 168,750 225,000 281,250 337,500 393,750
850,000 191,250 255,000 318,750 382,500 446,250
950,000 213,750 285,000 356,250 427,500 498,750
1,050,000 236,250 315,000 393,750 472,500 551,250
The estimated annual retirement benefits shown are based upon the assumptions
that current Kaiser Retirement Plan and Kaiser Supplemental Benefits Plan
provisions remain in effect, that the participant retires at age 65, and that
the retiree receives payments based on a straight-life annuity for his lifetime.
Messrs. Hockema, La Duc, Bonn and Chapman had 9.9, 32.3, 34.5 and 27.1 years of
credited service, respectively, on December 31, 2001. Monthly retirement
benefits, except for certain minimum benefits, are determined by multiplying
years of credited service (not in excess of 40) by the difference between 1.50%
of average monthly compensation for the highest base period (of 36, 48 or 60
consecutive months, depending upon compensation level) in the last 10 years of
employment and 1.25% of monthly primary Social Security benefits. Pension
compensation covered by the Kaiser Retirement Plan and the Kaiser Supplemental
Benefits Plan consists of salary and bonus amounts set forth in the Summary
Compensation Table (column (c) plus column (d) thereof).
Participants are entitled to retire and receive pension benefits, unreduced for
age, upon reaching age 62 or after 30 years of credited service. Full early
pension benefits (without adjustment for Social Security offset prior to age 62)
are payable to participants who are at least 55 years of age and have completed
10 or more years of pension service (or whose age and years of pension service
total 70) and who have been terminated by KACC or an affiliate for reasons of
job elimination or partial disability. Participants electing to retire prior to
age 62 who are at least 55 years of age and who have completed 10 or more years
of pension service (or whose age and years of pension service total at least 70)
may receive pension benefits, unreduced for age, payable at age 62 or reduced
benefits payable earlier. Participants who terminate their employment after five
years or more of pension service, or after age 55 but prior to age 62, are
entitled to pension benefits, unreduced for age, commencing at age 62 or, if
they have completed 10 or more years of pension service, actuarially reduced
benefits payable earlier. For participants with five or more years of pension
service or who have reached age 55 and who die, the Kaiser Retirement Plan
provides a pension to their eligible surviving spouses. Upon retirement,
participants may elect among several payment alternatives including, for most
types of retirement, a lump-sum payment.
In November 2001, Mr. Milchovich received, in connection with his retirement, a
lump sum payment of his benefits from the Kaiser Retirement Plan in the amount
of $437,795.
MAXXAM Pension Plan. All officers who are also employees and other regular
employees of MAXXAM automatically participate in MAXXAM's Pension Plan (the
"MAXXAM Pension Plan"), a noncontributory, defined benefit plan. Benefits equal
the sum of an employee's "past service benefit" and "future service benefit."
Benefits are based on (i) an employee's base salary, including overtime, but
excluding bonuses, commissions and incentive compensation and (ii) an employee's
age and the number of years of service with MAXXAM.
Under the MAXXAM Pension Plan, the annual past service benefit is the greatest
of:
(i) benefits accrued under the plan through December 31, 1986;
(ii) the product of (a) the sum of 0.8% of the participant's Past Service
Compensation Base (as defined), plus 0.8% of the participant's Past
Service Compensation Base in excess of $15,000 and (b) the
participant's credited years of service prior to January 1, 1987; or
(iii) the product of 1.2% of the participant's Past Service Compensation
Base and the participant's credited years of service prior to January
1, 1987.
For 1987 and 1988, the annual future service benefit equaled 1.6% of an
employee's compensation up to two-thirds of the Social Security wage base, plus
2.4% of any remaining compensation. Effective January 1, 1989, the annual future
service benefit equaled 1.75% of an employee's compensation for each year of
participation, plus 0.6% of the employee's compensation in excess of $10,000.
Effective January 1, 1995, the annual future service benefit equals 2.35% of an
employee's compensation for each year of participation.
The amount of an employee's aggregate plan compensation that may be included in
benefit computations under the MAXXAM Pension Plan is limited to $170,000 for
2001. Benefits are generally payable as a lifetime annuity or, with respect to
married employees, as a 50% joint and survivor annuity, or, if the employee
elects (with spousal consent), in certain alternative annuity forms. Benefits
under the MAXXAM Pension Plan are not subject to any deductions for Social
Security or other offsets. The covered compensation for 2001, credited years of
service as of December 31, 2001 for the MAXXAM Pension Plan, and estimated
annual benefit payable upon retirement at normal retirement age for Mr. Friedman
were $170,000, 2 years, and $42,156, respectively.
The projected benefit shown above was computed as a lifetime annuity amount,
payable beginning at age 65. The benefit amount reflects a covered compensation
limit of $200,000 for 2002 and subsequent years under Section 401(a)(17) of the
Tax Code. In addition, the amounts reflects a maximum benefit limit of $140,000
for 2002 and subsequent years (with early retirement reductions where
applicable) that is placed upon annual benefits that may be paid to a
participant in the MAXXAM Pension Plan at retirement under Section 415 of the
Tax Code. Combined plan limits applicable to employees participating in both
defined contribution and defined benefit plans have not been reflected.
Kaiser Supplemental Benefits Plan. KACC maintains an unfunded, non-qualified
Supplemental Benefits Plan (the "Kaiser Supplemental Benefits Plan"), the
purpose of which is to restore benefits which would otherwise be paid from the
Kaiser Retirement Plan or the Supplemental Savings and Retirement Plan, a
qualified Section 401(k) plan (the "Kaiser Savings Plan"), were it not for the
Section 401(a)(17) and Section 415 limitations imposed by the Tax Code.
Participation in the Kaiser Supplemental Benefits Plan includes all employees of
KACC and its subsidiaries whose benefits under the Kaiser Retirement Plan and
Kaiser Savings Plan are likely to be affected by such limitations imposed by the
Tax Code. Eligible participants are entitled to receive the equivalent of the
Kaiser Retirement Plan and Kaiser Savings Plan benefits which they may be
prevented from receiving under those plans because of such Tax Code limitations.
Upon Mr. Milchovich's retirement, he became entitled to a benefit of $1,567,331
under the Kaiser Supplemental Benefits Plan.
MAXXAM Supplemental Executive Retirement Plan. Effective March 8, 1991, MAXXAM
adopted an unfunded non-qualified Supplemental Executive Retirement Plan (the
"MAXXAM SERP"). The MAXXAM SERP provides that eligible participants are entitled
to receive benefits which would have been payable to such participants under the
MAXXAM Pension Plan except for the limitations imposed by the Tax Code.
Participants in the MAXXAM SERP are selected by MAXXAM's Board of Directors. Mr.
Friedman was entitled to receive benefits under the MAXXAM SERP during 2001.
The following projections for Mr. Friedman are based on the same assumptions as
utilized in connection with the MAXXAM Pension Plan projections above. The 2001
qualified plan pay limit ($200,000) and benefit limit ($140,000) are reflected
for all years in the future. In addition, no future increases in Mr. Friedman's
covered compensation amounts from the 2001 levels are assumed.
COVERED COMPENSATION FOR 2001:
Qualified Plan $ 170,000
Nonqualified Plan 298000
-----------------
Total $ 468,000
=================
CREDITED YEARS OF SERVICE AS OF DECEMBER 31, 2001 2
PROJECTED NORMAL RETIREMENT BENEFIT:
Qualified Plan $ 42,156
Nonqualified Plan 57,669
-----------------
Total $ 99,825
=================
Kaiser Termination Payment Policy. Most full-time salaried employees of KACC are
eligible for benefits under an unfunded termination policy if their employment
is involuntarily terminated, subject to a number of exclusions. The policy
provides for lump-sum payments after termination ranging from one-half month's
salary for less than one year of service graduating to eight months' salary for
30 or more years of service. The amounts payable to Messrs. Hockema, La Duc,
Bonn and Chapman under the policy if they had been involuntarily terminated on
December 31, 2001, would have been $152,083, $262,472, $218,400, and $121,338,
respectively.
MAXXAM Severance or Termination Policy. Severance or termination pay is
generally granted to regular full-time employees of MAXXAM who are involuntarily
terminated, subject to certain conditions and a number of exclusions, pursuant
to an unfunded policy. After such termination, the policy provides for payment
in an amount ranging from two weeks' salary for at least one year of service
graduating to a maximum of 104 weeks' salary. The amount payable under the
policy to Mr. Friedman if he had been involuntarily terminated on December 31,
2001 would have been $36,000.
MAXXAM Deferred Compensation Program. Certain executive officers of MAXXAM,
including Mr. Friedman, are eligible to participate in a deferred compensation
program. An eligible executive officer may defer up to 30% of gross salary and
up to 30% of any bonus otherwise payable to such executive officer for any
calendar year. The designated percentage of deferred compensation is credited to
a book account as of the date such compensation would have been paid and is
deemed "invested" in an account bearing interest calculated using one-twelfth of
the sum of the prime rate plus 2% on the first day of each month. Deferred
compensation, including all earnings credited to the book account, will be paid
in cash to the executive or beneficiary as soon as practicable following the
date the executive ceases for any reason to be an employee of MAXXAM, either in
a lump sum or in a specified number of annual installments, not to exceed ten,
at the executive's election.
DIRECTOR COMPENSATION
Each of the directors who is not an employee of the Company, KACC, or MAXXAM,
generally receives an annual base fee for services as a director, a portion of
which is paid in the form of an option to purchase shares of Company Common
Stock, as more fully described below. The base fee for the year 2001 was
$50,000, including $20,000 of value in Company stock options. For the period
prior to the 2001 Annual Meeting of Shareholders (the "2001 Annual Meeting"),
the stock options were granted in arrears. Beginning with the term commencing
immediately after the 2001 Annual Meeting, this practice was amended to provide
for the options to be granted prospectively at the commencement of each one year
term of service. Accordingly, during 2001, stock options were granted to
non-employee directors for the period June 2000 through May 2001 and June 2001
through May 2002. During 2001, in respect of base compensation, Messrs.
Cruikshank, Hackett, and Levin each received $81,909, of which $51,909 of value
was in the form of Company stock options. Mr. Haymaker's compensation, which was
covered for portions of the year by separate agreements with the Company, is
discussed below.
For the year 2001, non-employee directors of the Company and KACC who were
non-employee directors of MAXXAM, also received director or committee fees from
MAXXAM. In addition, the non-employee Chairman of each of the committees was
paid a fee of $3,000 per year for services as Chairman. All non-employee
directors also generally received a fee of $1,500 per day per Board meeting
attended in person, $1,500 per day per committee meeting held in person on a
date other than a Board meeting date, and $500 per formal telephonic meeting of
the Board or a committee. In respect of 2001, Messrs. Cruikshank, Hackett, and
Levin received an aggregate of $23,000, $13,398, and $16,000, respectively, in
such fees from the Company and KACC in the form of cash payments.
Non-employee directors are eligible to participate in the 1997 Omnibus Plan.
During 2001, non-employee directors participated in a program under the 1997
Omnibus Plan pursuant to which each non-employee director was entitled to
receive as part of his annual base fee options valued at $20,000 to purchase
Company Common Stock at a price equal to the average of the high and low market
price of Company Common Stock on the day of the grant, with the number of shares
covered by the options determined using the Black-Scholes option pricing method.
For the one-year period prior to the 2001 Annual Meeting, the annual grant of
stock options was made in arrears. Beginning with the term commencing
immediately after the 2001 Annual Meeting, the program was amended to provide
for the annual grant to be made prospectively at the commencement of each one
year term of service. Accordingly, during 2001, stock options were granted for
the periods June 2000 through May 2001 and June 2001 through May 2002. On May
23, 2001, in respect of services for the period from June 2000 through May 2001,
Messrs. Cruikshank, Levin, and Hackett each received options under the program
to purchase 5,866 shares of Company Common Stock at an exercise price of $4.435
per share. In general, such stock options will become exercisable on May 23,
2002. On June 25, 2001, in respect of services for the period from June 2001
through May 2002, Messrs. Cruikshank, Levin and Hackett each received options
under the program to purchase 7,143 shares of Company Common Stock at an
exercise price of $3.625 per share. In general, such stock options will become
exercisable on May 23, 2002.
Directors are reimbursed for travel and other disbursements relating to Board
and committee meetings, and non-employee directors are provided travel accident
insurance in respect of Company-related business travel. Subject to the approval
of the Chairman of the Board, directors also generally may be paid additional ad
hoc fees for extraordinary services in the amount of $750 per one-half day or
$1,500 per day.
Effective January 2002, the Boards of Directors of the Company and KACC approved
a supplemental compensation arrangement with Mr. Levin for certain advisory
services to be provided to the President and the Boards of the Company and KACC.
Such supplemental compensation will be paid at Mr. Levin's usual hourly rate as
a member of Kramer Levin Naftalis & Frankel LLP, and will be in addition to
amounts otherwise payable to Mr. Levin as a member of the Executive Committees
of the Boards.
The Company and KACC have a deferred compensation program in which all
non-employee directors are eligible to participate. By executing a deferred fee
agreement, a non-employee director may defer all or part of the fees from the
Company and KACC for services in such capacity for any calendar year. The
deferred fees are credited to a book account and are deemed "invested," in 25%
increments, in two investment choices: in phantom shares of Company Common Stock
and/or in an account bearing interest calculated using one-twelfth of the sum of
the prime rate plus 2% on the first day of each month. If deferred, fees,
including all earnings credited to the book account, are paid in cash to the
director or beneficiary as soon as practicable following the date the director
ceases for any reason to be a member of the Board, either in a lump sum or in a
specified number of annual installments not to exceed ten, at the director's
election. With the exception of Mr. Haymaker, who deferred his fees in 2000 and
2001, no deferral elections have been made under this program. Mr. Haymaker
revoked his deferral election effective January 1, 2002, for services rendered
on or after that date.
Fees to directors who are also employees of KACC or MAXXAM are deemed to be
included in their salary. Directors of the Company were also directors of KACC
and received the foregoing compensation for acting in both capacities.
As of January 1, 2000, Mr. Haymaker, the Company and KACC entered into an
agreement concerning the terms upon which he served as a director and
non-executive Chairman of the Boards of the Company and KACC through KACC's 2001
Annual Meeting. Under the agreement, Mr. Haymaker provided consulting services
to the Company and KACC, in addition to acting as a director. The agreement
expired at the end of May 2001. For the period from January 1, 2001 through the
end of May 2001, Mr. Haymaker received base compensation under the agreement of
$104,167, inclusive of his base Director's fee and any Board committee fees
otherwise payable. Compensation under the agreement was paid in cash. As
permitted by the agreement, Mr. Haymaker elected to defer receipt of the
Director fee portion of the compensation in accordance with the deferred
compensation program discussed above.
For the period of June 2001 through October 11, 2001, Mr. Haymaker continued to
serve as a director of the Company and KACC and receive compensation under the
director compensation program discussed above. The cash portion of Mr.
Haymaker's base compensation for this period was $10,806. He also received as
the non-cash portion of his compensation options to purchase 7,143 share of
Company Common Stock, as discussed above with respect to the directors
generally. In addition, Mr. Haymaker received $4,340 in respect of chairman and
attendance fees. Receipt of the cash portion of these amounts was deferred in
accordance with the deferred compensation program discussed above.
On October 11, 2001, Mr. Haymaker, the Company and KACC entered into a new
agreement concerning the terms upon which he would serve as a director and
non-executive Chairman of the Boards of the Company and KACC through December
31, 2002. Under the agreement, Mr. Haymaker provides consulting services to the
Company and KACC, in addition to acting as a director. For the period of October
11, 2001 through December 31, 2001, Mr. Haymaker's base compensation under the
agreement was $88,025, inclusive of his base director's fee and any Board and
committee fees otherwise payable. Receipt of the base director's fee portion of
this amount was deferred in accordance with the deferred compensation program
discussed above. For the year 2002, Mr. Haymaker's base compensation under the
agreement will be $50,000 for services as a director, of which $30,000 will be
payable in cash, and $365,000 for services as non-executive Chairman of the
Boards of the Company and KACC, inclusive of any Board and committee fees
otherwise payable. The agreement also provides for an incentive payment of
$105,000 upon the achievement of certain goals.
EMPLOYMENT CONTRACTS, RETENTION PLAN AND AGREEMENTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Raymond J. Milchovich. Prior to his retirement in October 2001, Mr. Milchovich
was party to an employment agreement with KACC effective June 1, 1999. Pursuant
to the terms of the agreement, Mr. Milchovich was entitled to a base salary of
$692,000 for 2001. Through the date of his retirement, Mr. Milchovich had earned
$547,833 of this amount.
Mr. Milchovich's agreement provided for a target bonus equal to 80% of base
salary per year, payable based on the attainment by KACC of short-term bonus
plan objectives under KACC's executive bonus plan for such year, as agreed upon
annually consistent with KACC's business plan for the relevant year. Pursuant to
the terms of the plan, Mr. Milchovich forfeited any award under the plan for
2001, upon his retirement.
Under the terms of the agreement, Mr. Milchovich received in 1999 and 2000 stock
options to purchase 750,000 shares of the Company's Common Stock under the 1997
Omnibus Plan. Twenty percent (20%) of the options, or 150,000 shares, were
granted with an exercise price of $9.50 per share, forty percent (40%) of the
options, or 300,000 shares, were granted with an exercise price of $12.35 per
share, and forty percent (40%) of the options, or 300,000 shares, were granted
with an exercise price of $14.25 per share. The options were granted in lieu of
any payment of long-term incentive compensation under the executive bonus plan
for the five year period beginning January 1, 2000, although Mr. Milchovich
remained eligible for additional option grants at the discretion of the Section
162(m) Compensation Committee of the Board. The stock options granted to Mr.
Milchovich under the agreement were among those exchanged by him for restricted
shares of Company Common Stock in connection with the Exchange Offer. See
discussion under "Option/SAR Exercises and Fiscal Year End Value Table" for
additional information regarding the Exchange Offer.
Mr. Milchovich's agreement provided that upon the termination by KACC of his
employment for any reason other than termination for cause, his acceptance of
any offer of employment with an affiliate of KACC, or a voluntary termination by
Mr. Milchovich for other than good reason, then Mr. Milchovich would be entitled
to receive the following benefits: (A) an early retirement lump sum payment,
equal to the excess, if any, of the sum of (i) the lump sum benefit from the
Kaiser Retirement Plan that Mr. Milchovich would have been entitled to as of the
date of his actual termination based upon the terms of the Kaiser Retirement
Plan as in effect June 1, 1999, and as if he qualified for a full early
retirement pension, and (ii) the lump sum benefit from the Kaiser Supplemental
Benefits Plan based upon the terms of that Plan as in effect June 1, 1999, and
as if he qualified for a Kaiser Retirement Plan full early retirement pension,
over (iii) an amount equal to the lump sum actuarial equivalent of Mr.
Milchovich's actual benefit payable from the Kaiser Retirement Plan on account
of his actual termination, plus the actual benefit payable from the Kaiser
Supplemental Benefits Plan on account of his actual termination; (B) full health
benefits as if Mr. Milchovich had qualified for an early retirement pension; (C)
a lump sum equal to Mr. Milchovich's base salary as of the date of his
termination for a period equal to the greater of (x) the number of months
remaining in the employment period, or (y) two years, plus an amount equal to
Mr. Milchovich's target annual bonus for the year of termination; and (D) all
unvested stock options held by Mr. Milchovich on the date of such termination
that would have vested during his employment period would immediately vest and
become exercisable in full for the remaining portion of the applicable period.
The agreement further provided that in the event of a change in control, the
terms and conditions of Mr. Milchovich's agreement would continue in full force
and effect during the period that he would continue to provide services;
provided, in the event of a termination of his employment by KACC other than for
cause, or in the event Mr. Milchovich would terminate his employment for any
reason within twelve (12) months following a change in control, the foregoing
benefits would become due and payable.
Jack A. Hockema. Effective January 24, 2000, in connection with Mr. Hockema's
election as Executive Vice President, and President of Kaiser Fabricated
Products, the Section 162(m) Compensation Committee of the Board approved
compensation arrangements for Mr. Hockema for 2000 and 2001 comprised of three
components: base pay, short-term incentive and long-term incentive. The
long-term incentive covers the period 2000-2002 and has two components. The
first component has a target amount of $200,000, with any award under the first
component to be made based on that target amount and on the performance of the
engineered products business unit for the period 2000-2002. The second
component, which was valued at $135,000, was made in 2000 in the form of a grant
of a stock option to purchase 28,184 shares of the Company's Common Stock at
$6.0938 per share. The options generally vest at the rate of 33 1/3% per year,
beginning on February 3, 2001, with an additional 33 1/3% vesting each February
3 thereafter until fully vested, provided that if as of any such vesting date
the Company's Common Stock has not traded at $10.00 or more per share for at
least 20 consecutive trading days during the option period, the vesting date
will be the date such condition has been met or February 3, 2009, whichever is
earlier. Vesting may be accelerated in certain circumstances. Mr. Hockema also
will qualify for a cash bonus of $500,000 in the event of the sale of a
specified portion of the business units under his management on or before July
1, 2002. Payment of such a bonus would be made in three equal annual
installments, with the first payment occurring within 30 days of the closing of
such sale.
Effective October 9, 2001, in connection with Mr. Hockema's election as
President and Chief Executive Officer, Mr. Hockema and KACC entered into an
employment agreement for the period October 9, 2001 through December 31, 2002.
Under the terms of the agreement, Mr. Hockema's compensation will continue to be
composed of base pay, short-term incentive and long-term incentive. His base pay
for 2002 is $730,000. His short-term incentive target for 2002 is $500,000, with
payment to be from 50% to 300% of target based upon attainment of objectives
established by the Board of Directors.
Mr. Hockema's long-term incentive bonus for the term of the agreement was valued
at $1,500,000 and is composed one-half in the form of 241,936 restricted shares
of Company Common Stock and one-half in the form of options to purchase 306,122
shares of Company Common Stock at $3.10 per share. The restricted stock was
granted in two awards, one for 146,448 shares issued effective October 31, 2001,
and the second for 95,488 shares issued effective January 25, 2002. The options
were granted as of October 11, 2002. The restrictions on the shares will
generally lapse and the shares vest at the rate of 33 1/3% per year, beginning
on October 11, 2002, with an additional 33 1/3% vesting on each October 11
thereafter until fully vested. The options also will generally vest at the rate
of 33 1/3% per year beginning on October 11, 2002, with an additional 33 1/3%
vesting on each October 11 thereafter until fully vested. Vesting of the
restricted shares and the options may be accelerated under certain
circumstances.
John T. La Duc. Mr. La Duc and KACC entered into a five-year employment
agreement effective January 1, 1998. Pursuant to the terms of the agreement, Mr.
La Duc currently is entitled to an annual base salary of $393,700. The amount is
reviewed annually to evaluate Mr. La Duc's performance, and in any event will be
adjusted for inflation consistent with the general program of increases for
other executives and management employees. Mr. La Duc's agreement established an
annual target bonus of $200,000 (subject to adjustment for inflation) payable
upon KACC's achieving short-term objectives under its executive bonus plan which
are to be agreed upon annually and be otherwise consistent with KACC's business
plan.
Pursuant to the terms of the agreement, Mr. La Duc received in 1998 a grant
under the 1997 Omnibus Plan of options to purchase 468,750 shares of the
Company's Common Stock at an exercise price of $9.3125 per share. This grant was
intended to have a value at the date of grant equivalent to a value of five
times Mr. La Duc's annual long-term incentive target of $465,000 and to be in
lieu of any payment of long-term incentive compensation under KACC's executive
bonus plan for the five-year period beginning January 1, 1998, although Mr. La
Duc remains eligible for additional option grants. One-half of the options
granted to Mr. La Duc under the agreement were among those exchanged by him for
restricted shares of Company Common Stock in connection with the Exchange Offer.
See "Option/SAR Exercises and Fiscal Year End Value Table" for additional
information regarding the Exchange Offer.
Mr. La Duc's agreement provides that upon the termination of his employment for
any reason other than termination for cause, his acceptance of any offer of
employment with an affiliate of KACC, or a voluntary termination by Mr. La Duc
for other than good reason, or if Mr. La Duc's employment terminates by the
expiration of the employment period under the agreement without an offer for
continued employment by KACC for a position of responsibility comparable to that
held by Mr. La Duc at the beginning of the employment period and on
substantially the same or improved terms and conditions, then Mr. La Duc would
be entitled to receive the following benefits: (A) an early retirement lump sum
payment, equal to the excess, if any, of the sum of (i) the lump sum benefit
from the Kaiser Retirement Plan that Mr. La Duc would have been entitled to as
of the date of his actual termination based upon the terms of the Kaiser
Retirement Plan as in effect January 1, 1998, and as if he qualified for a full
early retirement pension, and (ii) the lump sum benefit from the Kaiser
Supplemental Benefits Plan based upon the terms of that Plan as in effect
January 1, 1998, and as if he qualified for a Kaiser Retirement Plan full early
retirement pension, over (iii) an amount equal to the lump sum actuarial
equivalent of Mr. La Duc's actual benefit payable from the Kaiser Retirement
Plan on account of his actual termination, plus the actual benefit payable from
the Kaiser Supplemental Benefits Plan on account of his actual termination; (B)
full health benefits as if Mr. La Duc had qualified for an early retirement
pension; (C) a lump sum equal to Mr. La Duc's base salary as of the date of his
termination for a period equal to the greater of (x) the number of months
remaining in the employment period, or (y) two years, plus an amount equal to
Mr. La Duc's target annual bonus for the year of termination (but no less than
$200,000); and (D) all unvested stock options held by Mr. La Duc on the date of
such termination that would have vested during his employment period would
immediately vest and become exercisable in full for the remaining portion of the
period of five years from the date of grant. In the event of a change in
control, the terms and conditions of Mr. La Duc's agreement would continue in
full force and effect during the period that he would continue to provide
services; provided, in the event of a termination of his employment by KACC
other than for cause, or in the event Mr. La Duc would terminate his employment
for any reason within twelve (12) months following a change in control, the
foregoing benefits would become due and payable.
J. Kent Friedman. Mr. Friedman and MAXXAM entered into a five-year employment
agreement effective December 1, 1999. Pursuant to the terms of the agreement,
Mr. Friedman currently is entitled to a base salary of $450,000 per year. This
amount is reviewed in accordance with MAXXAM's generally applicable practices;
however, MAXXAM has no obligation under such agreement to increase Mr.
Friedman's base salary. Mr. Friedman's employment agreement also provides that
he receive an annual bonus of not less than $150,000 for each calendar year he
is employed by MAXXAM. Pursuant to the terms of the agreement, Mr. Friedman
received in 1999 a grant under the MAXXAM Omnibus Plan of non-qualified stock
options, with such options having tandem stock appreciation rights, with respect
to 17,500 shares of MAXXAM's common stock, at an exercise price of $45.50 per
share, and a grant under the 1997 Omnibus Plan of options to purchase 167,000
shares of the Company's Common Stock at an exercise price of $9.00 per share.
All options granted pursuant to the terms of Mr. Friedman's agreement generally
vest at the rate of 20% per year, beginning on December 1, 2000, with an
additional 20% vesting each December 1 thereafter until fully vested. The stock
options granted to Mr. Friedman under the agreement to purchase Company Common
Stock were exchanged by him for restricted shares of Company Common Stock in
connection with the Exchange Offer. See "Option/SAR Exercises and Fiscal Year
End Value Table" for additional information regarding the Exchange Offer.
Pursuant to the terms of Mr. Friedman's agreement, Mr. Friedman received a
$250,000 interest-free loan from MAXXAM. Further, contingent upon Mr. Friedman's
continued employment with MAXXAM, beginning on December 1, 2000 and continuing
annually thereafter, $50,000 of the principal of the loan shall be forgiven by
MAXXAM until the principal of the loan has been reduced to zero. Pursuant to the
terms of the agreement, Mr. Friedman also is entitled to participate in all
employee benefit plans and programs which are available to MAXXAM's senior
executive employees. Mr. Friedman's agreement provides that upon the termination
of his employment (either voluntarily by Mr. Friedman or for cause), Mr.
Friedman is entitled to (i) pro rata base salary through the date of such
termination and (ii) any compensation and benefits otherwise due to him pursuant
to the terms of MAXXAM's employee benefit plans. In addition, in the event of
Mr. Friedman's termination under the circumstances described above, any
outstanding principal on the loan referred to above becomes repayable by him
upon such termination.
Kaiser Retention Plan and Agreements. Effective January 15, 2002, KACC adopted
the Kaiser Aluminum & Chemical Corporation Retention Plan (the "Retention
Plan") and in connection therewith entered into retention agreements with
certain key employees, including Messrs. Hockema, Friedman, La Duc, Bonn and
Chapman. Awards under the Retention Plan generally vest and become payable only
if the participant is employed by KACC on the vesting date for payment,
provided, however, that in the event of the death, disability, termination
without cause or resignation with good reason (as such terms are defined in the
plan) of a participant prior to vesting, the award will vest immediately and
generally be payable as soon as practicable.
The awards made in January 2002 contain a basic award, and for Messrs. La Duc
and Bonn an additional special award. Fifteen percent of the basic awards vested
and was paid in January 2002. If a participant's employment is terminated within
90 days following January 15, 2002 for any reason other than death, disability,
termination without cause or resignation for good reason, this payment must be
returned. No special awards have vested yet. The vesting date for the balance of
the basic awards and the special awards is to be determined by the Executive
Committee of the Board of KACC, but in no event is the vesting and payment date
to be later than 120March 31, 2003. Such payment of the basic award shall be
reduced by any short-term incentive and long-term incentive cash payments earned
by a participant during 2002. Upon their receipt of the special awards, Messrs.
La Duc and Bonn agree to waive any accrued benefit through March 31, 2003 under
the Kaiser Supplemental Benefits Plan. In connection with the establishment of
the Retention Plan, the Company and KACC created and funded an irrevocable
grantor trust for the purpose of paying the special awards to Messrs. La Duc and
Bonn when due.
The total amount of the basic awards granted to Messrs. Hockema, Friedman, La
Duc, Bonn and Chapman under the Retention Plan are $1,095,000, $361,530,
$590,553, $491,400 and $104,000, respectively. The amount of the special awards
to Messrs. La Duc and Bonn are $2,457,000 and $1,507,000, respectively.
Kaiser Enhanced Severance Protection and Change in Control Benefits Program. In
2000, KACC implemented the Enhanced Severance Protection and Change in Control
Benefits Program (the "Program") in order to provide selected executive
officers, including Messrs. Hockema, La Duc, Bonn and Chapman (and prior to his
retirement, Mr. Milchovich), and key employees of KACC (collectively,
"Participants") with appropriate protection in the event of job loss in
connection with a change in control, and for certain Participants, significant
restructuring or other circumstances. The Program replaced the Kaiser Severance
Protection and Change of Control Benefits Program, which expired at December 31,
2000.
The Program benefits consist of severance payments and benefits in the event of
termination. Under the Program, KACC has the sole discretion to determine which
persons will participate in the Program and the level of participation.
Participants are eligible for severance benefits in the event the Participant's
employment terminates or constructively terminates due to a change in control
during a period which commences ninety (90) days prior to the change in control
and ends on either the first, second or third anniversary of the change in
control, depending on the Participant's position. These benefits are not
available if (i) the Participant voluntarily resigns or retires, (ii) the
Participant is discharged for cause, (iii) the Participant's employment
terminates as the result of death or disability, or (iv) the Participant
declines to sign, or subsequently revokes, a designated form of release.
Certain Participants, including the above-mentioned Named Executive Officers,
also are eligible for severance benefits in the event that their employment is
terminated outside of the period described above as a result of the sale or
other disposition of one or more business units to which they provide services.
These Participants will not be entitled to severance payments under this
provision if any of (i) through (iv) above apply or if KACC offers them suitable
employment in a substantially similar capacity at their current level of base
pay and short-term incentive, regardless of whether they accept or reject such
offer.
Certain Participants, including the above-mentioned Named Executive Officers,
also are eligible for severance benefits if they are terminated other than at a
time or for a reason described above. No severance payments will be payable to a
Participant under this provision if any of (i) through (iv) above apply or if
KACC offers the Participant suitable employment and the Participant rejects such
offer.
Severance benefits generally payable under the Program consist of a lump sum
cash payment in an amount ranging from one to three times the sum of the
Participant's base pay and most recent short-term incentive target, plus a
pro-rated portion of the Participant's short- and long-term incentive target for
the year of termination. Participants also will be entitled to continued
medical, dental, life and accidental death and dismemberment benefits, and in
the case of certain Participants, perquisites, for designated periods after
termination. In certain circumstances, a Participant also may be entitled to a
payment in an amount sufficient, after the closepayment of taxes, to pay any excise
tax due by the Participant under Section 4999 of the Tax Code or any similar
state or local tax.
Severance payments payable to a Participant under the Program are in lieu of any
severance or other termination payments provided for under any other agreement
between the Participant and KACC (including the Kaiser Termination Payment
Policy described above), provided that if the terms of a written employment
agreement conflict with the Program, the provisions more favorable to the
Participant will prevail.
Except as otherwise noted, there are no employment contracts between the Company
or any of its subsidiaries and any of the Company's Named Executive Officers.
Similarly, except as otherwise noted, there are not any compensatory plans or
arrangements which include payments from the Company or any of its subsidiaries
to any of the Company's Named Executive Officers in the event of any such
officer's resignation, retirement or any other termination of employment with
the Company and its subsidiaries or from a change in control of the Company or a
change in the Named Executive Officer's responsibilities following a change in
control.
IMPLICATIONS OF REORGANIZATION PROCEEDINGS ON BENEFIT PLANS AND OTHER EMPLOYMENT
AND COMPENSATORY ARRANGEMENTS
As a result of the filing of the Cases, payments under the Kaiser Termination
Payment Policy in respect of periods prior to the Filing Date generally cannot
be made by KACC. In addition, payments under the Kaiser Supplemental Benefits
Plan may not be permitted. Any such payments that are not made under the Kaiser
Termination Payment Policy or the Kaiser Supplemental Benefits Plan will be
resolved as claims in the overall context of a plan of reorganization, which is
likely to take an extended period of time. Further, the value of distributions,
if any, in respect of such unpaid amounts could be substantially less than the
amounts claimed.
In addition, pursuant to the Code, as debtors-in-possession, the Company and
KACC may have the right, subject to Court approval, to assume or reject their
existing employment, termination and similar contracts noted above, including
the existing consulting agreement with Mr. Haymaker, the existing employment
agreements with Messrs. La Duc and Hockema and the retention agreements entered
into in connection with the Retention Plan. See "Business--Reorganization
Proceedings" for a discussion of assumption or rejection of executory contracts.
The Debtors are in the process of addressing employment and other compensatory
arrangements with key employees and have not yet taken action to assume or
reject any existing employment, termination or similar contract. The Debtors
intend to review their benefit plans generally during the course of the Cases,
and at this time it is unknown which of the benefit plans noted above will be
affected by this review.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Policy Committee or the Section 162(m)
Compensation Committee of the Board was, during the 2001 fiscal year, an officer
or employee of the Company or any of its subsidiaries, or was formerly an
officer of the Company or any of its subsidiaries or, other than Mr. Levin, had
any relationships requiring disclosure by the Company under Item 404 of
Regulation S-K. Mr. Levin served on the Company's Compensation Policy Committee
and Board of Directors during 2001 and is also a definitive proxy
statementmember of the law firm of
Kramer Levin Naftalis & Frankel LLP, which provided legal services to the
Company and its subsidiaries during 2001.
During the Company's 2001 fiscal year, no executive officer of the Company
served as (i) a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose executive
officers served on the Compensation Policy Committee or Section 162(m)
Compensation Committee of the Company, (ii) a director of another entity, one of
whose executive officers served on any of such committees, or (iii) a member of
the compensation committee (or other board committee performing equivalent
functions) of another entity, one of whose executive officers served as a
director of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF THE COMPANY
The following table sets forth, as of March 29, 2002, unless otherwise
indicated, the beneficial ownership of the Company's Common Stock by (i) those
persons known by the Company to own beneficially more than 5% of the shares of
the Company's Common Stock then outstanding, (ii) each of the directors of the
Company, (iii) each of the Named Executive Officers, and (iv) all directors and
executive officers of the Company and KACC as a group.
NAME OF
BENEFICIAL OWNER TITLE OF CLASS # OF SHARES(1) % OF CLASS
- ------------------------------------------------------ ----------------------- -------------------- ----------------
MAXXAM Inc. Common Stock 50,000,000(2) 62.0
Capital Group International, Inc. and Capital Common Stock 6,046,200(3) 7.5
Guardian Trust Company
Dimensional Fund Advisors Inc. Common Stock 5,569,615(4) 6.9
Wellington Management Company, LLP and Common Stock 6,048,434(5) 7.5
Vanguard Windsor Funds
Joseph A. Bonn Common Stock 121,909(6)(7) *
James L. Chapman Common Stock 24,769(7) *
Robert J. Cruikshank Common Stock 18,607(7)(8) *
J. Kent Friedman Common Stock 93,894(7) *
James T. Hackett Common Stock 14,344(7)(8) *
George T. Haymaker, Jr. Common Stock 186,466(7)(8) *
Jack A. Hockema Common Stock 318,704(7)(8) *
Charles E. Hurwitz Common Stock 34,981(7)(9) *
John T. La Duc Common Stock 346,322(7)(8) *
Ezra G. Levin Common Stock 16,607(7)(8) *
Raymond J. Milchovich Common Stock 88,683(10) *
All directors and executive officers of the Company Common Stock 1,600,828(6)(10)(11) 2.0
as a group (21 persons)
- ------------------------------------
* Less than 1%.
(1) Unless otherwise indicated, the beneficial owners have sole voting and
investment power with respect to the shares listed in the table. Also
includes options exercisable within 60 days of March 29, 2002, to acquire
such shares.
(2) Includes 27,938,250 shares beneficially owned by MGHI. As of March 29,
2002, 23,443,953 of such shares were pledged as security for $71.3 million
principal amount of 12% MGHI Senior Secured Notes due 2003. The address of
MAXXAM is 5847 San Felipe, Suite 2600, Houston, Texas 77057.
(3) Information is based solely on a Schedule 13G filed with the SEC dated
February 9, 2002, by Capital Group International, Inc. ("CGII"), a holding
company for a group of investment management companies, and Capital
Guardian Trust Company ("CGTC"), a bank, reporting their respective
ownership interests in the Company's shares at December 31, 2001. The
Schedule 13G indicates that CGII and CGTC have sole voting power as to
4,629,200 of such shares and sole dispositive power as to 6,046,200 of
such shares. CGII's and CGTC's address is 11100 Santa Monica Blvd., Los
Angeles, California 90025.
(4) Information is based solely on a Schedule 13G filed with the SEC dated
January 30, 2002, by Dimensional Fund Advisors Inc. ("DFA"), a registered
investment advisor, reporting its ownership interest in the Company's
shares at December 31, 2001. The Schedule 13G indicates that DFA has sole
voting and sole dispositive value as to all of such shares, that all such
shares are owned by advisory clients and that DFA disclaims beneficial
ownership to all such shares. DFA's address is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401.
(5) Information is based solely on the Schedules 13G filed with the SEC and
dated February 14, 2002 and February 12, 2002, respectively, by Wellington
Management Company, LLP ("Wellington"), a registered investment advisor,
and Vanguard Windsor Funds - Windsor Fund ("Vanguard"), a registered
investment company, reporting their respective ownership interests in the
Company's shares at December 31, 2001. The Schedule 13G filed by Vanguard
indicates that it has shared dispositive power and sole voting power with
respect to 6,048,434 of such shares. The Schedule 13G filed by Wellington
indicates that it has shared dispositive power and no voting power with
respect to all of such 6,048,434 shares. The Wellington Schedule 13G also
states that all of the shares reported by it are owned of record by other
persons or entities having the right to receive or the power to direct the
receipt of dividends from, or proceeds from the sale of such shares.
Vanguard's address is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.
Wellington's address is 75 State Street, Boston, Massachusetts 02109.
(6) Includes 60,438 shares of Company Common Stock held in trust with respect
to which Mr. Bonn possesses shared voting and investment power with his
spouse.
(7) Includes 60,755, 293, 3,598, 93,894, 1,335, 94,748, 277,637, 34,981,
23,007, and 3,598 restricted shares of Company Common Stock owned by
Messrs. Bonn, Chapman, Cruikshank, Friedman, Hackett, Haymaker, Hockema,
Hurwitz, La Duc and Levin, respectively.
(8) Includes 13,009, 13,009, 7,143, 23,216, 187,500 and 13,009 options
exercisable within 60 days of March 29, 2002 to acquire shares of Company
Common Stock, by Messrs. Cruikshank, Hackett, Haymaker, Hockema, La Duc
and Levin, respectively.
(9) Excludes shares owned by MAXXAM. Mr. Hurwitz may be deemed to hold
beneficial ownership in the Company as a result of his beneficial
ownership in MAXXAM.
(10) Includes 60,309 shares of Company Common Stock held in trust with respect
to which Mr. Milchovich possesses shared voting and investment power with
his spouse.
(11) Excludes shares beneficially owned by Messrs. Friedman and Milchovich,
each of whom were not executive officers of the Company or KACC as of
March 29, 2002. Includes options exercisable within 60 days of March 29,
2002, to acquire 306,943 shares of Company Common Stock. Also includes
2,539 shares of Company Common Stock held by a limited partnership with
respect to which an executive officer possesses shared voting and
investment power with his spouse.
OWNERSHIP OF MAXXAM
As of March 29, 2002, MAXXAM owned, directly and indirectly, approximately 62.0%
of the issued and outstanding Common Stock of the Company. The following table
sets forth, as of March 29, 2002, unless otherwise indicated, the beneficial
ownership of the common stock and Class A $.05 Non-Cumulative Participating
Convertible Preferred Stock ("MAXXAM Preferred Stock") of MAXXAM by the
directors of the Company, each of the Named Executive Officers, and by the
directors and the executive officers of the Company and KACC as a group:
NAME OF % % OF COMBINED
BENEFICIAL OWNER TITLE OF CLASS # OF SHARES(1) OF CLASS VOTING POWER (2)
- ------------------------------------------ -------------------- --------------------- ---------- -----------------
Charles E. Hurwitz Common Stock 2,989,944(3)(4) 44.9 73.8
Preferred Stock 752,441(4)(5)(6) 99.2
Robert J. Cruikshank Common Stock 4,200(7) * *
J. Kent Friedman Common Stock 10,760(8) * *
Ezra G. Levin Common Stock 4,200(7) * *
All directors and executive officers as a Common Stock 3,001,254(4)(9) 45.0 73.9
group (21 persons) Preferred Stock 752,441(4)(5)(6) 99.2
- ------------------------------------
* Less than 1%.
(1) Unless otherwise indicated, beneficial owners have sole voting and
investment power with respect to the shares listed in the table. Includes
the number of shares such persons would have received on March 29, 2002,
if any, for their exercisable SARs (excluding SARs payable in cash only)
exercisable within 60 days of such date if such rights had been paid
solely in shares of MAXXAM common stock. Also includes the number of
shares of MAXXAM common stock credited to such persons stock fund account
under MAXXAM's 401(k) savings plan.
(2) MAXXAM Preferred Stock is generally entitled to ten votes per share on
matters presented to a vote of MAXXAM's stockholders.
(3) Includes 1,669,451 shares of MAXXAM common stock owned by Gilda
Investments, LLC ("Gilda"), a wholly owned subsidiary of Giddeon Holdings,
as to which Mr. Hurwitz indirectly possesses voting and investment power.
Mr. Hurwitz serves as the sole director of Giddeon Holdings, and together
with members of his immediate family and trusts for the benefit thereof,
owns all of the voting shares of Giddeon Holdings. Also includes (a)
78,784 shares of MAXXAM common stock separately owned by Mr. Hurwitz's
spouse and as to which Mr. Hurwitz disclaims beneficial ownership, (b)
46,500 shares of MAXXAM common stock owned by the Hurwitz Investment
Partnership L.P., a limited partnership controlled by Mr. Hurwitz and his
spouse, 23,250 of which shares were separately owned by Mr. Hurwitz's
spouse prior to their transfer to such limited partnership and as to which
Mr. Hurwitz disclaims beneficial ownership, (c) 4,049 shares of MAXXAM
common stock owned by the 1992 Hurwitz Investment Partnership L.P., of
which 2,024 shares are owned by Mr. Hurwitz's spouse as separate property
and as to which Mr. Hurwitz disclaims beneficial ownership, (d) 1,001,391
shares of MAXXAM common stock held directly by Mr. Hurwitz, including
256,808 shares of MAXXAM common stock with respect to which Mr. Hurwitz
possesses sole voting power and which have certain transfer and other
restrictions that generally lapse in December 2014, (e) 60,000 shares of
MAXXAM common stock owned by Giddeon Portfolio, LLC, which is owned 79% by
Gilda and 21% by Mr. Hurwitz, and of which Gilda is the managing member
("Giddeon Portfolio"), (f) options to purchase 21,029 shares of MAXXAM
common stock held by Gilda, and (g) options held by Mr. Hurwitz to
purchase 108,740 shares of MAXXAM common stock exercisable within 60 days
of March 29, 2002.
(4) Gilda, Giddeon Holdings, Giddeon Portfolio, the Hurwitz Investment
Partnership L.P., the 1992 Hurwitz Investment Partnership L.P. and Mr.
Hurwitz may be deemed a "group" (the "Stockholder Group") within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as
amended. As of March 29, 2002, in the aggregate, the members of the
Stockholder Group owned 2,989,944 shares of MAXXAM common stock and
752,281 shares of MAXXAM Preferred Stock, aggregating approximately 73.8%
of the total voting power of MAXXAM. By reason of his relationship with
the members of the Stockholder Group, Mr. Hurwitz may be deemed to possess
shared voting and investment power with respect to the shares held by the
Stockholder Group. The address of Gilda is 5847 San Felipe, Suite 2600,
Houston, Texas 77057. The address of the Stockholder Group is c/o Timothy
J. Neumann, Esq., Giddeon Holdings, Inc., 5847 San Felipe, Suite 2600,
Houston, Texas 77057.
(5) Includes 661,377 shares of MAXXAM Preferred Stock owned by Gilda as to
which Mr. Hurwitz possesses voting and investment power and 1,064 shares
of MAXXAM Preferred Stock held directly.
(6) Includes options exercisable within 60 days of March 29, 2002, to acquire
90,000 shares of MAXXAM Preferred Stock. (7) Includes options exercisable
within 60 days of March 29, 2002, to acquire 3,200 shares of MAXXAM common
stock. (8) Represents options exercisable within 60 days of March 29, 2002
to acquire 10,760 shares of MAXXAM common stock. (9) Includes options
exercisable within 60 days of March 29, 2002, to acquire 136,929 shares of
MAXXAM common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from October 28, 1988 through June 30, 1993, the Company and
its domestic subsidiaries were included in the federal consolidated income tax
returns of MAXXAM. The tax allocation agreements of the Company and KACC with
MAXXAM terminated pursuant to Regulation 14Atheir terms, effective for taxable periods
beginning after June 30, 1993. Payments or refunds for periods prior to July 1,
1993 related to foreign jurisdictions could still be required pursuant to the
Company's and KACC's respective tax allocation agreements with MAXXAM. Any such
payments to MAXXAM by KACC would require approval by the DIP Facility lenders
and the Court. While the Company and KACC are severally liable for the MAXXAM
tax group's federal income tax liability for all of 1993 and applicable prior
periods pursuant to the tax allocation agreements, MAXXAM indemnifies the
Company and KACC to the extent the tax liability exceeds amounts payable by the
Company under such agreements. See the portion of Note 12 of Notes to
Consolidated Financial Statements entitled "Dispute with MAXXAM" for information
concerning the declaratory action filed by MAXXAM asking the Court to find that
MAXXAM has no further obligations under the agreements.
KACC and MAXXAM have an arrangement pursuant to which involvesthey reimburse each other
for certain allocable costs associated with the electionperformance of directors,services by their
respective employees. KACC paid a total of approximately $3.8 million to MAXXAM
pursuant to such arrangements and MAXXAM paid approximately $2.0 million to KACC
pursuant to such informationarrangements in 2001. Generally, KACC and MAXXAM endeavor to
minimize the need for reimbursement by ensuring that employees are employed by
the entity to which the majority of their services are rendered.
Mr. Levin, a director of the Company and KACC, is incorporated by reference
from such definitive proxy statement.a member of the law firm of
Kramer Levin Naftalis & Frankel LLP, which provides legal services to the
Company and its subsidiaries, including KACC.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
1. Financial Statements
--------------------
TheReport of Independent Public Accountants
Consolidated FinancialBalance Sheets
Statements of the Company,
theConsolidated Income (Loss)
Statements of Consolidated Stockholders' Equity and
Comprehensive Income (Loss)
Statements of Consolidated Cash Flows
Notes to Consolidated Financial Statements
theQuarterly Financial Data (Unaudited)
Five-Year Financial Data
2. Financial Statement Schedules
Report of Independent Public Accountants Quarterly
Financial Data, and Five-Year Financial Data are
included on pages 29 - 59 of the Annual Report.
2. Financial Statement Schedules Page
----------------------------------
Report of Independent Public Accountants 17
Schedule I - Condensed Balance Sheets - Parent Company,
Condensed Statements of Income - Parent Company,
Condensed Statements of Cash Flows - Parent Company, and
Notes to Condensed Financial Statements - Parent Company
18-21
All other schedules are inapplicable or the required
information is included in the Consolidated Financial
Statements or the Notes thereto.
3. Exhibits
--------
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 23)101), which
index is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
No Report on Form 8-K was filed by the Company during the last
quarter of the period covered by this Report.
(c) EXHIBITS
Reference is made to the Index of Exhibits immediately preceding
the exhibits hereto (beginning on page 23)101), which index is
incorporated herein by reference.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Kaiser Aluminum Corporation:
We have audited in accordance with auditing standards generally accepted auditing
standards,in the
United States, the financial statements included in Kaiser Aluminum Corporation
and Subsidiary Companies' annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated February 28, 1999.April 10,
2002. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I listed in the index at Item
14(a)2. above is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Schedule I has been prepared in accordance with generally accepted accounting
principles applicable to a going concern which contemplate among other things,
realization of assets and payment of liabilities in the normal course of
business As discussed in Note 1 to Schedule I, on February 12, 2002, the
Company, its wholly owned subsidiary, Kaiser Aluminum & Chemical Corporation
("KACC") and certain of KACC's subsidiaries filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. This action raises substantial
doubt about the Company's ability to continue as a going concern. Schedule I
does not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount and classification of
liabilities or the effects on existing stockholders' equity that may result from
any plans, arrangements or other actions arising from the aforementioned
proceedings, or the possible inability of the Company to continue in existence.
ARTHUR ANDERSEN LLP
Houston, Texas
February 28, 1999April 10, 2002
SCHEDULE I
CONDENSED BALANCE SHEETS - PARENT COMPANY
(In millions of dollars, except share amounts)
December 31,
------------------------------
1998 1997
-------------- --------------
ASSETS
Investment in KACC $ 1,913.3 $ 1,802.8
-------------- --------------
Total $ 1,913.3 $ 1,802.8
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ - $ 3.2
Intercompany note payable to KACC, including accrued interest 1,794.1 1,682.6
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares;
issued and outstanding 79,153,543 and 78,980,881 in 1998
and 1997 .8 .8
Additional capital 535.4 533.8
Accumulated deficit (417.0) (417.6)
-------------- --------------
Total stockholders' equity 119.2 117.0
-------------- --------------
Total $ 1,913.3 $ 1,802.8
============== ==============
December 31,
-------------------------
2001 2000
----------- ----------
ASSETS
Investment in KACC $ 1,734.0 $ 2,122.2
----------- ----------
Total $ 1,734.0 $ 2,122.2
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ - $ -
Intercompany note payable to KACC, including accrued interest 2,175.1 2,040.0
Stockholders' equity:
Common stock, par value $.01, authorized 125,000,000 shares; issued and
outstanding 80,698,066 and 79,599,557 shares .8 .8
Additional capital 539.1 537.5
Accumulated deficit (913.7) (454.3)
Accumulated other comprehensive income (loss) (67.3) (1.8)
----------- ----------
Total stockholders' equity (441.1) 82.2
----------- ----------
Total $ 1,734.0 $ 2,122.2
=========== ==========
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
CONDENSED STATEMENTS OF INCOME (LOSS) - PARENT COMPANY
(In millions of dollars)
December 31,
1998 1997 1996
-------------- -------------- --------------
Equity in income of KACC $ 112.5 $ 154.2 $ 108.7
Administrative and general expense (.4) (1.7) (2.2)
Interest expense (111.5) (104.5) (98.3)
-------------- -------------- --------------
Net income $ .6 $ 48.0 $ 8.2
============== ============== ==============
December 31,
-----------------------------------------
2001 2000 1999
--------- --------- ---------
Equity in (loss) income of KACC $ (324.0) $ 144.3 $ 65.1
Administrative and general expense (.3) (.4) (.3)
Interest expense on intercompany note (135.1) (127.1) (118.9)
--------- --------- ---------
Net income (loss) $ (459.4) $ 16.8 $ (54.1)
========= ========= =========
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
CONDENSED STATEMENTS OF CASH FLOWS - PARENT COMPANY
(In millions of dollars)
December 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
Cash flows from operating activities:
Net income $ .6 $ 48.0 $ 8.2
Adjustments to reconcile net income to net cash used
for operating activities:
Equity in income of KACC (112.5) (154.2) (108.7)
Accrued interest on intercompany note
payable to KACC 111.5 104.5 98.3
Accrued taxes paid (3.3) (1.8) (2.7)
-------------- -------------- --------------
Net cash used for operating activities (3.7) (3.5) (4.9)
-------------- -------------- --------------
Cash flows from investing activities:
Investment in KACC (.1) (.3) (.1)
-------------- -------------- --------------
Net cash used for investing activities (.1) (.3) (.1)
-------------- -------------- --------------
Cash flows from financing activities:
Dividends paid - (4.2) (10.5)
Capital stock issued .1 .4 .1
Payments from KACC on intercompany note receivable - 4.2 10.5
Tax allocation payments from KACC 3.3 1.8 2.7
Operating cost advances from KACC .4 1.6 2.0
-------------- -------------- --------------
Net cash provided by financing
activities 3.8 3.8 4.8
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents
during the year - - (.2)
Cash and cash equivalents at beginning of year - - .2
-------------- -------------- --------------December 31,
------------------------------------------
2001 2000 1999
----------- ----------- ----------
Cash flows from operating activities:
Net income (loss) $ (459.4) $ 16.8 $ (54.1)
Adjustments to reconcile net income to net cash used for
operating activities:
Equity in loss (income) of KACC 324.0 (144.3) (65.1)
Accrued interest on intercompany note payable to KACC 135.1 127.1 118.9
----------- ----------- ----------
Net cash used by operating activities (.3) (.4) (.3)
----------- ----------- ----------
Cash flows from investing activities:
Investment in KACC - - (.1)
----------- ----------- ----------
Net cash used by investing activities - - (.1)
----------- ----------- ----------
Cash flows from financing activities:
Capital stock issued - .1
Operating cost advances from KACC .3 .4 .3
----------- ----------- ----------
Net cash provided by financing activities .3 .4 .4
----------- ----------- ----------
Net (decrease) increase in cash and cash equivalents during the year - - -
Cash and cash equivalents at beginning of year - - -
----------- ----------- ----------
Cash and cash equivalents at end of year $ - $ - $ -
============== ============== ==============
Supplemental disclosure of non-cash investing activities:
Non-cash (decrease) increase in investment in KACC $ (1.7) $ 4.4 $ -
$ - $ -
=========== =========== ==========
Supplemental disclosure of non-cash investing activities:
Non-cash (decrease) increase in investment in KACC $ - $ - $ (.1)
The accompanying notes to condensed financial statements are an
integral part of these statements.
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY
1. REORGANIZATION PROCEEDINGS
On February 12, 2002, the Company, KACC and 13 of KACC's wholly owned
subsidiaries filed separate voluntary petitions in the United States Bankruptcy
Court for the District of Delaware for reorganization under Chapter 11 of the
United States Federal Bankruptcy Code. On March 15, 2002, two additional
subsidiaries of KACC filed petitions. The Company, KACC and the 15 subsidiaries
of KACC are collectively referred to herein as the "Debtors" and the Chapter 11
proceedings of these entities are collectively referred to herein as the
"Cases." For purposes of these financial statements, the term "Filing Date"
shall mean, with respect to any particular Debtor, the date on which such Debtor
filed its Case. None of KACC's non-U.S. affiliates were included in the Cases.
The Cases are being jointly administered with the Debtors managing their
businesses in the ordinary course as debtors-in-possession subject to the
control and supervision of the Court.
The necessity for filing the Cases was attributable to the liquidity and cash
flow problems of the Company arising in late 2001 and early 2002. The Company
was facing significant near-term debt maturities at a time of unusually weak
aluminum industry business conditions, depressed aluminum prices and a broad
economic slowdown that was further exacerbated by the events of September 11. In
addition, the Company had become increasingly burdened by the asbestos
litigation and growing legacy obligations for retiree medical and pension costs.
The confluence of these factors has created the prospect of continuing operating
losses and negative cash flow, resulting in lower credit ratings and an
inability to access the capital markets.
The Company's and KACC's objective is to achieve the highest possible recoveries
for all creditors and stockholders, consistent with the Debtors' abilities to
pay and the continuation of their businesses. However, there can be no assurance
that the Debtors will be able to attain these objectives or achieve a successful
reorganization. Further, there can be no assurance that the liabilities of the
Debtors will not be found in the Cases to exceed the fair value of their assets.
This could result in claims being paid at less than 100% of their face value and
the equity of the Company's stockholders being diluted or cancelled.
For additional information on the reorganization proceedings, see Note 1 of
Kaiser's Consolidated Financial Statements.
2. BASIS OF PRESENTATION
Kaiser Aluminum Corporation (the " Company")The Company is a holding company and conducts its operations through its wholly
owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"),KACC, which is reported herein using the equity method of
accounting. The accompanying parent company condensed financial statements of
the Company should be read in conjunction with the 1998 consolidated financial statements
of Kaiser Aluminum Corporation and Subsidiary Companies
("Kaiser").
Certain reclassifications of prior-year information were
made to conform to the current presentation.
2.Kaiser's 2001 Consolidated
Financial Statements.
3. INTERCOMPANY NOTE PAYABLE
The Intercompany Note to KACC, as amended, provides for a fixed interest rate of
6-5/6 5/8%. No interest or and matures on December 21, 2020. Interest and principal payments are due until December 31, 2000, after which
interest and principal will be
payable over a 15-year term pursuant to a predetermined schedule.
3.schedule starting
December 21, 2006.
4. RESTRICTED NET ASSETS
ThePrior to the Filing Date, the investment in KACC iswas substantially unavailable
to the Company pursuant to the terms of certain debt instruments. TheSubsequent to
the Filing Date, the obligations of KACC in respect of the credit facilities
under the Credit AgreementDIP Facility are guaranteed by the Company and substantially by allcertain significant
subsidiaries of KACC. See Note 58 of Notes to Kaiser's Consolidated Financial
Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KAISER ALUMINUM CORPORATION
Date: March 30, 1999 By George T. Haymaker, Jr.
George T. Haymaker, Jr.
Chairman of the BoardApril 11, 2002 By: /S/ Jack A. Hockema
Jack A. Hockema
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 30, 1999 George T. Haymaker, Jr.
George T. Haymaker, Jr.
Chairman of the Board
andApril 11, 2002 /S/ Jack A. Hockema
Jack A. Hockema
President, Chief Executive Officer and
Director
(Principal Executive Officer)
Date: March 30, 1999April 11, 2002 /S/ John T. La Duc
John T. La Duc
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 30, 1999April 11, 2002 /S/ Daniel D. Maddox
Daniel D. Maddox
Vice President and Controller
(Principal Accounting Officer)
Date: March 30, 1999April 11, 2002 /S/ George T. Haymaker, Jr.
George T. Haymaker, Jr.
Chairman of the Board and Director
Date: April 11, 2002 /S/ Robert J. Cruikshank
Robert J. Cruikshank
Director
Date: March 30, 1999April 11, 2002 /S/ James T. Hackett
James T. Hackett
Director
Date: April 11, 2002 /S/ Charles E. Hurwitz
Charles E. Hurwitz
Director
Date: March 30, 1999April 11, 2002 /S/ Ezra G. Levin
Ezra G. Levin
Director
Date: March 30, 1999 Robert Marcus
Robert Marcus
Director
Date: March 30, 1999 Robert J. Petris
Robert J. Petris
Director
INDEX OF EXHIBITS
Exhibit
Number Description
- ---------- ----------------------------------------------------------------
3.1 Restated Certificate of Incorporation of Kaiser Aluminum
Corporation (the "Company" or "KAC"("KAC"), dated February 21,199118, 2000 (incorporated by
reference to Exhibit 3.1 to Amendment No. 2 to the Registration StatementReport on Form S-1, dated June 11, 1991,10-K for the
period ended December 31, 1999, filed by KAC, RegistrationFile No. 33-37895)1-9447).
3.2 Certificate of Retirement of KAC, dated October 24, 1995
(incorporated by reference to Exhibit 3.2 to the Report on Form
10-K for the period ended December 31, 1995, filed by KAC, File
No. 1-9447).
3.3 Certificate of Retirement of Kaiser Aluminum
Corporation,KAC, dated February 12, 1998
(incorporated by reference to Exhibit 3.3 to the Report on FromForm
10-K for the period ended December 31, 1997, filed by KAC, File
No. 1-9447).
3.4 Certificate of Elimination of KAC, dated July 1, 1998
(incorporated by reference to Exhibit 3.4 to the Report on Form
10-Q for the quarterly period ended June 30, 1999, filed by KAC,
File No. 1-9447).
3.5 Certificate of Amendment of the Restated Certificate of
Incorporation of KAC, dated January 10, 2000 (incorporated by
reference to Exhibit 3.5 to the Report on Form 10-K for the
period ended December 31, 1999, filed by KAC, File No. 1-9447).
3.6 Amended and Restated By-Laws of Kaiser Aluminum
Corporation,KAC, dated October 1, 1997
(incorporated by reference to Exhibit 3.3 to the Report on Form
10-Q for the quarterly period ended September 30, 1997, filed by
KAC, File No. 1-9447).
4.1 Indenture, dated as of February 1, 1993, among Kaiser Aluminum
& Chemical Corporation ("KACC"), as Issuer, Kaiser Alumina
Australia Corporation, Alpart Jamaica Inc., and Kaiser Jamaica
Corporation, as Subsidiary Guarantors, and The First National
Bank of Boston, as Trustee, regarding KACC's 12-3/12 3/4% Senior
Subordinated Notes Due 2003 (incorporated by reference to
Exhibit 4.1 to Form 10-K for the period ended December 31, 1992,
filed by KACC, File No. 1-3605).
4.2 First Supplemental Indenture, dated as of May 1, 1993, to the
Indenture, dated as of February 1, 1993 (incorporated by
reference to Exhibit 4.2 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC, File No.
1-3605).
4.3 Second Supplemental Indenture, dated as of February 1, 1996, to
the Indenture, dated as of February 1, 1993 (incorporated by
reference to Exhibit 4.3 to the Report on Form 10-K for the
period ended December 31, 1995, filed by KAC, File No. 1-9447).
4.4 Third Supplemental Indenture, dated as of July 15, 1997, to the
Indenture, dated as of February 1, 1993 (incorporated by
reference to Exhibit 4.1 to the reportReport on Form 10-Q for the
quarterly period ended June 30, 1997, filed by KAC, File No.
1-9447).
4.5 Fourth Supplemental Indenture, dated as of March 31, 1999, to
the Indenture, dated as of February 1, 1993, (incorporated by
reference to Exhibit 4.1 to the Report on Form 10-Q for the
quarterly period ended March 31, 1999, filed by KAC, File No.
1-9447).
4.6 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 9-7/9 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).
4.64.7 First Supplemental Indenture, dated as of February 1, 1996, to
the Indenture, dated as of February 17, 1994 (incorporated by
reference to Exhibit 4.5 to the Report on Form 10-K for the
period ended December 31, 1995, filed by KAC, File No. 1-9447).
4.74.8 Second Supplemental Indenture, dated as of July 15, 1997, to the
Indenture, dated as of February 17, 1994 (incorporated by
reference to Exhibit 4.2 to the reportReport on Form 10-Q for the
quarterly period ended June 30, 1997, filed by KAC, File No.
1-9447).
4.84.9 Third Supplemental Indenture, dated as of March 31, 1999, to the
Indenture, dated as of February 17, 1994 (incorporated by
reference to Exhibit 4.2 to the Report on Form 10-Q for the
quarterly period ended March 31, 1999, filed by KAC, File No.
1-9447).
4.10 Indenture, dated as of October 23, 1996, among KACC, as Issuer,
Kaiser Alumina Australia Corporation, Alpart Jamaica Inc.,
Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser
Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser
Texas Micromill Holdings, LLC and Kaiser Texas Sierra
Micromills, LLC, as Subsidiary Guarantors, and First Trust
National Association, as Trustee, regarding KACC's 10-7/10 7/8%
Series B Senior Notes Due 2006 (incorporated by reference to
Exhibit 4.2 to the Report on Form 10-Q for the quarterly period
ended September 30, 1996, filed by KAC, File No. 1-9447).
4.94.11 First Supplemental Indenture, dated as of July 15, 1997, to the
Indenture, dated as of October 23, 1996 (incorporated by
reference to Exhibit 4.3 to the Report on Form 10-Q for the
quarterly period ended June 30, 1997, filed by KAC, File No.
1-9447).
4.104.12 Second Supplemental Indenture, dated as of March 31, 1999, to
the Indenture, dated as of October 23, 1996 (incorporated by
reference to Exhibit 4.3 to the Report on Form 10-Q for the
quarterly period ended March 31, 1999, filed by KAC, File No.
1-9447).
4.13 Indenture, dated as of December 23, 1996, among KACC, as Issuer,
Kaiser Alumina Australia Corporation, Alpart Jamaica Inc.,
Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser
Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser
Texas Micromill Holdings, LLC, and Kaiser Texas Sierra
Micromills, LLC, as Subsidiary Guarantors, and First Trust
National Association, as Trustee, regarding KACC's 10 7/8%
Series D Senior Notes due 2006 (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-4, dated
January 2, 1997, filed by KACC, Registration No. 333-19143).
4.114.14 First Supplemental Indenture, dated as of July 15, 1997, to the
Indenture, dated as of December 23, 1996 (incorporated by
reference to Exhibit 4.4 to the Report on Form 10-Q for the
quarterly period ended June 30, 1997, filed by KAC, File No.
1-9447).
4.124.15 Second Supplemental Indenture, dated as of March 31, 1999, to
the Indenture, dated as of December 23, 1996 (incorporated by
reference to Exhibit 4.4 to the Report on Form 10-Q for the
quarterly period ended March 31, 1999, filed by KAC, File No.
1-9447).
4.16 Credit Agreement, dated as of February 15, 1994, among KAC,
KACC, the financial institutions a party thereto, and
BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.4 to the Report on Form 10-K for the
period ended December 31, 1993, filed by KAC, File No. 1-9447).
4.134.17 First Amendment to Credit Agreement, dated as of July 21, 1994,
amending the Credit Agreement, dated as of February 15, 1994,
among KAC, KACC, the financial institutions party thereto, and
BankAmerica Business Credit, Inc., as Agent (incorporated by
reference to Exhibit 4.1 to the Report on Form 10-Q for the
quarterly period ended June 30, 1994, filed by KAC, File No.
1-9447).
4.144.18 Second Amendment to Credit Agreement, dated as of March 10,
1995, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KAC, KACC, the financial institutions
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.6 to the Report on Form
10-K for the period ended December 31, 1994, filed by KAC, File
No. 1-9447).
4.154.19 Third Amendment to Credit Agreement, dated as of July 20, 1995,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KAC, KACC, the financial institutions a party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report on Form
10-Q for the quarterly period ended June 30, 1995, filed by KAC,
File No. 1-9447).
4.164.20 Fourth Amendment to Credit Agreement, dated as of October 17,
1995, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KAC, KACC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report on Form
10-Q for the quarterly period ended September 30, 1995, filed by
KAC, File No. 1-9447).
4.174.21 Fifth Amendment to Credit Agreement, dated as of December 11,
1995, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KAC, KACC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.11 to the Report on Form
10-K for the period ended December 31, 1995, filed by KAC, File
No. 1-9447).
4.184.22 Sixth Amendment to Credit Agreement, dated as of October 1,
1996, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KAC, KACC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.1 to the Report on Form
10-Q for the quarterly period ended September 30, 1996, filed by
KAC, File No. 1-9447).
4.194.23 Seventh Amendment to Credit Agreement, dated as of December 17,
1996, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KAC, KACC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.18 to the Registration
Statement on Form S-4, dated January 2, 1997, filed by KACC,
Registration No. 333-19143).
4.204.24 Eighth Amendment to Credit Agreement, dated as of February 24,
1997, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KACC, Kaiser,KAC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.16 to the Report on Form
10-K for the period ended December 31, 1996, filed by KAC, File
No. 1-9447).
4.214.25 Ninth Amendment to Credit Agreement, dated as of April 21, 1997,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, KAC, the financial institutions a party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.5 to the Report on FromForm
10-Q for the quarterly period ended June 30, 1997, filed by KAC,
File No. 1-9447).
4.224.26 Tenth amendmentAmendment to Credit Agreement, dated as of June 25, 1997,
amending the Credit Agreement, dated as of February 15, 1994, as
amended, among KACC, KAC, the financial institutions a party
thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.6 to the Report on Form
10-Q for the quarterly period ended June 30, 1997, filed by KAC,
File No. 1-9447).
4.234.27 Eleventh Amendment to Credit Agreement, dated as of October 20,
1997, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KACC, KAC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.7 to the Report on Form
10-Q for the quarterly period ended September 30, 1997, filed by
KAC, File No. 1-9447).
4.244.28 Twelfth Amendment to Credit Agreement, dated as of January 13,
1998, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KACC, KAC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.24 to the Report on Form
10-K for the period ended December 31, 1997, filed by KAC, File
No. 1-9447).
4.254.29 Thirteenth Amendment to Credit Agreement, dated as of July 20,
1998, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KACC, KAC, the financial institutions
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4 to the reportReport on Form
10-Q for the quarterly period ended June 30, 1998, filed by KAC,
File No. 1-9447).
*4.264.30 Fourteenth Amendment to Credit Agreement, dated as of December
11, 1998, amending the Credit Agreement, dated as of February
15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and BankAmerica Business Credit,
Inc., as Agent.
*4.27Agent (incorporated by reference to Exhibit 4.26 to the
Report on Form 10-K for the period ended December 31, 1998,
filed by KAC, File No. 1-9447).
4.31 Fifteenth Amendment to Credit Agreement, dated as of February
23, 1999, amending the Credit Agreement, dated as of February
15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and BankAmerica Business Credit,
Inc., as Agent.
*4.28Agent (incorporated by reference to Exhibit 4.27 to the
Report on Form 10-K for the period ended December 31, 1998,
filed by KAC, File No. 1-9447.)
4.32 Sixteenth Amendment to Credit Agreement, dated as of March 26,
1999, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KACC, KAC, the financial institutions
party thereto, and BankAmerica Business Credit, Inc., as Agent
(incorporated by reference to Exhibit 4.28 to the Report on Form
10-K for the period ended December 31, 1998, filed by KAC, File
No. 1-9447).
4.33 Seventeenth Amendment to Credit Agreement, dated as of September
24, 1999, amending the Credit Agreement, dated as of February
15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and Bank of America, N.A. (successor
to BankAmerica Business Credit, Inc.), as Agent (incorporated by
reference to Exhibit 4.1 to the Report on Form 10-Q for the
quarterly period ended September 30, 1999, filed by KAC, File
No. 1-9447).
4.34 Eighteenth Amendment to Credit Agreement, dated as of February
11, 2000, amending the Credit Agreement, dated as of February
15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and Bank of America, N.A. (successor
to BankAmerica Business Credit, Inc.), as Agent (incorporated by
reference to Exhibit 4.34 to the Report on Form 10-K for the
period ended December 31, 1999, filed by KAC, File No. 1-9447).
4.35 Nineteenth Amendment to Credit Agreement, dated as of December
27, 2000, amending the Credit Agreement, dated as of February
15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and Bank of America, N.A. (successor
to BankAmerica Business Credit, Inc.), as Agent (incorporated by
reference to Exhibit 4.35 to the Report on Form 10-K for the
period ended December 31, 2000, filed by KAC, File No. 1-9447).
4.36 Twentieth Amendment to Credit Agreement, dated as of January 26,
2001, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KACC, KAC, the financial institutions
party thereto, and Bank of America, N.A. (successor to
BankAmerica Business Credit, Inc.), as Agent (incorporated by
reference to Exhibit 4.36 to the Report on Form 10-K for the
period ended December 31, 2000, filed by KAC, File No. 1-9447).
4.37 Twenty-First Amendment to Credit Agreement and Consent, dated as
of July 18, 2001, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and Bank of America, N.A. (successor
to 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, 2001, filed by KAC, File No.
1-9447).
4.38 Twenty-Second Amendment to Credit Agreement, dated as of October
16, 2001, amending the Credit Agreement, dated as of February
15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and Bank of America, N.A. (successor
to BankAmerica Business Credit, Inc.), as Agent (incorporated by
reference to Exhibit 10.1 to the Report on Form 10-Q for the
quarterly period ended September 30, 2001, filed by KAC, File
No. 1-9447).
4.39 Twenty-Third Amendment to Credit Agreement, dated as of October
24, 2001, amending the Credit Agreement, dated as of February
15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and Bank of America, N.A. (successor
to BankAmerica Business Credit, Inc.), as Agent (incorporated by
reference to Exhibit 10.2 to the Report on Form 10-Q for the
quarterly period ended September 30, 2001, filed by KAC, File
No. 1-9447).
*4.40 Twenty-Fourth Amendment to Credit Agreement, dated as of
November 15, 2001, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KACC, KAC, the financial
institutions party thereto, and Bank of America, N.A. (successor
to BankAmerica Business Credit, Inc.), as Agent.
4.294.41 Limited Waiver Regarding Repayment of CARIFA Bonds, dated
February 17, 2000, among KAC, KACC, the financial institutions
party thereto and Bank of America, N.A., as Agent (incorporated
by reference to Exhibit 4.35 to the Report on Form 10-K for the
period ended December 31, 1999, filed by KAC, File No. 1-9447).
4.42 Agreement dated August 18, 2000, among KAC, KACC, the financial
institutions party to the Credit Agreement dated as of February
15, 1994, as amended, and Bank of America, N.A., as agent,
regarding the Sale of the Center for Technology (incorporated by
reference to Exhibit 4.1 to the Report on Form 10-Q for the
quarterly period ended September 30, 2000, filed by KAC, File
No. 1-9447).
*4.43 Waiver and Consent Agreement, dated as of January 29, 2002,
among KACC, KAC, the financial institutions party to the Credit
Agreement dated as of February 15, 1994, as amended, and Bank of
America, N.A., as Agent.
*4.44 Post-Petition Credit Agreement, dated as of February 12, 2002,
among KACC, KAC, certain financial institutions and Bank of
America, N.A., as Agent.
*4.45 First Amendment to Post-Petition Credit Agreement and
Post-Petition Pledge and Security Agreement and Consent of
Guarantors, dated as of March 21, 2002, amending the
Post-Petition Credit Agreement dated as of February 12, 2002,
among KACC, KAC, certain financial institutions and Bank of
America, N.A., as Agent, and amending a Post-Petition Pledge and
Security Agreement dated as of February 12, 2002, among KACC,
KAC, certain subsidiaries of KAC and KACC, and Bank of America,
N.A., as Agent.
*4.46 Second Amendment to Post-Petition Credit Agreement and Consent
of Guarantors, dated as of March 21, 2002, amending the
Post-Petition Credit Agreement dated as of February 12, 2002,
among KACC, KAC, certain financial institutions and Bank of
America, N.A., as Agent.
4.47 Intercompany Note between KAC and KACC (incorporated by
reference to Exhibit 10.10 to the Report on Form 10-K for the
period ended December 31, 1996, filed by MAXXAM Inc. ("MAXXAM"),
File No. 1-3924).
4.48 Confirmation of Amendment of Non-Negotiable Intercompany Note,
dated as of October 6, 1993, between KAC and KACC (incorporated
by reference to Exhibit 10.11 to the Report on Form 10-K for the
period ended December 31, 1996, filed by MAXXAM, Inc. ("MAXXAM"), File No.
1-3924).
4.30 Confirmation of4.49 Amendment ofto Non-Negotiable Intercompany Note, dated as of
October 6, 1993,December 11, 2000, between KAC and KACC (incorporated by
reference to Exhibit 10.124.41 to the Report on Form 10-K for the
period ended December 31, 1996,2000, filed by MAXXAM,KAC, File No. 1-3924)1-9447).
4.314.50 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).
4.324.51 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)1-9447).
KAC has not filed certain long-term debt instruments not being
registered with the Securities and Exchange Commission where the
total amount of indebtedness authorized under any such
instrument does not exceed 10% of the total assets of KAC and
its subsidiaries on a consolidated basis. KAC agrees and
undertakes to furnish a copy of any such instrument to the
Securities and Exchange Commission upon its request.
10.1 Form of indemnification agreement with officers and directors
(incorporated by reference to Exhibit (10)(b) to the
Registration Statement of KAC on Form S-4, File No. 33-12836).
10.2 Tax Allocation Agreement, dated as of December 21, 1989, between
MAXXAM and KACC (incorporated by reference to Exhibit 10.21 to
Amendment No. 6 to the Registration Statement on Form S-1, dated
December 14, 1989, filed by KACC, Registration No. 33-30645).
10.3 Amendment of Tax Allocation Agreement, dated as of March 12,
2001, between MAXXAM and KACC, amending the Tax Allocation
Agreement dated as of December 21, 1989 (incorporated by
reference to Exhibit 10.3 to the Report on Form 10-K for the
period ended December 31, 2000, filed by KAC, File No. 1-9447).
10.4 Tax Allocation Agreement, dated as of February 26, 1991, between
KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to
Amendment No. 2 to the Registration Statement on Form S-1, dated
June 11, 1991, filed by KAC, Registration No. 33-37895).
10.410.5 Tax Allocation Agreement, dated as of June 30, 1993, between
KACC and KAC (incorporated by reference to Exhibit 10.3 to the
Report on Form 10-Q for the quarterly period ended June 30,
1993, filed by KACC, File No. 1-3605).
Executive Compensation Plans and Arrangements
[Exhibits 10.510.6 - 10.23,10.40, inclusive]
10.5 KACC's Bonus Plan (incorporated by reference to Exhibit
10.25 to Amendment No. 6 to the Registration Statement
on Form S-1, dated December 14, 1989, filed by KACC,
Registration No. 33-30645).
10.6 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Report on Form 10-Q for the
quarterly period ended June 30, 1993, filed by KACC, File No.
1-3605).
10.7 Kaiser 1995 Employee Incentive Compensation Program
(incorporated by reference to Exhibit 10.1 to the
Report on Form 10-Q for the quarterly period ended
March 31, 1995, filed by KAC, File No. 1-9447).
10.8 Kaiser 1995 Executive Incentive Compensation Program
(incorporated by reference to Exhibit 99 to the Proxy
Statement, dated April 26, 1995, filed by KAC, File No.
1-9447).
10.9 Kaiser 1997 Omnibus Stock Incentive Plan (incorporated by
reference to Appendix A to the Proxy Statement, dated April 29,
1997, filed by KAC, File No. 1-9447).
10.10 Employment Agreement, dated April 1, 1993, among KAC,
KACC, and10.8 Time-Based Stock Option Grant pursuant to the Kaiser 1997
Omnibus Stock Incentive Plan to George T. Haymaker, Jr.,
effective January 1, 1998 (incorporated by reference to Exhibit
10.210.18 to the Report on Form 10-Q10-K for the quarterly period ended MarchDecember
31, 1993,1998, filed by KAC, File No. 1-9447).
10.11 First Amendment to Employment10.9 Agreement by and between
KACC, KAC andamong George T. Haymaker, Jr. (incorporated by
reference to Exhibit 10 to the Report on Form 10-Q for
the quarterly period ended June 30, 1996, filed by, KAC File No. 1-9447).
10.12 Second Amendment to Employment Agreement, dated as of
December 10, 1997, by and between KAC, KACC and George
T. Haymaker, Jr.amending
Time-Based Stock Option Grant (incorporated by reference to
Exhibit 10.12 to the Report on Form 10-K for the period ended
December 31, 1997,2000, filed by KAC, File No. 1-9447).
10.1310.10 Performance-Accelerated Stock Option Grant pursuant to the
Kaiser 1997 Omnibus Stock Incentive Plan to George T. Haymaker,
Jr., effective January 1, 1998 (incorporated by reference to
Exhibit 10.19 to the Report on Form 10-K for the period ended
December 31, 1998, filed by KAC, File No. 1-9447).
10.11 Agreement among George T. Haymaker, Jr., KAC and KACC amending
Performance-Accelerated Stock Option Grant (incorporated by
reference to Exhibit 10.14 to the Report on Form 10-K for the
period ended December 31, 2000, filed by KAC, File No. 1-9447).
10.12 Letter Agreement, dated January 1995, between KAC and Charles E.
Hurwitz, granting Mr. Hurwitz stock options under the Kaiser
1993 Omnibus Stock Incentive Plan (incorporated by reference to
Exhibit 10.17 to the Report on Form 10-K for the period ended
December 31, 1994, filed by KAC, File No. 1-9447).
10.1410.13 Employment Agreement, dated as of June 1, 1999, between KACC and
Raymond J. Milchovich made effective for the period from January
1, 1998, to December 31, 2002 (incorporated by reference to Exhibit 10.310.1
to the Report on Form 10-Q for the quarterly period ended SeptemberJune
30, 1998,1999, filed by KAC, File No. 1-9447).
10.1510.14 Time-Based Stock Option Grant Pursuantpursuant to the Kaiser 1997
Omnibus Stock Incentive Plan to Raymond J. Milchovich, effective
July 2, 1998 (incorporated by reference to Exhibit 10.4 to the
Report on Form 10-Q for the quarterly period ended September 30,
1998, filed by KAC, File No. 1-9447).
10.15 Agreement among Raymond J. Milchovich, KAC and KACC amending
1998 Time-Based Stock Option Grant (incorporated by reference to
Exhibit 10.18 to the Report on Form 10-K for the period ended
December 31, 2000, filed by KAC, File No. 1-9447).
10.16 Time-Based Stock Option Grant pursuant to the Kaiser 1997
Omnibus Stock Incentive Plan to Raymond J. Milchovich
(incorporated by reference to Exhibit 10.4 to the Report on Form
10-Q for the period ended September 30, 2000, filed by KAC, File
No. 1-9447).
10.17 Agreement among Raymond J. Milchovich, KAC and KACC amending
1999 Time-Based Stock Option Grant (incorporated by reference to
Exhibit 10.20 to the Report on Form 10-K for the period ended
December 31, 2000, filed by KAC, File No. 1-9947).
10.18 Restricted Stock Agreement between Raymond J. Milchovich, KAC
and KACC pursuant to the Kaiser 1997 Omnibus Stock Incentive
Plan (incorporated by reference to Exhibit 10.2 to the Report on
Form 10-Q for the quarterly period ended September 30, 2000,
filed by KAC, File No. 1-9447).
10.19 Employment Agreement between KACC and John T. La Duc made
effective for the period from January 1, 1998, to December 31,
2002 (incorporated by reference to Exhibit 10.5 to the Report on
FromForm 10-Q for the quarterly period ended September 30, 1998,
filed by KAC, File No. 1-9447).
10.1710.20 Time-Based Stock Option Grant Pursuantpursuant to the Kaiser 1997
Omnibus Stock Incentive Plan to John T. La Duc, effective July
10, 1998 (incorporated by reference to Exhibit 10.6 to the
Report on Form 10-Q for the quarterly period ended September 30,
1998, filed by KAC, File No. 1-9447).
*10.1810.21 Time-Based Stock Option Grant Pursuantpursuant to the Kaiser 1997
Omnibus Stock Incentive Plan to George T.
Haymaker, Jr.,Joseph A. Bonn, effective
JanuarySeptember 9, 1999 (incorporated by reference to Exhibit 10.1 to
the Report on Form 10-Q for the period ended June 30, 2000,
filed by KAC, File No. 1-9447).
10.22 Executive Employment Agreement, effective December 1, 1998.
*10.19 Performance-Accelerated1999,
between MAXXAM and J. Kent Friedman (incorporated by reference
to Exhibit 10.52 to the Report on Form 10-K for the period ended
December 31, 1999, filed by MAXXAM, File No. 1-3924).
10.23 Time-Based Stock Option Grant Pursuantpursuant to the Kaiser 1997
Omnibus Stock Incentive Plan to J. Kent Friedman, effective
December 1, 1999 (incorporated by reference to Exhibit 10.2 to
the Report on Form 10-Q for the quarterly period ended June 30,
2000, filed by KAC, File No. 1-9447).
*10.24 Chief Executive Officer Agreement made and entered into as of
October 11, 2001, by and between KACC and Jack A. Hockema.
*10.25 Non-Executive Chairman of the Boards Agreement, dated October
11, 2001, among KAC, KACC and George T. Haymaker, Jr., effective January 1, 1998.
*10.20 Letter Agreement, dated July 27, 1998, between KACC and
John H. Walker.
*10.21
10.26 Description of compensation arrangements among KACC, KAC, and
Jack A. Hockema (incorporated by reference to Exhibit 10.27 to
the Report on Form 10-K for the period ended December 31, 1999,
filed by KAC, File No. 1-9447).
10.27 Stock Option Grant pursuant to the Kaiser Severance Protection and Change
of Control Benefits Program.
10.221997 Omnibus Stock
Incentive Plan to Jack A. Hockema (incorporated by reference to
Exhibit 10.1 to the Report on Form 10-Q for the quarterly period
ended September 30, 2000, filed by KAC, File No. 1-9447).
10.28 Form of letter agreement with persons granted stock options
under the Kaiser 1993 Omnibus Stock Incentive Plan to acquire
shares of KAC Common Stock (incorporated by reference to Exhibit
10.18 to the Report on Form 10-K for the period ended December
31, 1994, filed by KAC, File No. 1-9447).
10.2310.29 Form of Enhanced Severance Agreement between KACC and key
executive personnel (incorporated by reference to Exhibit 10.3
to the Report on Form 10-Q for the quarterly period ended
September 30, 2000, filed by KAC, File No. 1-9447).
10.30 Form of Non-Employee Director Stock Option Agreement pursuant to
the Kaiser 1997 Omnibus Stock Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Report on Form 10-Q for the
quarterly period ended June 30, 2000, filed by KAC, File No.
1-9447).
10.31 Form of Deferred Fee Agreement between KAC, KACC, and directors
of KAC and KACC (incorporated by reference to Exhibit 10 to the
Report on Form 10-Q for the quarterly period ended March 31,
1998, filed by KAC, File No. 1-
9447)1-9447).
*13 The portions10.32 Form of KAC's AnnualNon-Employee Director Stock Option Grant for options
issued commencing January 1, 2001 under the 1997 Kaiser Omnibus
Stock Incentive Plan (incorporated by reference to Exhibit 10.1
to the Report to shareholderson Form 10-Q for the yearquarterly period ended December 31, 1998, which are
incorporatedJune
30, 2001, filed by KAC, File No. 1-9447).
10.33 Form of Stock Option Grant for options issued commencing January
1, 2001 under the 1997 Kaiser Omnibus Stock Incentive Plan
(incorporated by reference into this Report.to Exhibit 10.2 to the Report on Form
10-Q for the quarterly period ended June 30, 2001, filed by KAC,
File No. 1-9447).
10.34 Form of Restricted Stock Agreement for restricted shares issued
commencing January 1, 2001 under the 1997 Kaiser Omnibus Stock
Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Report on Form 10-Q for the quarterly period ended June 30,
2001, filed by KAC, File No. 1-9447).
*10.35 The Kaiser Aluminum & Chemical Corporation Retention Plan,
dated January 15, 2002.
*10.36 Form of Retention Agreement for the Kaiser Aluminum &
Chemical Corporation Retention Plan.
*10.37 Retention Agreement for the Kaiser Aluminum & Chemical
Corporation Retention Plan, dated January 15, 2002, between KACC
and Joseph A. Bonn.
*10.38 Retention Agreement for the Kaiser Aluminum & Chemical
Corporation Retention Plan, dated January 15, 2002, between KACC
and John T. La Duc.
*21 Significant Subsidiaries of KAC.
*23.1 Consent of Independent Public Accountants.
*23.2 Consent of Wharton Levin Ehrmantraut Klein & Nash, P.A.
*23.3 Consent of Heller Ehrman White & McAuliffe.
*27 Financial Data Schedule.
------------------McAuliffe LLP.
*99.1 Confirmation of receipt of letter to the Company from Arthur
Andersen LLP required by the Securities and Exchange Commission.
- ----------------
* Filed herewith
Exhibit 21
SUBSIDIARIES
Listed below are the principal subsidiaries of Kaiser Aluminum
Corporation, the jurisdiction of their incorporation or
organization, and the names under which such subsidiaries do
business. Certain subsidiaries are omitted which, considered in
the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
Place of
Incorporation
Name or Organization
Alpart Jamaica Inc. Delaware
Alumina Partners of Jamaica (partnership) Delaware
Anglesey Aluminium Limited United Kingdom
Kaiser Alumina Australia Corporation Delaware
Kaiser Aluminium International, Inc. Delaware
Kaiser Aluminum & Chemical Corporation Delaware
Kaiser Aluminum & Chemical of Canada Limited Ontario
Kaiser Bauxite Company Nevada
Kaiser Bellwood Corporation Delaware
Kaiser Finance Corporation Delaware
Kaiser Jamaica Bauxite Company (partnership) Jamaica
Kaiser Jamaica Corporation Delaware
Queensland Alumina Limited Queensland
Volta Aluminium Company Limited Ghana
Principal CaliforniaArizona South Carolina
---------- --------------
Domestic Los Angeles (CityChandler Greenwood
of Commerce) Engineered Products
Operations Engineered Greenwood Products Engineered Products
and Oxnard Machine ShopCalifornia Tennessee
Administrative Laguna Niguel Jackson
Offices Administrative Offices Engineered Tennessee
Products ---------
Offices Pleasanton Jackson
(Partial List) R&D at the CenterLos Angeles (City of Commerce) Texas
Engineered Products for Technology, TexasHouston
Oxnard Corporate Headquarters
Engineered Products Sherman
San Ramon Engineered Products
Administrative -----
Offices Houston
Kaiser AluminumVirginia
Florida Richmond
Clearwater Engineered Products
Alumina Washington
Louisiana Corporation
--------- HeadquartersMead
Baton Rouge ShermanPrimary Aluminum,
Alumina Business Unit Offices Northwest Engineering Center
Gramercy Richland
Alumina Engineered Products
Unit Offices Virginia
Gramercy --------
Alumina Richmond
Michigan Engineered Products
-------- WashingtonTacoma
Detroit ----------
(Southfield) Mead
Automotive Primary Aluminum
Automotive Product Northwest Engineering
Development Trentwood
and Center
Sales Richland
Ohio Engineered Products
---- Tacoma
Canton* Primary Aluminum
Engineered Trentwood
Products Flat-Rolled Products
Cuyahoga Falls
(50%)*
Engineered
ProductsOhio
Newark
Engineered Products
Oklahoma
--------
Tulsa
Engineered Products
Pennsylvania
------------
Erie (50%)*
Engineered
Products
* In separate announcements in early 1999, the Company said it
had signed agreements to sell its interests in the assets located
at Canton, Cuyahoga Falls, and Erie.
------------------------------------------------------------------ --------------------------------------------------------------------------------
Principal Australia Jamaica
--------- -------
Worldwide Queensland Alumina Limited (20%) Alumina Partners of
Limited (28.3%) Jamaica (65%)
Operations Alumina Bauxite, Alumina
(Partial List) Canada Kaiser Jamaica Bauxite ------ Company (49%)
Kaiser Aluminum & Bauxite
Chemical of Bauxite
Canada Limited (100%) Wales, United Kingdom
Canada Limited ---------------------
(100%)Engineered Products Anglesey Aluminium Engineered Limited (49%)
ProductsGhana Primary Aluminum
Ghana
-----
Volta Aluminium Company Limited (90%)
Primary Aluminum