10-K405
1
MAXXAM INC. 1994 FORM 10-K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994 Commission File Number 1-3924
MAXXAM INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 95-2078752
(State or other (I.R.S. Employer
jurisdiction Identification Number)
of incorporation or
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
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Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange on which
Title of each class registered
---------------------------- --------------------
12-1/2% Subordinated Debentures due December 15,
1999 American
14% Senior Subordinated Reset Notes due May 20,
2000 American
Common Stock, $.50 par value American, Pacific,
Philadelphia
Number of shares of common stock outstanding at March 15, 1995: 8,707,591
Securities registered pursuant to Section 12(g) of the Act: None.
---------------
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
Based upon the March 15, 1995 American Stock Exchange closing price of
$27.75 per share, the aggregate market value of the Registrant's
outstanding voting stock held by non-affiliates was approximately $167.6
million.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of Registrant's annual report to stockholders for the
fiscal year ended December 31, 1994 are incorporated by reference under
Part II. Certain portions of Registrant's definitive proxy statement, to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A not later than 120 days after the close of the Registrant's fiscal
year, are incorporated by reference under Part III.
MAXXAM INC.
PART I
ITEM 1. BUSINESS
GENERAL
MAXXAM Inc. and its majority and wholly owned subsidiaries are
collectively referred to herein as the "Company" or "MAXXAM" unless
otherwise indicated or the context indicates otherwise. The Company,
through Kaiser Aluminum Corporation ("Kaiser") and Kaiser's principal
operating subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"), is a
fully integrated aluminum company. The Company's voting interest in Kaiser
is approximately 58.9% on a fully diluted basis. See "--Aluminum
Operations." In addition, the Company is engaged in forest products
operations through its wholly owned subsidiary, MAXXAM Group Inc. ("MGI")
and MGI's wholly owned subsidiaries, The Pacific Lumber Company and its
wholly owned subsidiaries (collectively referred to herein as "Pacific
Lumber," unless the context indicates otherwise), and Britt Lumber Co.,
Inc. ("Britt"). See "--Forest Products Operations." The Company is also
engaged in real estate investment and development, principally through
MAXXAM Property Company (and its subsidiaries), MCO Properties Inc.
("MCOP"), Palmas del Mar Properties, Inc. and various other wholly owned
subsidiaries. See "--Real Estate Operations." The Company, through its
subsidiaries, also has various interests in a Class 1 thoroughbred and
quarter horse racing facility located in the greater Houston metropolitan
area. See "--Sam Houston Race Park." See Note 11 to the Consolidated
Financial Statements (contained in the Company's Annual Report to
Stockholders--see Item 8) for certain financial information by industry
segment and geographic area.
ALUMINUM OPERATIONS
INDUSTRY OVERVIEW
Primary aluminum is produced by the refining of bauxite (the major
aluminum-bearing ore) into alumina (the intermediate material) and the
reduction of alumina into primary aluminum. Approximately two pounds of
bauxite are required to produce one pound of alumina, and approximately two
pounds of alumina are required to produce one pound of primary aluminum.
Aluminum's valuable physical properties include its light weight, corrosion
resistance, thermal and electrical conductivity, and high tensile strength.
DEMAND
The packaging and transportation industries are the principal
consumers of aluminum in the United States, Japan, and Western Europe. In
the packaging industry, which accounted for approximately 22% of
consumption in 1993, aluminum's recyclability and weight advantages have
enabled it to gain market share from steel and glass, primarily in the
beverage container area. Nearly all beer cans and approximately 95% of the
soft drink cans manufactured for the United States market are made of
aluminum. Growth in the packaging area is generally expected to continue
in the 1990s due to general population increase and to further penetration
of the beverage can market in Asia and Latin America, where aluminum cans
are a substantially lower percentage of the total beverage container market
than in the United States.
In the transportation industry, which accounted for approximately 29%
of aluminum consumption in the United States, Japan, and Western Europe in
1993, automotive manufacturers use aluminum instead of steel or copper for
an increasing number of components, including radiators, wheels, and
engines, in order to meet more stringent environmental and fuel efficiency
requirements through vehicle weight reduction. Kaiser believes that sales
of aluminum to the transportation industry have considerable growth
potential due to projected increases in the use of aluminum in automobiles.
SUPPLY
As of year-end 1994, Western world aluminum capacity from 108 smelting
facilities was approximately 16.3 million tons per year (all references to
tons in this Report are to metric tons of 2,204.6 pounds). Net exports of
aluminum from the former Sino Soviet bloc increased approximately threefold
from 1990 levels during the period from 1991 through 1994 to approximately
two million tons per year. These exports contributed to a significant
increase in London Metal Exchange stocks of primary aluminum which peaked
in mid-1994. See "--Recent Industry Trends."
Government officials from the European Union, the United States,
Canada, Norway, Australia, and the Russian Federation have ratified as a
trade agreement a Memorandum of Understanding (the "Memorandum") which
provided, in part, for (i) a reduction in Russian Federation primary
aluminum production by 300,000 tons per year within three months of the
date of ratification of the Memorandum and an additional 200,000 tons
within the following three months, (ii) improved availability of
comprehensive data on Russian aluminum production, and (iii) certain
assistance to the Russian aluminum industry. The Memorandum did not
require specific levels of production cutbacks by other producing nations.
The Memorandum was finalized in February 1994 and is scheduled to remain in
effect through the end of 1995.
Based upon information currently available, Kaiser believes that only
moderate additions will be made during 1995-1996 to Western world alumina
and primary aluminum production capacity. The increases in alumina
capacity during 1995-1996 are expected to come from one new refinery and
incremental expansions of existing refineries.
RECENT INDUSTRY TRENDS
The aluminum industry environment improved significantly in 1994
compared to 1993. Prices of primary aluminum were at historic lows in real
terms near the beginning of 1994, and prices had nearly doubled by the end
of 1994. In response to low prices of primary aluminum in 1993 and the
first part of 1994, a number of smelting facilities were partially or fully
curtailed. Western world production of primary aluminum declined in 1994
to approximately 14.5 million tons from approximately 15.1 million tons in
1993. Demand for aluminum products was relatively weak in 1993, but became
very strong in the United States and became firm in Europe in 1994.
Primary aluminum prices improved not only because of improved demand, but
also because the inventories of primary aluminum on the London Metal
Exchange were substantially reduced in the second half of 1994. However,
significant amounts of inventory remained at the end of 1994, and some
reduction of prices from year-end 1994 occurred in the first quarter of
1995 to reflect that circumstance.
When previously curtailed smelting capacity is restarted, it will
result in an increase in the demand for alumina to supply those operations.
In addition, in the last several years large amounts of alumina have been
imported into the Commonwealth of Independent States. Consequently, Kaiser
believes that alumina demand and prices will strengthen as smelters are
restarted.
Supply and demand fundamentals for the flat-rolled aluminum products
business, particularly in the can sheet business, improved in 1994 because
of higher demand and a reduction of supply. Kaiser believes that supply
and demand for these products will move toward being in balance. The
demand for aluminum extrusions and forgings in 1994 also improved compared
to 1993, and supply and demand for these products is expected to move
toward being in balance.
Overall, Kaiser believes that there will be relatively strong demand
for aluminum for the near future, barring an economic recession. This
demand is expected to come both from continued growth in the developed
markets through increased penetration of the automotive sector, and from
general uses in emerging markets.
KAISER ALUMINUM
GENERAL
Kaiser operates in all principal aspects of the aluminum industry--
the mining of bauxite, the refining of bauxite into alumina, the production
of primary aluminum from alumina, and the manufacture of fabricated
(including semi-fabricated) aluminum products. In addition to the
production utilized in its operations, Kaiser sells significant amounts of
alumina and primary aluminum in domestic and international markets. In
1994, Kaiser produced approximately 2,928,500 tons of alumina, of which
approximately 71% was sold to third parties, and produced 415,000 tons of
primary aluminum, of which approximately 54% was sold to third parties.
Kaiser is also a major domestic supplier of fabricated aluminum products.
In 1994, Kaiser shipped approximately 399,000 tons of fabricated aluminum
products to third parties, which accounted for approximately 6% of the
total tonnage of United States domestic shipments in 1994. A majority of
Kaiser's fabricated products are used by customers as components in the
manufacture and assembly of finished end-use products.
The following table sets forth total shipments and intracompany
transfers of Kaiser's alumina, primary aluminum, and fabricated aluminum
operations:
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS OF TONS)
ALUMINA:
Shipments to Third Parties 2,086.7 1,997.5 2,001.3
Intracompany Transfers 820.9 807.5 878.2
PRIMARY ALUMINUM:
Shipments to Third Parties 224.0 242.5 355.4
Intracompany Transfers 225.1 233.6 224.4
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties 399.0 373.2 343.6
SENSITIVITY TO PRICES AND HEDGING PROGRAMS
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 upon the volume and mix of all products sold
and on Kaiser's hedging strategies. Through its variable cost structures,
forward sales, and hedging programs, Kaiser has attempted to mitigate its
exposure to possible declines in the market prices of alumina, primary
aluminum, and fabricated aluminum products while retaining the ability to
participate in favorable pricing environments that may materialize. See
Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Trends--Aluminum Operations--Sensitivity to Prices
and Hedging Programs."
PRODUCTION OPERATIONS
Kaiser's operations are conducted through decentralized business units
which compete throughout the aluminum industry.
- The alumina business unit, which mines bauxite and obtains
additional bauxite tonnage under long-term contracts, produced
approximately 8% of Western world alumina in 1994. During 1994,
Kaiser utilized approximately 80% of its bauxite production at
its alumina refineries and the remainder was either sold to third
parties or tolled into alumina by a third party. In addition,
during 1994 Kaiser utilized approximately 29% of its alumina for
internal purposes and sold the remainder to third parties.
Kaiser's share of total Western world alumina capacity was
approximately 8% in 1994.
- The primary aluminum products business unit operates two domestic
smelters wholly owned by Kaiser and two foreign smelters in which
Kaiser holds significant ownership interests. In 1994, Kaiser
utilized approximately 46% of its primary aluminum for internal
purposes and sold the remainder to third parties. Kaiser's share
of total Western world primary aluminum capacity was
approximately 3% in 1994.
- Fabricated aluminum products are manufactured by three business
units--flat-rolled products, extruded products, and forgings--
which manufacture a variety of fabricated products (including
body, lid, and tab stock for beverage containers, sheet and plate
products, screw machine stock, redraw rod, forging stock, truck
wheels and hubs, air bag canisters, and other forgings and
extruded products) and operate plants located in principal
marketing areas of the United States and Canada. Substantially
all of the primary aluminum utilized in Kaiser's fabricated
products operations is obtained internally, with the balance of
the metal utilized in its fabricated products operations obtained
from scrap metal purchases.
ALUMINA
The following table lists Kaiser's bauxite mining and alumina refining
facilities as of December 31, 1994:
ANNUAL
PRODUCTION TOTAL
CAPACITY ANNUAL
COMPANY AVAILABLE PRODUCTION
ACTIVITY FACILITY LOCATION OWNERSHIP TO KAISER CAPACITY
----------------- ------------ ------------ ------------ ----------- ------------
(TONS) (TONS)
Bauxite Mining KJBC (1) Jamaica 49% 4,500,000 4,500,000
Alpart (2) Jamaica 65% 2,275,000 3,500,000
------------ ------------
6,775,000 8,000,000
============ ============
Alumina Refining Gramercy Louisiana 100% 1,000,000 1,000,000
Alpart Jamaica 65% 943,000 1,450,000
QAL Australia 28.3 934,000 3,300,000
------------ ------------
2,877,000 5,750,000
============ ============
(1) Although Kaiser owns 49% of Kaiser Jamaica Bauxite Company, it has the right to receive all of such entity's output.
(2) Alpart bauxite is refined into alumina at the Alpart refinery.
Bauxite mined in Jamaica by Kaiser Jamaica Bauxite Company ("KJBC") is
refined into alumina at Kaiser's plant at Gramercy, Louisiana, or is sold
to third parties. In 1979, the Government of Jamaica granted Kaiser a
mining lease for the mining of bauxite sufficient to supply Kaiser's then-
existing Louisiana alumina refineries at their annual capacities of
1,656,000 tons per year until January 31, 2020. Alumina from the Gramercy
plant is sold to third parties. Kaiser has entered into a series of
medium-term contracts for the supply of natural gas to the Gramercy plant.
The price of such gas varies based upon certain spot natural gas prices.
However, for 1995 Kaiser has established a fixed price for a portion of the
delivered gas through a hedging program.
Alumina Partners of Jamaica ("Alpart") holds bauxite reserves and owns
a 1,450,000 tons per year alumina plant located in Jamaica. Kaiser has a
65% interest in Alpart and Hydro Aluminium Jamaica a.s ("Hydro") owns the
remaining 35% interest. Kaiser has management responsibility for the
facility on a fee basis. Kaiser and Hydro have agreed to be responsible
for their proportionate shares of Alpart's costs and expenses. The
Government of Jamaica has granted Alpart a mining lease and has entered
into other agreements with Alpart designed to assure that sufficient
reserves of bauxite will be available to Alpart to operate its refinery as
it may be expanded to a capacity of 2,000,000 tons per year through the
year 2024.
In mid-1990, Alpart entered into a five-year agreement for the supply
of substantially all of its fuel oil, the refinery's primary energy source.
In February 1992, this agreement was extended to 1996 and the quantity of
fuel oil to be supplied was increased. The price for 80% of the initial
quantity remains fixed at a price which prevailed in the fourth quarter of
1989; the price for 80% of the increased quantity is fixed at a negotiated
price; and the price for the balance of the initial and increased
quantities was based upon certain spot fuel oil prices plus transportation
costs. Alpart has purchased all of the quantities of fuel oil which could
be purchased based upon certain spot fuel oil prices under both the initial
and extended agreements.
Alpart has entered into an agreement for the supply of substantially
all of its fuel oil through 1996. The balance of Alpart's fuel oil
requirements through 1996 will be purchased in the spot market.
Kaiser holds a 28.3% interest in Queensland Alumina Limited ("QAL"),
which owns the largest and one of the most efficient alumina refineries in
the world, located in Queensland, Australia. QAL refines bauxite into
alumina, essentially on a cost basis, for the account of its stockholders
pursuant to long-term tolling contracts. The stockholders, including
Kaiser, purchase bauxite from another QAL stockholder pursuant to long-term
supply contracts. Kaiser has contracted to take approximately 751,000 tons
per year of capacity or pay standby charges. Kaiser is unconditionally
obligated to pay amounts calculated to service its share ($78.7 million at
December 31, 1994) of certain debt of QAL, as well as other QAL costs and
expenses, including bauxite shipping costs. QAL's annual production
capacity is approximately 3,300,000 tons, of which approximately 934,000
tons are available to Kaiser.
Kaiser's principal customers for bauxite and alumina consist of large
and small domestic and international aluminum producers that purchase
bauxite and reduction-grade alumina for use in their internal refining and
smelting operations and trading intermediaries who resell raw materials to
end-users. In 1994, Kaiser sold all of its bauxite to one customer, and
sold alumina to 12 customers, the largest and top five of which accounted
for approximately 19% and 82% of such sales, respectively. Among alumina
producers, Kaiser believes it is now the world's second largest seller of
alumina to third parties. Kaiser's strategy is to sell a substantial
portion of the bauxite and alumina available to it in excess of its internal
refining and smelting requirements pursuant to multi-year sales contracts.
Marketing and sales efforts are conducted by executives of the alumina business
unit and Kaiser. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Trends--Aluminum Operations--
Sensitivity to Prices and Hedging Programs."
PRIMARY ALUMINUM PRODUCTS
The following table lists Kaiser's primary aluminum smelting facilities as
of December 31, 1994:
ANNUAL
RATED TOTAL
CAPACITY ANNUAL 1994
COMPANY AVAILABLE RATED OPERATING
LOCATION FACILITY OWNERSHIP TO KAISER CAPACITY RATE
--------------------------- ---------- ---------- --------- ---------- ----------
(TONS) (TONS)
Domestic
Washington Mead 100% 200,000 200,000 80%
Washington Tacoma 100% 73,000 73,000 76%
---------- ----------
Subtotal 273,000 273,000
========== ==========
International
Ghana Valco 90% 180,000 200,000 70%
Wales, United Kingdom Anglesey 49% 55,000 112,000 113%
---------- ----------
Subtotal 235,000 312,000
---------- ----------
Total 508,000 585,000
========== ==========
Kaiser owns two smelters located at Mead and Tacoma, Washington, where
alumina is processed into primary aluminum. The Mead facility uses pre-bake
technology and produces primary aluminum, almost all of which is used at
Kaiser's Trentwood fabricating facility and the balance of which is sold to
third parties. The Tacoma plant uses Soderberg technology and produces
primary aluminum and high-grade, continuous-cast, redraw rod, which
currently commands a premium price in excess of the price of primary
aluminum. Both smelters have achieved significant production efficiencies
in recent years through retrofit technology, cost controls, and semi-
variable wage and power contracts, leading to increases in production
volume and enhancing their ability to compete with newer smelters. At the
Mead plant, Kaiser has converted to welded anode assemblies to increase
energy efficiency, extended the anode life-cycle in the smelting process,
changed from pencil to liquid pitch to produce carbon anodes which achieved
environmental and operating savings, and engaged in efforts to increase
production through the use of improved, higher-efficiency reduction cells.
Electrical power represents an important production cost for Kaiser at
its Mead and Tacoma smelters. The basic electricity supply contract
between the Bonneville Power Administration (the "BPA") and Kaiser expires
in 2001. The electricity contracts between the BPA and its direct service
industry customers (which consist of 15 energy intensive companies,
principally aluminum producers, including Kaiser) permit the BPA to
interrupt up to 25% of the amount of power which it normally supplies to
such customers. Kaiser has operated its Mead and Tacoma smelters in
Washington at approximately 75% of their full capacity since January 1993,
when three reduction potlines were removed from production (two at its Mead
smelter and one at its Tacoma smelter) in response to a power reduction
imposed by the BPA. Although full BPA power was restored as of April 1,
1994, a 25% power reduction was imposed again by the BPA as of August 1,
1994, which reduction continued through November 30, 1994. Full BPA power
was restored on December 1, 1994, and the BPA has stated that it expects to
be able to provide full service through November 30, 1995. Kaiser has
operated its Trentwood fabrication facility without curtailment of its
production.
Through June 1996, Kaiser pays for power on a basis which varies,
within certain limits, with the market price of primary aluminum, and
thereafter Kaiser will pay for power at rates to be negotiated. Effective
October 1, 1993, an increase in the base rate the BPA charged to its direct
service industry customers for electricity was adopted, and that rate is
expected to remain in effect through September 1995. In February 1995, the
BPA issued an initial rate increase announcement which proposed a 5.4%
increase to the direct service industry customers. If the proposed
increase becomes effective, it would increase production costs at the Mead
and Tacoma smelters by approximately $5.0 million per year based on the
current operating rate of those smelters. A rate increase could take
effect as early as October 1995; however, there is no certainty that the
proposed rate increase, or any rate increase, will become effective in
October 1995 or at any later time.
Kaiser manages, and holds a 90% interest in, the Volta Aluminium
Company Limited ("Valco") aluminum smelter in Ghana. The Valco smelter
uses pre-bake technology and processes alumina supplied by Kaiser and the
other participant into primary aluminum under long-term tolling contracts
which provide for proportionate payments by the participants in amounts
intended to pay not less than all of Valco's operating and financing costs.
Kaiser's share of the primary aluminum is sold to third parties. Power for
the Valco smelter is supplied under an agreement which expires in 2017.
The agreement indexes two-thirds of the price of the contract quantity to
the market price of primary aluminum. The agreement also provides for a
review and adjustment of the base power rate and the price index every five
years. The most recent review was completed in April 1994 for the 1994-
1998 period. Valco has entered into an agreement with the government of
Ghana under which Valco has been assured (except in cases of force majeure)
that it will receive sufficient electric power to operate at its current
level of three and one-half potlines through December 31, 1996, and under
which Valco may be assured (except in cases of force majeure) of sufficient
electric power to operate up to four and one-half potlines in 1996 if a
specified minimum amount of water from which hydroelectric power may be
generated is stored behind Okosombo Dam. Kaiser believes that with normal
rainfall during 1995 and 1996, Valco should have available sufficient
electric power to operate at its current level during 1995 and 1996.
Kaiser has a 49% interest in the Anglesey Aluminium Limited
("Anglesey") aluminum smelter and port facility at Holyhead, Wales. The
Anglesey smelter uses pre-bake technology. Kaiser supplies 49% of
Anglesey's alumina requirements and purchases 49% of Anglesey's aluminum
output. Kaiser sells its share of Anglesey's output to third parties.
Power for the Anglesey aluminum smelter is supplied under an agreement
which expires in 2001.
Kaiser has developed and installed proprietary retrofit technology in
all of its smelters. This technology--which includes the redesign of the
cathodes and anodes that conduct electricity through reduction cells,
improved "feed" systems that add alumina to the cells, and a computerized
system that controls energy flow in the cells--enhances Kaiser's ability to
compete more effectively with the industry's newer smelters. Kaiser is
actively engaged in efforts to license this technology and sell technical
and managerial assistance to other producers worldwide, and may participate
in joint ventures or similar business partnerships which employ Kaiser's
technical and managerial knowledge. See "--Research and Development."
Kaiser's principal primary aluminum customers consist of large trading
intermediaries and metal brokers, who resell primary aluminum to fabricated
product manufacturers, and large and small international aluminum
fabricators. In 1994, Kaiser sold the approximately 54% of its primary
aluminum production not utilized for internal purposes to approximately 35
customers, the largest and top five of which accounted for approximately
25% and 68% of such sales, respectively. Marketing and sales efforts are
conducted by a small staff located at the business unit's headquarters in
Pleasanton, California, and by senior executives of Kaiser who participate
in the structuring of major sales transactions. A majority of the business
unit's sales are based upon long-term relationships with metal merchants
and end-users. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Trends--Aluminum Operations--
Sensitivity to Prices and Hedging Programs."
FABRICATED ALUMINUM PRODUCTS
Kaiser manufactures and markets fabricated aluminum products for the
packaging, transportation, construction, and consumer durables markets in
the United States and abroad. Sales in these markets are made directly and
through distributors to a large number of customers, both domestic and
foreign. In 1994, seven domestic beverage container manufacturers
constituted the leading customers for Kaiser's fabricated products and
accounted for approximately 17% of Kaiser's sales revenue.
Kaiser's fabricated products compete with those of numerous domestic
and foreign producers and with products made with steel, copper, glass,
plastic, and other materials. Product quality, price, and availability are
the principal competitive factors in the market for fabricated aluminum
products. Kaiser has refocused its fabricated products operations to
concentrate on selected products in which Kaiser has production expertise,
high quality capability, and geographic and other competitive advantages.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Trends--Aluminum Operations--Sensitivity to Prices
and Hedging Programs."
Flat-Rolled Products. The flat-rolled products business unit, the
largest of Kaiser's fabricated products businesses, operates the Trentwood
sheet and plate mill at Spokane, Washington. The Trentwood facility is
Kaiser's largest fabricating plant and accounted for substantially more
than one-half of Kaiser's 1994 fabricated aluminum products shipments. The
business unit supplies the beverage container market (producing body, lid,
and tab stock), the aerospace market, and the tooling plate, heat-treated
alloy and common alloy coil markets, both directly and through
distributors. Kaiser announced in October 1993 that it was restructuring
its flat-rolled products operation at its Trentwood plant to reduce that
facility's annual operating costs. The Trentwood restructuring is expected
to result in annual cost savings of at least $50.0 million after it has
been fully implemented (which is expected to occur by the end of 1995). In
connection with the restructuring, the number of salaried employees at
Trentwood has been reduced, and it is anticipated that a 25% reduction in
the hourly workforce at Trentwood will be achieved by the end of 1995.
Kaiser's flat-rolled products are sold primarily to beverage container
manufacturers located in the western United States and in the Asian Pacific
Rim countries where the Trentwood plant's location provides Kaiser with a
transportation advantage. Quality of products for the beverage container
industry and timeliness of delivery are the primary bases on which Kaiser
competes. Kaiser believes that its capital improvements at Trentwood have
enhanced the quality of its products for the beverage container industry
and the capacity and efficiency of its manufacturing operations and that it
is one of the highest quality producers of aluminum beverage can stock in
the world.
In 1994, the flat-rolled products business unit had 26 foreign and
domestic can stock customers, the majority of which were beverage can
manufacturers (including five of the six major domestic beverage can
manufacturers) and the balance of which were brewers. The largest and top
five of such customers accounted for approximately 26% and 51%,
respectively, of the business unit's sales revenue. In 1994, the business
unit shipped products to over 200 customers in the aerospace,
transportation, and industrial ("ATI") markets, most of which were
distributors who sell to a variety of industrial end-users. The top five
customers in the ATI markets for flat-rolled products accounted for
approximately 12% of the business unit's sales revenue. The marketing
staff for the flat-rolled products business unit is located at the
Trentwood facility and in Pleasanton, California. Sales are made directly
to customers (including distributors) from eight sales offices located
throughout the United States. International customers are served by sales
offices in the Netherlands and Japan and by independent sales agents in
Asia and Latin America.
Extruded Products. The extruded products business unit is
headquartered in Dallas, Texas, and operates soft-alloy extrusion
facilities in Los Angeles, California; Santa Fe Springs, California;
Sherman, Texas; and London, Ontario, Canada; a cathodic protection business
located in Tulsa, Oklahoma that also extrudes both aluminum and magnesium;
rod and bar facilities in Newark, Ohio, a facility in Jackson, Tennessee,
which produce screw machine stock, redraw rod, forging stock, and billet;
and a facility in Richland, Washington, which is expected to be in full
operation in the second quarter of 1995 and which will produce seamless
tubing in both hard and soft alloys for the automotive, other
transportation, export, recreation, agriculture, and other industrial
markets. Each of the soft-alloy extrusion facilities has fabricating
capabilities and provides finishing services. The extruded products
business unit's major markets are in the transportation industry, to which
it provides extruded shapes for automobiles, trucks, trailers, cabs, and
shipping containers, and distribution, durable goods, defense, building and
construction, ordnance, and electrical markets. In 1994, the extruded
products business unit had over 950 customers for its products, the largest
and top five of which accounted for approximately 6% and 20%, respectively,
of its sales revenue. Sales are made directly from plants as well as
marketing locations across the United States.
Forgings. The forgings business unit operates forging facilities at
Erie, Pennsylvania; Oxnard, California; and Greenwood, South Carolina; and
a machine shop at Greenwood, South Carolina. The forgings business unit is
one of the largest producers of aluminum forgings in the United States and
is a major supplier of high-quality forged parts to customers in the
automotive, commercial vehicle, and ordnance markets. The high strength-
to-weight properties of forged aluminum make it particularly well suited
for automotive applications. In 1994, the forgings business unit had over
300 customers for its products, the largest and top five of which accounted
for approximately 30% and 69%, respectively, of the forgings business
unit's sales revenue. The forgings business unit's headquarters is located
in Erie, Pennsylvania, and additional sales, marketing, and engineering
groups are located in the midwestern and western United States.
COMPETITION
Aluminum products compete in many markets with steel, copper, glass,
plastic, and numerous other materials. Within the aluminum business,
Kaiser competes with both domestic and foreign producers of bauxite,
alumina, and primary aluminum, and with domestic and foreign fabricators.
Many of Kaiser's competitors have greater financial resources than Kaiser.
Kaiser's principal competitors in the sale of alumina include Alcoa of
Australia Ltd., Glencore Ltd., and Pechiney S.A. Kaiser competes with most
aluminum producers in the sale of primary aluminum.
Primary aluminum and, to some degree, alumina are commodities with
generally standard qualities, and competition in the sale of these
commodities is based primarily upon price, quality, and availability.
Kaiser also competes with a wide range of domestic and international
fabricators in the sale of fabricated aluminum products. Competition in
the sale of fabricated products is based upon quality, availability, price,
and service, including delivery performance. Kaiser concentrates its
fabricating operations on selected products in which Kaiser has production
expertise, high quality capability, and geographic and other competitive
advantages. Kaiser believes that, assuming the current relationship
between worldwide supply and demand for alumina and primary aluminum does
not change materially, the loss of any one of Kaiser's customers, including
intermediaries, would not have a material adverse effect on Kaiser'
business or operations.
RESEARCH AND DEVELOPMENT
Kaiser conducts research and development activities principally at
four facilities - the Center for Technology ("CFT") in Pleasanton,
California; the Primary Aluminum Products Division Technology Center
("DTC") adjacent to the Mead smelter in Washington; the Alumina Development
Laboratory ("ADL") at the Gramercy, Louisiana refinery and the Automotive
Product Development Office located near Detroit, Michigan. Net
expenditures for Company-sponsored research and development activities were
$16.7 million in 1994, $18.5 million in 1993, and $13.5 million in 1992.
Kaiser's research staff totaled 166 at December 31, 1994. Kaiser estimates
that research and development net expenditures will be in the range of
approximately $20.0 - $22.0 million in 1995.
CFT performs research and development across a range of aluminum
process and product technologies to support the business units of Kaiser
and new business opportunities and selectively offers technical services to
third parties. The largest and most notable single project being developed
at CFT is a "micromill" process for producing can body sheet. The
micromill concept allows elimination of a large share of the traditional
ingot process and a dramatic reduction in equipment and processing costs.
A pilot facility has been constructed and operated at CFT. Based on the
results achieved so far, Kaiser hopes to finalize in 1995 plans for
construction of a full-scale commercial micromill.
DTC maintains specialized laboratories and a miniature carbon plant
where experiments with new anode and cathode technology are performed. ADL
provides improved alumina process technology to Kaiser facilities and
technical support to new business ventures in cooperation with Kaiser's
international business development group. The Automotive Product
Development Office is a sales and application engineering facility located
near Detroit-area carmakers and works with customers, CFT and plant
personnel, to create new automotive component designs and improve existing
products.
Kaiser is actively engaged in efforts to license its technology and
sell technical and managerial assistance to other producers worldwide.
Pursuant to various arrangements, Kaiser's technology has been installed in
alumina refineries, aluminum smelters and rolling mills located in the
United States, Sweden, Germany, Russia, India, Australia, Korea, New
Zealand, Ghana, the United Kingdom, Jamaica and Europe. Kaiser's
technology sales and revenue from technical assistance to third parties
were $10.0 million in 1994, $12.8 million in 1993, and $14.1 million in
1992.
EMPLOYEES
During 1994, Kaiser employed an average of 9,740 persons, compared
with an average of 10,220 employees in 1993, and 10,130 employees in 1992.
At December 31, 1994, Kaiser's work force was approximately 9,500,
including a domestic work force of approximately 5,800, of whom
approximately 4,000 were paid at an hourly rate. Most hourly paid domestic
employees are covered by collective bargaining agreements with various
labor unions. Approximately 71% of such employees are covered by a master
agreement (the "Labor Contract") with the United Steelworkers of America
("USWA") which expires on September 30, 1998. The Labor Contract covers
Kaiser's plants in Spokane (Trentwood and Mead) and Tacoma, Washington;
Gramercy, Louisiana; and Newark, Ohio.
The Labor Contract provides for base wages at all covered plants. In
addition, workers covered by the Labor Contract may receive quarterly bonus
payments based on various indices of profitability, productivity,
efficiency, and other aspects of specific plant performance, as well as, in
certain cases, the price of alumina or primary aluminum. Pursuant to the
Labor Contract, base wage rates were raised effective January 2, 1995 and
will be raised an additional amount effective November 6, 1995 and November
3, 1997, and an amount in respect of the cost of living adjustment under
the previous master agreement will be phased into base wages during the
term of the Labor Contract. In the second quarter of 1995, Kaiser will
acquire up to $2,000 of preference stock held in a stock plan for the
benefit of each of approximately 82% of the employees covered by the Labor
Contract and in the first half of 1998 up to an additional $4,000 of such
preference stock held in such plan for the benefit of substantially the
same employees. In addition, if a profitability test is satisfied, Kaiser
will acquire during 1996 or 1997 up to an additional $1,000 of such
preference stock held in such plan for the benefit of substantially the
same employees. Kaiser will make comparable acquisitions of preference
stock held for the benefit of each of certain salaried employees. Kaiser
considers its employee relations to be satisfactory.
See also Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Trends--Aluminum Operations--Labor
Matters."
ENVIRONMENTAL MATTERS
Kaiser is subject to a wide variety of international, state, and local
environmental laws and regulations ("Environmental Laws") which continue to
be adopted and amended. The Environmental Laws regulate, among other
things, air and water emissions and discharges; the generation, storage,
treatment, transportation, and disposal of solid and hazardous waste; the
release of hazardous or toxic substances, pollutants and contaminants into
the environment; and, in certain instances, the environmental condition of
industrial property prior to transfer or sale. In addition, Kaiser is
subject to various federal, state, and local workplace health and safety
laws and regulations ("Health Laws").
From time to time, Kaiser is subject, with respect to its current and
former operations, to fines or penalties assessed for alleged breaches of
the Environmental and Health Laws and to claims and litigation brought by
federal, state or local agencies and by private parties seeking remedial or
other enforcement action under the Environmental and Health Laws or damages
related to alleged injuries to health or to the environment, including
claims with respect to certain waste disposal sites and the remediation of
sites presently or formerly operated by Kaiser. See "Item 3. Legal
Proceedings--Kaiser Environmental Litigation." Kaiser currently is subject
to a number of lawsuits under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("CERCLA"). Kaiser, along with
certain other entities, has been named as a Potentially Responsible Party
("PRP") for remedial costs at certain third-party sites listed on the
National Priorities List under CERCLA and, in certain instances, may be
exposed to joint and several liability for those costs or damages to
natural resources. Kaiser's Mead, Washington, facility has been listed on
the National Priorities List under CERCLA. In addition, in connection with
certain of its asset sales, Kaiser has indemnified the purchasers of assets
with respect to certain liabilities (and associated expenses) resulting
from acts or omissions arising prior to such dispositions, including
environmental liabilities. While uncertainties are inherent in the final
outcome of these matters, and it is presently 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 or results of operations.
Environmental capital spending was $11.9 million in 1994, $12.6
million in 1993, and $13.1 million in 1992. Annual operating costs for
pollution control, not including corporate overhead or depreciation, were
approximately $23.1 million in 1994, $22.4 million in 1993, and $21.6
million in 1992. Legislative, regulatory, and economic uncertainties make
it difficult to project future spending for these purposes. However,
Kaiser currently anticipates that in the 1995-1996 period, environmental
capital spending will be within the range of approximately $15.0 - $18.0
million per year, and operating costs for pollution control will be within
the range of $25.0 - $27.0 million per year. In addition, $3.6 million in
cash expenditures in 1994, $7.2 million in 1993, and $9.6 million in 1992
were charged to previously established reserves relating to environmental
cost. Approximately $11.4 million is expected to be charged to such
reserves in 1995.
See also Note 9 to the Consolidated Financial Statements.
OTHER
Kaiser's obligations under its 1994 Credit Agreement are secured by,
among other things, mortgages on Kaiser's plants located in Spokane (the
Trentwood and Mead plants) and Tacoma, Washington; Erie, Pennsylvania;
Newark, Ohio; and Sherman, Texas.
FOREST PRODUCTS OPERATIONS
GENERAL
The Company also engages in forest products operations through MGI and
MGI's wholly owned subsidiaries, Pacific Lumber and Britt. Pacific Lumber,
which has been in continuous operation for 125 years, engages in all
principal aspects of the lumber industry--the growing and harvesting of
redwood and Douglas-fir timber, the milling of logs into lumber products
and the manufacturing of lumber into a variety of value-added finished
products. Britt manufactures redwood and cedar fencing and decking
products from small diameter logs, a substantial portion of which Britt
acquires from Pacific Lumber.
PACIFIC LUMBER OPERATIONS
TIMBERLANDS
Pacific Lumber owns and manages approximately 189,000 acres of
commercial timberlands in Humboldt County in northern California. These
timberlands contain approximately three-quarters redwood and one-quarter
Douglas-fir timber. Pacific Lumber's acreage is virtually contiguous, is
located in close proximity to its sawmills and contains an extensive (1,100
mile) network of roads. These factors significantly reduce harvesting
costs and facilitate Pacific Lumber's forest management techniques. The
extensive roads throughout Pacific Lumber's timberlands facilitate log
hauling, serve as fire breaks and allow Pacific Lumber's foresters access
to employ forest stewardship techniques which protect the trees from forest
fires, erosion, insects and other damage.
Approximately 179,000 acres of Pacific Lumber's timberlands are owned
by Scotia Pacific Holding Company (the "SPHC Timberlands"), a special
purpose Delaware corporation and wholly owned subsidiary of Pacific Lumber.
Pacific Lumber has the exclusive right to harvest (the "Pacific Lumber
Harvest Rights") approximately 8,000 non-contiguous acres of the SPHC
Timberlands consisting substantially of virgin old growth redwood and
virgin old growth Douglas-fir timber located on numerous small parcels
throughout the SPHC Timberlands. Substantially all of SPHC's assets,
including the SPHC Timberlands, are pledged as security for SPHC's 7.95%
Timber Collateralized Notes due 2015 (the "Timber Notes"). Pacific Lumber
harvests and purchases from SPHC all or substantially all of the logs
harvested from the Subject Timberlands. See "--Pacific Lumber Operations--
Relationships among Pacific Lumber, SPHC and Britt Lumber" for a
description of this and other relationships among Pacific Lumber, SPHC and
Britt.
The forest products industry grades lumber in various classifications
according to quality. The two broad categories within which all grades
fall, based on the absence or presence of knots, are called "upper" and
"common" grades, respectively. "Old growth" trees, often defined as trees
which have been growing for approximately 200 years or longer, have a
higher percentage of upper grade lumber than "young growth" trees (those
which have been growing for less than 200 years). "Virgin" old growth
trees are located in timber stands that have not previously been harvested.
"Residual" old growth trees are located in timber stands which have been
selectively harvested in the past.
Pacific Lumber has engaged in extensive efforts, at relatively low
cost, to supplement the natural regeneration of timber and increase the
amount of timber on its timberlands. Regeneration of redwood timber
generally is accomplished through the natural growth of redwood sprouts
from the stump remaining after a redwood tree is harvested. Such new
redwood sprouts grow quickly, thriving on existing mature root systems. In
addition, Pacific Lumber supplements natural redwood generation by planting
redwood seedlings. Douglas-fir timber grown on Pacific Lumber's
timberlands is regenerated almost entirely by planting seedlings. During
the 1993-94 planting season (December through March), Pacific Lumber
planted approximately 554,000 redwood and Douglas-fir seedlings.
HARVESTING PRACTICES
The ability of Pacific Lumber to sell logs or lumber products will
depend, in part, upon its ability to obtain regulatory approval of timber
harvesting plans ("THPs"). THPs are required to be filed with the
California Department of Forestry ("CDF") prior to the harvesting of timber
and are designed to comply with existing environmental laws and
regulations. The CDF's evaluation of proposed THPs incorporates review and
analysis of such THPs provided by several California and federal agencies
and public comments received with respect to such THPs. An approved THP is
applicable to specific acreage and specifies the harvesting method and
other conditions relating to the harvesting of the timber covered by such
THP. The method of harvesting as set forth in a THP is chosen from among a
number of accepted methods based upon suitability to the particular site
conditions. Pacific Lumber maintains a detailed geographical information
system covering its timberlands (the "GIS"). The GIS covers numerous
aspects of Pacific Lumber's properties, including timber type, tree class,
wildlife data, roads, rivers and streams. By carefully monitoring and
updating this data base, Pacific Lumber's foresters are able to develop
detailed THPs which are required to be filed with and approved by the CDF
prior to the harvesting of timber. Pacific Lumber also utilizes a Global
Positioning System ("GPS") which allows precise location of geographic
features through satellite positioning. Use of the GPS greatly enhances
the quality and efficiency of GIS data.
Pacific Lumber principally harvests trees through selective
harvesting, which harvests only a portion of the trees in a given area, as
opposed to clearcutting, which harvests an entire area of trees in one
logging operation. Selective harvesting generally accounts for over 90%
(by volume on a net board foot basis) of Pacific Lumber's timber harvest in
any given year. Harvesting by clearcutting is used only when selective
harvesting methods are impractical due to unique conditions. Selective
harvesting allows the remaining trees to obtain more light, nutrients and
water thereby promoting faster growth rates. Due to the size of its
timberlands and conservative harvesting practices, Pacific Lumber has
historically conducted harvesting operations on approximately 5% of its
timberlands in any given year.
See also Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Trends--Forest Products Operations."
PRODUCTION FACILITIES
Pacific Lumber owns four highly mechanized sawmills and related
facilities located in Scotia, Fortuna and Carlotta, California. The
sawmills historically have been supplied almost entirely from timber
harvested from Pacific Lumber's timberlands. Since 1986, Pacific Lumber
has implemented numerous technological advances which have increased the
operating efficiency of its production facilities and the recovery of
finished products from its timber. Over the past three years, Pacific
Lumber's annual lumber production has averaged approximately 259 million
board feet, with approximately 286, 228 and 264 million board feet produced
in 1994, 1993 and 1992, respectively. Pacific Lumber operates a finishing
plant which processes rough lumber into a variety of finished products such
as trim, fascia, siding and paneling. These finished products include the
industry's largest variety of customized trim and fascia patterns. Pacific
Lumber also enhances the value of some grades of common grade lumber by
cutting out knot-free pieces and reassembling them into longer or wider
pieces in Pacific Lumber's state-of-the-art end and edge glue plant. The
result is a standard sized upper grade product which can be sold at a
significant premium over common grade products. Pacific Lumber owns and
operates 34 kilns, having an annual capacity of approximately 95 million
board feet, to dry its upper grades of lumber efficiently in order to
produce a quality, premium product. Pacific Lumber also maintains several
large enclosed storage sheds which hold approximately 25 million board feet
of lumber.
In addition, Pacific Lumber owns and operates a modern 25-megawatt
cogeneration power plant which is fueled almost entirely by the wood
residue from Pacific Lumber's milling and finishing operations. This power
plant generates substantially all of the energy requirements of Scotia,
California, the town adjacent to Pacific Lumber's timberlands owned by
Pacific Lumber where several of its manufacturing facilities are located.
Pacific Lumber sells surplus power to Pacific Gas and Electric Company. In
1994, the sale of surplus power to Pacific Gas and Electric Company
accounted for approximately 2% of Pacific Lumber's total revenues.
PRODUCTS
Lumber. Pacific Lumber primarily produces and markets lumber. In
1994, Pacific Lumber sold approximately 272 million board feet of lumber,
which accounted for approximately 82% of Pacific Lumber's total revenues.
Lumber products vary greatly by the species and quality of the timber from
which it is produced. Lumber is sold not only by grade (such as "upper"
grade versus "common" grade), but also by board size and the drying process
associated with the lumber.
Redwood lumber is Pacific Lumber's largest product category,
constituting approximately 77% of Pacific Lumber's total lumber revenues
and 63% of Pacific Lumber's total revenues in 1994. Redwood is
commercially grown only along the northern coast of California and
possesses certain unique characteristics which permit it to be sold at a
premium to many other wood products. Such characteristics include its
natural beauty, superior ability to retain paint and other finishes,
dimensional stability and innate resistance to decay, insects and
chemicals. Upper grade redwood lumber, which is derived primarily from old
growth trees and is characterized by an absence of knots and other defects
and a very fine grain, is used primarily in more costly and distinctive
interior and exterior applications. During 1994, upper grade redwood
lumber products accounted for approximately 17% of Pacific Lumber's total
lumber production volume (on a net board foot basis), 41% of its total
lumber revenues and 33% of its total revenues. Common grade redwood
lumber, Pacific Lumber's largest volume product, has many of the same
aesthetic and structural qualities of redwood uppers, but has some knots,
sapwood and a coarser grain. In 1994, common grade redwood lumber
accounted for approximately 58% of Pacific Lumber's total lumber production
volume (on a net board foot basis), 36% of its total lumber revenues and
29% of its total revenues.
Douglas-fir lumber is used primarily for new construction and some
decorative purposes and is widely recognized for its strength, hard surface
and attractive appearance. Douglas-fir is grown commercially along the
west coast of North America and in Chile and New Zealand. Upper grade
Douglas-fir lumber is derived primarily from old growth Douglas-fir timber
and is used principally in finished carpentry applications. In 1994, upper
grade Douglas-fir lumber accounted for approximately 3% of Pacific Lumber's
total lumber production volume (on a net board foot basis), 7% of its total
lumber revenues and 5% of its total revenues. Common grade Douglas-fir
lumber is used for a variety of general construction purposes and is
largely interchangeable with common grades of other whitewood lumber. In
1994, common grade Douglas-fir lumber accounted for approximately 20% of
Pacific Lumber's total lumber production volume, 13% of its total lumber
revenues and 10% of its total revenues.
Logs. Pacific Lumber currently sells certain logs that, due to their
size or quality, cannot be efficiently processed by its mills into lumber.
The purchasers of these logs are largely Britt, and surrounding mills which
do not own sufficient timberlands to support their mill operations. In
1994, log sales accounted for approximately 9% of Pacific Lumber's total
revenues. See "--Relationships among Pacific Lumber, SPHC and Britt
Lumber" below. Except for the agreement with Britt described below,
Pacific Lumber does not have any significant contractual relationships with
any third parties relating to the purchase of logs. Pacific Lumber has
historically not purchased significant quantities of logs from third
parties; however, Pacific Lumber may from time to time purchase logs from
third parties for processing in its mills or for resale to third parties
if, in the opinion of management, economic factors are advantageous to the
Company. See also Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--
Forest Products Operations--Operating Income" for a description of 1993 log
purchases by Pacific Lumber due to inclement weather conditions.
Wood Chips. In 1990, Pacific Lumber installed a whole-log chipper to
produce wood chips from hardwood trees which were previously left as waste.
These chips primarily are sold to third parties for the production of
facsimile and other specialty papers. In 1994, hardwood chips accounted
for approximately 4% of Pacific Lumber's total revenues. Pacific Lumber
also produces softwood chips from the wood residue and waste from its
milling and finishing operations. In 1994, softwood chips accounted for
approximately 4% of Pacific Lumber's total revenues.
BACKLOG AND SEASONALITY
Pacific Lumber's backlog of sales orders at December 31, 1994 and 1993
was approximately $11.9 million and $16.0 million, respectively, the
substantial portion of which was delivered in the first quarter of the
succeeding fiscal year. Pacific Lumber has historically experienced lower
first and fourth quarter sales due largely to the general decline in
construction-related activity during the winter months. As a result,
Pacific Lumber's results in any one quarter are not necessarily indicative
of results to be expected for the full year.
MARKETING
The housing, construction and remodeling markets are the primary
markets for Pacific Lumber's lumber products. Pacific Lumber's policy is
to maintain a wide distribution of its products both geographically and in
terms of the number of customers. Pacific Lumber sells its lumber products
throughout the country to a variety of accounts, the large majority of
which are wholesalers, followed by retailers, industrial users, exporters
and manufacturers. Upper grades of redwood and Douglas-fir lumber are sold
throughout the entire United States, as well as to export markets. Common
grades of redwood lumber are sold principally west of the Mississippi
river, with California accounting for approximately 55% of these sales in
1994. Common grades of Douglas-fir lumber are sold primarily in
California. In 1994, no single customer accounted for more than 4% of
Pacific Lumber's total revenues. Exports of lumber accounted for
approximately 4% of Pacific Lumber's total lumber revenues in 1994.
Pacific Lumber markets its products through its own sales staff which
focuses primarily on domestic sales.
COMPETITION
Pacific Lumber's lumber is sold in highly competitive markets.
Competition is generally based upon a combination of price, service and
product quality. Pacific Lumber's products compete not only with other
wood products but with metals, masonry, plastic and other construction
materials made from non-renewable resources. The level of demand for
Pacific Lumber's products is dependent on such broad factors as overall
economic conditions, interest rates and demographic trends. In addition,
competitive considerations, such as total industry production and
competitors' pricing, as well as the price of other construction products,
affect the sales prices for Pacific Lumber's lumber products. Pacific
Lumber currently enjoys a competitive advantage in the upper grade redwood
lumber market due to the quality of its timber holdings and relatively low
cost production operations. Competition in the common grade redwood and
Douglas-fir lumber market is more intense, and Pacific Lumber competes with
numerous large and small lumber producers.
EMPLOYEES
As of March 1, 1995, Pacific Lumber had approximately 1,520 employees.
RELATIONSHIPS AMONG PACIFIC LUMBER, SPHC AND BRITT LUMBER
In March 1993, Pacific Lumber consummated its offering of $235 million
of 10-1/2% Senior Notes due 2003 (the "Pacific Lumber Senior Notes") and
SPHC consummated its offering of $385 million of Timber Notes. Upon the
closing of such offerings, Pacific Lumber, SPHC and Britt entered into a
variety of agreements. Pacific Lumber and SPHC entered into a Services
Agreement (the "Services Agreement") and an Additional Services Agreement
(the "Additional Services Agreement"). Pursuant to the Services Agreement,
Pacific Lumber provides a variety of operational, management and related
services with respect to timberlands containing timber of SPHC ("SPHC
Timber") not performed by SPHC's own employees. Pursuant to the Additional
Services Agreement, SPHC provides Pacific Lumber with a variety of
services, including assisting Pacific Lumber to operate, maintain and
harvest its own timber properties.
Pacific Lumber and SPHC also entered into the Master Purchase
Agreement. The Master Purchase Agreement governs all purchases of logs by
the Company from SPHC. Each purchase of logs by Pacific Lumber from SPHC
is made pursuant to a separate log purchase agreement (which incorporates
the terms of the Master Purchase Agreement) for the SPHC Timber covered by
an approved THP. Each log purchase agreement generally constitutes an
exclusive agreement with respect to the timber covered thereby, subject to
certain limited exceptions. The purchase price must be at least equal to a
price published periodically by the California State Board of Equalization.
As Pacific Lumber purchases logs from SPHC pursuant to the Master Purchase
Agreement, Pacific Lumber is responsible, at its own expense, for
harvesting and removing the standing SPHC Timber covered by approved THPs.
Title to the harvested logs does not pass to Pacific Lumber until the logs
are transported to Pacific Lumber's log decks and measured. Substantially
all of SPHC's revenues are derived from the sale of logs to Pacific Lumber
under the Master Purchase Agreement.
Pacific Lumber, SPHC and Salmon Creek also entered into a Reciprocal
Rights Agreement granting to each other certain reciprocal rights of egress
and ingress through their respective properties in connection with the
operation and maintenance of such properties and their respective
businesses. In addition, Pacific Lumber entered into an Environmental
Indemnification Agreement with SPHC pursuant to which Pacific Lumber agreed
to indemnify SPHC from and against certain present and future liabilities
arising with respect to hazardous materials, hazardous materials
contamination or disposal sites, or under environmental laws with respect
to the SPHC Timberlands.
Pacific Lumber also entered into an agreement with Britt which governs
the sale of logs by Pacific Lumber and Britt to each other, the sale of hog
fuel (wood residue) by Britt to Pacific Lumber for use in Pacific Lumber's
cogeneration plant, the sale of lumber by Pacific Lumber and Britt to each
other, and the provision by Pacific Lumber of certain administrative
services to Britt (including accounting, purchasing, data processing,
safety and human resources services). The logs which Pacific Lumber sells
to Britt and which are used in Britt's manufacturing operations are sold at
approximately 75% of applicable SBE prices (to reflect the lower quality of
these logs). Logs which either Pacific Lumber or Britt purchases from
third parties and which are then sold to each other are transferred at the
actual cost of such logs. Hog fuel is sold at applicable market prices,
and administrative services are provided by Pacific Lumber based on Pacific
Lumber's actual costs and an allocable share of Pacific Lumber's overhead
expenses consistent with past practice.
BRITT LUMBER OPERATIONS
BUSINESS
Britt is located in Arcata, California, approximately 45 miles north
of Pacific Lumber's headquarters. Britt's primary business is the
processing of small diameter redwood logs into wood fencing products for
sale to retail and wholesale customers. Britt was incorporated in 1965 and
operated as an independent manufacturer of fence products until July 1990,
when it was purchased by a subsidiary of the Company. Britt purchases
small diameter (6 to 14 inch) and short length (6 to 12 feet) redwood logs
from Pacific Lumber and a variety of different diameter and different
length logs from various timberland owners. Britt processes logs at its
mill into a variety of different fencing products, including "dog-eared" 1"
x 6" fence stock in six and eight foot lengths, 4" x 4" fence posts in 6
through 12 foot lengths, and other fencing products in 6 through 12 foot
lengths. Britt's purchases of logs from third parties are generally
consummated pursuant to short-term contracts of twelve months or less. See
"--Pacific Lumber Operations--Relationships Among Pacific Lumber, SPHC and
Britt Lumber" for a description of Britt's log purchases from Pacific
Lumber.
MARKETING
In 1994, Britt sold approximately 79 million board feet of lumber
products to approximately 83 different customers. Over one-half of its
sales were in northern California. The remainder of its 1994 sales were in
southern California, Arizona, Colorado, Hawaii, Nevada, Oregon and
Washington. The largest and top five of such customers accounted for
approximately 35% and 81%, respectively, of such 1994 sales. Britt markets
its products through its own sales person to a variety of customers,
including distribution centers, industrial remanufacturers, wholesalers and
retailers.
FACILITIES AND EMPLOYEES
Britt's manufacturing operations are conducted on 12 acres of land, 10
acres of which are leased on a long-term fixed-price basis from an
unrelated third party. Fence production is conducted in a 46,000 square
foot mill. An 18 acre log sorting and storage yard is located one-quarter
of a mile away. The mill was constructed in 1980, and capital expenditures
to enhance its output and efficiency are made on a yearly basis. Britt's
(single shift) mill capacity, assuming 40 production hours per week, is
estimated at 40.3 million board feet of fencing products per year. As of
March 1, 1995, Britt employed approximately 100 people.
COMPETITION
Management estimates that Britt accounted for approximately one-
quarter of the redwood fence market in 1994 in competition with the
northern California mills of Louisiana Pacific, Georgia Pacific and Eel
River.
REGULATORY AND ENVIRONMENTAL FACTORS
Regulatory and environmental issues play a significant role in Pacific
Lumber's forest products operations. Pacific Lumber's forest products
operations are subject to a variety of California, and in some cases,
federal laws and regulations dealing with timber harvesting, endangered
species, and air and water quality. These laws include the California
Forest Practice Act (the "Forest Practice Act"), which requires that timber
harvesting operations be conducted in accordance with detailed requirements
set forth in the Forest Practice Act and in the regulations promulgated
thereunder by the California Board of Forestry (the "BOF"). The federal
Endangered Species Act (the "ESA") and the California Endangered Species
Act (the "CESA") provide in general for the protection and conservation of
specifically listed fish, wildlife and plants which have been declared to
be endangered or threatened. The California Environmental Quality Act
("CEQA") provides, in general, for protection of the environment of the
state, including protection of air and water quality and of fish and
wildlife. In addition, the California Water Quality Act requires, in part,
that Pacific Lumber's operations be conducted so as to reasonably protect
the water quality of nearby rivers and streams. The regulations under
certain of these laws are periodically modified. For instance, in March
and May 1994, the BOF approved additional rules providing for, among other
things, inclusion of additional information in THPs (concerning, among
other things, timber generation systems, the presence or absence of fish,
wildlife and plant systems, potentially impacted watersheds and compliance
with long term sustained yield objectives) and modification of certain
timber harvesting practices (including the creation of buffer zones between
harvest areas and increases in the amount of timber required to be retained
in a harvest area). See also Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Trends--Forest
Products Operations" for a description of the sustained yield regulations.
Pacific Lumber does not expect that compliance with such existing laws and
regulations will have a material adverse effect on its timber harvesting
practices or future operating results. There can be no assurance, however,
that future legislation, governmental regulations or judicial or
administrative decisions would not adversely affect Pacific Lumber.
Various groups and individuals have filed objections with the CDF
regarding the CDF's actions and rulings with respect to certain of Pacific
Lumber's THPs, and the Company expects that such groups and individuals
will continue to file objections to certain of Pacific Lumber's THPs. In
addition, lawsuits are pending which seek to prevent Pacific Lumber from
implementing certain of its approved THPs. These challenges have severely
restricted Pacific Lumber's ability to harvest virgin old growth timber on
its property during the past few years. To date, litigation with respect
to Pacific Lumber's THPs relating to young growth and residual old growth
timber has been limited; however, no assurance can be given as to the
extent of such litigation in the future.
In June 1990, the U.S. Fish and Wildlife Service (the "USFWS")
designated the northern spotted owl as threatened under the ESA. The owl's
range includes all of Pacific Lumber's timberlands. The ESA and its
implementing regulations (and related California regulations) generally
prohibit harvesting operations in which individual owls might be killed,
displaced or injured or which result in significant habitat modification
that could impair the survival of individual owls or the species as a
whole. Since 1988, biologists have conducted inventory and habitat
utilization studies of northern spotted owls on Pacific Lumber's
timberlands. Pacific Lumber has developed and the USFWS has given its full
concurrence to a comprehensive wildlife management plan for the northern
spotted owl (the "Owl Plan"). By incorporating the Owl Plan into each THP
filed with the CDF, Pacific Lumber is able to expedite the approval process
with respect to its THPs. Both federal and state agencies continue to
review and consider possible additional regulations regarding the northern
spotted owl. It is uncertain if such additional regulations will become
effective or their ultimate content.
In March 1992, the marbled murrelet was approved for listing as
endangered under the CESA. Pacific Lumber has incorporated, and will
continue to incorporate as required, additional mitigation measures into
its THPs to protect and maintain habitat for marbled murrelets on its
timberlands. The California Department of Fish and Game (the "CDFG")
requires Pacific Lumber to conduct pre-harvest marbled murrelet surveys and
to provide certain other site specific mitigations in connection with its
THPs covering virgin old growth timber and unusually dense stands of
residual old growth timber. Such surveys can only be conducted during
April to July, the murrelets' nesting and breeding season. Accordingly,
such surveys are expected to delay the review and approval process with
respect to certain of the THPs filed by Pacific Lumber. The results of
such surveys could prevent Pacific Lumber from conducting certain of its
harvesting operations. In October 1992, the USFWS issued its final rule
listing the marbled murrelet as a threatened species under the ESA in the
tri-state area of Washington, Oregon and California. In January 1994, the
USFWS proposed designation of critical habitat for the marbled murrelet
under the ESA. This proposal is subject to public comment, hearings and
possible future modification. Both federal and state agencies continue to
review and consider possible additional regulations regarding the marbled
murrelet. It is uncertain if such additional regulations will become
effective or their ultimate content.
Pacific Lumber's wildlife biologist is conducting research concerning
the marbled murrelet on Pacific Lumber's timberlands and is currently
developing a comprehensive management plan for the marbled murrelet (the
"Murrelet Plan") similar to the Owl Plan. Pacific Lumber is continuing to
work with the USFWS and the other government agencies on the Murrelet Plan.
It is uncertain when the Murrelet Plan will be completed.
Laws and regulations dealing with Pacific Lumber's operations are
subject to change and new laws and regulations are frequently introduced
concerning the California timber industry. From time to time, bills are
introduced in the California legislature and the U.S. Congress which relate
to the business of Pacific Lumber, including the protection and acquisition
of old growth and other timberlands, endangered species, environmental
protection and the restriction, regulation and administration of timber
harvesting practices. Because such 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 any of these bills on the
consolidated financial position or results of operations of the Company.
Furthermore, any bills which are passed are subject to executive veto and
court challenge. In addition to existing and possible new or modified
statutory enactments, regulatory requirements, administrative and legal
actions, the California timber industry remains subject to potential
California or local ballot initiatives and evolving federal and California
case law which could affect timber harvesting practices. It is, however,
impossible to assess the effect of such matters on the future operating
results or consolidated financial position of the Company.
REAL ESTATE OPERATIONS
The Company, principally through its wholly owned subsidiaries, is
also engaged in the business of real estate development and commercial real
estate investment in Arizona, California, Colorado, New Mexico, Texas and
Puerto Rico. The Company has outstanding receivables from the financing of
real estate sales in its developments and may continue to finance such real
estate sales in the future. The Company also holds other receivables as a
portion of its commercial real estate investments.
PROPERTIES
Texas. In 1991, a subsidiary of the Company purchased for
approximately $122.0 million a portfolio of real property and loans secured
by real property at auction from the Resolution Trust Corporation
(consisting of twenty-seven properties and twenty-eight loans).
Substantially all of the real property was located in Texas, with the
largest concentration in the vicinity of San Antonio, Houston, Austin and
Dallas. During 1992, $13.8 million of loans were sold or paid off and six
properties were sold for an aggregate of $5.3 million. In 1993, $9.8
million of loans were sold or paid off and eighteen properties were sold
for an aggregate of $117.7 million. During 1994, $2.9 million of loans
were sold or paid off and two properties were sold for an aggregate of
$11.3 million. As of December 31, 1994, the Company had six of the
original loans and fifteen of the original properties remaining. All of
the remaining assets are being marketed by the Company.
Palmas del Mar. Palmas del Mar ("Palmas"), a resort, time-sharing and
land development and sales business, located on the southeastern coast of
Puerto Rico near Humacao, was acquired in 1984. Originally 2,762 acres,
Palmas now includes approximately 2,140 acres of undeveloped land, 100
condominiums utilized in its time-sharing program (comprising 5,300 time-
share intervals of which approximately 1,135 remain to be sold), a 100-room
hotel and adjacent executive convention center known as the Candelero
Hotel, a 23-room luxury hotel known as the Palmas Inn, a casino, a Gary
Player-designed 18-hole golf course, 20 tennis courts, golf and tennis pro
shops, restaurants, beach and pool facilities, an equestrian center and a
sailing center. Certain stores and restaurants and the equestrian center
are operated by third parties. Approximately 1,300 private residences and
a marina are owned by third parties. A number of these private residences
are made available to Palmas by their owners throughout the year for rental
to vacationers. Since 1985, the Company has been actively engaged in the
development and sale of condominiums, estate lots and villas. In 1994,
Palmas sold approximately twenty-two acres of undeveloped land, twenty-two
condominium units, three estate lots and fifty time-share intervals.
Fountain Hills. In 1968, a subsidiary of the Company purchased and
began developing approximately 12,100 acres of real property at Fountain
Hills, Arizona, which is located near Phoenix and adjacent to Scottsdale,
Arizona. As of December 31, 1994, Fountain Hills had approximately 5,000
acres of undeveloped land, 107 commercial and industrial lots and 56
developed residential lots available for sale. The population of Fountain
Hills is approximately 13,000. The Company is planning the development of
certain of its remaining acreage. Future sales are expected to consist
mainly of undeveloped acreage, semi-developed parcels and fully-developed
lots, although the Company may engage in limited construction and direct
sale of residential units. In 1994, approximately 181 lots and 161 acres
were sold. Additionally, in 1994 a subsidiary of the Company entered into
a venture to develop 950 acres in Fountain Hills in an area known as
SunRidge Canyon.
Lake Havasu City. In 1963, a subsidiary of the Company purchased and
began developing approximately 16,700 acres of real property at Lake Havasu
City, Arizona, which were offered for sale in the form of subdivided single
and multiple family residential, commercial and industrial sites. The
Company has sold substantially all of its lot inventory in Lake Havasu City
and is currently planning the development of its remaining acreage.
Rancho Mirage. In 1991, a subsidiary of the Company acquired Mirada,
a 195-acre luxury resort-residential project located in Rancho Mirage,
California. The Company is currently marketing the project's fully-
developed lots.
Other. The Company, through its subsidiaries, owns a number of other
properties in Arizona, New Mexico, Texas and Colorado. Efforts are
underway to sell most of these properties.
MARKETING
The Company is engaged in marketing and sales programs of varying
magnitudes at its real estate developments. In recent years, the Company
has constructed residential units and sold time-share intervals at certain
of its real estate developments. The Company intends to continue selling
land to builders and developers and lots to individuals and expects to
continue to construct and sell completed residential units at certain of
its developments. It also expects to sell certain of its commercial real
estate assets. All sales are made directly to purchasers through the
Company's marketing personnel, independent contractors or through
independent real estate brokers who are compensated through the payment of
customary real estate brokerage commissions.
COMPETITION AND REGULATION AND OTHER INDUSTRY FACTORS
There is intense competition among companies in the real estate
development business and the commercial real estate business for sales to
residential and commercial lot purchasers and to commercial property
investors. Sales and payments on real estate sales obligations depend, in
part, on available financing and disposable income and, therefore, are
affected by changes in general economic conditions and other factors. The
real estate development business and commercial real estate business are
subject to other risks such as shifts in population, fluctuations in the
real estate market, and unpredictable changes in the desirability of
residential, commercial and industrial areas. The resort and time-sharing
business of Palmas competes with similar businesses in the Caribbean,
Florida and other locations. The resort operations of Palmas are seasonal
and are subject to, among other things, the condition of the United States
economy and tourism business in Puerto Rico.
The Company's real estate operations are subject to comprehensive
federal, state and local regulation. Applicable statutes and regulations
may require disclosure of certain information concerning real estate
developments and credit policies of the Company and its subsidiaries.
Periodic approval is required from various agencies in connection with the
layout and design of developments, the nature and extent of improvements,
construction activity, land use, zoning, and numerous other matters.
Failure to obtain such approval, or periodic renewal thereof, could
adversely affect real estate development and marketing operations of the
Company and its subsidiaries. Various jurisdictions also require
inspection of properties by appropriate authorities, approval of sales
literature, disclosure to purchasers of specific information, bonding for
property improvements, approval of real estate contract forms and delivery
to purchasers of a report describing the property.
SAM HOUSTON RACE PARK
ACQUISITION AND INITIAL OPERATIONS
On July 8, 1993, subsidiaries of the Company acquired, for a total
investment of $9.1 million, the following interests in Sam Houston Race
Park, a Class 1 thoroughbred and quarter horse racing facility (the "Race
Park") located in the greater Houston metropolitan area: (i) a 28.7%
equity interest in Sam Houston Race Park, Ltd. (the "Partnership"), which
owns the land, facilities and the racing license with respect to the Race
Park, (ii) all of the outstanding Class B Common Stock of the sole general
partner (the "General Partner") of the Partnership, (representing a further
1% equity interest in the Partnership), and (iii) a 75% interest in Race
Track Management Enterprises, the manager of the Race Park. The Race Park
commenced operations on April 29, 1994, but has sustained substantial
operating losses since commencing operations. The General Partner has
taken a number of steps intended to improve the Race Park's operations,
including strengthening on-site management, reducing general and
administrative costs, negotiating amendments to the contracts for purse
payments, principally to reduce purse payments, and negotiating reductions
with other obligees. In addition to its efforts to strengthen the Race
Park's operations, in September 1994 the General Partner conducted a
capital call for $6.5 million in additional capital for the Partnership
(the "Capital Call"). A substantial portion of the proceeds of the Capital
Call ($5.6 million) was contributed by a wholly owned subsidiary of the
Company pursuant, in large degree, to its oversubscription rights arising
from limited participation by other partners. As a result of the Capital
Call, the Company's equity interest in the Partnership held by its
subsidiaries increased to approximately 45.0%. The Company through its
subsidiaries is the largest limited partner in the Partnership.
The cash received from the Capital Call was expected to be used, among
other things, to make the January 15, 1995 interest payment on the
Partnership's 11-3/4% Senior Secured Notes (the "SHRP Notes"). However, in
order to continue operations, the Partnership was required to use a portion
of the cash that had been expected to be used for such interest payment.
Accordingly, the Partnership has defaulted on the $4.4 million semi-annual
interest payment that was due on January 15, 1995 with respect to the SHRP
Notes. Certain of the holders of the SHRP Notes have formed an unofficial
committee (the "Committee"), and the Committee has retained counsel and a
financial advisor (at the Partnership's expense) to advise them in this
matter. The General Partner has retained a financial advisor and entered
into ongoing discussions with representatives of the Committee regarding
the restructuring of the SHRP Notes. However, there can be no assurance
that the General Partner and the Committee will reach an agreement or as to
the terms of any such agreement. See also Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition and Investing and Financing Activities--Parent
Company."
RACING OPERATIONS AND RACE PARK FACILITIES
The Race Park offers pari-mutuel wagering on live thoroughbred or
quarter horse racing or simulcast racing generally seven days a week
throughout the year. Simulcasting is the process by which live races held
at one facility are broadcast simultaneously to other locations at which
additional wagers are placed on the race being broadcast. In addition to
revenues from wagering and simulcasting, the Race Park derives revenues
from admission fees, food services, club memberships, luxury suites,
advertising sales and other sources. The Race Park is located on
approximately 215 acres of land in northwest Harris County approximately 18
miles from the Houston central business district and approximately 15 miles
from Houston Intercontinental Airport. The Race Park has a one-mile dirt
track and a one and one-eighth mile turf course. The Race Park is bordered
by the Sam Houston Parkway on the north and is accessible by freeway.
RACING OPERATIONS
The ownership and operation of horse racetracks in Texas are subject
to significant regulation by the Texas Racing Commission (the "Racing
Commission") under the Texas Racing Act and related regulations
(collectively, the "Racing Act"). The Racing Act provides, among other
things, for how wagering proceeds are to be allocated among betting
participants, horsemens purses, racetracks, the State of Texas and for
other purposes, and empowers the Racing Commission to license and regulate
substantially all aspects of horse racing in the state. The Racing
Commission must approve the number of live race days that may be offered at
the Race Park each year, as well as all simulcast agreements.
MARKETING AND COMPETITION
The Race Park competes with other forms of entertainment, including
casinos located a little over 100 miles from Houston, a greyhound racetrack
located 60 miles from the Race Park and a wide range of live and televised
professional and collegiate sporting events that are available in the
Houston area. The Race Park could in the future also compete with other
forms of gambling in Texas, including casino gambling on Indian
reservations or otherwise.
EMPLOYEES
At March 1, 1994, the Company and its subsidiaries employed
approximately 2,500 persons, exclusive of those involved in Aluminum
Operations.
ITEM 2. PROPERTIES
For information concerning the principal properties and operations of
the Company, see Item 1. "Business."
ITEM 3. LEGAL PROCEEDINGS
KAISER ENVIRONMENTAL LITIGATION
ABERDEEN PESTICIDE DUMPS SITE MATTER
The Aberdeen Pesticide Dumps Site, listed on the Superfund National
Priorities List, is composed of five separate sites around the town of
Aberdeen, North Carolina (collectively, the "Sites"). The Sites are of
concern to the United States Environmental Protection Agency (the "EPA")
because of their past use as either pesticide formulation facilities or
pesticide disposal areas from approximately the mid-1930's through the
late-1980's. The United States originally filed a cost recovery complaint
(as amended, the "Complaint") in the United States District Court for the
Middle District of North Carolina, Rockingham Division, No. C-89-231-R,
which, as amended, includes KACC and a number of other defendants. The
Complaint seeks reimbursement for past and future response costs and a
determination of liability of the defendants under Section 107 of CERCLA.
The EPA has performed a Remedial Investigation/Feasibility Study and issued
a Record of Decision ("ROD") for the Sites in September 1991. The major
remedy selected for the Sites would have a cost of approximately $32
million. Other possible remedies described in the ROD would have estimated
costs of approximately $53 million and $222 million, respectively. The EPA
has stated that it has incurred past costs at the Sites in the range of
$7.5--$8 million as of February 9, 1993, and alleges that response costs
will continue to be incurred in the future.
On May 20, 1993, the EPA issued three unilateral Administrative Orders
under Section 106(a) of CERCLA ordering the respondents, including KACC, to
perform the remedial design and remedial action described in the ROD for
three of the Sites. The estimated cost as set forth in the ROD for the
remedial action at the three Sites is approximately $27 million. A number
of other companies are also named as respondents. KACC has entered into
PRP Participation Agreement with certain of the respondents to participate
jointly in responding to the Administrative Orders dated May 20, 1993,
regarding soil remediation, to share costs incurred on an interim basis,
and to seek to reach a final allocation of costs through agreement or to
allow such final allocation and determination of liability to be made by
the United States District Court. By letter dated July 6, 1993, KACC has
notified the EPA of its ongoing participation with such group of
respondents which, as a group, are intending to comply with the
Administrative Orders to the extent consistent with applicable law. By
letters dated December 30, 1993, the EPA notified KACC of its potential
liability for, and requested that KACC, along with a number of other
companies, undertake or agree to finance, groundwater remediation at
certain of the Sites. The ROD-selected remedy for the groundwater
remediation selected by EPA includes a variety of techniques. The EPA has
estimated the total present worth cost, including 30 years of operation and
maintenance, at approximately $11.8 million. A definitive PRP
Participation Agreement with respect to groundwater remediation is under
negotiation among certain of the respondents, including KACC, and these
respondents are proceeding with work required under the Administrative
Orders.
Based upon the information presently available to it, Kaiser is unable
to determine whether KACC has any liability with respect to any of the
Sites or, if there is any liability, the amount thereof. Two government
witnesses have testified that KACC acquired pesticide products from the
operator of the formulation site over a two to three year period. KACC has
been unable to confirm the accuracy of this testimony.
UNITED STATES OF AMERICA V. KAISER ALUMINUM & CHEMICAL CORPORATION
In February 1989, a civil action was filed by the United States
Department of Justice at the request of the EPA against KACC in the United
States District Court for the Eastern District of Washington, Case Number
C-89-106-CLQ. The complaint alleged that emissions from certain stacks at
Kaiser's Trentwood facility in Spokane, Washington intermittently violated
the opacity standard contained in the Washington State Implementation Plan
("SIP"), approved by the EPA under the federal Clean Air Act. The complaint
sought injunctive relief, including an order that KACC take all necessary
action to achieve compliance with the Washington SIP opacity limit and the
assessment of civil penalties of not more than $25,000 per day.
In the course of the litigation, questions arose as to whether the
observers who recorded the alleged exceedances were qualified under the
Washington SIP to read opacity. In July 1990, KACC and the Department of
Justice agreed to a voluntary dismissal of the action. At that time,
however, the EPA had arranged for increased surveillance of the Trentwood
facility by consultants and the EPA's personnel. From May 1990 through May
1991, these observers recorded approximately 130 alleged exceedances of the
SIP opacity rule. Justice Department representatives have stated their
intent to file a second lawsuit against KACC based on the opacity
observations recorded during that period.
The second lawsuit has not yet been filed. Instead, KACC has entered
into negotiations with the EPA to resolve the claims against KACC through a
consent decree. The EPA and KACC have made substantial progress in
negotiating the terms of the consent decree. The terms of the consent
decree currently being negotiated include, in principle, a commitment by
KACC to improve emission control equipment at the Trentwood facility and a
civil penalty assessment against KACC. The Company anticipates that
agreement upon the terms of a consent decree will be reached during 1995.
In the event the terms of a consent decree are not agreed upon, the matter
would likely be resolved in federal court.
CATELLUS DEVELOPMENT CORPORATION V. KAISER ALUMINUM & CHEMICAL
CORPORATION AND JAMES L. FERRY & SON INC.
In January 1991, the City of Richmond, et al. (the "Plaintiffs") filed
a Second Amended Complaint for Damages and Declaratory Relief against
Catellus Development Corporation ("Catellus") and other defendants
(collectively, the "Defendants") alleging, among other things, that the
Defendants caused or allowed hazardous substances, pollutants,
contaminants, debris and other solid wastes to be discharged, deposited,
disposed of or released on certain property located in Richmond, California
(the "Property") formerly owned by Catellus and leased to KACC for the
purpose of shipbuilding activities conducted by KACC on behalf of the
United States during World War II. Plaintiffs allege, among other things,
that the Defendants are jointly and severally liable for response costs,
declaratory relief and natural resources damages under CERCLA, and that
Defendant Catellus is strictly liable on grounds of continuing nuisance,
continuing trespass and negligence for such discharge, deposit, disposal or
release, and is liable for fraudulent concealment of the alleged
contamination. Certain of the Plaintiffs have alleged that they had
incurred or expect to incur costs and damages in the amount of
approximately $49 million, in the aggregate. KACC is alleged to have
performed certain excavation activities on the Property and, as a result
thereof, to have released contaminants on the Property and to have arranged
for the transportation, treatment and disposal of such contaminants.
Catellus has filed a third party complaint (the "Third Party
Complaint") against KACC in the United States District Court for the
Northern District of California, Case No. C-89-2935 DLJ. The Third Party
Complaint, as amended, seeks contribution and indemnity from KACC and
another party under a variety of theories (including negligence, nuisance,
waste and alleged contractual indemnities) for, among other things,
Catellus' response costs and natural resources damages under CERCLA, any
liability or judgment imposed against Cattelus, and treble damages for the
injury to its interest in the Property, and treble damages from KACC
pursuant to California Code of Civil Procedure Section 732.
By an October 1992 letter, counsel for certain underwriters at Lloyd's
London and certain London Market insurance companies (the "London
Insurers") advised that the London Insurers agreed to reimburse KACC for
defense expenses in the third party action filed by Catellus, subject to a
full reservation of rights. The Plaintiffs filed a motion for leave to
file a Third Amended Complaint which would have added KACC as a first party
defendant. This motion was denied. In October 1992, the Plaintiffs served a
separate Complaint against KACC for damages and declaratory relief. The
claims asserted by the Plaintiffs are for, among other things, (i) response
costs, recovery of costs, natural resources damages and declaratory relief
under CERCLA; (ii) damages for injury to the Property arising from
negligence, and (iii) damages under a theory of strict liability. This
matter has been tendered to the London Insurers. On June 24, 1994, the
District Court approved a Consent Decree consummating the settlement of the
Plaintiffs' CERCLA and tort claims against the United States in exchange
for payment of approximately $3.5 million plus 35% of future response
costs. Trial of this matter commenced in March 1995.
PICKETVILLE ROAD LANDFILL MATTER
In July, 1991, the EPA served on KACC and thirteen other PRPs a
Unilateral Administrative Order For Remedial Design and Remedial Action
(the "Order") at the Picketville Road Landfill site in Jacksonville,
Florida. The EPA seeks remedial design and remedial action pursuant to
CERCLA from some, but apparently not all, PRPs based upon a Record of
Decision outlining remedial cleanup measures to be undertaken at the site
adopted by the EPA in September 1990. The site was operated as a municipal
and industrial waste landfill from 1968 to 1977 by the City of
Jacksonville. KACC was first notified by the EPA in January 1991, that
wastes from one of KACC's plants may have been transported to and deposited
in the site. In its Record of Decision, the EPA estimated that the total
capital, operations and maintenance costs of its elected remedy for the
site would be approximately $9.9 million. In addition, the EPA has reserved
the right to seek recovery of its costs incurred relating to the Order,
including, but not relating to, reimbursement of the EPA's cost of
response. KACC has reached an agreement with certain PRPs who are
conducting remedial design and remedial action at the site, under which
KACC will fund $146,700 of the cost of the remedial design and remedial
action (unless remedial costs exceed $19 million in which event the
settlement agreement will be re-opened).
ASBESTOS-RELATED LITIGATION
KACC is a defendant in a number of lawsuits in which the plaintiffs
allege that certain of their injuries were caused by exposure to asbestos
during, and as a result of, their employment with KACC or 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
December 31, 1994, the number of such lawsuits pending was approximately
25,200. See Note 9 to the Consolidated Financial Statements.
OTHER KAISER LITIGATION
On August 24, 1994, the United States Department of Justice (the
"DOJ") issued Civil Investigative Demand No. 11356 ("CID") requesting
information from Kaiser regarding (i) its production, capacity to produce,
and sales of primary aluminum from January 1, 1991, to the date of the
response; (ii) any actual or contemplated reduction in its production of
primary aluminum during that period; and (iii) any communications with
others regarding any actual, contemplated, possible or desired reductions
in primary aluminum production by Kaiser or any of its competitors during
that period. Kaiser has submitted documents and interrogatory answers to
the DOJ responding to the CID.
Various other lawsuits and claims are pending against Kaiser. The
Company believes that resolution of the lawsuits and claims made against
Kaiser, including the matters discussed above, will not have a material
adverse effect on Kaiser's consolidated financial position or results of
operations.
PACIFIC LUMBER MERGER LITIGATION
As a result of the below-described settlement of the In Re Ivan F.
Boesky Multidistrict Securities Litigation (the "Boesky Settlement"), all
material stockholder claims against the Company and other defendants have
been resolved and have been dismissed or are in the process of being
dismissed.
During the mid-to-late 1980's, Pacific Lumber was named as defendant
along with several other entities and individuals, including the Company
and MGI, in various class, derivative and other actions brought in the
Superior Court of Humboldt County by former stockholders of Pacific Lumber
relating to the cash tender offer (the "Tender Offer") for the shares of
Pacific Lumber by a subsidiary of MGI and the subsequent merger (the
"Merger"), as a result of which Pacific Lumber became a wholly-owned
subsidiary of MGI (the "Humboldt County Lawsuits"). As of the date the
Court approved the Boesky Settlement, the Humboldt County Lawsuits which
remained open were captioned: Fries, et al. v. Carpenter, et al. (No.
76328) ("Fries State"); Omicini, et al. v. The Pacific Lumber Company, et
al. (No. 76974) ("Omicini"); Thompson, et al. v. Elam, et al. (No. 78467)
("Thompson State"); and Russ, et al. v. Milken, et al. (No. DR-85429)
("Russ"). The Humboldt County Lawsuits generally alleged, among other
things, that in documents filed with the Securities and Exchange Commission
(the "Commission"), the defendants made false statements concerning, among
other things, the estimated value of Pacific Lumber's assets, financing for
the Tender Offer and the Merger and minority stockholders' appraisal
rights, and that the individual directors of Pacific Lumber breached
certain fiduciary duties owed stockholders and other constituencies of
Pacific Lumber. The Company and MGI were alleged to have aided and abetted
these violations and committed other wrongs. The Thompson State, Omicini
and Fries State suits sought compensatory damages in excess of $1 billion,
exemplary damages in excess of $750 million, rescission and other relief.
The Russ suit did not specify the amount of damages sought.
In 1988, two lawsuits similar to the Humboldt County Lawsuits were
filed in the United States District Court, Central District of California--
Fries, et al. v. Hurwitz, et al. (No. 88-3493 RMT) ("Fries Federal") and
Thompson, et al. v. MAXXAM Group Inc., et al. (No. 88-06274) ("Thompson
Federal"). These actions sought damages and relief similar to that sought
in the Humboldt County Lawsuits. In May 1989, the Thompson Federal and
Fries Federal actions were consolidated in the In re Ivan F. Boesky
Multidistrict Securities Litigation in the United States District Court,
Southern District of New York (MDL No. 732 M 21-45-MP) ("Boesky"). An
additional action filed in November 1989, entitled American Red Cross, et
al. v. Hurwitz, et al. (No. 89 Civ 7722) ("American Red Cross"), was also
consolidated with the Boesky action. The American Red Cross action
contained allegations and sought damages and relief similar to that
contained in the Humboldt County Lawsuits.
At a fairness hearing held on November 17, 1994, the Court approved a
settlement of, and dismissed with prejudice, the pending federal actions
against the settling defendants. The actions dismissed with prejudice
include specifically: In Re Ivan F. Boesky Multidistrict Securities
Litigation; the Fries Federal action; the Thompson Federal action; and the
American Red Cross, et al. v. Hurwitz, et al. action. The court's order
also provides for the dismissal of all other shareholder claims against the
defendants, including dismissal of the Fries State, Omicini, and Russ
actions in their entirety, and all shareholder claims in the Thompson State
action. Of the approximately $52 million settlement, approximately $33
million was paid by insurance carriers of the Company, MGI and Pacific
Lumber, approximately $14.8 million was paid by Pacific Lumber and the
balance was paid by the other defendants and through the assignment of
certain claims. Dismissals have already been entered or are in process
with respect to all of the dismissed actions.
In September 1989, seven past and present employees of Pacific Lumber
brought an action against Pacific Lumber, the Company, MGI, certain current
and former directors and officers of the Company, Pacific Lumber and MGI,
and First Executive Life Insurance Company ("First Executive")
(subsequently dismissed as a defendant) in the United States District
Court, Northern District of California, entitled Kayes, et al. v. Pacific
Lumber Company, et al. (No. C89-3500) ("Kayes"). Plaintiffs purport to be
participants in or beneficiaries of Pacific Lumber's former Retirement Plan
(the "Retirement Plan") for whom a group annuity contract was purchased
from Executive Life Insurance Company ("Executive Life") in 1986 after
termination of the Retirement Plan. The Kayes action alleges that the
Company, Pacific Lumber and MGI defendants breached their ERISA fiduciary
duties to participants and beneficiaries of the Retirement Plan by
purchasing the group annuity contract from First Executive and selecting
First Executive to administer the annuity payments. Plaintiffs seek, among
other things, a new group annuity contract on behalf of the Retirement Plan
participants and beneficiaries. This case was dismissed on April 14, 1993
and was refiled as Jack Miller, et al. v. Pacific Lumber Company, et al.
(No. C-89-3500-SBA) ("Miller") on April 26, 1993; the Miller case was
dismissed on May 14, 1993. These dismissals have been appealed. On
October 3, 1994, the U.S. House of Representatives approved a bill amending
ERISA, which had previously been passed by the U.S. Senate, and is
intended, in part, to overturn the U.S. District Court's dismissal of the
Miller action and to make available certain remedies not previously
provided under ERISA. On October 22, 1994, the President signed this
legislation (the Pension Annuitants' Protection Act of 1994). As a result
of the passage of this legislation, the Miller plaintiffs have asked the
U.S. Ninth Circuit Court of Appeals to vacate the U. S. District Court
judgment dismissing their case and to remand the case to the U.S. District
Court; defendants have opposed this request. It is uncertain what effect,
if any, this legislation will have on the pending appeal or the final
disposition of this case. The defendants and plaintiff in the DOL civil
action have invited the Miller plaintiffs to participate in the court-
supervised settlement discussions concerning the Miller and DOL civil
actions.
In June 1991, the U.S. Department of Labor filed a civil action
entitled Lynn Martin, Secretary of the U.S. Department of Labor v. The
Pacific Lumber Company, et al. (No. 91-1812-RHS) ("DOL civil action") in
the United States District Court, Northern District of California, against
the Company, Pacific Lumber, MGI and certain of their current and former
officers and directors. The allegations in the DOL civil action are
substantially similar to that in the Kayes action. The DOL civil action has
been stayed pending resolution of the Kayes and Miller appeals. Formal
settlement negotiations continue to be overseen by the court in this
matter.
Management is of the opinion that the outcome of the foregoing
litigation should not have a material adverse effect on the Company's
consolidated financial position or results of operations.
ZERO COUPON NOTE LITIGATION
In April 1989, an action was filed against the Company, MGI, MAXXAM
Properties Inc. ("MPI") and certain of the Company's directors in the Court
of Chancery of the State of Delaware, entitled Progressive United
Corporation v. MAXXAM Inc., et al., Civil Action No. 10785. Plaintiff
purports to bring this action as a stockholder of the Company derivatively
on behalf of the Company and MPI. In May 1989, a second action containing
substantially similar allegations was filed in the Court of Chancery of the
State of Delaware, entitled Wolf v. Hurwitz, et al. (No. 10846) and the two
cases were consolidated (collectively, the "Zero Coupon Note" actions).
The Zero Coupon Note actions relate a Put and Call Agreement entered into
between MPI and Mr. Charles Hurwitz (Chairman of the Board of the Company,
MGI and MPI), as well as a predecessor agreement (the "Prior Agreement").
Among other things, the Put and Call Agreement provided that Mr. Hurwitz
had the option (the "Call") to purchase from MPI certain notes (or the
common stock of the Company into which they were converted) for $10.3
million. In July 1989, Mr. Hurwitz exercised the Call and acquired 990,400
shares of the Company's common stock. The Zero Coupon Note actions
generally allege that in entering into the Prior Agreement Mr. Hurwitz
usurped a corporate opportunity belonging to the Company, that the Put and
Call Agreement constituted a waste of corporate assets of the Company and
MPI, and that the defendant directors breached their fiduciary duties in
connection with these matters. Plaintiffs seek to have the Put and Call
Agreement declared null and void, among other remedies.
RANCHO MIRAGE LITIGATION
In May 1991, a derivative action entitled Progressive United
Corporation v. MAXXAM Inc., et al. (No. 12111) ("Progressive United") was
filed in the Court of Chancery, State of Delaware against the Company,
Federated Development Company ("Federated"), MCO Properties Inc. ("MCOP"),
a wholly-owned subsidiary of the Company, and the Company's Board of
Directors. The action alleges abuse of control and breaches of fiduciary
obligations based on, and unfair consideration for, the Company's Agreement
in Principle with Federated to (a) forgive payments of principal and
interest of approximately $32.2 million due from Federated under two loan
agreements between MAXXAM and Federated and (b) grant an additional
$11.0 million of consideration to Federated, in exchange for certain real
estate assets valued at approximately $42.9 million in Rancho Mirage,
California, held by Federated (the "Mirada transactions"). Plaintiff seeks
to have the Agreement in Principle rescinded, an accounting under the loan
agreements, repayment of any losses suffered by the Company or MCOP, costs
and attorneys fees.
The following six additional lawsuits similar to the Progressive
United case have been filed in Delaware Chancery Court challenging the
Mirada transactions: NL Industries, et al. v. MAXXAM Inc., et al. (No.
12353); Kahn, et al. v. Federated Development Company, et al. (No. 12373);
Thistlethwaite, et al. v. MAXXAM Inc., et al. (No. 12377); Glinert, et al.
v. Hurwitz, et al. (No. 12383); Friscia, et al. v. MAXXAM Inc., et al.
(No. 12390); and Kassoway, et al. v MAXXAM Inc., et al. (No. 12404). The
Kahn, Glinert, Friscia and Kassoway actions have been consolidated with the
Progressive United action into In re MAXXAM Inc./Federated Development
Shareholders Litigation (No. 12111); the NL Industries action has been
"coordinated" with the consolidated actions; the Thistlethwaite action has
been stayed pending the outcome of the consolidated actions. In January
1994, a derivative action entitled NL Industries, Inc., et al. v. Federated
Development Company, et al. (No. 94-00630) was filed in the District Court
of Dallas County, Texas, against the Company (as nominal defendant) and
Federated. This action contains allegations and seeks relief similar to
that contained in the In re MAXXAM Inc./Federated Development Shareholders
Litigation. With respect to the In Re: MAXXAM Inc./Federated Development
Shareholders Litigation, on February 10, 1995, the Court issued its
decision disapproving a proposed settlement. With respect to the similar
NL Industries Inc., et. al., v. Federated Development Co., et. al. action,
the Court is reviewing a previously agreed to stay and related issues in
light of the In Re: MAXXAM Inc., Federated Development Shareholders
litigation action.
OTHER LITIGATION 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 or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
MAXXAM INC.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Reference is made to this section in the portions of the Company's
1994 Annual Report to Stockholders (the "Annual Report") which are included
as part of Exhibit 13.1 hereto and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to this section in the portions of the Annual Report
which are included as part of Exhibit 13.1 hereto and incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to this section in the portions of the Annual Report
which are included as part of Exhibit 13.1 hereto and incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the consolidated financial statements and notes
thereto and the quarterly financial information in the portions of the
Annual Report which are included as part of Exhibit 13.1 hereto and
incorporated herein by reference.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
MAXXAM INC.
PART III
Information required under Part III (Items 10, 11, 12 and 13) has been
omitted from this report since the Company intends to file with the
Securities and Exchange Commission, not later than 120 days after the close
of its fiscal year, a definitive proxy statement pursuant to Regulation 14A
which involves the election of directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):
The consolidated financial statements and the Report of
Independent Public Accountants are included on pages 38 to 67 of the Annual
Report which are included as part of Exhibit 13.1 hereto and incorporated
herein by reference.
2. FINANCIAL STATEMENT SCHEDULES: PAGE
Report of Independent Public Accountants on Financial
Statement Schedule 33
Schedule III - Condensed financial information of
Registrant at December 31, 1994 and 1993 and for the
years ended December 31, 1994, 1993 and 1992 34
All other schedules are inapplicable or the required
information is included in the consolidated financial statements or the
notes thereto.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
Reference is made to the Index of Exhibits immediately preceding the
exhibits hereto (beginning on page 40), which index is incorporated herein
by reference.
MAXXAM INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of MAXXAM Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in MAXXAM Inc.'s
1994 Annual Report to Stockholders incorporated by reference in this Form
10-K, and have issued our report thereon dated February 17, 1995. Our
audits were made for the purpose of forming an opinion on those statements
taken as a whole. The schedule listed in the index on page 32 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the
basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 17, 1995
MAXXAM INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (UNCONSOLIDATED)
DECEMBER 31,
------------------
1994 1993
-------- --------
(IN MILLIONS
OF DOLLARS)
ASSETS
Current assets:
Cash and cash equivalents $ 15.5 $ 26.7
Marketable securities 20.8 26.9
Other current assets 4.4 5.4
------- -------
Total current assets 40.7 59.0
Investment in subsidiaries - 3.6
Deferred income taxes 68.4 60.7
Other assets 4.6 6.0
------- -------
$ 113.7 $ 129.3
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 10.5 $ 9.3
Long-term debt, current maturities 2.4 4.1
------- -------
Total current liabilities 12.9 13.4
Long-term debt, less current maturities 44.6 48.0
Losses recognized in excess of investment in subsidiaries 198.9 -
Notes payable to subsidiaries, net of notes receivable and
advances 12.2 108.6
Other noncurrent liabilities 120.4 127.2
------- -------
Total liabilities 389.0 297.2
------- -------
Stockholders' deficit:
Preferred stock, $.50 par value; 12,500,000 shares
authorized; Class A $.05 Non-Cumulative Participating
Convertible Preferred Stock; shares issued: 1994 -
669,957 and 1993 - 679,084 .3 .3
Common stock, $.50 par value; 28,000,000 shares
authorized; shares issued: 10,063,359 5.0 5.0
Additional capital 53.2 51.2
Accumulated deficit (302.9) (180.8)
Pension liability adjustment (11.4) (23.9)
Treasury stock, at cost (shares held: preferred - 845; (19.5) (19.7)
common: 1994 - 1,355,768 and 1993 - 1,364,895) ------- -------
Total stockholders' deficit (275.3) (167.9)
------- -------
$ 113.7 $ 129.3
======= =======
See notes to consolidated financial statements and accompanying notes.
MAXXAM INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF OPERATIONS (UNCONSOLIDATED)
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
-------- -------- --------
(IN MILLIONS OF DOLLARS)
Investment, interest and other income $ 12.6 $ 3.0 $ 2.8
Interest expense (11.7) (13.7) (15.1)
General and administrative expenses (11.0) (15.4) (8.4)
Equity in earnings (losses) of subsidiaries (132.0) (615.5) 9.3
------- ------- -------
Loss before income taxes and cumulative effect of
changes in accounting principles (142.1) (641.6) (11.4)
Credit (provision) for income taxes 20.0 (3.1) 4.1
------- ------- -------
Loss before cumulative effect of changes in accounting
principles (122.1) (644.7) (7.3)
Cumulative effect of changes in accounting principles:
Postretirement benefits other than pensions, net
of related credit for income taxes of $.2 - (.4) -
Accounting for income taxes - 44.9 -
------- ------- -------
Net loss $(122.1) $(600.2) $ (7.3)
======= ======= =======
See notes to consolidated financial statements and accompanying notes.
MAXXAM INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS (UNCONSOLIDATED)
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
-------- -------- --------
(IN MILLIONS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(122.1) $(600.2) $ (7.3)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Equity in losses (earnings) of subsidiaries 132.0 615.5 (9.3)
Net sales (purchases) of marketable
securities 6.8 18.3 (30.7)
Amortization of deferred financing costs and
discounts on long-term debt .3 .5 .6
Cumulative effect of changes in accounting
principles, net - (44.5) -
Decrease in receivables 1.1 .8 1.1
Increase in accrued and deferred income taxes (7.9) (13.1) (6.5)
Increase (decrease) in accounts payable and
other liabilities (5.3) 24.3 (1.8)
Other (.2) 2.6 (1.4)
------- ------- -------
Net cash provided by (used for) 4.7 4.2 (55.3)
operating activities ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Kaiser Depositary Shares 10.3 - -
Dividends received from subsidiaries 7.5 66.1 18.1
Investments in and net advances from (to)
subsidiaries (27.5) (22.2) 18.0
Capital expenditures (.4) (.3) (1.5)
------- ------- -------
Net cash provided by (used for) (10.1) 43.6 34.6
investing activities ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption, repurchase of and principal payments
on long-term debt (5.8) (24.3) (3.9)
Proceeds from issuance of common stock - - .6
------- ------- -------
Net cash used for financing activities (5.8) (24.3) (3.3)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11.2) 23.5 (24.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26.7 3.2 27.2
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 15.5 $ 26.7 $ 3.2
======= ======= =======
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Distribution received from subsidiary of the
Company's payable $ 132.0
Assumption by the Company of subsidiary's payables
to the Company and affiliates (63.1)
Net assets transferred from subsidiary $ 30.5
Dividend of the Company's marketable securities
received from subsidiary $ 14.9
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 7.0 $ 6.8 $ 11.1
Income taxes paid (refunded) 1.1 (.5) (1.9)
See notes to consolidated financial statements and accompanying notes.
MAXXAM INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO FINANCIAL STATEMENTS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
A. SIGNIFICANT TRANSACTIONS
On August 4, 1993, MAXXAM Group Inc. ("MGI," a wholly owned subsidiary
of the Company) issued $100.0 aggregate principal amount of 11-1/4% Senior
Secured Notes due 2003 (the "MGI Senior Notes") and $126.7 aggregate
principal amount (approximately $70.0 net of original issue discount) of
12-1/4% Senior Secured Discount Notes due 2003 (the "MGI Discount Notes,"
which, together with the MGI Senior Notes, are referred to collectively as
the "MGI Notes"). The MGI Notes are secured by MGI's pledge of 100% of the
common stock of The Pacific Lumber Company, Britt Lumber Co., Inc. and
MAXXAM Properties Inc. (wholly owned subsidiaries of MGI) and by the
Company's pledge of 28 million shares of the common stock of Kaiser
Aluminum Corporation ("Kaiser," a majority owned subsidiary of the
Company). Contemporaneously with the issuance of the MGI Notes, MGI (i)
transferred to the Company 50 million common shares of Kaiser held by a
subsidiary of MGI, representing MGI's (and the Company's) entire interest
in Kaiser's common stock, (ii) transferred to the Company 60,075 shares of
the Company's common stock held by a subsidiary of MGI, (iii) transferred
to the Company certain notes receivable, long-term investments, and other
assets, each net of related liabilities, collectively having a carrying
value to MGI of approximately $1.1 and (iv) exchanged with the Company
2,132,950 of Kaiser's $.65 Depositary Shares (the "Depositary Shares")
(acquired by MGI from Kaiser in exchange for a $15.0 cash loan made by MGI
to Kaiser Aluminum & Chemical Corporation, Kaiser's operating subsidiary,
in January 1993), such exchange being in satisfaction of a related $15.0
promissory note evidencing a cash loan made by the Company to MGI in
January 1993. On the same day, the Company assumed approximately $17.5 of
certain liabilities of MGI that were unrelated to MGI's forest products
operations or were related to operations which have been disposed of by
MGI. Additionally, on September 28, 1993, MGI transferred its interest in
Palmas del Mar to the Company.
During 1994, the Company sold 1,239,400 of the Depositary Shares for
an aggregate net proceeds of $10.3, resulting in pre-tax gains of $1.6.
The carrying value of the remaining 893,550 Depositary Shares at December
31, 1994 was $6.3. The Company may consummate the sale of all or any
portion of the remaining Depositary Shares at any time.
B. DEFERRED INCOME TAXES
The deferred income tax assets and liabilities reported in the
accompanying unconsolidated balance sheet are determined by computing such
amounts on a consolidated basis, for the Company and members of its
consolidated federal income tax return group, and then reducing such
consolidated amounts by the amounts recorded by the Company's subsidiaries
pursuant to their respective tax allocation agreements with the Company.
The Company's net deferred income tax assets relate primarily to the excess
of the tax basis over financial statement basis with respect to timber and
timberlands and real estate of subsidiaries. The Company has concluded
that it is more likely than not that these net deferred income tax assets
will be realized based in part upon the estimated values of the underlying
assets which are in excess of their tax basis.
C. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
---------------
1994 1993
------- -------
14% Senior Subordinated Reset Notes due May 20, $ 25.0 $ 25.0
2000
12-1/2% Subordinated Debentures due December 15,
1999, net of discount of $1.7 and $2.4 at
December 31, 1994 and 1993, respectively 20.9 25.2
Other 1.1 1.9
------ ------
47.0 52.1
Less: current maturities (2.4) (4.1)
------ ------
$ 44.6 $ 48.0
====== ======
Scheduled maturities of long-term debt outstanding at December 31,
1994 are as follows: years ending December 31, 1995 - $2.4; 1996 - $3.6;
1997 - $3.3; 1998 - $3.3; 1999 - $11.0; thereafter - $25.1.
D. NOTES PAYABLE TO SUBSIDIARIES, NET OF NOTES RECEIVABLE AND ADVANCES
At December 31, 1994, the Company has unsecured notes payable to its
real estate subsidiaries totalling $73.8 (including interest) which consist
of a $60.9 note, bearing interest at 6% per annum, and four notes totalling
$12.9, bearing interest at 7% per annum. The Company also has secured
nonrecourse notes receivable from a real estate subsidiary totalling $43.6
(including interest) which bear interest at 12% per annum on the first
$15.0 of principal and at prime plus 1% to 2% per annum on the remaining
principal.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, who has
signed this report on behalf of the Registrant and as the chief financial
officer of the Registrant.
MAXXAM INC.
Date: March 27, 1995 By: /S/ PAUL N. SCHWARTZ
Paul N. Schwartz
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 27, 1995 By: /S/ CHARLES E. HURWITZ
Charles E. Hurwitz
Chairman of the Board,
President and
Chief Executive Officer
Date: March 27, 1995 By: /S/ ROBERT J. CRUIKSHANK
Robert J. Cruikshank
Director
Date: March 27, 1995 By: /S/ EZRA G. LEVIN
Ezra G. Levin
Director
Date: March 27, 1995 By: /S/ STANLEY D. ROSENBERG
Stanley D. Rosenberg
Director
Date: March 27, 1995 By: /S/ TERRY L. FREEMAN
Terry L. Freeman
Assistant Controller
(Principal Accounting Officer)
INDEX OF EXHIBITS
Exhibit
Number Description
-------- ------------------------------------------------------
3.1 Restated Certificate of Incorporation of MAXXAM Inc.
(the "Company" or "MAXXAM") dated April 10, 1989
(incorporated herein by reference to Exhibit 3.1 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1989)
3.2 Certificate of Powers, Designations, Preferences and
Relative, Participating, Optional and Other Rights of
the Company's Class B Junior Participating Preferred
Stock (incorporated herein by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989)
3.3 Certificate of Designations of Class A $.05 Non-
Cumulative Participating Convertible Preferred Stock
of the Company, dated July 6, 1994 (incorporated
herein by reference to Exhibit 4(c) to the
Registration Statement of the Company on Form S-8,
Registration No. 33-54479)
3.4 By-laws of the Company, as amended on October 6, 1988
(incorporated herein by reference to Exhibit 3.3 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1988)
4.1 Indenture regarding the Company's 14% Senior
Subordinated Reset Notes due May 20, 2000
(incorporated herein by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-4,
Registration No. 33-20096)
4.2 Indenture dated as of November 15, 1979 between the
Company and Bank of America National Trust and Savings
Association, Trustee, regarding the Company's 12-1/2%
Subordinated Debentures due December 15, 1999
(incorporated herein by reference to Exhibit 4.2 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1980)
*4.3 Loan and Pledge Agreement, dated as of October 10,
1994, by and between Custodial Trust Company and the
Company
4.4 Indenture, dated as of August 4, 1993, by and between
Shawmut Bank, N.A. and MAXXAM Group Inc. ("MGI")
regarding MGI's 11-1/4% Senior Secured Notes due 2003
and 12-1/4% Senior Secured Discount Notes due 2003
(incorporated herein by reference to Exhibit 4.1 to
MGI's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-8857; the "MGI
1993 Form 10-K")
4.5 Indenture, dated as of February 1, 1993, among Kaiser
Aluminum & Chemical Corporation ("KACC"), certain
related corporations and The First National Bank of
Boston, Trustee, regarding KACC's 12-3/4% Senior
Subordinated Notes due 2003 (the "KACC Senior
Subordinated Note Indenture") (incorporated herein by
reference to Exhibit 4.1 to KACC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993,
File No. 1-3605)
4.6 First Supplemental Indenture, dated as of May 1, 1993
to the KACC Senior Subordinated Note Indenture
(incorporated herein by reference to Exhibit 4.2 to
KACC's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, File No. 1-3605)
4.7 Indenture, dated as of February 17, 1994, among KACC,
certain related corporations and First Trust National
Association, Trustee, regarding KACC's 9-7/8% Senior
Notes due 2002 (incorporated herein by reference to
Exhibit 4.3 to KACC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File No. 1-
3605; the "KACC 1993 Form 10-K")
4.8 Credit Agreement, dated as of February 17, 1994 (the
"Kaiser 1994 Credit Agreement"), among Kaiser Aluminum
Corporation ("Kaiser"), KACC, certain financial
institutions and BankAmerica Business Credit, Inc., as
Agent (incorporated herein by reference to Exhibit 4.4
to the KACC 1993 Form 10-K)
4.9 First Amendment, dated July 21, 1994, to the Kaiser
1994 Credit Agreement (incorporated herein by
reference to Exhibit 4.1 to the Quarterly Report on
Form 10-Q of Kaiser Aluminum Corporation for the
quarter ended June 30, 1994; File No. 1-9447)
4.10 Second Amendment, dated March 10, 1995, to the Kaiser
1994 Credit Agreement (incorporated herein by
reference to Exhibit 4.6 to the Annual Report on Form
10-K of Kaiser Aluminum Corporation for the year ended
December 31, 1994; File No. 1-9447)
4.11 Certificate of Designation of Series A Mandatory
Conversion Premium Dividend Preferred Stock of Kaiser,
dated June 28, 1993 (incorporated herein by reference
to Exhibit 4.3 to Kaiser's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, File No. 1-
9447, the "Kaiser 1993 Third Quarter Form 10-Q")
4.12 Deposit Agreement between Kaiser and The First
National Bank of Boston, dated as of June 30, 1993
(incorporated herein by reference to Exhibit 4.4 to
the Kaiser 1993 Third Quarter Form 10-Q)
4.13 Certificate of Designation of 8.255% Preferred
Redeemable Increased Dividend Equity Securities of
Kaiser, dated February 17, 1993 (incorporated herein
by reference to Exhibit 4.21 to Kaiser's Annual Report
on Form 10-K for the fiscal year ended December 31,
1993, File No. 1-9447; the "Kaiser 1993 Form 10-K")
4.14 Indenture, dated as of March 23, 1993, between The
Pacific Lumber Company ("Pacific Lumber") and The
First National Bank of Boston, as Trustee, regarding
Pacific Lumber's 10-1/2% Senior Notes due 2003
(incorporated herein by reference to Exhibit 4.1 to
Pacific Lumber's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993; File No. 1-9204)
4.15 Indenture, dated as of March 23, 1993, between Scotia
Pacific Holding Company ("SPHC") and The First
National Bank of Boston, as Trustee, regarding SPHC's
7.95% Timber Collateralized Notes due 2015
(incorporated herein by reference to Exhibit 4.1 to
SPHC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993; File No. 33-55538; the "SPHC
1993 Form 10-K")
4.16 Form of Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment, dated as of
March 23, 1993, among SPHC, The First National Bank of
Boston, as Trustee, and The First National Bank of
Boston, as the Collateral Agent (incorporated herein
by reference to Exhibit 4.2 to the SPHC 1993 Form 10-
K)
4.17 Revolving Credit Agreement, dated as of June 23, 1993,
between Pacific Lumber and Bank of America National
Trust and Savings Association (incorporated herein by
reference to Exhibit 4.19 to Amendment No. 2 to the
Form S-2 Registration Statement of MGI, Registration
No. 33-56332; the "MGI 1993 Registration Statement")
4.18 Letter Amendment, dated as of October 5, 1993, to the
Pacific Lumber Revolving Credit Agreement,
(incorporated herein by reference to Exhibit 4.1 to
Pacific Lumber's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No. 1-9204)
4.19 Second Amendment, dated as of May 26, 1994, to Pacific
Lumber's Revolving Credit Agreement (incorporated
herein by reference to Exhibit 4.2 to the Quarterly
Report on Form 10-Q of the Company for the quarter
ended June 30, 1994; the "Company 1994 Second Quarter
Form 10-Q")
4.20 Loan Agreement, dated June 17, 1991, by and between
General Electric Capital Corporation ("GECC") and MXM
Mortgage Corp. (the "GECC Loan Agreement")
(incorporated herein by reference to Exhibit 10(dd) to
Amendment No. 4 to MGI's Registration Statement on
Form S-4 on Form S-2, Registration No. 33-42300; the
"MGI 1991 Registration Statement")
4.21 Unconditional Guarantee of Payment and Performance
dated June 17, 1991 by the Company and MGI to and for
the benefit of GECC (incorporated herein by reference
to Exhibit 10(ee) to the MGI 1991 Registration
Statement)
4.22 First Renewal, Extension and Modification Agreement
dated as of June 17, 1992 among GECC, MXM Mortgage
Corp. and the Company (incorporated herein by
reference to Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1992)
4.23 Loan Increase, Extension and Modification Agreement
among GECC, MXM Mortgage Corp. and the Company dated
as of December 30, 1992 (incorporated herein by
reference to Exhibit 4.23 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1992; the "Company 1992 Form 10-K")
4.24 Modification Agreement, dated as of June 29, 1993, to
the GECC Loan Agreement (incorporated herein by
reference to Exhibit 4.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1993)
4.25 Consent and Assumption Agreement, dated as of December
10, 1993, among GECC, MXM Mortgage Corp., MXM Mortgage
L.P., the Company and MGI (incorporated herein by
reference to Exhibit 4.36 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1993; the "Company 1993 Form 10-K")
4.26 Third Modification Agreement, dated as of December 30,
1993, among GECC, MXM Mortgage Corp. and MXM Mortgage
L.P. (incorporated herein by reference to Exhibit 4.37
to the Company 1993 Form 10-K)
4.27 Release and Termination of Unconditional Guarantee of
Payment and Performance, dated as of December 30,
1993, executed by GECC (incorporated herein by
reference to Exhibit 4.38 to the Company 1993 Form 10-
K)
4.28 Fourth Amendment to Loan Agreement, dated as of
December 30, 1993, among GECC, MXM Mortgage Corp. and
MXM Mortgage L.P. (incorporated herein by reference to
Exhibit 4.39 to the Company 1993 Form 10-K)
4.29 Fourth Modification Agreement, dated as of March 31,
1994, by and among General Electric Capital
Corporation, MXM Mortgage Corp. and MXM Mortgage L.P.
(incorporated herein by reference to Exhibit 4.3 to
the Company 1994 Second Quarter Form 10-Q)
4.30 Fifth Amendment to Loan Agreement, dated as of March
31, 1994, by and among GECC, MXM Mortgage Corp. and
MXM Mortgage L.P. (incorporated herein by reference to
Exhibit 4.4 to the Company 1994 Second Quarter Form
10-Q)
*4.31 Fifth Modification Agreement, dated as of January 13,
1995, among GECC, MXM Mortgage Corp. and MXM Mortgage
L.P.
*4.32 Sixth Amendment to Loan Agreement, dated as of January
13, 1995, among GECC, MXM Mortgage Corp. and MXM
Mortgage L.P.
4.33 Indenture, dated July 7, 1993, by and among Sam
Houston Race Park, Ltd., SHRP Capital Corp., SHRP,
Inc. and Chemical Bank (incorporated herein by
reference to Exhibit 10.1 to the Registration
Statement on Form S-1 of SHRP, Inc., Registration No.
33-67736; the "SHRP Registration Statement")
4.34 Deed of Trust, Assignment, Security Agreement and
Financing Statement dated July 7, 1993 (incorporated
herein by reference to Exhibit 10.2 to the SHRP
Registration Statement)
4.35 License Negative Pledge Agreement dated July 7, 1993
(incorporated herein by reference to Exhibit 10.3 to
the SHRP Registration Statement)
4.36 Senior Subordinated Intercompany Note between KACC and
the Company, dated as of January 14, 1993
(incorporated herein by reference to Exhibit 4.13 to
Amendment No. 5 to the Form S-1 on Form S-2
Registration Statement of KACC, Registration No. 33-
48260; the "KACC 1993 Registration Statement")
4.37 Senior Subordinated Intercompany Note between Kaiser
and KACC, dated February 15, 1994 (incorporated herein
by reference to Exhibit 4.22 to the Kaiser 1993 Form
10-K)
4.38 Senior Subordinated Intercompany Note between Kaiser
and KACC, dated March 17, 1994 (incorporated herein by
reference to Exhibit 4.23 to the Kaiser 1993 Form
10-K)
4.39 Senior Subordinated Intercompany Note between Kaiser
and KACC, dated June 30, 1993 (incorporated herein by
reference to Exhibit 4.24 to the Kaiser 1993 Form
10-K)
4.40 Intercompany Note between Kaiser and KACC
(incorporated herein by reference to Exhibit 4.2 to
Amendment No. 5 to the Registration Statement of KACC
on Form S-1, Registration No. 33-30645)
Note: Pursuant to Regulation Section 229.601, Item
601(b)(4)(iii) of Regulation S-K, upon request of the
Securities and Exchange Commission, the Company hereby
agrees to furnish a copy of any unfiled instrument
which defines the rights of holders of long-term debt
of the Company and its consolidated subsidiaries (and
for any of its unconsolidated subsidiaries for which
financial statements are required to be filed) wherein
the total amount of securities authorized thereunder
does not exceed 10 percent of the total consolidated
assets of the Company.
10.1 Tax Allocation Agreement among the Company and KACC
dated as of December 21, 1989 (incorporated herein by
reference to Exhibit 10.21 to Amendment No. 6 to the
Registration Statement of KACC on Form S-1,
Registration No. 33-30645)
10.2 Tax Allocation Agreement between Kaiser and the
Company (incorporated herein by reference to Exhibit
10.23 to Amendment No. 4 to the Registration Statement
of Kaiser on Form S-1, Registration No. 33-37895)
10.3 Tax Allocation Agreement between the Company and MGI,
dated August 4, 1993 (incorporated herein by reference
to Exhibit 10.6 to the MGI 1993 Registration
Statement)
10.4 Tax Allocation Agreement dated as of May 21, 1988
among the Company, MGI, Pacific Lumber and the
corporations signatory thereto (incorporated herein by
reference to Exhibit 10.8 to Pacific Lumber's Annual
Report on Form 10-K for the fiscal year ended December
31, 1988, File No. 1-9204)
10.5 Tax Allocation Agreement among Pacific Lumber, SPHC,
Salmon Creek Corporation and the Company, dated as of
March 23, 1993 (incorporated herein by reference to
Exhibit 10.1 to Amendment No. 3 to the Form S-1
Registration Statement of SPHC, Registration No. 33-
55538; the "SPHC Registration Statement")
10.6 Tax Allocation Agreement between the Company and Britt
Lumber Co., Inc. (incorporated herein by reference to
Exhibit 10.4 to the MGI 1993 Form 10-K)
10.7 Tax Allocation Agreement between the Company and SHRP,
Inc., dated November 4, 1993 (incorporated herein by
reference to Exhibit 10.23 to the SHRP Registration
Statement)
10.8 Assumption Agreement, dated as of October 28, 1988
(incorporated herein by reference to Exhibit HHH to
the Final Amendment to the Schedule 13D of MGI and
others in respect of the common stock of the Company)
10.9 Agreement, dated as of June 30, 1993, between Kaiser
and the Company (incorporated herein by reference to
Exhibit 10.2 to KACC's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993, File No. 1-3605)
10.10 Undertaking, dated as of August 4, 1993, by the
Company in favor of MGI (incorporated herein by
reference to Exhibit 10.27 to the MGI 1993 Form 10-K)
10.11 Form of Master Purchase Agreement between Pacific
Lumber and SPHC, dated as of March 23, 1993
(incorporated herein by reference to Exhibit 10.1 to
the SPHC 1993 Form 10-K)
10.12 Form of Services Agreement between Pacific Lumber and
SPHC, dated as of March 23, 1993 (incorporated herein
by reference to Exhibit 10.2 to the SPHC 1993 Form 10-
K)
10.13 Form of Additional Services Agreement between Pacific
Lumber and SPHC, dated as of March 23, 1993
(incorporated herein by reference to Exhibit 10.3 to
the SPHC 1993 Form 10-K)
10.14 Form of Reciprocal Rights Agreement among Pacific
Lumber, SPHC and Salmon Creek Corporation, dated as of
March 23, 1993 (incorporated herein by reference to
Exhibit 10.4 to the SPHC 1993 Form 10-K)
10.15 Form of Environmental Indemnification Agreement
between Pacific Lumber and SPHC, dated as of March 23,
1993 (incorporated herein by reference to Exhibit
10.5 to the SPHC 1993 Form 10-K)
10.16 Purchase and Services Agreement between Pacific Lumber
and Britt Lumber Co., Inc., dated as of March 23, 1993
(incorporated herein by reference to Exhibit 10.17 to
Amendment No. 2 to the Form S-2 Registration Statement
of Pacific Lumber, Registration Statement No. 33-
56332; the "Pacific Lumber Registration Statement")
10.17 Exchange Agreement dated as of May 20, 1991 by and
among the Company, MCO Properties Inc. ("MCOP") and
Federated Development Company (incorporated by
reference from Exhibit 10(ff) to the MGI 1991
Registration Statement)
10.18 Revolving Credit and Term Loan Agreement, dated as of
August 27, 1987, as amended, between MCOP and
Federated Development Company (incorporated herein by
reference to Exhibit 10.82 to the Company's
Registration Statement on Form S-4, Registration No.
33-20096)
10.19 Term Loan Agreement, dated as of November 17, 1987,
between MCOP and Federated Development Company
(incorporated herein by reference to Exhibit 10.83 to
the Company's Registration Statement on Form S-4,
Registration No. 33-20096)
10.20 Put and Call Agreement, dated November 16, 1987 (the
"Put and Call Agreement") between Charles E. Hurwitz
and MAXXAM Properties Inc. ("MPI") (incorporated
herein by reference to Exhibit C to Schedule 13D dated
November 24, 1987, filed by MGI with respect to the
Company's common stock)
10.21 Amendment to Put and Call Agreement, dated May 18,
1988, (incorporated herein by reference to Exhibit D
to the Final Amendment to Schedule 13D dated May 20,
1988, filed by MGI relating to the Company's common
stock)
10.22 Amendment to Put and Call Agreement, dated as of
February 17, 1989, (incorporated herein by reference
to Exhibit 10.35 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1988)
10.23 Note Purchase Agreement dated July 26, 1982, as
amended, between the Company and Drexel Burnham
Lambert Incorporated, relating to the Company's Zero
Coupon Senior Subordinated Notes due 2007
(incorporated herein by reference to Exhibit B to
Schedule 13D dated November 24, 1987, filed by MGI
relating to the Company's common stock)
10.24 Second Amended and Restated Limited Partnership
Agreement of Sam Houston Race Park, Ltd., dated as of
June 3, 1993 (incorporated herein by reference to
Exhibit 3.2 to the SHRP Registration Statement)
10.25 Warrant Agreement by and between SHRP, Inc., as
issuer, and Chemical Bank, as Trustee, dated July 7,
1993 (incorporated herein by reference to Exhibit 4.1
to the SHRP Registration Statement)
10.26 Registration Rights Agreement by and among the Sam
Houston Race Park, Ltd., SHRP, Inc., SHRP Capital
Corp., and Salomon Brothers Inc., as Initial
Purchasers, dated July 7, 1993 (incorporated herein by
reference to Exhibit 4.4 to the SHRP Registration
Statement)
10.27 Voting Agreement, dated July 7, 1993, by and among
SHRP, Inc., SHRP General Partner, Inc. and Salomon
Brothers Inc., as Initial Purchasers (incorporated
herein by reference to Exhibit 9 to the SHRP
Registration Statement)
10.28 Amended and Restated Management Agreement, dated July
7, 1993, by and between Race Track Management
Enterprises and Sam Houston Race Park, Ltd.
(incorporated herein by reference to Exhibit 10.6 to
the SHRP Registration Statement)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.29 MAXXAM 1994 Omnibus Employee Incentive Plan
(incorporated herein by reference to Exhibit 99 to the
Company's Proxy Statement dated April 29, 1994; File
No. 1-3924; the "Company 1994 Proxy Statement")
*10.30 Form of Stock Option Agreement under the MAXXAM 1994
Omnibus Employee Incentive Plan
10.31 MAXXAM 1994 Non-Employee Director Plan (incorporated
herein by reference to Exhibit 99 to the Company 1994
Proxy Statement)
*10.32 Form of Stock Option Agreement under the MAXXAM 1994
Non-Employee Director Plan
10.33 Form of Deferred Fee Agreement under the MAXXAM 1994
Non-Employee Director Plan (incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the Quarter ended September
30, 1994)
10.34 MAXXAM 1994 Executive Bonus Plan (incorporated herein
by reference to Exhibit 99 to the Company 1994 Proxy
Statement)
10.35 Revised Capital Accumulation Plan effective January 1,
1988 (incorporated herein by reference to Exhibit
10.27 to the Company's Registration Statement on Form
S-4, Registration No. 33-20096)
10.36 The Company's 1984 Phantom Share Plan, as amended (the
"Company Phantom Share Plan") (incorporated herein by
reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1990; the "Company 1990 Form 10-K")
10.37 Amendment, dated as of March 8, 1990, relating to the
Company Phantom Share Plan (incorporated herein by
reference to Exhibit 10.7 to the Company 1990 Form
10-K)
10.38 Form of Phantom Share Agreement relating to the
Company Phantom Share Plan (incorporated herein by
reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1988)
10.39 MAXXAM Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit 10(jj) to
the 1991 MGI Registration Statement)
10.40 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.1 to KACC's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, File No. 1-3605)
*10.41 Form of Stock Option Agreement under the Kaiser 1993
Omnibus Stock Incentive Plan
10.42 KACC's Bonus Plan (incorporated herein by reference to
Exhibit 10.25 to Amendment No. 6 to the Registration
Statement of KACC on Form S-1, Registration No. 33-
30645)
10.43 Promissory Note dated February 1, 1989 by Anthony R.
Pierno and Beverly J. Pierno to the Company (the "1989
Pierno Note") (incorporated herein by reference to
Exhibit 10.30 to the Company 1990 Form 10-K)
*10.44 Letter amendment, dated February 28, 1995, to the 1989
Pierno Note
10.45 Promissory Note dated July 19, 1990 by Anthony R.
Pierno to the Company (the "1990 Pierno Note")
(incorporated herein by reference to Exhibit 10.31 to
the Company 1990 Form 10-K)
*10.46 Letter amendment, dated February 28, 1995, to the 1990
Pierno Note
10.47 Real Estate Lien Note dated July 3, 1990 by Paul N.
Schwartz and Barbara M. Schwartz, Trustee, to the
Company (the "Schwartz Note") and related Deed of
Trust and Letter Agreement (incorporated herein by
reference to Exhibit 10.35 to the Company 1990 Form
10-K)
*10.48 Amendment to the Schwartz Note, dated January 25, 1995
10.49 Real Estate Lien Note dated September 27, 1990 by
Diane M. Dudley to the Company and related Deed of
Trust and Letter Agreement (incorporated herein by
reference to Exhibit 10.41 to the Company 1990 Form
10-K)
10.50 Promissory Note, dated July 20, 1993, between the
Company and Byron L. Wade (incorporated herein by
reference to Exhibit 10.59 to the Company 1993 Form
10-K)
10.51 Promissory Note dated October 4, 1990 by Robert W.
Irelan and Barbara M. Irelan to KACC (incorporated
herein by reference to Exhibit 10.54 to the Company
1990 Form 10-K)
10.52 Employment Agreement, dated August 20, 1993 between
KACC and Robert E. Cole (incorporated herein by
reference to Exhibit 10.63 to the Company 1993 Form
10-K)
10.53 Employment Agreement, dated as of March 8, 1990,
between the Company and Anthony R. Pierno
(incorporated herein by reference to Exhibit 10.28 to
the Company s Annual Report on Form 10-K for the year
ended December 31, 1990)
10.54 Commercial Guaranty, dated February 22, 1993, executed
by the Company in favor of Charter National
Bank Houston with respect to a loan of Anthony R.
Pierno (incorporated herein by reference to Exhibit
10.27 to Kaiser s Annual Report on Form 10-K for the
period ended December 31, 1992, File No. 1-9447)
10.55 Commercial Guaranty, dated January 24, 1994, between
the Company and Charter National Bank-Houston with
respect to a loan of Anthony R. Pierno, and a related
letter agreement (incorporated herein by reference to
Exhibit 10.50 to the Company s Annual Report on Form
10-K for the year ended December 31, 1993)
10.56 Employment Agreement, dated as of March 8, 1990,
between the Company and Paul N. Schwartz (incorporated
herein by reference to Exhibit 10.32 to the Company s
Annual Report on Form 10-K for the year ended December
31, 1990)
10.57 Employment Agreement, dated as of March 8, 1990,
between the Company and Diane M. Dudley (incorporated
herein by reference to Exhibit 10.37 to the Company s
Annual Report on Form 10-K for the year ended December
31, 1990)
10.58 Employment Agreement, dated as of March 8, 1990,
between the Company and Byron L. Wade (incorporated
herein by reference to Exhibit 10.50 to the Company's
Annual Report on Form 10-K for the year ended December
31, 1990)
*11 Computation of Net Income Per Common and Common
Equivalent Share Information
*13.1 The portions of the Company's Annual Report to
Stockholders for the year ended December 31, 1994
which are incorporated herein by reference
13.2 Footnote 11 to the consolidated financial statements
of KACC, entitled Subsidiary Guarantors, (incorporated
herein by reference to KACC's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, File
No. 1-3605)
*21 List of the Company's Subsidiaries
*23 Consent of Independent Public Accountants by Arthur
Andersen LLP
*27 Financial Data Schedule
* Included with this filing.
EX-4
2
EXHIBIT 4.3
LOAN AND PLEDGE AGREEMENT
AGREEMENT dated as of October 10, 1994, between CUSTODIAL TRUST
COMPANY ("Bank"), a bank and trust company organized and existing under the
laws of the State of New Jersey, and MAXXAM INC. ("Borrower"), a
corporation organized and existing under the laws of the State of Delaware.
WHEREAS, Borrower may seek to obtain, and Bank may be willing to make,
loans in an aggregate principal amount of up to U.S. dollars $25,000,000
from time to time outstanding;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following terms, unless the context otherwise
requires, shall have the following meanings as used herein:
(a) "Business Day" means any day on which banks in the States of New
Jersey and New York are open for business.
(b) "Business Hour" means any hour in a Business Day.
(c) "Collateral" has the meaning given in Section 6(b) below.
(d) "Event of Default" has the meaning given in Section 16 below.
(e) "Excess Collateral" at any time means Pledged Securities having an
Initial Loan Value equal to (i) the Initial Loan Value of all Pledged
Securities at such time less (ii) the aggregate principal amount of all
Loans (as defined in Section 2(a) below) then outstanding.
(f) "Guarantee" of or by any Person means any obligation, contingent
or otherwise, of such Person guaranteeing the payment of any Indebtedness
of any other Person in any manner, whether directly or indirectly, and
including any obligation of such Person, direct or indirect, (i) to
purchase (or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the purchase
of) any security for the payment of such Indebtedness, or (ii) to purchase
property, securities or services for the purpose of assuring the owner of
such Indebtedness of the payment of such Indebtedness; provided, however,
that the term Guarantee shall not include endorsements for collection or
deposit, in either case in the ordinary course of business.
(g) "Indebtedness" of any Person means, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (iii)
all obligations of such Person upon which interest charges are customarily
paid, but not including such obligations which consist of accounts payable
and other current liabilities arising in the ordinary course of business,
(iv) all obligations of such Person to repurchase securities under
repurchase agreements and all obligations of such Person issued or assumed
as the deferred purchase price of property or services which under
generally accepted accounting principles would be shown on a balance sheet
of such Person as a liability, but not including such obligations which
consist of (A) accounts payable and other current liabilities arising in
the ordinary course of business and (B) compensation, pension and other
obligations arising from employee compensation and benefit arrangements,
(v) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not
the obligations secured thereby have been assumed, (vi) all Guarantees by
such Person of Indebtedness of others, and
(vii) all obligations of such Person as an account party in respect of
letters of credit and bankers' acceptances.
(h) "Initial Loan Value" means the collateral value assigned to the
Collateral in accordance with Section 6(d) below.
(i) "Kaiser" means Kaiser Aluminum Corporation, a corporation
organized and existing under the laws of the State of Delaware.
(j) "Kaiser Common" means the common stock of Kaiser.
(k) "Kaiser Depositary Shares" means Kaiser's $0.65 Depositary Shares
(representing ownership of one-tenth of a share of Kaiser's Series A
Mandatory Conversion Premium Dividend Preferred Stock)
(l) "Lien" means, with respect to any asset, (i) any mortgage, deed
of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset or any assignment, hypothecation or other preferential
arrangement of or with respect to such asset, and (ii) any purchase option,
call or similar right of a third party with respect to such asset.
(m) "Maintenance Loan Value" means the collateral value assigned to
the Collateral in accordance with Section 6(d) below.
(n) "Market Value" means the value assigned to the Collateral in
accordance with Section 6(f) below.
(o) "Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, government or any agency, court or political division thereof,
or any other entity.
(p) "Pledge Accounts" means an account of Bank as pledgee of Borrower.
(q) "Pledged Securities" means all shares of Kaiser Common, Kaiser
Depositary Shares and other securities, which are in the Pledge Account and
pledged by Borrower to Bank as provided in this Agreement, and any
securities into which such securities are converted or for which they are
exchanged.
(r) "Prime Rate" means the prime rate as quoted in The Wall Street
Journal (Eastern Edition) for the Business Day preceding the date on which
the determination is made. If more than one prime rate is so quoted, the
Prime Rate shall be the average of the prime rates so quoted.
2. LOANS. (a) Subject to the terms and conditions of this Agreement,
Bank may, in its sole and absolute discretion, make loans to Borrower
(each, a "Loan", and, collectively, the "Loans") at such times and in such
amounts as Borrower may request, which amounts may be borrowed, repaid and
reborrowed, provided that the Loans shall not exceed $25,000,000 in
aggregate principal amount at any one time outstanding.
(b) Borrower shall request each Loan by notice to Bank, specifying (i)
the date (which shall be a Business Day) for the making of such Loan, (ii)
the Collateral for such Loan, and (iii) the principal amount of such Loan,
which notice shall be received by Bank at least one Business Day prior to
the date for the making of such Loan.
3. TERMS OF REPAYMENT; WAIVERS. The principal amount of each Loan
shall be repayable in full at any time upon demand by Bank to Borrower,
whether or not an Event of Default has occurred and is then continuing.
Borrower hereby waives presentment and protest of any instrument and notice
thereof, notice of default and, to the extent permitted by applicable law,
all other notices to which Borrower might otherwise be entitled. Borrower
may repay any Loan in its entirety or in part at any time, without premium
and without
notice of any kind but together with all accrued but unpaid interest
thereon.
4. INTEREST AND OTHER CHARGES. (a) Borrower shall pay Bank interest on
the principal amount of each Loan from the date on which such Loan is made
pursuant to Section 2 above until (but not including) the date such Loan is
repaid to Bank in full, at a fluctuating rate per annum equal at all times
to the Prime Rate in effect from time to time plus one percent (100 basis
points), with each change in such fluctuating interest rate to take effect
simultaneously with the corresponding change in the Prime Rate. Such
interest shall be payable monthly on the 10th day of each month (or, if
the 10th day is not a Business Day, on the next succeeding Business Day)
and upon repayment of such Loan in full.
(b) Borrower shall pay Bank interest on any amount not paid by
Borrower when due under this Agreement, from the date payment of such
amount was due until the date such amount is paid, at a fluctuating rate
per annum equal at all times to the Prime Rate in effect from time to time
plus three percent (300 basis points), with each change in such fluctuating
interest rate to take effect simultaneously with the corresponding change
in the Prime Rate. Such interest shall be payable on demand made by Bank
from time to time.
(c) Interest payable hereunder shall be calculated on the basis of a
360-day year and for the actual number of days elapsed.
(d) In no event whatsoever shall the interest rate and other charges
charged hereunder exceed the highest rate permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that a court determines, in a final
determination, that Bank has received interest and other charges hereunder
in excess of such highest rate, Bank shall promptly refund such excess
amount to Borrower,
and the provisions hereof shall be deemed amended to provide for such
permissible rate.
5. PLACE AND MANNER OF PAYMENT. Borrower shall make all payments
required to be made by it under this Agreement (whether of principal,
interest or any other amount) prior to 11:00 A.M. New York time on the date
such payment is due, at such address in the United States of America as
Bank shall from time to time indicate to Borrower, in U.S. dollars and in
immediately available funds.
6. COLLATERAL SECURITY, PLEDGE AND LIMITATION ON COLLATERAL. (a) On or
before the date of the making of any Loan, Borrower shall deliver to the
Pledge Account shares of Kaiser Common and/or Kaiser Depositary Shares
and/or other securities (which other securities shall be acceptable to Bank
in its sole and absolute discretion), having on the date of the making of
such Loan (i) an aggregate Initial Loan Value of no less than the principal
amount of such Loan, or (ii) if there is Excess Collateral in the Pledge
Account on such date, an aggregate Initial Loan Value of no less than the
difference between (A) the principal amount of such Loan and (B) the
Initial Loan Value of such Excess Collateral on such date.
(b) To secure the due and punctual payment of all of the Loans, all
accrued interest thereon and all other amounts from time to time payable
by Borrower under this Agreement, and the performance by Borrower of all
its obligations and covenants under this Agreement, Borrower hereby
pledges, hypothecates, assigns, transfers and sets over to Bank, and grants
to Bank a continuing security interest in and lien upon, (i) all securities
at any time in the Pledge Account, (ii) all other property of Borrower now
or at any time hereafter in Bank's actual possession including, but not
limited to, all other securities, monies, claims and credit balances, and
(iii) all proceeds, products and profits derived from any of the foregoing
(including proceeds of any insurance policies and all cash, securities,
dividends and other property at any time and from time to time received,
receivable or otherwise distributed
in respect of or in exchange for any or all of the foregoing securities),
and all books and records related to any of the foregoing (all of the
foregoing Pledged Securities and other property, together with all other
property in which Borrower may hereafter grant to Bank a lien and security
interest, being herein collectively referred to as the "Collateral").
(c) At all times while any Loan is outstanding, Borrower shall
maintain Collateral with Bank consisting of Pledged Securities having an
aggregate Maintenance Loan Value of not less than the aggregate principal
amount of all Loans outstanding hereunder and all accrued interest thereon.
Forthwith upon demand made to Borrower by Bank, Borrower shall, at its
option, either (i) deliver and transfer to Bank such shares of Kaiser
Common or such Kaiser Depositary Shares, or such other securities which are
acceptable to Bank in its sole and absolute discretion, or (ii) repay so
much of the aggregate principal amount of the Loans outstanding as, in
either case, may be necessary for the aggregate Maintenance Loan Value of
all Collateral consisting of Pledged Securities to be no less than the
aggregate principal amount of all Loans outstanding hereunder and all
accrued interest thereon.
(d) The Initial Loan Value and the Maintenance Loan Value of any of
the Pledged Securities or other item of Collateral are each an amount
representing a percentage of the Market Value of such item of Collateral
and shall be determined (i) in accordance with Schedule A hereto if the
percentages required for such determination are set forth therein or (ii)
from time to time by Bank in its sole and absolute discretion if such
percentages are not set forth on such Schedule A.
(e) Borrower represents and warrants to Bank that at no time shall the
Collateral include more than 10% of the outstanding shares of Kaiser Common
on a fully diluted basis assuming the conversion of (i) each Kaiser
Depositary Share (representing ownership of one-tenth of a share of
Kaiser's Series A Mandatory
Conversion Premium Dividend Preferred Stock) into one share of Kaiser
Common and (ii) each share of Kaiser's 8.225% Preferred Redeemable
Increased Dividend Equity Securities (PRIDES) into one share of Kaiser
Common.
(f) If and for so long as any Pledged Securities are listed on a
national securities exchange in the United States of America, their Market
Value shall be determined for all purposes by the last sales price for such
Pledged Securities on any such exchange on the Business Day next preceding
the date of determination or, if there was no sale on that Business Day, by
the last sales price for such Pledged Securities on the next preceding
Business Day on which there was a sale thereof on any such exchange, all as
quoted on the Consolidated Tape or, if not quoted on the Consolidated Tape,
then as quoted by any such exchange. The Market Value of any other item of
Collateral, and the Market Value of such Pledged Securities if they are no
longer listed on any such exchange, shall be determined by Bank for all
purposes (i) based upon the prices bid (on the Business Day next preceding
the date of determination) by banks and broker/dealers which regularly
quote prices on property of the same type as such item of Collateral or
(ii) if no such quotations are available for such Business Day, based upon
such factors as Bank, in its sole and reasonable judgment, shall determine
and communicate to Borrower. Market Value, in the case of interest bearing
Collateral, shall include accrued interest to the date on which such Market
Value is determined.
(g) Borrower shall be entitled, subject to Section 6(i) below, to
receive and retain any and all cash dividends and interest payable on any
of the Collateral, but any and all stock dividends, liquidating dividends,
distributions in property, returns of capital or other similar
distributions made for any reason whatsoever on or in respect of any of the
Collateral (and any cash or other property received upon the repayment,
redemption, conversion or exchange of any of the Collateral) shall, if
received by Borrower, be forthwith delivered by Borrower to Bank (in such
form, and/or accompanied by such instruments of assignment or other
documents, as Bank shall have specified to Borrower) to be held by Bank as
part of the Collateral subject to the terms of this Agreement.
(h) Subject to Section 6(i) below, Borrower shall be entitled to
exercise, for any purpose not inconsistent with the terms of this
Agreement, any and all voting and/or consensual rights relating or
pertaining to the Collateral. In furtherance of such exercise, Bank shall
deliver to Borrower all notices of meetings, proxies and proxy materials
which it receives regarding Pledged Securities. Before delivering them to
Borrower, Bank shall cause all such proxies relating to any such Pledged
Securities which are not registered in the name of Borrower to be executed
by the registered holder of such securities, without any indication of how
such proxies are to be voted.
(i) If an Event of Default occurs and for so long as it continues,
Borrower shall cease to be entitled (i) to exercise any and all voting
and/or consensual rights relating or pertaining to any of the Collateral,
and (ii) to receive and retain any cash dividends and interest payable on
any of the Collateral; and Bank shall have the sole and exclusive right and
authority to exercise such voting and/or consensual rights and powers and
to receive and retain such dividends and interest. Any money or other
property received by Bank, or paid over to it, pursuant to this Section
6(i), shall be retained by Bank as additional Collateral hereunder and
applied in accordance with the provisions of this Agreement.
(j) If the aggregate Initial Loan Value of the Collateral at any time
exceeds the aggregate principal amount of all Loans then outstanding
hereunder, Borrower may designate to Bank, in writing, Pledged Securities
which have an aggregate Initial Loan Value no greater than such excess, and
Bank, promptly upon such designation, shall deliver such designated Pledged
Securities pursuant to such instructions as Borrower may have given to
Bank, provided that,
immediately after giving effect to such delivery, the aggregate Initial
Loan Value of all remaining Collateral is not less than the aggregate
principal amount of all such Loans.
(k) Upon the payment in full of all the Loans and all accrued interest
thereon, the security interest and lien granted in Section 6(b) above in
and upon the Collateral shall terminate, and all of Bank's rights hereunder
to the Collateral shall revert to Borrower. Upon such termination, Bank
shall deliver and transfer the Collateral in the Pledge Account to
Borrower, together with all instruments and documents evidencing the
Collateral and such other documents as Borrower shall reasonably request to
evidence such termination.
7. PROTECTION OF SECURITY INTEREST. (a) Borrower shall, at its expense
and from time to time, perform all steps reasonably requested by Bank at
any time to perfect, maintain, protect and enforce Bank's security
interest hereunder in the Collateral, including, without limitation, (i)
executing and filing financing or continuation statements and amendments
thereto, in form and substance satisfactory to Bank, and (ii) obtaining
such consents, providing such endorsements and executing and delivering
such other documents as may be required for any sale, transfer or other
disposition thereof by Bank in accordance with the provisions of this
Agreement. A photocopy of this Agreement shall be sufficient as a financing
statement. From time to time, Borrower shall, upon Bank's written request,
promptly execute and deliver confirmatory written instruments pledging the
Collateral to Bank, but any failure by Borrower to do so shall not affect
or limit Bank's security interest or other rights in and to the Collateral.
Until payment in full of all of the Loans and all accrued interest thereon,
Bank's security interest in the Collateral shall continue in full force and
effect.
(b) Subject to the terms of this Agreement, Borrower hereby
irrevocably appoints Bank its true and lawful attorney in its name,
place and stead, and at its expense, in connection with the preservation
and enforcement of Bank's rights and remedies under this Agreement if an
Event of Default occurs and is continuing (i) to receive, endorse and
collect all checks and other orders for the payment of money made payable
to Borrower representing any dividend, interest or other distribution
payable or distributable in respect of any of the Collateral and to give
full discharge for the same, (ii) to give all notices, obtain all consents,
effectuate all registrations in Bank's name or that of a proposed purchaser
or other transferee and make all transfers of all or any part of the
Collateral which are necessary or appropriate in connection with any sale,
transfer or other disposition thereof pursuant to this Agreement, (iii) to
execute and deliver for value all necessary or appropriate assignments and
other instruments in connection with any such sale, transfer or other
disposition, and (iv) to execute and deliver all other documents, and do
all other acts and things, which Bank reasonably deems appropriate in such
connection. Borrower hereby ratifies and confirms all that Bank, as
Borrower's attorney, may lawfully do hereunder and pursuant hereto, but,
nevertheless, at Bank's request or that of the purchaser or other
transferee in question, Borrower shall ratify and confirm any sale,
transfer or other disposition of Collateral pursuant to this Agreement in
such manner as Bank or such purchaser or other transferee may reasonably
specify in such request.
8. OTHER LIENS. Borrower represents and warrants to Bank that all
Collateral consisting of Pledged Securities and other items of Collateral
is, and Borrower covenants that it will continue to be, owned by Borrower
free and clear of all Liens (except for Bank's lien and security interest
hereunder and (i) Liens for taxes not delinquent or being contested in good
faith and in appropriate proceedings, (ii) Liens in connection with
workers' compensation, unemployment insurance, social security or similar
obligations, and (iii) mechanics', workmen's, materialmen's, landlords',
carriers' or other like liens arising in the ordinary course of business
with respect to obligations which are not due or which are being contested
in good faith).
9. USE OF PROCEEDS. Borrower represents and warrants to Bank that each
Loan is a commercial loan the proceeds of which will be used in the
business of Borrower which is to invest in, acquire and operate businesses
of various kinds, including the businesses described in Borrower's annual
report on Securities and Exchange Commission Form 10-K for its fiscal year
ended December 31, 1993.
10. OTHER REPRESENTATIONS AND WARRANTIES. Borrower further represents
and warrants to Bank that:
(a) for purposes of Rule 144 under the Securities Act of 1933,
Borrower has been the beneficial owner of the shares of Kaiser Common
pledged (or to be pledged) to Bank under this Agreement at all times since
September 28, 1991 or earlier;
(b) on the date that Borrower pledges any Kaiser Depositary Share to
Bank under this Agreement, Borrower shall have been, for purposes of Rule
144 under the Securities Act of 1933, the beneficial owner of such Kaiser
Depositary Share at all times since a date which precedes the date of such
pledge by three years or more;
(c) Borrower (i) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, (ii) is qualified
to do business and is in good standing in all states in which
qualification and good standing are necessary in order for it to conduct
its business and own its property, except where the failure to so qualify
or to be in good standing could not reasonably be expected to have a
material adverse effect on the financial condition, operations or business
of Borrower and its subsidiaries considered as one enterprise and (iii) has
all requisite corporate power and authority to conduct
its business, to own its property and to execute and deliver this Agreement
and to perform its obligations hereunder;
(d) it has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement, and such
authorization, delivery and performance do not (i) violate its corporate
charter or by-laws or any material law, rule, regulation, order, judgment,
injunction, decree, determination or award presently in effect and
applicable to it, (ii) require any consent or result in a breach of or
constitute a default under any material agreement, lease or instrument to
which it is a party or by which it or any of its assets may be bound or
affected, or (iii) result in or require the creation or imposition of any
Lien (other than in favor of Bank pursuant to this Agreement) upon or with
respect to any shares of Kaiser Common owned by Borrower, any Kaiser
Depositary Shares owned by Borrower or any material portion of Borrower's
other properties;
(e) this Agreement has been duly and validly executed and delivered by
Borrower and constitutes a legal, valid and binding obligation of Borrower,
enforceable against it in accordance with its terms, subject, as to
enforceability of remedies (i) to bankruptcy, insolvency and other laws
affecting creditors' rights generally, and (ii) to the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(f) as of the date hereof, no recording, order, authorization,
consent, license, registration, approval, exemption, filing, notice or
other similar action by or with any governmental body, governmental
official or other regulatory authority (except such as have been obtained,
made or given and copies of which have been delivered by Borrower to Bank)
is or will be required to be obtained, made or given by Borrower in order
to (i) ensure the legality, validity, binding effect or enforceability of
this Agreement, (ii) permit the performance by Borrower of its
obligations under this Agreement in accordance with the terms thereof, or
(iii) enable Bank to enforce its rights and remedies pursuant to the terms
of this Agreement, including any sale, transfer or other disposition by
Bank of all or any part of the Collateral, except such as may be required
under the Securities Act of 1933, the regulations promulgated thereunder
and State securities laws or by any national securities exchange;
(g) Borrower is not in default with respect to any Indebtedness of
Borrower in a principal amount greater than $500,000;
(h) except as disclosed by it in reports filed under the Securities
Exchange Act of 1934 or otherwise disclosed in writing by Borrower to Bank,
there is no litigation or other proceeding pending or, to its knowledge,
threatened against or affecting Borrower which could reasonably be expected
to have a material adverse effect (i) on its financial condition,
operations or business, or (ii) on any of the Collateral; and
(i) the balance sheet of Borrower as of December 31, 1993, and the
related income statement for the twelve-month period then ended and the
balance sheet of Borrower as of June 30, 1994 and the related income
statement for the three-month period then ended, copies of all of which
have heretofore been delivered to Bank by Borrower, present fairly, in all
material respects, the financial condition of Borrower as at the dates
thereof and the results of its operations for the periods then ended, and
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis; since June 30, 1994, there have
been no material adverse changes in the assets or liabilities or financial
condition of Borrower; and Borrower has not entered into any commitments or
contracts, or incurred any other liabilities, which are not reflected in
said balance sheets and could reasonably be expected to have a material
adverse effect upon its financial condition, operations or business.
11. REITERATION OF REPRESENTATIONS. The representations in Sections 8,
9 and 10 above shall be deemed to be repeated by Borrower each time a Loan
is made.
12. ARRANGING FEE AND EXPENSES. (a) Upon execution of this Agreement,
Borrower shall pay Bank an arranging fee of $125,000 for the credit
facility provided in this Agreement. Upon presentation of an invoice
therefor, Borrower shall reimburse Bank for such reasonable out-of-pocket
expenses (including reasonable fees and disbursements of legal counsel to
Bank) as Bank may have incurred in the negotiation of this Agreement and
the establishment of such credit facility.
(b) If Bank refuses to make a first Loan under this Agreement upon (i)
Borrower's request therefor in accordance with Section 2 above and (ii) the
fulfillment, at the time of such request, of each of the conditions
precedent set forth in Section 15 below, then Bank, promptly after such
refusal, shall reimburse to Borrower the arranging fee of $125,000 paid
pursuant to Section 12(a) above.
13. REPORTING. (a) As soon as available, and in any event within 60
days after the close of each of the first three quarters of each calendar
year, commencing with the quarter ending on September 30, 1994, Borrower
shall deliver to Bank its balance sheet at the end of such quarter and its
income statement for the portion of the calendar year ending on the last
day of such quarter, all in reasonable detail and stating in comparative
form the figures for the corresponding date and period in the previous
calendar year, prepared in accordance with generally accepted accounting
principles applied on a consistent basis, subject, however, to year-end
audit adjustments, and unless delivered to Bank as part of Borrower's
quarterly report on Securities and Exchange Commission Form 10Q, certified
by Borrower's chief financial or accounting officer.
(b) As soon as available, and in any event within 105 days after the
close of each calendar year, Borrower shall deliver to Bank its balance
sheet as at the close of such calendar year and its income statement for
such calendar year, all in reasonable detail and stating in comparative
form the figures as at the close of and for the previous calendar year,
audited by certified public accountants satisfactory to Bank and
accompanied by a report thereon, satisfactory to Bank, issued by such
accountants.
14. OTHER COVENANTS. Borrower covenants with Bank that until the
payment in full of all Loans and all accrued interest thereon, it shall:
(a) maintain and preserve its existence and all rights, privileges,
approvals and other authority adequate for the conduct of its business;
(b) promptly notify Bank in writing of any violation by Borrower of
any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to it which would likely materially and
adversely affect the Collateral or the financial condition, operations or
business of Borrower and its subsidiaries considered as one enterprise;
(c) notify Bank in writing within five (5) Business Days of any
default by Borrower with respect to any of its Indebtedness in a principal
amount of more than $1,000,000;
(d) promptly notify Bank in writing of any change in the control of
Borrower or the control of Kaiser;
(e) deliver to Bank (i) promptly after the same are available copies
of all financial statements and other reports and documents that Borrower
distributes to its shareholders or otherwise makes publicly available, and
(ii) such other documents as Bank may from time to time reasonably request,
including Statements of Purpose
(Federal Reserve Form U-l's) to Bank with regard to any Pledged Securities
as may be required under Regulation U of the Board of Governors of the
Federal Reserve System; and
(f) not create, incur, assume or permit to exist any Lien on any
shares of Kaiser Common or any other securities equivalent to such common
stock, whether such shares or other securities are now owned or hereafter
acquired by it, other than (i) Liens for taxes not delinquent or being
contested in good faith and in appropriate proceedings; (ii) Liens in
connection with workers' compensation, unemployment insurance, social
security or similar obligations; (iii) mechanics', workmen's,
materialmen's, landlords', carriers' or other like liens arising in the
ordinary course of business with respect to obligations which are not due
or which are being contested in good faith; (iv) Liens granted prior to the
date of this Agreement to secure the 12-1/4% Senior Secured Discount Notes
due 2003 and/or the 11-1/4% Senior Secured Notes due 2003 of MAXXAM Group
Inc.; and (v) Liens in favor of Bank; provided, however, that Borrower may
at any time, upon 24 Business Hours' prior notice to Bank, sell any shares
of Kaiser Common (or any such other securities equivalent to such common
stock) which are not pledged to Bank under this Agreement.
15. CONDITION8 PRECEDENT. (a) The obligation of Bank to make any Loan
which it has, in its sole and absolute discretion, agreed to make shall be
subject to the fulfillment of each of the following conditions precedent:
(i) that on the date of the making of such Loan no event has occurred and
is continuing which constitutes an Event of Default under this Agreement or
which, upon the giving of notice, the lapse of time, or both, would
constitute an Event of Default, (ii) that the representations and
warranties of Borrower in Sections 6(e), 8, 9 and 10 above are correct and
accurate in all material respects on the date of the making of such Loan as
though made on such date, (iii) that Borrower has fulfilled, to the
satisfaction of Bank, Borrower's obligation with respect to such Loan as
set forth in Section 6(a) above, (iv) that after giving effect to the
making of such Loan, the Collateral then
held by Bank consists of (A) Collateral having an Initial Loan Value equal
to the principal amount of such Loan and (B) other Collateral having a
Maintenance Loan Value equal to or greater than the aggregate principal
amount of all other Loans then outstanding and the accrued interest
thereon, (v) that after giving effect to the making of such Loan and the
pledge of Collateral therefor, the representation and warranty of Borrower
in Section 6(e) above continues to be correct and accurate in all material
respects, and (vi) that Bank has received from Borrower such documents as
Bank may have reasonably requested.
(b) The obligation of Bank to make the first Loan which it has, in its
sole and absolute discretion, agreed to make shall be subject to the
fulfillment of the condition precedent that on or prior to the date of the
making of such Loan, Bank shall have received from Borrower (i) the
arranging fee and reimbursement of out-of-pocket expenses provided for in
Section 12 above, (ii) a balance sheet and the related income statement for
Borrower's most recent quarterly fiscal period for which such financials
are available as well as audited financials for Borrower's most recent
fiscal year for which such audited financials are available, and (iii) a
Statement of Purpose (Federal Reserve Form U-l) duly completed and signed
by Borrower and such other documents as Bank may have reasonably requested.
16. EVENTS OF DEFAULT. It shall constitute an Event of Default
hereunder (and upon the occurrence thereof the then outstanding principal
amount of each Loan and all accrued but unpaid interest thereon shall
become immediately due and payable, without demand, presentment or notice
of any kind, all of which are hereby expressly waived) if at any time:
(a) Borrower fails to pay in full the principal amount of any Loan
within 96 Business Hours of demand therefor made by Bank in writing at the
address for notices to Borrower specified in Section 22 below; or
(b) Borrower fails to make or pay when due any interest payment,
charge or other amount required to be made or paid by it under this
Agreement; or
(c) Borrower fails to deliver Collateral in accordance with Section
6(c) above upon demand therefor made by Bank in writing at the address for
notices to Borrower specified in Section 22 below; or
(d) Borrower fails to perform or observe in any material respect any
other term, covenant or condition to be performed or observed by it under
this Agreement; or
(e) any representation or warranty made by Borrower in Sections 6(e),
8, 9 or 10 above proves to have been incorrect in any material respect on
any of the dates as of which made or deemed to have been repeated; or
(f) Borrower defaults in the payment when due, whether at stated
maturity or when otherwise due (which shall include any applicable grace
period), of any Indebtedness (other than Indebtedness under this Agreement)
in a principal amount of more than $2,000,000, whether now or hereafter
existing;
(g) Borrower fails (within the applicable grace period, if any) to
perform any term, covenant or agreement on its part to be performed under
any agreement or instrument (other than this Agreement) evidencing or
securing any Indebtedness (whether now or hereafter existing) in a
principal amount of more than $2,000,000, or any event occurs or condition
exists (and such event or condition is not remedied within the applicable
grace period, if any), if the effect of such failure, event or condition is
to cause, or to permit the holder or holders of such Indebtedness (with or
without the giving of notice, lapse of time or both)
to cause, such Indebtedness to become due prior to its stated maturity;
(h) (i) Borrower as debtor commences a case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar
law, or seeks the appointment of a receiver, trustee, custodian or similar
official for itself or any substantial part of its property, (ii) any such
case or proceeding is commenced against it, or another seeks such an
appointment, which (A) is consented to or not timely contested by it, (B)
results in the entry of an order for relief, such an appointment, or the
entry of an order having a similar effect, or (C) is not dismissed within
60 days, (iii) it makes a general assignment for the benefit of creditors,
or (iv) it admits in writing its inability to pay its debts as they become
due; or
(i) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $2,000,000 are rendered against Borrower and
(A) the same remain undischarged for a period of 30 or more consecutive
days during which execution thereof is not effectively stayed upon appeal
or otherwise or (B) any proceeding by a creditor to enforce the same is
pending; or
(j) any event or circumstance occurs which in the reasonable judgment
of Bank materially impairs the creditworthiness of Borrower or its ability
to perform its payment or other obligations under this Agreement.
17. BANK'S RIGHTS AND REMEDIES. (a) If an Event of Default occurs and
is then continuing, Bank shall have the right (but no earlier than 24
Business Hours after the occurrence thereof if such Event of Default is one
referred to in Section 16(a) above, and no earlier than 120 Business Hours
after the occurrence thereof if such Event of Default is any other) to
exercise with respect to any or all of the Collateral consisting of Kaiser
Common or Kaiser Depositary Shares any rights and remedies available to a
secured
creditor under applicable law and, in addition, (without being required to
give any notice to Borrower except as may be required in Section 17(d)
below) to sell any or all of such Collateral, publicly or privately, at a
place of Bank's choosing, and (in such order as Bank in its discretion may
determine) to apply the proceeds of such sale to the payment of the
principal of, and accrued but unpaid interest on, the Loans and of any
other amounts payable by Borrower under this Agreement.
(b) If an Event of Default occurs and is then continuing, then, in
addition to having the right to exercise with respect to any or all of the
Collateral which does not consist of Kaiser Common or Kaiser Depositary
Shares any rights and remedies available to a secured creditor under
applicable law, Bank shall have the right (without being required to give
any notice to Borrower except as may be required in Section 17(d) below) to
sell any or all of such Collateral, publicly or privately, at a place of
Bank's choosing, and (in such order as Bank in its discretion may
determine) to apply the proceeds of such sale to the payment of the
principal of, and accrued but unpaid interest on, the Loans and of any
other amounts payable by Borrower under this Agreement.
(c) If any Pledged Securities forming part of the Collateral are, in
whole or in part, actually convertible into or exchangeable for other
securities, then Bank shall have the right, in its discretion, instead of
selling such Pledged Securities as provided in Section 17(a) or (b) above,
to convert or exchange them pursuant to their terms, to apply any cash
received by Bank in such conversion or exchange to the payment of the
principal of, and accrued but unpaid interest on, the Loans and of any
other amounts payable by Borrower under this Agreement, and to sell as
provided in Section 17(a) or (b) above any securities it receives in such
conversion or exchange.
(d) The Pledged Securities at any time forming part of the Collateral
are of a type customarily sold on recognized markets and
no notification to Borrower of any public or private sale thereof by Bank
is required, provided, however, that if any such notice is required by
applicable law with respect to any such sale, then one Business Day's
notice thereof shall be reasonable notification to Borrower.
18. NO WAIVER. No failure by Bank to exercise any right, power or
remedy under this Agreement, and no delay by Bank in exercising any such
right, power or remedy, shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise by Bank of any other
right, power or remedy. The rights and remedies of Bank provided for in
this Agreement are cumulative and not exclusive of any remedies provided at
law or in equity.
19. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
agreement of the parties with respect to the Loans, and, except as provided
in Section 4(d) above, no amendment, modification, termination or waiver of
any provision hereof or consent to a departure here from by Borrower shall
be effective unless the same is in writing and signed by both Bank and
Borrower.
20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
representatives, successors and assigns, provided, however, that it may not
be assigned by either party hereto without the prior written consent of the
other party hereto, and any purported assignment in violation of this
provision shall be null and void.
21. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflict of law principles thereof.
22. NOTICES. Unless otherwise specified, any notice or demand required
hereunder shall be sent, delivered or transmitted to the recipient at the
address (or, in the case of facsimile transmission, the telephone number)
set forth after its name hereinbelow:
If to Bank, at:
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
Attention: Senior Vice President -
Trust and Accounting
Telephone: (609) 951-2310
Facsimile: (609) 951-2317
If to Borrower, at:
MAXXAM Inc.
5847 San Felipe, Ste 2600
Houston, Texas 77057
Attention: John T. La Duc
Telephone: (713) 975-7600
Facsimile: (713) 267-3710
and
Attention: Treasury Department
Telephone: (713) 267-3642
Facsimile: (713) 267-3704
to such other address or telephone number as each party may designate for
itself by like notice. Communications shall include transmissions by or
through teletype, facsimile, central processing unit connection, on-line
terminal and magnetic tape.
23. EXPENSES. Borrower shall pay or, at the election of Bank, shall
reimburse Bank for paying, (a) all reasonable costs, fees and expenses
(including reasonable attorneys' fees) incurred by Bank in connection with
the enforcement of this Agreement and Bank's security interest in the
Collateral, and (b) all transfer, stamp, documentary or other similar
taxes, assessments or charges levied
by any tax or other governmental authority in respect of this Agreement or
any Loan.
24. SEVERABILITY. If any provision of this Agreement is invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions of this Agreement (and the
validity, legality and enforceability of such provision in any other
jurisdiction) shall not be affected or impaired thereby.
25. MISCELLANEOUS. (a) All agreements, representations and warranties
contained in this Agreement shall survive the execution and delivery of
this Agreement and the making of any Loan.
(b) Bank shall have the continuing and exclusive right to apply any
and all payments to any portion of the Loans. All payments by Borrower to
Bank pursuant to this Agreement shall be made without set-off, and none of
such payments shall be subject to any counterclaim by Borrower. To the
extent that Borrower makes a payment or Bank receives any payment or
proceeds of the Collateral for Borrower's benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or
required to be repaid to a trustee, debtor in possession, receiver or any
other party under any bankruptcy, reorganization or insolvency law, common
law or equitable cause, then, to such extent, the obligation hereunder of
Borrower which was to have been satisfied by such payment or proceeds shall
be revived and continue as if such payment or proceeds had not been
received by Bank.
(c) Bank shall maintain, and shall cause its officers, directors,
employees and affiliates under its control to maintain, the confidentiality
of all information provided by Borrower to Bank pursuant to this Agreement
and which Borrower has identified to Bank (at the time that it is provided
to Bank) as being non-public, except to the extent that such information
(i) becomes generally available to the public other than as a result of
disclosure by
Bank, (ii) is required to be provided to regulatory authorities or Bank's
auditors, (iii) is required to be provided pursuant to court process,
provided that Bank shall promptly notify Borrower of such process so that
Borrower may seek a protective order in connection therewith, or (iv) needs
to be disclosed in connection with the exercise, preservation and
enforcement of Bank's rights and remedies under this Agreement.
(d) The headings of sections in this Agreement are for convenience of
reference only and shall not affect the meaning or construction of any
provision of this Agreement.
(e) This Agreement may be executed in one or more counterparts and by
the parties hereto on separate counterparts, each of which shall be deemed
an original but all of which taken together shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and on its behalf by its representative thereunto
duly authorized, all as of the day and year first above written.
MAXXAM INC.
By: Paul N. Schwartz
By: PAUL N. SCHWARTZ
Title: Senior Vice President
Corporate Development
CUSTODIAL TRUST COMPANY
By: RONALD D. WALKER
Authorized Officer
SCHEDULE A
Loan Value (as a
Collateral Type % of Market Value)
Initial Maintenance
Common Stock of Kaiser 33-1/3% 50%
Aluminum Corporation
$0.65 Depositary Shares of 33-13% 50%
Kaiser Aluminum Corporation
EX-4
3
EXHIBIT 4.31
FIFTH MODIFICATION AGREEMENT
THIS FIFTH MODIFICATION AGREEMENT (this "AGREEMENT") is executed as of
January 13, 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 called "BORROWER"), on the following terms and conditions:
RECITALS:
A. Lender and Old Borrower entered into that Loan Agreement dated
June 17, 1991, as amended by letter amendment dated August 22, 1991, as
further amended by First Renewal, Extension and Modification Agreement (the
"FIRST MODIFICATION") dated June 17, 1992 among Lender, Old Borrower,
Maxxam Inc. and Maxxam Group Inc. (Maxxam Inc. and Maxxam Group Inc. being
herein together called "GUARANTORS"), as further amended by Loan Increase,
Extension and Modification Agreement dated December 30, 1992 among Lender,
Old Borrower and Guarantors (the "INCREASE MODIFICATION"), and as further
amended by Fourth Modification Agreement dated March 31, 1994 among Lender
and Borrower (the Loan Agreement, as amended, being herein called the "LOAN
AGREEMENT"), pursuant to which Lender has agreed to make a loan to Borrower
(the "LOAN"), as evidenced by a $115,220,000 Promissory Note dated June 17,
1991 (the "ORIGINAL NOTE"), and a $17,740,000 Promissory Note dated
December 30, 1992 (the "INCREASE NOTE"; the Original Note and the Increase
Note being herein collectively the "NOTES"), the Notes bearing interest and
being payable to the order of Lender as therein provided;
B. Taking into account releases of collateral, the indebtedness
evidenced by the Original Note and the Increase Note is secured by, among
other collateral, the following:
2. 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
Records 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]; and
(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 Office Public Records of Real Property of Bexar
County, Texas [Pipers Creek, Shadow Valley], filed for recording in the
Office of the County Clerk of Harris County, Texas under Clerk's File No.
P442690 and recorded at Film Code No. 169-55-3591, et seq., of the Official
Public Records of Real Property of Harris County, Texas [Westbrook,
Colonies], and recorded at Volume 11231, Page 0137, et seq., of the Deed of
Trust Records of Tarrant County, Texas [Bentley Village];
each such instrument encumbering the real and other property
described therein (the "REAL PROPERTY"); and
(2) the following instruments styled Assignment of Rents and
Leases (collectively called the "RENTAL ASSIGNMENT"):
(a) that Assignment of Rents and Leases dated of even date
with the Loan Agreement, executed by Old Borrower and recorded in Volume
5091, Page 0826, et seq., of the Official Public Records of Real Property
of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre
Pointe, Nacon Plaza], under Film Code No. 037-12-1762 of the Official
Public Records of Real Property of Harris County, Texas [Spring Valley,
Westminster], in Volume 1085, Page 176, et seq., of the Deed Records
of Midland County, Texas [Oak Ridge], and in Volume 10293, Page 1967, et
seq., of the Deed of Trust Records of Tarrant County,
Texas [West Lake Gardens];
(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];
(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. 120-51-2685, et seq.,
of the Real Property Records of Harris County, Texas
[Spring Valley, Westminster, Richmond Square, Westchase], in
Volume 778, Page 175, et seq., of the Deed of Trust Records of Midland
County, Texas [Oak Ridge], and in Volume 10957, Page 2238, et seq., of the
Real Property Records of Tarrant County, Texas [Westlake Gardens] (the
"SECOND DEED OF TRUST"; the First Deed of Trust and the Second Deed of
Trust being herein collectively called the "DEED OF TRUST"); and
(4) that Security Agreement and Pledge of Mortgage Loans and
Mortgage Loan Documents (the "MORTGAGE PLEDGE AGREEMENT") of even date with
the Loan Agreement executed by Old Borrower and Lender and pledging to
Lender, as security for the Loan, certain mortgage loans
(the "MORTGAGE LOANS") [Balcones, Enfield Courts, Park North Tech, Parc
Bay] (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 "LOAN DOCUMENTS");
D. Lender, Old Borrower, New Borrower and Guarantors entered
into that Consent and Assumption Agreement dated December 10, 1993, under
which Lender consented to the transfer and conveyance of the Real Property
and the Mortgage Loans to New Borrower (and pursuant to which Old Borrower
has transferred and conveyed the Real Property, the Mortgage Loans, and the
rights of Old Borrower under the Loan Agreement to New Borrower), and New
Borrower has assumed the obligations and liabilities of Old Borrower under
the Loan and the Loan Documents;
E. Lender and Borrower entered into that Third Modification
Agreement (the "THIRD MODIFICATION") dated as of December 30, 1993,
modifying the terms of the Notes and the other Loan Documents, and
providing for the availability of $25,000,000 in Subsequent Advances under
the Loan Agreement, through re-advances of principal reductions of the
Original Note;
F. Lender and Borrower entered into that Fourth Modification
Agreement (the "FOURTH MODIFICATION") dated as of March 31, 1994, modifying
the terms of the Notes and the other Loan Documents, and extending the
period during which Lender may be obligated to make certain additional
Subsequent Advances under the Loan Agreement, through re-advances of
principal reductions of the Original Note;
G. Borrower has requested that Lender further extend the period
during which Lender may be obligated to make certain additional Subsequent
Advances under the Loan Agreement, through re-advances of principal
reductions of the Original Note, and Lender is agreeable to such extension
on the terms of that Sixth Amendment to Loan Agreement of even date
herewith between Lender and Borrower (the "SIXTH AMENDMENT"), and the
further extension of the maturity of the Notes and the other Loan Documents
as hereinafter set forth;
AGREEMENT:
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00)
and other good and valuable consideration, Lender and Borrower do hereby
agree as follows:
1. PREPAYMENT. The prepayment provisions set forth on pages 2 and 3
of the Original Note, as amended and
restated in Section 4 of the First Modification, as further amended and
restated in Section 17 of the Increase Modification, and as further amended
in Section 4 of the Third Modification, are further amended and restated as
follows:
Borrower may prepay the Note in part with proceeds from the
payment or prepayment of any Mortgage Loan, or with proceeds of any sale of
any Mortgage Loan to a third party, or with proceeds of any sale of any
Project to any third party so long as such prepayment would not reduce the
unpaid principal balance of the Note below $8,000,000, and upon ten (10)
days prior written notice to Lender, by paying to GECC the Minimum Release
Amount for such Mortgage Loan or Project (as defined and specified in the
Loan Agreement, as modified in the Sixth Amendment to Loan Agreement);
provided, however, and it is understood and agreed, (i) that Borrower shall
have no right to prepay any portion of the principal balance of this Note
before July 1, 1995 except through application of proceeds of the payment
or prepayment of Mortgage Loans or the sale of Mortgage Loans and Projects
to third parties, and (ii) that prior to July 1, 1995 Borrower shall not be
entitled to prepay any portion of the principal balance of this Note
through any whole or partial refinancing of the indebtedness under this
Note; provided, however, that if as a result of any prepayment of the
principal balance of this Note the outstanding principal balance of this
Note would be less than $8,000,000, then Borrower shall pay to GECC the
entire outstanding principal balance of, and all accrued and unpaid
interest, on this Note.
All prepayments of the Note shall otherwise comply with the
requirements for releases under the Loan Agreement, as modified by the
Sixth Amendment to Loan Agreement. GECC reserves the right to require
any payment of the indebtedness evidenced by this Note, whether such
payment is of a regular installment or represents a prepayment, prepayment
charge, or final payment, to be wired via federal funds or other
immediately available funds.
2. RATIFICATION AND CONFIRMATION OF LOAN DOCUMENTS. Borrower and
Lender agree (a) that all references to the Loan Agreement in the Note, the
Deed of Trust, the Rental Assignment, the Mortgage Pledge Agreement and the
other Loan Documents shall mean and refer to the Loan Agreement as
previously modified and as further modified by the Sixth Amendment,
(b) that all references to the Notes in the Loan Agreement, the Deed of
Trust, the Rental Assignment, the Mortgage Pledge Agreement and the other
Loan Documents shall mean and refer to the Notes as previously modified and
as further modified by this Agreement, and (c) that the Loan Agreement (as
previously modified and as further modified under the Sixth Amendment), the
Notes, the Deed of Trust, the Rental Assignment, the Mortgage Pledge
Agreement, and the other Loan Documents are hereby ratified and confirmed
as valid and continuing obligations of Borrower, and that the Deed of
Trust, the Rental Assignment, and the Mortgage Pledge Agreement shall
continue to secure and/or provide payment for the Notes, as modified by
this Agreement, and Borrower promises to pay to the order of Lender at P.O.
Box 102771, Atlanta, Georgia 30368-0771, the indebtedness evidenced by the
Notes, as herein modified.
3. NO IMPAIRMENT OF SECURITY. Borrower hereby agrees that the
agreements contained herein shall in no manner affect or impair the
Original Note or the Increase Note, the liens or security interests
securing same, and that said liens and security interests shall not in any
manner be waived, altered or vitiated by such agreements, and Borrower
further agrees that, as expressly modified hereby, all terms and provisions
of the Loan Documents shall be and remain in full force and effect.
4. NO DEFAULT, DEFENSES, COUNTERCLAIMS, ETC. Borrower hereby
covenants and warrants that none of the Loan Documents are in default; that
there are no defenses, counterclaims or offsets to such Loan Documents.
5. COSTS AND EXPENSES. Borrower agrees to pay all costs incurred in
connection with the execution and consummation of this Agreement and the
Sixth Amendment, including but not limited to, all recording costs, the
premium for such endorsements to the policies of title insurance insuring
the Deed of Trust as may be required by Lender with respect to this
Agreement and the Sixth Amendment, and the reasonable fees and actual
expenses of Lender's counsel. Borrower further covenants and agrees to
deliver or cause to be delivered such evidence of existence, capacity,
authorization, qualification, or enforceability of its obligations as
Lender may require in connection with this Agreement and the Sixth
Amendment.
6. LIMITATION ON INTEREST. All agreements between Borrower and
Lender, whether now existing or hereafter arising and whether written or
oral, are hereby expressly limited so that in no contingency, whether by
reason of acceleration of the maturity of the Notes, or otherwise, shall
the interest contracted for, charged, received, paid or agreed to be paid
to the holder of the Notes exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, interest would
otherwise be payable to the holder of the Notes in excess of the maximum
lawful amount, the interest payable to the holder of the Notes shall be
reduced to the maximum amount permitted by applicable law; and if from any
circumstance the holder of the Notes shall ever receive anything of value
deemed interest by applicable law in excess of the maximum amount allowed
by law, an amount equal to any excessive interest shall be applied to the
reduction of the principal amount owing under the Notes, and not to the
payment of interest, or if such excessive interest exceeds such unpaid
balance of principal of the Notes, such excess shall be refunded to
Borrower. All interest paid or agreed to be paid to the holder of the
Notes, shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Notes
(including the period of any renewal or extension thereof) so that the
interest on the Notes shall not exceed the maximum amount permitted by
applicable law. This section shall control all agreements between Borrower
and the holder of the Notes.
EXECUTED by the parties hereto as of the date and year first above
written.
BORROWER:
OLD BORROWER: MXM MORTGAGE CORP.,
a Delaware corporation
By: ERIK ERIKSSON, JR.
Erik Eriksson, Jr., Vice President
NEW BORROWER: MXM MORTGAGE, L.P.,
a Delaware limited partnership
By: MXM GENERAL PARTNER, INC.,
a Delaware corporation,
General Partner
By: ERIK ERIKSSON, JR.
Erik Eriksson, Jr., Vice President
LENDER: GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
By: TY ALBRIGHT
Ty Albright, Project Manager
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me this 13th day of January,
1995, by ERIK ERIKSSON, JR., Vice President of MXM MORTGAGE CORP., a
Delaware corporation, on behalf of said corporation.
KARIN MARIE BELDING
Notary Public, State of Texas
My Commission Expires:
Printed Name of Notary
STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me this 16th day of January,
1995, by ERIK ERIKSSON, JR., Vice President of MXM GENERAL PARTNER, INC., a
Delaware corporation and General Partner of MXM MORTGAGE, L.P., a Delaware
limited partnership, on behalf of said corporation and said limited
partnership.
KARIN MARIE BELDING
Notary Public, State of Texas
My Commission Expires:
Printed Name of Notary
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this 16th day of
January, 1995 by TY ALBRIGHT, Project Manager of GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation, on behalf of said corporation.
JAN HOWARD
Notary Public, State of Texas
My Commission Expires:
Printed Name of Notary
EX-4
4
EXHIBIT 4.32
SIXTH AMENDMENT TO LOAN AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is executed
as of January 13, 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 (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, and the Fifth 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]; and
(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];
each such instrument encumbering the real and other property
described therein (the "REAL PROPERTY"); and
(2) the following instruments styled Assignment of Rents and Leases
(collectively called the "RENTAL ASSIGNMENT"):
(a) that Assignment of Rents and Leases dated of even date with
the Loan Agreement, executed by Old Borrower and recorded in Volume 5091,
Page 0826, et seq., of the Official Public Records of Real Property of
Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre Pointe,
Nacon Plaza], under Film Code No. 037-12-1762 of the Official Public
Records of Real Property of Harris County, Texas [Spring Valley,
Westminster], in Volume 1085, Page 176, et seq., of the Deed Records of
Midland County, Texas [Oak Ridge], and in Volume 10293, Page 1967, et seq.,
of the Deed of Trust Records of
Tarrant County, Texas [West Lake Gardens];
(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]; and
(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];
(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. 120-51-2685, et seq., of the Real Property
Records of Harris County, Texas [Spring Valley, Westminster, Richmond
Square, Westchase], in Volume 778, Page 175, et seq., of the Deed of
Trust Records of Midland County, Texas [Oak Ridge], and in Volume 10957,
Page 2238, et seq., of the Real Property Records of Tarrant County, Texas
[Westlake Gardens] (the "SECOND DEED OF TRUST"; the First Deed of Trust and
the Second Deed of Trust being herein collectively called the "DEED OF
TRUST"); and
(4) that Security Agreement and Pledge of Mortgage Loans and Mortgage
Loan Documents (the "MORTGAGE PLEDGE AGREEMENT") of even date with the Loan
Agreement executed by Old Borrower and Lender and pledging to Lender, as
security for the Loan, certain mortgage loans (the "MORTGAGE LOANS")
[Balcones, Enfield Courts, Park North Tech, Parc Bay];
(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 $10,000,000 as of the date hereof;
G. Under the Fourth 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. Borrower currently contemplates a sale of those Real Property
Assets (the "APARTMENT PORTFOLIO") known as the Bentley Village Apartments,
the Colonies Landing Apartments, the Oak Ridge Apartments, the Pipers Creek
Apartments, the Shadow Valley Apartments, the Westlake Gardens Apartments,
and the Westbrook Apartments (the "APARTMENT SALE"); 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 and the terms of that Fifth
Modification Agreement of even date herewith between Lender and Borrower
(the "FIFTH MODIFICATION");
AGREEMENT:
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00)
and other good and valuable consideration, including the payment by
Borrower to Lender of the Funding
Extension Fee (as hereinafter defined), the receipt and sufficiency of
which are hereby acknowledged, Lender and Borrower agree as follows:
1. ADDITIONAL RE-ADVANCES. Provided Borrower is not then in default
under the Loan Documents, Lender will make available to Borrower, as
Subsequent Advances to be re-advanced under the Loan, up to $21,657,049.98
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 March 31, 1995, and
(b) $1,611,921.25 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
$10,000,000. 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 January 5, 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 March 31, 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 January 5,
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. MAXIMUM LOAN AMOUNT. Borrower and Lender agree that from and
after the date hereof the maximum amount which at any time can be
outstanding under the Loan, whether evidenced by the Original Note or the
Increase Note, is $31,657,049.98; provided, however, that if the Apartment
Sale is consummated, the maximum amount which at any time can be
outstanding is $14,957,049.98 and if any of the Assets in the Apartment
Portfolio is released from the Lien of the Blanket Mortgage, the General
Funding Availability Amount shall be reduced by the amount of the Project
Release Amount (as hereinafter defined) for such Asset.
3. SECURITY INSTRUMENTS. Section 1.63 of the Loan Agreement is
hereby modified to include in the definitions of Security Instruments under
the Loan Agreement, this Amendment and the Fifth Modification.
4. PREPAYMENT CHARGES. Borrower and Lender acknowledge and agree
(a) that in accordance with Section 4 of the First Modification, the
prepayment of the principal of the Loan on December 15, 1993 to a remaining
principal balance of $15,000,000 required a prepayment charge of
$621,016.40 and (b) that Lender agreed to accept only $500,000 of the
prepayment charge at that time, reserving the right to charge the remaining
$121,016.40 of the prepayment charge (the "REMAINING UNPAID PREPAYMENT
CHARGE") at any time in the future.
5. ASSIGNMENT OF ACCOUNTS. Lender and Borrower hereby terminate the
Assignment of Accounts and agree that all references in the Loan Agreement
to the Assignment of Accounts or to any lockbox agreement are hereby
deleted and that Borrower shall have no further obligation to comply with
the terms of the Assignment of Accounts. Lender shall execute and deliver
to Borrower any documents or instruments which Borrower reasonably may
request to direct that obligors under Mortgage Loans are authorized to make
payments under Mortgage Loans directly to Borrower.
6. MINIMUM LOAN BALANCE. Borrower covenants and agrees that if at
any time the principal balance of the Loan as a result of any prepayment of
principal shall be less than $8,000,000, Borrower shall prepay the entire
principal balance of the Notes and all accrued but unpaid interest thereon.
All requirements and covenants that Borrower shall prepay the Notes in full
if the principal balance shall be less than $10,000,000 are hereby deleted.
7. RELEASES. Section 8.1 of the Loan Agreement is hereby modified
by deleting the condition that Lender shall not be required to release any
Asset unless the aggregate scheduled Loan allocation of multi-family
apartment projects encumbered by the Blanket Mortgage is less than forty
percent (40%) of the aggregate scheduled Loan allocation of all Assets
encumbered by Liens created under the Blanket Mortgage and the Mortgage
Pledge Agreement. Section 8.1 of
the Loan Agreement is further modified at Subsection 8.1(b)(1) to the
effect that Borrower shall pay to Lender for each Parcel of Real Property
or Mortgage Loan to be released an amount to be applied as a prepayment in
reduction of the indebtedness evidenced by the Notes equal to the sum of
(i) one hundred percent (100%) of the amount allocated by Lender to the
Parcel of Real Property or the Mortgage Loan sought to be released, as
indicated on the Schedule attached to this Amendment as Exhibit A and made
a part hereof (whether or not such allocation has been advanced) (the
"PROJECT RELEASE AMOUNT"), and (ii) any additional amount required to be
paid in order that the annualized Net Operating Income from Real Property
and Mortgage Loans which have not been and are not being requested to be
released is equal to or greater than twenty percent (20%) of the sum of the
then outstanding principal balance of the Loan and the maximum amount which
Lender thereafter may be obligated to advance on the Loan (the "NOI
REQUIREMENT"), such sum being herein referred to as the "Minimum Release
Amount." Lender shall have no obligation to release any Asset unless the
NOI Requirement is satisfied.
8. 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 $175,000 (the "FUNDING EXTENSION FEE"), which Funding
Extension Fee includes the Remaining Unpaid Prepayment Charge.
9. COSTS AND EXPENSES. Borrower agrees to pay all costs incurred in
connection with the execution and consummation of this Amendment and the
Fifth Modification, including but not limited to, all recording costs, the
premium for such endorsements to the policies of title insurance insuring
the First Lien Deed of Trust and the Second Lien Deed of Trust as may be
required by Lender with respect to this Amendment and the Fifth
Modification and the reasonable fees and actual expenses of Lender's
counsel. Borrower further covenants to deliver or cause to be delivered
such evidence of existence, capacity, authorization, qualification, or
enforceability of its obligations as Lender may require in connection with
this Amendment and the Fifth Modification.
10. 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.
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
EX-10
5
EXHIBIT 10.30
MAXXAM INC.
1994 OMNIBUS EMPLOYEE INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated _______________________ (the
"Agreement"), is between MAXXAM INC., a Delaware corporation (the
"Company"), and ___________________, an officer, or employee of the
Company or one of its subsidiaries (the "Grantee").
The Compensation Committee of the Company's Board of Directors has
determined, and the Board of Directors has concurred, that the Grantee is
one of the key personnel of the Company or one of its subsidiaries, and
that the objectives of the Company's 1994 Omnibus Employee Incentive Plan
(the "Plan") will be furthered by granting to the Grantee a stock option
pursuant to the Plan.
In consideration of the foregoing and of the mutual undertakings set
forth in this Agreement, the Company and the Grantee agree as follows:
Section 1. Stock Option Grant
1.1 The Company hereby grants to the Grantee a nonqualified stock
option (the "Option") to purchase __________ shares of the Company's common
stock, $.50 par value (the "Common Stock").
1.2 The option price per share of Common Stock covered by the Option
granted hereby is $____________ per share.
Section 2. Exercisability
2.1 No portion of the Option shall be exercisable prior to the
_________ anniversary of the date of this Agreement.
2.2 In accordance with Section 7.4 of the Plan, the Option shall
become exercisable with respect to _____% of the shares of Common Stock
initially subject thereto on the ________ anniversary of the date of this
Agreement, and with respect to an additional _______% of such shares on
each of the ___________, __________, __________ and _____________
anniversaries of the date of this Agreement, on a cumulative basis, so that
all of the shares of Common Stock covered by the Option shall become
exercisable in full on such ______________ anniversary.
2.3 The Option may be partially exercised from time to time within
the percentage limitations on exercisability set forth in Section 2.2
above.
2.4 The Option shall expire and cease to be exercisable _______
years after the date of this Agreement, or on such earlier date as may be
provided for herein or in accordance with the terms of the Plan.
Section 3. Method of Exercise
3.1 The Option may be exercised only by the giving of written notice
to the Company, which notice shall state the election to exercise the
Option and the number of whole shares of Common Stock with respect to which
the Option is being exercised. Such notice must be accompanied by payment
of the full purchase price for the number of shares purchased. Such payment
shall be made: (A) by certified or official bank check (or the equivalent
thereof acceptable by the Company) for the full Option exercise price; or
(B) with the consent of the Committee, by delivery of shares of Common
Stock acquired at least six months prior to the Option exercise date and
having a Fair Market Value (determined as of the exercise date) equal to
all or part of the Option exercise price and a certified or official bank
check (or the equivalent thereof acceptable by the Company) for any
remaining portion of the full Option exercise price; or (C) at the
discretion of the Committee and to the extent permitted by law, by such
other provision, consistent with the terms of the Plan, as the Committee
may from time to time prescribe. Shares of Common Stock owned through
employee benefit plans of the Company may be used to make purchase payments
if no adverse tax consequences to either the Company or such plans would
result.
3.2 The Company shall cause to be issued and delivered to the Grantee
a certificate(s) representing the number of shares of Common Stock due to
the Grantee upon exercise of any portion of the Option as soon as
practicable following exercise.
Section 4. Notices
Any notice to be given to the Company hereunder shall be in writing
and shall be addressed to the Secretary of the Company, at 5847 San Felipe,
Suite 2600, Houston, Texas 77057, or at such other address as the Company
may hereafter designate to the Grantee by notice as provided herein. Any
notice to be given to the Grantee hereunder shall be addressed to the
Grantee at the address set forth beneath his signature hereto, or at such
other address as the Grantee may hereafter designate to the Company by
notice as provided herein. Notices hereunder shall be deemed to have been
duly given when personally delivered or mailed by registered mail or
certified mail to the party entitled to receive the same.
Section 5. Plan Incorporated
The rights and privileges of the Option granted hereby shall be
subject to all the terms and provisions of the Plan, which are incorporated
herein by reference and made a part hereof, including, without limitation,
the provisions of Plan Section 7.7 (relating to the exercisability of the
Option following termination of employment) and Plan Section 5.4
(generally relating to adjustments to the number of shares of Common Stock
covered by the Option and to the option price per share, upon certain
changes in capitalization). Any term defined in the Plan shall have the
same meaning in this Agreement. In the event of any conflict between the
provisions of this Agreement and the Plan, the provisions of the Plan shall
control.
PAGE
Section 6. Duplicate Originals
This Stock Option Agreement is being executed in duplicate originals
so that each party may retain a signed original. Both original documents
constitute a singular agreement.
Section 7. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the successors and assigns of the Company and, to the
extent set forth in Plan Section 18.1, the heirs and personal
representatives of the Grantee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ATTEST: MAXXAM INC.:
____________________ By____________________
GRANTEE:____________________
EX-10
6
EXHIBIT 10.32
MAXXAM INC. 1994 NON-EMPLOYEE DIRECTOR STOCK PLAN
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement") dated as of ______________
is between MAXXAM INC., a Delaware corporation (the "Company"), and
_______________, a non-employee director of the Company (the "Optionee").
In consideration of the mutual undertakings set forth in this
Agreement, the Company and the Optionee agree as follows:
Section 1. Stock Option
1.1 The Company hereby grants as of the date of this Agreement
pursuant to the MAXXAM 1994 Non-Employee Director Stock Plan (the "Plan") a
stock option (the "Option") to the Optionee to acquire in accordance with
the terms of the Plan and this Agreement _______ shares of the Company's
Common Stock, $.50 par value (the "Common Stock").
1.2 The price per share at which shares of Common Stock may be
purchased pursuant to the Option granted hereby (the "Option Price") is
$_____________ per share.
Section 2. Exercisability
2.1 The Option shall not be exercisable prior to the ______________
anniversary of the date of this Agreement.
2.2 In accordance with Section 8 of the Plan, the Option shall become
exercisable with respect to ____________% of the shares of Common Stock
initially subject thereto on the __________ anniversary of the date of this
Agreement, and with respect to an additional _______% of such shares on
each of the ______________, __________________, _________________, and
________________ anniversaries of the date of this Agreement, so that the
Option shall become exercisable in full on the _______ such anniversary.
2.3 The Option may be partially exercised from time to time, subject
to the percentage limitations on exercisability set forth in Section 8 of
the Plan.
2.4 The Option shall expire and cease to be exercisable _____ years
after the date of this Agreement, or on such earlier date as may be
provided for herein or in accordance with the terms of the Plan.
Section 3. Method of Exercise
3.1 The Option may be exercised only by the delivery of written
notice on the attached form to the Company, together with payment of the
Option Price for each share of Common Stock to be received, together with
payment of any taxes required to be withheld by the Company. The notice
shall state that the Optionee has elected to exercise the Option and the
number of whole shares of Common Stock with respect to which the Option is
being exercised. Method of delivery of notice and payment and form of
payment of the Option Price shall be in accordance with Section 9 of the
Plan. The exercise date shall be the date of receipt of such notice.
3.2 As promptly as practicable after receipt of such written notice
of exercise and payment for the shares underlying the Option being
exercised, the Company shall deliver to the Optionee stock certificates for
the number of shares with respect to which the Option has been so
exercised, issued in the Optionee's name.
3.3 The Company shall have a repurchase right exercisable within ten
(10) days of the exercise date, as follows: (a) in the event that shares
of Common Stock have been issued pursuant to Section 3.2 hereof, the
Company may purchase all or any portion of such shares at a price per share
equal to the closing price reported on the American Stock Exchange (or such
other national exchange on which the Common Stock may be listed) on the
exercise date; (b) in the event that shares of Common Stock have not been
thus issued, the Company may pay the Optionee in cash, in respect of all or
any portion of the shares as to which notice of exercise was given, an
amount per share equal to the difference between such closing price and the
per-share option exercise price.
Section 4. Notices
Any notice to be given to the Company hereunder shall be in writing
and shall be addressed to the Secretary of the Company, at 5847 San Felipe,
Suite 2600, Houston, Texas 77057, or at such other address as the Company
may hereafter designate to the Optionee by notice as provided herein. Any
notice to be given to the Optionee hereunder shall be addressed to the
Optionee at the address set forth beneath his signature hereto, or at such
other address as the Optionee may hereafter designate to the Company by
notice as provided herein. Notices hereunder may be personally delivered
or mailed by registered mail or certified mail to the party entitled to
receive the same and shall be deemed to have been given when they have been
received by the receiving party.
Section 5. Plan Incorporated
The rights and privileges of the Option granted hereby shall be
subject to all the terms and provisions of the Plan, which are incorporated
herein by reference and made a part hereof. Optionee is particularly
directed to the provisions of Section 8 of the Plan (relating to the
exercisability of the Option following termination as a director or death),
Section 10 (transferability of options), and Section 15 of the Plan
(generally relating to adjustments to the number of shares of Common Stock
covered by the Option upon certain changes in capitalization). Any term
defined in the Plan shall have the same meaning in this Agreement. In the
event of any conflict between the provisions of this Agreement and the
Plan, the provisions of the Plan shall control.
Section 6. Duplicate Originals
This Agreement is being executed in duplicate originals so that each
party may retain a signed original. Both original documents constitute a
singular agreement.
Section 7. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the successors and assigns of the Company and, to the
extent set forth in Section 11 of the Plan, the heirs and personal
representatives of the Optionee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ATTEST: MAXXAM INC.
____________________ By____________________
____________________
[Optionee]
EX-10
7
EXHIBIT 10.41
____________________
(date)
____________________
____________________
____________________
Dear ___________:
We are pleased to advise you that at a recent meeting of the Compensation
Committee of the Board of Directors, such Committee consisting of identical
members for Kaiser Aluminum Corporation ("KAC") and Kaiser Aluminum &
Chemical Corporation ("KACC") (collectively, the "Company"), you were
selected for a grant of stock options under the Kaiser 1993 Omnibus Stock
Incentive Plan (the "Plan"). The Plan is designed to align key employees'
and stockholders' objectives, retain key employees, and offer competitive
long-term compensation opportunities.
This letter is accompanied by a brief summary description to help you
better understand the details of the Plan. The summary description sets
forth only the highlights, and is qualified in its entirety by the complete
copy of the controlling Plan, a copy of which you may also receive upon
request from Byron Wade, at the address set forth below or by calling (713)
267-3670.
The Company has granted to you on ______________, the right and option (not
qualified as an Incentive Stock Option under the Internal Revenue Code) to
purchase, on the terms and conditions set forth in the Plan, _________
shares of KAC common stock, $0.01 par value, at the exercise price of
$___________ per share, the closing price on the New York Stock Exchange on
________________, the date of the Compensation Committee meeting,
exercisable from time to time in accordance with the provisions of the
Plan. The above option will vest at the rate of _____% per year over the
next ___ years, with the first ____% vesting on _________. This grant is
subject to the Company's right to repurchase the option, in whole or in
part, within ten days of your exercise of such option at a price equal to
the difference between the exercise price and the closing price on the date
of your exercise as reported by the New York Stock Exchange (or such other
national exchange on which the KAC common stock may be listed).
Each exercise of this option shall be by means of a written notice of the
exercise (using the enclosed form) delivered to Byron Wade, Corporate
Secretary, in Houston, at the address specified on the form. If the notice
of exercise is received after 5:00 p.m. Houston time, the exercise will be
deemed to have occurred on the next business day. The notice of exercise
must specify the number of shares to be purchased and be accompanied by
full payment in cash, or by certified or cashier's check, payable to KAC
for the full exercise price of the shares to be purchased. Upon payment of
the full purchase price, the Company will make a withholding for federal,
state and local taxes. The withheld amount may not be sufficient for
payment of taxes owned by you. There will be future communications with
you on how the mechanics of withholding the required taxes at the time of
exercise will be handled. You, of course, are responsible for any taxes
incurred as a result of the options granted to you or their exercise.
Ordinary income is recognized by an optionee upon exercise of a non-
qualified stock option (a right granted by employer to purchase stock at
stipulated price over a specific period of time) in an amount equal to the
difference between the market value of the shares of common stock acquired
and the exercise price paid for them.
All options terminate immediately upon termination of employment for cause.
If employment terminates on account of death or disability, any of the
option hereby granted which is exercisable at termination may be exercised
until the earlier of the first anniversary of such termination date or its
scheduled expiration date. Any option exercisable upon the holder's
retirement may be exercised until the third anniversary of employment
termination or its scheduled expiration date. On termination of employment
in any circumstances not mentioned above, an option exercisable at
termination may be exercised for three months thereafter, but not after its
scheduled expiration date.
If the outstanding shares of the common stock of KAC are increased,
decreased, changed into or exchanged for a different number of kind of
shares of securities of KAC as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse
stock split, an appropriate and proportionate adjustment (to be
conclusively determined by the "Compensation Committee" of the "Boards" of
Directors of KAC and KACC) shall be made in the number and kind of
securities allocated to this option without change in the total price
applicable to the unexercised portion of this option, but with a
corresponding adjustment in the price for each share or other unit of any
security covered by this option.
The Compensation Committee has sole discretion to determine which employees
receive awards under the Plan and to establish the terms of each award
(subject to the provisions of the Plan). The award of the option should be
considered as an independent action and is not to be construed as
repeatable or ongoing. The Compensation Committee also has authority to
construe, interpret and implement the Plan, to make rules and otherwise
administer the Plan, and its determination on any matter relating to the
Plan conclusive. The Boards may terminate, suspend or revise the Plan at
any time, subject to stockholder approval for certain types of amendments.
However, no amendment or other action by the Boards, including termination
of the Plan, may adversely affect any outstanding award without consent of
the recipient (or, if applicable, the recipient's heirs or estate).
Also enclosed is a form of Beneficiary Designation to designate a
beneficiary to receive shares of common stock of KAC, as well as any
benefits under the Plan that may become payable on account of your death.
If you wish to make or change a designation of your beneficiary under the
Plan you should complete this form promptly and return it to Jim McKnight,
Director Corporate Personnel, 6177 Sunol Boulevard, Pleasanton, CA 94566.
In the absence of any such beneficiary designation by you, all death
benefits under the Plan would be payable to your estate.
We congratulate you on your selection to participate in this Plan. It
indicates your importance to the performance of the Company. We would also
like to thank you for your dedicated service and contribution to the past
success of the Company, and we look forward to your continued contribution.
If you have any questions regarding the Plan, please feel free to discuss
them with Byron Wade in Houston or with Jim McKnight in Pleasanton.
Please indicate your acceptance of this agreement by signing below and
returning such signed copy to Byron Wade, 5847 San Felipe, Suite 2600, P.
O. Box 572887, Houston, Texas 77257-2887.
Sincerely,
George T. Haymaker, Jr.
Chairman of the Board & Chief Executive Officer
I acknowledge and accept this award under the terms specified in this
letter and the Plan.
Employee's Signature
Date
EX-10
8
EXHIBIT 10.44
February 28, 1995
MAXXAM Inc.
5847 San Felipe, Suite 2600
Houston, Texas 77057
Re: Amendment of $150,000 Promissory Note
Gentlemen and Ladies:
This letter will confirm that the $150,000 Promissory Note dated
February 1, 1989 executed by the undersigned in favor of MAXXAM Inc. (the
"Note") is amended, effective as of the date set forth above, to provide
that (a) $15,000 of the remaining $90,000 principal amount of the Note
shall be forgiven on March 7, 1995, (b) the principal amount of the Note
remaining after giving effect to such forgiveness shall be paid in
installments of $18,750 on each of December 31, 1995, 1996 and 1997, with
any remaining principal balance, together with accrued interest, to be paid
in full on December 31, 1998, and (c) the Note may be prepaid in whole or
in part from time to time.
The Note is further amended, effective as of the date set forth above,
to provide that the Note shall be secured by any amounts to which the
undersigned may be entitled pursuant to MAXXAM's Revised Capital
Accumulation Plan.
ANTHONY R. PIERNO
Anthony R. Pierno
BEVERLY J. PIERNO
Beverly J. Pierno
ACKNOWLEDGED AND AGREED TO
effective as of the 28th day of February 1995.
MAXXAM INC.
By: BYRON L. WADE
Name: Byron L. Wade
Title: Vice President, Secretary and
Deputy General Counsel
EX-10
9
EXHIBIT 10.46
February 28, 1995
MAXXAM Inc.
5847 San Felipe, Suite 2600
Houston, Texas 77057
Re: Amendment of $200,000 Promissory Note
Gentlemen and Ladies:
This letter will confirm that the $200,000 Promissory Note dated July
19, 1990 executed by the undersigned in favor of MAXXAM Inc. (the "Note")
is amended, effective as of December 14, 1994, to replace the date
"December 15, 1994," where it twice appears in the second sentence of the
second paragraph of the Note, with the date "December 15, 1998."
The Note is further amended, effective as of December 14, 1994, to
provide that the Note shall be secured by any amounts to which the
undersigned may be entitled pursuant to MAXXAM's Revised Capital
Accumulation Plan.
ANTHONY R. PIERNO
Anthony R. Pierno
ACKNOWLEDGED AND AGREED TO
effective as of the 14th day of December 1994.
MAXXAM INC.
By: BYRON L. WADE
Name: Byron L. Wade
Title: Vice President, Secretary
and Deputy General Counsel
EX-10
10
EXHIBIT 10.48
AMENDMENT TO
REAL ESTATE LIEN NOTE
WHEREAS, on July 3, 1990, the undersigned executed a $350,000 Real
Estate Lien Note (the "Note") in favor of MAXXAM Inc.; and
WHEREAS, the Note was amended to provide that (a) $150,000 (net of any
amounts forgiven on any previous March 7) of the Note would be payable upon
demand (the "Demand Amount"), and (b) $200,000 of the Note would be payable
on December 15, 1994 (the "Fixed Date Amount"); and
WHEREAS, $70,000 of the Demand Amount is currently outstanding and
$50,000 of the Fixed Date Amount is currently outstanding; and
WHEREAS, the undersigned wish to execute an amendment to the Note;
NOW, THEREFORE, the Note is hereby amended to provide that the Fixed
Date Amount currently outstanding shall be due and payable upon demand by
Payee. None of the other provisions of the Note shall be effected by this
Amendment, including any security therefor.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 25th day of January 1995.
THE SCHWARTZ REVOCABLE TRUST
PAUL N. SCHWARTZ
Paul N. Schwartz, Trustee
BARBARA N. SCHWARTZ
Barbara M. Schwartz, Trustee
EX-11
11
EXHIBIT 11
MAXXAM INC.
COMPUTATION OF NET LOSS
PER COMMON AND COMMON EQUIVALENT SHARE
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Years Ended December 31,
1994 1993 1992
Weighted average common and common
equivalent shares outstanding
during each year 9,376,703 9,376,703 9,367,974
Common equivalent shares attributable
to stock options and convertible
securities 71,175 80,380 59,037
--------- --------- ---------
Total common and common
equivalent shares 9,447,878 9,457,083 9,427,011
========= ========= =========
Loss before extraordinary item and
cumulative effect of changes in
accounting principles $ (116.7) $ (131.9) $ (7.3)
Extraordinary item (5.4) (50.6) -
Cumulative effect of changes in
accounting principles - (417.7) -
---------- ---------- ---------
Net loss $ (122.1) $ (600.2) $ (7.3)
========== ========== =========
Per common and common equivalent
share:
Loss before extraordinary item
and cumulative effect of
changes in accounting
principles $ (12.35) $ (13.95) $ (.77)
Extraordinary item (.57) (5.35) -
Cumulative effect of changes in
accounting principles - (44.17) -
---------- ---------- ---------
Net loss $ (12.92) $ (63.47) $ (.77)
========== ========== =========
EX-13
12
EXHIBIT 13.1
Maxxam Inc. and Subsidiaries
Selected Financial Data
The following summary of consolidated financial information for each of the
five years ended December 31, 1994, is not reported upon herein by
independent public accountants and should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto which are contained
elsewhere herein.
Years Ended December 31,
(In millions of dollars, except
share amounts) 1994 1993 1992 1991 1990
Consolidated statement of
operations:
Net sales $2,115.7 $2,031.1 $2,202.6 $2,254.5 $2,360.7
Operating income (loss) 7.3 (96.1) 130.8 235.5 413.9
Income (loss) before
extraordinary item and
cumulative effect of
changes in accounting
principles (116.7) (131.9) (7.3) 57.5 144.4
Extraordinary item, net (5.4) (50.6) - - 17.5
Cumulative effect of
changes in accounting
principles, net - (417.7) - - -
Net income (loss) (122.1) (600.2) (7.3) 57.5 161.9
Per common and common
equivalent share:
Income (loss) before
extraordinary item
and cumulative effect
of changes in
accounting principles (12.35) (13.95) (0.77) 6.08 15.19
Extraordinary item,
net (.57) (5.35) - - 1.84
Cumulative effect of
changes in accounting
principles, net - (44.17) - - -
Net income (loss) (12.92) (63.47) (0.77) 6.08 17.03
Consolidated balance sheet at
end of period:
Total assets 3,690.8 3,572.0 3,198.8 3,215.0 3,027.5
Long-term debt 1,582.5 1,567.9 1,592.7 1,551.9 1,445.5
Stockholders' equity
(deficit) (275.3) (167.9) 443.9 459.6 395.3
Stockholders' equity
(deficit) per common and
common equivalent share (29.36) (17.91) 47.34 49.12 42.49
Cash dividends declared - - - - -
Maxxam Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
The Company operates in three industries: aluminum, through its majority
owned subsidiary, Kaiser Aluminum Corporation ("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 real estate investment and development,
principally through Maxxam Property Company and various other wholly owned
subsidiaries. The following should be read in conjunction with the
Company's Consolidated Statement of Operations for the years ended December
31, 1994, 1993 and 1992, contained elsewhere herein.
ALUMINUM OPERATIONS
The following table presents selected operational and financial information
for the three-year period ended December 31, 1994, with respect to Kaiser's
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 Kaiser
Aluminum & Chemical Corporation ("KACC"), operates in two business
segments: bauxite and alumina, and aluminum processing. Aluminum
operations account for a substantial portion of the Company's revenues and
operating results.
Years Ended December 31,
(In millions of dollars, except shipments and 1994 1993 1992
prices)
Shipments: (1)
Alumina 2,086.7 1,997.5 2,001.3
Aluminum products:
Primary aluminum 224.0 242.5 355.4
Fabricated aluminum products 399.0 373.2 343.6
---------- ---------- ----------
Total aluminum products 623.0 615.7 699.0
========== ========== ==========
Average realized sales price:
Alumina (per ton) $ 169 $ 169 $ 195
Primary aluminum (per pound) .59 .56 .66
Net sales:
Bauxite and alumina:
Alumina $ 352.8 $ 338.2 $ 390.8
Other (2) (3) 79.7 85.2 75.7
-------- -------- --------
Total bauxite and
alumina 432.5 423.4 466.5
-------- -------- --------
Aluminum processing:
Primary aluminum 292.0 301.7 515.0
Fabricated aluminum products 1,043.0 981.4 913.7
Other (3) 14.0 12.6 13.9
-------- -------- --------
Total aluminum
processing 1,349.0 1,295.7 1,442.6
-------- -------- --------
Total net sales $1,781.5 $1,719.1 $1,909.1
======== ======== ========
Operating income (loss) $ (50.3) $ (117.4) $ 91.6
========= ======== ========
Income (loss) before income taxes, minority
interests, extraordinary item and cumulative
effect of changes in accounting principles $ (145.8) $ (201.7) $33.8
========= ======== ========
Capital expenditures $ 70.0 $ 67.7 $ 114.4
========= ======== ========
(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.
Net Sales
Bauxite and alumina. Net sales of bauxite and alumina to third parties
were $432.5 million in 1994 compared to $423.4 million in 1993 and $466.5
million in 1992. Revenue from alumina increased 4% to $352.8 million in
1994 from $338.2 million in 1993 because of increased shipments. Revenue
from alumina decreased 13% to $338.2 million in 1993 from $390.8 million in
1992 because of lower average realized prices. The remainder of the
segment's sales revenues were from sales of bauxite, which remained about
the same throughout the three years, and the portion of sales of alumina
attributable to the minority interest in Alumina Partners of Jamaica
("Alpart").
Aluminum processing. Net sales to third parties for the aluminum
processing segment were $1,349.0 million in 1994 compared to $1,295.7
million in 1993 and $1,442.6 million in 1992. The bulk of the segment's
sales represents Kaiser's primary aluminum and fabricated aluminum
products, with the remainder due to the portion of sales of primary
aluminum attributable to the minority interest in Volta Aluminium Company
Limited.
Revenue from primary aluminum decreased 3% to $292.0 million in 1994 from
$301.7 million in 1993 as higher average realized prices were more than
offset by lower shipments. Average realized prices in 1994 reflected the
defensive hedging of primary aluminum prices in respect of 1994 shipments,
which was initiated prior to recent improvements in metal prices. In 1994,
Kaiser's average realized price from sales of primary aluminum was
approximately $.59 per pound, compared to the average Midwest United States
transaction price of approximately $.72 per pound during the year.
Shipments in 1994 reflected production curtailments at Kaiser's smelters in
the Pacific Northwest and Ghana. Revenue from primary aluminum decreased
41% to $301.7 million in 1993 from $515.0 million in 1992 because of lower
shipments and lower average realized prices. Shipments of primary aluminum
to third parties were approximately 36% of total aluminum products
shipments in 1994 compared to approximately 39% in 1993 and 51% in 1992.
Revenue from fabricated aluminum products increased 6% to $1,043.0 million
in 1994 from $981.4 million in 1993, principally due to increased shipments
of most of these products. Revenue from fabricated aluminum products
increased 7% to $981.4 million in 1993 compared to $913.7 million in 1992,
principally due to increased shipments of most fabricated aluminum
products, partially offset by a decrease in average realized prices of most
of these products.
Operating Income (Loss)
Operating losses in 1994 were $50.3 million, compared to operating losses
of $117.4 million in 1993 and operating income of $91.6 million in 1992.
In 1993, Kaiser recorded pre-tax charges of $35.8 million relating to the
restructuring of aluminum operations (see "- Aluminum processing") and
approximately $19.4 million and $29.0 million in the fourth quarter of 1993
and 1992, respectively, because of reductions in the carrying value of its
inventories caused principally by prevailing lower prices for alumina,
primary aluminum and fabricated aluminum products. Kaiser's corporate
general and administrative expenses of $67.6 million, $72.6 million and
$77.6 million in 1994, 1993 and 1992, respectively, were allocated by the
Company to the bauxite and alumina and aluminum processing segments based
upon those segments' ratio of sales to unaffiliated customers.
Bauxite and alumina. Operating income for the bauxite and alumina segment
was $5.6 million in 1994, compared to operating losses of $20.1 million in
1993 and operating income of $44.6 million in 1992. In 1994 compared to
1993, operating income was favorably affected by increased shipments and
lower manufacturing cost. In 1993 compared to 1992, operating income was
adversely affected principally due to a decrease in average realized prices
for alumina, which more than offset above-market prices for virtually all
of Kaiser's excess alumina sold forward in prior periods under long-term
contracts.
Aluminum processing. Operating losses for the aluminum processing segment
were $55.9 million in 1994, compared to operating losses of $97.3 million
in 1993 and operating income of $47.0 million in 1992. The decrease in
operating loss in 1994 compared to 1993 was caused principally by the $35.8
million restructuring charges described below, increased shipments of
fabricated aluminum products and higher average realized prices of primary
aluminum, partially offset by lower shipments of primary aluminum. In 1993
compared to 1992, operating income was adversely affected due principally
to reduced shipments and lower average realized prices of primary aluminum,
which more than offset increased shipments of fabricated aluminum products.
In 1993, KACC implemented a restructuring plan for its flat-rolled products
operation at its Trentwood plant in response to overcapacity in the
aluminum rolling industry, flat demand in U.S. can stock markets and
declining demand for aluminum products sold to customers in the commercial
aerospace industry, all of which resulted in declining prices in
Trentwood's key markets. Additionally, KACC implemented a plan to
streamline its casting
operations, which included the shutdown of two facilities located in Ohio.
This entire restructuring is expected to be completed by the end of 1995
and will affect approximately 620 employees. The pre-tax charge for this
restructuring of $35.8 million included $25.2 million for pension,
severance and other termination benefits at Trentwood; $8.0 million related
to casting facilities; and $2.6 million for various other items. At
December 31, 1994, Trentwood was ahead of its restructuring plan, which is
expected to result in annual cost savings of at least $50.0 million after
it has been fully implemented. Other contributing factors were lower
production at Kaiser's smelters in the Pacific Northwest in 1993 as a
result of the removal of three reduction potlines from production in
January 1993 in response to the Bonneville Power Administration's (the
"BPA") reduction during the first quarter of 1993 of the amount of power it
normally provides to Kaiser, and the increased cost of substitute power in
such quarter. In 1993 and 1992, Kaiser realized above-market prices for
significant quantities of primary aluminum sold forward in prior periods
under long-term contracts.
Income (Loss) Before Income Taxes, Minority Interests, Extraordinary Item
and Cumulative Effect of Changes in Accounting Principles
Losses before income taxes, minority interests, extraordinary item and
cumulative effect of changes in accounting principles in 1994 were $145.8
million, compared to $201.7 million in 1993. This decrease resulted
from the reduction in operating losses previously described. Losses before
income taxes, minority interests, extraordinary item and cumulative effect
of changes in accounting principles in 1993 were $201.7 million, compared
to income of $33.8 million in 1992. This decrease resulted from the
operating losses previously described and $10.8 million of other pre-tax
charges in 1993, principally related to establishing additional litigation
and environmental reserves.
As described in Note 1 to the Consolidated Financial Statements, Kaiser's
cumulative losses in the first and second quarter of 1993, principally due
to the implementation of the new accounting standard for postretirement
benefits other than pensions as described in Note 6 to the Consolidated
Financial Statements, eliminated Kaiser's equity with respect to its common
stock; accordingly, the Company recorded 100% of Kaiser's losses in the
third and fourth quarters of 1993 and all of 1994, without regard to the
minority interests represented by Kaiser's other common stockholders (as
described in Note 7 to the Consolidated Financial Statements). The Company
will record 100% of Kaiser's losses and profits until such time as the
cumulative losses recorded by the Company with respect to Kaiser's minority
common stockholders are recovered.
Information concerning net sales, operating income (loss) and assets
attributable to certain geographic areas and industry segments is set forth
in Note 11 to the Consolidated Financial Statements.
FOREST PRODUCTS OPERATIONS
The Company's forest products operations are conducted by MGI through its
principal operating subsidiaries, Pacific Lumber and Britt Lumber Co., Inc.
("Britt").
Years Ended December 31,
(In millions of dollars, except shipments and 1994 1993 1992
prices)
Shipments:
Lumber: (1)
Redwood upper grades 52.9 68.3 76.6
Redwood common grades 218.4 184.7 193.9
Douglas-fir upper grades 8.6 10.7 10.2
Douglas-fir common grades and
other 66.3 46.4 56.0
---------- ---------- ----------
Total lumber 346.2 310.1 336.7
========== ========== ==========
Logs (2) 17.7 18.6 19.1
========== ========== ==========
Wood chips (3) 210.3 156.8 202.7
========== ========== ==========
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,443 $ 1,275 $ 1,141
Redwood common grades 460 469 427
Douglas-fir upper grades 1,420 1,218 1,125
Douglas-fir common grades 444 447 298
Logs (4) 615 704 366
Wood chips (5) 83 81 83
Net sales:
Lumber, net of discount $ 216.5 $ 202.6 $ 194.2
Logs 10.9 13.1 7.0
Wood chips 17.4 12.7 16.9
Cogeneration power 3.5 3.8 3.7
Other 1.3 1.3 1.6
---------- ---------- ----------
Total net sales $ 249.6 $ 233.5 $ 223.4
========== ========== ==========
Operating income $ 79.1 $ 54.3 $ 64.1
========== ========== ==========
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles $ (5.2) $ (17.7) $ (28.4)
========== ========== ==========
Capital expenditures $ 11.3 $ 11.1 $ 8.7
========== ========== ==========
(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.
Shipments
Lumber shipments to third parties in 1994 were 346.2 million board feet, an
increase of 12% from 310.1 million board feet in 1993. This increase was
attributable to an 18% increase in redwood common lumber shipments and a
43% increase in shipments of common grade Douglas-fir and other lumber,
partially offset by a 23% decrease in shipments of upper grade redwood
lumber. Log shipments in 1994 were 17.7 million feet (net Scribner scale),
a decrease of 5% from 18.6 million feet in 1993.
Lumber shipments to third parties in 1993 of 310.1 million board feet
decreased 8% from 336.7 million board feet in 1992. This decrease was
attributable to a 5% decrease in redwood common lumber shipments, a 14%
decrease in shipments of Douglas-fir lumber and an 11% decrease in
shipments of upper grade redwood lumber. The Company believes the decrease
in total lumber shipments was caused primarily by a decline in construction
related activity resulting from weak economic conditions in the Western
region of the United States and, to a lesser extent, by the difficulties
related to weather conditions in the West and Midwestern United States
during 1993. Log shipments in 1993 of 18.6 million feet decreased 3% from
19.1 million feet in 1992.
Old growth trees constitute Pacific Lumber's principal source of upper
grade redwood lumber. Due to the severe restrictions on Pacific Lumber's
ability to harvest virgin old growth timber on its property (see
"-Trends"), Pacific Lumber's supply of upper grade lumber has decreased in
some premium product categories. Pacific Lumber has been able to lessen
the impact of these decreases by augmenting its production facilities to
increase its recovery of upper grade lumber from smaller diameter logs and
increasing the production of manufactured upper grade lumber products
through its end and edge glue facility (which was expanded during 1994).
However, unless Pacific Lumber is able to sustain the harvest level of old
growth trees it has experienced in recent years, Pacific Lumber expects
that its supply of premium upper grade lumber products will decrease from
current levels and that its manufactured lumber products will constitute a
higher percentage of its shipments of upper grade lumber products.
Net Sales
Revenues from net sales for 1994 increased by approximately 7% from 1993.
This increase was principally due to increased shipments of redwood common
lumber, a 13% increase in the average realized price of upper grade redwood
lumber, increased shipments of common grade Douglas-fir and other lumber
and increased sales of wood chips, partially offset by decreased shipments
of upper grade redwood lumber, a 2% decrease in the average realized price
of redwood common lumber and a 13% decrease in the average realized price
of log sales. The increase in sales of wood chips reflects higher demand
from pulp mills.
Revenues from net sales for 1993 increased by approximately 5% from 1992.
This increase was principally due to a 12% increase in the average realized
price of upper grade redwood lumber, a 10% increase in the average realized
price of redwood common lumber, a 92% increase in the average realized
price of log sales and a 50% increase in the average realized price of
common grade Douglas-fir lumber, partially offset by decreased shipments of
lumber and logs, as previously discussed, and decreased sales of wood
chips. The decrease in sales of wood chips resulted from the closure of a
pulp mill by one of Pacific Lumber's customers.
Operating Income
Operating income for 1994 increased by approximately 46% as compared to
1993. This increase was principally due to higher sales of lumber and
wood chips, lower purchases of lumber and logs from third parties, improved
sawmill productivity and reduced overhead costs.
Operating income for 1993 decreased by approximately 15% as compared to
1992. This decrease was primarily due to the additional cost of logs
purchased from third parties, lower shipments of high margin wood chips and
higher overhead costs, partially offset by the increase in sales of lumber
and logs, as previously discussed. The Company arranged for the purchase
of a significant number of logs early in 1993 in response to concerns
regarding inclement weather conditions hindering logging activities on the
Company's timberlands during the first five months of 1993. The cost
associated with the purchase of logs from third parties significantly
exceeds the Company's cost to harvest its own timber. As a result of the
Company's last-in, first-out (LIFO) methodology of accounting for
inventories, a substantial portion of the additional cost associated with
the purchased logs was charged to cost of sales in the third quarter of
1993. During the second quarter of 1992, Pacific Lumber experienced lumber
production delays attributable to the earthquake and aftershocks which
struck Humboldt County, California in April. The earthquake and related
aftershocks disabled, for a period of approximately six weeks, a large
number of the kilns used to dry the upper grade redwood lumber and the
sawmill which produces a significant portion of Pacific Lumber's upper
grade redwood lumber. Cost of goods sold for 1992 was reduced by a $3.3
million business interruption insurance claim as a result of the April 1992
earthquake. The business interruption insurance claim represents partial
compensation for the added costs and lower realized gross margins on lumber
sales, primarily due to lost production capacity of Pacific Lumber's drying
kilns. Cost of goods sold for 1993 includes a reduction of $1.2 million
reflecting an additional business interruption insurance claim.
Cost of goods sold as a percentage of sales was approximately 52%, 58% and
51% for 1994, 1993 and 1992, respectively. The increase for 1993 reflects
the impact of purchased logs as discussed above. Logging costs have
increased primarily due to the harvest of smaller diameter logs and, to a
lesser extent, compliance with environmental regulations relating to the
harvesting of timber and litigation costs incurred in connection with
certain timber harvesting plans filed by Pacific Lumber. See "-Trends."
During the past few years, the Company has significantly increased
itsproduction capacity for manufactured lumber products by assembling knot-
free pieces of common grade lumber into wider and longer pieces in the
Company's end and edge glue plant. This manufactured lumber results in a
significant increase in lumber recovery and produces a standard size upper
grade product which is sold at a premium price compared to common grade
products of similar dimensions. The Company has instituted a number of
measures at its sawmills during the past several years designed to enhance
the efficiency of its operations such as expansion of its manufactured
lumber facilities and other improvements in lumber recovery, automated
lumber handling and the modification of its production scheduling to
increase cogeneration power revenues.
Loss Before Income Taxes, Minority Interests, Extraordinary Item and
Cumulative Effect of Changes in Accounting Principles
The loss before income taxes, minority interests, extraordinary item and
cumulative effect of changes in accounting principles decreased for 1994 as
compared to 1993. This decrease resulted from the increase in operating
income and decreased interest expense, partially offset by the loss on
litigation settlement. In addition, investment, interest and other income
(expense) for 1994 includes the receipt of a franchise tax refund of $7.2
million (as described in Note 1 to the Consolidated Financial Statements)
and net gains on marketable securities of $2.0 million. The litigation
settlement in the second quarter of 1994 (as described in Note 1 to the
Consolidated Financial Statements) resulted in a pre-tax loss of $21.2
million which consists of Pacific Lumber's $14.8 million cash payment to
the settlement fund, a $2.0 million accrual for additional contingent
claims and $4.4 million of related legal fees. Interest expense decreased
due to lower interest rates resulting from the refinancing of the long-term
debt of Pacific Lumber and MGI in March and August of 1993.
The loss before income taxes, minority interests, extraordinary item and
cumulative effect of changes in accounting principles decreased for 1993 as
compared to 1992 due to an increase in investment, interest and other
income and a decrease in interest expense, partially offset by the decrease
in operating income. Investment, interest and other income for 1993
includes net gains on marketable securities of $6.7 million. Investment,
interest and other income for 1992 includes estimated minimum insurance
recoveries of $1.6 million for earthquake damage incurred in April 1992.
Interest expense decreased in 1993 as compared to 1992 due to lower
interest rates resulting from the refinancing of the Company's long-term
debt during 1993. See "-Financial Condition and Investing and Financing
Activities."
REAL ESTATE OPERATIONS
Years Ended December 31,
(In millions of dollars) 1994 1993 1992
Net sales $ 84.6 $ 78.5 $ 70.1
Operating loss (10.0) (13.5) (9.3)
Income (loss) before income taxes, minority
interests, extraordinary item and cumulative
effect of changes in accounting principles (1.5) 38.1 (5.2)
Net Sales
Net sales for 1994 were $84.6 million, an increase of 8% from $78.5 million
in 1993. This increase was primarily due to bulk acreage sales in New
Mexico and increased lot sales at the Company's Fountain Hills development
in Arizona, partially offset by a decrease in rental revenues resulting
from the sale of sixteen apartment complexes in December 1993. Net sales
for 1993 increased 12% from $70.1 million in 1992. This increase was
primarily due to revenues associated with the real properties purchased
from the Resolution Trust Corporation ("RTC") in June 1991.
Operating Loss
The operating loss for 1994 was $10.0 million, a decrease of $3.5 million
from 1993. The operating results for 1994 were favorably impacted by the
bulk acreage sales and the increased sales at Fountain Hills, offset by
decreased revenues as a result of the sale of sixteen apartment complexes
in December 1993. The operating loss for 1993 included a $5.9 million
writedown of certain of the Company's nonstrategic real estate holdings to
their estimated net realizable value. The operating
loss for 1993 was $13.5 million, an increase of $4.2 million from 1992.
This increase was primarily due to the $5.9 million writedown in the first
quarter of 1993, partially offset by improved operations at the multi-
family properties purchased from the RTC.
Income (Loss) Before Income Taxes, Minority Interests, Extraordinary Item
and Cumulative Effect of Changes in Accounting Principles
The loss before income taxes, minority interests, extraordinary item and
cumulative effect of changes in accounting principles for 1994 was $1.5
million, as compared to income of $38.1 million for 1993. The loss for
1994 was primarily due to a decrease in investment, interest and other
income, offset by a decrease in interest expense and the decreased
operating loss discussed above. Investment, interest and other income for
1994 includes the sale of two real properties and one loan from the RTC
portfolio resulting in pre-tax gains of $7.3 million. The decrease in
interest expense for 1994 as compared to 1993 resulted primarily from
repayments on debt attributable to the sale of the sixteen apartment
complexes in December 1993. Income before income taxes, minority
interests, extraordinary item and cumulative effect of changes in
accounting principles for 1993 was $38.1 million, as compared to a loss of
$5.2 million for 1992. This improvement was primarily due to an increase
in investment, interest and other income and a decrease in interest
expense, offset by the increased operating losses discussed above.
Investment, interest and other income for 1993 includes the sale of sixteen
multi-family real estate properties from the RTC portfolio in December 1993
for $113.6 million, resulting in a pre-tax gain of $47.8 million. Also
included in investment, interest and other income for 1993 are the sales of
two other real properties and three loans from the RTC portfolio resulting
in pre-tax gains of $5.1 million. Investment, interest and other income
for 1992 includes the sale of six real properties and four loans from the
RTC portfolio resulting in pre-tax gains of $6.7 million. Interest income
decreased for 1993 as compared to 1992 due to the loan sales and the
Company's acquisition of properties that were collateral for certain loans.
The decrease in interest expense for 1993 as compared to 1992 resulted from
lower interest rates and repayments on the debt related to the RTC
portfolio.
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
Years Ended December 31,
(In millions of dollars) 1994 1993 1992
Operating loss $ (11.5) $ (19.5) $ (15.6)
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles (19.3) (30.1) (13.4)
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 1994 was $11.5 million, a decrease of $8.0 million from
1993. This decrease was primarily due to lower overhead costs. The
operating loss for 1993 was $19.5 million, an increase of $3.9 million from
1992. This increase was primarily due to a $6.5 million charge related to
litigation contingencies.
Loss Before Income Taxes, Minority Interests, Extraordinary Item and
Cumulative Effect of Changes in Accounting Principles
The loss before income taxes, minority interests, extraordinary item and
cumulative effect of changes in accounting principles includes operating
losses, investment, interest and other income (expense) and interest
expense, including amortization of deferred financing costs, that are not
allocated to the Company's industry segments. The loss before income
taxes, minority interests, extraordinary item and cumulative effect of
changes in accounting principles for 1994 was $19.3 million, a decrease of
$10.8 million from 1993. This decrease was primarily due to the decreased
operating losses discussed above and a decrease in interest expense. The
decrease in interest expense resulted primarily from the redemption of
$20.0 million aggregate principal amount of the 14% Senior Subordinated
Reset Notes due 2000 (the "Reset Notes") in August 1993. Investment,
interest and other income (expense) for 1994 includes the losses
attributable to the Company's equity interest in Sam Houston Race Park,
offset by net gains on marketable securities. See "-Financial Condition
and Investing and Financing Activities-Parent Company." The loss before
income taxes, minority interests, extraordinary item and cumulative effect
of changes in accounting principles for 1993 was $30.1 million, an increase
of $16.7 million from 1992. This increase was primarily due to lower
investment, interest and other income and the increased operating losses
discussed above.
Minority Interests
Minority interests represent the minority stockholders' interest in the
Company's aluminum operations.
Extraordinary Item
The refinancing activities of Kaiser during the first quarter of 1994, as
described in Note 4 to the Consolidated Financial Statements, resulted in
an extraordinary loss of $5.4 million, net of benefits for income taxes of
$2.9 million. The extraordinary loss consists primarily of the write-off
of unamortized deferred financing costs on the 1989 Credit Agreement.
The refinancing activities of KACC and Pacific Lumber in the first quarter
of 1993 and MGI in the third quarter of 1993, as described in Note 4 to the
Consolidated Financial Statements, resulted in an extraordinary loss of
$50.6 million, net of benefits for minority interests of $2.8 million and
income taxes of $27.5 million. The extraordinary loss consists primarily
of the respective tender and redemption premiums paid and the write-off of
unamortized discount and deferred financing costs on the KACC 14-1/4%
Senior Subordinated Notes, Pacific Lumber's 12% Series A Senior Notes,
12.2% Series B Senior Notes and 12-1/2% Senior Subordinated Debentures
(collectively, the "Old Pacific Lumber Securities") and the MGI 12-3/4%
Notes.
Cumulative Effect of Changes in Accounting Principles
As of January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"),
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions ("SFAS 106") and Statement
of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits ("SFAS 112") as more fully described in Notes 5 and
6 to the Consolidated Financial Statements. The cumulative effect of the
change in accounting principle for the adoption of SFAS 109 increased
results of operations by $26.6 million. The cumulative effect of the change
in accounting principle for the adoption of SFAS 106 reduced results of
operations by $437.9 million, net of related benefits for minority
interests of $63.6 million and income taxes of $236.8 million. The
cumulative effect of the change in accounting principle for the adoption of
SFAS 112 reduced results of operations by $6.4 million, net of related
benefits for minority interests of $1.0 million and income taxes of $3.4
million. The new accounting methods have no effect on the Company's cash
outlays for postretirement and postemployment benefits, nor does the
cumulative effect of the changes in accounting principles affect the
Company's compliance with its existing debt covenants. The Company reserves
the right, subject to applicable collective bargaining agreements and
applicable legal requirements, to amend or terminate these benefits.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
During 1993 and through February 17, 1994, subsidiaries of the Company's
Aluminum Operations and Forest Products Operations completed a number of
transactions designed to enhance their liquidity, significantly extend
their debt maturities and lower their interest costs. Collectively, these
transactions included public offerings for approximately $1.4 billion of
debt securities, approximately $220 million of additional equity capital
and the replacement of revolving credit facilities. The following should
be read in conjunction with the Company's Consolidated Financial Statements
and the Notes thereto.
PARENT COMPANY
The Company conducts its operations primarily through its subsidiaries.
Creditors of and holders of minority interests in subsidiaries of the
Company have priority with respect to the assets and earnings of such
subsidiaries over the claims of the creditors of the Company, including the
holders of the Company's public debt. As of December 31, 1994, the
indebtedness of the subsidiaries and the minority interests reflected on
the Company's Consolidated Balance Sheet were $1,570.1 million and $344.3
million, respectively. 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 (as defined below) and the
indentures governing KACC's 9-7/8% Senior Notes due 2002 (the "KACC Senior
Notes") and 12-3/4% Senior Subordinated Notes due 2003 (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
MGI's 11-1/4% Senior Secured Notes due 2003 (the "MGI Senior Notes") and
12-1/4% Senior Secured Discount Notes due 2003 (the "MGI Discount Notes"
and together with the MGI Senior Notes, 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 December 31,
1994, 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 $25.3 million could be paid as of December 31, 1994.
Contemporaneously with the issuance of the MGI Notes (see "-Forest Products
Operations"), MGI (i) transferred to the Company 50 million common shares
of Kaiser held by a subsidiary of MGI, representing MGI's (and the
Company's) entire interest in Kaiser's common stock, (ii) transferred to
the Company 60,075 shares of the Company's common stock held by a
subsidiary of MGI, (iii) transferred to the Company certain notes
receivable, long-term investments, and other assets, each net of related
liabilities, collectively having a carrying value to MGI of approximately
$1.1 million and (iv) exchanged with the Company 2,132,950 of Kaiser's $.65
Depositary Shares (the "Depositary Shares") (acquired by MGI from Kaiser in
exchange for a $15.0 million cash loan made by MGI to KACC in January 1993,
referred to as the "MGI Loan"), such exchange being in satisfaction of a
related $15.0 million promissory note evidencing a cash loan made by the
Company to MGI in January 1993. On the same day, the Company assumed
approximately $17.5 million of certain liabilities of MGI that were
unrelated to MGI's forest products operations or were related to operations
which have been disposed of by MGI. On August 4, 1993, the Company pledged
28 million shares of the Kaiser common stock as collateral for the MGI
Notes. Additionally, on September 28, 1993, MGI transferred its interest
in Palmas del Mar to the Company. During 1994, the Company sold 1,239,400
of such Depositary Shares for an aggregate net proceeds of $10.3 million.
During January and February of 1995, the Company sold an additional 195,550
Depositary Shares for an aggregate net proceeds of $1.6 million. The
Company may consummate the sale of all or any portion of the remaining
Depositary Shares at any time. On March 1, 1995, the New York Stock
Exchange reported the closing price of Depositary Shares as $8.125 per
share. The Company intends to use the net proceeds from the sale of the
Depositary Shares for general corporate purposes.
MGI used a portion of the net proceeds from the sale of the MGI Notes to
retire the entire outstanding balance of its 12-3/4% Notes at 101% of their
principal amount, plus accrued interest through November 14, 1993. MGI
used the remaining portion of the net proceeds from the sale of the MGI
Notes, together with a portion of its existing cash resources, to pay a
$20.0 million dividend to the Company. The Company used such proceeds to
redeem, on August 20, 1993, $20.0 million aggregate principal amount of its
Reset Notes at 100% of their principal amount plus accrued interest
thereon. The Company incurred a pre-tax extraordinary loss associated with
the early retirement of the 12-3/4% Notes and the redemption of $20.0
million aggregate principal amount of the Reset Notes of approximately $9.8
million.
Since July 8, 1993, the Company has, through various subsidiaries,
controlled the general partner of, and held an equity interest in, Sam
Houston Race Park, Ltd. ("SHRP"), which owns and operates a Class 1 horse
racing track located on approximately 240 acres of land in northwest
Houston (the "Race Park"). Financing for the Race Park was completed
through a private placement of $75.0 million aggregate principal amount of
11-3/4% Senior Secured Notes due July 15, 1999 (the "SHRP Notes"), along
with a $9.1 million investment from the Company. The SHRP Notes are
secured by the Race Park and substantially all of SHRP's other assets. The
Race Park is the first of its type in Texas and began operations on April
29, 1994. Results of operations for periods subsequent to that date have
been substantially below management's expectations. SHRP's initial working
capital, together with cash flows from operations, has not been sufficient
to enable SHRP to meet its obligations as they become due. SHRP's ability
to recover its investment in the Race Park is dependent upon its ability to
achieve a level of cash flows from operations sufficient to enable it to
meet its operating and financing obligations as they become due. In this
regard, SHRP's general partner has undertaken a number of steps intended to
improve SHRP's operations. These steps include strengthening on-site
management, reducing general and administrative costs, negotiating
amendments to the contracts for purse payments, principally to reduce purse
payments, and negotiating reductions with other obligees. In addition to
its efforts to strengthen SHRP's operations, on September 1, 1994, a
deficit notice was issued calling for $6.5 million in additional capital to
be raised by SHRP through the offering of Class C-1 interests in SHRP (the
"Capital Call"). A substantial portion of the proceeds of the Capital Call
($5.6 million) was contributed by a wholly owned subsidiary of the Company
pursuant, in large degree, to its oversubscription right arising from
limited voluntary participation by other partners. As a result of the
Capital Call, the Company's equity interest in SHRP increased from
approximately 29.7% to 45.0%. The cash received from the Capital Call was
expected to be used, among other things, to make the January 15, 1995
interest payment on the SHRP Notes. However, in order to continue
operations, SHRP was required to use a portion of the cash that had been
expected to be used for such interest payment. Accordingly, SHRP has
defaulted on the $4.4 million semi-annual interest payment that was due on
January 15, 1995. Certain of the holders of the SHRP Notes have formed an
unofficial committee (the "Committee"), and the Committee has retained
counsel and a financial advisor (at SHRP's expense) to advise them in this
matter. SHRP's general partner has retained a financial advisor and
entered into ongoing discussions with representatives of the Committee
regarding the restructuring of the SHRP Notes. However, there can be no
assurance that SHRP's general partner and the Committee will reach an
agreement or as to the terms of any such agreement. Certain affiliated
parties of the Company, including Mr. Charles E. Hurwitz, President and
Chief Executive Officer of the Company, collectively hold less than a 7%
equity interest in SHRP.
On October 10, 1994, the Company entered into a demand loan and pledge
agreement with Custodial Trust Company providing for up to $25.0 million in
borrowings. Any amounts drawn under the agreement would be secured by
Kaiser capital stock owned by the Company (or such other marketable
securities acceptable to the lender) having an initial market value (as
defined) of approximately three times the amount borrowed. Borrowings
under this agreement will bear interest at the prime rate plus 1% per
annum. No borrowings were outstanding as of December 31, 1994.
As of December 31, 1994, the Company (excluding its aluminum, forest
products and real estate subsidiary companies) had cash and marketable
securities of approximately $36.3 million. The Company's cash outlays for
interest and sinking fund obligations with respect to parent company
indebtedness, including a February 1995 redemption of $5.0 million of its
12-1/2% Subordinated Debentures, will aggregate approximately $11 million
in 1995 and $6 million in 1996. Although there are no restrictions on the
Company's ability to pay dividends on its capital stock, the Company has
not paid any dividends for a number of years and has no present intention
to pay dividends in the foreseeable future. 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
The offering of the 8.255% Preferred Redeemable Increased Dividend Equity
Securities (the "PRIDES"), the issuance of the KACC Senior Notes and the
replacement of the 1989 Credit Agreement during the first quarter of 1994
(as described in Notes 4 and 7 to the Consolidated Financial Statements)
were the final steps of a comprehensive refinancing plan which Kaiser began
in January 1993 to extend the maturities of Kaiser's outstanding
indebtedness, enhance its liquidity and raise new equity capital. 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.
On February 17, 1994, Kaiser and KACC entered into a credit agreement with
BankAmerica Business Credit, Inc. (as agent for itself and other lenders),
Bank of America National Trust and Savings Association and certain other
lenders (as amended, the "1994 Credit Agreement"). The 1994 Credit
Agreement consists of a $275.0 million five-year secured revolving line of
credit which matures in 1999 and replaced the credit agreement entered into
in December 1989 by Kaiser and KACC with a syndicate of commercial banks
and other financial institutions (as amended, the "1989 Credit Agreement").
KACC is able to borrow under the facility by means of revolving credit
advances and letters of credit (up to $125.0 million) in an aggregate
amount equal to the lesser of $275.0 million or a borrowing base relating
to eligible accounts receivable and inventory. As of February 17, 1995,
$137.3 million (of which $59.3 million could have been used for letters of
credit) was available to KACC under the 1994 Credit Agreement. The 1994
Credit Agreement is unconditionally guaranteed by Kaiser and by certain
significant subsidiaries of KACC. Loans under the 1994 Credit Agreement
bear interest at a rate per annum, at KACC's election, equal to (i) a
Reference Rate plus 1-1/2% or (ii) LIBOR plus 3-1/4%. After June 30, 1995,
the interest rate margins applicable to borrowings under the 1994 Credit
Agreement may be reduced by up to 1-1/2% (non-cumulatively) based upon a
financial test, determined quarterly. Kaiser recorded a pre-tax
extraordinary loss of $8.3 million ($5.4 million after taxes) in the first
quarter of 1994, consisting primarily of the write-off of unamortized
deferred financing costs related to the 1989 Credit Agreement.
The 1994 Credit Agreement requires KACC to maintain certain financial
covenants and places restrictions on Kaiser's and KACC's ability to, among
other things, incur debt and liens, make investments, pay dividends,
undertake transactions with affiliates, make capital expenditures and enter
into unrelated lines of business. The 1994 Credit Agreement is secured by,
among other things, (i) mortgages on KACC's major domestic plants
(excluding the Gramercy plant); (ii) subject to certain exceptions, liens
on the accounts receivable, inventory, equipment, domestic patents and
trademarks and substantially all other personal property of KACC and
certain of its subsidiaries; (iii) a pledge of all of the stock of KACC
owned by Kaiser and (iv) pledges of all of the stock of a number of KACC's
wholly owned domestic subsidiaries, pledges of a portion of the stock of
certain foreign subsidiaries and pledges of a portion of the stock of
certain partially owned foreign affiliates.
During the first quarter of 1994, Kaiser consummated a public offering for
the sale of 8,855,550 shares of its PRIDES. The net proceeds from the sale
of the PRIDES were approximately $100.1 million. Kaiser used $33.2 million
of such net
proceeds to make non-interest bearing loans to KACC (evidenced by notes)
which are designed to provide sufficient funds to make the required
dividend payments on the PRIDES until December 31, 1997 and $66.9 million
of such net proceeds to make capital contributions to KACC.
On February 17, 1994, KACC issued $225.0 million of the KACC Senior Notes
(see Note 4 to the Consolidated Financial Statements). The net proceeds
from the offering of the KACC Senior Notes were used to reduce outstanding
borrowings under the revolving credit facility of the 1989 Credit Agreement
immediately prior to the effectiveness of the 1994 Credit Agreement and for
working capital and general corporate purposes.
On June 30, 1993, Kaiser issued 17,250,000 of the Depositary Shares, each
representing one-tenth of a share of Series A Mandatory Conversion Premium
Dividend Preferred Stock (the "Series A Shares"). In connection with the
issuance of the Depositary Shares, Kaiser issued an additional 2,132,950 of
its Depositary Shares to MGI in exchange for the MGI Loan. Kaiser used
approximately $81.5 million of the net proceeds it received from the sale
of the Depositary Shares together with the MGI Loan to make a capital
contribution to KACC, and $37.8 million of the net proceeds it received
from the sale of the Depositary Shares to make a non-interest bearing loan
to KACC which is designed to provide sufficient funds to make the required
dividend payments on the Series A Shares until June 30, 1996. KACC used
approximately $13.7 million of such funds to prepay the remaining balance
of the term loan under the 1989 Credit Agreement and $105.6 million of such
funds to reduce outstanding borrowings under the revolving credit facility
of the 1989 Credit Agreement.
As a result of the issuance of the PRIDES and the Depositary Shares, the
Company's voting interest in Kaiser has decreased from approximately 87.2%
to approximately 58.9% on a fully diluted basis.
On February 1, 1993, KACC issued $400.0 million of the KACC Notes. The net
proceeds from the sale of the KACC Notes were used to retire the KACC
14-1/4% Senior Subordinated Notes, to prepay $18.0 million of the term loan
under KACC's 1989 Credit Agreement and to reduce outstanding borrowings
under the revolving credit facility of the 1989 Credit Agreement. The
obligations of KACC with respect to the KACC Notes and the KACC Senior
Notes are guaranteed, jointly and severally, by certain subsidiaries of
KACC.
The indentures governing the KACC Senior Notes and the KACC Notes contain,
among other things, restrictions on KACC's ability to incur debt, undertake
transactions with affiliates and pay dividends. The declaration and
payment of dividends by Kaiser with respect to the Depositary Shares and
the PRIDES are expressly permitted by the terms of the 1994 Credit
Agreement to the extent Kaiser receives payments on the respective
intercompany notes established in connection with the issuance of the
Depositary Shares and the PRIDES or certain other permitted distributions
from KACC.
Kaiser has established margin accounts with its counterparties related to
aluminum forward sales and option contracts. Kaiser 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 December 31, 1994, Kaiser had $50.5
million on deposit with various counterparties in respect of such
unrealized losses.
Kaiser has historically participated in various raw material joint ventures
outside the United States. At December 31, 1994, Kaiser was
unconditionally obligated for $78.7 million of indebtedness of one such
joint venture affiliate.
Kaiser's capital expenditures of approximately $252.1 million (of which
$34.0 million was funded by Kaiser's minority partners in certain foreign
joint ventures) during the three years ended December 31, 1994 were made
primarily to improve production efficiency, reduce operating costs, expand
capacity at existing facilities and construct new facilities. Kaiser's
capital expenditures were $70.0 million in 1994, compared to $67.7 million
in 1993 and $114.4 million in 1992 (of which $7.5 million, $9.4 million and
$17.1 million were funded by the minority partners in certain foreign joint
ventures in 1994, 1993 and 1992, respectively). Kaiser's capital
expenditures (of which approximately 11% is expected to be funded by the
minority partners in certain foreign joint ventures) are expected to be
between $80.0 million and $130.0 million per year in the 1995 - 1997
period, subject to necessary approvals, if required, from the lenders under
the 1994 Credit Agreement.
As described in Note 9 to the Consolidated Financial Statements, Kaiser and
KACC are subject to a wide variety of environmental laws and regulations,
to fines or penalties assessed for alleged breaches of the environmental
laws and to claims and litigation based upon such laws. KACC is currently
subject to a number of lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA") and,
along with certain other entities, has been named as a potentially
responsible party for remedial costs at certain third-party sites listed on
the National Priorities List under CERCLA. Additionally, 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.
While uncertainties are inherent in the final outcome of these matters and
it is impossible to presently determine the actual costs that ultimately
may be incurred and the insurance recoveries that will be received,
management currently believes that the resolution of such uncertainties and
the incurrence of such costs net of related insurance recoveries should not
have a material adverse effect on Kaiser's consolidated financial position
or results of operations.
FOREST PRODUCTS OPERATIONS
MGI conducts its operations primarily through its subsidiaries. Creditors
of MGI's subsidiaries have priority with respect to the assets and earnings
of such subsidiaries over the claims of the creditors of MGI, including the
holders of the MGI Notes. As of December 31, 1994, the indebtedness of the
subsidiaries reflected on MGI's Consolidated Balance Sheet was $599.7
million. The indentures governing the 10-1/2% Senior Notes due 2003 (the
"Pacific Lumber Senior Notes") and the 7.95% Timber Collateralized Notes
due 2015 (the "Timber Notes") and Pacific Lumber's Revolving Credit
Agreement contain various covenants which, among other things, restrict
transactions between Pacific Lumber and its affiliates and the payment of
dividends. Pacific Lumber can pay dividends in an amount that is generally
equal to 50% of Pacific Lumber's consolidated net income plus depletion and
cash dividends received from Scotia Pacific Holding Company ("SPHC"), a
wholly owned subsidiary of Pacific Lumber (for periods subsequent to March
1, 1993), exclusive of the net income and depletion of SPHC so long as any
Timber Notes are outstanding. As of December 31, 1994, under the most
restrictive of these covenants, approximately $20.8 million of dividends
could be paid by Pacific Lumber. Pacific Lumber paid an aggregate of $24.5
million of dividends in 1994.
As of December 31, 1994, MGI and its subsidiaries had consolidated working
capital of $102.5 million and long-term debt of $736.4 million (net of
current maturities and restricted cash deposited in a liquidity account for
the benefit of the holders of the Timber Notes). 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.
Substantially all of MGI's consolidated assets are owned by Pacific Lumber
and a significant portion of Pacific Lumber's consolidated assets are owned
by SPHC. MGI expects that Pacific Lumber will provide a major portion of
its future operating cash flow. Pacific Lumber is dependent upon SPHC for
a significant portion of its operating cash flow. The holders of the
Timber Notes have priority over the claims of creditors of Pacific Lumber
with respect to the assets and cash flow of SPHC and the holders of the
Pacific Lumber Senior Notes have priority over the claims of creditors of
MGI with respect to the assets and cash flows of Pacific Lumber. Under the
terms of the indenture governing the Timber Notes (the "Timber Note
Indenture"), SPHC will not have available cash for distribution to Pacific
Lumber unless SPHC's cash flow from operations exceeds the amounts required
by the Timber Note Indenture to be reserved for the payment of current debt
service (including interest, principal and premiums) on the Timber Notes,
capital expenditures and certain other operating expenses. See Note 4 to
the Consolidated Financial Statements for a description of the principal
payment requirements of the Timber Notes.
MGI expects that, consistent with SPHC's purposes and its need to fund
operating and capital expenses, substantially all of SPHC's available cash
will be periodically distributed to Pacific Lumber. Once appropriate
provision is made for current debt service on the Timber Notes and
expenditures for operating and capital costs, and in the absence of certain
Trapping Events (as defined in the Timber Note Indenture) or outstanding
judgments, the Timber Note Indenture does not limit monthly distributions
of available cash from SPHC to Pacific Lumber. In the event SPHC's cash
flows are not sufficient to generate distributable funds to Pacific Lumber,
Pacific Lumber's ability to pay interest on the Pacific Lumber Senior Notes
and to service its other indebtedness would be materially impaired and
MGI's ability to pay interest on the MGI Notes and
its other indebtedness would also be materially impaired. SPHC paid $88.9
million and $58.3 million of dividends to Pacific Lumber during the year
ended December 31, 1994 and the period from March 23, 1993 to December 31,
1993, respectively.
On August 4, 1993, MGI issued $100.0 million aggregate principal amount of
the MGI Senior Notes and $126.7 million aggregate principal amount
(approximately $70.0 million net of original issue discount) of the MGI
Discount Notes. The MGI Notes are secured by MGI's pledge of 100% of the
common stock of Pacific Lumber, Britt and Maxxam Properties Inc. ("MPI," a
wholly owned subsidiary of MGI), and by the Company's pledge of 28 million
shares of Kaiser's common stock. The indenture governing the MGI Notes,
among other things, restricts the ability of MGI to incur additional
indebtedness, engage in transactions with affiliates, pay dividends and
make investments. The MGI Notes are senior indebtedness of MGI; however,
they are effectively subordinate to the liabilities of MGI's subsidiaries,
which include the Pacific Lumber Senior Notes and the Timber Notes.
The MGI Senior Notes require annual interest payments of $11.3 million.
The MGI Discount Notes will require annual interest payments of $15.5
million beginning on February 1, 1999. As of December 31, 1994, MGI
(excluding Pacific Lumber and its subsidiary companies) had cash and
marketable securities of approximately $37.1 million. MGI believes,
although there can be no assurance, that the aggregate dividends that will
be available to it from Pacific Lumber and Britt, during the four year
period in which cash interest will not be payable on the MGI Discount
Notes, will exceed MGI's cash interest payments on the MGI Senior Notes.
When cash interest payments on the MGI Discount Notes commence on February
1, 1999, MGI believes that it will be able to make such cash interest
payments out of its then existing cash resources and from cash expected to
be available to it from Pacific Lumber and Britt.
On June 23, 1993, Pacific Lumber entered into a new Revolving Credit
Agreement with a bank which provides for borrowings of up to $30.0 million,
of which $15.0 million may be used for standby letters of credit. As of
December 31, 1994, $19.7 million of borrowings was available under the
Revolving Credit Agreement, of which $4.7 million was available for letters
of credit. No borrowings were outstanding as of December 31, 1994, and
letters of credit outstanding amounted to $10.3 million. In May 1994, the
Revolving Credit Agreement was amended to extend its maturity date to May
31, 1997 and modify the dividend restriction existing at December 31, 1993.
The Revolving Credit Agreement is secured by Pacific Lumber's trade
receivables and inventories and contains covenants substantially similar to
those contained in the indenture governing the Pacific Lumber Senior Notes.
On March 23, 1993, Pacific Lumber transferred to SPHC substantially all of
Pacific Lumber's non-virgin old growth redwood and Douglas-fir timber and
timberlands, together with certain other assets, solely in exchange for (i)
the assumption by SPHC of $323.4 million aggregate principal amount of
Pacific Lumber's outstanding public indebtedness and (ii) all of SPHC's
outstanding common stock. On the same date, Pacific Lumber issued $235.0
million of the Pacific Lumber Senior Notes and SPHC issued $385.0 million
of the Timber Notes. The net proceeds from the sale of the Pacific Lumber
Senior Notes and the Timber Notes, together with Pacific Lumber's existing
cash and marketable securities, were used to (i) retire the Old Pacific
Lumber Securities; (ii) pay accrued interest on the Old Pacific Lumber
Securities through the date of redemption thereof; (iii) pay the applicable
redemption premiums on the Old Pacific Lumber Securities (at approximately
1.7% of the principal amount thereof); (iv) repay Pacific Lumber's $28.9
million cogeneration facility loan; (v) fund the initial deposit of $35.0
million to an account held by the trustee for the Timber Notes; and (vi)
pay a $25.0 million dividend to a subsidiary of MGI.
The Timber Notes are secured by substantially all of the assets of SPHC.
The Timber Notes are generally designed to link deemed depletion of SPHC's
timber to the required amortization of the Timber Notes. The indenture
governing the Timber Notes prohibits SPHC from incurring any additional
indebtedness for borrowed money and limits the business activities of SPHC
to the ownership and operation of its timber and timberlands.
During the years ended December 31, 1994, 1993 and 1992, Pacific Lumber's
operating income plus depletion and depreciation ("operating cash flow")
amounted to $95.9 million, $76.6 million and $90.1 million, respectively,
which exceeded interest accrued on all of its indebtedness in those years
by $39.8 million, $17.4 million and $24.5 million, respectively. The
Company believes that Pacific Lumber's and SPHC's level of operating cash
flow and other available sources of financing will enable them to meet the
debt service requirements on the Pacific Lumber Senior Notes and the Timber
Notes, respectively.
Pacific Lumber's and Britt's capital expenditures of approximately $31.1
million for the three years ended December 31, 1994 were made to improve
production efficiency and reduce operating costs. Pacific Lumber's and
Britt's capital expenditures were $11.3 million, $11.1 million and $8.7
million for the years ended December 31, 1994, 1993 and 1992, respectively.
Capital expenditures for 1995 are expected to be $10 million and for the
1996 - 1997 period are estimated to be between $5 million and $10 million
per year. Capital expenditures attributable to the reconstruction of
Pacific Lumber's commercial facilities destroyed by the April 1992
earthquake were approximately $1.9 million for 1993 and $2.6 million for
1994 when construction was completed. The Company anticipates that the
funds necessary to finance Pacific Lumber's and Britt's capital
expenditures will be obtained through cash flows generated by operations
and other available sources of financing.
REAL ESTATE OPERATIONS
As of December 31, 1994, the Company's real estate subsidiaries had
approximately $28.9 million available for use under various credit
agreements. A substantial portion of the availability was attributable to
the credit availability pursuant to the loan agreement secured by real
properties, and certain loans secured by income producing real property,
purchased from the RTC. The Company believes that the existing cash and
credit facilities of its real estate subsidiaries are sufficient to fund
their respective working capital requirements.
In June 1991, MXM Mortgage Corp. ("MXM"), a wholly owned subsidiary of the
Company, purchased, for approximately $122.3 million, 28 loans secured by
real properties and 27 parcels of income producing real property (the
"Portfolio") from the RTC. Substantially all of the real properties were
located in Texas, with the largest concentrations in the vicinity of San
Antonio, Houston and Dallas. MXM borrowed approximately $108.3 million to
finance a portion of the purchase of the Portfolio. In December 1993,
substantially all of the remaining assets in the Portfolio and the related
notes were transferred to the Company's wholly owned partnership, MXM
Mortgage L.P. ("MXM L.P."). The notes mature on December 31, 1999 and bear
interest at the prime rate plus 3% per annum, payable monthly. The loan
agreement, as amended, provides for additional borrowings of up to $20.0
million on or before March 31, 1995. Upon the sale of any secured property
or loan, the terms of the loan agreement require MXM L.P. to make principal
payments based on the release price (as defined) of such property or loan.
In addition, the loan agreement requires MXM L.P. to repay the entire
outstanding balance of the notes if such balance declines to less than $8.0
million. Principal payments of $60.2 million were made on the notes in
December 1993 in connection with the sale of sixteen multi-family
properties. The Company received net cash proceeds of $47.0 million after
such principal payments and related closing costs.
TRENDS
Aluminum Operations - General
During 1994, the expansion of world economies increased the demand for
aluminum. This factor, together with primary aluminum smelter cutbacks
caused by previous excessive aluminum inventories and low prices, resulted
in lower London Metal Exchange inventories of primary aluminum at year-end
1994 than at year-end 1993. Average Midwest U.S. transaction prices for
aluminum increased from a low of $.504 per pound in November 1993 to $.915
per pound in December 1994. Kaiser expects to be profitable in 1995,
considering KACC's hedging program in place at December 31, 1994.
Aluminum Operations - Sensitivity to Prices and Hedging Programs
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. Consequently, Kaiser has developed strategies
to mitigate its exposure to possible declines in the market prices of
alumina, primary aluminum and fabricated aluminum products while retaining
the ability to participate in favorable pricing environments that may
materialize. KACC enters into a number of financial instruments with
off-balance-sheet risk in the normal course of business that are designed
to reduce its exposure to fluctuations in foreign exchange rates, alumina,
primary aluminum and fabricated aluminum products prices and the cost of
purchased commodities.
KACC has significant expenditures which are denominated in foreign
currencies related to long-term purchase commitments with its affiliates in
Australia and the United Kingdom, which expose KACC to certain exchange
rate risks. In order to mitigate its exposure, KACC periodically enters
into forward foreign exchange and currency option contracts in Australian
dollars and Pounds Sterling to hedge these commitments. The forward
foreign currency exchange contracts are agreements to purchase or sell a
foreign currency, for a price specified at the contract date, with delivery
and settlement in the future. At December 31, 1994, KACC had net forward
foreign exchange contracts totaling approximately $74.4 million for the
purchase of 102.0 million Australian dollars through December 31, 1996.
To mitigate its exposure to declines in the market prices of alumina,
primary aluminum and fabricated aluminum products, while retaining the
ability to participate in favorable pricing environments that may
materialize, KACC has developed strategies which include forward sales of
primary aluminum at fixed prices and the purchase or sale of options for
primary aluminum. Under the principal components of KACC's price risk
management strategy, which can be modified at any time, (i) varying
quantities of KACC's anticipated production are sold forward at fixed
prices; (ii) call options are purchased to allow KACC to participate in
certain higher market prices, should they materialize, for a portion of
KACC's primary aluminum and alumina sold forward; (iii) option contracts
are entered into to establish a price range KACC will receive for a portion
of its primary aluminum and alumina; and (iv) put options are purchased to
establish minimum prices KACC will receive for a portion of its primary
aluminum and alumina. In this regard, in respect of its 1995 anticipated
production, as of December 31, 1994, KACC had sold forward 170,950 metric
tons of primary aluminum at fixed prices, purchased call options in respect
of 69,000 metric tons of primary aluminum, purchased put options to
establish a minimum price for 193,500 metric tons of primary aluminum and
entered into option contracts that established a price range for 90,000
metric tons of primary aluminum. KACC will not receive the benefit of
market price increases to the extent (i) the quantity of production sold
forward is greater than the tonnage covered by the purchased call options;
(ii) market prices exceed the prices at which primary aluminum is sold
forward, but are less than the strike price of the purchased call options,
on the tonnage covered by the options; or (iii) market prices exceed the
maximum of the price range on the tonnage covered by the option contracts
entered to establish a price range.
In addition, KACC enters into forward fixed price arrangements with certain
customers which provide for the delivery of a specific quantity of
fabricated aluminum products over a specified future period of time. In
order to establish the cost of primary aluminum for a portion of such
sales, KACC may enter into forward and option contracts. In this regard,
at December 31, 1994, KACC had purchased 4,500 metric tons of primary
aluminum under forward purchase contracts at fixed prices that expire at
various times through June 1995.
KACC has also entered into a natural gas pricing contract to fix future
prices of a portion (20,000 million BTUs per day) of a plant's natural gas
supply through March 1995.
At December 31, 1994, the net unrealized gain on KACC's position in forward
foreign exchange was $3.5 million and the net unrealized loss on aluminum
forward sales and option contracts and the natural gas pricing contract was
$80.4 million, based on a price of $1,955 per metric ton of aluminum and
$1.59 per million BTUs of natural gas. See Note 10 to the Consolidated
Financial Statements.
Since December 31, 1994, KACC has entered into:
- Additional forward foreign exchange contracts totaling
approximately $44.3 million for the purchase of 60.0 million
Australian dollars from July 1995 through December 1996 in
respect of its commitments for 1995 and 1996 expenditures
denominated in Australian dollars.
- Additional hedge positions in respect of its anticipated 1995
and 1996 production. As of the date of this report, KACC had
sold forward an additional 121,025 metric tons of primary
aluminum at fixed prices.
- A natural gas pricing contract to fix future prices of a
portion (20,000 million BTUs per day) of a plant's natural
gas supply through September 1995.
At February 28, 1995, the net unrealized loss on KACC's position in forward
foreign exchange was $.7 million and the net unrealized loss on aluminum
forward sales and option contracts and the natural gas pricing contract was
$3.6 million, based on a price of $1,808 per metric ton of aluminum and
$1.42 per million BTUs of natural gas.
Aluminum Operations - Labor Matter
On February 17, 1995, KACC's approximately 3,000 hourly-paid employees
represented by the United Steelworkers of America ("USWA") failed to ratify
a proposed master labor agreement (47 months duration effective November 1,
1994 through September 30, 1998) with KACC which had been recommended for
ratification by the USWA, and on February 20, 1995, a strike by such
employees began which affected five plants: aluminum smelters at Tacoma
and Mead (Spokane), Washington; a sheet and plate rolling mill at Trentwood
(Spokane), Washington; an alumina refinery at Gramercy, Louisiana; and a
rod and bar plant at Newark, Ohio. The strike continued for eight days
until the agreement (including two technical modifications) was ratified by
those employees on February 28, 1995. During the strike, operations at all
five plant locations continued at various levels of production, and all
five plants continued to ship product to customers. Management believes
that the temporary disruptions to normal production and shipments resulting
from the strike should not have a material adverse effect on the financial
condition or results of operations of Kaiser for 1995 and that KACC's
employee relations will continue to be satisfactory.
Forest Products Operations
The Company's forest products operations are primarily conducted by Pacific
Lumber and are subject to a variety of California and, in some cases,
federal laws and regulations dealing with timber harvesting, endangered
species, water quality and air and water pollution. Pacific Lumber does
not expect that compliance with such existing laws and regulations will
have a material adverse effect on its future operating results or financial
position; however, these laws and regulations are periodically modified.
For example, in 1994 the California Board of Forestry adopted certain
regulations regarding compliance with long term sustained yield objectives.
These regulations require timber companies to project the average annual
growth they will have on their timberlands during the last decade of a
100-year planning period ("Projected Annual Growth"). During any rolling
ten-year period, the average annual harvest over such ten-year period may
not exceed Projected Annual Growth. The first ten-year period began in May
1994. Pacific Lumber is required to submit, by October 1996, a plan
setting forth, among other things, its Projected Annual Growth. Pacific
Lumber has not completed its analysis of the projected productivity of its
timberlands and is therefore unable to predict the impact that these
regulations will have on its future timber harvesting practices; however,
the final results of this analysis could require Pacific Lumber to reduce
(or permit it to increase) its timber harvest in future years from the
average annual harvest that it has experienced in recent years. Pacific
Lumber believes that it would be able to mitigate the effect of any
required reduction in harvest level by acquisitions of additional
timberlands and by increasing the productivity of its timberlands. In
addition, new laws and regulations are frequently introduced concerning the
California timber industry. From time to time, bills are introduced in the
California legislature and the U.S. Congress which relate to the business
of Pacific Lumber, including the protection and acquisition of old growth
and other timberlands, endangered species, environmental protection and the
restriction, regulation and administration of timber harvesting practices.
Since these bills are subject to amendment, it is premature to assess the
ultimate content of these bills, the likelihood of any of the bills passing
or the impact of any of these bills on the financial position or results of
operations of Pacific Lumber. Furthermore, any bills which are passed are
subject to executive veto and court challenge. In addition to existing and
possible new or modified statutory enactments, regulatory requirements and
administrative actions, the California timber industry remains subject to
potential California or local ballot initiatives and evolving federal and
California case law which could affect timber harvesting practices. It is,
however, impossible to assess the effect of such matters on the future
operating results or financial position of Pacific Lumber.
Various groups and individuals have filed objections with the California
Department of Forestry ("CDF") regarding the CDF's actions and rulings with
respect to certain of Pacific Lumber's timber harvesting plans, and Pacific
Lumber expects that such groups and individuals will continue to file
objections to Pacific Lumber's timber harvesting plans. In addition,
lawsuits are pending which seek to prevent Pacific Lumber from implementing
certain of its approved timber harvesting plans. These challenges have
severely restricted Pacific Lumber's ability to harvest virgin old growth
redwood timber on its property during the past few years, as well as
substantial amounts of virgin Douglas-fir timber which are located in
virgin old growth redwood stands. No assurance can be given as to the
extent of such litigation in the future. Pacific Lumber believes that
environmentally focused challenges to its timber harvesting plans are
likely to occur in the future. Although such challenges have delayed or
prevented Pacific Lumber from conducting a portion of its operations, to
date such challenges have not had a material adverse effect on Pacific
Lumber's financial position or results of operations. It is, however,
impossible to predict the future nature or degree of such challenges or
their ultimate impact on the operating results or financial position of
Pacific Lumber.
Maxxam Inc. and Subsidiaries
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Maxxam Inc.:
We have audited the accompanying consolidated balance sheets of Maxxam Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, cash flows and
stockholders' equity (deficit) for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Maxxam
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As explained in Notes 5 and 6 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes, postretirement benefits other than pensions and
postemployment benefits.
ARTHUR ANDERSEN LLP
Houston, Texas
February 17, 1995
Maxxam Inc. and Subsidiaries
Consolidated Balance Sheet
December 31,
(In millions of dollars, except share amounts) 1994 1993
ASSETS
Current assets:
Cash and cash equivalents $ 84.6 $ 83.9
Marketable securities 40.3 44.7
Receivables:
Trade, net of allowance for
doubtful accounts of $4.4 and
$3.2 at December 31, 1994 and
1993, respectively 176.8 175.3
Other 62.9 90.8
Inventories 541.4 503.6
Prepaid expenses and other current
assets 185.3 93.3
--------- ---------
Total current assets 1,091.3 991.6
Property, plant and equipment, net 1,231.6 1,245.0
Timber and timberlands, net of depletion of $123.9
and $108.2 at December 31, 1994 and 1993,
respectively 325.2 338.6
Investments in and advances to unconsolidated
affiliates 169.7 183.2
Deferred income taxes 425.6 359.9
Long-term receivables and other assets 447.4 453.7
---------- ----------
$ 3,690.8 $ 3,572.0
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 161.8 $ 135.2
Accrued interest 62.0 53.7
Accrued compensation and related
benefits 138.3 114.4
Other accrued liabilities 200.2 161.7
Payable to affiliates 81.8 74.0
Long-term debt, current maturities 33.7 38.3
---------- ----------
Total current liabilities 677.8 577.3
Long-term debt, less current maturities 1,582.5 1,567.9
Accrued postretirement benefits 743.1 720.1
Other noncurrent liabilities 618.4 650.3
---------- ----------
Total liabilities 3,621.8 3,515.6
---------- ----------
Commitments and contingencies
Minority interests 344.3 224.3
Stockholders' deficit:
Preferred stock, $.50 par value;
12,500,000 shares authorized; Class A
$.05 Non-Cumulative Participating
Convertible Preferred Stock; shares
issued: 1994 - 669,957 and 1993 -
679,084 .3 .3
Common stock, $.50 par value; 28,000,000
shares authorized; shares issued:
10,063,359 5.0 5.0
Additional capital 53.2 51.2
Accumulated deficit (302.9) (180.8)
Pension liability adjustment (11.4) (23.9)
Treasury stock, at cost (shares held:
preferred - 845; common: 1994 -
1,355,768 and 1993 - 1,364,895) (19.5) (19.7)
---------- ----------
Total stockholders' deficit (275.3) (167.9)
---------- ----------
$ 3,690.8 $ 3,572.0
========== ==========
The accompanying notes are an integral part of these financial statements.
Maxxam Inc. and Subsidiaries
Consolidated Statement of Operations
Years Ended December 31,
(In millions of dollars, except share amounts) 1994 1993 1992
Net sales:
Aluminum operations $ 1,781.5 $ 1,719.1 $ 1,909.1
Forest products operations 249.6 233.5 223.4
Real estate operations 84.6 78.5 70.1
---------- ---------- ----------
2,115.7 2,031.1 2,202.6
---------- ---------- ----------
Costs and expenses:
Costs of sales and operations
(exclusive of depreciation and
depletion):
Aluminum operations 1,625.5 1,587.7 1,619.3
Forest products operations 129.6 134.6 113.8
Real estate operations 62.8 65.3 53.8
Selling, general and
administrative expenses 169.4 183.0 173.5
Depreciation and depletion 121.1 120.8 111.4
Restructuring of aluminum
operations - 35.8 -
---------- ---------- ----------
2,108.4 2,127.2 2,071.8
---------- ---------- ----------
Operating income (loss) 7.3 (96.1) 130.8
Other income (expense):
Investment, interest and other
income (expense) (2.2) 69.8 51.6
Interest expense (167.3) (169.5) (181.8)
Amortization of deferred
financing costs (9.6) (15.6) (13.8)
---------- ---------- ----------
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles (171.8) (211.4) (13.2)
Credit for income taxes 77.1 82.5 9.2
Minority interests (22.0) (3.0) (3.3)
---------- ---------- ----------
Loss before extraordinary item and cumulative
effect of changes in accounting principles (116.7) (131.9) (7.3)
Extraordinary item:
Loss on early extinguishment of
debt, net of related benefits
for minority interests of $nil
in 1994 and $2.8 in 1993 and
income taxes of $2.9 in 1994
and $27.5 in 1993, respectively (5.4) (50.6) -
Cumulative effect of changes in accounting
principles:
Postretirement benefits other
than pensions and
postemployment benefits, net of
related benefits for minority
interests of $64.6 and income
taxes of $240.2 - (444.3) -
Accounting for income taxes - 26.6 -
---------- ---------- ----------
Net loss $ (122.1) $ (600.2) $ (7.3)
========== ========== ==========
Per common and common equivalent share
Loss before extraordinary item
and cumulative effect of
changes in accounting
principles $ (12.35) $ (13.95) $ (.77)
Extraordinary item (.57) (5.35) -
Cumulative effect of changes in
accounting principles - (44.17) -
---------- ---------- ----------
Net loss $ (12.92) $ (63.47) $ (.77)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Maxxam Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31,
(In millions of dollars) 1994 1993 1992
Cash flows from operating activities:
Net loss $ (122.1) $ (600.2) $ (7.3)
Adjustments to reconcile net loss
to net cash provided by (used
for) operating activities:
Depreciation and depletion 121.1 120.8 111.4
Minority interests 22.0 3.0 3.3
Amortization of deferred
financing costs and
discounts on long-term
debt 19.3 21.7 19.9
Equity in losses of
unconsolidated affiliates 15.0 4.9 1.9
Net sales (purchases) of
marketable securities 12.9 31.1 (7.0)
Extraordinary loss on early
extinguishment of debt,
net 5.4 50.6 -
Incurrence of financing
costs (19.7) (47.9) (7.1)
Net gain on sales of real
estate, mortgage loans and
other assets (6.5) (45.8) (6.4)
Net losses (gains) on
marketable securities (4.2) (7.1) 6.3
Cumulative effect of changes
in accounting principles,
net - 417.7 -
Recognition of previously
deferred income from a
forward alumina sale - (.6) (25.7)
Increase (decrease) in
payable to affiliates and
other liabilities 37.5 110.5 (72.0)
Increase (decrease) in
accounts payable 26.3 (14.1) (6.1)
Decrease (increase) in
receivables 24.5 5.0 (63.1)
Increase (decrease) in
accrued interest 8.3 14.3 (1.6)
Increase in accrued and
deferred income taxes (77.2) (96.5) (16.3)
Decrease (increase) in
inventories (37.5) 10.9 66.7
Decrease (increase) in
prepaid expenses and other
assets (37.0) 18.0 9.4
Other 2.6 10.9 17.2
---------- ---------- ----------
Net cash provided by
(used for) operating
activities (9.3) 7.2 23.5
---------- ---------- ----------
Cash flows from investing activities:
Net proceeds from disposition of
property and investments 30.0 143.0 45.7
Capital expenditures (89.3) (86.2) (132.7)
Other (8.6) (12.2) 2.3
---------- --------- ----------
Net cash provided by
(used for) investing
activities (67.9) 44.6 (84.7)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-
term debt 229.7 1,201.3 26.7
Proceeds from issuance of Kaiser
capital stock 100.1 119.3 -
Net borrowings (payments) under
revolving credit agreements and
short-term borrowings
(payments) (191.8) (107.6) 84.1
Redemptions, repurchase of and
principal payments on long-term
debt (39.1) (1,219.4) (65.3)
Dividends paid to Kaiser's
minority stockholders (13.7) (5.6) (1.5)
Redemption of preference stock (8.5) (4.2) (7.3)
Restricted cash deposits - (35.0) -
Other 1.2 1.4 1.3
---------- ---------- ----------
Net cash provided by
(used for) financing
activities 77.9 (49.8) 38.0
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents .7 2.0 (23.2)
Cash and cash equivalents at beginning of year 83.9 81.9 105.1
---------- ---------- ----------
Cash and cash equivalents at end of year $ 84.6 $ 83.9 $ 81.9
========== ========== ==========
Supplementary schedule of non-cash investing
and financing activities:
Net margin borrowings for
marketable securities $ 5.9
Supplemental disclosure of cash flow
information:
Interest paid, net of capitalized
interest $ 149.3 $ 149.1 $ 177.3
Income taxes paid 18.3 13.2 6.3
The accompanying notes are an integral part of these financial statements.
Maxxam Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity (Deficit)
Preferred Retained Pension
Stock Common Stock Additional Earnings Liability Treasury
(In millions of dollars and ($.50 Par) Shares ($.50 Par) Capital (Deficit) Adjustment Stock Total
shares)
Balance, January 1, 1992 $ .3 8.7 $ 5.0 $ 47.4 $ 426.7 $ - $ (19.8) $ 459.6
Net loss - - - - (7.3) - - (7.3)
Common stock
issued under
employee stock
option plans - - - .5 - - .1 .6
Additional
pension
liability - - - - - (9.0) - (9.0)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1992 .3 8.7 5.0 47.9 419.4 (9.0) (19.7) 443.9
Net loss - - - - (600.2) - - (600.2)
Gain from
issuance of
Kaiser Aluminum
Corporation
common stock - - - 3.3 - - - 3.3
Additional
pension
liability - - - - - (14.9) - (14.9)
---------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Balance, December 31, 1993 .3 8.7 5.0 51.2 (180.8) (23.9) (19.7) (167.9)
Net loss - - - - (122.1) - - (122.1)
Gain from
issuance of
Kaiser Aluminum
Corporation
common stock - - - 2.2 - - - 2.2
Conversions of
preferred
stock to
common stock - - - (.2) - - .2 -
Reduction of
pension
liability - - - - - 12.5 - 12.5
---------- ---------- ---------- ---------- ---------- --------- ---------- ----------
Balance, December 31, 1994 $ .3 8.7 $ 5.0 $ 53.2 $ (302.9) $ (11.4) $ (19.5) $ (275.3)
========== ========== ========== ========== ========== ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share amounts)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Maxxam Inc.
and its majority and wholly owned subsidiaries, collectively referred to
herein as the "Company." Investments in unconsolidated affiliates are
accounted for utilizing the equity method of accounting. Certain
reclassifications have been made to prior years' financial statements to be
consistent with the presentation in the current year.
The cumulative losses of Kaiser Aluminum Corporation ("Kaiser," a majority
owned subsidiary of the Company) in the first and second quarter of 1993,
principally due to the implementation of the new accounting standard for
postretirement benefits other than pensions as described in Note 6,
eliminated Kaiser's equity with respect to its common stock; accordingly,
the Company recorded 100% of Kaiser's losses in the third and fourth
quarters of 1993 and all of 1994, without regard to the minority interests
represented by Kaiser's other common stockholders (as described in Note 7).
The Company will record 100% of Kaiser's losses and profits until such time
as the cumulative losses recorded by the Company with respect to Kaiser's
minority common stockholders are recovered.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.
Marketable Securities
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("SFAS 115"). In accordance with the provisions of SFAS 115,
marketable securities are carried at fair value beginning on December 31,
1993. Prior to that date, marketable securities portfolios were carried at
the lower of cost or market at the balance sheet date. The cost of the
securities sold is determined using the first-in, first-out method.
Included in investment, interest and other income (expense) for each of the
three years ended December 31, 1994 were: 1994 - net unrealized holding
losses of $1.0 and net realized gains of $5.2; 1993 - net realized gains of
$4.2, the recovery of $2.0 of net unrealized losses and net unrealized
gains of $.9; and 1992 - net realized losses of $6.0 and net unrealized
losses of $.3. Net unrealized losses represent the amount required to
reduce the short-term marketable securities portfolios from cost to market
value prior to December 31, 1993. Subsequent to the adoption of SFAS 115,
purchases and sales of marketable securities are presented as cash flows
from operating activities in the Consolidated Statement of Cash Flows.
Inventories
Inventories are stated at the lower of cost or market. Cost for the
aluminum and forest products operations inventories is primarily determined
using the last-in, first-out (LIFO) method. Other inventories of the
aluminum operations, principally operating supplies and repair and
maintenance parts, are stated at the lower of average cost or market.
Inventory costs consist of material, labor and manufacturing overhead,
including depreciation and depletion.
The Company recorded pre-tax charges of approximately $19.4 and $29.0 in
1993 and 1992, respectively, because of reductions in the carrying value of
its aluminum operations inventories caused principally by prevailing lower
prices for alumina, primary aluminum and fabricated aluminum products and a
reduction in LIFO inventories which increased cost of sales by $10.2 in
1992.
Inventories consist of the following:
December 31,
1994 1993
Aluminum Operations:
Finished fabricated products $ 49.4 $ 83.7
Primary aluminum and work in process 203.1 141.4
Bauxite and alumina 102.3 94.0
Operating supplies and repair and maintenance parts 113.2 107.8
---------- ----------
468.0 426.9
---------- ----------
Forest Products Operations:
Lumber 61.3 58.4
Logs 12.1 18.3
---------- ----------
73.4 76.7
---------- ----------
$ 541.4 $ 503.6
========== ==========
Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of accumulated
depreciation. Depreciation is computed principally utilizing the straight-
line method at rates based upon the estimated useful lives of the various
classes of assets.
Timber and Timberlands
Depletion is computed utilizing the unit-of-production method based upon
estimates of timber values and quantities.
Deferred Financing Costs
Costs incurred to obtain financing are deferred and amortized over the
estimated term of the related borrowing.
Restricted Cash and Concentrations of Credit Risk
At December 31, 1994 and 1993, cash and cash equivalents includes $19.4 and
$20.3, respectively, which is reserved for debt service payments on the
Company's 7.95% Timber Collateralized Notes due 2015 (the "Timber Notes").
At December 31, 1994 and 1993, long-term receivables and other assets
includes $32.4 and $33.6, respectively, of restricted cash deposits held
for the benefit of the Timber Note holders as described in Note 4. Each of
these deposits is held by a different financial institution. In the event
of nonperformance by such financial institutions, the Company's exposure to
credit loss is represented by the amounts deposited plus any unpaid accrued
interest thereon. The Company mitigates its concentrations of credit risk
with respect to these restricted cash deposits by maintaining them at high
credit quality financial institutions and monitoring the credit ratings of
these institutions.
Restructuring of Aluminum Operations
In 1993, Kaiser implemented a restructuring plan primarily for its flat-
rolled products operation at its Trentwood plant in response to
overcapacity in the aluminum rolling industry, flat demand in the U.S. can
stock markets and declining demand for aluminum products sold to customers
in the commercial aerospace industry, all of which had resulted in
declining prices in Trentwood's key markets. As of December 31, 1994, the
costs related to the 1993 pre-tax charge for this restructuring of $35.8
have been substantially incurred.
Investment, Interest and Other Income (Expense)
During 1994, the Company, The Pacific Lumber Company ("Pacific Lumber," a
wholly owned indirect subsidiary of the Company) and others agreed to a
settlement, subsequently approved by the Court, of class and related
individual claims brought by former stockholders of Pacific Lumber against
the Company, Maxxam Group Inc. ("MGI," a wholly owned subsidiary of the
Company), Pacific Lumber, former directors of Pacific Lumber and others
concerning MGI's acquisition of Pacific Lumber. Of the approximately $52.0
settlement, approximately $33.0 was paid by insurance carriers of the
Company and Pacific Lumber, approximately $14.8 was paid by Pacific Lumber
and the balance was paid by other defendants and through the assignment of
certain claims. In 1994, the Company recorded a pre-tax loss of $21.2
related to the settlement and associated costs. This amount is included in
investment, interest and other income (expense).
In February 1994, Pacific Lumber received a franchise tax refund of $7.2,
the substantial portion of which represents interest, from the State of
California relating to tax years 1972 through 1985. This amount is
included in investment, interest and other income (expense) for the year
ended December 31, 1994.
Investment, interest and other income (expense) for the years ended
December 31, 1994 and 1993 includes $10.3 and $10.8 of pre-tax charges
related principally to the establishment of additional litigation and
environmental reserves by Kaiser. Investment, interest and other income
for the year ended December 31, 1993 included a fourth quarter pre-tax gain
of $47.8 from the sale of sixteen multi-family real estate properties for
cash proceeds of $113.6. Included in investment, interest and other income
for the year ended December 31, 1992 was $19.1 of pre-tax income for
unrelated and non-recurring adjustments to previously recorded liabilities
and reserves.
Foreign Currency Translation
The Company uses the United States dollar as the functional currency for
its foreign operations.
Derivative Financial Instruments
Gains and losses arising from the use of derivative financial instruments
are reflected in Kaiser's operating results concurrently with the
consummation of the underlying hedged transactions. Deferred gains or
losses as of December 31, 1994 are included in prepaid expenses and other
current assets and other accrued liabilities. Kaiser does not hold or
issue derivative financial instruments for trading purposes (see Note 10).
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents and restricted cash
approximate fair value. The fair value of marketable securities is
determined based on quoted market prices. The estimated fair value of
long-term debt is determined based on the quoted market prices for the
publicly traded issues and on the current rates offered for borrowings
similar to the other debt. MGI's publicly traded debt issues are thinly
traded financial instruments; accordingly, their market prices at any
balance sheet date may not be representative of the prices which would be
derived from a more active market. The fair value of foreign currency
contracts generally reflects the estimated amounts that Kaiser would
receive to enter into similar contracts at the balance sheet date, thereby
taking into account unrealized gains or losses on open contracts (see Note
10). The estimated fair values of the Company's financial instruments,
along with the carrying amounts of the related assets (liabilities), are as
follows:
December 31, 1994 December 31, 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 84.6 $ 84.6 $ 83.9 $ 83.9
Marketable securities (held for trading purposes) 40.3 40.3 44.7 44.7
Restricted cash 32.4 32.4 33.6 33.6
Long-term debt (1,616.2) (1,545.9) (1,606.2) (1,647.0)
Foreign currency contracts - 3.5 - -
Per Share Information
Per share calculations are based on the weighted average number of common
shares outstanding in each year and, if dilutive, weighted average common
equivalent shares and common stock options based upon the average price of
the Company's common stock during the year. The weighted average number of
common and common equivalent shares was 9,447,878 shares, 9,457,083 shares
and 9,427,011 shares for the years ended December 31, 1994, 1993 and 1992,
respectively.
2. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Kaiser's investments in unconsolidated affiliates are held by its principal
operating subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC").
KACC holds a 28.3% interest in Queensland Alumina Limited ("QAL"), a
leading producer of alumina, and a 49% interest in both Kaiser Jamaica
Bauxite Company, a bauxite supplier, and Anglesey Aluminium Limited
("Anglesey"), which produces primary aluminum. KACC provides some of its
affiliates with services such as financing, management and engineering.
Purchases from these affiliates for the acquisition and processing of
bauxite, alumina and primary aluminum aggregated $219.7, $206.6 and $219.4
for the years ended December 31, 1994, 1993 and 1992, respectively (see
Note 9). KACC's equity in income (loss) before income taxes of such
operations is treated as a reduction (increase) in costs of sales. At
December 31, 1994 and 1993, KACC's net receivables from these affiliates
were not material.
Summarized combined financial information for KACC's investees is as
follows:
December 31,
1994 1993
Current assets $ 342.3 $ 312.3
Property, plant and equipment, net 349.4 371.1
Other assets 42.4 46.3
---------- ----------
Total assets $ 734.1 $ 729.7
========== ==========
Current liabilities $ 122.4 $ 130.4
Long-term debt 307.6 290.0
Other liabilities 31.0 17.8
Stockholders' equity 273.1 291.5
---------- ----------
Total liabilities and stockholders' equity $ 734.1 $ 729.7
========== ==========
Years Ended December 31,
1994 1993 1992
Net sales $ 489.8 $ 510.3 $ 586.6
Costs and expenses (494.8) (527.2) (586.7)
Provision (credit) for income taxes (6.3) 1.9 6.9
---------- ---------- ----------
Net income (loss) $ (11.3) $ (15.0) $ 6.8
========== ========== ==========
KACC's equity in losses of affiliates $ (1.9) $ (3.3) $ (1.9)
========== ========== ==========
KACC's equity in losses differs from the summary net income (loss) for
unconsolidated affiliates due to various percentage ownerships in the
constituent entities and the amortization of the excess of KACC's
investment in the affiliates over its equity in their net assets. At
December 31, 1994, KACC's investment in these affiliates exceeded its
equity in their net assets by $67.9. KACC is amortizing this amount over a
twelve-year period which results in an annual charge of approximately
$11.6.
On July 8, 1993, the Company, through various subsidiaries, acquired the
control of the general partner and became responsible for the management of
Sam Houston Race Park, Ltd. ("SHRP"). SHRP owns and operates a Class 1
horse racing track in northwest Houston. The Company's investment in SHRP
and its interest in the management contract with respect to the race track
aggregated approximately $14.7. At December 31, 1994, SHRP had assets of
$76.9 ($6.5 current), liabilities of $88.6 ($13.4 current) and a deficiency
in net assets of $11.7. SHRP incurred net losses for the years ended
December 31, 1994 and 1993 of approximately $20.0 and $5.9, respectively.
The Company recorded losses in respect of its investment in SHRP of $13.1
and $1.6 for the year ended December 31, 1994 and for the period from July
8, 1993 to December 31, 1993, respectively. Certain affiliated parties of
the Company, including Mr. Charles E. Hurwitz, President and Chief
Executive Officer of the Company, collectively hold less than a 7% equity
interest in SHRP.
3. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as follows:
Estimated December 31,
Useful 1994 1993
Lives
Land and improvements 8 - 25 years $ 176.1 $ 157.2
Buildings 7 - 45 years 259.6 240.1
Machinery and equipment 3 - 22 years 1,330.8 1,263.9
Construction in progress 45.0 65.1
---------- ---------
1,811.5 1,726.3
Less: accumulated depreciation (579.9) (481.3)
---------- ---------
$ 1,231.6 $1,245.0
========== =========
Depreciation expense for the years ended December 31, 1994, 1993 and 1992
was $105.7, $104.9 and $90.2, respectively.
4. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
1994 1993
Corporate:
14% Senior Subordinated Reset Notes due May 20, 2000 $ 25.0 $ 25.0
12-1/2% Subordinated Debentures due December 15, 1999,
net of discount 20.9 25.2
Other .2 .5
Aluminum Operations:
1994 Credit Agreement 6.7 -
1989 Credit Agreement:
Revolving Credit Facility - 188.0
9-7/8% Senior Notes due February 15, 2002, net of
discount 223.6 -
Alpart CARIFA Loan 60.0 60.0
12-3/4% Senior Subordinated Notes due February 1, 2003 400.0 400.0
Other 69.2 78.1
Forest Products Operations:
7.95% Timber Collateralized Notes due July 20, 2015 363.8 377.0
11-1/4% Senior Secured Notes due August 1, 2003 100.0 100.0
12-1/4% Senior Secured Discount Notes due August 1,
2003, net of discount 82.8 73.5
10-1/2% Senior Notes due March 1, 2003 235.0 235.0
Other .9 2.9
Real Estate Operations:
Secured notes due December 31, 1999, interest
at prime plus 3% 10.0 17.2
Other notes and contracts, primarily secured by
receivables, buildings, real estate and equipment 18.1 23.8
---------- ----------
1,616.2 1,606.2
Less: current maturities (33.7) (38.3)
---------- ----------
$ 1,582.5 $ 1,567.9
========== ==========
CORPORATE
14% Senior Subordinated Reset Notes (the "Reset Notes")
Pursuant to the terms of the indenture governing the Reset Notes, no
further adjustments to the interest rate are permitted. The Reset Notes
are redeemable at the Company's option, in whole or in part, at par.
12-1/2% Subordinated Debentures (the "12-1/2% Debentures")
The 12-1/2% Debentures, which are net of discount of $1.7 and $2.4 at
December 31, 1994 and 1993, respectively, have mandatory redemptions of
$3.3 in December of each year through 1998. The 12-1/2% Debentures are
redeemable at the Company's option, in whole or in part, at par.
Demand Loan Agreement
On October 10, 1994, the Company entered into a demand loan and pledge
agreement with Custodial Trust Company providing for up to $25.0 in
borrowings. Any amounts drawn under the agreement would be secured by
Kaiser capital stock owned by the Company (or such other marketable
securities acceptable to the lender) having an initial market value (as
defined) of approximately three times the amount borrowed. Borrowings
under this agreement will bear interest at the prime rate plus 1% per
annum. No borrowings were outstanding as of December 31, 1994.
ALUMINUM OPERATIONS
The 1994 Credit Agreement
On February 17, 1994, Kaiser and KACC entered into a credit agreement with
BankAmerica Business Credit, Inc. (as agent for itself and other lenders),
Bank of America National Trust and Savings Association and certain other
lenders (as amended, the "1994 Credit Agreement"). The 1994 Credit
Agreement consists of a $275.0 five-year secured revolving line of credit
which matures in 1999, and replaced the credit agreement entered into in
December 1989 by Kaiser and KACC with a syndicate of commercial banks and
other financial institutions (as amended, the "1989 Credit Agreement").
KACC is able to borrow
under the facility by means of revolving credit advances and letters of
credit (up to $125.0) in an aggregate amount equal to the lesser of $275.0
or a borrowing base relating to eligible accounts receivable and inventory.
As of December 31, 1994, $202.5 (of which $59.3 could have been used for
letters of credit) was available to KACC under the 1994 Credit Agreement.
The 1994 Credit Agreement is unconditionally guaranteed by Kaiser and by
certain significant subsidiaries of KACC. Loans under the 1994 Credit
Agreement bear interest at a rate per annum, at KACC's election, equal to a
Reference Rate (as defined) plus 1-1/2% or LIBOR plus 3-1/4%. After June
30, 1995, the interest rate margins applicable to borrowings under the 1994
Credit Agreement may be reduced by up to 1-1/2% (non-cumulatively) based on
a financial test, determined quarterly. Kaiser recorded a pre-tax
extraordinary loss of $8.3 ($5.4 after taxes) in the first quarter of 1994,
consisting primarily of the write-off of unamortized deferred financing
costs related to the 1989 Credit Agreement.
The 1994 Credit Agreement requires KACC to maintain certain financial
covenants and places restrictions on Kaiser's and KACC's ability to, among
other things, incur debt and liens, make investments, pay dividends,
undertake transactions with affiliates, make capital expenditures and enter
into unrelated lines of business. The 1994 Credit Agreement is secured by,
among other things, (i) mortgages on KACC's major domestic plants
(excluding the Gramercy plant); (ii) subject to certain exceptions, liens
on the accounts receivable, inventory, equipment, domestic patents and
trademarks and substantially all other personal property of KACC and
certain of its subsidiaries; (iii) a pledge of all of the stock of KACC
owned by Kaiser and (iv) pledges of all of the stock of a number of KACC's
wholly owned domestic subsidiaries, pledges of a portion of the stock of
certain foreign subsidiaries and pledges of a portion of the stock of
certain partially owned foreign affiliates. Substantially all of the
identifiable assets of the bauxite and alumina and aluminum processing
segments (see Note 11) are attributable to KACC and collateralize the 1994
Credit Agreement indebtedness.
9-7/8% Senior Notes due 2002 (the "KACC Senior Notes")
Concurrent with the offering by Kaiser of the 8.255% Preferred Redeemable
Increased Dividend Equity Securities (the "PRIDES") (see Note 7), KACC
issued $225.0 of the KACC Senior Notes. The net proceeds from the offering
of the KACC Senior Notes were used to reduce outstanding borrowings under
the revolving credit facility of the 1989 Credit Agreement immediately
prior to the effectiveness of the 1994 Credit Agreement and for working
capital and general corporate purposes. The KACC Senior Notes are net of
discount of $1.4 at December 31, 1994.
12-3/4% Senior Subordinated Notes (the "KACC Notes")
On February 1, 1993, KACC issued $400.0 of the KACC Notes. The net
proceeds from the sale of the KACC Notes were used to retire KACC's 14-1/4%
Senior Subordinated Notes due 1995, to prepay $18.0 of the term loan under
KACC's 1989 Credit Agreement and to reduce outstanding borrowings under the
revolving credit facility of the 1989 Credit Agreement. These transactions
resulted in a pre-tax extraordinary loss of $33.0, consisting primarily of
the payment of premiums and the write-off of unamortized discount and
deferred financing costs on the 14-1/4% Senior Subordinated Notes.
The obligations of KACC with respect to the KACC Senior Notes and the KACC
Notes are guaranteed, jointly and severally, by certain subsidiaries of
KACC. The indentures governing the KACC Senior Notes and the KACC Notes
and the 1994 Credit Agreement restrict, among other things, KACC's and
Kaiser's ability to incur debt, undertake transactions with affiliates and
pay dividends. At December 31, 1994, under the most restrictive of these
covenants, Kaiser was not permitted to pay dividends on its common stock.
Alpart CARIFA Loan
In December 1991, Alpart entered into a loan agreement with the Caribbean
Basin Projects Financing Authority ("CARIFA") under which CARIFA loaned
Alpart the proceeds from the issuance of CARIFA's industrial revenue bonds.
The terms of the loan parallel the bonds' repayment terms. The $38.0
aggregate principal amount of Series A bonds matures on June 1, 2008. The
Series A bonds bear interest at a floating rate of 87% of the applicable
LIBID rate (LIBOR less 1/8 of 1%) on $37.5 of the principal amount (5.2%
at December 31, 1994) with the remaining $.5 bearing interest at a fixed
rate of 6.35%. The $22.0 aggregate principal amount of Series B bonds
matures on June 1, 2007 and bears interest at a fixed rate of 8.25%.
Proceeds from the sale of the bonds were used by Alpart to refinance
interim loans from the partners in Alpart, to pay eligible project costs
for the expansion and modernization of its alumina refinery and related
port and bauxite mining facilities and to pay certain costs of issuance.
Under the terms of the loan agreement, Alpart must remain a qualified
recipient for Caribbean Basin Initiative funds as defined by applicable
laws. Alpart has agreed to indemnify bondholders of CARIFA for certain tax
payments that could result from events, as defined, that adversely affect
the tax treatment of the interest income on the bonds. Alpart's
obligations under the loan agreement are secured by a $64.2 letter of
credit guaranteed by the partners in Alpart (of which $22.5 is guaranteed
by Kaiser's minority partner).
FOREST PRODUCTS OPERATIONS
Timber Notes and 10-1/2% Senior Notes (the "Pacific Lumber Senior Notes")
On March 23, 1993, Pacific Lumber issued $235.0 of the Pacific Lumber
Senior Notes and its newly-formed wholly owned subsidiary, Scotia Pacific
Holding Company ("SPHC"), issued $385.0 of the Timber Notes. Pacific
Lumber and SPHC used the net proceeds from the sale of the Pacific Lumber
Senior Notes and the Timber Notes, together with Pacific Lumber's cash and
marketable securities, to (i) retire (a) $163.8 aggregate principal amount
of Pacific Lumber's 12% Series A Senior Notes due July 1, 1996 (the "Series
A Notes"), (b) $299.7 aggregate principal amount of Pacific Lumber's 12.2%
Series B Senior Notes due July 1, 1996 (the "Series B Notes") and (c) $41.7
aggregate principal amount of Pacific Lumber's 12-1/2% Senior Subordinated
Debentures due July 1, 1998 (the "Debentures;" the Series A Notes, the
Series B Notes and the Debentures are referred to collectively as the "Old
Pacific Lumber Securities"); (ii) pay accrued interest on the Old Pacific
Lumber Securities through the date of redemption thereof; (iii) pay the
applicable redemption premiums on the Old Pacific Lumber Securities; (iv)
repay Pacific Lumber's $28.9 cogeneration facility loan; (v) fund the
initial deposit of $35.0 to an account held by the trustee for the Timber
Notes (the "Liquidity Account"); and (vi) pay a $25.0 dividend to a
subsidiary of MGI. These transactions resulted in a pre-tax extraordinary
loss of $38.1, consisting primarily of the payment of premiums and the
write-off of unamortized discounts and deferred financing costs on the Old
Pacific Lumber Securities.
The indenture governing the Timber Notes (the "Timber Note Indenture")
prohibits SPHC from incurring any additional indebtedness for borrowed
money and limits the business activities of SPHC to the ownership and
operation of its timber and timberlands. The Timber Notes are senior
secured obligations of SPHC and are not obligations of, or guaranteed by,
Pacific Lumber or any other person. The Timber Notes are secured by a lien
on (i) SPHC's timber and timberlands (representing $192.4 of the Company's
consolidated balance at December 31, 1994), (ii) substantially all of
SPHC's property and equipment, (iii) SPHC's contract rights and certain
other assets and (iv) cash equivalents reserved for debt service payments
and the funds deposited in the Liquidity Account.
The Timber Notes are structured to link, to the extent of cash available,
the deemed depletion of SPHC's timber (through the harvest and sale of
logs) to required amortization of the Timber Notes. The required amount of
amortization due on any Timber Note payment date is determined by various
mathematical formulas set forth in the Timber Note Indenture. The minimum
amount of principal which SPHC must pay (on a cumulative basis) through any
Timber Note payment date in order to avoid an Event of Default (as defined
in the Timber Note Indenture) is referred to as rated amortization ("Rated
Amortization"). If all payments of principal are made in accordance with
Rated Amortization, the payment date on which SPHC will pay the final
installment of principal is July 20, 2015. The amount of principal which
SPHC must pay through each Timber Note payment date in order to avoid
payment of prepayment or deficiency premiums is referred to as scheduled
amortization ("Scheduled Amortization"). If all payments of principal are
made in accordance with Scheduled Amortization, the payment date on which
SPHC will pay the final installment of principal is July 20, 2009.
Principal and interest on the Timber Notes is payable semi-annually on
January 20 and July 20. The Timber Notes are redeemable at the option of
SPHC, in whole but not in part, at any time. The redemption price of the
Timber Notes is equal to the sum of the principal amount, accrued interest
and a prepayment premium calculated based upon the yield of like term
Treasury securities plus 50 basis points.
Interest on the Pacific Lumber Senior Notes is payable semi-annually on
March 1 and September 1. The Pacific Lumber Senior Notes are redeemable at
the option of Pacific Lumber, in whole or in part, on or after March 1,
1998 at a price of 103% of the principal amount plus accrued interest. The
redemption price is reduced annually until March 1, 2000, after which time
the Pacific Lumber Senior Notes are redeemable at par.
The indentures governing the Pacific Lumber Senior Notes and the Timber
Notes and Pacific Lumber's other debt contain various covenants which,
among other things, limit the payment of dividends and restrict
transactions between Pacific Lumber and its affiliates. As of December 31,
1994 under the most restrictive of these covenants, approximately $20.8 of
dividends could be paid by Pacific Lumber.
11-1/4% Senior Secured Notes (the "MGI Senior Notes") and 12-1/4% Senior
Secured Discount Notes (the "MGI Discount Notes")
On August 4, 1993, MGI issued $100.0 aggregate principal amount of the MGI
Senior Notes and $126.7 aggregate principal amount (approximately $70.0 net
of original issue discount) of the MGI Discount Notes (together, the "MGI
Notes"). The MGI Notes are secured by MGI's pledge of 100% of the common
stock of Pacific Lumber, Britt Lumber Co., Inc. ("Britt") and Maxxam
Properties Inc. ("MPI," a wholly owned subsidiary of MGI) and by the
Company's pledge of 28 million shares of Kaiser's common stock. The
indenture governing the MGI Notes, among other things, restricts the
ability of MGI to incur additional indebtedness, engage in transactions
with affiliates, pay dividends and make investments. As of December 31,
1994, under the most restrictive of these covenants, approximately $4.9 of
dividends could be paid by MGI. The MGI Notes are senior indebtedness of
MGI; however, they are effectively subordinate to the liabilities of MGI's
subsidiaries, which include the Timber Notes and the Pacific Lumber Senior
Notes. The MGI Discount Notes are net of discount of $43.9 and $53.2 at
December 31, 1994 and 1993, respectively.
The MGI Senior Notes pay interest semi-annually on February 1 and August 1
of each year. The MGI Discount Notes will not pay any interest until
February 1, 1999, at which time semi-annual interest payments will become
due on each February 1 and August 1 thereafter.
MGI used a portion of the net proceeds from the sale of the MGI Notes to
retire the entire outstanding balance of its 12-3/4% Notes at 101% of their
principal amount, plus accrued interest through November 14, 1993. MGI
used the remaining portion of the net proceeds from the sale of the MGI
Notes, together with a portion of its existing cash resources, to pay a
$20.0 dividend to the Company. The Company used such proceeds to redeem,
on August 20, 1993, $20.0 aggregate principal amount of its Reset Notes at
100% of their principal amount plus accrued interest thereon. The early
retirement of the 12-3/4% Notes and the redemption of $20.0 aggregate
principal amount of the Reset Notes resulted in a pre-tax extraordinary
loss of $9.8 consisting of net interest cost, the write-off of unamortized
deferred financing costs, premiums and the write-off of unamortized
original issue discount.
REAL ESTATE OPERATIONS
Secured Notes
The secured notes represent borrowings of the Company's wholly owned
partnership, MXM Mortgage L.P. ("MXM L.P."). The proceeds from the notes
were originally used by MXM Mortgage Corp., a wholly owned subsidiary of
the Company, to finance a portion of the purchase for $122.3 of certain
loans secured by real properties and certain parcels of income producing
real property from the Resolution Trust Corporation. The notes mature on
December 31, 1999 and bear interest at the prime rate plus 3% per annum,
payable monthly. The amended loan agreement provides for additional
borrowings of up to $20.0 on or before March 31, 1995. Upon the sale of
any secured property or loan, the terms of the loan agreement require MXM
L.P. to make principal payments based on the release price (as defined) of
such property or loan. In addition, the loan agreement requires MXM L.P.
to repay the entire outstanding balance of the notes if such balance
declines to less than $8.0. Principal payments of $60.2 were made in
December 1993 in connection with the sale of multi-family properties
discussed in Note 1 - "Investment, Interest and Other Income (Expense)."
OTHER
Maturities
Scheduled maturities of long-term debt outstanding at December 31, 1994 are
as follows:
Years Ending December 31,
1995 1996 1997 1998 1999 Thereafter
14% Senior Subordinated Reset
Notes $ - $ - $ - $ - $ - $ 25.0
12-1/2% Subordinated Debentures 1.6 3.3 3.3 3.3 11.1 -
1994 Credit Agreement - - - - 6.7 -
9-7/8% Senior Notes - - - - - 225.0
Alpart CARIFA Loan - - - - - 60.0
12-3/4% Senior Subordinated Notes - - - - - 400.0
7.95% Timber Collateralized Notes 13.6 14.1 16.2 19.3 21.6 279.0
11-1/4% Senior Secured Notes - - - - - 100.0
12-1/4% Senior Secured Discount Notes - - - - - 126.7
10-1/2% Senior Notes - - - - - 235.0
Secured real estate notes - - - - 10.0 -
Other 18.5 10.1 10.2 9.6 1.5 38.5
---------- -------- -------- -------- -------- ----------
$ 33.7 $ 27.5 $ 29.7 $ 32.2 $ 50.9 $ 1,489.2
========== ======== ======== ======== ======== ==========
Capitalized Interest
Interest capitalized during the years ended December 31, 1994, 1993 and
1992 was $3.0, $4.4 and $5.2, respectively.
Restricted Net Assets of Subsidiaries
Certain debt instruments restrict the ability of the Company's subsidiaries
to transfer assets, make loans and advances and pay dividends to the
Company. As of December 31, 1994, all of the assets relating to the
Company's aluminum and forest products operations are subject to such
restrictions. The restricted net assets of the Company's real estate
subsidiaries totaled $27.2 at December 31, 1994. Under the most
restrictive covenants governing debt of the Company's real estate
subsidiaries, approximately $25.3 could be paid as of December 31, 1994.
5. INCOME TAXES
Income (loss) before income taxes, minority interests, extraordinary item
and cumulative effect of changes in accounting principles by geographic
area is as follows:
Years Ended December 31,
1994 1993 1992
Domestic $ (177.9) $ (223.4) $ (112.3)
Foreign 6.1 12.0 99.1
---------- ---------- ----------
$ (171.8) $ (211.4) $ (13.2)
========== ========== ==========
Income taxes are classified as either domestic or foreign based on whether
payment is made or due to the United States or a foreign country. Certain
income classified as foreign is subject to domestic income taxes.
The credit (provision) for income taxes on the loss before income taxes,
minority interests, extraordinary item and cumulative effect of changes in
accounting principles consists of the following:
Years Ended December 31,
1994 1993 1992
Current:
Federal $ - $ (.1) $ (.4)
State and local (.2) (1.3) 1.2
Foreign (18.0) (7.9) (11.4)
---------- ---------- ----------
(18.2) (9.3) (10.6)
---------- ---------- ----------
Deferred:
Federal 94.3 77.1 4.9
State and local .4 2.7 11.6
Foreign .6 12.0 3.3
---------- ---------- ----------
95.3 91.8 19.8
---------- ---------- ----------
$ 77.1 $ 82.5 $ 9.2
========== ========== ==========
The 1994 federal deferred credit for income taxes of $94.3 includes $36.0
for the benefit of operating loss carryforwards generated in 1994. The
1993 federal deferred credit for income taxes of $77.1 includes $29.2 for
the benefit of operating loss carryforwards generated in 1993 and a $7.0
benefit for increasing net deferred income tax assets (liabilities) as of
the date of enactment (August 10, 1993) of the Omnibus Budget
Reconciliation Act of 1993, which retroactively increased the federal
statutory income tax rate from 34% to 35% for periods beginning on or after
January 1, 1993.
A reconciliation between the credit for income taxes and the amount
computed by applying the federal statutory income tax rate to the loss
before income taxes, minority interests, extraordinary item and cumulative
effect of changes in accounting principles is as follows:
Years Ended December 31,
1994 1993 1992
Loss before income taxes, minority interests,
extraordinary item and cumulative effect
of changes in accounting principles $ (171.8) $ (211.4) $ (13.2)
========== ========== ==========
Amount of federal income tax based upon the
statutory rate $ 60.1 $ 74.0 $ 4.5
Revision of prior years' tax estimates and
other changes in valuation allowances 16.7 (.6) 14.9
Percentage depletion 5.6 6.4 6.3
Increase in net deferred income tax assets
due to tax rate change 1.8 7.0 -
State and local taxes, net of federal tax
benefit .1 .9 .6
Foreign taxes, net of federal tax benefit (5.3) (5.0) (8.1)
Removal of Kaiser from the Company's
consolidated federal return group - 3.5 -
Losses and expenses for which no federal tax
benefit was recognized - - (9.2)
Other (1.9) (3.7) .2
---------- ---------- ----------
$ 77.1 $ 82.5 $ 9.2
========== ========== ==========
As shown in the Consolidated Statement of Operations for the years ended
December 31, 1994 and 1993, the Company reported extraordinary losses
related to the early extinguishment of debt. The Company reported the
losses net of related deferred federal income taxes of $2.9 and $27.5,
respectively, which approximated the federal statutory income tax rate in
effect on the dates the transactions occurred.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109").
The adoption of SFAS 109 changed the Company's method of accounting for
income taxes to an asset and liability approach from the deferral method
prescribed by Accounting Principles Board Opinion No. 11, Accounting for
Income Taxes. The asset and liability approach requires the recognition
of deferred income tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Under this method, deferred income tax assets
and liabilities are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities using
enacted tax rates. The cumulative effect of the change in accounting
principle, as of January 1, 1993, increased the Company's results of
operations by $26.6. The implementation of SFAS 109 required the Company
to restate certain assets and liabilities to their pre-tax amounts from
their net-of-tax amounts originally recorded in connection with the
acquisitions of various subsidiaries in prior years. As a result of
restating these assets and liabilities, the loss before income taxes,
minority interests, extraordinary item and cumulative effect of changes in
accounting principles for the year ended December 31, 1993 was increased by
$5.9.
The components of the Company's net deferred income tax assets
(liabilities) are as follows:
December 31,
1994 1993
Deferred income tax assets:
Postretirement benefits other than pensions $ 297.2 $ 288.2
Loss and credit carryforwards 208.8 161.5
Other liabilities 133.5 116.8
Real estate 71.5 75.9
Pensions 51.0 60.7
Timber and timberlands 46.2 46.5
Foreign and state deferred income tax liabilities 28.1 33.0
Property, plant and equipment 23.7 24.1
Other 26.7 36.1
Valuation allowances (147.0) (149.3)
---------- ----------
Total deferred income tax assets, net 739.7 693.5
---------- ----------
Deferred income tax liabilities:
Property, plant and equipment (202.7) (224.2)
Investments in and advances to unconsolidated
affiliates (63.8) (60.6)
Inventories (27.4) (33.3)
Other (20.0) (31.2)
---------- ----------
Total deferred income tax liabilities (313.9) (349.3)
---------- ----------
Net deferred income tax assets $ 425.8 $ 344.2
========== ==========
The valuation allowances listed above relate primarily to loss and credit
carryforwards and postretirement benefits other than pensions. As of
December 31, 1994, approximately $281.0 of the net deferred income tax
assets listed above are attributable to Kaiser. Of this amount,
approximately $125.1 relates to the benefit of loss and credit
carryforwards, net of valuation allowances. The Company evaluated all
appropriate factors to determine the proper valuation allowances for these
carryforwards, including any limitations concerning their use, the year the
carryforwards expire and the levels of taxable income necessary for
utilization. For example, full valuation allowances were provided for
certain credit carryforwards that expire in the near term. With regard to
future levels of income, the Company believes that Kaiser, based on the
cyclical nature of its business, its history of prior operating earnings
and its expectations for future years, will more likely than not generate
sufficient taxable income to realize the benefit attributable to the loss
and credit carryforwards for which valuation allowances were not provided.
The remaining portion of Kaiser's net deferred income tax assets is
approximately $155.9 at December 31, 1994. A principal component of this
amount is the tax benefit associated with the accrual for postretirement
benefits other than pensions. The future tax deductions with respect to the
turnaround of this accrual will occur over a thirty to forty year period.
If such deductions create or increase a net operating loss in any one year,
Kaiser has the ability to carry forward such loss for fifteen taxable
years. For these reasons, the Company believes a long-term view of
profitability is appropriate and has concluded that this net deferred
income tax asset will more likely than not be realized despite Kaiser's
operating losses incurred in recent years. The net deferred income tax
assets listed above which are not attributable to Kaiser are approximately
$144.8 as of December 31, 1994. This amount includes approximately $108.7
which relates to the excess of the tax basis over financial statement basis
with respect to timber and timberlands and real estate. The Company has
concluded that it is more likely than not that these net deferred income
tax assets will be realized based in part upon the estimated values of the
underlying assets which are in excess of their tax basis.
Certain of the deferred income tax assets and liabilities listed above are
included on the Consolidated Balance Sheet in the captions entitled prepaid
expenses and other current assets, other accrued liabilities and other
noncurrent liabilities.
The Company files consolidated federal income tax returns together with its
domestic subsidiaries. As a consequence of Kaiser's public offering of
shares on June 30, 1993, as discussed in Note 7, Kaiser and its
subsidiaries are no longer included in the consolidated federal income tax
return group of the Company. Kaiser and its subsidiaries have become
members of a new consolidated return group of which Kaiser is the common
parent corporation (the "New Kaiser Tax Group"). The New Kaiser Tax Group
files consolidated federal income tax returns for taxable periods beginning
on or after July 1, 1993.
The following table presents the tax attributes for federal income tax
purposes at December 31, 1994 attributable to the Company and to the New
Kaiser Tax Group. The utilization of certain of these tax attributes is
subject to limitations.
New Kaiser Tax
The Company Group
Expiring Expiring
Through Through
Regular Tax Attribute Carryforwards:
Current year net operating loss $ 19.2 2009 $ 83.7 2009
Prior year net operating losses 25.9 2008 135.4 2008
General business tax credits .9 2002 37.4 2006
Foreign tax credits - - 42.2 1999
Alternative minimum tax credits 1.4 Indefinite 15.3 Indefinite
Alternative Minimum Tax Attribute
Carryforwards:
Current year net operating loss $ 30.5 2009 $ 64.3 2009
Prior year net operating losses 8.4 2007 84.4 2008
Foreign tax credits - - 33.8 1999
6. EMPLOYEE BENEFIT AND INCENTIVE PLANS
Postretirement Benefits Other Than Pensions
The Company has unfunded defined postretirement benefit plans which cover
most of its employees. Under the plans, employees are eligible for health
care benefits (and life insurance benefits for Kaiser employees) upon
retirement. Retirees from companies other than Kaiser make contributions
for a portion of the cost of their health care benefits.
The Company adopted Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions
("SFAS 106") as of January 1, 1993. The costs of postretirement benefits
other than pensions are now accrued over the period the employees provide
services to the date of their full eligibility for such benefits.
Previously, such costs were expensed as actual claims were incurred. The
cumulative effect of the change in accounting principle for the adoption of
SFAS 106 was recorded as a charge to results of operations of $437.9, net
of related benefits for minority interests of $63.6 and income taxes of
$236.8. The deferred income tax benefit related to the adoption of SFAS
106 was recorded at the federal statutory rate in effect on the date SFAS
106 was adopted, before giving effect to certain valuation allowances.
A summary of the components of net periodic postretirement benefit cost is
as follows:
Years Ended
December 31,
1994 1993
Service cost - benefits earned during the year $ 8.8 $ 7.4
Interest cost on accumulated postretirement
benefit obligation 57.5 59.0
Net amortization and deferral (3.2) -
---------- ----------
Net periodic postretirement benefit cost $ 63.1 $ 66.4
========== ==========
/TABLE
The adoption of SFAS 106 increased the Company's loss before extraordinary
item and cumulative effect of changes in accounting principles by $13.3, or
$1.41 per share ($19.9 before income taxes), for the year ended December
31, 1993. Kaiser's cost of providing postretirement health care and life
insurance benefits to retired employees was $47.2 for the year ended
December 31, 1992.
The postretirement benefit liability recognized in the Company's
Consolidated Balance Sheet is as follows:
December 31,
1994 1993
Retirees $ 568.3 $ 631.2
Actives eligible for benefits 31.4 36.2
Actives not eligible for benefits 102.8 132.1
---------- ----------
Accumulated postretirement benefit
obligation 702.5 799.5
Unrecognized prior service cost 31.8 35.0
Unrecognized net gain (loss) 55.8 (66.8)
---------- ----------
Postretirement benefit liability $ 790.1 $ 767.7
========== ==========
The annual assumed rates of increase in the per capita cost of covered
benefits (i.e., health care cost trend rates) are approximately 9.5% and
8.0% for retirees under age 65 and over age 65, respectively, and are
assumed to decrease gradually to approximately 5.5% for 2007 and remain at
that level thereafter. Each one percentage point increase in the assumed
health care cost trend rate would increase the accumulated postretirement
benefit obligation as of December 31, 1994 by approximately $81.0 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost by approximately $9.8.
The discount rates and rates of compensation increase used in determining
the accumulated postretirement benefit obligation were 8.5% and 5.0% at
December 31, 1994, respectively, and 7.5% and 5.0% at December 31, 1993,
respectively.
Retirement Plans
The Company has various retirement plans which cover essentially all
employees. Most of the Company's employees are covered by defined benefit
plans. The benefits are determined under formulas based on years of
service and the employee's compensation. The Company's funding policy is
to contribute annually an amount at least equal to the minimum cash
contribution required by ERISA.
The Company has various defined contribution savings plans designed to
enhance the existing retirement programs of participating employees. Under
the Maxxam Inc. Savings Plan, employees may elect to contribute up to 16%
of their compensation to the plan. For those participants who have elected
to make voluntary contributions to the plan, the Company's contributions
consist of a matching contribution of up to 4% of the compensation of
participants for each calendar quarter. Under the Kaiser Aluminum Savings
and Retirement Plan, salaried employees may elect to contribute from 2% to
18% of their compensation to the plan. For those eligible participants who
have elected to make contributions to the plan, Kaiser's contributions are
determined based on earnings and net worth formulas.
A summary of the components of net periodic pension costs for the defined
benefit plans and total pension costs for the defined contribution plans
and non-qualified retirement and incentive plans is as follows:
Years Ended December 31,
1994 1993 1992
Defined benefit plans:
Service cost-benefits earned during the
year $ 13.6 $ 13.0 $ 13.1
Interest cost on projected benefit
obligations 59.5 60.8 60.2
Return on assets:
Actual gain (.8) (73.9) (28.2)
Deferred gain (loss) (53.0) 15.9 (31.2)
Net amortization and deferral 2.8 4.7 2.9
---------- ---------- ----------
Net periodic pension cost 22.1 20.5 16.8
Defined contribution plans 2.8 1.7 1.7
Non-qualified retirement and incentive plans 5.0 4.3 5.5
---------- ---------- ----------
$ 29.9 $ 26.5 $ 24.0
========== ========== ==========
The following table sets forth the funded status and amounts recognized for
the defined benefit plans in the Consolidated Balance Sheet:
December 31,
1994 1993
Actuarial present value of accumulated plan
benefits:
Vested benefit obligation $ 684.3 $ 724.1
Non-vested benefit obligation 42.9 42.2
---------- ----------
Total accumulated benefit obligation $ 727.2 $ 766.3
========== ==========
Projected benefit obligation $ 761.2 $ 816.8
Plan assets at fair value, primarily common
stocks and fixed income obligations (546.9) (590.8)
---------- ----------
Projected benefit obligation in excess of plan
assets 214.3 226.0
Unrecognized net transition obligation (.9) (1.7)
Unrecognized net loss (40.4) (76.2)
Unrecognized prior service cost (31.6) (17.8)
Adjustment required to recognize minimum
liability 42.9 47.7
---------- ----------
Accrued pension cost $ 184.3 $ 178.0
========== ==========
The assumptions used in accounting for the defined benefit plans were as
follows:
December 31,
1994 1993 1992
Rate of increase in compensation levels 5.0% 5.0% 5.0%
Discount rate 8.5% 7.5% 8.25%
Expected long-term rate of return on assets 9.5% 10.0% 10.0%
The Company has recorded an additional pension liability equal to the
excess of the accumulated benefit obligation over the fair value of plan
assets. The amount of the additional pension liability in excess of
unrecognized prior service cost is recorded as a charge to stockholders'
equity. In 1994, the pension liability adjustment was reduced by $12.5.
This reduction was recorded net of related deferred federal and state
income taxes of $7.3, which approximated the federal and state statutory
rates. In 1993 and 1992, the pension liability adjustment charged to
stockholders' equity amounted to $14.9 and $9.0, respectively. The Company
recorded the 1993 charge net of related deferred federal and state income
taxes of $8.7, which approximated the federal and state statutory rate.
The Company did not record a tax benefit with respect to the 1992 charge.
Postemployment Benefits
The Company adopted Statement of Financial Accounting Standards No. 112,
Employers' Accounting for Postemployment Benefits ("SFAS 112") as of
January 1, 1993. The costs of postemployment benefits are now accrued over
the period the employees provide services to the date of their full
eligibility for such benefits. Previously, such costs were expensed as
actual claims were incurred. The cumulative effect of the change in
accounting principle for the adoption of SFAS 112 was recorded as a charge
to results of operations of $6.4, net of related benefits for minority
interests of $1.0 and income taxes of $3.4.
7. MINORITY INTERESTS
Minority interests represent the following:
December 31,
1994 1993
Kaiser Aluminum Corporation:
Common stock, par $.01 $ - $ -
$.65 Depositary Shares 128.0 119.3
8.255% PRIDES 100.1 -
Subsidiary redeemable preference stock:
KACC Series A and B Cumulative Preference Stock, par $1 29.1 33.6
KACC Cumulative Convertible Preference Stock, par $100 1.7 1.8
KACC Minority Interest:
Alumina Partners of Jamaica 70.4 56.9
Volta Aluminium Company Limited 13.6 11.5
Kaiser LaRoche Hydrate Partners 1.4 1.2
---------- ----------
$ 344.3 $ 224.3
========== ==========
As a result of Kaiser's issuance of preferred stock in 1993 and 1994 (each
as described below) and, to a lesser extent, the Company's sales of
Depositary Shares and the issuance of common stock in connection with the
LTIP (each as described below), the Company's voting interest in Kaiser has
decreased to approximately 58.9% on a fully diluted basis, as of December
31, 1994.
$.65 Depositary Shares
On June 30, 1993, Kaiser issued 17,250,000 of its $.65 Depositary Shares
(the "Depositary Shares"), each representing one-tenth of a share of Series
A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A
Shares"). In connection with the issuance of the Depositary Shares, Kaiser
issued an additional 2,132,950 of its Depositary Shares to MGI in exchange
for a $15.0 promissory note issued by KACC which evidenced a $15.0 cash
loan made by MGI to KACC in January 1993 (the "MGI Loan"). Kaiser used
approximately $81.5 of the net proceeds it received from the sale of the
Depositary Shares together with the MGI Loan to make a capital contribution
to KACC, and $37.8 of the net proceeds it received from the sale of the
Depositary Shares to make a non-interest bearing loan to KACC (evidenced by
a note) which is designed to provide sufficient funds to make the required
dividend payments on the Series A Shares until June 30, 1996 (the "Series A
Shares Mandatory Conversion Date"). KACC used approximately $13.7 of such
funds to prepay the remaining balance of the Term Loan under the 1989
Credit Agreement and $105.6 of such funds to reduce outstanding borrowings
under the Revolving Credit Facility of the 1989 Credit Agreement. On June
30, 1996, each of the outstanding Depositary Shares will automatically
convert (upon the automatic conversion of the Series A Shares) into one
share of Kaiser's common stock, plus the right to receive an amount in cash
equal to the accrued and unpaid dividends payable with respect to such
Depositary Share. Automatic conversion of the outstanding Depositary
Shares (and the Series A Shares) will occur upon certain mergers or
consolidations of Kaiser (as defined). At any time or from time to time
prior to June 30, 1996, Kaiser may call the outstanding Depositary Shares
(by calling the Series A Shares) for redemption, in whole or in part, at a
call price per Depositary Share initially equal to $12.46, declining by
$.0018 on each day following the date of issue to $10.624 on April 30,
1996, and equal to $10.51 thereafter, payable in shares of common stock
having an aggregate Current Market Price (as defined) equal to the
applicable call price, plus an amount in cash equal to all accrued and
unpaid dividends payable with respect to such Depositary Share. Holders of
Depositary Shares (based on the voting rights of the Series A Shares) have
one vote for each Depositary Share held of record, except as required by
law, and are entitled to vote with the holders of common stock on all
matters submitted to a vote of Kaiser's common stockholders. The
Depositary Shares call for the payment of quarterly dividends (when and as
declared by Kaiser's Board of Directors) of approximately $3.2 ($.1625 per
share). The Company has accounted for Kaiser's issuance of the Depositary
Shares as additional minority interest. During 1994, the Company sold
1,239,400 of such Depositary Shares for an aggregate net proceeds of $10.3,
resulting in pre-tax gains of $1.6. The Company may consummate the sale of
all or any portion of the remaining Depositary Shares at any time.
8.255% Preferred Redeemable Increased Dividend Equity Securities
During the first quarter of 1994, Kaiser consummated a public offering for
the sale of 8,855,550 shares of its PRIDES. The net proceeds from the sale
of the PRIDES were approximately $100.1. Kaiser used $33.2 of such net
proceeds to make non-interest bearing loans to KACC (evidenced by notes)
which are designed to provide sufficient funds to make the required
dividend payments on the PRIDES until December 31, 1997 (the "PRIDES
Mandatory Conversion Date") and $66.9 of such net proceeds to make capital
contributions to KACC. Holders of shares of PRIDES have a 4/5 vote for
each share held of record and, except as required by law, are entitled to
vote together with the holders of Kaiser's common stock and together with
the holders of any other classes or series of Kaiser's stock (including the
Series A Shares) who are entitled to vote in such manner on all matters
submitted to a vote of common stockholders. On December 31, 1997, unless
either previously redeemed 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, and the right to receive an amount in cash
equal to all accrued and unpaid dividends thereon. Shares of PRIDES are
not redeemable prior to December 31, 1996. At any time and from time to
time on or after December 31, 1996, Kaiser may redeem any or all of the
outstanding shares of PRIDES. Upon any such redemption, each holder will
receive, in exchange for each share of PRIDES, the number of shares of
Kaiser's common stock equal to (A) the sum of $11.9925, declining after
December 31, 1996 to $11.75 until December 31, 1997, plus, in the event
Kaiser does not elect to pay cash dividends to the redemption date, all
accrued and unpaid dividends thereon divided by (B) the Current Market
Price (as defined) on the applicable date of determination, but in no event
less than .8333 of a share of Kaiser's common stock, subject to adjustment
in certain events. At any time prior to December 31, 1997, unless
previously redeemed, each share of PRIDES is convertible at the option of
the holder thereof into .8333 of a share of Kaiser's common stock
(equivalent to a conversion price of $14.10 per share of Kaiser's common
stock), subject to adjustment in certain events. The number of shares of
Kaiser's common stock a holder will receive upon redemption, and the value
of the shares received upon conversion, will vary depending on the market
price of Kaiser's common stock from time to time. The PRIDES call for the
payment of quarterly dividends of approximately $2.1 ($.2425 per share).
The Company accounted for Kaiser's issuance of the PRIDES as additional
minority interest.
Subsidiary Redeemable Preference Stock
In March 1985, KACC entered into a three-year agreement with the United
Steelworkers of America ("USWA") whereby shares of a new series of KACC
Cumulative (1985 Series A) Preference Stock (the "Series A Stock") would be
issued to an employee stock ownership plan in exchange for certain elements
of wages and benefits. Concurrently, a similar plan was established for
certain nonbargaining employees which provided for the issuance of KACC
Cumulative (1985 Series B) Preference Stock (the "Series B Stock"). The
Series A Stock and the Series B Stock ("Series A and B Stock") each have a
liquidation and redemption value of $50 per share plus accrued dividends,
if any, and have a total redemption value of $45.6 at December 31, 1994.
Changes in Series A and B Stock are as follows:
Years Ended December 31,
1994 1993 1992
Shares:
Beginning of year 1,081,548 1,163,221 1,305,550
Redeemed (169,381) (81,673) (142,329)
---------- ---------- ----------
End of year 912,167 1,081,548 1,163,221
========== ========== ==========
No additional Series A or B Stock will be issued based on compensation
earned in 1992 or subsequent years. While held by the plan trustee, Series
B Stock is entitled to cumulative annual dividends, when and as declared by
KACC's Board of Directors, payable in Series B Stock or in cash at the
option of KACC, based on a formula tied to KACC's income before tax from
aluminum operations. When distributed to plan participants (generally upon
separation from KACC), the Series A and B Stock is entitled to an annual
cash dividend of $5 per share, payable quarterly, when and as declared by
KACC's Board of Directors.
Redemption fund agreements require KACC to make annual payments by March 31
of each year based on a formula tied to KACC's consolidated net income
until the redemption funds are sufficient to redeem all Series A and B
Stock. On an annual basis, the minimum payment is $4.3 and the maximum
payment is $7.3. In March 1993 and 1994, KACC contributed $4.3 for each
of the years ended December 31, 1992 and 1993, and will contribute $4.3 in
March 1995 for the year ended December 31, 1994.
Under the USWA labor contract effective November 1, 1990, KACC was
obligated to offer to purchase up to 40 shares of Series A Stock from each
active participant in 1994 at a price equal to its redemption value of $50
per share. The employees could elect to receive their shares, accept cash
or place the proceeds into KACC's 401(k) savings plan. Under separate
action, KACC also offered to purchase 40 shares of Series B Stock from
active participants in 1994. Under the provisions of these contracts, in
February 1994, KACC purchased $4.6 and $.8 of the Series A Stock and Series
B Stock, respectively.
Under the USWA labor contract effective November 1, 1994, KACC is obligated
to offer to purchase up to 40 shares of Series A Stock from each active
participant in 1995 at a price equal to its redemption value of $50 per
share. KACC also agreed to offer to purchase up to an additional 80 shares
from each participant in 1998. In addition, if a profitability test is
satisfied for either 1995 or 1996, KACC will offer to purchase from each
active participant an additional 20 shares of such preference stock held in
the stock ownership plan for the benefit of substantially the same
employees in either 1996 or 1997. The employees may elect to receive their
shares, accept cash or place the proceeds into KACC's 401(k) savings plan.
KACC will provide comparable purchases of Series B Stock from active
participants.
The Series A and B Stock is distributed in the event of death or retirement
of the plan participant, or in other specified circumstances. KACC may
also redeem such stock at $50 per share plus accrued dividends, if any. At
the option of the plan participant, the trustee shall redeem stock
distributed from the plans at the redemption value to the extent funds are
available in the redemption fund. Under the Tax Reform Act of 1986, at the
option of the plan participant, KACC must purchase distributed shares
earned after December 31, 1985 at the redemption value on a five-year
installment basis with interest at market rates. The obligation of KACC to
make such installment payments must be secured.
The Series A and B Stock is entitled to the same voting rights as KACC
common stock and to certain additional voting rights under certain
circumstances, including the right to elect, along with other KACC
preference stockholders, two directors whenever accrued dividends have not
been paid on two annual dividend payment dates, or when accrued dividends
in an amount equivalent to six full quarterly dividends are in arrears.
The Series A and B Stock restricts the ability of KACC to redeem or pay
dividends on its common stock if KACC is in default on any dividends
payable on the Series A and B Stock.
Kaiser Stock Incentive Plans
Kaiser has an unfunded Long-Term Incentive Plan (the "LTIP") for certain
key employees. All compensation vested as of December 31, 1992 under the
LTIP, as amended in 1991 and 1992, has been paid to the participants in
cash or common stock of Kaiser as of December 31, 1993. Under the LTIP, as
amended, 764,092 restricted shares of Kaiser common stock were distributed
to six Kaiser executives during 1993 for benefits generally earned but not
vested as of December 31, 1992. These shares will generally vest at the
rate of 25% per year. Kaiser will record the related expense of $6.5 over
the four-year period ending December 31, 1996.
In 1993, Kaiser adopted the Kaiser 1993 Omnibus Stock Incentive Plan. A
total of 2,500,000 shares of Kaiser common stock were reserved for awards
or for payment of rights granted under the plan, of which 504,044 shares
were available to be awarded at December 31, 1994. During 1994, 102,564
restricted shares, which will vest at the rate of 25% per year, were
distributed to two Kaiser executives. Kaiser will record the related
expense of $1.0 over the four-year period ending December 31, 1998. In
1994 and 1993, the Compensation Committee of Kaiser's Board of Directors
approved the award of 494,800 and 664,400 shares, respectively, as
"nonqualified stock options" to members of management other than those
participating in the LTIP. These options generally will vest at the rate
of 20% to 25% per year. The exercise price of these shares ranges from
$7.25 to $12.75 per share. During 1994, 6,920 of such options were
exercised at a price of $7.25 per share. At December 31, 1994, 1,122,380
of such options were outstanding, of which 119,980 were exercisable.
8. STOCKHOLDERS' DEFICIT
Preferred Stock
The holders of the Company's Class A $.05 Non-Cumulative Participating
Convertible Preferred Stock (the "Class A Preferred Stock") are entitled to
receive, if and when declared, preferential cash dividends at the rate of
$.05 per share per annum and will participate thereafter on a share for
share basis with the holders of common stock in all cash dividends, other
than cash dividends on the common stock in any fiscal year to the extent
not exceeding $.05 per share. Stock dividends declared on the common stock
will result in the holders of the Class A Preferred Stock receiving an
identical stock dividend payable in shares of Class A Preferred Stock. At
the option of the holder, the Class A Preferred Stock is convertible at any
time into shares of common stock at the rate of one share of common stock
for each share of Class A Preferred Stock. Each holder of Class A
Preferred Stock is generally entitled to ten votes per share on all matters
presented to a vote of the Company's stockholders.
Stock Option Plans
In 1994, the Company adopted the Maxxam 1994 Omnibus Employee Incentive
Plan (the "1994 Omnibus Plan"). Up to 1,000,000 shares of common stock and
1,000,000 shares of Class A Preferred Stock are reserved for awards or for
payment of rights granted under the 1994 Omnibus Plan. In December 1994,
options to purchase 25,000 shares of common stock of the Company were
granted to an executive officer. In addition, also in December 1994,
another executive officer relinquished stock appreciation rights relating
to 50,000 shares of common stock of the Company in exchange for options to
purchase 45,000 shares of Class A Preferred Stock. The exercise price of
these options is $30.375 per share (the quoted market price at the date of
grant), and the options are exercisable at the rate of 20% per year
commencing one year from the date of grant. None of these options were
exercisable at December 31, 1994.
Concurrent with the adoption of the 1994 Omnibus Plan, the Company adopted
the Maxxam 1994 Non-Employee Director Plan (the "1994 Director Plan"). Up
to 35,000 shares of common stock are reserved for awards under the 1994
Director Plan. In May 1994, options to purchase 1,500 shares of common
stock of the Company were granted to three non-employee directors. The
exercise price of these options is $36.50 per share (the quoted market
price at the date of grant), and the options are exercisable at the rate of
25% per year commencing one year from the date of grant. None of these
options were exercisable at December 31, 1994.
The 1980 Incentive Plan authorized the granting of options to purchase up
to 750,000 shares of the Company's common stock through June 1990. Options
granted were exercisable at the market price at the date of grant and
became exercisable in five equal annual installments, commencing one year
from the date of grant, and expiring ten years from the date of grant. On
July 1, 1988, pursuant to the terms of the 1980 Incentive Plan, holders of
the 1980 Incentive Plan options were granted stock appreciation rights.
During the year ended December 31, 1992, 63,000 options were exercised at
prices ranging from $7.875 to $14.50 per share resulting in the issuance of
19,761 shares. At December 31, 1992, all options to purchase shares under
the 1980 Incentive Plan had been exercised.
In 1988, 354,000 options granted under MGI's 1976 Stock Option Plan (the
"MGI 1976 Plan"), at prices ranging from $7.875 to $18.75 per share, were
converted into the right to receive, upon exercise of each option, $6.11 in
cash, .25 shares of the Company's common stock (88,500 shares) and $6.00
principal amount of the Reset Notes. Options granted under the MGI 1976
Plan generally were exercisable for a period of ten years from the date of
grant. During 1993 and 1992, 60,000 options and 100,000 options granted
under the MGI 1976 Plan at prices of $10.875 and $11.625 per share,
respectively, were surrendered for a cash payment in lieu of the
consideration referred to above. At December 31, 1993, all options granted
under the MGI 1976 Plan had been exercised.
Shares Reserved for Issuance
At December 31, 1994, the Company had the following shares reserved for
future issuance:
Common shares:
Class A Preferred Stock 669,112
Maxxam 1994 Omnibus Employee Incentive Plan 1,000,000
Maxxam 1994 Non-Employee Director Plan 35,000
----------
1,704,112
==========
Class A Preferred Stock:
Maxxam 1994 Omnibus Employee Incentive Plan 1,000,000
==========
Rights
On November 29, 1989, the Board of Directors of the Company declared a
dividend to its stockholders consisting of (i) one Series A Preferred Stock
Purchase Right (the "Series A Right") for each outstanding share of the
Company's Class A Preferred Stock and (ii) one Series B Preferred Stock
Purchase Right (the "Series B Right") for each outstanding share of the
Company's common stock. The Series A Right and the Series B Right are
collectively referred to herein as the "Rights." The Rights are
exercisable only if a person or group of affiliated or associated persons
(an "Acquiring Person") acquires beneficial ownership, or the right to
acquire beneficial ownership, of 15% or more of the Company's common stock,
or announces a tender offer that would result in beneficial ownership of
15% or more of the outstanding common stock. Any person or group of
affiliated or associated persons who, as of November 29, 1989, was the
beneficial owner of at least 15% of the outstanding common stock will not
be deemed to be an Acquiring Person unless such person or group acquires
beneficial ownership of additional shares of common stock (subject to
certain exceptions). Each Series A Right, when exercisable, entitles the
registered holder to purchase from the Company one share of Class A
Preferred Stock at an exercise price of $165.00, subject to adjustment.
Each Series B Right, when exercisable, entitles the registered holder to
purchase from the Company one one-hundredth of a share of the Company's new
Class B Junior Participating Preferred Stock, with a par value of $.50 per
share (the "Junior Preferred Stock"), at an exercise price of $165.00,
subject to adjustment.
Under certain circumstances, including if any person becomes an Acquiring
Person other than through certain offers for all outstanding shares of
stock of the Company, or if an Acquiring Person engages in certain "self-
dealing" transactions, each Series A Right would enable its holder to buy
Class A Preferred Stock (or, under certain circumstances, preferred stock
of an acquiring company) having a value equal to two times the exercise
price of the Series A Right, and each Series B Right shall enable its
holder to buy common stock of the Company (or, under certain circumstances,
common stock of an acquiring company) having a value equal to two times the
exercise price of the Series B Right. Under certain circumstances, Rights
held by an Acquiring Person will be null and void. In addition, under
certain circumstances, the Board is authorized to exchange all outstanding
and exercisable Rights for stock, in the ratio of one share of Class A
Preferred Stock per Series A Right and one share of common stock of the
Company per Series B Right. The Rights, which do not have voting
privileges, expire in 1999, but may be redeemed by action of the Board
prior to that time for $.01 per right, subject to certain restrictions.
Voting Control
Federated Development Company ("Federated") and Mr. Charles E. Hurwitz
collectively own 98.3% of the Company's Class A Preferred Stock and 31.2%
of the Company's common stock (resulting in combined voting control of
approximately 60.2% of
the Company). Mr. Hurwitz is the Chairman of the Board, President and
Chief Executive Officer of the Company and Chairman and Chief Executive
Officer of Federated. Federated is wholly owned by Mr. Hurwitz, members of
his immediate family and trusts for the benefit thereof.
9. COMMITMENTS AND CONTINGENCIES
Commitments
The Company, principally through KACC, has financial commitments, including
purchase agreements, tolling arrangements, forward foreign exchange and
forward sales contracts (see Note 10), letters of credit and other
guarantees. Such purchase agreements and tolling arrangements include
long-term agreements for the purchase and tolling of bauxite into alumina
in Australia by QAL. These obligations expire in 2008. Under the
agreements, KACC is unconditionally obligated to pay its proportional share
of debt, operating costs and certain other costs of this joint venture.
The aggregate minimum amount of required future principal payments at
December 31, 1994 is $78.7, due in 1997. KACC's share of payments,
including operating costs and certain other expenses under the agreement,
was $85.6, $86.7 and $99.2 for the years ended December 31, 1994, 1993 and
1992, respectively. KACC also has agreements to supply alumina to and to
purchase aluminum from Anglesey.
Minimum rental commitments under operating leases at December 31, 1994 are
as follows: years ending December 31, 1995 - $26.0; 1996 - $25.4; 1997 -
$23.7; 1998 - $26.8; 1999 - $33.0; thereafter - $215.9. Rental expense for
operating leases was $29.2, $31.3 and $29.2 for the years ended December
31, 1994, 1993 and 1992, respectively. The minimum future rentals
receivable under noncancelable subleases at December 31, 1994 were $74.6.
Environmental Contingencies
Kaiser and KACC are subject to a wide variety of environmental laws and
regulations and to fines or penalties assessed for alleged breaches of the
environmental laws and to claims and litigation based upon such laws. KACC
is currently subject to a number of lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA") and,
along with certain other entities, has been named as a potentially
responsible party for remedial costs at certain third-party sites listed on
the National Priorities List under CERCLA.
Based 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. The following table presents the changes in such accruals, which
are primarily included in other noncurrent liabilities:
Years Ended December 31,
1994 1993 1992
Balance at beginning of year $ 40.9 $ 46.4 $ 51.5
Additional amounts 2.8 1.7 4.5
Less expenditures (3.6) (7.2) (9.6)
---------- ---------- ----------
Balance at end of year $ 40.1 $ 40.9 $ 46.4
========== ========== ==========
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 $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
$20.0. 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 Kaiser's consolidated financial position or results of
operations.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits in which the plaintiffs allege
that certain of their injuries were caused by, 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 December 31, 1994, the number of such lawsuits
pending was approximately 25,200, with approximately 14,300 received and
12,500 settled or dismissed in 1994.
Based on prior experience, KACC estimates that annual future cash payments
in connection with such litigation will be approximately $11.0 to $14.0 for
the years 1995 through 1999, and an aggregate of approximately $95.0
thereafter through 2007. 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
and settled through 2007. Kaiser does not presently believe there is a
reasonable basis for estimating such costs beyond 2007 and, accordingly, no
accrual has been recorded for such costs which may be incurred. This
accrual was calculated based 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, the
advice of counsel and the anticipated effects of inflation and discounting
at an estimated risk-free rate (8% at December 31, 1994). Accordingly, an
asbestos-related cost accrual of $102.0 is included primarily in other
noncurrent liabilities at December 31, 1994. The aggregate amount of the
undiscounted liability at December 31, 1994 is $158.1, before
considerations for insurance recoveries.
Kaiser believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. While claims for
recovery from some of KACC's insurance carriers are currently subject to
pending litigation and other carriers have raised certain defenses, Kaiser
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 $86.4,
determined on the same basis as the asbestos-related cost accrual, is
recorded primarily in long-term receivables and other assets as of December
31, 1994.
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
Kaiser's consolidated financial position or results of operations.
Other Contingencies
The Company is involved in various other claims, lawsuits and other
proceedings relating to a wide variety of matters. While 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.
10. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
KACC enters into a number of financial instruments with off-balance-sheet
risk in the normal course of business that are designed to reduce its
exposure to fluctuations in foreign exchange rates, alumina, primary
aluminum and fabricated aluminum products prices and the cost of purchased
commodities.
KACC has significant expenditures which are denominated in foreign
currencies related to long-term purchase commitments with its affiliates in
Australia and the United Kingdom, which expose KACC to certain exchange
rate risks. In order to mitigate its exposure, KACC periodically enters
into forward foreign exchange and currency option contracts in Australian
dollars and Pounds Sterling to hedge these commitments. The forward
foreign currency exchange contracts are agreements to purchase or sell a
foreign currency, for a price specified at the contract date, with delivery
and settlement in the future. At December 31, 1994, KACC had net forward
foreign exchange contracts totaling approximately $74.4 for the purchase of
102.0 Australian dollars through December 31, 1996.
To mitigate its exposure to declines in the market prices of alumina,
primary aluminum and fabricated aluminum products, while retaining the
ability to participate in favorable pricing environments that may
materialize, KACC has developed strategies which include forward sales of
primary aluminum at fixed prices and the purchase or sale of options for
primary aluminum. Under the principal components of KACC's price risk
management strategy, which can be modified at any time, (i) varying
quantities of KACC's anticipated production are sold forward at fixed
prices; (ii) call options are purchased to allow KACC to participate in
certain higher market prices, should they materialize, for a portion of
KACC's primary aluminum and alumina sold forward; (iii) option contracts
are entered into to establish a price range KACC will receive for a portion
of its primary aluminum and alumina; and (iv) put options are purchased to
establish minimum prices KACC will receive for a portion of its primary
aluminum and alumina. In this regard, in respect of its 1995 anticipated
production, as of December 31, 1994, KACC had sold forward 170,950 metric
tons of primary aluminum at fixed prices, purchased call options in respect
of 69,000 metric tons of primary aluminum, purchased put options to
establish a minimum price for 193,500 metric tons of primary aluminum and
entered into option contracts that established a price range for 90,000
metric tons of primary aluminum. KACC will not receive the benefit of
market price increases to the extent (i) the quantity of production sold
forward is greater than the tonnage covered by the purchased call options;
(ii) market prices exceed the prices at which primary aluminum is sold
forward, but are less than the strike price of the purchased call options,
on the tonnage covered by the options; or (iii) market prices exceed the
maximum of the price range on the tonnage covered by the option contracts
entered to establish a price range.
In addition, KACC enters into forward fixed price arrangements with certain
customers which provide for the delivery of a specific quantity of
fabricated aluminum products over a specified future period of time. In
order to establish the cost of primary aluminum for a portion of such
sales, KACC may enter into forward and options contracts. In this regard,
at December 31, 1994, KACC had purchased 4,500 metric tons of primary
aluminum under forward purchase contracts at fixed prices that expire at
various times through June 1995.
KACC has also entered into a natural gas pricing contract to fix future
prices of a portion (20,000 million BTUs per day) of a plant's natural gas
supply through March 1995.
At December 31, 1994, the net unrealized gain on KACC's position in forward
foreign exchange was $3.5 and the net unrealized loss on aluminum forward
sales and option contracts and the natural gas pricing contract was $80.4,
based on a price of $1,955 per metric ton of aluminum and $1.59 per million
BTUs of natural gas.
Kaiser has established margin accounts with its counterparties related to
aluminum forward sales and option contracts. Kaiser 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 December 31, 1994, Kaiser had $50.5
on deposit with various counterparties in respect of such unrealized
losses. This amount is included in prepaid expenses and other current
assets.
KACC is exposed to credit risk in the event of non-performance by other
parties to these currency and commodity contracts, but KACC does not
anticipate non-performance by any of these counterparties, given their
credit worthiness. When appropriate, KACC arranges master netting
agreements.
11. SEGMENT INFORMATION
The following tables present financial information by industry segment and
by geographic area at December 31, 1994 and 1993 and for the three years
ended December 31, 1994, 1993 and 1992.
Industry Segments
Bauxite Forest Real
Years and Aluminum Products Estate
Ended Alumina Processing Operations Operations Corporate Total
Sales to unaffiliated customers 1994 $ 432.5 $ 1,349.0 $ 249.6 $ 84.6 $ - $ 2,115.7
1993 423.4 1,295.7 233.5 78.5 - 2,031.1
1992 466.5 1,442.6 223.4 70.1 - 2,202.6
Operating income (loss) 1994 5.6 (55.9) 79.1 (10.0) (11.5) 7.3
1993 (20.1) (97.3) 54.3 (13.5) (19.5) (96.1)
1992 44.6 47.0 64.1 (9.3) (15.6) 130.8
Effect of changes in accounting principles on
operating income (loss):
Postretirement benefits other than pensions 1993 (2.3) (16.9) (.4) (.2) (.1) (19.9)
Income taxes 1993 (6.3) (5.6) .1 .7 - (11.1)
Equity in earnings (losses) of unconsolidated
affiliates 1994 (4.6) 2.7 - - (13.1) (15.0)
1993 (2.5) (.8) - - (1.6) (4.9)
1992 1.8 (3.7) - - - (1.9)
Depreciation and depletion 1994 32.3 57.2 24.7 5.9 1.0 121.1
1993 33.8 57.3 24.5 4.1 1.1 120.8
1992 29.4 49.2 28.4 3.5 .9 111.4
Capital expenditures 1994 29.4 40.6 11.3 7.6 .4 89.3
1993 35.8 31.9 11.1 7.1 .3 86.2
1992 60.0 54.4 8.7 8.1 1.5 132.7
Investments in and advances to unconsolidated
affiliates 1994 137.1 32.6 - - - 169.7
1993 151.9 31.3 - - - 183.2
Identifiable assets 1994 987.9 1,637.3 674.8 201.7 189.1 3,690.8
1993 930.7 1,540.5 676.8 215.7 208.3 3,572.0
Sales to unaffiliated customers excludes intersegment sales between bauxite
and alumina and aluminum processing of $146.8, $129.4 and $179.9 for the
years ended December 31, 1994, 1993 and 1992, respectively. Intersegment
sales are made on a basis intended to reflect the market value of the
products.
Operating losses for Corporate represent general and administrative expenses
of Maxxam Inc. that are not allocated to the Company's industry segments.
General and administrative expenses of subsidiary companies are allocated
in the Company's industry segment presentation based upon those segments'
ratio of sales to unaffiliated customers.
Geographical Information
Years Other
Ended Domestic Caribbean Africa Foreign Eliminations Total
Sales to unaffiliated
customers 1994 $1,566.3 $ 201.0 $ 180.0 $ 168.4 $ - $ 2,115.7
1993 1,463.1 182.1 207.5 178.4 - 2,031.1
1992 1,551.0 197.6 263.5 190.5 - 2,202.6
Sales and transfers among
geographic areas 1994 - 98.7 - 139.4 (238.1) -
1993 - 88.2 - 79.6 (167.8) -
1992 - 90.1 - 86.5 (176.6) -
Operating income (loss) 1994 (55.3) (.1) 18.3 44.4 - 7.3
1993 (111.3) (19.1) 21.9 12.4 - (96.1)
1992 9.6 20.9 65.4 34.9 - 130.8
Equity in losses of
unconsolidated affiliates 1994 (12.9) - - (2.1) - (15.0)
1993 (1.6) - - (3.3) - (4.9)
1992 - - - (1.9) - (1.9)
Investments in and advances to
unconsolidated affiliates 1994 1.2 28.8 - 139.7 - 169.7
1993 1.0 30.5 - 151.7 - 183.2
Identifiable assets 1994 2,867.9 423.4 200.0 199.5 - 3,690.8
1993 2,740.8 421.7 223.0 186.5 - 3,572.0
Sales and transfers among geographic areas are made on a basis intended to
reflect the market value of the products.
Included in results of operations are aggregate foreign currency
translation and transaction gains of $.8, $4.9 and $12.0 for the years
ended December 31, 1994, 1993 and 1992, respectively.
Export sales were less than 10% of total revenues during the years ended
December 31, 1994, 1993 and 1992. For the years ended December 31, 1994,
1993 and 1992, the Company had bauxite and alumina sales of $58.2, $40.7
and $135.3, respectively, and aluminum processing sales of $147.7, $145.7
and $144.9, respectively, to one customer.
Maxxam Inc. and Subsidiaries
Quarterly Financial Information (Unaudited)
Summary quarterly financial information for the years ended December 31,
1994 and 1993 is as follows:
Three Months Ended
(In millions of dollars, except share March 31 June 30 September 30 December 31
amounts)
1994:
Net sales $ 489.0 $ 543.8 $ 544.9 $ 538.0
Operating income (loss) (15.0) 6.5 9.0 6.8
Loss before extraordinary item (34.5) (43.2) (14.9) (24.1)
Extraordinary item, net (5.4) - - -
Net loss (39.9) (43.2) (14.9) (24.1)
Per common and common equivalent share:
Loss before extraordinary item (3.65) (4.57) (1.58) (2.55)
Extraordinary item, net (.57) - - -
Net loss (4.22) (4.57) (1.58) (2.55)
1993:
Net sales $ 513.7 $ 507.9 $ 506.5 $ 503.0
Operating loss (1.8) (1.1) (10.8) (82.4)
Loss before extraordinary item and
cumulative effect of changes in
accounting principles (25.9) (15.8) (26.8) (63.4)
Extraordinary item, net (44.1) - (6.5) -
Cumulative effect of changes in (417.7) - - -
accounting principles, net
Net loss (487.7) (15.8) (33.3) (63.4)
Per common and common equivalent share:
Loss before extraordinary item and
cumulative effect of changes
in accounting principles (2.74) (1.67) (2.83) (6.71)
Extraordinary item, net (4.66) - (.69) -
Cumulative effect of changes in
accounting principles, net (44.14) - - -
Net loss (51.54) (1.67) (3.52) (6.71)
Maxxam Inc. and Subsidiaries
Market for the Company's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the American, Pacific and
Philadelphia Stock Exchanges. The stock symbol is MXM. The following
table sets forth for the calendar periods indicated the high and low sales
prices per share of the Company's common stock as reported on the American
Stock Exchange Consolidated Composite Tape.
High Low
1994:
First Quarter $44-1/2 $35-3/8
Second Quarter 37-1/8 32-5/8
Third Quarter 38-3/8 29-1/2
Fourth Quarter 37-3/4 29-5/8
1993:
First Quarter $35-3/4 $26-5/8
Second Quarter 27-1/4 21-3/4
Third Quarter 34 25-3/8
Fourth Quarter 38-7/8 28-3/8
The following table sets forth the number of record holders of the
Company's publicly owned equity securities as of March 1, 1995.
Number of
Record
Title of Class Holders
Common Stock 6,065
Class A $.05 Non-Cumulative Participating Convertible
Preferred Stock 39
The Company has not declared any cash dividends on its common stock or its
Class A Preferred Stock and has no present intention of paying such
dividends in the immediate future.
EX-21
13
EXHIBIT 21
MAXXAM INC.
PRINCIPAL SUBSIDIARIES OF THE REGISTRANT
Listed below are MAXXAM Inc.'s principal subsidiaries and the
jurisdiction of their incorporation or organization. Certain subsidiaries
are omitted which, considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary.
State or Province
of Incorporation
Name or Organization
Aluminum Operations
Alpart Jamaica Inc. Delaware
Alumina Partners of Jamaica (partnership) Delaware
Anglesey Aluminium Limited United Kingdom
Kaiser Alumina Australia Corporation Delaware
Kaiser Aluminum Corporation Delaware
Kaiser Aluminium International, Inc. Delaware
Kaiser Aluminum & Chemical Corporation Delaware
Kaiser Aluminum & Chemical of Canada Limited Ontario
Kaiser Bauxite Company Nevada
Kaiser Finance Corporation Delaware
Kaiser Jamaica Bauxite Company (partnership) Jamaica
Kaiser Jamaica Corporation Delaware
Queensland Alumina Limited Queensland
Volta Aluminium Company Limited Ghana
Forest Products Operations
Britt Lumber Co., Inc. California
MAXXAM Group Inc. Delaware
MAXXAM Properties Inc. Delaware
Salmon Creek Corporation Delaware
Scotia Pacific Holding Company Delaware
The Pacific Lumber Company Delaware
Real Estate Operations
Horizon Corporation Delaware
MAXXAM Property Company Delaware
MCO Properties Inc. Delaware
MCO Properties L.P. (limited partnership) Delaware
MXM Mortgage L.P. (limited partnership) Delaware
Palmas del Mar Properties, Inc. Delaware
Race Park Operations
Sam Houston Race Park, Ltd. (limited partnership) Texas
SHRP, Inc. Texas
EX-23
14
EXHIBIT 23
MAXXAM INC.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-22436.
ARTHUR ANDERSEN LLP
Houston, Texas
February 17, 1995
EX-27
15
EXHIBIT 27
5