Vanalco, Inc., a Delaware S Corporation, Richard L. Smith, Tax Matters Person - Page 4




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               Vanalco uses 636 low current density (LCD) cells and 14 N-40           
          cells in its smelting operation.  The LCD cells are oblong steel            
          shells approximately 22 feet in length, 3 feet in height, and               
          more than 6 feet in width that sit on steel cradles over which              
          anodes hang from a large steel superstructure.  The N-40 cells              
          essentially are the same as the LCD cells, except that the N-40             
          cells are approximately 3 feet shorter.  The interior of each               
          shell is covered with a cell lining.                                        
               The 650 cells are in 10 "rooms", which are areas that each             
          contain 65 cells.  In the rooms, each cell is placed within 24 to           
          28 inches of another cell.  Two rooms of cells are connected                
          together in a "pot line" by bus bars, through which electricity             
          flows.  Thus, 130 cells make up each pot line, and the cells in             
          each pot line share the same electrical current.                            
               The cells are arranged in such a way that any cell can be              
          bypassed when circumstances warrant.  A cell is bypassed or                 
          "shunted" from the line by disconnecting the riser from the                 
          superstructure and redirecting the flow of electricity.  On                 
          average, 8 or 10 cells are shunted out of line for replacement of           
          their linings at any given time; however, Vanalco cannot operate            
          its system on a sustained basis without substantial modifications           
          to its electrical system unless a minimum of 112 cells are in               
          operation.                                                                  







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