Kaiser Aluminum Launches Performance Improvement Initiative
HOUSTON--(BUSINESS WIRE)--May 23, 2001--Kaiser Aluminum Corporation (NYSE:KLU) said today it has launched a performance improvement initiative designed to increase operating cash flow, generate cash from inventory reductions, and -- combined with the previously disclosed asset transactions under consideration -- improve the company's financial flexibility.
The initiative aims to achieve a sustainable annual operating cash flow (operating income plus depreciation) run rate of approximately $225 million to $235 million by the first quarter of 2003. ``This represents a substantial improvement compared to Kaiser's adjusted first-quarter 2001 annual EBITDA run rate of $135 million,'' said Raymond J. Milchovich, president and chief executive officer of Kaiser Aluminum.
The performance improvement initiative assumes little or no change in current market conditions. Specifically, the initiative assumes a primary aluminum market price of $.70 per pound, energy prices at recent levels, and weak demand in selected fabricated products markets. Improvement in these conditions would provide additional benefit to the performance improvement initiative. The program also assumes a certain level of ongoing costs associated with the status of the company's Northwest smelters. However, the company intends either to restart at least a portion of that capacity or to be compensated for continued curtailment, either of which would be expected to provide additional benefit to the performance improvement initiative.
The initiative aims to achieve the following five specific objectives:
- Significant and systemic reductions in unit production costs through the expanded use of lean manufacturing initiatives at company-managed facilities. The company expects to see the biggest incremental improvements at the 65%-owned Alpart alumina refinery in Jamaica and the 90%-owned Valco primary aluminum smelter in Ghana as these facilities adopt the kinds of lean manufacturing initiatives that are already in place in the company's fabricated businesses. The company believes the annual incremental operating income benefit of such initiatives would be between $35 million and $50 million.
- Additional efficiencies at the Gramercy, La., alumina refinery that would amount to an annual operating income benefit of between $5 million and $10 million. This would be incremental to the $50 million to $75 million of Gramercy-related improvement in operating income that is already incorporated into the company's adjusted first-quarter 2001 annual EBITDA run rate of $135 million.
- Increased production at the 65%-owned Alpart refinery through improved technical processes and de-bottlenecking. Alpart's production is expected to reach an annualized run rate of more than 1.7 million metric tonnes by the end of 2002 or early 2003, up from the facility's current annual rated capacity of 1.45 million metric tonnes. As a result, Kaiser's share of Alpart's annual production would increase by more than 160,000 metric tonnes. The company believes it can achieve this incremental production within its previously disclosed annual corporate capital budget of approximately $60 million to $80 million. The company believes the annual incremental operating income benefit of such additional volume would be between $5 million and $15 million, depending on the price of alumina and key inputs.
- A sustained reduction in annualized overhead-related expenses or related cash outflows at corporate and in the commodities businesses through redesign of work and consolidation of functions primarily in the Houston office. The company believes the annual incremental pre-tax benefit of such projects would be between $10 million and $15 million.
- A one-time cash benefit from reduction in inventories, primarily at Kaiser's majority-owned, non-U.S. commodity operations, and through disposition of discontinued operations and equipment. The company believes this reduction could range from $30 million to $50 million by the end of 2002. This would be in addition to the actions completed in 2000 in which the company reduced inventories by more than $100 million and generated $67 million in proceeds from the sale of non-strategic assets.
The company aims to use the increased cash flow generated by the performance improvement initiative, in conjunction with debt reduction, to improve its balance sheet and financial flexibility.
Milchovich, said, ``The performance improvement initiative is designed to accelerate the company's mission in achieving its full business potential. Each of the major facilities has established detailed action plans to capture the targeted improvements. What's more, we have quantified these objectives in a manner that can be readily tracked in our financial results.''
The company has not yet determined the size or timing of any one-time cash or non-cash charges that may be required in connection with the initiative. Such charges could be material. The specific targets established under the performance improvement initiative would be updated, if necessary, as a result of any potential sale of operating assets.
Kaiser Aluminum is a leading producer of alumina, primary aluminum, and fabricated aluminum products. MAXXAM Inc. (AMEX:MXM) directly and indirectly holds approximately 63 percent of the common stock of Kaiser Aluminum Corporation.
Company press releases may contain statements that constitute ``forward-looking statements'' within the meaning of the Private Securities Litigation Reform Act of 1995. The company cautions 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 expressed or implied in the forward-looking statements as a result of various factors.