UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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 July 31, 1997: 8,277,847
MAXXAM INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1997 and
December 31, 1996 3
Consolidated Statement of Operations for the three
and six months ended June 30, 1997 and 1996 4
Consolidated Statement of Cash Flows for the six
months ended June 30, 1997 and 1996 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
Signature S-1
MAXXAM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
June 30, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 224.4 $ 336.6
Marketable securities 51.6 50.3
Receivables:
Trade, net of allowance for doubtful
accounts of $4.8 and $5.2,
respectively 248.8 200.7
Other 68.8 85.9
Inventories 626.9 634.8
Prepaid expenses and other current assets 173.3 169.1
------------- -------------
Total current assets 1,393.8 1,477.4
Property, plant and equipment, net of
accumulated depreciation of $808.9 and
$769.5, respectively 1,299.4 1,297.9
Timber and timberlands, net of accumulated
depletion of $161.0 and $154.6,
respectively 303.1 301.8
Investments in and advances to unconsolidated
affiliates 179.6 179.5
Deferred income taxes 430.5 419.7
Long-term receivables and other assets 466.3 439.4
------------- -------------
$ 4,072.7 $ 4,115.7
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 158.3 $ 201.5
Accrued interest 68.9 61.5
Accrued compensation and related benefits 147.2 158.7
Other accrued liabilities 154.8 154.1
Payable to affiliates 92.6 98.1
Long-term debt, current maturities 25.5 69.6
------------- -------------
Total current liabilities 647.3 743.5
Long-term debt, less current maturities 1,915.0 1,881.9
Accrued postretirement medical benefits 727.4 731.9
Other noncurrent liabilities 590.7 589.4
------------- -------------
Total liabilities 3,880.4 3,946.7
------------- -------------
Commitments and contingencies
Minority interests 219.6 219.8
Stockholders' deficit:
Preferred stock, $.50 par value; 12,500,000
shares authorized; Class A $.05
Non-Cumulative Participating
Convertible Preferred Stock; shares
issued: 669,701 .3 .3
Common stock, $.50 par value; 28,000,000
shares authorized; shares issued:
10,063,359 and 10,063,885,
respectively 5.0 5.0
Additional capital 156.6 155.9
Accumulated deficit (153.0) (185.6)
Pension liability adjustment (5.0) (5.1)
Treasury stock, at cost (shares held:
preferred - 845; common: 1,657,012
and 1,400,112, respectively) (31.2) (21.3)
------------- -------------
Total stockholders' deficit (27.3) (50.8)
------------- -------------
$ 4,072.7 $ 4,115.7
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Aluminum operations $ 597.1 $ 567.6 $ 1,144.5 $ 1,098.7
Forest products operations 76.9 71.3 143.7 131.1
Real estate and other
operations 15.1 28.8 32.5 50.1
------------- ------------- ------------- -------------
689.1 667.7 1,320.7 1,279.9
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales and operations
(exclusive of
depreciation
and depletion):
Aluminum operations 489.3 476.1 950.0 909.8
Forest products
operations 42.1 41.4 80.1 74.5
Real estate and other
operations 8.9 23.4 18.9 40.3
Selling, general and
administrative expenses 47.2 49.5 91.7 94.2
Depreciation and depletion 29.2 31.3 58.6 61.9
Restructuring of aluminum
operations 19.7 -- 19.7 --
------------- ------------- ------------- -------------
636.4 621.7 1,219.0 1,180.7
------------- ------------- ------------- -------------
Operating income 52.7 46.0 101.7 99.2<PAGE>
Other income (expense):
Investment, interest and other
income 5.3 10.2 16.2 15.5
Interest expense (52.9) (45.6) (106.0) (90.7)
------------- ------------- ------------- -------------
Income before income taxes and
minority interests 5.1 10.6 11.9 24.0
Credit for income taxes 30.2 9.1 27.5 4.1
Minority interests (3.4) (2.8) (6.8) (5.4)
------------- ------------- ------------- -------------
Net income $ 31.9 $ 16.9 $ 32.6 $ 22.7
============= ============= ============= =============
Net income per common and common
equivalent share $ 3.43 $ 1.78 $ 3.48 $ 2.40
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
Six Months Ended
June 30,
---------------------------
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32.6 $ 22.7
Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation and depletion 58.6 61.9
Restructuring of aluminum operations 19.7 -
Net sales (purchases) of marketable
securities 5.3 8.6
Minority interests 6.8 5.4
Amortization of deferred financing costs
and discounts on long-term debt 12.4 10.6
Equity in (earnings) loss of
unconsolidated affiliates, net of
dividends received 10.5 (7.9)
Increase (decrease) in cash resulting
from changes in:
Receivables (37.0) 39.5
Payable to affiliates and other
liabilities (48.5) (34.1)
Inventories 2.8 (26.7)
Accrued interest 8.0 (.2)
Prepaid expenses and other assets (20.8) (21.4)
Accounts payable (43.1) (21.8)
Accrued and deferred income taxes (6.2) (13.3)
Other (3.5) .4
------------- -------------
Net cash provided by (used for)
operating activities (2.4) 23.7
------------- -------------<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and
investments 26.5 8.2
Capital expenditures (83.7) (63.8)
Investment in subsidiaries and joint ventures (7.1) (1.6)
Other (2.6) (1.3)
------------- -------------
Net cash used for investing
activities (66.9) (58.5)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit
agreements 30.0 66.5
Proceeds from issuance of long-term debt 19.0 4.3
Redemptions, repurchases and principal
payments on long-term debt (65.3) (15.4)
Dividends paid to Kaiser's minority preferred
stockholders (4.2) (4.2)
Redemption of preference stock (2.0) (5.1)
Restricted cash deposits (10.1) --
Treasury stock repurchases (9.9) --
Other (.4) 3.4
------------- -------------
Net cash provided by (used for)
financing activities (42.9) 49.5
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (112.2) 14.7
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 336.6 104.2
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 224.4 $ 118.9
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 85.6 $ 80.2
Income taxes paid 9.3 18.3
Capital spending excluded from investing
activities 9.7 --
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
MAXXAM INC. AND SUBSIDIARIES
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, 1996 (the "Form 10-K"). All references to the "Company"
include MAXXAM Inc. and its subsidiary companies unless otherwise indicated
or the context indicates otherwise. Any capitalized items used but not
defined in these Condensed Notes to Consolidated Financial Statements have
the same meaning given to them in the Form 10-K. 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, 1997, the
consolidated results of operations for the three and six months ended June
30, 1997 and 1996 and consolidated cash flows for the six months ended June
30, 1997 and 1996. Certain reclassifications of prior period information
have been made to conform to the current presentation.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Aluminum Operations:
Finished fabricated aluminum products $ 119.4 $ 113.5
Primary aluminum and work in process 189.8 200.3
Bauxite and alumina 125.7 110.2
Operating supplies and repair and
maintenance parts 129.6 138.2
------------- -------------
564.5 562.2
------------- -------------
Forest Products Operations:
Lumber 50.8 55.8
Logs 11.6 16.8
------------- -------------
62.4 72.6
------------- -------------
$ 626.9 $ 634.8
============= =============
</TABLE>
3. RESTRICTED CASH
Long-term receivables and other assets include restricted cash in
the amount of $39.9 and $30.0 at June 30, 1997 and December 31, 1996,
respectively. Such restricted cash primarily represents the amount held by
the trustee under the indenture governing the Timber Notes.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
14% MAXXAM Senior Subordinated Reset
Notes due May 20, 2000 $ -- $ 25.0
12-1/2% MAXXAM Subordinated Debentures
due December 15, 1999, net of
discount -- 17.6
12% MGHI Senior Secured Notes due
August 1, 2003 130.0 130.0
11-1/4% MGI Senior Secured Notes due
August 1, 2003 100.0 100.0
12-1/4% MGI Senior Secured Discount
Notes due August 1, 2003, net of
discount 110.6 104.2
10-1/2% Pacific Lumber Senior Notes due
March 1, 2003 235.0 235.0
7.95% Scotia Pacific Timber
Collateralized Notes due July 20,
2015 327.4 336.1
KACC Credit Agreement 30.0 --
10-7/8% KACC Senior Notes due October
15, 2006, including premium 225.8 225.9
9-7/8% KACC Senior Notes due February
15, 2002, net of discount 224.1 224.0
12-3/4% KACC Senior Subordinated Notes
due February 1, 2003 400.0 400.0
Alpart CARIFA Loans 60.0 60.0
Other aluminum operations debt 65.5 52.0
Other notes and contracts, primarily
secured by receivables, buildings,
real estate and equipment 32.1 41.7
------------- -------------
1,940.5 1,951.5
Less: current maturities (25.5) (69.6)
------------- -------------
$ 1,915.0 $ 1,881.9
============= =============
</TABLE>
5. 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.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). Under SFAS No. 128, primary earnings per share
("Primary EPS") will be replaced by basic earnings per share ("Basic EPS"),
and fully diluted earnings per share ("Fully Diluted EPS") will be replaced
by diluted earnings per share ("Diluted EPS"). Basic EPS differs from
Primary EPS in that it only includes the weighted average impact of
outstanding shares of the Company's common stock (i.e., it excludes common
stock equivalents, the dilutive effect of options, etc.). Diluted EPS is
substantially similar to Fully Diluted EPS. The provisions of SFAS No. 128
will result in the retroactive restatement of previously reported Primary
EPS and Fully Diluted EPS figures. SFAS No. 128 is effective for periods
ending after December 15, 1997, including interim periods; earlier
application is not permitted. The following table shows Basic and Diluted
EPS on a pro forma basis. Pro forma Diluted EPS is the same as the amounts
reported previously for Primary and Fully Diluted EPS.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic EPS $ 3.74 $ 1.94 $ 3.79 $ 2.61
Diluted EPS 3.43 1.78 3.48 2.40
</TABLE>
6. CREDIT FOR INCOME TAXES
The Company's credit for income taxes differs from the federal
statutory rate due principally to (i) the revision of prior years' tax
estimates and other changes in valuation allowances, (ii) percentage
depletion, and (iii) foreign, state and local taxes, net of related federal
tax benefits. Revision of prior years' tax estimates includes amounts for
the reversal of reserves which the Company no longer believes are
necessary. Generally, the reversal of reserves relate to the expiration of
the relevant statute of limitations with respect to certain income tax
returns, or the resolution of specific income tax matters with the relevant
tax authorities. The credit for income taxes for the second quarter of
1997 and 1996 includes a benefit of $32.1 and $13.4, respectively, relating
to the reversal of reserves the Company no longer believes are necessary.
7. CONTINGENCIES
Environmental Contingencies
Kaiser and KACC are subject to a number of environmental laws and
regulations, to fines or penalties assessed for alleged breaches of such
environmental laws and regulations, and to claims and litigation based upon
such laws. KACC currently is subject to a number of lawsuits under 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, 1997, the balance of such accruals, which are
primarily included in other noncurrent liabilities, was $31.9. 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 actions to be taken. Kaiser expects that these
remediation actions will be taken over the next several years and estimates
that annual expenditures to be charged to these environmental accruals will
be approximately $3.0 to $9.0 for the years 1997 through 2001 and an
aggregate of approximately $6.0 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 an estimated
$23.0 and that, subject to further regulatory review and approval, the
factors upon which a substantial portion of this estimate is based are
expected to be resolved during 1997. While uncertainties are inherent in
the final outcome of these environmental matters, and it is impossible to
determine the actual costs that ultimately may be incurred, management
believes that the resolution of such uncertainties should not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, 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 20 years. At June 30, 1997, the number of such claims pending was
approximately 74,300 as compared with 71,100 at December 31, 1996. In
1996, approximately 21,100 of such claims were received and 9,700 were
settled or dismissed. During the quarter and six months ended June 30,
1997, approximately 3,000 and 5,600 of such claims were received and 1,200
and 2,400 of such claims were settled or dismissed, respectively.
Based on past experience and reasonably anticipated future
activity, Kaiser has established an accrual for estimated asbestos-related
costs for claims filed and estimated to be filed through 2008. There are
inherent uncertainties involved in estimating asbestos-related costs, and
Kaiser's actual costs could exceed or be less than these estimates.
Kaiser's accrual was calculated based on the current and anticipated number
of asbestos-related claims, the prior timing and amounts of asbestos-
related payments, and the advice of Wharton Levin Ehrmantraut Klein & Nash,
P.A. with respect to the current state of the law related to asbestos
claims. Accordingly, an estimated asbestos-related cost accrual of $157.3,
before consideration of insurance recoveries, is included primarily in
other noncurrent liabilities at June 30, 1997. While Kaiser does not
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, there is a reasonable possibility that such costs may
continue beyond 2008, and such costs may be substantial. Kaiser estimates
that annual future cash payments in connection with such litigation will be
approximately $13.0 to $20.0 for each of the years 1997 through 2001, and
an aggregate of approximately $81.0 thereafter.
Kaiser believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. Claims for
recovery from some of KACC's insurance carriers are currently subject to
pending litigation and other carriers have raised certain defenses, which
have resulted in delays in recovering costs from the insurance carriers.
The timing and amount of ultimate recoveries from these insurance carriers
are dependent upon the resolution of these disputes. Kaiser believes,
based on prior insurance-related recoveries in respect of asbestos-related
claims, existing insurance policies, and the advice of Thelen, Marrin,
Johnson & Bridges LLP with respect to applicable insurance coverage law
relating to the terms and conditions of these policies, that substantial
recoveries from the insurance carriers are probable. Accordingly, an
estimated aggregate insurance recovery of $131.8, determined on the same
basis as the asbestos-related cost accrual, is recorded primarily in long-
term receivables and other assets at June 30, 1997.
Kaiser continues to monitor claims activity, the status of
lawsuits (including settlement initiatives), legislative progress and costs
incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from Kaiser's underlying assumptions. 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 insurance recoveries that will be received, Kaiser believes
that, based on the factors discussed in the preceding paragraphs, the
resolution of 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,
results of operations or liquidity.
OTS Contingency and Related Matters
On December 26, 1995, the OTS initiated formal administrative
proceedings against the Company and others by filing the Notice. The
Notice alleges misconduct by the Company, Federated, Mr. Charles Hurwitz
and others (the "respondents") with respect to the failure of USAT, a
wholly owned subsidiary of UFG. The Notice claims that the Company was a
savings and loan holding company, that with others it controlled USAT, and
that it was therefore obligated to maintain the net worth of USAT. The
Notice makes numerous other allegations against the Company and the other
respondents, including, among other things, allegations that through USAT
it was involved in prohibited transactions with Drexel, Burnham, Lambert
Inc. The OTS, among other things, seeks unspecified damages in excess of
$138.0 from the Company and Federated, civil money penalties and a removal
from, and prohibition against the Company and the other respondents
engaging in, the banking industry. The hearing on the merits is scheduled
to commence on September 22, 1997 and conclude on December 19, 1997.
On August 2, 1995, the FDIC filed the FDIC action in the U.S.
District Court for the Southern District of Texas (the "Court"). The
original complaint against Mr. Hurwitz seeks damages in excess of $250.0
based on the allegation that Mr. Hurwitz was a controlling shareholder, de
facto senior officer and director of USAT, and was involved in certain
decisions which contributed to the insolvency of USAT. The original
complaint further alleges, among other things, that Mr. Hurwitz was
obligated to ensure that UFG, Federated and MAXXAM maintained the net worth
of USAT. The Court has joined the OTS as a party to the FDIC action and
granted the motions to intervene filed by the Company and three other
respondents in the OTS administrative proceeding. The OTS is seeking to be
dismissed from the FDIC action. On January 15, 1997, the FDIC filed an
amended complaint which seeks, conditioned on the OTS prevailing in its
administrative proceeding, unspecified damages from Mr. Hurwitz relating to
amounts the OTS does not collect from the Company and Federated with
respect to alleged obligations to maintain USAT's net worth.
The Company's bylaws provide for indemnification of its officers
and directors to the fullest extent permitted by Delaware law. The Company
is obligated to advance defense costs to its officers and directors,
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 indemnity obligation can,
under certain circumstances, include amounts other than defense costs,
including judgments and settlements. The Company has concluded that it is
unable to determine a reasonable estimate of the loss (or range of loss),
if any, that could result from these contingencies. Accordingly, it is
impossible to assess the ultimate outcome of the foregoing matters or its
potential impact on the Company's consolidated financial position, results
of operations or liquidity.
Other Matters
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 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, results of operations or
liquidity.
8. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
At June 30, 1997, the net unrealized loss, including unamortized
net option premiums, on KACC's position in aluminum forward sales and
option contracts, (based on an average price of $1,621 per ton ($.74 per
pound) of primary aluminum), natural gas and fuel oil forward purchase and
option contracts, and forward foreign exchange contracts, was approximately
$13.6.
Alumina and Aluminum
Kaiser's earnings are sensitive to changes in the prices of
alumina, primary aluminum and fabricated aluminum products, and also depend
to a significant degree upon the volume and mix of all products sold.
Primary aluminum prices have historically been subject to significant
cyclical fluctuations. During the period January 1, 1993 through June 30,
1997, the average Midwest United States transaction price for primary
aluminum has ranged from approximately $.50 to $1.00 per pound. Alumina
prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.
From time to time in the ordinary course of business, KACC enters
into hedging transactions to provide price risk management in respect of
the net exposure of earnings resulting from (i) anticipated sales of
alumina, primary aluminum and fabricated aluminum products, less (ii)
expected purchases of certain items, such as aluminum scrap, rolling ingot
and bauxite, whose prices fluctuate with the price of primary aluminum.
Forward sales contracts are used by KACC to effectively lock-in or fix the
price that KACC will receive for its shipments. KACC also uses option
contracts (i) to establish a minimum price for its product shipments, (ii)
to establish a "collar" or range of prices for KACC's anticipated sales,
and/or (iii) to permit KACC to realize possible upside price movements. As
of June 30, 1997, KACC had sold forward, at fixed prices, approximately
34,500, 93,600 and 24,000 tons of primary aluminum with respect to 1997,
1998 and 1999, respectively. As of June 30, 1997, KACC had also purchased
put options to establish a minimum price for approximately 91,100 and
52,000 tons with respect to 1997 and 1998, respectively, and had entered
into option contracts that established a price range for an additional
78,000, 231,600 and 124,500 tons for 1997, 1998 and 1999, respectively.
As of June 30, 1997, KACC had sold forward virtually all of the
alumina available to it in excess of its projected internal smelting
requirements for 1997, 1998 and 1999 at prices indexed to future prices of
primary aluminum.
Energy
KACC is exposed to energy price risk from fluctuating prices for
fuel oil and natural gas consumed in the production process. Accordingly,
KACC from time to time in the ordinary course of business enters into
hedging transactions with major suppliers of energy and energy related
financial instruments. As of June 30, 1997, KACC had a combination of
fixed price purchase and option contracts for the purchase of approximately
40,000 MMBtu of natural gas per day during 1997, and for 25,000 MMBtu of
natural gas per day for 1998. As of June 30, 1997, KACC also held a
combination of fixed price purchase and option contracts for an average of
216,000, 222,000 and 25,000 barrels of fuel oil per month for 1997, 1998
and 1999, respectively.
Foreign Currency
KACC enters into forward exchange contracts to hedge material
cash commitments to foreign subsidiaries or affiliates. At June 30, 1997,
KACC had net forward foreign exchange contracts totaling approximately
$147.8 for the purchase of 192.0 Australian dollars from July 1997 through
December 1998, in respect of its commitments for 1997 and 1988 expenditures
denominated in Australian dollars. At June 30, 1997, Kaiser also held
options to purchase approximately 20.0 Australian dollars over the last six
months of 1997.
9. RESTRUCTURING OF OPERATIONS
Kaiser has previously disclosed that it set a goal of achieving
significant cost reductions and other profit improvements with the full
effect planned to be realized in 1998. The initiative is based on Kaiser's
conclusion that the current level of performance of its existing facilities
and businesses will not achieve the level of profits Kaiser considers
satisfactory based upon historic long-term average prices for primary
aluminum and alumina. During the second quarter of 1997, Kaiser recorded a
$19.7 restructuring charge to reflect actions taken and plans put in place
to achieve the reduced production costs, decreased corporate selling,
general and administrative expenses, and enhanced product mix intended to
achieve this goal. The significant components of the restructuring charge
are enumerated below.
Erie Plant Disposition
During the second quarter of 1997, Kaiser formed a joint venture
with a third party related to the assets and liabilities associated with
the wheel manufacturing operations at its Erie, Pennsylvania, fabrication
plant. The KACC Credit Agreement was amended to provide for the formation
of the new entity. Kaiser's management subsequently decided to close the
remainder of the Erie plant in order to consolidate its aluminum forging
operations at two other facilities for increased efficiency. As a result
of the joint venture formation and plant closure, Kaiser recognized a net
pre-tax loss of approximately $1.4.
Other Asset Dispositions
As a part of Kaiser's profit enhancement and cost reduction
initiative, Kaiser's management made decisions regarding product
rationalization and geographical optimization, which led management to
decide to dispose of certain assets which had nominal operating
contribution. These strategic decisions resulted in Kaiser recognizing a
pre-tax charge for approximately $15.6 associated with such asset
dispositions.
Employee and Other Costs
As a part of Kaiser's profit enhancement and cost reduction
initiative, Kaiser's management concluded that certain corporate and other
staff functions could be consolidated or eliminated resulting in a pre-tax
charge of approximately $2.7 for benefit and other costs.
10. COMPLETED ACQUISITION
During June 1997, Kaiser Bellwood Corporation, a newly formed,
wholly owned subsidiary of KACC, completed the acquisition of Reynolds
Metals Company's Bellwood, Virginia, extrusion plant and its existing
inventories for a total purchase price of $44.1, consisting of cash
payments of $40.1 and the assumption of approximately $4.0 of employee
related and other liabilities. The purchase price is subject to certain
post-closing adjustments.
The KACC Credit Agreement was amended in June 1997, to provide
for the acquisition of the Bellwood facility. Additionally, upon
completion of the transaction, Kaiser Bellwood Corporation became a
subsidiary guarantor under the indentures in respect of KACC's 9-7/8%
Senior Notes due 2002, 10-7/8% Series B and Series D Senior Notes due 2006,
and 12-3/4% Senior Subordinated Notes due 2003.
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.
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear in several places in this Form
10-Q. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will,"
"should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of
strategy. Readers are cautioned that any such forward-looking statements
are not guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in
the forward-looking statements as a result of various factors. These
factors include the effectiveness of management's strategies and decisions,
general economic and business conditions, developments in technology, new
or modified statutory or regulatory requirements and changing prices and
market conditions. This section and the Company's Form 10-K identify other
factors that could cause such differences. No assurance can be given that
these are all of the factors that could cause actual results to vary
materially from the forward-looking statements.
RESULTS OF OPERATIONS
The Company operates in three principal industries: aluminum,
through its majority owned subsidiary, Kaiser, a fully integrated aluminum
producer; forest products, through MGI and its wholly owned subsidiaries,
principally Pacific Lumber and Britt; real estate investment and
development, managed through MAXXAM Property Company; and other commercial
operations through various other wholly owned subsidiaries. MGHI owns 100%
of MGI and is a wholly owned subsidiary of the Company. All references to
the "Company," "Kaiser," "MGHI," "MGI" and "Pacific Lumber" refer to the
respective companies and their subsidiaries, unless otherwise indicated or
the context indicates otherwise.
ALUMINUM OPERATIONS
Aluminum operations account for a substantial portion of the
Company's revenues and operating results. Kaiser, through its principal
subsidiary KACC, operates in two business segments: bauxite and alumina,
and aluminum processing. As an integrated aluminum producer, Kaiser uses a
portion of its bauxite, alumina and primary aluminum production for
additional processing at certain of its facilities.
Profit Enhancement and Cost Reduction Initiative
Kaiser has previously disclosed that it has set a goal of
achieving significant cost reductions and other profit improvements with
the full effect planned to be realized in 1998. The initiative is based on
Kaiser's conclusion that the current level of performance of its existing
facilities and businesses will not achieve the level of profits Kaiser
considers satisfactory based upon historic long-term average prices for
primary aluminum and alumina. During the second quarter of 1997, Kaiser
recorded a $19.7 million restructuring charge to reflect actions taken and
plans put in place to achieve the reduced production costs, decreased
corporate selling, general and administrative expenses, and enhanced
product mix intended to achieve this goal. The significant components of
the restructuring charge are discussed in Note 9 of the Notes to Interim
Consolidated Financial Statements.
Recent Events
During June 1997, Kaiser Bellwood Corporation, a newly formed,
wholly owned subsidiary of KACC, completed the acquisition of Reynolds
Metals Company's Bellwood, Virginia, extrusion plant and its existing
inventories for a total purchase price of $44.1, subject to certain post-
closing adjustments. See Note 10 of Notes to Interim Consolidated
Financial Statements.
Summary
The following table presents selected operational and financial
information for the three and six months ended June 30, 1997 and 1996. The
information presented in the table is in millions of dollars except
shipments and prices, and intracompany shipments have been excluded.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shipments: (1)
Alumina 492.3 431.9 877.8 908.1
Aluminum products:
Primary aluminum 82.0 100.0 160.5 174.8
Fabricated aluminum
products 100.4 85.1 194.3 162.3
------------- ------------- ------------- -------------
Total aluminum
products 182.4 185.1 354.8 337.1
============= ============= ============= =============
Average realized sales price:
Alumina (per ton) $ 196 $ 207 $ 193 $ 208
Primary aluminum (per pound) .75 .69 .75 .71
Net sales:
Bauxite and alumina:
Alumina $ 96.5 $ 89.5 $ 169.7 $ 188.5
Other (2) (3) 26.5 27.0 53.1 51.4
------------- ------------- ------------- -------------
Total bauxite and
alumina 123.0 116.5 222.8 239.9
------------- ------------- ------------- -------------<PAGE>
Aluminum processing:
Primary aluminum 135.3 153.1 264.5 272.2
Fabricated aluminum
products 334.5 294.1 648.9 579.0
Other (3) 4.3 3.9 8.3 7.6
------------- ------------- ------------- -------------
Total aluminum
processing 474.1 451.1 921.7 858.8
------------- ------------- ------------- -------------
Total net sales $ 597.1 $ 567.6 $ 1,144.5 $ 1,098.7
============= ============= ============= =============
Operating income(4) $ 36.7 $ 38.1 $ 69.5 $ 79.9
============= ============= ============= =============
Income before income taxes and
minority interests $ 5.4 $ 16.3 $ 13.3 $ 35.1
============= ============= ============= =============
Capital expenditures $ 47.0 $ 31.9 $ 68.8 $ 51.9
============= ============= ============= =============
<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.
(4) Includes a pre-tax charge of $19.7 related to restructuring of
operations for both the quarter and six month period ended June 30,
1997.
</TABLE>
Overview
Kaiser's operating results are sensitive to changes in the prices
of alumina, primary aluminum and fabricated aluminum products, and also
depend to a significant degree on the volume and mix of all products sold
and on KACC's hedging strategies. Primary aluminum prices have
historically been subject to significant cyclical fluctuations. Alumina
prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.
During the first half of 1996, the AMT Price for primary aluminum
remained relatively stable in the $.70-$.75 per pound range. During the
second half of the year the AMT Price for primary aluminum fell, reaching a
low of $.65 per pound for October 1996, before recovering late in the year.
During the period 1993-June 30, 1997, the AMT Price for primary aluminum
ranged from approximately $.50 to $1.00 per pound. The AMT Price for
primary aluminum for the week ended July 25, 1997, was approximately $.78
per pound.
Net Sales - Bauxite and Alumina
Net sales of alumina increased by 8% for the quarter ended June
30, 1997, from the comparable period in the prior year, as a result of a
14% increase in alumina shipments offset by a 5% decline in average
realized prices from the sale of alumina. Shipment volumes were up as
compared to the quarter ended June 30, 1996, primarily as a result of the
timing of shipments. For the six month period ended June 30, 1997, net
segment sales declined by 7%. This change was due primarily to a 7%
decrease in average realized prices between periods and to a lesser extent
due to a 3% reduction in shipments.
Net Sales - Aluminum Processing
Net sales of primary aluminum for the quarter ended June 30,
1997, decreased by 12% from the comparable prior year period as a result
of an 18% decrease in shipments offset by an 8% increase in average
realized prices. The decrease in primary aluminum shipments between
periods is the result of the higher than usual shipments in the second
quarter of 1996. Net sales of fabricated aluminum products for the quarter
ended June 30, 1997, were up 14% as compared to the prior year period as a
result of an 18% increase in shipments offset by a 4% decrease in average
realized prices. The increase in fabricated aluminum product shipments
over the second quarter of 1996 was due to increased international sales of
can sheet and increased shipments of heat-treated products.
For the six month period ended June 30, 1997, net sales for the
aluminum processing segment increased by approximately 7% as a 12%
increase in fabricated aluminum product net sales more than offset a 3%
decline in net sales of primary aluminum. The increase in fabricated
product net sales, and offsetting decrease in primary aluminum net sales,
resulted from the same shipment and price factors discussed in the
preceding paragraph.
Operating Income
Operating income for the three and six months ended June 30, 1997
included a $19.7 million charge resulting from the previously discussed
restructuring charge. Excluding this item, operating income increased as a
result of improved operating efficiencies and reduced raw material, energy
and supply costs. In addition, operating income for the three and six
months ended June 30, 1997 included $2.3 million and $5.2 million related
to the settlement of certain energy service contracts.
FOREST PRODUCTS OPERATIONS
The Company's forest products operations are conducted by MGI
through its principal operating subsidiaries. MGI's business is seasonal
in that the forest products business generally experiences lower first
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, 1997 and 1996. The
information presented in the table is in millions of dollars except
shipments and prices.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 13.3 12.9 26.3 23.3
Redwood common grades 67.6 60.8 124.8 118.1
Douglas-fir upper
grades 2.5 2.8 5.0 5.0
Douglas-fir common
grades 17.1 18.6 36.5 37.9
Other 4.9 8.4 8.8 10.3
------------- ------------- ------------- -------------
Total lumber 105.4 103.5 201.4 194.6
============= ============= ============= =============
Logs (2) 4.1 5.7 6.6 11.6
============= ============= ============= =============
Wood chips (3) 62.1 52.4 122.3 101.4
============= ============= ============= =============
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,423 $ 1,392 $ 1,373 $ 1,389
Redwood common grades 546 525 527 504
Douglas-fir upper
grades 1,153 1,158 1,181 1,156<PAGE>
Douglas-fir common
grades 497 438 491 407
Logs (4) 359 544 404 505
Wood chips (5) 76 67 76 77
Net sales:
Lumber, net of discount $ 68.7 $ 63.5 $ 127.7 $ 115.4
Logs 1.5 3.0 2.7 5.8
Wood chips 4.7 3.5 9.2 7.8
Cogeneration power 1.2 .9 2.2 1.3
Other .8 .4 1.9 .8
------------- ------------- ------------- -------------
Total net sales $ 76.9 $ 71.3 $ 143.7 $ 131.1
============= ============= ============= =============
Operating income $ 24.5 $ 19.3 $ 43.3 $ 35.9
============= ============= ============= =============
Operating cash flow (6) $ 31.1 $ 26.3 $ 56.5 $ 49.4
============= ============= ============= =============
Income before income taxes $ 9.5 $ 2.7 $ 9.8 $ 3.3
============= ============= ============= =============
Capital expenditures $ 10.0 $ 3.1 $ 12.4 $ 5.9
============= ============= ============= =============
<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>
Net sales
Net sales for the quarter ended June 30, 1997 increased from the
comparable prior year quarter due to higher average realized prices for
common grade redwood and Douglas-fir lumber and higher volumes of common
grade redwood lumber. This improvement was partially offset by lower
volumes in most other categories of lumber. In addition to these factors,
net sales for the six months ended June 30, 1997 increased from the
comparable prior year period due to higher volumes for upper grade redwood
lumber.
Operating income
Operating income for the three and six months ended June 30, 1997
increased from the comparable prior year periods, principally due to the
increase in net sales discussed above.
Income before income taxes and minority interests
Income before income taxes for the three and six months ended
June 30, 1997 increased from the comparable 1996 periods principally due to
higher operating income discussed above.
REAL ESTATE AND OTHER OPERATIONS
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
(In millions of dollars)
<S> <C> <C> <C> <C>
Net sales $ 15.1 $ 28.8 $ 32.5 $ 50.1
Operating loss (1.8) (1.0) (1.4) (2.7)
Income (loss) before income taxes
and minority interests (1.3) 2.0 1.8 1.2
</TABLE>
Net sales
Net sales decreased for the three and six months ended June 30,
1997 from the same periods in 1996 primarily due to lower revenues from
resort and commercial operations reflecting various asset dispositions
during 1996 and the first quarter of 1997 and a decrease in real property
sales.
Operating loss
The operating loss increased for the second quarter of 1997 from
the same period in 1996 primarily due to lower earnings from the decrease
in sales of real property. The operating loss decreased for the six months
ended June 30, 1997 from the same period in 1996 principally due to
improvements attributable to SHRP, Ltd. as well as a bulk land sale at the
Fountain Hills development in Arizona.
Income (loss) before income taxes and minority interests
The Company's real estate and other operations had a loss before
income taxes and minority interests for the second quarter of 1997 as
compared to income for the same period in 1996. For the six months ended
June 30, 1997, income before income taxes and minority interests increased
from the same period in 1996. These changes were due in part to the
change in operating loss between periods discussed above. In addition,
investment, interest and other income for the three and six month periods
ended June 30, 1997 decreased over the comparable prior year periods due to
lower gains from sales of RTC Portfolio assets.
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
(In millions of dollars)
<S> <C> <C> <C> <C>
Operating loss $ (6.7) $ (10.4) $ (9.7) $ (13.9)
Loss before income taxes and
minority interests (8.5) (10.4) (13.0) (15.6)
</TABLE>
Operating loss
The operating losses represent corporate general and
administrative expenses that are not allocated to the Company's industry
segments. The operating loss for the second quarter of 1997 and the six
months ended June 30, 1997 decreased from the same periods in 1996
principally due to lower accruals for certain legal contingencies.
Loss before income taxes and minority interests
The loss before income taxes and minority interests includes
operating losses, investment, interest and other income (expense) and
interest expense, including amortization of deferred financing costs, that
are not attributable to the Company's industry segments. The losses for
the second quarter of 1997 and the six months ended June 30, 1997 decreased
from the same periods in 1996, principally due to lower operating losses
described above and higher earnings from marketable securities. These
improvements were partially offset by an increase in interest expense due
to MGHI's December 1996 borrowing of $130.0 million.
Minority interests
Minority interests represent the minority stockholders' interest
in the Company's aluminum operations and minority partners' interest in
SHRP, Ltd.
Credit for income taxes
The Company's credit for income taxes include non-recurring, non-
cash tax benefits of $32.1 million and $13.4 million for the three months
ended June 30, 1997 and 1996, respectively, relating to the settlement of
certain matters.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
Parent Company and MGHI
The various credit instruments of MGHI, KACC, MGI, Pacific Lumber
and Scotia Pacific contain various covenants which, among other things,
limit the ability of such entities to incur additional indebtedness and
liens, to engage in transactions with affiliates, to pay dividends and to
make investments. As of June 30, 1997, $1.9 million dividends could be
paid by MGHI and $2.7 million of dividends could be paid by MGI. Pursuant
to the terms of the KACC Credit Agreement, Kaiser is prohibited from paying
any dividends with respect to its common stock. The most restrictive
covenants governing debt of the Company's real estate and other
subsidiaries would not restrict payment to the Company of all nonrestricted
cash and unused borrowing availability for such subsidiaries (approximately
$9.9 million could be paid as of June 30, 1997).
In January 1997, the Company used the proceeds from the
Intercompany Note to redeem its 12-1/2% Subordinated Debentures and 14%
Senior Subordinated Reset Notes together with accrued interest thereon, for
$43.3 million.
Kaiser has an effective shelf registration statement covering the
offering of up to 10 million shares of Kaiser common stock owned by the
Company.
The Company has stated that from time to time it may purchase its
common stock on national exchanges or in privately negotiated transactions.
During the period from January 1, 1997 through July 31, 1997, the Company
purchased 385,400 shares of its common stock in the open market.
As of June 30, 1997, the Company (excluding its subsidiaries) had
cash and marketable securities of approximately $119.1 million. The
Company believes that its existing resources, together with the cash
available from subsidiaries and other sources of financing, will be
sufficient to fund its working capital requirements for the next year.
With respect to its long-term liquidity, the Company believes that its
existing cash and cash resources, together with the cash proceeds from the
sale of assets and distributions from its subsidiaries should be sufficient
to meet its working capital requirements. However, there can be no
assurance that the Company's cash resources, together with the cash
proceeds from the sale of assets, distributions from its subsidiaries and
other sources of financing, will be sufficient for such purposes. Any
substantially adverse outcome of the litigation described in Note 7 to the
Consolidated Financial Statements could have a material adverse affect on
the Company's consolidated financial position, results of operations or
liquidity. See Note 7 to the Consolidated Financial Statements for a
discussion of the Company's material contingencies.
Aluminum operations
Kaiser has an effective shelf registration statement covering the
offering from time to time of up to $150.0 million of equity securities.
On December 31, 1997, unless either previously redeemed by Kaiser
or converted at the option of the holder, each of the outstanding shares of
PRIDES will mandatorily convert into one share of Kaiser's Common Stock,
subject to adjustment in certain events.
At June 30, 1997, Kaiser had long-term debt of $1,005.4 million,
compared with $961.9 million at December 31, 1996. The change in long-term
debt between periods is primarily the result of $30.0 million of borrowings
under the KACC Credit Agreement and $19.0 million of proceeds from the
Spokane County, Washington, Solid Waste Disposal Revenue Bonds which were
loaned to KACC to finance certain qualifying capital expenditures at its
Mead smelter.
At June 30, 1997, $243.8 million (of which $73.8 million could
have been used for letters of credit) was available to KACC under the KACC
Credit Agreement. Loans under the KACC Credit Agreement bear interest at a
spread (which varies based on the results of a financial test) over either
a base rate or LIBOR, at Kaiser's option. During the three and six months
ended June 30,1997, the average per annum interest rates on loans
outstanding under the KACC Credit Agreement were approximately 9.5% and
9.6%, respectively.
During the quarter ended June 30, 1997, the KACC Credit Agreement
was amended to provide for the formation of the wheel manufacturing joint
venture and the acquisition of the Bellwood facility. Additionally, upon
completion of the acquisition of the Bellwood facility, Kaiser Bellwood
Corporation became a subsidiary guarantor under the indentures to KACC's
9-7/8% Senior Notes due 2002, 10-7/8% Series B and Series D Senior Notes
due 2006 and 12-3/4% Senior Subordinated Notes due 2003.
Kaiser's capital expenditures during the three and six months
ended June 30, 1997, were $47.0 million and $68.8 million, respectfully,
and were used primarily to acquire the Bellwood extrusion facility from
Reynolds, improve production efficiency, reduce operating costs, expand
capacity at existing facilities, and construct new facilities. Kaiser's
micromill facility, which was constructed in Nevada during 1996 as a
demonstration and production facility, achieved operational start-up by
year-end 1996. The facility remained in a start-up mode during the first
half of 1997 and is currently expected to commence limited product
shipments to customers in the latter part of the year.
Total consolidated capital expenditures (of which approximately
7% is expected to be funded by Kaiser's minority partners in certain
foreign joint ventures) are expected to be between $70.0 and $140.0 million
per annum in each of 1997 through 1999. Management continues to evaluate
numerous projects all of which require substantial capital, including
Kaiser's micromill project and other potential opportunities both in the
United States and overseas.
Kaiser Yellow River Investment Limited ("KYRIL"), a subsidiary of
Kaiser, is a participant in Yellow River Aluminum Industry Company Limited,
a Sino-foreign joint equity enterprise (the "Joint Venture") organized
under the laws of the People's Republic of China ("PRC") along with the
Lanzhou Aluminum Smelters ("LAS") of the China National Nonferrous Metals
Industry Corporation (the "CNNC"). The parties to the Joint Venture are
currently engaged in discussions concerning the future of the Joint
Venture. In a June 1997 meeting, representatives of the Company and the
CNNC agreed to extend the Joint Venture termination date from June 30, 1997
to March 31, 1998. Negotiations between KYRIL, LAS and the CNNC continue
to focus on a sale of KYRIL's interests to a third party or LAS and/or the
CNNC making a payment to KYRIL in return for its existing interests in the
Joint Venture. However, no agreement has been reached concerning the
amount of or terms for any such payments. Governmental approval in the
PRC will be necessary in order to implement any arrangements agreed to by
the parties, and there can be no assurance such approval will be obtained.
Kaiser believes that its existing cash resources, together with
cash flow from operations and borrowings under the KACC Credit Agreement,
will be sufficient to satisfy its working capital and capital expenditure
requirements for the next year. With respect to its long-term liquidity,
Kaiser believes that operating cash flow, together with its ability to
obtain both short- and long-term financing, should provide sufficient funds
to meet its long-term working capital and capital expenditure requirements.
Forest products operations
As of June 30, 1997, $27.1 million of borrowings was available
under the Pacific Lumber Credit Agreement, of which $3.5 million was
available for letters of credit and $23.6 million was restricted to
timberland acquisitions. As of June 30, 1997, $6.4 million was outstanding
and letters of credit outstanding amounted to $16.2 million.
MGI and its subsidiaries anticipate that cash from operations,
together with existing cash, marketable securities and available sources of
financing, will be sufficient to fund their working capital and capital
expenditure requirements for the next year. With respect to their long-
term liquidity, MGI and its subsidiaries believe that their existing cash
and cash equivalents, together with their ability to generate sufficient
levels of cash from operations and their ability to obtain both short- and
long-term financing, should provide sufficient funds to meet their working
capital and capital expenditure requirements. However, due to their highly
leveraged condition, MGI and its subsidiaries (and in turn MGHI) are more
sensitive than less leveraged companies to factors affecting their
operations, including governmental regulation affecting their timber
harvesting practices (see "--Trends" below), increased competition from
other lumber producers or alternative building products and general
economic conditions.
Real Estate and Other Operations
As of June 30, 1997, the Company's real estate and other
subsidiaries had approximately $7.4 million available for use under the
MCOP Credit Agreement. The Company believes that the existing cash and
credit facilities of its real estate and other subsidiaries are sufficient
to fund the working capital and capital expenditure requirements of such
subsidiaries for the next year. With respect to the long-term liquidity of
such subsidiaries, the Company believes that their ability to generate cash
from the sale of their existing real estate, together with their ability to
obtain financing, should provide sufficient funds to meet their working
capital and capital expenditure requirements.
TRENDS
Forest Products Operations
Regulatory and Environmental Matters
Pacific Lumber's operations are subject to a variety of
California and federal laws and regulations dealing with timber harvesting,
endangered species and critical habitat, and air and water quality.
Moreover, these laws and regulations are modified from time to time and are
subject to judicial and administrative interpretation. Compliance with
such laws, regulations and judicial and administrative interpretations,
together with the cost of litigation incurred in connection with certain
timber harvesting operations of Pacific Lumber, have increased the cost of
logging operations. Pacific Lumber is subject to certain pending matters
described below which could have a material adverse effect on the
consolidated financial position, results of operations or liquidity of
Pacific Lumber, and in turn MGI and MGHI. There can be no assurance that
certain pending or future governmental regulations, legislation, judicial
or administrative decisions or California ballot initiatives will not have
a material adverse affect on Pacific Lumber, and in turn MGI and MGHI.
In May 1996, the USFWS published the Final Designation of
critical habitat for the marbled murrelet, a coastal seabird, which
designated over four million acres as critical habitat for the marbled
murrelet. Although nearly all of the designated habitat is public land,
approximately 33,000 acres of Pacific Lumber's timberlands are included in
the Final Designation, the substantial portion of such acreage being young
growth timberlands. In order to mitigate the impact of the Final
Designation, particularly with respect to timberlands occupied by the
marbled murrelet, Pacific Lumber attempted to develop the Murrelet HCP.
Due to, among other things, the unfavorable response of the USFWS to
Pacific Lumber's initial Murrelet HCP efforts, Pacific Lumber and its
subsidiaries filed the Takings Litigation alleging that certain portions of
its timberlands had been "taken" and seeking just compensation. Pursuant
to the Headwaters Agreement entered into by Pacific Lumber, the Company,
the United States and California on September 28, 1996 as described below,
the Takings Litigation has been stayed by the Court at the request of the
parties.
It is impossible for Pacific Lumber to determine the potential
adverse effect of the Final Designation on its consolidated financial
position, results of operations or liquidity until such time as various
regulatory and legal issues are resolved; however, if Pacific Lumber is
unable to harvest, or is severely limited in harvesting, on timberlands
designated as critical habitat for the marbled murrelet, such effect could
be materially adverse to Pacific Lumber, and in turn MGI and MGHI. If
Pacific Lumber is unable to harvest or is severely limited in harvesting,
it intends to seek just compensation from the appropriate governmental
agencies on the grounds that such restrictions constitute a governmental
taking. There continue to be other regulatory actions and lawsuits seeking
to have other species listed as threatened or endangered under the ESA
and/or the CESA and to designate critical habitat for such species. For
example, on April 25, 1997 the NMFS announced the listing of the coho
salmon under the ESA in northern California, including, potentially, lands
owned by Pacific Lumber. It is uncertain what impact, if any, such
listings and/or designations of critical habitat would have on the
consolidated financial position, results of operations or liquidity of
Pacific Lumber, and in turn MGI and MGHI.
In 1994, the BOF adopted certain regulations regarding compliance
with long-term sustained yield ("LTSY") objectives. These regulations
require that timber companies project timber growth and harvest on their
timberlands over a 100-year planning period and establish a LTSY harvest
level that takes into account environmental and economic considerations.
Timber companies must submit an SYP demonstrating that the average annual
harvest over any rolling ten-year period will not exceed the LTSY harvest
level and that their projected timber inventory is capable of sustaining
the LTSY harvest level in the last decade of the 100-year planning period.
On December 17, 1996, Pacific Lumber submitted a proposed SYP to the CDF.
The proposed SYP sets forth an LTSY harvest level substantially the same as
Pacific Lumber's average annual timber harvest over the last six years.
The proposed SYP also indicates that Pacific Lumber's average annual timber
harvest during the first decade of the SYP would approximate the LTSY
harvest level. During the second decade of the proposed SYP, Pacific
Lumber's average annual timber harvest would be approximately 8% less than
that proposed for the first decade. The SYP, when approved, will be valid
for ten years. Thereafter, revised SYPs will be prepared every decade that
will address the LTSY harvest level based upon reassessment of changes in
the resource base and protection of public resources.
The proposed SYP assumes that the transactions contemplated by
the Headwaters Agreement will be consummated and that the Multi-Species HCP
will permit Pacific Lumber to harvest its timberlands (including over the
next two decades a substantial portion of its old growth timberlands not
transferred pursuant to the Headwaters Agreement) to achieve maximum
sustained yield. The SYP is subject to review and approval by the CDF, and
there can be no assurance that the SYP will be approved in its proposed
form. Until the SYP is reviewed and approved, Pacific Lumber is unable to
predict the impact that these regulations will have on its future timber
harvesting practices. It is possible that the results of the review and
approval process could require Pacific Lumber to reduce its timber harvest
in future years from the harvest levels set forth in the proposed SYP.
Pacific Lumber believes it would be able to mitigate the effect of any
required reduction in harvest level by acquisitions of additional
timberlands and making corresponding amendments to its SYP; however, there
can be no assurance that Pacific Lumber would be able to do so, and the
amount of such acquisitions would be limited by Pacific Lumber's available
financial resources. Pacific Lumber is unable to predict the ultimate
impact the sustained yield regulations will have on its future financial
position, results of operations or liquidity.
Various groups and individuals have filed objections with the CDF
and the BOF regarding the CDF's and the BOF's actions and rulings with
respect to certain of Pacific Lumber's THPs and other timber harvesting
operations, and Pacific Lumber expects that such groups and individuals
will continue to file such objections. In addition, lawsuits are pending
or threatened which seek to prevent Pacific Lumber from implementing
certain of its approved THPs or which challenge other operations by Pacific
Lumber. These challenges have severely restricted Pacific Lumber's ability
to harvest old growth timber on its property. To date, challenges with
respect to Pacific Lumber's THPs relating to young growth timber and to its
other operations have been limited; however, no assurance can be given as
to the extent of such challenges in the future. Pacific Lumber believes
that environmentally focused challenges to its timber harvesting and other
operations are likely to occur in the future, particularly with respect to
virgin and residual old growth timber. Although such challenges have
delayed or prevented Pacific Lumber from conducting a portion of its
operations, they have not had a material adverse effect on Pacific Lumber's
consolidated financial position, results of operations or liquidity.
Nevertheless, it is impossible to predict the future nature or degree of
such challenges or their ultimate impact on the consolidated financial
position, results of operations or liquidity of Pacific Lumber, and in turn
MGI and MGHI.
Headwaters Agreement
On September 28, 1996, the Pacific Lumber Parties entered into
the Headwaters Agreement with the United States and California. The
Headwaters Agreement provides the framework for the acquisition by the
United States and California of the approximately 5,600 acres of Pacific
Lumber's timberlands commonly referred to as the Headwaters Forest and the
Elk Head Springs Forest (collectively, "Headwaters Timberlands"). A
substantial portion of the Headwaters Timberlands consist of virgin old
growth timberlands. The Headwaters Timberlands would be transferred in
exchange for (a) property and other consideration (possibly including cash)
from the United States and California having an aggregate fair market value
of $300 million and (b) approximately 7,755 acres of adjacent timberlands
(the "Elk River Timberlands") to be acquired by the United States and
California from a third party. The United States and California would
also acquire and retain an additional 1,900 acres of timberlands from such
third party.
The Headwaters Agreement also provides, among other things, for
expedited processing by the United States of a Permit (an incidental take
permit) to be based upon a Multi-Species HCP covering (a) the Resulting
Pacific Lumber Timber Property (the property Pacific Lumber will own after
consummation of the Headwaters Agreement) and (b) the Headwaters
Timberlands and the 1,900 acres of additional timberlands to be acquired
and retained by the United States and California (both of the latter as
conserved habitat). The agreement also requires expedited processing by
California of an SYP covering the Resulting Pacific Lumber Timber Property.
As part of the Headwaters Agreement, the Pacific Lumber Parties
agreed to not enter the Headwaters Forest or the Elk Head Forest to conduct
logging operations, including salvage logging (the "Moratorium"). The
Moratorium was to terminate if by July 28, 1997 the parties had not
achieved the Specified Items to their respective satisfaction. On March
11, 1997, the Pacific Lumber Parties agreed to amend the Headwaters
Agreement to extend to February 17, 1998 the period of time during which
these closing conditions must be met. The extension is, however, subject
to the achievement of certain milestones toward completion of the
Headwaters Agreement, including satisfaction of the Pacific Lumber Parties
with the progress of the United States and California toward providing for
the consideration to be transferred at the closing.
The United States has recently focused its efforts on furnishing
the federal portion of the required consideration through a federal budget
appropriation. The Budget Agreement between President Clinton and the
Republican Congressional leadership would allocate $250 million for the
acquisition pursuant to the Headwaters Agreement. In July 1997, the Senate
Appropriations Committee approved the interior appropriations bill, which
contained provisions allowing the expenditure of $700 million for priority
land acquisitions, including the $250 million for the acquisition pursuant
to the Headwaters Agreement. This bill does, however, contain a provision
requiring the passage of authorizing legislation for the Headwaters
acquisition. The corresponding appropriations bill approved by the House
of Representatives did not contain any part of the $700 million priority
land acquisitions. Whether a federal budget appropriation for the
Headwaters acquisition will be enacted, or the terms of any such
appropriation, is uncertain as the full Senate must still consider the
interior appropriations bill, and a conference would have to resolve any
differences between the final Senate bill and the House version.
Although California has not enacted legislation providing funds
for its portion of the acquisition contemplated by the Headwaters
Agreement, representatives of the State of California continue to indicate
that they are considering various methods of furnishing the required
consideration.
Closing of the Headwaters Agreement is subject to various
conditions, including (a) acquisition by the government of the Elk River
Timberlands, (b) approval of an SYP and a Multi-Species HCP and issuance of
a Permit, each in form and substance satisfactory to Pacific Lumber, (c)
the issuance by the Internal Revenue Service and the California Franchise
Tax Board of closing agreements in form and substance sought by and
satisfactory to the Pacific Lumber Parties, (d) the absence of a judicial
decision in any litigation brought by third parties that any party
reasonably believes will significantly delay or impair the transactions
described in the Headwaters Agreement, and (e) the dismissal with prejudice
at closing of the Takings Litigation. The parties to the Headwaters
Agreement are working to satisfy these conditions; however, there can be no
assurance that the Headwaters Agreement will be consummated.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K for information
concerning material legal proceedings with respect to the Company. The
following material developments have occurred with respect to such legal
proceedings. Any capitalized or italicized terms used but not defined in
this Item have the same meaning given to them in the Form 10-K.
With respect to the OTS action described under "MAXXAM Inc.
Litigation--USAT Matters", the administrative law judge who will hear the
case has signed an order providing that the hearing on the merits will
commence on September 22, 1997 and conclude on December 19, 1997.
With respect to the In re MAXXAM Inc./Federated Shareholders
Litigation described under "MAXXAM Inc. Litigation--Rancho Mirage
Litigation," on April 4, 1997, the Court issued its opinion concerning the
merits of the case. The Court found, among other things, that Federated
and the director defendants, respectively, caused and allowed the Company
and MCOP to agree to terms in the Mirada transaction which were unfair to
the Company and MCOP. The Court mentioned various theories of damages
which had been presented at the trial (ranging from $3.6 million to $49.4
million, which would be payable to the Company). However, the Court
deferred a decision on damages, stating that it would reconsider rescission
as a possible remedy and might await any appeal of its decision. With
respect to the NL Industries action the parties have agreed to a dismissal
of this action without prejudice.
With respect to Catellus Development Corporation v. Kaiser
Aluminum & Chemical Corporation and James L. Ferry & Son Inc. described
under "Kaiser Litigation," on July 28, 1997, KACC and Catellus Development
Corporation ("Catellus") entered into a settlement agreement and release
settling all matters pending between the parties in the United States Court
of Appeals for the Ninth Circuit. All matters relating to the litigation
have now been resolved. KACC will remain liable to the City of Richmond
for fifty percent (50%) of future costs of cleaning up certain parts of the
property formerly owned by Catellus in accordance with the final judgment
issued by the United States District Court. KACC's share of these costs is
expected to be less than $500,000.
With respect to CID No. 11356 described under "Kaiser Litigation-
- -DOJ Proceedings," Kaiser was informed in April 1997 that the DOJ has
officially closed its investigation and will return the documents submitted
by KACC.
With respect to the Marbled Murrelet action described under
"Pacific Lumber Litigation," on April 18, 1997, the U.S. Ninth Circuit
Court of Appeals reversed the trial court's decision which had
preliminarily enjoined eight already-approved THPs to the extent they rely
on the Federal Owl Plan. On June 18, 1997, the court granted the
defendants' motions for summary judgment disposing of the remaining issues
in this case.
With respect to the Takings Litigation described under "Pacific
Lumber Litigation", the Pacific Lumber Parties have offered to continue and
extend the stay of proceedings through September 15, 1997 in response to
the request of the United States for an extension of the stay of
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May
22, 1997, at which meeting the stockholders voted to elect Messrs.
Rosenberg, Cruikshank and Levin, management's slate of nominees as
directors of the Company, and voted not to take action upon a proposal
relating to 60,000 acres of timberlands in northern California owned by the
Company's principal forest products subsidiary.
The results of the matters voted at the meeting are shown below.
Nominees for director
The nominees for election as directors of the Company are listed
below, together with voting information for each nominee. Mr. Charles E.
Hurwitz continued as director for the Company.
Nominees for election by holders of common stock
Stanley D. Rosenberg - 5,492,660 votes for, 343,230 votes
withheld and -0- broker non-votes.
Robert J. Cruikshank - 5,494,583 votes for, 341,307 votes
withheld and -0- broker non-votes.
William A. Newson - 135,831 votes for, 2,299 votes withheld
and -0- broker non-votes.
Richard D. Baum - 135,836 votes for, 2,249 votes withheld
and -0- broker non-votes.
Nominees for election by holders of common stock and class a
Preferred stock
Ezra G. Levin - 12,129,433 votes for, 346,322 votes withheld
and -0- broker non-votes.
Proposal relating to 60,000 acres of timberlands
The vote with respect to taking action upon a proposal
relating to 60,000 acres of timberlands in northern California owned by the
Company's principal forest products subsidiary was as follows:
Holders of Common Stock - 260,251 votes for, 5,324,259 votes
against, 389,495 votes abstaining and -0- broker non-votes.
Holders of Preferred Stock - 1,270 votes for, 6,635,930
votes against, 2,660 votes abstaining and -0- broker non-
votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
4.1 Third Supplemental Indenture, dated as of July 15, 1997,
among Kaiser Aluminum & Chemical Corporation ("KACC"), as
Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica
Inc., Kaiser Jamaica Corporation, Kaiser Finance
Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra
Micromills, LLC, Kaiser Texas Sierra Micromills, LLC, Kaiser
Texas Micromill Holdings, LLC, and Kaiser Bellwood
Corporation, as Subsidiary Guarantors, and State Street Bank
and Trust Company, as Trustee, to the Indenture, dated as
of February 1, 1993, regarding KACC's 12-3/4% Senior
Subordinated Notes due 2003 (incorporated herein by
reference to Exhibit 4.1 to Kaiser's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, File No. 1-
9447).
4.2 Second Supplemental Indenture, dated as of July 15, 1997,
among KACC, as Issuer, Kaiser Alumina Australia Corporation,
Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser
Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser
Sierra Micromills, LLC, Kaiser Texas Sierra Micromills, LLC,
Kaiser Texas Micromill Holdings, LLC, and Kaiser Bellwood
Corporation, as Subsidiary Guarantors, and First Trust
National Association, as Trustee, to the Indenture, dated as
of February 17, 1994, regarding KACC's 9-7/8% Senior Notes
due 2002 (incorporated herein by reference to Exhibit 4.2 to
Kaiser's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, File No. 1-9447).
4.3 First Supplemental Indenture, dated as of July 15, 1997,
among KACC, as Issuer, Kaiser Alumina Australia Corporation,
Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser
Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser
Sierra Micromills, LLC, Kaiser Texas Micromill Holdings,
LLC, Kaiser Texas Sierra Micromills, LLC, and Kaiser
Bellwood Corporation, as Subsidiary Guarantors, and First
Trust National Association, as Trustee, to the Indenture,
dated as of October 23, 1996, regarding KACC's 10-7/8%
Series B Senior Notes due 2006 (incorporated herein by
reference to Exhibit 4.3 to Kaiser's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, File No. 1-
9447).
4.4 First Supplemental Indenture, dated as of July 15, 1997,
among KACC, as Issuer, Kaiser Alumina Australia Corporation,
Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser
Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser
Sierra Micromills, LLC, Kaiser Texas Micromill Holdings,
LLC, Kaiser Texas Sierra Micromills, LLC, and Kaiser
Bellwood Corporation, as Subsidiary Guarantors, and First
Trust National Association, as Trustee, to the Indenture,
dated as of December 23, 1996, regarding KACC's 10-7/8%
Series D Senior Notes due 2006 (incorporated herein by
reference to Exhibit 4.4 to Kaiser's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, File No. 1-
9447).
4.5 Ninth Amendment to the Credit Agreement, dated as of April
21, 1997, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KACC, KAC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated herein by
reference to Exhibit 4.5 to Kaiser's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, File No. 1-
9447).
4.6 Tenth Amendment to the Credit Agreement, dated as of June
25, 1997, amending the Credit Agreement, dated as of
February 15, 1994, as amended, among KACC, KAC, the
financial institutions a party thereto, and BankAmerica
Business Credit, Inc., as Agent (incorporated herein by
reference to Exhibit 4.6 to Kaiser's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, File No. 1-
9447).
11 Computation of Net Income Per Common and Common Equivalent
Share
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
None.
SIGNATURE
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 1, 1997 By: /S/ PAUL N. SCHWARTZ
Paul N. Schwartz
Executive Vice President and
Chief Financial Officer
<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-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 224,400
<SECURITIES> 51,600
<RECEIVABLES> 253,600
<ALLOWANCES> 4,800
<INVENTORY> 626,900
<CURRENT-ASSETS> 1,393,800
<PP&E> 2,108,300
<DEPRECIATION> 808,900
<TOTAL-ASSETS> 4,072,700
<CURRENT-LIABILITIES> 647,300
<BONDS> 1,940,500
0
300
<COMMON> 5,000
<OTHER-SE> (32,600)
<TOTAL-LIABILITY-AND-EQUITY> 4,072,700
<SALES> 1,320,700
<TOTAL-REVENUES> 1,320,700
<CGS> 1,068,700
<TOTAL-COSTS> 1,068,700
<OTHER-EXPENSES> 150,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,000
<INCOME-PRETAX> 11,900
<INCOME-TAX> (27,500)
<INCOME-CONTINUING> 32,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,600
<EPS-PRIMARY> 3.48
<EPS-DILUTED> 3.48
</TABLE>
EXHIBIT 11
MAXXAM INC.
COMPUTATION OF NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
(In millions of dollars, except share and per share amounts)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average common and common
equivalent shares outstanding
during each period 9,200,313 9,376,703 9,262,712 9,376,703
Common equivalent shares attributable
to stock options
and convertible securities 94,843 94,511 98,312 93,074
-------------- ------------- ------------- -------------
Weighted average common and
common equivalent
shares 9,295,156 9,471,214 9,361,024 9,469,777
============== ============= ============= =============
Net income $ 31.9 $ 16.9 $ 32.6 $ 22.7
============== ============= ============= =============
Net income per common and common
equivalent share $ 3.43 $ 1.78 $ 3.48 $ 2.40
============== ============= ============= =============
</TABLE>
