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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission file number 1-9447
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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94-3030279 |
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(State of Incorporation) |
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(I.R.S. Employer
Identification No.) |
27422 PORTOLA PARKWAY, SUITE 350,
FOOTHILL RANCH, CALIFORNIA 92610-2831
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(949) 614-1740
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing
requirements for the past
90 days. Yes þ No o
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. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes o No þ
As of June 30, 2004, there were 79,826,028 shares of
the Common Stock of the registrant outstanding. As of
June 30, 2004, the aggregate market value of the
registrant’s Common Stock held by non-affiliates, based
upon the average bid and asked price of the Common Stock as
reported by the OTC Bulletin Board maintained by the
National Association of Securities Dealers, Inc., for
June 30, 2004 (which was the last day of the
registrant’s most recently completed second fiscal quarter)
was $.9 million. However, the market value of the
registrant’s Common Stock may not be meaningful, because as
part of a plan of reorganization for the registrant, it is
likely that the equity interests of the Company’s existing
stockholders will be cancelled without consideration.
As of February 28, 2005 there were 79,680,645 shares
of Common Stock of the registrant outstanding.
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 132-137 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 exhibits and to
request copies of such exhibits:
Corporate Secretary
Kaiser Aluminum Corporation
27422 Portola Parkway, Suite 350
Foothill Ranch, California 92610-2831
(949) 614-1740
(i)
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
TABLE OF CONTENTS
(ii)
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
PART I
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 (including, but not limited to,
Item 1. “Business — Business
Operations” “— Competition”
“— 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. Certain
sections of this Report identify other factors that could cause
differences between such forward-looking statements and actual
results (for example, 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.
General
Kaiser Aluminum Corporation (“Kaiser” or the
“Company”) is a Delaware corporation organized in
1987. The Company operates primarily through its wholly owned
subsidiary, Kaiser Aluminum & Chemical Corporation
(“KACC”). The Company’s primary line of business
is the production of fabricated aluminum products. In addition,
the Company owns a 49% interest in an aluminum smelter in Wales,
UK. Kaiser and certain of its subsidiaries have filed separate
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”) and are currently managing their businesses as
“debtor in possession”. The Company, KACC and the KACC
subsidiaries 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” means, with respect to any particular
Debtor, the date on which such Debtor filed its Case.
When the restructuring process began, Kaiser was an integrated
producer in the aluminum industry with operations that included
the production and sale of bauxite, alumina, and primary
aluminum (the “commodities interests”) and the
production of fabricated aluminum products. However, the
Company’s strategic reviews indicated that its commodities
interests were typically higher cost, required significant
capital investment, and exposed the Company to significant
volatility and cash consumption during weak pricing
environments. As a result, Kaiser implemented a strategy of
focusing on its fabricated products operations and divesting its
commodities interests. The Company has sold most of its
commodity interests and anticipates completing one additional
sale (i.e. the sale of a 20% interest in an Australian
alumina refinery) in April 2005.
Business Operations
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Fabricated Products Business Unit |
Overview. Kaiser’s Fabricated products business unit
produces rolled, extruded, drawn, and forged aluminum products
used principally for aerospace and defense, automotive, consumer
durables, electrical, and machinery and equipment end-use
applications. Kaiser’s participation is focused generally
in specialty niches of these larger product categories. Over the
last three years, the Company’s eleven North American
fabricated products manufacturing facilities have produced and
shipped approximately 400 million pounds of fabricated
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aluminum products in each year. In general, products
manufactured are in one of four broad categories: general
engineering (“GE”), aerospace and high strength
(“Aero/HS”), automotive (“Auto”), and custom
industrial (“CI”).
A description of the manufacturing processes and category of
products at each of the 11 production facilities is shown
below:
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Manufacturing |
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Process |
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Types of Products |
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Chandler, Arizona
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Drawing |
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Aero/HS |
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Greenwood, South Carolina
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Forging |
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Auto |
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Jackson, Tennessee
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Extrusion/Drawing |
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Aero/HS, GE |
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London, Ontario
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Extrusion |
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Auto, CI |
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Los Angeles, California
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Extrusion |
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GE, CI |
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Newark, Ohio
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Extrusion/Rod Rolling |
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Aero/HS, GE, Conversion products(1) |
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Richland, Washington
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Extrusion |
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Aero/HS, GE |
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Richmond, Virginia
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Extrusion/Drawing |
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GE, Auto, CI |
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Sherman, Texas
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Extrusion |
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Auto, CI |
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Spokane, Washington
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Flat Rolling |
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Aero/HS, GE |
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Tulsa, Oklahoma
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Extrusion |
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GE |
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Conversion products can undergo one or two additional processing
steps before being identified to an end-use application. |
Further discussion is provided below in respect of major types
of products produced and the types of manufacturing processes
employed.
As can be seen in the table above, many of the facilities employ
the same basic manufacturing process and produce the same type
of products. Over the past several years, given the similar
economic and other characteristics at each location, Kaiser has
made a significant effort to more tightly integrate the
management of its Fabricated products business unit across
multiple manufacturing locations, product lines, and target
markets to maximize the efficiency of product flow to customers.
Purchasing is centralized for a substantial portion of the
Fabricated products business unit’s primary aluminum
requirements in order to try to maximize price, credit and other
benefits. Because many customers purchase a number of different
products that are produced at different plants, there has also
been substantial integration of the sales force and its
management. The Company believes that integration of its
operations will allow the Company to capture efficiencies while
allowing the plant locations to remain highly focused.
Industry sales margins for fabricated products fluctuate in
response to competitive and market dynamics. However, changes in
primary aluminum price typically are passed through to
customers, and, where fabricated product shipments are based on
firm prices (including the primary aluminum content), the
Company’s exposure to metal price fluctuations is mitigated
by employing appropriate hedging techniques. For internal
reporting purposes, whenever the Fabricated products business
unit enters into a firm price contract, it also enters into an
“internal hedge” with the Primary aluminum business
unit, so that all the metal price risk resides in the Primary
aluminum business unit. Results from internal hedging activities
between the two business units eliminates in consolidation.
In a majority of the cases, the operations purchase primary
aluminum ingot and recycled and scrap aluminum in varying
percentages depending on various market factors including price
and availability. Primary aluminum purchased for the Fabricated
products business unit is typically based on the Average Midwest
Transaction Price (“Midwest Price”), which typically
ranges between $.03 to $.075 per pound above the price
traded on the London Metal Exchange (“LME”) depending
on primary aluminum supply/demand dynamics in North America.
Recycled and scrap aluminum are typically purchased at a modest
discount to ingot prices but can require additional processing.
In addition to producing fabricated aluminum products for
2
sale to third parties, certain of the plants provide one another
with billet, log or other intermediate material in lieu of
purchasing such items from third party suppliers. For example, a
substantial majority of the product from the Richland,
Washington location is used as base input at the Chandler,
Arizona location; the Sherman plant is currently supplying
billet and logs to the Tulsa, Oklahoma facility; the Richmond,
Virginia plant typically receives some portion of its metal
supply from either (or both of) the London, Ontario or Newark,
Ohio facilities; and the Newark, Ohio facility also supplies
billet and log to the Jackson, Tennessee facility and extruded
forge stock to the Greenwood, South Carolina facility.
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Types of Products Produced |
General Engineering Products — General
engineering products have a wide range of uses and applications,
many of which involve further fabrication of these products for
numerous transportation and industrial end uses. Demand growth
and cyclicality tends to mirror broad economic patterns and
industrial activity in North America. A substantial majority of
the Company’s GE products are sold to large distributors in
North America, with orders often representing standard catalog
items shipped with a relatively short lead-time. Key competitive
dynamics reflect a variety of factors including product-line
breadth, product quality, delivery performance and customer
service, in addition to product price. The Company services this
market with a nationwide sales force focused on GE and Aero/HS
products.
Aerospace and High Strength Products — Aero/HS
products include aerospace, defense, and recreational products,
a majority of which are sold to distributors with the remainder
being sold directly to customers. Sales are made either under
contracts (with terms spanning from one year to several years)
or order-by-order basis. The Company serves this market with a
North American sales force focused on GE and Aero/HS products
and direct sales representatives in Western Europe. The key
demand drivers are commercial aircraft builds (which in turn are
often reflective of broad economic patterns) and defense
spending.
Automotive Extruded and Forged Products — The
Company supplies extruded, drawn, and forged aluminum products
for applications in the North American automotive industry.
Kaiser supplies a wide variety of products, including extruded
products for anti-lock braking systems, drawn tube for drive
shafts, and forgings for suspension control arms and drive train
yokes. For some products, Kaiser performs limited fabrication.
Customers primarily include tier-one suppliers to equipment
manufacturers. Sales contracts for these products are typically
medium to long-term in length. Almost all sales of automotive
extruded and forged products occur through direct channels. The
key demand drivers have been (a) North American light
vehicle builds and (b) increased use of aluminum in
vehicles as aluminum displaces steel parts to reduce vehicle
weight in response to ever-tightening governmental standards for
vehicle emissions.
Custom Industrial Products — The Company
manufactures custom products for many end uses, including
consumer durables, electrical, machinery and equipment, and
truck trailer applications. A significant portion of
Kaiser’s custom industrial product sales in recent years
has been for water heater anodes, truck trailers and
electrical/electronic heat exchangers. The Company typically
sells custom shapes directly to end-users under medium-term
contracts. The Company sells these products using a nationwide
direct sales force that works closely with the technical sales
organization in pre-sale efforts.
Concentrations — In 2004, the Fabricated
products business unit had approximately 500 customers. The
largest and top five customers for fabricated products accounted
for approximately 12% and 32%, respectively, of the business
unit’s third-party net sales in 2004. See Item 1.
“Business — Competition” in this
Report. Sales are made directly to end-use customers and
distributors by KACC sales personnel located in the United
States and Europe, and by independent sales agents in Asia,
Mexico and the Middle East.
GE and Aero/HS shipments in recent years have been approximately
50% and 20%, respectively, of total Fabricated products business
unit shipments with the remainder being relatively equally split
between Auto and CI. However, on a revenue basis, Aero/HS would
be approximately double its relative shipment percentage and CI
would be approximately half its relative shipment percentage,
reflecting the relative pricing of these types of products.
3
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Types of Manufacturing Processes Employed |
Flat Rolled Products — The traditional
manufacturing process for aluminum rolled products uses ingot as
the starter material. The ingot is processed through a series of
rolling operations, both hot and cold. Finishing steps may
include heat treatment, annealing, coating, stretching, leveling
or slitting to achieve the desired metallurgical, dimensional
and performance characteristics. Aluminum rolled products are
manufactured using a variety of alloy mixtures, a range of
tempers (hardness), gauges (thickness) and widths, and
various coatings and finishes. Rolled aluminum semi-finished
products are generally either sheet (under .25 inches in
thickness) or plate (up to 15 inches in thickness). The
vast majority of the North American market for aluminum rolled
products uses (a) “common alloy” material for
construction and other applications, and (b) beverage/food
can sheet. However, these are products and markets in which
Kaiser chooses not to participate. Rather, Kaiser has chosen to
focus its efforts on “heat treat” products. Heat treat
products are distinguished from common alloy products by higher
strength and other desired product attributes, which result in
higher value added in the market than for most other types of
rolled products. The size of this specialized market segment is
less than 10% of the total flat-rolled market. The primary end
use of heat treat rolled sheet and plate is for aerospace and GE
products.
Extruded Products — The extrusion process
typically starts with a cast billet, which is an aluminum
cylinder of varying length and diameter. The first step in the
process is to heat the billet to an elevated temperature whereby
the metal is malleable. The billet is put into an extrusion
press and pushed, or extruded, through a die that gives the
material the desired two-dimensional cross section. The material
is either quenched as it leaves the press, or subjected to a
post extrusion heat treatment cycle, to control the
material’s physical properties. The extrusion is then
straightened by stretching and cut to length before being
hardened in aging ovens. The largest end uses of extruded
products are in the construction, transportation (including
automotive), custom industrial, and general engineering
segments. Building products represents the largest end use
market for extrusions by a significant amount. However, Kaiser
has chosen to focus its efforts in the production of
transportation, general engineering and custom industrial
products.
Forged Products — Forging is a manufacturing
process in which metal is pressed, pounded or squeezed under
great pressure into high strength parts known as forgings,
creating unique property characteristics. Forged parts are heat
treated before final shipment to the customer. The end uses are
primarily in transportation, where high strength to weight
product qualities are valued. Kaiser’s participation is
highly focused on certain types of automotive applications.
All of the Company’s fixed assets utilized by the
Fabricated products business unit are owned directly by KACC
with two exceptions: (1) the London, Ontario facility is
owned by Kaiser Aluminum & Chemical of Canada Limited
(“KACOCL”), a wholly owned subsidiary, which was one
of KACC’s subsidiaries that filed a petition for
reorganization under the Code in January 2003, and (2) the
Richmond, Virginia facility, which is owned by Kaiser Bellwood
Corporation (“Bellwood”), a wholly owned subsidiary of
KACC, filed a petition for reorganization in February 2002. The
Company does not believe that KACOCL’s or Bellwood’s
operations have been adversely affected by the Cases.
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• Primary Aluminum Business Unit |
The Primary aluminum business unit, after excluding discontinued
operations, has been redefined by management as containing two
primary elements: (a) activities related to the
Company’s interests in and related to Anglesey Aluminium
Limited (“Anglesey”), and (b) primary aluminum
hedging-related activities.
Anglesey. KACC owns a 49% interest in Anglesey,
which owns an aluminum smelter at Holyhead, Wales. The smelter
has a total annual rated capacity of approximately
135,000 metric tons of which approximately
66,150 metric tons of the annual rated capacity are
available to the Company. The Anglesey smelter uses pre-bake
technology. KACC supplies 49% of Anglesey’s alumina
requirements and purchases 49% of Anglesey’s aluminum
output at market related prices. Anglesey produces billet,
rolling ingot and sow for the U.K. and European marketplace.
KACC sells its share of Anglesey’s output to third parties.
4
The price received for sales of production from Anglesey
typically approximate the LME price. KACC also realizes a
premium (historically between $.05 and $.12 per pound above
LME price depending on the product) for sales of value
added products such as billet and rolling ingot. Anglesey
operates under a power agreement that provides sufficient power
to sustain its operations at full capacity through September
2009. Rio Tinto Plc owns the remaining
51% ownership interest in Anglesey. As majority
shareholder, Rio Tinto has day-to-day operating responsibility
for Anglesey, although certain decisions require unanimous
approval of the shareholders.
Anglesey did not file a petition for reorganization. KACC does
not believe Anglesey’s operations have been adversely
affected as a result of the Cases as the Debtors received the
authority from the Court to fund the Debtors’ cash
requirements in respect of Anglesey in the ordinary course of
business.
Hedging. KACC’s share of primary aluminum production
from Anglesey is approximately 150,000,000 pounds annually.
Because KACC purchases alumina for Anglesey at prices linked to
primary aluminum prices, only a portion of the Company’s
net revenues associated with Anglesey are exposed to price risk.
The Company estimates the net portion of its share of Anglesey
production exposed to primary aluminum price risk to be
approximately 100,000,000 pounds annually.
As stated above, the Company’s pricing of fabricated
aluminum products is generally intended to lock-in a conversion
margin (representing the value added from the fabrication
process(es)) and to pass metal price risk on to its customers.
However, in certain instances the Company does enter into firm
price arrangements. In such instances, the Company does have
price risk on its anticipated primary aluminum purchase in
respect of the customer’s order. Total fabricated products
shipments during 2002, 2003, and 2004 and the shipments for
which the Company had price risk were (in millions of pounds)
99.0, 97.6, and 119.0, respectively.
During the last three years the volume of fabricated products
shipments with underlying primary aluminum price risk, were
roughly the same as the Company’s net exposure to primary
aluminum price risk at Anglesey. As such, the Company considers
its access to Anglesey production overall to be a
“natural” hedge against any fabricated products firm
metal-price risk. For internal reporting purposes, whenever the
Fabricated products business unit enters into a firm price
contract, the Primary aluminum business unit and Fabricated
products business unit segments enter into an “internal
hedge” so that all the metal price risk resides in the
Primary aluminum business unit. Results from internal hedging
activities between the two segments eliminates in consolidation.
However, since the volume of fabricated products shipped under
firm prices may not match up on a month-to-month basis with
expected Anglesey-related primary aluminum shipments, the
Company may use third party hedging instruments to eliminate any
net remaining primary aluminum price exposure existing at any
time.
Primary aluminum-related hedging activities have been 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. Hedging activities are conducted in
compliance with a policy approved by the Company’s board of
directors, and hedging transactions are only entered into after
appropriate approvals are obtained from the Company’s
hedging committee (which includes the Company’s chief
executive officer and chief financial officer).
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• Discontinued Operations |
Prior to 2004, KACC was a major producer of primary aluminum and
sold significant amounts of its alumina and primary aluminum
production in domestic and international markets. KACC’s
strategy was to sell a substantial portion of the alumina and
primary aluminum available to it in excess of its internal
requirements to third parties. However, as more fully discussed
in Note 5 of Notes to Consolidated Financial Statements and
below, the Company is selling or has sold all of its
commodity-related interests other than its interests in and
related to Anglesey.
Valco. The Company, with Court approval, sold its
interests in and related to Volta Aluminium Company Limited
(“Valco”) in October 2004. KACC owned a
90% interest in Valco, which owns an aluminum smelter in
Ghana. The smelter has a total annual capacity of approximately
200,000 tons of which
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approximately 180,000 tons of the annual capacity was available
to KACC. KACC’s share of the primary aluminum was sold to
third parties. Valco’s operating level was subject to
fluctuations resulting from the amount of hydro-electric power
it is allocated by the Volta River Authority. The operating
level over the last five years has ranged from none to four out
of a total of five potlines. The Valco smelter has been fully
curtailed since early in the second quarter of 2003. Valco did
not file a petition for reorganization.
Washington Smelters. The Company owned and operated two
aluminum smelters in the State of Washington (the Mead and
Tacoma smelters). Both smelters were fully curtailed during the
2002-2004 period. The Company, with Court approval, sold the
Tacoma smelter in early 2003 and the Mead facility in the second
quarter of 2004.
KJBC. With Court approval, the Company sold its interests
in and related to Kaiser Jamaica Bauxite Company
(“KJBC”) on October 1, 2004. KJBC mined bauxite
(approximately 4,500,000 tons annually) as an agent for
KACC from land that was subject to a mining lease from the
Government of Jamaica. KACC held its interest in KJBC through a
wholly owned subsidiary, Kaiser Bauxite Company
(“KBC”), which was one of KACC’s subsidiaries
that filed a petition for reorganization under the Code in
January 2003. KJBC did not file a petition for reorganization.
Although KACC (through KBC) owned 49% of KJBC, it was entitled
to, and generally took, all of KJBC’s bauxite output. A
substantial majority of the bauxite mined by KJBC was refined
into alumina at the Gramercy facility and the remainder was sold
to a third party.
Gramercy. With Court approval, the Gramercy facility was
sold on October 1, 2004. Alumina produced by the Gramercy
refinery was primarily sold to third parties. Production at the
plant was fully or partially curtailed from July 1999 until
January 2002 as a result of an explosion in the digestion area
of the plant. Since the end of February 2002, the plant has,
except for normal operating variations, generally operated at
approximately 100% of its rated annual capacity of
1,250,000 tons.
Alpart. With Court approval, the Company sold its
interests in and related to Alumina Partners of Jamaica
(“Alpart”) on July 1, 2004. KACC owned a
65% interest in Alpart. KACC held its interests in Alpart
through two wholly owned subsidiaries, Kaiser Jamaica
Corporation (“KJC”) and Alpart Jamaica Inc.
(“AJI”), which were two of KACC’s wholly owned
subsidiaries that filed petitions for reorganization under the
Code in January 2003. Alpart did not file a petition for
reorganization. Alpart holds bauxite reserves and owns a
1,650,000-ton per year alumina plant located in Jamaica.
QAL. With Court approval, the Company entered into a
contract to sell its interests in and related to Queensland
Alumina Limited (“QAL”) in November 2004. The sale is
expected to close in April 2005. KACC owns a 20% interest
in QAL. KACC holds its interest in QAL through a wholly owned
subsidiary, Kaiser Alumina Australia Corporation
(“KAAC”), which is one of KACC’s subsidiaries
that filed a petition for reorganization under the Code in 2002.
QAL, which is located in Queensland, Australia, owns one of the
largest and most competitive alumina refineries in the world.
The refinery has a total annual production capacity of
approximately 3,650,000 tons from which approximately
730,000 tons of the annual production capacity have been
available to KAAC. QAL refines bauxite into alumina, essentially
on a cost basis, for the account of its shareholders under
long-term tolling contracts. In recent years, since the
curtailment of the Mead and Tacoma, Washington aluminum
smelters, KACC has sold its share of QAL’s production to
third parties.
Commodities Marketing. Given the significance of the
Company’s exposure to primary aluminum prices and alumina
prices (which typically are linked to primary aluminum prices on
a lagged basis) in prior years, the commodity marketing
activities were considered a separate business unit. In the
accompanying financial statements, the Company has reclassified
to discontinued operations all of the primary aluminum hedging
results in respect of the commodity-related interests that have
been or are expected to be sold and that are also treated as
discontinued operations. As stated above, remaining primary
aluminum hedging activities related to the Company’s
interests in Anglesey and any firm price fabricated product
shipments are considered part of the “Primary aluminum
business unit”.
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Competition
KACC markets fabricated aluminum products it manufactures in the
United States and abroad. Sales are made both directly and
through distributors to a large number of end-use 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 for which it believes it has production
capability, technical expertise, high-product quality, and
geographic and other competitive advantages. However, KACC
competes with numerous domestic and international fabricators in
the sale of fabricated aluminum products. Many of KACC’s
competitors have greater financial resources than KACC.
Research and Development
Expenditures for the Fabricated products business unit’s
research and development activities were $1.7 million in
2004, $1.6 million in 2003, and $1.4 million in 2002.
KACC estimates that research and development expenditures for
the Fabricated products business unit will be approximately
$2.7 million in 2005. Research and development facilities
in Jackson, Tennessee; Trentwood, Washington; and Newark, Ohio,
focus on advanced metallurgical analysis and process technology.
Expenditures for all other research and development activities
were $.4 million in 2004, $1.0 million in 2003 and
$.4 million in 2002.
Employees
At December 31, 2004, KACC employed approximately
2,260 persons, of which approximately 2,200 were employed
in the Fabricated products business unit and approximately 60
were employed in Corporate. At December 31, 2003, KACC
employed approximately 4,500 persons of which approximately
2,100 were employed in the Fabricated products business unit,
approximately 2,300 were employed in the commodities business
units and less than 100 were employed in Corporate.
The table below shows each manufacturing location, the primary
union affiliation, if any, and the expiration date for the
current union contract.
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Chandler, AZ
|
|
Non-union |
|
|
NA |
|
|
Greenwood, SC
|
|
Non-union |
|
|
NA |
|
|
Jackson, TN
|
|
Non-union |
|
|
NA |
|
|
London, Ontario
|
|
USW Canada |
|
|
Feb 2006 |
|
|
Los Angeles, CA
|
|
Teamsters |
|
|
Sept 2006 |
|
|
Newark, OH
|
|
USWA |
|
|
Sept 2005 |
|
|
Richland, WA
|
|
Non-union |
|
|
NA |
|
|
Richmond, VA
|
|
USWA IAM |
|
|
Oct 2004(1) |
|
|
Sherman, TX
|
|
IAM |
|
|
Dec 2007 |
|
|
Spokane, WA
|
|
USWA |
|
|
Sept 2005 |
|
|
Tulsa, OK
|
|
USWA |
|
|
Jul 2005 |
|
|
|
| (1) |
Contract extended until 30 days after emergence |
Environmental Matters
The Company, KACC and KACC’s subsidiaries are subject to a
wide variety of international, federal, state and local
environmental laws and regulations in the United States and
Canada with respect to, among other things, air, water, and the
handling and disposal of hazardous waste materials. The Company
has casting, or remelt, operations at six of its facilities
(London, Los Angeles, Newark, Richmond, Sherman, and
Spokane) that purchase and recycle aluminum scrap in various
forms, and purchase primary metal from third
7
parties. Purchased metal is inspected for impurities and other
contaminants before introduction into the remelt process. These
cast house facilities are subject to air and water environmental
regulations, and have in force the necessary permits and
inspection and control systems for current and expected
operating levels. Manufacturing operations are subject to the
same regulations, and have the necessary permits for current and
expected operations. Any hazardous materials, which are
relatively minor in volume in comparison to the volume of
primary aluminum consumed and produced, are shipped offsite to
recycling or storage operations, which are approved and
periodically audited by the Company’s environmental staff.
KACC has also maintained PCB and asbestos removal programs for
several years.
The Company has previously disclosed that, during April 2004,
KACC was served with a subpoena for documents and has been
notified by Federal authorities that they are investigating
certain environmental compliance issues with respect to
KACC’s Trentwood facility in Spokane, Washington. KACC is
undertaking its own internal investigation of the matter through
specially retained counsel to ensure that it has all relevant
facts regarding Trentwood’s compliance with applicable
environmental laws. KACC believes it is in compliance with all
applicable environmental laws and regulations at the Trentwood
facility and intends to defend any claim or charges, if any
should result, vigorously. The Company cannot assess what, if
any, impacts this matter may have on the Company’s or
KACC’s financial statements.
For additional discussion of this subject, see “Factors
Affecting Future Performance”. KACC’s current or past
operations subject it to environmental compliance, clean-up and
damage claims that may be costly. During the pendency of the
Cases, substantially all pending litigation, except certain
environmental claims and litigation, against the Debtors is
stayed.
Reorganization Proceedings
The Company, KACC and 24 of KACC’s subsidiaries have filed
separate voluntary petitions in the Court for reorganization
under Chapter 11 of the Code. The Cases are being jointly
administered. The Debtors are managing their businesses in the
ordinary course as debtors-in-possession subject to the control
and administration of the Court.
In addition to KAC and KACC, the Debtors include the following
subsidiaries: Bellwood, Kaiser Aluminium International, Inc.
(“KAII”), Kaiser Aluminum Technical Services, Inc.
(“KATSI”), KAAC (and its wholly owned subsidiary,
Kaiser Finance Corporation (“KFC”)), KBC, KJC, AJI,
KACOCL and fifteen other entities with limited balances or
activities. Ancillary proceedings in respect of KACOCL and two
additional Debtors were also commenced in Canada simultaneously
with the filings in the United States.
The Debtors found it necessary to file the Cases primarily
because of liquidity and cash flow problems of the Company and
its subsidiaries that arose 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, 2001. In
addition, the Company had become increasingly burdened by
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 flows, resulting in lower credit ratings and an inability
to access the capital markets.
The outstanding principal of, and accrued interest on, all debt
of the Debtors became immediately due and payable upon
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) during the pendency of
the Cases. In connection with the filing of the Debtors’
Cases, the Court, upon motion by the Debtors, authorized 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 continue using the Company’s existing
cash management systems. The Debtors also have the right to
assume or reject executory contracts existing prior to the
Filing Date, subject to Court approval and certain other
limitations. In this context, “assumption” means that
the
8
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 a
pre-Filing Date executory contract is treated as a general
unsecured claim in the Cases.
Generally, pre-Filing Date claims, including certain contingent
or unliquidated claims, against the Debtors will fall into two
categories: secured and unsecured. 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
bar dates (established by the Court) by which holders of
pre-Filing Date claims against the Debtors (other than
asbestos-related personal injury claims) could file their claims
have passed. Any holder of a claim that was required to file
such claim by such bar date and did not do so may be barred from
asserting such claim against any of the Debtors and,
accordingly, may not be able to participate in any distribution
in any of the Cases on account of such claim. The Company has
not yet completed its analysis of all of the proofs of claim to
determine their validity. However, during the course of the
Cases, certain matters in respect of the claims have been
resolved. Material provisions in respect of claim settlements
are included in the accompanying financial statements and are
fully disclosed elsewhere herein. The bar dates do not apply to
asbestos-related personal injury claims, for which no bar date
has been set.
Two creditors’ committees, one representing the unsecured
creditors (the “UCC”) and the other representing the
asbestos claimants (the “ACC”), have been appointed as
official committees in the Cases and, in accordance with the
provisions of the Code, have the right to be heard on all
matters that come before the Court. In August 2003, the Court
approved the appointment of a committee of salaried retirees
(the “1114 Committee” and, together with the UCC
and the ACC, the “Committees”) with whom the Debtors
have negotiated necessary changes, including the modification or
termination, of certain retiree benefits (such as medical and
insurance) under Section 1114 of the Code. The Committees,
together with the Court-appointed legal representatives for
(a) potential future asbestos claimants (the “Asbestos
Futures’ Representative”) and (b) potential
future silica and coal tar pitch volatile claimants
(the“Silica/ CTPV Futures’ Representative” and,
collectively with the Asbestos Futures’ Representative, the
“Futures’ Representatives”), have played and will
continue to play important roles in the Cases and in the
negotiation of the terms of any plan or plans of reorganization.
The Debtors are required to bear certain costs and expenses for
the Committees and the Futures’ Representatives, including
those of their counsel and other advisors.
As provided by the Code, the Debtors had the exclusive right to
propose a plan of reorganization for 120 days following the
initial Filing Date. The Court has subsequently approved several
extensions of the exclusivity period for all Debtors. Most
recently, the Court approved an extension of exclusivity as to
all Debtors (other than AJI, KJC, KAAC and KFC) to June 30,
2005. Exclusivity for AJI, KJC, KAAC and KFC was most recently
extended to April 30, 2005. Additional extensions may be
sought. However, no assurance can be given that any such future
extension requests will be granted by the Court. If the Debtors
fail to file a plan of reorganization during the exclusivity
period, 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.
|
|
|
• Commodity-related and Inactive
Subsidiaries |
As stated above, the Company expects that by April 2005 it will
have sold all of its commodity-related interests other than its
interests in Anglesey. It is anticipated that, as more fully
discussed below, the proceeds from the sale of these interests
will be distributed primarily to the affected subsidiaries’
creditors pursuant to certain liquidating plans and other
agreements. The primary subsidiaries affected by this strategy
are AJI, KJC, KAAC, KFC and KBC.
9
During November 2004, four of KACC’s commodity-related
subsidiaries (AJI, KJC, KAAC and KFC, collectively, the
“Liquidating Subsidiaries”) filed separate joint plans
of liquidation and related disclosure statements with the Court.
Such plans, together with all amendments filed thereto, are
separately referred to as the “AJI/ KJC Plan” and the
“KAAC/ KFC Plan” and collectively as the
“Liquidating Plans”). Under the Liquidating Plans, the
assets of those entities, consisting primarily of the net cash
proceeds received (or to be received) by them in connection with
the sales of their commodities interests, will be transferred to
liquidating trusts, whereupon the Liquidating Subsidiaries will
be dissolved. The liquidating trusts will then make
distributions to the creditors of the Liquidating Subsidiaries
in accordance with the Liquidating Plans. As indicated in the
Liquidating Plans, it is currently anticipated that the
Liquidating Subsidiaries will have an aggregate of approximately
$673.8 million of cash available for distribution to
creditors when the Liquidating Plans become effective. The
Liquidating Plans outline the specific treatment of creditors
and their estimated recoveries in respect of the Liquidating
Subsidiaries under several possible scenarios. The Liquidating
Plans indicate that, after payment of priority claims, trust
expenses (initial reserves for which are expected to be
established in the range of $37.0 million to
$46.0 million), and payments to KACC under the Intercompany
Settlement Agreement (“Intercompany Agreement”) (see
discussion below) the Liquidating Subsidiaries anticipate
ultimately distributing available cash to the following
claimholders in the following amounts (in millions):
| |
|
|
|
|
|
KACC’s Senior Notes and Senior Subordinated Notes
|
|
$ |
390.7 to $421.8 |
|
|
Pension Benefit Guaranty Corporation (“PBGC”)
|
|
$ |
187.6 to $198.5 |
|
|
State of Louisiana Solid Waste Revenue Bonds
|
|
$ |
0.0 to $ 8.0 |
|
Under the Liquidating Plans as filed with the Court,
$16.0 million of payments are to be made for the benefit of
holders of KACC’s
123/4% Senior
Subordinated Notes (the “Sub Notes”) if, and only if,
the holders of both (a) KACC’s
97/8% Senior
Notes and
107/8% Senior
Notes (collectively, the “Senior Notes”) and
(b) the Sub Notes, approve the plans. If either the holders
of the Senior Notes or the Sub Notes fail to accept
the Liquidating Plans, the Court will determine distributions to
such holders. Holders of the Parish of St. James, State of
Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue
Bonds”) are not allowed a vote on the Liquidating Plans but
will receive up to $8.0 million only if the Liquidating
Plans are accepted by the Senior Notes and, unless the holders
of the Senior Notes agree, all holders of Senior Notes
receive the identical treatment under the Liquidating Plans. If
the Liquidating Plans are not accepted by the holders of the
Senior Notes then, pursuant to the Liquidating Plans, the
Court will determine the distributions to the Revenue Bonds. Any
amounts paid in respect of the Sub Notes and the Revenue Bonds
will be paid from amounts that otherwise would be distributed to
holders of the Senior Notes.
As previously disclosed, a group of holders of the Sub Notes
(the “Sub Note Group”) has formed an unofficial
committee to represent all holders of Sub Notes and retained its
own legal counsel. The Sub Note Group is asserting that the
Sub Note holders’ claims against the subsidiary guarantors
(and in particular the Liquidating Subsidiaries) may not, as a
technical matter, be contractually subordinate to the claims of
the holders of the Senior Notes against the subsidiary
guarantors (including AJI, KJC, KAAC and KFC). A separate group
that holds both Sub Notes and KACC’s
97/8% Senior
Notes has made a similar assertion, but at the same time,
maintains that a portion of KACC’s
97/8% Senior
Notes holders’ claims against the subsidiary guarantors are
contractually senior to the Sub Notes holders’ claims
against the subsidiary guarantors. The effect of such positions,
if ultimately sustained, would be that the holders of Sub Notes
would be on a par with all or portion of the holders of the
Senior Notes in respect of claims against the proceeds from
sales of the Company’s interests in and related to the
Liquidating Subsidiaries. If both the holders of the Senior
Notes and the holders of the Sub Notes do not approve the
Liquidating Plans, then the Court will determine the appropriate
allocation to these groups under the Liquidating Plans. While
the Company cannot currently predict how the Court might rule in
such an instance, based on the objections and pleadings filed by
the Sub Note Group and the group that holds Sub Notes and
KACC’s
97/8% Senior
Notes, if the Court were to rule in favor of the Sub Notes, the
Company estimates that it is possible that the holders of the
Sub Notes could receive between approximately $67.0 million
and approximately $215.0 million depending on whether the
Sub Notes were determined to rank on par with a portion or all
of the Senior Notes. Conversely, if the holders of both the
Senior Notes and the Sub Notes do not approve the Liquidating
Plans and the Court were to rule in
10
favor of the Senior Notes, then it is possible that the holders
of the Sub Notes would receive no distributions under
Liquidating Plans. The Company believes that the intent of the
indentures in respect of the Senior Notes and the Sub Notes was
to subordinate the claims of the Sub Note holders in respect of
the subsidiary guarantors (including the Liquidating
Subsidiaries). The Company cannot predict, however, the ultimate
resolution of the matters raised by the Sub Note Group, or
the other group, when any such resolution will occur, or what
impact any such resolution may have on the Company, the Cases or
distributions to affected noteholders.
The Court approved the disclosure statements related to the
Liquidating Plans in February 2005 and the Liquidating
Subsidiaries are now seeking confirmation of the Liquidating
Plans at a confirmation hearing scheduled to be held in April
2005. However, there can be no assurance as to whether or when
the Liquidating Plans will be confirmed by the Court or
ultimately consummated or, if confirmed and consummated, as to
the amount of distributions to be made to individual creditors
of the Liquidating Subsidiaries or KACC. The foregoing
disclosure is not intended to be, nor should it be construed to
be, a solicitation for a vote on the Liquidating Plans. The
Liquidating Plans relate exclusively to AJI, KJC, KAAC and KFC
and will have no impact on the normal, ongoing operations of the
Company’s Fabricated products business unit or other
continuing operations.
The above amounts are net of payments that are to be made by
AJI, KJC and KAAC to KACC in respect of pre-petition and
post-Filing Date intercompany claims pursuant to the
Intercompany Agreement that was approved by the Court in
February 2005. The Intercompany Agreement also resolves
substantially all other pre-and post-petition intercompany
claims between the Debtors. The Intercompany Agreement provides,
among other things, for payments of cash by AJI, KJC and KAAC
from the sale of their respective interests in and related to
Alpart and QAL to KACC of at least $90.0 million in respect
of its intercompany claims against AJI, KJC and KAAC. Under the
Intercompany Agreement, such payments would be increased or
decreased for (1) any net cash flows funded by or collected
by KACC related to: (a) the Company’s interests in and
related to Alpart from January 1, 2004 through July 1,
2004 (estimated to be approximately $21.0 million collected
by the Company); (b) the Company’s interests in and
related to QAL from July 1, 2004 through KAAC’s
emergence from Chapter 11 (estimated to be in the
$15.0 million range collected by the Company through
December 31, 2004); and (c) third party costs and
certain limited overhead of KACC’s activities related to
the sale of AJI’s, KJC’s and KAAC’s respective
interests in and related to Alpart and QAL and (2) any
purchase price adjustments (other than incremental amounts
related to alumina sales contracts to be transferred) pursuant
to KACC’s sale of its interests in Alpart. As provided
under the Intercompany Agreement, KACC was reimbursed for
approximately $14.5 million of payments made in the third
quarter of 2004 to retire Alpart-related debt and
$28.0 million in November 2004 as a partial payment of
Alpart-related sales proceeds. The Intercompany Agreement calls
for the remaining payments to be made in specific increments to
KACC at the earlier of the time of the closing of the sale of
the Company’s interests in QAL and upon the effective dates
of the Liquidating Plans.
It is anticipated that KBC will be dealt with either separately
or in concert with the KACC plan of reorganization as more fully
discussed below. Sixteen of the Debtors (including KAC) have no
material ongoing activities or operations and have no material
assets or liabilities other than intercompany claims (which are
to be resolved pursuant to the Intercompany Agreement). The
Company believes that it is likely that most of these entities
will ultimately be merged out of existence or dissolved in some
manner.
• Entities
Containing the Fabricated Products and Certain Other
Operations
Claims of creditors, other than claims paid by the Liquidating
Subsidiaries under the Liquidating Plans, will have to be
satisfied by the assets of KACC, KACOCL, and Bellwood, which
generally include the fabricated products plants and their
working capital, the interests in and related to Anglesey and
proceeds to be received under the Intercompany Agreement.
The Debtors anticipate that substantially all remaining
liabilities of the Debtors as of their Filing Date will be
settled under a single joint plan of reorganization to be
proposed and voted on in accordance with the provisions of the
Code. In working toward a plan of reorganization, as more fully
discussed below, the
11
remaining Debtors have reached individual agreements with most
of the significant creditor constituents in the Cases including
the Committees, the Futures’ Representatives, the PBGC, and
the appropriate union representatives. However, the ultimate
treatment of individual groups of creditors in any such plan of
reorganization cannot be determined definitively at this time as
such treatment (and the specific recoveries of individual
creditors) is dependent on, among other things, the total amount
of claims against the Debtors as ultimately determined by the
Court, the priority of the applicable claims, the outcome of
ongoing discussions with the key creditor constituencies, the
amount of value available for distribution in respect of claims
and the completion of the plan confirmation process consistent
with applicable bankruptcy law. Further, while the Debtors
intend to file and seek confirmation of a joint plan, there can
be no assurance as to when the Debtors will file such plan or as
to whether any such plan will be confirmed by the Court and
consummated.
The Debtors’ objective is to achieve the highest possible
recoveries for all stakeholders, consistent with the
Debtors’ abilities to pay, and to continue the operations
of their core businesses. However, there can be no assurance
that the Debtors will be able to attain these objectives or
achieve a successful reorganization. While valuation of the
Debtors’ assets and estimation of pre-Filing Date claims at
this stage of the Cases are subject to inherent uncertainties,
the Debtors currently believe that, in the aggregate, it is
likely that their liabilities will be found to significantly
exceed the fair value of their assets. Therefore, the Debtors
currently believe that, with limited exceptions, it is likely
that substantially all pre-Filing Date claims will be settled at
less than 100% of their face value and the equity interests of
the Company’s stockholders will be cancelled without
consideration.
Based on the previously disclosed agreements and understandings
reached with key creditor constituents, the Company anticipates
that the disclosure statement and plan of reorganization for the
Company, KACC and other Debtors necessary to ongoing operations
will reflect the following principle elements:
|
|
| |
(a) All post-petition and secured claims are expected to
either be assumed by the emerging entity or paid at emergence
(see Exit Cost discussion below); |
| |
| |
(b) Pursuant to agreements reached with salaried and hourly
retirees in early 2004, in return for cancellation of the
retiree medical plan, as more fully discussed in Note 9 of
Notes to Consolidated Financial Statements, the Company is
making certain fixed monthly payments into Voluntary Employee
Beneficiary Associations (“VEBAs”) until emergence and
then has agreed to make certain variable annual VEBA
contributions depending on the emerging entity’s operating
results and financial liquidity. In addition, upon emergence the
VEBAs are to receive a contribution of 75% of the residual value
of the remaining Debtors in the form of newly issued equity in
the emerging entity. Residual value in this context means
KACC’s remaining value after taking into account:
(i) the contributions to the personal injury trust
described below; (ii) the satisfaction of administrative,
priority and secured claims as per (a) above; (iii) an
equity incentive plan; and (iv) the satisfaction of the
PBGC’s claim against KACOCL; |
| |
| |
(c) Pursuant to an agreement reached in early 2005, all
pending and future asbestos-related personal injury claims, all
pending and future silica and coal tar pitch volatiles personal
injury claims and all hearing loss claims would be resolved
through the formation of one or more trusts to which all such
claims would be directed by channeling injunctions that would
permanently remove liability for such claims from the Debtors.
The trusts would be funded pursuant to statutory requirements
and agreements with representatives of the affected parties,
using (i) the Debtors’ insurance assets,
(ii) $13.0 million in cash from KACC, (iii) 100%
of the equity in a KACC subsidiary whose sole asset will be a
piece of real property that produces modest rental income, and
(iv) a portion of the emerging entity’s equity in
proportion to approximately $830.0 million of intercompany
claims of KFC against KACC that are to be assigned to the trust
(which will be satisfied out of the 25% of equity referred to in
(d ) below); and |
| |
| |
(d) Other pre-petition claims will receive 25% of the
residual value of the remaining Debtors in the form of equity in
the emerging entity. Claims that are expected to be within this
group include (i) any claims of the Senior Notes, the Sub
Notes and PBGC that are not satisfied under the Liquidating
Plans, (ii) the approximate $830.0 million of
intercompany claims that the Company has agreed to assign to the
personal injury trust(s) referred to in (c) above, and
(iii) all unsecured trade and other claims. Included |
12
|
|
| |
in this category are approximately $276.0 million of
intercompany claims of KFC against KACC that will be a part of
the consideration in the Liquidating Trusts. |
At emergence from Chapter 11, KACC will have to pay or
otherwise provide for a material amount of claims. Such claims
include accrued but unpaid professional fees, priority pension,
tax and environmental claims, secured claims, and certain
post-petition obligations (collectively, “Exit
Costs”). KACC currently estimates that its Exit Costs will
be in the range of $60.0 million to $80.0 million.
KACC currently expects to fund such Exit Costs using the
proceeds to be received under the Intercompany Agreement
together with existing cash resources and available borrowing
availability under an exit financing facility that would replace
the current Post-Petition Credit Agreement (see Note 7 of
Notes to Consolidated Financial Statements). If payments made to
the Company under the Intercompany Agreement together with
existing cash resources and borrowing availability under an exit
financing facility are not sufficient to pay or otherwise
provide for all Exit Costs, the Company and KACC will not be
able to emerge from Chapter 11 unless and until sufficient
funding can be obtained. Management believes it will be able to
successfully resolve any issues that may arise in respect of an
exit financing facility or be able to negotiate a reasonable
alternative. However, no assurances can be given in this regard.
The Company believes that it is not likely that it will emerge
from the Cases until sometime in the second half of 2005.
However, the Company’s ability to do so and to ultimately
emerge from the Cases is subject to a number of factors,
including, among others, inherent market-related risks, Court
approval for various matters and the confirmation of a plan of
reorganization in accordance with the applicable bankruptcy law
and, accordingly, no assurances can be given as to whether or
when any plan or plans of reorganization will ultimately be
filed or confirmed.
|
|
| • |
Financial Statement Presentation |
The accompanying consolidated financial statements have been
prepared in accordance with American Institute of Certified
Professional Accountants (“AICPA”) Statement of
Position 90-7 (“SOP 90-7”), Financial
Reporting by Entities in Reorganization Under the Bankruptcy
Code, and 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 Cases,
such realization of assets and liquidation of liabilities are
subject to a significant number of uncertainties.
Upon emergence from the Cases, the Company expects to apply
“fresh start” accounting to its consolidated financial
statements as required by SOP 90-7. Fresh start accounting
is required if: (1) a debtor’s liabilities are
determined to be in excess of its assets and (2) there will
be a greater than 50% change in the equity ownership of the
entity. As previously disclosed, the Company expects both such
circumstances to apply. As such, upon emergence, the Company
will restate its balance sheet to equal the reorganization value
as determined in its plan(s) of reorganization and approved by
the Court. Additionally, items such as accumulated depreciation,
accumulated deficit and accumulated other comprehensive income
(loss) will be reset to zero. The Company will allocate the
reorganization value to its individual assets and liabilities
based on their estimated fair value at the emergence date.
Typically such items as current liabilities, accounts
receivable, and cash will be reflected at values similar to
those reported prior to emergence. Items such as inventory,
property, plant and equipment, long-term assets and long-term
liabilities are more likely to be significantly adjusted from
amounts previously reported. Because fresh start accounting will
be adopted at emergence and because of the significance of
liabilities subject to compromise (that will be relieved upon
emergence), comparisons between the current historical financial
statements and the financial statements upon emergence may be
difficult to make.
Factors Affecting Future Performance
This section discusses certain factors that could cause actual
results to vary, perhaps materially, from the results described
in forward-looking statements made in this Report.
Forward-looking statements in this Report are not guarantees of
future performance and involve significant risks and
uncertainties. In addition to the factors identified below,
actual results may vary materially from those in such
forward-looking statements
13
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 are
all of the factors that could cause actual results to vary
materially from the forward-looking statements.
|
|
| • |
The Cases and any plan or plans 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 achieve the highest possible recoveries for
all stakeholders, 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.
While the Company has previously disclosed that it has reached
various settlements in respect of the claims of most significant
parties in interest and expects that it may be able to emerge
from the Cases sometime in the second half of 2005, no
assurances can be provided that it will be able to file a plan
or that such plan will ultimately be approved by the Court.
While valuation of the Debtors’ assets and pre-Filing Date
claims at this stage of the Cases is subject to inherent
uncertainties, the Debtors currently believe that it is likely
that their liabilities will be found in the Cases to exceed the
fair value of their assets. Therefore, the Debtors currently
believe that it is likely that pre-Filing Date claims will be
paid at less than 100% of their face value and the equity
interests of the Company’s stockholders will be cancelled
without consideration. 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.
At emergence from Chapter 11, KACC will have to pay or
otherwise provide for a material amount of claims. Such claims
include accrued but unpaid professional fees, priority pension,
tax and environmental claims, secured claims, and certain
post-petition obligations (collectively, “Exit
Costs”). KACC currently estimates that its Exit Costs will
be in the range of $60.0 million to $80.0 million.
KACC currently expects to fund such Exit Costs using the
proceeds to be received under the Intercompany Agreement
together with existing cash resources and available borrowing
availability under an exit financing facility that would replace
the current Post-Petition Credit Agreement (see Note 7 of
Notes to Consolidated Financial Statements). If payments made to
the Company under the Intercompany Agreement together with
existing cash resources and borrowing availability under an exit
financing facility are not sufficient to pay or otherwise
provide for all Exit Costs, the Company and KACC will not be
able to emerge from Chapter 11 unless and until sufficient
funding can be obtained. Management believes it will be able to
successfully resolve any issues that may arise in respect of the
Intercompany Agreement or be able to negotiate a reasonable
alternative. However, no assurances can be given in this regard.
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|
| • |
We may not operate profitably in the future |
As discussed more fully below, the results of the Fabricated
products business unit are sensitive to a number of market and
economic factors outside the Company’s control and the
Company competes with companies many of which have substantially
greater resources. Our Fabricated products business unit, which
is now our core business, reported segment operating income of
$33.0 million for the year ended December 31, 2004
compared to segment operating losses of $21.2 million and
$21.8 million in the years ended December 31, 2003 and
2002. Operating results for 2004, 2003 and 2002 included
non-cash last-in, first-out (“LIFO”) inventory charges
of $12.1 million, $3.2 million and $3.5 million,
respectively. The improved
14
operating results primarily reflect an increase in demand for
fabricated aluminum products. There can be no assurances that
the Fabricated products business unit will continue to generate
a profit or that we will operate profitability in future periods.
|
|
| • |
Our earnings are sensitive to a number of
variables |
Our operating earnings are sensitive to a number of variables
over which we have no direct control. Key variables in this
regard include general economic conditions and prices for
primary aluminum and energy. 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 aerospace
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 primary aluminum.
The price of primary aluminum significantly affects our
financial results related to our interests in Anglesey. Primary
aluminum prices historically have been subject to significant
cyclical price fluctuations. The Company believes the timing of
changes in the market price of primary aluminum are largely
unpredictable. Since 1993, the average LME transaction price has
ranged from approximately $.50 to $1.00 per pound. However,
the Company has changed from being a net seller of primary
aluminum to a net user of primary aluminum. As such, the
Company’s risk is whether it can successfully pass on any
metal price increases to its customers. See Item 7A.,
“Quantitative and Qualitative Disclosures About Market
Risks — Sensitivity”, for additional discussion.
Electric power and natural gas are other important production
inputs for use in our facilities and their costs can affect our
profitability. Our earnings are also sensitive to foreign
exchange rates in respect of our cash commitments to Anglesey.
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| • |
KACC’s current or past operations subject it to
environmental compliance, clean-up and damage claims that have
been and continue to be costly |
The operations of KACC’s facilities are regulated by a wide
variety of international, federal, state and local environmental
laws. These 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. 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 the 2005 - 2006 period, KACC’s
environmental capital spending will be approximately
$1.0 million per year and that KACC’s operating costs
will include pollution control costs totaling approximately
$3.1 million per year. However, subsequent changes in
environmental laws may change the way KACC must operate and may
force KACC to spend more than we currently project.
Additionally, KACC’s current and former operations can
subject it to fines or penalties for alleged breaches of
environmental laws and to other actions seeking clean-up or
other remedies under these 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 clean-up of sites currently or formerly
used by KACC.
Currently, KACC 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 companies, has been named as a Potentially
Responsible Party for clean-up costs at certain third-party
sites listed on the National Priorities List under CERCLA. As a
result, KACC may be exposed not only to its assessed share of
clean-up but also to the costs of others if they are unable to
pay.
In response to environmental concerns, we have established
environmental accruals representing our estimate of the costs we
reasonably expect KACC to incur in connection with these
matters. At December 31,
15
2004, the balance of our accruals, which are primarily included
in our long-term liabilities, was $58.3 million. We
estimate that the annual costs charged to these environmental
accruals will be approximately $24.3 million in 2005,
$.3 million to $3.2 million per year for the years
2006 through 2009 and an aggregate of approximately
$29.2 million thereafter. However, we cannot assure you
that KACC’s actual costs will not exceed our current
estimates. We believe 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 $20.0 million.
During April 2004, KACC was served with a subpoena for documents
and has been notified by Federal authorities that they are
investigating certain environmental compliance issues with
respect to KACC’s Trentwood facility in Spokane,Washington.
KACC is undertaking its own internal investigation of the matter
through specially retained counsel to ensure that it has all
relevant facts regarding Trentwood’s compliance with
applicable environmental laws. KACC believes it is in compliance
with all applicable environmental laws and requirements at the
Trentwood facility and intends to defend any claim or charges,
if any should result, vigorously. The Company cannot assess
what, if any, impacts this matter may have on the Company’s
or KACC’s financial statements.
See Note 11 of Notes to Consolidated Financial Statements
for additional information on environmental matters.
|
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| • |
The settlement of the asbestos-related and other
personal injury matters may have a major impact on our plan or
plans of reorganization |
KACC has been one of many defendants in numerous lawsuits in
which the plaintiffs allege that they have injuries caused by,
among other things, exposure to asbestos during, or 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 sold more than
20 years ago. The Company has also previously disclosed
that certain other personal injury claims had been filed in
respect of alleged pre-Filing Date exposure to silica and coal
tar pitch volatiles. Due to the Cases, existing lawsuits in
respect of all such personal injury claims are stayed and new
lawsuits cannot be commenced against us or KACC.
Our December 31, 2004 balance sheet includes a liability
for estimated asbestos-related costs of $1,115.0 million,
which represents the Company’s estimate of the minimum end
of a range of costs. The upper end of the Company’s
estimate of costs is approximately $2,400.0 million and the
Company is aware that certain constituents have asserted that
they believe that actual costs may exceed the top end of the
Company’s estimated range, by perhaps a material amount. As
a part of any plan of reorganization for the Company and KACC,
it is likely that an estimation of KACC’s entire
asbestos-related liability may occur. Any such estimation will
likely result from negotiations between the Company and key
creditor constituencies or an estimation process overseen by the
Court. It is possible that any resulting estimate of KACC’s
asbestos-related liability resulting from either process could
exceed, perhaps significantly, the liability amounts reflected
in the Company’s consolidated financial statements.
KACC’s obligations in respect of the currently pending and
future asbestos-related claims will ultimately be resolved as a
part of the overall Chapter 11 proceedings. 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, 2004 balance sheet includes a long-term
receivable for estimated insurance recoveries of
$967.0 million. We believe that recovery of this amount is
probable and additional amounts may be recoverable in the future
if additional liability is ultimately determined to exist.
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. Over the past several
years, the Company has received a number of rulings in respect
of insurance related litigation that it believes supports the
amount reflected on the balance sheet. The trial court may hear
additional issues from time to time. Given the expected
significance of
16
probable future asbestos-related payments, the receipt of timely
and appropriate payments from KACC’s insurers is critical
to a successful plan of reorganization.
|
|
| • |
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 limit its exposure resulting
from price risks in respect of primary aluminum prices, energy
prices and foreign currency requirements. Entering into such
hedging transactions, while reducing or removing our exposure to
price risk, may cause our profits and cash flow to be lower than
they otherwise would have been.
|
|
| • |
We operate in a highly competitive industry |
Each of the segments of the aluminum industry in which the
Company operates 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 facilities operate in the United States, Canada, and the
United Kingdom. While we believe KACC’s relationships in
the these countries 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 our 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.
Segment and Geographical Area Financial Information
The information set forth in Note 15 of Notes to
Consolidated Financial Statements regarding the Company’s
operating segments and geographical areas in which the Company
operates is incorporated herein by reference.
The locations and general character of the principal plants and
other materially important physical properties relating to
KACC’s operations are described in Item 1
“Business — 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.
All but three of KACC’s fabricated aluminum production
facilities are owned by KACC and/or its subsidiaries. The
Chandler, Arizona location is subject to a lease with a primary
lease term that expires in 2033. KACC has certain extension
rights in respect of the Chandler lease. The Richland,
Washington location is subject to a lease with a 2011 expiration
date, subject to certain extension rights held by KACC. The Los
Angeles location is subject to a lease with a 2009 expiration
date, subject to certain extension rights held by KACC.
In connection with the ongoing reorganization efforts and sale
of substantially all of the Company’s commodities
interests, the Company has relocated its corporate headquarters
and primary place of business from Houston, Texas to Foothill
Ranch, California, which is where the Fabricated products
business unit was headquartered.
KACC’s obligations under the DIP Facility are secured by,
among other things, liens on KACC’s domestic plants. See
Note 7 of Notes to Consolidated Financial Statements for
further discussion.
17
|
|
| 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, except certain environmental claims and litigation,
against the Debtors is stayed. Generally, claims against a
Debtor arising from actions or omissions prior to its 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.
Other Environmental Matters
During April 2004, KACC was served with a subpoena for documents
and has been notified by Federal authorities that they are
investigating certain environmental compliance issues with
respect to KACC’s Trentwood facility in the State of
Washington. KACC is undertaking its own internal investigation
of the matter through specially retained counsel to ensure that
it has all relevant facts regarding Trentwood’s compliance
with applicable environmental laws. KACC believes it is in
compliance with all applicable environmental law and
requirements at the Trentwood facility and intends to defend any
claims or charges, if any should result, vigorously. The Company
cannot assess what, if any, impact this matter may have on the
Company’s or KACC’s financial statements.
Asbestos and Certain Other Personal Injury Claims
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, or 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. As of the initial Filing Date, approximately
112,000 asbestos-related claims were pending. The Company has
also previously disclosed that certain other personal injury
claims had been filed in respect of alleged pre-Filing Date
exposure to silica and coal tar pitch volatiles (approximately
3,900 claims and 300 claims, respectively).
Due to the Cases, holders of asbestos, silica and coal tar pitch
volatile claims are stayed from continuing to prosecute pending
litigation and from commencing new lawsuits against the Debtors.
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 its Filing Date and, as
described below, to negotiate insurance settlements and
prosecute certain actions to clarify policy interpretations in
respect of such coverage.
During the fourth quarter of 2004, the Company updated its
estimate of costs expected to be incurred in respect of
asbestos, silica and coal tar pitch volatile claims and expected
insurance recoveries. The portion of Note 11 of Notes to
Consolidated Financial Statements under the heading
“Asbestos and Certain Other Personal Injury Claims”
is incorporated herein by reference.
Labor Matters
In connection with the United Steelworkers of America
(“USWA”) strike and subsequent lock-out by KACC,
certain allegations of Unfair Labor Practices (“ULPs”)
were filed by the USWA with the National Labor Relations Board
(“NLRB”). As previously disclosed, KACC responded to
all such allegations and believed they were without merit.
In January 2004, as part of its settlement with the USWA with
respect to pension and retiree medical benefits, KACC and the
USWA agreed to settle their case pending before the NLRB,
subject to approval of
18
the NLRB General Counsel and the Court and ratification by the
union members. Under the terms of the agreement, solely for the
purposes of determining distributions in connection with the
reorganization, an unsecured pre-petition claim in the amount of
$175.0 million will be allowed. Also, as part of the
agreement, the Company agreed to adopt a position of neutrality
regarding the unionization of any employees of the reorganized
company.
All material contingencies in respect of the settlement have now
been resolved (the last having been resolved in February 2005)
and, therefore, the Company recorded a non-cash
$175.0 million charge in the fourth quarter of 2004 and an
off setting liability. The portion of Note 11 of Notes to
Consolidated Financial Statements under the heading
“Labor Matters” is incorporated herein by
reference.
Hearing Loss Claims
During February 2004, the Company reached a settlement in
principle in respect of 400 claims, which alleged that certain
individuals who were employees of the Company, principally at a
facility previously owned and operated by KACC in Louisiana,
suffered hearing loss in connection with their employment. Under
the terms of the settlement, which is still subject to Court
approval, the claimants will be allowed claims totaling
$15.8 million. During the Cases, the Company has received
approximately 3,200 additional proofs of claim alleging
pre-petition injury due to noise induced hearing loss. It is not
known at this time how many, if any, of such claims have merit
or at what level such claims might qualify within the parameters
established by the above-referenced settlement in principle for
the 400 claims. Accordingly, the Company cannot presently
determine the impact or value of these claims. However, the
Company currently expects that all noise induced hearing loss
claims will be transferred, along with certain rights against
certain insurance policies, to a separate trust along with the
settled hearing loss cases discussed above, whether or not such
claims are settled prior to the Company’s emergence from
the Cases. The portion of Note 11 of Notes to Consolidated
Financial Statements under the heading “Hearing Loss
Claims” is incorporated herein by reference.
Other Matters
Various other lawsuits and claims are pending against KACC.
While uncertainties are inherent in the final outcome of such
matters and it is presently impossible to determine the actual
costs that ultimately may be incurred, management believes that
the resolution of such uncertainties and the incurrence of such
costs should not have a material adverse effect on the
Company’s consolidated financial position, results of
operations, or liquidity.
See Note 11 of Notes to Consolidated Financial Statements
for discussion of additional litigation.
|
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| 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 2004.
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity and Related
Stockholder Matters |
The Company’s Common Stock is traded on the OTC
Bulletin Board under the symbol “KLUCQ.OB.” The
number of record holders of the Company’s Common Stock at
February 28, 2005, was 537. The high and low sales prices
for the Company’s Common Stock for each quarterly period of
2004 and 2003, as reported on the OTC Bulletin Board is set
forth in the Quarterly Financial Data on page 99 in this
Report and is incorporated herein by reference. However, the
sales prices for the Company’s Common Stock may not be
meaningful, because as a part of a plan of reorganization, it is
likely that the equity interests of the Company’s existing
stockholders will be cancelled without consideration.
The Company has not paid any dividends on its Common Stock
during the two most recent fiscal years. In accordance with the
Code and the DIP Facility, the Company is currently not
permitted to pay any dividends or purchase any of its stock.
19
The Company’s non-qualified stock option plans, which are
the Company’s only stock option plans, have been approved
by the Company’s stockholders. The number of shares of
Common Stock to be issued upon exercise of outstanding options,
the weighted average price per share of the outstanding options
and the number of shares of Common Stock available for future
issuance under the Company’s non-qualified stock option
plans at December 31, 2004, included under the heading
“Incentive Plans” in Note 9 of Notes to
Consolidated Financial Statements is incorporated herein by
reference.
See Note 7 of Notes to Consolidated Financial Statements
under the 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, which
information is incorporated herein.
|
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| Item 6. |
Selected Financial Data |
Selected financial data for the Company is incorporated herein
by reference to the table at page 25 of Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, to Note 15 of Notes to Consolidated Financial
Statements, and to the Five-Year Financial Data on
pages 100-101 in this Report.
|
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| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
This 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
section (see “Overview,” “Results of
Operations,” “Liquidity and Capital Resources”
and “Other Matters”). 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. 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.
Reorganization Proceedings
Background. The Company, KACC and 24 of KACC’s
subsidiaries have filed separate voluntary petitions in the
Court for reorganization under Chapter 11 of the Code. The
Cases are being jointly administered. The Debtors are managing
their businesses in the ordinary course as debtors-in-possession
subject to the control and administration of the Court.
In addition to KAC and KACC, the Debtors include the following
subsidiaries: Kaiser Bellwood Corporation
(“Bellwood”), Kaiser Aluminium International, Inc.
(“KAII”), Kaiser Aluminum Technical Services, Inc.
(“KATSI”), Kaiser Alumina Australia Corporation
(“KAAC”) (and its wholly owned subsidiary, Kaiser
Finance Corporation (“KFC”)), Kaiser Bauxite Company
(“KBC”), Kaiser Jamaica Corporation (“KJC”),
Alpart Jamaica Inc. (“AJI”), Kaiser
Aluminum & Chemical of Canada Limited
(“KACOCL”) and fifteen other entities with limited
balances or activities.
Case Administration. Two creditors’ committees, one
representing the unsecured creditors (the “UCC”) and
the other representing the asbestos claimants (the
“ACC”), have been appointed as official committees in
the Cases and, in accordance with the provisions of the Code,
have the right to be heard on all matters that come before the
Court. In August 2003, the Court approved the appointment of a
committee of salaried retirees (the “1114 Committee”
and, together with the UCC and the ACC, the
“Committees”) with whom the Debtors have negotiated
necessary changes, including the modification or termination, of
certain retiree benefits (such as medical and insurance) under
Section 1114 of the Code. The Committees, together with the
Court-appointed legal representatives for (a) potential
future asbestos claimants (the “Asbestos
20
Futures’ Representative”) and (b) potential
future silica and coal tar pitch volatile claimants (the
“Silica/ CTPV Futures’ Representative” and,
collectively with the Asbestos Futures’ Representative, the
“Futures’ Representatives”), have played and will
continue to play important roles in the Cases and in the
negotiation of the terms of any plan or plans of reorganization.
The Debtors are required to bear certain costs and expenses for
the Committees and the Futures’ Representatives, including
those of their counsel and other advisors.
As provided by the Code, the Debtors had the exclusive right to
propose a plan of reorganization for 120 days following the
initial Filing Date. The Court has subsequently approved several
extensions of the exclusivity period for all Debtors. Most
recently, the Court approved an extension of exclusivity as to
all Debtors (other than AJI, KJC, KAAC and KFC) to June 30,
2005. Exclusivity for AJI, KJC, KAAC and KFC was most recently
extended to April 30, 2005. Additional extensions may be
sought. However, no assurance can be given that any such future
extension requests will be granted by the Court. If the Debtors
fail to file a plan of reorganization during the exclusivity
period, 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.
Commodity-related and Inactive Subsidiaries. As
previously disclosed, the Company expects that by April 2005 it
will have sold all of its commodity-related interests other than
its interests in Anglesey. It is anticipated that, as more fully
discussed below, the proceeds from the sale of these interests
will be distributed primarily to the affected subsidiaries’
creditors pursuant to certain liquidating plans and other
agreements. The primary subsidiaries affected by this strategy
are AJI, KJC, KAAC, KFC and KBC.
During November 2004, four of KACC’s commodity-related
subsidiaries (AJI, KJC, KAAC and KFC, collectively, the
“Liquidating Subsidiaries”) filed separate joint plans
of liquidation and related disclosure statements with the Court.
Such plans, together with all amendments filed thereto, are
separately referred to as the “AJI/ KJC Plan” and the
“KAAC/ KFC Plan” and collectively as the
“Liquidating Plans”). Under the Liquidating Plans, the
assets of those entities, consisting primarily of the net cash
proceeds received (or to be received) by them in connection with
the sales of their commodities interests, will be transferred to
liquidating trusts, whereupon the Liquidating Subsidiaries will
be dissolved. The liquidating trusts will then make
distributions to the creditors of the Liquidating Subsidiaries
in accordance with the Liquidating Plans. As indicated in the
Liquidating Plans, it is currently anticipated that the
Liquidating Subsidiaries will have an aggregate of approximately
$673.8 million of cash available for distribution to
creditors when the Liquidating Plans become effective. The
Liquidating Plans outline the specific treatment of creditors
and their estimated recoveries in respect of the Liquidating
Subsidiaries under several possible scenarios. The Liquidating
Plans indicate that, after payment of priority claims, trust
expenses (initial reserves for which are expected to be
established in the range of $37.0 million to
$46.0 million), and payments to KACC under the Intercompany
Settlement Agreement (“Intercompany Agreement”) (see
discussion below) the Liquidating Subsidiaries anticipate
ultimately distributing available cash to the following
claimholders in the following amounts (in millions):
| |
|
|
|
|
|
KACC’s Senior Notes and Senior Subordinated Notes
|
|
$ |
390.7 to $421.8 |
|
|
PBGC
|
|
$ |
187.6 to $198.5 |
|
|
State of Louisiana Solid Waste Revenue Bonds
|
|
$ |
0.0 to $8.0 |
|
Under the Liquidating Plans as filed with the Court,
$16.0 million of payments are to be made for the benefit of
holders of KACC’s
123/4% Senior
Subordinated Notes (the “Sub Notes”) if, and only if,
the holders of both (a) KACC’s
97/8% Senior
Notes and
107/8% Senior
Notes (collectively, the “Senior Notes”) and
(b) the Sub Notes, approve the plans. If either the holders
of the Senior Notes or the Sub Notes fail to accept the
Liquidating Plans, the Court will determine distributions to
such holders. Holders of the Parish of St. James, State of
Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue
Bonds”) are not allowed a vote on the Liquidating Plans but
will receive up to $8.0 million only if the Liquidating
Plans are accepted by the Senior Notes and, unless the holders
of the Senior Notes agree, all holders of Senior Notes receive
the identical treatment under the Liquidating Plans. If the
Liquidating Plans are not accepted by the holders of the Senior
Notes then, pursuant to the Liquidating Plans, the Court will
determine the distributions to the
21
Revenue Bonds. Any amounts paid in respect of the Sub Notes and
the Revenue Bonds will be paid from amounts that otherwise would
be distributed to holders of the Senior Notes.
As previously disclosed, a group of holders of the Sub Notes
(the “Sub Note Group”) has formed an unofficial
committee to represent all holders of Sub Notes and retained its
own legal counsel. The Sub Note Group is asserting that the
Sub Note holders’ claims against the subsidiary guarantors
(and in particular the Liquidating Subsidiaries) may not, as a
technical matter, be contractually subordinate to the claims of
the holders of the Senior Notes against the subsidiary
guarantors (including AJI, KJC, KAAC and KFC). A separate group
that holds both Sub Notes and KACC’s
97/8% Senior
Notes has made a similar assertion, but at the same time,
maintains that a portion of KACC’s
97/8% Senior
Notes holders’ claims against the subsidiary guarantors are
contractually senior to the Sub Notes holders’ claims
against the subsidiary guarantors. The effect of such positions,
if ultimately sustained, would be that the holders of Sub Notes
would be on a par with all or portion of the holders of the
Senior Notes in respect of claims against the proceeds from
sales of the Company’s interests in and related to the
Liquidating Subsidiaries. If both the holders of the Senior
Notes and the holders of the Sub Notes do not approve the
Liquidating Plans, then the Court will determine the appropriate
allocation to these groups under the Liquidating Plans. While
the Company cannot currently predict how the Court might rule in
such an instance, based on the objections and pleadings filed by
the Sub Note Group and the group that holds Sub Notes and
KACC’s
97/8% Senior
Notes, if the Court were to rule in favor of the Sub Notes, the
Company estimates that it is possible that the holders of the
Sub Notes could receive between approximately $67.0 million
and approximately $215.0 million depending on whether the
Sub Notes were determined to rank on par with a portion or all
of the Senior Notes. Conversely, if the holders of both the
Senior Notes and the Sub Notes do not approve the Liquidating
Plans and the Court were to rule in favor of the Senior Notes,
then it is possible that the holders of the Sub Notes would
receive no distributions under Liquidating Plans. The Company
believes that the intent of the indentures in respect of the
Senior Notes and the Sub Notes was to subordinate the claims of
the Sub Note holders in respect of the Subsidiary Guarantors
(including the Liquidating Subsidiaries). The Company cannot
predict, however, the ultimate resolution of the matters raised
by the Sub Note Group, or the other group when any such
resolution will occur, or what impact any such resolution may
have on the Company, the Cases or distributions to affected
noteholders.
The Court approved the disclosure statements related to the
Liquidating Plans in February 2005 and the Liquidating
Subsidiaries are now seeking confirmation of the Liquidating
Plans at a confirmation hearing scheduled to be held in April
2005. However, there can be no assurance as to whether or when
the Liquidating Plans will be confirmed by the Court or
ultimately consummated or, if confirmed and consummated, as to
the amount of distributions to be made to individual creditors
of the Liquidating Subsidiaries or KACC. The foregoing
disclosure is not intended to be, nor should it be construed to
be, a solicitation for a vote on the Liquidating Plans. The
Liquidating Plans relate exclusively to AJI, KJC, KAAC and KFC
and will have no impact on the normal, ongoing operations of the
Company’s Fabricated products business unit or other
continuing operations.
The above amounts are net of payments that are to be made by
AJI, KJC and KAAC to KACC in respect of pre-petition and
post-Filing Date intercompany claims pursuant to the
Intercompany Agreement that was approved by the Court in
February 2005. The Intercompany Agreement also resolves
substantially all other pre-and post-petition intercompany
claims between the Debtors. The Intercompany Agreement provides,
among other things, for payments of cash by AJI, KJC and KAAC
from the sale of their respective interests in and related to
Alpart and QAL to KACC of at least $90.0 million in respect
of its intercompany claims against AJI, KJC and KAAC. Under the
Intercompany Agreement, such payments would be increased or
decreased for (1) any net cash flows funded by or collected
by KACC related to: (a) the Company’s interests in and
related to Alpart from January 1, 2004 through July 1,
2004 (estimated to be approximately $21.0 million collected
by the Company); (b) the Company’s interests in and
related to QAL from July 1, 2004 through KAAC’s
emergence from Chapter 11 (estimated to be in the
$15.0 million range collected by the Company through
December 31, 2004); and (c) third party costs and
certain limited overhead of KACC’s activities related to
the sale of AJI’s, KJC’s and KAAC’s respective
interests in and related to Alpart and QAL and (2) any
purchase price adjustments (other than incremental amounts
related
22
to alumina sales contracts to be transferred) pursuant to
KACC’s sale of its interests in Alpart. As provided under
the Intercompany Agreement, KACC was reimbursed for
approximately $14.5 million of payments made in the third
quarter of 2004 to retire Alpart-related debt and
$28.0 million in November 2004 as a partial payment of
Alpart-related sales proceeds. The Intercompany Agreement calls
for the remaining payments to be made in specific increments to
KACC at the earlier of the time of the closing of the sale of
the Company’s interests in QAL and upon the effective dates
of the Liquidating Plans.
It is anticipated that KBC will be dealt with either separately
or in concert with the KACC plan of reorganization as more fully
discussed below. Sixteen of the Debtors (including KAC) have no
material ongoing activities or operations and have no material
assets or liabilities other than intercompany claims (which are
to be resolved pursuant to the Intercompany Agreement). The
Company believes that it is likely that most of these entities
will ultimately be merged out of existence or dissolved in some
manner.
Entities Containing the Fabricated Products and Certain Other
Operations. Claims of creditors, other than claims paid by
the Liquidating Subsidiaries under the Liquidating Plans, will
have to be satisfied by the assets of KACC, KACOCL, and
Bellwood, which generally include the fabricated products plants
and their working capital, the interests in and related to
Anglesey and proceeds to be received under the Intercompany
Agreement.
The Debtors anticipate that substantially all remaining
liabilities of the Debtors as of their Filing Date will be
settled under a single joint plan of reorganization to be
proposed and voted on in accordance with the provisions of the
Code. In working toward a plan of reorganization, as more fully
discussed below, the remaining Debtors have reached individual
agreements with most of the significant creditor constituents in
the Cases including the Committees, the Futures’
Representatives, the PBGC, and the appropriate union
representatives. However, the ultimate treatment of individual
groups of creditors in any such plan of reorganization cannot be
determined definitively at this time as such treatment (and the
specific recoveries of individual creditors) is dependent on,
among other things, the total amount of claims against the
Debtors as ultimately determined by the Court, the priority of
the applicable claims, the outcome of ongoing discussions with
the key creditor constituencies, the amount of value available
for distribution in respect of claims and the completion of the
plan confirmation process consistent with applicable bankruptcy
law. Further, while the Debtors intend to file and seek
confirmation of a plan, there can be no assurance as to when the
Debtors will file such plan or as to whether any such plan will
be confirmed by the Court and consummated.
The Debtors’ objective is to achieve the highest possible
recoveries for all stakeholders, consistent with the
Debtors’ abilities to pay, and to continue the operations
of their core businesses. However, there can be no assurance
that the Debtors will be able to attain these objectives or
achieve a successful reorganization. While valuation of the
Debtors’ assets and estimation of pre-Filing Date claims at
this stage of the Cases are subject to inherent uncertainties,
the Debtors currently believe that, in the aggregate, it is
likely that their liabilities will be found to significantly
exceed the fair value of their assets. Therefore, the Debtors
currently believe that, with limited exceptions, it is likely
that substantially all pre-Filing Date claims will be settled at
less than 100% of their face value and the equity interests of
the Company’s stockholders will be cancelled without
consideration.
Based on the previously disclosed agreements and understandings
reached with key creditor constituents, the Company anticipates
that the disclosure statement and plan of reorganization for the
Company, KACC and other Debtors necessary to ongoing operations
will reflect the following principle elements:
|
|
| |
(a) All post-petition and secured claims are expected to
either be assumed by the emerging entity or paid at emergence
(see Exit Cost discussion below); |
| |
| |
(b) Pursuant to agreements reached with salaried and hourly
retirees in early 2004, in return for cancellation of the
retiree medical plan, as more fully discussed in Note 9 of
Notes to Consolidated Financial Statements, the Company is
making certain fixed monthly payments into Voluntary Employee
Beneficiary Associations (“VEBAs”) until emergence and
then has agreed to make certain variable annual VEBA
contributions depending on the emerging entity’s operating
results and financial liquidity. In addition, upon emergence the
VEBAs are to receive a contribution of 75% of the residual value
of the |
23
|
|
| |
remaining Debtors in the form of newly issued equity in the
emerging entity. Residual value in this context means
KACC’s remaining value after taking into account:
(i) the contributions to the personal injury trust
described below; (ii) the satisfaction of administrative,
priority and secured claims as per (a) above; (iii) an
equity incentive plan; and (iv) the satisfaction of the
PBGC’s claim against KACOCL; |
| |
| |
(c) Pursuant to an agreement reached in early 2005, all
pending and future asbestos-related personal injury claims, all
pending and future silica and coal tar pitch volatiles personal
injury claims and all hearing loss claims would be resolved
through the formation of one or more trusts to which all such
claims would be directed by channeling injunctions that would
permanently remove all liability for such claims from the
Debtors. The trusts would be funded pursuant to statutory
requirements and agreements with representatives of the affected
parties, using (i) the Debtors’ insurance assets,
(ii) $13.0 million in cash from KACC, (iii) 100%
of the equity in a KACC subsidiary whose sole asset will be a
piece of real property that produces modest rental income, and
(iv) a portion of the emerging entity’s equity in
proportion to approximately $830.0 million of intercompany
claims of KFC against KACC that are to be assigned to the trust
(which will be satisfied out of the 25% of equity referred to in
(d ) below); and |
| |
| |
(d) Other pre-petition claims will receive 25% of the
residual value of the remaining Debtors in the form of equity in
the emerging entity. Claims that are expected to be within this
group include (i) any claims of the Senior Notes, the Sub
Notes and PBGC that are not satisfied under the Liquidating
Plans, (ii) the approximate $830.0 million of
intercompany claims that the Company has agreed to assign to the
personal injury trust(s) referred to in (c) above, and
(iii) all unsecured trade and other claims. Included in
this category are approximately $276.0 million of
intercompany claims of KFC against KACC that will be a part of
the consideration in the Liquidating Trusts. |
At emergence from Chapter 11, KACC will have to pay or
otherwise provide for a material amount of claims. Such claims
include accrued but unpaid professional fees, priority pension,
tax and environmental claims, secured claims, and certain
post-petition obligations (collectively, “Exit
Costs”). KACC currently estimates that its Exit Costs will
be in the range of $60.0 million to $80.0 million.
KACC currently expects to fund such Exit Costs using the
proceeds to be received under the Intercompany Agreement
together with existing cash resources and available borrowing
availability under an exit financing facility that would replace
the current Post-Petition Credit Agreement (see Note 7 of
Notes to Consolidated Financial Statements). If payments made to
the Company under the Intercompany Agreement together with
existing cash resources and borrowing availability under an exit
financing facility are not sufficient to pay or otherwise
provide for all Exit Costs, the Company and KACC will not be
able to emerge from Chapter 11 unless and until sufficient
funding can be obtained. Management believes it will be able to
successfully resolve any issues that may arise in respect of an
exit financing facility or be able to negotiate a reasonable
alternative. However, no assurances can be given in this regard.
The Company believes that it is not likely that it will emerge
from the Cases until sometime in the second half of 2005.
However, the Company’s ability to do so and to ultimately
emerge from the Cases is subject to a number of factors,
including, among others, inherent market-related risks, Court
approval for various matters and the confirmation of a plan of
reorganization in accordance with the applicable bankruptcy law
and, accordingly, no assurances can be given as to whether or
when any plan or plans of reorganization will ultimately be
filed or confirmed.
Overview
The Company’s primary line of business is the production
and sale of fabricated aluminum products. In addition, the
Company owns a 49% interest in Anglesey, which owns an aluminum
smelter in Holyhead, Wales. Historically, the Company, through
its wholly owned subsidiary, KACC, operated in all principal
sectors of the aluminum industry including the production and
sale of bauxite, alumina and primary aluminum in domestic and
international markets. However, as previously disclosed, as a
part of the Company’s reorganization efforts, the Company
is selling or has sold substantially all of its
commodities’ operations other than Anglesey. The balances
and results of operations in respect of the commodities
interests sold or being
24
sold are now considered discontinued operations (see
Notes 3 and 5 of Notes to Consolidated Financial
Statements). The presentation in the table below restates the
segment information for such reclassifications. The amounts
remaining in Primary aluminum relate primarily to the
Company’s interests in and related to Anglesey and the
Company’s primary aluminum hedging-related activities.
The table below provides selected operational and financial
information on a consolidated basis with respect to the Company
for the years ended December 31, 2004, 2003 and 2002. 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.
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Year Ended December 31, | |
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|
2004 | |
|
2003 | |
|
2002 | |
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|
(In millions of dollars, | |
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|
except shipments and prices) | |
|
Shipments (mm lbs):
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|
|
|
|
|
|
|
|
|
|
| |
|
Fabricated Products
|
|
|
458.6 |
|
|
|
372.3 |
|
|
|
376.3 |
|
| |
|
Primary Aluminum
|
|
|
156.6 |
|
|
|
158.7 |
|
|
|
155.8 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
615.2 |
|
|
|
531.0 |
|
|
|
532.1 |
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Average Realized Third Party Sales Price (per pound):
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Fabricated Products(1)
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$ |
1.76 |
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|
$ |
1.61 |
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|
$ |
1.62 |
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Primary Aluminum
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$ |
.85 |
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|
$ |
.71 |
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$ |
.64 |
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Net Sales:
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Fabricated Products
|
|
$ |
809.3 |
|
|
$ |
597.8 |
|
|
$ |
608.6 |
|
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|
Primary Aluminum
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|
|
133.1 |
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|
|
112.4 |
|
|
|
100.4 |
|
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Total Net Sales
|
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$ |
942.4 |
|
|
$ |
710.2 |
|
|
$ |
709.0 |
|
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Segment Operating Income (Loss):(2)
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Fabricated Products(3)
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$ |
33.0 |
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|
$ |
(21.2 |
) |
|
$ |
(21.8 |
) |
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Primary Aluminum
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|
|
13.9 |
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|
|
6.7 |
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|
|
7.4 |
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Corporate and Other(4)
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|
|
(71.3 |
) |
|
|
(74.7 |
) |
|
|
(98.9 |
) |
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Other Operating (Charges) Benefits, Net(5)
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|
|
(793.2 |
) |
|
|
(141.6 |
) |
|
|
(31.8 |
) |
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Total Operating Income (Loss)
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$ |
(817.6 |
) |
|
$ |
(230.8 |
) |
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$ |
(145.1 |
) |
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Discontinued Operations
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$ |
121.3 |
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|
$ |
(514.7 |
) |
|
$ |
(266.0 |
) |
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Net Loss
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|
$ |
(746.8 |
) |
|
$ |
(788.3 |
) |
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$ |
(468.7 |
) |
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Capital Expenditures (excluding discontinued operations)
|
|
$ |
7.6 |
|
|
$ |
8.9 |
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|
$ |
10.9 |
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| (1) |
Average realized prices for the Company’s Fabricated
products business unit are subject to fluctuations due to
changes in product mix as well as underlying primary aluminum
prices and is not necessarily indicative of changes in
underlying profitability. See “Business”. |
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| (2) |
The Company has changed its segment presentation in 2004 to
eliminate the “Eliminations” segment as the primary
purpose for such segment was to eliminate intercompany profit on
sales by the Primary aluminum and Bauxite and alumina business
units substantially all of which are now considered Discontinued
operations. Eliminations not representing Discontinued
operations are now included in segment results. Operating
results for 2003 and 2002 for the Fabricated products business
unit reported above include $4.5 and $.4, respectively,
previously reported in Eliminations. There is no such
elimination required in 2004. Operating results for 2003 and
2002 for the Primary aluminum business unit reported above
include $(.4) and $1.3, respectively, previously reported in
Eliminations. Operating results for the |
25
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Primary aluminum business unit in 2004 are after the elimination
of $.9. Also, see Part I, Item 1.
“Business — Business Operations” for a
discussion of changes to the Primary aluminum business unit. |
| |
| (3) |
Operating results for 2004, 2003 and 2002 include LIFO inventory
charges of $12.1, $3.2, and $3.5, respectively. |
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| (4) |
Operating results for 2002 include special pension charges of
$24.1. |
| |
| (5) |
See Note 6 of Notes to Consolidated Financial Statements
for a detailed summary of the components of Other operating
(charges) benefits, net and the business segment to which
the items relate. |
Significant Items
Market-related Factors. Changes in global, regional, or
country-specific economic conditions can have a significant
impact on overall demand for aluminum-intensive fabricated
products in the aerospace, automotive, 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.
Changes in primary aluminum prices also affect the
Company’s Primary aluminum business unit and expected
earnings under any fixed price fabricated products contracts.
However, the impacts of such changes are generally offset by
each other or by primary aluminum hedges. The Company’s
operating results are also, albeit to a lesser degree, sensitive
to changes in prices for power and natural gas and changes in
certain foreign exchange rates. All of the foregoing have been
subject to significant price fluctuations over recent years. For
a discussion of the possible impacts of the reorganization on
the Company’s sensitivity to changes in market conditions,
see “Quantitative and Qualitative Disclosures About Market
Risks, Sensitivity.”
During 2004, the average LME price per pound of primary aluminum
was $.78 per pound. During 2003 and 2002, the average LME
price per pound for primary aluminum was $.65 and $.61,
respectively. At February 28, 2005, the LME price was
approximately $.88 per pound.
New Credit Arrangement. On February 11, 2005, the
Company and KACC entered into a new financing agreement with a
group of lenders under which the Company was provided with a
replacement for the existing post-petition credit facility and a
commitment for a multi-year exit financing arrangement upon the
Debtors’ emergence from the Chapter 11 proceedings.
The new financing agreement:
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• |
Replaced the existing post-petition credit facility with a new
$200.0 million post-petition credit facility (the “DIP
Facility”) and |
| |
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• |
Included a commitment, upon the Debtors’ emergence from the
Chapter 11 proceedings, for exit financing in the form of a
$200.0 million revolving credit facility (the
“Revolving Credit Facility”) and a fully drawn term
loan (the “Term Loan”) of up to $50.0 million. |
The DIP Facility provides for a secured, revolving line of
credit through the earlier of February 11, 2006, the
effective date of a plan of reorganization or voluntary
termination by the Company. Under the DIP Facility, the Company,
KACC and certain subsidiaries of KACC are able to borrow amounts
by means of revolving credit advances and to have issued letters
of credit (up to $60.0 million) in an aggregate amount
equal to the lessor of $200.0 million or a borrowing base
comprised of eligible accounts receivable, eligible inventory
and certain eligible machinery, equipment and real estate,
reduced by certain reserves, as defined in the DIP Facility
agreement. This amount available under the DIP Facility shall be
reduced by $20.0 million if net borrowing availability
falls below $40.0 million. Interest on any outstanding
borrowings will bear a spread over either a base rate or LIBOR,
at KACC’s option.
Disposition of Commodity-Related Assets. In connection
with the previously disclosed plan to explore and, if
appropriate, dispose of the Company’s commodity-related
interests, the Company has completed the disposition of its
interests in and related to: (a) the Tacoma, Washington
smelter in February, 2003, (b) the Mead, Washington smelter
in June 2004, (c) Alpart in July 2004, (d) Gramercy/
KJBC in October 2004, and (e) Valco in October 2004. The
sale of the Company’s interests in and related to QAL is
expected to close in April 2005. Completion of these
transactions represents a significant step towards the
Company’s planned
26
emergence from Chapter 11 primarily as a fabricated
products company. See Note 5 of Notes to Consolidated
Financial Statements for details regarding the individual
dispositions.
Significant Charges Associated with the Reorganization
Process. The Company has previously disclosed that it has
made substantial progress in its reorganization efforts and has
reached various agreements with substantially all of the key
creditor constituencies as to the value of their claims and the
agreed treatment for such claims in any plans of reorganization
that is ultimately filed by the Debtors. These agreements have
however resulted in a number of significant charges including:
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• |
Charges related to the sale of commodity interests. These items
are classified as “discontinued operations” in the
accompanying financial statements. See Note 3 of Notes to
Consolidated Financial Statements for additional discussion of
these items and amounts. |
| |
| |
• |
Significant charges related to the termination of certain of the
Company’s previous pension and retiree medical plans and
other agreements reached with the PBGC, the USWA and certain
other labor unions. These items are discussed in Note 9 and
Note 11 of Notes to Consolidated Financial Statements. |
| |
| |
• |
Certain environmental charges associated with various
settlements and transactions. See Note 11 of Notes to
Consolidated Financial Statements |
Additionally, while not resulting in a significant net charge,
the Company did substantially increase its recorded liability in
respect of asbestos and other personal injury related claims and
expected insurance recoveries in respect of such amounts. See
Note 11 of Notes to Consolidated Financial Statements
Environmental Matters. The Company has previously
disclosed that, during April 2004, KACC was served with a
subpoena for documents and has been notified by Federal
authorities that they are investigating certain environmental
compliance issues with respect to KACC’s Trentwood facility
in Spokane, Washington. KACC is undertaking its own internal
investigation of the matter through specially retained counsel
to ensure that it has all relevant facts regarding
Trentwood’s compliance with applicable environmental laws.
KACC believes it is in compliance with all applicable
environmental laws and requirements at the Trentwood facility
and intends to defend any claim or charges, if any should
result, vigorously. The Company cannot assess what, if any,
impacts this matter may have on the Company’s or
KACC’s financial statements.
Results of Operations
Summary. The Company reported a net loss of
$746.8 million, $9.36 of basic loss per common share in
2004, compared to a net loss of $788.3 million, $9.83 of
basic loss per common share for 2003 and a net loss of
$468.7 million, $5.82 of basic loss per common share for
2002. However, basic loss per common share may not be
meaningful, because as a part of a plan of reorganization, it is
likely that the equity interests of the Company’s existing
stockholders will be cancelled without consideration.
Net sales in 2004 totaled $942.4 million compared to
$710.2 million in 2003 and $709.0 million in 2002.
Fabricated Aluminum Products. Net sales of fabricated
products increased by 35% during 2004 as compared to 2003
primarily due to a 23% increase in shipments and an 9% increase
in average realized prices. Current period shipments were higher
than 2003 shipments as a result of improved demand for most of
the Company’s fabricated aluminum products, especially
aluminum plate for the general engineering market as well as
extrusions and forgings for the automotive market. Demand for
the Company’s products in the aerospace and high strength
market was also markedly higher in 2004 than in 2003. The
increase in the average realized price reflects changes in the
mix of products sold, stronger demand, and higher underlying
metal prices. Extrusion prices are thought to have recovered
from the recessionary lows experienced in 2002 and 2003 but are
still below prices experienced during peaks in the business
cycle. Plate prices increased to near peak-level pricing in
response to strong near-term demand.
27
Segment operating results (before Other operating charges, net)
for 2004 improved over 2003 primarily due to the increased
shipment and price levels noted above, improved market
conditions and improved cost performance offset, in part, by
modestly increased natural gas prices and a $12.1 million
non-cash LIFO inventory charge. Operating results for 2003
included increased energy costs, a $3.2 million non-cash
LIFO inventory charge, and higher pension related expenses
offset, in part, by reductions in overhead and other operating
costs as a result of cost cutting initiatives. Segment operating
results for 2004 and 2003 include gains (losses) on intercompany
hedging activities with the Primary aluminum business unit
totaling $8.6 million and $(2.3) million. These
amounts eliminate in consolidation.
Segment operating results for 2003, discussed above, exclude a
net gain of approximately $3.9 million from the sale of
equipment (see Note 6 of Notes to Consolidated Financial
Statements).
Primary aluminum. After restating Mead and Valco-related
activities to “discontinued operations,” the
activities of the Primary aluminum business unit consist
essentially of the Company’s interests in and related to
Anglesey and primary aluminum hedging-related activities. Third
party net sales of primary aluminum increased 18% for 2004 as
compared to the same period in 2003 primarily as a result of a
20% increase in third party average realized prices offset by a
1% decrease in third party shipments. The increases in the
average realized prices was primarily due to the increases in
primary aluminum market prices. Shipments in 2004 were better
than comparable prior year primarily due to the timing of
shipments.
Segment operating results (before Other Operating charges, net)
for 2004 improved over 2003 primarily due to the increases in
prices and shipments discussed above. Segment operating results
for 2004 and 2003 include gains (losses) on intercompany hedging
activities with the Fabricated products business unit totaling
$(8.6) million and $2.3 million. These amounts
eliminate in consolidation.
Segment operating results discussed above for 2003, exclude a
pre-Filing Date claim of approximately $3.2 million related
to a restructured transmission agreement and a net gain of
approximately $9.5 million from the sale of the Tacoma,
Washington smelter (see Note 6 of Notes to Consolidated
Financial Statements).
Corporate and Other. Corporate operating expenses
represent corporate general and administrative expenses that are
not allocated to the Company’s business segments. In 2004,
Corporate operating costs were comprised of approximately
$21.2 million of expenses related to ongoing operations and
approximately $50.1 million of retiree related expenses. In
2003, Corporate operating costs consisted of expenses related to
ongoing operations of approximately $39.0 million and
$35.0 million of retiree related expenses. The decline in
expenses related to ongoing operations from 2003 to 2004 was
primarily attributable to lower salary ($1.0 million),
retention ($4.0 million) and incentive compensation
($2.5 million) costs (see Notes 11 and 13 of Notes to
Consolidated Financial Statements) as well as lower accruals for
pension related costs primarily as a result of the December 2003
termination by the PBGC of the Company’s salaried employees
pension plan ($2.5 million). The increase in retiree
related expenses in 2004 from 2003 reflects management’s
decision to allocate to the Corporate segment the excess of post
retirement medical costs related to the Fabricated products
business unit and Discontinued operations for the period
May 1, 2004 through December 31, 2004 over the amount
of such segments allocated share of VEBA contributions, offset,
in part, by lower pension-related accruals as a result of the
December 2003 termination by the PBGC of the Company’s
salaried employees pension plan.
Corporate operating results for 2004, discussed above, exclude
pension charges of approximately $310.0 million related to
terminated pension plans whose responsibility was assumed by the
PBGC, a settlement charge of approximately $175.0 million
related to the USWA settlement and settlement charges of
approximately $312.5 million related to the termination of
the post-retirement medical benefit plans (all of which are
included in Other operating charges, net). Corporate operating
results for 2003 exclude a pension charge of approximately
$121.2 million related to the terminated salaried employees
pension plan whose responsibility was assumed by the PBGC, an
environmental multi-site settlement charge of $15.7 million
and hearing loss claims of $15.8 million (all of which are
included in Other operating charges, net).
28
As the Company completes the disposition of the commodities
interests and prepares for and emerges from the Cases, the
Company expects there will be a substantial decline in Corporate
and other costs. However, certain of these restructuring
activities may have adverse short term cost consequences.
Discontinued Operations. Discontinued operations include
the operating results for Alpart, Gramercy/ KJBC, Valco, QAL and
the Mead Facility and gains from the sale of the Company’s
interests in and related to these interests (except for the gain
on the sale of the Company’s interests in and related to
QAL which is expected to be sold in April 2005). Results for
discontinued operations for 2004 improved approximately
$636.0 million over 2003. Approximately $460.0 million
of such improvement resulted from three non-recurring items:
(a) the approximate $126.6 million gain on the sale of
the Company’s interests in and related to Alpart and the
sale of the Mead Facility; (b) the $368.0 million of
impairment charges in respect of the Company’s interests in
and related to commodities interests in 2003; and
(c) $33.0 million of Valco-related impairment charges
in 2004. The balance of the improvement primarily resulted from
approximately $132.0 million of improved operating results
at Alpart, Gramercy/ KJBC and QAL, a substantial majority of
which was related to the improvement in average realized alumina
prices.
Fabricated Aluminum Products. Net sales of fabricated
products decreased by 2% during 2003 as compared to 2002
primarily as a result of a 1% decrease in shipments. Shipments
in 2003 as compared to those of 2002 reflected increased demand
in the aerospace and high strength, general engineering, and
custom industrial markets, offset by a modest decline in
automotive demand and the Company’s exit of the can lid and
tab stock and brazing sheet products in the second quarter of
2002 Average realized prices for fabricated products were also
modestly weaker in 2003 than in the prior year, reflecting
primarily changes in product mix.
Segment operating results (before Other operating charges, net)
for 2003 were worse than 2002 primarily due to increased energy
costs (approximately $10.5 million), a $3.2 million
LIFO inventory charge, the volume and price factors discussed
above, and increased pension related expenses. The foregoing
were offset, in part, by reductions in overhead and other
operating costs as a result of cost-cutting initiatives.
Operating results for 2002 included a $3.5 million LIFO
inventory charge partially offset by reductions in overhead and
other costs as a result of cost cutting initiatives. Segment
operating results for 2003 and 2002 include losses on
intercompany hedging activities with the Primary aluminum
business unit totaling $2.3 million and $8.3 million.
These amounts eliminate in consolidation.
Segment operating results for 2003, discussed above, exclude a
net gain of approximately $3.9 million from the sale of
equipment (see Note 6 of Notes to Consolidated Financial
Statements). Segment operating results for 2002 excluded other
operating costs of $7.9 million incurred in connection with
cost reduction initiatives and product line exit. Segment
operating results for 2002 also excluded a $1.6 million
non-cash LIFO inventory charge associated with the product line
exit.
Primary Aluminum. Third party net sales of primary
aluminum increased for 2003 by approximately 12% as compared to
the same period in 2002 due to a 11% increase in third party
average realized prices and a 2% increase in shipments. The
increase in the average realized prices was primarily due to
increases in primary aluminum market prices. The increase in
third party shipments was primarily due to the timing of
shipments.
Segment operating results (before Other operating charges, net)
for 2003 increased from the comparable period in 2002. The
increase was primarily due to the increases in prices and
shipments discussed above. Segment operating results for 2003
and 2002 include gains on intercompany hedging activities with
the Fabricated products business unit totaling $2.3 million
and $8.3 million. These amounts eliminate in consolidation.
Segment operating results for 2003, discussed above, exclude a
pre-Filing Date claim of approximately $3.2 million related
to a restructured transmission service agreement (see
Note 6 of Notes to Consolidated Financial Statements).
Segment operating results for 2003 also exclude a net gain of
approximately $9.5 million from the sale of the Tacoma,
Washington smelter (see Note 6 of Notes to Consolidated
Financial Statements).
29
Corporate and Other. Corporate operating expenses
represent corporate general and administrative expenses which
are not allocated to the Company’s business segments.
Corporate operating expenses (before Other operating charges,
net) for 2003 as compared to 2002, were lower primarily because
corporate expenses in 2002 included special pension settlement
charges of approximately $19.9 million, and payments of
approximately $4.2 million to a trust in respect of certain
management compensation agreements. Corporate salary-related and
other overhead costs were lower in 2003 than in 2002 due to job
eliminations but these cost improvements were substantially
offset by an increase in pension-related expenses. See
Note 9 of Notes to Consolidated Financial Statements for a
discussion of the special pension settlement charges in 2002.
Corporate operating results for 2003, discussed above, exclude a
pension charge of approximately $121.2 million related to
the salaried employees pension plan, an environmental multi-site
settlement charge of $15.7 million and hearing loss claims
of $15.8 million (all of which are included in Other
operating charges, net). Corporate operating results for 2002
excluded a non-cash impairment charge of approximately
$20.0 million related to the Company’s non-operating
properties (which is included in Other operating charges, net).
Discontinued Operations. Results for discontinued
operations for 2003 were worse than 2002 by approximately
$248.7 million. Approximately $152.0 million of such
decrease resulted from an increase in impairment charges in
respect of the Company’s interests in and related to
commodities assets in 2003 ($368.0 million) compared to
such impairment charges in 2002 ($214.7 million). The
balance of the decrease primarily resulted from (a) higher
energy costs at Alpart and Gramercy/ KJBC, (b) increased
pension related expenses at Gramercy, (c) a decrease in
third party shipments at Valco and charges for end of service
benefits due to Valco’s curtailment in 2003, and
(d) an increase in the foreign exchange rate. The foregoing
was partially offset by increased third party average realized
prices, increased third party alumina shipments, lower
depreciation expense resulting from the 2002 year-end
impairment of the Mead smelter assets and reductions in overhead
costs primarily due to the Mead Facility and Valco curtailments.
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 their 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 2004, Fabricated products
operating activities provided approximately $35.0 million
of cash (approximately $70.0 million of which was generated
from operating results offset by increases in working capital of
approximately $35.0 million). This amount compares with
2003 when Fabricated products operating activities provided
approximately $30.0 million of cash (substantially all of
which was generated from operating results; working capital
change was modest) and 2002 when Fabricated products operating
activities provided approximately $70.0 million of cash
(approximately $30.0 million of which was generated from
operations and approximately $40.0 million of which
resulted from a decrease in working capital). The increase in
cash provided by Fabricated products operating results in 2004
was primarily due to improving demand for fabricated aluminum
products. The increase in working capital in 2004 reflects the
increase in demand as well as the significant increase in
primary aluminum prices. In 2003 cost-cutting initiatives offset
reduced product prices and shipments so that cash provided by
operations approximated that in 2002. In 2002, the cash provided
by working capital reduction was primarily due to reduced demand
in the wake of the incidents on September 11, 2001, lower
primary aluminum prices, product line exits and lean
manufacturing initiatives. The foregoing analysis of fabricated
products cash flow excludes consideration of pension and retiree
cash payments made by the Company on behalf of current and
former employees of the Fabricated products facilities. Such
amounts are part of the “legacy” costs that the
Company internally categorizes as a corporate cash outflow. See
Corporate and other operating activities below.
Cash flows attributable to the Company’s interests in and
related to Anglesey provided approximately $14.0 million,
$12.0 million and $17.0 million in 2004, 2003 and
2002, respectively. Higher primary aluminum
30
prices in 2004 caused the cash flows attributable to sales of
primary aluminum production from Anglesey to be approximately
$2.0 million higher in 2004 than in 2003 and 2002.
Dividends of excess cash that had accumulated at Anglesey caused
2002 cash flows to be approximately $1.5 million higher
than both 2003 and 2004. The balance of the differences in cash
flows between years is primarily attributable to timing of
shipments, payments and receipts.
Corporate and other operating activities (including all of the
Company’s “legacy” costs) utilized approximately
$150.0 million, $100.0 million and $115.0 million
of cash in 2004, 2003 and 2002, respectively. Cash outflows from
Corporate and other operating activities in 2004, 2003 and 2002
included: (a) approximately $57.0 million,
$60.0 million and $55.0 million, respectively, in
respect of retiree medical obligations and VEBA funding for all
former and current operating units; (b) payments for
reorganization costs of approximately $35.0 million,
$27.0 million and $14.0 million, respectively; and
(c) payments in respect of General and Administrative costs
totaling approximately $26.0 million, $27.0 million
and $41.0 million, respectively. Corporate operating cash
flow in 2003 included asbestos related insurance receipts of
approximately $18.0 million. Cash outflows in 2004 also
included $27.3 million to settle certain multi-site
environmental claims.
In 2004, Discontinued operation activities provided
$64.0 million of cash. This compares with 2003 and 2002
when Discontinued operation activities used $29.5 million
and $23.5 million of cash, respectively. The increase in
cash provided by Discontinued operations in 2004 over 2003
resulted from improved operating results due primarily to the
improvement in average realized alumina prices. The increase in
cash used by Discontinued operations in 2003 over 2002 was
primarily due to less favorable operating results in part
reflecting higher than average fuel oil and natural gas prices.
Such adverse operating factors were offset, in part, by
increased average realized alumina prices.
Investing Activities. Total capital expenditures for
Fabricated products were $7.6 million, $8.9 million,
and $10.2 million in 2004, 2003 and 2002, respectively. The
capital expenditures were made primarily to improve production
efficiency, reduce operating costs and expand capacity at
existing facilities. Total capital expenditures for Fabricated
products are currently expected to be between $19.0 million
and $22.0 million per year in each of 2005 and 2006. The
level of capital expenditures may be adjusted from time to time
depending on the Company’s business plans, price outlook
for metal and other products, KACC’s ability to maintain
adequate liquidity and other factors.
Total capital expenditures for Discontinued operations were
$3.5 million, $28.3 million and $36.7 million in
2004, 2003 and 2002, respectively (of which $1.0 million,
$8.9 million and $9.6 million were funded by the
minority partners in certain foreign joint ventures).
Financing Activities and Liquidity. On February 11,
2005, the Company and KACC entered into a new financing
agreement with a group of lenders under which the Company was
provided with a replacement for the existing post-petition
credit facility and a commitment for a multi-year exit financing
arrangement upon the Debtors’ emergence from the
Chapter 11 proceedings. The new financing agreement:
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Replaced the existing post-petition credit facility with a new
$200.0 million “DIP Facility” and |
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Included a commitment, upon the Debtors’ emergence from the
Chapter 11 proceedings, for exit financing in the form of a
$200.0 million Revolving Credit Facility and a Term Loan of
up to $50.0 million. |
The DIP Facility provides for a secured, revolving line of
credit through the earlier of February 11, 2006, the
effective date of a plan of reorganization or voluntary
termination by the Company. Under the DIP Facility, the Company,
KACC and certain subsidiaries of KACC are able to borrow amounts
by means of revolving credit advances and to have issued letters
of credit (up to $60.0 million) in an aggregate amount
equal to the lesser of $200.0 million or a borrowing base
comprised of eligible accounts receivable, eligible inventory
and certain eligible machinery, equipment and real estate,
reduced by certain reserves, as defined in the DIP Facility
agreement. This amount available under the DIP Facility shall be
reduced by $20.0 million if net borrowing availability
falls below $40.0 million. Interest on any outstanding
borrowings will bear a spread over either a base rate or LIBOR,
at KACC’s option.
31
The DIP Facility is secured by substantially all of the assets
of the Company, KACC and KACC’s domestic subsidiaries other
than certain amounts related to AJI, KJC, KAAC, and KFC whose
assets are, subject to their liquidation plans (see Note 1
of Notes to Consolidated Financial Statements), expected to be
distributed to the creditors of those subsidiaries. The DIP
Facility is guaranteed by KACC and all of KACC’s material
domestic subsidiaries other than AJI, KJC, KAAC, and KFC.
Amounts owed under the DIP Facility may be accelerated under
various circumstances more fully described in the DIP Facility
agreement, including but not limited to, the failure to make
principal or interest payments due under the DIP Facility,
breaches of certain covenants, representations and warranties
set forth in the DIP Facility agreement, and certain events
having a material adverse effect on the business, assets,
operations or condition of the Company taken as a whole.
The DIP Facility places restrictions on the Company’s,
KACC’s and KACC’s subsidiaries’ ability to, among
other things, incur debt, create liens, make investments, pay
dividends, sell assets, undertake transactions with affiliates,
and enter into unrelated lines of business.
The principal terms of the committed Revolving Credit Facility
would generally be the same as or more favorable than the DIP
Facility, except that, among other things, the Revolving Credit
Facility would close and be available upon the Debtors’
emergence from the Chapter 11 proceedings and would be
expected to mature on February 11, 2010. The Term Loan
commitment would be expected to close upon the Debtors’
emergence from the Chapter 11 proceedings and would be
expected to mature on February 11, 2011.
The DIP Facility replaced, on February 11, 2005, a
post-petition credit facility (the “Replaced
Facility”) that the Company and KACC entered into on
February 12, 2002. Originally, the Replaced Facility
provided for revolving credit advances of up to
$300.0 million. This amount was reduced to
$285.0 million in August 2003 and to $200.0 million in
October 2004. The Replaced Facility was amended a number of
times during its term as a result of, among other things,
reorganization transactions, including disposition of the
Company’s commodity-related assets.
The Company has previously disclosed that in connection with the
completion of the previously announced sales of its commodities
interests, it expects that the amount of borrowing base
available under the DIP Facility would be adequate to support
the Company’s liquidity requirements through the remainder
of the Cases. This belief is based on the fact that it was the
commodity assets that subjected the Company to the most
variability and exposure from both a price risk basis as well as
from an operating perspective. While there can be no assurances,
based on recent primary aluminum prices and recent market
conditions for fabricated aluminum products, the Company
currently expects availability under the DIP Facility to remain
above the $100.0 million range.
The Company and KACC currently believe that the cash and cash
equivalents, cash flows from operations, cash proceeds from the
Intercompany Agreement and cash available from the DIP Facility
will provide sufficient working capital to allow the Company to
meet its obligations during the expected pendency of the Cases.
At February 28, 2005, there were no outstanding borrowings
under the DIP Facility. While there were only $1.8 million
of letters of credit outstanding under the DIP Facility at
February 28, 2005, there were approximately
$15.9 million of outstanding letters of credit that had
been issued under the Replaced Facility for which the Company
had deposited cash of $16.7 million as collateral. These
outstanding letters of credit are expected to be replaced with
letters of credit issued under the DIP Facility, at which time,
the applicable cash deposit will be refunded to the Company.
Commitments and Contingencies. During the pendency of the
Cases, substantially all pending litigation against the Debtors,
except that relating to certain environmental matters, is
stayed. Generally, claims against a Debtor arising from actions
or omissions prior to its Filing Date will be satisfied as part
of a plan of reorganization. See Note 11 of Notes to
Consolidated Financial Statements for a more complete discussion
of these matters.
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 environ-
32
mental accruals of $58.3 million at December 31, 2004.
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
$20.0 million.
The Company has previously disclosed that, during April 2004,
KACC was served with a subpoena for documents and has been
notified by Federal authorities that they are investigating
certain environmental compliance issues with respect to
KACC’s Trentwood facility in the State of Washington. KACC
is undertaking its own internal investigation of the matter
through specially retained counsel to ensure that it has all
relevant facts regarding Trentwood’s compliance with
applicable environmental laws. KACC believes it is in compliance
with all applicable environmental laws and requirements at the
Trentwood facility and intends to defend any claim or charges,
if any should result, vigorously. The Company cannot assess
what, if any, impacts this matter may have on the Company’s
or KACC’s financial statements.
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, or 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. As of the initial Filing Date, approximately
112,000 asbestos-related claims were pending. The Company has
also previously disclosed that certain other personal injury
claims had been filed in respect of alleged pre-Filing Date
exposure to silica and coal tar pitch volatiles (approximately
3,900 claims and 300 claims, respectively). Due to the Cases,
holders of asbestos, silica and coal tar pitch volatile claims
are stayed from continuing to prosecute pending litigation and
from commencing new lawsuits against the Debtors. 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 its Filing Date and, as described below, to
negotiate insurance settlements and prosecute certain actions to
clarify policy interpretations in respect of such coverage. As
of December 31, 2004, the Company has established a
$1,115.0 million accrual for estimated asbestos, silica and
coal tar pitch volatile personal injury claims, before
consideration of insurance recoveries. However, the Company
believes that substantial recoveries from insurance carriers are
probable. Accordingly, as of December 31, 2004, the Company
has recorded an estimated aggregate insurance recovery of
$967.0 million (determined on the same basis as the
asbestos-related cost accrual). 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 carriers exist. See Note 11 for additional
discussion of this matter.
During February 2004, KACC reached a settlement in principle in
respect of 400 claims, which alleged that certain individuals
who were employees of the Company, principally at a facility
previously owned and operated by KACC in Louisiana, suffered
hearing loss in connection with their employment. Under the
terms of the settlement, which is still subject to Court
approval, the claimants will be allowed claims totaling
$15.8 million. During the Cases, the Company has received
approximately 3,200 additional proofs of claim alleging
pre-petition injury due to noise induced hearing loss. It is not
known at this time how many, if any, of such claims have merit
or at what level such claims might qualify within the parameters
established by the above-referenced settlement in principle for
the 400 claims. Accordingly, the Company cannot presently
determine the impact or value of these claims. However, the
Company currently expects that all noise induced hearing loss
claims will be transferred, along with certain rights against
certain insurance policies, to a separate trust along with the
settled hearing loss cases discussed above, whether or not such
claims are settled prior to the Company’s emergence from
the Cases.
Capital Structure. MAXXAM and one of its wholly owned
subsidiaries collectively own approximately 63% of the
Company’s Common Stock, with the remaining approximately
37% of the Company’s Common Stock being publicly held.
However, as more fully discussed in Note 1 of Notes to
Consolidated Financial Statements, it is likely that
MAXXAM’s equity interests will be cancelled without
consideration as a part of a plan of reorganization.
33
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 is
appropriate. A substantial portion or all of its tax attributes
may be utilized to offset any gains that may result from the
commodity asset sales and/or cancellation of indebtedness as a
part of the Company’s reorganization. See Note 8 of
Notes to Consolidated Financial Statements for a discussion of
these and other income tax matters.
New Accounting Pronouncements
The section “New Accounting Pronouncements” from
Note 2 of Notes to Consolidated Financial Statements is
incorporated herein by reference.
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 consolidated financial statements as of and for the
year ended December 31, 2004 have been prepared on a
“going concern” basis in accordance with AICPA
Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, and do
not include possible impacts arising in respect of the Cases.
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. For example,
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a. Under generally accepted accounting principles
(“GAAP”), assets to be held and used are evaluated for
recoverability differently than assets to be sold or disposed
of. Assets to be held and used are evaluated based on their
expected undiscounted future net cash flows. So long as the
Company reasonably expects that such undiscounted future net
cash flows for each asset will exceed the recorded value of the
asset being evaluated, no impairment is required. However, if
plans to sell or dispose of an asset or group of assets meet a
number of specific criteria, then, under GAAP, such assets
should be considered held for sale/disposition and their
recoverability should be evaluated, for each asset, based on
expected consideration to be received upon disposition. Sales or
dispositions at a particular time will be affected by, among
other things, the existing industry and general economic
circumstances as well as the Company’s own circumstances,
including whether or not assets will (or must) be sold on an
accelerated or more extended timetable. Such circumstances may
cause the expected value in a sale or disposition scenario to
differ materially from the realizable value over the normal
operating life of assets, which would likely be evaluated on
long-term industry trends. |
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As previously disclosed, while the Company had stated that it
was considering the possibility of disposing of one or more of
its commodities interests, the Company, through the third
quarter of 2003, still considered all of its commodity assets as
“held for use,” as no definite decisions had been made
regarding the disposition of such assets. However, based on
additional negotiations with prospective buyers and discussions
with key constituents, the Company concluded that dispositions
of its interests in and related to Alpart, Gramercy/ KJBC and
Valco were possible and, therefore, that recoverability should
be considered differently as of December 31, 2003 and
subsequent periods. As a result of the change in |
34
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status, the Company recorded impairment charges of approximately
$33.0 million in the first quarter of 2004 and
$368.0 million in the fourth quarter of 2003. |
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b. Additional pre-Filing Date claims may be identified
through the proof of claim reconciliation process and may arise
in connection with actions taken by the Debtors in the Cases.
For example, while the Debtors consider rejection of the
Bonneville Power Administration (“BPA”) contract
to be in the Company’s best long-term interests, such
rejection may increase the amount of pre-Filing Date claims by
approximately $75.0 million based on the BPA’s proof
of claim filed in connection with the Cases in respect of the
contract rejection. |
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c. As more fully discussed below, the amount of pre-Filing
Date claims ultimately allowed by the Court in respect of
contingent claims and benefit obligations may be materially
different from the amounts reflected in the Consolidated
Financial Statements. |
While valuation of the Company’s assets and pre-Filing Date
claims at this stage of the Cases is subject to inherent
uncertainties, the Company currently believes that it is likely
that its liabilities will be found in the Cases to exceed the
fair value of its assets. Therefore, the Company currently
believes that it is likely that substantially all pre-Filing
Date claims will be paid at less than 100% of their face value
and the equity interests of the Company’s stockholders will
be cancelled without consideration.
Additionally, upon emergence from the Cases, the Company expects
to apply “fresh start” accounting to its consolidated
financial statements as required by SOP 90-7. Fresh start
accounting is required if: (1) a debtor’s liabilities
are determined to be in excess of its assets and (2) there
will be a greater than 50% change in the equity ownership of the
entity. As previously disclosed, the Company expects both such
circumstances to apply. As such, upon emergence, the Company
will restate its balance sheet to equal the reorganization value
as determined in its plan of reorganization and approved by the
Court. Additionally, items such as accumulated depreciation,
accumulated deficit and accumulated other comprehensive income
(loss) will be reset to zero. The Company will allocate the
reorganization value to its individual assets and liabilities
based on their estimated fair value at the emergence date.
Typically such items as current liabilities, accounts
receivable, and cash will be reflected at values similar to
those reported prior to emergence. Items such as inventory,
property, plant and equipment, long-term assets and long-term
liabilities are more likely to be significantly adjusted from
amounts previously reported. Because fresh start accounting will
be adopted at emergence, and because of the significance of the
pending and completed asset sales and liabilities subject to
compromise (that will be relieved upon emergence), meaningful
comparison between the current historical financial statements
and the financial statements upon emergence may be difficult to
make.
2. The Company’s judgments and estimates with respect
to commitments and contingencies, in particular: (a) future
personal injury related costs and obligations as well as
estimated insurance recoveries, and (b) possible liability
in respect of claims of unfair labor practices
(“ULPs”) which were not resolved as a part of the
Company’s September 2000 labor settlement.
Valuation of legal and other contingent claims is subject to a
great deal of judgment and substantial uncertainty. Under GAAP,
companies are required to accrue for contingent matters in their
financial statements only if the amount of any potential loss is
both “probable” and the amount (or a range) of
possible loss is “estimatable.” In reaching a
determination of the probability of an adverse ruling in respect
of a matter, the Company typically consults outside experts.
However, any such judgments reached regarding probability are
subject to significant uncertainty. The Company may, in fact,
obtain an adverse ruling in a matter that it did not consider a
“probable” loss and which, therefore, was not accrued
for in its financial statements. Additionally, facts and
circumstances in respect of a matter can change causing key
assumptions that were used in previous assessments of a matter
to change. It is possible that amounts at risk in respect of one
matter may be “traded off” against amounts under
negotiations in a separate matter. Further, in estimating the
amount of any loss, in many instances a single estimation of the
loss may not be possible. Rather, the Company may only be able
to estimate a range for possible losses. In such event, GAAP
requires that a liability be established for at least the
minimum end of the range assuming that there is no other amount
which is more likely to occur.
35
During the period 2002-2004, the Company has had two potentially
material contingent obligations that were/are subject to
significant uncertainty and variability in their outcome:
(a) the United Steelworkers of America’s
(“USWA”) ULP claim, and (b) the net obligation in
respect of personal injury-related matters. Both of these
matters are discussed in Note 11 of Notes to Consolidated
Financial Statements and it is important that you read this note.
As more fully discussed in Note 11 of Notes to Consolidated
Financial Statements, we accrued an amount in the fourth quarter
of 2004 in respect of the USWA ULP matter. We did not accrue any
amount prior to the fourth quarter of 2004 as we did not
consider the loss to be “probable.” Our assessment had
been that the possible range of loss in this matter was anywhere
from zero to $250.0 million based on the proof of claims
filed (and other information provided) by the National Labor
Relations Board (“NLRB”) and USWA in connection with
the Company’s and KACC’s reorganization proceedings.
While the Company continues to believe that the ULP charges were
without merit, during January 2004, the Company agreed to allow
a claim in favor of the USWA in the amount of the
$175.0 million as a compromise and in return for the USWA
agreeing to substantially reduce and/or eliminate certain
benefit payments as more fully discussed in Note 11 of
Notes to Consolidated Financial Statements. However, this
settlement was not recorded at that time as it was still subject
to Court approval. The settlement was ultimately approved by the
Court in February 2005 and, as a result of the contingency being
removed with respect to this item (which arose prior to the
December 31, 2004 balance sheet date), a non-cash charge of
$175.0 million was reflected in the Company’s
consolidated financial statements at December 31, 2004.
Also, as more fully discussed in Note 11 of Notes to
Consolidated Financial Statements, KACC is one of many
defendants in personal injury claims by large number of persons
who assert that their injuries were caused by, among other
things, exposure to asbestos during, or as a result of, their
employment or association with KACC or by exposure to products
containing asbestos last produced or sold by KACC more than
20 years ago. The Company has also previously disclosed
that certain other personal injury claims had been filed in
respect of alleged pre-Filing Date exposure to silica and coal
tar pitch volatiles. Due to the Cases, existing lawsuits in
respect of all such personal injury claims are stayed and new
lawsuits cannot be commenced against us or KACC. It is difficult
to predict the number of claims that will ultimately be made
against KACC or the settlement value of such claims. Our
December 31, 2004, balance sheet includes a liability for
estimated asbestos-related costs of $1,115.0 million, which
represents the Company’s estimate of the minimum end of a
range of costs. The upper end of the Company’s estimate of
costs is approximately $2,400.0 million and the Company is
aware that certain constituents have asserted that they believe
that actual costs may exceed the top end of the Company’s
estimated range, by perhaps a material amount. As a part of any
plan of reorganization it is likely that an estimation of
KACC’s entire asbestos-related liability may occur. Any
such estimation will likely result from negotiations between the
Company and key creditor constituencies or an estimation process
overseen by the Court. It is possible that any resulting
estimate of KACC’s asbestos-related liability resulting
from either process could exceed, perhaps significantly, the
liability amounts reflected in the Company’s consolidated
financial statements.
We believe KACC has insurance coverage for a substantial portion
of such asbestos-related costs. Accordingly, our
December 31, 2004 balance sheet includes a long-term
receivable for estimated insurance recoveries of
$967.0 million. We believe that recovery of this amount is
probable and additional amounts may be recoverable in the future
if additional liability is ultimately determined to exist.
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. Over the past several
years, the Company has received a number of rulings in respect
of insurance related litigation that it believes supports the
amount reflected on the balance sheet. The trial court may hear
additional issues from time to time. Further, depending on the
amount of asbestos-related claims ultimately determined to
exist, it is possible that the amount of such claims could
exceed the amount of additional insurance recoveries available.
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. However, under
an agreed term sheet, all of the Company’s personal
injury–related
36
obligations together with the benefits of its insurance policies
and certain other consideration are to be transferred into one
or more trusts at emergence.
See Note 11 of Notes to Consolidated Financial Statements
for a more complete discussion of these matters.
3. The Company’s judgments and estimates in respect of
its employee benefit plans.
Pension and post-retirement medical obligations included in the
consolidated balance sheet are based on assumptions that are
subject to variation from year-to-year. Such variations can
cause the Company’s estimate of such obligations to vary
significantly. Restructuring actions (such as the indefinite
curtailment of the Mead smelter) can also have a significant
impact on such amounts.
For pension obligations, the most significant assumptions used
in determining the estimated year-end obligation are the assumed
discount rate and long-term rate of return (“LTRR”) on
pension assets. Since recorded pension obligations represent the
present value of expected pension payments over the life of the
plans, decreases in the discount rate (used to compute the
present value of the payments) will cause the estimated
obligations to increase. Conversely, an increase in the discount
rate will cause the estimated present value of the obligations
to decline. The LTRR on pension assets reflects the
Company’s assumption regarding what the amount of earnings
will be on existing plan assets (before considering any future
contributions to the plans). Increases in the assumed LTRR will
cause the projected value of plan assets available to satisfy
pension obligations to increase, yielding a reduced net pension
obligation. A reduction in the LTRR reduces the amount of
projected net assets available to satisfy pension obligations
and, thus, causes the net pension obligation to increase.
For post-retirement obligations, the key assumptions used to
estimate the year-end obligations are the discount rate and the
assumptions regarding future medical costs increases. The
discount rate affects the post-retirement obligations in a
similar fashion to that described above for pension obligations.
As the assumed rate of increase in medical costs goes up, so
does the net projected obligation. Conversely, if the rate of
increase is assumed to be smaller, the projected obligation will
decline.
As more fully discussed in Note 9 of Notes to Consolidated
Financial Statements, certain charges have been recorded in 2003
and 2004 in respect of changes in KACC’s pension and
post-retirement benefit plans. The PBGC has assumed
responsibility for the three largest of the Company’s
pension plans. Initially, the Company reflected the effects of
these terminations based on the accounting methodologies for
continuing plans. This resulted in charges of approximately
$121.0 million in 2003 and another $155.0 million in
2004. This methodology was used to record these effects because
there were arguments that the ultimate amount of liability could
be higher or lower than that resulting from following GAAP for
continuing plans, but the ultimate outcome was unknown.
Ultimately, in order to advance the Cases, our negotiations with
the PBGC resulted in the Company ultimately agreeing to a
settlement amount that exceeded the recorded liability by
approximately $154.0 million. The settlement was contingent
on Court approval. While Court approval was received in January
2005, a charge was reflected in the fourth quarter of 2004 for
this settlement as the pension obligations to which the charge
related existed at December 31, 2004. Pursuant to the
agreement with the PBGC, the Company will continue to sponsor
the Company’s remaining pension plans. In addition, as
previously disclosed, the Company’s post-retirement medical
plans were terminated during 2004 and were replaced with medical
coverage through COBRA or the VEBAs. However, definitive, final
termination of the previous post-retirement benefit plan was
contingent on Court approval of the Intercompany Agreement,
which was ultimately received in February 2005. As a result of
the removal of the contingency, the Company reflected an
approximately $312.5 million charge associated with the
termination of the plan at December 31, 2004 as the
liability for this existed at the balance sheet date. The amount
of the charge relates to amounts previously deferred under GAAP
for continuing plans.
While the amounts involved with the new/remaining plans are
substantially less than the amounts in respect of the terminated
plans (and thus subject to a lesser amount of expected
volatility in amounts) they are, nonetheless, subject to the
same sorts of changes and any such changes could be material to
continuing
37
operations. See Note 9 of Notes to Consolidated Financial
Statements regarding the Company’s pension and
post-retirement obligations.
4. The Company’s judgments and estimates in respect to
environmental commitments and contingencies.
The Company and KACC are subject to a number of environmental
laws and regulations, to fines or penalties assessed for alleged
breaches of such laws and regulations, and to claims and
litigation based upon such laws and regulations. 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. These
environmental accruals represent the Company’s estimate of
costs reasonably expected to be incurred on a going concern
basis in the ordinary course of business 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. However, making estimates
of possible environmental remediation costs is subject to
inherent uncertainties. 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.
An example of how environmental accruals could change is
provided by the multi-site agreement discussed in Note 11
of Notes to Consolidated Financial Statements. Another example
discussed in Note 11 of Notes to Consolidated Financial
Statements is the agreements ultimately reached with the parties
and approved by the Court in October 2004 pursuant to which KACC
resolved certain environment obligations in return for cash
payments totaling approximately $27.3 million. As a means
of expediting the reorganization process and to assure treatment
of the claims under a plan of reorganization that is favorable
to the Debtors and their stakeholders, it may be in the best
interests of the stakeholders for the Company to agree to claim
amounts in excess of previous accruals, which were based on an
ordinary course, going concern basis.
Contractual Obligations and Commercial Commitments
The following summarizes the Company’s significant
contractual obligations at December 31, 2004 (dollars in
millions):
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Payments Due in | |
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Less than | |
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2-3 | |
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4-5 | |
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More than | |
| Contractual Obligations |
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Total | |
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1 Year | |
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Years | |
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Years | |
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5 Years | |
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Long-term debt, including capital lease of $2.4(a)
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$ |
4.0 |
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$ |
1.2 |
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$ |
1.2 |
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$ |
— |
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$ |
1.6 |
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Operating leases
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6.8 |
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2.1 |
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3.0 |
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1.4 |
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.3 |
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Total cash contractual obligations
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$ |
10.8 |
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$ |
3.3 |
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$ |
4.2 |
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$ |
1.4 |
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$ |
1.9 |
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| (a) |
See Note 7 of Notes to Consolidated Financial Statements
for information in respect of long-term debt. Long-term debt
obligations exclude debt subject to compromise of approximately
$847.6 million, which amounts will be dealt with in
connection with a plan of reorganization. See Notes 1 and 7
of Notes to Consolidated Financial Statements for additional
information about debt subject to compromise. |
The following paragraphs summarize the Company’s
off-balance sheet arrangements.
KACC currently owns a 20% interest in QAL, which owns one of the
largest and most competitive alumina refineries in the world,
located in Queensland, Australia. QAL refines bauxite into
alumina, essentially on a cost basis, for the account of its
shareholders under long-term tolling contracts. KACC sells its
share of QAL’s production to third parties. The
shareholders, including KACC, purchased bauxite from
38
another QAL shareholder under long-term purchase contracts.
These tolling and purchase contracts 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 future principal payments as of December 31, 2004
was $60.0 million, which will mature in varying amounts
from 2005 to 2008. KACC’s share of QAL’s scheduled
debt principal repayment in July 2003 was funded with additional
QAL borrowings. KACC’s share of payments, including
operating costs and certain other expenses under the agreements,
has generally ranged between $70.0 million and
$100.0 million per year over the past three years. However,
as discussed more fully in Note 5 of Notes to Consolidated
Financial Statements, the Company’s sale of its interests
in and related to QAL is expected to close in April 2005. As a
result, KACC’s obligations in respect of its share of the
QAL debt will be assumed by the buyer. The Company has
agreements to supply alumina to and to purchase aluminum from
Anglesey, a 49.0%-owned aluminum smelter in Holyhead, Wales.
As of December 31, 2004, outstanding letters of credit
under the Replaced Facility were approximately
$31.5 million, substantially all of which expire within the
next twelve months. The letters of credit relate primarily to
environmental, insurance and other activities.
The Company anticipates that it will provide a defined
contribution pension plan in respect of its salaried employees.
The Company currently estimates that the total annual cash cost
of such plans would be less than $5.0 million and expects
such plan implement in the second quarter of 2005.
Pursuant to the terms of the USWA agreement (see Note 9 of
Notes to Consolidated Financial Statements), KACC will be
required to make annual contributions into the Steelworkers
Pension Trust on the basis of one dollar per USWA employee per
hour worked. In addition, KACC will institute a defined
contribution pension plan for active USWA employees. KACC
contributions to the plan will range from eight hundred dollars
to twenty-four hundred dollars per employee per year, depending
on age and years of service. In addition, in connection with the
settlement with the PBGC which was approved by the Court in
January 2005, the Company will continue to sponsor specific
pension plans at four of the Company’s locations and will
satisfy the estimated $4.1 million minimum funding
contribution. The Company currently estimates that contributions
to all such plans will range from $3.0 million to
$6.0 million per year.
As a replacement for the Company’s current postretirement
benefit plans, the Company agreed to contribute certain amounts
to one or more VEBAs. Such contributions are to include:
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• |
An amount not to exceed $36.0 million and payable on
emergence from the Chapter 11 proceedings so long as the
Company’s liquidity (i.e. cash plus borrowing availability)
is at least $50.0 million after considering such payments.
To the extent that less than the full $36.0 million is paid
and the Company’s interests in Anglesey are subsequently
sold, a portion of such sales proceeds, in certain
circumstances, will be used to pay the shortfall. |
| |
| |
• |
On an annual basis, 10% of the first $20.0 million of
annual cash flow, as defined, plus 20% of annual cash flow, as
defined, in excess of $20.0 million. Such annual payments
shall not exceed $20.0 million and will also be limited
(with no carryover to future years) to the extent that the
payments do not cause the Company’s liquidity to be less
than $50.0 million. |
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| |
• |
Advances of $3.1 million in June 2004 and $1.9 million
per month thereafter until the Company emerges from the Cases.
Any advances made pursuant to such agreement will constitute a
credit toward the $36.0 million maximum contribution due
upon emergence. |
On June 1, 2004, the Court approved an order making the
agreements regarding pension and postretirement medical benefits
effective on June 1, 2004 notwithstanding that the
Intercompany Agreement was not effective as of that date. In
October 2004, the Company entered into an amendment to the USWA
agreement, which was approved by the Court in February 2005. As
provided in the amendment, the Company will be required to pay
an additional annual contribution of $1.0 million.
In connection with the sale of the Gramercy facility and KJBC,
the Company indemnified the buyer against losses suffered by the
buyer that result from any breaches of certain seller
representations and
39
warranties up to $5.0 million which amount has been
recorded in long-term liabilities in the accompanying financial
statements. The indemnity expires in October 2006.
In November 2004, the Company entered into an agreement to sell
its interest in and related to QAL. Gross proceeds from the sale
are expected to be approximately $401.0 million, subject to
various working capital and other adjustments and the assumption
of the Company’s obligations in respect of approximately
$60.0 million of QAL debt. The vast majority of the value
realized in respect of the Company’s interests in and
related to QAL is likely to be for the benefit of holders of the
Senior Notes, the Sub Notes and PBGC. The agreement was approved
by the Court in November 2004 and is expected to close in April
2005.
At emergence from Chapter 11, KACC will have to pay or
otherwise provide for a material amount of claims. Such claims
include accrued but unpaid professional fees, priority pension,
tax and environmental claims, secured claims, and certain
post-petition obligations (collectively, “Exit
Costs”). KACC currently estimates that its Exit Costs will
be in the range of $60.0 million to $80.0 million.
KACC expects to fund such Exit Costs using the proceeds to be
received under the Intercompany Agreement together with existing
cash resources and borrowing availability under the exit
financing facilities that are expected to replace the DIP
Facility.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
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. As discussed more fully in
Notes 2 and 12 of Notes to Consolidated Financial
Statements, KACC historically has utilized 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. However, 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
initial Filing Date. KACC has only completed limited hedging
activities since the Filing Date (see below). The Company
anticipates that, subject to prevailing economic conditions, it
may enter into additional hedging transactions with respect to
primary aluminum prices and natural gas prices and foreign
currency values to protect the interests of its constituents.
However, no assurance can be given as to when or if the Company
will enter into such additional hedging activities.
Sensitivity
Primary Aluminum. KACC’s share of primary aluminum
production from Anglesey is approximately 150,000,000 pounds
annually. Because KACC purchases alumina for Anglesey at prices
linked to primary aluminum prices, only a portion of the
Company’s net revenues associated with Anglesey are exposed
to price risk. The Company estimates the net portion of its
share of Anglesey production exposed to primary aluminum price
risk to be approximately 100,000,000 pounds annually.
As stated above, the Company’s pricing of fabricated
aluminum products is generally intended to lock-in a conversion
margin (representing the value added from the fabrication
process(es)) and to pass metal price risk on to its customers.
However, in certain instances the Company does enter into firm
price arrangements. In such instances, the Company does have
price risk on its anticipated primary aluminum purchase in
respect of the customer’s order. Total fabricated products
shipments during 2002, 2003 and 2004 for which the Company had
price risk were (in millions of pounds) 99.0, 97.6, and 119.0,
respectively.
During the last three years the volume of fabricated products
shipments with underlying primary aluminum price risk were
roughly the same as the Company’s net exposure to primary
aluminum price risk at Anglesey. As such, the Company considers
its access to Anglesey production overall to be a
“natural” hedge against any fabricated products firm
metal-price risk. However, since the volume of fabricated
products shipped under firm prices may not match up on a
month-to-month basis with expected Anglesey-related primary
aluminum shipments, the Company may use third party hedging
instruments to eliminate any net remaining primary aluminum
price exposure existing at any time.
40
At December 31, 2004, the fabricated products business held
contracts for the delivery of fabricated aluminum products that
have the effect of creating price risk on anticipated primary
aluminum purchases for the period 2005 - 2008 totaling
approximately (in millions of pounds): 2005: 104.0, 2006: 41.0,
2007: 38.0, and 2008: 10.0.
Foreign Currency. KACC from time to time will enter into
forward exchange contracts to hedge material cash commitments
for foreign currencies. After considering the pending and
completed sales of the Company’s commodity interests,
KACC’s primary foreign exchange exposure is the
Anglesey-related commitment that the Company funds in Great
Britain Pound Sterling (“GBP”). The Company estimates
that, before consideration of any hedging activities, a
US $0.01 increase (decrease) in the value of the GBP
results in an approximate $0.5 million (decrease) increase
in the Company’s annual pre-tax operating income.
41
Item
8. Financial
Statements and Supplementary Data
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Page | |
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Report of Independent Registered Public Accounting Firm
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43 |
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Consolidated Balance Sheets
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44 |
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Statements of Consolidated Income (Loss)
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45 |
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Statements of Consolidated Stockholders’ Equity (Deficit)
and Comprehensive Income (Loss)
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46 |
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Statements of Consolidated Cash Flows
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47 |
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Notes to Consolidated Financial Statements
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48 |
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Quarterly Financial Data (Unaudited)
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99 |
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Five-Year Financial Data
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100 |
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42
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(DEBTOR-IN-POSSESSION)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Kaiser
Aluminum Corporation:
We have audited the accompanying consolidated balance sheets of
Kaiser Aluminum Corporation (Debtor-In-Possession) and
subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of income (loss),
stockholders’ equity (deficit) and comprehensive income
(loss) and cash flows for each of the three years in the period
ended December 31, 2004. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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, such consolidated financial statements present
fairly, in all material respects, the financial position of
Kaiser Aluminum Corporation and subsidiaries as of
December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Note 1, the Company and its wholly owned
subsidiary, Kaiser Aluminum & Chemical Corporation
(“KACC”), and certain of KACC’s subsidiaries have
filed for reorganization under Chapter 11 of the Federal
Bankruptcy Code. The accompanying consolidated financial
statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such
financial statements do not purport to show (a) as to
assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to pre-petition
liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as
to stockholder accounts, the effect of any changes that may be
made in the capitalization of the Company; or (d) as to
operations, the effect of any changes that may be made in its
business.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Notes 1 and 2, the action of
filing for reorganization under Chapter 11 of the Federal
Bankruptcy Code, losses from operations and stockholders’
capital deficiency raise substantial doubt about the
Company’s ability to continue as a going concern.
Management’s plans concerning these matters are also
discussed in Note 1. The financial statements do not
include adjustments that might result from the outcome of this
uncertainty.
/s/ Deloitte &
Touche LLP
Houston, Texas
March 31, 2005
43
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
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December 31, | |
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2004 | |
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2003 | |
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(In millions of dollars, | |
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except share amounts) | |
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ASSETS |
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Current assets:
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Cash and cash equivalents
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$ |
55.4 |
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$ |
35.5 |
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Receivables:
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Trade, less allowance for doubtful receivables of $6.9 and $6.4
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97.4 |
|
|
|
61.4 |
|
| |
|
Due from affiliate
|
|
|
8.0 |
|
|
|
12.8 |
|
| |
|
Other
|
|
|
5.6 |
|
|
|
6.3 |
|
| |
Inventories
|
|
|
105.3 |
|
|
|
92.5 |
|
| |
Prepaid expenses and other current assets
|
|
|
19.6 |
|
|
|
23.8 |
|
| |
Discontinued operations’ current assets
|
|
|
30.6 |
|
|
|
193.7 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
321.9 |
|
|
|
426.0 |
|
|
Investments in and advances to unconsolidated affiliate
|
|
|
16.7 |
|
|
|
13.1 |
|
|
Property, plant, and equipment — net
|
|
|
214.6 |
|
|
|
230.1 |
|
|
Restricted proceeds from sale of commodity interests
|
|
|
280.8 |
|
|
|
— |
|
|
Personal injury-related insurance recoveries receivable
|
|
|
967.0 |
|
|
|
465.4 |
|
|
Other assets
|
|
|
42.5 |
|
|
|
55.1 |
|
|
Discontinued operations’ long-term assets
|
|
|
38.9 |
|
|
|
433.8 |
|
| |
|
|
|
|
|
|
| |
|
Total
|
|
$ |
1,882.4 |
|
|
$ |
1,623.5 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
Liabilities not subject to compromise —
|
|
|
|
|
|
|
|
|
| |
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
|
Accounts payable
|
|
$ |
51.8 |
|
|
$ |
36.3 |
|
| |
|
Accrued interest
|
|
|
.9 |
|
|
|
.8 |
|
| |
|
Accrued salaries, wages, and related expenses
|
|
|
48.9 |
|
|
|
31.6 |
|
| |
|
Accrued postretirement medical benefit obligation —
current portion
|
|
|
— |
|
|
|
32.5 |
|
| |
|
Other accrued liabilities
|
|
|
73.7 |
|
|
|
29.7 |
|
| |
|
Payable to affiliate
|
|
|
14.7 |
|
|
|
11.4 |
|
| |
|
Long-term debt — current portion
|
|
|
1.2 |
|
|
|
1.3 |
|
| |
|
Discontinued operations’ current liabilities
|
|
|
57.7 |
|
|
|
177.5 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
248.9 |
|
|
|
321.1 |
|
| |
Long-term liabilities
|
|
|
32.9 |
|
|
|
59.4 |
|
| |
Long-term debt
|
|
|
2.8 |
|
|
|
2.2 |
|
| |
Discontinued operations’ long-term liabilities, including
minority interests of $121.1
in 2003
|
|
|
26.4 |
|
|
|
208.7 |
|
| |
|
|
|
|
|
|
| |
|
|
311.0 |
|
|
|
591.4 |
|
|
Liabilities subject to compromise
|
|
|
3,954.9 |
|
|
|
2,770.1 |
|
|
Minority interests
|
|
|
.7 |
|
|
|
.7 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
| |
Common stock, par value $.01, authorized
125,000,000 shares; issued and outstanding 79,680,645 and
80,010,214 shares
|
|
|
.8 |
|
|
|
.8 |
|
| |
Additional capital
|
|
|
538.0 |
|
|
|
539.1 |
|
| |
Accumulated deficit
|
|
|
(2,917.5 |
) |
|
|
(2,170.7 |
) |
| |
Accumulated other comprehensive income (loss)
|
|
|
(5.5 |
) |
|
|
(107.9 |
) |
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity (deficit)
|
|
|
(2,384.2 |
) |
|
|
(1,738.7 |
) |
| |
|
|
|
|
|
|
| |
|
Total
|
|
$ |
1,882.4 |
|
|
$ |
1,623.5 |
|
| |
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
44
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions of dollars, except | |
| |
|
share and per share amounts) | |
|
Net sales
|
|
$ |
942.4 |
|
|
$ |
710.2 |
|
|
$ |
709.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of products sold
|
|
|
852.2 |
|
|
|
681.2 |
|
|
|
671.4 |
|
| |
Depreciation and amortization
|
|
|
22.3 |
|
|
|
25.7 |
|
|
|
32.3 |
|
| |
Selling, administrative, research and development, and general
|
|
|
92.3 |
|
|
|
92.5 |
|
|
|
118.6 |
|
| |
Other operating charges (benefits), net
|
|
|
793.2 |
|
|
|
141.6 |
|
|
|
31.8 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total costs and expenses
|
|
|
1,760.0 |
|
|
|
941.0 |
|
|
|
854.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(817.6 |
) |
|
|
(230.8 |
) |
|
|
(145.1 |
) |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense (excluding unrecorded contractual interest
expense of $95.0 in 2004, $95.0 in 2003 and $84.0 in 2002)
|
|
|
(9.5 |
) |
|
|
(9.1 |
) |
|
|
(19.0 |
) |
| |
Reorganization items
|
|
|
(39.0 |
) |
|
|
(27.0 |
) |
|
|
(33.3 |
) |
| |
Other — net
|
|
|
4.2 |
|
|
|
(5.2 |
) |
|
|
(.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and discontinued operations
|
|
|
(861.9 |
) |
|
|
(272.1 |
) |
|
|
(198.3 |
) |
|
Provision for income taxes
|
|
|
(6.2 |
) |
|
|
(1.5 |
) |
|
|
(4.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(868.1 |
) |
|
|
(273.6 |
) |
|
|
(202.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from discontinued operations, net of income taxes,
including minority interests
|
|
|
(5.3 |
) |
|
|
(514.7 |
) |
|
|
(266.0 |
) |
| |
Gain from sale of commodity interests
|
|
|
126.6 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
121.3 |
|
|
|
(514.7 |
) |
|
|
(266.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(746.8 |
) |
|
$ |
(788.3 |
) |
|
$ |
(468.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — Basic/ Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from continuing operations
|
|
$ |
(10.88 |
) |
|
$ |
(3.41 |
) |
|
$ |
(2.52 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Income (loss) from discontinued operations
|
|
$ |
1.52 |
|
|
$ |
(6.42 |
) |
|
$ |
(3.30 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
$ |
(9.36 |
) |
|
$ |
(9.83 |
) |
|
$ |
(5.82 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (000):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic/ Diluted
|
|
|
79,815 |
|
|
|
80,175 |
|
|
|
80,578 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
45
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY
(DEFICIT) AND
COMPREHENSIVE INCOME (LOSS)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Accumulated | |
|
|
| |
|
|
|
|
|
|
|
Other | |
|
|
| |
|
|
|
|
|
|
|
Comprehensive | |
|
|
| |
|
Common | |
|
Additional | |
|
Accumulated | |
|
Income | |
|
|
| |
|
Stock | |
|
Capital | |
|
Deficit | |
|
(Loss) | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions of dollars) | |
|
BALANCE, December 31, 2001
|
|
$ |
.8 |
|
|
$ |
539.1 |
|
|
$ |
(913.7 |
) |
|
$ |
(67.3 |
) |
|
$ |
(441.1 |
) |
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
(468.7 |
) |
|
|
— |
|
|
|
(468.7 |
) |
| |
Minimum pension liability adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(136.6 |
) |
|
|
(136.6 |
) |
| |
Unrealized net decrease in value of derivative instruments
arising during the year prior to settlement
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12.1 |
) |
|
|
(12.1 |
) |
| |
Reclassification adjustment for net realized gains on derivative
instruments included in net loss, net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27.9 |
) |
|
|
(27.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income (loss)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(645.3 |
) |
| |
Incentive plan accretion
|
|
|
— |
|
|
|
.8 |
|
|
|
— |
|
|
|
— |
|
|
|
.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2002
|
|
|
.8 |
|
|
|
539.9 |
|
|
|
(1,382.4 |
) |
|
|
(243.9 |
) |
|
|
(1,085.6 |
) |
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
(788.3 |
) |
|
|
— |
|
|
|
(788.3 |
) |
| |
Minimum pension liability adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
138.6 |
|
|
|
138.6 |
|
| |
Unrealized net decrease in value of derivative instruments
arising during the year
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.6 |
) |
|
|
(1.6 |
) |
| |
Reclassification adjustment for net realized gains on derivative
instruments included in net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.0 |
) |
|
|
(1.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(652.3 |
) |
| |
Restricted stock cancellations
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
| |
Restricted stock accretion
|
|
|
— |
|
|
|
.2 |
|
|
|
— |
|
|
|
— |
|
|
|
.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2003
|
|
|
.8 |
|
|
|
539.1 |
|
|
|
(2,170.7 |
) |
|
|
(107.9 |
) |
|
|
(1,738.7 |
) |
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
(746.8 |
) |
|
|
— |
|
|
|
(746.8 |
) |
| |
Minimum pension liability adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
97.9 |
|
|
|
97.9 |
|
| |
Unrealized net increase in value of derivative instruments
arising during the year
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.1 |
|
|
|
2.1 |
|
| |
Reclassification adjustment for net realized losses on
derivative instruments included in net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.4 |
|
|
|
2.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(644.4 |
) |
| |
Restricted stock cancellations
|
|
|
— |
|
|
|
(1.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2004
|
|
$ |
.8 |
|
|
$ |
538.0 |
|
|
$ |
(2,917.5 |
) |
|
$ |
(5.5 |
) |
|
$ |
(2,384.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
46
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
STATEMENTS OF CONSOLIDATED CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions of dollars) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
$ |
(746.8 |
) |
|
$ |
(788.3 |
) |
|
$ |
(468.7 |
) |
| |
|
Less net income (loss) from discontinued operations
|
|
|
121.3 |
|
|
|
(514.7 |
) |
|
|
(266.0 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Net loss from continuing operations
|
|
|
(868.1 |
) |
|
|
(273.6 |
) |
|
|
(202.7 |
) |
| |
|
Adjustments to reconcile net loss from continuing operations to
net cash used by continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Non-cash charges in other operating charges
|
|
|
805.3 |
|
|
|
161.7 |
|
|
|
38.9 |
|
| |
|
|
Depreciation and amortization (including deferred financing
costs of $5.8, $4.7 and $3.8, respectively)
|
|
|
28.1 |
|
|
|
30.4 |
|
|
|
36.1 |
|
| |
|
|
Gains — sale of Tacoma facility in 2003, sale of real
estate and miscellaneous equipment in 2002
|
|
|
— |
|
|
|
(14.5 |
) |
|
|
(3.8 |
) |
| |
|
|
Equity in (income) loss of unconsolidated affiliates, net of
distributions
|
|
|
(4.0 |
) |
|
|
1.0 |
|
|
|
2.4 |
|
| |
|
|
(Increase) decrease in trade and other receivables
|
|
|
(30.5 |
) |
|
|
(13.3 |
) |
|
|
7.6 |
|
| |
|
|
(Increase) decrease in inventories, excluding LIFO adjustments
and other non-cash operating items
|
|
|
(24.5 |
) |
|
|
10.7 |
|
|
|
31.2 |
|
| |
|
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
.8 |
|
|
|
3.1 |
|
|
|
(5.9 |
) |
| |
|
|
Increase in accounts payable and accrued interest
|
|
|
16.4 |
|
|
|
8.1 |
|
|
|
30.5 |
|
| |
|
|
(Decrease) increase in other accrued liabilities
|
|
|
(18.6 |
) |
|
|
9.8 |
|
|
|
13.0 |
|
| |
|
|
Increase in payable to affiliates
|
|
|
3.3 |
|
|
|
.2 |
|
|
|
.4 |
|
| |
|
|
Increase (decrease) in accrued and deferred income taxes
|
|
|
1.7 |
|
|
|
(4.1 |
) |
|
|
.6 |
|
| |
|
|
Net cash impact of changes in long-term assets and liabilities
|
|
|
(11.5 |
) |
|
|
27.1 |
|
|
|
22.9 |
|
| |
|
|
Net cash provided (used) by discontinued operations
|
|
|
64.0 |
|
|
|
(29.5 |
) |
|
|
(23.5 |
) |
| |
|
|
Other
|
|
|
(.4 |
) |
|
|
(4.0 |
) |
|
|
.6 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used by operating activities
|
|
|
(38.0 |
) |
|
|
(86.9 |
) |
|
|
(51.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net proceeds from dispositions: real estate and equipment in
2004, primarily Tacoma facility and interests in office building
complex in 2003, primarily Fabricated products’ equipment
in 2002
|
|
|
2.3 |
|
|
|
83.0 |
|
|
|
28.5 |
|
| |
Capital expenditures
|
|
|
(7.6 |
) |
|
|
(8.9 |
) |
|
|
(10.9 |
) |
| |
Net cash provided (used) by discontinued operations;
primarily proceeds from sale of commodity interests in 2004 and
Alpart-related capital expenditures in 2003 and 2002
|
|
|
356.7 |
|
|
|
(25.0 |
) |
|
|
(33.8 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided (used) by investing activities
|
|
|
351.4 |
|
|
|
49.1 |
|
|
|
(16.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Financing costs, primarily DIP Facility related
|
|
|
(2.4 |
) |
|
|
(4.1 |
) |
|
|
(8.8 |
) |
| |
Net cash used for restricted proceeds from sale of commodity
interests and payment of Alpart CARIFA loan of $14.6
|
|
|
(291.1 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used by financing activities
|
|
|
(293.5 |
) |
|
|
(4.1 |
) |
|
|
(8.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents during the
year
|
|
|
19.9 |
|
|
|
(41.9 |
) |
|
|
(76.7 |
) |
|
Cash and cash equivalents at beginning of year
|
|
|
35.5 |
|
|
|
77.4 |
|
|
|
154.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
55.4 |
|
|
$ |
35.5 |
|
|
$ |
77.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest paid, net of capitalized interest of $.1, $.2 and $.1
|
|
$ |
3.8 |
|
|
$ |
4.0 |
|
|
$ |
5.4 |
|
| |
Less interest paid by discontinued operations, net of
capitalized interest of $.9 in 2003 and $1.1 in 2002
|
|
|
(.9 |
) |
|
|
(1.2 |
) |
|
|
(1.4 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
2.9 |
|
|
$ |
2.8 |
|
|
$ |
4.0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Income taxes paid
|
|
$ |
10.7 |
|
|
$ |
46.1 |
|
|
$ |
37.5 |
|
| |
Less income taxes paid by discontinued operations
|
|
|
(10.7 |
) |
|
|
(41.3 |
) |
|
|
(34.5 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
4.8 |
|
|
$ |
3.0 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
47
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share amounts)
|
|
| 1. |
Reorganization Proceedings |
Background. Kaiser Aluminum Corporation
(“Kaiser”, “KAC” or the
“Company”), its wholly owned subsidiary, Kaiser
Aluminum & Chemical Corporation (“KACC”), and
24 of KACC’s subsidiaries have 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”); the Company, KACC and 15 of KACC’s
subsidiaries (the “Original Debtors”) filed in the
first quarter of 2002 and nine additional KACC subsidiaries (the
“Additional Debtors”) filed in the first quarter of
2003. The Original Debtors and Additional Debtors 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” means,
with respect to any particular Debtor, the date on which such
Debtor filed its Case. None of KACC’s non-U.S. joint
ventures are included in the Cases. The Cases are being jointly
administered. The Debtors are managing their businesses in the
ordinary course as debtors-in-possession subject to the control
and administration of the Court.
During the first quarter of 2002, the Original Debtors filed
separate voluntary petitions for reorganization. The wholly
owned subsidiaries of KACC included in such filings were: Kaiser
Bellwood Corporation (“Bellwood”), Kaiser Aluminium
International, Inc. (“KAII”), Kaiser Aluminum
Technical Services, Inc. (“KATSI”), Kaiser Alumina
Australia Corporation (“KAAC”) (and its wholly owned
subsidiary, Kaiser Finance Corporation (“KFC”)) and
ten other entities with limited balances or activities.
The Original Debtors found it necessary to file the Cases
primarily because of liquidity and cash flow problems of the
Company and its subsidiaries that arose 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, 2001. In addition, the Company had become
increasingly burdened by 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 flows, resulting in lower
credit ratings and an inability to access the capital markets.
On January 14, 2003, the Additional Debtors filed separate
voluntary petitions for reorganization. The wholly owned
subsidiaries included in such filings were: Kaiser Bauxite
Company (“KBC”), Kaiser Jamaica Corporation
(“KJC”), Alpart Jamaica Inc. (“AJI”), Kaiser
Aluminum & Chemical of Canada Limited
(“KACOCL”) and five other entities with limited
balances or activities. Ancillary proceedings in respect of
KACOCL and two Additional Debtors were also commenced in Canada
simultaneously with the January 14, 2003 filings.
The Cases filed by the Additional Debtors were commenced, among
other reasons, to protect the assets held by these Debtors
against possible statutory liens that might have arisen and been
enforced by the Pension Benefit Guaranty Corporation
(“PBGC”) primarily as a result of the Company’s
failure to meet a $17.0 accelerated funding requirement to its
salaried employee retirement plan in January 2003 (see
Note 9 for additional information regarding the accelerated
funding requirement). The filing of the Cases by the Additional
Debtors had no impact on the Company’s day-to-day
operations.
The outstanding principal of, and accrued interest on, all debt
of the Debtors became immediately due and payable upon
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) during the pendency of the
Cases. In connection with the filing of the Debtors’ Cases,
the Court, upon motion by the Debtors, authorized 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
48
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
business, subject to certain limitations and to continue using
the Company’s existing cash management systems. The Debtors
also have the right to assume or reject executory contracts
existing prior to the Filing Date, 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 a pre-Filing Date executory contract is
treated as a general unsecured claim in the Cases.
Case Administration. Generally, pre-Filing Date claims,
including certain contingent or unliquidated claims, against the
Debtors will fall into two categories: secured and unsecured.
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 bar dates (established by the Court) by
which holders of pre-Filing Date claims against the Debtors
(other than asbestos-related personal injury claims) could file
their claims have passed. Any holder of a claim that was
required to file such claim by such bar date and did not do so
may be barred from asserting such claim against any of the
Debtors and, accordingly, may not be able to participate in any
distribution in any of the Cases on account of such claim. The
Company has not yet completed its analysis of all of the proofs
of claim to determine their validity. However, during the course
of the Cases, certain matters in respect of the claims have been
resolved. Material provisions in respect of claim settlements
are included in the accompanying financial statements and are
fully disclosed elsewhere herein. The bar dates do not apply to
asbestos-related personal injury claims, for which no bar date
has been set.
Two creditors’ committees, one representing the unsecured
creditors (the “UCC”) and the other representing the
asbestos claimants (the “ACC”), have been appointed as
official committees in the Cases and, in accordance with the
provisions of the Code, have the right to be heard on all
matters that come before the Court. In August 2003, the Court
approved the appointment of a committee of salaried retirees
(the “1114 Committee” and, together with the UCC
and the ACC, the “Committees”) with whom the Debtors
have negotiated necessary changes, including the modification or
termination, of certain retiree benefits (such as medical and
insurance) under Section 1114 of the Code. The Committees,
together with the Court-appointed legal representatives for
(a) potential future asbestos claimants (the “Asbestos
Futures’ Representative”) and (b) potential
future silica and coal tar pitch volatile claimants (the
“Silica/ CTPV Futures’ Representative” and,
collectively with the Asbestos Futures” Representative, the
“Futures’ Representatives”), have played and will
continue to play important roles in the Cases and in the
negotiation of the terms of any plan or plans of reorganization.
The Debtors are required to bear certain costs and expenses for
the Committees and the Futures’ Representatives, including
those of their counsel and other advisors.
As provided by the Code, the Debtors had the exclusive right to
propose a plan of reorganization for 120 days following the
initial Filing Date. The Court has subsequently approved several
extensions of the exclusivity period for all Debtors. Most
recently, the Court approved an extension of exclusivity as to
all Debtors (other than AJI, KJC, KAAC and KFC) to June 30,
2005. Exclusivity for AJI, KJC, KAAC and KFC was most recently
extended to April 30, 2005. Additional extensions may be
sought. However, no assurance can be given that any such future
extension requests will be granted by the Court. If the Debtors
fail to file a plan of reorganization during the exclusivity
period, 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.
Commodity-related and Inactive Subsidiaries. As
previously disclosed, the Company expects that by April 2005 it
will have sold all of its commodity-related interests other than
its interests in Anglesey. It is
49
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
anticipated that, as more fully discussed below, the proceeds
from the sale of these interests will be distributed primarily
to the affected subsidiaries’ creditors pursuant to certain
liquidating plans and other agreements. The primary subsidiaries
affected by this strategy are AJI, KJC, KAAC, KFC and KBC.
During November 2004, four of KACC’s commodity-related
subsidiaries (AJI, KJC, KAAC and KFC, collectively, the
“Liquidating Subsidiaries”) filed separate joint plans
of liquidation and related disclosure statements with the Court.
Such plans, together with all amendments filed thereto, are
separately referred to as the “AJI/KJC Plan” and the
“KAAC/KFC Plan” and collectively as the
“Liquidating Plans”). Under the Liquidating Plans, the
assets of those entities, consisting primarily of the net cash
proceeds received (or to be received) by them in connection with
the sales of their commodities interests, will be transferred to
liquidating trusts, whereupon the Liquidating Subsidiaries will
be dissolved. The liquidating trusts will then make
distributions to the creditors of the Liquidating Subsidiaries
in accordance with the Liquidating Plans. As indicated in the
Liquidating Plans, it is currently anticipated that the
Liquidating Subsidiaries will have an aggregate of approximately
$673.8 of cash available for distribution to creditors when the
Liquidating Plans become effective. The Liquidating Plans
outline the specific treatment of creditors and their estimated
recoveries in respect of the Liquidating Subsidiaries under
several possible scenarios. The Liquidating Plans indicate that,
after payment of priority claims, trust expenses (initial
reserves for which are expected to be established in the range
of $37.0 to $46.0), and payments to KACC under the Intercompany
Settlement Agreement (“Intercompany Agreement”) (see
discussion below) the Liquidating Subsidiaries anticipate
ultimately distributing available cash to the following
claimholders in the following amounts:
| |
|
|
|
|
|
KACC’s Senior Notes and Senior Subordinated Notes
|
|
|
$390.7 to $421.8 |
|
|
PBGC
|
|
|
$187.6 to $198.5 |
|
|
State of Louisiana Solid Waste Revenue Bonds
|
|
|
$ 0.0 to $ 8.0 |
|
Under the Liquidating Plans as filed with the Court, $16.0 of
payments are to be made for the benefit of holders of
KACC’s
123/4%
Senior Subordinated Notes (the “Sub Notes”) if, and
only if, the holders of both (a) KACC’s
97/8%
Senior Notes and
107/8%
Senior Notes (collectively, the “Senior Notes”) and
(b) the Sub Notes, approve the plans. If either the holders
of the Senior Notes or the Sub Notes fail to accept the
Liquidating Plans, the Court will determine distributions to
such holders. Holders of the Parish of St. James, State of
Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue
Bonds”) are not allowed a vote on the Liquidating Plans but
will receive up to $8.0 only if the Liquidating Plans are
accepted by the Senior Notes and, unless the holders of the
Senior Notes agree, all holders of the Senior Notes receive the
identical treatment under the Liquidating Plans. If the
Liquidating Plans are not accepted by the holders of the Senior
Notes then, pursuant to the Liquidating Plans, the Court will
determine the distributions to the Revenue Bonds. Any amounts
paid in respect of the Sub Notes and the Revenue Bonds will be
paid from amounts that otherwise would be distributed to holders
of the Senior Notes.
As previously disclosed, a group of holders of the Sub Notes
(the “Sub Note Group”) has formed an unofficial
committee to represent all holders of Sub Notes and retained its
own legal counsel. The Sub Note Group is asserting that the
Sub Note holders’ claims against the subsidiary guarantors
(and in particular the Liquidating Subsidiaries) may not, as a
technical matter, be contractually subordinate to the claims of
the holders of the Senior Notes against the subsidiary
guarantors (including AJI, KJC, KAAC and KFC). A separate group
that holds both Sub Notes and KACC’s
97/8% Senior
Notes has made a similar assertion, but at the same time,
maintains that a portion of KACC’s
97/8% Senior
Notes holders’ claims against the subsidiary guarantors are
contractually senior to the Sub Notes holders’ claims
against the subsidiary guarantors. The effect of such positions,
if ultimately sustained, would be that the holders of Sub Notes
would be on a par with all or portion of the holders of the
Senior Notes in respect of proceeds from sales of the
Company’s interests in and related to the Liquidating
Subsidiaries. If both the holders of the Senior Notes and the
holders of the Sub Notes do not approve the Liquidating Plans,
then the Court will determine the appropriate allocation to these
50
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
groups under the Liquidating Plans. While the Company cannot
currently predict how the Court might rule in such an instance,
based on the objections and pleadings filed by the Sub Note
Group and the group that holds Sub Notes and KACC’s
97/8% Senior
Notes, if the Court were to rule in favor of the Sub Notes, the
Company estimates that it is possible that the holders of the
Sub Notes could receive between approximately $67.0 and
approximately $215.0 depending on whether the Sub Notes were
determined to rank on par with a portion or all of the Senior
Notes. Conversely, if the holders of both the Senior Notes and
the Sub Notes do not approve the Liquidating Plans and the Court
were to rule in favor of the Senior Notes, then it is possible
that the holders of the Sub Notes would receive no distributions
under Liquidating Plans. The Company believes that the intent of
the indentures in respect of the Senior Notes and the Sub Notes
was to subordinate the claims of the Sub Note holders in respect
of the subsidiary guarantors (including the Liquidating
Subsidiaries). The Company cannot predict, however, the ultimate
resolution of the matters raised by the Sub Note Group, or
the other group, when any such resolution will occur, or what
impact any such resolution may have on the Company, the Cases or
distributions to affected noteholders.
The Court approved the disclosure statements related to the
Liquidating Plans in February 2005 and the Liquidating
Subsidiaries are now seeking confirmation of the Liquidating
Plans at a confirmation hearing scheduled to be held in April
2005. However, there can be no assurance as to whether or when
the Liquidating Plans will be confirmed by the Court or
ultimately consummated or, if confirmed and consummated as to
the amount of distributions to be made to individual creditors
of the Liquidating Subsidiaries or KACC. The foregoing
disclosure is not intended to be, nor should it be construed to
be, a solicitation for a vote on the Liquidating Plans. The
Liquidating Plans relate exclusively to AJI, KJC, KAAC and KFC
and will have no impact on the normal, ongoing operations of the
Company’s Fabricated products business unit or other
continuing operations.
The above amounts are net of payments that are to be made by
AJI, KJC and KAAC to KACC in respect of pre-petition and
post-Filing Date intercompany claims pursuant to the
Intercompany Agreement that was approved by the Court in
February 2005. The Intercompany Agreement also resolves
substantially all other pre-and post-petition intercompany
claims between the Debtors. The Intercompany Agreement provides,
among other things, for payments of cash by AJI, KJC and KAAC
from the sale of their respective interests in and related to
Alpart and QAL to KACC of at least $90.0 in respect of its
intercompany claims against AJI, KJC and KAAC. Under the
Intercompany Agreement, such payments would be increased or
decreased for (1) any net cash flows funded by or collected
by KACC related to: (a) the Company’s interests in and
related to Alpart from January 1, 2004 through July 1,
2004 (estimated to be approximately $21.0 collected by the
Company); (b) the Company’s interests in and related
to QAL from July 1, 2004 through KAAC’s emergence from
Chapter 11 (estimated to be in the $15.0 range collected by
the Company through December 31, 2004); and (c) third
party costs and certain limited overhead of KACC’s
activities related to the sale of AJI’s, KJC’s and
KAAC’s respective interests in and related to Alpart and
QAL and (2) any purchase price adjustments (other than
incremental amounts related to alumina sales contracts to be
transferred) pursuant to KACC’s sale of its interests in
Alpart. As provided under the Intercompany Agreement, KACC was
reimbursed for approximately $14.5 of payments made in the third
quarter of 2004 to retire Alpart-related debt and $28.0 in
November 2004 as a partial payment of Alpart-related sales
proceeds. The Intercompany Agreement calls for the remaining
payments to be made in specific increments to KACC at the
earlier of the time of the closing of the sale of the
Company’s interests in QAL and upon the effective dates of
the Liquidating Plans.
It is anticipated that KBC will be dealt with either separately
or in concert with the KACC plan of reorganization as more fully
discussed below. Sixteen of the Debtors (including KAC) have no
material ongoing activities or operations and have no material
assets or liabilities other than intercompany claims (which are
to be resolved pursuant to the Intercompany Agreement). The
Company believes that it is likely that most of these entities
will ultimately be merged out of existence or dissolved in some
manner.
51
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Entities Containing the Fabricated Products and Certain Other
Operations. Claims of creditors, other than claims paid by
the Liquidating Subsidiaries under the Liquidating Plans, will
have to be satisfied by the assets of KACC, KACOCL, and
Bellwood, which generally include the fabricated products plants
and their working capital, the interests in and related to
Anglesey Aluminium Limited (“Anglesey”) and proceeds
to be received under the Intercompany Agreement.
The Debtors anticipate that substantially all remaining
liabilities of the Debtors as of their Filing Date will be
settled under a single joint plan of reorganization to be
proposed and voted on in accordance with the provisions of the
Code. In working toward a plan of reorganization, as more fully
discussed below, the remaining Debtors have reached individual
agreements with most of the significant creditor constituents in
the Cases including the Committees, the Futures’
Representatives, the PBGC, and the appropriate union
representatives. However, the ultimate treatment of individual
groups of creditors in any such plan of reorganization cannot be
determined definitively at this time as such treatment (and the
specific recoveries of individual creditors) is dependent on,
among other things, the total amount of claims against the
Debtors as ultimately determined by the Court, the priority of
the applicable claims, the outcome of ongoing discussions with
the key creditor constituencies, the amount of value available
for distribution in respect of claims and the completion of the
plan confirmation process consistent with applicable bankruptcy
law. Further, while the Debtors intend to file and seek
confirmation of a plan, there can be no assurance as to when the
Debtors will file such a plan or as to whether any such plan
will be confirmed by the Court and consummated.
The Debtors’ objective is to achieve the highest possible
recoveries for all stakeholders, consistent with the
Debtors’ abilities to pay, and to continue the operations
of their core businesses. However, there can be no assurance
that the Debtors will be able to attain these objectives or
achieve a successful reorganization. While valuation of the
Debtors’ assets and estimation of pre-Filing Date claims at
this stage of the Cases are subject to inherent uncertainties,
the Debtors currently believe that, in the aggregate, it is
likely that their liabilities will be found to significantly
exceed the fair value of their assets. Therefore, the Debtors
currently believe that, with limited exceptions, it is likely
that substantially all pre-Filing Date claims will be settled at
less than 100% of their face value and the equity interests of
the Company’s stockholders will be cancelled without
consideration.
Based on the previously disclosed agreements and understandings
reached with key creditor constituents, the Company anticipates
that the disclosure statement and plan of reorganization for the
Company, KACC and other Debtors necessary to ongoing operations
will reflect the following principle elements:
|
|
| |
(a) All post-petition and secured claims are expected to
either be assumed by the emerging entity or paid at emergence
(see Exit Cost discussion below); |
| |
| |
(b) Pursuant to agreements reached with salaried and hourly
retirees in early 2004, in return for cancellation of the
retiree medical plan, as more fully discussed in Note 9,
the Company is making certain fixed monthly payments into
Voluntary Employee Beneficiary Associations (“VEBAs”)
until emergence and then has agreed to make certain variable
annual VEBA contributions depending on the emerging
entity’s operating results and financial liquidity. In
addition, upon emergence the VEBAs are to receive a contribution
of 75% of the residual value of the remaining Debtors in the
form of newly issued equity in the emerging entity. Residual
value in this context means KACC’s remaining value after
taking into account: (i) the contributions to the personal
injury trust described below; (ii) the satisfaction of
administrative, priority and secured claims as per
(a) above; (iii) an equity incentive plan; and
(iv) the satisfaction of the PBGC’s claim against
KACOCL; |
| |
| |
(c) Pursuant to an agreement reached in early 2005, all
pending and future asbestos-related personal injury claims, all
pending and future silica and coal tar pitch volatiles personal
injury claims and all hearing loss claims would be resolved
through the formation of one or more trusts to which all such |
52
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
| |
claims would be directed by channeling injunctions that would
permanently remove all liability for such claims from the
Debtors. The trusts would be funded pursuant to statutory
requirements and agreements with representatives of the affected
parties, using (i) the Debtors’ insurance assets,
(ii) $13.0 in cash from KACC, (iii) 100% of the equity
in a KACC subsidiary whose sole asset will be a piece of real
property that produces modest rental income, and (iv) a
portion of the emerging entity’s equity in proportion to
approximately $830.0 of intercompany claims of KFC against KACC
that are to be assigned to the trust (which will be satisfied
out of the 25% of equity referred to in (d) below); and |
| |
| |
(d) Other pre-petition claims will receive 25% of the
residual value of the remaining Debtors in the form of equity in
the emerging entity. Claims that are expected to be within this
group include (i) any claims of the Senior Notes, the Sub
Notes and PBGC that are not satisfied under the Liquidating
Plans, (ii) the approximate $830.0 of intercompany claims
that the Company has agreed to assign to the personal injury
trust(s) referred to in (c) above, and (iii) all
unsecured trade and other claims. Included in this category are
approximately $276.0 of intercompany claims of KFC against KACC
that will be a part of the consideration in the Liquidating
Trusts. |
At emergence from Chapter 11, KACC will have to pay or
otherwise provide for a material amount of claims. Such claims
include accrued but unpaid professional fees, priority pension,
tax and environmental claims, secured claims, and certain
post-petition obligations (collectively, “Exit
Costs”). KACC currently estimates that its Exit Costs will
be in the range of $60.0 to $80.0. KACC currently expects to
fund such Exit Costs using the proceeds to be received under the
Intercompany Agreement together with existing cash resources and
available borrowing availability under an exit financing
facility that would replace the current Post-Petition Credit
Agreement (see Note 7). If payments made to the Company
under the Intercompany Agreement together with existing cash
resources and borrowing availability under an exit financing
facility are not sufficient to pay or otherwise provide for all
Exit Costs, the Company and KACC will not be able to emerge from
Chapter 11 unless and until sufficient funding can be
obtained. Management believes it will be able to successfully
resolve any issues that may arise in respect of an exit
financing facility or be able to negotiate a reasonable
alternative. However, no assurances can be given in this regard.
The Company believes that it is not likely that it will emerge
from the Cases until sometime in the second half of 2005.
However, the Company’s ability to do so and to ultimately
emerge from the Cases is subject to a number of factors,
including, among others, inherent market-related risks, Court
approval for various matters and the confirmation of a plan of
reorganization in accordance with the applicable bankruptcy law
and, accordingly, no assurances can be given as to whether or
when any plan or plans of reorganization will ultimately be
filed or confirmed.
Financial Statement Presentation. The accompanying
consolidated financial statements have been prepared in
accordance with American Institute of Certified Professional
Accountants (“AICPA”) Statement of Position 90-7
(“SOP 90-7”), Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code, and 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 Cases, such realization of
assets and liquidation of liabilities are subject to a
significant number of uncertainties.
Upon emergence from the Cases, the Company expects to apply
“fresh start” accounting to its consolidated financial
statements as required by SOP 90-7. Fresh start accounting
is required if: (1) a debtor’s liabilities are
determined to be in excess of its assets and (2) there will
be a greater than 50% change in the equity ownership of the
entity. As previously disclosed, the Company expects both such
circumstances to apply. As such, upon emergence, the Company
will restate its balance sheet to equal the reorganization value
as determined in its plan(s) of reorganization and approved by
the Court. Additionally, items such as accumulated depreciation,
accumulated deficit and accumulated other comprehensive income
(loss) will be reset to zero. The Company will allocate the
reorganization value to its individual assets and liabilities
based
53
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
on their estimated fair value at the emergence date. Typically
such items as current liabilities, accounts receivable, and cash
will be reflected at values similar to those reported prior to
emergence. Items such as inventory, property, plant and
equipment, long-term assets and long-term liabilities are more
likely to be significantly adjusted from amounts previously
reported. Because fresh start accounting will be adopted at
emergence and because of the significance of liabilities subject
to compromise (that will be relieved upon emergence),
comparisons between the current historical financial statements
and the financial statements upon emergence may be difficult to
make.
Financial Information. Condensed consolidating financial
statements of the Debtors and non-Debtors are set forth below:
Condensed Consolidating Balance Sheets
December 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Consolidation/ | |
|
|
| |
|
|
|
|
|
Elimination | |
|
|
| |
|
Debtors | |
|
Non-Debtors | |
|
Entries | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
Current assets
|
|
$ |
289.2 |
|
|
$ |
2.1 |
|
|
$ |
— |
|
|
$ |
291.3 |
|
|
Discontinued operations’ current assets
|
|
|
30.6 |
|
|
|
— |
|
|
|
— |
|
|
|
30.6 |
|
|
Investments in subsidiaries and affiliates
|
|
|
20.9 |
|
|
|
— |
|
|
|
(4.2 |
) |
|
|
16.7 |
|
|
Intercompany receivables (payables), net
|
|
|
(4.5 |
) |
|
|
4.5 |
|
|
|
— |
|
|
|
— |
|
|
Property and equipment, net
|
|
|
214.6 |
|
|
|
— |
|
|
|
— |
|
|
|
214.6 |
|
|
Restricted proceeds from sale of commodity assets
|
|
|
280.8 |
|
|
|
— |
|
|
|
— |
|
|
|
280.8 |
|
|
Personal injury-related insurance recoveries receivable
|
|
|
967.0 |
|
|
|
— |
|
|
|
— |
|
|
|
967.0 |
|
|
Other assets
|
|
|
42.5 |
|
|
|
— |
|
|
|
— |
|
|
|
42.5 |
|
|
Discontinued operations’ long term assets
|
|
|
38.9 |
|
|
|
— |
|
|
|
— |
|
|
|
38.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,880.0 |
|
|
$ |
6.6 |
|
|
$ |
(4.2 |
) |
|
$ |
1,882.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities not subject to compromise —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current liabilities
|
|
$ |
190.0 |
|
|
$ |
3.2 |
|
|
$ |
(2.0 |
) |
|
$ |
191.2 |
|
| |
Discontinued operations’ current liabilities
|
|
|
57.7 |
|
|
|
— |
|
|
|
— |
|
|
|
57.7 |
|
| |
Long-term liabilities
|
|
|
34.5 |
|
|
|
1.2 |
|
|
|
— |
|
|
|
35.7 |
|
| |
Discontinued operations’ long-term liabilities
|
|
|
26.4 |
|
|
|
— |
|
|
|
— |
|
|
|
26.4 |
|
|
Liabilities subject to compromise
|
|
|
3,954.9 |
|
|
|
— |
|
|
|
— |
|
|
|
3,954.9 |
|
|
Minority interests
|
|
|
.7 |
|
|
|
— |
|
|
|
— |
|
|
|
.7 |
|
|
Stockholders’ equity (deficit)
|
|
|
(2,384.2 |
) |
|
|
2.2 |
|
|
|
(2.2 |
) |
|
|
(2,384.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,880.0 |
|
|
$ |
6.6 |
|
|
$ |
(4.2 |
) |
|
$ |
1,882.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
54
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Balance Sheets
December 31, 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Consolidation/ | |
|
|
| |
|
|
|
|
|
Elimination | |
|
|
| |
|
Debtors | |
|
Non-Debtors(1) | |
|
Entries | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
Current assets
|
|
$ |
229.4 |
|
|
$ |
2.9 |
|
|
$ |
— |
|
|
$ |
232.3 |
|
|
Discontinued operations’ current assets
|
|
|
93.5 |
|
|
|
100.2 |
|
|
|
— |
|
|
|
193.7 |
|
|
Investments in subsidiaries and affiliates
|
|
|
357.0 |
|
|
|
— |
|
|
|
(343.9 |
) |
|
|
13.1 |
|
|
Intercompany receivables (payables), net
|
|
|
(5.4 |
) |
|
|
5.4 |
|
|
|
— |
|
|
|
— |
|
|
Property and equipment, net
|
|
|
230.1 |
|
|
|
— |
|
|
|
— |
|
|
|
230.1 |
|
|
Personal injury-related insurance recoveries receivable
|
|
|
465.4 |
|
|
|
— |
|
|
|
— |
|
|
|
465.4 |
|
|
Other assets
|
|
|
55.1 |
|
|
|
— |
|
|
|
— |
|
|
|
55.1 |
|
|
Discontinued operations’ long term assets
|
|
|
(37.2 |
) |
|
|
471.0 |
|
|
|
|
|
|
|
433.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,387.9 |
|
|
$ |
579.5 |
|
|
$ |
(343.9 |
) |
|
$ |
1,623.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities not subject to compromise —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current liabilities
|
|
$ |
141.0 |
|
|
$ |
4.6 |
|
|
$ |
(2.0 |
) |
|
$ |
143.6 |
|
| |
Discontinued operations’ current liabilities
|
|
|
90.8 |
|
|
|
86.7 |
|
|
|
— |
|
|
|
177.5 |
|
| |
Long-term liabilities
|
|
|
60.0 |
|
|
|
1.6 |
|
|
|
— |
|
|
|
61.6 |
|
| |
Discontinued operations’ long-term liabilities
|
|
|
64.0 |
|
|
|
129.1 |
|
|
|
15.6 |
|
|
|
208.7 |
|
|
Liabilities subject to compromise
|
|
|
2,770.1 |
|
|
|
— |
|
|
|
— |
|
|
|
2,770.1 |
|
|
Minority interests
|
|
|
.7 |
|
|
|
— |
|
|
|
— |
|
|
|
.7 |
|
|
Stockholders’ equity (deficit)
|
|
|
(1,738.7 |
) |
|
|
357.5 |
|
|
|
(357.5 |
) |
|
|
(1,738.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,387.9 |
|
|
$ |
579.5 |
|
|
$ |
(343.9 |
) |
|
$ |
1,623.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Non-debtors’ discontinued operations’ amounts relate
primarily to Alpart and Valco. |
55
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statements of Income (Loss)
For the Year Ended December 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Consolidation/ | |
|
|
| |
|
|
|
|
|
Elimination | |
|
|
| |
|
Debtors | |
|
Non-Debtors | |
|
Entries | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
942.4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
942.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating costs and expenses
|
|
|
966.3 |
|
|
|
.5 |
|
|
|
— |
|
|
|
966.8 |
|
| |
Other operating charges (benefits), net
|
|
|
793.2 |
|
|
|
— |
|
|
|
— |
|
|
|
793.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1,759.5 |
|
|
|
.5 |
|
|
|
|
|
|
|
1,760.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(817.1 |
) |
|
|
(.5 |
) |
|
|
— |
|
|
|
(817.6 |
) |
|
Interest expense
|
|
|
(9.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(9.5 |
) |
|
All other income (expense), net
|
|
|
(41.2 |
) |
|
|
.6 |
|
|
|
5.8 |
|
|
|
(34.8 |
) |
|
Income tax and minority interests
|
|
|
(6.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6.2 |
) |
|
Equity in income of subsidiaries
|
|
|
(52.2 |
) |
|
|
|
|
|
|
52.2 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(926.2 |
) |
|
|
.1 |
|
|
|
58.0 |
|
|
|
(868.1 |
) |
|
Discontinued operations
|
|
|
179.4 |
|
|
|
(58.1 |
) |
|
|
— |
|
|
|
121.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(746.8 |
) |
|
$ |
(58.0 |
) |
|
$ |
58.0 |
|
|
$ |
(746.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income (Loss)
For the Year Ended December 31, 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Consolidation/ | |
|
|
| |
|
|
|
|
|
Elimination | |
|
|
| |
|
Debtors | |
|
Non-Debtors | |
|
Entries | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
710.2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
710.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating costs and expenses
|
|
|
798.7 |
|
|
|
.7 |
|
|
|
— |
|
|
|
799.4 |
|
| |
Other operating charges (benefits), net
|
|
|
141.6 |
|
|
|
— |
|
|
|
— |
|
|
|
141.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
940.3 |
|
|
|
.7 |
|
|
|
— |
|
|
|
941.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(230.1 |
) |
|
|
(.7 |
) |
|
|
— |
|
|
|
(230.8 |
) |
|
Interest expense
|
|
|
(9.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(9.1 |
) |
|
All other income (expense), net
|
|
|
(43.6 |
) |
|
|
.2 |
|
|
|
11.2 |
|
|
|
(32.2 |
) |
|
Income tax and minority interests
|
|
|
(1.6 |
) |
|
|
.1 |
|
|
|
— |
|
|
|
(1.5 |
) |
|
Equity in income of subsidiaries
|
|
|
(21.2 |
) |
|
|
— |
|
|
|
21.2 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(305.6 |
) |
|
|
(.4 |
) |
|
|
32.4 |
|
|
|
(273.6 |
) |
|
Discontinued operations
|
|
|
(482.7 |
) |
|
|
(32.0 |
) |
|
|
— |
|
|
|
(514.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(788.3 |
) |
|
$ |
(32.4 |
) |
|
$ |
32.4 |
|
|
$ |
(788.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
56
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statements of Income (Loss)
For the Year Ended December 31, 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Consolidation/ | |
|
|
| |
|
|
|
|
|
Elimination | |
|
|
| |
|
Debtors | |
|
Non-Debtors | |
|
Entries | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
709.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
709.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating costs and expenses
|
|
|
821.8 |
|
|
|
.5 |
|
|
|
— |
|
|
|
822.3 |
|
| |
Other operating charges (benefits), net
|
|
|
31.8 |
|
|
|
— |
|
|
|
— |
|
|
|
31.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
853.6 |
|
|
|
.5 |
|
|
|
— |
|
|
|
854.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(144.6 |
) |
|
|
(.5 |
) |
|
|
— |
|
|
|
(145.1 |
) |
|
Interest expense
|
|
|
(19.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(19.0 |
) |
|
All other income (expense), net
|
|
|
(44.8 |
) |
|
|
.3 |
|
|
|
10.3 |
|
|
|
(34.2 |
) |
|
Income tax and minority interests
|
|
|
(4.2 |
) |
|
|
(.2 |
) |
|
|
— |
|
|
|
(4.4 |
) |
|
Equity in income of subsidiaries
|
|
|
(2.5 |
) |
|
|
— |
|
|
|
2.5 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(215.1 |
) |
|
|
(.4 |
) |
|
|
12.8 |
|
|
|
(202.7 |
) |
|
Discontinued operations
|
|
|
(253.6 |
) |
|
|
(12.4 |
) |
|
|
— |
|
|
|
(266.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(468.7 |
) |
|
$ |
(12.8 |
) |
|
$ |
12.8 |
|
|
$ |
(468.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
57
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Consolidation/ |
|
|
| |
|
|
|
|
|
Elimination |
|
|
| |
|
Debtors | |
|
Non-Debtors | |
|
Entries |
|
Consolidated | |
| |
|
| |
|
| |
|
|
|
| |
|
Net cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(101.8 |
) |
|
$ |
(.2 |
) |
|
$ |
— |
|
|
$ |
(102.0 |
) |
| |
Discontinued operations
|
|
|
46.0 |
|
|
|
18.0 |
|
|
|
— |
|
|
|
64.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(55.8 |
) |
|
|
17.8 |
|
|
|
— |
|
|
|
(38.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
|
(5.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5.3 |
) |
| |
Discontinued operations
|
|
|
359.6 |
|
|
|
(2.9 |
) |
|
|
— |
|
|
|
356.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
354.3 |
|
|
|
(2.9 |
) |
|
|
— |
|
|
|
351.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
|
(2.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2.4 |
) |
| |
Discontinued operations
|
|
|
(276.5 |
) |
|
|
(14.6 |
) |
|
|
— |
|
|
|
(291.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(278.9 |
) |
|
|
(14.6 |
) |
|
|
— |
|
|
|
(293.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
19.6 |
|
|
|
.3 |
|
|
|
— |
|
|
|
19.9 |
|
|
Cash and cash equivalents, beginning of period
|
|
|
35.4 |
|
|
|
.1 |
|
|
|
— |
|
|
|
35.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
55.0 |
|
|
$ |
.4 |
|
|
$ |
— |
|
|
$ |
55.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
58
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Consolidation/ |
|
|
| |
|
|
|
|
|
Elimination |
|
|
| |
|
Debtors | |
|
Non-Debtors | |
|
Entries |
|
Consolidated | |
| |
|
| |
|
| |
|
|
|
| |
|
Net cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(56.7 |
) |
|
$ |
(.7 |
) |
|
$ |
— |
|
|
$ |
(57.4 |
) |
| |
Discontinued operations
|
|
|
(56.8 |
) |
|
|
27.3 |
|
|
|
— |
|
|
|
(29.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(113.5 |
) |
|
|
26.6 |
|
|
|
— |
|
|
|
(86.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
|
74.1 |
|
|
|
— |
|
|
|
— |
|
|
|
74.1 |
|
| |
Discontinued operations
|
|
|
1.5 |
|
|
|
(26.5 |
) |
|
|
— |
|
|
|
(25.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
75.6 |
|
|
|
(26.5 |
) |
|
|
— |
|
|
|
49.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
|
(4.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4.1 |
) |
| |
Discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(4.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(42.0 |
) |
|
|
.1 |
|
|
|
— |
|
|
|
(41.9 |
) |
|
Cash and cash equivalents, beginning of period
|
|
|
77.4 |
|
|
|
— |
|
|
|
— |
|
|
|
77.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
35.4 |
|
|
$ |
.1 |
|
|
$ |
— |
|
|
$ |
35.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
59
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Consolidation/ |
|
|
| |
|
|
|
|
|
Elimination |
|
|
| |
|
Debtors | |
|
Non-Debtors | |
|
Entries |
|
Consolidated | |
| |
|
| |
|
| |
|
|
|
| |
|
Net cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(27.8 |
) |
|
$ |
(.4 |
) |
|
$ |
— |
|
|
$ |
(28.2 |
) |
| |
Discontinued operations
|
|
|
(56.7 |
) |
|
|
33.2 |
|
|
|
— |
|
|
|
(23.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(84.5 |
) |
|
|
32.8 |
|
|
|
— |
|
|
|
(51.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
|
18.3 |
|
|
|
(.7 |
) |
|
|
— |
|
|
|
17.6 |
|
| |
Discontinued operations
|
|
|
(.2 |
) |
|
|
(33.6 |
) |
|
|
— |
|
|
|
(33.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
18.1 |
|
|
|
(34.3 |
) |
|
|
— |
|
|
|
(16.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
|
(8.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8.8 |
) |
| |
Discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(8.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(75.2 |
) |
|
|
(1.5 |
) |
|
|
— |
|
|
|
(76.7 |
) |
|
Cash and cash equivalents, beginning of period
|
|
|
152.6 |
|
|
|
1.5 |
|
|
|
— |
|
|
|
154.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
77.4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
77.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Classification of Liabilities as “Liabilities Not
Subject to Compromise” Versus “Liabilities Subject to
Compromise.” Liabilities not subject to compromise
include: (1) liabilities incurred after the Filing Date of
the Cases; (2) pre-Filing Date liabilities that the Debtors
expect to pay in full, including priority tax and employee
claims and certain environmental liabilities, even though
certain of these amounts may not be paid until a plan of
reorganization is approved; and (3) pre-Filing Date
liabilities that have been approved for payment by the Court and
that the Debtors expect to pay (in advance of a plan of
reorganization) over the next twelve-month period in the
ordinary course of business, including certain employee related
items (salaries, vacation and medical benefits), claims subject
to a currently existing collective bargaining agreement, and
certain postretirement medical and other costs associated with
retirees.
Liabilities subject to compromise refer to all other pre-Filing
Date liabilities of the Debtors. The amounts of the various
categories of liabilities that are subject to compromise are set
forth below. These amounts represent the Company’s
estimates of known or probable pre-Filing Date claims that are
likely to be resolved in connection with the Cases. Such claims
remain subject to future adjustments. Further, the Debtors
currently believe that it is likely that substantially all
pre-Filing Date claims will be settled at less than 100% of
their face value and the equity interests of the Company’s
stockholders will be cancelled without consideration.
60
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The amounts subject to compromise at December 31, 2004 and
2003 consisted of the following items:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Accrued postretirement medical obligation (Note 9)
|
|
$ |
1,042.1 |
|
|
$ |
685.1 |
|
|
Accrued asbestos and certain other personal injury liabilities
(Note 11)
|
|
|
1,115.0 |
|
|
|
610.0 |
|
|
Debt (Note 7)
|
|
|
847.6 |
|
|
|
848.2 |
|
|
Accrued pension benefits (Note 9)
|
|
|
625.7 |
|
|
|
448.0 |
|
|
Unfair labor practice settlement (Note 11)
|
|
|
175.0 |
|
|
|
— |
|
|
Accounts payable
|
|
|
29.8 |
|
|
|
29.4 |
|
|
Accrued interest
|
|
|
47.5 |
|
|
|
47.5 |
|
|
Accrued environmental liabilities (Note 11)
|
|
|
30.6 |
|
|
|
43.0 |
|
|
Other accrued liabilities
|
|
|
41.6 |
|
|
|
58.9 |
|
| |
|
|
|
|
|
|
| |
|
$ |
3,954.9 |
|
|
$ |
2,770.1 |
|
| |
|
|
|
|
|
|
|
|
| (1) |
Other accrued liabilities include hearing loss claims of $15.8
at December 31, 2004 and 2003 (see Note 11). |
| |
| (2) |
The above amounts exclude $26.4 in 2004 and $49.9 in 2003
related to discontinued operations. Such amounts were primarily
accounts payable. |
The classification of liabilities “not subject to
compromise” versus liabilities “subject to
compromise” is based on currently available information and
analysis. As the Cases proceed and additional information and
analysis is completed or, as the Court rules on relevant
matters, the classification of amounts between these two
categories may change. The amount of any such changes could be
significant. Additionally, as the Company evaluates the proofs
of claim filed in the Cases, adjustments will be made for those
claims that the Company believes will probably be allowed by the
Court. The amount of such claims could be significant. For
example, pursuant to the PBGC settlement agreement, which was
approved by the Court in January 2005 (see Note 9), the
PBGC will be allowed a $14.0 administrative claim and the
Company will contribute an estimated $4.1 to certain hourly
pension plans which it will continue to sponsor. Since the PBGC
settlement agreement has been approved by the Court, such
amounts have been reclassified from liabilities subject to
compromise to liabilities not subject to compromise.
Reorganization Items. Reorganization items under the
Cases are expense or income items that are incurred or realized
by the Company because it is in reorganization. These items
include, but are not limited to, professional fees and similar
types of expenses incurred directly related to the Cases, loss
accruals or gains or losses resulting from activities of the
reorganization process, and interest earned on cash accumulated
by the Debtors because they are not paying their pre-Filing Date
liabilities. For the years ended December 31, 2004, 2003
and 2002, reorganization items were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Professional fees
|
|
$ |
39.0 |
|
|
$ |
27.5 |
|
|
$ |
28.8 |
|
|
Accelerated amortization of certain deferred financing costs
|
|
|
— |
|
|
|
— |
|
|
|
4.5 |
|
|
Interest income
|
|
|
(.8 |
) |
|
|
(.8 |
) |
|
|
(1.8 |
) |
|
Other
|
|
|
.8 |
|
|
|
.3 |
|
|
|
1.8 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
39.0 |
|
|
$ |
27.0 |
|
|
$ |
33.3 |
|
| |
|
|
|
|
|
|
|
|
|
61
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
As required by SOP 90-7, in the first quarter of 2002, the
Company recorded the Debtors’ pre-Filing Date debt that is
subject to compromise at the allowed amount. Accordingly, the
Company accelerated the amortization of debt-related premium,
discount and costs attributable to this debt and recorded a net
expense of approximately $4.5 in Reorganization items during the
first quarter of 2002.
|
|
| 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. Specifically, the
consolidated financial statements do not include all of the
necessary adjustments to present: (a) the realizable value
of assets on a liquidation basis or the availability of such
assets to satisfy liabilities, (b) the amount which will
ultimately be paid to settle liabilities and contingencies which
may be allowed in the Cases, or (c) the effect of any
changes which may be made in connection with the Debtors’
capitalizations or operations as a result of 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.
Additionally, as discussed above (see Financial Statement
Presentation), the Company believes that it would, upon
emergence, apply fresh start accounting to its consolidated
financial statements which would also adversely impact the
comparability of the December 31, 2004 financial statements
to the financial statements of the entity upon emergence.
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 has historically
operated in all principal aspects of the aluminum industry.
However, as discussed above, the Company will emerge from the
Chapter 11 proceedings primarily as a fabricated products
company. At this time, the Company plans to retain its interests
in Anglesey, which owns a primary aluminum smelter.
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 for
the Company, it is likely that the equity interests of the
Company’s existing stockholders will be cancelled without
consideration.
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.
62
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Inventories. Substantially all product inventories are
stated at last-in, first-out (“LIFO”) cost, not in
excess of market value. Replacement cost is not in excess of
LIFO cost. Other inventories, principally operating supplies and
repair and maintenance parts, are stated at the lower of average
cost or market. Inventory costs consist of material, labor, and
manufacturing overhead, including depreciation. Inventories,
after deducting inventories related to discontinued operations,
consist of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Fabricated products —
|
|
|
|
|
|
|
|
|
| |
Finished products
|
|
$ |
23.3 |
|
|
$ |
27.8 |
|
| |
Work in process
|
|
|
42.2 |
|
|
|
30.1 |
|
| |
Raw materials
|
|
|
27.9 |
|
|
|
22.8 |
|
| |
Operating supplies and repairs and maintenance parts
|
|
|
11.8 |
|
|
|
11.7 |
|
| |
|
|
|
|
|
|
| |
|
|
105.2 |
|
|
|
92.4 |
|
|
Commodities — Primary aluminum
|
|
|
.1 |
|
|
|
.1 |
|
| |
|
|
|
|
|
|
| |
|
$ |
105.3 |
|
|
$ |
92.5 |
|
| |
|
|
|
|
|
|
The above table excludes commodities inventories related to
discontinued operations of $8.8 in 2004 and $113.7 in 2003.
Inventories related to discontinued operations in 2004 were
reduced by a net charge of $1.2 to write down certain alumina
inventories to their estimated net realizable value as a result
of the Company’s sale of its interests in and related to
Valco (Note 5).
Inventories were reduced by the following charges during the
years ended December 31, 2004, 2003 and 2002.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Included in cost of products sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
LIFO inventory charges
|
|
$ |
12.1 |
|
|
$ |
3.2 |
|
|
$ |
3.5 |
|
|
Included in other operating charges (benefits), net (see
Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net realizable value charge — Tacoma smelter
impairment (Primary Aluminum), net of intersegment profit
elimination of Primary Aluminum impairment charges of $2.1
|
|
|
— |
|
|
|
— |
|
|
|
2.1 |
|
| |
LIFO inventory charges associated with permanent inventory
reductions — Product line exit (Fabricated Products)
|
|
|
— |
|
|
|
— |
|
|
|
1.6 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
12.1 |
|
|
$ |
3.2 |
|
|
$ |
7.2 |
|
| |
|
|
|
|
|
|
|
|
|
The above table excludes LIFO inventory charges related to
discontinued operations of $1.6 in 2004, $3.4 in 2003 and $3.5
in 2002. The above table also excludes net realizable value
charges related to discontinued operations of $16.5 in 2002. The
LIFO inventory charges resulted from reductions in inventory
volumes that were in inventory layers with higher costs than
current market prices.
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. As more fully discussed in
Note 1, upon emergence from the Cases, the Company expects
to apply “fresh start” accounting to its consolidated
financial statements as required by SOP 90-7. As a result,
accumulated depreciation will be reset to zero. With the
allocation of the reorganization value to the individual assets
and liabilities, it is possible that future depreciation will
differ from historical depreciation.
63
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
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 were at
or above the market price. No stock options were granted in
2004, 2003 and 2002. The pro forma after-tax effect of the
estimated fair value of the grants would be to increase the net
loss in 2004, 2003, and 2002 by $.3, $.4, and $.6, respectively.
The pro forma after tax effect of the estimated fair value of
the grants would have resulted in no change in the basic/diluted
loss per share for 2004, 2003, and 2002. The fair value of the
2001 stock option grants were estimated using a Black-Scholes
option pricing model.
The pro forma effect of the estimated value of stock options may
not be meaningful, because as a part of a plan of reorganization
for the Company, it is likely the equity interests of the
holders of outstanding options will be cancelled without
consideration.
Other Income (Expense). Amounts included in Other income
(expense) in 2004, 2003 and 2002, other than interest
expense and reorganization items, included the following pre-tax
gains (losses):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Gains on sale of real estate and miscellaneous equipment
associated with properties with no operations (Note 5)
|
|
$ |
1.8 |
|
|
$ |
— |
|
|
$ |
3.8 |
|
|
Settlement of outstanding obligations of former affiliate
|
|
|
6.3 |
|
|
|
— |
|
|
|
— |
|
|
Asbestos and personal injury-related charges (Note 11)
|
|
|
(1.0 |
) |
|
|
— |
|
|
|
— |
|
|
Adjustment to environmental liabilities (Note 11)
|
|
|
(1.4 |
) |
|
|
(7.5 |
) |
|
|
— |
|
|
All other, net
|
|
|
(1.5 |
) |
|
|
2.3 |
|
|
|
(4.7 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
4.2 |
|
|
$ |
(5.2 |
) |
|
$ |
(.9 |
) |
| |
|
|
|
|
|
|
|
|
|
The above table excludes pre-tax gains (losses), net related to
discontinued operations of $1.0 in 2004, $(1.3) in 2003 and $1.3
in 2002.
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 unamortized portion of
the deferred financing costs related to the Debtors’
unsecured debt was expensed on the Filing Date (see Note 1).
Goodwill. The Company reviews goodwill for impairment at
least annually in the fourth quarter of each year. As of
December 31, 2004, unamortized goodwill (related to the
Fabricated products business unit) was approximately $11.4 and
was included in Other assets in the accompanying consolidated
balance sheets. With the allocation of the reorganization value
to the individual assets and liabilities (see Note 1), it
is possible that the goodwill amount will change.
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
board of directors. Hedging transactions are executed centrally
on behalf of all of
64
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
KACC’s business segments to minimize transaction costs,
monitor consolidated net exposures and allow for increased
responsiveness to changes in market factors.
The Company recognizes all derivative instruments as assets or
liabilities in the balance sheet and measures those instruments
at fair value by “marking-to-market” all of its
hedging positions at each period-end (see Note 12). 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. 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, 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 2002, 2003 or 2004.
In general, material fluctuations in Other comprehensive income
and Stockholders’ equity will occur 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.
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, 2004 and 2003.
New Accounting Pronouncements. Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based
Payment (“SFAS No. 123-revised”) was
issued in December 2004 and replaces Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. In general
terms, SFAS No. 123-revised eliminates the intrinsic
value method of accounting for employee stock options and
requires a company to measure the cost of employee services
received in exchange for an award of equity instruments based on
the grant-date fair value of the award. The cost of the award
will be recognized as an expense over the period that the
employee provides service for the award.
SFAS No. 123-revised must be first applied to the
Company’s consolidated financial statements beginning
July 1, 2005 and applies to all equity instrument awards
granted after the effective date. Although the Company has not
completed it review of SFAS No. 123-revised, it does
not currently believe that the implementation of
SFAS No. 123-revised will have a material impact on
the Company’s financial statements.
Statement of Financial Accounting Standards No. 151,
Inventory Costs, an Amendment of ARB No. 43,
Chapter 4 (“SFAS No. 151”) was
issued in November 2004 and is effective for fiscal years
beginning after June 15, 2005. SFAS No. 151
amends ARB No. 43, Chapter 4 to clarify that abnormal
costs, such as idle facility expenses, freight, handling costs
and spoilage, be accounted as current period charges rather than
as a portion of inventory costs. The adoption of
SFAS No. 151 is not expected to have a material impact
on the Company’s financial statements.
65
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Statement of Financial Accounting Standards No. 153,
Exchange of Nonmonetary Assets, an amendment to APB Opinion
No. 29 (“SFAS No. 153”), was issued
in December 2004 and is effective for all nonmonetary assets
exchanges occurring in fiscal years beginning after
June 15, 2005. SFAS No. 153 eliminates an
exception from the fair value measurement for exchanges of
similar productive assets provided for in APB Opinion
No. 29 and replaces it with a general exception for
exchange transactions that do not have commercial substance. The
implementation of SFAS No. 153 is not expected to have
a material impact on the Company’s financial statements.
Reclassifications. Certain prior years’ amounts in
the consolidated financial statements have been reclassified to
conform to the 2004 presentations. The reclassifications had no
impact on prior years’ reported net losses.
|
|
| 3. |
Discontinued Operations |
As part of the Company’s plan to divest certain of its
commodity assets, as more fully discussed in Notes 1
and 5, the Company completed the sale of its interests in
and related to Alpart, Gramercy, Kaiser Jamaica Bauxite Company
(“KJBC”), Valco, and the Mead facility and certain
related property (the “Mead Facility”). The Company
expects to complete the sale of its interests in and related to
QAL in April 2005. All of the foregoing commodity assets that
have been or are expected to be sold are collectively referred
to as the “Commodity Interests”. In accordance with
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (“SFAS No. 144”), the assets,
liabilities, operating results and gains from sale of the
Commodity Interests have been reported as discontinued
operations in the accompanying financial statements.
Under SFAS No. 144, only those assets, liabilities and
operating results that are being sold/discontinued are treated
as “discontinued operations”. In the case of the sale
of Gramercy/ KJBC and the Mead Facility, the buyers did not
assume such items as accrued workers compensation, pension or
postretirement benefit obligations in respect of the former
employees of these facilities. As discussed more fully in
Note 1, the Company expects that retained obligations will
generally be resolved in the context of a plan of
reorganization. As such, the balances related to such
obligations are still included in the consolidated financial
statements. Because the Company owned a 65% interest in Alpart,
Alpart’s balances and results of operations were fully
consolidated into the Company’s consolidated financial
statements. Accordingly, the amounts reflected below for Alpart
include the 35% interest in Alpart owned by Hydro Aluminium as.
(“Hydro”). Hydro’s share of the net investment in
Alpart is reflected as minority interest.
The balances and operating results associated with the
Company’s interests in and related to Alpart, Gramercy/
KJBC and QAL were previously included in the Bauxite and alumina
business segment and the balances and operating results
associated with the Company’s interests in and related to
Valco and the Mead Facility were previously included in the
Primary aluminum business segment. The Company has also reported
as discontinued operations the portion of the Commodity
Marketing external hedging activities that were attributable to
the Company’s Commodity Interests.
66
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The carrying amounts as of December 31, 2004 and 2003 of
the assets and liabilities in respect of the Company’s
interest in and related to the sold commodity interests included
in discontinued operations were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
|
December 31, 2003 | |
| |
|
| |
|
| |
| |
|
|
|
Primary | |
|
|
|
|
|
Primary | |
|
|
| |
|
Alumina | |
|
Aluminum | |
|
|
|
Alumina | |
|
Aluminum | |
|
|
| |
|
Interests | |
|
Interests | |
|
Total | |
|
Interests | |
|
Interests | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Current assets
|
|
$ |
30.6 |
|
|
$ |
— |
|
|
$ |
30.6 |
|
|
$ |
150.6 |
|
|
$ |
43.1 |
|
|
$ |
193.7 |
|
|
Property, plant and equipment, net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
305.2 |
|
|
|
77.3 |
|
|
|
382.5 |
|
|
Investments in affiliates and other
|
|
|
38.9 |
|
|
|
— |
|
|
|
38.9 |
|
|
|
49.3 |
|
|
|
2.0 |
|
|
|
51.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
69.5 |
|
|
$ |
— |
|
|
$ |
69.5 |
|
|
$ |
505.1 |
|
|
$ |
122.4 |
|
|
$ |
627.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
57.3 |
|
|
$ |
.4 |
|
|
$ |
57.7 |
|
|
$ |
116.0 |
|
|
$ |
61.5 |
|
|
$ |
177.5 |
|
|
Long-term debt
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22.0 |
|
|
|
— |
|
|
|
22.0 |
|
|
Long-term liabilities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16.1 |
|
|
|
(.4 |
) |
|
|
15.7 |
|
|
Liabilities subject to compromise
|
|
|
25.6 |
|
|
|
.8 |
|
|
|
26.4 |
|
|
|
21.9 |
|
|
|
28.0 |
|
|
|
49.9 |
|
|
Minority interests
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
105.9 |
|
|
|
15.2 |
|
|
|
121.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
82.9 |
|
|
$ |
1.2 |
|
|
$ |
84.1 |
|
|
$ |
281.9 |
|
|
$ |
104.3 |
|
|
$ |
386.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement information in respect of the Company’s
interest in and related to the sold commodity interests for the
years ended December 31, 2004, 2003 and 2002 included in
income (loss) from discontinued operations was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Primary | |
|
|
|
|
|
Primary | |
|
|
|
|
|
Primary | |
|
|
| |
|
Alumina | |
|
Aluminum | |
|
|
|
Alumina | |
|
Aluminum | |
|
|
|
Alumina | |
|
Aluminum | |
|
|
| |
|
Interests | |
|
Interests | |
|
Total | |
|
Interests | |
|
Interests | |
|
Total | |
|
Interests | |
|
Interests | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
546.0 |
|
|
$ |
.2 |
|
|
$ |
546.2 |
|
|
$ |
637.9 |
|
|
$ |
26.8 |
|
|
$ |
664.7 |
|
|
$ |
573.5 |
|
|
$ |
194.4 |
|
|
$ |
767.9 |
|
|
Operating income (loss)
|
|
|
53.6 |
|
|
|
(59.8 |
) |
|
|
(6.2 |
) |
|
|
(450.1 |
) |
|
|
(58.2 |
) |
|
|
(508.3 |
) |
|
|
(28.5 |
) |
|
|
(232.4 |
) |
|
|
(260.9 |
) |
|
Gain on sale of commodity interests
|
|
|
103.2 |
|
|
|
23.4 |
|
|
|
126.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Income (loss) before income taxes and minority
interests —
|
|
|
158.2 |
|
|
|
(35.7 |
) |
|
|
122.5 |
|
|
|
(453.7 |
) |
|
|
(57.5 |
) |
|
|
(511.2 |
) |
|
|
(28.8 |
) |
|
|
(232.5 |
) |
|
|
(261.3 |
) |
|
Net income (loss)
|
|
|
142.7 |
|
|
|
(21.4 |
) |
|
|
121.3 |
|
|
|
(459.9 |
) |
|
|
(54.8 |
) |
|
|
(514.7 |
) |
|
|
(34.7 |
) |
|
|
(231.3 |
) |
|
|
(266.0 |
) |
|
|
| (1) |
Alumina interests for the year ended December 31, 2003
include Gramercy/ KJBC impairment charges of $368.0 (see
Note 5). |
| |
| (2) |
Primary aluminum interests for the years ended December 31,
2004 and 2002 include impairment charges of $33.0
(Valco — Notes 2 and 5) and $214.4 (Mead
Facility — Note 5), respectively. |
In connection with its investment in QAL, KACC has entered into
several financial commitments consisting of 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 (20%) of debt, operating costs, and
certain other costs of QAL. KACC’s share of the aggregate
minimum amount of required future principal payments as of
December 31, 2004, was $60.0 which amount matures in
varying amounts during the 2005 to 2008 period. KACC’s
share of QAL’s debt increased by approximately $8.0 during
2003 as additional drawdowns on QAL financing (KACC’s share
67
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
$40.0) more than offset KACC’s share ($32.0) of QAL’s
debt principal payment. KACC’s share of payments, including
operating costs and certain other expenses under the agreements,
has generally ranged between $70.0-$100.0 over the past three
years. In connection with the QAL sale, KACC’s obligations
in respect of its share of QAL’s debt will be assumed by
the buyer.
Contributions to foreign pension plans included in discontinued
operations were approximately $12.0 during 2004, including
approximately $10.0 of end of service payments in respect of
Valco employees. Contributions to foreign pension plans included
in discontinued operations in 2003 and 2002 were approximately
$9.0 per year.
|
|
| 4. |
Investment In and Advances To Unconsolidated Affiliate |
Summary financial information is provided below for Anglesey, a
49.0% owned unconsolidated aluminum investment, which owns an
aluminum smelter at Holyhead, Wales.
|
|
|
Summary of Financial Position |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Current assets
|
|
$ |
50.7 |
|
|
$ |
45.1 |
|
|
Non-current assets (primarily property, plant, and equipment,
net)
|
|
|
36.3 |
|
|
|
36.9 |
|
| |
|
|
|
|
|
|
| |
Total assets
|
|
$ |
87.0 |
|
|
$ |
82.0 |
|
| |
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
15.6 |
|
|
$ |
21.4 |
|
|
Long-term liabilities
|
|
|
21.6 |
|
|
|
24.2 |
|
|
Stockholders’ equity
|
|
|
49.8 |
|
|
|
36.4 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities and stockholders’ equity
|
|
$ |
87.0 |
|
|
$ |
82.0 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
249.2 |
|
|
$ |
205.5 |
|
|
$ |
192.7 |
|
|
Costs and expenses
|
|
|
(223.1 |
) |
|
|
(196.5 |
) |
|
|
(182.2 |
) |
|
Provision for income taxes
|
|
|
(7.4 |
) |
|
|
(2.6 |
) |
|
|
(3.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
18.7 |
|
|
$ |
6.4 |
|
|
$ |
7.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
Company’s equity in income
|
|
$ |
8.2 |
|
|
$ |
3.3 |
|
|
$ |
3.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
Dividends received
|
|
$ |
4.5 |
|
|
$ |
4.3 |
|
|
$ |
6.0 |
|
| |
|
|
|
|
|
|
|
|
|
The Company’s equity in income differs from the summary net
income due to equity method accounting adjustments.
At December 31, 2004 and 2003, KACC’s net receivables
from Anglesey were $8.0 and $12.8, respectively.
The Company’s equity in income before income taxes of
Anglesey is treated as a reduction (increase) in Cost of
products sold. The Company and Anglesey have interrelated
operations. KACC provided Anglesey with management services
during 2004, 2003 and 2002. Significant activities with Anglesey
include the
68
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
acquisition and processing of alumina into primary aluminum.
Purchases from Anglesey were $120.9, $100.0 and $93.9, in the
years ended December 31, 2004, 2003 and 2002, respectively.
Sales to Anglesey were $23.7, $32.9 and $25.6, in the years
ended December 31, 2004, 2003 and 2002, respectively.
|
|
| 5. |
Property, Plant, and Equipment |
The major classes of property, plant, and equipment, after
deducting property, plant and equipment, net related to
discontinued operations, are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Land and improvements
|
|
$ |
8.2 |
|
|
$ |
8.7 |
|
|
Buildings
|
|
|
63.8 |
|
|
|
65.3 |
|
|
Machinery and equipment
|
|
|
459.8 |
|
|
|
454.9 |
|
|
Construction in progress
|
|
|
6.1 |
|
|
|
8.3 |
|
| |
|
|
|
|
|
|
| |
|
|
537.9 |
|
|
|
537.2 |
|
|
Accumulated depreciation
|
|
|
(323.3 |
) |
|
|
(307.1 |
) |
| |
|
|
|
|
|
|
| |
Property, plant, and equipment, net
|
|
$ |
214.6 |
|
|
$ |
230.1 |
|
| |
|
|
|
|
|
|
The above tables exclude property, plant and equipment, net of
discontinued operations of $382.5 in 2003 (see Note 3).
During the period from 2002 to 2004, the Company completed
several dispositions which are discussed below:
|
|
|
| |
• |
On July 1, 2004, with Court approval, the Company completed
the sale of its interests in and related to Alpart for a base
purchase price of $295.0 plus certain adjustments of
approximately $20.0. The transaction resulted in a gross sales
price of approximately $315.0, subject to certain post-closing
adjustments, and a pre-tax gain of approximately $101.6.
Offsetting the cash proceeds were approximately $14.5 of
payments made by KACC to fund the prepayment of KACC’s
share of the Alpart-related debt (see Note 7) and $3.3 of
transaction-related costs. The balance of the proceeds are being
held in escrow primarily for the benefit of certain creditors as
outlined in the AJC/ KJC Plan. In accordance with
SFAS No. 144, balances and results of operations
related to the Company’s interests and related to Alpart
have been reported as discontinued operations in the
accompanying financial statements (see Note 3). A net
benefit of approximately $1.6 was recorded in December 2004 in
respect of the Alpart-related purchase price adjustments. Such
amounts are expected to be collected during the second quarter
of 2005. |
| |
| |
• |
In May 2004, the Company entered into an agreement to sell its
interests in and related to the Gramercy facility and KJBC. The
sale closed on October 1, 2004 with Court approval. Net
proceeds from the sale were approximately $23.0, subject to
various closing and post closing adjustments. Such adjustments
were insignificant. The transaction was completed at an amount
approximating its remaining book value (after impairment
charges). A substantial portion of the proceeds were used to
satisfy transaction related costs and obligations. As previously
reported, the Company had determined that the fair values of its
interests in and related to Gramercy/ KJBC was below the
carrying values of the assets because all offers that had been
received for such assets were substantially below the carrying
values of the assets. Accordingly, in the fourth quarter of
2003, KACC adjusted the carrying value of |
69
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
|
| |
|
its interests in and related to Gramercy/ KJBC to the estimated
fair value, which resulted in a non-cash impairment charge of
approximately $368.0 (which amount was reflected in discontinued
operations — see Note 3). In accordance with
SFAS No. 144, the Company’s interests in and
related to the Gramercy facility and KJBC have been reported as
discontinued operations in the accompanying financial statements
(see Note 3). |
| |
| |
• |
During 2003, the Company and Valco participated in extensive
negotiations with the Government of Ghana (“GoG”) and
the Volta River Authority (“VRA”) regarding
Valco’s power situation and other matters. Such
negotiations did not result in a resolution of such matters.
However, as an outgrowth of such negotiations, the Company and
the GoG entered into a Memorandum of Understanding
(“MOU”) in December 2003 pursuant to which KACC would
sell its 90% interest in and related to Valco to the GoG. The
Company collected $5.0 pursuant to the MOU. However, a new
financial agreement was reached in May 2004 and the MOU was
amended. Under the revised financial terms, the Company was to
retain the $5.0 already paid by the GoG and $13.0 more was to be
paid by the GoG as full and final consideration for the
transaction at closing. The Company also agreed to fund certain
end of service benefits of Valco employees (estimated to be
approximately $9.8) which the GoG was to assume under the
original MOU. The agreement was approved by the Court on
September 29, 2004. The sale closed on October 29,
2004. As the revised purchase price under the amended MOU was
well below the Company’s recorded value for Valco, the
Company recorded a non-cash impairment charge of $31.8 in its
first quarter 2004 financial statements to reduce the carrying
value of its interests in and related to Valco at March 31,
2004 to the amount of the expected proceeds (which amount was
reflected in discontinued operations — see
Note 3). As a result, at closing there was no material gain
or loss on disposition. In accordance with
SFAS No. 144, balances and results of operations
related to the Company’s interests in and related to Valco
have been reported as discontinued operations in the
accompanying financial statements (see Note 3). |
| |
| |
• |
In June 2004, with Court approval, the Company completed the
sale of the Mead Facility for approximately $7.4 plus assumption
of certain site-related liabilities. The sale resulted in net
proceeds of approximately $6.2 and a pre-tax gain of
approximately $23.4. The pre-tax gain includes the impact from
the sale of certain non-operating land in the first quarter of
2004 that was adjacent to the Mead Facility. The pre-tax gain on
the sale of this property had been deferred pending the
finalization of the sale of the Mead Facility and transfer of
the site-related liabilities. Proceeds from the sale of the Mead
Facility totaling $4.0 are being held in escrow as Restricted
proceeds from sale of commodity interests until the value of the
secured claim of the holders of the 7.6% solid waste disposal
revenue bonds is determined by the Court (see Note 7). In
accordance with SFAS No. 144, the assets, liabilities
and operating results of the Mead Facility have been reported as
discontinued operations in the accompanying financial statements
(see Note 3). |
| |
| |
• |
In September 2004, the Court approved a motion to hold an
auction in October 2004 in respect of the Company’s
interests in and related to QAL and approved certain bidding
procedures. The motion outlined a two-prong approach to ensure
that an auction would take place. First the Company signed a
“stalking horse” agreement to sell its interest in and
related to QAL to Comalco Aluminium Limited
(“Comalco”), one of its partners in QAL, for a base
price of $308.0 cash plus purchase of the Company’s alumina
and bauxite inventories, and subject to certain working capital
adjustments and the assumption of the Company’s obligations
in respect of approximately $60.0 of QAL debt (see Note 7).
The Company would also transfer its existing alumina sales
contracts and other agreements related to QAL. The agreement was
supplemented by a letter agreement in which Comalco’s
parent companies agreed that the execution of the stalking horse
agreement satisfied, or that such parties otherwise waived,
certain rights that they would otherwise have under an existing
agreement with the Company. The stalking horse agreement also
included a provision for a payment of a termination fee of $11.0
to |
70
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
|
| |
|
Comalco upon the sale of the Company’s interests in QAL
pursuant to the auction process if Comalco is not the ultimate
purchaser. Separately, the Company entered into an agreement
with Glencore AG (“Glencore”), whereby Glencore
obligated itself to submit a bid of $400.0 in cash plus the
other payments and adjustments described above. The Company paid
Glencore a fee of $7.7 in September 2004 upon submission of its
qualified bid which amount was included in Prepaid and other
current assets as a deferred charge. The auction occurred in
October 2004 and, after consultation with the UCC and others,
the Company entered into an agreement with the successful bidder
to sell its interests in and related to QAL under the same terms
as the Comalco agreement described above for a base price of
approximately $401.0. The agreement was approved by the Court in
November 2004 and is expected to close in April 2005. A net
gain in excess of $300.0 is expected to result from the sale. As
described in Note 1, the Company expects that a substantial
majority of the proceeds from the sale of the Company’s
interests in and related to QAL will be held in escrow for the
benefit of KAAC’s creditors until a KAAC liquidation plan
is approved by the Court (see Note 1). Because Court
approval and all conditions precedent to the sale were met as of
December 31, 2004, and because such amounts were material,
in accordance with SFAS No. 144, balances and results of
operations related to the Company’s interests in and
related to QAL have been reported as discontinued operations in
the accompanying financial statements (see Note 3). |
| |
| |
• |
In the ordinary course of business, KACC sold non-operating real
estate and certain miscellaneous equipment for total proceeds of
approximately $1.9. These transactions resulted in pre-tax gains
of $1.8 (included in Other income (expense) — see
Note 2). |
|
|
|
| |
• |
In January 2003, the Court approved the sale of the Tacoma
facility to the Port of Tacoma (the “Port”). Gross
proceeds from the sale, before considering approximately $4.0 of
proceeds being held in escrow pending the resolution of certain
environmental and other issues, were approximately $12.1. The
Port also agreed to assume the on-site environmental remediation
obligations. The sale closed in February 2003. The sale resulted
in a pre-tax gain of approximately $9.5 (which amount was
reflected in Other operating charges (benefits), net —
see Note 6). The operating results of the Tacoma facility
for 2004, 2003 and 2002 have not been reported as discontinued
operations in the accompanying Statements of Consolidated Income
(Loss) because such amounts were not material. |
| |
| |
• |
KACC had a long-term liability, net of estimated subleases
income, on an office complex in Oakland, California, in which
KACC had not maintained offices for a number of years, but for
which it was responsible for lease payments as master tenant
through 2008 under a sale-and-leaseback agreement. The Company
also held an investment in certain notes issued by the owners of
the building (which were included in Other assets). In October
2002, the Company entered into a contract to sell its interests
and obligations in the office complex. As the contract amount
was less than the asset’s net carrying value (included in
Other assets), the Company recorded a non-cash impairment charge
in 2002 of approximately $20.0 (which amount was reflected in
Other operating charges (benefits), net — see
Note 6). The sale was approved by the Court in February
2003 and closed in March 2003. Net cash proceeds were
approximately $61.1. |
| |
| |
• |
In July 2003, with Court approval, the Company sold certain
equipment at the Trentwood facility that was no longer required
as a part of past product rationalizations. Proceeds from the
sale were approximately $7.0, resulting in a net gain of
approximately $5.0 after considering sale related costs. The
gain on the sale of this equipment has been netted against
additional impairment charges of approximately $1.1 associated
with equipment to be abandoned or otherwise disposed of
primarily as a result of product rationalizations (which amounts
were reflected in Other operating charges (benefits), |
71
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
|
| |
|
net — see Note 6). The equipment that was sold in
July 2003 had been previously impaired to a zero basis. The
impairment was based on information available at that time and
the expectation that proceeds from the eventual sale of the
equipment would be fully offset by sale related costs to be
borne by the Company. |
|
|
|
| |
• |
As previously disclosed, the Company was evaluating its options
for minimizing the near-term negative cash flow at its Mead
facility and how to optimize the use and/or value of the
facilities in connection with its reorganization. The Company
conducted a study of the long-term competitive position of the
Mead and Tacoma facilities and potential options for these
facilities. Once the Company received the preliminary results of
the study in the fourth quarter of 2002, it analyzed the
findings and met with the USWA and other parties prior to making
its determination as to the appropriate action(s). The outcome
of the study and the Company’s ongoing work on its
reorganization led the Company to indefinitely curtail the Mead
facility in January 2003. The curtailment of the Mead facility
was due to the continuing unfavorable market dynamics,
specifically unattractive long-term power prices and weak
primary aluminum prices — both of which are
significant impediments for an older smelter with
higher-than-average operating costs. The Mead facility was
expected to remain completely curtailed unless and until an
appropriate combination of reduced power prices, higher primary
aluminum prices and other factors occurs. As a result of
indefinite curtailment, KACC evaluated the recoverability of the
December 31, 2002 carrying value of the Mead facility. The
Company determined that the expected future undiscounted cash
flows of the smelters was below their carrying value.
Accordingly, KACC adjusted the carrying value of its related
assets to their estimated fair value, which resulted in a
non-cash impairment charge of approximately $138.5 (which amount
was reflected in discontinued operations — see
Note 3). The estimated fair value was based on anticipated
future cash flows discounted at a rate commensurate with the
risk involved. Additionally, during December 2002, the Company
accrued approximately $58.8 of pension, postretirement benefit
and related obligations for the hourly employees who had been on
a laid-off status and under the terms of their labor contract
are eligible for early retirement because of the indefinite
curtailment (which amount was reflected in discontinued
operations — see Note 3). The indefinite
curtailment of the Mead facility also resulted in a
$16.5 net realizable value charge and a $.9 LIFO inventory
charge for certain of the inventories at the facility (which
amounts were reflected in discontinued operations). |
| |
| |
• |
In December 2002, with Court approval, KACC sold its Oxnard,
California aluminum forging facility because the Company had
determined that the facility was not necessary for a successful
operation and reorganization of its business. Net proceeds from
the sale were approximately $7.4. The sale resulted in a net of
loss of $.2 (included in Other operating charges
(benefits) net — see Note 6) which included
$1.1 of employee benefits and related costs associated with
approximately 60 employees that were terminated in December 2002. |
| |
| |
• |
In June 2002, with Court approval, the Company sold certain of
the Trentwood facility equipment, previously associated with the
lid and tab stock product lines discussed below, for total
proceeds of $15.8, which amount approximated its previously
estimated fair value. As a result, the sale did not have a
material impact on the Company’s operating results for the
year ended December 31, 2002. |
| |
| |
• |
In the ordinary course of business, KACC sold non-operating real
estate and certain miscellaneous equipment for total proceeds of
approximately $7.5. These transactions resulted in pre-tax gains
of $3.8 (included in Other income (expense) — see
Note 2). |
72
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
| 6. |
Other Operating Charges (Benefits), Net |
The income (loss) impact associated with other operating
(charges) benefits, net, after deducting other operating
(charges) benefits, net related to discontinued operations,
for 2004, 2003 and 2002, was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Pension charge related to terminated pension plans —
Corporate (Note 9)
|
|
$ |
(310.0 |
) |
|
$ |
(121.2 |
) |
|
$ |
— |
|
|
Charge related to settlement with United Steelworkers of America
unfair labor practice allegations — Corporate
(Note 11)
|
|
|
(175.0 |
) |
|
|
— |
|
|
|
— |
|
|
Settlement charge related to termination of Post-retirement
medical benefits plans — Corporate (Note 9)
|
|
|
(312.5 |
) |
|
|
— |
|
|
|
— |
|
|
Impairment charges —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Office complex — Corporate (Note 5)
|
|
|
— |
|
|
|
— |
|
|
|
(20.0 |
) |
| |
Washington smelters (Primary Aluminum) (Note 2)
|
|
|
— |
|
|
|
— |
|
|
|
(2.1 |
) |
|
Restructuring charges —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fabricated Products
|
|
|
— |
|
|
|
— |
|
|
|
(7.9 |
) |
|
Restructured transmission service agreement — Primary
Aluminum (Note 14)
|
|
|
— |
|
|
|
(3.2 |
) |
|
|
— |
|
|
Environmental multi-site settlement — Corporate
(Note 11)
|
|
|
— |
|
|
|
(15.7 |
) |
|
|
— |
|
|
Hearing loss claims — Corporate (Note 11)
|
|
|
— |
|
|
|
(15.8 |
) |
|
|
— |
|
|
Gain on sale of Tacoma facility — Primary Aluminum
(Note 5)
|
|
|
— |
|
|
|
9.5 |
|
|
|
— |
|
|
Gain on sale of equipment, net — Fabricated Products
(Note 5)
|
|
|
— |
|
|
|
3.9 |
|
|
|
— |
|
|
Loss on sale of Oxnard facility — Fabricated Products
(Note 5)
|
|
|
— |
|
|
|
— |
|
|
|
(.2 |
) |
|
Inventory and net realizable value charges —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product line exit charges — Fabricated Products
|
|
|
— |
|
|
|
— |
|
|
|
(1.6 |
) |
|
Other
|
|
|
4.3 |
|
|
|
.9 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(793.2 |
) |
|
$ |
(141.6 |
) |
|
$ |
(31.8 |
) |
| |
|
|
|
|
|
|
|
|
|
The above table excludes other operating
(charges) benefits, net related to discontinued operations
of $95.2 in 2004, $(369.4) in 2003 and $(219.4) in 2002.
Restructuring charges in 2002 resulted from the Company’s
initiatives to increase cash flow, generate cash and improve the
Company’s financial flexibility. Restructuring charges
consisted of $7.9 of employee benefit and related costs
associated with 25 job eliminations (all of which had been
eliminated prior to December 31, 2002).
The product line exit charge in 2002 relates to a $1.6 LIFO
inventory charge which resulted from the Fabricated products
segment’s exit from the lid and tab stock and brazing sheet
product lines (see Note 2).
73
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Long-term debt, after deducting debt related to discontinued
operations, consists of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Secured:
|
|
|
|
|
|
|
|
|
| |
Post-Petition Credit Agreement
|
|
$ |
— |
|
|
$ |
— |
|
| |
7.6% Solid Waste Disposal Revenue Bonds due 2027
|
|
|
1.6 |
|
|
|
1.0 |
|
| |
Other borrowings (fixed rate)
|
|
|
2.4 |
|
|
|
2.5 |
|
|
Unsecured or Undersecured:
|
|
|
|
|
|
|
|
|
| |
97/8% Senior
Notes due 2002, net
|
|
|
172.8 |
|
|
|
172.8 |
|
| |
107/8% Senior
Notes due 2006, net
|
|
|
225.0 |
|
|
|
225.0 |
|
| |
123/4% Senior
Subordinated Notes due 2003
|
|
|
400.0 |
|
|
|
400.0 |
|
| |
7.6% Solid Waste Disposal Revenue Bonds due 2027
|
|
|
17.4 |
|
|
|
18.0 |
|
| |
Other borrowings (fixed and variable rates)
|
|
|
32.4 |
|
|
|
32.4 |
|
| |
|
|
|
|
|
|
|
Total
|
|
|
851.6 |
|
|
|
851.7 |
|
|
Less — Current portion
|
|
|
(1.2 |
) |
|
|
(1.3 |
) |
|
Pre-Filing Date
claims included in subject to compromise (i.e. unsecured debt)
(Note 1)
|
|
|
(847.6 |
) |
|
|
(848.2 |
) |
| |
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
2.8 |
|
|
$ |
2.2 |
|
| |
|
|
|
|
|
|
The above table excludes debt
(81/4%
Alpart CARIFA Loans) related to discontinued operations of $22.0
in 2003.
On February 11, 2005, the Company and KACC entered into a
new financing agreement with a group of lenders under which the
Company was provided with a replacement for the existing
post-petition credit facility and a commitment for a multi-year
exit financing arrangement upon the Debtors’ emergence from
the Chapter 11 proceedings. The new financing agreement:
|
|
|
| |
• |
Replaced the existing post-petition credit facility with a new
$200.0 post-petition credit facility (the “DIP
Facility”) and |
| |
| |
• |
Included a commitment, upon the Debtors’ emergence from the
Chapter 11 proceedings, for exit financing in the form of a
$200.0 million revolving credit facility (the
“Revolving Credit Facility”) and a fully drawn term
loan (the “Term Loan”) of up to $50.0. |
The DIP Facility provides for a secured, revolving line of
credit through the earlier of February 11, 2006, the
effective date of a plan of reorganization or voluntary
termination by the Company. Under the DIP Facility, the Company,
KACC and certain subsidiaries of KACC are able to borrow amounts
by means of revolving credit advances and to have issued letters
of credit (up to $60.0) in an aggregate amount equal to the
lessor of $200.0 or a borrowing base comprised of eligible
accounts receivable, eligible inventory and certain eligible
machinery, equipment and real estate, reduced by certain
reserves, as defined in the DIP Facility agreement. This amount
available under the DIP Facility shall be reduced by $20.0 if
net borrowing availability falls below $40.0. Interest on any
outstanding borrowings will bear a spread over either a base
rate or LIBOR, at KACC’s option.
The DIP Facility is secured by substantially all of the assets
of the Company, KACC and KACC’s subsidiaries other than
certain amounts related to AJI, KJC, KAAC, and KFC whose assets
are, subject to
74
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
their liquidation plans (see Note 1), expected to be
distributed to the creditors of those subsidiaries. The DIP
Facility is guaranteed by KACC and all of KACC’s material
domestic subsidiaries other than AJI, KJC, KAAC, and KFC.
Amounts owed under the DIP Facility may be accelerated under
various circumstances more fully described in the DIP Facility
agreement, including but not limited to, the failure to make
principal or interest payments due under the DIP Facility,
breaches of certain covenants, representations and warranties
set forth in the DIP Facility agreement, and certain events
having a material adverse effect on the business, assets,
operations or condition of the Company taken as a whole.
The DIP Facility places restrictions on the Company’s,
KACC’s and KACC’s subsidiaries’ ability to, among
other things, incur debt, create liens, make investments, pay
dividends, sell assets, undertake transactions with affiliates,
and enter into unrelated lines of business.
The principal terms of the committed Revolving Credit Facility
would be essentially the same as or more favorable than the DIP
Facility, except that, among other things, the Revolving Credit
Facility would close and be available upon the Debtors’
emergence from the Chapter 11 proceedings and would be
expected to mature on February 11, 2010. The Term Loan
commitment would be expected to close upon the Debtors’
emergence from the Chapter 11 proceedings and would be
expected to mature on February 11, 2011.
The DIP Facility replaced, on February 11, 2005, a
post-petition credit facility (the “Replaced
Facility”) that the Company and KACC entered into on
February 12, 2002. Originally, the Replaced Facility
provided for revolving credit advances of up to $300.0. This
amount was reduced to $285.0 in August 2003 and to $200.0 in
October 2004. The Replaced Facility was amended a number of
times during its term as a result of, among other things,
reorganization transactions, including disposition of the
Company’s commodity-related assets.
The Company has previously disclosed that in connection with the
completion of the previously announced sales of its commodities
interests, it expects that the amount of borrowing base
available under the DIP Facility would be adequate to support
the Company’s liquidity requirements through the expected
remainder of the Cases. This belief is based on the fact that it
was the commodity assets that subjected the Company to the most
variability and exposure from both a price risk basis as well as
from an operating perspective. While there can be no assurances,
based on recent primary aluminum prices and recent market
conditions for fabricated aluminum products, the Company
currently expects availability under the DIP Facility to remain
above the $100.0 range.
At February 28, 2005, there were no outstanding borrowings
under the DIP Facility. While there were only $1.8 of letters of
credit outstanding under the DIP Facility at February 28,
2005, there were approximately $15.9 of outstanding letters of
credit that had been issued under the Replaced Facility for
which the Company had deposited cash of $16.7 as collateral.
These outstanding letters of credit are expected to be replaced
with letters of credit issued under the DIP Facility, at which
time, the applicable cash deposit will be refunded to the
Company.
7.6% Solid Waste Disposal Revenue Bonds. The 7.6% solid
waste disposal revenue bonds (the “Solid Waste Bonds”)
were secured by certain (but not all) of the facilities and
equipment at the Mead Facility which was sold in June 2004 (see
Note 5). The Company believes that the value of the
collateral that secured the Solid Waste Bonds was in the $1.0
range and, as a result, has reclassified $18.0 of the Solid
Waste Bonds balance to Liabilities subject to compromise (see
Note 1). However, in connection with the sale of the Mead
Facility, $4.0 of the proceeds were placed in escrow for the
benefit of the holders of the Solid Waste Bonds until the value
of the secured claim of the bondholders is determined by the
Court. The value of the secured claim was ultimately agreed to
be approximately $1.6. As such, the amount of the Solid Waste
Bonds considered in Liabilities subject to compromise has been
reduced to $17.4. Court approval for the agreed
75
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
claim value is still pending. However, the Court has approved
the reduction of the collateral to approximately $2.3. The
Company expects to receive the amount in excess of the
Court-approved $2.3 amount during the second quarter of 2005. As
the Solid Waste Bonds were not a part of the Mead Facility sale
transaction, they were not reported as discontinued operations
in the accompanying Consolidated Balance Sheets.
83/4%
Alpart CARIFA Loans. In December 1991, Alpart entered into a
loan agreement with the Caribbean Basin Projects Financing
Authority (“CARIFA”). 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 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.
Pursuant to the CARIFA loan agreement, the Alpart CARIFA
financing was repaid in connection with the sale of the
Company’s interests in and related to Alpart, which were
sold on July 1, 2004 (see Note 5). Upon such payment,
the Company’s letter of credit obligation under the DIP
Facility securing the loans was cancelled.
97/8% Notes,
107/8% Notes
and
123/4% Notes.
The obligations of KACC with respect to its
97/8% Senior
Notes due 2002 (the
“97/8% Notes”),
its
107/8% Senior
Notes due 2006 (the
“107/8% Notes”)
and its
123/4% Senior
Subordinated Notes due 2003 (the
“123/4% Notes”)
are guaranteed, jointly and severally, by certain subsidiaries
of KACC.
Debt Covenants and Restrictions. The indentures governing
the
97/8% Notes,
the
107/8% Notes
and the
123/4% 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
97/8% Notes,
the
107/8% Notes
and the
123/4% Notes,
respectively, upon the occurrence of a Change of Control (as
defined therein).
Income (loss) before income taxes and minority interests by
geographic area (excluding discontinued operations) is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Domestic
|
|
$ |
(886.1 |
) |
|
$ |
(286.7 |
) |
|
$ |
(226.3 |
) |
|
Foreign
|
|
|
24.2 |
|
|
|
14.6 |
|
|
|
28.0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(861.9 |
) |
|
$ |
(272.1 |
) |
|
$ |
(198.3 |
) |
| |
|
|
|
|
|
|
|
|
|
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.
76
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The (provision) benefit for income taxes on income (loss)
before income taxes and minority interests (excluding
discontinued operations) consists of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Federal | |
|
Foreign | |
|
State | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
2004 Current
|
|
$ |
— |
|
|
$ |
(6.4 |
) |
|
$ |
— |
|
|
$ |
(6.4 |
) |
|
Deferred
|
|
|
— |
|
|
|
.2 |
|
|
|
— |
|
|
|
.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
— |
|
|
$ |
(6.2 |
) |
|
$ |
— |
|
|
$ |
(6.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 Current
|
|
$ |
— |
|
|
$ |
(1.3 |
) |
|
$ |
— |
|
|
$ |
(1.3 |
) |
|
Deferred
|
|
|
— |
|
|
|
(.2 |
) |
|
|
— |
|
|
|
(.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
— |
|
|
$ |
(1.5 |
) |
|
$ |
— |
|
|
$ |
(1.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Current
|
|
$ |
(.2 |
) |
|
$ |
(5.6 |
) |
|
$ |
(.3 |
) |
|
$ |
(6.1 |
) |
|
Deferred
|
|
|
3.2 |
|
|
|
(1.1 |
) |
|
|
(.4 |
) |
|
|
1.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3.0 |
|
|
$ |
(6.7 |
) |
|
$ |
(.7 |
) |
|
$ |
(4.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
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, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Amount of federal income tax benefit based on the statutory rate
|
|
$ |
301.7 |
|
|
$ |
95.2 |
|
|
$ |
69.4 |
|
|
Increase in valuation allowances
|
|
|
(304.7 |
) |
|
|
(98.1 |
) |
|
|
(71.8 |
) |
|
Percentage depletion
|
|
|
5.1 |
|
|
|
6.4 |
|
|
|
7.6 |
|
|
Foreign taxes
|
|
|
(6.3 |
) |
|
|
(1.5 |
) |
|
|
(6.7 |
) |
|
Other
|
|
|
(2.0 |
) |
|
|
(3.5 |
) |
|
|
(2.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$ |
(6.2 |
) |
|
$ |
(1.5 |
) |
|
$ |
(4.4 |
) |
| |
|
|
|
|
|
|
|
|
|
77
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Deferred Income Taxes. The components of the
Company’s net deferred income tax assets
(liabilities) are as follows:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
| |
Postretirement benefits other than pensions
|
|
$ |
396.0 |
|
|
$ |
268.6 |
|
| |
Loss and credit carryforwards
|
|
|
411.3 |
|
|
|
356.1 |
|
| |
Pension benefits
|
|
|
243.6 |
|
|
|
158.1 |
|
| |
Other liabilities
|
|
|
153.7 |
|
|
|
114.7 |
|
| |
Other
|
|
|
75.0 |
|
|
|
111.9 |
|
| |
Property, plant and equipment
|
|
|
— |
|
|
|
12.1 |
|
| |
Valuation allowances
|
|
|
(1,221.3 |
) |
|
|
(1,012.0 |
) |
| |
|
|
|
|
|
|
| |
|
Total deferred income tax assets — net
|
|
|
58.3 |
|
|
|
9.5 |
|
| |
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Property, plant, and equipment
|
|
|
(39.0 |
) |
|
|
— |
|
| |
Other
|
|
|
(22.0 |
) |
|
|
(25.7 |
) |
| |
|
|
|
|
|
|
| |
|
Total deferred income tax liabilities
|
|
|
(61.0 |
) |
|
|
(25.7 |
) |
| |
|
|
|
|
|
|
|
Net deferred income tax assets (liabilities)(1)
|
|
$ |
(2.7 |
) |
|
$ |
(16.2 |
) |
| |
|
|
|
|
|
|
|
|
| (1) |
These deferred income tax liabilities are included in the
Consolidated Balance Sheets as of December 31, 2004 and
2003, respectively, in the caption entitled Long-term
liabilities. |
For the years ended December 31, 2004, 2003 and 2002, as a
result of the Cases, the Company did not recognize
U.S. income tax benefits for the losses incurred from its
domestic operations (including temporary differences) or any
U.S. income tax benefits for foreign income taxes. Instead,
the increases in federal and state deferred tax assets as a
result of additional net operating losses and foreign taxes
generated in 2004, 2003 and 2002 were fully offset by increases
in valuation allowances.
Tax Attributes. At December 31, 2004, 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 $1,088.3 and $.6, respectively, which expire
periodically through 2024 and 2011, respectively, and
alternative minimum tax (“AMT”) credit carryforwards
of $24.0, which have an indefinite life.
A substantial portion of the Company’s attributes not used
in respect of the sales of the commodities interests would
likely be used to offset any gains that may result from the
cancellation of indebtedness as a part of the Company’s
reorganization. Any tax attributes not utilized by the Company
prior to emergence from Chapter 11 may be subject to
certain limitations as to their utilization post-emergence.
Other. In March 2003, the Company paid approximately
$22.0 in settlement of certain foreign tax matters in respect of
a number of prior periods.
|
|
| 9. |
Employee Benefit and Incentive Plans |
Historical Pension and Other Postretirement Benefit
Plans. The Company and its subsidiaries have historically
provided (a) postretirement health care and life insurance
benefits to eligible retired employees and their dependents and
(b) pension benefit payments to retirement plans.
Substantially all employees
78
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
became eligible for health care and life insurance benefits if
they reached retirement age while still working for the Company
or its subsidiaries. The Company did not fund the liability for
these benefits, which were expected to be paid out of cash
generated by operations. The Company reserved the right, subject
to applicable collective bargaining agreements, to amend or
terminate these benefits. Retirement plans were generally
non-contributory for salaried and hourly employees and generally
provided for benefits based on formulas which considered such
items as length of service and earnings during years of service.
Reorganization Efforts Affecting Pension and Post Retirement
Medical Obligations. The Company has stated since the
inception of its Chapter 11 proceedings that legacy items
that included its pension and post-retirement benefit plans
would have to be addressed before the Company could successfully
reorganize. The Company previously disclosed that it did not
intend to make any pension contributions in respect of its
domestic pension plans during the pendency of the Cases as it
believes that virtually all amounts are pre-Filing Date
obligations. The Company did not make required accelerated
funding payments to its salaried employee retirement plan. As a
result, during 2003, the Company engaged in lengthy negotiations
with the PBGC, the 1114 Committee and the appropriate union
representatives for the hourly employees subject to collective
bargaining agreements regarding its plans to significantly
modify or terminate these benefits.
In January 2004, the Company filed motions with the Court to
terminate or substantially modify postretirement medical
obligations for both salaried and certain hourly employees and
for the distressed termination of substantially all domestic
hourly pension plans. The Company subsequently concluded
agreements with the 1114 Committee and union representatives
that represent the vast majority of the Company’s hourly
employees. The agreements provide for the termination of
existing salaried and hourly postretirement medical benefit
plans, and the termination of existing hourly pension plans.
Under the agreements, salaried and hourly retirees would be
provided an opportunity for continued medical coverage through
COBRA or a proposed Voluntary Employee Beneficiary Association
(“VEBA”) and active salaried and hourly employees
would be provided with an opportunity to participate in one or
more replacement pension plans and/or defined contribution
plans. The agreements with the 1114 Committee and certain of the
unions have been approved by the Court, but were subject to
certain conditions, including Court approval of the Intercompany
Agreement in a form acceptable to the Debtors and the UCC (see
Note 1). The ongoing financial impacts of the new and
continuing pension plans and the VEBA are discussed below in
“Cash Flow”.
On June 1, 2004, the Court entered an order, subject to
certain conditions including final Court approval for the
Intercompany Agreement, authorizing the Company to implement
termination of its postretirement medical plans as of
May 31, 2004 and the Company’s plan to make advance
payments to one or more VEBAs. As previously disclosed, pending
the resolution of all contingencies in respect of the
termination of the existing postretirement medical benefit plan,
during the period June 1, 2004 through December 31,
2004 the Company continued to accrue costs based on the existing
plan and has treated the VEBA contribution as a reduction of its
liability under the plan. However, since the Intercompany
Agreement was approved in February 2005 and all other
contingencies had already been met, the Company determined that
the existing post retirement medical plan should be treated as
terminated as of December 31, 2004. This resulted in the
Company recognizing a non-cash charge of approximately $312.5
(reflected in Other operating charges (benefits),
net — Note 6).
The PBGC has assumed responsibility for the three largest of the
Company’s pension plans, which represented the vast
majority of the Company’s net pension obligation including
the Company’s Salaried Employees Retirement Plan (in
December 2003), the Inactive Pension Plan (in July 2004) and the
Kaiser Aluminum Pension Plan (in September 2004). The Salaried
Employees Retirement Plan, the Inactive Pension Plan and the
Kaiser Aluminum Pension Plan are hereinafter collectively
referred to as the “Terminated Plans”. The PBGC’s
assumption of the Terminated Plans resulted in the Company
recognizing non-cash pension charges of approximately $121.2 in
the fourth quarter of 2003, approximately $155.5 in the
79
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
third quarter of 2004 and approximately $154.5 in December 2004.
The fourth quarter 2003 and third quarter 2004 charges were
determined by the Company based on assumptions that are
consistent with the GAAP criteria for valuing ongoing plans. The
Company believed this represented a reasonable interim
estimation methodology as there were reasonable arguments that
could have been made that could have resulted in the final
allowed claim amounts being either more or less than that
reflected in the financial statements. The December 2004 charge
was based on the final agreement with the PBGC which was
approved by the Court in January 2005. Pursuant to the agreement
with the PBGC, the Company and the PBGC agreed, among other
things, that: (a) the Company will continue to sponsor the
Company’s remaining pension plans (which primarily are in
respect of hourly employees at Fabricated Products facilities)
and will satisfy the estimated $4.1 minimum funding contribution
for these plans after the settlement agreement is approved by
the Court; (b) the PBGC will have an allowed post-petition
administrative claim of $14.0, which is expected to be paid upon
the consummation of a plan of reorganization for the Company or
the consummation of a plan for KAAC, whichever comes first; and
(c) the PBGC will have allowed pre-petition unsecured
claims in respect of the Terminated Plans in the amount of
$616.0, which will be resolved in a plan or plans of
reorganization provided that the PBGC’s cash recovery from
proceeds of the Company’s sale of its interests in and
related to Alpart and QAL will be limited to 32% of the net
proceeds distributable to holders of the Company’s Senior
Notes, Sub Notes and the PBGC.
The following recaps the key assumptions used and the amounts
reflected in the Company’s financial statements with
respect to the Company’s pension plans and other
postretirement benefit plans. In accordance with generally
accepted accounting principles, impacts of the changes in the
Company’s pension and other postretirement benefit plans
discussed above have been reflected in such information.
The Company uses a December 31 measurement date for the all
of its plans.
Weighted-average assumptions used to determine benefit
obligations as of December 31 and net periodic benefit cost
for the years ended December 31 are:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
|
Medical/Life Benefits | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Benefit obligations assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Discount rate
|
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
6.75 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
6.75 |
% |
| |
Rate of compensation increase
|
|
|
3.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
Net periodic benefit cost assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Discount rate
|
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
6.75 |
% |
|
|
6.00 |
% |
|
|
6.75 |
% |
|
|
7.25 |
% |
| |
Expected return on plan assets
|
|
|
8.50 |
% |
|
|
9.00 |
% |
|
|
9.00 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Rate of compensation increase
|
|
|
3.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
In 2004, the average annual assumed rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend
rate) is 9.25% for all participants. The assumed rate of
increase is assumed to decline gradually to 5.0% in 2010 for all
participants and remain at that level thereafter. In 2003, the
average annual assumed rate of increase in the per capita cost
of covered benefits was 10.0% for all participants. The assumed
rate of increase was assumed to decline gradually to 5.0% in
2010 for all participants and remain at that level thereafter.
The Company’s overall expected long-term rate of return on
assets is 8.5%. The expected long-term rate of return is based
on the portfolio as a whole and not on the sum of the returns on
individual asset categories.
80
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
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
|
|
$ |
8.2 |
|
|
$ |
(7.1 |
) |
|
Increase (decrease) to the postretirement benefit obligation
|
|
|
111.7 |
|
|
|
(98.5 |
) |
As more fully discussed above, all of the Company’s
postretirement medical benefit plans have been terminated as a
part of the Company’s reorganization efforts. As such, the
Company’s obligations with respect to the existing plans
are fixed. However, at this time it is not possible to
definitely determine the “final” amount of such
obligations as the value of such amounts will be subject to
negotiations among and between the Company and the constituents
of the ongoing Cases and subject to Court approval.
81
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
|
Benefit Obligations and Funded Status |
The following table presents the benefit obligations and funded
status of the Company’s pension and other postretirement
benefit plans as of December 31, 2004 and 2003, and the
corresponding amounts that are included in the Company’s
Consolidated Balance Sheets. The following table excludes the
pension plan balances and amounts related to Alpart, KJBC and
Valco, which operations were sold and the obligations assumed by
the buyers (see Note 3). The Company pension plan
obligations related to the Gramercy facility were a part of the
Terminated Plans and are excluded from the table below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
|
Medical/Life Benefits | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Obligation at beginning of year
|
|
$ |
644.7 |
|
|
$ |
858.7 |
|
|
$ |
1,014.0 |
|
|
$ |
790.1 |
|
| |
Service cost
|
|
|
3.8 |
|
|
|
8.4 |
|
|
|
7.0 |
|
|
|
7.1 |
|
| |
Interest cost
|
|
|
28.6 |
|
|
|
56.2 |
|
|
|
58.9 |
|
|
|
51.3 |
|
| |
Curtailments, settlements and amendments
|
|
|
(609.6 |
) |
|
|
(276.4 |
) |
|
|
— |
|
|
|
— |
|
| |
Actuarial (gain) loss
|
|
|
(37.0 |
) |
|
|
74.5 |
|
|
|
19.1 |
|
|
|
225.9 |
|
| |
Benefits paid
|
|
|
(3.3 |
) |
|
|
(76.7 |
) |
|
|
(57.0 |
) |
|
|
(60.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Obligation at end of year
|
|
|
27.2 |
|
|
|
644.7 |
|
|
|
1,042.0 |
|
|
|
1,014.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FMV of plan assets at beginning of year
|
|
|
364.1 |
|
|
|
426.4 |
|
|
|
— |
|
|
|
— |
|
| |
Actual return on assets
|
|
|
(13.0 |
) |
|
|
89.7 |
|
|
|
— |
|
|
|
— |
|
| |
Employer contributions
|
|
|
2.4 |
|
|
|
.3 |
|
|
|
57.0 |
|
|
|
60.4 |
|
| |
Assets for which contributions transferred to the PBGC
|
|
|
(336.0 |
) |
|
|
(75.5 |
) |
|
|
— |
|
|
|
— |
|
| |
Benefits paid
|
|
|
(3.3 |
) |
|
|
(76.8 |
) |
|
|
(57.0 |
) |
|
|
(60.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
FMV of plan assets at end of year
|
|
|
14.2 |
|
|
|
364.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Obligation in excess of plan assets
|
|
|
13.0 |
|
|
|
280.6 |
|
|
|
1,042.0 |
|
|
|
1,014.0 |
|
| |
Unrecognized net actuarial loss
|
|
|
(6.6 |
) |
|
|
(140.4 |
) |
|
|
— |
|
|
|
(421.5 |
) |
| |
Unrecognized prior service costs
|
|
|
(.5 |
) |
|
|
(31.1 |
) |
|
|
— |
|
|
|
125.2 |
|
| |
Adjustment required to recognize minimum liability
|
|
|
6.8 |
|
|
|
103.5 |
|
|
|
— |
|
|
|
— |
|
| |
Estimated net liability to PBGC in respect of Terminated Plans
|
|
|
630.0 |
|
|
|
201.2 |
|
|
|
— |
|
|
|
— |
|
| |
Intangible asset and other
|
|
|
1.3 |
|
|
|
31.9 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accrued benefit liability
|
|
$ |
644.0 |
|
|
$ |
445.7 |
|
|
$ |
1,042.0 |
|
|
$ |
717.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
As discussed more fully in Note 1, the amount of net
liability to the PBGC in respect of the Terminated Plans and in
respect of the terminated post retirement benefit plan will be
resolved pursuant to a plan of reorganization.
The accumulated benefit obligation for all defined benefit
pension plans (other than the Terminated Plans and those plans
that are part of discontinued operations) was $26.6 and $29.5 at
December 31, 2004 and 2003, respectively.
82
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The projected benefit obligation, aggregate accumulated benefit
obligation and fair value of plan assets for continuing pension
plans with accumulated benefit obligations in excess of plan
assets were $27.2, $26.5 and $14.2, respectively, as of
December 31, 2004 and $30.4, $29.5 and $13.7, respectively,
as of December 31, 2003.
|
|
|
Components of Net Periodic Benefit Cost — |
The following table presents the components of net periodic
benefit cost for the years ended December 31, 2004, 2003
and 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
|
Medical/Life Benefits | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Service cost
|
|
$ |
4.7 |
|
|
$ |
10.2 |
|
|
$ |
47.9 |
|
|
$ |
7.0 |
|
|
$ |
7.1 |
|
|
$ |
37.8 |
|
|
Interest cost
|
|
|
30.8 |
|
|
|
60.7 |
|
|
|
62.0 |
|
|
|
58.9 |
|
|
|
51.3 |
|
|
|
56.2 |
|
|
Expected return on plan assets
|
|
|
(22.9 |
) |
|
|
(38.6 |
) |
|
|
(58.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of prior service cost
|
|
|
2.6 |
|
|
|
3.6 |
|
|
|
3.8 |
|
|
|
(21.7 |
) |
|
|
(22.5 |
) |
|
|
(23.0 |
) |
|
Amortization of net (gain) loss
|
|
|
5.0 |
|
|
|
16.1 |
|
|
|
6.5 |
|
|
|
24.6 |
|
|
|
9.7 |
|
|
|
11.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
|
20.2 |
|
|
|
52.0 |
|
|
|
62.2 |
|
|
|
68.8 |
|
|
|
45.6 |
|
|
|
82.8 |
|
|
Less discontinued operations reported separately
|
|
|
(7.8 |
) |
|
|
(15.3 |
) |
|
|
(9.2 |
) |
|
|
(10.2 |
) |
|
|
(11.9 |
) |
|
|
(10.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
12.4 |
|
|
$ |
36.7 |
|
|
$ |
53.0 |
|
|
$ |
58.6 |
|
|
$ |
33.7 |
|
|
$ |
72.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above table excludes pension plan curtailment and settlement
costs of $142.4, $122.9 and $26.4 in 2004, 2003 and 2002,
respectively. The above table also excludes a post retirement
medical plan termination charge of approximately $312.5 in 2004.
The periodic pension costs associated with the Terminated Plans
were $16.9, $46.1 and $20.5 for the years ended
December 31, 2004, 2003 and 2002, respectively.
The increase (decrease) in the minimum liability included in
other comprehensive income was $(97.9), $(138.6), and $136.6 for
the years ended December 31, 2004, 2003 and 2002,
respectively.
All pension assets for domestic plans are held in Kaiser
Aluminum Pension Master Trust (the “Master Trust”)
solely for the benefit of the pension plans’ participants
and beneficiaries. Historically, the investment guidelines have
been to invest approximately 70% of amounts held by the Master
Trust in equity funds with the remaining 30% being invested in
fixed income funds. Of the percentage invested in equity funds,
approximately 60% has generally been invested in U.S. large
capitalization company funds with the remainder being split
relatively equally between funds with international equities and
funds or private placements investing in U.S. small
capitalization company equity securities. However, the Company
currently anticipates that the investment guidelines will be
revised during 2005 to reflect a more conservative investment
strategy with a higher portion of the Master Trusts assets being
invested in fixed income funds/securities. This expectation has
been reflected in the expected long term rate of return used to
compute the December 31, 2004 pension related disclosures
contained herein.
As discussed above, the PBGC assumed responsibility for the
Company’s Terminated Plans in December 2003 and the third
quarter of 2004. Upon termination, the assets and administration
were transferred to the
83
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
PBGC. The Company’s pension plan weighted average asset
allocation of the plans, by asset category, consisted primarily
of equity securities of approximately 70% and others of 30% at
December 31, 2004 and equity securities of approximately
66%, debt securities of 29% and other of 5% at December 31,
2003. The vast majority of the Company’s pension plan
assets are managed by a trustee.
Domestic Plans. As previously discussed, the Company,
since filing the Chapter 11 proceedings, has not made any
further significant contributions to any of its domestic pension
plans. However, as discussed above in connection with the PBGC
settlement agreement, which was approved by the Court in January
2005, the Company will be required to pay $4.1 in respect of
minimum funding contributions for retained pension plans and
will be required to pay approximately $14.0 at the earlier of
the emergence of the Company or KAAC in respect of post-petition
administrative claims of the PBGC. Any other payments to the
PBGC are expected to be limited to recoveries under the
Debtors’ plan(s) of reorganization.
The Company anticipates that it will provide a defined
contribution pension plan in respect of its salaried employees.
The Company expects such plan to be implemented beginning in the
second quarter of 2005. The Company currently estimates that the
total annual cash cost of such plan would be less than $5.0 and
will likely be required to be funded commencing some time in
2005.
Pursuant to the terms of the USWA agreement (see Note 11),
KACC will be required to make annual contributions into the
Steelworkers Pension Trust on the basis of one dollar per USWA
employee hour worked. In addition, KACC will institute a defined
contribution pension plan for active USWA employees. KACC
contributions to the plan will range from eight hundred dollars
to twenty-four hundred dollars per employee per year, depending
on age and years of service. The Company believes that similar
defined contribution pension plans will be established for
non-USWA hourly employees subject to collective bargaining
agreements. The Company currently estimates that contributions
to all such plans will range from $3.0 to $6.0 per year.
As a replacement for the Company’s previous postretirement
benefit plans, the Company agreed to contribute certain amounts
to one or more VEBA’s. Such contributions are to include:
|
|
|
| |
• |
An amount not to exceed $36.0 and payable on emergence from the
Chapter 11 proceedings so long as the Company’s
liquidity (i.e. cash plus borrowing availability) is at least
$50.0 after considering such payments. To the extent that less
than the full $36.0 is paid and the Company’s interests in
Anglesey are subsequently sold, a portion of such sales
proceeds, in certain circumstances, will be used to pay the
shortfall. |
| |
| |
• |
On an annual basis, 10% of the first $20.0 of annual cash flow,
as defined, plus 20% of annual cash flow, as defined, in excess
of $20.0. Such annual payments shall not exceed $20.0 and will
also be limited (with no carryover to future years) to the
extent that the payments do not cause the Company’s
liquidity to be less than $50.0. |
| |
| |
• |
Advances of $3.1 in June 2004 and $1.9 per month thereafter
until the Company emerges from the Cases. Any advances made
pursuant to such agreement will constitute a credit toward the
$36.0 maximum contribution due upon emergence. |
In October 2004, the Company entered into an amendment to the
USWA agreement to satisfy certain technical requirements for the
follow-on hourly pension plans discussed above. The Company also
agreed to pay an additional $1.0 to the VEBA at emergence. The
amended agreement was approved by the Court in February 2005.
84
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Foreign Plans. Contributions to foreign pension plans
(excluding those that are considered part of discontinued
operations — see Note 3) were nominal.
|
|
|
Significant Charges in 2004, 2003 and 2002 |
In 2004 and 2003, in connection with the Company’s
termination of its Terminated Plans (as discussed above), the
Company recorded non-cash charges of $310.0 and $121.2,
respectively, which amounts have been included in Other
operating charges (benefits), net (see Note 6). The charges
recorded in the fourth quarter of 2003 and third quarter of 2004
had no material impact on the pension liability associated with
the plans since the Company had previously recorded a minimum
pension liability, as also required by GAAP, which amount was
offset by charges to Stockholders’ equity.
In 2004, in connection with the termination of the
Company’s post-retirement medical plans (as discussed
above), the Company recorded a $312.5 non-cash charge, which
amount has been included in Other operating charges (benefits),
net (see Note 6).
During 2002, the Company’s Corporate segment recorded
charges of $24.1 (included in Corporate selling, administrative,
research and development, and general expense), for additional
pension expense. The charges were recorded because:
|
|
| |
(1) The lump sum payments from the assets of KACC’s
salaried employee pension plan exceeded a stipulated level
prescribed by GAAP. Accordingly, a partial
“settlement,” as defined by GAAP, was deemed to have
occurred. Under GAAP, if a partial “settlement”
occurs, a charge must be recorded for a portion of any
unrecognized net actuarial losses not reflected in the
consolidated balance sheet. The portion of the total
unrecognized actuarial losses of the plan ($75.0 at
December 31, 2001) that had to be recorded as a charge was
the relative percentage of the total projected benefit
obligation of the plan ($300.0 at December 31, 2001)
settled by the lump sum payments totaling $75.0 in 2002; and |
| |
| |
(2) During 2002, KACC also paid $4.2 into a trust fund in
respect of certain obligations attributable to certain
non-qualified pension benefits under management compensation
agreements. These payments also represented a
“settlement” and resulted in a charge of $4.2. |
In addition to the foregoing, during 2002, the Primary aluminum
segment reflected approximately $58.8 of charges for pension,
postretirement medical benefits and related obligations in
respect of the indefinite curtailment of the Mead facility. This
amount consisted of approximately $29.0 of incremental pension
charges and $29.8 of incremental postretirement medical and
related charges.
Postemployment Benefits. The Company has historically
provided certain benefits to former or inactive employees after
employment but before retirement. However, as a part of the
agreements more fully discussed above, such benefits were
discontinued in mid-2004.
Restricted Common Stock. The Company has a restricted
stock plan, which was one of its stock incentive compensation
plans, for its officers and other employees. Pursuant to the
plan, approximately 1,181,000 restricted shares of the
Company’s Common Stock were outstanding as of
January 31, 2002. During 2004, 2003 and 2002, approximately
1,113,000 of the unvested restricted shares were cancelled or
voluntarily forfeited. As of December 31, 2004, 9,000
restricted shares were outstanding. As part of a plan of
reorganization, the Company believes it is likely that these
shares will be cancelled without consideration.
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 which provides
for matching contributions by the Company at the discretion of
the board of directors. Given the challenging business
environment encountered during 2004, 2003 and 2002 and the
85
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
disappointing results of operations for all years, only modest
incentive payments were made and no matching contribution were
awarded in respect of either year. The Company’s expense
for all of these plans was $1.7, $6.1, and $1.7 for the years
ended December 31, 2004, 2003 and 2002, respectively.
Up to 8,000,000 shares of the Company’s Common Stock
were initially reserved for issuance under its stock incentive
compensation plans. At December 31, 2004,
4,536,855 shares of Common Stock remained available for
issuance under those plans. Stock options granted pursuant to
the Company’s nonqualified stock option program are to be
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.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Outstanding at beginning of year ($3.34, $5.63 and $8.37,
respectively)
|
|
|
850,140 |
|
|
|
1,454,861 |
|
|
|
1,560,707 |
|
|
Expired or forfeited ($7.25, $8.86 and $5.71, respectively)
|
|
|
(40,100 |
) |
|
|
(604,721 |
) |
|
|
(105,846 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year ($3.14, $3.34, and $5.63,
respectively)
|
|
|
810,040 |
|
|
|
850,140 |
|
|
|
1,454,861 |
|
| |
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year ($3.04, $3.34, and $6.84,
respectively)
|
|
|
781,856 |
|
|
|
645,659 |
|
|
|
987,306 |
|
| |
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2004 had exercisable
prices ranging from $1.72 to $10.06 and a weighted average
remaining contractual life of 6.7 years. Given that the
average sales price of the Company’s Common Stock is
currently in the $.05 per share range, the Company believes
it is unlikely any of the stock options will be exercised.
Further, as a part of a plan of reorganization, the Company
believes that it is likely that the equity interests of the
holders of outstanding options will be cancelled without
consideration.
KACC has four series of $100 par value Cumulative
Convertible Preference Stock (“$100 Preference Stock”)
outstanding with annual dividend requirements of between
41/8%
and
43/4%.
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. By its terms,
the $100 Preference Stock can be exchanged for per share cash
amounts between $69 - $80. The Company records the $100
Preference Stock at their exchange amounts for financial
statement presentation and includes such amounts in minority
interests. At December 31, 2004 and 2003, outstanding
shares of $100 Preference Stock were 8,669. In accordance with
the Code and DIP Facility, KACC is not permitted to repurchase
or redeem any of its stock. Further, as a part of a plan of
reorganization, the Company believes it is likely that the
equity interests of the holders of the $100 Preference Stock
will be cancelled without consideration.
|
|
| 11. |
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 against a Debtor arising from
actions or omissions prior to its Filing Date will be settled in
connection with a 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 12),
letters of credit, and guarantees. A significant portion of
these commitments relate to the Company’s interests in and
related to
86
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
QAL, which are expected to be sold in April 2005 (see
Note 3). KACC also has agreements to supply alumina to and
to purchase aluminum from Anglesey.
Minimum rental commitments under operating leases at
December 31, 2004, are as follows: years ending
December 31, 2005 - $2.1; 2006 - $1.7;
2007 - $1.3; 2008 - $.7; 2009 - $.7;
thereafter - $.3. Pursuant to the Code, the Debtors may
elect to reject or assume unexpired pre-petition leases. Rental
expenses , after excluding rental expenses of discontinued
operations, were $3.1, $8.6 and $30.9, for the years ended
December 31, 2004, 2003 and 2002, respectively. Rental
expenses of discontinued operations were $4.9, $6.6 and $7.4 for
the years ended December 31, 2004, 2003 and 2002,
respectively.
Environmental Contingencies. The Company and KACC are
subject to a number of environmental laws and regulations, to
fines or penalties assessed for alleged breaches of the
environmental laws, and to claims and litigation based upon such
laws and regulations. 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, 2003, KACC recorded charges of $23.2 to
increase its environmental accrual. The following table presents
the changes in such accruals, which are primarily included in
Long-term liabilities, for the years ended December 31,
2004, 2003 and 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Balance at beginning of period
|
|
$ |
82.5 |
|
|
$ |
59.1 |
|
|
$ |
61.2 |
|
|
Additional accruals
|
|
|
8.4 |
|
|
|
25.6 |
|
|
|
1.5 |
|
|
Less expenditures
|
|
|
(32.6 |
) |
|
|
(2.2 |
) |
|
|
(3.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Balance at end of period(1)
|
|
$ |
58.3 |
|
|
$ |
82.5 |
|
|
$ |
59.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
As of December 31, 2004 and 2003, $30.6 and $43.0,
respectively, of the environmental accrual was included in
Liabilities subject to compromise (see Note 1) and the
balance was included in Long-term liabilities. |
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. In the ordinary
course, 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 $24.3 in 2005, $.3 to $3.2 per year for
the years 2006 through 2009 and an aggregate of approximately
$29.2 thereafter. Approximately $20.2 of the adjustments to the
environmental liabilities in 2003 (see below) that applied to
non-owned property sites has been included in the after 2009
balance because such amounts are expected to be settled solely
in connection with the Debtors’ plan or plans of
reorganization.
Approximately $20.2 of the amount provided in 2003 relates to
the previously disclosed multi-site settlement agreement with
various federal and state governmental regulatory authorities
and other parties in respect of KACC’s environmental
exposure at a number of non-owned sites. Under this agreement,
among other things, KACC agreed to claims at such sites totaling
$25.6 ($20.2 greater than amounts that had previously been
accrued for these sites) and, in return, the governmental
regulatory authorities have agreed that such claims would be
treated as pre-Filing Date unsecured claims (i.e. liabilities
subject to compromise).
87
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The Company recorded the portion of the $20.2 accrual that
relates to locations with operations ($15.7) in Other operating
charges (benefits), net (see Note 6). The remainder of the
accrual ($4.5), which relates to locations that have not
operated for a number of years was recorded in Other income
(expense) (see Note 2).
During 2004 and 2003, the Company also provided additional
accruals totaling approximately $1.4 and $3.0, respectively,
associated with certain KACC-owned properties with no current
operations (recorded in Other income (expense) — see
Note 2). The 2004 accrual resulted from facts and
circumstances determined in ordinary course of business. The
additional 2003 accruals resulted primarily from additional cost
estimation efforts undertaken by the Company in connection with
its reorganization efforts. Both the 2004 and 2003 accruals were
recorded as liabilities not subject to compromise as they relate
to properties owned by the Company.
The Company has previously disclosed that it is possible that
its assessment of environmental accruals could increase because
it may be in the interests of all stakeholders to agree to
increased amounts to, among other things, achieve a claim
treatment that is favorable and to expedite the reorganization
process. The September 2003 multi-site settlement is one example
of such a situation.
In June, 2004, the Company reported that it was close to
entering settlement agreements with various parties pursuant to
which a substantial portion of the unresolved environmental
claims could be settled for approximately
$25.0 - $30.0. In September 2004, agreements with the
affected parties were reached and Court approval for such
agreements was received. During October 2004, the Company paid
approximately $27.3 to completely settle these liabilities. The
amounts paid approximated the amount of liabilities recorded and
did not result in any material net gain or loss.
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 $20.0 (a majority of which are estimated to relate to
owned sites that are likely not subject to compromise). 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.
However, no amounts have been accrued in the financial
statements with respect to such potential recoveries.
Other Environmental Matters. During April 2004, KACC was
served with a subpoena for documents and has been notified by
Federal authorities that they are investigating certain
environmental compliance issues with respect to KACC’s
Trentwood facility in the State of Washington. KACC is
undertaking its own internal investigation of the matter through
specially retained counsel to ensure that it has all relevant
facts regarding Trentwood’s compliance with applicable
environmental laws. KACC believes it is in compliance with all
applicable environmental law and requirements at the Trentwood
facility and intends to defend any claims or charges, if any
should result, vigorously. The Company cannot assess what, if
any, impact this matter may have on the Company’s or
KACC’s financial statements.
Asbestos and Certain Other Personal Injury Claims. 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 or exposure to products
containing asbestos produced or sold by KACC or as a result of,
employment or association with KACC. The lawsuits generally
relate to products KACC has not sold for more than
20 years. As of the initial Filing Date,
88
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
approximately 112,000 asbestos-related claims were pending. The
Company has also previously disclosed that certain other
personal injury claims had been filed in respect of alleged
pre-Filing Date exposure to silica and coal tar pitch volatiles
(approximately 3,900 claims and 300 claims, respectively).
Due to the Cases, holders of asbestos, silica and coal tar pitch
volatile claims are stayed from continuing to prosecute pending
litigation and from commencing new lawsuits against the Debtors.
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 its Filing Date and, as
described below, to negotiate insurance settlements and
prosecute certain actions to clarify policy interpretations in
respect of such coverage.
The following tables present historical information regarding
KACC’s asbestos, silica and coal tar pitch
volatiles-related balances and cash flows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Liability
|
|
$ |
1,115.0 |
|
|
$ |
610.1 |
|
|
Receivable (included in Other assets)(1)
|
|
|
967.0 |
|
|
|
465.4 |
|
| |
|
|
|
|
|
|
| |
|
$ |
148.0 |
|
|
$ |
144.7 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
Inception | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
to Date | |
| |
|
| |
|
| |
|
| |
|
| |
|
Payments made, including related legal costs
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(17.1 |
) |
|
$ |
(355.7 |
) |
|
Insurance recoveries(2)
|
|
|
2.7 |
|
|
|
18.6 |
|
|
|
23.3 |
|
|
|
266.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
2.7 |
|
|
$ |
18.6 |
|
|
$ |
6.2 |
|
|
$ |
(89.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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. Amounts are
stated in nominal dollars and not discounted to present value as
the Company cannot currently project the actual timing of
payments or insurance recoveries particularly in light of the
expected treatment of such items in any plan of reorganization
that is ultimately filed. The Company believes that, as of
December 31, 2004, it had received all insurance recoveries
that it is likely to collect in respect of asbestos-related
costs paid. See Note 1. |
| |
| (2) |
Excludes certain amounts paid by insurers into a separate escrow
account (in respect of future settlements) more fully discussed
below. |
As previously disclosed, at the Filing Date, the Company had
accrued approximately $610.1 (included in Liabilities Subject to
Compromise) in respect of asbestos and other similar personal
injury claims. As disclosed, such amount represented the
Company’s estimate for current claims and claims expected
to be filed over a 10 year period (the longest period KACC
believed it could then reasonably estimate) based on, among
other things existing claims, assumptions about the amounts of
asbestos-related payments, the status of ongoing litigation and
settlement initiatives, and the advice of Wharton Levin
Ehrmantraut & Klein, P.A., with respect to the current
state of the law related to asbestos claims. The Company also
disclosed that there were inherent limitations to such estimates
and that the Company’s actual liabilities in respect of
such claims could significantly exceed the amounts accrued; that
at some point during the reorganization process, the Company
expected that an estimation of KACC’s entire
asbestos-related liability would occur; and that until
89
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
such process was complete or KACC had more information, KACC was
unlikely to be able to adjust its accruals.
Over the last year-plus period, the Company has engaged in
periodic negotiations with the representatives of the asbestos,
silica and coal tar pitch claimants and the Company’s
insurers as part of its reorganization efforts. As more fully
discussed in Note 1, these efforts resulted in an agreed
term sheet in early 2005 between the Company and other key
constituents as to the treatment for such claims in any plan(s)
of reorganization the Company files. While a formal estimation
process has not been completed, now that the Company can
reasonably predict the path forward for resolution of these
claims and based on the information resulting from the
negotiations process, the Company believes it has sufficient
information to project a range of likely costs. The Company now
estimates that its total liability for asbestos, silica and coal
tar pitch volatile personal injury claims is expected to be
between approximately $1,100.0 and $2,400.0. However, the
Company does not anticipate that other constituents will
necessarily agree with this range and the Company anticipates
that, as a part of any estimation process that may occur in the
Cases, other constituents are expected to disagree with the
Company’s estimated range of costs. In particular, the
Company is aware that certain informal assertions have been made
by representatives for the asbestos, silica and coal tar pitch
volatiles claimants that the actual liability may exceed,
perhaps significantly, the top end of the Company’s
expected range. While the Company cannot reasonably predict what
the ultimate amount of such claims will be determined to be, the
Company believes that the minimum end of the range is both
probable and reasonably estimatable. Accordingly, in accordance
with GAAP, the Company recorded an approximate $500.0 charge to
increase its accrued liability at December 31, 2004 to the
$1,115.0 minimum end of the expected range. Future adjustments
to such accruals are possible as the reorganization and/or
estimation process proceeds and it is possible that such
adjustments will be material.
As previously disclosed, KACC believes that it has insurance
coverage available to recover a substantial portion of its
asbestos-related costs and had accrued for expected recoveries
totaling approximately $463.1 as of September 30, 2004,
after considering the approximately $54.4 of asbestos-related
insurance receipts received from the Filing Date through
September 30, 2004. As previously disclosed, 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.
As a part of the negotiation process described above, the
Company has continued its efforts with insurers to make clear
the amount of insurance coverage expected to be available in
respect of asbestos, silica and coal tar pitch personal injury
claims. The Company has settled asbestos-related coverage
matters with certain of its insurance carriers. However, other
carriers have not yet agreed to settlements and disputes with
carriers exist. During 2000, KACC filed suit in
San Francisco Superior Court against a group of its
insurers, which suit was thereafter split into two related
actions. Additional insurers were added to the litigation in
2000 and 2002. During October 2001, June 2003, February 2004 and
April 2004, the court ruled favorably on a number of policy
interpretation issues. Additionally, one of the favorable
October 2001 rulings was affirmed in February 2002 by an
intermediate appellate court in response to a petition from the
insurers. The litigation is continuing.
The timing and amount of future insurance recoveries continues
to be dependent on the resolution of any disputes regarding
coverage under the applicable insurance policies thru the
process of negotiations or further litigation. However, the
Company believes that substantial recoveries from the insurance
carriers are probable. The Company estimates that at
December 31, 2004 its remaining solvent insurance coverage
was in the range of $1,400.0 - $1,500.0. Further, assuming
that actual asbestos, silica and coal tar pitch volatile costs
were to be the $1,115.0 amount now accrued (as discussed above)
the Company believes that it would be able to recover from
insurers amounts totaling approximately $967.0, and, accordingly
the Company recorded an approximate $500.0 increase in its
personal injury-related insurance receivable. The foregoing
estimates are based on,
90
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
among other things, negotiations, the results of the litigation
efforts discussed above 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. While the Company considers the approximate
$965.0 amount to be probable (based on the factors cited above)
it is possible that facts and circumstances could change and, if
such a change were to occur, that a material adjustment to the
amount recorded could occur. Additionally, it should be noted
that, if through the estimation process or negotiation, it was
determined that a significantly higher amount of costs were
expected to be paid in respect of asbestos, silica and coal tar
pitch volatile claims: (a) any amounts in excess of
$1,400.0 - $1,500.0 would likely not be offset by any
expected incremental insurance recoveries and (b) it is
presently uncertain to what extent additional insurance
recoveries would be determined under GAAP to be probable in
respect of expected costs between the $1,100.0 amount accrued at
December 31, 2004 and total amount of estimated solvent
insurance coverage available.
Since the start of the Cases, KACC has entered into settlement
agreements with several of the insurers whose asbestos-related
obligations are primarily in respect of future asbestos claims.
These settlement agreements were approved by the Court. In
accordance with the Court approval, the insurers have paid
certain amounts, pursuant to the terms of that approved escrow
agreements, into funds (the “Escrow Funds”) in which
KACC has no interest, but which amounts will be available for
the ultimate settlement of KACC’s asbestos-related claims.
Because the Escrow Funds are under the control of the escrow
agents, who will make distributions only pursuant to a Court
order, the Escrow Funds are not included in the accompanying
consolidated balance sheet at December 31, 2004. In
addition, since neither the Company nor KACC received any
economic benefit or suffered any economic detriment and have not
been relieved of any asbestos-related obligation as a result of
the receipt of the escrow funds, neither the asbestos-related
receivable nor the asbestos-related liability have been adjusted
as a result of these transactions. As of December 31, 2004,
the insurers had paid $11.8 into the Escrow Funds. It is
possible that settlements with additional insurers will occur.
However, no assurance can be given that such settlements will
occur.
Hearing Loss Claims. During February 2004, the Company
reached a settlement in principle in respect of 400 claims,
which alleged that certain individuals who were employees of the
Company, principally at a facility previously owned and operated
by KACC in Louisiana, suffered hearing loss in connection with
their employment. Under the terms of the settlement, which is
still subject to Court approval the claimants will be allowed
claims totaling $15.8. As such, the Company recorded a $15.8
charge (in Other operating charges (benefits), net —
see Note 6) in 2003 and a corresponding obligation
(included in Liabilities subject to compromise — see
Note 1). However, no cash payments by the Company are
required in respect of these amounts. Rather the settlement
agreement contemplates that, at emergence, these claims will be
transferred to a separate trust along with certain rights
against certain insurance policies of the Company and that such
insurance policies will be the sole source of recourse to the
claimants. While the Company believes that the insurance
policies are of value, no amounts have been reflected in the
Company’s financial statements at December 31, 2004 in
respect of such policies as the Company could not with the level
of certainty necessary determine the amount of recoveries that
were probable.
During the Cases, the Company has received approximately 3,200
additional proofs of claim alleging pre-petition injury due to
noise induced hearing loss. It is not known at this time how
many, if any, of such claims have merit or at what level such
claims might qualify within the parameters established by the
above-referenced settlement in principle for the 400 claims.
Accordingly, the Company cannot presently determine the impact
or value of these claims. However, the Company currently expects
that all such claims will be transferred, along with certain
rights against certain insurance policies, to a separate trust
along with the settled hearing loss cases discussed above,
whether or not such claims are settled prior to the
Company’s emergence from the Cases.
91
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Labor Matters. In connection with the United Steelworkers
of America (“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 believed 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. In May 2002, the administrative law
judge ruled against KACC in respect of the two remaining ULP
allegations and recommended that the NLRB award back wages, plus
interest, less any earnings of the workers during the period of
the lockout. The administrative law judge’s ruling did not
contain any specific amount of proposed award and was not
self-executing.
In January 2004, as part of its settlement with the USWA with
respect to pension and retiree medical benefits, KACC and the
USWA agreed to settle their case pending before the NLRB,
subject to approval of the NLRB General Counsel and the Court
and ratification by union members. Under the terms of the
agreement, solely for the purposes of determining distributions
in connection with the reorganization, an unsecured pre-petition
claim in the amount of $175.0 will be allowed. Also, as part of
the agreement, the Company agreed to adopt a position of
neutrality regarding the unionization of any employees of the
reorganized company.
The settlement was ratified by the union members in February
2004, amended in October 2004, and ultimately approved by the
Court in February 2005. Until February 2005, the settlement was
also contingent on the Court’s approval of the Intercompany
Agreement. However, such contingency was removed when the Court
approved the Intercompany Agreement in February 2005. Since all
material contingencies in respect of this settlement have been
resolved and, since the ULP claim existed as of the
December 31, 2004 balance sheet date, the Company recorded
a $175.0 non-cash charge in the fourth quarter of 2004
(reflected in Other charges (benefits), net —
Note 6).
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.
|
|
| 12. |
Derivative Financial Instruments and Related Hedging
Programs |
In conducting its business, KACC has historically used various
instruments, including forward contracts and options, to manage
the risks arising from fluctuations in aluminum prices, energy
prices and exchange rates. KACC has historically entered into
hedging transactions from time to time to limit its exposure
resulting from (1) its anticipated sales 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 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
the hedging activities (except the impact of those contracts
discussed below which have been marked to market) generally
offset at least a portion of any losses or gains, respectively,
on the transactions being hedged.
KACC’s share of primary aluminum production from Anglesey
is approximately 150,000,000 pounds annually. Because KACC
purchases alumina for Anglesey at prices linked to primary
aluminum prices, only a portion of the Company’s net
revenues associated with Anglesey are exposed to price risk. The
Company
92
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
estimates the net portion of its share of Anglesey production
exposed to primary aluminum price risk to be approximately
100,000,000 pounds annually.
As stated above, the Company’s pricing of fabricated
aluminum products is generally intended to lock-in a conversion
margin (representing the value added from the fabrication
process(es)) and to pass metal price risk on to its customers.
However, in certain instances the Company does enter into firm
price arrangements. In such instances, the Company does have
price risk on its anticipated primary aluminum purchase in
respect of the customer’s order. Total fabricated products
shipments during 2002, 2003 and 2004 that contained fixed price
terms were (in millions of pounds) 99.0, 97.6 and 119.0,
respectively.
During the last three years the volume of fabricated products
shipments with underlying primary aluminum price risk were
roughly the same as the Company’s net exposure to primary
aluminum price risk at Anglesey. As such, the Company considers
its access to Anglesey production overall to be a
“natural” hedge against any fabricated products firm
metal-price risk. However, since the volume of fabricated
products shipped under firm prices may not match up on a
month-to-month basis with expected Anglesey-related primary
aluminum shipments, the Company may use third party hedging
instruments to eliminate any net remaining primary aluminum
price exposure existing at any time.
At December 31, 2004, the fabricated products business held
contracts for the delivery of fabricated aluminum products that
have the effect of creating price risk on anticipated purchases
of primary aluminum for the period 2005 - 2008 totaling
approximately (in millions of pounds): 2005: 104.0, 2006: 41.0,
2007: 38.0, and 2008: 10.0.
The following table summarizes KACC’s material derivative
positions at December 31, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Notional | |
|
|
| |
|
|
|
Amount of | |
|
Carrying/ | |
| |
|
|
|
Contracts | |
|
Market | |
| Commodity |
|
Period | |
|
(mmlbs) | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
Aluminum —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Option sale contracts
|
|
|
1/05 through 12/05 |
|
|
|
64.6 |
|
|
$ |
(3.0 |
) |
| |
|
|
1/06 through 12/06 |
|
|
|
47.6 |
|
|
|
(.5 |
) |
| |
Fixed priced purchase contracts
|
|
|
1/05 through 12/05 |
|
|
|
50.1 |
|
|
|
5.5 |
|
2002. 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. A net gain of $23.3
associated with these liquidated positions was deferred. The
individual hedging gains/losses are being recognized over the
period during which the underlying transactions to which the
hedges related are expected to occur. As of December 31,
2004, the remaining unamortized amount was a net loss of
approximately $.3.
|
|
| 13. |
Key Employee Retention Program |
In June 2002, the Company adopted a key employee retention
program (the “KERP”), which was approved by the Court
in September 2002. The KERP is a comprehensive program that is
designed to provide financial incentives sufficient to retain
certain key employees during the Cases. The KERP includes six
key elements: a retention plan, a severance plan, a change in
control plan, a completion incentive plan, the continuation for
certain participants of an existing supplemental employee
retirement plan (“SERP”) and a long-term incentive
plan. Under the KERP, retention payments commenced in September
2002 and were paid every six months through March 31, 2004,
except that 50% of the amounts payable to certain senior
officers were withheld until the Debtors emerge from the Cases
or as otherwise agreed pursuant to the KERP. The
93
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
severance and change in control plans, which are similar to the
provisions of previous arrangements that existed for certain key
employees, generally provide for severance payments of between
six months and three years of salary and certain benefits,
depending on the facts and circumstances and the level of
employee involved. The completion incentive plan generally
provided for payments of up to an aggregate of approximately
$1.2 to certain senior officers provided that the Debtors
emerged from the Cases in 30 months or less from the
initial Filing Date. Because the Debtors will emerge from the
Cases more than 30 months from the initial Filing Date, the
amount of the payments will be reduced accordingly. The SERP
generally provides additional non-qualified pension benefits for
certain active employees at the time that the KERP was approved,
who would suffer a loss of benefits based on Internal Revenue
Code limitations, so long as such employees are not subsequently
terminated for cause or voluntarily terminate their employment
prior to reaching their retirement age. The long-term incentive
plan generally provides for incentive awards to key employees
based on an annual cost reduction target. Payment of such awards
generally will be made: (a) 50% when the Debtors emerge
from the Cases and (b) 50% one year from the date the
Debtors emerge from the Cases. During 2004, 2003 and 2002, the
Company has recorded charges of $1.5, $6.1 and $5.1,
respectively (included in Selling, administrative, research and
development, and general), related to the KERP.
|
|
| 14. |
Pacific Northwest Power Matters |
During October 2000, KACC signed an electric power contract with
the Bonneville Power Administration (“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 provided KACC with sufficient power to fully operate
KACC’s Trentwood facility, as well as approximately 40% of
the combined capacity of KACC’s Mead and Tacoma aluminum
smelting operations which had been curtailed since the last half
of 2000.
As a part of the reorganization process, the Company concluded
that it was in its best interest to reject the BPA contract as
permitted by the Code. As such, with the authorization of the
Court, the Company rejected the BPA contract on
September 30, 2002. The contract rejection gives rise to a
pre-petition claim (see Note 1). The BPA has filed a proof
of claim for approximately $75.0 in connection with the Cases in
respect of the contract rejection. The claim is expected to be
settled in the overall context of a plan of reorganization.
Accordingly, any payments that may be required as a result of
the rejection of the BPA contract are expected to only be made
pursuant to a plan of reorganization and upon the Company’s
emergence from the Cases. The amount of the BPA claim will be
determined either through a negotiated settlement, litigation or
a computation of prevailing power prices over the contract
period. As the amount of the BPA’s claim in respect of the
contract rejection has not been determined, no provision has
been made for the claim in the accompanying financial
statements. KACC has entered into a rolling short-term contract
with an alternate supplier to provide the power necessary to
operate its Trentwood facility.
In addition to the BPA power contract, KACC had a transmission
service agreement with the BPA under which the BPA transmitted
power to KACC’s Mead, Tacoma and Trentwood facilities. In
October 2003, with the approval of the Court, the BPA agreement
was restructured. Key aspects of the restructuring included:
(a) the existing transmission service agreement was
terminated; (b) KACC and the BPA entered into two new
transmission service agreements that provide for the
transmission of power for the Mead and Trentwood facilities at
reduced transmission costs; and (c) KACC and the BPA agreed
that the BPA would be allowed to file an unsecured pre-Filing
Date claim of approximately $3.2 (which amount has been
reflected in Other operating charges, net — see
Note 6 in respect of the termination of the existing
agreement).
94
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
| 15. |
Segment and Geographical Area Information |
The Company’s primary line of business is the production of
fabricated aluminum products. In addition, the Company owns a
49% interest in Anglesey, which owns an aluminum smelter in
Holyhead, Wales. Historically, the Company, through its wholly
owned subsidiary, KACC, operated in all principal sectors of the
aluminum industry including the production and sale of bauxite,
alumina and primary aluminum in domestic and international
markets. However, as previously disclosed, as a part of the
Company’s reorganization efforts, the Company has completed
the sale of substantially all of its commodities operations
(other than the Company’s interests in and related to QAL
which are expected to be sold in April 2005). The balances and
results in respect of such operations are now considered
discontinued operations (see Note 3 and 5). The amounts
remaining in Primary aluminum relate primarily to the
Company’s interests in and related to Anglesey and the
Company’s primary aluminum hedging-related activities.
The Company’s operations are organized and managed by
product type. The Company operations, after the discontinued
operations reclassification, include two operating segments of
the aluminum industry and the corporate segment. The aluminum
industry segments include: Fabricated products and Primary
aluminum. The Fabricated products group sells value-added
products such as heat treat aluminum sheet and plate which are
used in a wide range of industrial segments including for the
automotive, aerospace and general engineering end-use
applications. 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 and conducts hedging activities
in respect of KAC’s exposure to primary aluminum price
risk. 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 Other operating charges (benefits), net.
The Company has changed its segment presentation in 2004 to
eliminate the “Eliminations” segment as the primary
purpose for such segment was to eliminate intercompany profit on
sales by the Primary aluminum and Bauxite and alumina business
units substantially all of which are now considered Discontinued
operations. Eliminations not representing Discontinued
operations are now included in segment results.
Given the significance of the Company’s exposure to primary
aluminum prices and alumina prices (which typically are linked
to primary aluminum prices on a lagged basis) in prior years,
the commodity marketing activities were considered a separate
business unit. In the accompanying financial statements, the
Company has reclassified to discontinued operations all of the
primary aluminum hedging results in respect of the
commodity-related interests that have been or are expected to be
sold and that are also treated as discontinued operations. As
stated above, remaining primary aluminum hedging activities
related to the Company’s interests in Anglesey and any firm
price fabricated product shipments are considered part of the
“Primary aluminum business unit”.
95
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Financial information by operating segment, excluding
discontinued operations, at December 31, 2004, 2003 and
2002 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fabricated Products
|
|
$ |
809.3 |
|
|
$ |
597.8 |
|
|
$ |
608.6 |
|
| |
Primary Aluminum
|
|
|
133.1 |
|
|
|
112.4 |
|
|
|
100.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
942.4 |
|
|
$ |
710.2 |
|
|
$ |
709.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Equity in income (loss) of unconsolidated affiliate:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Primary Aluminum
|
|
$ |
8.2 |
|
|
$ |
3.3 |
|
|
$ |
3.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss):(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fabricated Products(1)
|
|
$ |
33.0 |
|
|
$ |
(21.2 |
) |
|
$ |
(21.8 |
) |
| |
Primary Aluminum
|
|
|
13.9 |
|
|
|
6.7 |
|
|
|
7.4 |
|
| |
Corporate and Other(2)
|
|
|
(71.3 |
) |
|
|
(74.7 |
) |
|
|
(98.9 |
) |
| |
Other Operating (Charges) Benefits, Net — Note 6
|
|
|
(793.2 |
) |
|
|
(141.6 |
) |
|
|
(31.8 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(817.6 |
) |
|
$ |
(230.8 |
) |
|
$ |
(145.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Operating results for 2004, 2003 and 2002 include LIFO inventory
charges of $12.1, $3.2 and $3.5, respectively. |
| |
| (2) |
Operating results for 2002 include special pension charges of
$24.1. |
| |
| (3) |
Operating results for 2003 and 2002 for the Fabricated products
business unit reported above include $4.5 and $.4, respectively,
previously reported in Eliminations. There is no such
elimination required in 2004. Operating results for 2003 and
2002 for the Primary aluminum business unit reported above
include $(.4), and $1.3, respectively, previously reported in
Eliminations. Operating results for the Primary aluminum
business unit in 2004 are after the elimination of $.9. |
| |
| (4) |
In 2004, the Company chose to reallocate for segment purposes
the amount of post-retirement medical costs charged to the
business units so that the Corporate segment began to incur the
excess of the total expenses over the amount of VEBA
contributions allocable to the Fabricated products business unit
and Discontinued operations. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Depreciation and amortization(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fabricated Products
|
|
$ |
21.8 |
|
|
$ |
22.8 |
|
|
$ |
27.0 |
|
| |
Primary Aluminum
|
|
|
.2 |
|
|
|
1.1 |
|
|
|
1.6 |
|
| |
Corporate and Other
|
|
|
.3 |
|
|
|
1.8 |
|
|
|
3.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
22.3 |
|
|
$ |
25.7 |
|
|
$ |
32.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
Capital expenditures:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fabricated Products
|
|
$ |
7.6 |
|
|
$ |
8.9 |
|
|
$ |
10.2 |
|
| |
Corporate and Other
|
|
|
— |
|
|
|
— |
|
|
|
.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
7.6 |
|
|
$ |
8.9 |
|
|
$ |
10.9 |
|
| |
|
|
|
|
|
|
|
|
|
96
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
| (1) |
Depreciation and amortization expense excludes depreciation and
amortization expense of discontinued operations of $13.1 in
2004, $47.5 in 2003 and $59.2 in 2002. |
| |
| (2) |
Capital expenditures exclude capital expenditures of
discontinued operations of $3.5 in 2004, $28.3 in 2003 and $36.7
in 2002. |
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Investments in and advances to unconsolidated affiliate:
|
|
|
|
|
|
|
|
|
| |
Primary Aluminum
|
|
$ |
16.7 |
|
|
$ |
13.0 |
|
| |
Corporate and Other
|
|
|
— |
|
|
|
.1 |
|
| |
|
|
|
|
|
|
| |
|
$ |
16.7 |
|
|
$ |
13.1 |
|
| |
|
|
|
|
|
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
| |
Fabricated Products
|
|
$ |
430.0 |
|
|
$ |
413.5 |
|
| |
Primary Aluminum
|
|
|
95.5 |
|
|
|
92.5 |
|
| |
Corporate and Other, including restricted proceeds from the sale
of commodity interests in 2004 of $280.8
|
|
|
1,287.4 |
|
|
|
490.0 |
|
| |
Discontinued operations
|
|
|
69.5 |
|
|
|
627.5 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,882.4 |
|
|
$ |
1,623.5 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 |
|
2003 | |
|
2002 | |
| |
|
|
|
| |
|
| |
|
Income taxes paid:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fabricated Products —
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
$ |
— |
|
|
$ |
.1 |
|
|
$ |
.1 |
|
| |
|
Canada
|
|
|
— |
|
|
|
4.7 |
|
|
|
2.9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
4.8 |
|
|
$ |
3.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Income taxes paid excludes income tax paid by discontinued
operations of $10.7 in 2004, $41.3 in 2003 and $34.5 in 2002. |
97
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Geographical information for net sales, based on country of
origin, and long-lived assets follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net sales to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fabricated Products
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
$ |
705.7 |
|
|
$ |
525.6 |
|
|
$ |
534.2 |
|
| |
|
Canada
|
|
|
103.6 |
|
|
|
72.2 |
|
|
|
74.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
809.3 |
|
|
|
597.8 |
|
|
|
608.6 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Primary Aluminum
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
|
— |
|
|
|
3.8 |
|
|
|
1.9 |
|
| |
|
United Kingdom
|
|
|
133.1 |
|
|
|
108.6 |
|
|
|
98.5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
133.1 |
|
|
|
112.4 |
|
|
|
100.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
942.4 |
|
|
$ |
710.2 |
|
|
$ |
709.0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Long-lived assets:(1)
|
|
|
|
|
|
|
|
|
| |
Fabricated Products —
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
$ |
193.4 |
|
|
$ |
207.3 |
|
| |
|
Canada
|
|
|
17.8 |
|
|
|
17.9 |
|
| |
|
|
|
|
|
|
| |
|
|
211.2 |
|
|
|
225.2 |
|
| |
Primary Aluminum —
|
|
|
|
|
|
|
|
|
| |
|
United Kingdom
|
|
|
16.7 |
|
|
|
13.0 |
|
| |
Corporate and Other —
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
|
3.4 |
|
|
|
5.0 |
|
| |
|
|
|
|
|
|
| |
|
$ |
231.3 |
|
|
$ |
243.2 |
|
| |
|
|
|
|
|
|
|
|
| (1) |
Long-lived assets include Property, plant, and equipment, net
and Investments in and advances to unconsolidated affiliates.
Prepared on a going-concern basis — see Note 2. |
| |
| (2) |
Long-lived assets excludes long-lived assets of discontinued
operations of $38.9 in 2004 and $426.4 in 2003. |
The aggregate foreign currency gain included in determining net
income was immaterial for the years ended December 31,
2004, 2003 and 2002. No single customer accounted for sales in
excess of 10% of total revenue in 2004, 2003 and 2002. Export
sales were less than 10% of total revenue during the years ended
December 31, 2004, 2003 and 2002.
98
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
QUARTERLY FINANCIAL DATA (Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended | |
| |
|
| |
| |
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions of dollars, except share amounts) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
$ |
210.2 |
|
|
$ |
230.1 |
|
|
$ |
244.4 |
|
|
$ |
257.7 |
|
| |
Operating income (loss)
|
|
|
(10.3 |
) |
|
|
(4.4 |
) |
|
|
(160.5 |
) |
|
|
(642.4 |
) |
| |
Loss from continuing operations
|
|
|
(22.6 |
) |
|
|
(14.8 |
) |
|
|
(173.2 |
)(1) |
|
|
(657.5 |
)(2) |
| |
Income (loss) from discontinued operations
|
|
|
(41.4 |
) |
|
|
39.0 |
|
|
|
103.7 |
|
|
|
20.0 |
|
| |
Net loss
|
|
|
(64.0 |
) |
|
|
24.2 |
|
|
|
(69.5 |
) |
|
|
(637.5 |
) |
| |
Basic/ Diluted Earnings (loss) per share(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from continuing operations
|
|
|
(.28 |
) |
|
|
(.19 |
) |
|
|
(2.17 |
) |
|
|
(8.25 |
) |
| |
Income (loss) from discontinued operations
|
|
|
(.52 |
) |
|
|
.49 |
|
|
|
1.30 |
|
|
|
.25 |
|
| |
Net loss
|
|
|
(.80 |
) |
|
|
.30 |
|
|
|
(.87 |
) |
|
|
(8.00 |
) |
| |
Common stock market price:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High
|
|
|
.15 |
|
|
|
.10 |
|
|
|
.08 |
|
|
|
.10 |
|
| |
|
Low
|
|
|
.08 |
|
|
|
.02 |
|
|
|
.03 |
|
|
|
.04 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
$ |
176.1 |
|
|
$ |
176.3 |
|
|
$ |
174.5 |
|
|
$ |
183.3 |
|
| |
Operating income (loss)
|
|
|
(11.7 |
) |
|
|
(22.4 |
) |
|
|
(36.4 |
) |
|
|
(160.3 |
) |
| |
Loss from continuing operations
|
|
|
(22.3 |
) |
|
|
(33.7 |
) |
|
|
(51.6 |
) |
|
|
(166.0 |
)(3) |
| |
Loss from discontinued operations
|
|
|
(42.8 |
) |
|
|
(27.7 |
) |
|
|
(37.0 |
) |
|
|
(407.2 |
) |
| |
Net loss
|
|
|
(65.1 |
) |
|
|
(61.4 |
) |
|
|
(88.6 |
) |
|
|
(573.2 |
) |
| |
Basic/ Diluted Earnings (loss) per share(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from continuing operations
|
|
|
(.28 |
) |
|
|
(.42 |
) |
|
|
(.65 |
) |
|
|
(2.07 |
) |
| |
Loss from discontinued operations
|
|
|
(.53 |
) |
|
|
(.35 |
) |
|
|
(.46 |
) |
|
|
(5.09 |
) |
| |
Net loss
|
|
|
(.81 |
) |
|
|
(.77 |
) |
|
|
(1.11 |
) |
|
|
(7.16 |
) |
| |
Common stock market price:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High
|
|
|
.07 |
|
|
|
.07 |
|
|
|
.07 |
|
|
|
.14 |
|
| |
|
Low
|
|
|
.04 |
|
|
|
.04 |
|
|
|
.04 |
|
|
|
.07 |
|
|
|
| (1) |
Includes a non-cash pension charge of $155.5 (see Note 6 of
Notes to Consolidated Financial Statements). |
| |
| (2) |
Includes a non-cash pension charge of $154.5, a non-cash charge
related to termination of post-retirement medical benefits plan
of $312.5 and a related non-cash charge of $175.0 related to a
settlement with the United Steel Workers of America (see
Note 6 of Notes to Consolidated Financial Statements). |
| |
| (3) |
Includes a non-cash pension charge of $121.2 and a non-cash
hearing loss claims charge of $15.8 (see Note 6 of Notes to
Consolidated Financial Statements). |
| |
| (4) |
Earnings (loss) per share and market price may not be meaningful
because, as part of a plan of reorganization, it is likely that
the equity interests of the Company’s existing stockholders
will be cancelled without consideration. |
99
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
FIVE-YEAR FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004(1) | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions of dollars) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
55.4 |
|
|
$ |
35.5 |
|
|
$ |
77.4 |
|
|
$ |
154.1 |
|
|
$ |
30.8 |
|
| |
Receivables
|
|
|
111.0 |
|
|
|
80.5 |
|
|
|
62.5 |
|
|
|
66.8 |
|
|
|
118.3 |
|
| |
Inventories
|
|
|
105.3 |
|
|
|
92.5 |
|
|
|
103.8 |
|
|
|
138.3 |
|
|
|
181.9 |
|
| |
Prepaid expenses and other current assets
|
|
|
19.6 |
|
|
|
23.8 |
|
|
|
27.0 |
|
|
|
20.6 |
|
|
|
88.3 |
|
| |
Discontinued operations’ current assets
|
|
|
30.6 |
|
|
|
193.7 |
|
|
|
245.9 |
|
|
|
379.4 |
|
|
|
592.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
321.9 |
|
|
|
426.0 |
|
|
|
516.6 |
|
|
|
759.2 |
|
|
|
1,012.1 |
|
|
Investments in and advances to unconsolidated affiliate
|
|
|
16.7 |
|
|
|
13.1 |
|
|
|
15.2 |
|
|
|
18.9 |
|
|
|
21.6 |
|
|
Property, plant, and equipment — net
|
|
|
214.6 |
|
|
|
230.1 |
|
|
|
255.3 |
|
|
|
294.4 |
|
|
|
321.8 |
|
|
Restricted proceeds from sale of commodity interests
|
|
|
280.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Deferred income taxes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
454.2 |
|
|
Personal injury-related insurance recoveries receivable
|
|
|
967.0 |
|
|
|
465.4 |
|
|
|
484.0 |
|
|
|
501.2 |
|
|
|
406.3 |
|
|
Other assets
|
|
|
42.5 |
|
|
|
55.1 |
|
|
|
137.7 |
|
|
|
161.3 |
|
|
|
144.6 |
|
|
Discontinued operations’ long-term assets
|
|
|
38.9 |
|
|
|
433.8 |
|
|
|
816.6 |
|
|
|
1,008.7 |
|
|
|
982.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
1,882.4 |
|
|
$ |
1,623.5 |
|
|
$ |
2,225.4 |
|
|
$ |
2,743.7 |
|
|
$ |
3,343.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Liabilities not subject to compromise —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts payable and accruals
|
|
$ |
175.3 |
|
|
$ |
98.4 |
|
|
$ |
93.7 |
|
|
$ |
274.4 |
|
|
$ |
352.5 |
|
| |
|
Accrued postretirement medical benefit obligation —
current portion
|
|
|
— |
|
|
|
32.5 |
|
|
|
60.2 |
|
|
|
62.0 |
|
|
|
58.0 |
|
| |
|
Payable to affiliate
|
|
|
14.7 |
|
|
|
11.4 |
|
|
|
11.2 |
|
|
|
10.9 |
|
|
|
11.6 |
|
| |
|
Long-term debt — current portion
|
|
|
1.2 |
|
|
|
1.3 |
|
|
|
.9 |
|
|
|
173.5 |
|
|
|
31.6 |
|
| |
|
Discontinued operations’ current liabilities
|
|
|
57.7 |
|
|
|
177.5 |
|
|
|
167.6 |
|
|
|
282.6 |
|
|
|
387.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total current liabilities
|
|
|
248.9 |
|
|
|
321.1 |
|
|
|
333.6 |
|
|
|
803.4 |
|
|
|
841.4 |
|
| |
Long-term liabilities
|
|
|
32.9 |
|
|
|
59.4 |
|
|
|
55.7 |
|
|
|
808.8 |
|
|
|
523.8 |
|
| |
Accrued postretirement medical benefit obligation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
642.2 |
|
|
|
656.9 |
|
| |
Long-term debt
|
|
|
2.8 |
|
|
|
2.2 |
|
|
|
20.7 |
|
|
|
678.7 |
|
|
|
901.7 |
|
| |
Discontinued operations’ long-term liabilities, including
minority interests
|
|
|
26.4 |
|
|
|
208.7 |
|
|
|
226.4 |
|
|
|
251.0 |
|
|
|
336.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
311.0 |
|
|
|
591.4 |
|
|
|
636.4 |
|
|
|
3,184.1 |
|
|
|
3,260.2 |
|
|
Liabilities subject to compromise
|
|
|
3,954.9 |
|
|
|
2,770.1 |
|
|
|
2,673.9 |
|
|
|
— |
|
|
|
— |
|
|
Minority interests
|
|
|
.7 |
|
|
|
.7 |
|
|
|
.7 |
|
|
|
.7 |
|
|
|
.7 |
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock
|
|
|
.8 |
|
|
|
.8 |
|
|
|
.8 |
|
|
|
.8 |
|
|
|
.8 |
|
| |
Additional capital
|
|
|
538.0 |
|
|
|
539.1 |
|
|
|
539.9 |
|
|
|
539.1 |
|
|
|
537.5 |
|
| |
Accumulated deficit
|
|
|
(2,917.5 |
) |
|
|
(2,170.7 |
) |
|
|
(1,382.4 |
) |
|
|
(913.7 |
) |
|
|
(454.3 |
) |
| |
Accumulated other comprehensive income (loss)
|
|
|
(5.5 |
) |
|
|
(107.9 |
) |
|
|
(243.9 |
) |
|
|
(67.3 |
) |
|
|
(1.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
(2,384.2 |
) |
|
|
(1,738.7 |
) |
|
|
(1,085.6 |
) |
|
|
(441.1 |
) |
|
|
82.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
1,882.4 |
|
|
$ |
1,623.5 |
|
|
$ |
2,225.4 |
|
|
$ |
2,743.7 |
|
|
$ |
3,343.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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. Also, as more
fully discussed in Note 1 of Notes to Consolidated
Financial Statements, the Company expects that, upon emergence
from the Cases, fresh start accounting would be applied which
would adversely affect comparability of the December 31,
2004 balance sheet to the balance sheet of the entity upon
emergence. |
100
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
(Debtor-in-Possession)
FIVE-YEAR FINANCIAL DATA
STATEMENTS OF CONSOLIDATED INCOME (Loss)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004(1) | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions of dollars, except share amounts) | |
|
Net sales
|
|
$ |
942.4 |
|
|
$ |
710.2 |
|
|
$ |
709.0 |
|
|
$ |
889.5 |
|
|
$ |
1,330.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost of products sold
|
|
|
852.2 |
|
|
|
681.2 |
|
|
|
671.4 |
|
|
|
823.4 |
|
|
|
1,175.8 |
|
| |
|
Depreciation and amortization
|
|
|
22.3 |
|
|
|
25.7 |
|
|
|
32.3 |
|
|
|
32.1 |
|
|
|
34.2 |
|
| |
|
Selling, administrative, research and development, and general
|
|
|
92.3 |
|
|
|
92.5 |
|
|
|
118.6 |
|
|
|
93.7 |
|
|
|
92.4 |
|
| |
|
Other operating charges (benefits), net
|
|
|
793.2 |
|
|
|
141.6 |
|
|
|
31.8 |
|
|
|
30.1 |
|
|
|
82.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total costs and expenses
|
|
|
1,760.0 |
|
|
|
941.0 |
|
|
|
854.1 |
|
|
|
979.3 |
|
|
|
1,384.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(817.6 |
) |
|
|
(230.8 |
) |
|
|
(145.1 |
) |
|
|
(89.8 |
) |
|
|
(53.7 |
) |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest expense (excluding unrecorded contractual interest
expense of $95.0, $95.0 and $84.0 in 2004, 2003 and 2002,
respectively)
|
|
|
(9.5 |
) |
|
|
(9.1 |
) |
|
|
(19.0 |
) |
|
|
(106.2 |
) |
|
|
(105.8 |
) |
| |
|
Reorganization items
|
|
|
(39.0 |
) |
|
|
(27.0 |
) |
|
|
(33.3 |
) |
|
|
— |
|
|
|
— |
|
| |
|
Other — net
|
|
|
4.2 |
|
|
|
(5.2 |
) |
|
|
(.9 |
) |
|
|
(68.7 |
) |
|
|
(17.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and discontinued operation
|
|
|
(861.9 |
) |
|
|
(272.1 |
) |
|
|
(198.3 |
) |
|
|
(264.7 |
) |
|
|
(177.1 |
) |
|
(Provision) benefit for income taxes
|
|
|
(6.2 |
) |
|
|
(1.5 |
) |
|
|
(4.4 |
) |
|
|
(523.4 |
) |
|
|
23.1 |
|
|
Minority interests
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(.2 |
) |
|
|
(.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(868.1 |
) |
|
|
(273.6 |
) |
|
|
(202.7 |
) |
|
|
(788.3 |
) |
|
|
(154.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from discontinued operation, net of income taxes
and minority interests
|
|
|
(5.3 |
) |
|
|
(514.7 |
) |
|
|
(266.0 |
) |
|
|
165.3 |
|
|
|
171.3 |
|
| |
Gain from sale of commodity interests
|
|
|
126.6 |
|
|
|
— |
|
|
|
— |
|
|
|
163.6 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
121.3 |
|
|
|
(514.7 |
) |
|
|
(266.0 |
) |
|
|
328.9 |
|
|
|
171.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(746.8 |
) |
|
$ |
(788.3 |
) |
|
$ |
(468.7 |
) |
|
$ |
(459.4 |
) |
|
$ |
16.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — Basic/ Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from continuing operations
|
|
$ |
(10.88 |
) |
|
$ |
(3.41 |
) |
|
$ |
(2.52 |
) |
|
$ |
(9.82 |
) |
|
$ |
(1.94 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from discontinued operations
|
|
$ |
1.52 |
|
|
$ |
(6.42 |
) |
|
$ |
(3.30 |
) |
|
$ |
4.09 |
|
|
$ |
2.15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
$ |
(9.36 |
) |
|
$ |
(9.83 |
) |
|
$ |
(5.82 |
) |
|
$ |
(5.73 |
) |
|
$ |
.21 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (000):(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
79,815 |
|
|
|
80,175 |
|
|
|
80,578 |
|
|
|
80,235 |
|
|
|
79,520 |
|
| |
|
Diluted
|
|
|
79,815 |
|
|
|
80,175 |
|
|
|
80,578 |
|
|
|
80,235 |
|
|
|
79,823 |
|
|
|
| (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) |
Earnings (loss) per share and share information may not be
meaningful because, as a part of a plan of reorganization, it is
likely that the equity interests of the Company’s existing
stockholders will be cancelled without consideration. |
101
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
| Item 9A. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures. An
evaluation of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures was
performed as of the end of the period covered by this Report
under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer
and Chief Financial Officer. Based on that evaluation, the
Company’s management, including the Chief Executive Officer
and Chief Financial Officer, concluded that the Company’s
disclosure controls and procedures were effective.
Changes in Internal Control. There have been no
significant changes in the Company’s internal controls or
in other factors that could significantly affect internal
controls subsequent to the date of their evaluation.
Additionally, no changes in the Company’s internal controls
over financial reporting have occurred during the Company’s
most recently completed quarter that have materially affected,
or are reasonably likely to materially affect, the
Company’s internal controls over internal reporting.
|
|
| Item 9B. |
Other Information |
None.
PART III
|
|
| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The following table sets forth certain information, as of
March 28, 2005, with respect to the executive officers and
directors of the Company and KACC. All officers and directors
hold office until their respective successors are elected and
qualified or until their earlier death, resignation or removal.
| |
|
|
| Name |
|
Positions and Offices with the Company and KACC* |
| |
|
|
|
Jack A. Hockema
|
|
President, Chief Executive Officer and Director |
|
John Barneson
|
|
Senior Vice President and Chief Administrative Officer |
|
Edward F. Houff
|
|
Senior Vice President and Chief Restructuring Officer |
|
John M. Donnan
|
|
Vice President, Secretary and General Counsel |
|
W. Scott Lamb
|
|
Vice President, Investor Relations and Corporate Communications |
|
Daniel D. Maddox
|
|
Vice President and Controller |
|
Daniel J. Rinkenberger
|
|
Vice President and Treasurer |
|
Kerry A. Shiba
|
|
Vice President and Chief Financial Officer |
|
Robert J. Cruikshank
|
|
Director |
|
George T. Haymaker, Jr.
|
|
Chairman of the Board and Director |
|
Charles E. Hurwitz
|
|
Director |
|
Ezra G. Levin
|
|
Director |
|
John D. Roach
|
|
Director |
|
|
| * |
All named individuals hold the same positions and offices with
both the Company and KACC. |
Jack A. Hockema. Mr. Hockema, age 58, 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
102
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. In 1982, 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.
John Barneson. Mr. Barneson, age 54, 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.
Edward F. Houff. Mr. Houff, age 58, was elected
to the position of Senior Vice President and Chief Restructuring
Officer of the Company and KACC effective January 2005. He
previously served as Vice President and General Counsel of the
Company and KACC from April 2002 through December 2004, and
Secretary of the Company and KACC from October 2002 through
December 2004. 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 the law firm Church &
Houff, P.A. in Baltimore, Maryland from April 1989 through
September 2001.
John M. Donnan. Mr. Donnan, age 44, was elected
to the position of Vice President, Secretary and General Counsel
of the Company and KACC effective January 2005. Mr. Donnan
joined the legal staff of the Company and KACC in 1993 and was
named Deputy General Counsel of the Company and KACC in 2000.
Prior to joining KACC, Mr. Donnan was an associate in the
Houston, Texas office of the law firm of Chamberlain, Hrdlicka,
White, Williams & Martin.
W. Scott Lamb. Mr. Lamb, age 50, 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 45, 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 of 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 46, was elected to the position of Vice President and
Treasurer of the Company and KACC effective January 2005. He
previously served as Vice President of Economic Analysis and
Planning of the Company and KACC from February 2002 through
December 2004. He 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
103
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 50, was elected
to the position of Chief Financial Officer of the Company and
KACC effective April 2004, and Vice President of the Company and
KACC effective February 2002. He also held the position of
Treasurer of the Company and KACC from February 2002 through
December 2004. Prior to that, Mr. Shiba 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 KACC, Mr. Shiba was with the BF Goodrich Company
for 16 years, holding various financial positions.
Robert J. Cruikshank. Mr. Cruikshank, age 74,
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, Texas
office from June 1974 until its merger with Touche
Ross & Co. in December 1989. Mr. Cruikshank also
serves as a director of Encysive Pharmaceuticals Inc. (formerly
Texas Biotechnology Corp), a biopharmaceutical company; a trust
manager of Weingarten Realty Investors; and as advisory director
of Compass Bank Houston.
George T. Haymaker, Jr. Mr. Haymaker,
age 67, has been a director of the Company since May 1993,
and of KACC since June 1993. He was named as non-executive
Chairman of the Board of the Company and KACC effective October
2001. Mr. Haymaker served as Chairman of the Board and
Chief Executive Officer of the Company and KACC from January
1994 until January 2000, and as non-executive Chairman of the
Board of the Company and KACC from January 2000 through May
2001. He served as President of the Company from May 1996
through July 1997, and of KACC from June 1996 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 also is a director of 360networks Corporation,
a provider of broadband network services; Flowserve Corporation,
a provider of valves, pumps and seals; a director of CII Carbon,
LLC., a producer of calcined coke; a director of Hayes Lemmerz
International, Inc., a provider of automotive and commercial
vehicle components; non-executive Chairman of the Board of
Directors of Safelite Glass Corp., a provider of automotive
replacement glass; and a director of SCP Pool Corp., a
distributor of swimming pool supplies and products. Since July
1987, Mr. Haymaker has been a director, and from February
1992 through March 1993 was President, of Mid-America Holdings,
Ltd. (formerly Metalmark Corporation), which is in the business
of semi-fabrication of aluminum extrusions.
Charles E. Hurwitz. Mr. Hurwitz, age 64, has
served as a director of the Company since October 1988, and of
KACC since November 1988. From December 1994 until April 2002,
he served as Vice Chairman of KACC. Mr. Hurwitz also has
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”). Mr. Hurwitz
is the President and Director of Giddeon Holdings, a principal
stockholder of MAXXAM, which is primarily engaged in the
management of investments. Mr. Hurwitz also has been, since
its formation in November 1996, Chairman of the Board, President
and Chief Executive Officer of MAXXAM Group Holdings Inc., a
wholly owned subsidiary of MAXXAM and part of MAXXAM’s
forest products operations (“MGHI”).
Ezra G. Levin. Mr. Levin, age 71, 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 The Pacific Lumber Company since February 1993, and
as a manager on the Board of Managers of Scotia Pacific Company
LLC since June 1998, each of which is a wholly owned subsidiary
of MAXXAM and is engaged in forest products operations.
Mr. Levin is a member and co-chair of the law firm of
Kramer Levin Naftalis &
104
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.
John D. Roach. Mr. Roach, age 61, has been a
director of the Company and KACC since April 2002. Since August
2001, Mr. Roach has been the Chairman and Chief Executive
Officer of Stonegate International, Inc., a private investment
and advisory services firm. From March 1998 to September 2001,
Mr. Roach was the Chairman, President and Chief Executive
Officer of Builders FirstSource, Inc., a distributor of building
products to production homebuilders. From July 1991 to July
1997, Mr. Roach served as Chairman, President and Chief
Executive Officer of Fibreboard Corporation. From 1988 to July
1991, he was Executive Vice President of Manville Corporation.
Mr. Roach also serves as a director of Material Sciences
Corp., a provider of materials-based solutions; PMI Group, Inc.,
a provider of credit enhancement products and lender services;
and URS Corporation, an engineering firm. He is also
Executive Chairman of the board of directors of Unidare US Inc.,
a wholesale supplier of industrial, welding and safety products.
Audit Committee Financial Expert
The Board of Directors of the Company has determined that each
of Messrs. Cruikshank and Roach, members of the Audit
Committee of the Company’s Board of Directors, satisfies
the Securities and Exchange Commission’s criteria to serve
as an “audit committee financial expert.” The
Company’s securities currently are not listed on any
exchange. However, the Board of Directors has determined that
each of Messrs. Cruikshank and Roach meet the independence
standards set forth in the listing requirements of both of the
New York Stock Exchange and the Nasdaq Stock Market, Inc.
Code of Ethics
The Company has a Code of Ethics that applies to all of its
officers and other employees, including the Company’s
principal executive officer, principal financial officer, and
the principal accounting officer or controller. A copy of the
Code of Ethics is available from the Company, without charge,
upon written request to the Company at the address set forth
below:
|
|
| |
Corporate Secretary |
| |
Kaiser Aluminum Corporation |
| |
27422 Portola Parkway, Suite 350 |
| |
Foothill Ranch, California 92610-2831 |
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 there was
compliance with all filing requirements that were applicable to
its officers, directors and greater than 10% beneficial owners.
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION |
Summary Compensation Table
Although certain plans or programs in which executive officers
of the Company participate 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 the Company’s Chief Executive
105
Officer and the four most highly compensated executive officers
other than the Chief Executive Officer for the year 2004
(collectively referred to as the “Named Executive
Officers”).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Long-Term Compensation | |
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
| |
|
|
|
Annual Compensation | |
|
Awards | |
|
Payouts | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
|
| (a) |
|
(b) | |
|
(c) | |
|
(d) | |
|
(e) | |
|
(f) | |
|
(g) | |
|
(h) | |
|
(i) | |
| |
|
|
|
|
|
|
|
Other | |
|
Restricted | |
|
Securities | |
|
|
|
|
| |
|
|
|
|
|
|
|
Annual | |
|
Stock | |
|
Underlying | |
|
LTIP | |
|
All Other | |
| Name and Principal |
|
|
|
Salary | |
|
Bonus | |
|
Compensation | |
|
Award(s) | |
|
Options/ | |
|
Payouts | |
|
Compensation | |
| Position |
|
Year | |
|
($) | |
|
($) | |
|
($)(1) | |
|
($) | |
|
SARS # | |
|
($) | |
|
($)(2) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Jack A. Hockema
|
|
|
2004 |
|
|
|
730,000 |
|
|
|
— |
(3) |
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
182,793 |
(4)(5) |
| |
President and Chief
|
|
|
2003 |
|
|
|
730,000 |
|
|
|
-0- |
|
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
365,000 |
(4) |
| |
Executive Officer
|
|
|
2002 |
|
|
|
730,000 |
|
|
|
-0- |
|
|
|
— |
|
|
|
116,495 |
(6) |
|
|
-0- |
|
|
|
236,200 |
(7) |
|
|
346,750 |
(4) |
|
Edward F. Houff
|
|
|
2004 |
|
|
|
431,250 |
|
|
|
125,000 |
(3) |
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
100,000 |
(4) |
| |
Senior Vice President
|
|
|
2003 |
|
|
|
400,000 |
|
|
|
125,000 |
|
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
200,000 |
(4) |
| |
and Chief
|
|
|
2002 |
|
|
|
400,000 |
|
|
|
125,000 |
|
|
|
3,439 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
168,909 |
(4)(8) |
| |
Restructuring Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Barneson
|
|
|
2004 |
|
|
|
275,000 |
|
|
|
— |
(3) |
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
62,500 |
(4) |
| |
Senior Vice President
|
|
|
2003 |
|
|
|
275,000 |
|
|
|
-0- |
|
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
125,000 |
(4) |
| |
and Chief
|
|
|
2002 |
|
|
|
252,500 |
|
|
|
-0- |
|
|
|
72,248 |
(9) |
|
|
-0- |
|
|
|
-0- |
|
|
|
13,627 |
(7) |
|
|
233,102 |
(4)(8) |
| |
Administrative Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kerry A. Shiba
|
|
|
2004 |
|
|
|
242,500 |
|
|
|
— |
(3) |
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
95,000 |
(4) |
| |
Vice President and
|
|
|
2003 |
|
|
|
190,000 |
|
|
|
-0- |
|
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
190,000 |
(4) |
| |
Chief Financial Officer
|
|
|
2002 |
|
|
|
187,500 |
|
|
|
-0- |
|
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
54,090 |
(7) |
|
|
97,032 |
(4)(10) |
|
Daniel D. Maddox
|
|
|
2004 |
|
|
|
200,000 |
|
|
|
— |
(3) |
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
100,000 |
(4) |
| |
Vice President and
|
|
|
2003 |
|
|
|
200,000 |
|
|
|
-0- |
|
|
|
24,721 |
(11) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
200,000 |
(4) |
| |
Controller
|
|
|
2002 |
|
|
|
187,500 |
|
|
|
-0- |
|
|
|
— |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
130,000 |
(4) |
|
|
|
| |
(1) |
Except as otherwise indicated for Mr. Barneson in 2002 and
Mr. Maddox in 2003, 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) |
KACC did not contribute amounts to its Supplemental Savings and
Retirement Plan and Supplemental Benefits Plan for Named
Executive Officers or any other salaried employees for 2002,
2003 or 2004. |
| |
| |
(3) |
The Company has not completed the calculation of amounts payable
for the year 2004 under the Company’s short-term incentive
plan. Such amounts will be included in the appropriate column of
the Summary Compensation Table next year. For additional
information concerning the Company’s short-term incentive
plan, see “Employment Contracts, Retention Plan and
Agreements and Termination of Employment and Change-in-Control
Arrangements — Short-Term Incentive Plan”
below. |
| |
| |
(4) |
Includes retention payments made during 2004, 2003 and 2002,
respectively, under KACC’s key employee retention plans in
the amount of $182,500, $365,000 and $346,750 for
Mr. Hockema; $100,000, $200,000 and $160,000 for
Mr. Houff; $62,500, $125,000 and $118,750 for
Mr. Barneson; $95,000, $190,000 and $95,000 for
Mr. Shiba; and $100,000, $200,000 and $130,000 for
Mr. Maddox. In addition to such retention amounts, pursuant
to the terms of the Kaiser Aluminum & Chemical
Corporation Key Employee Retention Plan, KACC has withheld
additional retention payments with respect to the years 2004,
2003 and 2002, respectively, for each of Messrs. Hockema,
Houff, and Barneson as follows: $273,500, $547,500 and $273,750
for Mr. Hockema; $150,000, $300,000 and $150,000 for
Mr. Houff; and $93,750, $187,500 and $93,750 for
Mr. Barneson. Payment of such additional retention amounts
generally is subject to, among other conditions, KACC’s
emergence from chapter 11 and the timing thereof. For
additional information, see discussion under “Employment
Contracts, Retention Plan and Agreements and Termination of
Employment and Change-in-Control Arrangements —
Kaiser Retention Plan and Agreements” below. |
| |
| |
(5) |
Includes $293 paid to Mr. Hockema for unused allowances
under the Company’s benefit program. |
| |
| |
(6) |
In connection with Mr. Hockema’s promotion to
President and Chief Executive Officer, he was granted 95,488
restricted shares of the Company’s Common Stock effective
as of January 25, 2002, vesting at the rate of
33-1/3% per
year, beginning October 11, 2002. The above table includes
the value of such restricted shares determined by multiplying
the number of shares in the grant by the closing market price of
a share of the Company’s Common Stock on the New York Stock
Exchange on the effective |
106
|
|
|
| |
|
date of the grant. Mr. Hockema elected to cancel all of the
restricted shares granted to him in 2002 prior to their
respective vesting dates. As of December 31, 2004,
Mr. Hockema owned no restricted shares of the
Company’s Common Stock. |
| |
| |
(7) |
Amounts reflect the cash awards actually received by
Messrs. Hockema, Barneson and Shiba in 2002 under the
long-term incentive program for the Company’s Fabricated
Products business unit for the rolling three-year performance
period 1999-2001. |
| |
| |
(8) |
Includes moving-related items of $8,909 for Mr. Houff in
2002 and $114,352 for Mr. Barneson in 2002. |
| |
| |
(9) |
Includes an auto allowance of $28,301 and club membership fees
and expenses of $11,215. |
|
|
| (10) |
Includes a temporary living allowance of $2,032. |
| |
| (11) |
Includes an auto allowance of $22,217 and personal use of a
company car of $2,504. |
Option/SAR Grants in Last Fiscal Year
The Company did not issue any stock options or SARs during the
year 2004.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/ SAR Values
The table below provides information on an aggregated basis
concerning each exercise of stock options during the fiscal year
ended December 31, 2004, by each of the Company’s
Named Executive Officers, and the 2004 fiscal year-end value of
unexercised options. During 2004, the Company did not have any
SARs outstanding. The Debtors currently believe that it is
likely that the equity interests of the Company’s existing
stockholders will be cancelled without consideration as part of
a plan of reorganization. Upon any such cancellation, any
options to purchase the Company’s Common Stock from the
Company also would be cancelled.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
(b) | |
|
(c) | |
|
(d) | |
|
(e) | |
| |
|
|
|
|
|
Number of Securities | |
|
Value of Unexercised | |
| |
|
|
|
|
|
Underlying Unexercised | |
|
in-the-Money | |
| |
|
Shares | |
|
|
|
Options/SARs at Fiscal Year | |
|
Options/SARs at Fiscal | |
| |
|
Acquired on | |
|
|
|
End (#) | |
|
Year-End ($) | |
| |
|
Exercise | |
|
Value | |
|
| |
|
| |
| Name |
|
(#) | |
|
Realized ($) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Jack A. Hockema
|
|
|
-0- |
|
|
|
-0- |
|
|
|
375,770 |
(1) |
|
|
28,184 |
(1) |
|
|
— |
(2) |
|
|
— |
(2) |
|
Edward F. Houff
|
|
|
-0- |
|
|
|
-0- |
|
|
|
222,772 |
(1) |
|
|
-0- |
|
|
|
— |
(2) |
|
|
— |
(2) |
|
John Barneson
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
Kerry A. Shiba
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
Daniel D. Maddox
|
|
|
-0- |
|
|
|
-0- |
|
|
|
35,715 |
(1) |
|
|
-0- |
|
|
|
— |
(2) |
|
|
— |
(2) |
|
|
| (1) |
Represents shares of the Company’s Common Stock underlying
stock options. |
| |
| (2) |
No value is shown because the exercise price is higher than the
closing price of $0.09 per share of the Company’s
Common Stock on the OTC Bulletin Board on December 30,
2004. |
Long-Term Incentive Plans — Awards in Last Fiscal
Year
During 2002, the Company adopted, and the Court approved as part
of the Key Employee Retention Program discussed below, a new
cash-based long-term incentive program under which participants
became eligible to receive an award based on the attainment by
the Company of sustained cost reductions above a stipulated
threshold for the period 2002 through emergence from bankruptcy
(the “Long-Term Incentive Plan”). The following table
and accompanying footnotes further describe the awards that may
be earned by the Named Executive Officers under such program.
For additional information concerning the Long-Term
107
Incentive Plan, see “Employment Contracts, Retention Plan
and Agreements and Termination of Employment and
Change-in-Control Arrangements — Long-Term
Incentive Plan” below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Estimated Future Payouts | |
| |
|
|
|
|
|
Under Non-Stock Price-Based Plans | |
| |
|
|
|
|
|
| |
| (a) |
|
(b) | |
|
(c) | |
|
(d) | |
|
(e) | |
|
(f) | |
| |
|
|
|
Performance | |
|
|
|
|
|
|
| |
|
Number | |
|
or Other | |
|
|
|
|
|
|
| |
|
of Shares, | |
|
Periods Until | |
|
|
|
|
|
|
| |
|
Units or | |
|
Maturation | |
|
|
|
|
|
|
| Name |
|
Other Rights | |
|
or Payout | |
|
Threshold | |
|
Target(1)(3) | |
|
Maximum(1)(3) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Jack A. Hockema
|
|
|
N/A |
|
|
|
(2 |
) |
|
|
(3 |
) |
|
$ |
1,500,000 |
|
|
$ |
4,500,000 |
|
|
Edward F. Houff
|
|
|
N/A |
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
300,000 |
|
|
|
900,000 |
|
|
John Barneson
|
|
|
N/A |
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
350,000 |
|
|
|
1,050,000 |
|
|
Kerry A. Shiba
|
|
|
N/A |
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
258,000 |
(4) |
|
|
774,000 |
(4) |
|
Daniel D. Maddox
|
|
|
N/A |
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
100,000 |
|
|
|
300,000 |
|
|
|
| (1) |
The target and maximum payout amounts in the table are per annum. |
| |
| (2) |
Any awards earned under the program generally are payable in two
equal installments — the first on the date that the
Company emerges from bankruptcy and the second on the one year
anniversary of such date. Any awards earned under the program
generally are forfeited if the participant voluntarily
terminates his or her employment (other than at normal
retirement) or is terminated for cause prior to the scheduled
payment date. |
| |
| (3) |
The amount, if any, that may be paid under the program generally
shall not be determinable until the end of the performance
period. |
| |
| (4) |
The initial target and maximum for Mr. Shiba were $90,000
and $270,000, respectively. These amounts were increased to
$250,000 and $750,000, respectively, effective April 2004 in
connection with Mr. Shiba’s promotion to Chief
Financial Officer, and to the current levels indicated in the
table effective January 2005. |
Defined Benefit Plans
Kaiser Retirement Plan. KACC previously maintained a
qualified, defined-benefit retirement plan (the “Kaiser
Retirement Plan”) for salaried employees of KACC and
co-sponsoring subsidiaries who met certain eligibility
requirements. Effective December 17, 2003, the Pension
Benefit Guaranty Corporation (the “PBGC”) terminated
the Kaiser Retirement Plan. As a consequence of such
termination, all benefit accruals ceased under the Kaiser
Retirement Plan. 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 (a) without
reduction for the limitations imposed by Section 401(a)(17)
and Section 415 of 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), and
(b) without reduction for the limitation on benefits
payable by the PBGC as a result of the involuntary termination
of the Kaiser Retirement Plan ($43,977.24 annually for
retirement at age 65 and
108
$34,742.04 for retirement at age 62, the normal retirement
age under the Kaiser Retirement Plan, for plans terminated in
2003).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years of Service | |
| Average Annual | |
|
| |
| Remuneration | |
|
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 the provisions of the Kaiser Retirement
Plan prior to the termination by the PBGC and the current Kaiser
Supplemental Benefits Plan provisions are in effect, that the
participant retires at age 62, and that the retiree
receives payments based on a straight-life annuity for his
lifetime. Messrs. Hockema, Barneson, Shiba and Maddox had
12.9, 29.8, 6.5, and 8.5 years of credited service,
respectively, on December 31, 2004. Mr. Houff is not a
participant in either the Kaiser Retirement Plan or the Kaiser
Supplemental Benefits Plan. Monthly retirement 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
consisted of salary and bonus. Because of the PBGC limitation on
benefits payable from the Kaiser Retirement Plan, the estimated
benefits with respect to the Kaiser Retirement Plan for
Messrs. Hockema and Barneson for retirement at age 62
are significantly reduced.
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.
As a result of the termination of the Kaiser Retirement Plan by
the PBGC, benefits payable to participants will be reduced to a
maximum of $34,742.04 annually for retirement at age 62,
lower for retirement prior to age 62, and higher for
retirements after age 62 up to $43,977.24 at age 65,
and participants will not accrue additional benefits. In
addition, the PBGC will not make lump-sum payments to
participants.
The Company anticipates that it will provide a defined
contribution pension plan in respect of its salaried employees.
The Company expects such plan to be implemented in the second
quarter of 2005.
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 that would otherwise be paid from
the Kaiser Retirement Plan or the Supplemental Savings and
Retirement Plan, a
109
qualified Section 401(k) plan (the “Kaiser Savings
Plan”), were it not for the limitations imposed by
Section 401(a)(17) and Section 415 of the Tax Code.
The Kaiser Supplemental Benefits Plan will not make up benefits
lost with respect to the Kaiser Retirement Plan because of
limitations on benefits payable by the PBGC. Participation in
the Kaiser Supplemental Benefits Plan is available to 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 that
they may be prevented from receiving under those plans because
of such Tax Code limitations, before considering any impacts of
the PBGC termination of the Kaiser Retirement Plan.
Pursuant to the Kaiser Key Employee Retention Program discussed
below, participants under the Kaiser Supplemental Benefits Plan
will forfeit their benefits if they voluntarily terminate their
employment (other than normal retirement at age 62). Any
claims by participants with respect to amounts not paid under
the Kaiser Supplemental Benefits Plan either because the claims
arose pre-petition or the participant voluntarily terminates
employment prior to KACC’s emergence from bankruptcy (other
than normal retirement at age 62) will be resolved in the
overall context of a plan of reorganization.
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. As a result of the filing of the Cases, payments under
the policy in respect of periods prior to the Filing Date
generally cannot be made by KACC. Any claims for such
pre-petition amounts will be resolved in the overall context of
a plan of reorganization. The Named Executive Officers and
certain other participants in the Kaiser Key Employee Retention
Plan waived their rights to any payments under the termination
policy in connection with their participation in the Kaiser Key
Employee Retention Plan.
Director Compensation
Each of the directors who is not an employee of the Company or
KACC generally receives an annual base fee for services as a
director. The base fee for the year 2004 was $50,000. During
2004, Messrs. Cruikshank, Hurwitz, Levin and Roach each
received base compensation of $50,000. Mr. Haymaker’s
compensation for 2004 was covered by a separate agreement with
the Company and KACC, which is discussed below.
For the year 2004, non-employee directors of the Company and
KACC who were directors of MAXXAM also received director or
committee fees from MAXXAM. In addition, the non-employee
Chairman of each of the Company’s and KACC’s
committees (other than the Audit Committees) was paid a fee of
$3,000 per year for services as Chairman. The fee paid to
the Chairman of the Audit Committees was $10,000 per year.
All non-employee directors also generally received a fee of
$1,500 per day for Board meetings attended in person or by
phone and $1,500 per day for committee meetings held in
person or by phone on a date other than a Board meeting.
Non-employee directors members of the Company’s and
KACC’s Executive Committees not covered by a separate
agreement with the Company and KACC also were paid a fee of
$6,000 per year for such services. In respect of 2004,
Messrs. Cruikshank, Hurwitz, Levin and Roach received an
aggregate of $19,500, $10,500, $28,500, and $26,500,
respectively, in such fees from the Company and KACC in the form
of cash payments.
Non-employee directors are eligible to participate in the Kaiser
1997 Omnibus Stock Incentive Plan (the “1997 Omnibus
Plan”). During 2004, no awards were made to non-employee
directors under such plan.
Directors are reimbursed for travel and other disbursements
relating to Board and committee meetings, and non-employee
directors are provided 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 ad
hoc fees in the amount of $750 per one-half day or
$1,500 per day for services other than attending Board and
committee meetings that require travel in excess of
100 miles. No such payments were made for 2004.
110
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 the Company’s 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.
No deferral elections were in effect during 2004 and there are
no deferral elections currently in effect.
Fees to directors who also are employees of KACC 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, 2004, Mr. Haymaker, the Company and
KACC entered into an agreement concerning the terms upon which
Mr. Haymaker would continue to serve as a director and
non-executive Chairman of the Boards of the Company and KACC
through the earlier of December 31, 2004 and the effective
date of the Company’s and KACC’s emergence from
bankruptcy. For the year 2004, Mr. Haymaker’s base
compensation under the agreement was $50,000 for services as a
director and $73,000 for services as non-executive Chairman of
the Boards of the Company and KACC, inclusive of any Board and
committee fees otherwise payable. All compensation under the
agreement was paid in cash. As of January 1, 2005,
Mr. Haymaker, the Company and KACC entered into a new
agreement extending such terms through the earlier of
December 31, 2005 and the effective date of the
Company’s and KACC’s emergence from bankruptcy.
Employment Contracts, Retention Plan and Agreements and
Termination of Employment and Change-in-Control Arrangements
Employment Agreement with Edward F. Houff. Effective
October 1, 2001, Mr. Houff and KACC entered into an
employment agreement for the period October 1, 2001 through
September 30, 2004. In October 2004, Mr. Houff and
KACC amended such agreement extending the term thereof through
the earliest of KACC’s emergence from bankruptcy, an agreed
termination between Mr. Houff and KACC, and June 30,
2005. Under the terms of the agreement, Mr. Houff’s
annual salary is $400,000 per year. The agreement also
provides for a guaranteed annual cash bonus of $125,000, pro
rated for partial years. Prior to October 2004, the agreement
also provided for a possible annual incentive bonus of $125,000.
No such annual incentive bonus payments were made.
Under the agreement, Mr. Houff is entitled to participate
in KACC’s Long-Term Incentive Plan. He also is entitled to
any payments and benefits payable under his Change in Control
Severance Agreement, discussed below. If Mr. Houff’s
employment is terminated during the term of his employment
agreement, he is entitled to receive all payments and benefits
prescribed under KACC’s Key Employee Retention Plan,
Severance Plan and Long-Term Incentive Plan, as well as his
Change in Control Severance Agreement, plus up to $25,000 in
relocation expenses. If such termination is as a result of
Mr. Houff’s death or disability, he or his estate, as
applicable, also shall receive any base salary, pro-rated
guaranteed bonus and unpaid vacation accrued as of the date of
his death or disability and any other benefits payable under
KACC’s existing benefit plans and policies. For additional
information concerning KACC’s Long-Term Incentive Plan, see
“Long-Term Incentive Plans — Awards in Last
Fiscal Year” above. For additional information concerning
KACC’s Key Employee Retention Plan, Severance Plan and
Change in Control Severance Agreements, see “Employment
Contracts, Retention Plan and Agreements and Termination of
Employment and Change-in-Control Arrangements —
Kaiser Retention Plan and Agreements, Kaiser Severance Plan
and Agreements, and Kaiser Change in Control Severance
Program” below.
Pursuant to Mr. Houff’s employment agreement, he
received in 2001 a grant under the 1997 Omnibus Plan of options,
valued at the time of grant at $450,000, to
purchase 222,772 shares of the Company’s Common
Stock at an exercise price of $2.625 per share, plus
171,429 restricted shares of the Company’s
111
Common Stock, also valued at $450,000 at the time of grant, each
vesting at the rate of
331/3% per
year, beginning October 1, 2002. Mr. Houff cancelled
all of the restricted shares prior to their scheduled vesting
dates.
Kaiser Key Employee Retention Program. On
September 3, 2002, the Court approved a Key Employee
Retention Program, consisting of the Long-Term Incentive Plan,
the Kaiser Retention Plan, the Kaiser Severance Plan, and the
Kaiser Change in Control Severance Program discussed below.
Kaiser Retention Plan and Agreements. Effective
September 3, 2002, KACC adopted the Kaiser
Aluminum & Chemical Corporation Key Employee Retention
Plan (the “Retention Plan”) and in connection
therewith entered into retention agreements with certain key
employees, including each of the Named Executive Officers. The
Retention Plan replaced the Kaiser Aluminum & Chemical
Corporation Retention Plan adopted on January 15, 2002 (the
“Prior Plan”).
In general, awards payable under the Retention Plan to a Named
Executive Officer vested, as applicable, on September 30,
2002, March 31, 2003, September 30, 2003 and
March 31, 2004 (the “Vesting Dates”). The
retention agreements for each Named Executive Officer further
provided that if his employment terminated within 90 days
following the payment of any award for any reason other than
death, disability, retirement on or after age 62 or
termination without cause (as defined in the Retention Plan), he
would be required to return such payment to KACC. Except with
respect to payments of the Withheld Amounts (as defined below)
to Messrs. Hockema, Houff and Barneson, such clawback
provisions have expired.
For each of Messrs. Hockema, Houff and Barneson, the amount
vested on each of the Vesting Dates was equal to 62.5% of his
base salary at the time of grant. Forty percent of the amount
vested on each Vesting Date for each of such persons was paid to
him in a lump sum on that date. Except as described below, of
the remaining 60% of such amount (the “Withheld
Amount”),
(i) 331/3%
of such amount is payable to such participant in a lump sum on
the date of KACC’s emergence from bankruptcy if he is
employed by KACC on that date,
(ii) 331/3%
of such amount is payable to such participant in a lump sum on
the first anniversary of the date of KACC’s emergence from
bankruptcy if he is employed by KACC on that date,
(iii) 162/3%
of such amount is payable to such participant on the date of
KACC’s emergence from bankruptcy if the emergence occurs on
or prior to August 12, 2005 and he is employed by KACC on
that date (such amount is forfeited if the date of KACC’s
emergence from bankruptcy occurs after August 12, 2005),
and
(iv) 162/3%
of the such amount has been forfeited because the date of
KACC’s emergence from bankruptcy did not occur on or prior
to August 12, 2004. Notwithstanding the foregoing, if the
employment of any of Messrs. Hockema, Houff or Barneson is
terminated prior to the payment date for any Withheld Amount as
a result of his death, disability, retirement from KACC on or
after age 62 or KACC’s termination of his employment
without cause, he or his estate, as applicable, shall be
entitled to receive his Withheld Amount (reduced for any amounts
forfeited based on the date of KACC’s emergence from
bankruptcy, as described above). For each of Messrs. Shiba
and Maddox, the amount that vested on each of the Vesting Dates
was equal to 50% of his base salary at the time of grant. One
hundred percent of the amount vested by each of
Messrs. Shiba and Maddox on each such date was paid to him
in a lump sum on that date. No further amounts are payable to
Messrs. Shiba or Maddox under the Retention Plan.
Kaiser Severance Plan and Agreements. Effective
September 3, 2002, KACC adopted the Kaiser
Aluminum & Chemical Corporation Severance Plan (the
“Severance Plan”) in order to provide selected
executive officers, including the Named Executive Officers, and
other key employees of KACC with appropriate protection in the
event of certain terminations of employment. In connection
therewith, KACC entered into Severance Agreements (the
“Severance Agreements”) with plan participants. The
Severance Plan, including the Severance Agreements, along with
the Kaiser Aluminum & Chemical Corporation Change in
Control Severance Agreements described below, replaced for
participants in such plans the Enhanced Severance Protection and
Change in Control Benefits Program implemented in 2000. The
Severance Plan terminates on the first anniversary of the date
KACC emerges from bankruptcy.
The Severance Plan provides for payment of a severance benefit
and continuation of welfare benefits in the event of certain
terminations of employment. Participants are eligible for the
severance payment and continuation of benefits in the event the
participant’s employment is terminated without cause (as
defined in
112
the Severance Plan) or the participant terminates employment
with good reason (as defined in the Severance Plan). The
severance payment and continuation of benefits are not available
if (i) the participant receives severance compensation or
benefit continuation pursuant to a Kaiser Aluminum &
Chemical Corporation Change in Control Severance Agreement (as
described below), (ii) the participant’s employment is
terminated other than without cause or by the participant for
good reason, or (iii) the participant declines to sign, or
subsequently revokes, a designated form of release. In addition,
in consideration for the severance payment and continuation of
benefits, a participant will be subject to noncompetition,
nonsolicitation and confidentiality restrictions following the
participant’s termination of employment with KACC.
The severance payment payable under the Severance Plan to each
of the Named Executive Officers consists of a lump sum cash
payment equal to two times (for Messrs. Hockema, Houff and
Barneson) or one times (for Messrs. Shiba and Maddox) his
base salary. Each of the Named Executive Officers also will be
entitled to continued medical, dental, vision, life insurance,
and disability benefits for a period of two years (for
Messrs. Hockema, Houff and Barneson) or one year (for
Messrs. Shiba and Maddox) following termination of
employment. Severance payments payable under the Severance Plan
are in lieu of any severance or other termination payments
provided for under any plan of KACC or any other agreement
between the participant and KACC.
Kaiser Change in Control Severance Program. In 2002, KACC
entered into Kaiser Aluminum & Chemical Corporation
Change in Control Severance Agreements (the “Change in
Control Agreements”) with certain key executives, including
the Named Executive Officers, in order to provide them with
appropriate protection in the event of a termination of
employment in connection with a change in control or (except as
noted below) significant restructuring (each as defined in the
Change in Control Agreements) of KACC. In connection with the
Severance Plan, the Change in Control Agreements replaced the
Enhanced Severance Protection and Change in Control Benefits
Program implemented in 2000. The Change in Control Agreements
terminate on the second anniversary of a change in control of
KACC.
The Change in Control Agreements provide for severance payments
and continuation of benefits in the event of certain
terminations of employment. The participants are eligible for
severance benefits if their employment terminates or
constructively terminates due to a change in control during a
period that commences ninety (90) days prior to the change
in control and ends on the second anniversary of the change in
control. Participants (other than Messrs. Hockema, Houff and
Barneson) also are eligible for severance benefits if their
employment is terminated due to a significant restructuring
outside of the period commencing ninety (90) days prior to
a change in control and ending on the second anniversary of such
change in control. These benefits are not available if
(i) the participant voluntarily resigns or retires, other
than for good reason (as defined in the Change in Control
Agreements), (ii) the participant is discharged for cause
(as defined in the Change in Control Agreements), (iii) the
participant’s employment terminates as the result of death
or disability, (iv) the participant declines to sign, or
subsequently revokes, a designated form of release, (v) the
participant receives severance compensation or benefit
continuation pursuant to the Kaiser Aluminum & Chemical
Corporation Severance Plan or any other prior agreement, or
(vi) in the case of benefits payable as a result of a
significant restructuring, KACC or its successor offers the
participant suitable employment in North America in a
substantially similar capacity and at his or her current base
pay and short-term incentive, regardless of whether the
participant accepts or rejects such offer. In addition, in
consideration for the severance payment and continuation of
benefits, a participant will be subject to noncompetition,
nonsolicitation and confidentiality restrictions following his
or her termination of employment with KACC.
Upon a qualifying termination of employment, each of the Named
Executive Officers are entitled to receive the following:
(i) three times (for Messrs. Hockema, Houff and
Barneson) or two times (for Messrs. Shiba and Maddox) the
sum of his base pay and most recent short-term incentive target,
(ii) a pro-rated portion of his short-term incentive target
for the year of termination, and (iii) a pro-rated portion
of his long-term incentive target in effect for the year of his
termination, provided that such target was achieved. Each of the
Named Executive Officers also are entitled to continued medical,
dental, life insurance, disability benefits, and perquisites for
a period of three years (for Messrs. Hockema, Houff and
Barneson) or two years (for Messrs. Shiba and Maddox) after
termination of employment with KACC. Each of the Named
113
Executive Officers are also entitled to a payment in an amount
sufficient, after the payment of taxes, to pay any excise tax
due by him under Section 4999 of the Tax Code or any
similar state or local tax.
Severance payments payable under the Change in Control
Agreements are in lieu of any severance or other termination
payments provided for under any plan of KACC or any other
agreement between the Named Executive Officer and KACC.
Short-Term Incentive Plan. The Company maintains a broad
based short-term incentive plan pursuant to which participants,
including the Named Executive Officers, may earn cash awards.
Awards are determined on a sliding scale based on attainment by
the Company of various levels of financial performance
calculated using internal measures of controllable continuing
operating results. Depending on the level of financial
performance, participants may earn up to three times their
annual award target. Except as otherwise indicated, the targets
under the plan for the Named Executive Officers for each of 2004
and 2005 are as follows: Jack A. Hockema — $500,000;
Edward F. Houff — $125,000 (excluding annual
guaranteed bonus under Mr. Houff’s employment
agreement discussed above); John Barneson — $125,000;
Kerry A. Shiba — $90,000 ($95,000 for 2005); and
Daniel D. Maddox — $70,000.
Awards under the plan are paid in the year after they are
earned. If a participant’s employment is terminated prior
to the end of a plan year as a result of death, disability or
retirement, such participant will be entitled to receive a pro
rated portion of any award earned through the date of his or her
termination of employment. Except as may be provided in a
separate agreement with a participant, awards earned under the
program are forfeited if a participant is terminated for cause
prior to payment, or a participant’s employment is
terminated prior to the end of a plan year for any reason other
than death, disability or retirement.
Long-Term Incentive Plan. During 2002, the Company
adopted, and the Court approved as part of the Kaiser
Aluminum & Chemical Corporation Key Employee Retention
Program, a new long-term incentive plan under which key
management employees, including the Named Executive Officers,
became eligible to receive a cash award based on the attainment
by the Company of sustained cost reductions above a stipulated
threshold for the period 2002 through the Company’s
emergence from bankruptcy. Under the plan, fifteen percent of
such cost reductions above the stipulated threshold are placed
in a pool to be shared by participants based on their individual
target’s percentage of the aggregate target for all
participants. A participant’s target percentage may be
adjusted upward or downward, within certain limitations, at the
discretion of the Company’s Chief Executive Officer. See
“Executive Compensation — Long-Term Incentive
Plans — Awards for Last Fiscal Year” above
for information concerning the target’s for the Named
Executive Officers.
Amounts payable under the plan generally are not determinable
until conclusion of the plan. If a participant’s employment
is terminated without cause or as a result of death, disability
or retirement prior to conclusion of the plan, such participant
will be entitled to receive a pro rated portion of any award
earned through the date of his or her termination of employment.
Awards earned under the program are forfeited if the participant
voluntarily terminates his or her employment (other than at
normal retirement) or is terminated for cause prior to the
scheduled payment date.
In general, awards payable under the program are payable in two
installments — the first on the date that the Company
emerges from bankruptcy and the second on the one year
anniversary of such date.
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 that 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, from a change in control of the
Company, or from a change in the Named Executive Officer’s
responsibilities following a change in control.
Compensation Committee Interlocks and Insider
Participation
During 2004, Messrs. Cruikshank and Levin (Chairman) and
James T. Hackett, who resigned as a director of the Company and
KACC as of the end of February 2005, were members of the
Company’s
114
Compensation Policy Committee, and Messrs. Cruikshank and
Hackett (Chairman) were members of the Company’s
Section 162(m) Compensation Committee.
No member of the Compensation Policy Committee or the
Section 162(m) Compensation Committee of the Board was,
during the 2004 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 had any
relationships requiring disclosure by the Company under
Item 404 of Regulation S-K.
During the Company’s 2004 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 either 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 AND RELATED STOCKHOLDER MATTERS |
Ownership of the Company
The following table sets forth, as of March 28, 2005,
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. The Debtors
currently believe that it is likely that the equity interests of
the Company’s existing stockholders will be cancelled
without consideration as part of a plan of reorganization. See
Item 1. “Business — Reorganization
Proceedings”, which is incorporated herein by
reference, for a discussion of the principle elements that the
Company anticipates will be reflected in the disclosure
statement and plan of reorganization for the Company, KACC and
other Debtors necessary to ongoing operations, as such elements
pertain to the issuance of equity in the emerging entity.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Name of Beneficial Owner |
|
Title of Class | |
|
# of Shares(1) | |
|
% of Class | |
| |
|
| |
|
| |
|
| |
|
MAXXAM Inc.
|
|
|
Common Stock |
|
|
|
50,000,000 |
(2) |
|
|
62.8 |
|
|
John Barneson
|
|
|
Common Stock |
|
|
|
10,700 |
|
|
|
* |
|
|
Robert J. Cruikshank
|
|
|
Common Stock |
|
|
|
15,009 |
(3) |
|
|
* |
|
|
George T. Haymaker, Jr.
|
|
|
Common Stock |
|
|
|
9,685 |
(3) |
|
|
* |
|
|
Jack A. Hockema
|
|
|
Common Stock |
|
|
|
393,621 |
(3) |
|
|
* |
|
|
Edward F. Houff
|
|
|
Common Stock |
|
|
|
222,772 |
(3) |
|
|
* |
|
|
Charles E. Hurwitz
|
|
|
Common Stock |
|
|
|
-0- |
(4) |
|
|
* |
|
|
Ezra G. Levin
|
|
|
Common Stock |
|
|
|
13,009 |
(3) |
|
|
* |
|
|
Daniel D. Maddox
|
|
|
Common Stock |
|
|
|
40,144 |
(3) |
|
|
* |
|
|
John D. Roach
|
|
|
Common Stock |
|
|
|
-0- |
|
|
|
* |
|
|
Kerry A. Shiba
|
|
|
Common Stock |
|
|
|
-0- |
|
|
|
* |
|
|
All directors and executive officers of the Company as a group
(13 persons)
|
|
|
Common Stock |
|
|
|
733,922 |
(5) |
|
|
* |
|
|
|
| * |
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 28, 2005 to acquire such shares. |
| |
| (2) |
Includes 27,938,250 shares beneficially owned by MGHI. The
address of MAXXAM is 1330 Post Oak Blvd., Suite 2000,
Houston, Texas 77056. |
115
|
|
| (3) |
Includes options exercisable within 60 days of
March 28, 2005 to acquire shares of the Company’s
Common Stock as follows: Mr. Cruikshank — 13,009;
Mr. Haymaker — 7,143;
Mr. Hockema — 375,770; Mr. Houff —
222,772; Mr. Levin — 13,009; and
Mr. Maddox — 35,715. |
| |
| (4) |
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. |
| |
| (5) |
Includes options exercisable within 60 days of
March 28, 2005, to acquire 690,633 shares of the
Company’s Common Stock. |
Ownership of MAXXAM
As of March 28, 2005, MAXXAM owned, directly and
indirectly, approximately 62.8% of the issued and outstanding
Common Stock of the Company. The following table sets forth, as
of March 28, 2005, unless otherwise indicated, the
beneficial ownership, if any, 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, the Named Executive Officers,
and the directors and the executive officers of the Company and
KACC as a group:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
% of | |
|
% of Combined | |
| Name of Beneficial Owner |
|
Title of Class | |
|
# of Shares(1) | |
|
Class | |
|
Voting Power(2) | |
| |
|
| |
|
| |
|
| |
|
| |
|
Charles E. Hurwitz
|
|
|
Common Stock |
|
|
|
3,233,700 |
(3)(4) |
|
|
50.9 |
|
|
|
76.8 |
|
| |
|
|
Preferred Stock |
|
|
|
707,441 |
(4)(5) |
|
|
99.2 |
|
|
|
|
|
|
Robert J. Cruikshank
|
|
|
Common Stock |
|
|
|
4,900 |
(6) |
|
|
* |
|
|
|
* |
|
|
Ezra G. Levin
|
|
|
Common Stock |
|
|
|
4,900 |
(6) |
|
|
* |
|
|
|
* |
|
|
All directors and executive officers as a group (13 persons)
|
|
|
Common Stock |
|
|
|
3,243,500 |
(3)(4)(7) |
|
|
51.0 |
|
|
|
|
|
| |
|
|
Preferred Stock |
|
|
|
707,441 |
(4)(5) |
|
|
99.2 |
|
|
|
76.5 |
|
|
|
| * |
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 28, 2005, 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. |
| |
| (2) |
MAXXAM Preferred Stock is generally entitled to ten votes per
share on matters presented to a vote of MAXXAM’s
stockholders. |
| |
| (3) |
Includes 2,404,314 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) 46,276 shares of
MAXXAM common stock held by the Charles E. Hurwitz 2004 Grantor
Retained Annuity Trust; (b) 46,277 shares of MAXXAM
common stock held by the Barbara Hurwitz 2004 Grantor Retained
Annuity Trust, as to which Mr. Hurwitz disclaims beneficial
ownership; (c) 46,500 shares of MAXXAM common stock
owned by the Hurwitz Investment Partnership L.P., a limited
partnership in which Mr. Hurwitz and his spouse each have a
4.32% general partnership interest, 2,008.8 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,
(d) 256,808 shares of MAXXAM common stock held
directly by Mr. Hurwitz, (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 352,496 shares of MAXXAM
common stock exercisable within 60 days of March 28,
2004. |
116
|
|
| (4) |
Gilda, Giddeon Holdings, Giddeon Portfolio, the 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 28, 2004, in the
aggregate, the members of the Stockholder Group owned
3,233,700 shares of MAXXAM common stock and
707,441 shares of MAXXAM Preferred Stock, aggregating
approximately 76.5% 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 1330 Post Oak Blvd.,
Suite 2000, Houston, Texas 77056. The address of the
Stockholder Group is Giddeon Holdings, Inc., 1330 Post Oak
Blvd., Suite 2000, Houston, Texas 77056. |
| |
| (5) |
Includes options exercisable by Mr. Hurwitz within
60 days of March 28, 2005, to acquire
45,000 shares of MAXXAM Preferred Stock. |
| |
| (6) |
Includes options exercisable within 60 days of
March 28, 2005, to acquire shares of MAXXAM common stock as
follows: Mr. Cruikshank — 3,900; and
Mr. Levin — 3,900. |
| |
| (7) |
Includes options exercisable within 60 days of
March 28, 2005, to acquire 8300 shares of MAXXAM
common stock, held by directors and executive officers not in
the Stockholder Group. |
Equity Compensation Plan Information
The Debtors currently believe that it is likely that the equity
interests of the Company’s existing stockholders will be
cancelled without consideration as part of a plan of
reorganization. However, the following table summarizes the
Company’s and KACC’s equity compensation plans as of
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of securities | |
| |
|
|
|
|
|
remaining available for future | |
| |
|
Number of securities to be | |
|
|
|
issuance under equity | |
| |
|
issued upon exercise of | |
|
Weighted-average exercise | |
|
compensation plans | |
| |
|
outstanding options, | |
|
price of outstanding options, | |
|
(excluding securities reflected | |
| |
|
warrants and rights | |
|
warrants and rights | |
|
in column (a)) | |
| Plan Category |
|
(a) | |
|
(b) | |
|
(c) | |
| |
|
| |
|
| |
|
| |
|
Equity compensation plans approved by security holders
|
|
|
810,040 |
(1) |
|
$ |
3.14 |
|
|
|
4,536,855 |
(2) |
|
Equity compensation plans not approved by security holders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Total
|
|
|
810,040 |
|
|
$ |
3.14 |
|
|
|
4,536,855 |
|
|
|
| (1) |
Represents shares of the Company’s Common Stock underlying
outstanding stock options. |
| |
| (2) |
Shares are issuable under the 1997 Omnibus Plan. Stock-based
awards made under the 1997 Omnibus Plan may be in the form of
stock options, stock appreciation rights, restricted stock,
performance shares or performance units. Of the shares available
for future issuance under the 1997 Omnibus Plan, 1,698,951 may
be made in the form of restricted stock. |
|
|
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
None.
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
For the years ended December 31, 2004 and 2003,
professional services were performed by Deloitte &
Touche LLP, the member firms of Deloitte & Touche
Tohmatsu, and their respective affiliates.
117
Audit and audit-related fees aggregated $1,973,921 and
$1,691,971 for the years ended December 31, 2004 and 2003,
respectively, and were composed of the following:
Audit Fees
The aggregate fees billed for audit services for the fiscal
years ended December 31, 2004 and 2003 were $1,709,907 and
$1,499,632, respectively. These fees relate to the audit of the
Company’s annual financial statements, the reviews of the
financial statements included in the Company’s Quarterly
Reports on Form 10-Q and certain statutory foreign audits.
Audit-Related Fees
The aggregate fees billed for audit-related services for the
fiscal years ended December 31, 2004 and 2003 were $264,014
and $192,339, respectively. These fees relate to Sarbanes-Oxley
Act of 2002, Section 404 advisory services, audits of
stand-alone financial statements related to a disposition, and
audits of certain employee benefit plans for the fiscal year
ended December 31, 2004 and 2003.
Tax Fees
The aggregate fees billed for tax services for the fiscal years
ended December 31, 2004 and 2003 were $440,400 and
$197,538, respectively. These fees relate to tax compliance, tax
advice and tax planning services for the fiscal years ended
December 31, 2004 and 2003.
All Other Fees
There were no fees billed for professional services other than
audit fees, audit-related fees and tax service fees for the
fiscal year ended December 31, 2004 and 2003.
All fees for 2003 and 2004 tax and audit-related matters
requiring pre-approval by the Audit Committee received such
pre-approval.
Audit Committee Pre-Approved Policies and Procedures
The Audit Committee of the Company’s Board of Directors has
adopted policies and procedures in respect of services performed
by the independent auditor which are to be pre-approved. The
policy requires that each fiscal year, a description of the
services — by major category of type of
service — that are expected to be performed by the
independent auditor in the following fiscal year (the
“Services List”) be presented to the Audit Committee
for approval.
In considering the nature of the services to be provided by the
independent auditor, the Audit Committee will determine whether
such services are compatible with the provision of independent
audit services. The Audit Committee will discuss any such
services with the independent auditor and Company’s
management to determine that they are permitted under the rules
and regulations concerning auditor independence promulgated by
the Securities and Exchange Commission to implement the
Sarbanes-Oxley Act of 2002, as well as the rules of the American
Institute of Certified Public Accountants.
Any request for audit, audit-related, tax, and other services
not contemplated on the Services List must be submitted to the
Audit Committee for specific pre-approval and cannot commence
until such approval has been granted, except as provided below.
Normally, pre-approval is to be provided at regularly scheduled
meetings. However, the authority to grant specific pre-approval
between meetings, as necessary, is delegated to the Chairman of
the Audit Committee. The Chairman must update the Audit
Committee at the next regularly scheduled meeting of any
services that were granted specific pre-approval.
As required, the Audit Committee will periodically be provided
with and review the status of services and fees incurred
year-to-date against the original Service List for such fiscal
year as well as the accumulated costs associated with projects
pending retroactive approval. Retroactive approval for
permissible non-audit services
118
is allowed under the policy subject to certain limitations.
Pre-approval is waived if all of the following criteria are met:
|
|
| |
1. The service is not an audit, review or other attest
service, except that the management may authorize or incur up to
$25,000 in respect of scoping or planning activities by the
independent auditor in connection with new or possible attest
requirements so long as no formal engagement letter is signed
prior to pre-approval by the Audit Committee and audit field
work does not begin; |
| |
| |
2. The individual project is not expected to and does not
exceed $50,000 and/or the aggregate amount of all such services
pending retroactive approval does not exceed $200,000; |
| |
| |
3. Such services were not recognized at the time of the
engagement to be non-audit services; and |
| |
| |
4. Such services are brought to the attention of the Audit
Committee or its designee at the next regularly scheduled
meeting. |
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
| |
|
|
|
|
|
|
| |
|
|
|
Page | |
| |
|
|
|
| |
|
1.
|
|
Financial Statements |
|
|
|
|
| |
|
Report of Independent Registered Public Accounting Firm |
|
|
43 |
|
| |
|
Consolidated Balance Sheets |
|
|
44 |
|
| |
|
Statements of Consolidated Income (Loss) |
|
|
45 |
|
| |
|
Statements of Consolidated Stockholders’ Equity (Deficit)
and Comprehensive Income (Loss) |
|
|
46 |
|
| |
|
Statements of Consolidated Cash Flows |
|
|
47 |
|
| |
|
Notes to Consolidated Financial Statements |
|
|
48 |
|
| |
|
Quarterly Financial Data (Unaudited) |
|
|
99 |
|
| |
|
Five-Year Financial Data |
|
|
100 |
|
|
2.
|
|
Financial Statement Schedules |
|
|
|
|
| |
|
Report of Independent Registered Public Accounting Firm |
|
|
120 |
|
| |
|
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 |
|
|
121 |
|
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 132), which index is
incorporated herein by reference.
119
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Kaiser Aluminum
Corporation:
We have audited the consolidated financial statements of Kaiser
Aluminum Corporation (Debtor-in-Possession) and subsidiaries as
of December 31, 2004 and 2003, and for each of the three
years in the period ended December 31, 2004, and have
issued our report thereon dated March 31, 2005 (which
report expresses an unqualified opinion and includes explanatory
paragraphs relating to (i) emphasis of a matter concerning
the Company’s bankruptcy proceedings, and
(ii) substantial doubt about the Company’s ability to
continue as a going concern); such consolidated financial
statements and report are included elsewhere in this 10-K. Our
audits also included the consolidated financial statement
schedule of the Company listed in Item 15. This
consolidated financial statement schedule is the responsibility
of the Company’s management. Our responsibility is to
express an opinion based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein.
/s/ Deloitte &
Touche LLP
Houston, Texas
March 31, 2005
120
SCHEDULE I
CONDENSED BALANCE SHEET — PARENT COMPANY
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions of dollars, | |
| |
|
except share amounts) | |
|
ASSETS |
|
Investment in KACC
|
|
$ |
(192.5 |
) |
|
$ |
453.0 |
|
| |
|
|
|
|
|
|
| |
|
Total
|
|
$ |
(192.5 |
) |
|
$ |
453.0 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
Current liabilities
|
|
$ |
— |
|
|
$ |
— |
|
|
Intercompany note payable to KACC, including accrued interest
(Note 3)
|
|
|
2,191.7 |
|
|
|
2,191.7 |
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
| |
Common stock, par value $.01, authorized
125,000,000 shares; issued and outstanding 79,680,645 and
80,010,214 shares
|
|
|
.8 |
|
|
|
.8 |
|
| |
Additional capital
|
|
|
538.0 |
|
|
|
539.1 |
|
| |
Accumulated deficit
|
|
|
(2,918.0 |
) |
|
|
(2,170.7 |
) |
| |
Accumulated other comprehensive income (loss)
|
|
|
(5.5 |
) |
|
|
(107.9 |
) |
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
(2,384.2 |
) |
|
|
(1,738.7 |
) |
| |
|
|
|
|
|
|
| |
|
Total
|
|
$ |
(192.5 |
) |
|
$ |
453.0 |
|
| |
|
|
|
|
|
|
The accompanying notes to condensed financial statements are an
integral part of these statements.
121
SCHEDULE I
CONDENSED STATEMENTS OF INCOME (LOSS) — PARENT
COMPANY
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions of dollars) | |
|
Equity in loss of KACC
|
|
$ |
(746.6 |
) |
|
$ |
(788.1 |
) |
|
$ |
(452.1 |
) |
|
Administrative and general expense
|
|
|
(.2 |
) |
|
|
(.2 |
) |
|
|
(.1 |
) |
|
Interest expense on intercompany note (excluding unrecorded
contractual interest expense of $153.6, $153.6 and $127.6
respectively — Note 3)
|
|
|
— |
|
|
|
— |
|
|
|
(16.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(746.8 |
) |
|
$ |
(788.3 |
) |
|
$ |
(468.7 |
) |
| |
|
|
|
|
|
|
|
|
|
The accompanying notes to condensed financial statements are an
integral part of these statements.
122
SCHEDULE I
CONDENSED STATEMENTS OF CASH FLOWS — PARENT
COMPANY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions of dollars) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
$ |
(746.8 |
) |
|
$ |
(788.3 |
) |
|
$ |
(468.7 |
) |
| |
Adjustments to reconcile net income to net cash used for
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Equity in loss of KACC
|
|
|
746.6 |
|
|
|
788.1 |
|
|
|
452.1 |
|
| |
|
Accrued interest on intercompany note payable to KACC
|
|
|
— |
|
|
|
— |
|
|
|
16.5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used by operating activities
|
|
|
(.2 |
) |
|
|
(.2 |
) |
|
|
(.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment in KACC
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used by investing activities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating cost advances from KACC
|
|
|
.2 |
|
|
|
.2 |
|
|
|
.1 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by financing activities
|
|
|
.2 |
|
|
|
.2 |
|
|
|
.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
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
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes to condensed financial statements are an
integral part of these statements.
123
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS — PARENT
COMPANY
|
|
| 1. |
Reorganization Proceedings |
Background. Kaiser Aluminum Corporation
(“Kaiser”, “KAC” or the
“Company”), its wholly owned subsidiary, Kaiser
Aluminum & Chemical Corporation (“KACC”), and
24 of KACC’s subsidiaries have 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”); the Company, KACC and 15 of KACC’s
subsidiaries (the “Original Debtors”) filed in the
first quarter of 2002 and nine additional KACC subsidiaries (the
“Additional Debtors”) filed in the first quarter of
2003. The Original Debtors and Additional Debtors 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” means,
with respect to any particular Debtor, the date on which such
Debtor filed its Case. None of KACC’s non-U.S. joint
ventures are included in the Cases. The Cases are being jointly
administered. The Debtors are managing their businesses in the
ordinary course as debtors-in-possession subject to the control
and administration of the Court.
During the first quarter of 2002, the Original Debtors filed
separate voluntary petitions for reorganization. The wholly
owned subsidiaries of KACC included in such filings were: Kaiser
Bellwood Corporation (“Bellwood”), Kaiser Aluminium
International, Inc. (“KAII”), Kaiser Aluminum
Technical Services, Inc. (“KATSI”), Kaiser Alumina
Australia Corporation (“KAAC”) (and its wholly owned
subsidiary, Kaiser Finance Corporation (“KFC”)) and
ten other entities with limited balances or activities.
The Original Debtors found it necessary to file the Cases
primarily because of liquidity and cash flow problems of the
Company and its subsidiaries that arose 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, 2001. In addition, the Company had become
increasingly burdened by 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 flows, resulting in lower
credit ratings and an inability to access the capital markets.
On January 14, 2003, the Additional Debtors filed separate
voluntary petitions for reorganization. The wholly owned
subsidiaries included in such filings were: Kaiser Bauxite
Company (“KBC”), Kaiser Jamaica Corporation
(“KJC”), Alpart Jamaica Inc. (“AJI”), Kaiser
Aluminum & Chemical of Canada Limited
(“KACOCL”) and five other entities with limited
balances or activities. Ancillary proceedings in respect of
KACOCL and two Additional Debtors were also commenced in Canada
simultaneously with the January 14, 2003 filings.
The Cases filed by the Additional Debtors were commenced, among
other reasons, to protect the assets held by these Debtors
against possible statutory liens that might have arisen and been
enforced by the Pension Benefit Guaranty Corporation
(“PBGC”) primarily as a result of the Company’s
failure to meet a $17.0 accelerated funding requirement to its
salaried employee retirement plan in January 2003 (see
Note 9 for additional information regarding the accelerated
funding requirement). The filing of the Cases by the Additional
Debtors had no impact on the Company’s day-to-day
operations.
The outstanding principal of, and accrued interest on, all debt
of the Debtors became immediately due and payable upon
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) during the pendency of the
Cases. In connection with the filing of the Debtors’ Cases,
the Court, upon motion by the Debtors, authorized 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 continue using the Company’s existing cash management
systems. The Debtors also have the right to assume or reject
executory contracts existing prior to the Filing
124
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS — PARENT
COMPANY — (Continued)
Date, 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 a pre-Filing Date
executory contract is treated as a general unsecured claim in
the Cases.
Case Administration. Generally, pre-Filing Date claims,
including certain contingent or unliquidated claims, against the
Debtors will fall into two categories: secured and unsecured.
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 bar dates (established by the Court) by
which holders of pre-Filing Date claims against the Debtors
(other than asbestos-related personal injury claims) could file
their claims have passed. Any holder of a claim that was
required to file such claim by such bar date and did not do so
may be barred from asserting such claim against any of the
Debtors and, accordingly, may not be able to participate in any
distribution in any of the Cases on account of such claim. The
Company has not yet completed its analysis of all of the proofs
of claim to determine their validity. However, during the course
of the Cases, certain matters in respect of the claims have been
resolved. Material provisions in respect of claim settlements
are included in the accompanying financial statements and are
fully disclosed elsewhere herein. The bar dates do not apply to
asbestos-related personal injury claims, for which no bar date
has been set.
Two creditors’ committees, one representing the unsecured
creditors (the “UCC”) and the other representing the
asbestos claimants (the “ACC”), have been appointed as
official committees in the Cases and, in accordance with the
provisions of the Code, have the right to be heard on all
matters that come before the Court. In August 2003, the Court
approved the appointment of a committee of salaried retirees
(the “1114 Committee” and, together with the UCC
and the ACC, the “Committees”) with whom the Debtors
have negotiated necessary changes, including the modification or
termination, of certain retiree benefits (such as medical and
insurance) under Section 1114 of the Code. The Committees,
together with the Court-appointed legal representatives for
(a) potential future asbestos claimants (the “Asbestos
Futures’ Representative”) and (b) potential
future silica and coal tar pitch volatile claimants (the
“Silica/ CTPV Futures’ Representative” and,
collectively with the Asbestos Futures” Representative, the
“Futures’ Representatives”), have played and will
continue to play important roles in the Cases and in the
negotiation of the terms of any plan or plans of reorganization.
The Debtors are required to bear certain costs and expenses for
the Committees and the Futures’ Representatives, including
those of their counsel and other advisors.
As provided by the Code, the Debtors had the exclusive right to
propose a plan of reorganization for 120 days following the
initial Filing Date. The Court has subsequently approved several
extensions of the exclusivity period for all Debtors. Most
recently, the Court approved an extension of exclusivity as to
all Debtors (other than AJI, KJC, KAAC and KFC) to June 30,
2005. Exclusivity for AJI, KJC, KAAC and KFC was most recently
extended to April 30, 2005. Additional extensions may be
sought. However, no assurance can be given that any such future
extension requests will be granted by the Court. If the Debtors
fail to file a plan of reorganization during the exclusivity
period, 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.
Commodity-related and Inactive Subsidiaries. As
previously disclosed, the Company expects that by April 2005 it
will have sold all of its commodity-related interests other than
its interests in Anglesey. It is anticipated that, as more fully
discussed below, the proceeds from the sale of these interests
will be distributed primarily to the affected subsidiaries’
creditors pursuant to certain liquidating plans and other
agreements. The primary subsidiaries affected by this strategy
are AJI, KJC, KAAC, KFC and KBC.
125
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS — PARENT
COMPANY — (Continued)
During November 2004, four of KACC’s commodity-related
subsidiaries (AJI, KJC, KAAC and KFC, collectively, the
“Liquidating Subsidiaries”) filed separate joint plans
of liquidation and related disclosure statements with the Court.
Such plans, together with all amendments filed thereto, are
separately referred to as the “AJI/KJC Plan” and the
“KAAC/KFC Plan” and collectively as the
“Liquidating Plans”). Under the Liquidating Plans, the
assets of those entities, consisting primarily of the net cash
proceeds received (or to be received) by them in connection with
the sales of their commodities interests, will be transferred to
liquidating trusts, whereupon the Liquidating Subsidiaries will
be dissolved. The liquidating trusts will then make
distributions to the creditors of the Liquidating Subsidiaries
in accordance with the Liquidating Plans. As indicated in the
Liquidating Plans, it is currently anticipated that the
Liquidating Subsidiaries will have an aggregate of approximately
$673.8 of cash available for distribution to creditors when the
Liquidating Plans become effective. The Liquidating Plans
outline the specific treatment of creditors and their estimated
recoveries in respect of the Liquidating Subsidiaries under
several possible scenarios. The Liquidating Plans indicate that,
after payment of priority claims, trust expenses (initial
reserves for which are expected to be established in the range
of $37.0 to $46.0), and payments to KACC under the Intercompany
Settlement Agreement (“Intercompany Agreement”) (see
discussion below) the Liquidating Subsidiaries anticipate
ultimately distributing available cash to the following
claimholders in the following amounts:
| |
|
|
|
|
|
KACC’s Senior Notes and Senior Subordinated Notes
|
|
|
$390.7 to $421.8 |
|
|
PBGC
|
|
|
$187.6 to $198.5 |
|
|
State of Louisiana Solid Waste Revenue Bonds
|
|
|
$ 0.0 to $ 8.0 |
|
Under the Liquidating Plans as filed with the Court, $16.0 of
payments are to be made for the benefit of holders of
KACC’s
123/4%
Senior Subordinated Notes (the “Sub Notes”) if, and
only if, the holders of both (a) KACC’s
97/8%
Senior Notes and
107/8%
Senior Notes (collectively, the “Senior Notes”) and
(b) the Sub Notes, approve the plans. If either the holders
of the Senior Notes or the Sub Notes fail to accept the
Liquidating Plans, the Court will determine distributions to
such holders. Holders of the Parish of St. James, State of
Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue
Bonds”) are not allowed a vote on the Liquidating Plans but
will receive up to $8.0 only if the Liquidating Plans are
accepted by the Senior Notes and, unless the holders of the
Senior Notes agree, all holders of Senior Notes
receive the identical treatment under the Liquidating Plans. If
the Liquidating Plans are not accepted by the holders of the
Senior Notes then, pursuant to the Liquidating Plans, the
Court will determine the distributions to the Revenue Bonds. Any
amounts paid in respect of the Sub Notes and the Revenue Bonds
will be paid from amounts that otherwise would be distributed to
holders of the Senior Notes.
As previously disclosed, a group of holders of the Sub Notes
(the “Sub Note Group”) has formed an unofficial
committee to represent all holders of Sub Notes and retained its
own legal counsel. The Sub Note Group is asserting that the
Sub Note holders’ claims against the subsidiary guarantors
(and in particular the Liquidating Subsidiaries) may not, as a
technical matter, be contractually subordinate to the claims of
the holders of the Senior Notes against the subsidiary
guarantors (including AJI, KJC, KAAC and KFC). A separate
group that holds both Sub Notes and KACC’s
97/8% Senior
Notes has made a similar assertion, but at the same time,
maintains that a portion of KACC’s
97/8% Senior
Notes holders’ claims against the subsidiary guarantors are
contractually senior to the Sub Notes holders’ claims
against the subsidiary guarantors. The effect of such positions,
if ultimately sustained, would be that the holders of Sub Notes
would be on a par with all or portion of the holders of the
Senior Notes in respect of proceeds from sales of the
Company’s interests in and related to the Liquidating
Subsidiaries. If both the holders of the Senior Notes and the
holders of the Sub Notes do not approve the Liquidating Plans,
then the Court will determine the appropriate allocation to
these groups under the Liquidating Plans. While the Company
cannot currently predict how the Court might rule in such an
instance, based on the objections and pleadings filed by the Sub
Note Group and the group that holds Sub Notes and KACC’s
97/8% Senior
Notes, if the Court were to rule in favor of the Sub Notes, the
Company estimates that it is possible that the holders of the
Sub Notes could receive between approximately $67.0 and
126
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS — PARENT
COMPANY — (Continued)
approximately $215.0 depending on whether the Sub Notes were
determined to rank on par with a portion or all of the Senior
Notes. Conversely, if the holders of both the Senior Notes and
the Sub Notes do not approve the Liquidating Plans and the Court
were to rule in favor of the Senior Notes, then it is possible
that the holders of the Sub Notes would receive no distributions
under Liquidating Plans. The Company believes that the intent of
the indentures in respect of the Senior Notes and the Sub Notes
was to subordinate the claims of the Sub Note holders in respect
of the subsidiary guarantors (including the Liquidating
Subsidiaries). The Company cannot predict, however, the ultimate
resolution of the matters raised by the Sub Note Group, or
the other group, when any such resolution will occur, or what
impact any such resolution may have on the Company, the Cases or
distributions to affected noteholders.
The Court approved the disclosure statements related to the
Liquidating Plans in February 2005 and the Liquidating
Subsidiaries are now seeking confirmation of the Liquidating
Plans at a confirmation hearing scheduled to be held in April
2005. However, there can be no assurance as to whether or when
the Liquidating Plans will be confirmed by the Court or
ultimately consummated or, if confirmed and consummated as to
the amount of distributions to be made to individual creditors
of the Liquidating Subsidiaries or KACC. The foregoing
disclosure is not intended to be, nor should it be construed to
be, a solicitation for a vote on the Liquidating Plans. The
Liquidating Plans relate exclusively to AJI, KJC, KAAC and KFC
and will have no impact on the normal, ongoing operations of the
Company’s Fabricated products business unit or other
continuing operations.
The above amounts are net of payments that are to be made by
AJI, KJC and KAAC to KACC in respect of pre-petition and
post-Filing Date intercompany claims pursuant to the
Intercompany Agreement that was approved by the Court in
February 2005. The Intercompany Agreement also resolves
substantially all other pre-and post-petition intercompany
claims between the Debtors. The Intercompany Agreement provides,
among other things, for payments of cash by AJI, KJC and KAAC
from the sale of their respective interests in and related to
Alpart and QAL to KACC of at least $90.0 in respect of its
intercompany claims against AJI, KJC and KAAC. Under the
Intercompany Agreement, such payments would be increased or
decreased for (1) any net cash flows funded by or collected
by KACC related to: (a) the Company’s interests in and
related to Alpart from January 1, 2004 through July 1,
2004 (estimated to be approximately $21.0 collected by the
Company); (b) the Company’s interests in and related
to QAL from July 1, 2004 through KAAC’s emergence from
Chapter 11 (estimated to be in the $15.0 range collected by
the Company through December 31, 2004); and (c) third
party costs and certain limited overhead of KACC’s
activities related to the sale of AJI’s, KJC’s and
KAAC’s respective interests in and related to Alpart and
QAL and (2) any purchase price adjustments (other than
incremental amounts related to alumina sales contracts to be
transferred) pursuant to KACC’s sale of its interests in
Alpart. As provided under the Intercompany Agreement, KACC was
reimbursed for approximately $14.5 of payments made in the third
quarter of 2004 to retire Alpart-related debt and $28.0 in
November 2004 as a partial payment of Alpart-related sales
proceeds. The Intercompany Agreement calls for the remaining
payments to be made in specific increments to KACC at the
earlier of the time of the closing of the sale of the
Company’s interests in QAL and upon the effective dates of
the Liquidating Plans.
As the proceeds from the Gramercy/ KJBC sale were nominal, it is
anticipated that KBC will be dealt with either separately or in
concert with the KACC plan of reorganization as more fully
discussed below. Sixteen of the Debtors (including KAC) have no
material ongoing activities or operations and have no material
assets or liabilities other than intercompany claims (which are
to be resolved pursuant to the Intercompany Agreement). The
Company believes that it is likely that most of these entities
will ultimately be merged out of existence or dissolved in some
manner.
Entities Containing the Fabricated Products and Certain Other
Operations. Claims of creditors, other than claims paid by
the Liquidating Subsidiaries under the Liquidating Plans, will
have to be satisfied by the assets of KACC, KACOCL, and
Bellwood, which generally include the fabricated products plants
and their
127
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS — PARENT
COMPANY — (Continued)
working capital, the interests in and related to Anglesey
Aluminium Limited (“Anglesey”) and proceeds to be
received under the Intercompany Agreement.
The Debtors anticipate that substantially all remaining
liabilities of the Debtors as of their Filing Date will be
settled under a single joint plan of reorganization to be
proposed and voted on in accordance with the provisions of the
Code. In working toward a plan of reorganization, as more fully
discussed below, the remaining Debtors have reached individual
agreements with most of the significant creditor constituents in
the Cases including the Committees, the Futures’
Representatives, the PBGC, and the appropriate union
representatives. However, the ultimate treatment of individual
groups of creditors in any such plan of reorganization cannot be
determined definitively at this time as such treatment (and the
specific recoveries of individual creditors) is dependent on,
among other things, the total amount of claims against the
Debtors as ultimately determined by the Court, the priority of
the applicable claims, the outcome of ongoing discussions with
the key creditor constituencies, the amount of value available
for distribution in respect of claims and the completion of the
plan confirmation process consistent with applicable bankruptcy
law. Further, while the Debtors intend to file and seek
confirmation of a plan, there can be no assurance as to when the
Debtors will file such a plan or as to whether any such plan
will be confirmed by the Court and consummated.
The Debtors’ objective is to achieve the highest possible
recoveries for all stakeholders, consistent with the
Debtors’ abilities to pay, and to continue the operations
of their core businesses. However, there can be no assurance
that the Debtors will be able to attain these objectives or
achieve a successful reorganization. While valuation of the
Debtors’ assets and estimation of pre-Filing Date claims at
this stage of the Cases are subject to inherent uncertainties,
the Debtors currently believe that, in the aggregate, it is
likely that their liabilities will be found to significantly
exceed the fair value of their assets. Therefore, the Debtors
currently believe that, with limited exceptions, it is likely
that substantially all pre-Filing Date claims will be settled at
less than 100% of their face value and the equity interests of
the Company’s stockholders will be cancelled without
consideration.
Based on the previously disclosed agreements and understandings
reached with key creditor constituents, the Company anticipates
that the disclosure statement and plan of reorganization for the
Company, KACC and other Debtors necessary to ongoing operations
will reflect the following principle elements:
|
|
| |
(a) All post-petition and secured claims are expected to
either be assumed by the emerging entity or paid at emergence
(see Exit Cost discussion below); |
| |
| |
(b) Pursuant to agreements reached with salaried and hourly
retirees in early 2004, in return for cancellation of the
retiree medical plan, as more fully discussed in Note 9,
the Company is making certain fixed monthly payments into
Voluntary Employee Beneficiary Associations (“VEBAs”)
until emergence and then has agreed to make certain variable
annual VEBA contributions depending on the emerging
entity’s operating results and financial liquidity. In
addition, upon emergence the VEBAs are to receive a contribution
of 75% of the residual value of the remaining Debtors in the
form of newly issued equity in the emerging entity. Residual
value in this context means KACC’S remaining value after
taking into account: (i) the contributions to the personal
injury trust described below; (ii) the satisfaction of
administrative, priority and secured claims as per
(a) above; (iii) an equity incentive plan; and
(iv) the satisfaction of the PBGC’S claim against
KACOCL; |
| |
| |
(c) Pursuant to an agreement reached in early 2005, all
pending and future asbestos-related personal injury claims, all
pending and future silica and coal tar pitch volatiles personal
injury claims and all hearing loss claims would be resolved
through the formation of one or more trusts to which all such
claims would be directed by channeling injunctions that would
permanently remove all liability for such claims from the
Debtors. The trusts would be funded pursuant to statutory
requirements and agreements with representatives of the affected
parties, using (i) the Debtors’ insurance assets,
(ii) $13.0 in cash from KACC, (iii) 100% of the equity
in a KACC subsidiary whose sole asset will be a piece of real |
128
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS — PARENT
COMPANY — (Continued)
|
|
| |
property that produces modest rental income, and (iv) a
portion of the emerging entity’s equity in proportion to
approximately $830.0 of intercompany claims of KFC against KACC
that are to be assigned to the trust (which will be satisfied
out of the 25% of equity referred to in (d) below); and |
| |
| |
(d) Other pre-petition claims will receive 25% of the
residual value of the remaining Debtors in the form of equity in
the emerging entity. Claims that are expected to be within this
group include (i) any claims of the Senior Notes, the Sub
Notes and PBGC that are not satisfied under the Liquidating
Plans, (ii) the approximate $830.0 of intercompany claims
that the Company has agreed to assign to the personal injury
trust(s) referred to in (c) above, and (iii) all
unsecured trade and other claims. Included in this category are
approximately $276.0 of intercompany claims of KFC against KACC
that will be a part of the consideration in the Liquidating
Trusts. |
At emergence from Chapter 11, KACC will have to pay or
otherwise provide for a material amount of claims. Such claims
include accrued but unpaid professional fees, priority pension,
tax and environmental claims, secured claims, and certain
post-petition obligations (collectively, “Exit
Costs”). KACC currently estimates that its Exit Costs will
be in the range of $60.0 to $80.0. KACC currently expects to
fund such Exit Costs using the proceeds to be received under the
Intercompany Agreement together with existing cash resources and
available borrowing availability under an exit financing
facility that would replace the current Post-Petition Credit
Agreement (see Note 7 of Notes to Kaiser’s
Consolidated Financial Statements). If payments made to the
Company under the Intercompany Agreement together with existing
cash resources and borrowing availability under an exit
financing facility are not sufficient to pay or otherwise
provide for all Exit Costs, the Company and KACC will not be
able to emerge from Chapter 11 unless and until sufficient
funding can be obtained. Management believes it will be able to
successfully resolve any issues that may arise in respect of an
exit financing facility or be able to negotiate a reasonable
alternative. However, no assurances can be given in this regard.
The Company believes that it is not likely that it will emerge
from the Cases until sometime in the second half of 2005.
However, the Company’s ability to do so and to ultimately
emerge from the Cases is subject to a number of factors,
including, among others, inherent market-related risks, Court
approval for various matters and the confirmation of a plan of
reorganization in accordance with the applicable bankruptcy law
and, accordingly, no assurances can be given as to whether or
when any plan or plans of reorganization will ultimately be
filed or confirmed.
The Company is a holding company and conducts its operations
through its wholly owned subsidiary, 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 Kaiser’s 2004
Consolidated Financial Statements.
The accompanying parent company condensed financial statements
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. Specifically, the condensed
financial statements do not present: (a) the realizable
value of assets on a liquidation basis or the availability of
such assets to satisfy liability, (b) the amount which will
ultimately be paid to settle liabilities and contingencies which
may be allowed in the Cases, or (c) the effect of any
changes which may be made in connection with the Debtors’
capitalizations or operations as a result of a plan of
reorganization. Because of the ongoing nature of the Cases, the
parent company condensed financial statements are subject to
material uncertainties.
129
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS — PARENT
COMPANY — (Continued)
|
|
| 3. |
Intercompany Note Payable |
The Intercompany Note to KACC, as amended, provides for a fixed
interest rate of
65/8%
and matures on December 21, 2020. However, since the
Intercompany Note is unsecured, the accrual of interest was
discontinued as of the Filing Date. The payment of the
Intercompany Note and accrued interest, which are liabilities
subject to compromise, will be resolved in connection with the
Cases. Under the Intercompany Agreement, the amounts outstanding
under the Intercompany Note will be forgiven in 2005.
The obligations of KACC in respect of the credit facilities
under the DIP Facility are guaranteed by the Company and certain
significant subsidiaries of KACC. See Note 7 of Notes to
Kaiser’s Consolidated Financial Statements.
130
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 31, 2005
|
|
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 31, 2005 |
|
/s/ Jack A. Hockema
Jack
A. Hockema
President, Chief Executive Officer and Director
(Principal Executive Officer) |
| |
|
Date: March 31, 2005 |
|
/s/ Kerry A. Shiba
Kerry
A. Shiba
Vice President and Chief Financial Officer
(Principal Financial Officer) |
| |
|
Date: March 31, 2005 |
|
/s/ Daniel D. Maddox
Daniel
D. Maddox
Vice President and Controller
(Principal Accounting Officer) |
| |
|
Date: March 31, 2005 |
|
/s/ George T. Haymaker, Jr.
George
T. Haymaker, Jr.
Chairman of the Board and Director |
| |
|
Date: March 31, 2005 |
|
/s/ Robert J. Cruikshank
Robert
J. Cruikshank
Director |
| |
|
Date: March 31, 2005 |
|
/s/ Charles E. Hurwitz
Charles
E. Hurwitz
Director |
| |
|
Date: March 31, 2005 |
|
/s/ Ezra G. Levin
Ezra
G. Levin
Director |
| |
|
Date: March 31, 2005 |
|
/s/ John D. Roach
John
D. Roach
Director |
131
INDEX OF EXHIBITS
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
2 |
.1 |
|
Purchase Agreement, dated as of June 8, 2004, among Kaiser
Aluminum & Chemical Corporation (“KACC”),
Kaiser Aluminium International, Inc., Kaiser Bauxite Company
(“KBC”), Kaiser Jamaica Corporation and Alpart Jamaica
Inc. and Quality Incorporations I Limited (incorporated by
reference to Exhibit 2.1 to the Report on Form 8-K,
dated as of July 1, 2004, filed by Kaiser Aluminum
Corporation (“KAC”), File No. 1-9447). |
| |
2 |
.2 |
|
Purchase Agreement, dated as of May 17, 2004, among KACC,
KBC, Gramercy Alumina LLC and St. Ann Bauxite Limited
(incorporated by reference to Exhibit 2.1 to the Report on
Form 8-K, dated as of October 1, 2004, filed by KAC,
File No. 1-9447). |
| |
2 |
.3 |
|
Purchase Agreement, dated as of October 29, 2004, between
KACC, and the Government of Ghana (incorporated by reference to
Exhibit 2.1 to the Report on Form 8-K, dated as of
October 29, 2004, filed by KAC, File No. 1-9447). |
| |
2 |
.4 |
|
Purchase Agreement, dated as of September 22, 2004, between
KACC, Kaiser Alumina Australia Corporation (“KAAC”)
and Comalco Aluminium Limited (incorporated by reference to
Exhibit 2.3 to the Report on Form 10-Q for the
quarterly period ended September 30, 2004, filed by KAC,
File No. 1-9447). |
| |
2 |
.5 |
|
Agreement to Submit Qualified Bid for QAL, dated as of
September 22, 2004, between KACC, KAAC and Glencore AG
(incorporated by reference to Exhibit 2.4 to the Report on
Form 10-Q for the quarterly period ended September 30,
2004, filed by KAC, File No. 1-9447). |
| |
2 |
.6 |
|
Purchase Agreement, dated as of October 28, 2004, among
KACC, KAAC and Alumina & Bauxite Company Ltd.
(incorporated by reference to Exhibit 2.5 to the Report on
Form 10-Q for the quarterly period ended September 30,
2004, filed by KAC, File No. 1-9447). |
| |
3 |
.1 |
|
Restated Certificate of Incorporation of KAC, dated
February 18, 2000 (incorporated by reference to
Exhibit 3.1 to the Report on Form 10-K for the period
ended December 31, 1999, filed by KAC, File
No. 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 KAC, dated February 12, 1998
(incorporated by reference to Exhibit 3.3 to the Report on
Form 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 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 KACC, as
Issuer, KAAC, Alpart Jamaica Inc., and Kaiser Jamaica
Corporation, as Subsidiary Guarantors, and The First National
Bank of Boston, as Trustee, regarding KACC’s
123/4% Senior
Subordinated Notes Due 2003 (incorporated by reference to
Exhibit 4.1 to the Report on 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). |
132
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
4 |
.3 |
|
Second Supplemental Indenture, dated as of February 1,
1996, to the Indenture, dated as of February 1, 1993
(incorporated by reference to Exhibit 4.3 to the Report on
Form 10-K for the period ended December 31, 1995,
filed by KAC, File No. 1-9447). |
| |
4 |
.4 |
|
Third Supplemental Indenture, dated as of July 15, 1997, to
the Indenture, dated as of February 1, 1993 (incorporated
by reference to Exhibit 4.1 to the Report on Form 10-Q
for the quarterly period ended June 30, 1997, filed by KAC,
File No. 1-9447). |
| |
4 |
.5 |
|
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, KAAC, Alpart Jamaica Inc., Kaiser Jamaica Corporation,
and Kaiser Finance Corporation, as Subsidiary Guarantors, and
First Trust National Association, as Trustee, regarding
KACC’s
97/8% 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 |
.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 |
.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 Report on
Form 10-Q for the quarterly period ended June 30,
1997, filed by KAC, File No. 1-9447). |
| |
4 |
.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, KAAC, 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
107/8%
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 |
.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 |
.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, KAAC, 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
107/8%
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 |
.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 |
.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). |
133
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
4 |
.16 |
|
Post-Petition Credit Agreement, dated as of February 12,
2002, among KACC, KAC, certain financial institutions and Bank
of America, N.A., as Agent (incorporated by reference to
Exhibit 4.44 to the Report on Form 10-K for the period
ended December 31, 2001, filed by KAC, File
No. 1-9447). |
| |
4 |
.17 |
|
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 (incorporated by reference to
Exhibit 4.45 to the Report on Form 10-K for the period
ended December 31, 2001, filed by KAC, File
No. 1-9447). |
| |
4 |
.18 |
|
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 (incorporated by reference to
Exhibit 4.46 to the Report on Form 10-K for the period
ended December 31, 2001, filed by KAC, File
No. 1-9447). |
| |
4 |
.19 |
|
Third Amendment to Post-Petition Credit Agreement, Second
Amendment to Post-Petition Pledge and Security Agreement and
Consent of Guarantors, dated as of December 19, 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 (incorporated
by reference to Exhibit 4.19 to the Report on
Form 10-K for the period ended December 31, 2002,
filed by KAC, File No. 1-9447). |
| |
4 |
.20 |
|
Fourth Amendment to Post-Petition Credit Agreement and Consent
of Guarantors, dated as of March 17, 2003, 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 (incorporated by reference to
Exhibit 4.20 to the Report on Form 10-K for the period
ended December 31, 2002, filed by KAC, File
No. 1-9447). |
| |
4 |
.21 |
|
Waiver and Consent with Respect to Post-Petition Credit
Agreement, dated October 9, 2002, among KAC, KACC, the
financial institutions party to the Post-Petition Credit
Agreement, dated as of February 12, 2002, as amended, and
Bank of America, N.A., as Agent (incorporated by reference to
Exhibit 4.21 to the Report on Form 10-K for the period
ended December 31, 2002, filed by KAC, File
No. 1-9447). |
| |
4 |
.22 |
|
Second Waiver and Consent with respect to Post-Petition Credit
Agreement, dated January 13, 2003, among KACC, KAC, the
financial institutions party to the Post-Petition Credit
Agreement, dated as of February 12, 2002, as amended, and
Bank of America, N.A., as Agent (incorporated by reference to
Exhibit 4.22 to the Report on Form 10-K for the period
ended December 31, 2002, filed by KAC, File
No. 1-9447). |
| |
4 |
.23 |
|
Waiver Letter with Respect to Post-Petition Credit Agreement,
dated March 24, 2003, among KACC, KAC, the financial
institutions party to the Post-Petition Credit Agreement, dated
as of February 12, 2002, as amended, and Bank of America,
N.A., as Agent (incorporated by reference to Exhibit 4.1 to
Report on Form 10-Q for the quarterly period ended
March 31, 2003, filed by KAC, File No. 1-9447). |
| |
4 |
.24 |
|
Extension and Modification of Waiver Letter with Respect to
Post-Petition Credit Agreement, dated May 5, 2003, among
KACC, KAC, the financial institutions party to the Post-Petition
Credit Agreement, dated as of February 12, 2002, as
amended, and Bank of America, N.A., as Agent (incorporated by
reference to Exhibit 4.1 to Report on Form 10-Q for
the quarterly period ended June 30, 2003, filed by KAC,
File No. 1-9447). |
| |
4 |
.25 |
|
Fifth Amendment to Post-Petition Credit Agreement, dated
June 6, 2003, 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
(incorporated by reference to Exhibit 4.2 to Report on
Form 10-Q for the quarterly period ended June 30,
2003, filed by KAC, File No. 1-9447). |
134
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
4 |
.26 |
|
Sixth Amendment to Post-Petition Credit Agreement, dated
August 1, 2003, 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
(incorporated by reference to Exhibit 4.1 to the Report on
Form 10-Q for the quarterly period ended September 30,
2003, filed by KAC, File No. 1-9447). |
| |
4 |
.27 |
|
Waiver Letter with Respect to Post-Petition Credit Agreement
dated March 29, 2004, 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 (incorporated by reference to Exhibit 4.1 to Report
on Form 10-Q for the quarterly period ended March 31,
2004, filed by KAC, File No. 1-9447). |
| |
4 |
.28 |
|
Waiver Letter with Respect to Post-Petition Credit Agreement
dated May 21, 2004, 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 (incorporated by reference to Exhibit 4.1 to Report
on Form 10-Q for the quarterly period ended June 30,
2004, filed by KAC, File No. 1-9447). |
| |
4 |
.29 |
|
Waiver Letter with Respect to Post-Petition Credit Agreement
dated September 29, 2004, 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 (incorporated by reference to Exhibit 4.2 to Report
on Form 10-Q for the quarterly period ended
September 30, 2004, filed by KAC, File No. 1-9447). |
| |
4 |
.30 |
|
Seventh Amendment to Post-Petition Credit Agreement dated
October 28, 2004, 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 (incorporated by reference to Exhibit 4.1 to Report
on Form 10-Q for the quarterly period ended
September 30, 2004, filed by KAC, File No. 1-9447). |
| |
4 |
.31 |
|
Secured Super-Priority Debtor-In-Possession Revolving Credit and
Guaranty Agreement Among KAC, KACC and certain of their
subsidiaries, as Borrowers, and certain Subsidiaries of KAC and
KACC, as Guarantors, and certain financial institutions and
JP Morgan Chase Bank, National Association, as
Administrative Agent, dated as of February 11, 2005
(incorporated by reference to Exhibit 99.1 to Report on
Form 8-K, dated as of February 11, 2005, filed by KAC,
File No. 1-9447). |
| |
4 |
.32 |
|
Intercompany Note dated as of December 21, 1989, 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 |
.33 |
|
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, File No. 1-3924). |
| |
4 |
.34 |
|
Amendment to Non-Negotiable Intercompany Note, dated as of
December 11, 2000, between KAC and KACC (incorporated by
reference to Exhibit 4.41 to the Report on Form 10-K
for the period ended December 31, 2000, filed by KAC, File
No. 1-9447). |
| |
4 |
.35 |
|
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 |
.36 |
|
Senior Subordinated Intercompany Note between KAC and KACC dated
March 17, 1994 (incorporated by reference to
Exhibit 4.23 to the Report on Form 10-K for the period
ended December 31, 1993, filed by KAC, File
No. 1-9447). |
| |
|
|
|
KAC has not filed certain long-term debt instruments not being
registered with the Securities and Exchange Commission where the
total amount of indebtedness authorized under any such
instrument does not exceed 10% of the total assets of KAC and
its subsidiaries on a consolidated basis. KAC agrees and
undertakes to furnish a copy of any such instrument to the
Securities and Exchange Commission upon its request. |
| |
10 |
.1 |
|
Form of indemnification agreement with officers and directors
(incorporated by reference to Exhibit (10)(b) to the
Registration Statement of KAC on Form S-4, File
No. 33-12836). |
135
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.2 |
|
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 10.3 - 10.21, inclusive] |
| |
10 |
.3 |
|
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 |
.4 |
|
Non-Executive Chairman of the Boards Agreement, dated
November 4, 2002, among KAC, KACC and George T.
Haymaker, Jr. (incorporated by reference to
Exhibit 10.12 to the Report on Form 10-K for the
period ended December 31, 2002, filed by KAC, File
No. 1-9447). |
| |
*10 |
.5 |
|
Non-Executive Chairman of the Boards Agreement, dated
January 7, 2005, among KAC, KACC and George T.
Haymaker, Jr. |
| |
10 |
.6 |
|
Amended Employment Agreement, dated October 1, 2004,
between KACC and Edward F. Houff (incorporated by reference to
Exhibit 10.1 to the Report on Form 10-Q for the period
ended September 30, 2004, filed by KAC, File
No. 1-9447). |
| |
10 |
.7 |
|
Stock Option Grant pursuant to the Kaiser 1997 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 |
.8 |
|
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). |
| |
10 |
.9 |
|
Form of Non-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 on Form 10-Q for the
quarterly period ended June 30, 2001, filed by KAC, File
No. 1-9447). |
| |
10 |
.10 |
|
Form of Stock Option Grant for options issued commencing
January 1, 2001 under the 1997 Kaiser Omnibus Stock
Incentive Plan (incorporated by reference 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 |
.11 |
|
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 |
.12 |
|
The Kaiser Aluminum & Chemical Corporation Retention
Plan, dated January 15, 2002 (the “January 2002
Retention Plan”) (incorporated by reference to
Exhibit 10.35 to the Report on Form 10-K for the
period ended December 31, 2001, filed by KAC, File
No. 1-9447). |
| |
10 |
.13 |
|
The Kaiser Aluminum & Chemical Corporation Key Employee
Retention Plan (effective September 3, 2002) (incorporated
by reference to Exhibit 10.26 to the Report on
Form 10-K for the period ended December 31, 2002,
filed by KAC, File No. 1-9447). |
| |
10 |
.14 |
|
Form of Retention Agreement for the Kaiser Aluminum &
Chemical Corporation Key Employee Retention Plan (effective
September 3, 2002) for John Barneson, Jack A. Hockema and
Edward F. Houff (incorporated by reference to Exhibit 10.27
to the Report on Form 10-K for the period ended
December 31, 2002, filed by KAC, File No. 1-9447). |
| |
10 |
.15 |
|
Form of Retention Agreement for the Kaiser Aluminum &
Chemical Corporation Key Employee Retention Plan (effective
September 3, 2002) for Certain Executive Officers including
Kerry A. Shiba and Daniel D. Maddox (incorporated by reference
to Exhibit 10.29 to the Report on Form 10-K for the
period ended December 31, 2002, filed by KAC, File
No. 1-9447). |
| |
10 |
.16 |
|
Kaiser Aluminum & Chemical Corporation Severance Plan
(effective September 3, 2002) (incorporated by reference to
Exhibit 10.30 to the Report on Form 10-K for the
period ended December 31, 2002, filed by KAC, File
No. 1-9447). |
136
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.17 |
|
Form of Severance Agreement for the Kaiser Aluminum &
Chemical Corporation Severance Plan (effective September 3,
2002) for John Barneson, Jack A. Hockema, Edward F. Houff, Kerry
A. Shiba and Daniel D. Maddox and Certain Other Executive
Officers (incorporated by reference to Exhibit 10.31 to the
Report on Form 10-K for the period ended December 31,
2002, filed by KAC, File No. 1-9447). |
| |
10 |
.18 |
|
Form of Kaiser Aluminum & Chemical Corporation Change
in Control Severance Agreement for John Barneson, Jack A.
Hockema and Edward F. Houff (incorporated by reference to
Exhibit 10.32 to the Report on Form 10-K for the
period ended December 31, 2002, filed by KAC, File
No. 1-9447). |
| |
10 |
.19 |
|
Form of Kaiser Aluminum & Chemical Corporation Change
in Control Severance Agreement for Kerry A. Shiba and Daniel D.
Maddox and Certain Other Executive Officers (incorporated by
reference to Exhibit 10.33 to the Report on Form 10-K
for the period ended December 31, 2002, filed by KAC, File
No. 1-9447). |
| |
*10 |
.20 |
|
Description of KACC Short-Term Incentive Plan. |
| |
*10 |
.21 |
|
Description of KACC Long-Term Incentive Plan. |
| |
10 |
.22 |
|
Settlement and Release Agreement dated October 5, 2004 by
and among the Debtors and the Creditors’ Committee
(incorporated by reference to Exhibit 10.2 to the Report on
Form 10-Q for the period ended September 30, 2004,
filed by KAC, File No. 1-9447). |
| |
*10 |
.23 |
|
Amendment, dated as of January 27, 2005, to Settlement and
Release Agreement dated as of October 5, 2004, by and among
the Debtors and the Creditors’ Committee. |
| |
10 |
.24 |
|
Settlement Agreement dated October 14, 2004, between KACC
and the Pension Benefit Guaranty Corporation (incorporated by
reference to Exhibit 10.3 to the Report on Form 10-Q
for the period ended September 30, 2004, filed by KAC, File
No. 1-9447). |
| |
*21 |
|
|
Significant Subsidiaries of KAC. |
| |
*23 |
.1 |
|
Consent of Independent Registered Public Accounting Firm. |
| |
*23 |
.2 |
|
Consent of Wharton Levin Ehrmantraut & Klein, P.A. |
| |
*23 |
.3 |
|
Consent of Heller Ehrman White & McAuliffe LLP. |
| |
*31 |
.1 |
|
Certification of Jack A. Hockema pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
| |
*31 |
.2 |
|
Certification of Kerry A. Shiba pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
| |
*32 |
.1 |
|
Confirmation of Jack A. Hockema pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
| |
*32 |
.2 |
|
Confirmation of Kerry A. Shiba pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
| |
*99 |
.1 |
|
Third Amended Joint Plan of Liquidation for Alpart Jamaica Inc.
and Kaiser Jamaica Corporation, dated February 25, 2005. |
| |
*99 |
.2 |
|
Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code with Respect to the Third Amended Joint Plan of
Liquidation for Alpart Jamaica Inc. and Kaiser Jamaica
Corporation, dated February 28, 2005. |
| |
*99 |
.3 |
|
Third Amended Joint Plan of Liquidation for Kaiser Alumina
Australia Corporation and Kaiser Finance Corporation, dated
February 25, 2005. |
| |
*99 |
.4 |
|
Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code with respect to the Third Amended Joint Plan of
Liquidation for Kaiser Alumina Australia Corporation and Kaiser
Finance Corporation, dated February 28, 2005. |
137
Exhibit 21
SUBSIDIARIES
Listed below are the principal subsidiaries and affiliates of
Kaiser Aluminum Corporation, the jurisdiction of their
incorporation or organization, and the names under which such
subsidiaries do business. The Company’s ownership is
indicated for less than wholly owned affiliates. Certain
subsidiaries are omitted which, considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary.
| |
|
|
|
|
| |
|
Place of | |
| |
|
Incorporation or | |
| Name |
|
Organization | |
| |
|
| |
|
Continuing entities —
|
|
|
|
|
|
Anglesey Aluminium Limited (49%)
|
|
|
United Kingdom |
|
|
Kaiser Aluminium International, Inc.(1)
|
|
|
Delaware |
|
|
Kaiser Aluminum & Chemical Corporation(1)(2)
|
|
|
Delaware |
|
|
Kaiser Aluminum & Chemical of Canada Limited(1)
|
|
|
Ontario |
|
|
Kaiser Bellwood Corporation(1)
|
|
|
Delaware |
|
|
Liquidating entities —
|
|
|
|
|
|
Alpart Jamaica Inc.(1)(2)(3)
|
|
|
Delaware |
|
|
Kaiser Jamaica Corporation(1)(2)(3)
|
|
|
Delaware |
|
|
Kaiser Alumina Australia Corporation(1)(2)(3)
|
|
|
Delaware |
|
|
Kaiser Finance Corporation(1)(2)(3)
|
|
|
Delaware |
|
|
|
| (1) |
Filed a voluntary petition for reorganization under the Code. |
| |
| (2) |
Entities that have been materially affected as a result of the
commodity asset sales, as discussed more fully in Note 1
and 5 of Notes to Consolidated Financial Statements. |
| |
| (3) |
Entities are being liquidated as more fully discussed in
Note 1 of Notes to Consolidated Financial Statements. |
138