===========================================================================
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, 1995
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 77057
HOUSTON, TEXAS (Zip Code)
(Address of Principal
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, 1995: 8,707,591
===========================================================================
<PAGE>
MAXXAM INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1995
and December 31, 1994 3
Consolidated Statement of Operations for the three
and six months ended June 30, 1995 and 1994 4
Consolidated Statement of Cash Flows for the six
months ended June 30, 1995 and 1994 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures S-1
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
(Unaudited)
(In millions of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 105.2 $ 84.6
Marketable securities 38.8 40.3
Receivables:
Trade, net of allowance for doubtful
accounts of $5.0 and $4.4 at June
30, 1995 and December 31, 1994,
respectively 215.1 176.8
Other 61.8 62.9
Inventories 584.5 541.4
Prepaid expenses and other current assets 110.8 185.3
------------- ------------
Total current assets 1,116.2 1,091.3
Property, plant and equipment, net of
accumulated depreciation of $629.6 and
$579.9 at June 30, 1995 and December 31,
1994, respectively 1,210.3 1,231.6
Timber and timberlands, net of depletion of
$129.8 and $123.9 at June 30, 1995 and
December 31, 1994, respectively 320.6 325.2
Investments in and advances to unconsolidated
affiliates 181.1 169.7
Deferred income taxes 436.5 425.6
Long-term receivables and other assets 475.7 447.4
------------- ------------
$ 3,740.4 $ 3,690.8
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 146.6 $ 161.8
Accrued interest 59.2 62.0
Accrued compensation and related benefits 128.1 138.3
Other accrued liabilities 165.6 200.2
Payable to affiliates 80.7 81.8
Long-term debt, current maturities 27.9 33.7
------------- ------------
Total current liabilities 608.1 677.8
Long-term debt, less current maturities 1,617.5 1,582.5
Accrued postretirement benefits 747.5 743.1
Other noncurrent liabilities 667.1 618.4
------------- ------------
Total liabilities 3,640.2 3,621.8
------------- ------------
Commitments and contingencies
Minority interests 350.4 344.3
Stockholders' deficit:
Preferred stock, $.50 par value; 12,500,000
shares authorized; Class A $.05 Non-
Cumulative Participating Convertible
Preferred Stock; shares issued:
669,957 .3 .3
Common stock, $.50 par value; 28,000,000
shares authorized; shares issued:
10,063,359 5.0 5.0
Additional capital 53.9 53.2
Accumulated deficit (278.5) (302.9)
Pension liability adjustment (11.4) (11.4)
Treasury stock, at cost (shares held:
preferred - 845; common - 1,355,768) (19.5) (19.5)
------------- ------------
Total stockholders' deficit (250.2) (275.3)
------------- ------------
$ 3,740.4 $ 3,690.8
============= ============
<FN>
The accompanying notes are an integral part of these financial statements.
</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,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Aluminum operations $ 583.4 $ 459.5 $ 1,096.4 $ 874.6
Forest products operations 65.6 63.0 117.6 119.7
Real estate operations 24.3 21.3 40.6 38.5
---------- ---------- ---------- ----------
673.3 543.8 1,254.6 1,032.8
---------- ---------- ---------- ----------
Costs and expenses:
Costs of sales and
operations (exclusive
of depreciation and
depletion):
Aluminum operations 463.8 419.0 890.5 806.8
Forest products
operations 33.0 31.0 62.5 64.2
Real estate
operations 16.3 15.8 28.4 28.2
Selling, general and
administrative
expenses 47.2 41.5 89.8 80.9
Depreciation and depletion 31.1 30.0 60.9 61.2
---------- ---------- ---------- ----------
591.4 537.3 1,132.1 1,041.3
---------- ---------- ---------- ----------
Operating income (loss) 81.9 6.5 122.5 (8.5)
Other income (expense):
Investment, interest and
other income
(expense) 5.5 (19.1) 9.1 (7.7)
Interest expense (45.4) (44.2) (90.8) (87.7)
---------- ---------- ---------- ----------
Income (loss) before income
taxes, minority interests
and extraordinary item 42.0 (56.8) 40.8 (103.9)
Credit (provision) for income
taxes (10.0) 19.3 (2.8) 35.8
Minority interests (6.6) (5.7) (13.6) (9.6)
---------- ---------- ---------- ----------
Income (loss) before
extraordinary item 25.4 (43.2) 24.4 (77.7)
Extraordinary item:
Loss on early
extinguishment of
debt, net of related
benefit for income
taxes of $2.9 - - - (5.4)
---------- ---------- ---------- ----------
Net income (loss) $ 25.4 $ (43.2) $ 24.4 $ (83.1)
========== ========== ========== ==========
Per common and common
equivalent share:
Income (loss) before
extraordinary item $ 2.69 $ (4.57) $ 2.58 $ (8.22)
Extraordinary item - - - (.57)
---------- ---------- ---------- ----------
Net income (loss) $ 2.69 $ (4.57) $ 2.58 $ (8.79)
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 24.4 $ (83.1)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and depletion 60.9 61.2
Minority interests 13.6 9.6
Amortization of deferred financing costs
and discounts on long-term debt 9.5 9.9
Amortization of excess investment over
equity in net assets of
unconsolidated affiliates 5.8 5.8
Equity in losses (income) of
unconsolidated affiliates (7.1) 1.0
Net losses (gains) on marketable
securities (3.8) .3
Net purchases of marketable securities (1.7) (26.9)
Incurrence of financing costs (1.0) (18.7)
Extraordinary loss on early
extinguishment of debt, net - 5.4
Decrease (increase) in prepaid expenses
and other assets 61.0 (4.9)
Increase in accrued interest .2 8.0
Decrease (increase) in inventories (45.3) 33.8
Decrease (increase) in receivables (43.2) 10.3
Decrease in accounts payable (14.6) (10.4)
Increase (decrease) in payable to
affiliates and other liabilities (12.1) 2.6
Increase in accrued and deferred income
taxes (6.3) (41.7)
Other 4.8 (3.3)
----------- -----------
Net cash provided by (used for)
operating activities 45.1 (41.1)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and
investments 11.0 6.6
Capital expenditures (33.8) (30.9)
Other (.3) (2.8)
----------- -----------
Net cash used for investing
activities (23.1) (27.1)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving
credit agreements 41.1 (193.4)
Proceeds from issuance of long-term debt 2.6 225.5
Principal payments on long-term debt (20.8) (21.8)
Dividends paid to Kaiser's minority preferred
stockholders (15.6) (8.8)
Redemption of preference stock (8.7) (8.4)
Proceeds from issuance of Kaiser preferred
stock - 100.4
----------- -----------
Net cash provided by (used for)
financing activities (1.4) 93.5
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 20.6 25.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 84.6 83.9
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 105.2 $ 109.2
=========== ===========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
REDUCTION OF MARGIN BORROWINGS FOR MARKETABLE
SECURITIES $ 6.9 $ .5
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 81.0 $ 69.9
Income taxes paid 17.1 6.5
<FN>
The accompanying notes are an integral part of these financial statements.
</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, 1994 (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, 1995, the
consolidated results of operations for the three and six months ended June
30, 1995 and 1994 and consolidated cash flows for the six months ended June
30, 1995 and 1994. Certain reclassifications of prior period information
have been made to conform to the current presentation.
2. CASH AND CASH EQUIVALENTS
At June 30, 1995 and December 31, 1994, cash and cash equivalents
includes $11.7 and $19.4, respectively, which is restricted 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,
1995 1994
-------------- -------------
<S> <C> <C>
Aluminum Operations:
Finished fabricated products $ 62.4 $ 49.4
Primary aluminum and work in process 218.4 203.1
Bauxite and alumina 115.9 102.3
Operating supplies and repair and
maintenance parts 120.1 113.2
-------------- -------------
516.8 468.0
-------------- -------------
Forest Products Operations:
Lumber 60.4 61.3
Logs 7.3 12.1
-------------- -------------
67.7 73.4
-------------- -------------
$ 584.5 $ 541.4
============== =============
</TABLE>
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
<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 16.3 20.9
Other .2 .2
Aluminum Operations:
1994 Credit Agreement 52.4 6.7
9-7/8% Senior Notes due February 15, 2002,
net of discount 223.7 223.6
Alpart CARIFA Loan 60.0 60.0
12-3/4% Senior Subordinated Notes due
February 1, 2003 400.0 400.0
Other 64.8 69.2
Forest Products Operations:
7.95% Timber Collateralized Notes due July
20, 2015 355.6 363.8
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 87.8 82.8
10-1/2% Senior Notes due March 1, 2003 235.0 235.0
Other .8 .9
Real Estate Operations:
Secured notes due December 31, 1999,
interest at prime plus 3% 10.1 10.0
Other notes and contracts, secured by
receivables, buildings, real estate
and equipment 13.7 18.1
----------- ------------
1,645.4 1,616.2
Less: current maturities (27.9) (33.7)
----------- ------------
$ 1,617.5 $ 1,582.5
=========== ============
</TABLE>
5. CREDIT (PROVISION) FOR INCOME TAXES
The provision for income taxes for the three and six months ended
June 30, 1995 includes a credit relating to reserves the Company no longer
believes are necessary.
6. PER SHARE INFORMATION
Per share calculations are based on the weighted average number
of common shares outstanding in each period and, if dilutive, weighted
average common equivalent shares assumed to be issued from the exercise of
common stock options based upon the average price of the Company's common
stock during the period.
<PAGE>
7. CONTINGENCIES
Environmental Contingencies
Kaiser Aluminum Corporation ("Kaiser," a majority owned
subsidiary of the Company) and its principal operating subsidiary, Kaiser
Aluminum & Chemical Corporation ("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 on 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 on 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, 1995, the balance of such accruals, which is
primarily included in other noncurrent liabilities, was $41.3. These
environmental accruals represent Kaiser's estimate of costs reasonably
expected to be incurred based on presently enacted laws and regulations,
currently available facts, existing technology and Kaiser's assessment of
the likely remediation action to be taken. Kaiser expects that these
remediation actions will be taken over the next several years and estimates
that annual expenditures to be charged to these environmental accruals will
be approximately $3.0 to $11.0 for the years 1995 through 1999 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. Kaiser believes that it is reasonably possible
that costs associated with these environmental matters may exceed current
accruals by amounts that could range, in the aggregate, up to approximately
$21.0. While uncertainties are inherent in the final outcome of these
environmental matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, management currently believes
that the resolution of such uncertainties should not have a material
adverse effect on the Company'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, among
other things, exposure to asbestos during, and as a result of, their
employment or association 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,
1995, the number of such lawsuits pending was approximately 31,700.
Based on past experience and reasonably anticipated future
activity, KACC has established an accrual for estimated asbestos-related
costs for claims filed and estimated to be filed and settled through 2008.
KACC's accrual was calculated based on 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,
and the advice of counsel. Accordingly, an asbestos-related cost accrual
of $134.6, before considerations for insurance recoveries, is included
primarily in other noncurrent liabilities at June 30, 1995. KACC estimates
that annual future cash payments in connection with such litigation will be
approximately $11.0 to $13.0 for each of the years 1995 through 1999, and
an aggregate of approximately $74.0 thereafter
<PAGE>
through 2008. KACC does not presently believe there is a reasonable basis
for estimating such costs beyond 2008 and, accordingly, no accrual has been
recorded for such costs which may be incurred beyond 2008.
KACC believes that it 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, KACC
believes, based on 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, an estimated aggregate insurance recovery of
$120.6, determined on the same basis as the asbestos-related cost accrual,
is recorded primarily in long-term receivables and other assets at June 30,
1995.
While uncertainties are inherent in the final outcome of these
asbestos matters and it is presently impossible to determine the actual
costs that ultimately may be incurred and the insurance recoveries that
will be received, management currently believes that, based on the factors
discussed in the preceding paragraphs, the resolution of the asbestos-
related uncertainties and the incurrence of asbestos-related costs net of
related insurance recoveries should not have a material adverse effect on
the Company'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
uncertainties are inherent in the final outcome of such matters and it is
presently impossible to determine the actual costs that ultimately may be
incurred, management currently 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.
8. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
KACC enters into primary metal hedging transactions with
off-balance sheet risk in the normal course of business. The prices
realized by Kaiser under certain sales contracts for alumina, primary
aluminum and fabricated aluminum products as well as the costs incurred by
Kaiser on certain items, such as aluminum scrap, rolling ingot, power and
bauxite, fluctuate with the market price of primary aluminum, together
resulting in a "net exposure" of earnings. The primary metal hedging
transactions are designed to mitigate the net exposure of earnings to
declines in the market price of primary aluminum, while retaining the
ability to participate in favorable environments that may materialize.
KACC has developed strategies which include forward sales of primary
aluminum at fixed prices and the purchase or sale of options for primary
aluminum. In this regard, in respect of its remaining 1995 anticipated net
exposure, at June 30, 1995, KACC had net forward sales contracts for
157,725 tons (all references to tons in this report refer to metric tons
of 2,204.6 pounds) of primary aluminum at fixed prices, purchased call
options in respect of 34,500 tons of primary aluminum, purchased put
options to establish a minimum price for 96,750 tons of primary aluminum,
and entered into option contracts that established a price range for 45,000
tons of primary aluminum. In respect of its 1996 anticipated net exposure,
at June 30, 1995, KACC had sold forward 15,000 tons of primary aluminum at
fixed prices.
KACC also enters into hedging transactions in the normal course
of business that are designed to reduce its exposure to fluctuations in
foreign exchange rates. At June 30, 1995, KACC had net forward foreign
<PAGE>
exchange contracts totaling approximately $149.9 for the purchase of 207.0
Australian dollars through April 1997.
At June 30, 1995, the net unrealized loss on KACC's position in
aluminum forward sales and option contracts (based on a market price of
$1,808 per ton of primary aluminum) and forward foreign exchange contracts
was $3.8.
KACC has established margin accounts with its counterparties
related to aluminum forward sales and option contracts. KACC is entitled
to receive advances from counterparties related to unrealized gains and, in
turn, is required to make margin deposits with counterparties to cover
unrealized losses related to these contracts. At June 30, 1995, KACC had
$4.0, compared with $50.5 at December 31, 1994, on deposit with various
counterparties in respect of such unrealized losses. These amounts are
recorded in prepaid expenses and other current assets.
9. SUBSEQUENT EVENT
On July 21, 1995, Kaiser announced that it is calling for
redemption of all 1,938,295 of its Series A Mandatory Conversion Premium
Dividend Preferred Stock (the "Series A Shares") on September 19, 1995.
Redemption of the Series A Shares will result in the simultaneous
redemption of all 19,382,950 $.65 Depositary Shares (the "Depositary
Shares") in exchange for (i) 13,126,521 shares of Kaiser's common stock
determined by dividing the Call Price (as defined) in effect on the
redemption date ($110.218 per Series A Share) by the Current Market Price
(as defined) per share of common stock ($16.275) determined as of July 19,
1995, pursuant to the Certificate of Designations of the Series A Shares,
(ii) an amount in cash equal to all accrued and unpaid dividends to and
including the day immediately prior to the redemption date, and (iii) cash
in lieu of any fractional shares of common stock that would otherwise be
issuable.
In May of 1995, the Company sold the remaining Depositary Shares
that it owned on December 31, 1994. As a result, none of the shares of
Kaiser's common stock to be issued upon redemption of the Series A Shares
will be held by the Company. The Company has recorded 100% of the losses
attributable to Kaiser's common stock since July 1993, as Kaiser's
cumulative losses through that date had eliminated Kaiser's equity with
respect to its common stock. As of June 30, 1995, the cumulative deficit
attributable to Kaiser's common equity totaled $200.2. The redemption of
Kaiser's Series A Shares will reduce this deficit in common equity, and
decrease Kaiser's preferred equity, by $134.3 on the date of redemption.
Accordingly, the Company will record an adjustment to reduce the minority
interests reflected on its consolidated balance sheet for that same amount,
with an offsetting decrease in the Company's stockholders' deficit.
<PAGE>
MAXXAM INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K. Any
capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.
RESULTS OF OPERATIONS
The Company operates in three industries: aluminum, through its
majority owned subsidiary Kaiser, a fully integrated aluminum producer;
forest products, through MAXXAM Group Inc. ("MGI") and its wholly owned
subsidiaries, principally The Pacific Lumber Company ("Pacific Lumber") and
Britt Lumber Co., Inc. ("Britt"); and real estate investment and
development, principally through MAXXAM Property Company and various other
wholly owned subsidiaries.
ALUMINUM OPERATIONS
Kaiser's operating results are sensitive to changes in prices of
alumina, primary aluminum and fabricated aluminum products, and also depend
to a significant degree upon the volume and mix of all products sold and on
hedging strategies. Kaiser, through its principal subsidiary KACC,
operates in two business segments: bauxite and alumina, and aluminum
processing. Aluminum operations account for a significant portion of the
Company's revenues and operating results. The following table presents
selected operational and financial information for the three and six months
ended June 30, 1995 and 1994. 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,
------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Shipments: (1)
Alumina 576.6 574.2 1,023.1 1,042.4
Aluminum products:
Primary aluminum 63.8 63.1 111.5 127.4
Fabricated aluminum
products 99.4 104.9 193.9 201.7
-------- -------- -------- ---------
Total aluminum
products 163.2 168.0 305.4 329.1
======== ======== ======== =========
Average realized sales price:
Alumina (per ton) $ 206 $ 159 $ 202 $ 157
Primary aluminum (per pound) .83 .55 .82 .55
Net sales:
Bauxite and alumina:
Alumina $ 118.7 $ 91.3 $ 206.6 $ 163.8
Other (2) (3) 23.9 20.4 43.0 40.8
-------- -------- --------- ---------
Total bauxite and
alumina 142.6 111.7 249.6 204.6
-------- -------- --------- ---------
Aluminum processing:
Primary aluminum 116.6 76.8 201.6 154.1
Fabricated aluminum
products 319.8 267.4 636.0 508.9
Other (3) 4.4 3.6 9.2 7.0
-------- -------- --------- ---------
Total aluminum
processing 440.8 347.8 846.8 670.0
-------- -------- --------- ---------
Total net sales $ 583.4 $ 459.5 $1,096.4 $ 874.6
======== ======== ========= ==========
Operating income (loss) $ 65.0 $ (12.7) $ 99.1 $ (36.8)
======== ======== ========= ==========
Income (loss) before income taxes,
minority interests and
extraordinary item $ 40.1 $ (33.6) $ 49.9 $ (77.0)
======== ======== ========= ==========
Capital expenditures $ 13.4 $ 12.1 $ 27.1 $ 21.7
======== ======== ========= ==========
<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 28% higher in the second quarter
of 1995 than in the second quarter of 1994, and were 22% higher in the six
months ended June 30, 1995 than in the six months ended June 30, 1994.
Revenues from alumina increased 30% in the second quarter of 1995 from the
second quarter of 1994, and increased 26% in the six months ended June 30,
1995 from the six months ended June 30, 1994, due to higher average
realized prices.
Aluminum processing. Revenues from net sales to third parties
for the aluminum processing segment were 27% higher in the second quarter
of 1995 than in the second quarter of 1994, and were 26% higher in the six
months ended June 30, 1995 than in the six months ended June 30, 1994.
Revenues from primary aluminum increased 52% in the second quarter of 1995
from the second quarter of 1994, due to higher average realized prices, and
increased 31% in the six months ended June 30, 1995 from the six months
ended June 30, 1994, due to higher average realized prices partially offset
by decreased shipments caused by the strike by the United Steelworkers of
America ("USWA") discussed below. Shipments of primary aluminum to third
parties were approximately 39% and 37% of total aluminum products shipments
in the second quarter of 1995 and six months ended June 30, 1995,
respectively, compared with approximately 38% and 39% in the second quarter
of 1994 and six months ended June 30, 1994, respectively. Revenues from
fabricated aluminum products increased 20% in the second quarter of 1995
from the second quarter of 1994, and increased 25% in the six months ended
June 30, 1995 from the six months ended June 30, 1994, due to higher
average realized prices partially offset by lower shipments for most of
these products.
Operating income (loss)
Kaiser's corporate general and administrative expenses of $19.3
million and $18.2 million for the second quarter of 1995 and 1994,
respectively, and $37.4 million and $35.4 million for the six months ended
June 30, 1995 and 1994, respectively, were allocated by the Company to the
bauxite and alumina and aluminum processing segments based on those
segments' ratio of sales to unaffiliated customers.
Improved operating results in the six months ended June 30, 1995
were partially offset by (i) an eight-day strike at five major domestic
locations by the USWA, (ii) a six-day strike by the National Workers Union
at Kaiser's 65%-owned Alpart alumina refinery in Jamaica, and (iii) a four-
day disruption of alumina production at Alpart caused by a boiler failure.
The combined impact of these events on the results for the six months ended
June 30, 1995 was approximately $17.0 million in the aggregate (on a pre-
tax basis) principally from lower production volume and other related
costs.
Bauxite and alumina. This segment had operating income of $16.0
million for the second quarter of 1995, compared with an operating loss of
$3.9 million for the second quarter of 1994, principally due to higher
revenue. The operating income for the six months ended June 30, 1995 was
$14.2 million, compared with an operating loss of $9.7 million for the six
months ended June 30, 1994, principally due to higher revenue, partially
offset by the effect of the strikes and boiler failure.
Aluminum processing. This segment had operating income of $49.0
million for the second quarter of 1995, compared with an operating loss of
$8.8 million for the second quarter of 1994, principally due to higher
revenue. The operating income for the six months ended June 30, 1995 was
$84.9 million, compared with an operating loss of $27.1 million for the six
months ended June 30, 1994, principally due to higher revenue, partially
offset by the effect of the strike by the USWA.
<PAGE>
Income (loss) before income taxes, minority interests and
extraordinary item
Income before income taxes, minority interests and extraordinary
item for the three and six months ended June 30, 1995, as compared to
losses for the three and six months ended June 30, 1994, resulted from the
improvement in operating income previously described.
<PAGE>
FOREST PRODUCTS OPERATIONS
The Company's forest products operations are conducted by MGI
through its principal operating subsidiaries. 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, 1995 and 1994. 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,
---------------------- -----------------------
1995 1994 1995 1994
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 12.8 12.8 23.5 25.7
Redwood common grades 64.8 55.7 115.9 105.1
Douglas-fir upper
grades 1.4 1.9 3.2 4.4
Douglas-fir common
grades and other 15.1 16.5 31.5 31.9
-------- ----------- --------- -----------
Total lumber 94.1 86.9 174.1 167.1
======== =========== ========= ===========
Logs (2) 1.6 4.8 2.1 10.3
======== =========== ========= ===========
Wood chips (3) 52.8 64.9 99.7 95.2
======== =========== ========= ===========
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,478 $ 1,469 $ 1,508 $ 1,437
Redwood common grades 498 458 467 453
Douglas-fir upper
grades 1,290 1,373 1,333 1,391
Douglas-fir common
grades 378 426 378 445
Logs (4) 559 638 482 658
Wood chips (5) 99 85 94 81
Net sales:
Lumber, net of discount $ 58.8 $ 53.1 $ 105.7 $ 103.1
Logs .9 3.1 1.0 6.8
Wood chips 5.2 5.6 9.4 7.7
Cogeneration power .4 .9 .8 1.5
Other .3 .3 .7 .6
-------- ----------- --------- -----------
Total net sales $ 65.6 $ 63.0 117.6 $ 119.7
======== =========== ========= ===========
Operating income $ 22.0 $ 23.1 $ 34.6 $ 36.5
======== =========== ========= ===========
Operating cash flow (6) $ 29.1 $ 28.0 $ 47.5 $ 47.2
======== =========== ========= ===========
Income (loss) before income
taxes, minority interests
and extraordinary item $ 5.1 $ (15.5) $ - $ (13.5)
======== =========== ========= ===========
Capital expenditures $ 2.6 $ 2.5 $ 4.5 $ 6.5
======== =========== ========= ===========
<FN>
---------------
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of 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.
(6) Operating income before depletion and depreciation, also referred to as "EBITDA."
</TABLE>
Shipments
Lumber shipments to third parties for the second quarter of 1995
increased from the second quarter of 1994. Increased shipments of redwood
common lumber were partially offset by decreased shipments of
<PAGE>
other common grade lumber. Log shipments for the second quarter of 1995
were 1.6 million feet (net Scribner scale), a decrease from 4.8 million
feet for the second quarter of 1994.
Lumber shipments to third parties for the six months ended June
30, 1995 increased from the six months ended June 30, 1994. Increased
shipments of redwood common lumber were partially offset by decreased
shipments of upper grade redwood lumber and upper grade Douglas-fir lumber.
Log shipments for the six months ended June 30, 1995 were 2.1 million feet,
a decrease from 10.3 million feet for the six months ended June 30, 1994.
Net sales
Revenues from net sales for the second quarter of 1995 increased
as compared to the second quarter of 1994. This increase was principally
due to higher shipments and average realized prices of redwood common
lumber, partially offset by decreased log shipments, a decrease in the
average realized price for common grade Douglas-fir lumber, lower sales of
electrical power and decreased sales of wood chips.
Revenues from net sales for the six months ended June 30, 1995
decreased as compared to the six months ended June 30, 1994. This decrease
was principally due to lower shipments of logs, upper grade redwood lumber
and upper grade Douglas-fir lumber, a decrease in the average realized
price for common grade Douglas-fir lumber and lower sales of electrical
power, partially offset by increased shipments of redwood common lumber,
increased sales of wood chips and increases in the average realized prices
for both upper and common grades of redwood lumber.
Operating income
Operating income for the second quarter of 1995 and the six
months ended June 30, 1995 decreased as compared to the same periods in
1994. These decreases were primarily due to lower sales of logs, partially
offset by higher gross margins on wood chip sales and higher sales of
lumber. Cost of goods sold for the second quarter of 1995 was reduced by
$1.5 million of business interruption insurance proceeds for the settlement
of claims related to the April 1992 earthquake. Costs of lumber sales for
the six months ended June 30, 1995 were favorably impacted by lower
purchases of logs from third parties and improved sawmill productivity.
Income (loss) before income taxes, minority interests and
extraordinary item
Income (loss) before income taxes, minority interests and
extraordinary item improved for the second quarter of 1995 and the six
months ended June 30, 1995 as compared to the same periods in 1994. These
improvements resulted from increased investment, interest and other income,
partially offset by the decreases in operating income as discussed above.
Investment, interest and other income (expense) for the second quarter of
1994 included a pre-tax loss on the litigation settlement of $21.2 million.
In addition, investment, interest and other income (expense) for the six
months ended June 30, 1994 included a franchise tax refund of $7.2 million
(the substantial portion of which represented interest) from the State of
California.
<PAGE>
REAL ESTATE OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------------
1995 1994 1995 1994
-------- --------- --------- -----------
(In millions of dollars)
<S> <C> <C> <C> <C>
Net sales $ 24.3 $ 21.3 $ 40.6 $ 38.5
Operating loss (.3) (1.5) (3.6) (3.4)
Income (loss) before income taxes,
minority interests and
extraordinary item 1.2 (.8) (1.5) (2.1)
</TABLE>
Net sales
Net sales for the second quarter of 1995 and the six months ended
June 30, 1995 increased as compared to the same periods in 1994. These
increases were primarily due to a bulk sale of acreage in Texas. Net sales
for the second quarter of 1994 included bulk acreage sales in New Mexico.
Operating loss
The operating loss for the second quarter of 1995 decreased from
the second quarter of 1994. The operating loss for the six months ended
June 30, 1995 increased from the six months ended June 30, 1994. Operating
results for both periods were favorably impacted by the bulk sale of
acreage in Texas, offset by higher overhead costs.
Income (loss) before income taxes, minority interests and
extraordinary item
Income before income taxes, minority interests and extraordinary
item for the second quarter of 1995, as compared to the loss for the second
quarter of 1994, was primarily due to the decreased operating loss. The
loss before income taxes, minority interests and extraordinary item for the
six months ended June 30, 1995 decreased from the six months ended June 30,
1994. This decrease was due to lower interest expense, partially offset by
the increased operating loss.
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------------
1995 1994 1995 1994
---------- ---------- ------------ ------------
(In millions of dollars)
<S> <C> <C> <C> <C>
Operating loss $ (4.8) $ (2.4) $ (7.6) $ (4.8)
Loss before income taxes, minority
interests and extraordinary item (4.4) (6.9) (7.6) (11.3)
</TABLE>
Operating loss
The operating losses represent corporate general and
administrative expenses that are not allocated to the Company's industry
segments. The operating losses for the second quarter of 1995 and the six
months ended June 30, 1995 increased as compared to the same periods in
1994. These increases were primarily due to a $2.3 million accrual for
certain contingencies the Company recorded during the second quarter of
1995 and, to a lesser extent, higher overhead costs.
Loss before income taxes, minority interests and extraordinary
item
The loss before income taxes, minority interests and
extraordinary item includes operating losses, investment, interest and
other income (expense) and interest expense, including amortization of
deferred
<PAGE>
financing costs, that are not allocated to the Company's industry segments.
The losses for the second quarter of 1995 and the six months ended June 30,
1995 decreased as compared to the same periods in 1994. These decreases
were primarily due to higher investment, interest and other income,
partially offset by the increased operating losses discussed above.
Minority interests
Minority interests represent the minority stockholders' interest
in the Company's aluminum operations.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
PARENT COMPANY
Certain of the Company's subsidiaries, principally Kaiser and
MGI, are restricted by their various debt agreements as to the amount of
funds that can be paid in the form of dividends or loaned to the Company.
KACC's 1994 Credit Agreement and the indentures governing the KACC Senior
Notes and the KACC Notes contain covenants which, among other things, limit
Kaiser's ability to pay cash dividends and restrict transactions between
Kaiser and its affiliates. Under the most restrictive of these covenants,
Kaiser is not currently permitted to pay dividends on its common stock.
The indenture governing the MGI Notes contains various covenants which,
among other things, limit the payment of dividends and restrict
transactions between MGI and its affiliates. As of June 30, 1995, under
the most restrictive of these covenants, approximately $4.9 million of
dividends could be paid by MGI. Under the most restrictive covenants
governing debt of the Company's real estate subsidiaries, approximately
$24.3 million could be paid as of June 30, 1995.
As of June 30, 1995, the Company (excluding its aluminum, forest
products and real estate subsidiary companies) had cash and marketable
securities of approximately $33.5 million and available borrowings under
its demand loan and pledge agreement of $25.0 million. See also "--Investment
in Sam Houston Race Park" below. 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.
ALUMINUM OPERATIONS
In March 1995, the 1994 Credit Agreement was amended by the
Second Amendment to Credit Agreement (the "Second Amendment"). The Second
Amendment provided, among other things, for an increase in the revolving
line of credit from $275.0 million to $325.0 million. At June 30, 1995,
$204.8 million (of which $57.2 million could have been used for letters of
credit) was available to KACC under the 1994 Credit Agreement. As of July
21, 1995, the 1994 Credit Agreement was amended by the Third Amendment to
Credit Agreement in connection with the investment by Kaiser Yellow River
Investment Limited, a subsidiary of KACC, in Yellow River Aluminum Industry
Company, an aluminum smelter joint venture in the People's Republic of
China.
Kaiser expects that cash flows from operations and borrowings
under available sources of financing will be sufficient to satisfy its
working capital and capital expenditures requirements for the foreseeable
future.
<PAGE>
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.
As of June 30, 1995, $19.7 million of borrowings was available
under Pacific Lumber's Revolving Credit Agreement, of which $4.7 million
was available for letters of credit. No borrowings were outstanding as of
June 30, 1995, and letters of credit outstanding amounted to $10.3 million.
Pacific Lumber has signed a commitment letter with the bank which will
amend the Revolving Credit Agreement to extend its maturity date to May 31,
1998 and provide for an additional $30.0 million of available borrowings.
REAL ESTATE OPERATIONS
As of June 30, 1995, the Company's real estate subsidiaries had
approximately $30.4 million available for use under various credit
agreements. A substantial portion of the availability was attributable to
the credit availability pursuant to the loan agreement secured by real
properties, and certain loans secured by income producing real property.
INVESTMENT IN SAM HOUSTON RACE PARK
Since July 1993, the Company has, through various subsidiaries,
controlled the general partner of, and held an equity interest in, Sam
Houston Race Park, Ltd. ("SHRP"), a Texas limited partnership, which owns
and operates a Class 1 horse racing track in northwest Houston (the "Race
Park"). On April 17, 1995 (the "Filing Date"), SHRP and its wholly owned
subsidiary SHRP Capital Corp. ("Capital"), together with SHRP Acquisition,
Inc. ("SHRP Acquisition"), a wholly owned subsidiary of the Company and
SHRP's largest limited partner, filed voluntary petitions in the United
States Bankruptcy Court for the District of Delaware. The Delaware Court
subsequently transferred the case to the United States Bankruptcy Court
for the Southern District of Texas, Houston Division (the "Bankruptcy
Court"), Jointly Administered Case number 95-43739-H3-11, each seeking to
reorganize under the provisions of Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code"). SHRP, Capital and SHRP
Acquisition (collectively, "the SHRP Debtors") filed a fifth amended
consolidated plan of reorganization (the "Plan") and disclosure statement
relating to the Plan (the "Disclosure Statement") with the Bankruptcy Court
on July 13, 1995. The Bankruptcy Court has approved the Disclosure
Statement as containing information, of a kind and in sufficient detail,
adequate to enable holders of claims and equity interests in the SHRP
Debtors, to make an informed judgement with respect to the acceptance or
rejection of the Plan. On August 7, 1995, the Bankruptcy Court commenced a
hearing concerning whether or not the Plan should be confirmed. The hearing
was continued to a date to be determined but expected to be as early as August
29, 1995. The SHRP Debtors, a committee of noteholders and a committee
of unsecured creditors have agreed to request a modification of the Plan to
expand certain release provisions thereof prior to such date as may be set for
the continuation of the hearing concerning confirmation of the Plan. It is
contemplated that the SHRP Debtors would solicit the necessary acceptances to
the Plan, as modified. Until such time as the Plan of reorganization is
consummated, each of the SHRP Debtors will continue to be operated as debtors-
in-possession under the Bankruptcy Code. For additional information regarding
the Plan, reference should be made to the Plan itself, a copy of which has
been filed as an exhibit to the SHRP Form 10-Q for the quarterly period
ended June 30, 1995.
<PAGE>
The Plan calls for, among other things, a significant
modification of the 11-3/4% Senior Secured Notes (the "Amended SHRP
Notes"), an additional capital infusion and a reorganization of SHRP (the
"Reorganized SHRP"). The Amended SHRP Notes would have an aggregate
principal amount of $37.5 million, mature on September 1, 2001, and bear
interest at the rate of 11% per annum. The maturity date of the Amended
SHRP Notes could be extended to September 1, 2003 (with an increase in the
rate of interest to 13% percent per annum) if the Texas legislature passes
significant gaming legislation (as defined) during the 2001 legislative
session. A new investor group (the "New SHRP Investor Group") would provide
additional capital which would include a cash infusion ranging from $5.80
million to $7.55 million (the amount necessary to fund SHRP's projected
cash flow requirements for the next three years, including paying
restructuring costs and satisfying claims made during the bankruptcy
proceedings). The current SHRP partnership interests would be eliminated,
although the current partners in SHRP would be able to participate in the
New SHRP Investor Group in proportion to their pre-filing interests in
SHRP. An affiliate of the Company would contribute to SHRP (for fair
market value) an adjoining approximately 87 acre tract of land, a portion
of which the Race Park utilizes for parking by Race Park patrons. Each
member of the New SHRP Investor Group would be required to provide its pro
rata share of a $1.7 million line of credit.
TRENDS
ALUMINUM OPERATIONS
On June 15, 1995, KACC announced that it had signed an agreement
with the Washington Water Power Company (the "WWP") to purchase up to 50
megawatts of electrical energy to supply its Northwest facilities. The
agreement is for a five-year term beginning October 1, 1995. Such power
would displace a portion of KACC's interruptible power supply from the
Bonneville Power Administration (the "BPA"), and could save KACC in excess
of $7.0 million over the term of the agreement compared to current BPA
rates, assuming that KACC would purchase 50 megawatts for the entire term
of the agreement. KACC also announced that it had signed an electric power
services agreement with the WWP for the WWP to represent KACC in
discussions and solicitations with energy suppliers other than the BPA.
The BPA has formally announced its proposed rate of 22.6 mills
for power to be sold to its direct service industrial customers (the
"DSIs"), which includes KACC, beginning October 1, 1996, for a term of
either two years or five years, at the election of each of the DSIs. Such
a rate, if implemented, would represent a rate reduction of approximately
15% from the BPA rates currently in effect, and would reduce production
costs at KACC's Mead and Tacoma, Washington, smelters by approximately
$12.0 million per year based on the current operating rate of those
smelters. However, final adoption of the BPA rate for the period beginning
October 1, 1996, is subject to completion of the public rate setting
process, and there is no certainty that the proposed rate decrease, or any
rate decrease, will become effective as of October 1, 1996, or at any other
time.
FOREST PRODUCTS OPERATIONS
During the first five months of 1995, a combination of severe
weather conditions, seasonally low log inventories, the issuance of a
temporary restraining order ("TRO") (which required Pacific Lumber to cease
all timber harvesting operations on one of the few all-season harvest sites
from which it had been able to supplement its log inventories), and other
regulatory delays forced Pacific Lumber to curtail operations at one of its
four sawmills and to temporarily idle another sawmill from April 17 to May
2, 1995. During late May, the weather improved and the TRO was lifted,
thereby allowing Pacific Lumber to resume operations
<PAGE>
on such harvesting site. Accordingly, Pacific Lumber has since been able
to secure an adequate supply of logs in order to resume normal operations
of its sawmills.
Additional judicial or regulatory actions adverse to Pacific
Lumber, further regulatory delays and inclement weather in northern
California, independently or collectively, could again impair Pacific
Lumber's ability to maintain adequate log inventories and force Pacific
Lumber to temporarily idle or curtail operations at certain of its lumber
mills from time to time.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the
estimated future cash flows expected to result from the use and eventual
disposition of an asset is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of an impairment loss is based
on the fair value of the asset. SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The Company is
required to adopt SFAS 121 no later than January 1, 1996. The Company is
currently evaluating certain of its real estate properties with respect to
application of SFAS 121; accordingly, the effect of SFAS 121 on the
Company's financial statements is not known at this time.
PAGE
<PAGE>
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, 1995 (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.
In connection with the Kayes/Miller action, on June 15, 1995, the
U.S. Ninth Circuit Court of Appeals denied defendants' petition for
rehearing. On August 7, 1995, the defendants requested the U.S. Supreme
Court to review the case by filing a petition for writ of certiorari.
KAISER ENVIRONMENTAL LITIGATION
In connection with the Catellus Development Corporation v. Kaiser
Aluminum & Chemical Corporation and James L. Ferry & Son, Inc. action, the
trial involving this case commenced in March 1995. During the trial,
Plaintiffs settled their claims against Catellus in exchange for payment of
approximately $3.25 million. Subsequently, on June 2, 1995, the United
States District Court for the Northern District of California issued an
Order on the remaining claims finding, among other things, that KACC is
liable for various costs aggregating approximately $1.34 million, as well
as interest, fifty percent (50%) of future costs of cleaning up certain
parts of the Property, and certain fees and costs associated specifically
with the claim by Catellus against KACC. KACC has estimated the aggregate
interest payable to be approximately $.53 million. Entry of judgment is
pending.
RANCHO MIRAGE LITIGATION
In connection with the In re MAXXAM Inc./Federated Development
Shareholders Litigation, on June 23, 1995, the court denied defendants'
motion to dismiss certain of plaintiffs' claims. This matter has been set
for trial commencing January 8, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May
17, 1995, at which meeting the stockholders voted to elect management's
slate of nominees as directors of the Company. The nominees for election
are listed below, together with voting information for each nominee.
Messrs. Robert J. Cruikshank and Ezra G. Levin continued as directors of
the Company.
NOMINEE FOR ELECTION BY HOLDERS OF COMMON STOCK
Stanley D. Rosenberg - 5,911,545 votes for, -0- votes against,
48,553 votes withheld, -0- votes abstaining and -0- broker non-votes.
NOMINEE FOR ELECTION BY HOLDERS OF COMMON STOCK AND CLASS A
PREFERRED STOCK
Charles E. Hurwitz - 11,915,182 votes for, -0- votes against,
646,936 votes withheld, -0- votes abstaining and -0- broker non-votes.
<PAGE>
ITEM 5. OTHER INFORMATION
PARENT COMPANY
On August 2, 1995, the Federal Deposit Insurance Corporation
("FDIC") filed a civil action entitled Federal Deposit Insurance
Corporation, as manager of the FSLIC Resolution Fund v. Charles E. Hurwitz
(No. H-95-3936) in the U.S. District Court for the Southern District of
Texas. Mr. Hurwitz is the Chairman of the Board and Chief Executive
Officer of the Company. This action did not name the Company as a
defendant and the applicable statute of limitations for any possible suit
by the FDIC against the Company has expired. The suit against Mr. Hurwitz
seeks damages in excess of $250 million based on the allegation that Mr.
Hurwitz was a controlling shareholder, de facto senior officer and director
of United Savings Association of Texas ("USAT"), a wholly owned subsidiary
of United Financial Group Inc. ("UFG"), and was involved in certain
decisions which contributed to the insolvency of USAT. The FDIC further
alleges, among other things, that Mr. Hurwitz was obligated to ensure that
UFG, Federated Development Company and the Company maintained the net worth
of USAT. The Company has an obligation to advance defense costs to its
officers and directors to the fullest extent permitted by Delaware law,
subject to the individual's obligation to repay such amount if it is
ultimately determined that the individual was not entitled to
indemnification. In addition, the Company's by-laws provide for
indemnification of its officers and directors under certain circumstances.
No claim for or determination regarding the appropriateness of such
indemnification in this instance has been made.
In a separate but related matter, in October 1994, the United
States Department of Treasury's Office of Thrift Supervision ("OTS")
commenced an investigation into UFG and the insolvency of USAT. In
December 1988, the Federal Home Loan Bank Board ("FHLBB") placed USAT into
receivership and appointed the Federal Savings & Loan Insurance Corp.
("FSLIC") as receiver. At the time of the receivership, the Company owned
approximately 13% of the voting stock of UFG. In November 1994, the OTS
requested that the Company sign a tolling agreement (essentially extending
any relevant statute of limitations) in connection with the OTS'
investigation. The OTS stated at that time that it was not asserting an
administrative claim or threatening a claim against the Company, but was
seeking to compel documentary and other information from the Company in
connection with and in furtherance of such investigation. The OTS,
successor to the FHLBB for some purposes, subsequently requested certain
documents from the Company which the Company has been working to provide.
The OTS also has deposed certain current and former officers and/or
directors of the Company. The OTS has indicated that its investigation
includes certain present and former officers and directors of the Company,
some of whom have also served as an officer or director of or had some
other relationship with UFG or USAT. The Company signed a second tolling
agreement with the OTS in July 1995. The OTS has not articulated the basis
for any claim against the Company to date.
FOREST PRODUCTS OPERATIONS
A variety of bills are currently pending in the California
legislature and the U.S. Congress which relate to the business of the
Company, including the protection and acquisition of old growth and other
timberlands, environmental protection and the restriction, regulation and
administration of timber harvesting practices. For example, a bill was
recently introduced in the California legislature which would, among other
things, initiate negotiations by the California Resources Agency with
Pacific Lumber for the public acquisition of approximately 4,700 acres of
Pacific Lumber's timberlands, 3,000 acres of which is a contiguous block of
virgin old growth redwood forest often referred to as the "Headwaters
Forest." Since this bill and the other 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 these bills on the financial
position or results of operations of Pacific Lumber or the Company.
Furthermore, any bills which are passed are subject to executive veto and
court challenge.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
4.1 Seventh Amendment to Loan Agreement, dated as
of March 31, 1995, among General Electric
Capital Corporation, MXM Mortgage Corp. And
MXM Mortgage L.P.
10.1 MAXXAM Inc. Revised Capital Accumulation Plan
of 1988, as amended December 12, 1988
11 Computation of Net Income (Loss) Per Common
and Common Equivalent Share
27 Financial Data Schedule
b. REPORTS ON FORM 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, who has signed this report on
behalf of the Registrant and as the principal accounting officer of the
Registrant.
MAXXAM INC.
Date: August 11, 1995 By: TERRY L. FREEMAN
Terry L. Freeman
Assistant Controller
EXHIBIT 11
MAXXAM INC.
COMPUTATION OF NET INCOME (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,
------------------------ --------------------------
1995 1994 1995 1994
--------- ----------- ----------- -----------
<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 71,175 71,175 71,175
--------- ----------- ----------- -----------
Total common and common
equivalent shares 9,447,878 9,447,878 9,447,878 9,447,878
========= =========== =========== ===========
Income (loss) before
extraordinary item $ 25.4 $ (43.2) $ 24.4 $ (77.7)
Extraordinary item - - - (5.4)
--------- ----------- ----------- -----------
Net income (loss) $ 25.4 $ (43.2) $ 24.4 $ (83.1)
========= =========== =========== ===========
Per common and common equivalent
share:
Income (loss) before
extraordinary item $ 2.69 $ (4.57) $ 2.58 $ (8.22)
Extraordinary item - - - (.57)
--------- ----------- ----------- -----------
Net income (loss) $ 2.69 $ (4.57) $ 2.58 $ (8.79)
========= =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
and is qualified in its entirety by reference to such consolidated financial
statements together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 105,200
<SECURITIES> 38,800
<RECEIVABLES> 220,100
<ALLOWANCES> 5,000
<INVENTORY> 584,500
<CURRENT-ASSETS> 1,116,200
<PP&E> 1,839,900
<DEPRECIATION> 629,600
<TOTAL-ASSETS> 3,740,400
<CURRENT-LIABILITIES> 608,100
<BONDS> 1,645,400
<COMMON> 5,000
0
300
<OTHER-SE> (255,500)
<TOTAL-LIABILITY-AND-EQUITY> 3,740,400
<SALES> 1,254,600
<TOTAL-REVENUES> 1,254,600
<CGS> 981,400
<TOTAL-COSTS> 981,400
<OTHER-EXPENSES> 150,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,800
<INCOME-PRETAX> 40,800
<INCOME-TAX> 2,800
<INCOME-CONTINUING> 24,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,400
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.58
</TABLE>
SEVENTH AMENDMENT TO LOAN AGREEMENT
THIS SEVENTH AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is
executed as of March 31, 1995, 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., 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, and as further amended by Fifth Amendment to Loan Agreement
(the "FIFTH AMENDMENT") dated as of March 31, 1994, among Lender, Old
Borrower, and New Borrower, and as further amended by that Sixth Amendment
to Loan Agreement (the "SIXTH AMENDMENT") dated as of January 13, 1995
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, the Fourth Amendment, the Fifth Amendment, and the Sixth
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 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
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]; and
(e) that First Deed of Trust and Security Agreement dated
March 7, 1995, executed by New Borrower, filed for recording
in the Office of the County Clerk of Harris County, Texas
under Clerk's File No. R303497 and recorded at Film Code No.
###-##-####, et seq., of the Official Public Records of Real
Property of Harris County, Texas [Park North Tech];
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.
###-##-#### 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];
(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, 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 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]; and
(e) that Assignment of Rents and Leases dated March 7, 1995,
executed by New Borrower, filed for recording in the Office
of the County Clerk of Harris County, Texas under Clerk's
File No. R303498 and recorded at Film Code No. 503-07-0124,
et seq., of the Official Public Records of Real Property of
Harris County, Texas [Park North Tech]
(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], 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, Parc
Bay];
(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. After application of proceeds from the sale of Assets and the
payment and satisfaction of Mortgage Loans, the principal balance of the
Loan is $11,249,152.63 as of the date hereof;
G. Under the Fifth Amendment, Lender and Borrower extended to
December 31, 1994 the period during which the amount available to be
advanced under the Loan for general business purposes (the "GENERAL FUNDING
AVAILABILITY AMOUNT") may be readvanced under the Loan Agreement;
H. Under the Sixth Amendment, Lender and Borrower further extended
to March 31, 1995 the period during which the General Funding Availability
Amount may be readvanced under the Loan Agreement; and
I. Borrower has requested that Lender further extend the period
during which the General Funding Availability Amount may be readvanced
under the Loan Agreement and Lender is agreeable to further extending such
period on the terms of this Agreement;
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 $20,407,897.35
of principal reductions of the Original Note.
(a) $20,045,128.73 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 September 30, 1995,
and
(b) $362,768.62 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
$11,249,152.63. 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 principal reductions which actually have been paid to Lender;
provided, however, (a) that the sum of all Subsequent Advances
from and after March 31, 1995 shall not exceed $20,045,128.73
(exclusive of Subsequent Advances for Taxes under Section 2.21 of
this Agreement), (b) that said $20,045,128.73 shall only be
available to be advanced prior to September 30, 1995, 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, and (ii)
Subsequent Advances from and after March 31, 1995, other than the
General Funding Availability Amount, shall not be available. 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. 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.
3. 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 $100,000 (the "FUNDING EXTENSION FEE").
4. COSTS AND EXPENSES. Borrower agrees to pay all costs incurred in
connection with the execution and consummation of this Amendment, 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 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.
5. 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 an amount 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 Section shall control all agreements between Borrower
and the holder of the Notes.
6. FULL FORCE AND EFFECT. As previously modified in the First
Modification, the Increase Modification, the Fourth Amendment, the Fifth
Amendment, and the Sixth Amendment, and as further modified by this
Amendment, the Loan Agreement remains in full force and effect.
EXECUTED 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
MAXXAM INC. REVISED CAPITAL ACCUMULATION PLAN OF 1988
AS AMENDED
DECEMBER 12, 1988
<PAGE>
MAXXAM INC. REVISED CAPITAL ACCUMULATION PLAN OF 1988
ARTICLE I
GENERAL
1.1 Purpose.
The purpose of this MAXXAM Inc. Revised Capital Accumulation Plan of
1988 (the "Plan") is to provide an incentive for individuals (a) to join
and remain in the service of MAXXAM Inc. and certain Participating
Companies as officers or other key employees, and (b) to maintain and
enhance the long-term performance and profitability of those companies.
The Plan is amended in its entirety to clarify certain provisions of the
MCO Capital Accumulation Plan of 1988. The provisions of the MCO Capital
Accumulation Plan of 1988 shall continue to apply unless otherwise modified
herein. Active participants in the Capital Accumulation Plan for Key
Employees which was terminated as of December 31, 1987, shall be deemed
participants in the Plan with 100% vesting.
1.2 Type of Benefits.
This Plan provides cash benefits to a participant when he retires,
becomes Disabled or his employment terminates for any other reason, payable
in a lump sum or in installments or by a combination of a lump sum and
installments. If a participant dies before receiving all of his benefits,
survivor payments shall be made to his Beneficiary. The amount of a
participant's benefit is based on a formula which takes into account his
salary and length of participation.
1.3 Plan Unfunded.
(a) While this Plan refers to the crediting of amounts to a
participant's Account from time to time, all Accounts maintained under the
plan are book-entry, memorandum accounts only, and do not represent an
interest in any trust, fund or specific asset or property.
(b) Notwithstanding any other provision of this Plan, any
obligation of a Participating Employer to pay benefits hereunder shall be
an unsecured promise, and any right to enforce such obligation shall be
solely as a general creditor of the Participating Employer. Without
limiting the generality of the foregoing, if a Participating Employer
acquires an insurance policy on the life of a participant as an investment
to held defray, in whole or in part, the costs that may be incurred in
connection with this Plan, neither the participant nor his spouse nor his
Beneficiary shall have any right with respect to, or claim under or
against, such policy, and such policy shall not be deemed to be held for
the benefit of, or under any trust for the benefit of, the participant or
his spouse or Beneficiary, or to be held in any way as collateral security
for the fulfilling of the obligations of the Participating Employers of
this Plan, and such policy shall be, and remain, a general, unpledged,
unrestricted asset of the Participating Employer which acquired such
policy.
1.4 Administration.
(a) The Plan shall be administered by an administrative
committee, which shall consist of not less than three persons (each of whom
shall be a director of a Participating Employer) having full authority to
act in such capacity (the "Committee"); provided that the Board of
Directors of the Company may, in its sole discretion, exercise any and all
of the powers and authorities of the Committee. The members of the
Committee shall be appointed by, and may be changed from time to time in
the discretion of, the Board of Directors of the Company.
(b) No person shall serve as a member of the Committee if such
person is then or was at some prior time a participant under the Plan.
(c) The Committee shall have the authority (i) to construe,
interpret and implement the Plan, (ii) to prescribe, amend and rescind
rules and regulations relating to the Plan, (iii) to make all
determinations necessary and advisable in administering the Plan, and (iv)
to correct any defects, supply any omission and reconcile any inconsistency
in the Plan.
(d) The determination of the Committee or the Board of Directors
of the Company on all matters relating to the Plan shall be conclusive and
binding on all persons.
(e) To the extent that the Board of Directors of the Company
shall act as the Committee hereunder, the provisions of this Plan shall
apply to such Board and to its members as if the Board were the Committee.
1.5 Definitions.
(a) "Account" means either or both of a Participant's Lump Sum
Account or Installment Account established pursuant to Section 2.2.
(b) "Company" means MAXXAM Inc., a Delaware corporation, and any
successor thereto by merger, consolidation or otherwise.
(c) "Compensation" for any calendar year means a participant's
base salary actually paid during that year for services as an employee of a
Participating Employer, excluding by way of illustration and not
limitation, bonuses, income realized in connection with stock options
and/or stock appreciation rights, and all other forms of extra
compensation. A participant's Compensation shall not include any salary
paid (i) before the date his participation starts, determined pursuant to
Section 2.1(a) or (ii) after the date the Committee (or a Participating
Employer) declares him ineligible for further participation pursuant to
Section 2.1(b) or (iii) after his employment terminates.
(d) "Disability" or "Disabled" means an illness or accidental
bodily injury which prevents a participant from performing any and every
duty of his normal occupation for a Participating Employer, if such
condition is expected to have a duration of at least 6 months.
(e) "Participating Employer" means the Company and any
Participating Company that adopts this Plan with the consent of the
Company.
(f) "Plan" means MAXXAM Inc. Revised Capital Accumulation Plan of
1988, as from time to time in effect.
(g) "Participating Company" means any trade or business (whether
or not incorporated) which is (i) controlled by or under common control
with the Company or any successor thereto by merger, consolidation or
otherwise, within the meaning of Section 414(b) or (c) of the Internal
Revenue Code of 1986 or (ii) designated as a Participating Company by the
Committee.
(h) "Termination of Employment" and similar references mean a
participant's ceasing to be employed by the Company and all Participating
Companies on account of retirement, Disability, or any other reason
(including death).
ARTICLE II
PARTICIPATION AND ACCOUNTS
2.1 Participation.
(a) Participation in the Plan shall be extended to such officers
and executives, managerial, technical or professional employees of the
Participating Employers as the Committee shall in its sole discretion
designate in writing from time to time; provided, that no individual shall
be enrolled as a participant unless his annual rate of base salary is at
least $100,000 per annum or is an officer of Company; and provided further,
if such participant was an employee of the Company or a Participating
Company on the day his participation starts, any such designation shall be
effective only if ratified within one year of such designation by the Board
of Directors of the Company. Participation starts on the day on which the
individual is so designated, unless the Committee's written designation
specifies (i) a later day, or (ii) an earlier day not more than three
months before the day of the Committee's written designation.
(b) The Committee may from time to time in its sole discretion
determine that a participant shall no longer be eligible to participate
under the Plan, from and after a date set by the Committee, in which event
(i) the participant shall not be entitled to have a 15% salary credit made
to his Account pursuant to Section 2.3 of the Plan in respect of
Compensation paid on and after the date of ineligibility, and (ii) he shall
continue as participant in all other respects (and accordingly shall be
entitled to have a 15% salary credit made to his Account pursuant to
Section 2.3 of the Plan in respect of Compensation paid prior to the date
of ineligibility pursuant to Section 2.4). The Board of Directors of any
Participating Employer may exercise the power granted to the Committee
under the preceding sentence, with respect to Compensation paid by such
Participating Employer.
2.2 Accounts.
The Committee shall establish memorandum accounts on its records for
each participant to the extent required by reason of Section 2.3(b), one
designated as the participant's "Lump Sum Account" and the other designated
as his "Installment Account."
2.3 Annual 15% Salary Credit.
(a) For each calendar year, the Committee shall enter a credit on
its records for each participant, equal to 15% of the participant's
Compensation paid during that year. The credit shall be entered as of
December 31 of the calendar year for which credited, or if earlier, the
last day of the month in such year in which the participant dies, becomes
Disabled, otherwise Terminates Employment or becomes ineligible.
(b) A participant may direct that the 15% salary credit under
Section 2.3(a) for any calendar year be allocated either to his Lump Sum
Account or to his Installment Account, or, if permitted by the Committee,
in part to his Lump Sum Account and in part to his Installment Account.
such direction shall be made on such form and at such time as the Committee
shall in its sole discretion prescribe, subject to all of the following:
(i) Different directions may be given for different calendar
years, but the direction for any year must be given prior to the
first day of that year;
(ii) A direction becomes irrevocable on the December 31
immediately preceding the calendar year to which the direction
applies;
(iii) Notwithstanding clauses (i) and (ii) above, amounts
creditable under Section 2.3(a) for any later year in which an
employee becomes a participant shall be allocated in accordance
with the employee's direction made within 30 days after the
employee is designated as a participant (of if later, 30 days
after the execution of this Plan by the Company), and such
direction shall be irrevocable upon expiration of such 30-day
period.
(iv) In the absence of a proper direction by the
Participant, the credit shall be made to his Lump Sum Account.
2.4 Annual Account Updating.
The aggregate dollar amount of each of a participant's Accounts shall
be increased as of each December 31 prior to the calendar year in which his
employment terminates, and as of the last day of The month in which the
participant's employment terminates. Such increase shall be determined as
if interest were credited and compounded on his Accounts as of each such
December 31 and such last day of the month, at such rate or rates as the
Board of Directors of the Company may authorize from time to time,
provided, that unless such Board of Directors otherwise directs, the annual
rate so authorized to be credited for 1988 and each later year shall be the
Prime Rate in effect at the end of the prior month as reported by the Wall
Street Journal (the "Prime Rate").
2.5 Credits Not In Lieu of Current Compensation.
Amounts credited to a participant's Account under Sections 2.3 and 2.4
represent reductions of salary nor bonuses otherwise payable to the
participant nor amounts foregone in lieu of future salary increases or
bonuses. All such credits represent additional compensation payable except
as hereinafter provided in Article III only following the participant's
Termination of Employment or Disability and are not in any way receivable
by him prior to that time.
ARTICLE III
PAYMENT OF BENEFITS
3.1 Distribution on Termination of Employment.
The "Distributable Balance" of a participant's Accounts (as defined in
Section 3.2) shall be paid following the earlier of a) his Termination of
Employment in accordance with the provisions of this Article III; b)
Disability; or c) December 31, 1988, or each subsequent ten (10) year
distribution dates.
3.2 Distributable Balance.
The "Distributable Balance" of a participant's Accounts shall be the
vested portion of his Account balances at Termination of Employment,
computed in two steps as follows:
(a) Step 1: Termination Balance. The Committee shall determine
the balance to the credit of the Participant's Lump Sum Account and
Installment Account as of the last day of the month in which a Termination
of Employment occurs, or upon the occurrence of December 31, 1998, or such
subsequent ten (10) year distribution dates. Such balances shall be
determined after adjusting his Account for salary credits and Account
updating required to be made as of such date (pursuant to Sections 2.3 and
2.4).
(b) Step 2: Vesting. The Account balances determined under
Section 3.2(a) shall be multiplied by a percentage, not to exceed 100%,
equal to the product of 10% multiplied by the number of the participant's
years (and fractions of a year) of continuous employment. For purposes of
the foregoing, "continuous employment" shall mean the participant's most
recent continuous employment with the Company and all Participating
Companies from and after January 1, 1988, through the date of his
termination of Employment, or December 31, 1988, rounded down to The
nearest whole month, disregarding employment prior to the date on which his
participation starts (determined pursuant to Section 2.1(a). Except that
with respect to active participants in the former plan, on December 31,
1987, said participants shall be deemed to be participants in the Plan with
100% vesting effective on January 1, 1988.
(c) Step 3: Offset by Deferred Compensation.
(i) The vested Account balances determined under Section
3.2(b) shall be reduced by the actuarial value of the
participant s benefits under the McCulloch Deferred Compensation
Plan, determined as of the last day of the month in which the
participant's employment terminates or upon such subsequent 10
year distribution date. Such reduction shall be made to the
participant's Lump Sum Account and Installment Account in
proportion to the balances of such accounts prior to the
application of this Section 3.2(c).
(ii) Notwithstanding the provisions of Section 3.2(c)(i),
the benefits paid or payable under the Plan shall be offset by an
amount equal to the benefits payable under the Plan to the extent
such benefit is exceeded by the benefit under the McCulloch
Deferred Compensation Plan. All benefits shall be paid first out
of the plan and then the McCulloch Deferred Compensation Plan.
3.3 Methods of Distribution.
(a) If a participant Terminates Employment for any reason other
than death or a Participant becomes Disabled:
(i) The Distributable Balance of his Lump Sum Account shall
be paid to him in a single cash payment as soon as administratively
practicable following the month of such termination of Employment or
Disability; and
(ii) The Distributable Balance of his Installment Account
shall be paid to him in 10 equal annual installments, the first payment to
be due as of the first day of the first month following Termination of
Employment or Disability and the remaining payments to be due as of January
2 of each of the next nine calendar years beginning after such date, all
payments to be made as soon as administratively practicable following the
payment due date. After the initial installment payment, there shall be
added to each installment an amount determined as if subsequent installment
payment interest on the undistributed portion of such Installment Account
had been credited and compounded as of the December 31 immediately
preceding each such installment due date, at such rate or rates as the
Board of Directors of the Company may from time to time authorize;
provided, however, that the rate so fixed for any calendar year beginning
on or after the first payment due date shall in no event be less than the
rate of yield to maturity on a one-year U.S. Treasury obligation maturing
on or about the close of such calendar year. If a participant dies before
receiving all installment payments, any remaining installment payments
shall be made to his Beneficiary.
(b) If a Participant's Termination of Employment occurs by reason
of death, the benefits otherwise distributable to him under Section 3.3(a)
shall be paid to his Beneficiary pursuant to distribution elected by
participant.
(c) On December 31, 1998, or such subsequent ten (10) year
distribution dates, assuming a Participant has not Terminated Employment or
become Disabled, the benefits otherwise distributable under his Lump Sum
and Installment Accounts shall be paid to him in a single cash payment, as
soon as administratively practicable following December 31, 1998, or such
subsequent distribution dates. Provided, however, that the unvested
portion of a Participant s Account shall be carried over as a credit and be
part of the Distributable Balance thereof at the next distribution date.
3.4 Beneficiary.
A participant may designate one or more persons (none of whom need to
be his spouse) as a "Beneficiary" to receive any amounts payable under this
Plan. Without limiting the generality of the preceding sentence, a
participant s designated Beneficiary may include one or more inter vivos or
testamentary trusts, charitable foundations or not-for-profit corporations.
The participant may, with the written consent of his spouse, if to a
Beneficiary other than his spouse, designate a Beneficiary by filing a
written designation of Beneficiary with the Committee. Such participant
may also, in the same manner and at any time and from time to time (whether
before or after benefit payments to such participant have commenced),
change any Beneficiary previously designated by him, without notice to or
consent of any previously designated Beneficiary except the participant's
spouse in the event the designated beneficiary is other than the
participant's spouse. If any individual designated as a Beneficiary shall
fail to survive the participant, the Beneficiary shall be such alternate
Beneficiary as may have been designated by the participant, and if all
individuals designated as Beneficiary and alternate Beneficiary shall fail
to survive the participant, the Beneficiary shall be the participant s
surviving spouse (if any), or if none, the participant s estate. If any
individual designated as a Beneficiary shall die after the participant, any
amounts remaining due to such Beneficiary under this Plan at the time of
the Beneficiary's death shall, unless otherwise provided by the participant
in his designation of Beneficiary, be paid to the Beneficiary's estate. If
the designated Beneficiary cannot be located for a period of one year
following the participant's death despite mailing to such Beneficiary's
previous known address and has not made written claim within such period to
the Committee, such Beneficiary shall be treated as having predeceased the
participant.
ARTICLE IV
MISCELLANEOUS
4.1 Cooperation; Estoppel of the Participant and His Beneficiary.
(a) As a prerequisite to the payment of benefits in respect of a
participant hereunder, such participant shall furnish the Committee with
all information which the Committee may deem necessary or desirable to
assist it in the administration of this Plan, including, without
limitation, any information necessary or desirable in computing the amount
of the participant's other retirement benefits.
(b) The Participating employers, the Board of Directors of the
Company and the Committee may rely upon any certificate, statement, or
other representation made to them by a participant with respect to age,
length of service, date of commencement or termination of employment, or
other fact required to be determined under any of the provisions of the
Plan, and shall not be liable on account of the payment of any moneys or
the doing of any act in reliance upon any such certificate, statement or
other representation.
4.2 Forfeiture.
Not withstanding any provision of this Plan, if following termination
of employment for any reasons participant is found guilty (by a court of
competent jurisdiction) of any act of fraud or dishonesty against the
Company or a Participating company, then all rights which the participant
or his spouse or Beneficiary may have under this Plan shall be forfeited,
any liability of the Participating Employers to make payments hereunder
shall terminate, and any payments previously made hereunder shall
terminate, and any payments previously made hereunder shall be recoverable
by the Participating Employers.
4.3 Rights to Terminate Employment.
Nothing in this Plan shall confer upon a participant the right to
continue in the employ of the Company or a Participating Company or affect
any right the Company or a Participating Company may have to terminate the
participant's employment.
4.4 Assignment.
Neither the participant nor his spouse or Beneficiary may assign,
pledge or otherwise encumber any interest in this Agreement without the
written consent of the Committee.
4.5 No Third Party Rights.
A participant's spouse and/or Beneficiary shall not have any right to
enforce the terms of this Plan prior to the time of the participant's
death, and during the participant's lifetime this Plan may be amended by
the Company (subject to Section 4.6) notwithstanding that such amendment
may eliminate or cancel any right to benefit payments such spouse or
Beneficiary would otherwise have under this Plan.
4.6 Amendment and Termination.
The Board of Directors of the Company shall have the right, in its
absolute discretion, at any time and from time to time, to modify or amend,
in whole or in part, any or all of the provisions of the Plan, or suspend
or terminate it entirely; provided that no such modification, amendment,
suspension or termination may, without the participant s consent, reduce
the amount of a participant's Account balances prior to the effective date
of such modification, amendment, suspension or termination, or adversely
affect in any material respect his right to have his then Account balances
updated, vested and distributed in accordance with the provisions of
Section 2.4 and Article III.
4.7 Limitation of Liability.
No member of the Committee or of the Board of Directors of the Company
shall be liable for any act or omission of any member of the Committee or
Board, nor for any act or omission on his part; provided, however, that
nothing in this Plan shall be construed as relieving the Committee or Board
member or any other person or body representing this Plan of liability for
willful misconduct, action in bad faith or gross negligence. The
Participating Employers shall indemnify and hold harmless each member of
the Committee and board against any and all expenses and liabilities
relating to the Plan and arising out of his membership on the Committee or
Board, excepting expenses and liabilities arising out of his own willful
misconduct or action in bad faith.
4.8 Benefits Paid by Participating Employers.
The obligation to pay benefits under the Plan is to be apportioned
among the Participating Employers in accordance with the provisions of this
Section 4.8. A Participating Employer shall be obligated to pay the
benefits attributable to (a) salary credits awarded under Section 2.3 for
Compensation paid by that Participating Employer, (b) Account updatings in
respect of such credits under Section 2.4 and (c) amounts credited on the
undistributed portion of an Installment Account pursuant to Section 3.3 (to
the extent the balance of such Installment Account is derived from such
credits). A Participating Employer shall not be obligated to pay benefits
which are the obligation of another Participating Employer pursuant to the
preceding sentence.
4.9 Miscellaneous.
(a) Neither a participant nor his spouse, Beneficiary, or any
person claiming through any of them, shall under any circumstances have any
right to require payments hereunder other than in accordance with the terms
of the Plan.
(b) If this Plan conflicts with the terms of an individual
employment agreement between the participant and the Company or a
Participating Company, the terms of said employment agreement shall govern
over the terms of this Plan.
(c) The masculine pronoun, wherever used herein, shall mean or
include the feminine pronoun.
(d) Benefit payments hereunder shall be subject to withholding,
to the extent required by applicable tax or other laws.
(e) This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the Participating Employers and the
heirs, administrators, executors and person representatives of the
participant.
(f) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
(g) If any provision of this Plan is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any
other provisions of this Plan, and this Plan shall be construed and
enforced as if such provision had not been included herein.
(h) The Plan and the obligations of the parties hereunder shall
be interpreted, construed and enforced in accordance with the laws of the
state of California.
(i) The captions contained herein are inserted only as a matter
of convenience and for reference and in no way define, limit, enlarge or
describe the scope or intent of the Plan nor in any way shall affect the
Plan or the construction of any provision thereof.
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed by its duly authorized officers and its corporate seal to be
affixed this 31st day of December, 1988.
MAXXAM INC.
By: WILLIAM C. LEONE
ATTEST:
BYRON L. WADE
[Corporate Seal]
