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- 2G phe llenver Yost/Sunday, October :^, 1986 Depressed markets, insufficient cash flow plague Kaiser KAISER Irom Page 1-G ber of Minneapolis' investment community, takes out his magnify- ing glass. Now Hendry has joined two Bos- ton-based mutual fund groups in enforcing a proviso of Kaiser's pre- ferred stock that entitles the hold- ers to elect a majority o[ the com- pany's board it a dividend default occurs. He hopes to elect tour di- rectors Oct. 30. At the company's annual meeting immediately after, the preferred shareholders also wiH elect two other board,mem- bers, gi~zng them the majority on the 11-member board. Hendry, and his partners who own 18 percent of the stock be- tween them, hope to elect R. Di- meling and Bernard V. Donohue, a couple of Erie Lackawana direc- tors to Kaiser's board. Why? Preferred shareholders as a group have lost about $200 million in market value, Ilendry said, [he bulk of it in the last six months. "All we're tr}•ing to do is exer- cise out rights under the articles," Ilendry said when he was asked about his group's intentions. "All we wanted to do was collect the in- terest on the preferred stock and get redeemed out according to the original plan." Naming a board majority' wiH give the preferred shareholders' group "insights into the company and a hand at trying to get it to stay up," Hendry said. That also includes finding out "if something's left for us," he said. Rial would only consent to a brie( interview with The Denver Post after being the subject of a Oct. 20 Forbes story headlined "An American Tragedy." 'Good potential' "We feel that Kaiser has a good potential and notwithstanding the, in some cases, purely biased, care- fully packaged views in some of the media, there are important po- lentialsand capabilities within Kai- ser Steel." Coal is "clearly its core business," Rial said. When Kaiser completes its as- yet-undisclosed restructuring, Ria] said, "our efforts wiH have been judged to be [he textbook example of the things you need to do with a troubled company." When the Frales Group bought Kaiser for $380 million in 1984, it used 5100 million borrowed from Citibank and E62 million of the steel firm's own money to pay the com- pany's shareholders $22 of $52-a- share otter. The remaining $30 was in the form of two preferred stock KA/5~~ STE E~l~ issues. Alter Rial took over, Kaiser and its subsidiaries picked up a consid- erable amount of debt -including $50 million Kaiser Steel borrowed from Philadelphia-based Meritor Savings Bank and $60 million Kai- ser Coal borrowed from Chase Manhattan Bank. Those debts have been reduced to about $61 million since April 1985, said Arthur Mul- lin, vice president-finance. In aH, the company has an ag- gregate of $115 million in debt, Mullin said. Kaiser has to pay out about $12 million to $14 million a year in debt principal, plus another $30 million for items stemming from discon- tinued operations, as well as re- quirements for a fund to redeem one class of preferred shares, and $25 million in preferred dividend requirements, bringing annual pay- out obligations to $67 million. Although he declined to give a specific figure, Mullin said the company's current cash flow isn't enough to pay the obligations. What happened? "The bottom dropped out of the energy market," said Charles McNeil, president of Kaiser Coal. But critics have charged that Kai- ser leveraged itself into its current trouble. Asset selloff Kaiser had reduced its debt by selling off such assets as steel mills and steel products inventories. "Those are gone now," McNeil said. Now the company would have to liquidate ifs ''Core assets . selling the future to satisfy the present." One of Kaiser's biggest alba- trosses is a California fabricaled- products operation, heavily depen- dent on the now severely depres- sed off and gasindusiry. "The whole fabricated-products division has been disappointing," Mullin conceded. "We didn't know that end of [he business." The new owners relied on the old Kaiser Steel's data and projections. Thal may have been a fatal error. Kaiser's pipe mill, for example, was supposed to make the compa- ny $50 million a year, McNeil not- ed, but didn't even gross that much. On the plus side, coal output in- creased from about 1.1 million tons per year to about 3.6 million tons a year currently, McNeil said. De- spite adepressed coal market, mining went from a $7.5 million loss the year before Perma look over to a $15 million profit last ,year, he said. Kaiser used modern, more efficient methods, such as long-wall mining to improve coal output while keeping costs low. The company has a name as a "lough competitor" in the indus- try, said one Denver coal execu- tive. Kaiser also credits marketing for its success in the extremely competitive coal business, said Da- vid G. Wolach, vice president-mar- keting. The Kaiser officials refused to disclose the price per ton, but Wo- lach said a higher heat content - 12,800 British thermal units per pound vs. 8,500 l0 8,800 Blus per pound for Powder River Basin coal - plus a 500-mile shipping advan- lage make Kaiser's coal market- able. Additionally, transporialioh costs average only 20 l0 25 percent' of the delivered price of Kaiser coal vs. 70 percent for Wyoming coal, he said. - Besides considerable commer- cial real estate in Fontana, Calif., Kaiser also inherited a $20-million- a-year pension and health-benefits obligation from the days when it employed ]2,000 workers (e ment is now down to 1,000 p e. mostly in mining). An accord with the Pension Ben- efit Guarantee Corp. will relieve the $204 million burden, McNeil said. Among other things, the deal calls fora $50 million note and issu-~ ance of $104 million in preferred stock that later could be converied~ into 30 percent of Kaiser's equity, McNeil said. Unresolved problems That's one major step toward re- covery. Other problems -still un- resolved -include medical pay- ments for the ex-Kaiser worker's- and payment of other debts and lease expenses, he said. Kaiser has tallied with on 9- jorlender about pushing bac cipal payments another ee. Please see KAISER on 16-G