-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MQN1ILXrxWrEgFU6d/nQUhdCjo6BPacNCD/ytdozjaQ1platAmTnMzPDbFp9dNsq hjrtWGgK6bYA56fR13eekA== 0000054291-96-000011.txt : 19960816 0000054291-96-000011.hdr.sgml : 19960816 ACCESSION NUMBER: 0000054291-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER ALUMINUM & CHEMICAL CORP CENTRAL INDEX KEY: 0000054291 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 940928288 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03605 FILM NUMBER: 96611737 BUSINESS ADDRESS: STREET 1: 6177 SUNOL BOULEVARD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 BUSINESS PHONE: 5104621122 MAIL ADDRESS: STREET 1: 6177 SUNOL BLVD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 FORMER COMPANY: FORMER CONFORMED NAME: PERMANENTE METALS CORP DATE OF NAME CHANGE: 19660905 10-Q 1 =========================================================================== 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 1-3605 KAISER ALUMINUM & CHEMICAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-0928288 (State of incorporation) (I.R.S. Employer Identification No.) 6177 Sunol Boulevard, Pleasanton, CA 94566-7769 (Address of principal executive offices) (Zip Code) (510) 462-1122 (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 46,171,365 shares of common stock outstanding. =========================================================================== KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ----------------------------- CONSOLIDATED BALANCE SHEETS (In millions of dollars)
June 30, December 31, 1996 1995 --------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 10.7 $ 21.7 Receivables 276.5 310.2 Inventories 558.7 525.7 Prepaid expenses and other current assets 100.9 76.6 ------------------------ Total current assets 946.8 934.2 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 277.2 268.8 Other assets 344.6 323.5 ------------------------ Total $2,857.7 $2,814.3 ======================== 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 134.4 126.2 Payable to affiliates 91.3 95.3 Long-term debt - current portion 8.9 8.9 Notes payable to parent - current portion 10.7 10.7 ------------------------ Total current liabilities 576.6 609.7 Long-term liabilities 557.6 548.5 Accrued postretirement medical benefit obligation 729.8 734.0 Long-term debt 810.9 749.2 Note payable to parent 4.3 8.6 Minority interests 90.2 91.4 Redeemable preference stock 26.0 29.6 Stockholders' equity: Preference stock 1.7 1.7 Common stock 15.4 15.4 Additional capital 1,779.9 1,730.7 Accumulated deficit (192.3) (210.9) Additional minimum pension liability (13.8) (13.8) Less: Note receivable from parent (1,528.6) (1,479.8) ------------------------ Total stockholders' equity 62.3 43.3 ------------------------ Total $2,857.7 $2,814.3 ========================
The accompanying notes to interim consolidated financial statements are an integral part of these statements. -1- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME (Unaudited) (In millions of dollars)
Quarter Ended Six Months Ended June 30, June 30, ----------------- ------------------- 1996 1995 1996 1995 ----------------- ------------------- 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 30.5 32.2 63.3 62.1 ----------------- ------------------- Total costs and expenses 530.8 519.7 1,021.3 1,000.0 ----------------- ------------------- Operating income 36.8 63.7 77.4 96.4 Other expense: Interest expense (23.0) (23.8) (45.7) (47.4) Other - net l.2 (1.3) .9 (2.0) ----------------- ------------------- Income before income taxes and minority interests 15.0 38.6 32.6 47.0 Provision for income taxes (5.6) (13.9) (12.2) (16.8) Minority interests (.2) .1 (.9) ----------------- ------------------- Net income $ 9.4 $ 24.5 $ 20.5 $ 29.3 ================= ===================
The accompanying notes to interim consolidated financial statements are an integral part of these statements. -2- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (In millions of dollars)
Six Months Ended June 30, ------------------- 1996 1995 ------------------- Cash flows from operating activities: Net income $ 20.5 $ 29.3 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 .8 Decrease (increase) in receivables 30.1 (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 (20.0) (2.7) Decrease in accrued and deferred income taxes (8.7) (4.8) Other 4.1 3.6 ------------------- Net cash (used for) provided by operating activities (10.8) 11.9 ------------------- 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 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) (299.9) Borrowings of long-term debt, including revolving credit 318.9 340.8 Repayment of note payable (3.4) Payments to parent (4.3) (10.6) Incurrence of financing costs (.8) Dividends paid (.5) (.4) Redemption of preference stock (5.1) (8.7) ------------------- Net cash provided by financing activities 51.8 17.0 ------------------- Net decrease in cash and cash equivalents during the period (11.0) (2.7) Cash and cash equivalents at beginning of period 21.7 12.0 ------------------- Cash and cash equivalents at end of period $ 10.7 $ 14.7 =================== Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest $ 42.9 $ 44.2 Income taxes paid 14.7 16.8 Tax allocation payments to Kaiser Aluminum Corporation 2.7 Tax allocation payments to MAXXAM Inc. 1.1
The accompanying notes to interim consolidated financial statements are an integral part of these statements. -3- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (In millions of dollars, except prices and per share amounts) 1. General - ----------- Kaiser Aluminum & Chemical Corporation (the "Company") is the principal operating subsidiary of Kaiser Aluminum Corporation ("Kaiser"). Kaiser is a subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM owns approximately 62% of Kaiser's Common Stock, assuming the conversion of each outstanding share of 8.255% PRIDES, Convertible Preferred Stock into one share of Kaiser's Common Stock, with the remaining approximately 38% publicly held. 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:
June 30, December 31, 1996 1995 ----------------------- 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 ====================
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. Contingencies - ----------------- Environmental Contingencies - The Company is subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims and litigation based upon such laws. The Company 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. -4- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES 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 - The Company 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 the Company or exposure to products containing asbestos produced or sold by the Company. The lawsuits generally relate to products the Company 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 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 the Company during 1995 and the first half of 1996 were filed in Texas. The Company 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 -5- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES 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 it has insurance coverage available to recover a substantial portion of its asbestos-related costs. Claims for recovery from some of the Company'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 is 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. 4. Derivative Financial Instruments and Related Hedging Programs - ----------------------------------------------------------------- The Company enters into primary aluminum hedging transactions in the normal course of business. The prices realized by the Company under certain sales contracts for alumina, primary aluminum, and fabricated aluminum products, as well as the costs incurred by the Company 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. The Company 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, The Company had sold forward 166,500 tons* of primary aluminum at fixed prices, had purchased 28,900 - ------------------------------------ * All references to tons in this report refer to metric tons of 2,204.6 pounds. -6- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES 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, the Company 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, the Company also enters into forward purchase and option transactions to limit its exposure to increases in fuel costs. At June 30, 1996, the Company 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, The Company entered into additional transactions for 40,000 MM Btu per day to limit its exposure to increases in natural gas prices through March 1997. The Company 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, the Company 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 the Company'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 10 of the Notes to Consolidated Financial Statements for the year ended December 31, 1995. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS (In millions of dollars, except shipments --------------------- and prices) 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 the Company's hedging strategies. See Note 4 of the Notes to Interim Consolidated Financial Statements for an explanation of the Company'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. -7- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES SELECTED OPERATIONAL AND FINANCIAL INFORMATION (Unaudited)
Quarter Ended Six Months Ended June 30, June 30, --------------- ------------------- 1996 1995 1996 1995 --------------- ------------------- 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 (14.5) (19.2) (32.2) (37.2) --------------- ------------------- Total operating income $ 36.8 $ 63.7 $ 77.4 $ 96.4 =============== =================== Net income $ 9.4 $ 24.5 $ 20.5 $ 29.3 =============== =================== Capital expenditures $ 31.9 $ 13.4 $ 51.7 $ 27.1 =============== ===================
- ------------------------------------ (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. -8- KAISER ALUMINUM & CHEMICAL 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. -9- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES Net Income The Company reported net income of $9.4 and $20.5 for the second quarter and the first half of 1996, respectively, compared with net income of $24.5 and $29.3 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 the Company'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. Operating Activities At June 30, 1996, the Company had working capital of $370.2, compared with working capital of $324.5 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 the Company, and Lanzhou Aluminum Smelters ("LAS") of the China National Nonferrous Metals 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 the Company under the 1994 Credit Agreement. Loans under the 1994 Credit Agreement bear interest at a rate per annum, at the Company'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 the 1994 Credit -10- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES 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 Kaiser and other 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 31, 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, Kaiser, and Kaiser's directors challenging and seeking to enjoin a proposed recapitalization of Kaiser. On April 8, 1996, the Delaware Court of Chancery issued a ruling which preliminarily enjoined Kaiser 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, Kaiser'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 The Company 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 the Company or exposure to products containing asbestos produced or sold by the Company. The portion of Note 3 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 - ------------------------------------------------------------ The annual meeting of stockholders of the Company was held on June 5, 1996, at which meeting the stockholders voted to elect management's slate of nominees as directors of the Company. -11- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES 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: 46,672,744 Votes Against: Votes Withheld: 103,077 Abstentions: Broker Nonvotes: George T. Haymaker, Jr. Votes For: 46,674,964 Votes Against: Votes Withheld: 100,857 Abstentions: Broker Nonvotes: Charles E. Hurwitz Votes For: 46,655,366 Votes Against: Votes Withheld: 120,455 Abstentions: Broker Nonvotes: Ezra G. Levin Votes For: 46,678,957 Votes Against: Votes Withheld: 96,864 Abstentions: Broker Nonvotes: Robert Marcus Votes For: 46,683,164 Votes Against: Votes Withheld: 92,657 Abstentions: Broker Nonvotes: Robert J. Petris Votes For: 46,574,554 Votes Against: Votes Withheld: 201,267 Abstentions: Broker Nonvotes: -12- KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES 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, Kaiser 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 & CHEMICAL 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 -13- EX-10 2 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 ------------------------------- 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 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 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 EX-27 3
5 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. 0000054291 KAISER ALUMINUM & CHEMICAL CORPORATION 1,000,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 11 0 277 0 559 947 1,111 0 2,858 577 0 2 0 15 45 2,858 1,099 1,099 910 910 112 0 46 33 12 21 0 0 0 21 0 0
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