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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 1-3605
KAISER ALUMINUM & CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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94-0928288 |
(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)
Registrants telephone number, including area code:
(949) 614-1740
Securities registered pursuant to Section 12(b) of the
Act:
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Name of each exchange | |
Title of each class |
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on which registered | |
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Cumulative Convertible Preference Stock
(par value $100)
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41/8%
Series
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None |
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43/4%
(1957 Series)
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None |
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43/4%
(1959 Series)
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None |
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43/4%
(1966 Series)
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None |
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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
registrants 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 February 29, 2005, there were 46,171,365 shares of
the common stock of the registrant outstanding, all of which
were owned by Kaiser Aluminum Corporation, the parent
corporation of the registrant.
Documents Incorporated By Reference
None
NOTE
Kaiser Aluminum & Chemical Corporations 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 129-134 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 & Chemical Corporation
27422 Portola Parkway, Suite 350
Foothill Ranch, California 92610-2831
(949) 614-1740
(i)
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES
(Debtor-in-Possession)
TABLE OF CONTENTS
(ii)
KAISER ALUMINUM & CHEMICAL 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. Managements
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 managements 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 & Chemical Corporation (the
Company) is a Delaware corporation organized in
1940. The Company is a wholly owned subsidiary of Kaiser
Aluminum Corporation (Kaiser or KAC).
The Companys 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. The Company,
Kaiser and certain of the Companys 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, Kaiser and the
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, the Company 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
Companys 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, the Company 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. The Companys 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. The Companys participation is
focused generally in specialty niches of these larger product
categories. Over the last three years, the Companys eleven
North American
1
fabricated products manufacturing facilities have produced and
shipped approximately 400 million pounds of fabricated
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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Location |
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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 |
Greenwood, South Carolina
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Forging |
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Auto |
Jackson, Tennessee
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Extrusion/Drawing |
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Aero/HS, GE |
London, Ontario
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Extrusion |
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Auto, CI |
Los Angeles, California
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Extrusion |
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GE, CI |
Newark, Ohio
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Extrusion/Rod Rolling |
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Aero/HS, GE, Conversion products(1) |
Richland, Washington
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Extrusion |
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Aero/HS, GE |
Richmond, Virginia
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Extrusion/Drawing |
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GE, Auto, CI |
Sherman, Texas
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Extrusion |
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Auto, CI |
Spokane, Washington
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Flat Rolling |
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Aero/HS, GE |
Tulsa, Oklahoma
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Extrusion |
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GE |
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(1) |
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, the Company
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 units 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
Companys 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
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ingot prices but can require additional processing. In addition
to producing fabricated aluminum products for 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 Companys 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. The
Company 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, the Company 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 the
Companys 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
units 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 Company 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 the
Company chooses not to participate. Rather, the Company 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
materials 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, the
Company 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. The Companys participation
is highly focused on certain types of automotive applications.
All of the Companys fixed assets utilized by the
Fabricated products business unit are owned directly by the
Company 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 the Companys 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 the Company, filed a petition for
reorganization in February 2002. The Company does not believe
that KACOCLs or Bellwoods 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
Companys interests in and related to Anglesey Aluminium
Limited (Anglesey), and (b) primary aluminum
hedging-related activities.
Anglesey. The Company 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. The Company supplies 49% of Angleseys alumina
requirements and purchases 49% of Angleseys aluminum
output at market related prices. Anglesey produces billet,
rolling ingot and sow for the U.K. and European marketplace. The
Company sells its share of Angleseys output to third
4
parties. The price received for sales of production from
Anglesey typically approximate the LME price. The Company
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. The Company
does not believe Angleseys 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. The Companys share of primary aluminum
production from Anglesey is approximately
150,000,000 pounds annually. Because the Company purchases
alumina for Anglesey at prices linked to primary aluminum
prices, only a portion of the Companys 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 Companys 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 customers 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 Companys 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 the Companys 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 Companys board of
directors, and hedging transactions are only entered into after
appropriate approvals are obtained from the Companys
hedging committee (which includes the Companys chief
executive officer and chief financial officer).
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Discontinued Operations |
Prior to 2004, the Company was a major producer of primary
aluminum and sold significant amounts of its alumina and primary
aluminum production in domestic and international markets. The
Companys 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. The Company 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 the Company. The Companys share of the primary aluminum
was sold to third parties. Valcos 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 the
Company from land that was subject to a mining lease from the
Government of Jamaica. The Company held its interest in KJBC
through a wholly owned subsidiary, Kaiser Bauxite Company
(KBC), which was one of the Companys
subsidiaries that filed a petition for reorganization under the
Code in January 2003. KJBC did not file a petition for
reorganization. Although the Company (through KBC) owned 49% of
KJBC, it was entitled to, and generally took, all of KJBCs
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. The Company owned a
65% interest in Alpart. The Company held its interests in
Alpart through two wholly owned subsidiaries, Kaiser Jamaica
Corporation (KJC) and Alpart Jamaica Inc.
(AJI), which were two of the Companys 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. The Company owns a
20% interest in QAL. The Company holds its interest in QAL
through a wholly owned subsidiary, Kaiser Alumina Australia
Corporation (KAAC), which is one of the
Companys 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, the Company has sold
its share of QALs production to third parties.
Commodities Marketing. Given the significance of the
Companys 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 Companys
interests in Anglesey and any firm price fabricated product
shipments are considered part of the Primary aluminum
business unit.
6
Competition
The Company 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. The Company 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, the
Company competes with numerous domestic and international
fabricators in the sale of fabricated aluminum products. Many of
the Companys competitors have greater financial resources
than the Company.
Research and Development
Expenditures for the Fabricated products business units
research and development activities were $1.7 million in
2004, $1.6 million in 2003, and $1.4 million in 2002.
The Company 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, the Company 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, the
Company 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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Contract | |
Location |
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Union |
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Expiration Date | |
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Chandler, AZ
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Non-union |
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NA |
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Greenwood, SC
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Non-union |
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NA |
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Jackson, TN
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Non-union |
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NA |
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London, Ontario
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USW Canada |
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Feb 2006 |
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Los Angeles, CA
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Teamsters |
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Sept 2006 |
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Newark, OH
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USWA |
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Sept 2005 |
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Richland, WA
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Non-union |
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NA |
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Richmond, VA
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USWA IAM |
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Oct 2004(1) |
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Sherman, TX
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|
IAM |
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Dec 2007 |
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Spokane, WA
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USWA |
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Sept 2005 |
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Tulsa, OK
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USWA |
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Jul 2005 |
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(1) |
Contract extended until 30 days after emergence |
Environmental Matters
The Company and its 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
7
purchase and recycle aluminum scrap in various forms, and
purchase primary metal from third 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 Companys environmental staff.
The Company has also maintained PCB and asbestos removal
programs for several years.
The Company has previously disclosed that, during April 2004,
the Company 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 the
Companys Trentwood facility in Spokane, Washington. The
Company is undertaking its own internal investigation of the
matter through specially retained counsel to ensure that it has
all relevant facts regarding Trentwoods compliance with
applicable environmental laws. The Company 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
Companys or Kaisers financial statements.
For additional discussion of this subject, see Factors
Affecting Future Performance. The Companys 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, Kaiser and 24 of the Companys 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 the Company and Kaiser, 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 Companys existing
cash management systems. The Debtors also have the right to
assume or reject executory contracts existing prior to the Filing
8
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.
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
creditors 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
(theSilica/ 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.
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|
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 the Companys
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 the Company 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):
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|
|
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 the Companys
123/4% Senior
Subordinated Notes (the Sub Notes) if, and only if,
the holders of both (a) the Companys
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 the Companys
97/8%
Senior Notes has made a similar assertion, but at the same time,
maintains that a portion of the Companys
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 Companys 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 the Companys
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
10
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 the Company. 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
Companys 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 the Company 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 the Company 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 the Company related to: (a) the
Companys 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 Companys interests in and related to QAL from
July 1, 2004 through KAACs 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 the
Companys activities related to the sale of AJIs,
KJCs and KAACs 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 the Companys sale
of its interests in Alpart. As provided under the Intercompany
Agreement, the Company 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 the Company at the earlier of the
time of the closing of the sale of the Companys 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 Company 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 the Company, 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 Companys 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, Kaiser 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 entitys 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 the
Companys 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
PBGCs 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 the Company,
(iii) 100% of the equity in a Company subsidiary whose sole
asset will be a piece of real property that produces modest
rental income, and (iv) a portion of the emerging
entitys equity in proportion to approximately
$830.0 million of intercompany claims of KFC against the
Company 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 |
12
|
|
|
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 the Company that will be a
part of the consideration in the Liquidating Trusts. |
At emergence from Chapter 11, the Company 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). The Company currently estimates that its Exit
Costs will be in the range of $60.0 million to
$80.0 million. The Company 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 Kaiser 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 Companys 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.
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|
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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 debtors 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
13
the factors identified below, actual results may vary materially
from those in such forward-looking statements as a result of a
variety of other factors including the effectiveness of
managements 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 Companys 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, the Company 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). The Company currently estimates that its Exit
Costs will be in the range of $60.0 million to
$80.0 million. The Company 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 Kaiser 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 Companys 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
14
(LIFO) inventory charges of $12.1 million,
$3.2 million and $3.5 million, respectively. The
improved 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.
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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
Companys 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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The Companys 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 the Companys 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, the
Companys environmental capital spending will be
approximately $1.0 million per year and that the
Companys operating costs will include pollution control
costs totaling approximately $3.1 million per year.
However, subsequent changes in environmental laws may change the
way the Company must operate and may force the Company to spend
more than we currently project.
Additionally, the Companys 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. The Company 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 the Company.
Currently, the Company 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). The Company,
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, the Company 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.
15
In response to environmental concerns, we have established
environmental accruals representing our estimate of the costs we
reasonably expect the Company to incur in connection with these
matters. At December 31, 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 the Companys 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, the Company 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 the Companys Trentwood facility in
Spokane,Washington. The Company is undertaking its own internal
investigation of the matter through specially retained counsel
to ensure that it has all relevant facts regarding
Trentwoods compliance with applicable environmental laws.
The Company 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 Companys or
Kaisers 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 |
The Company 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 the Company, or
exposure to products containing asbestos produced or sold by the
Company. The lawsuits generally relate to products the Company
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 Kaiser.
Our December 31, 2004 balance sheet includes a liability
for estimated asbestos-related costs of $1,115.0 million,
which represents the Companys estimate of the minimum end
of a range of costs. The upper end of the Companys
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
Companys estimated range, by perhaps a material amount. As
a part of any plan of reorganization for the Company and Kaiser,
it is likely that an estimation of the Companys 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 the
Companys asbestos-related liability resulting from either
process could exceed, perhaps significantly, the liability
amounts reflected in the Companys consolidated financial
statements. The Companys 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 the Companys
asbestos-related liabilities or estimated insurance recoveries
could have a material impact on the Companys future
financial statements.
We believe the Company 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 the
Companys insurance carriers will depend on the pendency of
the Cases and on the resolution of disputes regarding
16
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 probable future asbestos-related
payments, the receipt of timely and appropriate payments from
the Companys insurers is critical to a successful plan of
reorganization.
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Our profits and cash flows may be adversely impacted by
the results of the Companys hedging programs |
From time to time in the ordinary course of business, the
Company 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.
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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.
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The Company is subject to political and regulatory
risks in a number of countries |
The Company facilities operate in the United States, Canada, and
the United Kingdom. While we believe the Companys
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 the
Companys operations particularly or our industry
generally. Among the risks inherent in the Companys
operations are unexpected changes in regulatory requirements,
unfavorable legal rulings, new or increased taxes and levies,
and new or increased import or export restrictions. The
Companys 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 Companys
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 the
Companys operations are described in Item 1
Business Business Operations and those
descriptions are incorporated herein by reference. The Company
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 the Companys fabricated aluminum
production facilities are owned by the Company and/or its
subsidiaries. The Chandler, Arizona location is subject to a
lease with a primary lease term that expires in 2033. The
Company 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 the Company. The Los Angeles location is subject to a
lease with a 2009 expiration date, subject to certain extension
rights held by the Company.
In connection with the ongoing reorganization efforts and sale
of substantially all of the Companys 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.
17
The Companys obligations under the DIP Facility are
secured by, among other things, liens on the Companys
domestic plants. See Note 7 of Notes to Consolidated
Financial Statements for further discussion.
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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, the Company 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 the Companys Trentwood facility in the State of
Washington. The Company is undertaking its own internal
investigation of the matter through specially retained counsel
to ensure that it has all relevant facts regarding
Trentwoods compliance with applicable environmental laws.
The Company 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 Companys or Kaisers financial
statements.
Asbestos and Certain Other Personal Injury Claims
The Company 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 the Company
or exposure to products containing asbestos produced or sold by
the Company. The lawsuits generally relate to products the
Company 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 the
Company, certain allegations of Unfair Labor Practices
(ULPs) were filed by the USWA with the
18
National Labor Relations Board (NLRB). As previously
disclosed, the Company 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, the Company 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 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 the Company 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 Companys 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 the
Company. 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 Companys 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
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Item 5. |
Market for Registrants Common Equity and Related
Stockholder Matters |
There is no established public market for the Companys
Common Stock, which is held solely by Kaiser. 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
Kaisers non-qualified stock option plans, which are
Kaisers only stock option plans, have been approved by
Kaisers 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 Kaisers 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 Managements 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 Managements
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 108-109 in this Report.
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Item 7. |
Managements 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 managements
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, Kaiser and 24 of the
Companys 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 the Company and Kaiser, 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 the Companys
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
$46.0 million), and payments to the Company under the
Intercompany Settlement Agreement (Intercompany
Agreement) (see discussion below) the Liquidating
Subsidiaries anticipate ultimately distributing available cash
to the following claimholders in the following amounts (in
millions):
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Senior Notes and Senior Subordinated Notes
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$ |
390.7 to $421.8 |
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PBGC
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$ |
187.6 to $198.5 |
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State of Louisiana Solid Waste Revenue Bonds
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$ |
0.0 to $8.0 |
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Under the Liquidating Plans as filed with the Court,
$16.0 million of payments are to be made for the benefit of
holders of the Companys
123/4% Senior
Subordinated Notes (the Sub Notes) if, and only if,
the holders of both (a) the Companys
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
21
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 the Companys
97/8% Senior
Notes has made a similar assertion, but at the same time
maintains that a portion of the Companys
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 Companys 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 the
Companys
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 the Company. 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
Companys 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 the Company 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 the Company 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 the Company related to: (a) the
Companys 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 Companys interests in and related to QAL from
July 1, 2004 through KAACs 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 the
Companys activities related to the sale of AJIs,
KJCs and KAACs respective interests in and related
to Alpart and QAL and (2) any purchase price adjustments
(other than incremental amounts
22
related to alumina sales contracts to be transferred) pursuant
to the Companys sale of its interests in Alpart. As
provided under the Intercompany Agreement, the Company 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
the Company at the earlier of the time of the closing of the
sale of the Companys 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 Company 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 the Company, 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 Companys 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, Kaiser and other Debtors necessary to ongoing
operations will reflect the following principle elements:
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(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); |
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(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 entitys 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
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remaining Debtors in the form of newly issued equity in the
emerging entity. Residual value in this context means the
Companys 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
PBGCs claim against KACOCL; |
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(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 the Company,
(iii) 100% of the equity in a Company subsidiary whose sole
asset will be a piece of real property that produces modest
rental income, and (iv) a portion of the emerging
entitys equity in proportion to approximately
$830.0 million of intercompany claims of KFC against the
Company that are to be assigned to the trust (which will be
satisfied out of the 25% of equity referred to in (d )
below); and |
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(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 the Company that will be a
part of the consideration in the Liquidating Trusts. |
At emergence from Chapter 11, the Company 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). The Company currently estimates that its Exit
Costs will be in the range of $60.0 million to
$80.0 million. The Company 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 Kaiser 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 Companys 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 Companys 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 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 Companys reorganization
efforts, the Company is selling or has sold substantially all of
its commodities operations other than Anglesey. The
balances and results of
24
operations in respect of the commodities interests sold or being
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
Companys interests in and related to Anglesey and the
Companys 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
Companys 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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| |
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2004 | |
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2003 | |
|
2002 | |
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| |
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| |
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| |
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(In millions of dollars, | |
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except shipments and prices) | |
Shipments (mm lbs):
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|
|
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Fabricated Products
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458.6 |
|
|
|
372.3 |
|
|
|
376.3 |
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Primary Aluminum
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|
156.6 |
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|
|
158.7 |
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|
|
155.8 |
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|
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|
615.2 |
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531.0 |
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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
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$ |
809.3 |
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$ |
597.8 |
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$ |
608.6 |
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Primary Aluminum
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133.1 |
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112.4 |
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100.4 |
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Total Net Sales
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$ |
942.4 |
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$ |
710.2 |
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$ |
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 |
) |
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$ |
(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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(71.1 |
) |
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(74.5 |
) |
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(98.8 |
) |
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Other Operating (Charges) Benefits, Net(5)
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(793.2 |
) |
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(141.6 |
) |
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(31.8 |
) |
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Total Operating Income (Loss)
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$ |
(817.4 |
) |
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$ |
(230.6 |
) |
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$ |
(145.0 |
) |
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Discontinued Operations
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$ |
121.3 |
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$ |
(514.7 |
) |
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$ |
(266.0 |
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Net Loss
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$ |
(746.6 |
) |
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$ |
(788.1 |
) |
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$ |
(468.4 |
) |
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Capital Expenditures (excluding discontinued operations)
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$ |
7.6 |
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$ |
8.9 |
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$ |
10.9 |
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(1) |
Average realized prices for the Companys 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. |
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(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. |
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(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 Companys earnings by impacting the overall volume and
mix of such products sold.
Changes in primary aluminum prices also affect the
Companys 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 Companys
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 Companys 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 Kaiser 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,
Kaiser and certain subsidiaries of the Company 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 the Companys option.
Disposition of Commodity-Related Assets. In connection
with the previously disclosed plan to explore and, if
appropriate, dispose of the Companys 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 Companys interests in and related to QAL is
expected to close in April 2005. Completion of these
transactions represents a significant step towards the
Companys 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. |
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Significant charges related to the termination of certain of the
Companys 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. |
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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, it 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 the Companys Trentwood facility in
Spokane, Washington. The Company is undertaking its own internal
investigation of the matter through specially retained counsel
to ensure that it has all relevant facts regarding
Trentwoods compliance with applicable environmental laws.
The Company 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 Companys or
Kaisers financial statements.
Results of Operations
Summary. The Company reported a net loss of
$746.6 million in 2004, compared to a net loss of
$788.1 million for 2003 and a net loss of
$468.4 million for 2002.
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 Companys fabricated aluminum products, especially
aluminum plate for the general engineering market as well as
extrusions and forgings for the automotive market. Demand for
the Companys 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.
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
27
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 Companys 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 Companys 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 Companys salaried employees
pension plan ($2.5 million). The increase in retiree
related expenses in 2004 from 2003 reflects managements
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 Companys
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).
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 Companys
interests in and related
28
to these interests (except for the gain on the sale of the
Companys 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 Companys
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 Companys 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 Companys 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).
Corporate and Other. Corporate operating expenses
represent corporate general and administrative expenses which
are not allocated to the Companys 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
29
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 Companys 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 Companys 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 Valcos 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 Companys 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 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.
30
Corporate and other operating activities (including all of the
Companys 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 Companys business plans, price outlook
for metal and other products, its 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 Kaiser 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,
Kaiser and certain subsidiaries of the Company 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 the Companys option.
The DIP Facility is secured by substantially all of the assets
of the Company, Kaiser and the Companys 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 the
Company and all of the Companys material domestic
subsidiaries other than AJI, KJC, KAAC, and KFC.
31
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 Companys,
Kaisers and the Companys 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 Kaiser 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
Companys 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 Companys 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 currently believes 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 is 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 Companys evaluation of these and other
environmental matters, the Company has established environmental
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, it
was served with a subpoena for documents and has been notified
by Federal authorities that they are investigating certain
environmental
32
compliance issues with respect to the Companys Trentwood
facility in the State of Washington. The Company is undertaking
its own internal investigation of the matter through specially
retained counsel to ensure that it has all relevant facts
regarding Trentwoods compliance with applicable
environmental laws. The Company 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 Companys
or Kaisers financial statements.
The Company 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 the
Company, or exposure to products containing asbestos produced or
sold by the Company. The lawsuits generally relate to products
the Company 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, 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 the Company 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 Companys emergence from
the Cases.
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 Companys 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.
33
Critical Accounting Policies
Critical accounting policies are those that are both very
important to the portrayal of the Companys financial
condition and results, and require managements 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 Companys 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 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 Companys best long-term interests, such
rejection may increase the amount of pre-Filing Date claims by
approximately $75.0 million based on the BPAs 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. |
34
While valuation of the Companys 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 Companys 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 debtors 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 Companys 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
Companys 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.
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 Americas
(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 Companys and Kaisers 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
35
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 Companys consolidated financial
statements at December 31, 2004.
Also, as more fully discussed in Note 11 of Notes to
Consolidated Financial Statements, the Company 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 the Company or by exposure to
products containing asbestos last produced or sold by the
Company 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 the
Company. It is difficult to predict the number of claims that
will ultimately be made against the Company 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 Companys
estimate of the minimum end of a range of costs. The upper end
of the Companys 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 Companys estimated range, by
perhaps a material amount. As a part of any plan of
reorganization it is likely that an estimation of the
Companys 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 the Companys asbestos-related liability
resulting from either process could exceed, perhaps
significantly, the liability amounts reflected in the
Companys consolidated financial statements.
We believe the Company 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 the
Companys 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 the Companys asbestos-related
liabilities or estimated insurance recoveries could have a
material impact on the Companys future financial
statements. However, under an agreed term sheet, all of the
Companys personal injuryrelated 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 Companys 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 Companys 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.
36
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
Companys 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 the Companys pension and
post-retirement benefit plans. The PBGC has assumed
responsibility for the three largest of the Companys
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 Companys remaining pension plans. In addition, as
previously disclosed, the Companys 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 operations. See Note 9 of Notes to Consolidated
Financial Statements regarding the Companys pension and
post-retirement obligations.
4. The Companys judgments and estimates in respect to
environmental commitments and contingencies.
The Company is 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. The Company 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.
37
Based on the Companys 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 Companys 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 Companys 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 the
Company 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 Companys significant
contractual obligations at December 31, 2004 (dollars in
millions):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in | |
|
|
|
|
| |
|
|
|
|
Less than | |
|
2-3 | |
|
4-5 | |
|
More than | |
Contractual Obligations |
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Long-term debt, including capital lease of $2.4(a)
|
|
$ |
4.0 |
|
|
$ |
1.2 |
|
|
$ |
1.2 |
|
|
$ |
|
|
|
$ |
1.6 |
|
Operating leases
|
|
|
6.8 |
|
|
|
2.1 |
|
|
|
3.0 |
|
|
|
1.4 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash contractual obligations
|
|
$ |
10.8 |
|
|
$ |
3.3 |
|
|
$ |
4.2 |
|
|
$ |
1.4 |
|
|
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Companys
off-balance sheet arrangements.
The Company 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. The Company
sells its share of QALs production to third parties. The
shareholders, including the Company, purchased bauxite from
another QAL shareholder under long-term purchase contracts.
These tolling and purchase contracts are scheduled to expire in
2008. Under the agreements, the Company is unconditionally
obligated to pay its proportional share of debt, operating costs
and certain other costs of QAL. The Companys 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. The Companys share
of QALs scheduled debt principal repayment in July 2003
was funded with additional QAL borrowings. The Companys
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
Companys sale of its interests in and related to QAL is
expected to close in April 2005. As a result, the Companys
obligations in respect of its share of the QAL debt
38
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), the Company 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, the Company will institute a defined
contribution pension plan for active USWA employees. The Company
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 Companys 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 Companys current postretirement
benefit plans, the Company agreed to contribute certain amounts
to one or more VEBAs. Such contributions are to include:
|
|
|
|
|
An amount not to exceed $36.0 million and payable on
emergence from the Chapter 11 proceedings so long as the
Companys 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 Companys 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 Companys liquidity to be less
than $50.0 million. |
|
|
|
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 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 Companys obligations in respect of approximately
$60.0 million of QAL debt. The vast majority of the value
realized in respect of the Companys 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, the Company 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
39
claims, secured claims, and certain post-petition obligations
(collectively, Exit Costs). The Company currently
estimates that its Exit Costs will be in the range of
$60.0 million to $80.0 million. The Company 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 Companys 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, the Company 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 the Companys exposure to changes
in foreign currency exchange rates. However, because the
agreements underlying the Companys hedging positions
provided that the counterparties to the hedging contracts could
liquidate the Companys hedging positions if the Company
filed for reorganization, the Company chose to liquidate these
positions in advance of the initial Filing Date. The Company 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. The Companys share of primary
aluminum production from Anglesey is approximately 150,000,000
pounds annually. Because the Company purchases alumina for
Anglesey at prices linked to primary aluminum prices, only a
portion of the Companys 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 Companys 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 customers 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 Companys 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 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. The Company 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 Companys commodity
interests, the Companys 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 Companys annual pre-tax operating income.
40
Item
8. Financial
Statements and Supplementary Data
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
42 |
|
Consolidated Balance Sheets
|
|
|
43 |
|
Statements of Consolidated Income (Loss)
|
|
|
44 |
|
Statements of Consolidated Stockholders Equity (Deficit)
and Comprehensive Income (Loss)
|
|
|
45 |
|
Statements of Consolidated Cash Flows
|
|
|
46 |
|
Notes to Consolidated Financial Statements
|
|
|
47 |
|
Quarterly Financial Data (Unaudited)
|
|
|
107 |
|
Five-Year Financial Data
|
|
|
108 |
|
41
KAISER ALUMINUM & CHEMICAL 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 & Chemical Corporation:
We have audited the accompanying consolidated balance sheets of
Kaiser Aluminum & Chemical 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 Companys 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 Companys 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 & Chemical 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, Kaiser Aluminum
Corporation, its parent company, and certain of the
Companys 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
Companys ability to continue as a going concern.
Managements 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
42
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In millions of dollars, | |
|
|
except share amounts) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
55.4 |
|
|
$ |
35.5 |
|
|
|
Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
Trade, less allowance for doubtful receivables of $6.9 and $6.4
|
|
|
97.4 |
|
|
|
61.4 |
|
|
|
|
Due from affiliate
|
|
|
8.0 |
|
|
|
12.8 |
|
|
|
|
Other
|
|
|
10.9 |
|
|
|
11.5 |
|
|
|
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
|
|
|
327.2 |
|
|
|
431.2 |
|
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
|
|
$ |
1,887.7 |
|
|
$ |
1,628.7 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
Liabilities not subject to compromise
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
50.2 |
|
|
$ |
34.7 |
|
|
|
|
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
|
|
|
73.8 |
|
|
|
29.7 |
|
|
|
|
Payable to affiliate
|
|
|
14.6 |
|
|
|
11.4 |
|
|
|
|
Long-term debt current portion
|
|
|
1.2 |
|
|
|
1.3 |
|
|
|
|
Discontinued operations current liabilities
|
|
|
57.7 |
|
|
|
177.5 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
247.3 |
|
|
|
319.5 |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
309.4 |
|
|
|
589.8 |
|
Liabilities subject to compromise
|
|
|
3,954.9 |
|
|
|
2,770.1 |
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
Preference stock Cumulative and Convertible, par
value $100, authorized 1,000,000 shares, issued and outstanding
8,669 shares
|
|
|
.7 |
|
|
|
.7 |
|
|
|
Common stock, par value
$.331/3
cents, authorized 1,000,000 shares; issued and outstanding
46,171,365 shares
|
|
|
15.4 |
|
|
|
15.4 |
|
|
|
Additional capital
|
|
|
2,452.8 |
|
|
|
2,454.0 |
|
|
|
Accumulated deficit
|
|
|
(2,648.3 |
) |
|
|
(1,901.7 |
) |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(5.5 |
) |
|
|
(107.9 |
) |
|
|
Note receivable from parent
|
|
|
(2,191.7 |
) |
|
|
(2,191.7 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(2,376.6 |
) |
|
|
(1,731.2 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,887.7 |
|
|
$ |
1,628.7 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
43
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES
(Debtor-in-Possession)
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of dollars) | |
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
|
|
|
92.1 |
|
|
|
92.3 |
|
|
|
118.5 |
|
|
Other operating charges (benefits), net
|
|
|
793.2 |
|
|
|
141.6 |
|
|
|
31.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,759.8 |
|
|
|
940.8 |
|
|
|
854.0 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(817.4 |
) |
|
|
(230.6 |
) |
|
|
(145.0 |
) |
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
|
|
|
(861.7 |
) |
|
|
(271.9 |
) |
|
|
(198.2 |
) |
Provision for income taxes
|
|
|
(6.2 |
) |
|
|
(1.5 |
) |
|
|
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(867.9 |
) |
|
|
(273.4 |
) |
|
|
(202.4 |
) |
|
|
|
|
|
|
|
|
|
|
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
|
|
$ |
(746.6 |
) |
|
$ |
(788.1 |
) |
|
$ |
(468.4 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
44
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES
(Debtor-in-Possession)
STATEMENTS OF CONSOLIDATED STOCKHOLDERS EQUITY
(DEFICIT) AND
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Note | |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive | |
|
Receivable | |
|
|
|
|
Preference | |
|
Common | |
|
Additional | |
|
Accumulated | |
|
Income | |
|
From | |
|
|
|
|
Stock | |
|
Stock | |
|
Capital | |
|
Deficit | |
|
(Loss) | |
|
Parent | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions of dollars) | |
BALANCE December 31, 2001
|
|
$ |
.7 |
|
|
$ |
15.4 |
|
|
$ |
2,437.6 |
|
|
$ |
(645.2 |
) |
|
$ |
(67.3 |
) |
|
$ |
(2,175.2 |
) |
|
$ |
(434.0 |
) |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(468.4 |
) |
|
|
|
|
|
|
|
|
|
|
(468.4 |
) |
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(645.0 |
) |
|
Interest on note receivable to parent
|
|
|
|
|
|
|
|
|
|
|
16.5 |
|
|
|
|
|
|
|
|
|
|
|
(16.5 |
) |
|
|
|
|
|
Contributions for LTIP shares
|
|
|
|
|
|
|
|
|
|
|
.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2002
|
|
|
.7 |
|
|
|
15.4 |
|
|
|
2,454.8 |
|
|
|
(1,113.6 |
) |
|
|
(243.9 |
) |
|
|
(2,191.7 |
) |
|
|
(1,078.3 |
) |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(788.1 |
) |
|
|
|
|
|
|
|
|
|
|
(788.1 |
) |
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(652.1 |
) |
|
Restricted stock cancellations
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
|
Restricted stock accretion
|
|
|
|
|
|
|
|
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2003
|
|
|
.7 |
|
|
|
15.4 |
|
|
|
2,454.0 |
|
|
|
(1,901.7 |
) |
|
|
(107.9 |
) |
|
|
(2,191.7 |
) |
|
|
(1,731.2 |
) |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(746.6 |
) |
|
|
|
|
|
|
|
|
|
|
(746.6 |
) |
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(644.2 |
) |
|
Restricted stock cancellations
|
|
|
|
|
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2004
|
|
$ |
.7 |
|
|
$ |
15.4 |
|
|
$ |
2,452.8 |
|
|
$ |
(2,648.3 |
) |
|
$ |
(5.5 |
) |
|
$ |
(2,191.7 |
) |
|
$ |
(2,376.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
45
KAISER ALUMINUM & CHEMICAL 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
|
|
$ |
(746.6 |
) |
|
$ |
(788.1 |
) |
|
$ |
(468.4 |
) |
|
|
Less net income (loss) from discontinued operations
|
|
|
121.3 |
|
|
|
(514.7 |
) |
|
|
(266.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(867.9 |
) |
|
|
(273.4 |
) |
|
|
(202.4 |
) |
|
|
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
|
|
|
(30.7 |
) |
|
|
(13.5 |
) |
|
|
7.3 |
|
|
|
|
(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.
46
KAISER ALUMINUM & CHEMICAL 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 & Chemical Corporation
(the Company), its parent company, Kaiser Aluminum
Corporation (Kaiser or KAC), and 24 of
the Companys 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, Kaiser and 15 of the
Companys subsidiaries (the Original Debtors)
filed in the first quarter of 2002 and nine additional Company
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
the Companys 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 the Company 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 Companys
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 Companys 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
47
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
business, subject to certain limitations and to continue using
the Companys 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 creditors 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
48
KAISER ALUMINUM & CHEMICAL 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 the Companys
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 the Company 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:
|
|
|
|
|
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 the
Companys
123/4%
Senior Subordinated Notes (the Sub Notes) if, and
only if, the holders of both (a) the Companys
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 the Companys
97/8% Senior
Notes has made a similar assertion, but at the same time,
maintains that a portion of the Companys
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
Companys 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
49
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 the Companys
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 the Company. 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
Companys 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 the Company 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 the Company 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 the Company related to: (a) the Companys 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 Companys interests in and
related to QAL from July 1, 2004 through KAACs
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
the Companys activities related to the sale of AJIs,
KJCs and KAACs 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 the Companys sale
of its interests in Alpart. As provided under the Intercompany
Agreement, the Company 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 the Company at the earlier of the time of
the closing of the sale of the Companys 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 Company 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.
50
KAISER ALUMINUM & CHEMICAL 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 the Company, 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 Companys 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, Kaiser 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
entitys 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 the Companys 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 PBGCs 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 |
51
KAISER ALUMINUM & CHEMICAL 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 the Company, (iii) 100% of the
equity in a Company subsidiary whose sole asset will be a piece
of real property that produces modest rental income, and
(iv) a portion of the emerging entitys equity in
proportion to approximately $830.0 of intercompany claims of KFC
against the Company 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 the
Company that will be a part of the consideration in the
Liquidating Trusts. |
At emergence from Chapter 11, the Company 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). The Company currently estimates that its Exit
Costs will be in the range of $60.0 to $80.0. The Company
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 Kaiser 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 Companys 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 debtors 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
52
KAISER ALUMINUM & CHEMICAL 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
|
|
$ |
294.5 |
|
|
$ |
2.1 |
|
|
$ |
|
|
|
$ |
296.6 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,885.3 |
|
|
$ |
6.6 |
|
|
$ |
(4.2 |
) |
|
$ |
1,887.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities not subject to compromise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
188.4 |
|
|
$ |
3.2 |
|
|
$ |
(2.0 |
) |
|
$ |
189.6 |
|
|
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 |
|
Stockholders equity (deficit)
|
|
|
(2,376.6 |
) |
|
|
2.2 |
|
|
|
(2.2 |
) |
|
|
(2,376.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,885.3 |
|
|
$ |
6.6 |
|
|
$ |
(4.2 |
) |
|
$ |
1,887.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
KAISER ALUMINUM & CHEMICAL 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
|
|
$ |
234.6 |
|
|
$ |
2.9 |
|
|
$ |
|
|
|
$ |
237.5 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,393.1 |
|
|
$ |
579.5 |
|
|
$ |
(343.9 |
) |
|
$ |
1,628.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities not subject to compromise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
139.4 |
|
|
$ |
4.6 |
|
|
$ |
(2.0 |
) |
|
$ |
142.0 |
|
|
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 |
|
Stockholders equity (deficit)
|
|
|
(1,731.2 |
) |
|
|
357.5 |
|
|
|
(357.5 |
) |
|
|
(1,731.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,393.1 |
|
|
$ |
579.5 |
|
|
$ |
(343.9 |
) |
|
$ |
1,628.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Non-debtors discontinued operations amounts relate
primarily to Alpart and Valco. |
54
KAISER ALUMINUM & CHEMICAL 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
|
|
|
966.1 |
|
|
|
.5 |
|
|
|
|
|
|
|
966.6 |
|
|
Other operating charges (benefits), net
|
|
|
793.2 |
|
|
|
|
|
|
|
|
|
|
|
793.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,759.3 |
|
|
|
.5 |
|
|
|
|
|
|
|
1,759.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(816.9 |
) |
|
|
(.5 |
) |
|
|
|
|
|
|
(817.4 |
) |
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
|
|
|
(926.0 |
) |
|
|
.1 |
|
|
|
58.0 |
|
|
|
(867.9 |
) |
Discontinued operations
|
|
|
179.4 |
|
|
|
(58.1 |
) |
|
|
|
|
|
|
121.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(746.6 |
) |
|
$ |
(58.0 |
) |
|
$ |
58.0 |
|
|
$ |
(746.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
798.5 |
|
|
|
.7 |
|
|
|
|
|
|
|
799.2 |
|
|
Other operating charges (benefits), net
|
|
|
141.6 |
|
|
|
|
|
|
|
|
|
|
|
141.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
940.1 |
|
|
|
.7 |
|
|
|
|
|
|
|
940.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(229.9 |
) |
|
|
(.7 |
) |
|
|
|
|
|
|
(230.6 |
) |
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
|
|
|
(305.4 |
) |
|
|
(.4 |
) |
|
|
32.4 |
|
|
|
(273.4 |
) |
Discontinued operations
|
|
|
(482.7 |
) |
|
|
(32.0 |
) |
|
|
|
|
|
|
(514.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(788.1 |
) |
|
$ |
(32.4 |
) |
|
$ |
32.4 |
|
|
$ |
(788.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
55
KAISER ALUMINUM & CHEMICAL 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
|
|
|
821.7 |
|
|
|
.5 |
|
|
|
|
|
|
|
822.2 |
|
|
Other operating charges (benefits), net
|
|
|
31.8 |
|
|
|
|
|
|
|
|
|
|
|
31.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
853.5 |
|
|
|
.5 |
|
|
|
|
|
|
|
854.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(144.5 |
) |
|
|
(.5 |
) |
|
|
|
|
|
|
(145.0 |
) |
Interest expense
|
|
|
(19.0 |
) |
|
|
|
|
|
|
|
|
|
|
(19.0 |
) |
All other income (expense), net
|
|
|
(44.8 |
) |
|
|
.3 |
|
|
|
10.3 |
|
|
|
(34.2 |
) |
Income tax and minority interests
|
|
|
(4.0 |
) |
|
|
(.2 |
) |
|
|
|
|
|
|
(4.2 |
) |
Equity in income of subsidiaries
|
|
|
(2.5 |
) |
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(214.8 |
) |
|
|
(.4 |
) |
|
|
12.8 |
|
|
|
(202.4 |
) |
Discontinued operations
|
|
|
(253.6 |
) |
|
|
(12.4 |
) |
|
|
|
|
|
|
(266.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(468.4 |
) |
|
$ |
(12.8 |
) |
|
$ |
12.8 |
|
|
$ |
(468.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
56
KAISER ALUMINUM & CHEMICAL 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
KAISER ALUMINUM & CHEMICAL 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
KAISER ALUMINUM & CHEMICAL 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 Companys
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 Companys
stockholders will be cancelled without consideration.
59
KAISER ALUMINUM & CHEMICAL 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 |
|
|
|
|
|
|
|
|
|
|
|
60
KAISER ALUMINUM & CHEMICAL 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 wholly owned
subsidiary of Kaiser, which is a subsidiary of MAXXAM Inc.
(MAXXAM). The Company 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 Companys 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
Companys 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.
Cash and Cash Equivalents. The Company considers only
those short-term, highly liquid investments with original
maturities of 90 days or less to be cash equivalents.
Inventories. Substantially all product inventories are
stated at last-in, first-out (LIFO) cost, not in
excess of market value. Replacement cost is not in excess of
LIFO cost. Other inventories, principally operating supplies and
repair and maintenance parts, are stated at the lower of average
cost or market.
61
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 Companys 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.
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
62
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 the Companys exposure to changes in prices for
certain of the products which the Company sells and consumes
and, to a lesser extent, to mitigate the Companys exposure
to changes in foreign currency exchange rates. The Company does
not utilize derivative financial instruments for trading or
other speculative purposes. The Companys derivative
activities are initiated within guidelines established by
management and approved by the Companys board of
directors. Hedging transactions are executed centrally on behalf
of all of the Companys business segments to minimize
transaction costs, monitor consolidated net exposures and allow
for increased responsiveness to changes in market factors.
63
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 Companys 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 Companys 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 Companys cash flow
and earnings will be fixed to the extent hedged.
This result is contrary to the intent of the Companys
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 Companys
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
Companys 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 Companys 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 Companys financial statements.
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
64
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 Companys
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 Companys 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,
Alparts balances and results of operations were fully
consolidated into the Companys consolidated financial
statements. Accordingly, the amounts reflected below for Alpart
include the 35% interest in Alpart owned by Hydro Aluminium as.
(Hydro). Hydros share of the net investment in
Alpart is reflected as minority interest.
The balances and operating results associated with the
Companys 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 Companys 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 Companys Commodity Interests.
65
KAISER ALUMINUM & CHEMICAL 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 Companys
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 Companys
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, the Company 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, the Company
is unconditionally obligated to pay its proportional share (20%)
of debt, operating costs, and certain other costs of QAL. The
Companys share of the aggregate minimum amount of required
future principal payments as of December 31,
66
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
2004, was $60.0 which amount matures in varying amounts during
the 2005 to 2008 period. The Companys share of QALs
debt increased by approximately $8.0 during 2003 as additional
drawdowns on QAL financing (the Companys share $40.0) more
than offset the Companys share ($32.0) of QALs debt
principal payment. The Companys 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, the
Companys obligations in respect of its share of QALs
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 |
|
|
|
|
|
|
|
|
|
|
|
Companys equity in income
|
|
$ |
8.2 |
|
|
$ |
3.3 |
|
|
$ |
3.6 |
|
|
|
|
|
|
|
|
|
|
|
Dividends received
|
|
$ |
4.5 |
|
|
$ |
4.3 |
|
|
$ |
6.0 |
|
|
|
|
|
|
|
|
|
|
|
The Companys equity in income differs from the summary net
income due to equity method accounting adjustments.
At December 31, 2004 and 2003, the Companys net
receivables from Anglesey were $8.0 and $12.8, respectively.
67
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The Companys 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. The Company provided Anglesey with management
services during 2004, 2003 and 2002. Significant activities with
Anglesey include the 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 the Company to fund the prepayment of the
Companys 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 Companys 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 |
68
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
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, the Company adjusted
the carrying value of 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
Companys 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
Valcos 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 the Company
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 Companys 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 Companys 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 Companys
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 Companys alumina
and bauxite inventories, and subject to certain working capital
adjustments and the assumption of the Companys 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 Comalcos
parent companies |
69
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
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 Comalco
upon the sale of the Companys 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 Companys
interests in and related to QAL will be held in escrow for the
benefit of KAACs 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 Companys 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, the Company 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. |
|
|
|
The Company had a long-term liability, net of estimated
subleases income, on an office complex in Oakland, California,
in which the Company 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 assets 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. |
70
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
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),
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 Companys 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, the Company 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, the Company 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, the Company 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 Companys operating results for the
year ended December 31, 2002. |
71
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
In the ordinary course of business, the Company 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). |
|
|
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 Companys
initiatives to increase cash flow, generate cash and improve the
Companys 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
segments exit from the lid and tab stock and brazing sheet
product lines (see Note 2).
72
KAISER ALUMINUM & CHEMICAL 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 Kaiser 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,
Kaiser and certain subsidiaries of the Company 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 KACCs option.
The DIP Facility is secured by substantially all of the assets
of the Company, Kaiser and the Companys subsidiaries other
than certain amounts related to AJI, KJC, KAAC, and KFC whose
assets are, subject to
73
KAISER ALUMINUM & CHEMICAL 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 the Company and all of the
Companys 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 Companys,
Kaisers and the Companys 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 Kaiser 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
Companys 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 Companys 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
74
KAISER ALUMINUM & CHEMICAL 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). Alparts obligations under
the loan agreement were secured by two letters of credit
aggregating $23.5. The Company 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
Companys interests in and related to Alpart, which were
sold on July 1, 2004 (see Note 5). Upon such payment,
the Companys 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 the Company 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, the Companys ability to incur debt, undertake
transactions with affiliates, and pay dividends. Further, the
Indentures provide that the Company 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
|
|
$ |
(885.9 |
) |
|
$ |
(286.5 |
) |
|
$ |
(226.2 |
) |
Foreign
|
|
|
24.2 |
|
|
|
14.6 |
|
|
|
28.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(861.7 |
) |
|
$ |
(271.9 |
) |
|
$ |
(198.2 |
) |
|
|
|
|
|
|
|
|
|
|
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.
75
KAISER ALUMINUM & CHEMICAL 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
|
|
|
3.4 |
|
|
|
(1.1 |
) |
|
|
(.4 |
) |
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3.2 |
|
|
$ |
(6.7 |
) |
|
$ |
(.7 |
) |
|
$ |
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
(71.6 |
) |
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 |
) |
|
$ |
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
76
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Deferred Income Taxes. The components of the
Companys 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 Companys 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 Companys
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
77
KAISER ALUMINUM & CHEMICAL 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 Companys 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 Companys 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
Companys pension plans, which represented the vast
majority of the Companys net pension obligation including
the Companys 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 PBGCs
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
78
KAISER ALUMINUM & CHEMICAL 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
Companys 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 PBGCs cash recovery from
proceeds of the Companys 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 Companys Senior
Notes, Sub Notes and the PBGC.
The following recaps the key assumptions used and the amounts
reflected in the Companys financial statements with
respect to the Companys pension plans and other
postretirement benefit plans. In accordance with generally
accepted accounting principles, impacts of the changes in the
Companys 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 Companys 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.
79
KAISER ALUMINUM & CHEMICAL 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 Companys
postretirement medical benefit plans have been terminated as a
part of the Companys reorganization efforts. As such, the
Companys 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.
80
KAISER ALUMINUM & CHEMICAL 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 Companys pension and other postretirement
benefit plans as of December 31, 2004 and 2003, and the
corresponding amounts that are included in the Companys
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.
81
KAISER ALUMINUM & CHEMICAL 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
Companys Terminated Plans in December 2003 and the third
quarter of 2004. Upon termination, the assets and administration
were transferred to the
82
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
PBGC. The Companys 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 Companys 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),
the Company 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, the Company will
institute a defined contribution pension plan for active USWA
employees. The Company 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 Companys previous postretirement
benefit plans, the Company agreed to contribute certain amounts
to one or more VEBAs. 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 Companys
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 Companys 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 Companys
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.
83
KAISER ALUMINUM & CHEMICAL 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 Companys
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
Companys 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 Companys 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 the
Companys 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, the Company 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. Kaiser 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 Kaisers
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, Kaiser has a
nonqualified stock option plan and the Company 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
84
KAISER ALUMINUM & CHEMICAL 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 Companys 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 Kaisers 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 Companys 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 Companys 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.
Preference Stock. The Company 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%.
The Company has the option to redeem the $100 Preference Stock
at par value plus accrued dividends. The Company 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, the Company 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.
Note Receivable from Parent. The Note receivable from
parent bears interest at a fixed rate of
65/8%
and matures on December 21, 2020. Accrued interest is
accounted for as additional contribution to capital. However,
since the Note receivable from parent is unsecured, the accrual
of interest was discontinued as of the Filing Date. The payment
of the Note receivable from parent and accrued interest will be
resolved in connection with the Cases. Under the Intercompany
Agreement, the amounts outstanding under the Note receivable
from parent will be forgiven in 2005. See Note 1 for a
discussion of the Intercompany Agreement.
|
|
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
85
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
against a Debtor arising from actions or omissions prior to its
Filing Date will be settled in connection with a plan of
reorganization.
Commitments. The Company 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
Companys interests in and related to QAL, which are
expected to be sold in April 2005 (see Note 3). The Company
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 is 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. The Company 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 Companys 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, the Company 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 Companys
estimate of costs reasonably expected to be incurred based on
presently enacted laws and regulations, currently available
facts, existing technology, and the Companys 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.
86
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 the Companys environmental
exposure at a number of non-owned sites. Under this agreement,
among other things, the Company 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). 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 Company-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 it 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, the
Company 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 the
Companys Trentwood facility in the State of Washington.
The Company is undertaking its own internal investigation of the
matter through specially retained counsel to ensure that it has
all relevant facts regarding Trentwoods compliance with
applicable environmental laws. The Company believes it is in
compliance with all applicable environmental law and
requirements at the
87
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 Companys
or Kaisers financial statements.
Asbestos and Certain Other Personal Injury Claims. The
Company 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 the Company or as a
result of, employment or association with the Company. The
lawsuits generally relate to products the Company 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.
The following tables present historical information regarding
the Companys 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 the Company 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 the Companys 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
88
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
disclosed, such amount represented the Companys estimate
for current claims and claims expected to be filed over a
10 year period (the longest period the Company 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 Companys 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 the Companys entire
asbestos-related liability would occur; and that until such
process was complete or the Company had more information, the
Company 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 Companys
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
Companys 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 Companys
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, the Company 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, the Company 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.
89
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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, 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, the Company 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 the Company has no interest, but which
amounts will be available for the ultimate settlement of the
Companys 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 Kaiser 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 the Company 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
Companys 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
90
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 Companys emergence from the Cases.
Labor Matters. In connection with the United Steelworkers
of America (USWA) strike and subsequent lock-out by
the Company, 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, the Company responded to
all such allegations and believed that they were without merit.
Twenty-two of twenty-four allegations of ULPs previously brought
against the Company 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 the Company 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
judges 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, the Company 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 Courts 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 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
Companys consolidated financial position, results of
operations, or liquidity.
|
|
12. |
Derivative Financial Instruments and Related Hedging
Programs |
In conducting its business, the Company 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. The Company 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 the Companys
hedging activities are generally designed to lock-in a specified
price or range of prices, gains or losses on the derivative
contracts
91
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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.
The Companys share of primary aluminum production from
Anglesey is approximately 150,000,000 pounds annually. Because
the Company purchases alumina for Anglesey at prices linked to
primary aluminum prices, only a portion of the Companys
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 Companys 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 customers 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 Companys 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 the Companys 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 the
Companys hedging positions provided that the
counterparties to the hedging contracts could liquidate the
Companys hedging positions if the Company filed for
reorganization, the Company 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.
92
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
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 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, the Company signed an electric power
contract with the Bonneville Power Administration
(BPA) under which the BPA, starting October 1,
2001, was to provide the Companys operations in the State
of Washington with approximately 290 megawatts of power through
September 2006. The contract provided the Company with
sufficient power to fully operate the Companys Trentwood
facility, as well as approximately 40% of the combined capacity
of the Companys 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 Companys
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 BPAs claim in respect of the
contract rejection has not been determined, no provision has
been made for the claim in the accompanying financial
statements. The Company 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, the Company had a
transmission service agreement with the BPA under which the BPA
transmitted power to the Companys Mead, Tacoma and
Trentwood facilities. In
93
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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) the Company 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) the Company 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).
|
|
15. |
Segment and Geographical Area Information |
The Companys 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 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 Companys reorganization
efforts, the Company has completed the sale of substantially all
of its commodities operations (other than the Companys
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 Companys interests in and related
to Anglesey and the Companys primary aluminum
hedging-related activities.
The Companys 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 the Companys 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 Companys 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 Companys interests in Anglesey and any firm
price fabricated product shipments are considered part of the
Primary aluminum business unit.
94
KAISER ALUMINUM & CHEMICAL 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)
|
|
|
(71.1 |
) |
|
|
(74.5 |
) |
|
|
(98.8 |
) |
|
Other Operating (Charges) Benefits, Net Note 6
|
|
|
(793.2 |
) |
|
|
(141.6 |
) |
|
|
(31.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(817.4 |
) |
|
$ |
(230.6 |
) |
|
$ |
(145.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
95
KAISER ALUMINUM & CHEMICAL 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
|
|
|
1,292.7 |
|
|
|
495.2 |
|
|
Discontinued operations
|
|
|
69.5 |
|
|
|
627.5 |
|
|
|
|
|
|
|
|
|
|
$ |
1,887.7 |
|
|
$ |
1,628.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
96
KAISER ALUMINUM & CHEMICAL 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.
|
|
16. |
Supplemental Guarantor Information |
KAAC, KFC, KJC, AJI, Bellwood and Kaiser Micromill Holding, LLC,
Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings,
LLC, and Kaiser Texas Sierra Micromills, LLC (collectively
referred to as the Micromill Subsidiaries) are
domestic wholly-owned (direct or indirect) subsidiaries of the
Company that have provided, joint and several, guarantees of the
97/8%
Notes, the
107/8%
Notes and the
123/4%
Notes
97
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(the Notes) (see Note 7). Such guarantees are
full and unconditional. KJC and AJI and KACC are direct
subsidiaries, which serve as holding companies for the
Companys investments in Alpart, which was sold in July
2004, and QAL, which sale is expected to close in April 2005,
respectively. KFC is a wholly-owned subsidiary of KAAC, whose
principal business is making loans to the Company and its
subsidiaries. Bellwood is a wholly-owned subsidiary that holds
the Companys interests in an extrusion plant located in
Richmond, Virginia. The Micromill Subsidiaries are domestic
wholly-owned (direct or indirect) subsidiaries of the Company
which were formed to hold (directly or indirectly) certain of
the Companys interests in the Micromill facilities and
related projects, if any. Since the Company sold the Micromill
assets in early 2000, the Micromill Subsidiaries only
asset is an interest in future payments based on subsequent
performance and profitability of the Micromill technology. KAAC,
KFC, KJC, AJI, Bellwood, KTC and the Micromill Subsidiaries are
hereinafter collectively referred to as the Subsidiary
Guarantors. All of the Subsidiary Guarantors have filed
voluntary petitions for reorganization (see Note 1).
The accompanying financial information presents consolidating
balance sheets, statements of income (loss) and statements
of cash flows showing separately the Company, Subsidiary
Guarantors, other subsidiaries and eliminating entries.
98
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | |
|
Other | |
|
Eliminating | |
|
|
|
|
Company | |
|
Guarantors | |
|
Subsidiaries | |
|
Entries | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS |
Current assets
|
|
$ |
234.7 |
|
|
$ |
18.8 |
|
|
$ |
43.1 |
|
|
$ |
|
|
|
$ |
296.6 |
|
Discontinued operations current assets
|
|
|
.6 |
|
|
|
19.0 |
|
|
|
11.0 |
|
|
|
|
|
|
|
30.6 |
|
Investments in subsidiaries
|
|
|
2,662.0 |
|
|
|
|
|
|
|
|
|
|
|
(2,662.0 |
) |
|
|
|
|
Intercompany advances receivable (payable)
|
|
|
(2,244.3 |
) |
|
|
590.4 |
|
|
|
1,653.9 |
|
|
|
|
|
|
|
|
|
Investments in and advances to unconsolidated affiliate
|
|
|
16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.7 |
|
Property and equipment, net
|
|
|
176.0 |
|
|
|
20.1 |
|
|
|
18.5 |
|
|
|
|
|
|
|
214.6 |
|
Deferred income taxes
|
|
|
(88.4 |
) |
|
|
41.5 |
|
|
|
46.9 |
|
|
|
|
|
|
|
|
|
Restricted proceeds from sale of commodity interests
|
|
|
4.0 |
|
|
|
271.8 |
|
|
|
5.0 |
|
|
|
|
|
|
|
280.8 |
|
Personal injury-related insurance recoveries receivable
|
|
|
967.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967.0 |
|
Other assets
|
|
|
42.2 |
|
|
|
.2 |
|
|
|
.1 |
|
|
|
|
|
|
|
42.5 |
|
Discontinued operations long-term assets
|
|
|
|
|
|
|
38.9 |
|
|
|
|
|
|
|
|
|
|
|
38.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,770.5 |
|
|
$ |
1,000.7 |
|
|
$ |
1,778.5 |
|
|
$ |
(2,662.0 |
) |
|
$ |
1,887.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities
|
|
$ |
159.9 |
|
|
$ |
5.2 |
|
|
$ |
24.5 |
|
|
$ |
|
|
|
$ |
189.6 |
|
Discontinued operations current liabilities
|
|
|
2.1 |
|
|
|
55.2 |
|
|
|
.4 |
|
|
|
|
|
|
|
57.7 |
|
Other long-term liabilities
|
|
|
32.9 |
|
|
|
.9 |
|
|
|
(.9 |
) |
|
|
|
|
|
|
32.9 |
|
Long-term debt
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.8 |
|
Discontinued operations long-term liabilities
|
|
|
26.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.4 |
|
Liabilities subject to compromise
|
|
|
3,923.0 |
|
|
|
18.2 |
|
|
|
13.7 |
|
|
|
|
|
|
|
3,954.9 |
|
Stockholders equity
|
|
|
(2,376.6 |
) |
|
|
921.2 |
|
|
|
1,740.8 |
|
|
|
(2,662.0 |
) |
|
|
(2,376.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,770.5 |
|
|
$ |
1,000.7 |
|
|
$ |
1,778.5 |
|
|
$ |
(2,662.0 |
) |
|
$ |
1,887.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | |
|
Other | |
|
Eliminating | |
|
|
|
|
Company | |
|
Guarantors | |
|
Subsidiaries | |
|
Entries | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS |
Current assets
|
|
$ |
174.8 |
|
|
$ |
43.9 |
|
|
$ |
18.8 |
|
|
$ |
|
|
|
$ |
237.5 |
|
Discontinued operations current assets
|
|
|
56.8 |
|
|
|
14.1 |
|
|
|
122.8 |
|
|
|
|
|
|
|
193.7 |
|
Investments in subsidiaries
|
|
|
2,617.2 |
|
|
|
174.0 |
|
|
|
|
|
|
|
(2,791.2 |
) |
|
|
|
|
Intercompany advances receivable (payable)
|
|
|
(2,203.0 |
) |
|
|
511.9 |
|
|
|
1,691.1 |
|
|
|
|
|
|
|
|
|
Investments in and advances to unconsolidated affiliates
|
|
|
13.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.1 |
|
Property and equipment, net
|
|
|
185.1 |
|
|
|
21.4 |
|
|
|
23.6 |
|
|
|
|
|
|
|
230.1 |
|
Deferred income taxes
|
|
|
(88.5 |
) |
|
|
41.6 |
|
|
|
46.9 |
|
|
|
|
|
|
|
|
|
Personal injury-related insurance recoveries receivable
|
|
|
465.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465.4 |
|
Other assets
|
|
|
54.5 |
|
|
|
.2 |
|
|
|
.4 |
|
|
|
|
|
|
|
55.1 |
|
Discontinued operations long-term assets
|
|
|
6.5 |
|
|
|
37.7 |
|
|
|
389.6 |
|
|
|
|
|
|
|
433.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,281.9 |
|
|
$ |
844.8 |
|
|
$ |
2,293.2 |
|
|
$ |
(2,791.2 |
) |
|
$ |
1,628.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities
|
|
$ |
127.7 |
|
|
$ |
5.1 |
|
|
$ |
9.2 |
|
|
$ |
|
|
|
$ |
142.0 |
|
Discontinued operations current liabilities
|
|
|
33.5 |
|
|
|
39.0 |
|
|
|
105.0 |
|
|
|
|
|
|
|
177.5 |
|
Other long-term liabilities
|
|
|
59.1 |
|
|
|
1.0 |
|
|
|
(.7 |
) |
|
|
|
|
|
|
59.4 |
|
Long-term debt
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
Discontinued operations long-term liabilities
|
|
|
50.3 |
|
|
|
11.9 |
|
|
|
41.0 |
|
|
|
105.5 |
|
|
|
208.7 |
|
Liabilities subject to compromise
|
|
|
2,740.3 |
|
|
|
16.0 |
|
|
|
13.8 |
|
|
|
|
|
|
|
2,770.1 |
|
Stockholders equity
|
|
|
(1,731.2 |
) |
|
|
771.8 |
|
|
|
2,124.9 |
|
|
|
(2,896.7 |
) |
|
|
(1,731.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,281.9 |
|
|
$ |
844.8 |
|
|
$ |
2,293.2 |
|
|
$ |
(2,791.2 |
) |
|
$ |
1,628.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
KAISER ALUMINUM & CHEMICAL 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | |
|
Other | |
|
Eliminating | |
|
|
|
|
Company | |
|
Guarantors | |
|
Subsidiaries | |
|
Entries | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
757.6 |
|
|
$ |
41.2 |
|
|
$ |
294.8 |
|
|
$ |
(151.2 |
) |
|
$ |
942.4 |
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
796.8 |
|
|
|
50.9 |
|
|
|
270.1 |
|
|
|
(151.2 |
) |
|
|
966.6 |
|
|
Other operating charges, net
|
|
|
793.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
793.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(832.4 |
) |
|
|
(9.7 |
) |
|
|
24.7 |
|
|
|
|
|
|
|
(817.4 |
) |
Interest expense
|
|
|
(9.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.5 |
) |
Reorganization items
|
|
|
(39.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.0 |
) |
Other income (expense), net
|
|
|
5.1 |
|
|
|
|
|
|
|
(.9 |
) |
|
|
|
|
|
|
4.2 |
|
Provision for income taxes
|
|
|
(3.2 |
) |
|
|
|
|
|
|
(3.0 |
) |
|
|
|
|
|
|
(6.2 |
) |
Equity in loss of subsidiaries
|
|
|
122.2 |
|
|
|
|
|
|
|
|
|
|
|
(122.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from continuing operations
|
|
|
(756.8 |
) |
|
|
(9.7 |
) |
|
|
20.8 |
|
|
|
(122.2 |
) |
|
|
(867.9 |
) |
Income (loss) from discontinued operations
|
|
|
10.2 |
|
|
|
130.3 |
|
|
|
(19.2 |
) |
|
|
|
|
|
|
121.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(746.6 |
) |
|
$ |
120.6 |
|
|
$ |
1.6 |
|
|
$ |
(122.2 |
) |
|
$ |
(746.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income (Loss)
For the Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | |
|
Other | |
|
Eliminating | |
|
|
|
|
Company | |
|
Guarantors | |
|
Subsidiaries | |
|
Entries | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
573.4 |
|
|
$ |
42.3 |
|
|
$ |
238.5 |
|
|
$ |
(144.0 |
) |
|
$ |
710.2 |
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
661.9 |
|
|
|
55.3 |
|
|
|
226.0 |
|
|
|
(144.0 |
) |
|
|
799.2 |
|
|
Other operating charges, net
|
|
|
141.4 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
141.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(229.9 |
) |
|
|
(13.2 |
) |
|
|
12.5 |
|
|
|
|
|
|
|
(230.6 |
) |
Interest expense
|
|
|
(9.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.1 |
) |
Reorganization items
|
|
|
(27.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27.0 |
) |
Other income (expense), net
|
|
|
6.3 |
|
|
|
(.7 |
) |
|
|
(10.8 |
) |
|
|
|
|
|
|
(5.2 |
) |
Provision for income taxes
|
|
|
(1.8 |
) |
|
|
|
|
|
|
.3 |
|
|
|
|
|
|
|
(1.5 |
) |
Equity in income (loss) of subsidiaries
|
|
|
(126.9 |
) |
|
|
|
|
|
|
|
|
|
|
126.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(388.4 |
) |
|
|
(13.9 |
) |
|
|
2.0 |
|
|
|
126.9 |
|
|
|
(273.4 |
) |
Loss from discontinued operations
|
|
|
(399.7 |
) |
|
|
(78.0 |
) |
|
|
(37.0 |
) |
|
|
|
|
|
|
(514.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$ |
(788.1 |
) |
|
$ |
(91.9 |
) |
|
$ |
(35.0 |
) |
|
$ |
126.9 |
|
|
$ |
(788.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
KAISER ALUMINUM & CHEMICAL 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | |
|
Other | |
|
Eliminating | |
|
|
|
|
Company | |
|
Guarantors | |
|
Subsidiaries | |
|
Entries | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
478.2 |
|
|
$ |
76.3 |
|
|
$ |
222.7 |
|
|
$ |
(68.2 |
) |
|
$ |
709.0 |
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
609.7 |
|
|
|
82.6 |
|
|
|
198.1 |
|
|
|
(68.2 |
) |
|
|
822.2 |
|
|
Other operating charges, net
|
|
|
31.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(163.3 |
) |
|
|
(6.3 |
) |
|
|
24.6 |
|
|
|
|
|
|
|
(145.0 |
) |
Interest expense
|
|
|
(16.6 |
) |
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
(19.0 |
) |
Reorganization items
|
|
|
(33.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33.3 |
) |
Other income (expense), net
|
|
|
(6.8 |
) |
|
|
6.7 |
|
|
|
(.8 |
) |
|
|
|
|
|
|
(.9 |
) |
Provision for income taxes
|
|
|
4.0 |
|
|
|
(3.3 |
) |
|
|
(4.9 |
) |
|
|
|
|
|
|
(4.2 |
) |
Equity in income of subsidiaries
|
|
|
12.1 |
|
|
|
|
|
|
|
|
|
|
|
(12.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(203.9 |
) |
|
|
(2.9 |
) |
|
|
16.5 |
|
|
|
(12.1 |
) |
|
|
(202.4 |
) |
Loss from discontinued operations
|
|
|
(264.5 |
) |
|
|
(21.2 |
) |
|
|
19.7 |
|
|
|
|
|
|
|
(266.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(468.4 |
) |
|
$ |
(24.1 |
) |
|
$ |
36.2 |
|
|
$ |
(12.1 |
) |
|
$ |
(468.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
KAISER ALUMINUM & CHEMICAL 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | |
|
Other | |
|
Eliminating |
|
|
|
|
Company | |
|
Guarantors | |
|
Subsidiaries | |
|
Entries |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
|
|
| |
Net cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
(122.3 |
) |
|
$ |
(8.1 |
) |
|
$ |
28.4 |
|
|
$ |
|
|
|
$ |
(102.0 |
) |
|
Discontinued operations
|
|
|
(5.1 |
) |
|
|
38.4 |
|
|
|
30.7 |
|
|
|
|
|
|
|
64.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127.4 |
) |
|
|
30.3 |
|
|
|
59.1 |
|
|
|
|
|
|
|
(38.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(4.5 |
) |
|
|
(.3 |
) |
|
|
(.5 |
) |
|
|
|
|
|
|
(5.3 |
) |
|
Discontinued operations
|
|
|
76.0 |
|
|
|
278.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
356.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71.5 |
|
|
|
278.3 |
|
|
|
1.6 |
|
|
|
|
|
|
|
351.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued operations
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
Discontinued operations
|
|
|
|
|
|
|
(271.6 |
) |
|
|
(19.5 |
) |
|
|
|
|
|
|
(291.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
(271.6 |
) |
|
|
(19.5 |
) |
|
|
|
|
|
|
(293.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activity
|
|
|
77.6 |
|
|
|
(37.0 |
) |
|
|
(40.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents during the year
|
|
|
19.3 |
|
|
|
|
|
|
|
.6 |
|
|
|
|
|
|
|
19.9 |
|
Cash and cash equivalents at beginning of year
|
|
|
34.7 |
|
|
|
|
|
|
|
.8 |
|
|
|
|
|
|
|
35.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
54.0 |
|
|
$ |
|
|
|
$ |
1.4 |
|
|
$ |
|
|
|
$ |
55.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
KAISER ALUMINUM & CHEMICAL 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | |
|
Other | |
|
Eliminating |
|
|
|
|
Company | |
|
Guarantors | |
|
Subsidiaries | |
|
Entries |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
|
|
| |
Net cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
(72.3 |
) |
|
$ |
(.4 |
) |
|
$ |
15.3 |
|
|
$ |
|
|
|
$ |
(57.4 |
) |
|
Discontinued operations
|
|
|
(40.1 |
) |
|
|
34.3 |
|
|
|
(23.7 |
) |
|
|
|
|
|
|
(29.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(112.4 |
) |
|
|
33.9 |
|
|
|
(8.4 |
) |
|
|
|
|
|
|
(86.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
69.3 |
|
|
|
(.1 |
) |
|
|
4.9 |
|
|
|
|
|
|
|
74.1 |
|
|
Discontinued operations
|
|
|
1.3 |
|
|
|
|
|
|
|
(26.3 |
) |
|
|
|
|
|
|
(25.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70.6 |
|
|
|
(.1 |
) |
|
|
(21.4 |
) |
|
|
|
|
|
|
49.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued operations
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activity
|
|
|
7.4 |
|
|
|
(33.8 |
) |
|
|
26.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents during the year
|
|
|
(38.5 |
) |
|
|
|
|
|
|
(3.4 |
) |
|
|
|
|
|
|
(41.9 |
) |
Cash and cash equivalents at beginning of year
|
|
|
73.2 |
|
|
|
|
|
|
|
4.2 |
|
|
|
|
|
|
|
77.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
34.7 |
|
|
$ |
|
|
|
$ |
.8 |
|
|
$ |
|
|
|
$ |
35.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
KAISER ALUMINUM & CHEMICAL 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | |
|
Other | |
|
Eliminating |
|
|
|
|
Company | |
|
Guarantors | |
|
Subsidiaries | |
|
Entries |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
|
|
| |
Net cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
(56.3 |
) |
|
$ |
(3.6 |
) |
|
$ |
31.7 |
|
|
$ |
|
|
|
$ |
(28.2 |
) |
|
Discontinued operations
|
|
|
(46.1 |
) |
|
|
41.9 |
|
|
|
(19.3 |
) |
|
|
|
|
|
|
(23.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102.4 |
) |
|
|
38.3 |
|
|
|
12.4 |
|
|
|
|
|
|
|
(51.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
20.1 |
|
|
|
(1.4 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
17.6 |
|
|
Discontinued operations
|
|
|
.5 |
|
|
|
(.6 |
) |
|
|
(33.7 |
) |
|
|
|
|
|
|
(33.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.6 |
|
|
|
(2.0 |
) |
|
|
(34.8 |
) |
|
|
|
|
|
|
(16.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued operations
|
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.8 |
) |
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activity
|
|
|
10.4 |
|
|
|
(35.8 |
) |
|
|
25.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents during the year
|
|
|
(80.2 |
) |
|
|
.5 |
|
|
|
3.0 |
|
|
|
|
|
|
|
(76.7 |
) |
Cash and cash equivalents at beginning of year
|
|
|
153.4 |
|
|
|
(.5 |
) |
|
|
1.2 |
|
|
|
|
|
|
|
154.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
73.2 |
|
|
$ |
|
|
|
$ |
4.2 |
|
|
$ |
|
|
|
$ |
77.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Impact of Cases During 2004, there were
several impacts of the Cases on the Company and the Subsidiary
Guarantors. The impacts of the Cases, among other things,
include: (a) AJI, KJC, KAAC and KFC filed and are seeking
confirmation of Liquidating Plans; (b) intercompany
accounts between the Company and its Debtor subsidiaries will be
forgiven after certain cash transfers are made as required by
the Intercompany Agreement; and (c) certain assertions have
been made by holders of the Sub Notes that all or a portion of
their claims against the Subsidiary Guarantors may rank on par
with holders of the Senior Notes. See Note 1 for further
discussion of these impacts of the Cases and other matters.
Income Taxes The income tax provisions for
the years ended December 31 2004 and 2003 and 2002 relate
primarily to foreign income taxes. As a result of the Cases, the
Company did not recognize U.S. income tax benefits for the
losses incurred from domestic operations (including temporary
differences) or any U.S. tax benefit for foreign income taxes.
Instead, the increases in federal and state deferred tax assets
as a result of additional net operating losses and foreign tax
credits generated in 2004, 2003 and 2002 were offset by equal
increases in valuation allowances.
Foreign Currency The functional currency of
the Company and its subsidiaries is the United States Dollar. As
a result of the sale of the Companys Commodity Interests,
pre-tax translation gains (losses) are included in the
Companys and Subsidiary Guarantors Discontinued
operations. Such amounts for the Company totaled $25.2, $66.8
and $15.8 for the years ended December 31, 2004, 2003 and
2002, respectively. Such amounts for the Subsidiary Guarantors
totaled $(25.7), $(68.7) and $16.2 for the years ended
December 31, 2004, 2003 and 2002, respectively.
Debt Covenants and Restrictions The
Indentures contain restrictions on the ability of the
Companys subsidiaries to transfer funds to the Company in
the form of dividends, loans or advances.
106
KAISER ALUMINUM & CHEMICAL 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) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
210.2 |
|
|
$ |
230.1 |
|
|
$ |
244.4 |
|
|
$ |
257.7 |
|
|
Operating income (loss)
|
|
|
(10.2 |
) |
|
|
(4.4 |
) |
|
|
(160.4 |
) |
|
|
(642.4 |
) |
|
Loss from continuing operations
|
|
|
(22.5 |
) |
|
|
(14.8 |
) |
|
|
(173.1 |
)(1) |
|
|
(657.5 |
)(2) |
|
Income (loss) from discontinued operations
|
|
|
(41.4 |
) |
|
|
39.0 |
|
|
|
103.7 |
|
|
|
20.0 |
|
|
Net loss
|
|
|
(63.9 |
) |
|
|
24.2 |
|
|
|
(69.4 |
) |
|
|
(637.5 |
) |
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
176.1 |
|
|
$ |
176.3 |
|
|
$ |
174.5 |
|
|
$ |
183.3 |
|
|
Operating income (loss)
|
|
|
(11.7 |
) |
|
|
(22.3 |
) |
|
|
(36.4 |
) |
|
|
(160.2 |
) |
|
Loss from continuing operations
|
|
|
(22.3 |
) |
|
|
(33.6 |
) |
|
|
(51.6 |
) |
|
|
(165.9 |
)(3) |
|
Loss from discontinued operations
|
|
|
(42.8 |
) |
|
|
(27.7 |
) |
|
|
(37.0 |
) |
|
|
(407.2 |
) |
|
Net loss
|
|
|
(65.1 |
) |
|
|
(61.3 |
) |
|
|
(88.6 |
) |
|
|
(573.1 |
) |
|
|
(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 Companys existing stockholders
will be cancelled without consideration. |
107
KAISER ALUMINUM & CHEMICAL 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
|
|
|
116.3 |
|
|
|
85.7 |
|
|
|
67.5 |
|
|
|
73.3 |
|
|
|
124.5 |
|
|
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
|
|
|
327.2 |
|
|
|
431.2 |
|
|
|
521.6 |
|
|
|
765.7 |
|
|
|
1,018.3 |
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452.3 |
|
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
|
|
$ |
1,887.7 |
|
|
$ |
1,628.7 |
|
|
$ |
2,230.4 |
|
|
$ |
2,750.2 |
|
|
$ |
3,347.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Liabilities not subject to compromise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accruals
|
|
$ |
173.8 |
|
|
$ |
96.8 |
|
|
$ |
92.2 |
|
|
$ |
273.1 |
|
|
$ |
350.8 |
|
|
|
Accrued postretirement medical benefit obligation
current portion
|
|
|
|
|
|
|
32.5 |
|
|
|
60.2 |
|
|
|
62.0 |
|
|
|
58.0 |
|
|
|
Payable to affiliate
|
|
|
14.6 |
|
|
|
11.4 |
|
|
|
11.1 |
|
|
|
12.2 |
|
|
|
13.3 |
|
|
|
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
|
|
|
247.3 |
|
|
|
319.5 |
|
|
|
332.0 |
|
|
|
803.4 |
|
|
|
841.4 |
|
|
Long-term liabilities
|
|
|
32.9 |
|
|
|
59.4 |
|
|
|
55.7 |
|
|
|
808.9 |
|
|
|
524.0 |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309.4 |
|
|
|
589.8 |
|
|
|
636.8 |
|
|
|
3,184.2 |
|
|
|
3,260.4 |
|
Liabilities subject to compromise
|
|
|
3,954.9 |
|
|
|
2,770.1 |
|
|
|
2,673.9 |
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference stock
|
|
|
.7 |
|
|
|
.7 |
|
|
|
.7 |
|
|
|
.7 |
|
|
|
.7 |
|
|
Common stock
|
|
|
15.4 |
|
|
|
15.4 |
|
|
|
15.4 |
|
|
|
15.4 |
|
|
|
15.4 |
|
|
Additional capital
|
|
|
2,452.8 |
|
|
|
2,454.0 |
|
|
|
2,454.8 |
|
|
|
2,437.6 |
|
|
|
2,300.8 |
|
|
Accumulated deficit
|
|
|
(2,648.3 |
) |
|
|
(1,901.7 |
) |
|
|
(1,113.6 |
) |
|
|
(645.2 |
) |
|
|
(188.1 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
(5.5 |
) |
|
|
(107.9 |
) |
|
|
(243.9 |
) |
|
|
(67.3 |
) |
|
|
(1.8 |
) |
|
Note receivable from parent
|
|
|
(2,191.7 |
) |
|
|
(2,191.7 |
) |
|
|
(2,191.7 |
) |
|
|
(2,175.2 |
) |
|
|
(2,040.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
(2,376.6 |
) |
|
|
(1,731.2 |
) |
|
|
(1,078.3 |
) |
|
|
(434.0 |
) |
|
|
87.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,887.7 |
|
|
$ |
1,628.7 |
|
|
$ |
2,230.4 |
|
|
$ |
2,750.2 |
|
|
$ |
3,347.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
108
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES
(Debtor-in-Possession)
Five-Year Financial Data
Statements of Consolidated Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions of dollars, except share amounts) | |
Net sales(1)
|
|
$ |
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
|
|
|
92.1 |
|
|
|
92.3 |
|
|
|
118.5 |
|
|
|
93.4 |
|
|
|
92.1 |
|
|
|
Other operating charges (benefits), net
|
|
|
793.2 |
|
|
|
141.6 |
|
|
|
31.8 |
|
|
|
30.1 |
|
|
|
82.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,759.8 |
|
|
|
940.8 |
|
|
|
854.0 |
|
|
|
979.0 |
|
|
|
1,384.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(817.4 |
) |
|
|
(230.6 |
) |
|
|
(145.0 |
) |
|
|
(89.5 |
) |
|
|
(53.4 |
) |
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
|
|
|
(861.7 |
) |
|
|
(271.9 |
) |
|
|
(198.2 |
) |
|
|
(264.4 |
) |
|
|
(176.8 |
) |
(Provision) benefit for income taxes
|
|
|
(6.2 |
) |
|
|
(1.5 |
) |
|
|
(4.2 |
) |
|
|
(521.5 |
) |
|
|
23.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(867.9 |
) |
|
|
(273.4 |
) |
|
|
(202.4 |
) |
|
|
(785.9 |
) |
|
|
(153.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
$ |
(746.6 |
) |
|
$ |
(788.1 |
) |
|
$ |
(468.4 |
) |
|
$ |
(457.0 |
) |
|
$ |
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
109
|
|
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 Companys 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
Companys management, including the Chief Executive Officer
and Chief Financial Officer. Based on that evaluation, the
Companys management, including the Chief Executive Officer
and Chief Financial Officer, concluded that the Companys
disclosure controls and procedures were effective.
Changes in Internal Control. There have been no
significant changes in the Companys internal controls or
in other factors that could significantly affect internal
controls subsequent to the date of their evaluation.
Additionally, no changes in the Companys internal controls
over financial reporting have occurred during the Companys
most recently completed quarter that have materially affected,
or are reasonably likely to materially affect, the
Companys 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 Kaiser. 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 Kaiser* |
|
|
|
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 Kaiser. |
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 Kaiser in October 2001. He
previously served as Executive Vice President and President of
Kaiser Fabricated Products of the Company from January 2000
until October 2001, and Executive Vice President of Kaiser from
May 2000 until October 2001. He served as Vice President of
Kaiser from May 1997 until May 2000. Mr. Hockema was Vice
President of the Company and President of
110
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 the Company and
acting President of Kaiser Engineered Components from September
1995 until September 1996. Mr. Hockema was an employee of
the Company from 1977 to 1982, working at the Companys
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 the
Company 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 Kaiser effective
August 2001. He previously served as Vice President and Chief
Administrative Officer of the Company and Kaiser 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 the Company 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 Kaiser effective January 2005. He
previously served as Vice President and General Counsel of the
Company and Kaiser from April 2002 through December 2004, and
Secretary of the Company and Kaiser from October 2002 through
December 2004. He served as Acting General Counsel of the
Company and Kaiser from February 2002 until April 2002, and
Deputy General Counsel for Litigation of the Company and Kaiser
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 Kaiser effective January 2005.
Mr. Donnan joined the legal staff of the Company and Kaiser
in 1993 and was named Deputy General Counsel of the Company and
Kaiser in 2000. Prior to joining the Company, 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 July 1998, and of Kaiser
effective September 1998. Mr. Lamb previously served as
Director of Investor Relations and Corporate Communications of
the Company and Kaiser from June 1997 through July 1998. From
July 1995 through June 1997, he served as Director of Investor
Relations of the Company and Kaiser, and from January 1995
through July 1995, he served as Director of Public Relations of
the Company and Kaiser.
Daniel D. Maddox. Mr. Maddox, age 45, was
elected to the position of Vice President and Controller of the
Company effective July 1998, and of Kaiser effective September
1998. He served as Controller, Corporate Consolidation and
Reporting of the Company and Kaiser from October 1997 through
July 1998 and September 1998, respectively. Mr. Maddox
previously served as Assistant Corporate Controller of the
Company from June 1997 to September 1997, and of Kaiser from May
1997 to September 1997, and Director External Reporting of the
Company from June 1996 to May 1997. Mr. Maddox was with
Arthur Andersen LLP from 1982 until joining the Company in June
1996.
Daniel J. Rinkenberger. Mr. Rinkenberger,
age 46, was elected to the position of Vice President and
Treasurer of the Company and Kaiser effective January 2005. He
previously served as Vice President of Economic Analysis and
Planning of the Company and Kaiser from February 2002 through
December 2004. He served as Vice President, Planning and
Business Development of Kaiser Fabricated Products of the
Company from June 2000 through February 2002. Prior to that, he
served as Vice President, Finance and
111
Business Planning of Kaiser Flat-Rolled Products of the Company
from February 1998 to February 2000, and as Assistant Treasurer
of the Company and Kaiser 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
Kaiser effective April 2004, and Vice President of the Company
and Kaiser effective February 2002. He also held the position of
Treasurer of the Company and Kaiser from February 2002 through
December 2004. Prior to that, Mr. Shiba served as Vice
President, Controller and Information Technology of Kaiser
Fabricated Products of the Company from January 2000 to February
2002, and as Vice President and Controller of Kaiser Engineered
Products of the Company from June 1998 through January 2000.
Prior to joining the Company, Mr. Shiba was with the BF
Goodrich Company for 16 years, holding various financial
positions.
Robert J. Cruikshank. Mr. Cruikshank, age 74,
has served as a director of the Company and Kaiser 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 June 1993,
and of Kaiser since May 1993. He was named as non-executive
Chairman of the Board of the Company and Kaiser effective
October 2001. Mr. Haymaker served as Chairman of the Board
and Chief Executive Officer of the Company and Kaiser from
January 1994 until January 2000, and as non-executive Chairman
of the Board of the Company and Kaiser from January 2000 through
May 2001. He served as President of the Company from June 1996
through July 1997, and of Kaiser from May 1996 through July
1997. From May 1993 to December 1993, Mr. Haymaker served
as President and Chief Operating Officer of the Company and
Kaiser. 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 November 1988, and of
Kaiser since October 1988. From December 1994 until April 2002,
he served as Vice Chairman of the Company. 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 MAXXAMs
forest products operations (MGHI).
Ezra G. Levin. Mr. Levin, age 71, has been a
director of the Company since November 1988. He has been a
director of Kaiser since July 1991, and a director of MAXXAM
since May 1978. Mr. Levin also served as a director of
Kaiser 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
112
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 & 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 Kaiser 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 Companys Board of Directors, satisfies
the Securities and Exchange Commissions criteria to serve
as an audit committee financial expert. The
Companys 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 Companys
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:
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Corporate Secretary |
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Kaiser Aluminum & Chemical Corporation |
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27422 Portola Parkway, Suite 350 |
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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.
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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 Kaiser, executive officers of the Company generally are
directly employed and compensated by the Company. The following
table sets forth compensation information, cash and non-cash,
for each of the Companys last three completed fiscal years
with respect to the Companys Chief Executive
113
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).
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Long-Term Compensation | |
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Annual Compensation | |
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Awards | |
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Payouts | |
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(a) |
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(b) | |
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(c) | |
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(d) | |
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(e) | |
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(f) | |
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(g) | |
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(h) | |
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(i) | |
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Other | |
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Restricted | |
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Securities | |
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Annual | |
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Stock | |
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Underlying | |
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LTIP | |
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All Other | |
Name and Principal |
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Salary | |
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Bonus | |
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Compensation | |
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Award(s) | |
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Options/ | |
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Payouts | |
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Compensation | |
Position |
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Year | |
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($) | |
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($) | |
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($)(1) | |
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($) | |
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SARS # | |
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($) | |
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($)(2) | |
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Jack A. Hockema
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2004 |
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730,000 |
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(3) |
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-0- |
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-0- |
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-0- |
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182,793 |
(4)(5) |
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President and Chief
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2003 |
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730,000 |
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-0- |
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-0- |
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-0- |
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-0- |
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365,000 |
(4) |
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Executive Officer
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2002 |
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730,000 |
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-0- |
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116,495 |
(6) |
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-0- |
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236,200 |
(7) |
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346,750 |
(4) |
Edward F. Houff
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2004 |
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431,250 |
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125,000 |
(3) |
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-0- |
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-0- |
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-0- |
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100,000 |
(4) |
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Senior Vice President
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2003 |
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400,000 |
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125,000 |
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-0- |
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-0- |
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-0- |
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200,000 |
(4) |
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and Chief
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2002 |
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400,000 |
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125,000 |
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3,439 |
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-0- |
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-0- |
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-0- |
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168,909 |
(4)(8) |
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Restructuring Officer
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John Barneson
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2004 |
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275,000 |
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(3) |
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-0- |
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-0- |
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-0- |
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62,500 |
(4) |
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Senior Vice President
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2003 |
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275,000 |
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-0- |
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-0- |
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-0- |
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-0- |
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125,000 |
(4) |
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and Chief
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2002 |
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252,500 |
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-0- |
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72,248 |
(9) |
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-0- |
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-0- |
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13,627 |
(7) |
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233,102 |
(4)(8) |
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Administrative Officer
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Kerry A. Shiba
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2004 |
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242,500 |
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(3) |
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-0- |
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-0- |
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-0- |
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95,000 |
(4) |
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Vice President and
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2003 |
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190,000 |
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-0- |
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-0- |
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-0- |
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-0- |
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190,000 |
(4) |
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Chief Financial Officer
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2002 |
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187,500 |
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-0- |
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-0- |
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-0- |
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54,090 |
(7) |
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97,032 |
(4)(10) |
Daniel D. Maddox
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2004 |
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200,000 |
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(3) |
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-0- |
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-0- |
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-0- |
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100,000 |
(4) |
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Vice President and
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2003 |
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200,000 |
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-0- |
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24,721 |
(11) |
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-0- |
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-0- |
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-0- |
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200,000 |
(4) |
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Controller
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2002 |
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187,500 |
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-0- |
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-0- |
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-0- |
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-0- |
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130,000 |
(4) |
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(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. |
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(2) |
The Company 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. |
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(3) |
The Company has not completed the calculation of amounts payable
for the year 2004 under the Companys 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 Companys 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. |
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(4) |
Includes retention payments made during 2004, 2003 and 2002,
respectively, under the Companys 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, the Company 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, the Companys 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. |
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(5) |
Includes $293 paid to Mr. Hockema for unused allowances
under the Companys benefit program. |
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(6) |
In connection with Mr. Hockemas promotion to
President and Chief Executive Officer, he was granted 95,488
restricted shares of Kaisers 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
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share of Kaisers Common Stock on the New York Stock
Exchange on the effective 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 Kaisers Common Stock. |
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(7) |
Amounts reflect the cash awards actually received by
Messrs. Hockema, Barneson and Shiba in 2002 under the
long-term incentive program for the Companys Fabricated
Products business unit for the rolling three-year performance
period 1999-2001. |
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(8) |
Includes moving-related items of $8,909 for Mr. Houff in
2002 and $114,352 for Mr. Barneson in 2002. |
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(9) |
Includes an auto allowance of $28,301 and club membership fees
and expenses of $11,215. |
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(10) |
Includes a temporary living allowance of $2,032. |
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(11) |
Includes an auto allowance of $22,217 and personal use of a
company car of $2,504. |
Option/SAR Grants in Last Fiscal Year
The Company did not issue any stock options or SARs during the
year 2004.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/ SAR Values
The table below provides information on an aggregated basis
concerning each exercise of stock options during the fiscal year
ended December 31, 2004, by each of the Companys
Named Executive Officers, and the 2004 fiscal year-end value of
unexercised options. During 2004, the Company did not have any
SARs outstanding. The Debtors currently believe that it is
likely that the equity interests of Kaisers existing
stockholders will be cancelled without consideration as part of
a plan of reorganization. Upon any such cancellation, any
options to purchase Kaisers Common Stock from the Company
also would be cancelled.
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(a) |
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(b) | |
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(c) | |
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(d) | |
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(e) | |
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Number of Securities | |
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Value of Unexercised | |
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Underlying Unexercised | |
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in-the-Money | |
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Shares | |
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Options/SARs at Fiscal Year | |
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Options/SARs at Fiscal | |
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Acquired on | |
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End (#) | |
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Year-End ($) | |
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Exercise | |
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Value | |
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Realized ($) | |
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Exercisable | |
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Unexercisable | |
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Exercisable | |
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Unexercisable | |
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Jack A. Hockema
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-0- |
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-0- |
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375,770 |
(1) |
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28,184 |
(1) |
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(2) |
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(2) |
Edward F. Houff
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-0- |
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-0- |
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222,772 |
(1) |
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-0- |
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(2) |
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(2) |
John Barneson
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-0- |
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-0- |
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-0- |
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-0- |
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-0- |
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-0- |
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Kerry A. Shiba
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-0- |
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-0- |
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-0- |
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-0- |
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-0- |
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-0- |
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Daniel D. Maddox
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-0- |
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-0- |
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35,715 |
(1) |
|
|
-0- |
|
|
|
|
(2) |
|
|
|
(2) |
|
|
(1) |
Represents shares of Kaisers 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 Kaisers 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
115
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. Shibas promotion to Chief
Financial Officer, and to the current levels indicated in the
table effective January 2005. |
Defined Benefit Plans
Kaiser Retirement Plan. The Company previously maintained
a qualified, defined-benefit retirement plan (the Kaiser
Retirement Plan) for salaried employees of the Company 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
116
retirement at age 65 and $34,742.04 for retirement at
age 62, the normal retirement age under the Kaiser
Retirement Plan, for plans terminated in 2003).
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the Company 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. The Company 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,
117
a 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 the Companys 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 the Company 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 months 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 the Company. 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
Kaiser 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. Haymakers
compensation for 2004 was covered by a separate agreement with
the Company and Kaiser, which is discussed below.
For the year 2004, non-employee directors of the Company and
Kaiser who were directors of MAXXAM also received director or
committee fees from MAXXAM. In addition, the non-employee
Chairman of each of the Companys and Kaisers
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 Companys and
Kaisers Executive Committees not covered by a separate
agreement with the Company and Kaiser 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 Kaiser 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.
118
The Company and Kaiser 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 Kaiser 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 Kaisers 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 directors 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 the Company are
deemed to be included in their salary. Directors of the Company
were also directors of Kaiser and received the foregoing
compensation for acting in both capacities.
As of January 1, 2004, Mr. Haymaker, the Company and
Kaiser 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 Kaiser
through the earlier of December 31, 2004 and the effective
date of the Companys and Kaisers emergence from
bankruptcy. For the year 2004, Mr. Haymakers 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 Kaiser, 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 Kaiser entered into a new
agreement extending such terms through the earlier of
December 31, 2005 and the effective date of the
Companys and Kaisers 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 the Company entered
into an employment agreement for the period October 1, 2001
through September 30, 2004. In October 2004, Mr. Houff
and the Company amended such agreement extending the term
thereof through the earliest of the Companys emergence
from bankruptcy, an agreed termination between Mr. Houff
and the Company, and June 30, 2005. Under the terms of the
agreement, Mr. Houffs 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 the Companys 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. Houffs employment is terminated during the term
of his employment agreement, he is entitled to receive all
payments and benefits prescribed under the Companys 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. Houffs 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 the Companys existing benefit plans and policies.
For additional information concerning the Companys
Long-Term Incentive Plan, see Long-Term Incentive
Plans Awards in Last Fiscal Year above. For
additional information concerning the Companys 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. Houffs 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 Kaisers Common Stock
at an exercise price of $2.625 per share, plus 171,429
restricted shares of Kaisers Common Stock, also
119
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, the Company 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 the Company. 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 the Companys emergence from bankruptcy if he
is employed by the Company 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 the Companys
emergence from bankruptcy if he is employed by the Company on
that date,
(iii) 162/3%
of such amount is payable to such participant on the date of the
Companys emergence from bankruptcy if the emergence occurs
on or prior to August 12, 2005 and he is employed by the
Company on that date (such amount is forfeited if the date of
the Companys emergence from bankruptcy occurs after
August 12, 2005), and
(iv) 162/3%
of the such amount has been forfeited because the date of the
Companys 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 the
Company on or after age 62 or the Companys
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 the
Companys 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, the Company 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 the Company with appropriate protection
in the event of certain terminations of employment. In
connection therewith, the Company 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 the Company 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
participants employment is terminated without cause (as
defined in
120
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 participants 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
participants termination of employment with the Company.
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 the Company or any other
agreement between the participant and the Company.
Kaiser Change in Control Severance Program. In 2002, the
Company 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 the Company. 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 the Company.
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
participants 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, the Company 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 the Company.
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 the Company. Each of the Named
121
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 the Company or any other
agreement between the Named Executive Officer and the Company.
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. Houffs 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 participants 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 participants 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 Companys 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
targets percentage of the aggregate target for all
participants. A participants target percentage may be
adjusted upward or downward, within certain limitations, at the
discretion of the Companys Chief Executive Officer. See
Executive Compensation Long-Term Incentive
Plans Awards for Last Fiscal Year above
for information concerning the targets for the Named
Executive Officers.
Amounts payable under the plan generally are not determinable
until conclusion of the plan. If a participants 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
Companys 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 Companys Named Executive
Officers in the event of any such officers 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 Officers
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
Kaiser as of the end of February 2005, were members of the
Companys
122
Compensation Policy Committee, and Messrs. Cruikshank and
Hackett (Chairman) were members of the Companys
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 Companys 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 |
As of March 28, 2005, Kaiser owned 100% of the issued and
outstanding Common Stock of the Company.
Ownership of Kaiser
The following table sets forth, as of March 28, 2005,
unless otherwise indicated, the beneficial ownership of
Kaisers Common Stock by (i) those persons known by
the Company to own beneficially more than 5% of the shares of
the Kaisers 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 Kaiser as a group. The Debtors
currently believe that it is likely that the equity interests of
Kaisers 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, Kaiser 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) |
|
|
* |
|
123
|
|
* |
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. |
|
(3) |
Includes options exercisable within 60 days of
March 28, 2005 to acquire shares of Kaisers 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 Kaiser 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
Kaisers 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 Kaiser. 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 Kaiser 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 MAXXAMs
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. Hurwitzs spouse prior to their |
124
|
|
|
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. |
|
(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 Kaisers existing stockholders will be
cancelled without consideration as part of a plan of
reorganization. However, the following table summarizes the
Companys and Kaisers 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 Kaisers 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. |
125
|
|
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.
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
Companys annual financial statements, the reviews of the
financial statements included in the Companys 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 Companys 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 Companys
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
126
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 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 |
|
|
42 |
|
|
|
Consolidated Balance Sheets |
|
|
43 |
|
|
|
Statements of Consolidated Income (Loss) |
|
|
44 |
|
|
|
Statements of Consolidated Stockholders Equity (Deficit)
and Comprehensive Income (Loss) |
|
|
45 |
|
|
|
Statements of Consolidated Cash Flows |
|
|
46 |
|
|
|
Notes to Consolidated Financial Statements |
|
|
47 |
|
|
|
Quarterly Financial Data (Unaudited) |
|
|
107 |
|
|
|
Five-Year Financial Data |
|
|
108 |
|
2.
|
|
Financial Statement Schedules |
|
|
|
|
Financial statement 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 129), which index is
incorporated herein by reference.
127
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 & CHEMICAL 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 |
128
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 KACC, dated
July 25, 1989 (incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form S-1
dated August 25, 1991, filed by KACC, Registration
No. 33-30645). |
|
3 |
.2 |
|
Certificate of Retirement of KACC, dated February 7, 1990
(incorporated by reference to Exhibit 3.2 to the Report on
Form 10-K for the period ended December 31, 1989,
filed by KACC, File No. 1-3605). |
|
3 |
.3 |
|
Amended and Restated By-Laws of KACC, 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 KACC, File No. 1-3605). |
|
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 KACCs
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). |
|
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). |
129
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
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
KACCs
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 KACCs
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 KACCs
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). |
|
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). |
130
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
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). |
|
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). |
131
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
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). |
|
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). |
132
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
*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). |
|
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). |
133
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
*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 KACC. |
|
*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. |
134
Exhibit 21
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES
(Debtor-in-Possession)
SUBSIDIARIES
Listed below are the principal subsidiaries and affiliates of
Kaiser Aluminum & Chemical Corporation, the jurisdiction of
their incorporation or organization, and the names under which
such subsidiaries do business. The Companys 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 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. |
135