FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
Commission File Number 1-3924
MAXXAM INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 95-2078752
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
5847 SAN FELIPE, SUITE 2600
HOUSTON, TEXAS 77057
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (713) 975-7600
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 / /
Number of shares of common stock outstanding at May 1, 1994: 8,698,464
<PAGE>
MAXXAM INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1994 and December 31, 1993 3
Consolidated Statement of Operations for the three months ended March 31, 1994 and 1993 4
Consolidated Statement of Cash Flows for the three months ended March 31, 1994 and 1993 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures S-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1994 1993
(Unaudited)
(In millions of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $100.2 $83.9
Marketable securities 62.9 44.7
Receivables:
Trade, net of allowance for doubtful accounts of $3.5 and $3.2 at
March 31, 1994 and December 31, 1993, respectively 170.9 175.3
Other 99.3 90.8
Inventories 482.0 503.6
Prepaid expenses and other current assets 101.8 93.3
----------- -----------
Total current assets 1,017.1 991.6
Property, plant and equipment, net of accumulated depreciation of $505.6
and $481.3 at March 31, 1994 and December 31, 1993, respectively 1,242.2 1,245.0
Timber and timberlands, net of depletion of $111.1 and $108.2 at March 31,
1994 and December 31, 1993, respectively 336.3 338.6
Investments in and advances to unconsolidated affiliates 179.2 183.2
Real estate 100.2 113.3
Deferred income taxes 381.2 359.9
Long-term receivables and other assets 355.3 340.4
----------- -----------
$3,611.5 $3,572.0
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $126.1 $135.6
Accrued interest 27.8 53.7
Accrued compensation and related benefits 116.6 114.2
Other accrued liabilities 152.1 161.5
Payable to affiliates 73.4 74.0
Long-term debt, current maturities 34.7 38.3
----------- -----------
Total current liabilities 530.7 577.3
Long-term debt, less current maturities 1,593.4 1,567.9
Accrued postretirement benefits 723.9 720.1
Other noncurrent liabilities 653.1 650.3
----------- -----------
Total liabilities 3,501.1 3,515.6
----------- -----------
Commitments and contingencies
Minority interests 317.7 224.3
Stockholders' deficit:
Preferred stock, $.50 par value; 12,500,000 shares authorized; Class A
$.05 Non-Cumulative Participating Convertible Preferred Stock;
shares issued: 679,084 .3 .3
Common stock, $.50 par value; 28,000,000 shares authorized; shares
issued: 10,063,359 5.0 5.0
Additional capital 51.7 51.2
Accumulated deficit (220.7) (180.8)
Pension liability adjustment (23.9) (23.9)
Treasury stock, at cost (shares held: preferred - 845; common - (19.7) (19.7)
1,364,895) ----------- -----------
Total stockholders' deficit (207.3) (167.9)
----------- -----------
$3,611.5 $3,572.0
=========== ===========
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
(Unaudited)
<S> <C> <C>
Net sales:
Aluminum operations $415.1 $442.6
Forest products operations 56.7 52.7
Real estate operations 17.2 18.4
----------- -----------
489.0 513.7
----------- -----------
Costs and expenses:
Costs of sales and operations (exclusive of depreciation and depletion):
Aluminum operations 387.8 400.1
Forest products operations 33.2 26.3
Real estate operations 12.4 19.4
Depreciation and depletion 31.2 29.7
Selling, general and administrative expenses 39.4 40.0
----------- -----------
504.0 515.5
----------- -----------
Operating loss (15.0) (1.8)
Other income (expense):
Investment, interest and other income 11.4 9.5
Interest expense (43.5) (49.3)
----------- -----------
Loss before income taxes, minority interests, extraordinary item and cumulative
effect of changes in accounting principles (47.1) (41.6)
Credit for income taxes 16.5 14.1
Minority interests (3.9) 1.6
----------- -----------
Loss before extraordinary item and cumulative effect of changes in accounting
principles (34.5) (25.9)
Extraordinary item:
Loss on early extinguishment of debt, net of related benefits for minority
interests of $nil and $2.8 and income taxes of $2.9 and $24.2 in 1994 and
1993, respectively
(5.4) (44.1)
Cumulative effect of changes in accounting principles:
Postretirement benefits other than pensions and postemployment benefits, net
of related benefits for minority interests of $64.6 and income taxes of - (444.3)
$240.2
Accounting for income taxes - 26.6
----------- -----------
Net loss $(39.9) $(487.7)
=========== ===========
Per common and common equivalent share:
Loss before extraordinary item and cumulative effect of changes in accounting
principles $(3.65) $(2.74)
Extraordinary item (.57) (4.66)
Cumulative effect of changes in accounting principles - (44.14)
----------- -----------
Net loss $(4.22) $(51.54)
=========== ===========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(39.9) $(487.7)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and depletion 31.2 29.7
Extraordinary loss on early extinguishment of debt, net 5.4 44.1
Amortization of deferred financing costs and discounts on long-term debt 5.3 5.7
Minority interests 3.9 (1.6)
Equity in losses of unconsolidated affiliates 1.1 2.1
Incurrence of financing costs (17.1) (38.1)
Cumulative effect of changes in accounting principles, net - 417.7
Decrease in inventories 20.7 4.1
Decrease in accrued interest (25.8) (16.5)
Increase in accrued and deferred income taxes (18.4) (9.6)
Decrease in accounts payable (9.4) (19.9)
Increase (decrease) in payable to affiliates and other liabilities (5.7) 4.6
Decrease (increase) in prepaid expenses and other assets (5.1) 2.1
Decrease (increase) in receivables (4.1) 7.2
Other (4.7) (9.9)
----------- -----------
Net cash used for operating activities (62.6) (66.0)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and investments 5.1 8.7
Net sales (purchases) of marketable securities (16.9) 4.5
Capital expenditures (14.8) (13.9)
Other (3.5) (1.0)
----------- -----------
Net cash used for investing activities (30.1) (1.7)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 225.5 1,022.8
Proceeds from issuance of Kaiser PRIDES 100.4 -
Net payments under revolving credit agreements and short-term borrowings (190.8) (12.8)
Redemptions, repurchase of and principal payments on long-term debt (14.9) (925.1)
Redemption of preference stock (7.4) (3.3)
Restricted cash deposits - (35.0)
Other (3.8) -
----------- -----------
Net cash provided by financing activities 109.0 46.6
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16.3 (21.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 83.9 81.9
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $100.2 $60.8
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $64.1 $60.2
Income taxes paid 2.4 1.6
</TABLE>
<PAGE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. GENERAL
The information contained in the following notes to the
consolidated financial statements is condensed from that which would
appear in the annual consolidated financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Annual Report on Form 10-K filed by MAXXAM Inc.
with the Securities and Exchange Commission for the fiscal year ended
December 31, 1993 (the "Form 10-K"). All references to the "Company"
include MAXXAM Inc. and its subsidiary companies unless otherwise
indicated or the context indicates otherwise. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at
year end. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the
entire year.
The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at March 31,
1994 and the consolidated results of operations and cash flows for the
three months ended March 31, 1994 and 1993. Certain reclassifications of
prior period information have been made to conform to the current
presentation.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Aluminum Operations:
Finished fabricated products $74.7 $83.7
Primary aluminum and work in process 143.6 141.4
Bauxite and alumina 86.7 94.0
Operating supplies and repair and maintenance parts 107.4 107.8
-------- --------
412.4 426.9
-------- --------
Forest Products Operations:
Lumber 57.1 58.4
Logs 12.5 18.3
-------- --------
69.6 76.7
-------- --------
$482.0 $503.6
======== ========
</TABLE>
<PAGE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
March 31, December 31,
1994 1993
<S> <C> <C>
Corporate:
14% Senior Subordinated Reset Notes due May 20, 2000 $25.0 $25.0
12 1/2% Subordinated Debentures due December 15, 1999, net of discount 25.3 25.2
Other .4 .5
Aluminum Operations:
1994 Credit Agreement - -
1989 Credit Agreement:
Revolving Credit Facility - 188.0
9 7/8% Senior Notes due February 15, 2002, net of discount 223.5 -
Alpart CARIFA Loan 60.0 60.0
12 3/4% Senior Subordinated Notes due February 1, 2003 400.0 400.0
Other 73.9 78.1
Forest Products Operations:
7.95% Timber Collateralized Notes due July 20, 2015 368.9 377.0
11 1/4% Senior Secured Notes due August 1, 2003 100.0 100.0
12 1/4% Senior Secured Discount Notes due August 1, 2003, net of discount 75.7 73.5
10 1/2% Senior Notes due March 1, 2003 235.0 235.0
Other - 2.9
Real Estate Operations:
Secured notes due December 31, 1997, interest at prime plus 3% 16.1 17.2
Other notes and contracts, secured by receivables, buildings, real estate
and equipment 24.3 23.8
-------- --------
1,628.1 1,606.2
Less: current maturities (34.7) (38.3)
-------- --------
$1,593.4 $1,567.9
======== ========
</TABLE>
The 1994 Credit Agreement
On February 17, 1994, Kaiser Aluminum Corporation ("Kaiser," a
majority owned subsidiary of the Company) and its principal operating
subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"), entered into
a credit agreement with BankAmerica Business Credit, Inc. (as agent for
itself and other lenders), Bank of America National Trust and Savings
Association and certain other lenders (the "1994 Credit Agreement"). The
1994 Credit Agreement replaced Kaiser's previous credit agreement (as
amended, the "1989 Credit Agreement") and consists of a $250.0 five-year
secured, revolving line of credit which matures in 1999. Kaiser is able
to borrow under the facility by means of revolving credit advances and
letters of credit (up to $125.0) in an aggregate amount equal to the
lesser of $250.0 or a borrowing base relating to eligible accounts
receivable and inventory. As of March 31, 1994, $179.6 of borrowing
capacity was unused under the 1994 Credit Agreement (of which $54.6 could
also have been used for letters of credit). The 1994 Credit Agreement is
unconditionally guaranteed by Kaiser and by all significant subsidiaries
of KACC which were guarantors of KACC's obligations under the 1989 Credit
Agreement. Loans under the 1994 Credit Agreement bear interest at a rate
per annum, at KACC's election, equal to (i) a Reference Rate plus 1 1/2%
<PAGE>
or (ii) LIBOR plus 3 1/4%. After June 30, 1995, the interest rate
margins applicable to borrowings under the 1994 Credit Agreement may be
reduced by up to 1 1/2% based upon a financial test, determined
quarterly. Kaiser recorded a pre-tax extraordinary loss of approximately
$8.3 for the three months ended March 31, 1994, consisting primarily of
the write-off of unamortized deferred financing costs related to the 1989
Credit Agreement.
9 7/8% Senior Notes (the "KACC Senior Notes")
Concurrent with the offering by Kaiser of the 8.255% Preferred
Redeemable Increased Dividend Equity Securities (the "PRIDES") (see Note
4), KACC issued $225.0 of the KACC Senior Notes. The net proceeds from
the offering of the KACC Senior Notes were used to reduce outstanding
borrowings under the Revolving Credit Facility of the 1989 Credit
Agreement immediately prior to the effectiveness of the 1994 Credit
Agreement and for working capital and general corporate purposes.
4. MINORITY INTERESTS
During the three months ended March 31, 1994, Kaiser
consummated the public offering of 8,855,550 shares of its PRIDES. The
net proceeds from the sale of the PRIDES were approximately $100.4. The
Company accounted for Kaiser's issuance of the PRIDES as additional
minority interest.
5. INVESTMENT, INTEREST AND OTHER INCOME
In February 1994, The Pacific Lumber Company ("Pacific Lumber,"
a wholly owned indirect subsidiary of the Company) received a franchise
tax refund of $7.2, the substantial portion of which represents interest,
from the State of California relating to tax years 1972 through 1985.
This amount is included in investment, interest and other income for the
three months ended March 31, 1994.
6. PER SHARE INFORMATION
Per share calculations are based on the weighted average number
of common shares outstanding in each period and, if dilutive, weighted
average common equivalent shares assumed to be issued from the exercise
of common stock options based upon the average price of the Company's
common stock during the period.
7. CONTINGENCIES
Environmental Contingencies
Kaiser and KACC are subject to a wide variety of environmental
laws and regulations and to fines or penalties assessed for alleged
breaches of the environmental laws and to claims and litigation based
upon such laws. KACC is currently subject to a number of lawsuits under
the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments Reauthorization Act of
1986 ("CERCLA") and, along with certain other entities, has been named as
a potentially responsible party for remedial costs at certain third-party
sites listed on the National Priorities List under CERCLA.
Based upon Kaiser's evaluation of these and other environmental
matters, Kaiser has established environmental accruals primarily related
to potential solid waste disposal and soil and groundwater
<PAGE>
remediation
matters. At March 31, 1994, the balance of such accruals, which is
primarily included in other noncurrent liabilities, was $42.0.
These environmental accruals represent Kaiser's estimate of
costs reasonably expected to be incurred based upon presently enacted
laws and regulations, currently available facts, existing technology and
Kaiser's assessment of the likely remediation action to be taken. Kaiser
expects that these remediation actions will be taken over the next
several years and estimates that expenditures to be charged to the
environmental accrual will be approximately $4.0 to $8.0 for the years
1994 through 1998 and an aggregate of approximately $12.8 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 by amounts which cannot presently be
estimated. While uncertainties are inherent in the ultimate outcome of
these matters and it is impossible to presently determine the actual
costs that ultimately may be incurred, management believes that the
resolution of such uncertainties should not have a material adverse
effect upon Kaiser's consolidated financial position or results of
operations.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits in which the
plaintiffs allege that certain of their injuries were caused by exposure
to asbestos during, and as a result of, their employment with KACC or
exposure to products containing asbestos produced or sold by KACC. The
lawsuits generally relate to products KACC has not manufactured for at
least 15 years. At March 31, 1994, the number of such lawsuits pending
was approximately 24,500.
Based upon prior experience, Kaiser estimates annual future
cash payments in connection with such litigation of approximately $8.0 to
$13.0 for the years 1994 through 1998, and an aggregate of approximately
$88.4 thereafter through 2006. Based upon past experience and reasonably
anticipated future activity, Kaiser has established an accrual for
estimated asbestos-related costs for claims filed and estimated to be
filed and settled through 2006. Kaiser does not presently believe there
is a reasonable basis for estimating such costs beyond 2006 and,
accordingly, no accrual has been recorded for such costs which may be
incurred. This accrual was calculated based upon the current and
anticipated number of asbestos-related claims, the prior timing and
amounts of asbestos-related payments, the current state of case law
related to asbestos claims, the advice of counsel and the anticipated
effects of inflation and discounting at an estimated risk-free rate
(5.25% at March 31, 1994). Accordingly, an accrual of $102.3 for
asbestos-related expenditures is included primarily in other noncurrent
liabilities at March 31, 1994. The aggregate amount of the undiscounted
liability at March 31, 1994 is $139.8, before considerations for
insurance recoveries.
Kaiser believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While
claims for recovery from one of KACC's insurance carriers are currently
subject to pending litigation and other carriers have raised certain
defenses, Kaiser believes, based upon prior insurance-related recoveries
in respect of asbestos-related claims, existing insurance policies and
the advice of counsel, that substantial recoveries from the insurance
carriers are probable. Accordingly, estimated
<PAGE>
insurance recoveries of
$94.3, determined on the same basis as the asbestos-related cost accrual,
are recorded primarily in long-term receivables and other assets as of
March 31, 1994.
Based upon the factors discussed in the two preceding
paragraphs, management currently believes that the resolution of the
asbestos-related uncertainties and the incurrence of asbestos-related
costs net of insurance recoveries should not have a material adverse
effect upon Kaiser's consolidated financial position or results of
operations.
Other Contingencies
The Company is involved in various other claims, lawsuits and
other proceedings relating to a wide variety of matters. While there are
uncertainties inherent in the ultimate outcome of such matters and it is
impossible to presently determine the actual costs that may be incurred,
management believes that the resolution of such uncertainties and the
incurrence of such costs should not have a material adverse effect upon
the Company's consolidated financial position or results of operations.
<PAGE>
MAXXAM INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the response
to Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K. Any
capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.
RESULTS OF OPERATIONS
The Company operates in three industries: aluminum, through its
majority owned subsidiary Kaiser, a fully integrated aluminum producer;
forest products, through MAXXAM Group Inc. ("MGI") and its wholly owned
subsidiaries; and real estate management and development, principally
through MAXXAM Property Company and various other wholly owned
subsidiaries.
ALUMINUM OPERATIONS
Kaiser's operating results are sensitive to changes in 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. Kaiser, through its principal subsidiary KACC, operates in two
business segments: bauxite and alumina, and aluminum processing.
Aluminum operations account for a significant portion of the Company's
revenues and operating results. The following table presents selected
operational and financial information for the three months ended March
31, 1994 and 1993. The information presented in the table is in millions
of dollars except shipments and prices.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Shipments(1):
Alumina 468.2 459.3
Aluminum products:
Primary aluminum 64.3 74.5
Fabricated products 96.8 91.6
-------- --------
Total aluminum products 161.1 166.1
======== ========
Average realized sales price:
Alumina (per ton) $155 $174
Primary aluminum (per pound) .55 .56
Net sales:
Bauxite and alumina:
Alumina $72.5 $80.0
Other(2)(3) 20.4 19.0
-------- --------
Total bauxite and alumina 92.9 99.0
-------- --------
Aluminum processing:
Primary aluminum 77.3 91.2
Fabricated products 241.5 249.1
Other(3) 3.4 3.3
-------- --------
Total aluminum processing 322.2 343.6
-------- --------
Total net sales $ 415.1 $442.6
======== ========
Operating loss $(24.1) $(8.2)
======== ========
Loss before income taxes, minority interests, extraordinary item and cumulative
effect of changes in accounting principles $(43.4) $(25.7)
======== ========
Capital expenditures $9.6 $10.0
======== ========
<FN>
--------------------
(1) Shipments are expressed in thousands of metric tons. A metric ton is equivalent to 2,204.6 pounds.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests in consolidated subsidiaries.
</TABLE>
<PAGE>
Net sales
Bauxite and alumina. Revenues from net sales to third parties
for the bauxite and alumina segment were $92.9 million for the three
months ended March 31, 1994 compared with $99.0 million for the three
months ended March 31, 1993. Revenues from alumina decreased 9% to $72.5
million for the three months ended March 31, 1994 from $80.0 million for
the three months ended March 31, 1993, principally due to lower average
realized prices.
Aluminum processing. Revenues from net sales to third parties
for the aluminum processing segment were $322.2 million for the three
months ended March 31, 1994 compared with $343.6 million for the three
months ended March 31, 1993. Revenues from primary aluminum decreased
15% to $77.3 million for the three months ended March 31, 1994 from $91.2
million for the three months ended March 31, 1993, primarily because of
lower shipments. Shipments of primary aluminum to third parties
constituted approximately 40% of total aluminum products shipments for
the three months ended March 31, 1994 compared with approximately 45% for
the three months ended March 31, 1993. Revenues from fabricated aluminum
products decreased 3% to $241.5 million for the three months ended March
31, 1994 from $249.1 million for the three months ended March 31, 1993,
principally due to lower average realized prices, partially offset by
increased shipments.
Operating loss
The operating loss for the three months ended March 31, 1994
was $24.1 million, compared with $8.2 million for the three months ended
March 31, 1993. Kaiser's corporate general and administrative expenses
of $17.2 million and $18.8 million for the three months ended March 31,
1994 and 1993, respectively, were allocated by the Company to the bauxite
and alumina and aluminum processing segments based upon those segments'
ratio of sales to unaffiliated customers.
Bauxite and alumina. The bauxite and alumina segment had an
operating loss of $5.6 million for the three months ended March 31, 1994,
compared with $3.5 million for the three months ended March 31, 1993,
principally due to lower average realized prices for alumina.
Aluminum processing. The aluminum processing segment had an
operating loss of $18.5 million for the three months ended March 31,
1994, compared with $4.7 million for the three months ended March 31,
1993, principally due to reduced shipments of primary aluminum and lower
average realized prices of fabricated aluminum products, partially offset
by increased shipments of fabricated aluminum products.
Loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles
The loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles for the
three months ended March 31, 1994 was $43.4 million, compared with $25.7
million for the three months ended March 31, 1993. This increase
resulted from the increased operating losses previously described.
FOREST PRODUCTS OPERATIONS
The Company's forest products operations are conducted by MGI
through its principal operating subsidiaries, Pacific Lumber and Britt
Lumber Co., Inc. ("Britt"). MGI's business is highly seasonal, in that
the forest products business has historically experienced lower first and
fourth quarter sales due largely to the general decline in construction
related activity during the winter months. Accordingly, MGI's results
for
<PAGE>
any one quarter are not necessarily indicative of results to be
expected for the full year. The following table presents selected
operational and financial information for the three months ended March
31, 1994 and 1993. The information presented in the table is in millions
of dollars except shipments and prices.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Shipments:
Lumber(1):
Redwood upper grades 12.9 15.8
Redwood common grades 49.4 45.6
Douglas-fir upper grades 2.5 3.2
Douglas-fir common grades 15.4 14.8
-------- --------
Total lumber 80.2 79.4
======== ========
Logs(2) 5.5 -
======== ========
Wood chips(3) 30.3 36.5
======== ========
Average sales price:
Lumber(4):
Redwood upper grades $1,406 $1,213
Redwood common grades 448 457
Douglas-fir upper grades 1,405 1,114
Douglas-fir common grades 460 427
Logs(4) 676 -
Wood chips(5) 71 81
Net sales:
Lumber, net of discount $50.0 $48.7
Logs 3.7 -
Wood chips 2.1 3.0
Cogeneration power .6 .7
Other .3 .3
-------- --------
Total net sales $56.7 $52.7
======== ========
Operating income $13.4 $16.5
======== ========
Income (loss) before income taxes, minority interests, extraordinary item and
cumulative effect of changes in accounting principles $2.0 $(3.4)
======== ========
Capital expenditures $4.0 $2.0
======== ========
<FN>
--------------------
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of board feet, net Scribner scale.
(3) Wood chip shipments are expressed in thousands of bone dry units of 2,400 pounds.
(4) Dollars per thousand board feet.
(5) Dollars per bone dry unit.
</TABLE>
Shipments
Lumber shipments for the three months ended March 31, 1994 were
80.2 million board feet, an increase of 1% from 79.4 million board feet
for the three months ended March 31, 1993. This increase was principally
due to an 8% increase in redwood common lumber shipments, partially
offset by an 18% decrease in shipments of upper grade redwood lumber.
Log shipments for the three months ended March 31, 1994 were 5.5 million
feet (net Scribner scale). Log shipments were insignificant for the
three months ended March 31, 1993.
<PAGE>
Old growth trees constitute Pacific Lumber's principal source
of upper grade redwood lumber. Due to the severe restrictions on Pacific
Lumber's ability to harvest virgin old growth timber on its property (see
"Trends" under Item 7 of the Form 10-K), Pacific Lumber's supply of upper
grade lumber has decreased in some premium product categories. Pacific
Lumber has been able to lessen the impact of these decreases by
augmenting its production facilities to increase its recovery of upper
grade lumber from smaller diameter logs and increasing the production of
manufactured upper grade lumber products through its end and edge glue
facility (which is currently being expanded). However, unless Pacific
Lumber is able to sustain the harvest level of old growth trees it has
experienced in recent years, Pacific Lumber expects that its supply of
premium upper grade lumber products will decrease from current levels and
that its manufactured lumber products will constitute a higher percentage
of its shipments of upper grade lumber products.
Net sales
Revenues from net sales of lumber and logs for the three months
ended March 31, 1994 increased by approximately 10% from the three months
ended March 31, 1993. This increase was principally due to increased log
shipments, a 16% increase in the average realized price of upper grade
redwood lumber, increased shipments of redwood common lumber and a 26%
increase in the average realized price of upper grade Douglas-fir lumber,
partially offset by decreased shipments of upper grade redwood lumber, as
previously discussed. The decrease in other sales for the three months
ended March 31, 1994 as compared to the three months ended March 31, 1993
was attributable to decreased sales of wood chips.
Operating income
Operating income for the three months ended March 31, 1994
decreased by approximately 19% as compared to the three months ended
March 31, 1993. This decrease was principally due to lower shipments of
high margin upper grade lumber and the continued higher costs of logs.
Pacific Lumber's cost of producing lumber products has continued to
increase as a result of compliance with evolving environmental
regulations, litigation associated with its timber harvesting plans and
greater costs attributable to processing larger numbers of
smaller diameter logs and producing manufactured products. For the
three months ended March 31, 1993, cost of goods sold was reduced by $1.2
million for an additional business interruption insurance claim as a
result of the April 1992 earthquake.
Income (loss) before income taxes, minority interests,
extraordinary item and cumulative effect of changes in accounting
principles
Income before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles increased
for the three months ended March 31, 1994 as compared to the three months
ended March 31, 1993. This increase resulted from higher investment,
interest and other income and decreased interest expense, partially
offset by the decrease in operating income. Investment, interest and
other income for the three months ended March 31, 1994 includes the
receipt of a franchise tax refund of $7.2 million (as described in Note 5
to the Condensed Notes to Consolidated Financial Statements).
Investment, interest and other income for the three months ended March
31, 1993 includes net gains on marketable securities of $3.1 million.
Interest expense decreased due to lower interest rates resulting from the
refinancing of MGI's long-term debt in March and August of 1993.
<PAGE>
REAL ESTATE OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
(In millions of dollars)
<S> <C> <C>
Net sales $17.2 $18.4
Operating loss (1.9) (6.6)
Loss before income taxes, minority interests, extraordinary item and cumulative
effect of changes in accounting principles (1.3) (7.2)
</TABLE>
Net sales
Revenues from net sales for the three months ended March 31,
1994 were $17.2 million, a decrease of $1.2 million from the three months
ended March 31, 1993. This decrease was primarily due to the sale of
sixteen apartment complexes in December 1993, partially offset by
improved resort revenues at the Company's Palmas del Mar development in
Puerto Rico.
Operating loss
The operating loss for the three months ended March 31, 1994
was $1.9 million, a decrease of $4.7 million from the three months ended
March 31, 1993. This decrease was primarily due to a $5.9 million
writedown of certain of the Company's nonstrategic real estate holdings
to their estimated net realizable value in 1993, partially offset by
decreased revenues resulting from the sale of apartment complexes.
Loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles
The loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles for the
three months ended March 31, 1994 was $1.3 million, a decrease of $5.9
million from the three months ended March 31, 1993. This decrease was
primarily attributable to the decreased operating losses discussed above,
along with a decrease in interest expense resulting from repayments on
the debt related to the RTC portfolio.
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
(In millions of dollars)
<S> <C> <C>
Operating loss $(2.4) $(3.5)
Loss before income taxes, minority interests, extraordinary item and cumulative
effect of changes in accounting principles (4.4) (5.3)
</TABLE>
Operating loss
The operating losses represent corporate general and
administrative expenses that are not allocated to the Company's industry
segments. The operating loss for the three months ended March 31, 1994
was $2.4 million, a decrease of $1.1 million from the three months ended
March 31, 1993. This decrease was primarily due to lower overhead costs.
<PAGE>
Loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles
The loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles includes
operating losses, investment, interest and other income and interest
expense, including amortization of deferred financing costs, that are not
allocated to the Company's industry segments. The loss for the three
months ended March 31, 1994 was $4.4 million, a decrease of $.9 million
from the three months ended March 31, 1993. This decrease was primarily
due to the decreased operating losses discussed above.
Minority interests
Minority interests represent the minority stockholders'
interest in the Company's aluminum operations.
Extraordinary item
The refinancing activities of Kaiser for the three months ended
March 31, 1994, as described in Note 3 to the Condensed Notes to
Consolidated Financial Statements, resulted in an extraordinary loss of
$5.4 million, net of benefits for income taxes of $2.9 million. The
extraordinary loss consists primarily of the write-off of unamortized
deferred financing costs on the 1989 Credit Agreement. The extraordinary
loss for the three months ended March 31, 1993 resulted from the
refinancing activities of KACC and Pacific Lumber.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
The Company's consolidated indebtedness increased $21.9 million
to $1,628.1 million at March 31, 1994 from $1,606.2 million at December
31, 1993. The increase was primarily attributable to Kaiser's issuance
of the KACC Senior Notes, offset by the repayment of outstanding
borrowings under the 1989 Credit Agreement.
PARENT COMPANY
Certain of the Company's subsidiaries, principally Kaiser and
MGI, are restricted by their various debt agreements as to the amount of
funds that can be paid in the form of dividends or loaned to the Company.
KACC's 1994 Credit Agreement and the indentures governing the KACC Senior
Notes and the KACC Notes contain covenants which, among other things,
limit Kaiser's ability to pay cash dividends and restrict transactions
between Kaiser and its affiliates. Under the most restrictive of these
covenants, Kaiser is not currently permitted to pay dividends on its
common stock. The indenture governing the MGI Notes contains various
covenants which, among other things, limit the payment of dividends and
restrict transactions between MGI and its affiliates. At March 31, 1994,
under the most restrictive of these covenants, no dividends may be paid
by MGI. Under the most restrictive covenants governing debt of the
Company's real estate subsidiaries, approximately $24.0 million could be
paid as of March 31, 1994.
As of March 31, 1994, the Company (excluding its aluminum,
forest products and real estate subsidiary companies) had cash and
marketable securities of approximately $54.3 million. The Company
believes that its existing cash and marketable securities (excluding its
aluminum, forest products and real estate subsidiaries), together with
the funds available to it, will be sufficient to fund its working capital
requirements for the foreseeable future.
<PAGE>
ALUMINUM OPERATIONS
The offering of the PRIDES, the issuance of the KACC Senior
Notes and the replacement of the 1989 Credit Agreement during the three
months ended March 31, 1994 (as described in Notes 3 and 4 to the
Condensed Notes to Consolidated Financial Statements) were the final
steps of a comprehensive refinancing plan which Kaiser began in January
1993 which extended the maturities of Kaiser's outstanding indebtedness,
enhanced its liquidity and raised new equity capital. Kaiser expects
that cash flows from operations and borrowings under the 1994 Credit
Agreement will be sufficient to satisfy its working capital and capital
expenditure requirements for the foreseeable future.
FOREST PRODUCTS OPERATIONS
MGI anticipates that cash flows from operations, together with
existing cash, marketable securities and available sources of financing,
will be sufficient to fund the working capital requirements of MGI and
its respective subsidiaries for the foreseeable future; however, due to
its highly leveraged condition, MGI is more sensitive than less leveraged
companies to factors affecting its operations, including governmental
regulation affecting its timber harvesting practices, increased
competition from other lumber producers or alternative building products
and general economic conditions.
REAL ESTATE OPERATIONS
As of March 31, 1994, the Company's real estate subsidiaries
had approximately $24.7 million available for use under various credit
agreements. Substantially all of the availability was attributable to
the credit availability pursuant to the loan agreement secured by real
properties, and certain loans secured by income-producing real property,
purchased from the RTC.
TRENDS
ALUMINUM OPERATIONS
In response to the low price of primary aluminum caused by the
current surplus, a number of companies have closed smelting facilities.
As a result of this and certain power reductions undertaken by the
Bonneville Power Administration in the Pacific Northwest, a number of
companies (including Kaiser) have curtailed or shut down production
capacities at their smelter facilities in the Pacific Northwest.
Furthermore, after continued assessment of current market conditions,
Kaiser announced on April 27, 1994 that it will curtail, by May 15, 1994,
about 40,000 metric tons of primary aluminum-making capacity at its 90%
owned Volta Aluminium Company Limited ("VALCO") smelter in Ghana, West
Africa. The tonnage accounts for about 20% of VALCO's annual capacity
and about 9.3% of Kaiser's current annual production. With this cutback
and those taken at Kaiser's Pacific Northwest smelters in January 1993,
Kaiser will be operating at an annual production rate of 390,000 metric
tons of primary aluminum, or 77% of its total annual rated capacity of
508,000 metric tons.
During the three months ended March 31, 1994, Kaiser's average
realized prices from sales of alumina and fabricated aluminum products
declined from their 1993 levels. Kaiser'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. Kaiser has attempted to mitigate
the effect of market-price declines for alumina and primary aluminum
through forward sales transactions and
<PAGE>
hedging programs. If Kaiser's
average realized sales prices in 1994 for substantial quantities of its
primary aluminum and alumina were based on the current market price of
primary aluminum, Kaiser would continue to sustain net losses in 1994,
which would be expected to exceed the loss for 1993 before extraordinary
losses and cumulative effect of changes in accounting principles, the
charges related to the restructuring of the Trentwood plant and certain
other facilities, certain other charges principally related to a
reduction in the carrying value of Kaiser's inventories and the
establishment of additional litigation and environmental reserves.
<PAGE> MAXXAM INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K for information
concerning material legal proceedings with respect to the Company. The
following material developments have occurred with respect to such legal
proceedings. Any capitalized or italicized terms used but not defined in
this Item have the same meaning given to them in the Form 10-K.
PACIFIC LUMBER MERGER LITIGATION
With respect to the Russ case, the Court has scheduled a status
conference for June 6, 1994.
With respect to the Boesky Multidistrict Securities Litigation,
trial is set to commence beginning May 17, 1994. Additionally,
plaintiffs were recently allowed to amend their complaint with additional
claims, including that the Company and others assisted the former Board
of Directors of Pacific Lumber in their alleged breaches of fiduciary
duty.
With respect to the Kayes case, oral argument before the 9th
Circuit Court of Appeal was held May 10, 1994 and the Court took the
matter under submission.
ITEM 5. OTHER INFORMATION
Sam Houston Race Park, a Class 1 horse racing track located in
Houston, began operations on April 29, 1994. The track has thoroughbred
and quarter horse races scheduled through the end of 1994. Through
various subsidiaries, the Company is the general partner of, and holds an
equity interest of approximately 29.7% in, Sam Houston Race Park, Ltd.,
which owns the facility.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
11 Computation of Net Loss Per Common and Common
Equivalent Share
B. REPORTS ON FORM 8-K:
None.
<PAGE> SIGNATURES
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 chief financial officer of
the Registrant.
<TABLE>
<S> <S>
MAXXAM INC.
Date: May 13, 1994 By: JOHN T. LA DUC
John T. La Duc
Senior Vice President and Chief Financial Officer
</TABLE>
EXHIBIT 11
MAXXAM INC.
COMPUTATION OF NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Weighted average common and common equivalent shares outstanding during
each period 9,376,703 9,376,703
Common equivalent shares attributable to stock options and convertible
securities 71,175 86,175
----------- -----------
Total common and common equivalent shares 9,447,878 9,462,878
=========== ===========
Loss before extraordinary item and cumulative effect of changes in
accounting principles $(34.5) $(25.9)
Extraordinary item (5.4) (44.1)
Cumulative effect of changes in accounting principles - (417.7)
----------- -----------
Net loss $(39.9) $(487.7)
=========== ===========
Per common and common equivalent share:
Loss before extraordinary item and cumulative effect of changes in
accounting principles $(3.65) $(2.74)
Extraordinary item (.57) (4.66)
Cumulative effect of changes in accounting principles - (44.14)
----------- -----------
Net loss $(4.22) $(51.54)
=========== ===========
</TABLE>
