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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 JUNESEPTEMBER 30, 1997
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 28,October 31, 1997, the registrant had 71,710,14378,980,881 shares of Common
Stock outstanding.
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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
JuneSeptember 30, December 31,
1997 1996
------------------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 17.426.3 $ 81.3
Receivables 289.8305.0 252.4
Inventories 564.5553.3 562.2
Prepaid expenses and other current assets 133.0125.1 127.8
------------------------------
Total current assets 1,004.71,009.7 1,023.7
Investments in and advances to unconsolidated affiliates 166.5158.1 168.4
Property, plant, and equipment - net 1,161.11,162.9 1,168.7
Deferred income taxes 279.9298.0 264.5
Other assets 356.8335.6 308.7
------------------------------
Total $ 2,969.02,964.3 $ 2,934.0
==============================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 148.1161.1 $ 189.7
Accrued interest 37.624.8 35.6
Accrued salaries, wages, and related expenses 82.276.7 95.4
Accrued postretirement medical benefit obligation -
current portion 50.1 50.1
Other accrued liabilities 119.5121.4 132.7
Payable to affiliates 104.1103.1 97.0
Long-term debt - current portion 5.82.7 8.9
------------------------------
Total current liabilities 547.4539.9 609.4
Long-term liabilities 500.5515.8 458.1
Accrued postretirement medical benefit obligation 717.8714.6 722.5
Long-term debt 999.6969.3 953.0
Minority interests 121.5124.7 121.7
Commitments and contingencies
Stockholders' equity:
Preferred stock .4
.4
Common stock .7.8 .7
Additional capital 532.0534.0 531.1
Accumulated deficit (448.1)(432.0) (460.1)
Additional minimum pension liability (2.8) (2.8)
------------------------------
Total stockholders' equity 82.2100.0 69.3
------------------------------
Total $ 2,969.02,964.3 $ 2,934.0
==============================
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
(Unaudited)
(In millions of dollars, except share amounts)
Quarter Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------------------------ ------------------------------
Net sales $ 597.1634.1 $ 567.6553.4 $ 1,144.51,778.6 $ 1,098.71,652.1
------------------------------ ------------------------------
Costs and expenses:
Cost of products sold 489.3 476.1 950.0 909.8523.7 485.0 1,473.7 1,394.8
Depreciation 22.8 24.2 45.9 48.222.9 24.3 68.8 72.5
Selling, administrative, research and development, and
general 30.0 30.7 62.3 63.833.0 33.6 95.3 97.4
Restructuring of operations 19.7 19.7
------------------------------ ------------------------------
Total costs and expenses 561.8 531.0 1,077.9 1,021.8579.6 542.9 1,657.5 1,564.7
------------------------------ ------------------------------
Operating income 35.3 36.6 66.6 76.954.5 10.5 121.1 87.4
Other income (expense):
Interest expense (28.1) (23.0) (55.8) (45.7)(27.5) (22.6) (83.3) (68.3)
Other - net (3.2) 1.2 (.4) .92.1 2.1 1.7 3.0
------------------------------ ------------------------------
Income (loss) before income taxes and minority interests 4.0 14.8 10.4 32.129.1 (10.0) 39.5 22.1
(Provision) benefit for income taxes 11.0 (5.6) 8.6 (12.2)(11.0) 3.8 (2.4) (8.4)
Minority interests (1.3) (1.0) (2.7) (1.8)(.6) (.4) (3.3) (2.2)
------------------------------ ------------------------------
Net income 13.7 8.2 16.3 18.1(loss) 17.5 (6.6) 33.8 11.5
Dividends on preferred stock (1.3) (2.1) (2.1) (4.2) (4.2)(5.5) (6.3)
------------------------------ ------------------------------
Net income (loss) available to common shareholders $ 11.616.2 $ 6.1(8.7) $ 12.128.3 $ 13.95.2
============================== ==============================
Earnings (loss) per common and common equivalent shareshare:
Primary $ .16.22 $ .09(.12) $ .17.39 $ .19.07
============================== ==============================
Fully diluted $ .22 $ .43
============== ==============
Weighted average common and common equivalent shares
outstanding (000) 71,837 71,855 71,829 71,876
============================== ==============================:
Primary 74,663 71,646 72,775 71,843
Fully diluted 79,193 79,164
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
SixNine Months Ended
JuneSeptember 30,
------------------------------
1997 1996
------------------------------
Cash flows from operating activities:
Net income $ 16.333.8 $ 18.111.5
Adjustments to reconcile net income to net cash used
forprovided (used)
by operating activities:
Depreciation 45.9 48.268.8 72.5
Restructuring of operations 19.7
Non-cash benefit for income taxes (12.5)
Amortization of excess investment over equity in
unconsolidated affiliates 5.8 5.88.7 8.7
Amortization of deferred financing costs and net
discount on long-term debt 3.0 2.74.5 4.1
Undistributed equity in (income) loss of unconsolidated
affiliates, net of distributions 12.0 (7.9)16.7 (7.5)
Minority interests 2.7 1.83.3 2.2
(Increase) decrease in receivables (47.7) 30.4
Increase(59.5) 41.0
(Increase) decrease in inventories (5.5) (33.0)
Increase5.7 (19.8)
(Increase) decrease in prepaid expenses and other assets (15.7) (31.2)1.1 (38.1)
Decrease in accounts payable (41.6) (21.5)
Increase(28.6) (24.1)
Decrease in accrued interest 2.0 .1(10.8) (18.4)
Decrease in payable to affiliates and accrued liabilities (18.7) (20.1)(29.8) (23.1)
Decrease in accrued and deferred income taxes (6.6) (8.6)(2.1) (18.6)
Other (.9) 3.73.6 4.6
------------------------------
Net cash used forprovided (used) by operating activities (41.8) (11.5)22.6 (5.0)
------------------------------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 22.1 1.2
Additions to property, plant, and equipment (68.8) (51.9)
Redemption fund for minority interests' preference
stock (2.5)22.2 1.6
Capital expenditures (94.7) (91.1)
Other (2.6) (1.3)
------------------------------
Net cash used forby investing activities (49.2) (52.0)(75.1) (90.8)
------------------------------
Cash flows from financing activities:
Borrowings under revolving credit facility, net 30.0 67.3118.1
Borrowings of long-term debt 19.0
Repayments of long-term debt (5.1) (5.6)(8.6) (9.0)
Increase in restricted cash, net (10.1)(6.5)
Incurrence of financing costs (.5)(0.6)
Dividends paid (4.2) (4.2)(8.4)
Capital stock issued .4
Redemption of minority interests' preference stock (2.0) (5.1)(5.2)
------------------------------
Net cash provided (used) by financing activities 27.1 52.4(2.5) 95.5
------------------------------
Net decrease in cash and cash equivalents during the period (63.9) (11.1)(55.0) (.3)
Cash and cash equivalents at beginning of period 81.3 21.9
------------------------------
Cash and cash equivalents at end of period $ 17.426.3 $ 10.821.6
==============================
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 50.989.5 $ 42.982.7
Income taxes paid 9.1 17.414.8 22.4
Tax allocation payments to MAXXAM Inc. 1.1
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
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 and one of its wholly owned subsidiaries together
own 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 share63% of the Company's Common Stock with the remaining
approximately 38%37% publicly held. The Company operates through its
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,
1996. In the opinion of management, the unaudited interim consolidated
financial statements furnished herein include all adjustments, all of which
are of a normal recurring nature, necessary for a fair statement of the
results for the interim periods presented.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities known to exist as of the
date the financial statements are published, and the reported amounts of
revenues and expenses during the reporting period. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation
of the Company's consolidated financial statements; accordingly, it is
possible that the actual results could differ from these estimates and
assumptions, which could have a material effect on the reported amounts of
the Company's consolidated financial position and results of operations.
Operating results for the quarter ended JuneSeptember 30, 1997, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
2. INVENTORIES
The classification of inventories is as follows:
JuneSeptember 30, December 31,
1997 1996
------------------------------
Finished fabricated aluminum products $ 119.495.4 $ 113.5
Primary aluminum and work in process 189.8220.7 200.3
Bauxite and alumina 125.7110.5 110.2
Operating supplies and repair and maintenance parts 129.6126.7 138.2
------------------------------
Total $ 564.5553.3 $ 562.2
==============================
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. SOLID WASTE DISPOSAL REVENUE BONDS
In March 1997, KACC entered into an agreement (the "Loan Agreement")
with the Industrial Development Corporation of Spokane County, Washington
(the "IDC") in connection with which the IDC issued $19.0 of 7.6% Solid
Waste Disposal Revenue Bonds due 2027 (the "Bonds") and loaned the proceeds
to KACC to finance the construction of certain qualifying expenditures at
its Mead smelter, which are part of the previously announced modernization
and expansion of Mead's carbon baking furnace. The net proceeds from the
sale of the Bonds of approximately $18.6 were deposited into a restricted
construction account (the balance of which is included in Other Assets)assets) and
may be withdrawn from time to time by KACC, pursuant to the Loan Agreement
and Bond indenture. The Loan Agreement requires KACC to make payments on
the dates and in the amounts required to permit the IDC to satisfy all of
its payment obligations under the Bonds and related indenture.
4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
PRIMARY
Earnings per common and common equivalent share are computed by
deducting dividends on the 8.255% PRIDES, Convertible Preferred Stock (the
"PRIDES") 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. The impact of the number of outstanding stock options on the
weighted average number of common and common equivalent shares for the
quarters and sixnine month periods ended JuneSeptember 30, 1997, and 1996, was
immaterial.
FULLY DILUTED
For the quarter and nine months ended September 30, 1997, fully
diluted earnings per share are presented even though the results are
antidilutive as a result of the August 1997 conversion of the PRIDES. The
fully diluted computations for these periods assume that the conversion of
the PRIDES had occurred at the beginning of each period. Accordingly, the
dividend amounts for the quarter and nine-month period ended September 30,
1997, of $1.3 and $5.5, respectively, have not been deducted from net
income and the weighted average number of common and common equivalent
shares has been adjusted to reflect the 7,227,848 shares of the Company's
Common Stock issued upon conversion of the PRIDES in August 1997 as if they
had been outstanding from the beginning of each period.
The PRIDES were excluded from the calculation of the weighted average
number of common and common equivalent shares outstanding for all periods
presentedthe quarter
and nine-months ended September 30, 1996, because they were antidilutive.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). Under SFAS No. 128, primary earnings per share ("Primary
EPS") will be replaced by basic earnings per share ("Basic EPS"), and fully
diluted earnings per share ("Fully Diluted EPS") will be replaced with
diluted earnings per share ("Diluted EPS"). Basic EPS differs from Primary
EPS in that it only includes the weighted average impact of outstanding
shares of the Company's Common Stock (i.e., it excludes common stock
equivalents and the dilutive effect of options, etc.) Diluted EPS is
substantially similar to Fully Diluted EPS as previously reported. The
provisions of SFAS No. 128 will result in the retroactive restatement of
previously reported Primary EPS and Fully Diluted EPS figures, but SFAS No.
128 prohibits such restatement prior to December 31, 1997. Based on the
Company's computations, the adoption of SFAS No. 128 is not expected to
impact earnings per share amounts reported during the current quarter or
any recent prior period.
5. CONTINGENCIES
ENVIRONMENTAL CONTINGENCIES
The Company and KACC are subject to a number of environmental laws, to
fines or penalties assessed for alleged breaches of such 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 on the Company's evaluation of these and other environmental
matters, the Company has established environmental accruals primarily
related to potential solid waste disposal and soil and groundwater
remediation matters. At JuneSeptember 30, 1997, the balance of such accruals,
which are primarily included in Long-term liabilities, was $31.9.$30.8. 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 actions 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 $9.0$8.0 for the years
1997 through 2001 and an aggregate of approximately $6.0$7.0 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 $23.0 and that,$19.0. 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
arecan be expected to be resolved during 1997.resolved. However, the Company is currently working
to resolve certain of these matters. 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 20 years. At JuneSeptember 30, 1997, the number of such claims pending
was approximately 74,300,71,200, as compared with 71,100 at December 31, 1996. In
1996, approximately 21,100 of such claims were received and 9,700 were
settled or dismissed. During the quarter and sixnine months ended JuneSeptember
30, 1997, approximately 3,0003,400 and 5,6009,000 of such claims were received and
1,2006,500 and 2,4008,900 of such claims 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 through 2008. There are
inherent uncertainties involved in estimating asbestos-related costs, and
the Company's actual costs could exceed or be less than 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 estimated asbestos-related cost accrual
of $157.3,$156.8, before consideration of insurance recoveries, is included
primarily in Long-term liabilities at JuneSeptember 30, 1997. 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. The Company estimates that annual future cash
payments in connection with such litigation will be approximately $13.0 to
$20.0 for each of the years 1997 through 2001, and an aggregate of
approximately $81.0$86.0 thereafter.
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 the 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 LLP 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 $131.8,$127.9, determined on the same
basis as the asbestos-related cost accrual, is recorded primarily in Other
assets at JuneSeptember 30, 1997.
Management continues to monitor claims activity, the status of
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 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.
See Note 8 of the Notes to Consolidated Financial Statements for the
year ended December 31, 1996.
6. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
At JuneSeptember 30, 1997, the net unrealized loss, including unamortized
net option premiums, on KACC's position in aluminum forward sales and
option contracts, (based on an average price of $1,621$1,647 per ton* ($.74.75 per
pound) of primary aluminum), natural gas and fuel oil forward purchase and
option contracts, and forward foreign exchange contracts, was approximately
$13.6.$11.6.
ALUMINA AND ALUMINUM
The Company's earnings 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.
Primary aluminum prices have historically been subject to significant
cyclical fluctuations. During the period from January 1, 1993, through
June- ------------
*All references to tons in this report refer to metric tons of 2,204.6
pounds.
September 30, 1997, the Average Midwest United States transaction price for
primary aluminum has ranged from approximately $.50 to $1.00 per pound.
Alumina prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.
* All references to tons in this report refer to metric tons of 2,204.6 pounds.
From time to time in the ordinary course of business, KACC enters into
hedging transactions to provide price risk management in respect of the net
exposure of earnings resulting from (i) anticipated sales of alumina,
primary aluminum and fabricated aluminum products, less (ii) expected
purchases of certain items, such as aluminum scrap, rolling ingot, and
bauxite, whose prices fluctuate with the price of primary aluminum.
Forward sales contracts are used by KACC to effectively lock-in or fix the
price that KACC will receive for its shipments. KACC also uses option
contracts (i) to establish a minimum price for its product shipments, (ii)
to establish a "collar" or range of prices for KACC's anticipated sales,
and/or (iii) to permit KACC to realize possible upside price movements. As
of JuneSeptember 30, 1997, KACC had sold forward, at fixed prices,
approximately 34,500,17,300, 93,600 and 24,000 tons of primary aluminum with
respect to 1997, 1998 and 1999, respectively. As of JuneSeptember 30, 1997,
KACC had also purchased put options to establish a minimum price for
approximately 91,10042,100 and 52,000 tons of primary aluminum with respect to
1997 and 1998, respectively, and had entered into option contracts that
established a price range for an additional 78,000,51,000, 231,600 and 124,500
tons for 1997, 1998 and 1999, respectively.
As of JuneSeptember 30, 1997, KACC had sold forward virtually all of the
alumina available to it in excess of its projected internal smelting
requirements for 1997, 1998 and 1999 at prices indexed to future prices of
primary aluminum.
ENERGY
KACC is exposed to energy price risk from fluctuating prices for fuel
oil and natural gas consumed in the production process. Accordingly, KACC
from time to time in the ordinary course of business enters into hedging
transactions with major suppliers of energy and energy related financial
instruments. As of JuneSeptember 30, 1997, KACC had a combination of fixed
price purchase and option contracts for the purchase of approximately
40,00044,000 MMBtu of natural gas per day during the remainder of 1997, and for
25,00041,000 MMBtu of natural gas per day for 1998. As of JuneSeptember 30, 1997,
KACC also held a combination of fixed price purchase and option contracts
for an average of 216,000, 222,000228,000, 232,000 and 25,000 barrels of fuel oil per month
for 1997, 1998, and 1999, respectively.
FOREIGN CURRENCY
KACC enters into forward exchange contracts to hedge material cash
commitments to foreign subsidiaries or affiliates. At JuneSeptember 30, 1997,
KACC had net forward foreign exchange contracts totaling approximately
$147.8$135.0 for the purchase of 192.0175.5 Australian dollars from JulyOctober 1997
through December 1998, in respect of its commitments for 1997 and 1998
expenditures denominated in Australian dollars. At JuneSeptember 30, 1997,
KACC also held options to purchase approximately 20.010.0 Australian dollars
over the last sixthree months of 1997.
See Note 9 of the Notes to Consolidated Financial Statements for the
year ended December 31, 1996.
7. RESTRUCTURING OF OPERATIONS
The Company has previously disclosed that it set a goal of achieving
significant cost reductions and other profit improvements, with the full
effect planned to be realized in 1998.1998 and beyond, measured against 1996
results. The initiative is based on the Company's conclusion that the
current level of performance of its existing facilities and businesses willwould not
achieve the level of profits the Company considers satisfactory based upon
historic long-term average prices for primary aluminum and alumina. During
the second quarter of 1997, the Company recorded a $19.7 restructuring
charge to reflect actions taken and plans put in placeinitiated to achieve the reduced
production costs, decreased corporate selling, general and administrative
expenses, and enhanced product mix intended to achieve this goal. The
significant components of the restructuring charge are enumerated below.
ERIE PLANT DISPOSITION
During the second quarter of 1997, the Company formed a joint venture
with a third party related to the assets and liabilities associated with
the wheel manufacturing operations at its Erie, Pennsylvania, fabrication
plant. The Credit Agreement was amended to provide for the formation of
the new entity. Management subsequently decided to close the remainder of the Erie
plant in order to consolidate its aluminum forgings operations at two other
facilities for increased efficiency. As a result of the joint venture
formation and plant closure, the Company recognized a net pre-tax loss of
approximately $1.4.
OTHER ASSET DISPOSITIONS
As a part of the Company's profit enhancement and cost reduction
initiative, management made decisions regarding product rationalization and
geographical optimization, which led management to decide to dispose of
certain assets which had nominal operating contribution. These strategic
decisions resulted in the Company recognizing a pre-tax charge for
approximately $15.6 associated with such asset dispositions.
EMPLOYEE AND OTHER COSTS
As a part of the Company's profit enhancement and cost reduction
initiative, management concluded that certain corporate and other staff
functions could be consolidated or eliminated resulting in a second quarter
pre-tax charge of approximately $2.7 for benefit and other costs.
8. COMPLETED ACQUISITION
During June 1997, Kaiser Bellwood Corporation, a newly formed, wholly
owned subsidiary of KACC, completed the acquisition of Reynolds Metals
Company's Bellwood, Virginia, extrusion plant and its existing inventories
for a total purchase price (after post-closing adjustments) of $44.1,$41.6,
consisting of cash payments of $40.1$38.4 and the assumption of approximately
$4.0$3.2 of employee related and other liabilities. The purchase price is subject to certain post-closing
adjustments.
KACC's Credit Agreement was amended in June 1997, to provide
for the acquisition of the Bellwood facility. Additionally, uponUpon completion of the
transaction, Kaiser Bellwood Corporation became a subsidiary guarantor
under the indentures in respect of KACC's 9-7/8% Senior Notes due 2002,
10-7/8% Series B and Series D Senior Notes due 2006, and 12-3/4% Senior
Subordinated Notes due 2003.
9. CONVERSION OF PRIDES TO COMMON STOCK
During August 1997, the 8,673,850 outstanding shares of PRIDES were
converted into 7,227,848 shares of Common Stock pursuant to the terms of
the PRIDES Certificate of Designations. Further, in accordance with the
PRIDES Certificate of Designations, no dividends were paid or payable for
the period June 30, 1997, to, but not including, the date of conversion.
However, in accordance with generally accepted accounting principles, the
$1.3 of accrued dividends attributable to the period June 30, 1997, to, but
not including, the conversion date is treated as an increase in Additional
capital at the date of conversion and must still be reflected as a
reduction of Net income (loss) available to common shareholders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
This section should be read in conjunction with the response to Item
1, Part I, of this Report.
This section 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, for example, "Profit Enhancement and Cost Reduction Initiative,"
"Results of Operations," and "Liquidity and Capital Resources"). Such
statements can be identified by the use of forward-looking terminology such
as "believes," "expects," "may," "estimates," "will," "should," "plans" or
"anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. Readers are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve significant risks and uncertainties, and
that actual results may vary materially from those in the forward-looking
statements as a result of various factors. These factors include the
effectiveness of management's strategies and decisions, general economic
and business conditions, developments in technology, new or modified
statutory or regulatory requirements, and changing prices and market
conditions. This section and the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, each identify other factors that could
cause such differences. 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.
PROFIT ENHANCEMENTRECENT EVENTS AND COST REDUCTION INITIATIVEDEVELOPMENTS
The Company has previously disclosed that it has set a goal of achieving
significant cost reductions and other profit improvements, with the full
effect planned to be realized in 1998.1998 and beyond, measured against 1996
results. The initiative is based on the Company's conclusion that the
current level of performance of its existing facilities and businesses willwould not
achieve the level of profits the Company considers satisfactory based upon
historic long-term average prices for primary aluminum and alumina. During
the second quarter of 1997, the Company recorded a $19.7 million
restructuring charge to reflect actions taken and plans put in placeinitiated to
achieve the reduced production costs, decreased corporate selling, general
and administrative expenses, and enhanced product mix intended to achieve
this goal. The significant
components of the restructuring charge are discussed inSee Note 7 of the Notes to Interim Consolidated Financial
Statements.
RECENT EVENTS
During June 1997, Kaiser Bellwood Corporation, a newly formed, wholly
owned subsidiary of KACC,the Company, completed the acquisition of Reynolds
Metals Company's Bellwood, Virginia, extrusion plant and its existing
inventories for a total purchase price of $44.1 million, subject to certain post-closing
adjustments.$41.6 million. See Note 8 of
Notes to Interim Consolidated Financial Statements.
During August 1997, the 8,673,850 outstanding shares of PRIDES were
converted into 7,227,848 shares of Common Stock pursuant to the terms of
the PRIDES Certificate of Designations.
The Company currently anticipates that the Volta River Authority may
partially reduce its electric power allocation to the Company's 90% owned
Volta Aluminium Company Limited ("Valco") smelter facility in Ghana in
1998. Informal discussions with local officials suggest that regional
rainfall has been insufficient to raise the level of the lake, from which
the facility receives its hydroelectric power, to maintain the current
level of power for the coming year. Formal notice of Valco's 1998 power
allocation is expected on or about November 15, 1997. Meetings are planned
with local officials for early November to discuss the situation.
RESULTS OF OPERATIONS
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 sixnine month periods ended JuneSeptember 30, 1997, and 1996.
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.
Interim results are not necessarily indicative of those for a full
year.
SELECTED OPERATIONAL AND FINANCIAL INFORMATION
(Unaudited)
(In millions of dollars, except shipments and prices)
Quarter Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------------------------ ------------------------------
Shipments: (1)
Alumina 492.3 431.9 877.8 908.1579.2 598.6 1,457.0 1,506.7
Aluminum products:
Primary aluminum 82.0 100.0 160.5 174.886.4 88.1 246.9 262.9
Fabricated aluminum products 100.4 85.1 194.3 162.3105.2 83.1 299.5 245.4
------------------------------ ------------------------------
Total aluminum products 182.4 185.1 354.8 337.1191.6 171.2 546.4 508.3
============================== ==============================
Average realized sales price:
Alumina (per ton) $ 200 $ 187 $ 196 $ 207 $ 193 $ 208199
Primary aluminum (per pound) .76 .67 .75 .69 .75 .71
Net sales:
Bauxite and alumina:
Alumina $ 96.5115.9 $ 89.5111.7 $ 169.7285.6 $ 188.5300.2
Other (2) (3) 26.5 27.0 53.1 51.427.1 25.8 80.2 77.2
------------------------------ ------------------------------
Total bauxite and alumina 123.0 116.5 222.8 239.9143.0 137.5 365.8 377.4
------------------------------ ------------------------------
Aluminum processing:
Primary aluminum 135.3 153.1 264.5 272.2145.0 130.6 409.5 402.8
Fabricated aluminum products 334.5 294.1 648.9 579.0341.7 282.4 990.6 861.4
Other (3) 4.3 3.9 8.3 7.64.4 2.9 12.7 10.5
------------------------------ ------------------------------
Total aluminum processing 474.1 451.1 921.7 858.8491.1 415.9 1,412.8 1,274.7
------------------------------ ------------------------------
Total net sales $ 597.1634.1 $ 567.6553.4 $ 1,144.51,778.6 $ 1,098.71,652.1
============================== ==============================
Operating income (loss):
Bauxite and alumina $ 7.58.8 $ 1.1(2.1) $ 6.014.8 $ 10.98.8
Aluminum processing (4) 46.2 50.2 97.5 98.764.1 29.1 161.6 127.8
Corporate (5) (18.4) (14.7) (36.9) (32.7)(16.5) (55.3) (49.2)
------------------------------ ------------------------------
Total operating income $ 35.354.5 $ 36.610.5 $ 66.6121.1 $ 76.987.4
============================== ==============================
Net income (loss) $ 13.717.5 $ 8.2(6.6) $ 16.333.8 $ 18.111.5
============================== ==============================
Capital expenditures:
Property, plant, and equipmentexpenditures $ 47.025.9 $ 31.939.2 $ 68.894.7 $ 51.9
==============================91.1
============================== ==============================
[FN]
- ---------------------------------
(1) In thousands of metric tons.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests
in consolidated subsidiaries.
(4) Operating income for the nine months ended September 30, 1997 includes
a pre-tax charge of $15.1 related to restructuring of operations
recorded in consolidated subsidiaries.
(4) Includes a pre-tax charge of $15.1 related to restructuring of
operations for both the quarter and six month period ended June 30,
1997.
(5) Includes a pre-tax charge of $4.6 related to restructuring of
operations for both the quarter and six month period ended June 30, 1997.
(5) Operating income for the nine months ended September 30, 1997 includes
a pre-tax charge of $4.6 related to restructuring of operations
recorded in the quarter ended June 30, 1997.
OVERVIEW
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. Primary aluminum prices have
historically been subject to significant cyclical fluctuations. Alumina
prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.
During the first halfnine months of 1996,1997, the Average Midwest United
States transaction price ("AMT Price") for primary aluminum remained
relatively stable generally in the $.75 - $.80 per pound range. The AMT
Price for primary aluminum for the week ended October 31, 1997, was
approximately $.77 per pound. This compares favorably to 1996 when the AMT
Price remained fairly stable generally in the $.70 - $.75 per pound range. Duringrange through
June and then declined during the second half of the year, the AMT Price for primary aluminum fell, reaching a low
of approximately $.65 per pound for October 1996, before recovering late in
the year. During the
period 1993- June 30, 1997, the AMT Price for primary aluminum ranged from
approximately $.50 to $1.00 per pound. The AMT Price for primary aluminum
for the week ended July 25, 1997, was approximately $.78 per pound.
See Note 6 of the Notes to Interim Consolidated Financial Statements
for a discussion of KACC's hedging activities.
QUARTER AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1997, COMPARED TO QUARTER AND
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1996
SUMMARY
The Company reported net income of $13.7$17.5 million, or $.16$.22 per common
and common equivalent share, for the secondthird quarter of 1997, compared to a
net incomeloss of $8.2$6.6 million, or $.09$.12 per common and common equivalent share,
for the same period of 1996. Net sales in the secondthird quarter of 1997 totaled
$597.1$634.1 million compared to $567.6$553.4 million in the secondthird quarter of 1996.
For the six-monthnine-month period ended JuneSeptember 30, 1997, net income was
$16.3$33.8 million, or $.17$.39 per common and common equivalent share compared to
net income of $18.1$11.5 million, or $.19$.07 per common and common equivalent per
share for the six-monthnine-month period ended JuneSeptember 30, 1996. Net sales for
the sixnine months ended JuneSeptember 30, 1997, were $1,144.5$1,778.6 million compared to
$1,098.7$1,652.1 million for the first sixnine months of 1996.
Results for the quarter and six monthnine-month period ended JuneSeptember 30, 1997, include
the effect of certain non-recurring items including a $19.7 million
restructuring charge (discussed above), an approximate $12.5 million non-
cash tax benefit related to settlement of certain matters and a $5.8
million charge related to additional litigation reserves. Excluding these
items, net income for the quarter and six monthnine-month period ended JuneSeptember 30, 1997, would
have been approximately $17.0$37.1 million, and $19.6 million,
respectively, andprimary earnings per common and
common equivalent share for these
periodsthe period would have been approximately $.21 and $.22, respectively.$.43.
BAUXITE AND ALUMINA
Net sales of alumina increased by 8%4% for the quarter ended JuneSeptember
30, 1997, from the comparable period in the prior year, as a result of a 14%7%
increase in alumina shipments offset by a 5% decline in average realized prices
realized from the sale of alumina.alumina, offset by a
3% decline in alumina shipments. Shipment volumes were updown as compared to
the quarter ended JuneSeptember 30, 1996, primarily as a result of the timing
of shipments. For the six monthnine-month period ended JuneSeptember 30, 1997, net
segment sales declined by 7%,3% from the comparable period in the prior year.
This change was due primarily to a 7%2% decrease in average realized prices between
periods and to a lesser extent due to a 3% reduction in alumina shipments.
Segment operating income improved substantially on a quarter to
quarter basis but declined by 45%and, to a lesser extent, for the comparative sixnine month
periods.periods as well. On a quarterly basis, the improvement resulted primarily
from improvedimprovements in average realized prices and operating efficiencies and
reduced raw material and energy prices. On a year-to-date basis, however, these
amountsimprovements were not sufficient tosomewhat offset by the impact of reductions in both a reduction inthe
average realized alumina pricesprice and alumina shipments as well
as alumina shipments.discussed above.
ALUMINUM PROCESSING
Net sales of primary aluminum for the quarter ended JuneSeptember 30,
1997, decreasedincreased by 12%11% from the comparable prior year period as a result of
a 18%
decrease in shipments offset by an 8%13% increase in average realized prices.
Theprices offset by a 2% decrease in
primary aluminum shipments between periods is the result of
the higher than usual shipments in the second quarter of 1996.shipments. Net sales of fabricated aluminum products for the quarter ended
JuneSeptember 30, 1997, were up 14%21% as compared to the prior year period as a
result of a 18%27% increase in shipments offset by a 4% decrease in average
realized prices. The increase in fabricated aluminum product shipments
over the secondthird quarter of 1996 was due tothe result of the Company's June 1997
acquisition of an extrusion facility in Bellwood, Virginia, as well as
increased international sales of can sheet and increased shipments of heat-treatedheat-
treated products.
For the six monthnine-month period ended JuneSeptember 30, 1997, net sales for the
aluminum processing segment increased by approximately 7%11% from the
comparable prior year period primarily as a 12%result of a 15% increase in
fabricated aluminum product net sales more than offset a 3% decline in
net sales of primary aluminum.sales. The increase in fabricated product net
sales, and offsetting decrease in primary aluminum
net sales resulted from the same shipment and price factors discussed in
the preceding paragraph. Net sales of primary aluminum for the nine-month
period ended September 30, 1997, were basically flat as compared to the
prior year as reduced shipments for the period were offset by an increase
in the average realized price.
In addition to being affected by the price and volume factors
discussed above, the Aluminum Processingaluminum processing segment's operating income for the
nine months ended September 30, 1997, also benefited from reduced power,
raw material and supply costs as well as improved operating efficiencies.
In addition, the segment's operating income for the quarter and sixnine month
period ended JuneSeptember 30, 1997, includes approximately $2.3$2.7 million and
$5.2$7.5 million of operating income realized during the periods, related to
the settlement of certain issues related to energy service contracts andcontracts.
Operating income for the nine-month period ended September 30, 1997, also
includes a $15.1 million second quarter charge resulting from the previously
discussed
restructuring of operations.
CORPORATE
Corporate operating expenses represent corporate general and
administrative expenses, which are not allocated to the Company's business
segments. Operating results for the quarter and six monthnine-month period ended JuneSeptember 30,
1997, both includeincludes a pre-tax charge of approximately $4.6 million associated
with the Company's restructuring of operations.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL STRUCTURE
MAXXAM Inc. ("MAXXAM") and MAXXAM Group Holdings Inc. ("MGHI"), a
wholly owned subsidiary of MAXXAM, collectively own approximately 62%63% of
the Company's Common Stock, par value $.01 per share, assuming the
conversion of each outstanding share of the Company's 8.255% PRIDES,
Convertible Preferred Stock (the "PRIDES") into one share of the Company's
Common Stock.share. The remaining
approximately 38%37% of the Company's Common Stock is publicly held.
MGHI has pledged 27,938,250 shares of the Company's Common Stock
beneficially owned by it (the "Pledged Shares") as security for $225.7
million of debt securities of one of its wholly owned subsidiaries.
Additionally, MGHI has agreed to pledge up to 16,055,000 of such Pledged
Shares as security for $130.0 million of its debt securities should the
security pledge related to the $225.7 million of debt securities be
released due to an early retirement of the related debt (other than by a
refinancing).
The Company has an effective "shelf" registration statement covering
the offering of up to 10,000,000 shares of the Company's Common Stock that
are owned by MAXXAM. Any such offering would only be made by means of a
prospectus. The Company will not receive any of the net proceeds from any
transaction initiated by MAXXAM pursuant to this registration statement.
The Company also has an effective shelf"shelf" registration statement
covering the offering from time to time of up to $150.0 million of equity
securities. Any such offering will only be made by means of a prospectus.
On December 31, 1997, unless either previously redeemed by the Company
or converted at the option of the holder, each of the outstanding shares of
PRIDES will mandatorily convert into one share of the Company's Common
Stock, subject to adjustment in certain events.
The Credit Agreement does not permit the Company or KACC to pay any
dividends on their Commoncommon stock. The declaration and payment of dividends
by the Company with respect to the outstanding PRIDES is expressly
permitted by the terms of the Credit Agreement to the extent the Company
receives payments on certain intercompany notes or certain other permitted
distributions from KACC.
OPERATING ACTIVITIES
At JuneSeptember 30, 1997, the Company had working capital of $457.3$469.8
million, compared with working capital of $414.3 million at December 31,
1996. The increase in working capital was due primarily to an increase in
Receivables and a decrease in Accounts payable partially offset by a
decrease in Cash and cash equivalents.
INVESTING ACTIVITIES
Capital expenditures during the quarter and sixnine months ended
JuneSeptember 30, 1997, were $47.0$25.9 million and $68.8$94.7 million, respectively, and
were used primarily to acquire the Bellwood extrusion facility from
Reynolds, improve production efficiency, reduce operating costs, expand
capacity at existing facilities, and construct new facilities. The
Company's first Micromill(TM) facility, which was constructed in Nevada
during 1996 as a demonstration and production facility, achieved
operational start-up by year-end 1996. The facility remained in a start-up
mode during the first halfnine months of 1997 as the Company continued its
efforts to implement the Micromill(TM) technology on a full scale basis.
While the Micromill(TM) technology has not yet been fully implemented or
commercialized, and isno assurances can be given that the Company will
ultimately be successful in this regards, the Company currently expectedexpects to
commence limited product shipments to customers in the latter partfourth quarter of
the year.1997.
Total consolidated capital expenditures (of which approximately 7% is
expected to be funded by the Company's minority partners in certain foreign
joint ventures) are expected to be between $70.0 and $140.0 million per
annum in each of 1997 through 1999. Management continues to evaluate
numerous projects, all of which require substantial capital, including the
Company's Micromill(TM)Micromill project, and other potential opportunities both in the
United States and overseas.
Kaiser Yellow River Investment Limited ("KYRIL"),Subsequent to September 30, 1997, a joint decision was made by a
KACC subsidiary and its joint venture partner to terminate and dissolve
the Sino-foreign aluminum joint venture in which the subsidiary had
invested approximately $9.0 million in 1995. Under the terms of the
Company,joint venture agreement and Chinese law, a distribution of the joint
venture's net assets is a participantto be made to each of the parties in Yellow River Aluminum Industry Company
Limited, a Sino-foreign joint equity enterprise (the "Joint Venture")
organized underrespect of
their individual ownership interests. The amount that will ultimately be
received upon dissolution and the lawsassociated terms of any payments are the
subject of ongoing negotiations and is subject to certain governmental
approvals by officials of the People's Republic of China ("PRC") along
with the Lanzhou Aluminum Smelters ("LAS") of the China National Nonferrous
Metals Industry Corporation ( the "CNNC"). The parties to the Joint
Venture are currently engaged in discussions concerning the future of the
Joint Venture. In a June 1997 meeting, representatives of the Company and
the CNNC agreed to extend the Joint Venture termination date from June 30,
1997 to March 31, 1998. Negotiations between KYRIL, LAS and the CNNC
continue to focus on a sale of KYRIL's interests to a third party or LAS
and/or the CNNC making a payment to KYRIL in return for its existing
interests in the Joint Venture. However, no agreement has been reached
concerning the amount of or terms for any such payments. Governmental
approval in the PRC will be necessary in order to implement any
arrangements agreed to by the parties, and there can be no assurance such
approval will be obtained.China.
FINANCING ACTIVITIES AND LIQUIDITY
At JuneSeptember 30, 1997, the Company had long-term debt of $1,005.4$972.0
million, compared with $961.9 million at December 31, 1996. The change in
long-term debt between periods is primarily the result of $30.0 million of borrowings
under the Credit Agreement and $19.0 million of
proceeds from the Spokane County, Washington, Solid Waste Disposal Revenue
Bonds, which were loaned to KACC to finance certain qualifying capital
expenditures at its Mead smelter.smelter, offset by scheduled payments of the
current portion of long-term debt.
At JuneSeptember 30, 1997, $243.8$273.8 million (of which $73.8 million could
have been used for letters of credit) was available to KACC under the
Credit Agreement. Loans under the Credit Agreement bear interest at a
spread (which varies based on the results of a financial test) over either
a base rate or LIBOR at the Company's option. During the quarter and sixnine
month period ended JuneSeptember 30, 1997, the average per annum interest rates
on loans outstanding under the Credit Agreement were approximately 9.5%9.0% and
9.6%9.5%, respectively. During the quarter ended June 30, 1997, the Credit Agreement was
amended to provide for the formation of the wheel manufacturing joint
venture and the acquisition of the Bellwood facility. Additionally, uponUpon completion of the acquisition of the Bellwood
facility, Kaiser Bellwood Corporation became a subsidiary guarantor under
the indentures in respect of KACC's 9-7/8% Senior Notes due 2002, 10-7/8%
Series B and Series D Senior Notes due 2006, and 12-3/4% Senior
Subordinated Notes due 2003.
Management believes that the Company's existing cash resources,
together with cash flows from operations and borrowings under the Credit
Agreement, will be sufficient to meet its working capital and capital
expenditure requirements for the next year. Additionally, with respect to
long-term liquidity, management believes that operating cash flow, 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
CATELLUS DEVELOPMENT CORPORATION V. KAISER ALUMINUM & CHEMICAL CORPORATION
AND JAMES L FERRY & SON INC.
On July 28, 1997, KACC and Catellus Development Corporation
("Catellus") entered into a settlement agreement and release settling all
matters pending between the parties in the United States Court of Appeals
for the Ninth Circuit. All matters relating to the litigation have now
been resolved. KACC will remain liable to the City of Richmond for fifty
percent (50%) of future costs of cleaning up certain parts of the property
formerly owned by Catellus in accordance with the final judgement issued by
the United States District Court. KACC's share of these costs is expected
to be less than $500,000. See Part I, Item 3. "LEGAL PROCEEDINGS -
Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation
and James L Ferry & Son Inc." in the Company's Form 10-K for the year ended
December 31, 1996.
ASBESTOS-RELATED LITIGATIONAsbestos-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, 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
portion of Note 5 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 Company's Form 10-K for the year ended
December 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The annual meeting of stockholders of the Company was held on May 22,
1997, at which meeting the stockholders voted to elect management's slate
of nominees as directors of the Company and approved the Kaiser 1997
Omnibus Stock Incentive Plan.
The results of the matters voted on at the meeting are shown below.
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: 72,115,783.6
Votes Against:
Votes Withheld: 288,496.6
Abstentions:
Broker Nonvotes:
George T. Haymaker, Jr.
Votes For: 72,120,441.0
Votes Against:
Votes Withheld: 283,838.2
Abstentions:
Broker Nonvotes:
Charles E. Hurwitz
Votes For: 72,117,337.0
Votes Against:
Votes Withheld: 286,942.2
Abstentions:
Broker Nonvotes:
Ezra G. Levin
Votes For: 72,107,306.6
Votes Against:
Votes Withheld: 296,972.6
Abstentions:
Broker Nonvotes:
Robert Marcus
Votes For: 72,117,821.6
Votes Against:
Votes Withheld: 286,457.6
Abstentions:
Broker Nonvotes:
Robert J. Petris
Votes For: 72,108,863.6
Votes Against:
Votes Withheld: 295,415.6
Abstentions:
Broker Nonvotes:
KAISER 1997 OMNIBUS STOCK INCENTIVE PLAN
The vote with respect to the proposal to approve the Kaiser 1997
Omnibus Stock Incentive Plan was as follows:
Votes For: 62,106,584.8
Votes Against: 5,262,937.8
Votes Withheld:
Abstentions: 91,860.2
Broker Nonvotes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
3.1 Restated Certificate of Incorporation of Kaiser Aluminum
Corporation (the "Company" or "KAC"), dated February 21, 1991
(incorporated by reference to Exhibit 3.1 to Amendment No. 2 to
the Registration Statement on Form S-1, dated June 11, 1991,
filed by KAC, Registration No. 33-37895).
3.2 Certificate of Retirement of KAC, dated October 24, 1995
(incorporated by reference to Exhibit 3.2 to the Report on Form
10-K for the period ended December 31, 1995, filed by KAC, File
No. 1-9447).
*3.3 Amended and Restated Bylaws of KAC, dated July 22,October 1, 1997.
*4.1 Third Supplemental Indenture, dated as of July 15, 1997, among
Kaiser Aluminum & Chemical Corporation ("KACC"), as Issuer,
Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser
Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill
Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Sierra
Micromills, LLC, Kaiser Texas Micromill Holdings, LLC,*4.7 Eleventh Amendment to Credit Agreement and Kaiser
Bellwood Corporation, as Subsidiary Guarantors, and State Street
Bank and Trust Company, as Trustee, to the Indenture, dated as of
February 1, 1993, regarding KACC's 12-3/4% Senior Subordinated
Notes due 2003.
*4.2 Second Supplemental Indenture, dated as of July 15, 1997, among
KACC, as Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance
Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra
Micromills, LLC, Kaiser Texas Sierra Micromills, LLC, Kaiser
Texas Micromill Holdings, LLC, and Kaiser Bellwood Corporation,
as Subsidiary Guarantors, and First Trust National Association,
as Trustee, to the Indenture, dated as of February 17, 1994,
regarding KACC's 9-7/8% Senior Notes due 2002.
*4.3 First Supplemental Indenture, dated as of July 15, 1997, among
KACC, as Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance
Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra
Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, Kaiser
Texas Sierra Micromills, LLC, and Kaiser Bellwood Corporation, as
Subsidiary Guarantors, and First Trust National Association, as
Trustee, to the Indenture,Limited Waivers, dated
as of October 23, 1996,
regarding KACC's 10-7/8% Series B Senior Notes due 2006.
*4.4 First Supplemental Indenture, dated as of July 15, 1997, among
KACC, as Issuer, Kaiser Alumina Australia Corporation, Alpart
Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance
Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra
Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, Kaiser
Texas Sierra Micromills, LLC, and Kaiser Bellwood Corporation, as
Subsidiary Guarantors, and First Trust National Association, as
Trustee, to the Indenture, dated as of December 23, 1996,
regarding KACC's 10-7/8% Series D Senior Notes due 2006.
*4.5 Ninth Amendment to the Credit Agreement, dated as of April 21,
1997, amending the Credit Agreement, dated as of February 15,
1994, as amended, among KACC, KAC, the financial institutions a
party thereto, and BankAmerica Business Credit, Inc., as Agent.
*4.6 Tenth Amendment to the Credit Agreement, dated as of June 25,20, 1997, amending the Credit Agreement, dated as
of February 15, 1994, as amended, among KACC, KAC, the financial
institutions a party thereto, and BankAmerica Business Credit,
Inc., as Agent.
*27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reportA Current Report on Form 8-K was filed by the Company during(under Item 5.)
on August 15, 1997, announcing the quarter
ended June 30, 1997.Company's intention to redeem its
8.255% PRIDES, Convertible Preferred Stock, par value $.05 per share
("PRIDES"), on August 29, 1997, pursuant to the PRIDES Certificate of
Designations.
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* Filed herewith
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 have signed this report on
behalf of the registrant as the principal financial officer and principal
accounting officer of the registrant, respectively.
KAISER ALUMINUM CORPORATION
/s/ John T. La Duc
By: ------------------------------------------------------
John T. La Duc
Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/Arthur S. Donaldson Daniel D. Maddox
By: --------------------------
Arthur S. Donaldson----------------------------
Daniel D. Maddox
Controller - Corporate
Consolidation and Reporting
(Principal Accounting Officer)
Dated: August 1,November 5, 1997