FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 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
HOUSTON, TEXAS 77057
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (713) 975-7600
__________________
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH 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
Shares of common stock outstanding at March 15, 1994: 8,698,464
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, 1994 American Stock Exchange closing price
of $37.125 per share, the aggregate market value of the Registrant's
outstanding Common Stock held by non-affiliates was approximately $222.9
million.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's annual report to stockholders for the
fiscal year ended December 31, 1993 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 61% 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 management 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 currently under construction just northwest
of Houston. See "--Sam Houston Race Park." See Note 11 to the
Consolidated Financial Statements 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 1992, aluminum's recyclability and weight advantages have
enabled it to gain market share from steel and glass, primarily in the
beverage container area. The aluminum packaging market in the United
States, Japan and Western Europe grew at a rate of approximately 4.0% per
year during the period 1982-1992, and total United States aluminum
beverage can shipments increased at a rate of approximately 2.5% in 1993,
1.5% in 1992 and 3.9% in 1991. Nearly all beer cans and approximately
95% of the soft drink cans manufactured for the United States market are
made of aluminum. Despite the flat demand currently being experienced in
the can stock market, growth in the packaging area is generally expected
to continue in the 1990's due to general population increase and to
further penetration of the beverage can market in Western Europe and
Japan, 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 28% of aluminum consumption in the United States, Japan and
Western Europe in 1992, 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.
Management believes that sales of aluminum to the transportation industry
have considerable growth potential due to projected increases in the use
of aluminum in automobiles. According to industry sources, aluminum
content in United States automobiles nearly doubled in the last 15 years
to an average of 191 pounds per vehicle and the amount of aluminum
consumed in the manufacture of Japanese automobiles more than doubled
from 1983 to 1990. Management believes that the use of aluminum in
automobiles in the United States and Japan will approximately double
between 1991 and 2006.
Supply
As of year-end 1993, Western world aluminum capacity from 109
smelting facilities was approximately 16.4 million tons per year. Net
exports of aluminum from the Commonwealth of Independent States
(the "C.I.S.") increased substantially from 1990 levels during the period
from 1991 through 1993 and have contributed to a significant increase in
London Metal Exchange stocks of primary aluminum.
Based upon information currently available, Kaiser believes
that only moderate additions will be made during 1994-1995 to Western
world alumina and primary aluminum production capacity; however, due to
the decline of primary aluminum prices since January 1, 1991, and other
factors, curtailments or permanent shutdowns have been announced, to
management's knowledge, with respect to approximately 3 million tons of
primary aluminum production capacity (all references to tons herein are
to metric tons of 2,204.6 pounds). See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Trends-
-Aluminum Operations" on pages 34 and 35 of the Company's 1993 Annual
Report to Stockholders. The increases in alumina capacity during 1994
-1995 will come from incremental expansions of existing refineries and
not from new plants, which generally require a four to five year design,
engineering and construction period.
Recent Industry Trends
The aluminum industry has been cyclical and market prices of
alumina and primary aluminum have been volatile from time to time.
During 1989, tight supply conditions for alumina and strong demand for
primary aluminum resulted in unusually high spot prices for alumina.
During 1990, a moderate surplus of alumina supply developed due to new
alumina production from two facilities restarted in prior years
(including Kaiser's Alpart refinery) and increased production at other
refineries. Furthermore, curtailments of primary aluminum production in
response to declining ingot prices have increased the surplus of alumina
supply. Since 1990, spot prices of alumina have declined substantially
due to these factors and slow economic growth in major aluminum consuming
countries. Contract prices for deliveries of alumina in 1993 were in a
lower range than the ranges applicable during the past several years. As
a result of these factors and the continuing expansion of existing
alumina refineries during 1992-1993, the current surplus of alumina is
expected to continue.
During 1989 and 1990, primary aluminum smelters throughout the
world operated at near capacity levels. This factor, combined with
increased production from smelter capacity additions during 1989 and
1990, resulted in a reduction of the market price of primary aluminum
from 1988 peak prices. Additions to smelter capacity in 1991, 1992 and
1993, continued high operating rates in the Western world and slow
economic growth in major aluminum consuming countries as well as exports
from the C.I.S. have contributed to an oversupply of primary aluminum and
a significant increase in primary aluminum inventories in the world. If
Western world production and exports from the C.I.S. continue at current
levels, primary aluminum inventory levels are expected to increase
further in 1994. The foregoing factors have contributed to a significant
reduction in the market price of primary aluminum, and may continue to
adversely affect the market price of primary aluminum in the future. The
average price of primary aluminum was at historic lows in real terms for
the year ended 1993. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations
--Trends--Aluminum Operations" on pages 34 and 35 of the Company's 1993
Annual Report to Stockholders.
Government officials from the European Union, the United
States, Canada, Norway, Australia and the Russian Federation met in a
multilateral conference in January 1994 to discuss the current excess
global supply of primary aluminum. All participants have ratified as a
trade agreement the resulting Memorandum which provides, 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. A Russian Federation Trade Ministry official has publicly
stated that the output reduction would remain in effect for 18 months to
two years, provided that other worldwide production cutbacks occur,
existing trade restrictions on aluminum are eliminated, and no new trade
restrictions on aluminum are imposed. The Memorandum does not require
specific levels of production cutbacks by other producing nations. The
Memorandum was finalized at a second meeting of the participants held at
the end of February 1994.
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 by Kaiser in its operations, Kaiser sells
significant amounts of alumina and primary aluminum in the domestic and
international markets. In 1993, Kaiser produced approximately 2,826,600
tons of alumina, of which approximately 71% was sold to third parties,
and produced 436,200 tons of primary aluminum, of which approximately 56%
was sold to third parties. Kaiser is also a major domestic supplier of
fabricated aluminum products. In 1993, Kaiser shipped approximately
373,200 tons of fabricated aluminum products to third parties, which
accounted for approximately 6% of the total tonnage of United States
domestic shipments in 1993. 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,
1993 1992 1991
(In thousands of tons)
ALUMINA:
Shipments to Third Parties . . . . . . . . . . . . . 1,997.5 2,001.3 1,945.9
Intracompany Transfers . . . . . . . . . . . . . . . 807.5 878.2 884.2
PRIMARY ALUMINUM:
Shipments to Third Parties . . . . . . . . . . . . . 242.5 355.4 340.6
Intracompany Transfers . . . . . . . . . . . . . . . 233.6 224.4 199.6
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties . . . . . . . . . . . . . 373.2 343.6 314.2
Business Strategy
Kaiser has made significant changes in the mix of products sold
to customers by disposing of selected assets, restarting and increasing
its percentage ownership interest in the Alumina Partners of Jamaica
("Alpart") alumina refinery, and increasing production of alumina at
Gramercy, Louisiana, and Queensland Australia Limited ("QAL") in
Australia. The percentage of Kaiser's alumina production sold to third
parties increased from approximately 35% in 1987 to approximately 71% in
1993, and the percentage of its primary aluminum production sold to third
parties increased from approximately 20% in 1987 to approximately 56% in
1993.
Kaiser has concentrated its fabricated products operations on
the beverage container market (which historically has been recession-
resistant); high value-added, heat-treated sheet and plate products for
the aerospace industry; hubs, wheels and other products for the truck,
trailer and shipping container industry; parts for air bag canisters and
other automotive components; and distributor markets for a variety of
semifabricated aluminum products. Since January 1, 1989, Kaiser has
constructed four new fabrication facilities and has modernized and
expanded others, with the objective of reducing manufacturing costs and
expanding sales in selected product markets in which Kaiser has
production expertise, high quality capability and geographic and other
competitive advantages.
Kaiser has taken steps to control and reduce costs, improve the
efficiency and increase the capacity of its alumina and primary aluminum
production and fabricating operations, modernize its facilities, and
streamline and decentralize its management structure to reduce corporate
overhead and shift decision making and accountability to its business
units. In October 1993, Kaiser announced that it is restructuring its
flat-rolled products operation at its Trentwood plant in Spokane,
Washington, to reduce that facility's annual operating costs. This
effort is in response to over-capacity in the aluminum rolling industry,
flat demand in can stock markets, and declining demand for aluminum
products sold to customers in the commercial aerospace industry, all of
which have resulted in declining prices in Trentwood's key markets. The
Trentwood restructuring is expected to result in annual cost savings of
approximately $50.0 million after it has been fully implemented (which is
expected to occur by the end of 1995). See "Fabricated Products--Flat-
Rolled Products" below.
Primary aluminum production at Kaiser's Mead and Tacoma
smelters was curtailed in 1993 because of a power reduction imposed by
the Bonneville Power Administration (the "BPA"), which reduced the
operating rates for such smelters. See "--Primary Aluminum Products"
below. Furthermore, Kaiser announced on February 24, 1994 that it will
curtail approximately 9.3% of its annual production capacity currently
available from its primary aluminum smelters.
Kaiser has also attempted to lessen its exposure to possible
future declines in the market prices of alumina and primary aluminum by
entering into fixed and variable rate power and fuel supply contracts,
and a labor contract with the United Steelworkers of America (the "USWA")
which provides for semi-variable compensation with respect to
approximately 73% of Kaiser's domestic hourly work force. See "-
-Production Operations" and "--Employees" below.
Sensitivity to Prices and Hedging Programs
Kaiser's earnings are sensitive to changes in the prices of
alumina, primary aluminum and fabricated aluminum products, and also
depend to a significant degree upon the volume and mix of all products
sold. Through its variable cost structures, forward sales and hedging
program, Kaiser has attempted to mitigate its exposure to possible
further declines in the market prices of alumina and primary aluminum
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"
on pages 34 and 35 of the Company's 1993 Annual Report to Stockholders.
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 1993. During 1993, Kaiser
utilized approximately 82% 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 1993 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 8% in 1993.
- The Primary Aluminum Products Business Unit operates two
domestic smelters wholly owned by KACC and two foreign smelters in which
KACC holds significant ownership interests. In 1993, Kaiser utilized
approximately 44% 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 3% in 1993.
- Fabricated products are manufactured by three Business Units --
Flat-Rolled Products, Extruded Products (including rod and bar), 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. In 1993, Kaiser shipped
approximately 373,200 tons of fabricated aluminum products to third
parties, which accounted for approximately 6% of the total tonnage of
United States domestic fabricated shipments for such year.
Alumina
The following table lists Kaiser's bauxite mining and alumina
refining facilities as of December 31, 1993:
Total Total
Available Annual
Company to Production
Activity Facility Location Ownership 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
=========== ===========
<<FN>
(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, with floor and ceiling prices
applicable to approximately one-half of the delivered gas. Kaiser has,
however, established a fixed price for a portion of the delivered gas
through a hedging program.
Alpart holds bauxite reserves and owns an alumina plant located
in Jamaica. KACC has a 65% interest in Alpart and Hydro Aluminium a.s.
("Hydro") owns the remaining 35% interest. KACC has management
responsibility for the facility on a fee basis. KACC and Hydro have
agreed to be responsible for their proportionate shares of Alpart's costs
and expenses. Alpart began a program of modernization and expansion of
its facilities in 1991. As a part of that program, the capacity of the
Alpart alumina refinery has been increased to 1,450,000 tons per year as
of December 31, 1992. In 1981, the Government of Jamaica granted Alpart
a mining lease covering bauxite reserves sufficient to operate the Alpart
plant until December 31, 2019. In connection with the expansion program,
the Alpart partners have entered into an agreement with the Government of
Jamaica designed to assure that sufficient reserves of bauxite will be
available to Alpart to operate its refinery, as it has been expanded and
as it may be expanded through the year 2024 (to a capacity of 2,000,000
tons per year).
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, the term of this agreement was extended
for one year 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.
KACC holds a 28.3% interest in 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 KACC, purchase bauxite
from another QAL stockholder pursuant to long-term supply contracts. KACC
has contracted to take approximately 751,000 tons per year of capacity or
pay standby charges. KACC is unconditionally obligated to pay amounts
calculated to service its share ($73.6 million at December 31, 1993) 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 KACC.
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 1993, Kaiser sold all of its bauxite to
one customer, and sold alumina to 13 customers, the largest and top five
of which accounted for approximately 22% and 79% of such sales,
respectively. Among alumina producers, the Company believes Kaiser 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 forward sales contracts. See Item 7.
"Management's
Discussion and Analysis of Financial Condition and Results of Operations
--Trends--Sensitivity to Prices and Hedging Programs" on pages 34 and 35
of the Company's 1993 Annual Report to Stockholders. Marketing and sales
efforts are conducted by executives of the Alumina Business Unit and
Kaiser.
Primary Aluminum Products
The following table lists Kaiser's primary aluminum smelting
facilities as of December 31, 1993:
Annual
Rated
Capacity Total
Available Annual 1993
Company to Rated Operating
Location Facility Ownership Kaiser Capacity Rate
(tons) (tons)
DOMESTIC:
Washington Mead 100% 200,000 200,000 80%
Washington Tacoma 100% 73,000 73,000 77%
----------- -----------
Subtotal 273,000 273,000
----------- -----------
INTERNATIONAL:
Ghana Valco 90% 180,000 200,000 88%
Wales, U.K. Anglesey 49% 55,000 112,000 112%
----------- -----------
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, reduced the number
of anodes used 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 electricity supply contracts
between the BPA and the Company expire in 2001. The electricity supply
contracts between the BPA and its direct service industry customers
(which consist of fifteen 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.
Both the Mead and Tacoma plants operated at approximately full rated
capacity during 1991-1992, but operated at less than rated capacity
throughout 1993. As a result of drought conditions, in January 1993 the
BPA reduced the amount of power it normally supplies to its direct
service industry customers. In response to such reduction, Kaiser
removed three reduction potlines from production (two at the Mead smelter
and one at the Tacoma smelter) and purchased substitute power in the
first quarter of 1993 at increased costs. Despite the temporary
availability of such power through July 1993, Kaiser has operated its
Mead and Tacoma smelters at the reduced
operating rates introduced in January 1993, and has operated its
Trentwood fabrication facility without any curtailment of its production.
The Company currently anticipates that in 1994 it will operate the Mead
and Tacoma smelters at rates which do not exceed the current operating
rates of 75% of full capacity for such smelters. The BPA has recently
notified its direct service industry customers that it intends to restore
full power through July 31, 1994.
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 variable rates to be
negotiated. During 1993, Kaiser paid for power under its power supply
contract with the BPA at the floor rate. Effective October 1, 1993, an
increase in the base rate BPA charges to its direct service industry
customers for electricity was adopted which will increase Kaiser's
production costs at the Mead and Tacoma smelters by approximately $15.0
million per year (approximately $9.1 million per year based on Kaiser's
current operating rate of approximately 75% of full capacity). The rate
increase generally is expected to remain in effect for two years. In the
event that the BPA's revenues fall below certain levels prior to April
1994, the BPA may impose up to a 10% surcharge on the base rate it
charges to its direct service industry customers, effective during the
period from October 1994 through October 1995 (which would increase
Kaiser's production costs at the Mead and Tacoma smelters by
approximately $9.1 million per year based on Kaiser's current operating
rate of approximately 75% of full capacity). In addition, in order to
comply with certain federal laws and regulations applicable to endangered
fish species, the BPA may be required in the future to reduce its power
generation and to purchase substitute power (at greater expense) from
other sources.
KACC manages, and holds a 90% interest in, the Volta Aluminium
Limited ("Valco") aluminum smelter in Ghana. The Valco smelter uses
prebake technology and processes alumina supplied by KACC 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. KACC's share of the primary aluminum is sold to third parties.
Power for the Valco smelter is supplied under an agreement which expires
in 1997, subject to Valco's right to extend the agreement for 20 years.
The agreement indexes the price of two-thirds of the contract quantity to
the market price of primary aluminum and fixes the price for the
remainder. The agreement also provides for a review and adjustment of
the base power rate and the price index every five years. The Valco
smelter restarted production early in 1985 after being closed for more
than two years due to lack of rainfall and the resultant hydroelectricity
shortage. The Company believes that there has been sufficient rainfall
and water storage such that an adequate supply of electricity for the
Valco plant at its current operating rate is probable for at least one
year.
KACC has a 49% interest in the Anglesey Aluminium Limited
("Anglesey") aluminum smelter and port facility at Holyhead, Wales. The
Anglesey smelter uses prebake technology. KACC supplies 49% of
Anglesey's alumina requirements and purchases 49% of Anglesey's aluminum
output. KACC 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" below.
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 1993, Kaiser sold the approximately 56% of its
primary aluminum production not utilized for internal purposes to
approximately 50 customers, the largest and top five of which accounted
for approximately 44% and 64% 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.
Fabricated 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 1993, seven domestic beverage container
manufacturers constituted the leading customers for Kaiser's fabricated
products and accounted for approximately 19% 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. As a result, 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.
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 1993 fabricated 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 is restructuring its flat-rolled products operation at its Trentwood
plant to reduce that facility's annual operating costs. This effort is
in response to over-capacity in the aluminum rolling industry, flat
demand in can stock markets, and declining demand for aluminum products
sold to customers in the commercial aerospace industry, all of which have
resulted in declining prices in Trentwood's key markets. The Trentwood
restructuring is expected to result in annual cost savings of
approximately $50.0 million (which is expected to occur by the end of
1995). In connection with the restructuring, Trentwood completed an
organizational streamlining that included a reduction of approximately 80
salaried employees. In addition, Kaiser has reached an agreement with
the USWA that will reduce the total number of hourly employees at
Trentwood by approximately 300 employees, or about 25%, by the end of
1995. The agreement with the USWA also includes a commitment by Kaiser
to spend up to $50 million of capital at Trentwood over three years
provided that goals on cost reduction and profitability are met or
exceeded.
Kaiser's flat-rolled products are sold primarily to beverage
container manufacturers located in the western United States where Kaiser
has a transportation advantage. Quality of products for the beverage
container industry, timeliness of delivery and price are the primary
bases on which Kaiser competes. The Company believes that capital
improvements at Trentwood have enhanced the quality of Kaiser's products
for the beverage container industry and the capacity and efficiency of
Kaiser's manufacturing operations.
The Company believes that Kaiser is one of the highest quality producers
of aluminum beverage can stock in the world.
In 1993, the Flat-Rolled Products Business Unit had 22 foreign
and domestic can stock customers, the majority of which were beverage can
manufacturers (including seven of the eight major domestic beverage can
manufacturers) and the balance of which were brewers. The largest and
top five of such customers accounted for approximately 25% and 56%,
respectively, of the business unit's sales revenue. In 1993, 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 10% of the business unit's sales revenue. The marketing
staff for the Flat-Rolled Products Business Unit is headquartered in
Pleasanton, California, and is also located at the Trentwood facility.
Sales are made directly to customers (including distributors) from ten
sales offices located throughout the United States. International
customers are served by a sales office in the Netherlands and by
independent sales agents in Asia and Latin America. See also Item 7.
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Trends--Sensitivity to Prices and Hedging Programs--
Aluminum Processing" on page 34 and 35 of the Company's Annual Report to
Stockholders for a discussion of demand for fabricated products
in the aerospace market.
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; and rod and bar facilities in Newark, Ohio, and Jackson,
Tennessee, which produce screw machine stock, redraw rod, forging stock
and billet. 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 1993,
the Extruded Products Business Unit had over 900 customers for its
products, the largest and top five of which accounted for approximately
6% and 19%, 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.
The Forgings Business Unit entered the castings business by purchasing
the assets of Winters Industries, which supplies cast aluminum engine
manifolds to the automobile, truck and marine markets. The casting
production facilities include two foundries and a machining facility in
Ohio. Kaiser has recently implemented a plan to discontinue its castings
operations at these facilities. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Aluminum
Operations--Operating Income (Loss)--Aluminum Processing" on
pages 21 and 22 of the Company's 1993 Annual Report to Stockholders. In
1993, the Forgings Business Unit had over 500 customers for its products,
the largest and top five of which accounted for approximately 20% and
57%, 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. Kaiser's principal competitors in the sale of alumina
include Alcoa of Australia Ltd., Billiton International Metals B.V.,
Clarendon Ltd. and Pechiney S.A. In addition to the foregoing, Kaiser
competes with most aluminum producers in the production of primary
aluminum. Many of Kaiser's competitors have greater financial resources
than Kaiser. In addition, the C.I.S. has been supplying large quantities
of primary aluminum to the Western world.
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. The
Company 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's
business or operations. 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.
Research and Development
Kaiser conducts research and development activities principally
at three facilities dedicated to that purpose -- the Center for
Technology ("CFT") in Pleasanton, California; the Primary Aluminum
Products Division Technology Center ("DTC") adjacent to the Mead smelter
in Washington; and the Alumina Development Laboratory ("ADL") at the
Gramercy, Louisiana refinery. Net expenditures for Kaiser-sponsored
research and development activities were $18.5 million in 1993, $13.5
million in 1992, and $11.4 million in 1991. Kaiser's research staff
totaled 160 at December 31, 1993. Kaiser estimates that research and
development net expenditures will be in the range of approximately $17--
$19 million in 1994. Kaiser actively engages in efforts to license its
technology and sell technical and managerial assistance. CFT provided
technology and technical assistance to Samyang Metal Co. Ltd. in building
an aluminum rolling mill in Yongju, Korea. CFT also is engaged in
cooperative research and development projects with Furukawa Electric Co.,
Ltd., Pechiney Rhenalu and Kawasaki Steel Corporation of Japan, with
respect to the ground transportation market. DTC-developed technology
has been installed in aluminum smelters located in the C.I.S., West
Virginia, Ohio, Missouri, Kentucky, Sweden, Germany, India, Australia,
New Zealand, Ghana and the United Kingdom. Kaiser's alumina refinery
technology is in use in alumina refineries in the Americas, Australia,
India and Europe. Kaiser's technology sales and revenue from technical
assistance to third parties were $12.8 million in 1993, $14.1 million in
1992 and $10.9 million in 1991.
Employees
During 1993, Kaiser employed an average of approximately 10,220
persons, compared with an average of approximately 10,130 employees in
1992, and approximately 9,970 employees in 1991. As of December 31,
1993, Kaiser's workforce was approximately 10,030, including a domestic
workforce of approximately 5,930, of whom approximately 4,150 were paid
at an hourly rate. Most hourly paid domestic employees are covered by
collective bargaining agreements with various labor unions.
Approximately 73% of such employees are covered by a master agreement
(the "Labor Contract") with the USWA which expires on
October 31, 1994. The Labor Contract covers Kaiser's plants in Spokane
(Trentwood); Mead and Tacoma, Washington; Gramercy, Louisiana; and
Newark, Ohio.
The Labor Contract provides for floor level wages at all
covered plants. In addition, for workers covered by the Labor Contract
at the Mead and Newark plants, for any quarterly period when the average
Midwest U.S. transaction price of primary aluminum is $.54 per pound or
above, a bonus payment is made. The amount of the quarterly bonus payment
changes incrementally with each full cent change in the price of primary
aluminum between $.54 per pound and $.61 per pound, remains constant when
the price is $.61 or more per pound but is below $.74 per pound, changes
incrementally again with each full cent change in the price between $.74
per pound and $.81 per pound, and remains at the ceiling when the price
is $.81 per pound or more. Workers covered by the Labor Contract at the
Trentwood, Tacoma and Gramercy plants may receive quarterly bonus
payments based on various indices of productivity, efficiency and other
aspects of specific plant performance, as well as, in certain cases, the
price of alumina or primary aluminum. The particular quarterly bonus
variable compensation formula currently applicable at each plant will
remain applicable for the remainder of the contract term.
Pursuant to the Labor Contract, base wage rates were raised
$.50 per hour effective November 1, 1993. Each of the employees covered
by the Labor Contract has received $2,000 in lump-sum signing and special
bonuses. In addition, in the first quarter of 1991, Kaiser acquired up
to $4,000 of preference stock held in the stock bonus plan for the
benefit of approximately 80% of the employees covered by the Labor
Contract, and in February 1994 acquired an additional $2,000 of such
preference stock held in the stock bonus plan for the benefit of
substantially the same employees. In the first quarter of 1991, Kaiser
also acquired up to $4,000 of preference stock which had been held for
the benefit of each of certain salaried employees, and in February 1994
acquired an additional $2,000 of such preference stock held in the stock
bonus plan for the benefit of substantially the same employees. The
February 1994 acquisitions of preference stock aggregated $5.4 million.
Kaiser considers its employee relations to be satisfactory.
Environmental Matters
Kaiser and KACC are subject to a wide variety of international,
state and local environmental laws and regulations (the "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 (the "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 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 and Reauthorization Act
of 1986 ("CERCLA"). Kaiser, along with several 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 the ultimate extent of
Kaiser's liability for pending or potential fines, penalties, remedial
costs, claims and litigation relating to environmental and health and
safety matters cannot be determined at this time and, in light of
evolving case law relating to insurance coverage for environmental
claims, the Company is unable to determine definitively the extent of
such coverage, the Company believes that the resolution of these matters
(even without giving effect to potential insurance recovery) should not
have a material adverse effect on Kaiser's consolidated financial
position or results of operations.
Environmental capital spending was $12.6 million in 1993, $13.1
million in 1992 and $11.2 million in 1991. Annual operating costs for
pollution control, not including corporate overhead or depreciation, were
approximately $22.4 million in 1993, $21.6 million in 1992, and $17.8
million in 1991. Legislative, regulatory and economic uncertainties make
it difficult to project future spending for these purposes; however,
Kaiser currently anticipates that in the 1994-1995 period, environmental
capital spending will be within the range of approximately $7.0--$20.0
million per year, and operating costs for pollution control will be
within the range of $20.0--$22.0 million per year. These expenditures
will be made to assure compliance with applicable Environmental Laws and
are expected to include, among other things, additional "red mud"
disposal facilities and improved levees at the Gramercy, Louisiana
refinery (which are being financed by the industrial revenue bonds), bath
crushing improvements, baking furnace modernization, and improved
calcining controls at the Mead, Washington facility, new and continuing
environmental projects at the Trentwood, Washington facility, and
environmental projects required under the Clean Air Act Amendments of
1990. In addition, $7.2 million in cash expenditures in 1993, $9.6
million in 1992 and $14.0 million in 1991 were charged to previously
established reserves relating to environmental cost. Approximately $7.0
million is expected to be charged to such reserves in 1994.
See also Note 10 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 REFINANCING
On March 23, 1993 (the "Closing Date"), Pacific Lumber
transferred (the "Transfer") approximately 179,000 acres of timberlands
(the "Subject Timberlands"), its geographical information system and
certain other assets to its newly-formed wholly owned subsidiary, Scotia
Pacific Holding Company ("SPHC"), in exchange for (i) the assumption by
SPHC of $323.4 million of Pacific Lumber's public indebtedness consisting
of all of Pacific Lumber's 12% Series A Senior Notes due July 1, 1996
(the "Series A Notes") and a portion of Pacific Lumber's 12.2% Series B
Senior Notes due July 1, 1996 (the "Series B Notes") and (ii) all of
SPHC's outstanding common stock. SPHC was organized as a special purpose
Delaware corporation to facilitate the Transfer and the offering of the
Timber Notes described below. The Subject
Timberlands consist substantially of residual old growth and young growth
redwood and Douglas-fir timber. On the Closing Date, Pacific Lumber and
SPHC entered into a Master Purchase Agreement, a Services Agreement, an
Additional Services Agreement and certain other agreements providing for
a variety of ongoing relationships. See "--Pacific Lumber Operations--
Relationships among Pacific Lumber, SPHC and Britt Lumber." On the
Closing Date, Pacific Lumber also transferred to its newly-formed wholly
owned subsidiary, Salmon Creek Corporation ("Salmon Creek"), in exchange
for all of Salmon Creek's common stock, approximately 3,000 contiguous
acres of its virgin old growth redwood timber, together with
approximately 3,000 additional acres of adjacent timberlands owned by
Pacific Lumber which could not be readily segregated from such virgin old
growth redwood timberlands (collectively, the "Salmon Creek Property").
Pacific Lumber retained the exclusive right to harvest (the
"Pacific Lumber Harvest Rights") approximately 8,000 non-contiguous acres
of the Subject Timberlands consisting substantially of virgin old growth
redwood and virgin old growth Douglas-fir timber located on numerous
small parcels throughout the Subject Timberlands. In addition, Pacific
Lumber retained its lumber milling, manufacturing, cogeneration and
related facilities, as well as approximately 11,000 acres of real
property located in Humboldt County, California, which do not constitute
part of the Subject Timberlands (collectively, the "Pacific Lumber Real
Property"). The Pacific Lumber Real Property consists of the town of
Scotia, the land on which Pacific Lumber's sawmills, manufacturing
facilities and related facilities are located and areas adjacent thereto,
certain potential residential and commercial development sites and other
areas, including timberlands owned by Pacific Lumber which cannot be
readily segregated from the foregoing properties. Pacific Lumber is
milling logs and producing and marketing lumber products from timber
located on the timberlands of SPHC, Pacific Lumber and Salmon Creek in
substantially the same manner as conducted prior to the Transfer.
Pacific Lumber is, pursuant to the Master Purchase Agreement, harvesting
and purchasing 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" below.
On the Closing Date, Pacific Lumber consummated its offering of
$235 million aggregate principal amount of 10 1/2% Senior Notes due 2003
(the "Pacific Lumber Senior Notes") and SPHC consummated its offering of
$385 million aggregate principal amount of 7.95% Timber Collateralized
Notes due 2015 (the "Timber Notes"). The net proceeds of such offerings,
together with cash and marketable securities, were used to redeem all of
Pacific Lumber's outstanding public indebtedness (including the amounts
assumed by SPHC), to make required deposits into certain accounts for the
benefit of the holders of the Timber Notes, to repay Pacific Lumber's
cogeneration loan and to pay a $25.0 million dividend to MAXXAM
Properties Inc., a subsidiary of the Company ("MPI"). Substantially all
of SPHC's assets, including the Subject Timberlands, were pledged as
security for the Timber Notes.
PACIFIC LUMBER OPERATIONS
Timberlands
Pacific Lumber owns and manages approximately 187,000 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.
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 1992-93 planting season (December through March), Pacific Lumber
planted approximately 488,000 redwood and Douglas-fir seedlings at a cost
of approximately $215,500.
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 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.
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 249 million
board feet, with approximately 228, 264 and 256 million board feet
produced in 1993, 1992 and 1991, 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 dries the majority of its upper grade lumber
before it is sold. Upper grades of redwood lumber are generally
air-dried for six to eighteen months and then kiln-dried for seven to
twenty-four days to produce a dimensionally stable and high quality
product which generally commands higher prices than "green" lumber (which
is lumber sold before it has been dried). Upper grade Douglas-fir lumber
is generally kiln-dried immediately after it is cut. 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 1993, the sale of surplus power to Pacific Gas and Electric
Company accounted for approximately 2% of Pacific Lumber's total
revenues.
In April 1992, an earthquake and a series of aftershocks
occurred in northern California which produced a significant amount of
damage in and around the area where Pacific Lumber's forest products
operations are located. Standing timber on Pacific Lumber's timberlands
suffered virtually no damage; however, among other damage, a large number
of kilns used to dry upper grade redwood lumber and two sawmills were
damaged, including one sawmill which was not operational for a period of
approximately six weeks. Pacific Lumber maintains insurance coverage
with respect to damage to its property and the disruption of its business
from earthquakes. Consistent with its past practices and the owners of
most other timber tracts in the United States, Pacific Lumber does not
maintain earthquake or fire insurance in respect of standing timber.
Products
Lumber. Pacific Lumber primarily produces and markets lumber.
In 1993, Pacific Lumber sold approximately 240 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 81% of Pacific Lumber's total lumber revenues
and 67% of Pacific Lumber's total revenues in 1993. 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. Typical applications include exterior siding, trim and fascia
for both residential and commercial construction, outdoor furniture,
decks, planters, retaining walls and other
specialty applications. Redwood also has a variety of industrial
applications because of its chemical resistance and because it does not
impart any taste or odor to liquids or solids.
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 1993, upper
grade redwood lumber products accounted for approximately 25% of Pacific
Lumber's total lumber production volume (on a net board foot basis), 49%
of its total lumber revenues and 40% 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. Such
lumber is commonly used for construction purposes, including outdoor
structures such as decks, hot tubs and fencing. In 1993, common grade
redwood lumber accounted for approximately 48% of Pacific Lumber's total
lumber production volume (on a net board foot basis), 32% of its total
lumber revenues and 26% 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 1993, upper grade Douglas-fir lumber accounted for
approximately 5% of Pacific Lumber's total lumber production volume (on a
net board foot basis), 8% of its total lumber revenues and 6% 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 1993, common grade Douglas-fir
lumber accounted for approximately 22% of Pacific Lumber's total lumber
production volume, 11% of its total lumber revenues and 9% 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 1993, log sales accounted for approximately 10% 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 1993, hardwood
chips accounted for approximately 3% of Pacific Lumber's total revenues.
Pacific Lumber also produces softwood chips from the wood
residue and waste from its milling and finishing operations. These chips
are sold to third parties for the production of wood pulp and paper
products. In 1993, softwood chips accounted for approximately 3% of
Pacific Lumber's total revenues.
Backlog and Seasonality
Pacific Lumber's backlog of sales orders at December 31, 1993
and 1992 was approximately $16.0 million and $15.4 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 60% of these sales in 1993. Common grades
of Douglas-fir lumber are sold primarily in California. In 1993, no
single customer accounted for more than 6% of Pacific Lumber's total
revenues. Exports of lumber accounted for approximately 4% of Pacific
Lumber's total lumber revenues in 1993. Pacific Lumber markets its
products through its own sales staff which focuses primarily on domestic
sales.
Pacific Lumber actively follows trends in the housing,
construction and remodeling markets in order to maintain an appropriate
level of inventory and assortment of product. Due to its high quality
products, large inventory, competitive prices and long history, Pacific
Lumber believes that it has a strong degree of customer loyalty.
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, 1994, Pacific Lumber had approximately 1,200
employees.
Relationships among Pacific Lumber, SPHC and Britt Lumber
On the Closing Date, 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 operational, management and
related services with respect to the Subject Timberlands containing
timber of SPHC ("SPHC Timber") not performed by SPHC's own employees.
Such services include the furnishing of all equipment, personnel and
expertise not within the SPHC's possession and reasonably necessary for
the operation and maintenance of the Subject Timberlands containing the
SPHC Timber. In particular, Pacific Lumber is required to regenerate
SPHC Timber, prevent and control loss of the SPHC Timber by fires,
maintain a system of roads throughout the Subject Timberlands, take
measures to control the spread of disease and insect infestation
affecting the SPHC Timber and comply with environmental laws and
regulations, including measures with respect to waterways, habitat,
hatcheries and endangered species. Pacific Lumber also is required (to
the extent necessary) to assist SPHC personnel in updating the GIS and to
prepare and file, on SPHC's behalf, all pleadings and motions and
otherwise diligently pursue appeals of any denial of any THP and related
matters. As compensation for these and the other services to be provided
by Pacific Lumber, SPHC pays a fee which is adjusted on January 1 of each
year based on a specified government index relating to wood products.
The fee was $100,000 per month in 1993 and is expected to be
approximately $114,000 per month in 1994. Pursuant to the Additional
Services Agreement, SPHC provides Pacific Lumber with a variety of
services, including (a) assisting Pacific Lumber to operate, maintain and
harvest its own timber properties, (b) updating and providing access to
the GIS with respect to information concerning Pacific Lumber's own
timber properties, and (c) assisting Pacific Lumber with its statutory
and regulatory compliance. Pacific Lumber pays SPHC a fee for such
services equal to the actual cost of providing such services, as
determined in accordance with generally accepted accounting principles.
Pacific Lumber and SPHC also entered into the Master Purchase
Agreement on the Closing Date. 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 the SBE Price (as defined
below). The Master Purchase Agreement provides that if the purchase
price equals or exceeds (i) the price for such species and category
thereof set forth on the structuring schedule applicable to the Timber
Notes, and (ii) the SBE Price, then such price shall be deemed to be the
fair market value of such logs. The Master Purchase Agreement defines
the "SBE Price," for any species and category of timber, as the stumpage
price for such species and category as set forth in the most recent
"Harvest Value Schedule" published by the California State Board of
Equalization applicable to the timber sold during the period covered by
such Harvest Value Schedule. Such Harvest Value Schedules are published
for purposes of computing yield taxes and generally are established every
six months. 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 and, thus, the purchase price thereof is based upon
"stumpage prices." 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.
In connection with the Transfer, 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, on the
Closing Date, 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 Subject Timberlands.
On the Closing Date, Pacific Lumber 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" to 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 "--Relationships among Pacific Lumber, SPHC, and
Britt Lumber" for a description of Britt's log purchases from Pacific
Lumber.
Marketing
In 1993, Britt sold approximately 73 million board feet of
lumber products to approximately 90 different customers, compared to
1992 sales of approximately 68 million board feet of lumber products to
approximately 100 customers. In both years, over one-half of its sales
were in northern California. The remainder of its 1993 and 1992 sales
were in southern California, Arizona, Colorado, Hawaii and Nevada. The
largest and top five of such customers accounted for approximately 33%
and 46%, respectively, of such 1993 sales and 33% and 80%, respectively,
of 1992 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
1/4 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, 1994, Britt employed approximately 100 people.
Competition
Management estimates that Britt accounted for approximately 24%
of the redwood fence market in 1993 in competition with the northern
California mills of Louisiana Pacific and Georgia Pacific.
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. 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.
Additional BOF regulations (i.e., late succession forest stand
rules and sensitive watershed rules) went into effect March 1, 1994.
These new regulations require, among other things, the inclusion of more
information in THPs (concerning, among other things, timber generation
systems, the presence or absence of fish, wildlife and plant species, and
potentially impacted watersheds) and modification of certain timber
harvesting practices to comply with the new regulations. In early March
1994, the BOF also approved silviculture with sustained yield rules. The
Office of Administrative Law (the "OAL") is expected to (i) approve these
proposed regulations, (ii) request additional review, information or
action and resubmittal to the OAL, or (iii) reject the proposed
regulations. These proposed regulations are scheduled to become
effective on May 1, 1994, and if approved, will require additional
information to be included in THPs (concerning, among other things,
compliance with long-term sustained yield objectives) and modifications
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).
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
State of California also has adopted regulations designed to protect the
northern spotted owl, although the northern spotted owl has not been
listed as threatened or endangered under the CESA. The owl's range
includes all of Pacific Lumber's timberlands. The ESA and its
implementing 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. The USFWS has given its
full concurrence to a northern spotted owl management plan (the "Owl
Plan"), a comprehensive wildlife management plan submitted by Pacific
Lumber with respect to the northern spotted owl. Pacific Lumber
incorporates this plan into each THP filed with the CDF and is no longer
required to receive individual approval of its northern spotted owl
conservation practices in connection with each THP it submits. The Owl
Plan enables Pacific Lumber 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.
On March 12, 1992, the marbled murrelet was approved for
listing as endangered under the CESA. Pacific Lumber has incorporated,
and will continue to incorporate, 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 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 and approved.
In October 1993, the USFWS received a petition proposing
listing the coho salmon (which is found on Pacific Lumber's property) as
threatened or endangered.
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. A variety of bills
are currently pending 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
and administration of timber harvesting practices. For example, the U.S.
Congressman for the congressional district in which Pacific Lumber is
located has introduced a bill which would, among other things,
incorporate within the boundaries of an existing national
forest approximately 42,000 acres of Pacific Lumber's timberlands and
would designate approximately 12,000 acres of Pacific Lumber's
timberlands to be studied for possible inclusion within such national
forest. Corresponding legislation has been introduced in the California
legislature. These 54,000 acres constitute approximately 30% of Pacific
Lumber's timberlands. Since this and the other bills are subject to
amendment, it is premature to assess the ultimate content of these bills,
the likelihood of any of the bills passing, or the impact of 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. 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 1993 and the first two months of
1994, an aggregate of $12.5 million of the loans were sold or paid off,
approximately $20.9 million of real property securing loans was acquired
in lieu of foreclosure and eighteen properties were sold. The largest of
these sales was completed in December 1993 and resulted in the sale of
sixteen properties for $113.6 million. As of March 1, 1994, the Company
had six loans and seventeen properties remaining. Certain 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 2,160 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 1993, Palmas sold
approximately twenty-five condominium units, one estate lot and
thirty-one time-shares 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 March 1, 1994, Fountain Hills had
approximately 5,000 acres of undeveloped land, 90 commercial tracts and
65 developed residential lots available for sale. The population of
Fountain Hills is approximately 11,000. 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 expects to continue
limited construction and direct sale of residential units. In 1993,
approximately 150 lots and 20 acres were sold.
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 similar
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. Palmas'
resort and time-sharing business competes with similar businesses in the
Caribbean, Florida and other locations. Palmas' resort operations 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
General and Financing
On July 8, 1993, subsidiaries of the Company acquired various
interests in a Class 1 thoroughbred and quarter horse racing facility
(the "Race Park") currently under construction just northwest of Houston.
Houston is the fourth largest city in the United States and the largest
city without pari-mutuel horse racing. Sam Houston Race Park, Ltd. (the
"Partnership") owns the land, facilities and the racing license with
respect to the Race Park. On July 8, 1993, the Partnership obtained the
funds required to finance the construction and initial start-up costs of
the Race Park through (i) the sale by the Partnership and its wholly
owned subsidiary, SHRP Capital Corp., of $75,000,000 principal amount of
11 3/4% Senior Secured Notes due 1999 (ii) the sale by the sole general
partner of the Partnership (the "SHRP General Partner") of warrants to
acquire shares of Class A Common Stock, and (iii) the sale and issuance
of limited partnership interests by the Partnership (collectively, the
"Offering"). In connection with the Offering, subsidiaries of the
Company acquired, for a total investment of $9.1 million, (i) a 28.7%
equity interest in the Partnership through the purchase of existing
limited partnership interests (thereby becoming the largest limited
partner in the Partnership), (ii) all of the outstanding Class B Common
Stock of SHRP General Partner (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 "Manager"). The Race Park
is expected to be substantially completed and open for live racing by
April 29, 1994.
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 the allocation of each wagering pool among the state of
Texas, purses, special equine programs, the racetrack and betting
participants and empowers the Racing Commission to license and regulate
substantially all aspects of horse racing in the state.
Only four Class 1 racetracks may be licensed and operated in
Texas under the Racing Act. While an unlimited number of Class 2, 3 and
4 racetracks may be licensed, the Company believes Class 1 racetracks
will be the "flagship" Texas racetracks, having the largest facilities
and the highest caliber horses and offering the greatest number of live
race and simulcasting days (discussed below). The Racing Commission, in
settlement of a lawsuit, has also granted an existing Class 2 racetrack
located to the west of Fort Worth ("Trinity Meadows") an upgrade to a
Class 1 license, subject to the fulfillment of certain conditions. The
Racing Commission has licensed two additional prospective Class 1 horse
racetracks, one in Dallas and the other in San Antonio. The Company does
not expect the Race Park to compete with the other Class 1 tracks for
patrons.
The Company expects the Race Park to offer pari-mutuel wagering
on live thoroughbred or quarter horse racing or simulcast racing
generally six 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 Texas, the broadcast may only be sent to
licensed racetracks, as the Racing Act does not provide for off-track
betting. Class 1 and Class 2 racetracks in Texas
must take simulcast signals from Texas Class 1 tracks in preference to
signals from other tracks when such signals are made available to them.
The Race Park may offer simulcast wagering only on races simulcast from
other Class 1 Texas racetracks on those days when the other Class 1
tracks make their signals available to the Race Park. On days that
signals are not made available from other Texas Class 1 racetracks, the
Race Park may simulcast out-of-state horse races with the approval of the
Racing Commission. The Partnership intends to enter into revenue-sharing
arrangements both with racetracks that will send simulcast signals to the
Race Park and with racetracks that will receive simulcast signals of
races held at the Race Park.
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
arrangements. The number and scheduling of race days at the Racing
Facility will depend on the scheduling of live race days at other Class 1
horse racing facilities. Under the Racing Act, Class 1 racetracks
generally may not have overlapping live race schedules for the same breed
of horse with other Class 1 racetracks unless the tracks with the
overlapping schedules each consent. In its settlement with the Racing
Commission, Trinity Meadows agreed that it would not participate in a
Texas racing circuit and that its race dates would not be exclusive. If
the other three Class 1 racetracks in Texas were open and operating on a
six-day live race week and the live race schedule were equally divided
among the three tracks to avoid overlapping race dates, each track would
generally be allocated 102 live race days for each breed of horse.
The Racing Commission has allocated to the Race Park 45
thoroughbred racing days commencing April 29, 1994 and ending on June 19,
1994 and an additional 66 thoroughbred racing days starting again October
11 and continuing through the end of the year. The Racing Commission has
also allocated to the Race Park 69 quarter horse racing days commencing
July 1, 1994 and ending on September 18, 1994. When the Dallas and San
Antonio Class 1 racetracks are constructed and operational, the Company
believes that it is likely that a Texas horse racing circuit will
develop. Under such a circuit, the Class 1 racetracks would coordinate
their activities such that, in general, at any one time and for several
months at a time, there would be thoroughbred racing at one track,
quarter horse racing at another track and the third track would have
wagering on races simulcast from both of the other Class 1 tracks. No
assurance can be given, however, that a Texas racing circuit will
develop.
In addition to revenues from wagering and simulcasting, the
Partnership will derive revenues from admission fees, food services, club
memberships, luxury suites, advertising sales and other sources.
Race Park Facilities
The Race Park is located on approximately 240 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, which will have a one-mile dirt
track and a one and one-eighth mile turf course, has been designed for an
average patron capacity of approximately 18,000, with additional capacity
for approximately 12,000 patrons on the infield. The Race Park is
bordered by the Sam Houston Parkway on the north and is accessible by
freeway and expects that access to the Race Park by nearby surface
streets will improve within the near future. The Partnership has
delegated to the Manager, pursuant to a management agreement, the right,
power and authority to manage, conduct and make all decisions relating to
the business and affairs of the Partnership insofar as they relate to the
Race Park, except that The Partnership has retained pre-approval rights
over certain major decisions by the Manager.
Marketing and Competition
The Race Park intends to focus its marketing on the greater
Houston metropolitan area, including encouraging family attendance at the
facility. The Race Park will compete with other forms of
entertainment, including 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 be competing with other forms of
gambling in Texas, including riverboat gambling and casino gambling on
Indian reservations or otherwise. In this regard, the Alabama and
Coushatta Tribe, whose reservation is approximately 95 miles from the
Race Park, has applied for a license to construct a casino and/or conduct
gambling operations. In addition, two bills which would have authorized
riverboat gambling were introduced in the last session of the Texas
legislature, although neither passed.
Employees
As of March 1, 1994, the Partnership had approximately 55
employees. The Company expects that the Race Park will employ
approximately 75 year-round employees and an additional 600 employees
during live racing seasons.
EMPLOYEES
At March 1, 1994, the Company and its subsidiaries employed
approximately 2,320 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 $32 million.
Other possible remedies described in the ROD would have estimated costs
of approximately $53 million and $222 million, respectively. Kaiser
understands that the EPA is also investigating contamination of
groundwater at the Sites. 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 an Agreement in Principle with certain of the respondents to
participate jointly in responding to the Administrative Orders, to share
costs incurred on an interim basis, and to seek to reach a final
allocation of costs through agreement or to allow such final allocation
and determination of liability to be made by the United States District
Court. A definitive PRP Participation Agreement is currently awaiting
execution by the group. 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
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. KACC, along
with other notified parties, plans to meet with representatives of the
EPA to discuss whether an agreement to perform this remediation is
possible.
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. Although the EPA and KACC have made substantial
progress in negotiating the terms of the consent decree, key issues
remain to be resolved. Anticipated elements of any settlement would
include a commitment by KACC to improve the emission control equipment at
the Trentwood facility and a civil penalty assessment against KACC, in an
amount to be determined.
At this time, Kaiser cannot predict the likelihood that the EPA
and KACC will reach an agreement upon the terms of a consent decree. In
the event that the negotiations are not successful the matter likely
would 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. 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.
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. Through negotiations with
the EPA and other PRPs, KACC has reached an agreement with such PRPs
under which KACC will fund $146,700 of the cost of the remedial action
(unless remedial costs exceed $19 million in which event the settlement
agreement will be re-opened). The implementation of the foregoing
agreement is subject to continuing discussions among the EPA, the other
PRPs and KACC.
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. The number of such lawsuits instituted against KACC increased
substantially in 1993 and management believes the number of such lawsuits
will continue to increase at a greater annualized rate than in prior
years. For additional information, see Note 10 to the Consolidated
Financial Statements.
The Company currently believes that there is no more than a
remote possibility (under generally accepted accounting principles) that
KACC's ultimate asbestos-related costs net of related insurance
recoveries will exceed those accrued as of December 31, 1993 and,
accordingly, that the resolution of such uncertainties and the incurrence
of such net costs should not have a material adverse effect on Kaiser's
consolidated financial position or results of operations.
OTHER KAISER LITIGATION
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.
PACIFIC LUMBER MERGER LITIGATION
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").
The Humboldt County Lawsuits which remain open are 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 allege, 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 are alleged to have aided and abetted these violations and committed
other wrongs. The Thompson State, Omicini and Fries State suits seek
compensatory damages in excess of $1 billion, exemplary damages in excess
of $750 million, rescission and other relief. The Russ suit does not
specify the amount of damages sought. There has been no activity in the
Fries State case since 1987 nor in the Omicini case since 1986. The
Thompson State and Russ actions are stayed pending the outcome of the In
re Ivan F. Boesky Multidistrict Securities Litigation described below.
In 1988, the plaintiffs in the Fries State action filed another
action entitled Fries, et al. v. Hurwitz, et al. (No. 88-3493 RMT), in
United States District Court, Central District of California ("Fries
Federal") against the Company, Pacific Lumber, MGI and others. Fries
Federal repeats many of the allegations and seeks damages and relief
similar to that contained in the Humboldt County Lawsuits, and, among
other things, asserts that the defendants violated RICO and the
Hart-Scott-Rodino Antitrust Improvements Act, and further alleges that,
as a result of alleged arrangements between Ivan F. Boesky and others,
MGI beneficially owned, for purposes of Pacific Lumber's bylaws, more
than 5% of Pacific Lumber's outstanding shares so that the Merger
required the approval of 80% of the outstanding shares rather than a
majority. In 1988, plaintiffs in the Thompson State action and others
filed a complaint in the United States District Court, Central District
of California, entitled Thompson, et al. v. MAXXAM Group Inc., et al.
(No. 88-06274) ("Thompson Federal"). The defendants in the Thompson
Federal action include Pacific Lumber, the Company, MGI and others. This
action, as amended, repeats the allegations, asserts claims and seeks
damages and relief similar to that contained in the Fries Federal and
Fries State actions.
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"), has been consolidated with the
Boesky action. The American Red Cross action contains allegations and
seeks damages and relief similar to that contained in the Russ, Thompson
Federal and Fries Federal actions. In September 1990, the Court in the
Boesky action certified a class of plaintiffs comprised of persons who
sold their shares in Pacific Lumber on or after September 27, 1985.
Various plaintiffs in the Boesky action have opted out of the certified
class of plaintiffs and are prosecuting their claims individually within
the Boesky proceeding. The Boesky action has been set for trial
commencing April 11, 1994.
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 28, 1993, a bill amending ERISA, was passed by
the U.S. Senate which appears to be intended, in part, to overturn the
District Court's dismissal of the Miller action and to make available
certain remedies. This bill
has not been voted upon by the House of Representatives. It is
impossible to say if the bill will be enacted or if enacted its ultimate
content.
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.
Management is of the opinion that the outcome of the foregoing
litigation is unlikely to have a material adverse effect on the Company's
consolidated financial position. Management is unable to express an
opinion as to whether the outcome of such litigation is unlikely to have
a material adverse effect on the Company's results of operations in
respect of any fiscal year.
In April 1991, the California Commissioner of Insurance (the
"Commissioner") filed for conservatorship of Executive Life in Los
Angeles County Superior Court in proceedings entitled Insurance
Commissioner of the State of California v. Executive Life Insurance Co.
and Does 1-1000 (Case No. BS006912) ("Executive Life Conservatorship").
In September 1993, the final rehabilitation plan for Executive Life (the
"Plan") was closed. The Commissioner expects that for nearly all
policyholders who chose to remain with Aurora National Life Assurance
Corporation, the new owner and successor of Executive Life ("Aurora"),
such persons will receive full payments. Policyholders who chose to
"opt-out" of the Plan (i.e., chose to terminate their policy and cash in
at a discounted rate), will be paid in accordance with their choice to
opt-out.
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 entered into between MCOP and
Federated in 1987, 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"). See Note 10 to the
Consolidated Financial Statements for a description of the exchange to
which this action and the actions referenced below relate. 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 were filed in Delaware Chancery Court challenging
the now-completed Mirada transactions action has been: 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.
OTHER LITIGATION MATTERS
The Company and certain of its subsidiaries are also involved
in other claims and litigation, both as plaintiffs and defendants, in the
ordinary course of business. Management is of the opinion that the
outcome of such other litigation will not have a material adverse effect
upon the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 1993 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.
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
PAGE
----
1. FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):
The consolidated financial statements and the Report
of Independent Public Accountants are included on
pages 36 to 65 of the Annual Report which are included
as part of Exhibit 13.1 hereto and incorporated herein
by reference.
2. FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants on Financial
Statement Schedules 37
Schedule II - Amounts receivable from related parties
and underwriters, promoters and employees
other than related parties for the years
ended December 31, 1993, 1992 and 1991 38
Schedule III - Condensed financial information of
Registrant at December 31, 1993 and 1992
and for the years ended December 31, 1993,
1992 and 1991 40
Schedule V - Property, plant and equipment for the
years ended December 31, 1993, 1992 and
1991 (consolidated) 45
Schedule VI - Accumulated depreciation, depletion and
amortization of property, plant and equip-
ment for the years ended December 31, 1993,
1992 and 1991 (consolidated) 46
Schedule X - Supplementary consolidated statement of
operations information for the years ended
December 31, 1993, 1992 and 1991 47
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 49), which index is incorporated
herein by reference.
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 1993 Annual Report to Stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 24,
1994. Our audits were made for the purpose of forming an opinion on
those statements taken as a whole. The schedules listed in the index on
page 36 are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly state 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 & CO.
Houston, Texas
February 24, 1994
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Balance at end
Deductions of period
---------------------- ---------------------
Balance at
beginning Amounts Amounts Not
Name of debtor of period Additions collected forgiven Current Current
----------------------------- ---------- ---------- ---------- -------- -------- ---------
(In thousands of dollars)
1993:
Diane M. Dudley (a) . . . . . . $ 100 $ - $ - $ - $ - $ 100
Jacques C. Lazard (a) . . . . . 100 - (39) - - 61
James D. Noteware (b) . . . . . - 100 (100) - - -
Anthony R. Pierno (c) . . . . . 320 - - (15) 200 105
Paul N. Schwartz (d) . . . . . . 310 - (75) (20) 200 15
Byron Wade (e) . . . . . . . . . - 100 (80) - - 20
1992:
Diane M. Dudley (a) . . . . . . $ 100 $ - $ - $ - $ - $ 100
Jacques C. Lazard (a) . . . . . 100 - - - - 100
Anthony R. Pierno (c) . . . . . 335 - - (15) - 320
Paul N. Schwartz (d) . . . . . . 330 - - (20) - 310
1991:
Diane M. Dudley (a) . . . . . . $ 100 $ - $ - $ - $ - $ 100
Jacques C. Lazard (a) . . . . . 100 - - - - 100
Anthony R. Pierno (c) . . . . . 350 - - (15) - 335
Paul N. Schwartz (d) . . . . . . 350 - - (20) - 330
John Seidl (f) . . . . . . . . . 1,114 21 (1,135) - - -
Federated Development Company (g) 31,076 3,186
<FN>
--------------------
(a) Amounts outstanding from these individuals bore interest at an annual rate of 6% in 1993, 1992 and 1991. The loans
are generally due on demand; each is secured by real estate owned by each individual.
(b) In July 1993, MAXXAM Inc. (the "Company") loaned Mr. Noteware $100,000 pursuant to the terms of an unsecured
promissory note which bore interest at an annual rate of 6%. The loan was repaid within approximately one month.
(c) Mr. Pierno has entered into a five-year employment agreement with the Company effective March 8, 1990. Pursuant to
the terms of the agreement, personal loans of Mr. Pierno outstanding on the date of the agreement ($150,000) are to be forgiven
at the rate of $15,000 per year beginning March 8, 1991, with any remaining balance due and payable upon termination of
employment. The agreement also provides for an additional loan of $200,000 which Mr. Pierno received in 1990. As of December
31, 1993, Mr. Pierno had total loans outstanding of $305,000, interest on which is payable monthly at an annual rate of 6%.
$105,000 of principal on the loan is payable on demand (unless forgiven as indicated above) and $200,000 is payable on
December 15, 1994 (with prepayments due upon the exercise of certain stock appreciation rights). The loans are secured by real
estate owned by Mr. Pierno.
(d) Mr. Schwartz has entered into a five-year employment agreement with the Company effective March 8, 1990. Pursuant to
the terms of the agreement, personal loans of Mr. Schwartz outstanding on the date of the agreement ($100,000) are to be
forgiven at the rate of $20,000 per year beginning March 8, 1991, with any remaining balance due and payable upon termination o
employment. The agreement also provided for additional loans to Mr. Schwartz, all of which were received by Mr. Schwartz in
1990. As of December 31, 1993, Mr. Schwartz had total loans outstanding of $215,000, interest on which is payable monthly at a
annual rate of 6%. $15,000 of principal on the loan is payable on demand (unless forgiven as indicated above) and $200,000 is
payable on December 15, 1994 (with prepayments due upon the exercise of certain stock appreciation rights). The loans are
secured by real estate owned by Mr. Schwartz.
(e) In July 1993, the Company loaned Mr. Wade $100,000 pursuant to the terms of an unsecured promissory note which bore
interest at an annual rate of 6%. The loan was repaid within approximately one month with a cash payment of $50,000 and a new
unsecured promissory note for $50,000, interest on which is payable monthly at an annual rate of 6%. The new note is payable
upon the earliest to occur of July 20, 1998 or Mr. Wade's termination of employment with the Company. In December 1993, Mr.
Wade repaid $30,000 of the outstanding principal balance of the note.
(f) In June 1990, Mr. Seidl entered into an agreement with the Company relating to his move to Houston. Pursuant to the
terms of such agreement, the Company loaned $1,000,000 to Mr. Seidl at an annual rate of 8.9%, payable quarterly. The agreemen
required full or partial payments upon Mr. Seidl's receipt of any payments pursuant to the Kaiser Long-Term Incentive Plan. In
accordance with this provision, the loan was paid in full in 1991. The agreement also provided for the Company to reimburse Mr
Seidl for certain expenses incurred in connection with his move, with Mr. Seidl being entitled to borrow (at the federal short-
term interest rate) the reimbursable amount until reimbursement was made. All such expenses were reimbursed in 1991. Mr. Seid
terminated his employment and resigned as a director of the Company and subsidiary companies effective December 31, 1992.
(g) The Company had loan agreements with Federated Development Company ("Federated") for loans secured by real estate
located in Rancho Mirage, California ("Mirada"). Federated is wholly owned by Mr. Hurwitz, members of his immediate family and
trusts for the benefit thereof. In July 1991, in exchange for the Mirada and other consideration, MCO Properties Inc., a wholl
owned subsidiary of the Company, assumed the outstanding principal and accrued interest on the loans.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (UNCONSOLIDATED)
December 31,
------------------------
1993 1992
------------ ---------
(In millions of dollars)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 26.7 $ 3.2
Marketable securities and other current assets . 32.3 54.0
------------ ---------
Total current assets . . . . . . . . . . . 59.0 57.2
Investment in subsidiaries . . . . . . . . . . . . . 3.6 637.0
Deferred income taxes . . . . . . . . . . . . . . . . 136.4 -
Other assets . . . . . . . . . . . . . . . . . . . . 6.0 6.6
------------ ---------
$ 205.0 $ 700.8
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities . . . . $ 9.3 $ 8.6
Deferred income taxes . . . . . . . . . . . . . 9.4 -
Long-term debt, current maturities . . . . . . . 4.1 3.9
------------ ---------
Total current liabilities . . . . . . . . . 22.8 12.5
Long-term debt, less current maturities . . . . . . . 48.0 70.7
Note payable to and advances from subsidiaries . . . 191.5 123.2
Other noncurrent liabilities . . . . . . . . . . . . 110.6 50.5
------------ ---------
Total liabilities . . . . . . . . . . . . . 372.9 256.9
------------ ---------
Stockholders' equity (deficit):
Preferred stock, $.50 par value; 12,500,000
shares authorized; Class A $.05
Non-Cumulative Participating Convertible
Preferred Stock; shares issued: 1993 -
679,084 and 1992 - 681,811 . . . . . . . . .3 .3
Common stock, $.50 par value; 28,000,000
shares authorized; shares issued:
10,063,359 . . . . . . . . . . . . . . . . 5.0 5.0
Additional capital . . . . . . . . . . . . . . . 51.2 47.9
Retained earnings (deficit) . . . . . . . . . . (180.8) 419.4
Pension liability adjustment . . . . . . . . . . (23.9) (9.0)
Treasury stock, at cost (shares held:
preferred - 845; common: 1993 - 1,364,895 and 1992 -
1,367,622) . . . . . . . . . . . . . . . . . . . . . (19.7) (19.7)
------------ ---------
Total stockholders' equity (deficit) . . . (167.9) 443.9
------------ ---------
$ 205.0 $ 700.8
============ =========
<FN>
See notes to consolidated financial statements and accompanying notes.
STATEMENT OF OPERATIONS (UNCONSOLIDATED)
Years Ended December 31,
---------------------------------------------------
1993 1992 1991
-------------- -------------- -------------
(In millions of dollars)
Investment, interest and other income . . . $ 3.0 $ 2.8 $ 4.1
Interest expense . . . . . . . . . . . . . (13.7) (15.1) (36.2)
General and administrative expenses . . . . (15.4) (8.4) (12.0)
Equity in earnings (losses) of subsidiaries (615.5) 9.3 66.2
-------------- -------------- -------------
Income (loss) before income taxes and
cumulative effect of changes in
accounting principles . . . . . . . . (641.6) (11.4) 22.1
Credit (provision) for income taxes . . . . (3.1) 4.1 35.4
-------------- -------------- -------------
Income (loss) before cumulative effect of
changes in accounting principles . . . (644.7) (7.3) 57.5
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 income (loss) . . . . . . . . . . . . . $ (600.2) $ (7.3) $ 57.5
============== ============== =============
<FN>
See notes to consolidated financial statements and accompanying notes.
STATEMENT OF CASH FLOWS (UNCONSOLIDATED)
Years Ended December 31,
---------------------------------------------------
1993 1992 1991
--------------- ------------ ---------------
(In millions of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . $ (600.2) $ (7.3) $ 57.5
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating
activities:
Equity in losses (earnings) of subsidiaries 615.5 (9.3) (66.2)
Amortization of deferred financing costs and
discounts on long-term debt . . . . . .5 .6 .6
Cumulative effect of changes in accounting
principles, net . . . . . . . . . . . (44.5) - -
Increase (decrease) in accounts payable and 7.5 (1.8) .3
other liabilities . . . . . . . . . .
Decrease (increase) in accrued and deferred
income taxes . . . . . . . . . . . . . (3.7) (6.5) (3.5)
Decrease in receivables . . . . . . . . . . .8 1.1 2.2
Other . . . . . . . . . . . . . . . . . . . 2.6 (1.4) 10.8
--------------- ------------ ---------------
Net cash provided by (used for)
operating activities . . . . . . . . . (14.1) (24.6) 1.7
--------------- ------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received from subsidiaries . . . . . . 66.1 18.1 110.9
Net sales (purchases) of marketable securities . 18.3 (30.7) -
Investments in and net advances from (to)
subsidiaries . . . . . . . . . . . . . . . . . . (22.2) 18.0 (51.5)
Capital expenditures . . . . . . . . . . . . . . (.3) (1.5) (1.6)
--------------- ------------ ---------------
Net cash provided by investing
activities . . . . . . . . . . . . . . 61.9 3.9 57.8
--------------- ------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption, repurchase of and principal payments
on long-term debt . . . . . . . . . . . . . (24.3) (3.9) (34.7)
Proceeds from issuance of common stock . . . . . - .6 2.3
--------------- ------------ ---------------
Net cash used for financing activities (24.3) (3.3) (32.4)
--------------- ------------ ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23.5 (24.0) 27.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . 3.2 27.2 .1
--------------- ------------ ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . $ 26.7 $ 3.2 $ 27.2
=============== ============ ===============
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Net assets transferred from subsidiary . . . . . $ 30.5
Dividend of the Company's notes payable and
marketable securities received from subsidiary . . . $ 14.9 $ 100.1
Gain from initial public offering of Kaiser
Aluminum Corporation common stock . . . . . . . . . . 28.5
Excess of fair value of assets acquired over
affiliate's basis . . . . . . . . . . . . . . . (24.0)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . $ 6.8 $ 11.1 $ 15.9
Income taxes paid (refunded) . . . . . . . . . . (.5) (1.9) 2.9
<FN>
See notes to consolidated financial statements and accompanying notes.
NOTES TO FINANCIAL STATEMENTS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
A. SIGNIFICANT TRANSACTIONS
On August 4, 1993, contemporaneously with the consummation of
the MAXXAM Group Inc. ("MGI," a wholly owned subsidiary of the Company)
refinancing transaction (as described below), MGI (i) transferred to the
Company 50 million common shares of Kaiser Aluminum Corporation
("Kaiser," a majority owned subsidiary of the Company) 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 Depositary Shares, acquired
from Kaiser on June 30, 1993 for $15.0, such exchange being in
satisfaction of a $15.0 promissory note evidencing a cash loan made by
the Company to MGI in January 1993 (the "MGI Loan"). 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. Contemporaneously with
these transfers, MGI 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 Kaiser s common
stock it received from MGI. Additionally, on September 28, 1993, MGI
transferred to the Company its interest in the real estate management and
development operation located at Palmas del Mar in Puerto Rico.
On October 13, 1993, Kaiser filed a registration statement with
the Securities and Exchange Commission for the sale to the public of the
2,132,950 Depositary Shares the Company exchanged for the MGI Loan, as
described above. The registration statement was declared effective by
the Securities and Exchange Commission on November 15, 1993. The Company
may consummate the sale of all or any portion of such Depositary Shares
at any time.
B. DEFERRED INCOME TAXES
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,
------------------------------
1993 1992
------------ -------------
14% Senior Subordinated Reset Notes due May 20, 2000 . . . . . . . . . $ 25.0 $ 45.0
12 1/2% Subordinated Debentures due December 15, 1999, net of discount
of $2.4 and $2.9 at December 31, 1993 and 1992,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.2 27.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 2.0
------------ -------------
52.1 74.6
Less: current maturities . . . . . . . . . . . . . . . . . . . . . . . (4.1) (3.9)
------------ -------------
$ 48.0 $ 70.7
============ =============
Maturities
Scheduled maturities of long-term debt outstanding at December
31, 1993 are as follows: years ending December 31, 1994 - $4.1; 1995 -
$4.1; 1996 - $3.6; 1997 - $3.3; 1998 - $3.3; thereafter - $36.1.
D. NOTE PAYABLE TO SUBSIDIARY
At December 31, 1993, the Company had a $181.9 unsecured note
payable to a real estate subsidiary which bears interest at 6% per annum.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (CONSOLIDATED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Balance at
beginning Additions Retirements Balance at
of year at cost and sales Other(1) end of year
------------- ------------ ------------- ---------- ------------
(In millions of dollars)
1993:
Land and improvements . . $ 139.6 $ 3.2 $ (1.3) $ 15.7 $ 157.2
Buildings . . . . . . . . 209.4 8.9 (.1) 21.9 240.1
Machinery and equipment . 1,108.5 74.6 (19.3) 100.1 1,263.9
Construction in progress . 71.1 (5.3) - (.7) 65.1
------------- ------------ ------------- ---------- ------------
$ 1,528.6 $ 81.4 $ (20.7) $ 137.0 $ 1,726.3
============= ============ ============= ========== ============
Timber and timberlands . . $ 484.8 $ .3 $ - $ (38.3) $ 446.8
============= ============ ============= ========== ============
1992:
Land and improvements . . $ 96.5 $ 17.5 $ - $ 25.6 $ 139.6
Buildings . . . . . . . . 184.0 22.1 (.5) 3.8 209.4
Machinery and equipment . 1,012.6 103.7 (6.0) (1.8) 1,108.5
Construction in progress . 87.7 (16.2) - (.4) 71.1
------------- ------------ ------------- ---------- ------------
$ 1,380.8 $ 127.1 $ (6.5) $ 27.2 $ 1,528.6
============= ============ ============= ========== ============
Timber and timberlands . . $ 484.3 $ .5 $ - $ - $ 484.8
============= ============ ============= ========== ============
1991:
Land and improvements . . $ 83.2 $ 4.0 $ (.6) $ 9.9 $ 96.5
Buildings . . . . . . . . 171.1 8.7 (1.1) 5.3 184.0
Machinery and equipment . 933.5 79.9 (7.9) 7.1 1,012.6
Construction in progress . 52.4 37.0 (.1) (1.6) 87.7
------------- ------------ ------------- ---------- ------------
$ 1,240.2 $ 129.6 $ (9.7) $ 20.7 $ 1,380.8
============= ============ ============= ========== ============
Timber and timberlands . . $ 484.0 $ .3 $ - $ - $ 484.3
============= ============ ============= ========== ============
<FN>
--------------------
(1) Amounts for 1993 are principally attributable to the restatement of assets and liabilities to their pre-tax amounts from
their net of tax amounts originally recorded in connection with the acquisition of various subsidiaries in prior years. The
restatement is due to the Company's implementation of Financial Accounting Standards No. 109, Accounting for Income Taxes, on
January 1, 1993.
Amounts for 1992 and 1991 are principally due to various
reclassifications.
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (CONSOLIDATED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Additions
Balance at charged to
beginning costs and Retirements Balance at
of year expenses and sales Other(1) end of year
------------ ---------- ------------ ----------- ------------
(In millions of dollars)
1993:
Land and improvements . . $ 11.9 $ 4.2 $ (.2) $ 8.0 $ 23.9
Buildings . . . . . . . . 56.7 8.4 (.5) 3.0 67.6
Machinery and equipment . 272.9 90.2 (6.0) 32.7 389.8
------------ ---------- ------------ ----------- ------------
$ 341.5 $ 102.8 $ (6.7) $ 43.7 $ 481.3
============ ========== ============ =========== ============
Timber and timberlands . . $ 100.9 $ 15.2 $ - $ (7.9) $ 108.2
============ ========== ============ =========== ============
1992:
Land and improvements . . $ 10.1 $ 1.9 $ - $ (.1) $ 11.9
Buildings . . . . . . . . 47.6 7.5 (.2) 1.8 56.7
Machinery and equipment . 197.6 79.0 (1.9) (1.8) 272.9
------------ ---------- ------------ ----------- ------------
$ 255.3 $ 88.4 $ (2.1) $ (.1) $ 341.5
============ ========== ============ =========== ============
Timber and timberlands . . $ 84.2 $ 16.7 $ - $ - $ 100.9
============ ========== ============ =========== ============
1991:
Land and improvements . . $ 8.1 $ 2.1 $ (.3) $ .2 $ 10.1
Buildings . . . . . . . . 40.2 6.7 (.4) 1.1 47.6
Machinery and equipment . 126.1 72.9 (3.2) 1.8 197.6
------------ ---------- ------------ ----------- ------------
$ 174.4 $ 81.7 $ (3.9) $ 3.1 $ 255.3
============ ========== ============ =========== ============
Timber and timberlands . . $ 68.3 $ 15.9 $ - $ - $ 84.2
============ ========== ============ =========== ============
<FN>
--------------------
(1) Amounts for 1993 are principally attributable to the restatement of assets and liabilities to their pre-tax amounts from
their net of tax amounts originally recorded in connection with the acquisition of various subsidiaries in prior years. The
restatement is due to the Company's implementation of Financial Accounting Standards No. 109, Accounting for Income Taxes, on
January 1, 1993.
Amounts for 1992 and 1991 are principally due to various
reclassifications.
SCHEDULE X - SUPPLEMENTARY CONSOLIDATED STATEMENT OF
OPERATIONS INFORMATION
Years Ended December 31,
--------------------------------------------
1993 1992 1991
------------ ----------- -------------
(In millions of dollars)
Maintenance and repairs . . . . . . . . . . $ 183.1 $ 159.4 $ 173.2
============ =========== =============
Taxes other than payroll and income taxes:
Production levy on bauxite . . . . . . $ 27.9 $ 31.5 $ 34.0
============ =========== =============
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.
MAXXAM INC.
Date: March 30, 1994 By: JOHN T. LA DUC
John T. La Duc
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: March 30, 1994 By: JACQUES C. LAZARD
Jacques C. Lazard
Vice President and Corporate
Controller
(Principal Accounting 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 30, 1994 By: CHARLES E. HURWITZ
Charles E. Hurwitz
Chairman of the Board, President
and
Chief Executive Officer
Date: March 30, 1994 By: ROBERT J. CRUIKSHANK
Robert J. Cruikshank
Director
Date: March 30, 1994 By: EZRA G. LEVIN
Ezra G. Levin
Director
Date: March 30, 1994 By: STANLEY D. ROSENBERG
Stanley D. Rosenberg
Director
MAXXAM INC.
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 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 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")
4.4 Indenture dated as of November 1, 1991 by and between
MGI and First Trust National Association, Trustee,
regarding MGI's 12 3/4% Notes due November 15, 1995
(incorporated herein by reference to Exhibit 4(a) 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")
4.5 Indenture 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 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 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")
4.10 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)
4.11 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")
4.12 Credit Agreement dated as of December 13, 1989 among
KACC, Kaiser, Bank of America National Trust and
Savings Association, as Agent, Mellon Bank, N.A., as
Collateral Agent, and certain financial institutions
signatory thereto (the "Kaiser 1989 Credit Agreement")
(incorporated herein by reference to Exhibit 4.3 to
Amendment No. 6 to the Registration Statement of KACC
on Form S-1, Registration No. 33-30645)
4.13 First Amendment to Kaiser 1989 Credit Agreement dated
as of April 17, 1990 (incorporated herein by reference
to Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
1990)
4.14 Second Amendment to Kaiser 1989 Credit Agreement,
dated as of September 17, 1990 (incorporated by
reference to Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1990)
4.15 Third Amendment to Kaiser 1989 Credit Agreement, dated
as of December 7, 1990 (incorporated herein by
reference to Exhibit 4.6 to Amendment No. 1 to the
Registration Statement of Kaiser on Form S-1,
Registration No. 33-37895)
4.16 Fourth Amendment to the Kaiser 1989 Credit Agreement,
dated April 19, 1991 (incorporated herein by reference
to Exhibit 4.1 of KACC's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1991, File
No. 1-3605)
4.17 Fifth Amendment to the Kaiser 1989 Credit Agreement,
dated as of March 13, 1992 (incorporated herein by
reference to Exhibit 4.8 to Kaiser's Annual Report on
Form 10-K for the year ended December 31, 1991, File
No. 1-9447)
4.18 Seventh Amendment to the Kaiser 1989 Credit Agreement,
dated November 6, 1992 (incorporated herein by
reference to Exhibit 4.10 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")
4.19 Eighth Amendment to the Kaiser 1989 Credit Agreement,
dated January 7, 1993 (incorporated herein by
reference to Exhibit 4.12 to the KACC 1993
Registration Statement)
4.20 Ninth Amendment to the Kaiser 1989 Credit Agreement,
dated as of May 19, 1993, including the form of
Intercompany Note annexed thereto (incorporated herein
by reference to Exhibit 4.10 to Amendment No. 2 to the
Registration Statement of KACC on Form S-1,
Registration No. 33-49555)
4.21 Tenth Amendment to the Kaiser 1989 Credit Agreement,
dated as of July 23, 1993 (incorporated herein by
reference to Exhibit 4.13 to Amendment No. 2 to the
Registration
Statement of KACC on Form S-3, Registration No. 50097;
the "KACC 1994 Registration Statement")
4.22 Eleventh Amendment to the Kaiser 1989 Credit
Agreement, dated as of August 27, 1993 (incorporated
herein by reference to Exhibit 4.13 to the
Registration Statement of Kaiser on Form S-3,
Registration No. 33-50581)
4.23 Twelfth Amendment to the Kaiser 1989 Credit Agreement,
dated as of December 20, 1993 (incorporated herein by
reference to Exhibit 4.15 to Amendment No. 3 to the
KACC 1994 Registration Statement)
4.24 Indenture 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 Amendment No. 2 to the Form S-2
Registration Statement of Pacific Lumber, Registration
Statement No. 33-56332; the "Pacific Lumber
Registration Statement")
4.25 Indenture 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 Amendment No. 3 to the Form S-1
Registration Statement of SPHC, Registration No. 33-
55538; the "SPHC Registration Statement")
4.26 Form of Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment 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
SPHC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993; the "SPHC 1993 Form 10-K")
4.27 Indenture dated as of July 1, 1986 between Pacific
Lumber Company and Bank of America National Trust and
Savings Association, Trustee, regarding Pacific
Lumber's 12% Series A Senior Notes due July 1, 1996
and 12.2% Series B Senior Notes due July 1, 1996
(incorporated herein by reference to Exhibit 1 to
Amendment No. 1 to Form 8-A of Pacific Lumber filed on
July 15, 1986)
4.28 Indenture dated as of July 1, 1986 between Pacific
Lumber and Manufacturers Hanover Trust Company,
Trustee, regarding Pacific Lumber's 12.5% Senior
Subordinated Debentures due July 1, 1998 (incorporated
herein by reference to Exhibit 2 to Amendment No. 1 to
Form 8-A of Pacific Lumber filed on July 15, 1986)
4.29 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")
4.30 Letter Amendment to the Pacific Lumber Revolving
Credit Agreement, dated October 5, 1993 (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)
4.31 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 the MGI 1991 Registration
Statement")
4.32 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 1991 MGI Registration
Statement)
4.33 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)
4.34 Loan Increase, Extension and Modification Agreement
among GECC, MXM Mortgage Corp. and the Company
executed 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")
4.35 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)
*4.36 Consent and Assumption Agreement, dated as of December
10, 1993, among GECC, MXM Mortgage Corp., MXM Mortgage
L.P., the Company and MGI
*4.37 Third Modification Agreement, dated as of December 30,
1993, among GECC, MXM Mortgage Corp. and MXM Mortgage
L.P.
*4.38 Release and Termination of Unconditional Guarantee of
Payment and Performance, dated as of December 30,
1993, executed by GECC
*4.39 Fourth Amendment to Loan Agreement, dated as of
December 30, 1993, among GECC, MXM Mortgage Corp. and
MXM Mortgage L.P.
4.40 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")
4.41 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)
4.42 License Negative Pledge Agreement dated July 7, 1993
(incorporated herein by reference to Exhibit 10.3 to
the SHRP Registration Statement)
4.43 Senior Subordinated Intercompany Note between KACC and
the Company (incorporated herein by reference to
Exhibit 4.13 to the KACC 1993 Registration Statement)
4.44 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)
4.45 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)
4.46 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)
4.47 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 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 Amendment No. 10.1 to
the Form S-1 Registration Statement of SHRP, Inc.,
Registration No. 33-67736)
10.8 Amended and Restated Alumina Supply Agreement, dated
as of October 11, 1989 (incorporated herein by
reference to Exhibit 10.19 to Amendment No. 3 to the
Registration Statement of KACC on Form S-1,
Registration No. 33-30645)
10.9 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)
10.10 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)
10.11 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)
10.12 Form of Master Purchase Agreement between Pacific
Lumber and SPHC (incorporated herein by reference to
Exhibit 10.1 to the SPHC 1993 Form 10-K)
10.13 Form of Services Agreement between Pacific Lumber and
SPHC (incorporated herein by reference to Exhibit 10.2
to the SPHC 1993 Form 10-K)
10.14 Form of Additional Services Agreement between Pacific
Lumber and SPHC (incorporated herein by reference to
Exhibit 10.3 to the SPHC 1993 Form 10-K)
10.15 Form of Reciprocal Rights Agreement among Pacific
Lumber, SPHC and Salmon Creek Corporation
(incorporated herein by reference to Exhibit 10.4 to
the SPHC 1993 Form 10-K)
10.16 Form of Environmental Indemnification Agreement
between Pacific Lumber and SPHC (incorporated herein
by reference to Exhibit 10.5 to the SPHC 1993 Form 10-
K)
10.17 Purchase and Services Agreement between Pacific Lumber
and Britt Lumber Co., Inc. (incorporated herein by
reference to Exhibit 10.17 to the Pacific Lumber
Registration Statement)
10.18 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)
10.19 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)
10.20 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)
10.21 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)
10.22 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)
10.23 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)
10.24 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)
10.25 Second Amended and Restated Limited Partnership
Agreement of Sam Houston Race Park, Ltd. (incorporated
herein by reference to Exhibit 3.2 to the SHRP
Registration Statement)
10.26 Warrant Agreement by and between SHRP, Inc., as
issuer, and Chemical Bank, as Trustee (incorporated
herein by reference to Exhibit 4.1 to the SHRP
Registration Statement)
10.27 Registration Rights Agreement by and among the Sam
Houston Race Park, Ltd., SHRP, Inc., SHRP Capital
Corp., and Salomon Brothers Inc., as Initial
Purchasers (incorporated herein by reference to
Exhibit 4.4 to the SHRP Registration Statement)
10.28 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)
10.29 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 __________________________________
10.30 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)
10.31 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)
10.32 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's Annual Report on Form 10-K for the year
ended December 31, 1990)
10.33 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)
10.34 MAXXAM Group Inc. 1976 Stock Option Plan, as amended
(incorporated herein by reference to Exhibit 10(a) to
MGI's Annual Report on Form 10-K for the year ended
December 31, 1984, File No. 1-8857)
10.35 MAXXAM Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit 10(jj) to
the 1991 MGI Registration Statement)
10.36 KACC's Limited Long-Term Incentive Plan dated June 2,
1989 (incorporated herein by reference to Exhibit
10.14 to KACC's Annual Report on Form 10-K for the
year ended December 31, 1989, File No. 1-3605)
10.37 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)
10.38 Amendment No. 2 to Kaisertech Limited Long Term
Incentive Plan, dated as of December 18, 1991
(incorporated herein by reference to Exhibit 10.7 to
Kaiser's Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 1-9447)
10.39 Amendment No. 3 to Kaiser Aluminum Corporation Long
Term Incentive Plan, dated as of December 31, 1991
(incorporated herein by reference to Exhibit 10.8 to
Kaiser's Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 1-9447)
10.40 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)
10.41 KACC's Middle Management Long-Term Incentive Plan
dated June 25, 1990, as amended (incorporated herein
by reference to Exhibit 10.22 to Kaiser's Amendment
No. 1 to Registration Statement on Form S-1,
Registration No. 33-37895)
10.42 Employment Agreement, dated as of October 1, 1992,
among Kaiser, KACC and A. Stephens Hutchcraft, Jr.
(incorporated herein by reference to Exhibit 10.15 to
the 1993 KACC Registration Statement)
10.43 Severance Agreement, dated July 1, 1985, between KACC
and A. Stephens Hutchcraft, Jr. (the "Hutchcraft
Severance Agreement") (incorporated herein by
reference to Exhibit (10)(f) to KACC's Annual Report
on Form 10-K for the period ended December 31, 1988,
File No. 1-3605)
10.44 Amendment, dated October 31, 1989, to the Hutchcraft
Severance Agreement (incorporated herein by reference
to Exhibit 10.24 to Amendment No. 5 of KACC's
Registration Statement on Form S-1, Registration No.
33-30645)
*10.45 Consulting Agreement, dated November 19, 1993, between
KACC and A. Stephens Hutchcraft
10.46 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)
10.47 Promissory Note dated February 1, 1989 by Anthony R.
Pierno and Beverly J. Pierno to the Company
(incorporated herein by reference to Exhibit 10.30 to
the Company's Annual Report on Form 10-K for year
ended December 31, 1988)
10.48 Promissory Note dated July 19, 1990 by Anthony R.
Pierno to the Company (incorporated
herein by reference to Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1990)
10.49 Commercial Guaranty, dated February 22, 1993, executed
by MAXXAM 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)
*10.50 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
10.51 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)
10.52 Real Estate Lien Note dated July 3, 1990 by Paul N.
Schwartz and Barbara M. Schwartz, Trustee, to the
Company and related Deed of Trust and Letter Agreement
(incorporated herein by reference to Exhibit 10.35 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1990)
10.53 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)
10.54 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's Annual
Report on Form 10-K for the year ended December 31,
1990)
10.55 Employment Agreement dated September 26, 1990 among
the Company, KACC and John T. La Duc (incorporated
herein by reference to Exhibit 10.20 to Amendment No.
1 to Kaiser's Registration Statement on Form S-1,
Registration No. 33-37895)
10.56 Employment Agreement dated as of March 8, 1990 between
the Company and Jacques C. Lazard (incorporated herein
by reference to Exhibit 10.45 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1990)
10.57 Real Estate Lien Note dated June 27, 1990 by Jacques
C. Lazard and Lorel S. Lazard to the Company and
related Deed of Trust and Letter Agreement
(incorporated herein by reference to Exhibit 10.48 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)
*10.59 Promissory Note, dated July 20, 1993 between the
Company and Byron L. Wade
10.60 Employment Agreement dated as of August 22, 1990
between the Company, KACC and Robert W. Irelan
(incorporated herein by reference to Exhibit 10.53 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1990)
10.61 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's
Annual Report on Form 10-K for the year ended December
31, 1990)
10.62 Real Estate Lien Note dated October 4, 1990 by Robert
W. Irelan and Barbara M. Irelan to KACC and related
Deed of Trust (incorporated herein by reference to
Exhibit 10.55 to the Company's Annual Report on Form
10-K for the year ended December 31, 1990)
*10.63 Employment Agreement, dated August 20, 1993 between
KACC and Robert E. Cole
*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, 1993
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, 1993, File
No. 1-3605)
*21 List of the Company's Subsidiaries
*23 Consent of Independent Public Accountants by Arthur
Andersen & Co.
<FN>
--------------------
* Included with this filing.