Exhibit 4.2
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated
as of May 26, 1994, is entered into by and between THE PACIFIC LUMBER
COMPANY (the "Borrower") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "Bank").
RECITALS
A. The Borrower and the Bank are parties to a Credit Agreement
dated as of June 23, 1993, as amended by a First Amendment to Credit
Agreement dated as of October 5, 1993 (as so amended, the "Credit
Agreement") pursuant to which the Bank has extended certain credit
facilities to the Borrower.
B. The Borrower has requested that the Bank agree to certain
amendments of the Credit Agreement.
C. The Bank is willing to amend the Credit Agreement subject to
the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings, if any, assigned to them in
the Credit Agreement.
2. Amendments to Credit Agreement.
(a) Amendments to Section 1.01 of the Credit Agreement.
(i) Clause (a) of the definition of "Revolving
Termination Date" in Section 1.01 is amended to provide as follows:
"(a) May 31, 1997; or"
(ii) The following definitions are added to Section 1.01
in the appropriate alphabetical order:
"'Adjusted Consolidated Cash Flow Coverage Ratio' means for the
Company, as of any quarter end, the ratio of:
"(i) the amount by which, for the four fiscal quarters for which
financial information in respect thereof is available as of such quarter
end, EBITDA exceeds the sum of Capital Expenditures plus Cash Taxes plus
Dividends Paid; to
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"(ii) the aggregate Consolidated Interest Expense plus the
Principal Payments on Long Term Debt for the four fiscal quarters ending
as of such quarter end;
"provided that if the Company or any of its Restricted Subsidiaries
is a party to any Rate Contracts which would have the effect of changing
the interest rate on any Indebtedness of the Company or any of its
Restricted Subsidiaries for such four quarter period (or a portion
thereof), the resulting rate shall be used for such four quarter period
or portion thereof; and provided further that any Consolidated Interest
Expense with respect to Indebtedness Incurred to refinance Old Securities
retired by the Company or any of its Restricted Subsidiaries shall be
calculated as if such Indebtedness was so Incurred and such Old
Securities were so retired on the first day of any fiscal quarter to be
included in this Adjusted Consolidated Cash Flow Coverage Ratio
calculation; and provided further that if, during the four fiscal
quarters referred to in clause (i) of this definition, (x) the Company or
any of its Restricted Subsidiaries shall have engaged in any Asset Sale,
EBITDA for such period shall be reduced by an amount equal to the EBITDA
(if positive), or increased by an amount equal to the EBITDA (if
negative), directly attributable to the assets which are the subject of
such Asset Sale for such period calculated on a pro forma basis as if
such Asset Sale and any related retirement of Indebtedness had occurred
on the first day of such period or (y) the Company or any of its
Restricted Subsidiaries shall have acquired any material assets out of
the Ordinary Course of Business, EBITDA shall be calculated on a pro
forma basis as if such asset acquisition and any related financing had
occurred on the first day of such period."
"'Capital Expenditures' means for the Company, as of any
quarter end, capital expenditures as reported in the consolidated
statement of cash flows shown in the Company's 10Q and 10K filings with
the SEC covering such quarter, excluding all non cash and/or financed
portions of such capital expenditures and such capital expenditures made
by SPHC or any Unrestricted Subsidiary."
"'Cash Taxes' means for the Company, as of any quarter end, the
amount actually paid in cash in such quarter by the Company (excluding
payments made by SPHC or any Unrestricted Subsidiary) to local, state, or
federal taxing authorities, or to MAXXAM, Inc. under the Tax Sharing
Agreement."
"'Principal Payments on Long Term Debt' means for the Company,
as of any quarter end, principal payments on the Company's Indebtedness
(excluding amounts due under this Agreement and any principal on
Indebtedness paid from the proceeds of any Asset Sale) for the four
fiscal quarters ending as of such quarter end. For the purposes of this
definition, the Company's Indebtedness shall exclude indebtedness of SPHC
and any Unrestricted Subsidiary.
"'Dividends Paid' means for the Company, as of any quarter end,
dividends actually paid in such quarter by the Company as reported in the
consolidated statement of cash flows shown in the Company's 10Q and 10K
filings with the SEC covering such quarter."
"'Salmon Creek Corporation' means Salmon Creek Corporation, a
Delaware corporation, or any successor corporation, by way of merger,
consolidation, purchase of
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all or substantially all of its assets, or otherwise, which holds
the Salmon Creek Property on the date of this Agreement but which may not
acquire any other assets (other than assets incidental to the operation,
disposition, management and maintenance of the Salmon Creek Property or
assets received in connection with a transaction described in Section
7.12(c) or any clause thereof), except in exchange for or out of the
proceeds of the sale or disposition of Salmon Creek Property."
"'Salmon Creek Property' means any of the property described on
Exhibit D to this Agreement or any assets or Capital Stock or Redeemable
Stock, in each case, held by Salmon Creek Corporation."
(b) Amendment to Section 7.02(c) of the Credit Agreement.
Section 7.02(c) of the Credit Agreement is amended in its entirety to
provide as follows:
"(c) The sale of all or part of Salmon Creek Corporation or the
Salmon Creek Property; and"
(c) Amendment to Section 7.12(c) of the Credit Agreement.
Section 7.12(c) of the Credit Agreement is amended in its entirety to
provide as follows:
"(c) Declare or pay cash dividends to its stockholders and
purchase, redeem, or otherwise acquire shares of its capital stock or
warrants, rights or options to acquire any such shares for cash solely
out of 50% of Adjusted Consolidated Net Income of the Company arising
after March 1, 1993; provided that immediately after giving effect to
such proposed action, (i) the Adjusted Consolidated Cash Flow Coverage
Ratio as of the last quarterly calculation is not less than 1.00 to 1.00,
and (ii) no Default or Event of Default would exist. The direct or
indirect dividend or distribution to the stockholders of the Company of
any consideration received by the Company or any of its Subsidiaries from
any Person (A) in respect of all or any part of the Capital Stock or
Redeemable Stock of Salmon Creek Corporation, or (B) in respect of all or
any part of the real property constituting the Salmon Creek Property, or
(C) otherwise in connection with Salmon Creek Corporation or the Salmon
Creek Property, except in connection with the harvesting of timber
located on the Salmon Creek Property, shall be exempt from the limitation
contained in this clause (c) (it being understood that any Subsidiary of
the Company can distribute any such consideration to the Company or to
any other Subsidiary of the Company and that the Company can distribute
any such consideration to its stockholders pursuant to this clause (c))."
(d) Amendment of Section 7.14. Section 7.14 of the Credit
Agreement is amended in its entirety to provide as follows:
"7.14 Deliberately left blank."
(e) Exhibit D to Credit Agreement. Exhibit D attached to this
Amendment is hereby added as Exhibit D to the Credit Agreement.
3. Representations and Warranties. The Borrower hereby represents
and warrants to the Bank as follows:
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(a) No Default or Event of Default has occurred and is
continuing.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate and
other action and do not and will not require any registration with,
consent or approval of, notice to or action by, any Person (including any
Governmental Authority) in order to be effective and enforceable. The
Credit Agreement as amended by this Amendment constitutes the legal,
valid and binding obligations of the Borrower, enforceable against it in
accordance with its respective terms, without defense, counterclaim or
offset.
(c) All representations and warranties of the Borrower
contained in the Credit Agreement are true and correct.
(d) The Borrower is entering into this Amendment on the basis
of its own investigation and for its own reasons, without reliance upon
the Bank or any other Person.
4. Effective Date. This Amendment will become effective as of May
26, 1994 (the "Effective Date"), provided that each of the following
conditions precedent has been satisfied:
(a) The Bank has received from the Borrower a duly executed
original of this Amendment.
(b) The Bank has received from the Borrower a copy of a
resolution passed by the board of directors of such corporation,
certified by the Secretary or an Assistant Secretary of such corporation
as being in full force and effect on the date hereof, authorizing the
execution, delivery and performance of this Amendment.
(c) The Bank has received from the Borrower the amount of
$200,000, representing payment in full of a non-refundable amendment fee,
which amount the Borrower hereby covenants to pay to the Bank on demand.
5. Reservation of Rights. The Borrower acknowledges and agrees
that the execution and delivery by the Bank of this Amendment shall not
be deemed to create a course of dealing or otherwise obligate the Bank to
forbear or execute similar amendments under the same or similar
circumstances in the future.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants
and provisions of the Credit Agreement are and shall remain in full force
and effect and all references therein to such Credit Agreement shall
henceforth refer to the Credit Agreement as amended by this Amendment.
This Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and thereto and their respective successors
and assigns. No third party beneficiaries are intended in connection
with this Amendment.
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(c) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
(e) This Amendment, together with the Credit Agreement,
contains the entire and exclusive agreement of the parties hereto with
reference to the matters discussed herein and therein. This Amendment
supersedes all prior drafts and communications with respect thereto.
This Amendment may not be amended except in accordance with the
provisions of Section 9.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this
Amendment or the Credit Agreement, respectively.
(g) Borrower covenants to pay to or reimburse the Bank, upon
demand, for all reasonable costs and expenses (including allocated costs
of in house counsel) incurred in connection with the preparation,
negotiation, execution and delivery of this Amendment, including without
limitation appraisal, audit, search and filing fees incurred in
connection therewith.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
THE PACIFIC LUMBER COMPANY
By: GARY L. CLARK
Name: Gary L. Clark
Title: Vice President-Finance and
Administration
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By: MICHAEL J. BALOK
Name: Michael J. Balok
Title: Vice President
Exhibit 4.3
FOURTH MODIFICATION AGREEMENT
THIS FOURTH MODIFICATION AGREEMENT (this "AGREEMENT") is executed as
of March 31, 1994, by and among GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("LENDER"), MXM MORTGAGE, L.P., a Delaware limited
partnership ("NEW BORROWER"), MXM MORTGAGE CORP., a Delaware corporation
("OLD BORROWER"; New Borrower and Old Borrower being herein together
called "BORROWER"), on the following terms and conditions:
RECITALS:
A. Lender and Old Borrower entered into that Loan Agreement dated
June 17, 1991, as amended by letter amendment dated August 22, 1991, as
further amended by First Renewal, Extension and Modification Agreement
(the "FIRST MODIFICATION") dated June 17, 1992 among Lender, Old
Borrower, Maxxam Inc. and Maxxam Group Inc. (Maxxam Inc. and Maxxam Group
Inc. being herein together called "GUARANTORS"), and as further amended
by Loan Increase, Extension and Modification Agreement dated December 30,
1992 among Lender, Old Borrower and Guarantors (the "INCREASE
MODIFICATION"; the Loan Agreement, as amended, being herein called the
"LOAN AGREEMENT"), pursuant to which Lender has agreed to make a loan to
Borrower (the "LOAN"), as evidenced by a $115,220,000 Promissory Note
dated June 17, 1991, (the "ORIGINAL NOTE"), and a $17,740,000 Promissory
Note dated December 30, 1992 (the "INCREASE NOTE"; the Original Note and
the Increase Note being herein collectively called the "NOTES"), the
Notes bearing interest and being payable to the order of Lender as
therein provided.
B. Taking into account releases of collateral, the indebtedness
evidenced by the Original Note and the Increase Note is secured by, among
other collateral, the following:
(1) the following instruments styled First Deed of Trust and
Security Agreement (collectively called the "FIRST LIEN DEED OF TRUST"):
(a) that First Deed of Trust and Security Agreement of even
date with the Loan Agreement, executed by Old Borrower, recorded in
Volume 5091, Page 0751, et seq., of the Official Public Records of Real
Property of Bexar County, Texas [Southwest Medical, Redondo Place, Med
Centre Pointe, Nacon Plaza], under Film Code No. 037-12-1689 and
corrected and refiled under Film Code No. 038-03-0657 of the Official
Public Records of Real Property of Harris County, Texas [Spring Valley,
Westminster], in Volume 727, Page 416, et seq., of the Deed of Trust
Records of Midland County, Texas [Oak Ridge], and in Volume 10293, Page
1892, et seq., of the Deed of Trust Records of Tarrant County, Texas
[West Lake Gardens];
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(b) that First Deed of Trust and Security Agreement dated
November 5, 1991, executed by Old Borrower, filed for recording in the
Office of the County Clerk of Harris County, Texas under Clerk's File No.
N403252 and recorded at Film Code No. 006-52-1287, et seq., of the
Official Public Records of Real Property of Harris County, Texas
[Richmond Square];
(c) that First Deed of Trust and Security Agreement dated
February 4, 1992, executed by Old Borrower, filed for recording in the
Office of the County Clerk of Harris County, Texas under Clerk's File No.
N527998 and recorded at Film Code No. 014-55-1789, et seq., of the
Official Public Records of Real Property of Harris County, Texas
[Westchase];
(d) that First Deed of Trust and Security Agreement dated May
5, 1992, executed by Old Borrower and recorded at Volume 5356, Page 1511,
et seq., of the Official Public Records of Real Property of Bexar County,
Texas [San Antonio Imaging]; and
(e) that First Deed of Trust and Security Agreement dated
September 7, 1993, executed by Old Borrower, recorded at Volume 5792,
Page 1933, et seq., of the Official Public Records of Real Property of
Bexar County, Texas [Pipers Creek, Shadow Valley], filed for recording in
the Office of the County Clerk of Harris County, Texas under Clerk's File
No. P442690 and recorded at Film Code No. 169-55-3591, et seq., of the
Official Public Records of Real Property of Harris County, Texas
[Westbrook, Colonies], and recorded at Volume 11231, Page 0137, et seq.,
of the Deed of Trust Records of Tarrant County, Texas [Bentley Village];
each such instrument encumbering the real and other property
described therein (the "REAL PROPERTY"); and
(2) the following instruments styled Assignment of Rents and Leases
(collectively called the "RENTAL ASSIGNMENT"):
(a) that Assignment of Rents and Leases dated of even date
with the Loan Agreement, executed by Old Borrower and recorded in Volume
5091, Page 0826, et seq., of the Official Public Records of Real Property
of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre
Pointe, Nacon Plaza], under Film Code No. 037-12-1762 of the Official
Public Records of Real Property of Harris County, Texas [Spring Valley,
Westminster], in Volume 1085, Page 176, et seq., of the Deed Records of
Midland County, Texas [Oak Ridge], and in Volume 10293, Page 1967, et
seq., of the Deed of Trust Records of Tarrant County, Texas [West Lake
Gardens], Texas;
(b) that Assignment of Rents and Leases dated November 5,
1991, executed by Old Borrower, filed for recording in the Office of the
County Clerk of
<PAGE>
Harris County, Texas under Clerk's File No. N403253 and
recorded at Film Code No. 006-52-1312, et seq., of the Official Public
Records of Real Property of Harris County, Texas [Richmond Square];
(c) that Assignment of Rents and Leases dated February 4,
1992, executed by Old Borrower, filed for recording in the
Office of the County Clerk of Harris County, Texas under Clerk's File No.
N527999 and recorded at Film Code No. 014-55-1816, et seq., of the
Official Public Records of Real Property of Harris County, Texas
[Westchase];
(d) that Assignment of Rents and Leases dated May 5, 1992,
executed by Old Borrower, recorded in Volume 5356, Page 1538, et seq., of
the Official Public Records of Real Property of Bexar County, Texas [San
Antonio Imaging]; and
(e) that Assignment of Rents and Leases dated September 7,
1993, executed by Old Borrower, recorded at Volume 5792, Page 1961, et
seq., of the Official Public Records of Real Property of Bexar County,
Texas [Pipers Creek, Shadow Valley], filed for recording in the Office of
the County Clerk of Harris County, Texas under Clerk's File No. P442691,
and recorded at Film Code No. 169-55-3618, et seq., of the Official
Public Records of Real Property of Harris County, Texas [Westbrook,
Colonies], and recorded at Volume 11231, Page 0179, et seq., of the Deed
Records of Tarrant County, Texas [Bentley Village]
(3) that Second Deed of Trust and Security Agreement dated December
30, 1992, executed by Old Borrower and recorded in Volume 5581, Page
1347, et seq., of the Real Property Records of Bexar County, Texas
[Southwest Medical, Redondo Place, Med Centre Pointe, Nacon Plaza San
Antonio Imaging], at Clerk's File No. P101069 and Film Code No.
###-##-####, et seq., of the Real Property Records of Harris County,
Texas [Spring Valley, Westminster, Richmond Square, Westchase], in Volume
778, Page 175, et seq., of the Deed of Trust Records of Midland County,
Texas [Oak Ridge] and in Volume 10957, Page 2238, et seq., of the Real
Property Records of Tarrant County, Texas [Westlake Gardens] (the "SECOND
DEED OF TRUST"; the First Deed of Trust and the Second Deed of Trust\
being herein collectively called the "DEED OF TRUST"); and
(4) that Security Agreement and Pledge of Mortgage Loans and
Mortgage Loan Documents (the "MORTGAGE PLEDGE AGREEMENT") of even date
with the Loan Agreement executed by Old Borrower and Lender and pledging
to Lender, as security for the Loan, certain mortgage loans (the
"MORTGAGE LOANS") [Balcones, Enfield Courts, Park North Tech, Parc Bay,
Trestles]
(the Loan Agreement, the Notes, the Deed of Trust, the Rental Assignment,
the Mortgage Pledge Agreement, the First Modification, the Increase
Modification, and all other Security Instruments (as such term is defined
in the Loan Agreement) or other documents evidencing,
<PAGE>
governing, guaranteeing, securing, or otherwise pertaining to the Loan
being hereinafter collectively referred to as the "LOAN DOCUMENTS");
C. Lender, Old Borrower, New Borrower and Guarantors entered into
that Consent and Assumption Agreement dated December 10, 1993, under
which Lender consented to the transfer and conveyance of the Real
Property and the Mortgage Loans to New Borrower (and pursuant to which
Old Borrower has transferred and conveyed the Real Property, the Mortgage
Loans, and the rights of Old Borrower under the Loan Agreement to New
Borrower), and New Borrower has assumed the obligations and liabilities
of Old Borrower under the Loan and the Loan Documents;
D. Lender and Borrower entered into that Third Modification
Agreement (the "THIRD MODIFICATION") dated as of December 30, 1993,
modifying the terms of the Notes and the other Loan Documents, and
providing for the availability of $25,000,000 in Subsequent Advances
under the Loan Agreement, through re-advances of principal reductions of
the Original Note; and
E. Borrower has requested that Lender extend until December 31,
1994 the period during which Lender may be obligated to make certain
additional Subsequent Advances under the Loan Agreement, through
re-advances of principal reductions of the Original Note, and Lender is
agreeable to such extension on the terms of that Fifth Amendment to Loan
Agreement of even date herewith between Lender and Borrower (the "FIFTH
AMENDMENT"), and the further extension of the maturity of the Notes and
the other Loan Documents as hereinafter set forth;
AGREEMENT:
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00)
and other good and valuable consideration, Lender and Borrower do hereby
agree as follows:
1. MATURITY DATE. Borrower and Lender agree that the Maturity
Date (as defined in the Original Note and last amended in the Increase
Modification) is extended to December 31, 1999, and that the Maturity
Obligations (as defined in the Original Note) shall be fully payable on
that date.
2. PAYMENT TERMS. Borrower and Lender agree that from and after
the date hereof, interest only on the outstanding principal balance of
the Original Note shall be payable monthly on the first day of each month
beginning April 1, 1994 and continuing to and including December 1, 1999,
at the Contract Rate (as such rate was modified and redefined in Section
3 of the First Modification).
3. PREPAYMENT. Borrower and Lender confirm that the prepayment
provisions set forth in the Third Modification continue in full force and
effect.
4. RATIFICATION AND CONFIRMATION OF LOAN DOCUMENTS. Borrower and
Lender agree that the Loan Agreement, the Notes, the Deed of Trust, the
Rental Assignment, the Mortgage Pledge Agreement, and the other Loan
Documents are hereby ratified and confirmed as valid
<PAGE>
and continuing obligations of Borrower, and that the Deed of Trust, the
Rental Assignment, and the Mortgage Pledge Agreement shall continue to
secure and/or provide payment for the Notes, as modified by this
Agreement, and Borrower promises to pay to the order of Lender at P. 0.
Box 102771, Atlanta, Georgia 30368-0771, the indebtedness evidenced by
the Notes, as herein modified.
5. NO IMPAIRMENT OF SECURITY. Borrower hereby agrees that the
agreements contained herein shall in no manner affect or impair the
Original Note or the Increase Note, the liens or security interests
securing same, and that said liens and security interests shall not in
any manner be waived, altered or vitiated by such agreements, and
Borrower further agrees that, as expressly modified hereby, all terms and
provisions of the Loan Documents shall be and remain in full force and
effect.
6. NO DEFAULT, DEFENSES, COUNTERCLAIMS, ETC. Borrower hereby
covenants and warrants that none of the Loan Documents are in default;
that there are no defenses, counterclaims or offsets to such Loan
Documents.
7. COSTS AND EXPENSES. Borrower agrees to pay all costs incurred
in connection with the execution and consummation of this Agreement,
including but not limited to, all recording costs, the premium for such
endorsements to the policies of title insurance insuring the Deed of
Trust as may be required by Lender with respect to this Agreement, and
the reasonable fees and actual expenses of Lender's counsel. Borrower
further covenants and agrees to deliver or cause to be delivered such
evidence of existence, capacity, authorization, qualification, or
enforceability of its obligations as Lender may require.
8. LIMITATION ON INTEREST. All agreements between Borrower and
Lender, whether now existing or hereafter arising and whether written or
oral, are hereby expressly limited so that in no contingency, whether by
reason of acceleration of the maturity of the Notes, or otherwise, shall
the interest contracted for, charged, received, paid or agreed to be paid
to the holder of the Notes exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, interest would
otherwise be payable to the holder of the Notes in excess of the maximum
lawful amount, the interest payable to the holder of the Notes shall be
reduced to the maximum amount permitted by applicable law; and if from
any circumstance the holder of the Notes shall ever receive anything of
value deemed interest by applicable law in excess of the maximum amount
allowed by law, an amount equal to any excessive interest shall be
applied to the reduction of the principal amount owing under the Notes,
and not to the payment of interest, or if such excessive interest exceeds
such unpaid balance of principal of the Notes, such excess shall be
refunded to Borrower. All interest paid or agreed to be paid to the
holder of the Notes, shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of the
Notes (including the period of any renewal or extension thereof) so that
the interest on the Notes shall not exceed the maximum amount permitted
by applicable law. This paragraph shall control all agreements between
Borrower and the holder of the Notes.
<PAGE>
EXECUTED by the parties hereto as of the date and year first above
written.
BORROWER:
OLD BORROWER: MXM MORTGAGE CORP.,
a Delaware corporation
By: ERIK ERIKSSON, JR.
Erik Eriksson, Jr., Vice President
NEW BORROWER: MXM MORTGAGE, L.P.,
a Delaware limited partnership
By: MXM GENERAL PARTNER, INC.,
a Delaware corporation,
General Partner
By: ERIK ERIKSSON, JR.
Erik Eriksson, Jr., Vice President
LENDER: GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
By: TY ALBRIGHT
Ty Albright, Project Manager
<PAGE>
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me this 14th day of April,
1994, by ERIK ERIKSSON, JR., Vice President of MXM MORTGAGE CORP., a
Delaware corporation, on behalf of said corporation.
(SEAL) KARIN MARIE BELDING
Notary Public in and for the State
of Texas
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me this 14th of April, 1994,
by ERIK ERIKSSON, JR., Vice President of MXM GENERAL PARTNER, INC., a
Delaware corporation and General Partner of MXM MORTGAGE, L.P., a
Delaware limited partnership, on behalf of said corporation and said
limited partnership.
(SEAL) KARIN MARIE BELDING
Notary Public in and for the State
of Texas
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me this 15th day of April,
1994, by TY ALBRIGHT, Project Manager of GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation, on behalf of said corporation.
(SEAL) JAN HOWARD
Notary Public in and for the State
of Texas
EXHIBIT 4.4
FIFTH AMENDMENT TO LOAN AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is
executed as of March 31, 1994, by and among GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("LENDER"), MXM MORTGAGE, L.P., a
Delaware limited partnership ("NEW BORROWER"), and MXM MORTGAGE CORP., a
Delaware corporation ("OLD BORROWER"; New Borrower and Old Borrower being
herein together sometimes called "BORROWER"), on the following terms and
conditions:
RECITALS:
A. Lender and Old Borrower entered into that Loan Agreement dated
June 17, 1991, as amended by letter amendment dated August 22, 1991, as
further amended by First Renewal, Extension and Modification Agreement
(the "FIRST MODIFICATION") dated June 17, 1992 among Lender, Old
Borrower, and Maxxam Inc. and Maxxam Group Inc., as further amended by
Loan Increase, Extension and Modification Agreement (the "INCREASE
MODIFICATION") dated December 30, 1992 among Lender, Old Borrower, Maxxam
Inc. and Maxxam Group Inc., and as further amended by Fourth Amendment to
Loan Agreement (the "FOURTH AMENDMENT") dated as of December 30, 1993,
among Lender, Old Borrower, and New Borrower (said Loan Agreement, as
amended, being herein called the "LOAN AGREEMENT"), pursuant to which
Lender has agreed to make a loan to Borrower (the "LOAN"), as evidenced
by a $115,220,000 Promissory Note dated June 17, 1991, (the "ORIGINAL
NOTE"), and a $17,740,000 Promissory Note dated December 30, 1992 (the
"INCREASE NOTE"; the Original Note and the Increase Note being herein
together called the "NOTES"), each of the Notes bearing interest and
being payable to the order of Lender as therein provided;
B. Unless otherwise defined herein, all capitalized terms in this
Agreement shall have the same meanings assigned to such terms in the Loan
Agreement, and, as applicable, in the First Modification, the Increase
Modification, and the Fourth Amendment;
C. Taking into account releases of collateral, the indebtedness
evidenced by the Original Note and the Increase Note is secured by, among
other collateral, the following:
(1) the following instruments styled First Deed of Trust and
Security Agreement (collectively called the "FIRST LIEN DEED OF TRUST"):
(a) that First Deed of Trust and Security Agreement of even
date with the Loan Agreement, executed by Old Borrower, recorded in
Volume 5091, Page 0751, et seq., of the Official Public Records of Real
Property of Bexar County, Texas [Southwest Medical, Redondo Place, Med
Centre Pointe, Nacon Plaza], under Film Code No. 037-12-1689 and
corrected and refiled under Film Code No. 038-03-0657 of the Official
Public Records of Real Property of Harris County, Texas [Spring Valley,
Westminster], in Volume 727, Page 416, et seq., of the Deed of Trust
Records of Midland County, Texas [Oak Ridge] and in
<PAGE>
Volume 10293, Page 1892, et seq., of the Deed of Trust Records
of Tarrant County, Texas [West Lake Gardens];
(b) that First Deed of Trust and Security Agreement dated
November 5, 1991, executed by Old Borrower, filed for recording in the
Office of the County Clerk of Harris County, Texas under Clerk's File No.
403252 and recorded at Film Code No. 006-52-1287, et seq., of the
Official Public Records of Real Property of Harris County, Texas
[Richmond Square];
(c) that First Deed of Trust and Security Agreement dated
February 4, 1992, executed by Old Borrower, filed for recording in the
(office of the County Clerk of Harris County, Texas under Clerk's File
No. N527998 and recorded at Film Code No. 014-55-1789, et seq., of the
Official Public Records of Real Property of Harris County, Texas
[Westchase];
(d) that First Deed of Trust and Security Agreement dated May
5, 1992, executed by Old Borrower and recorded at Volume 5356, Page 1511,
et seq., of the Official Public Records of Real Property of Bexar County,
Texas [San Antonio Imaging]; and
(e) that First Deed of Trust and Security Agreement dated
September 7, 1993, executed by Old Borrower, recorded at Volume 5792,
Page 1933, et seq., of the Official Public Records of Real Property of
Bexar County, Texas [Pipers Creek, Shadow Valley], filed for recording in
the Office of the County Clerk of Harris County, Texas under Clerk's File
No. P442690 and recorded at Film Code No. 169-55-3591, et seq., of the
Official Public Records of Real Property of Harris County, Texas
[Westbrook, Colonies], and recorded at Volume 11231, Page 0137, et seq.,
of the Deed of Trust Records of Tarrant County, Texas [Bentley Village];
each such instrument encumbering the real and other property
described therein (the "REAL PROPERTY"); and
(2) the following instruments styled Assignment of Rents and Leases
(collectively called the "RENTAL ASSIGNMENT"):
(a) that Assignment of Rents and Leases dated of even date
with the Loan Agreement, executed by Old Borrower and recorded in Volume
5091, Page 0826, et seq., of the Official Public Records of Real Property
of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre
Pointe, Nacon Plaza], under Film Code No. 037-12-1762 of the Official
Public Records of Real Property of Harris County, Texas [Spring
<PAGE>
Valley, Westminster], in Volume 1085, Page 176, et seq., of the
Deed Records of Midland County, Texas [Oak Rids-el, and in Volume 10293,
Page 1967, et seq., of the Deed of Trust Records of Tarrant County, Texas
[West Lake Gardens], Texas;
(b) that Assignment of Rents and Leases dated November 5,
1991, executed by Old Borrower, filed for recording in the
Office of the County Clerk of Harris County, Texas under Clerk's File No.
N403253 and recorded at Film Code No. 006-52-1312, et seq., of the
Official Public Records of Real Property of Harris County, Tex,,is
[Richmond Square];
(c) that Assignment of Rents and Leases dated February 4,
1992, executed by Old Borrower, filed for recording in the Office of the
County Clerk of Harris County, Texas under Clerk's File No. N527999 and
recorded at Film Code No. 014-55-1816, et seq., of the Official Public
Records of Real Property of Harris County, Texas [Westchase];
(d) that Assignment of Rents and Leases dated May 5, 1992,
executed by Old Borrower, recorded in Volume 5356, Page 1538, et seq., of
the Official Public Records of Real Property of Bexar County, Texas [San
Antonio Imaging]; and
(e) that Assignment of Rents and Leases dated September 7,
1993, executed by Old Borrower, recorded at Volume 5792, Page 1961, et
seq., of the Official Public Records of Real Property of Bexar County,
Texas [Pipers Creek Shadow Valley], filed for recording in the Office of
the County Clerk of Harris County, Texas under Clerk's File No. P442691,
and recorded at Film Code No. 169-55-3618, et seq., of the Official
Public Records of Real Property of Harris County, Texas [Westbrook,
Colonies], and recorded at Volume 11231, Page 0179, et seq., of the Deed
Records of Tarrant County, Texas [Bentley Villas-e];
(3) that Second Deed of Trust and Security Agreement dated December
30, 1992, executed by Old Borrower and recorded in Volume 5581, Page
1347, et seq., of the Real Property Records of Bexar County, Texas
[Southwest Medical, Redondo Place, Med Centre Pointe, San Antonio
Imaging], at Clerk's File No. P101069 and Film Code No. 120-51-2685, et
seq., of the Real Property Records of Harris County, Texas [Spring
Valley, Westminster, Richmond Square, Westchase], in Volume 778, Page
175, et seq., of the Deed of Trust Records of Midland County Texas [Oak
Rite], and in Volume 10957, Page 2238, et seq., of the Real Property
Records of Tarrant County, Texas [Westlake Gardens] (the "SECOND DEED OF
TRUST"; the First Deed of Trust and
<PAGE>
the Second Deed of Trust being herein collectively called the
"DEED OF TRUST"); and
(4) that Security Agreement and Pledge of Mortgage Loans and
Mortgage Loan Documents (the "MORTGAGE PLEDGE AGREEMENT") of even date
with the Loan Agreement executed by Old Borrower and Lender and pledging
to Lender, as security for the Loan, certain mortgage loans (the
"MORTGAGE LOANS") [Balcones, Enfield Courts, Park North Tech, Parc Ban,
Trestles;
(the Loan Agreement, the Notes, the Deed of Trust, the Rental Assignment,
the Mortgage Pledge Agreement, the First Modification, the Increase
Modification, and all other Security Instruments (as such term is defined
in the Loan Agreement) or other documents evidencing, governing,
guaranteeing, securing, or otherwise pertaining to the Loan being
hereinafter collectively referred to as the "SECURITY INSTRUMENTS");
D. Lender, Old Borrower, New Borrower, Maxxam Inc. and Maxxam
Group Inc. entered into that Consent and Assumption Agreement dated
December 10, 1993, under which Lender consented to the transfer and
conveyance of the Real Property, the Mortgage Loans, and the rights of
Old Borrower under the Loan Agreement to New Borrower (and pursuant to)
which Old Borrower has transferred and conveyed the Real Property, the
Mortgage Loans, and the rights of Old Borrower under the Loan Agreement
to New Borrower), and New Borrower has assumed the obligations and
liabilities of Old Borrower under the Loan and the Security Instruments;
E. Section 2.1 of the Loan Agreement provides that to the extent
of certain principal reductions the Loan shall be a revolving line of
credit and that subject to the terms of the Loan Agreement portions of
the principal sum of the Original Note may be advanced, repaid, and
readvanced;
F. Through application of proceeds from the sale of Assets and the
payment and satisfaction of Mortgage Loans:
(1) the principal balance of the Loan was reduced to $15,000,000
and through one or more readvances under the Fourth Amendment is
$16,108,023.57 as of March 31, 1994, and
(2) the existing Funding Availability under the Loan, as amended
under the Fourth Amendment, is $25,457,716.41, of which $2,730,080 is
available but not yet approved for Leasing Costs, $250.000 is available
as a holdback for abatement and removal of environmental hazards,
$457,716.41 is available for payment of Taxes, and $22,019,920 of the
$25,000,000 which was made available for readvances under the Fourth
Amendment remains available for readvances for general business purposes
(the "GENERAL FUNDING AVAILABILITY AMOUNT");
<PAGE>
G. Borrower has requested that Lender extend the period during
which the General Funding Availability Amount may be readvanced under the
Loan Agreement and Lender is agreeable to extending such period on the
terms of this Agreement and the terms of that Fourth Extension and
Modification Agreement of even date herewith between Lender and Borrower
(the "FOURTH MODIFICATION");
AGREEMENT:
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00)
and other good and valuable consideration, including the payment by
Borrower to Lender of the Funding Extension Fee (as hereinafter defined),
the receipt and sufficiency of which are hereby acknowledged, Lender and
Borrower agree as follows:
1. ADDITIONAL RE-ADVANCES. Provided Borrower is not then in
default under the Loan Documents, Lender will make available to Borrower,
as Subsequent Advances to be re-advanced under the Loan, up to
$25,457,716.41 of principal reductions of the Original Note.
(a) $22,019,920 of which shall be available for general business
purposes, which amount Borrower agrees to borrow and, subject to the
applicable conditions to Subsequent Advances, Lender shall fund on or
before December 31, 1994,
(b) $2,730,080 of which shall be available for Subsequent Advances
for Leasing Costs,
(c) $250,000 of which shall be available for Subsequent Advances
for abatement and removal of environmental hazards, and
(d) $457,716.41 of which shall be available for Subsequent Advances
for payment of Taxes.
Borrower shall initiate requests for such Subsequent Advances in
accordance with the application procedure set forth in Section 2.4 of the
Loan Agreement and funding for such Subsequent Advances shall originate
from re-advances of principal reductions of the Original Note. Borrower
and Lender acknowledge and agree that the principal balance of the Loan
is $16,108,023.57 as of March 31, 1994. In accordance with the
foregoing, Section 2.1 of the Loan Agreement is amended and restated as
follows:
2.1 Commitment of Lender; Revolving Line of Credit.
Subject to the provisions of this Agreement, and provided that an Event
of Default does not then exist, Lender will make Advances to Borrower
subject to the conditions of this Agreement. As the first Advance
hereunder, Lender shall disburse $109,864,700. Thereafter, Lender shall
make Advances for, among other purposes, the Renovation of the Real
Property and Leasing Costs, in accordance with Approved Budget in the
amount of up to the sum of all
<PAGE>
principal reductions which actually have been paid to Lender;
provided, however, (a) that the sum of all Subsequent Advances from and
after December 31, 1993 shall not exceed $25,000,000 (exclusive of
Subsequent Advances for Taxes under Section 2.21 of this Agreement), (b)
that of said $25,000,000 which is available for Subsequent Advances after
December 31, 1993, (i) $22,019,920 shall only be available to be advanced
prior to December 31, 1994, but may be advanced for Borrower's general
business purposes and shall not be subject to the requirements of Section
1.64 of this Agreement regarding the purpose of Subsequent Advances,
Section 2.2(c) and Subsections 2.2(d)(ii) and 2.2(d)(iii) of this
Agreement in connection with renovation of the Real Property, Section
2.4, Section 2.5, and Section 2.10 of this Agreement relating to
Renovation Requirements and Leasing Costs, or the use requirements of
Section 2.6 of this Agreement, (ii) of the remaining $2,980,080,
$2.730,080 shall be available only for Leasing Costs, and $250,000 shall
be available for payment of costs of abating or removing environmental
hazards affecting the Real Property; and (iii) Subsequent Advances from
and after December 31, 1993 shall not under any circumstances be
available, except for Borrower's general business purposes, for paying
costs of renovation of the Real Property. To the extent reductions of
principal are made available for Subsequent Advances under this
Agreement, the Loan shall be a "revolving line of credit"; that is,
subject to the terms hereof, portions of the principal sum of the Note
may be advanced, repaid, and readvanced. The books and records of Lender
shall be prima facie evidence of all sums due Lender under the Note and
the other Security Instruments. Notwithstanding the foregoing, Borrower
shall continue to be entitled to Subsequent Advances for Taxes in the
amount of aggregate monthly principal reductions and in accordance with
Section 2.21 of this Agreement.
2. MAXIMUM LOAN AMOUNT. Borrower and Lender agree that from and
after the date hereof the maximum amount which at any time can be
outstanding under the Loan, whether evidenced by the Original Note or the
Increase Note, is $41,565,739.98.
3. SECURITY INSTRUMENTS. Section 1.63 of the Loan Agreement is
hereby modified to include in the definitions of Security Instruments
under the Loan Agreement, this Amendment and the Fourth Modification.
4. PREPAYMENT CHARGES. Borrower and Lender acknowledge and agree
(a) that in accordance with Section 4 of the First Modification, the
prepayment of the principal of the Loan on December 15, 1993 to a
remaining principal balance of $15,000,000 required a prepayment charge
of $621,016.40 and (b) that Lender agreed to accept only $500,000 of the
prepayment charge at that time, reserving the right to charge the
remaining $121,016.40 of the prepayment charge at any time in the future.
Borrower and Lender further agree that if Borrower requests and satisfies
all conditions precedent for additional Subsequent Advances of
$22,019,920 for general business purposes on or before December 31, 1994,
and $22,019,920 of additional Subsequent Advances for general business
purposes actually are made on or before December 31, 1994, Lender shall
waive its right to receive any further
<PAGE>
prepayment charge as a result of the partial prepayment of the principal
balance of the Loan on December 15, 1993 or any subsequent prepayment.
Otherwise, on January 1, 1995, Borrower shall pay to Lender the remaining
$121,016.40 portion of the prepayment charge owing as a result of the
December 15, 1993 partial prepayment and the prepayment charge shall
continue to be applicable to all future prepayments.
5. FUNDING EXTENSION FEE. In consideration for Lender's extension
of the period during which the General Funding Availability Amount may be
readvanced under the Loan Agreement, and as a condition precedent to the
effectiveness of this Amendment Borrower shall pay to Lender a funding
extension fee of $220,199.20 (the "FUNDING EXTENSION FEE"); provided,
however, that
(a) if on or before June 30, 1994 Borrower shall have requested
and satisfied all conditions for the Subsequent Advance(s) of the entire
General Funding Availability Amount, and Lender actually shall have made
the Subsequent Advance of the entire General Funding Availability Amount,
then Lender shall refund to Borrower one-half (1/2) of the Funding
Extension Fee ($110,099.60) at the same time the General Funding
Availability Amount is advanced; and
(b) if on June 30, 1994 Borrower shall have requested and
satisfied all conditions for the Subsequent Advance(s) of more than
$11,009,960 of the General Funding Availability and Lender shall have
made such requested Subsequent Advance(s), then Lender shall refund to
Borrower a portion of the Funding Extension Fee equal to one-half percent
(1/2%) of the amount of the total General Funding Availability which has
been advanced and is outstanding on June 30, 1994. (For example, if the
amount of the General Funding Availability which has been advanced and is
outstanding on June 30, 1994 is $13,000,000, then Lender shall refund to
Borrower $65,000.00 of the Funding Extension Fee [$13,000,000 x 0.005 =
$65,000.001.)
6. COSTS AND EXPENSES. Borrower agrees to pay all costs incurred
in connection with the execution and consummation of this Amendment and
the Fourth Modification, including but not limited to, all recording
costs, the premium for such endorsements to the policies of title
insurance insuring the First Lien Deed of Trust and the Second Lien Deed
of Trust as may be required by Lender with respect to this Amendment and
the Fourth Modification and the reasonable fees and actual expenses of
Lender's counsel. Borrower further covenants to deliver or cause to be
delivered such evidence of existence, capacity, authorization,
qualification, or enforceability of its obligations as Lender may require
in connection with this Amendment and the Fourth Modification.
7. LIMITATION ON INTEREST. All agreements between Borrower and
Lender, whether now existing or hereafter arising and whether written or
oral, are hereby expressly limited so that in no contingency, whether by
reason of acceleration of the maturity of the Notes or otherwise, shall
the interest contracted for, charged, received, paid or agreed to be paid
to the holder of the Notes exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, interest would
otherwise be payable
<PAGE>
to the holder of the Notes in an amount in excess of the minimum lawful
amount, the interest payable to the holder of the Notes shall be reduced
to the maximum amount permitted by applicable law; and if from any
circumstance the holder of the Notes shall ever receive anything of value
deemed interest by applicable law in excess of the maximum amount allowed
by law, an amount equal to any excessive interest shall be applied to the
reduction of the principal amount owing under the Notes, and not to the
payment of interest, or if such excessive interest exceeds such unpaid
balance of principal of the Notes, such excess shall be refunded to
Borrower. An interest paid or agreed to be paid to the holder of the
Notes, shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Notes
(including the period of any renewal or extension thereat) so that the
interest on the Notes shall not exceed the minimum amount permitted by
applicable law. This Section shall control all agreements between
Borrower and the holder of the Notes.
EXECUTED by the parties hereto as of the date and year first above
written.
BORROWER:
OLD BORROWER: MXM MORTGAGE CORP.,
a Delaware corporation
By: ERIK ERIKSSON, JR.
Erik Eriksson, Jr., Vice President
NEW BORROWER: MXM MORTGAGE, L.P.,
a Delaware limited partnership
By: MXM GENERAL PARTNER, INC.,
a Delaware corporation,
General Partner
By: ERIK ERIKSSON, JR.
Erik Eriksson, Jr., Vice President
LENDER: GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
By: TY ALBRIGHT
Ty Albright, Project Manager
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 Six Months Ended
June 30, June 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 86,175 71,175 86,175
----------- ---------- ----------- ----------
Total common and common equivalent
shares . . . . . . . . . . . . 9,447,878 9,462,878 9,447,878 9,462,878
=========== ========== =========== ==========
Loss before extraordinary item and
cumulative effect of changes in $(43.2) $(15.8) $(77.7) $(41.7)
accounting principles . . . .
Extraordinary item . . . . . . . . - - -5.4 (44.1)
Cumulative effect of changes in
accounting principles . . . . - - - (417.7)
----------- ---------- ----------- ----------
Net loss . . . . . . . . . . . . . $(43.2) $(15.8) $(83.1) $(503.5)
=========== ========== =========== ==========
Per common and common equivalent
share:
Loss before extraordinary item
and cumulative effect of $(4.57) $(1.67) $(8.22) $(4.41)
changes in accounting
principles . . . . . . .
Extraordinary item . . . . . . - - -0.57 (4.66)
Cumulative effect of changes in
accounting principles . . - - - (44.14)
----------- ---------- ----------- ---------
Net loss . . . . . . . . . . . $(4.57) $(1.67) $(8.79) $(53.21)
=========== ========== =========== =========
</TABLE>
===========================================================================
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 JUNE 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 August 1, 1994: 8,698,464
===========================================================================
<PAGE>
MAXXAM INC.
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations for the three and
six months ended June 30, 1994 and 1993 . . . . . . . 4
Consolidated Statement of Cash Flows for the six months ended
June 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 . . . . . . . . . . . 12
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 22
Item 5. Other Information . . . . . . . . . . . . . . . . . . 23
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
<PAGE>
MAXXAM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------- -------------
(Unaudited)
(In millions of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $109.2 $83.9
Marketable securities . . . . . . . . . . . . . 69.8 44.7
Receivables:
Trade, net of allowance for doubtful
accounts of $3.9 and $3.2 at June 30,
1994 and December 31, 1993,
respectively . . . . . . . . . . . . . . 176.5 175.3
Other . . . . . . . . . . . . . . . . . . . 72.2 90.8
Inventories . . . . . . . . . . . . . . . . . . 470.9 503.6
Prepaid expenses and other current assets . . . 117.7 93.3
------------ -----------
Total current assets . . . . . . . . . . . 1,016.3 991.6
Property, plant and equipment, net of
accumulated depreciation of $531.9 and $481.3 at
June 30, 1994 and December 31, 1993,
respectively . . . . . . . . . . . . . . . . . . 1,230.0 1,245.0
Timber and timberlands, net of depletion of $115.7 and
$108.2 at June 30, 1994 and December 31, 1993,
respectively . . . . . . . . . . . . . . . . . . 332.8 338.6
Investments in and advances to unconsolidated
affiliates . . . . . . . . . . . . . . . . . . . 176.4 183.2
Real estate . . . . . . . . . . . . . . . . . . . . . 96.4 113.3
Deferred income taxes . . . . . . . . . . . . . . . . 407.0 359.9
Long-term receivables and other assets . . . . . . . 363.5 340.4
------------- -----------
$3,622.4 $3,572.0
============= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . $125.2 $135.6
Accrued interest . . . . . . . . . . . . . . . . 61.6 53.7
Accrued compensation and related benefits . . . 126.0 114.2
Other accrued liabilities . . . . . . . . . . . 157.2 161.5
Payable to affiliates . . . . . . . . . . . . . 74.4 74.0
Long-term debt, current maturities . . . . . . . 35.1 38.3
------------ -----------
Total current liabilities . . . . . . . . . 579.5 577.3
Long-term debt, less current maturities . . . . . . . 1,587.4 1,567.9
Accrued postretirement benefits . . . . . . . . . . . 727.3 720.1
Other noncurrent liabilities . . . . . . . . . . . . 660.9 650.3
----------- -----------
Total liabilities . . . . . . . . . . . . . 3,555.1 3,515.6
----------- -----------
Commitments and contingencies
Minority interests . . . . . . . . . . . . . . . . . 317.4 224.3
Stockholders' deficit:
Preferred stock, $.50 par value; 12,500,000
shares authorized; Class A $.05 Non-
Cumulative Participating Convertible
Preferred Stock; shares issued: 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 . . . . . . . . . . . . . . . 52.1 51.2
Accumulated deficit . . . . . . . . . . . . . . (263.9) (180.8)
Pension liability adjustment . . . . . . . . . . (23.9) (23.9)
Treasury stock, at cost (shares held: preferred -
845; common - 1,364,895) . . . . . . . . . (19.7) (19.7)
----------- -----------
Total stockholders' deficit . . . . . . . . (250.1) (167.9)
----------- -----------
$3,622.4 $3,572.0
=========== ===========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------------
1994 1993 1994 1993
----------- ---------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Aluminum operations . . . . . . . $459.5 $432.2 $874.6 $874.8
Forest products operations . . . . 63.0 58.0 119.7 110.7
Real estate operations . . . . . . 21.3 17.7 38.5 36.1
----------- ----------- ----------- -----------
543.8 507.9 1,032.8 1,021.6
----------- ----------- ----------- -----------
Costs and expenses:
Costs of sales and operations
(exclusive of depreciation and
depletion):
Aluminum operations . . . . . 419.0 391.0 806.8 791.1
Forest products operations . 31.0 31.6 64.2 57.9
Real estate operations . . . 15.8 13.4 28.2 32.8
Depreciation and depletion . . . . 30.0 30.3 61.2 60.0
Selling, general and administrative 41.5 42.7 80.9 82.7
expenses . . . . . . . . . . ----------- ----------- ----------- -----------
537.3 509.0 1,041.3 1,024.5
----------- ----------- ----------- -----------
Operating income (loss) . . . . . . . . 6.5 (1.1) (8.5) (2.9)
Other income (expense):
Investment, interest and other
income (expense) . . . . . . (19.1) 7.2 (7.7) 16.7
Interest expense . . . . . . . . . (44.2) (46.9) (87.7) (96.2)
----------- ----------- ----------- -----------
Loss before income taxes, minority
interests, extraordinary item and
cumulative effect of changes
in accounting principles . . . . . (56.8) (40.8) (103.9) (82.4)
Credit for income taxes . . . . . . . . 19.3 22.9 35.8 37.0
Minority interests . . . . . . . . . . (5.7) 2.1 (9.6) 3.7
----------- ---------- ----------- -----------
Loss before extraordinary item and
cumulative effect of changes in
accounting principles . . . . . . (43.2) (15.8) (77.7) (41.7)
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 $240.2 . . . . . . . - - - (444.3)
Accounting for income taxes . . . - - - 26.6
----------- ----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . $(43.2) $(15.8) $(83.1) $(503.5)
=========== =========== =========== ===========
Per common and common equivalent share:
Loss before extraordinary item and
cumulative effect of changes
in accounting principles . . $(4.57) $(1.67) $(8.22) $(4.41)
Extraordinary item . . . . . . . . - - (.57) (4.66)
Cumulative effect of changes in - - - (44.14)
accounting principles . . . . ----------- ----------- ----------- -----------
Net loss . . . . . . . . . . . . . $(4.57) $(1.67) $(8.79) $(53.21)
=========== =========== =========== ===========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (83.1) $ (503.5)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and depletion . . . . . . . . . . . . . . . . . 61.2 60.0
Amortization of deferred financing costs and discounts on
long-term debt . . . . . . . . . . . . . . . . . . . . . 9.9 9.9
Minority interests . . . . . . . . . . . . . . . . . . . . . 9.6 (3.7)
Extraordinary loss on early extinguishment of debt, net . . . 5.4 44.1
Equity in losses of unconsolidated affiliates . . . . . . . . 1.0 6.5
Incurrence of financing costs . . . . . . . . . . . . . . . . (18.7) (39.3)
Cumulative effect of changes in accounting principles, net . - 417.7
Decrease in inventories . . . . . . . . . . . . . . . . . . . 33.8 2.0
Decrease in receivables . . . . . . . . . . . . . . . . . . . 10.3 22.5
Increase in accrued interest . . . . . . . . . . . . . . . . 8.0 3.1
Increase in payable to affiliates and other liabilities . . . 2.6 12.5
Increase in accrued and deferred income taxes . . . . . . . . (41.7) (40.6)
Decrease in accounts payable . . . . . . . . . . . . . . . . (10.4) (8.9)
Decrease (increase) in prepaid expenses and other assets . . (4.9) 8.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 (4.4)
--------------- --------------
Net cash used for operating activities . . . . . . . . . (14.1) (13.4)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and investments . . . . 6.6 10.0
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (30.9) (33.3)
Net sales (purchases) of marketable securities . . . . . . . . . . (26.9) 4.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.0) (1.0)
-------------- --------------
Net cash used for investing activities . . . . . . . . . (54.2) (19.9)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . . . . . . . . . . . 225.5 1,022.8
Net payments under revolving credit agreements and
short-term borrowings . . . . . . . . . . . . . . . . . (193.4) (136.7)
Redemptions, repurchase of and principal payments on long-term
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21.8) (951.1)
Redemption of preference stock . . . . . . . . . . . . . . . . . . (8.4) (4.0)
Proceeds from issuance of Kaiser capital stock . . . . . . . . . . 100.4 119.3
Restricted cash deposits . . . . . . . . . . . . . . . . . . . . . - (35.0)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.7) -
-------------- --------------
Net cash provided by financing activities . . . . . . . 93.6 15.3
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . 25.3 (18.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . 83.9 81.9
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 109.2 $ 63.9
============== ==============
Supplementary schedule of non-cash investing and financing activities:
Net margin borrowings (repayments) for marketable securities . . . $ (.5) $ 3.1
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest . . . . . . . . . . . . $ 69.9 $ 83.1
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . 6.5 7.3
</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 June 30, 1994, the
consolidated results of operations for the three and six months ended June
30, 1994 and 1993 and consolidated cash flows for the six months ended June
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 June 30, 1994 and December 31, 1993, cash and cash equivalents
includes $13.4 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:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Aluminum Operations:
Finished fabricated products . . . . . . . . . . . . . . $63.6 $ 83.7
Primary aluminum and work in process . . . . . . . . . . 149.0 141.4
Bauxite and alumina . . . . . . . . . . . . . . . . . . 77.0 94.0
Operating supplies and repair and maintenance parts . . 104.9 107.8
------------- ------------
394.5 426.9
------------- ------------
Forest Products Operations:
Lumber . . . . . . . . . . . . . . . . . . . . . . . . . 63.1 58.4
Logs . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 18.3
------------- ------------
76.4 76.7
------------- ------------
$470.9 $ 503.6
============= ============
</TABLE>
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, 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 . . . . . . . . . . . . . . . . . . . . . . . . 20.7 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.7 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 . . . . . . . . . . . . . . . . . . . . . . . 78.0 73.5
10-1/2% Senior Notes due March 1, 2003 . . . . . . . . . . . . 235.0 235.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.9
Real Estate Operations:
Secured notes due December 31, 1997, interest at prime
plus 3% . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 17.2
Other notes and contracts, primarily
secured by receivables,
buildings, real estate and equipment . . . . . . . . . . 21.8 23.8
---------------- ----------------
1,622.5 1,606.2
Less: current maturities . . . . . . . . . . . . . . . . . . . . . (35.1) (38.3)
---------------- ----------------
$ 1,587.4 $ 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 June 30, 1994, $184.2 of borrowing capacity was unused
under the 1994 Credit Agreement (of which $59.2 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. Loans
under the 1994 Credit Agreement bear interest at a rate per annum,
<PAGE>
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. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition and Investing and Financing Activities -- Aluminum Operations."
Kaiser recorded a pre-tax extraordinary loss of $8.3 for the six months
ended June 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 will be held at a
yet unspecified time. 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 six
months ended June 30, 1994.
7. 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.
<PAGE>
8. 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 June 30, 1994, the balance of such accruals, which is
primarily included in other noncurrent liabilities, was $42.1.
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 expenditures to be charged to the environmental accrual
will be approximately $4.0 to $9.0 for the years 1994 through 1998 and an
aggregate of approximately $11.0 thereafter.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of remediation
are established, or alternative technologies are developed, changes in
these and other factors may result in actual costs exceeding the current
environmental accruals 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. At June 30, 1994, the number of such lawsuits pending was
approximately 21,200.
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 $95.4
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
<PAGE>
at an estimated risk-free rate. Accordingly, an asbestos-related cost
accrual of $102.6 is included primarily in other noncurrent liabilities at
June 30, 1994. The aggregate amount of the undiscounted liability at June
30, 1994 is $141.9, 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 $97.9, determined
on the same basis as the asbestos-related cost accrual, are recorded
primarily in long-term receivables and other assets as of June 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.
9. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
Kaiser 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.
Kaiser 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 Kaiser to
certain exchange rate risks. In order to mitigate its exposure, Kaiser
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 June 30,
1994, Kaiser had net forward foreign exchange contracts totaling
approximately $23.4 for the purchase of 34.8 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 June 30, 1994, such options established a price range
of $30.2 to $31.7 for the purchase of 48.0 million Australian Dollars
through December 1994, and established a maximum price of $2.2 for the
purchase of 1.5 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, Kaiser has
<PAGE>
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 Kaiser's price risk management strategy,
which can be modified at any time, (i) varying quantities of Kaiser's
anticipated production are sold forward at fixed prices, (ii) call options
are purchased to allow Kaiser to participate in certain higher market
prices, should they materialize, for a portion of Kaiser's excess primary
aluminum and alumina sold forward, (iii) option contracts are entered into
to establish a price range Kaiser will receive for a portion of its excess
primary aluminum and alumina and (iv) put options are purchased to
establish minimum prices Kaiser 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 June 30,
1994, Kaiser had sold forward 53,000 metric tons of primary aluminum at
fixed prices and had purchased call options in respect of 30,000 metric
tons of primary aluminum. Further, in respect of its 1995 anticipated
primary aluminum and alumina production, as of June 30, 1994, Kaiser had
sold forward 150,000 metric tons of primary aluminum at fixed prices,
purchased call options in respect of 87,000 metric tons of primary aluminum
and had entered into option contracts that established a price range for
54,000 metric tons of primary aluminum. Kaiser 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, Kaiser enters 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, Kaiser may enter into forward and options contracts. In this
regard, at June 30, 1994, Kaiser had 13,500 metric tons of primary aluminum
forward purchase contracts at fixed prices.
Kaiser 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 June 30, 1994, the net unrealized gain on Kaiser's position in
forward foreign exchange and foreign currency options was $4.3 and the net
unrealized loss on aluminum forward sales and option contracts and the
natural gas pricing contract was $35.8, based on dealer quoted prices.
Gains and losses arising from the use of hedging instruments are reflected
in Kaiser's operating results concurrently with the consummation of the
underlying hedged transactions.
Kaiser is exposed to credit risk in the event of non-performance
by other parties to these currency and commodity contracts, but Kaiser does
not anticipate non-performance by any of these counterparties.
<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 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 and six months ended June 30, 1994 and
1993. The information presented in the table is in millions of dollars
except shipments and prices.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shipments(1):
Alumina . . . . . . . . . . . . . . . 574.2 472.3 1,042.4 931.6
Aluminum products:
Primary aluminum . . . . . . . . 63.1 53.6 127.4 128.1
Fabricated products . . . . . . . 104.9 95.5 201.7 187.1
------------- ------------- ------------- -------------
Total aluminum products . . 168.0 149.1 329.1 315.2
============= ============= ============= =============
Average realized sales price:
Alumina (per ton) . . . . . . . . . . $ 159 $ 170 $ 157 $ 172
Primary aluminum (per pound) . . . . . .55 .59 .55 .57
Net sales:
Bauxite and alumina:
Alumina . . . . . . . . . . . . . $ 91.3 $ 80.2 $ 163.8 $ 160.2
Other(2)(3) . . . . . . . . . . . 20.4 22.1 40.8 41.1
------------- ------------- ------------- -------------
Total bauxite and alumina . 111.7 102.3 204.6 201.3
------------- ------------- ------------- -------------
Aluminum processing:
Primary aluminum . . . . . . . . 76.8 69.4 154.1 160.6
Fabricated products . . . . . . . 267.4 257.2 508.9 506.3
Other(3) . . . . . . . . . . . . 3.6 3.3 7.0 6.6
------------- ------------- ------------- -------------
Total aluminum processing . 347.8 329.9 670.0 673.5
------------- ------------- ------------- -------------
Total net sales . . . . $ 459.5 $ 432.2 $ 874.6 $ 874.8
============= ============= ============= =============
Operating loss . . . . . . . . . . . . . . $ (12.7) $ (12.7) $ (36.8) $ (20.9)
============= ============= ============= =============
Loss before income taxes, minority
interests, extraordinary item and
cumulative effect of changes in
accounting principles . . . . . . . . $ (33.6) $ (31.0) $ (77.0) $ (56.7)
============= ============= ============= =============
Capital expenditures . . . . . . . . . . . $ 12.1 $ 13.3 $ 21.7 $ 23.3
============= ============= ============= =============
<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 $111.7 million for the second
quarter of 1994 compared with $102.3 million for the second quarter of 1993
and $204.6 million for the six months ended June 30, 1994 compared with
$201.3 million for the six months ended June 30, 1993. Revenues from
alumina increased 14% to $91.3 million for the second quarter of 1994 from
$80.2 million for the second quarter of 1993, and increased 2% to $163.8
million for the six months ended June 30, 1994, from $160.2 million for the
six months ended June 30, 1993, principally due to increased shipments,
offset by lower average realized prices.
Aluminum processing. Revenues from net sales to third parties
for the aluminum processing segment were $347.8 million for the second
quarter of 1994 compared with $329.9 million for the second quarter of 1993
and $670.0 million for the six months ended June 30, 1994 compared with
$673.5 million for the six months ended June 30, 1993. Revenues from
primary aluminum increased 11% to $76.8 million for the second quarter of
1994 from $69.4 million for the second quarter of 1993 principally due to
increased shipments, partially offset by lower average realized prices, and
decreased 4% to $154.1 million for the six months ended June 30, 1994 from
$160.6 million for the six months ended June 30, 1993, primarily because of
lower average realized prices and, to a lesser extent, lower shipments.
Shipments of primary aluminum to third parties constituted approximately
38% and 39% of total aluminum products shipments for the second quarter of
1994 and six months ended June 30, 1994, respectively, compared with
approximately 36% and 41% for the second quarter of 1993 and six months
ended June 30, 1993. Revenues from fabricated aluminum products increased
4% to $267.4 million for the second quarter of 1994 from $257.2 million for
the second quarter of 1993 due to increased shipments, partially offset by
lower average realized prices, and remained approximately the same for the
six months ended June 30, 1994 compared with the six months ended June 30,
1993, as increased shipments were offset by lower average realized prices.
Operating loss
The operating loss for the second quarter of 1994 and the second
quarter of 1993 was $12.7 million. The operating loss for the six months
ended June 30, 1994 was $36.8 million, compared with $20.9 million for the
six months ended June 30, 1993. Kaiser's corporate general and
administrative expenses of $18.2 million and $18.3 million for the second
quarter of 1994 and 1993, respectively, and $35.4 million and $37.1 million
for the six months ended June 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 an
operating loss of $3.9 million for the second quarter of 1994, compared
with $7.9 million for the second quarter of 1993. The operating loss for
the six months ended June 30, 1994 was $9.7 million, compared with $11.5
million for the six months ended June 30, 1993. These decreases in losses
were principally due to increased shipments of alumina, partially offset by
lower average realized prices for alumina.
Aluminum processing. The aluminum processing segment had an
operating loss of $8.8 million for the second quarter of 1994, compared
with $4.8 million for the second quarter of 1993. This increase was
principally due to lower average realized prices of primary aluminum and
fabricated aluminum products, partially offset by increased shipments of
these products. The operating loss for the six months ended June 30, 1994
was $27.1 million, compared with $9.4 million for the six months ended June
30, 1993. This increase was principally due to lower average realized
prices of primary aluminum and fabricated aluminum products, partially
offset by increased shipments of fabricated aluminum products.
<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 for the
second quarter of 1994 was $33.6 million, compared with $31.0 million for
the second quarter of 1993. The loss for the six months ended June 30,
1994 was $77.0 million, compared with $56.7 million for the six months
ended June 30, 1993. This increase resulted from the increased operating
loss 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
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 six months ended June 30, 1994 and
1993. The information presented in the table is in millions of dollars
except shipments and prices.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shipments:
Lumber(1):
Redwood upper grades . . . . . . . . . . 12.8 17.0 25.7 32.8
Redwood common grades . . . . . . . . . . 55.7 48.3 105.1 93.9
Douglas-fir upper grades . . . . . . . . 1.9 3.0 4.4 6.2
Douglas-fir common grades . . . . . . . . 16.5 12.7 31.9 27.5
------------ ------------ ------------ ------------
Total lumber . . . . . . . . . . . . 86.9 81.0 167.1 160.4
============ ============ ============ ============
Logs(2) . . . . . . . . . . . . . . . . . . . 4.8 0.8 10.3 0.8
============ ============ ============ ============
Wood chips(3) . . . . . . . . . . . . . . . . 64.9 34.7 95.2 71.2
============ ============ ============ ============
Average sales price:
Lumber(4):
Redwood upper grades . . . . . . . . . . $ 1,469 $ 1,270 $ 1,437 $ 1,242
Redwood common grades . . . . . . . . . . 458 496 453 477
Douglas-fir upper grades . . . . . . . . 1,373 1,224 1,391 1,167
Douglas-fir common grades . . . . . . . . 426 439 445 433
Logs(4) . . . . . . . . . . . . . . . . . . . 638 714 658 709
Wood chips(5) . . . . . . . . . . . . . . . . 85 78 81 79
Net sales:
Lumber, net of discount . . . . . . . . . . . $ 53.1 $ 53.4 $ 103.1 $ 102.1
Logs . . . . . . . . . . . . . . . . . . . . . 3.1 .6 6.8 .6
Wood chips . . . . . . . . . . . . . . . . . . 5.6 2.7 7.7 5.7
Cogeneration power . . . . . . . . . . . . . . .9 1.0 1.5 1.7
Other . . . . . . . . . . . . . . . . . . . . .3 .3 .6 .6
------------ ------------ ------------ ------------
Total net sales . . . . . . . . . . $ 63.0 $ 58.0 $ 119.7 $ 110.7
============ ============ ============ ============
Operating income . . . . . . . . . . . . . . . . . $ 23.1 $ 15.3 $ 36.5 $ 31.8
============ ============ ============ ============
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles . . . . . . . $ (15.5) $ (2.9) $ (13.5) $ (6.3)
============ ============ ============ ============
Capital expenditures . . . . . . . . . . . . . . . $ 2.5 $ 4.6 $ 6.5 $ 6.6
============ ============ ============ ============
<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>
<PAGE>
Shipments
Lumber shipments for the second quarter of 1994 were 86.9 million
board feet, an increase of 7% from 81.0 million board feet for the second
quarter of 1993. This increase was principally due to a 15% increase in
redwood common lumber shipments, partially offset by a 25% decrease in
shipments of upper grade redwood lumber. Log shipments for the second
quarter of 1994 were 4.8 million feet (net Scribner scale), an increase
from .8 million feet for the second quarter of 1993.
Lumber shipments for the six months ended June 30, 1994 were
167.1 million board feet, an increase of 4% from 160.4 million board feet
for the six months ended June 30, 1993. This increase was principally due
to a 12% increase in redwood common lumber shipments, partially offset by a
22% decrease in shipments of upper grade redwood lumber. Log shipments for
the six months ended June 30, 1994 were 10.3 million feet (net Scribner
scale), an increase from .8 million feet for the six months ended June 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
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 second quarter
of 1994 increased by approximately 4% from the second quarter of 1993.
This increase was principally due to increased shipments of redwood common
lumber, a 16% increase in the average realized price of upper grade redwood
lumber and increased log shipments, partially offset by decreased shipments
of upper grade redwood lumber and an 8% decrease in the average realized
price of redwood common lumber. The increase in other sales for the second
quarter of 1994 as compared to the second quarter of 1993 was attributable
to increased sales of wood chips.
Revenues from net sales of lumber and logs for the six months
ended June 30, 1994 increased by approximately 7% from the six months ended
June 30, 1993. This increase was principally due to increased log
shipments, increased shipments of redwood common lumber, a 16% increase in
the average realized price of upper grade redwood lumber and a 19% increase
in the average realized price of upper grade Douglas-fir lumber, partially
offset by decreased shipments of upper grade redwood lumber and a 5%
decrease in the average realized price of redwood common lumber. The
increase in other sales for the six months ended June 30, 1994 as compared
to the six months ended June 30, 1993 was attributable to increased sales
of wood chips.
Operating income
Operating income for the second quarter of 1994 increased by
approximately 51% as compared to the second quarter of 1993. Operating
income for the six months ended June 30, 1994 increased by approximately
15% as compared to the six months ended June 30, 1993. These increases
were principally due to higher sales of logs and wood chips, improved
sawmill productivity and lower purchases of lumber
<PAGE>
and logs from third parties in 1994 compared to 1993. For the six months
ended June 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.
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 increased
for the second quarter of 1994 and the six months ended June 30, 1994 as
compared to the same periods in 1993. These increases resulted from the
loss on litigation settlement (see also "Pacific Lumber Merger Litigation"
under Part II, Item 1 of this Report), partially offset by the increases in
operating income and decreased interest expense. In addition, investment,
interest and other income (expense) for the six months ended June 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 Six Months Ended
June 30, June 30,
------------------------- -------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
(In millions of dollars)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.3 $ 17.7 $ 38.5 $ 36.1
Operating loss . . . . . . . . . . . . . . . . . . . . . . (1.5) (.4) (3.4) (7.0)
Loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting
principles . . . . . . . . . . . . . . . . . . . . . . (.8) (1.2) (2.1) (8.4)
</TABLE>
Net sales
Revenues from net sales for the second quarter of 1994 were $21.3
million, an increase of $3.6 million from the second quarter of 1993. Net
sales for the six months ended June 30, 1994 were $38.5 million, an
increase of $2.4 million from the six months ended June 30, 1993. These
increases were primarily due to increased lot sales at the Company's
Fountain Hills development in Arizona and bulk acreage sales in New Mexico,
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 second quarter of 1994 was $1.5
million, an increase of $1.1 million from the second quarter of 1993. This
increase was primarily due to higher overhead costs and decreased
<PAGE>
revenues resulting from the sale of apartment complexes, partially offset
by the increased sales at Fountain Hills and the bulk acreage sales. The
operating loss for the six months ended June 30, 1994 was $3.4 million, a
decrease of $3.6 million from the six months ended June 30, 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, the increased sales at Fountain Hills and the
bulk acreage sales, partially offset by decreased revenues resulting from
the sale of apartment complexes and higher 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 for the
second quarter of 1994 was $.8 million, a decrease of $.4 million from the
second quarter of 1993. This decrease was due to lower interest expense,
partially offset by the increased operating loss discussed above. The loss
before income taxes, minority interests, extraordinary item and cumulative
effect of changes in accounting principles for the six months ended June
30, 1994 was $2.1 million, a decrease of $6.3 million from the six months
ended June 30, 1993. This decrease was primarily attributable to the
decreased operating loss discussed above, along with a decrease in interest
expense. The decreases in interest expense resulted from repayments on the
debt related to the RTC portfolio.
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
(In millions of dollars)
<S> <C> <C> <C> <C>
Operating loss . . . . . . . . . . . . . $ (2.4) $ (3.3) $ (4.8) $ (6.8)
Loss before income taxes, minority
interests, extraordinary item and
cumulative effect of changes in
accounting principles . . . . . . . (6.9) (5.7) (11.3) (11.0)
</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 second quarter of 1994 was $2.4
million, a decrease of $.9 million from the second quarter of 1993. The
operating loss for the six months ended June 30, 1994 was $4.8 million, a
decrease of $2.0 million from the six months ended June 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
second quarter of 1994 was $6.9 million, an increase of $1.2 million from
the second quarter of 1993. The loss for the six months ended June 30,
1994 was $11.3 million, an increase of $.3 million from the six months
ended June 30, 1993. These increases were primarily due to the equity in
losses of affiliates, partially offset by lower interest expense and the
decreased operating losses discussed above. The equity in losses of
affiliates is attributable to the Company's 29.7% equity interest in Sam
Houston Race Park (see "--Financial Condition and Investing and Financing
Activities -- Parent
<PAGE>
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 loss for the six months
ended June 30, 1993 resulted from the refinancing activities of KACC and
Pacific Lumber.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
The Company's consolidated indebtedness increased $16.3 million
to $1,622.5 million at June 30, 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 June 30, 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 $26.2 million could be paid as of June
30, 1994.
As of June 30, 1994, the Company (excluding its aluminum, forest
products and real estate subsidiary companies) had cash and marketable
securities of approximately $41.7 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.
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. ("SHRP"),
which owns the facility. 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. As of June 30, 1994, SHRP had a
working capital deficiency of approximately $2.7 million and a capital
deficit of approximately $8.1 million. SHRP has been able to
<PAGE>
continue its operations principally by deferring payments to certain of its
vendors. There can be no assurance that such vendors will continue to
permit SHRP to defer full payment of amounts due.
SHRP's ability to recover its investment in Sam Houston Race Park
is dependent upon its ability to raise additional capital from its partners
and, ultimately, to achieve a level of cash flow from operations sufficient
to enable it to meet its operating and financing obligations as they become
due. In this regard, the Company has undertaken a number of steps designed
to improve SHRP's current operations. These efforts include increasing its
marketing and advertising programs, strengthening on-site management,
renegotiating contracts for purse payments and reducing other general and
administrative costs. In addition to its efforts to strengthen SHRP's
current operations, the Company has determined that a cash call to the
partners will be necessary. The amount, timing and terms of the cash call
are to be discussed at a meeting of the partners scheduled for August 17,
1994. The Company's portion of the cash call is not expected to be
significant to the Company. There can be no assurance that the operating
changes referred to above, together with the cash raised from the partners,
will be sufficient to enable SHRP to achieve a level of cash flow from
operations sufficient to enable it to meet its future operating and
financing obligations as they become due. There is a high probability
that, absent significant improvements in SHRP's operating performance,
additional cash calls to the partners will be required in the future.
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
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 June 30, 1994, the Company's real estate subsidiaries had
approximately $28.6 million available for use under various credit
agreements. Substantially all of the availability was attributable to the
credit
<PAGE>
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
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, Kaiser 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 Kaiser's price risk management strategy, which can
be modified at any time, (i) varying quantities of Kaiser's anticipated
production are sold forward at fixed prices, (ii) call options are
purchased to allow Kaiser to participate in certain higher market prices,
should they materialize, for a portion of Kaiser's excess primary aluminum
and alumina sold forward, (iii) option contracts are entered into to
establish a price range Kaiser will receive for a portion of its excess
primary aluminum and alumina and (iv) put options are purchased to
establish minimum prices Kaiser will receive for a portion of its excess
primary aluminum and alumina.
Since June 30, 1994, in addition to the positions which have
expired pursuant to their terms, Kaiser has adjusted certain of its hedge
positions. In respect of its remaining 1994 anticipated primary aluminum
and alumina production, as of the date of this Report, Kaiser had sold
forward 59,200 metric tons of primary aluminum at fixed prices and had
purchased call options in respect of 25,000 metric tons of primary
aluminum. Further, in respect of its 1995 anticipated primary aluminum
production, as of the date of this Report, Kaiser had sold forward 42,200
metric tons of primary aluminum at fixed prices, had purchased call options
in respect of 30,000 metric tons of primary aluminum, had entered into
option contracts that established a price range for 90,000 metric tons of
primary aluminum and had purchased put options to establish a minimum price
for 181,500 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, Kaiser has hedged a
portion of its 1995 alumina sales on the primary aluminum forward market.
As of the date of this Report, Kaiser had sold 34,000 metric tons of
primary aluminum forward at fixed prices.
TRENDS
ALUMINUM OPERATIONS
In response to a power reduction imposed by the Bonneville Power
Administration ("BPA") in the Pacific Northwest, Kaiser in January 1993
removed three reduction potlines from production in Washington (two at its
Mead smelter and one at its Tacoma smelter). Kaiser has operated these
smelters at such reduced operating rate since that time. 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 at least November 30, 1994. Kaiser cannot predict whether
full power will be provided by the BPA after November 30, 1994, or whether
power will otherwise become available at a price acceptable to Kaiser.
Kaiser currently anticipates that it will operate its Mead and Tacoma
smelters during the remainder of 1994 at a rate which does not exceed the
current operating rate of 75% of full capacity for such smelters.
Furthermore, after continued assessment of current market conditions, on
May 15, 1994, Kaiser curtailed about 40,000 metric tons of primary
aluminum-making capacity at its 90%-owned Volta
<PAGE>
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 is operating at
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.
During the six months ended June 30, 1994, Kaiser's average
realized prices from sales of alumina, primary aluminum 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. 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 and Part II, Item 1
of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1994 (the "Form 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 Form 10-Q.
KAISER ENVIRONMENTAL LITIGATION
Aberdeen Pesticides Dumps Site Matter
As indicated in the Form 10-K, by letters dated December 30,
1993, the EPA notified KACC of its potential liability for, and requested
that KACC, along with a number of other companies, undertake or agree to
finance, groundwater remediation at certain of the Sites. On June 22,
1994, the EPA issued two Unilateral Administrative Orders under Section
106(a) of CERCLA under U.S. EPA Docket No. 94-28-C and U.S. EPA Docket No.
94-27-C, respectively, ordering a number of respondents, including KACC, to
design and implement the groundwater remediation remedy for two of the
Sites. KACC has reached an agreement in principle with certain of the
respondents to participate jointly in responding to both of the Unilateral
Administrative Orders, to share costs incurred on an interim basis, and to
seek to reach a final allocation of costs through agreement or to allow
such final allocation and determination of liability to be made by the U.S.
District Court. A definitive agreement is under negotiation by the
participating respondents. The participating respondents are also in the
process of notifying the EPA of their intent to comply with the Unilateral
Administrative Orders to the extent consistent with applicable law.
PACIFIC LUMBER MERGER LITIGATION
With respect to the In re Ivan F. Boesky multidistrict securities
litigation matter, on May 17, 1994, the Company and Pacific Lumber
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, MGI, Pacific Lumber, former directors of
Pacific Lumber and others concerning MGI's acquisition of Pacific Lumber.
The settlement would resolve the Fries State, Omicini, Thompson State,
Russ, Fries Federal, Thompson Federal, Boesky and American Red Cross
actions described in the Form 10-K. Of the pending approximately $52.0
million settlement, approximately $33.0 million was paid by insurance
carriers of the Company and Pacific Lumber, approximately $14.8 million 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 will be held at a
yet unspecified time in the United States District Court, Southern District
of New York (notice of which hearing will be furnished to claimants). The
above-described cash payments are being held in the registry of the court
pending satisfaction of these contingencies.
Management believes the settlement of these claims is in the best
interest of the Company. See also Note 6 to the Condensed Notes to
Consolidated Financial Statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations -
- - Forest Products Operations -- Loss before income taxes, minority
interests, extraordinary item and cumulative effect of changes in
accounting principles" in Part I of this Report.
<PAGE>
With respect to the Russ case, the Court has scheduled a status
conference for January 6, 1995, but has directed the parties to file
dismissal papers with the Court in the event that the above-described
Boesky settlement is approved and finalized prior to the next scheduled
status conference.
RANCHO MIRAGE LITIGATION
With respect to the consolidated In re MAXXAM Inc./Federated
Development Shareholders Litigation action, on July 6, 1994, the defendants
and consolidated plaintiffs entered into a settlement agreement. Under the
terms of the proposed settlement, the Company would receive $3 million,
$1.5 million to be paid by defendant Federated Development Company (over 22
months) and the other $1.5 million to be paid on behalf of the individual
defendants by their insurance carriers. All shareholders of record have
been sent notice and information concerning the proposed settlement. A
fairness hearing with respect to the proposed settlement has been scheduled
for September 21, 1994. NL Industries, Inc., which filed separate actions
in Delaware and Texas concerning the Mirada transactions (described in the
Form 10-K) has indicated that it intends to oppose the proposed settlement.
ITEM 5. OTHER INFORMATION
In Part I, Item 1, "Business--Forest Products Operations--
Regulatory and Environmental Factors" of the Form 10-K, a bill is described
which relates to approximately 54,000 acres of Pacific Lumber's
timberlands. A similar bill has been introduced in the U.S. Senate by
Senator Barbara Boxer (D-CA). Since these bills are subject to amendment,
it is premature to assess the ultimate content of these bills, the
likelihood of any of the bills passing, or the impact of either of these
bills on the financial position or results of operations of the Company.
MCO Properties Inc., a subsidiary of the Company, and the local
sanitation district, an unaffiliated company, have received notification of
non-compliance with certain Arizona statutes and regulations concerning the
discharge and disposal of effluent and wastewater. MCOP and the
unaffiliated company are working with the Arizona Department of
Environmental Quality to correct this matter. This matter could delay the
processing and approval of subdivision plats within the Fountain Hills
development.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
4.1 Certificate of Designations of Class A $.05 Non-Cumulative
Participating Convertible Preferred Stock of the Company, dated
July 6, 1994 (incorporated herein by reference to Exhibit 4(c) to
the Registration Statement of the Company on Form S-8,
Registration No. 33-54479)
*4.2 Second Amendment, dated as of May 26, 1994, to Pacific Lumber's
Revolving Credit Agreement
*4.3 Fourth Modification Agreement, dated as of March 31, 1994, by and
among General Electric Capital Corporation ("GECC"), MXM Mortgage
Corp. and MXM Mortgage L.P.
*4.4 Fifth Amendment to Loan Agreement, dated as of March 31, 1994, by
and among GECC, MXM Mortgage Corp. and MXM Mortgage L.P.
4.5 First Amendment to Kaiser's 1994 Credit Agreement (incorporated
herein by reference to Exhibit 4.1 to the Quarterly Report on
Form 10-Q of Kaiser Aluminum Corporation for the quarter ended
June 30, 1994; File No. 1-9447)
<PAGE>
10.1 MAXXAM 1994 Omnibus Employee Incentive Plan (incorporated herein
by reference to the Company's Proxy Statement dated April 29,
1994; File No. 1-3924; the "1994 Proxy Statement")
10.2 MAXXAM 1994 Non-Employee Director Plan (incorporated herein by
reference to the 1994 Proxy Statement)
10.3 MAXXAM 1994 Executive Bonus Plan (incorporated herein by
reference to the 1994 Proxy Statement)
*11 Computation of Net Loss Per Common and Common Equivalent Share
- --------------------
* Included with this filing.
B. REPORTS ON FORM 8-K:
On June 2, 1994, the Company filed a Current Report on
Form 8-K, dated June 2, 1994, describing under Item 5
the settlement of the Pacific Lumber merger litigation
(see "-- Pacific Lumber Merger Litigation" under Part
II, Item 1 of this Report for a description of such
settlement).
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: August 15, 1994 By: JOHN T. LA DUC
John T. La Duc
Senior Vice President and Chief
Financial Officer
