<PAGE>
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 1-9447
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3030279
(State of incorporation) (I.R.S. Employer Identification No.)
5847 San Felipe, Suite 2600, Houston, Texas 77057-3010
(Address of principal executive offices) (Zip Code)
(713) 267-3777
(Registrant's telephone number, including area code)
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 (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No
----- -----
At July 31, 1996, the registrant had 71,645,189 shares of common stock
outstanding.
===========================================================================
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
<CAPTION>
June 30, December 31,
1996 1995
---------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 10.8 $ 21.9
Receivables 274.6 308.6
Inventories 558.7 525.7
Prepaid expenses and other current assets 100.9 76.6
------------------------
Total current assets 945.0 932.8
Investments in and advances to unconsolidated
affiliates 177.7 178.2
Property, plant, and equipment - net 1,111.4 1,109.6
Deferred income taxes 277.5 269.1
Other assets 344.6 323.5
------------------------
Total $2,856.2 $2,813.2
========================
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable $ 163.0 $ 184.5
Accrued interest 32.1 32.0
Accrued salaries, wages, and related expenses 89.4 105.3
Accrued postretirement medical benefit obligation -
current portion 46.8 46.8
Other accrued liabilities 136.5 129.4
Payable to affiliates 91.3 94.2
Long-term debt - current portion 8.9 8.9
------------------------
Total current liabilities 568.0 601.1
Long-term liabilities 557.6 548.5
Accrued postretirement medical benefit obligation 729.8 734.0
Long-term debt 810.9 749.2
Minority interests 117.9 122.7
Stockholders' equity:
Preferred stock .4 .4
Common stock .7 .7
Additional capital 530.7 530.3
Accumulated deficit (446.0) (459.9)
Additional minimum pension liability (13.8) (13.8)
------------------------
Total stockholders' equity 72.0 57.7
------------------------
Total $2,856.2 $2,813.2
========================
</TABLE>
The accompanying notes to interim consolidated financial statements are
an integral part of these statements.
-1-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(In millions of dollars, except per share amounts)
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
---------------- ------------------
1996 1995 1996 1995
---------------- ------------------
<S> <C> <C> <C> <C>
Net sales $567.6 $583.4 $1,098.7 $1,096.4
---------------- ------------------
Costs and expenses:
Cost of products sold 476.1 463.8 909.8 890.5
Depreciation 24.2 23.7 48.2 47.4
Selling, administrative, research and
development, and general 30.7 32.3 63.8 62.3
---------------- ------------------
Total costs and expenses 531.0 519.8 1,021.8 1,000.2
---------------- ------------------
Operating income 36.6 63.6 76.9 96.2
Other expense:
Interest expense (23.0) (23.8) (45.7) (47.4)
Other - net 1.2 (1.3) .9 (2.1)
---------------- ------------------
Income before income taxes and minority interests 14.8 38.5 32.1 46.7
Provision for income taxes (5.6) (13.9) (12.2) (16.8)
Minority interests (1.0) (1.3) (1.8) (3.1)
---------------- ------------------
Net income 8.2 23.3 18.1 26.8
Dividends on preferred stock (2.1) (5.3) (4.2) (10.6)
---------------- ------------------
Net income available to common shareholders $ 6.1 $ 18.0 $ 13.9 $ 16.2
================ ==================
Earnings per common and common equivalent share:
Primary $ .09 $ .31 $ .19 $ .28
================ ==================
Fully diluted $ .27
======
Weighted average common and common equivalent shares
outstanding (000):
Primary 71,855 58,207 71,876 58,206
Fully diluted 85,272
</TABLE>
The accompanying notes to interim consolidated financial statements are
an integral part of these statements.
-2-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
<CAPTION>
Six Months Ended
June 30,
------------------
1996 1995
------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18.1 $ 26.8
Adjustments to reconcile net income to net cash used
for operating activities:
Depreciation 48.2 47.4
Amortization of excess investment over equity in net
assets of unconsolidated affiliates 5.8 5.8
Amortization of deferred financing costs and discount on
long-term debt 2.7 2.7
Equity in income of unconsolidated affiliates (7.9) (7.1)
Minority interests 1.8 3.1
Decrease (increase) in receivables 30.4 (60.2)
Increase in inventories (33.0) (48.8)
(Increase) decrease in prepaid expenses and other assets (31.2) 61.4
Decrease in accounts payable (21.5) (16.0)
Increase in accrued interest .1 .5
Decrease in payable to affiliates and accrued liabilities (20.1) (2.7)
Decrease in accrued and deferred income taxes (8.6) (4.8)
Other 3.7 3.2
------------------
Net cash (used for) provided by operating activities (11.5) 11.3
------------------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 1.2 1.2
Capital expenditures (51.7) (27.1)
Investments in joint ventures (.2)
Redemption fund for minority interests' preference stock (1.3) (.3)
------------------
Net cash used for investing activities (52.0) (26.2)
------------------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit (257.2) (303.3)
Borrowings of long-term debt, including revolving credit 318.9 340.8
Incurrence of financing costs (.8)
Dividends paid (4.2) (15.9)
Redemption of minority interests' preference stock (5.1) (8.7)
------------------
Net cash provided by financing activities 52.4 12.1
------------------
Net decrease in cash and cash equivalents during the period (11.1) (2.8)
Cash and cash equivalents at beginning of period 21.9 17.6
------------------
Cash and cash equivalents at end of period $ 10.8 $ 14.8
==================
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 42.9 $ 44.2
Income taxes paid 17.4 16.8
Tax allocation payments to MAXXAM Inc. 1.1
</TABLE>
The accompanying notes to interim consolidated financial statements are
an integral part of these statements.
-3-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except prices and per share amounts)
1. General
- -----------
Kaiser Aluminum Corporation (the "Company") is a subsidiary of MAXXAM
Inc. ("MAXXAM"). MAXXAM owns approximately 62% of the Company's Common
Stock, assuming the conversion of each outstanding share of 8.255% PRIDES,
Convertible Preferred Stock (the "PRIDES"), into one share of the Company's
Common Stock, with the remaining approximately 38% publicly held. The
Company operates through its direct subsidiary, Kaiser Aluminum & Chemical
Corporation ("KACC").
The foregoing unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X as promulgated by the Securities and
Exchange Commission. Accordingly, these financial statements do not
include all of the disclosures required by generally accepted accounting
principles for complete financial statements. These unaudited interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31,
1995. In the opinion of management, the consolidated financial statements
furnished herein include adjustments, all of which are of a normal
recurring nature, necessary for a fair statement of the results for the
interim periods presented. Operating results for the second quarter and
the first half of 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996.
2. Inventories
- ---------------
The classification of inventories is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-----------------------
<S> <C> <C>
Finished fabricated aluminum products $107.4 $ 91.5
Primary aluminum and work in process 197.1 195.9
Bauxite and alumina 131.2 119.6
Operating supplies and repair and maintenance parts 123.0 118.7
---------------------
Total $558.7 $525.7
=====================
</TABLE>
Substantially all product inventories are stated at last-in, first-out
(LIFO) cost, not in excess of market. Replacement cost is not in excess of
LIFO cost.
3. Earnings per Common and Common Equivalent Share
- ---------------------------------------------------
Earnings per common and common equivalent share are computed by
deducting preferred stock dividends from net income in order to determine
net income available to common shareholders. This amount is then divided
by the weighted average number of common and common equivalent shares
outstanding during the period. For the computation of fully diluted earnings
per share, the PRIDES were excluded from the calculation of the weighted
average number of common and common equivalent shares outstanding for all
periods presented except for the quarter ended June 30, 1995, because they
were antidilutive.
-4-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
4. Contingencies
- ------------------
Environmental Contingencies - The Company and KACC are subject to a
number of environmental laws, to fines or penalties assessed for alleged
breaches of the environmental laws, and to claims and litigation based upon
such laws. KACC currently is subject to a number of lawsuits 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 upon the Company's evaluation of these and other environmental
matters, the Company has established environmental accruals primarily
related to potential solid waste disposal and soil and groundwater
remediation matters. At June 30, 1996, the balance of such accruals, which
is primarily included in Long-term liabilities, was $34.6. These
environmental accruals represent the Company's estimate of costs reasonably
expected to be incurred based on presently enacted laws and regulations,
currently available facts, existing technology, and the Company's
assessment of the likely remediation action to be taken. The Company
expects that these remediation actions will be taken over the next several
years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $3.0 to $10.0 for the years
1996 through 2000 and an aggregate of approximately $8.0 thereafter.
As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in these and
other factors may result in actual costs exceeding the current
environmental accruals. The Company believes that it is reasonably
possible that costs associated with these environmental matters may exceed
current accruals by amounts that could range, in the aggregate, up to an
estimated $22.0 and that the factors upon which a substantial portion of
this estimate is based are expected to be resolved in early 1997. While
uncertainties are inherent in the final outcome of these environmental
matters, and it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the
resolution of such uncertainties should not have a material adverse effect
on the Company's consolidated financial position, results of operations, or
liquidity.
Asbestos Contingencies - KACC is a defendant in a number of lawsuits,
some of which involve claims of multiple persons, in which the plaintiffs
allege that certain of their injuries were caused by, among other things,
exposure to asbestos during, and as a result of, their employment or
association with KACC or exposure to products containing asbestos produced
or sold by KACC. The lawsuits generally relate to products KACC has not
manufactured for at least 15 years. At June 30, 1996, the number of such
lawsuits pending was approximately 71,900, as compared to 59,700 at
December 31, 1995. During the year 1995, approximately 41,700 of such
claims were received and 7,200 were settled or dismissed. During the
second quarter and the first half of 1996, approximately 6,600 and 15,400
of such claims were received and 900 and 3,200 were settled or dismissed,
respectively.
Based on past experience and reasonably anticipated future activity,
the Company has established an accrual for estimated asbestos-related costs
for claims filed and estimated to be filed and settled through 2008. There
are inherent uncertainties involved in estimating asbestos-related costs,
and the Company's actual costs could exceed these estimates. The Company's
accrual was calculated based on the current and anticipated number of
asbestos-related claims, the prior timing and amounts of asbestos-related
payments, and the advice of Wharton Levin Ehrmantraut Klein & Nash, P.A.
with respect to the current state of the law related to asbestos claims.
Accordingly, an asbestos-related cost accrual of $159.9, before
consideration of insurance recoveries, is included primarily in Long-
term liabilities at June 30, 1996. The Company
-5-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
estimates that annual future cash payments in connection with such
litigation will be approximately $13.0 to $20.0 for each of the years
1996 through 2000, and an aggregate of approximately $78.0 thereafter
through 2008. While the Company does not presently believe there is a
reasonable basis for estimating such costs beyond 2008 and, accordingly,
no accrual has been recorded for such costs which may be incurred beyond
2008, there is a reasonable possibility that such costs may continue
beyond 2008, and such costs may be substantial.
A substantial portion of the asbestos-related claims that were filed
and served on KACC during 1995 and the first half of 1996 were filed in
Texas. KACC has been advised by its counsel that, although there can be no
assurance, the increase in pending claims may have been attributable in
part to tort reform legislation in Texas. Although asbestos-related claims
are currently excluded from certain aspects of the Texas tort reform
legislation, management has been advised that efforts to remove the
asbestos-related exemption in the tort reform legislation, as well as other
developments in the legislative and legal environment in Texas, may be
responsible for the accelerated pace of new claims experienced in late 1995
and its continuance through the first half of 1996, albeit at a somewhat
reduced rate.
The Company believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. Claims for
recovery from some of KACC's insurance carriers are currently subject to
pending litigation and other carriers have raised certain defenses, which
have resulted in delays in recovering costs from insurance carriers. The
timing and amount of ultimate recoveries from these insurance carriers are
dependent upon the resolution of these disputes. The Company believes,
based on prior insurance-related recoveries in respect of asbestos-related
claims, existing insurance policies, and the advice of Thelen, Marrin,
Johnson & Bridges with respect to applicable insurance coverage law
relating to the terms and conditions of those policies, that substantial
recoveries from the insurance carriers are probable. Accordingly, an
estimated aggregate insurance recovery of $140.8, determined on the same
basis as the asbestos-related cost accrual, is recorded primarily in Other
assets at June 30, 1996.
Management continues to monitor claims activity, the status of the
lawsuits (including settlement initiatives), legislative progress, and
costs incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from the Company's underlying assumptions. While
uncertainties are inherent in the final outcome of these asbestos matters
and it is presently impossible to determine the actual costs that
ultimately may be incurred and insurance recoveries that will be received,
management currently believes that, based on the factors discussed in the
preceding paragraphs, the resolution of the asbestos-related uncertainties
and the incurrence of asbestos-related costs net of related insurance
recoveries should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
Other Contingencies - The Company and KACC are involved in various
other claims, lawsuits, and other proceedings relating to a wide variety of
matters. While uncertainties are inherent in the final outcome of such
matters, and it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the
resolution of such uncertainties and the incurrence of such costs should
not have a material adverse effect on the Company's consolidated financial
position, results of operations, or liquidity.
-6-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
5. Derivative Financial Instruments and Related Hedging Programs
- ------------------------------------------------------------------
KACC enters into primary aluminum hedging transactions in the normal
course of business. The prices realized by KACC under certain sales
contracts for alumina, primary aluminum, and fabricated aluminum products,
as well as the costs incurred by KACC on certain items, such as aluminum
scrap, rolling ingot, power, and bauxite, fluctuate with the market price
of primary aluminum, together resulting in a "net exposure" of earnings.
The primary aluminum hedging transactions are designed to mitigate the net
exposure of earnings to declines in the market price of primary aluminum,
while retaining the ability to participate in favorable environments that
may materialize. KACC has employed strategies which include forward sales
and purchases of primary aluminum at fixed prices and the purchase or sale
of options for primary aluminum. In respect of its 1996, 1997, and 1998
anticipated net exposure, at June 30, 1996, KACC had sold forward 166,500
tons* of primary aluminum at fixed prices, had purchased 28,900 tons of
primary aluminum under forward purchase contracts at fixed prices, and had
purchased put options to establish a minimum price for 157,000 tons of
primary aluminum.
In addition, at June 30, 1996, KACC had sold approximately 97%, 62%,
and 77% of the alumina available to it in excess of its projected internal
smelting requirements for 1996, 1997, and 1998, respectively.
Approximately 42% of such alumina sold for 1996 and all of such alumina
sold for 1997 and 1998 have been sold at prices linked to the future prices
of primary aluminum as a percentage of the price of primary aluminum
("Variable Price Contracts"), and approximately 58% of such alumina sold
for 1996 has been sold at fixed prices ("Fixed Price Contracts"). The
average realized prices of alumina sold under Variable Price Contracts will
depend on future prices of primary aluminum, and the average realized
prices of alumina sold under Fixed Price Contracts will exceed the Company's
manufacturing cost of alumina.
From time to time, KACC also enters into forward purchase and option
transactions to limit its exposure to increases in fuel costs. At June
30, 1996, KACC had entered into a series of transactions to limit its
costs for 40,000 MM Btu of natural gas per day through October 1996.
During July 1996, KACC entered into additional transactions for 40,000 MM
Btu per day to limit its exposure to increases in natural gas prices
through March 1997.
KACC also enters into hedging transactions in the normal course of
business that are designed to reduce its exposure to fluctuations in
foreign exchange rates. At June 30, 1996, KACC had net forward foreign
exchange contracts totaling approximately $92.2 for the purchase of 127.0
Australian dollars from July 1996 through May 1998, in respect of its
commitments for 1996, 1997, and 1998 expenditures denominated in Australian
dollars.
At June 30, 1996, the net unrealized gain on KACC's position in
aluminum forward sales and option contracts, based on an average price of
$1,588 per ton ($.72 per pound) of primary aluminum, natural gas forward
purchase and option contracts, and forward foreign exchange contracts, was
$21.0.
See Note 9 of the Notes to Consolidated Financial Statements for the
year ended December 31, 1995.
- ---------------------------------------
* All references to tons in this report refer to metric tons of 2,204.6
pounds.
-7-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS (In millions of dollars, except shipments,
---------------------
prices, and per share amounts)
The following should be read in conjunction with the response to Item
1, Part I, of this Report.
Results of Operations
- ---------------------
The Company's operating results are sensitive to changes in prices of
alumina, primary aluminum, and fabricated aluminum products, and also
depend to a significant degree on the volume and mix of all products sold
and on KACC's hedging strategies. See Note 5 of the Notes to Interim
Consolidated Financial Statements for an explanation of KACC's hedging
strategies. The table on the following page provides selected operational
and financial information on a consolidated basis with respect to the
Company for the quarters and six months ended June 30, 1996 and 1995. As
an integrated aluminum producer, the Company uses a portion of its bauxite,
alumina, and primary aluminum production for additional processing at
certain of its other facilities. Intracompany shipments and sales are
excluded from the information set forth on the following page.
-8-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
SELECTED OPERATIONAL AND FINANCIAL INFORMATION
(Unaudited)
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
---------------- --------------------
1996 1995 1996 1995
---------------- --------------------
<S> <C> <C> <C> <C>
Shipments:(1)
Alumina 431.9 576.6 908.1 1,023.1
Aluminum products:
Primary aluminum 100.0 63.8 174.8 111.5
Fabricated aluminum products 85.1 99.4 162.3 193.9
---------------- --------------------
Total aluminum products 185.1 163.2 337.1 305.4
================ ====================
Average realized sales price:
Alumina (per ton) $ 207 $ 206 $ 208 $ 202
Primary aluminum (per pound) .69 .83 .71 .82
Net sales:
Bauxite and alumina:
Alumina $ 89.5 $118.7 $ 188.5 $ 206.6
Other(2)(3) 27.0 23.9 51.4 43.0
---------------- --------------------
Total bauxite and alumina 116.5 142.6 239.9 249.6
---------------- --------------------
Aluminum processing:
Primary aluminum 153.1 116.6 272.2 201.6
Fabricated aluminum products 294.1 319.8 579.0 636.0
Other(3) 3.9 4.4 7.6 9.2
---------------- --------------------
Total aluminum processing 451.1 440.8 858.8 846.8
---------------- --------------------
Total net sales $567.6 $583.4 $1,098.7 $1,096.4
================ ====================
Operating income (loss):
Bauxite and alumina $ 1.1 $ 20.2 $ 10.9 $ 21.6
Aluminum processing 50.2 62.7 98.7 112.0
Corporate (14.7) (19.3) (32.7) (37.4)
---------------- --------------------
Total operating income $ 36.6 $ 63.6 $ 76.9 $ 96.2
================ ====================
Net income $ 8.2 $ 23.3 $ 18.1 $ 26.8
================ ====================
Capital expenditures $ 31.9 $ 13.4 $ 51.7 $ 27.1
================ ====================
</TABLE>
- ------------------------------------
(1) In thousands of tons.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests
in consolidated subsidiaries.
-9-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Net Sales
Bauxite and Alumina - Net sales to third parties for the bauxite and
alumina segment were 18% lower in the second quarter of 1996 than in the
second quarter of 1995 and were 4% lower in the first half of 1996 than in
the first half of 1995. Net sales from alumina decreased 25% in the second
quarter of 1996 from the second quarter of 1995 due to lower shipments as a
result of routine fluctuations in the timing of cargo vessel departures,
compounded by below-average production at the Company's 65%-owned Alpart
alumina refinery in Jamaica ("Alpart") due to an earlier power outage and
at the Gramercy, Louisiana, facility due to a temporary material quality
problem. Net sales from alumina decreased 9% in the first half of 1996
from the first half of 1995, due to lower shipments partially offset by
higher average realized prices.
Aluminum Processing - Net sales to third parties for the aluminum
processing segment were 2% higher in the second quarter of 1996 than in the
second quarter of 1995, and were approximately the same in the first half
of 1996 and 1995. Net sales from primary aluminum increased 31% in the
second quarter of 1996 from the second quarter of 1995, and increased 35%
in the first half of 1996 from the first half of 1995, due primarily to
higher shipments, partially offset by lower average realized prices. Net
sales for the first half of 1995 were adversely affected by decreased
shipments caused by the strike by the United Steelworkers of America
("USWA") discussed below. Shipments of primary aluminum to third parties
were approximately 54% and 52% of total aluminum products shipments in the
second quarter and the first half of 1996, respectively, compared with
approximately 39% and 37% in the second quarter and first half of 1995.
Net sales from fabricated aluminum products decreased 8% in the second
quarter of 1996 from the second quarter of 1995, and decreased 9% in the
first half of 1996 from the first half of 1995, due to lower shipments for
most of these products, partially offset by higher average realized prices
for most of these products.
Operating Income
Operating results for the first half of 1995 were negatively impacted
by (i) an eight-day strike at five major domestic locations by the USWA,
(ii) a six-day strike by the National Workers Union at Alpart, and (iii) a
four-day disruption of alumina production at Alpart caused by a boiler
failure. The combined impact of these events on results for the six months
ended June 30, 1995, was approximately $17.0 in the aggregate (on a pre-tax
basis) principally from lower production volume and other related costs.
Bauxite and Alumina - This segment's operating income was $1.1 in the
second quarter of 1996, compared with $20.2 in the second quarter of 1995,
and was $10.9 in the first half of 1996, compared with $21.6 in the first
half of 1995, principally due to lower revenue. Operating results for the
first half of 1995 were negatively impacted by the effect of the strikes
and boiler failure.
Aluminum Processing - This segment's operating income was $50.2 in the
second quarter of 1996, compared with $62.7 in the second quarter of 1995,
and $98.7 in the first half of 1996, compared with $112.0 in the first half
of 1995, principally due to lower revenue. Operating results for the first
half of 1995 were negatively impacted by the effect of the strike by the
USWA.
Corporate - Corporate operating expenses represented corporate general
and administrative expenses which are not allocated to the Company's
segments.
-10-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Net Income
The Company reported net income of $.09 and $.19 per common and common
equivalent share for the second quarter and the first half of 1996,
respectively, compared with net income of $.31 and $.28 per common and
common equivalent share for the second quarter and the first half of 1995,
respectively. The principal reasons for these changes were the reductions
in operating income previously described.
Liquidity and Capital Resources
- -------------------------------
Management believes that the Company's existing cash resources,
together with cash flows from operations and borrowings under KACC's credit
agreement dated as of February 15, 1994 (as amended, the "1994 Credit
Agreement") will be sufficient to satisfy its working capital and capital
expenditure requirements for the next year. With respect to long-term
liquidity, management believes that operating cash flows, together with the
ability to obtain both short and long-term financing, should provide
sufficient funds to meet the Company's working capital and capital
expenditure requirements.
Capital Structure
On April 23, 1996, the Company filed a shelf-registration statement
with the Securities and Exchange Commission (the "SEC") covering the sale
by MAXXAM of up to 10 million shares of the Company's Common Stock that are
owned by MAXXAM. There will be no proceeds to the Company from any such
sale. The registration has been declared effective by the SEC.
The Company's Board of Directors has approved a proposed
recapitalization (the "Proposed Recapitalization"). The Proposed
Recapitalization would, among other things: (i) provide for two classes of
common stock: Class A Common Shares, $.01 par value, with one vote per
share ("Class A Common Shares") and a new, lesser-voting class designated
as Common Stock, $.01 par value, with 1/10 vote per share ("New Common
Stock"); (ii) redesignate as Class A Common Shares the 100 million
currently authorized shares of the Company's existing Common Stock and
authorize an additional 250 million shares of New Common Stock; and (iii)
reclassify each issued share of the Company's existing Common Stock, into
(a) .33 of a Class A Common Share and (b) .67 of a share of New Common
Stock. The Company would pay cash in lieu of fractional shares. The Company
anticipates that both the Class A Common Shares and the New Common Stock
would be approved for trading on the New York Stock Exchange.
Upon the effective date of the Proposed Recapitalization,
approximately 23.6 million Class A Common Shares and 48.0 million shares of
New Common Stock would be issued and outstanding. The proportionate voting
power of the holders of the PRIDES would increase immediately after the
effectiveness of the Proposed Recapitalization until such shares are
redeemed or converted, which will occur on or before December 31, 1997. As
of June 30, 1996, holders of the Company's existing Common Stock and the
PRIDES had 91.2% and 8.8%, respectively, of the total voting power of all
stockholders. Immediately after effectiveness of the Proposed
Recapitalization, the voting power of such holders of the PRIDES would
increase to 19.6% in the aggregate, with a corresponding reduction in the
voting power of such holders of the existing Common Stock. At such time as
the PRIDES are redeemed or converted, the relative voting power of the
holders of the PRIDES would decrease and the relative voting power for both
such holders of the PRIDES and the holders of the existing Common Stock
would be approximately the same as it would have been had the Proposed
Recapitalization not occurred.
-11-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
See Part II, Item 1. "LEGAL PROCEEDINGS - Matheson et al v. Kaiser
Aluminum Corporation et al" for information regarding a pending lawsuit
with respect to the Proposed Recapitalization.
Operating Activities
At June 30, 1996, the Company had working capital of $377.0, compared
with working capital of $331.7 at December 31, 1995. The increase in
working capital was due primarily to an increase in Inventories and Prepaid
expenses and other current assets and a decrease in Accounts payable and
Accrued salaries, wages, and related expenses, partially offset by a
decrease in Receivables and an increase in Other accrued liabilities.
Investing Activities
Cash used for investing activities during the first half of 1996
consisted primarily of capital expenditures to improve production
efficiency, reduce operating costs, expand capacity at existing facilities,
and construct new facilities.
At a recent meeting of the directors of Yellow River Aluminum Industry
Company Limited (the "Joint Venture"), a Sino-foreign joint equity enterprise
organized under the law of the People's Republic of China between Kaiser Yellow
River Investment Limited ("KYRIL"), a subsidiary of KACC, and Lanzhou Aluminum
Smelters ("LAS") of the China National Nonferrous Metal Industry Corporation,
KYRIL, LAS and the Joint Venture reached an agreement (i) that extended until
early 1997 the time for KYRIL to make a second capital contribution to the
Joint Venture, and (ii) that KYRIL would continue to explore various methods
of financing any future capital contributions to the Joint Venture, including
financing that could be obtained from third-party investors.
Financing Activities
At June 30, 1996, the Company had long-term debt of $810.9, compared
with $749.2 at December 31, 1995. At June 30, 1996, $192.1 (of which $72.5
could have been used for letters of credit) was available to KACC under
KACC's 1994 Credit Agreement.
Loans under KACC's 1994 Credit Agreement bear interest at a rate per
annum, at KACC's election, equal to a Reference Rate (as defined) plus 1-
1/2% or LIBO Rate (Reserve Adjusted) (as defined) plus 3-1/4%. After June
30, 1995, the interest rate margins applicable to borrowings under KACC's
1994 Credit Agreement may be reduced by up to 1-1/2% (non-cumulatively),
based on a financial test, determined quarterly. The quarterly financial
test permitted a 1-1/2% reduction in margins during the first and second
quarters of 1996. As of June 30, 1996, the financial test permitted a
reduction of 1% per annum in margins effective July 1, 1996.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
Hammons v. Alcan Aluminum Corp. et al
On April 2, 1996, this case was removed to the United States District
Court for the Central District of California. On July 1, 1996, the Court
granted summary judgment in favor of the Company and other
-12-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
defendants and dismissed the complaint as to all defendants with prejudice.
On July 16, 1996, the Court ruled on Plaintiff's Motion for Reconsideration
and confirmed its ruling and order granting summary judgment in favor of
defendants. See Part I, Item 3. "LEGAL PROCEEDINGS - Hammons v. Alcan Aluminum
Corp. et al" in the Company's Report on Form 10-K for the year ended December
3l, 1995 (the "Form 10-K") and Part II, Item 1. "LEGAL PROCEEDINGS - Hammons v.
Alcan Aluminum Corp. et al" in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996 (the "Form 10-Q").
Matheson et al v. Kaiser Aluminum Corporation et al
On March 19, 1996, a lawsuit was filed against MAXXAM, the Company and
the Company's directors challenging and seeking to enjoin the Proposed
Recapitalization. On April 8, 1996, the Delaware Court of Chancery issued
a ruling which preliminarily enjoined the Company from implementing the
Proposed Recapitalization. On April 19, 1996, the Delaware Supreme Court
granted defendants' motion to consider, on an expedited basis, defendants'
appeal of the preliminary injunction. On May 1, 1996, the Company's
stockholders approved the Proposed Recapitalization; however, it will not
be implemented pending the outcome of defendants' appeal. The Delaware
Supreme Court heard oral argument on May 21, 1996, but has not yet issued
its decision in this matter. See Part I, Item 3. "LEGAL PROCEEDINGS -
Matheson et al v. Kaiser Aluminum Corporation et al" in the Form 10-K and
Part II, Item 1. LEGAL PROCEEDINGS - "Matheson et al v. Kaiser Aluminum
Corporation et al" in the Form 10-Q.
Asbestos-related Litigation
KACC is a defendant in a number of lawsuits, some of which involve
claims of multiple persons, in which the plaintiffs allege that certain of
their injuries were caused by exposure to asbestos during, and as a result
of, their employment or association with KACC or exposure to products
containing asbestos produced or sold by KACC. The portion of Note 4 of the
Notes to Interim Consolidated Financial Statements contained in this report
under the heading "Asbestos Contingencies" is incorporated herein by
reference. See Part I, Item 3. "LEGAL PROCEEDINGS - Asbestos-related
Litigation" in the Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
On May 1, 1996, at a special stockholders' meeting, the Company's
stockholders approved the Proposed Recapitalization; however, it will not be
implemented pending the outcome of defendants appeal of the preliminary
injunction in "Matheson et al v. Kaiser Aluminum Corporation et al."
See "LEGAL PROCEEDINGS - Matheson et al v. Kaiser Aluminum Corporation et
al" of this report.
In addition, the annual meeting of stockholders of the Company was
held on May 22, 1996, at which meeting the stockholders voted to elect
management's slate of nominees as directors of the Company.
The results of the matters voted on at these meetings are shown below.
Proposed Recapitalization Amendment of Restated Certificate of
- --------------------------------------------------------------
Incorporation
- -------------
The vote with respect to the proposal to approve the Proposed
Recapitalization Amendment of Restated Certificate of Incorporation
was as follows:
-13-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Common Stock, Separately Common Stock, Together with the PRIDES
---------------------------- ---------------------------------------
Votes For: 52,528,795 Votes For: 53,814,170.2
Votes Against: 6,319,764 Votes Against: 10,121,808.0
Votes Withheld: Votes Withheld:
Abstentions: 13,026 Abstentions: 19,740.4
Broker Nonvotes: Broker Nonvotes:
Nominees for Director
- ---------------------
The nominees for election as directors of the Company are listed
below, together with the number of votes cast for, against, and withheld
with respect to each such nominee, as well as the number of abstentions and
broker nonvotes with respect to each such nominee:
Robert J. Cruikshank
Votes For: 73,628,502
Votes Against:
Votes Withheld: 64,029
Abstentions:
Broker Nonvotes:
George T. Haymaker, Jr.
Votes For: 73,633,001
Votes Against:
Votes Withheld: 59,531
Abstentions:
Broker Nonvotes:
Charles E. Hurwitz
Votes For: 73,623,662
Votes Against:
Votes Withheld: 68,870
Abstentions:
Broker Nonvotes:
Ezra G. Levin
Votes For: 73,621,488
Votes Against:
Votes Withheld: 71,044
Abstentions:
Broker Nonvotes:
Robert Marcus
Votes For: 73,629,941
Votes Against:
Votes Withheld: 62,590
Abstentions:
Broker Nonvotes:
-14-
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Robert J. Petris
Votes For: 73,618,936
Votes Against:
Votes Withheld: 73,595
Abstentions:
Broker Nonvotes:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits.
Exhibit No. Exhibit
---------- -------
10 First Amendment to Employment Agreement by and between the Company,
KACC and George T. Haymaker, Jr.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the quarter ended
June 30, 1996.
SIGNATURE
Pursuant to the requirements 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, who has signed this report on
behalf of the registrant and as the principal financial officer of the
registrant.
KAISER ALUMINUM CORPORATION
/s/ John T. La Duc
By:--------------------------
John T. La Duc
Vice President and
Chief Financial Officer
/s/ Arthur S. Donaldson
By:--------------------------
Arthur S. Donaldson
Controller
Dated: August 13, 1996
-15-
<PAGE>
Exhibit 10
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
This First Amendment to Employment Agreement is made and
entered into as of November 28, 1995, by and between Kaiser
Aluminum Corporation ("KAC") and Kaiser Aluminum & Chemical
Corporation ("KACC") which are collectively referred to herein as
the "Company" and George T. Haymaker, referred to herein as
"Haymaker." The Company and Haymaker are collectively referred
to herein as the "Parties."
WHEREAS, the Company and Haymaker entered into an Employment
Agreement on and as of April 1, 1993 (the "Agreement"); and
WHEREAS, the Parties now desire to amend the Agreement, in
accordance with Section 15 thereof, as hereinafter stated.
NOW, THEREFORE, the Parties do covenant and agree and amend
the Agreement as follows:
1. Sections 3 and 4 of the Agreement are amended to read
as follows (with the language added underscored):
3. SALARY AND BONUS
The Company shall pay Haymaker a base salary at
the rate of $450,000.00 per annum commencing at the
time Haymaker begins his employment with the Company.
Haymaker's salary payments shall be made in accordance
with the usual practices for KACC's salaried employees
as in effect from time to time and which, at the date
of this Agreement, is to pay one-half of each salaried
employee's monthly salary twice per month. Haymaker's
salary shall be subject to review and possible change
on an annual basis in accordance with the usual
practices and policies of KACC. No change in
Haymaker's compensation shall, without his consent,
reduce his base annual salary to less than $450,000.00.
Haymaker shall also be and hereby is designated a
--------------------------
participant in the Kaiser 1995 Executive Incentive
--------------------------------------------------
Compensation Program (commonly referred to as the "Total
--------------------------------------------------------
Comp Plan") which was approved by the Boards of Directors of
-----------------------------------------------------------
the Company on March 31, 1995. Pursuant to such program,
--------------------------------------------------------
Haymaker shall be a participant in the Long Term Incentive
----------------------------------------------------------
portion of the program for the Performance Period of 1994-
----------------------------------------------------------
96, for the Performance Period 1995-97 and his incentive
--------------------------------------------------------
targets for purposes of the program will be established in
----------------------------------------------------------
the same fashion as for other participants in the program
----------------------------------------------------------
except that (i) allocation of Total Compensation Target
-------------------------------------------------------
among Base Salary and Total Incentive Target for 1994 shall
-----------------------------------------------------------
be $450,000.00 to Base Salary and the remainder of the Total
-----------------------------------------------------------
Compensation Target (with no 1994 Short Term Incentive
------------------------------------------------------
Target established and the Long
-------------------------------
<PAGE>
<PAGE>
Term Incentive Target established at seventy-five percent
---------------------------------------------------------
(75%) of the Total Incentive Target); and (ii) 1995
---------------------------------------------------
allocation of Total Compensation Target among Base Salary
---------------------------------------------------------
and Total Incentive Target for 1995 shall be $468,000
-----------------------------------------------------
allocated to Base Salary with the balance of the Total
------------------------------------------------------
Compensation Target allocated to the Total Incentive Target.
-----------------------------------------------------------
Except as otherwise specifically determined by the
--------------------------------------------------
Compensation Committee, such allocation of that amount of
---------------------------------------------------------
Base Salary and Total Incentive Target for Haymaker in years
-----------------------------------------------------------
subsequent to 1995 during the term of the Agreement shall be
-----------------------------------------------------------
made in the same manner as the 1995 allocation.
-----------------------------------------------
Notwithstanding the foregoing, and in light of Haymaker's
employment during less than the full year in 1993, Haymaker
shall not be paid a bonus for calendar/fiscal year 1993.
Any bonus which would otherwise be payable to Haymaker in a
subsequent year shall be prorated for the portion of such
year during which Haymaker is employed by the Company (i) in
the event that either Haymaker or the Company terminates
such employment or (ii) in the event of Haymaker's death or
permanent disability prior to December 31 of such year.
4. GRANT OF STOCK OPTIONS
KAC and KACC hereby agree that they will adopt a
stock and/or stock option based incentive plan (the
"Option Plan") for their executives and selected key
employees and to cause such plan to be presented for
approval by their respective stockholders prior to
mid-year 1993. Upon approval and adoption of such
Option Plan, the Company shall grant to Haymaker
options on 100,000 shares of KAC common stock with an
option exercise price equal to the fair market value of
such stock on the date of grant as determined in
accordance with terms of the Option Plan. Except as
provided in Section 10, said stock options shall vest
and become exercisable under the plan at the rate of
20% of the grant on each anniversary of the date of
grant for a period of five (5) years. Haymaker also
shall be considered for additional grants under the
Executive Incentive Compensation Program at such times
-----------------------------------------
as KAC or KACC may periodically consider awards under the
provisions and by way of implementation of the Executive
--------------------------------------------------------
Incentive Compensation Program. The Option Plan shall
-------------------------------
provide that options vested at the time of Haymaker's death,
disability or termination of employment for any reason
(including such options as to which Haymaker may become
vested by reason of termination of his employment by the
Company without cause) shall continue to be exercisable by
Haymaker or his personal representative for the period of
time following such death, disability or termination as
shall be specified in the grant of options.
-----------------
2. Section 6a of the Agreement is amended to read as
follows (with the language added underscored):
2
<PAGE>
<PAGE>
6. SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFIT ("SERB")
a. Benefit, Service Credit and Offsets
KACC shall hereby agree to provide Haymaker
with a Supplemental Executive Retirement Benefit
("SERB") providing an annual retirement benefit
beginning at age 62 or thereafter which calculates the
amount of his Kaiser Retirement Plan for Salaried
Employees (the "KRP") pension without consideration of
-------------------------
tax code limitations so as to give 25 years service credit
--------------------
for Haymaker's prior service as an employee of ALCOA.
Subject to the provisions of Section 6b, below, any and all
amounts due Haymaker under his ALCOA or affiliated company
pension or retirement plan, his regular KRP, and the Kaiser
---------------
Supplemental Benefit Plan (to the extent the value thereof
-------------------------
represents contributions by the Company rather than
contributions by Haymaker) provided by the Company other
than the SERB and social Security payments projected to be
payable to Haymaker or for his benefit shall be credited
toward and shall reduce the benefits payable under the SERB.
Payment of SERB benefits shall be lump sum distribution for
---------- -----------------------------------
either Haymaker's retirement or spousal benefit. The method
------------------------------------------------------------
of calculation of the total amount due from the combination
------------------------------------------------------------
of KASBP and SERB will be consistent with that used to
-------------------------------------------------------
determine supplemental pension benefits as is used for other
------------------------------------------------------------
Kaiser executives from KASBP, except for the addition of the
------------------------------------------------------------
deemed twenty-five years of service, and the deduction of
----------------------------------------------------------
the ALCOA pension.
------------------
3. Section 8 of the Agreement is amended to read as
follows (with the language added underscored):
8. EMPLOYEE BENEFITS AND PROGRAMS
Haymaker shall be entitled to participate, along
with his dependents where applicable, in the usual
employee benefit programs and policies of KACC such as
medical, hospital and dental plans, group insurance
plans, long-term disability and accidental death and
travel accident plans. Haymaker shall be credited with
--------------------------------
25 years service for purpose of determining his eligibility
------------------------------------------------------------
to receive retiree medical benefits from the Company. It is
-----------------------------------------------------
understood and agreed by the Parties, however, that it is
not the intention of this Agreement to duplicate any
benefit, plan or item of compensation. Accordingly,
although the benefits of this Agreement may be provided,
wholly or in part, through or by means of a KACC plan which
also provides benefits to some other employees or executives
(e.g. the bonus plan) or as a supplement to such plan, the
specific provisions of this Agreement shall not work so as
to provide benefits which are wholly or partially
duplicative of or of the same nature as those provided under
any such plan. The Company
3
<PAGE>
<PAGE>
shall have the right to reduce any benefit specifically
provided for by this Agreement to the extent that the same
or an economically equivalent similar benefit is provided to
Haymaker by a KACC plan. To the extent that it may do so
under any such employee benefit plan, program or policy as
to which Haymaker shall participate, KACC shall:
(i) waive any waiting time or initial
time in service eligibility requirement for
full participation by Haymaker (and his
spouse and dependents where applicable); and
(ii) provide coverage under such plan,
policy or program without disqualification as
to prior condition as the same might
otherwise relate to the back condition of
Haymaker's spouse.
IN WITNESS WHEREOF the Parties have signed this First
Amendment to Employment Agreement as of the date first above
written.
Haymaker The Company
- -------- -----------
Kaiser Aluminum Corporation
- ------------------------------
George T. Haymaker, Jr.
By:
---------------------------
Anthony R. Pierno
Vice President and
General Counsel
Kaiser Aluminum & Chemical
Corporation
By:
--------------------------
Byron L. Wade
Vice President, Secretary
and Deputy General
Counsel
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
consolidated financial statements of the Company for the six months ended June
30, 1996, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000811596
<NAME> KAISER ALUMINUM CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 275
<ALLOWANCES> 0
<INVENTORY> 559
<CURRENT-ASSETS> 945
<PP&E> 1,111
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,856
<CURRENT-LIABILITIES> 568
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 72
<TOTAL-LIABILITY-AND-EQUITY> 2,856
<SALES> 1,099
<TOTAL-REVENUES> 1,099
<CGS> 910
<TOTAL-COSTS> 910
<OTHER-EXPENSES> 112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
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<EXTRAORDINARY> 0
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<NET-INCOME> 18
<EPS-PRIMARY> .19
<EPS-DILUTED> 0
</TABLE>
