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 SEPTEMBER 30, 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 November 1, 1994:
8,698,543<PAGE>
<PAGE>
MAXXAM INC.
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1994 and December
31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations for the three and nine
months ended September 30, 1994 and 1993 . . . . . . . . . 4
Consolidated Statement of Cash Flows for the nine months ended
September 30, 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 . . . . . . 13
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 24
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 25
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 25
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- -------------
(Unaudited)
(In millions of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 76.2 $ 83.9
Marketable securities . . . . . . . . . . . . 62.0 44.7
Receivables:
Trade, net of allowance for doubtful
accounts of $4.2 and $3.2 at
September 30, 1994 and December 31,
1993, respectively . . . . . . . . . . 186.4 175.3
Other . . . . . . . . . . . . . . . . . . 53.5 90.8
Inventories . . . . . . . . . . . . . . . . . 496.5 503.6
Prepaid expenses and other current assets . . 130.1 93.3
------------- -------------
Total current assets . . . . . . . . . . 1,004.7 991.6
Property, plant and equipment, net of accumulated
depreciation of $556.0 and $481.3 at September
30, 1994 and December 31, 1993, respectively . 1,224.0 1,245.0
Timber and timberlands, net of depletion of $121.1
and $108.2 at September 30, 1994 and December
31, 1993, respectively . . . . . . . . . . . . 327.9 338.6
Investments in and advances to unconsolidated
affiliates . . . . . . . . . . . . . . . . . . . 171.8 183.2
Deferred income taxes . . . . . . . . . . . . . . . 422.4 359.9
Long-term receivables and other assets . . . . . . 450.2 453.7
------------- -------------
$ 3,601.0 $ 3,572.0
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . $ 136.4 $ 135.6
Accrued interest . . . . . . . . . . . . . . . 28.3 53.7
Accrued compensation and related benefits . . 129.9 114.2
Other accrued liabilities . . . . . . . . . . 174.0 161.5
Payable to affiliates . . . . . . . . . . . . 79.4 74.0
Long-term debt, current maturities . . . . . . 34.8 38.3
------------- -------------
Total current liabilities . . . . . . . . 582.8 577.3
Long-term debt, less current maturities . . . . . . 1,580.8 1,567.9
Accrued postretirement benefits . . . . . . . . . . 731.6 720.1
Other noncurrent liabilities . . . . . . . . . . . 638.7 650.3
------------- -------------
Total liabilities . . . . . . . . . . . . 3,533.9 3,515.6
------------- -------------
Commitments and contingencies
Minority interests . . . . . . . . . . . . . . . . 331.4 224.3
Stockholders' deficit:
Preferred stock, $.50 par value; 12,500,000
shares authorized; Class A $.05 Non-
Cumulative Participating Convertible
Preferred Stock; shares issued: September
30, 1994 - 679,005 and December 31, 1993 -
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 . . . . . . . . . . . . . . 52.8 51.2
Accumulated deficit . . . . . . . . . . . . . (278.8) (180.8)
Pension liability adjustment . . . . . . . . . (23.9) (23.9)
Treasury stock, at cost (shares held: preferred
- 845; common: September 30, 1994 -
1,364,816 and December 31, 1993 -
1,364,895) . . . . . . . . . . . . . . . (19.7) (19.7)
------------- -------------
Total stockholders' deficit . . . . . . . (264.3) (167.9)
------------- -------------
$ 3,601.0 $ 3,572.0
============= =============
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Aluminum operations . . . . . . . . . . . . . . . . . . $ 461.1 $ 428.4 $ 1,335.7 $ 1,303.2
Forest products operations . . . . . . . . . . . . . . . 60.7 58.8 180.4 169.5
Real estate operations . . . . . . . . . . . . . . . . . 23.1 19.3 61.6 55.4
---------- ---------- ---------- ----------
544.9 506.5 1,577.7 1,528.1
---------- ---------- ---------- ----------
Costs and expenses:
Costs of sales and operations (exclusive of depreciation
and depletion):
Aluminum operations . . . . . . . . . . . . . . . . 416.0 389.9 1,222.8 1,181.0
Forest products operations . . . . . . . . . . . . 31.6 36.4 95.8 94.3
Real estate operations . . . . . . . . . . . . . . 18.2 14.0 46.4 46.8
Depreciation and depletion . . . . . . . . . . . . . . . 28.7 30.2 89.9 90.2
Selling, general and administrative expenses . . . . . . 41.4 46.8 122.3 129.5
---------- ---------- ---------- ----------
535.9 517.3 1,577.2 1,541.8
---------- ---------- ---------- ----------
Operating income (loss) . . . . . . . . . . . . . . . . . . . 9.0 (10.8) .5 (13.7)
Other income (expense):
Investment, interest and other income (expense) . . . . 4.5 7.6 (3.2) 24.3
Interest expense . . . . . . . . . . . . . . . . . . . . (44.3) (45.0) (132.0) (141.2)
---------- ---------- ---------- ----------
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of changes
in accounting principles . . . . . . . . . . . . . . . . (30.8) (48.2) (134.7) (130.6)
Credit for income taxes . . . . . . . . . . . . . . . . . . . 22.2 25.0 58.0 62.0
Minority interests . . . . . . . . . . . . . . . . . . . . . (6.3) (3.6) (15.9) .1
---------- ---------- ---------- ----------
Loss before extraordinary item and cumulative effect of
changes in accounting principles . . . . . . . . . . . . (14.9) (26.8) (92.6) (68.5)
Extraordinary item:
Loss on early extinguishment of debt, net of related
benefits for minority interests of $nil in 1994 and
$nil and $2.8 in 1993 and income taxes of $2.9 in
1994 and $3.3 and $27.5 in 1993, respectively . . . - (6.5) (5.4) (50.6)
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
$240.2 . . . . . . . . . . . . . . . . . . . . . . - - - (444.3)
Accounting for income taxes . . . . . . . . . . . . . . - - - 26.6
---------- ---------- ---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14.9) $ (33.3) $ (98.0) $ (536.8)
========== ========== ========== ==========
Per common and common equivalent share:
Loss before extraordinary item and cumulative effect of
changes in accounting principles . . . . . . . . . $ (1.58) $ (2.83) $ (9.80) $ (7.24)
Extraordinary item . . . . . . . . . . . . . . . . . . . - (.69) (.57) (5.35)
Cumulative effect of changes in accounting principles . - - - (44.15)
---------- ---------- ---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (1.58) $ (3.52) $ (10.37) $ (56.74)
========== ========== ========== ==========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1994 1993
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (98.0) $ (536.8)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89.9 90.2
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9 (.1)
Amortization of deferred financing costs and discounts on long-term debt . . . . . 14.6 15.4
Extraordinary loss on early extinguishment of debt, net . . . . . . . . . . . . . . 5.4 50.6
Equity in losses of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . 2.8 11.8
Incurrence of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . (19.4) (46.6)
Cumulative effect of changes in accounting principles, net . . . . . . . . . . . . - 417.7
Decrease in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.1 42.1
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . 10.3 (3.8)
Increase in payable to affiliates and other liabilities . . . . . . . . . . . . . . 6.3 11.8
Decrease in prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . 2.7 11.7
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . .9 (28.5)
Increase in accrued and deferred income taxes . . . . . . . . . . . . . . . . . . . (57.1) (75.0)
Decrease in accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . (25.4) (16.8)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 (.5)
--------- ---------
Net cash used for operating activities . . . . . . . . . . . . . . . . . . . . . (31.5) (56.8)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and investments . . . . . . . . . . . . . . . 8.5 19.4
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53.1) (49.5)
Net sales (purchases) of marketable securities . . . . . . . . . . . . . . . . . . . . . (6.5) 33.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.7) (12.5)
--------- ---------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . (55.8) (9.1)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 225.5 1,193.6
Proceeds from issuance of Kaiser capital stock . . . . . . . . . . . . . . . . . . . . . 100.4 119.3
Net payments under revolving credit agreements and short-term borrowings . . . . . . . . (193.9) (109.7)
Redemptions, repurchase of and principal payments on long-term debt . . . . . . . . . . (31.0) (1,150.0)
Redemption of preference stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.5) (4.2)
Restricted cash deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (34.0)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12.9) (2.8)
--------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . 79.6 12.2
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . (7.7) (53.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . 83.9 81.9
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $ 76.2 $ 28.2
========= =========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND financing activities:
NET MARGIN BORROWINGS FOR MARKETABLE SECURITIES . . . . . . . . . . . . . . . . . . . . $ 10.0 $ 8.3
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest . . . . . . . . . . . . . . . . . . . . . . . $ 142.8 $ 142.5
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.0 9.5
</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 September 30, 1994,
the consolidated results of operations for the three and nine months ended
September 30, 1994 and 1993 and consolidated cash flows for the nine months
ended September 30, 1994 and 1993. Certain reclassifications of prior
period information have been made to conform to the current presentation.
2. CASH AND CASH EQUIVALENTS
At September 30, 1994 and December 31, 1993, cash and cash
equivalents includes $8.9 and $20.3, respectively, which is reserved for
debt service payments on the 7.95% Timber Collateralized Notes due 2015.
3. INVENTORIES
Inventories consist of the following:<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
--------------- ---------------
<S> <C> <C>
Aluminum Operations:
Finished fabricated products . . . . . . $ 58.1 $ 83.7
Primary aluminum and work in process . . 158.8 141.4
Bauxite and alumina . . . . . . . . . . 88.1 94.0
Operating supplies and repair and
maintenance parts . . . . . . . . . 108.2 107.8
--------------- ---------------
413.2 426.9
--------------- ---------------
Forest Products Operations:
Lumber . . . . . . . . . . . . . . . . . 63.9 58.4
Logs . . . . . . . . . . . . . . . . . . 19.4 18.3
--------------- ---------------
83.3 76.7
--------------- ---------------
$ 496.5 $ 503.6
=============== ===============
/TABLE
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- -------------
<C> <S> <S>
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 . . . . . . . . . . . . . . . . . . . . . . . . 20.8 25.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 .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 . . 223.6 -
Alpart CARIFA Loan . . . . . . . . . . . . . . . . . . . . . . 60.0 60.0
12-3/4% Senior Subordinated Notes due February 1, 2003 . . . . 400.0 400.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.4 78.1
Forest Products Operations:
7.95% Timber Collateralized Notes due July 20, 2015 . . . . . 363.8 377.0
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 . . . . . . . . . . . . . . . . . . . . . . . 80.4 73.5
10-1/2% Senior Notes due March 1, 2003 . . . . . . . . . . . . 235.0 235.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 2.9
Real Estate Operations:
Secured notes due December 31, 1997, interest at prime plus 3% 15.4 17.2
Other notes and contracts, primarily secured by receivables,
buildings, real estate and equipment . . . . . . . . . . 18.0 23.8
------------ ------------
1,615.6 1,606.2
Less: current maturities . . . . . . . . . . . . . . . . . . . . . (34.8) (38.3)
------------ ------------
$ 1,580.8 $ 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 (as amended, the "1994 Credit
Agreement"). The 1994 Credit Agreement replaces Kaiser's previous credit
agreement (as amended, the "1989 Credit Agreement") and consists of a
$275.0 five-year secured revolving line of credit which matures in 1999.
KACC is able to borrow under the facility by means of revolving credit
advances and letters of credit in an aggregate amount equal to the lesser
of $275.0 or a borrowing base relating to eligible accounts receivable and
inventory. As of September 30, 1994, $65.8 of letters of credit were
outstanding leaving $209.2 of borrowing capacity unused under the 1994
Credit Agreement (of which $59.2 could have been used for letters of
credit). The 1994 Credit Agreement is unconditionally guaranteed by Kaiser
and by certain significant subsidiaries of KACC. 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% 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. The 1994 Credit Agreement was amended as of
July 21, 1994. Kaiser recorded a pre-tax extraordinary loss of $8.3 for
the nine months ended September 30, 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
5), 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.
5. MINORITY INTERESTS
During the first quarter of 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.
6. INVESTMENT, INTEREST AND OTHER INCOME (EXPENSE)
On May 17, 1994, the Company and The Pacific Lumber Company
("Pacific Lumber," a wholly owned indirect subsidiary of the Company)
announced that an agreement in principle had been reached to settle class
and related individual claims brought by former stockholders of Pacific
Lumber against the Company, MAXXAM Group Inc. ("MGI," a wholly owned
subsidiary of the Company), Pacific Lumber, former directors of Pacific
Lumber and others concerning MGI's acquisition of Pacific Lumber. Of the
pending approximately $52.0 settlement, approximately $33.0 was paid by
insurance carriers of the Company and Pacific Lumber, approximately $14.8
was paid by Pacific Lumber and the balance was paid by other defendants and
through the assignment of certain claims. The settlement is subject to
certain contingencies, including a fairness hearing which is scheduled to
be held on November 17, 1994. The above described cash payments are being
held in the registry of the court pending satisfaction of these
contingencies. In the second quarter of 1994, the Company recorded a pre-
tax loss of $21.2 related to the settlement and associated costs. This
amount is included in investment, interest and other income (expense).
In February 1994, Pacific Lumber 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 (expense) for the nine
months ended September 30, 1994.
7. CREDIT FOR INCOME TAXES
The credit for income taxes for the third quarter of 1994
includes a credit relating to reserves the Company no longer believes are
necessary. The credit for income taxes for the third quarter of 1993
includes a credit resulting from an increase in the federal statutory
income tax rate from 34% to 35%.
8. 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.
9. 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 remediation
matters. At September 30, 1994, the balance of such accruals, which is
primarily included in other noncurrent liabilities, was $38.2.
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 actions to be taken. Kaiser expects
that these remediation actions will be taken over the next several years
and estimates that annual 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 $12.7 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 on 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. As of the date of this Report, the number of such lawsuits pending
was approximately 21,300.
Based upon prior experience, Kaiser estimates annual future cash
payments in connection with such litigation of approximately $8.0 to $13.0
for each of the years 1994 through 1998, and an aggregate of approximately
$98.9 thereafter through 2007. 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 2007. Kaiser does not presently believe there is a
reasonable basis for estimating such costs beyond 2007 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. Accordingly, an asbestos-related cost
accrual of $103.1 is included primarily in other noncurrent liabilities at
September 30, 1994. The aggregate amount of the undiscounted liability at
September 30, 1994 is $144.7, before consideration of 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 some 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 insurance recoveries of $95.3, determined
on the same basis as the asbestos-related cost accrual, are recorded
primarily in long-term receivables and other assets as of September 30,
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 on 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 on the
Company's consolidated financial position or results of operations.
10. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
KACC enters into a number of financial instruments with off-
balance-sheet risk in the normal course of business that are designed to
reduce its exposure to fluctuations in foreign exchange rates, alumina and
primary aluminum prices and the cost of purchased commodities.
KACC has significant expenditures which are denominated in
foreign currencies related to long-term purchase commitments with its
affiliates in Australia and the United Kingdom, which expose KACC to
certain exchange rate risks. In order to mitigate its exposure, KACC
periodically enters into forward foreign exchange and currency option
contracts in Australian Dollars and Pounds Sterling to hedge these
commitments. The forward foreign currency exchange contracts are
agreements to purchase or sell a foreign currency, for a price specified at
the contract date, with delivery and settlement in the future. At
September 30, 1994, KACC had net forward foreign exchange contracts
totaling approximately $17.2 for the purchase of 25.5 million Australian
Dollars through May 1995. The option contracts are agreements that
establish the maximum price or establish a range of prices at which the
foreign currency may be acquired. At September 30, 1994, such options
established a price range of $15.1 to $15.8 for the purchase of 24.0
million Australian Dollars through December 1994 and established a maximum
price of $1.5 for the purchase of 1.0 million Pounds Sterling through
December 1994.
To mitigate its exposure to declines in the market prices of
alumina and primary aluminum, while retaining the ability to participate in
favorable pricing environments that may materialize, KACC has developed
strategies which include forward sales of primary aluminum at fixed prices
and the purchase or sale of options for primary aluminum. Under the
principal components of KACC's price risk management strategy, which can be
modified at any time, (i) varying quantities of KACC's anticipated
production are sold forward at fixed prices, (ii) call options are
purchased to allow KACC to participate in certain higher market prices,
should they materialize, for a portion of KACC's excess primary aluminum
and alumina sold forward, (iii) option contracts are entered into to
establish a price range KACC will receive for a portion of its excess
primary aluminum and alumina and (iv) put options are purchased to
establish minimum prices KACC will receive for a portion of its excess
primary aluminum and alumina. In this regard, in respect of its remaining
1994 anticipated primary aluminum and alumina production, as of September
30, 1994, KACC had sold forward 11,250 metric tons of primary aluminum at
fixed prices and had purchased call options in respect of 15,000 metric
tons of primary aluminum. Further, in respect of its 1995 anticipated
primary aluminum production, as of September 30, 1994, KACC had sold
forward 41,700 metric tons of primary aluminum at fixed prices, purchased
call options in respect of 30,000 metric tons of primary aluminum,
purchased put options to establish a minimum price for 181,500 metric tons
of primary aluminum and entered into option contracts that established a
price range for 12,000 metric tons of primary aluminum. In addition, since
several alumina sales contracts have pricing provisions which link the
selling price of alumina to the spot price of primary aluminum, KACC has
hedged a portion of its 1995 alumina sales on the primary aluminum forward
market. As of September 30, 1994, KACC had sold 37,500 metric tons of
primary aluminum forward at fixed prices and entered into option contracts
that established a price range for 78,000 metric tons of primary aluminum
in respect of such alumina sales contracts. KACC will not receive the
benefit of market price increases to the extent (i) the quantity of
production sold forward is greater than the tonnage covered by the
purchased call options; (ii) market prices exceed the prices at which
primary aluminum is sold forward, but are less than the strike price of the
purchased call options, on the tonnage covered by the options; or (iii)
market prices exceed the maximum of the price range on the tonnage covered
by the option contracts entered to establish a price range.
In addition, KACC enters into forward fixed price arrangements
with certain customers which provide for the delivery of a specific
quantity of fabricated aluminum products over a specified future period of
time. In order to establish the cost of primary aluminum for a portion of
such sales, KACC may enter into forward and options contracts. In this
regard, at September 30, 1994, KACC had purchased 9,000 metric tons of
primary aluminum forward purchase contracts at fixed prices that expire at
various times through December 1995.
KACC has also entered into a natural gas pricing contract to fix
future prices of a portion (20,000 million BTU's per day) of a plant's
natural gas supply through March 1995.
At September 30, 1994, the net unrealized gain on KACC's position
in forward foreign exchange and foreign currency options was $3.0 and the
net unrealized loss on aluminum forward sales and option contracts and the
natural gas pricing contract was $39.5, based on dealer quoted prices.
Gains and losses arising from the use of hedging instruments are reflected
in KACC's operating results concurrently with the consummation of the
underlying hedged transactions.
KACC is exposed to credit risk in the event of non-performance by
other parties to these currency and commodity contracts, but KACC does not
anticipate non-performance by any of these counterparties.<PAGE>
<PAGE>
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 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 and on
KACC's hedging strategies. 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 and nine
months ended September 30, 1994 and 1993. The information presented in the
table is in millions of dollars except shipments and prices.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Shipments(1):
Alumina . . . . . . . . . . . . . . . . . . 534.9 576.9 1,577.3 1,508.5
Aluminum products:
Primary aluminum . . . . . . . . . . . 48.4 55.3 175.8 183.4
Fabricated aluminum products . . . . . 105.4 92.9 307.1 280.0
-------- -------- -------- ---------
Total aluminum products . . . . . . 153.8 148.2 482.9 463.4
======== ======== ======== =========
Average realized sales price:
Alumina (per ton) . . . . . . . . . . . . . $ 171 $ 165 $ 162 $ 169
Primary aluminum (per pound) . . . . . . . . .60 .56 .56 .57
Net sales:
Bauxite and alumina:
Alumina . . . . . . . . . . . . . . . . $ 91.5 $ 95.3 $ 255.3 $ 255.5
Other(2)(3) . . . . . . . . . . . . . . 19.8 23.0 60.6 64.1
-------- -------- -------- ---------
Total bauxite and alumina . . . . . 111.3 118.3 315.9 319.6
-------- -------- -------- ---------
Aluminum processing:
Primary aluminum . . . . . . . . . . . 64.1 68.7 218.2 229.3
Fabricated aluminum products . . . . . 281.9 238.3 790.8 744.6
Other(3) . . . . . . . . . . . . . . . 3.8 3.1 10.8 9.7
-------- -------- -------- ---------
Total aluminum processing . . . . . 349.8 310.1 1,019.8 983.6
-------- -------- -------- ---------
Total net sales . . . . . . . . $ 461.1 $ 428.4 $1,335.7 $ 1,303.2
======== ======== ======== =========
Operating loss . . . . . . . . . . . . . . . . . $ (5.4) $ (16.1) $ (42.2) $ (37.0)
======== ======== ======== =========
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles . . . . . . $ (28.4) $ (33.4) $ (105.4) $ (90.1)
======== ======== ======== =========
Capital expenditures . . . . . . . . . . . . . . $ 15.8 $ 13.1 $ 37.5 $ 36.4
======== ======== ======== =========
<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>
Net sales
Bauxite and alumina. Revenues from net sales to third parties
for the bauxite and alumina segment were $111.3 million for the third
quarter of 1994 compared with $118.3 million for the third quarter of
1993 and $315.9 million for the nine months ended September 30,
1994 compared with $319.6 million for the nine months ended September 30,
1993. Revenues from alumina decreased 4% to $91.5 million for the
third quarter of 1994 from $95.3 million for the third quarter of 1993,
principally due to decreased shipments partially offset by higher average
realized prices. Revenues from alumina were $255.3 million for the nine
months ended September 30, 1994 compared with $255.5 million for the nine
months ended September 30, 1993, as increased shipments were offset
by lower average realized prices.
Aluminum processing. Revenues from net sales to third parties
for the aluminum processing segment were $349.8 million for the third quarter
of 1994 compared with $310.1 million for the third quarter of 1993 and
$1,019.8 million for the nine months ended September 30, 1994 compared
with $983.6 million for the nine months ended September 30, 1993.
Revenues from primary aluminum decreased 7% to $64.1 million for the
third quarter of 1994 from $68.7 million for the third quarter of 1993
principally due to decreased shipments, partially offset by higher average
realized prices, and decreased 5% to $218.2 million for the nine
months ended September 30, 1994 from $229.3 million for the nine months
ended September 30, 1993, primarily because of lower shipments and, to a
lesser extent, lower average realized prices. Shipments of primary
aluminum to third parties constituted approximately 31% and 36%
of total aluminum products shipments for the third quarter of 1994 and
nine months ended September 30, 1994, respectively, compared with approximately
37% and 40% for the third quarter of 1993 and nine months ended September 30,
1993, respectively. Revenues from fabricated aluminum products increased
18% to $281.9 million for the third quarter of 1994 from $238.3 million
for the third quarter of 1993 due to increased shipments and, to a
lesser extent, higher average realized prices, and increased 6%
to $790.8 million for the nine months ended September 30, 1994 from
$744.6 million for the nine months ended September 30, 1993, as increased
shipments were partially offset by lower average realized prices. Although
KACC has realized improved prices for all of its products in the third quarter
of 1994 compared with the third quarter of 1993 and the second
quarter of 1994, the third quarter results continued to be unfavorably
affected by: the defensive hedging of primary aluminum prices in respect
of 1994 shipments, which were put in place prior to refinancings carried
out in 1994 and recent improvements in metal prices; energy-related
curtailments of primary aluminum production (see "Trends"); relatively low
fixed price contracts for can sheet, which will expire at year end; and
the lag time in more fully realizing margin improvements associated with the
recently announced price increases for other fabricated products.
Operating loss
The operating loss for the third quarter of 1994 was $5.4 million,
compared with $16.1 million for the third quarter of 1993. The operating
loss for the nine months ended September 30, 1994 was $42.2 million,
compared with $37.0 million for the nine months ended September 30,
1993. Kaiser's corporate general and administrative expenses of $18.0
million and $15.1 million for the third quarter of 1994 and 1993,
respectively, and $53.4 million and $52.2 million for the nine months
ended September 30, 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
operating income of $4.1 million for the third quarter of 1994, compared
with an operating loss of $1.4 million for the third quarter of 1993.
The operating loss for the nine months ended September 30, 1994 was
$5.6 million, compared with $12.9 million for the nine months ended
September 30, 1993. These improved operating results were
principally due to lower manufacturing costs.
Aluminum processing. The aluminum processing segment had an
operating loss of $9.5 million for the third quarter of 1994, compared
with $14.7 million for the third quarter of 1993. This decrease was
principally due to increased shipments of fabricated aluminum
products and higher average realized prices of primary aluminum and
fabricated aluminum products, partially offset by decreased
shipments of primary products. The operating loss for the nine months
ended September 30, 1994 was $36.6 million, compared with $24.1
million for the nine months ended September 30, 1993. This increase was
principally due to lower average realized prices of fabricated aluminum
products.
Third quarter results continued to be adversely affected by the
defensive hedging of primary aluminum prices and the constraints on more
fully realizing margin improvement of some fabricated products, as discussed
above.
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
third quarter of 1994 was $28.4 million, compared with $33.4 million for
the third quarter of 1993. This decrease was principally due to the
lower operating losses, partially offset by a decrease in investment,
interest and other income. The loss for the nine months ended September 30,
1994 was $105.4 million, compared with $90.1 million for the nine months
ended September 30, 1993. This increase was principally due to a decrease
in investment, interest and other income and the higher operating losses.
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 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 and nine months ended September 30,
1994 and 1993. The information presented in the table is in millions of
dollars except shipments and prices.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Shipments:
Lumber(1):
Redwood upper grades . . . . . . . . . 12.5 17.0 38.2 49.8
Redwood common grades . . . . . . . . . 55.8 42.8 160.9 136.7
Douglas-fir upper grades . . . . . . . 1.7 2.3 6.1 8.5
Douglas-fir common grades . . . . . . . 16.0 8.1 47.9 35.6
-------- -------- -------- --------
Total lumber . . . . . . . . . . . . 86.0 70.2 253.1 230.6
======== ======== ======== ========
Logs(2) . . . . . . . . . . . . . . . . . . 1.6 8.0 12.0 8.9
======== ======== ======== ========
Wood chips(3) . . . . . . . . . . . . . . . 57.0 40.0 152.2 111.2
======== ======== ======== ========
Average sales price:
Lumber(4):
Redwood upper grades . . . . . . . . . $ 1,434 $ 1,328 $ 1,436 $ 1,272
Redwood common grades . . . . . . . . . 472 472 460 475
Douglas-fir upper grades . . . . . . . 1,431 1,248 1,402 1,189
Douglas-fir common grades . . . . . . . 429 457 439 439
Logs(4) . . . . . . . . . . . . . . . . . . 515 700 638 701
Wood chips(5) . . . . . . . . . . . . . . . 85 84 82 81
Net sales:
Lumber, net of discount . . . . . . . . . . $ 53.5 $ 48.3 $ 156.6 $ 150.5
Logs . . . . . . . . . . . . . . . . . . . . .8 5.6 7.6 6.2
Wood chips . . . . . . . . . . . . . . . . . 4.8 3.4 12.5 9.0
Cogeneration power . . . . . . . . . . . . . 1.2 1.2 2.7 2.9
Other . . . . . . . . . . . . . . . . . . . .4 .3 1.0 .9
-------- -------- -------- --------
Total net sales . . . . . . . . . . $ 60.7 $ 58.8 $ 180.4 $ 169.5
======== ======== ======== ========
Operating income . . . . . . . . . . . . . . . . $ 19.8 $ 9.6 $ 56.3 $ 41.4
======== ======== ======== ========
Income (loss) before income taxes, minority
interests, extraordinary item and cumulative
effect of changes in accounting principles . $ 2.6 $ (7.8) $ (10.9) $ (14.1)
======== ======== ======== ========
Capital expenditures . . . . . . . . . . . . . . $ 3.5 $ 2.3 $ 10.0 $ 8.9
======== ======== ======== ========
FN
<PAGE>
- ---------------
(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 third quarter of 1994 were 86.0 million
board feet, an increase of 23% from 70.2 million board feet for the third
quarter of 1993. This increase was principally due to a 30% increase in
redwood common lumber shipments and a 98% increase in shipments of common
grade Douglas-fir lumber, partially offset by a 26% decrease in shipments
of upper grade redwood lumber. Log shipments for the third quarter of 1994
were 1.6 million feet (net Scribner scale), a decrease from 8.0 million
feet for the third quarter of 1993.
Lumber shipments for the nine months ended September 30, 1994
were 253.1 million board feet, an increase of 10% from 230.6 million board
feet for the nine months ended September 30, 1993. This increase was
principally due to an 18% increase in redwood common lumber shipments and a
35% increase in shipments of common grade Douglas-fir lumber, partially
offset by a 23% decrease in shipments of upper grade redwood lumber. Log
shipments for the nine months ended September 30, 1994 were 12.0 million
feet (net Scribner scale), an increase from 8.9 million feet for the nine
months ended September 30, 1993.
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
was recently 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 third quarter
of 1994 increased by approximately 1% from the third quarter of 1993. This
increase was principally due to increased shipments of redwood common
lumber, increased shipments of common grade Douglas-fir lumber and an 8%
increase in the average realized price of upper grade redwood lumber,
partially offset by decreased shipments of upper grade redwood lumber and
decreased log shipments.
Revenues from net sales of lumber and logs for the nine months
ended September 30, 1994 increased by approximately 5% from the nine months
ended September 30, 1993. This increase was principally due to increased
shipments of redwood common lumber, a 13% increase in the average realized
price of upper grade redwood lumber, increased shipments of common grade
Douglas-fir lumber, increased log shipments and an 18% increase in the
average realized price of upper grade Douglas-fir lumber, partially offset
by decreased shipments of upper grade redwood lumber and a 3% decrease in
the average realized price of redwood common lumber.
Operating income
Operating income for the third quarter of 1994 increased by
approximately 106% as compared to the third quarter of 1993. Operating
income for the nine months ended September 30, 1994 increased by
approximately 36% as compared to the nine months ended September 30, 1993.
These increases were principally due to higher sales of lumber and wood
chips, lower purchases of lumber and logs from third parties, improved
sawmill productivity and reduced overhead costs in 1994 compared to 1993.
For the nine months ended September 30, 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.
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.
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 third quarter of 1994 as compared to the third quarter of 1993.
This increase resulted from the increase in operating income. The loss
before income taxes, minority interests, extraordinary item and cumulative
effect of changes in accounting principles decreased for the nine months
ended September 30, 1994 as compared to the nine months ended September 30,
1993. This decrease resulted from the increase in operating income and
decreased interest expense, partially offset by the loss on litigation
settlement (see also "Pacific Lumber Merger Litigation" under Part II, Item
1 of this Report). In addition, investment, interest and other income
(expense) for the nine months ended September 30, 1994 includes the receipt
of a franchise tax refund of $7.2 million (as described in Note 6 to the
Condensed Notes to Consolidated Financial Statements). The litigation
settlement in the second quarter of 1994 (as described in Note 6 to the
Condensed Notes to Consolidated Financial Statements) resulted in a pre-
tax loss of $21.2 million which consists of Pacific Lumber's $14.8 million
cash payment to the settlement fund, a $2.0 million accrual for additional
contingent claims and $4.4 million of related legal fees. The Company has
recorded a net benefit of approximately $6.3 million for federal and state
income taxes related to the settlement. Interest expense decreased due to
lower interest rates resulting from the refinancing of the long-term debt
of Pacific Lumber and MGI in March and August of 1993.
REAL ESTATE OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In millions of dollars)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . $ 23.1 $ 19.3 $ 61.6 $ 55.4
Operating loss . . . . . . . . . . . . . . . . . (2.6) (.9) (6.0) (7.9)
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles . . . . . . (1.7) (.5) (3.8) (8.9)
</TABLE>
Net sales
Revenues from net sales for the third quarter of 1994 were $23.1
million, an increase of $3.8 million from the third quarter of 1993. Net
sales for the nine months ended September 30, 1994 were $61.6 million, an
increase of $6.2 million from the nine months ended September 30, 1993.
These increases were primarily due to bulk acreage sales in New Mexico and
increased lot sales at the Company's Fountain Hills development in Arizona,
partially offset by a decrease in rental revenues resulting from the sale
of sixteen apartment complexes in December 1993.
Operating loss
The operating loss for the third quarter of 1994 was $2.6
million, an increase of $1.7 million from the third quarter of 1993. This
increase was primarily due to higher overhead costs and decreased revenues
resulting from the sale of apartment complexes, partially offset by the
bulk acreage sales and the increased sales at Fountain Hills. The
operating loss for the nine months ended September 30, 1994 was $6.0
million, a decrease of $1.9 million from the nine months ended September
30, 1993. The operating results for the nine months ended September 30,
1994 were adversely impacted by decreased revenues as a result of the sale
of sixteen apartment complexes in December 1993 and higher overhead costs,
offset by the increased sales at Fountain Hills and the bulk acreage sales.
The operating loss for the nine months ended September 30, 1993 included a
$5.9 million writedown of certain of the Company's nonstrategic real estate
holdings to their estimated net realizable value.
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
third quarter of 1994 was $1.7 million, an increase of $1.2 million from
the third quarter of 1993. This increase was primarily due to the
increased operating loss discussed above, partially offset by a decrease in
interest expense. The loss before income taxes, minority interests,
extraordinary item and cumulative effect of changes in accounting
principles for the nine months ended September 30, 1994 was $3.8 million, a
decrease of $5.1 million from the nine months ended September 30, 1993.
This decrease was primarily attributable to a decrease in interest expense
and the decreased operating loss discussed above. The decreases in
interest expense resulted primarily from repayments on debt attributable to
the sale of the sixteen apartment complexes in December 1993.
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1994 1993 1994 1993
------- -------- -------- --------
(In millions of dollars)
<S> <C> <C> <C> <C>
Operating loss . . . . . . . . . . . . $ (2.8) $ (3.4) $ (7.6) $ (10.2)
Loss before income taxes, minority
interests, extraordinary item and
cumulative effect of changes in
accounting principles . . . . . . (3.3) (6.5) (14.6) (17.5)
</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 third quarter of 1994 was $2.8
million, a decrease of $.6 million from the third quarter of 1993. The
operating loss for the nine months ended September 30, 1994 was $7.6
million, a decrease of $2.6 million from the nine months ended
September 30, 1993. These decreases were primarily due to lower overhead
costs.
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 (expense) and
interest expense, including amortization of deferred financing costs, that
are not allocated to the Company's industry segments. The loss for the
third quarter of 1994 was $3.3 million, a decrease of $3.2 million from the
third quarter of 1993. The loss for the nine months ended September 30,
1994 was $14.6 million, a decrease of $2.9 million from the nine months
ended September 30, 1993. These decreases were primarily due to lower
interest expense and the decreased operating losses discussed above,
partially offset by the equity in losses of affiliates. The equity in
losses of affiliates is attributable to the Company's equity interest in
Sam Houston Race Park (see "--Financial Condition and Investing and
Financing Activities -- Parent Company"). The decreases in interest
expense resulted primarily from the redemption of $20.0 million aggregate
principal amount of the Reset Notes in August 1993.
Minority interests
Minority interests represent the minority stockholders' interest
in the Company's aluminum operations.
Extraordinary item
The refinancing activities of Kaiser during the first quarter of
1994, as described in Note 4 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 losses for the three and
nine months ended September 30, 1993 resulted from the refinancing
activities of MGI, KACC and Pacific Lumber.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
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 September 30, 1994, under
the most restrictive of these covenants, the amount of dividends which
could be paid by MGI was not significant. Under the most restrictive
covenants governing debt of the Company's real estate subsidiaries,
approximately $28.3 million could be paid as of September 30, 1994.
As of September 30, 1994, the Company (excluding its aluminum,
forest products and real estate subsidiary companies) had cash and
marketable securities of approximately $39.6 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.
Through various subsidiaries, the Company controls the general
partner of, and holds an equity interest in, Sam Houston Race Park, Ltd.
("SHRP"), which owns a Class 1 horse racing track located in Houston. The
track began operations on April 29, 1994. SHRP's initial working capital,
together with cash flows from operations, has not been sufficient
to enable SHRP to meet its obligations as they become due. SHRP's
ability to recover its investment in Sam Houston Race Park is dependent
upon its ability to achieve a level of cash flows from operations sufficient
to enable it to meet its operating and financing obligations as they
become due. In this regard, SHRP's general partner has undertaken a
number of steps intended to improve SHRP's operations. These steps include
increasing marketing and advertising programs, strengthening on-site
management, reducing general and administrative costs, negotiating
amendments to the contracts for purse payments, principally to reduce purse
payments, and negotiating reductions with other obligees. In addition
to its efforts to strengthen SHRP's operations, on September 1, 1994,
a deficit notice was issued calling for $6.5 million in additional capital
to be raised by SHRP through the offering of Class C-1 interests in SHRP
(the "Capital Call"). A substantial portion of the proceeds of the Capital
Call ($5.6 million) was made by a wholly owned subsidiary of the Company
pursuant, in large degree, to its oversubscription right arising from
limited participation by other partners. As a result of
the Capital Call, the Company's equity interest in SHRP increased
from approximately 29.7% to 45.0%. The cash received from
the Capital Call was expected to be used, among other things,
to make the January 15, 1995 interest payment on $75.0 million of the 11-3/4%
Senior Secured Notes due July 15, 1999 (the "SHRP Notes"). However,
results of operations with respect to the fall thoroughbred meet have been
substantially below management's expectations. Absent a significant
improvement in operating results for the fall thoroughbred meet,
in order to continue operations, SHRP will be required to use a portion of
the cash that had been expected to be used for the next interest payment due
on the SHRP Notes. Accordingly, there can be no assurance that SHRP will
be able to make the January 15, 1995 interest payment on the SHRP Notes.
SHRP's general partner has not made any determination as to the actions
it will take in the event SHRP is unable to make such interest payment.
SHRP's general partner intends to retain a financial adviser regarding these
matters.
ALUMINUM OPERATIONS
The offering of the PRIDES, the issuance of the KACC Senior Notes
and the replacement of the 1989 Credit Agreement during the first quarter
of 1994 (as described in Notes 4 and 5 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.
The 1994 Credit Agreement was amended as of July 21, 1994, by the
First Amendment to Credit Agreement (the "First Amendment"). The First
Amendment provided, among other things, for an increase in the revolving
line of credit from $250.0 million to $275.0 million, and for an increase
in the inventory sub-limit of the borrowing base from $175.0 million to
$200.0 million, under the 1994 Credit Agreement.
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 and capital expenditures
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 September 30, 1994, the Company's real estate subsidiaries
had approximately $32.4 million available for use under various credit
agreements. A substantial portion 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.
SENSITIVITY TO PRICES AND HEDGING PROGRAMS
ALUMINUM OPERATIONS
Since September 30, 1994, KACC has entered into additional
forward foreign exchange contracts totaling approximately $32.9 million for
the purchase of 45.0 million Australian Dollars from January through
December 1995 in respect of its commitments for 1995 expenditures
denominated in foreign currencies.
Since September 30, 1994, KACC has entered into additional hedge
positions in respect of its 1995 anticipated primary aluminum production.
As of the date of this Report, KACC had sold forward an additional 43,750
metric tons of primary aluminum at fixed prices.
See Note 10 to the Condensed Notes to Consolidated Financial
Statements for derivative positions at September 30, 1994.
TRENDS
ALUMINUM OPERATIONS
KACC has operated its Mead and Tacoma smelters in Washington at
approximately 75% of their full capacity since January 1993, when three
reduction potlines were removed from production (two at its Mead smelter
and one at its Tacoma smelter) in response to a power reduction imposed by
the Bonneville Power Administration ("BPA"). Although full BPA power was
restored as of April 1, 1994, a 25% power reduction was imposed again by
the BPA as of August 1, 1994, which reduction is expected to continue
through November 30, 1994. The BPA has given notice that full BPA power
will be restored as of December 1, 1994, and that the BPA expects to be
able to provide full service through November 30, 1995. KACC is evaluating
these new circumstances.
In late August 1994, the Volta River Authority ("VRA") notified
KACC that it intended to suspend supplying power to KACC's 90%-owned Volta
Aluminium Company Limited ("VALCO") smelter after September 10, 1994, due
to drought conditions in the catchment area of the Volta Lake. Following
discussions between KACC and the VRA, an agreement was reached for VALCO to
curtail one potline (of the 3-1/2 potlines that were then operating) on
September 18, 1994. The agreement also called for KACC and the VRA to meet
in late October to discuss data concerning rainfall, lake level, whether an
additional curtailment was warranted, compensation due to KACC because of
the curtailment and other matters related to the power contract. Following
the discussions in October, the VRA has made sufficient power available to
enable VALCO to restart the potline which was shut down in mid-September.
Restart preparations have begun, and the potline is expected to be in full
operation in early February 1995. The restoration of full operation of the
potline will return VALCO to a production rate of approximately 140,000
metric tons of primary aluminum, or 70% of its total annual rated capacity
of 200,000 metric tons. With such restored production, Kaiser would have
an annual production rate of approximately 390,000 metric tons of primary
aluminum, or 77% of its total annual rated capacity of 508,000 metric tons.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K and Part II, Item 1
of the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1994 and June 30, 1994 (the "Forms 10-Q") 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 and the
Forms 10-Q.
PACIFIC LUMBER MERGER LITIGATION
With respect to the In re Ivan F. Boesky multidistrict securities
litigation matter, on September 28, 1994, the judge signed the preliminary
approval of the settlement agreement, which, among other things,
established October 28, 1994 as the postmark deadline for requests for
exclusion from the settlement (none has been received), established
November 4, 1994 as the deadline for filing any objections to the
settlement (none has been filed), established November 17, 1994 as the date
for the fairness hearing and established December 23, 1994 as the postmark
deadline for proofs of claim. Prior to preliminary approval of the
settlement agreement, certain changes were made from the agreement in
principle described in the Form 10-Q for the quarterly period ended June
30, 1994 (the "Second Quarter Form 10-Q"). The settlement agreement, as
then executed, does not purport to cover certain claims brought in the
Thompson State action by non-shareholders of Pacific Lumber or shareholders
acting in capacities other than as shareholders involving environmental or
other Pacific Lumber non-shareholder corporate issues.
With respect to the DOL civil action, at the September 2, 1994
status conference, at defendants' request, the judge instructed the parties
to attend a settlement conference before a federal magistrate, which has
been scheduled for November 14, 1994, and scheduled the next status
conference for December 16, 1994.
With respect to the Miller action, the defendants and plaintiff
in the DOL civil action have invited the Miller plaintiffs to attend the
settlement conference referenced above. Additionally, on October 3, 1994,
the U.S. House of Representatives approved a bill amending ERISA, which had
been previously passed by the U.S. Senate on October 28, 1993, intended, in
part, to overturn the U.S. District Court's dismissal of the Miller action
and to make available certain remedies not previously provided under ERISA.
On October 22, 1994, the President signed this legislation (the Pension
Annuitants' Protection Act of 1994). As a result of the passage of this
legislation, the Miller plaintiffs have asked the U.S. Ninth Circuit Court
of Appeal to vacate the U.S. District Court judgment dismissing their case
and to remand the case to the U.S. District Court; defendants have opposed
this request. It is uncertain what effect, if any, this legislation will
have on the pending appeal or the final disposition of this case.
RANCHO MIRAGE LITIGATION
With respect to the In re MAXXAM Inc./Federated Development
Shareholders Litigation, on September 21, 1994, the Court held a fairness
hearing with respect to the proposed settlement. The settlement has been
submitted to the Court and the Company is awaiting a decision. With
respect to the similar NL Industries Inc., et al. v. Federated Development
Co., et al. action, the parties agreed to stay any further action in the
case pending the decision concerning the proposed settlement in the In re
MAXXAM Inc./Federated Development Shareholders Litigation.
ITEM 5. OTHER INFORMATION
In Part I, Item 1, "Business--Forest Products Operations--
Regulatory and Environmental Factors" of the Form 10-K and Part II, Item 5,
"Other Information" of the Second Quarter Form 10-Q, a bill is described
which relates to acquisition of certain of Pacific Lumber's timberlands.
The bill, substantially amended to protect Pacific Lumber's private
property rights, was passed by the U.S. House of Representatives in
September 1994. However, the U.S. Senate recessed without acting upon a
similar bill and agreed to limit its business, upon reconvening after the
November election, to a single unrelated subject. It therefore appears
unlikely that this legislation will move forward in this session of the
U.S. Congress.
With respect to the Arizona Department of Environmental Quality
("ADEQ") matter described in Part II, Item 5 of the Second Quarter Form 10-
Q, the indicated entities and the ADEQ have entered into a consent decree
with respect to this matter and it appears that the processing and approval
of subdivision plats within the Fountain Hills development will not be
delayed.
On August 24, 1994, the United States Department of Justice (the
"DOJ") issued Civil Investigative Demand No. 11356 ("CID") requesting
information from Kaiser regarding (i) its production, capacity to produce
and sales of primary aluminum from January 1, 1991 to the date of its
response; (ii) any actual or contemplated reductions in its production of
primary aluminum during that period; and (iii) any communications with
others regarding any actual, contemplated, possible or desired reductions
in primary aluminum production by Kaiser or any of its competitors during
that period. Kaiser has submitted documents and interrogatory answers to
the DOJ responding to the CID.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
*10.1 Form of Deferred Fee Agreement under the 1994 Non-
Employee Director Plan
*11 Computation of Net Loss Per Common and Common
Equivalent Share
*27 Financial Data Schedule
-----------------
* Included with this filing.
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.
MAXXAM INC.
Date: November 14, 1994 By: JOHN T. LA DUC
----------------------------------
John T. La Duc
Senior Vice President and Chief
Financial Officer
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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common and common equivalent shares
outstanding during each period . . . . . . . . . . 9,376,703 9,376,703 9,376,703 9,376,703
Common equivalent shares attributable to stock options
and convertible securities . . . . . . . . . . . . 71,175 78,186 71,175 83,483
----------- ----------- ----------- -----------
Total common and common equivalent shares . . . . . 9,447,878 9,454,889 9,447,878 9,460,186
=========== =========== =========== ===========
Loss before extraordinary item and cumulative effect
of changes in accounting principles . . . . . . . . $ (14.9) $ (26.8) $ (92.6) $ (68.5)
Extraordinary item . . . . . . . . . . . . . . . . . . - (6.5) (5.4) (50.6)
Cumulative effect of changes in accounting principles - - - (417.7)
----------- ----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (14.9) $ (33.3) $ (98.0) $ (536.8)
=========== =========== =========== ===========
Per common and common equivalent share:
Loss before extraordinary item and cumulative effect
of changes in accounting principles . . . . . . . . $ (1.58) $ (2.83) $ (9.80) $ (7.24)
Extraordinary item . . . . . . . . . . . . . . . . - (.69) (.57) (5.35)
Cumulative effect of changes in accounting principles - - - (44.15)
----------- ----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . $ (1.58) $ (3.52) $ (10.37) $ (56.74)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Company's consolidated balance sheet and consolidated statement of
operations and is qualified in its entirety by reference to such
consolidated financial statements together with the related footnotes
thereto.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 76,200
<SECURITIES> 62,000
<RECEIVABLES> 190,600
<ALLOWANCES> 4,200
<INVENTORY> 496,500
<CURRENT-ASSETS> 1,004,700
<PP&E> 1,780,000
<DEPRECIATION> 556,000
<TOTAL-ASSETS> 3,601,000
<CURRENT-LIABILITIES> 582,800
<BONDS> 1,615,600
<COMMON> 5,000
0
300
<OTHER-SE> (269,600)
<TOTAL-LIABILITY-AND-EQUITY> 3,601,000
<SALES> 1,577,700
<TOTAL-REVENUES> 1,577,700
<CGS> 1,365,000
<TOTAL-COSTS> 1,365,000
<OTHER-EXPENSES> 212,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,000
<INCOME-PRETAX> (134,700)
<INCOME-TAX> (58,000)
<INCOME-CONTINUING> (92,600)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,400)
<CHANGES> 0
<NET-INCOME> (98,000)
<EPS-PRIMARY> (10.37)
<EPS-DILUTED> (10.37)
</TABLE>
DEFERRED FEE AGREEMENT
THIS AGREEMENT, dated as of ____________________________, is by and
between MAXXAM INC., a Delaware corporation (the "Company"), and
___________________ (the "Director"), currently residing at
___________________________________________________________________________
______________________________________________________________.
WITNESSETH:
WHEREAS, the Director currently serves as a member of the Board of
Directors of the Company (the "Board") and receives remuneration
("Director's Fees") from the Company in that capacity; and
WHEREAS, the Director desires to enter into an arrangement providing
for the deferral of Director's Fees; and
WHEREAS, the Company is agreeable to such an arrangement;
NOW, THEREFORE, it is agreed as follows:
1. The Director irrevocably elects to defer receipt, subject to the
provisions of this Agreement, of _____ percent of any Director's Fees which
may otherwise become payable to the Director for the Calendar year 1994 and
which relate to services performed after the date hereof. Such election
shall continue in effect with respect to any Director's Fees which may
otherwise become payable to the Director for any calendar year subsequent
to 1994 unless, prior to January 1 of such year, the Director shall have
delivered to the Secretary of the Company a written revocation of such
election with respect to Director's Fees for services performed after the
date of such revocation. Until such time as the election made under this
paragraph is revoked, the percentage specified in the first sentence hereof
shall apply on each occasion on which Director's Fees would otherwise be
paid to the Director. Director's Fees with respect to which the Director
shall have elected to defer receipt are hereinafter referred to as
"Deferred Director's Fees."
2. The Company shall credit the amount of Deferred Director's Fees
to a book account (the "Deferred Fee Account") as of the date such fees
would have been paid to the Director had this Agreement not been in effect.
Director's Fees which would otherwise be payable for attending a meeting of
the Board or of a committee thereof shall be credited to the Deferred Fee
Account as of the first business day following such meeting; Director's
Fees which would otherwise be payable as a retainer shall be credited to
the Deferred Fee Account as of the first business day of the period to
which they relate.
3. Earnings shall be credited to the Deferred Fee Account as
follows:
(NOTE: (a) and (b) below must add up to 100%)
(A) _____None _____25% _____50% _____75% _____100%
of the amount credited to the Deferred Fee Account pursuant to paragraph 2
shall be deemed invested in a number of phantom shares (including any
fractional share) of the Company's Common Stock equal to the quotient of
(a) such amount divided by (b) the closing market price (the "Closing
Price") of a share of Common Stock as reported for the date such amount is
credited to the Deferred Fee Account. Whenever a cash dividend is paid on
Common Stock, the Deferred Fee Account shall be credited as of the payment
date with a number of phantom shares (including any fractional share) equal
to the quotient of (y) an amount equal to the cash dividend payable on a
number of shares of Common Stock equal to the number of phantom shares
(excluding any fractional share) standing credited to such Account at the
record date divided by (z) the Closing Price on such payment date. In the
event of a stock dividend or distribution, stock split, recapitalization or
the like, the Deferred Fee Account shall be credited as of the payment date
with a number of phantom shares (including any fractional share) equal to
the number of shares (including any fractional share) of Company Stock
payable in respect of shares of Company Stock equal in number to the number
of phantom shares (excluding any fractional share) standing credited to
such Account at the record date. At the time any payment is to be made
from the Deferred Fee Account pursuant to paragraph 6, the number of
phantom shares then standing credited thereto shall be valued at the
Closing Price on the first business day of the month in which such payment
is to be made, and such payment shall be made in cash.
(B) _____None _____25% _____50% _____75% _____100%
of the standing balance credited to the Deferred Fee Account as of the last
business day of each month shall be increased by an amount reflecting
interest on such balance for such month calculated using one-twelfth of the
Prime Rate on the first day of such month. For this purpose the "Prime
Rate" shall mean the prime rate (or base rate) announced for such date by
Bank of America (whether or not such rate has actually been charged by such
bank). In the event such bank discontinues the practice of announcing the
prime rate, the "Prime Rate" shall mean the highest rate charged by such
bank on short-term, unsecured loans to its most creditworthy large
corporate borrowers. In the event such bank ceases to make unsecured loans
to corporate borrowers, the "Prime Rate" shall mean the highest prime rate
(or base rate) reported for such date in the Money Rates column or section
of The Wall Street Journal as the rate in effect for corporate loans at
large U.S. money center commercial banks (whether or not such rate has
actually been charged by any such bank) as of such date. In the event The
Wall Street Journal ceases publication of such rate, the "Prime Rate" shall
mean the highest prime rate (or base rate) reported for such date in such
other publication that publishes such prime rate information as the Company
may choose to rely upon.
4. The Company shall provide an annual statement to the Director
showing such information as is appropriate, including the aggregate amount
standing credited to the Deferred Fee Account, as of a reasonably current
date.
5. The Company's obligation to make payments from the Deferred Fee
Account shall be a general obligation of the Company and such payments
shall be made from the Company's general assets. The Director's
relationship to the Company under this Agreement shall be only that of a
general unsecured creditor, and this Agreement (including any action taken
pursuant hereto) shall not, in and of itself, create or be construed to
create a trust or fiduciary relationship of any kind between the Company
and the Director, his or her designated beneficiary or any other person, or
a security interest of any kind in any property of the Company in favor of
the Director or any other person. The arrangement created by this
Agreement is intended to be unfunded and no trust, security, escrow, or
similar account shall be required to be established for the purposes of
payment hereunder. However, the Company may in its discretion establish a
"rabbi trust" (or other arrangement having equivalent taxation
characteristics under the Internal Revenue Code or applicable regulations
or rulings) to hold assets, subject to the claims of the Company's
creditors in the event of insolvency, for the purpose of making payments
hereunder. If the Company establishes such a trust, amounts paid therefrom
shall discharge the obligations of the Company hereunder to the extent of
the payments so made.
6. Deferred Director's Fees, including all earnings credited to the
Deferred Fee Account pursuant to paragraph 3, shall be paid in cash to the
Director or his or her designated beneficiary as soon as practicable
following the date the Director ceases for any reason to be a member of the
Board. Payments shall be made:
/ / in a lump sum; or
/ / in ____________________ annual installments (not to exceed
10).
Each annual installment payment shall be made as of January 31 and shall be
an amount equal to the balance standing credited to the Deferred Fee
Account as of that date divided by the number of installments (including
the one then due) remaining to be paid.
Amounts standing credited to the Deferred Fee Account during the period in
which installments are paid shall be adjusted to reflect the crediting of
earnings in accordance with paragraph 3.
7. Payments hereunder shall be made to the Director except that:
(a) in the event that the Director shall be determined by a
court of competent jurisdiction to be incapable of managing his financial
affairs, and if the Company has actual notice of such determination,
payment shall be made to the Director's personal representative(s); and
(b) in the event of the Director's death, payment shall be made
to the last beneficiary designated by the Director for purposes of
receiving such payment in such event in a written notice delivered to the
Secretary of the Company; provided, that if such beneficiary has not
survived the Director, or no valid beneficiary designation is in effect,
payment shall instead be made to the Director's estate.
The Company shall deduct from any payment hereunder any amounts required
for federal and/or State and/or local withholding tax purposes.
8. Any balance standing credited to the Deferred Fee Account shall
not in any way be subject to the debts or other obligations of the Director
and, except as provided in paragraph 7(b), shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, garnishment or other legal or equitable process.
9. This Agreement shall not be construed to confer on the Director
any right to be or remain a member of the Board or to receive any, or any
particular rate of, Director's Fees.
10. Interpretations of, and determinations related to, this
Agreement, including any determinations of the amount standing credited to
the Deferred Fee Account, shall be made by the Board and shall be
conclusive and binding upon all parties. The Company shall incur no
liability to the Director for any such interpretation or determination so
made or for any other action taken by it in connection with this Agreement
in good faith.
11. This Agreement contains the entire understanding and agreement
between the parties with respect to the subject matter hereof, and may not
be amended, modified or supplemented in any respect except by a subsequent
written agreement entered into by both parties.
12. This Agreement shall be binding upon, and shall inure to the
benefit of, the Company and its successors and assigns and the Director and
his or her heirs, executors, administrators and personal representatives.
13. This Agreement shall be governed and construed in accordance with
the laws of the State of Texas, without regard to principles of choice of
law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officer, and the Director has
executed this Agreement, on the date first written above.
ATTEST: MAXXAM INC.
__________________________
Byron L. Wade, Secretary By:__________________________
_____________________________
[Director]<PAGE>
DESIGNATION OF BENEFICIARY
Dated as of ____________________________
To the Secretary of MAXXAM Inc.:
In accordance with the provisions of the Deferred Fee Agreement dated as of
SEPTEMBER 1, 1994, between the undersigned and MAXXAM Inc., I hereby
designate _______________________________________* currently residing at
_________________________________________ as my beneficiary to receive
payments thereunder in the event of my death before payments in full
thereunder have been made. In the event that the said beneficiary
predeceases me, I hereby designate _______________________________
currently residing at _____________________________________ as my
beneficiary thereunder.
Very truly yours,
______________________________
[FN]
- ---------------
*If more than one beneficiary is to be designated, list the
beneficiaries and specify the percentage of each payment to be received by
each beneficiary.<PAGE>
