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February 23, 2004
Monthly Update to Customers, Employees, Suppliers, and Friends of Kaiser Aluminum:
In Today’s Court Hearing
Two of the alumina supply agreements that are currently well below market prices came before the Court in today's hearing. We informed the Court that we had reached a settlement with a counter party on one of the agreements. After hearing argument, the Court ruled against Kaiser on the other agreement and upheld the contract. We disagree with the Court's ruling and will consider asking for reconsideration. Hearing on the other alumina motions was deferred until March 22. At our request, the Court also deferred its ruling on the proposed Alpart sale until the March 22 hearing.
Extension of Exclusivity
In the coming week, the company expects to file a motion to extend the period of exclusivity through June 30, 2004 (or April 30 for certain wholly owned subsidiaries). We believe this motion will be supported by the Unsecured Creditors’ Committee and others and that it is likely to be approved by the Court at either of the regularly scheduled hearings in March or April. As you may recall, the filing of the motion gives us an automatic extension until the Court can formally rule on our request.
Additional Progress on Resolving Pension/Retiree Issues
As previously announced, the Court held a special hearing on February 2 and approved, subject to union ratification and certain other conditions, the company’s agreements in principle – regarding pension and other post-retirement benefits – with the United Steelworkers of America (USWA), the International Association of Machinists (IAM), and the 1114 committee that represents salaried retirees. On February 13, the USWA announced that its members at six Kaiser locations (including most of our larger U.S. plants such as Trentwood and Gramercy) had ratified the agreements by a wide margin. While other approvals are being sought and must be obtained before these agreements become final, we are very pleased by the USWA’s ratification and, again, view the changes to these programs as difficult but necessary steps as we advance toward a planned emergence from Chapter 11 at midyear.
Replacement Retirement Plan for Salaried Employees
The company is in the advanced stages of designing a new retirement plan for salaried employees that we hope to implement within the next couple of months. This will be a defined contribution plan, meaning the company will make annual contributions to an employee’s retirement account. The Court has already approved in principle such a plan to replace the terminated KRP (just as it has approved replacement plans for hourly employees represented by the USWA and the IAM). We believe the plan will represent an attractive benefit for salaried employees.
Ownership of the Reorganized Kaiser: A Clarification
I'd like to clarify a statement that has appeared in several recent news reports regarding ownership of the reorganized Kaiser. I believe these news reports have been based on an inaccurate understanding of our agreement with the unions and the 1114 Committee regarding the proposed new VEBA(s) that will be created to provide retiree medical benefits to all of the retiree groups. In a nutshell, as our agreement is currently structured, these new VEBA(s) – not the USWA, as reported in some publications – would have an ownership position in the reorganized company.
Liquidity and Business Matters
Recent liquidity has remained at approximately $175 million. We are encouraged by firming order rates in our fabricated products business and the net positive impact of higher LME prices upon our alumina business. In addition, we continue to move forward on our previously announced Memorandum of Understanding to sell our interests in the 90%-owned Valco smelter to the Government of Ghana, which has made a required $7 million payment into escrow and is beginning due diligence as scheduled.
Jack A. Hockema
President and Chief Executive Officer
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