MAXXAM Inc. and Subsidiaries
S e l e c t e d F i n a n c i a l D a t a
The following summary of consolidated financial information for
each of the five years ended December 31, 1993, is not reported
upon herein by independent public accountants and should be read
in conjunction with the Consolidated Financial Statements and the
Notes thereto which are contained elsewhere herein.
Years Ended December 31,
----------------------------------------------
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Consolidated statement of operations:
Net sales $2,031.1 $2,202.6 $2,254.5 $2,360.7 $2,423.3
Operating income (loss) (96.1) 130.8 235.5 413.9 468.8
Income (loss) before extraordinary item
and cumulative effect of changes in
accounting principles (131.9) (7.3) 57.5 144.4 116.8
Extraordinary item, net (50.6) - - 17.5 -
Cumulative effect of changes in
accounting principles, net (417.7) - - - -
Net income (loss) (600.2) (7.3) 57.5 161.9 116.8
Per common and common equivalent share --
primary:
Income (loss) before extraordinary
item and cumulative effect of
changes in accounting
principles (13.95) (.77) 6.08 15.19 12.97
Extraordinary item, net (5.35) - - 1.84 -
Cumulative effect of changes in
accounting principles, net (44.17) - - - -
Net income (loss) (63.47) (.77) 6.08 17.03 12.97
Per common and common equivalent share --
fully diluted:
Income before extraordinary item and
cumulative effect of changes in
accounting principles 12.46
Net income 12.46
Consolidated balance sheet at end of period:
Total assets 3,572.0 3,198.8 3,215.0 3,027.5 3,183.2
Long-term debt 1,567.9 1,592.7 1,551.9 1,445.5 1,551.2
Stockholders equity (deficit) (167.9) 443.9 459.6 395.3 233.1
Stockholders equity (deficit) per
common and common equivalent share (17.91) 47.34 49.12 42.49 25.07
Cash dividends declared - - - - -
MAXXAM Inc. and Subsidiaries
Management s Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
The Company operates in three industries: aluminum, through its
majority owned subsidiary, Kaiser Aluminum Corporation
("Kaiser"), a fully integrated aluminum producer; forest
products, through MAXXAM Group Inc. ("MGI") and its wholly owned
subsidiaries; and real estate management and development,
principally through MAXXAM Property Company and various other
wholly owned subsidiaries. The Company has restated its
presentation of the results of operations for its forest products
group and other items not directly related to industry segments
as a result of the Forest Products Group Formation described in
Note 1 to the Company s Consolidated Financial Statements. The
following should be read in conjunction with the Company s
Consolidated Statement of Operations for the years ended December
31, 1993, 1992 and 1991, contained elsewhere herein.
ALUMINUM OPERATIONS
The following table presents selected operational and financial
information for the three-year period ended December 31, 1993,
with respect to Kaiser s operations. Kaiser s operating results
are sensitive to changes in prices of alumina, primary aluminum
and fabricated aluminum products, and also depend to a
significant degree upon the volume and mix of all products sold.
Kaiser, through its principal subsidiary Kaiser Aluminum &
Chemical Corporation ("KACC"), operates in two business segments:
bauxite and alumina, and aluminum processing. Aluminum
operations account for a significant portion of the Company s
revenues and operating results.
Years Ended December 31,
-------------------------------------
(IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES) 1993 1992 1991
----------- ----------- -----------
Shipments(1):
Alumina 1,997.5 2,001.3 1,945.9
Aluminum products:
Primary aluminum 242.5 355.4 340.6
Fabricated products 373.2 343.6 314.2
-------- ------- -------
Total aluminum products 615.7 699.0 654.8
======== ======= =======
Average realized sales price:
Alumina (per ton) $169 $195 $240
Primary aluminum (per pound) .56 .66 .72
Net sales:
Bauxite and alumina:
Alumina $338.2 $390.8 $466.5
Other(2)(3) 85.2 75.7 84.3
-------- ------- -------
Total bauxite and alumina 423.4 466.5 550.8
-------- ------- -------
Aluminum processing:
Primary aluminum 301.7 515.0 538.5
Fabricated products 981.4 913.7 898.9
Other(3) 12.6 13.9 12.6
-------- ------- -------
Total aluminum processing 1,295.7 1,442.6 1,450.0
-------- ------- -------
Total net sales $1,719.1 $1,909.1 $2,000.8
======== ======= =======
Operating income (loss) $(117.4) $91.6 $216.4
======== ======= =======
Income (loss) before income taxes, minority interests,
extraordinary item and cumulative effect of changes in
accounting principles $(201.7) $33.8 $154.0
======== ======= =======
Capital expenditures $67.7 $114.4 $118.1
======== ======= =======
<FN>
(1)Shipments are expressed in thousands of metric tons. A metric ton is equivalent to 2,204.6 pounds.
(2)Includes net sales of bauxite.
(3)Includes the portion of net sales attributable to minority interests in consolidated subsidiaries.
Net Sales
Bauxite and alumina. Net sales of bauxite and alumina to third
parties were $423.4 million in 1993 compared to $466.5 million in
1992 and $550.8 million in 1991. Revenue from alumina decreased
13% to $338.2 million in 1993 from $390.8 million in 1992 because
of lower average realized prices. Revenue from alumina decreased
16% to $390.8 million in 1992 from $466.5 million in 1991 as
significantly lower average realized prices more than offset a 3%
increase in alumina shipments, which was principally attributable
to increased production at all three of Kaiser's alumina
refineries. The remainder of the segment's sales revenues were
from sales of bauxite, which remained about the same throughout
the three years, and the portion of sales of alumina attributable
to the minority interest in the Alumina Partners of Jamaica
("Alpart").
Aluminum processing. Net sales to third parties for the aluminum
processing segment were $1,295.7 million in 1993 compared to
$1,442.6 million in 1992 and $1,450.0 million in 1991. The bulk
of the segment's sales represents Kaiser's primary aluminum and
fabricated aluminum products, with the remainder due to the
portion of sales of primary aluminum attributable to the minority
interest in Volta Aluminium Company Limited.
Revenue from primary aluminum decreased 41% to $301.7 million in
1993 from $515.0 million in 1992 because of lower shipments and
lower average realized prices. Shipments of primary aluminum to
third parties were approximately 39% of total aluminum products
shipments in 1993 compared to approximately 51% in 1992. Revenue
from primary aluminum decreased 4% to $515.0 million in 1992 from
$538.5 million in 1991, as an 8% decrease in average realized
prices more than offset a 4% increase in primary aluminum
shipments. Shipments of primary aluminum to third parties were
approximately 51% of total aluminum products shipments in 1992
compared to approximately 52% in 1991.
Revenue from fabricated aluminum products increased 7% to $981.4
million in 1993 compared to $913.7 million in 1992, principally
due to increased shipments of most fabricated aluminum products,
partially offset (to a lesser extent) by a decrease in average
realized prices of most of these products. Revenue from
fabricated aluminum products increased 2% to $913.7 million in
1992 compared to $898.9 million in 1991, primarily because lower
average realized prices were more than offset by a 9% increase in
shipments of fabricated aluminum products.
Operating Income (Loss)
Operating losses in 1993 were $117.4 million, compared to
operating income of $91.6 million in 1992 and $216.4 million in
1991. In the fourth quarter of 1993, Kaiser recorded pre-tax
charges of $35.8 million relating to the restructuring of
aluminum operations (see "-- Aluminum processing") and
approximately $19.4 million and $29.0 million in the fourth
quarter of 1993 and 1992, respectively, because of reductions in
the carrying value of its inventories caused principally by
prevailing lower prices for alumina, primary aluminum and
fabricated products. Kaiser's corporate general and
administrative expenses of $72.6 million, $77.6 million and $84.2
million in 1993, 1992 and 1991, respectively, were allocated by
the Company to the bauxite and alumina and aluminum processing
segments based upon those segments' ratio of sales to
unaffiliated customers.
Bauxite and alumina. Operating losses for the bauxite and
alumina segment were $20.1 million in 1993, compared to operating
income of $44.6 million in 1992 and $127.7 million in 1991. In
1993 compared to 1992, operating income was adversely affected
principally due to a decrease in average realized prices for
alumina, which more than offset above-market prices for virtually
all of its excess alumina sold forward in prior periods under
long-term contracts. In 1992 compared to 1991, operating income
was adversely affected by a decrease in average realized prices
for alumina, which more than offset higher alumina shipments and
above-market prices for significant quantities of alumina sold
forward in prior periods under long-term contracts.
Aluminum processing. Operating losses for the aluminum
processing segment were $97.3 million in 1993, compared to
operating income of $47.0 million in 1992 and $88.7 million in
1991. In 1993 compared to 1992, operating income was adversely
affected due principally to reduced shipments and lower average
realized prices of primary aluminum products which more than
offset increased shipments of fabricated products. In 1993, KACC
implemented a restructuring plan for its flat-rolled products
operation at its Trentwood plant in response to overcapacity in
the aluminum rolling industry, flat demand in the U.S. 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.
Additionally, KACC implemented a plan to discontinue its casting
operations, which include three facilities located in Ohio. This
entire restructuring is expected to be completed by the end of
1995 and will affect approximately 670 employees. The pre-tax
charge for this restructuring of $35.8 million includes $25.2
million for pension, severance and other termination benefits;
$4.7 million for a writedown of the casting facilities to their
net realizable value; $3.3 million for the estimated losses of
the casting facilities to the expected date of closure or sale;
and $2.6 million relating to a variety of other items. The
Trentwood restructuring is expected to result in annual cost
savings of at least $50.0 million after it has been fully
implemented. Other contributing factors were lower production at
Kaiser's smelters in the Pacific Northwest in 1993 as a result of
the removal of three reduction potlines from production at those
smelters in January 1993 in response to the Bonneville Power
Administration's (the "BPA") reduction during the first quarter
of 1993 of the amount of power it normally provides to Kaiser,
and the increased cost of substitute power in such quarter. In
1993, Kaiser's average realized price from sales of primary
aluminum was approximately $.56 per pound, compared to the
average Midwest U.S. transaction price of approximately $.54 per
pound during such period. Operating income in 1992 was adversely
affected by a decrease in average realized prices for primary
aluminum and most fabricated aluminum products, partially offset
by increased shipments. In 1993, 1992 and 1991, Kaiser realized
above-market prices for significant quantities of primary
aluminum sold forward in prior periods under long-term contracts.
Income (Loss) Before Income Taxes, Minority Interests,
Extraordinary Item and Cumulative Effect of Changes in Accounting
Principles
Losses before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles in
1993 were $201.7 million, compared to income of $33.8 million in
1992. This decrease resulted from the operating losses
previously described and approximately $10.8 million of other
pre-tax charges, principally related to establishing additional
litigation and environmental reserves.
Income before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles in
1992 was $33.8 million, compared to $154.0 million in 1991. This
decrease resulted from the lower operating income previously
described. Investment, interest and other income remained about
the same in 1992 and 1991, as approximately $14.0 million of
income for non-recurring adjustments to previously recorded
liabilities and reserves in the fourth quarter of 1992
approximately equaled the receipt of a $12.0 million fee in the
first quarter of 1991 from the Company's minority partner in
Alpart in consideration for the execution of an expansion
agreement for the Alpart alumina refinery.
As described in Note 1 to the Consolidated Financial Statements,
Kaiser's cumulative losses in the first and second quarter of
1993, principally due to the implementation of the new accounting
standard for postretirement benefits other than pensions as
described in Note 6 to the Consolidated Financial Statements,
eliminated Kaiser's equity with respect to its common stock;
accordingly, the Company recorded 100% of Kaiser's losses in the
third and fourth quarters of 1993, without regard to the minority
interests represented by Kaiser's other common stockholders (as
described in Note 7 to the Consolidated Financial Statements).
The Company will record 100% of Kaiser's losses and profits until
such time as the losses recorded by the Company with respect to
Kaiser's minority common stockholders are recovered.
Information concerning net sales, operating income (loss) and
assets attributable to certain geographic areas and industry
segments is set forth in Note 11 to the Consolidated Financial
Statements.
FOREST PRODUCTS OPERATIONS
The Company's forest products operations are conducted by MGI
through its principal operating subsidiaries, The Pacific Lumber
Company ("Pacific Lumber") and Britt Lumber Co., Inc. ("Britt").
Years Ended December 31,
----------------------------------
(IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES) 1993 1992 1991
---------- --------- -----
Shipments:
Lumber(1):
Redwood upper grades 68.3 76.6 86.7
Redwood common grades 184.7 193.9 197.2
Douglas-fir upper grades 10.7 10.2 11.7
Douglas-fir common grades 46.4 56.0 37.8
------ ------ -------
Total lumber 310.1 336.7 333.4
====== ====== ======
Logs(2) 18.6 19.1 14.5
====== ====== =======
Wood chips(3) 156.8 202.7 168.4
====== ====== =======
Average sales price:
Lumber(4):
Redwood upper grades $1,275 $1,141 $1,085
Redwood common grades 469 427 347
Douglas-fir upper grades 1,218 1,125 1,033
Douglas-fir common grades 447 298 262
Logs(4) 704 366 373
Wood chips(5) 81 83 79
Net sales:
Lumber, net of discount $202.6 $194.2 $180.2
Logs 13.1 7.0 5.4
Wood chips 12.7 16.9 13.4
Cogeneration power 3.8 3.7 4.8
Other 1.3 1.6 1.9
------ ------ -------
Total net sales $233.5 $223.4 $205.7
====== ====== =======
Operating income $54.3 $64.1 $55.3
====== ====== =======
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles $(17.7) $(28.4) $(31.8)
====== ======= =======
Capital expenditures $11.1 $8.7 $6.4
====== ======= =======
<FN>
(1)Lumber shipments are expressed in millions of board feet.
(2)Log shipments are expressed in millions of board feet, net Scribner scale.
(3)Wood chip shipments are expressed in thousands of bone dry units of 2,400 pounds.
(4)Dollars per thousand board feet.
(5)Dollars per bone dry unit.
Shipments
Lumber shipments to third parties in 1993 were 310.1 million
board feet, a decrease of 8% from 336.7 million board feet in
1992. This decrease was attributable to a 5% decrease in redwood
common lumber shipments, a 14% decrease in shipments of Douglas-fir
lumber and an 11% decrease in shipments of upper grade
redwood lumber. The Company believes the decrease in total
lumber shipments was caused primarily by a decline in
construction related activity resulting from weak economic
conditions in the Western region of the United States and, to a
lesser extent, by the difficulties related to weather conditions
in the West and Midwestern United States during 1993. Log
shipments in 1993 were 18.6 million feet (net Scribner scale), a
decrease of 3% from 19.1 million feet in 1992.
Lumber shipments to third parties in 1992 of 336.7 million board
feet increased 1% from 333.4 million board feet in 1991. This
increase was attributable to a 48% increase in common grade
Douglas-fir shipments, partially offset by a 12% decrease in
upper grade redwood shipments and a 2% decrease in shipments of
redwood common lumber. During the second quarter of 1992,
Pacific Lumber experienced lumber production delays attributable
to the earthquake and aftershocks which struck Humboldt County,
California in April. The earthquake and related aftershocks
disabled, for a period of approximately six weeks, a large number
of the kilns used to dry the upper grade redwood lumber and the
sawmill which produces a significant portion of Pacific Lumber's
upper grade redwood lumber. Pacific Lumber initiated additional
shifts at two of its other sawmills in order to minimize the
impact of the lost production. The increased production at one
of the sawmills was predominantly from Douglas-fir logs that had
recently been salvaged from an area that experienced a forest
fire in 1990. These factors resulted in substantially increased
shipments of Douglas-fir lumber and the decline in shipments of
redwood lumber discussed above. Log shipments in 1992 of 19.1
million feet increased 32% from 14.5 million feet in 1991. The
increase in log shipments resulted primarily from the sale, to
unaffiliated parties during the second quarter of 1992, of
certain logs salvaged from the 1990 forest fire that were not of
a suitable quality for Pacific Lumber's sawmills.
Net Sales
Revenues from net sales for 1993 increased by approximately 5%
from 1992. This increase was principally due to a 12% increase
in the average realized price of upper grade redwood lumber, a
10% increase in the average realized price of redwood common
lumber, a 92% increase in the average realized price of log sales
and a 50% increase in the average realized price of common grade
Douglas-fir lumber, partially offset by decreased shipments of
lumber and logs, as previously discussed, and decreased sales of
wood chips. The decrease in sales of wood chips resulted from
the closure of a pulp mill by one of Pacific Lumber's customers.
Revenues from net sales for 1992 increased by approximately 9%
from 1991. This increase was principally due to a 23% increase
in the average realized price of redwood common lumber, higher
shipments of common grade Douglas-fir lumber, a 5% increase in
the average realized price of upper grade redwood lumber,
increased sales of wood chips, a 14% increase in the average
realized price of common grade Douglas-fir lumber and higher log
shipments, partially offset by lower shipments of upper and
common grades of redwood lumber and lower sales of electrical
power resulting from damage sustained by Pacific Lumber's
cogeneration facility during the earthquake and aftershocks in
April 1992.
Operating Income
Operating income for 1993 decreased by approximately 15% as
compared to 1992. This decrease was primarily due to the
additional cost of logs purchased from third parties, lower
shipments of high margin wood chips and higher overhead costs,
partially offset by the increase in sales of lumber and logs, as
previously discussed. The Company arranged for the purchase of a
significant number of logs earlier in the year in response to
concerns regarding inclement weather conditions hindering logging
activities on the Company's timberlands during the first five
months of 1993. The cost associated with the purchase of logs
from third parties significantly exceeds the Company's cost to
harvest its own timber. As a result of the Company's last-in,
first-out (LIFO) methodology of accounting for inventories, a
substantial portion of the additional cost associated with the
purchased logs was charged to cost of sales in the third quarter
of 1993. Cost of goods sold for 1992 was reduced by a $3.3
million business interruption insurance claim as a result of the
April 1992 earthquake. The business interruption insurance claim
represents partial compensation for the added costs and lower
realized gross margins on lumber sales, primarily due to lost
production capacity of Pacific Lumber's drying kilns as described
above under "Shipments." Cost of goods sold for 1993 includes a
reduction of $1.2 million reflecting an additional business
interruption insurance claim.
Operating income for 1992 increased by approximately 16% as
compared to 1991. This increase was principally attributable to
the factors impacting shipments and sales, as previously
discussed. Cost of goods sold for 1991 reflects a benefit of
$3.3 million due to a reduction of Pacific Lumber's LIFO
inventories.
Cost of goods sold as a percentage of sales was approximately
58%, 51% and 50% for 1993, 1992 and 1991, respectively. The
increase for 1993 reflects the impact of purchased logs as
discussed above. Logging costs have increased primarily due to
the harvest of smaller diameter logs and, to a lesser extent,
compliance with environmental regulations relating to the
harvesting of timber and litigation costs incurred in connection
with certain timber harvesting plans filed by Pacific Lumber. See
"--Trends."During the past few years, the Company has
significantly increased its production of manufactured lumber
products by assembling knot-free pieces of common grade lumber
into wider and longer pieces in the Company's end and edge glue
plant. This manufactured lumber results in a significant
increase in lumber recovery and produces a standard size upper
grade product which is sold at a premium price compared to common
grade products of similar dimensions. The Company has instituted
a number of measures at its sawmills during the past several
years designed to enhance the efficiency of its operations such
as expansion of its manufactured lumber facilities and other
improvements in lumber recovery, automated lumber handling and
the modification of its production scheduling to increase
cogeneration power revenues.
Loss Before Income Taxes, Minority Interests, Extraordinary Item
and Cumulative Effect of Changes in Accounting Principles
The loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles
decreased for 1993 as compared to 1992 due to an increase in
investment, interest and other income and a decrease in interest
expense, partially offset by the decrease in operating income.
The loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles
decreased for 1992 as compared to 1991, primarily due to the
increase in operating income and a decrease in interest expense.
Investment, interest and other income for 1993 includes net gains
on marketable securities of $6.7 million. Investment, interest
and other income for 1992 includes estimated minimum insurance
recoveries of $1.6 million for earthquake damage incurred in
April 1992. Investment, interest and other income for 1991
includes a pre-tax gain of $4.0 million resulting from the sale
of Pacific Lumber's San Mateo County, California timberlands in
June 1991 for $7.5 million. Interest expense decreased in 1993
as compared to 1992 due to lower interest rates resulting from
the refinancing of the Company's long-term debt during 1993. See
"--Financial Condition and Investing and Financing
Activities."Interest expense decreased in 1992 as compared to
1991 primarily due to the repurchase of $15.5 million principal
amount of long-term debt in 1991 (see Note 4 to the Consolidated
Financial Statements).
REAL ESTATE OPERATIONS
Years Ended December 31,
------------------------------
(IN MILLIONS OF DOLLARS) 1993 1992 1991
-------- -------- --------
Net sales $78.5 $70.1 $48.0
Operating loss (13.5) (9.3) (18.8)
Income (loss) before income taxes, minority
interests, extraordinary item and cumulative
effect of changes in accounting principles 38.1 (5.2) (21.8)
Net Sales
Net sales for 1993 were $78.5 million, an increase of 12% from
$70.1 million in 1992. This increase was primarily due to
revenues associated with the real properties purchased from the
Resolution Trust Corporation ("RTC") in June 1991. Net sales for
1992 increased 46% from $48.0 million in 1991. This increase was
primarily due to revenues associated with the real properties
purchased from the RTC, together with an increase in sales at the
Company's Palmas del Mar development in Puerto Rico ("Palmas").
Operating Loss
The operating loss for 1993 was $13.5 million, an increase of
$4.2 million from 1992. This increase was primarily due to a
$5.9 million writedown of certain of the Company's nonstrategic
real estate holdings to their estimated net realizable value in
the first quarter of 1993, partially offset by improved
operations at the multi-family properties purchased from the RTC.
The operating loss for 1992 was $9.3 million, a decrease of $9.5
million from 1991. This decrease was primarily attributable to
the increase in net sales, along with lower allocations of
general and administrative expenses associated with the Company's
real estate development operations.
Income (Loss) Before Income Taxes, Minority Interests,
Extraordinary Item and Cumulative Effect of Changes in Accounting
Principles
Income before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles
for 1993 was $38.1 million, an increase of $43.3 million from
1992. This increase was primarily due to an increase in
investment, interest and other income and a decrease in interest
expense, offset by the increased operating losses discussed
above. Investment, interest and other income for 1993 includes
the sale of sixteen multi-family real estate properties from the
RTC portfolio in December 1993 for $113.6 million, resulting in a
pre-tax gain of $47.8 million. Also included in investment,
interest and other income for 1993 are the sales of two other
real properties and three loans from the RTC portfolio resulting
in pre-tax gains of $5.1 million. Interest income decreased for
1993 as compared to 1992 due to the loan sales and the Company's
acquisition of properties that were collateral for certain loans.
The decrease in interest expense for 1993 as compared to 1992
resulted from lower interest rates and repayments on the debt
related to the RTC portfolio. The loss before income taxes,
minority interests, extraordinary item and cumulative effect of
changes in accounting principles for 1992 was $5.2 million, a
decrease of $16.6 million from 1991. This decrease was primarily
attributable to the improved operating results discussed above
and an increase in investment, interest and other income, offset
by increased interest expense. Investment, interest and other
income for 1992 includes the sale of six real properties and four
loans from the RTC portfolio resulting in pre-tax gains of $6.7
million. The increase in interest expense for 1992 as compared
to 1991 is attributable to the debt incurred in connection with
the purchase of the RTC portfolio in June 1991.
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
Years Ended December 31,
------------------------------
(IN MILLIONS OF DOLLARS) 1993 1992 1991
--------- --------- ---------
Operating loss $(19.5) $(15.6) $(17.4)
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
changes in accounting principles (30.1) (13.4) (33.0)
Operating Loss
The operating losses represent corporate general and
administrative expenses that are not allocated to the Company's
industry segments. The operating loss for 1993 was $19.5
million, an increase of $3.9 million from 1992. This increase
was primarily due to a $6.5 million charge related to litigation
contingencies. The operating loss for 1992 was $15.6 million, a
decrease of $1.8 million from 1991. This decrease was primarily
due to lower overhead costs.
Loss Before Income Taxes, Minority Interests, Extraordinary Item
and Cumulative Effect of Changes in Accounting Principles
The loss before income taxes, minority interests, extraordinary
item and cumulative effect of changes in accounting principles
includes operating losses, investment, interest and other income
and interest expense, including amortization of deferred
financing costs, that are not allocated to the Company's industry
segments. The loss before income taxes, minority interests,
extraordinary item and cumulative effect of changes in accounting
principles for 1993 was $30.1 million, an increase of $16.7
million from 1992. This increase was primarily due to lower
investment, interest and other income and the increased operating
losses discussed above. The loss before income taxes, minority
interests, extraordinary item and cumulative effect of changes in
accounting principles for 1992 was $13.4 million, a decrease of
$19.6 million from 1991. This decrease was primarily due to
lower interest expense resulting from lower debt and interest
rates, $5.1 million in other income resulting from a non-recurring
adjustment to previously recorded accruals in the first
quarter of 1992 and the reduced operating losses as previously
described.
Minority Interests
Minority interests represent the minority stockholders' interest
in the Company's aluminum operations.
Extraordinary Item
The refinancing activities of KACC and Pacific Lumber in the
first quarter of 1993 and MGI in the third quarter of 1993, as
described in Note 4 to the Consolidated Financial Statements,
resulted in an extraordinary loss of $50.6 million, net of
benefits for minority interests of $2.8 million and income taxes
of $27.5 million. The extraordinary loss consists primarily of
the respective tender and redemption premiums paid and the write-off of
unamortized discount and deferred financing costs on the
KACC 14 1/4% Senior Subordinated Notes, Pacific Lumber's 12%
Series A Senior Notes, 12.2% Series B Senior Notes and 12 1/2%
Senior Subordinated Debentures (referred to collectively as the
"Old Pacific Lumber Securities") and the MGI 12 3/4% Notes.
Cumulative Effect of Changes in Accounting Principles
As of January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"), Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions ("SFAS 106") and Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Postemployment
Benefits ("SFAS 112") as more fully described in Notes 5 and 6 to
the Consolidated Financial Statements. The cumulative effect of
the change in accounting principle for the adoption of SFAS 109
increased results of operations by $26.6 million. The cumulative
effect of the change in accounting principle for the adoption of
SFAS 106 reduced results of operations by $437.9 million, net of
related benefits for minority interests of $63.6 million and
income taxes of $236.8 million. The cumulative effect of the
change in accounting principle for the adoption of SFAS 112
reduced results of operations by $6.4 million, net of related
benefits for minority interests of $1.0 million and income taxes
of $3.4 million. The new accounting methods have no effect on the
Company's cash outlays for postretirement and postemployment
benefits, nor will the cumulative effect of the changes in
accounting principles affect the Company's compliance with its
existing debt covenants. The Company reserves the right, subject
to applicable collective bargaining agreements and applicable
legal requirements, to amend or terminate these benefits.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
During 1993 and through February 17, 1994, subsidiaries of the
Company's Aluminum Operations and Forest Products Operations
completed a number of transactions designed to enhance their
liquidity and significantly extend their debt maturities.
Collectively, these transactions included public offerings for
approximately $1.4 billion of debt securities, approximately $210
million of additional equity capital and the replacement of
approximately $280 million of revolving credit facilities. The
following should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto.
The Company's consolidated indebtedness decreased $57.7 million
to $1,606.2 million at December 31, 1993 from $1,663.9 million at
December 31, 1992. The decrease is due to KACC's prepayment of
the remaining amounts outstanding on its Term Loan under the 1989
Credit Agreement (as defined below), the reduction of the
outstanding borrowings on the revolving credit facility of the
1989 Credit Agreement with the proceeds it received from Kaiser's
sale of Depositary Shares (as defined below) and principal
payments made in connection with sales of real estate, partially
offset by increased indebtedness incurred by Kaiser, Pacific
Lumber and MGI as a result of their recent refinancings.
PARENT COMPANY
The Company conducts its operations primarily through its
subsidiaries. Creditors of and holders of minority interests in
subsidiaries of the Company have priority with respect to the
assets and earnings of such subsidiaries over the claims of the
creditors of the Company, including the holders of the Company's
public debt. As of December 31, 1993, the indebtedness of the
subsidiaries and the minority interests reflected on the
Company's Consolidated Balance Sheet were $1,555.5 million and
$224.3 million, respectively. Certain of the Company's
subsidiaries, principally Kaiser and MGI, are restricted by their
various debt agreements as to the amount of funds that can be
paid in the form of dividends or loaned to the Company. KACC's
1994 Credit Agreement (as defined below) and the indentures
governing KACC's 9 7/8% Senior Notes due 2002 (the "KACC Senior
Notes") and 12 3/4% Senior Subordinated Notes due 2003 (the "KACC
Notes") contain covenants which, among other things, limit
Kaiser's ability to pay cash dividends and restrict transactions
between Kaiser and its affiliates. Under the most restrictive of
these covenants, Kaiser is not currently permitted to pay
dividends on its common stock. The indenture governing MGI's 11
1/4% Senior Secured Notes due 2003 (the "MGI Senior Notes") and
12 1/4% Senior Secured Discount Notes due 2003 (the "MGI Discount
Notes" and together with the MGI Senior Notes, the "MGI Notes")
contains various covenants which, among other things, limit the
payment of dividends and restrict transactions between MGI and
its affiliates. At December 31, 1993, under the most restrictive
of these covenants, no dividends may be paid by MGI. Under the
most restrictive covenants governing debt of the Company's real
estate subsidiaries, approximately $24.0 million could be paid as
of December 31, 1993.
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 a
$15.0 million promissory note issued by KACC which evidenced a
$15.0 million cash loan made by MGI to KACC in January 1993 (the
"MGI Loan"), as described below. 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.
On March 1, 1994, the New York Stock Exchange
reported the closing price of Depositary Shares as $8.50 per
share. The Company intends to use the net proceeds from the sale
of the Depositary Shares for general corporate purposes.
Contemporaneously with the issuance of the MGI Notes (see "--Forest
Products Operations"), MGI (i) transferred to the Company
50 million common shares of Kaiser held by a subsidiary of MGI,
representing MGI's (and the Company's) entire interest in
Kaiser's common stock, (ii) transferred to the Company 60,075
shares of the Company common stock held by a subsidiary of MGI,
(iii) transferred to the Company certain notes receivable, long-term
investments, and other assets, each net of related
liabilities, collectively having a carrying value to MGI of
approximately $1.1 million and (iv) exchanged with the Company
2,132,950 Depositary Shares (acquired by MGI from Kaiser in
exchange for the MGI Loan), such exchange being in satisfaction
of a $15.0 million promissory note evidencing a cash loan made by
the Company to MGI in January 1993. On the same day, the Company
assumed approximately $17.5 million of certain liabilities of MGI
that were unrelated to MGI's forest products operations or were
related to operations which have been disposed of by MGI. On
August 4, 1993, the Company pledged 28 million shares of the
Kaiser common stock as collateral for the MGI Notes.
Additionally, on September 28, 1993, MGI transferred its interest
in Palmas to the Company.
MGI used a portion of the net proceeds from the sale of the MGI
Notes to retire the entire outstanding balance of its 12 3/4%
Notes at 101% of their principal amount, plus accrued interest
through November 14, 1993. MGI used the remaining portion of the
net proceeds from the sale of the MGI Notes, together with a
portion of its existing cash resources, to pay a $20.0 million
dividend to the Company. The Company used such proceeds to
redeem, on August 20, 1993, $20.0 million aggregate principal
amount of its 14% Senior Subordinated Reset Notes due 2000 (the
"Reset Notes") at 100% of their principal amount plus accrued
interest thereon. The Company incurred a pre-tax extraordinary
loss associated with the early retirement of the 12 3/4% Notes
and the redemption of $20.0 million aggregate principal amount of
the Reset Notes of approximately $9.8 million.
On July 8, 1993, MAXXAM became the general partner in a Class 1
thoroughbred and quarter horse racing track currently under
construction on approximately 240 acres of land northwest of
Houston. Financing for the track was completed through a private
placement of $75.0 million aggregate principal amount of 11 3/4%
Senior Secured Notes due 1999, along with a $9.1 million
investment, representing an equity interest of approximately
29.7%, from MAXXAM. The track is the first of its type in Texas
and is expected to be operating by spring of 1994. Certain
affiliated parties of the Company, including Mr. Charles E.
Hurwitz, President and Chief Executive Officer of the Company,
collectively hold less than an 11% equity interest in the
facility.
In November 1991, MGI issued $150.0 million aggregate principal
amount of the 12 3/4% Notes, due November 15, 1995, at 99% of
their face amount. MGI used a portion of the proceeds from the
sale of the 12 3/4% Notes to pay a $30.9 million cash dividend to
the Company, which together with a portion of the Company's
existing cash resources enabled the Company to redeem its 14 1/4%
Senior Subordinated Notes. The remaining proceeds from the sale
of the 12 3/4% Notes together with a portion of MGI's existing
cash resources (a portion of which was obtained from Kaiser
through Kaiser's initial public offering of its common stock as
described below) were used to redeem MGI's 13 5/8% Senior
Subordinated Notes.
As of December 31, 1993, the Company (excluding its aluminum,
forest products and real estate subsidiary companies) had cash
and marketable securities of approximately $53.6 million.
Interest and sinking fund obligations with respect to parent
company indebtedness will aggregate approximately $10 million per
year in 1994 and 1995. Although there are no restrictions on the
Company's ability to pay dividends on its capital stock, the
Company has not paid any dividends for a number of years and has
no present intention to pay dividends in the foreseeable
future.The Company believes that its existing cash and marketable
securities (excluding its aluminum, forest products and real
estate subsidiaries) together with the funds available to it will
be sufficient to fund its working capital requirements.
ALUMINUM OPERATIONS
On a pro forma basis, after giving effect to the refinancing
transactions completed on February 17, 1994 as described below,
Kaiser and its subsidiaries would have had consolidated working
capital of $389.4 million and long-term debt of $755.7 million
(net of current maturities). The offering of the 8.255% Preferred
Redeemable Increased Dividend Equity Securities (the "PRIDES"), the
concurrent issuance of the KACC Senior Notes and the replacement
of the 1989 Credit Agreement on February 17, 1994 completed the
final steps of a comprehensive refinancing plan which Kaiser
began in January 1993 which extended the maturities of Kaiser's
outstanding indebtedness, enhanced its liquidity and raised new
equity capital. Kaiser anticipates that cash flows from
operations and borrowings under available sources of financing
will be sufficient to satisfy its debt service and capital
expenditures requirements through at least December 31, 1995.
On February 17, 1994, Kaiser and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. (as agent for
itself and other lenders), Bank of America National Trust and
Savings Association and certain other lenders (the "1994 Credit
Agreement"). The 1994 Credit Agreement replaced the credit
agreement entered into in December 1989 by Kaiser and KACC with a
syndicate of commercial banks and other financial institutions
(as amended, the "1989 Credit Agreement") and consists of a
$250.0 million five-year secured, revolving line of credit,
scheduled to mature in 1999. KACC is able to borrow under the
facility by means of revolving credit advances and letters of
credit (up to $125.0 million) in an aggregate amount equal to the
lesser of $250.0 million or a borrowing base relating to eligible
accounts receivable and inventory. As of February 24, 1994, KACC
had $67.4 million of letters of credit outstanding under the 1994
Credit Agreement. The 1994 Credit Agreement is unconditionally
guaranteed by Kaiser and by all significant subsidiaries of KACC
which were guarantors of KACC's obligations under the 1989 Credit
Agreement. Loans under the 1994 Credit Agreement bear interest
at a rate per annum, at KACC's election, equal to (i) a Reference
Rate plus 1 1/2% or (ii) LIBOR plus 3 1/4%. After June 30, 1995,
the interest rate margins applicable to borrowings under the 1994
Credit Agreement may be reduced by up to 1 1/2% (non-cumulatively) based
upon a financial test, determined quarterly.
KACC will record a pre-tax extraordinary loss of approximately
$8.3 million in the first quarter of 1994, consisting primarily
of the write-off of unamortized deferred financing costs related
to the 1989 Credit Agreement.
The 1994 Credit Agreement requires KACC to maintain certain
financial covenants and places restrictions on Kaiser's and
KACC's ability to, among other things, incur debt and liens, make
investments, pay common stock dividends, undertake transactions
with affiliates, make capital expenditures and enter into
unrelated lines of business. The 1994 Credit Agreement is
secured by, among other things, (i) mortgages on KACC's major
domestic plants (excluding the Gramercy plant); (ii) subject to
certain exceptions, liens on the accounts receivable, inventory,
equipment, domestic patents and trademarks and substantially all
other personal property of KACC and certain of its subsidiaries;
(iii) a pledge of all the stock of KACC owned by Kaiser and (iv)
pledges of all of the stock of a number of KACC's wholly owned
domestic subsidiaries, pledges of a portion of the stock of
certain foreign subsidiaries and pledges of a portion of the
stock of certain partially owned foreign affiliates.
Concurrent with the offering of the PRIDES on February 17, 1994,
KACC issued $225.0 million of the KACC Senior Notes. The net
proceeds from the offering of the KACC Senior Notes were used to
reduce outstanding borrowings under the Revolving Credit Facility
of the 1989 Credit Agreement immediately prior to the
effectiveness of the 1994 Credit Agreement and for working
capital and general corporate purposes.
On February 17, 1994, Kaiser consummated a public offering for
the sale of 8,000,000 shares of its PRIDES. The net proceeds
from the sale of the PRIDES were approximately $90.6 million.
Kaiser used $30.0 million of such net proceeds to make a non-interest
bearing loan to KACC (evidenced by a note) which is
designed to provide sufficient funds to make the required
dividend payments on the PRIDES until December 31, 1997 (the
"PRIDES Mandatory Conversion Date") and $60.6 million of such net
proceeds to make a capital contribution to KACC. In connection
with the PRIDES offering, Kaiser granted the underwriters an over
allotment option for up to 1,200,000 of such shares. Each share
of PRIDES is convertible into one share of Kaiser's common stock
(or a fraction thereof as described in Note 7 to the Consolidated
Financial Statements); however, Kaiser may call for the
redemption of all or any portion of the outstanding PRIDES during
the period from December 31, 1996 to the PRIDES Mandatory
Conversion Date. In addition, the holders of the PRIDES have the
option to convert their shares at any time prior to the PRIDES
Mandatory Conversion Date. The PRIDES call for the payment of
quarterly dividends of approximately $1.9 million ($.2425 per
share).
On June 30, 1993, Kaiser issued 17,250,000 of $.65 Depositary
Shares (the "Depositary Shares"), each representing one-tenth of
a share of Series A Mandatory Conversion Premium Dividend
Preferred Stock (the "Series A Shares"). In connection with the
issuance of the Depositary Shares, Kaiser issued an additional
2,132,950 of its Depositary Shares to MGI in exchange for the MGI
Loan. Kaiser used approximately $81.5 million of the net
proceeds it received from the sale of the Depositary Shares
together with the MGI Loan to make a capital contribution to
KACC, and $37.8 million of the net proceeds it received from the
sale of the Depositary Shares to make a non-interest bearing loan
to KACC which is designed to provide sufficient funds to make the
required dividend payments on the Series A Shares until June 30,
1996 (the "Series A Shares Mandatory Conversion Date"). KACC
used approximately $13.7 million of such funds to prepay the
remaining balance of the Term Loan under the 1989 Credit
Agreement and $105.6 million of such funds to reduce outstanding
borrowings under the Revolving Credit Facility of the 1989 Credit
Agreement. Each Depositary Share is convertible into one share
of Kaiser's common stock (or a fraction thereof as described in
Note 7 to the Consolidated Financial Statements); however, Kaiser
may call for the redemption of all or any portion of the
outstanding Depositary Shares prior to the Series A Shares
Mandatory Conversion Date. The Depositary Shares call for the
payment of quarterly dividends (when and as declared by Kaiser's
Board of Directors) of approximately $3.2 million ($.1625 per
share).
As a result of the issuance of the PRIDES and the Depositary
Shares, the Company's voting interest in Kaiser decreased from
approximately 87.2% to approximately 61% on a fully diluted
basis.
On February 1, 1993, KACC issued $400.0 million of the KACC
Notes. The net proceeds from the sale of the KACC Notes were
used to retire the KACC 14 1/4% Senior Subordinated Notes, to
prepay $18.0 million of the Term Loan under KACC's 1989 Credit
Agreement and to reduce outstanding borrowings under the
Revolving Credit Facility of the 1989 Credit Agreement. The
obligations of KACC with respect to the KACC Notes and the KACC
Senior Notes are guaranteed, jointly and severally, by certain
subsidiaries of KACC.
The indentures governing the KACC Senior Notes and the KACC Notes
contain, among other things, restrictions on KACC's ability to
incur debt, undertake transactions with affiliates and pay
dividends. The declaration and payment of dividends by Kaiser
and KACC with respect to shares of their common stock is subject
to certain covenants contained in the 1994 Credit Agreement;
currently, such covenants do not permit Kaiser or KACC to pay any
dividends on their common stock. The declaration and payment of
dividends by Kaiser with respect to the Depositary Shares and the
PRIDES are expressly permitted by the terms of the 1994 Credit
Agreement to the extent Kaiser receives payments on the
respective intercompany notes established in connection with the
issuance of the Depositary Shares and the PRIDES or certain other
permitted distributions from KACC.
In July 1991, Kaiser consummated an initial public offering of
7.25 million shares of its common stock at a price of $14.00 per
share. The 7.25 million shares represented approximately a 12.7%
interest in Kaiser. Kaiser received approximately $93.2 million,
net of related offering costs, from the sale. Seventy-five
percent of the net proceeds were used to prepay certain notes
together with accrued interest thereon to MGI, and the remaining
25% was used to prepay a portion of the indebtedness under
Kaiser's 1989 Credit Agreement.
In December 1991, Alpart entered into a $60.0 million loan
agreement with the Caribbean Basin Projects Financing Authority
("CARIFA") under which CARIFA loaned Alpart the proceeds from the
issuance of CARIFA's Industrial Revenue bonds. Proceeds from the
sale of the bonds were used by Alpart to refinance interim loans
from the partners in Alpart, to pay eligible project costs for
the expansion and modernization of its alumina refinery and
related port and bauxite mining facilities and to pay certain
costs of issuance. Alpart's obligations under the loan agreement
are secured by a $64.2 million letter of credit severally
guaranteed by the partners in Alpart (of which $22.5 million is
guaranteed by Kaiser's minority partner).
During each of the past three years, Kaiser entered into a number
of commodity futures and commodity option contracts as a
component of its plan to mitigate its exposure to declining
aluminum prices. The terms of these contracts allowed Kaiser to
withdraw certain amounts of its equity in those contracts at
various times, provided the current aggregate market value of
such contracts exceeded their cost. The equity withdrawn from
these option contracts decreased during 1992 by $66.3 million
over 1991.
Kaiser has historically participated in various raw material
joint ventures outside the United States. At December 31, 1993,
Kaiser was unconditionally obligated for $73.6 million of
indebtedness of one such joint venture affiliate.
Kaiser's capital expenditures of approximately $300.2 million (of
which $42.6 million was funded by Kaiser's minority partners in
certain foreign joint ventures) during the three years ended
December 31, 1993 were made primarily to improve production
efficiency, reduce operating costs, expand capacity at existing
facilities and construct new facilities. Kaiser's capital
expenditures were $67.7 million in 1993, compared to $114.4
million in 1992 and $118.1 million in 1991 (of which $9.4
million, $17.1 million and $16.1 million were funded by the
minority partners in certain foreign joint ventures in 1993, 1992
and 1991, respectively). Kaiser's capital expenditures are
expected to be in the range of $50 million to $75 million per
year in the 1994 -- 1996 period (of which approximately 5% is
expected to be funded by Kaiser's minority partners in certain
foreign joint ventures).
As described in Note 10 to the Consolidated Financial Statements,
Kaiser and KACC are subject to a wide variety of environmental
laws and regulations, to fines or penalties assessed for alleged
breaches of the environmental laws and to claims and litigation
based upon such laws. KACC is currently subject to a number of
lawsuits under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the
Superfund Amendments Reauthorization Act of 1986 ("CERCLA") and,
along with certain other entities, has been named as a
potentially responsible party for remedial costs at certain
third-party sites listed on the National Priorities List under
CERCLA. Additionally, KACC is a defendant in a number of
lawsuits in which the plaintiffs allege that certain of their
injuries were caused by exposure to asbestos during, and as a
result of, their employment with KACC or to products containing
asbestos produced or sold by KACC. While uncertainties are
inherent in the ultimate outcome of these matters and it is
impossible to presently determine the actual costs that
ultimately may be incurred and the insurance recoveries that will
be received, management believes the resolution of such
uncertainties and the incurrence of such net costs should not
have a material adverse effect upon KACC's consolidated financial
position, results of operations or liquidity.
FOREST PRODUCTS OPERATIONS
As of December 31, 1993, MGI and its subsidiaries had
consolidated working capital of $81.9 million and long-term debt
of $738.7 million (net of current maturities and restricted cash
deposited in the Liquidity Account). MGI anticipates that cash
flows from operations, together with existing cash, marketable
securities and available sources of financing, will be sufficient
to fund the working capital requirements of MGI and its
respective subsidiaries; however, due to its highly leveraged
condition, MGI is more sensitive than less leveraged companies to
factors affecting its operations, including governmental
regulation affecting its timber harvesting practices, increased
competition from other lumber producers or alternative building
products and general economic conditions.
On August 4, 1993, MGI issued $100.0 million aggregate principal
amount of MGI Senior Notes and $126.7 million aggregate principal
amount (approximately $70.0 million net of original issue
discount) of MGI Discount Notes. The MGI Notes are secured by
MGI's pledge of 100% of the common stock of Pacific Lumber, Britt
and MAXXAM Properties Inc. ("MPI," a wholly owned subsidiary of
MGI), and by the Company's pledge of 28 million shares of
Kaiser's common stock. The indenture governing the MGI Notes,
among other things, restricts the ability of MGI to incur
additional indebtedness, engage in transactions with affiliates,
pay dividends and make investments. The MGI Notes are senior
indebtedness of MGI; however, they are effectively subordinate to
the liabilities of MGI's subsidiaries, which liabilities would
include the 10 1/2% Senior Notes due 2003 (the "Pacific Lumber
Senior Notes") of Pacific Lumber and the 7.95% Timber
Collateralized Notes due 2015 (the "Timber Notes") of Scotia
Pacific Holding Company ("SPHC"), a wholly owned subsidiary of
Pacific Lumber.
MGI conducts its operations primarily through its subsidiaries.
Creditors of MGI's subsidiaries have priority with respect to the
assets and earnings of such subsidiaries over the claims of the
creditors of MGI, including the holders of the MGI Notes. As of
December 31, 1993, the indebtedness of the subsidiaries reflected
on MGI's Consolidated Balance Sheet was $614.9 million. The
indentures governing the Pacific Lumber Senior Notes and the
Timber Notes and Pacific Lumber's Revolving Credit Agreement
contain various covenants which, among other things, restrict
transactions between Pacific Lumber and its affiliates and the
payment of dividends. Pacific Lumber can pay dividends in an
amount that is generally equal to 50% of Pacific Lumber's
consolidated net income plus depletion and cash dividends
received from SPHC (for periods subsequent to March 1, 1993),
exclusive of the net income and depletion of SPHC so long as any
Timber Notes are outstanding. On February 24, 1994, Pacific
Lumber paid dividends of $5.7 million which represents the entire
amount permitted at December 31, 1993.
Substantially all of MGI's consolidated assets are owned by
Pacific Lumber and a significant portion of Pacific Lumber's
consolidated assets are owned by SPHC. MGI expects that Pacific
Lumber will provide a major portion of its future operating cash
flow. Pacific Lumber is dependent upon SPHC for a significant
portion of its operating cash flow. The holders of the Timber
Notes have priority over the claims of creditors of Pacific
Lumber with respect to the assets and cash flow of SPHC and the
holders of the Pacific Lumber Senior Notes have priority over the
claims of creditors of MGI with respect to the assets and cash
flows of Pacific Lumber. Under the terms of the indenture
governing the Timber Notes (the "Timber Note Indenture"), SPHC
will not have available cash for distribution to Pacific Lumber
unless SPHC's cash flow from operations exceeds the amounts
required by the Timber Note Indenture to be reserved for the
payment of current debt service (including interest, principal
and premiums) on the Timber Notes, capital expenditures and
certain other operating expenses. See Note 4 to the Consolidated
Financial Statements for a description of the principal payment
requirements of the Timber Notes.
MGI expects that, consistent with SPHC's purposes and its need to
fund operating and capital expenses, substantially all of SPHC's
available cash will be periodically distributed to Pacific
Lumber. Once appropriate provision for current debt service on
the Timber Notes and expenditures for operating and capital costs
are made and in the absence of certain Trapping Events (as
defined in the Timber Note Indenture) or outstanding judgements,
the Timber Note Indenture does not limit monthly distributions of
available cash from SPHC to Pacific Lumber. In the event SPHC's
cash flows are not sufficient to generate distributable funds to
Pacific Lumber, Pacific Lumber's ability to pay interest on the
Pacific Lumber Senior Notes and to service its other indebtedness
would be materially impaired and MGI's ability to pay interest on
the MGI Notes and its other indebtedness would also be materially
impaired. SPHC paid $58.3 million of dividends to Pacific Lumber
during the period from March 23, 1993 to December 31, 1993.
The MGI Senior Notes require annual interest payments of $11.3
million. The MGI Discount Notes will require annual interest
payments of $15.5 million beginning on February 1, 1999. As of
December 31, 1993, MGI (excluding Pacific Lumber and its
subsidiary companies) had cash and marketable securities of
approximately $11.4 million. MGI believes, although there can be
no assurance, that the aggregate dividends that will be available
to it from Pacific Lumber and Britt, during the five year period
in which cash interest will not be payable on the MGI Discount
Notes, will exceed MGI's cash interest payments on the MGI Senior
Notes. When cash interest payments on the MGI Discount Notes
commence on February 1, 1999, MGI believes that it will be able
to make such cash interest payments out of its then existing cash
resources and from cash expected to be available to it from
Pacific Lumber and Britt.
On June 23, 1993, Pacific Lumber entered into a new Revolving
Credit Agreement with a bank which provides for borrowings of up
to $30.0 million, of which $15.0 million may be used for standby
letters of credit. As of December 31, 1993, $19.7 million of
borrowings was available under the Revolving Credit Agreement, of
which $4.7 million was available for letters of credit. No
borrowings were outstanding as of December 31, 1993, and letters
of credit outstanding amounted to $10.3 million. The Revolving
Credit Agreement expires May 31, 1996, is secured by Pacific
Lumber's trade receivables and inventories and contains covenants
substantially similar to those contained in the indenture
governing the Pacific Lumber Senior Notes.
On March 23, 1993, Pacific Lumber transferred to SPHC
substantially all of Pacific Lumber's non-virgin old growth
redwood and Douglas-fir timber and timberlands, together with
certain other assets, in exchange for (i) the assumption by SPHC
of $323.4 million aggregate principal amount of Pacific Lumber's
outstanding public indebtedness and (ii) all of SPHC's
outstanding common stock. On the same date, Pacific Lumber
issued $235.0 million of the Pacific Lumber Senior Notes and SPHC
issued $385.0 million of the Timber Notes. The net proceeds from
the sale of the Pacific Lumber Senior Notes and the Timber Notes,
together with Pacific Lumber's existing cash and marketable
securities, were used to (i) retire the Old Pacific Lumber
Securities; (ii) pay accrued interest on the Old Pacific Lumber
Securities through the date of redemption thereof; (iii) pay the
applicable redemption premiums on the Old Pacific Lumber
Securities (at approximately 1.7% of the principal amount
thereof); (iv) repay Pacific Lumber's $28.9 million cogeneration
facility loan; (v) fund the initial deposit of $35.0 million to
an account held by the trustee for the Timber Notes (the
"Liquidity Account"); and (vi) pay a $25.0 million dividend to a
subsidiary of MGI.
The Timber Notes are secured by substantially all of the assets
of SPHC. The Timber Notes are generally designed to link deemed
depletion of SPHC's timber to the required amortization of the
Timber Notes. The indenture governing the Timber Notes prohibits
SPHC from incurring any additional indebtedness for borrowed
money and limits the business activities of SPHC to the ownership
and operation of its timber and timberlands.
During the years ended December 31, 1993, 1992 and 1991, Pacific
Lumber's operating income plus depletion and depreciation
("operating cash flow") amounted to $76.6 million, $90.1 million
and $83.2 million, respectively, which exceeded interest accrued
on all of its indebtedness in those years by $17.4 million, $24.5
million and $14.5 million, respectively. The Company believes
that Pacific Lumber's and SPHC's level of operating cash flow and
other available sources of financing will enable them to meet the
debt service requirements on the Pacific Lumber Senior Notes and
the Timber Notes, respectively.
Pacific Lumber's and Britt's capital expenditures of
approximately $26.2 million for the three years ended December
31, 1993 were made to increase capacity, improve operating
efficiency and reduce operating costs. Pacific Lumber's and
Britt's capital expenditures were $11.1 million, $8.7 million and
$6.4 million for the years ended December 31, 1993, 1992 and
1991, respectively. Capital expenditures for 1994 are expected
to be $10 million and for the 1995 -- 1996 period are estimated
to be between $5 million and $10 million per year. Capital
expenditures attributable to the reconstruction of Pacific
Lumber's commercial facilities destroyed by the April 1992
earthquake were approximately $1.6 million for 1993 and are
expected to be approximately $2 million to $3 million for 1994
when construction is completed. The Company anticipates that the
funds necessary to finance Pacific Lumber's and Britt's capital
expenditures will be obtained through cash flows generated by
operations and other available sources of financing.
In February 1994, Pacific Lumber received a franchise tax refund
of approximately $7.2 million, including interest, from the State
of California relating to tax years 1972 through 1985. This
amount will be recognized in investment, interest and other
income during the first quarter of 1994.
During 1991, Pacific Lumber repurchased $15.5 million principal
amount of the Old Pacific Lumber Securities for $15.0 million.
REAL ESTATE OPERATIONS
As of December 31, 1993, the Company's real estate subsidiaries
had approximately $25.8 million available for use under various
credit agreements. Substantially all of the availability was
attributable to the credit availability pursuant to the loan
agreement secured by real properties, and certain loans secured
by income producing real property, purchased from the RTC. The
Company believes that the existing cash and credit facilities of
its real estate subsidiaries are sufficient to fund their
respective working capital requirements.
In June 1991, MXM Mortgage Corp. ("MXM"), a wholly owned
subsidiary of the Company, purchased, for approximately $122.3
million, 28 loans secured by real properties and 27 parcels of
income producing real property (the "Portfolio") from the RTC.
Substantially all of the real properties were located in Texas,
with the largest concentrations in the vicinity of San Antonio,
Houston and Dallas. MXM borrowed approximately $108.3 million to
finance a portion of the purchase of the Portfolio. In December
1993, substantially all of the remaining assets in the Portfolio
and the related debt were transferred to the Company's wholly
owned partnership, MXM Mortgage L.P. ("MXM L.P."). The notes
mature on December 31, 1997 and bear interest at the prime rate
plus 3% per annum, payable monthly. The loan agreement, as
amended, provides for additional borrowings of up to $22.0
million on or before March 31, 1994. Upon the sale of any
secured property or loan, the terms of the loan agreement require
MXM L.P. to make principal payments based on the release price
(as defined) of such property or loan. In addition, the loan
agreement requires MXM L.P. to repay the entire outstanding
balance of the notes if such balance declines to less than $10.0
million or if less than 40% of such balance is allocated to
multi-family assets. Principal payments of $60.2 million were
made on the notes in December 1993 in connection with the sale of
sixteen multi-family properties. The Company received net cash
proceeds of $47.0 million after such principal payments and
related closing costs.
TRENDS
Aluminum Operations -- General
Exports from the Commonwealth of Independent States ("C.I.S."),
additions to smelter capacities during the past several years,
continued high operating rates and other factors have contributed
to a significant increase in primary aluminum inventories in the
Western world. If Western world production and exports from the
C.I.S. continue at current levels, primary aluminum inventory
levels will increase further in 1994. The foregoing factors,
among others, 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.
Government officials from the European Union, the United States
of America, 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 six
participating governments 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 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. There can be no
assurance that the implementation of the Memorandum will
adequately address the current oversupply of primary aluminum.
If Kaiser's average realized sales prices in 1994 for substantial
quantities of its primary aluminum and alumina were based on the
current market price of primary aluminum, Kaiser would continue
to sustain net losses in 1994, which would be expected to
approximate the loss in 1993 before extraordinary losses and
cumulative effect of changes in accounting principles,
restructuring charges, reductions in the carrying value of
inventories and additions to litigation and environmental
reserves described in Notes 1 and 10 to the Consolidated
Financial Statements.
Effective October 1, 1993, an increase in the base rate the 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 $11.3 million per year, based on the current
operating rate of approximately 75% of full capacity). The rate
increase is generally expected to remain in effect for two years.
Aluminum Operations -- 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. Consequently, Kaiser has developed strategies
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.
Alumina. Kaiser has sold forward substantially all of the
alumina available to it in excess of its projected internal
smelting requirements for 1994, and a substantial portion of such
excess alumina for 1995. Approximately 95% of 1994 sales and
virtually all of 1995 sales were made at prices indexed to future
prices of primary aluminum. Approximately 75% of 1994 sales were
made at prices indexed to future prices of primary aluminum, but
with minimum prices that exceed Kaiser's estimated cash
production costs. The remainder of 1994 sales were made either
at fixed prices that exceed Kaiser's estimated cash production
costs or are subject to prices indexed to future prices of
primary aluminum but without minimum prices. Approximately 85%
of 1995 sales were made at prices indexed to future prices of
primary aluminum, but with minimum prices that exceed Kaiser's
estimated cash production costs.
Aluminum Processing. As of the date of this report, Kaiser has
sold forward at fixed prices approximately 75% of its primary
aluminum in excess of its projected internal fabrication
requirements in 1994 and approximately 55% of such surplus in
1995 at fixed prices that exceed the current market price of
primary aluminum. Hedging programs already in place would allow
Kaiser to participate in higher market prices, should they
materialize, for approximately 40% of Kaiser's excess primary
aluminum sold forward in 1994, and 100% of Kaiser's excess
primary aluminum sold forward in 1995.
In response to the low price of primary aluminum caused by the
current surplus, a number of companies have closed smelting
facilities. In addition, in response to certain power reductions
undertaken by the BPA in the Pacific Northwest, a number of
companies (including Kaiser) have curtailed or shut down
production capacities at their smelter facilities in the Pacific
Northwest. Furthermore, after continued assessment of its
production levels in light of market prices, industry inventory
levels, production costs and user demand, on February 25, 1994,
Kaiser announced that in April 1994 it will curtail approximately
9.3% of its primary aluminum current annual production capacity.
Fabricated aluminum prices, which vary considerably among
products, are heavily influenced by changes in the price of
primary aluminum and generally lag behind primary aluminum prices
for periods of up to six months. A significant portion of
Kaiser's fabricated product shipments consist of body, lid and
tab stock for the beverage container market. Kaiser may not be
able to receive increases in primary aluminum prices from its can
stock customers as promptly as in the recent past because of
competition from other aluminum producers and because of excess
supply in the industry. Kaiser also ships fabricated products to
customers in the aerospace market. Aluminum demand in the
aerospace market is decreasing as a result of the structural
contraction of the defense industry caused by the end of the Cold
War. In addition, the commercial aerospace market is
experiencing a cyclical downturn in business due to the recent
economic recessions in the United States, Canada, Australia and
the United Kingdom, and slow economic growth in other countries.
Forest Products Operations
The Company's forest products operations are primarily conducted
by Pacific Lumber and are subject to a variety of California and,
in some cases, federal laws and regulations dealing with timber
harvesting, endangered species, water quality and air and water
pollution. Pacific Lumber does not expect that compliance with
such existing laws and regulations will have a material adverse
effect on its future operating results. 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 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. 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 financial position or results of operations of
Pacific Lumber. Furthermore, any bills which are passed are
subject to executive veto and court challenge. In addition to
existing and possible new or modified statutory enactments,
regulatory requirements and administrative 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 financial
position of Pacific Lumber.
Various groups and individuals have filed objections with the
California Department of Forestry ("CDF") regarding the CDF's
actions and rulings with respect to certain of Pacific Lumber's
timber harvesting plans, and Pacific Lumber expects that such
groups and individuals will continue to file objections to
Pacific Lumber's timber harvesting plans. In addition, lawsuits
are pending which seek to prevent Pacific Lumber from
implementing certain of its approved timber harvesting plans.
These challenges have severely restricted Pacific Lumber's
ability to harvest virgin old growth redwood timber on its
property during the past few years, as well as substantial
amounts of virgin Douglas-fir timber which are located in virgin
old growth redwood stands. No assurance can be given as to the
extent of such litigation in the future. Pacific Lumber believes
that environmentally focused challenges to its timber harvesting
plans are likely to occur in the future. Although such
challenges have delayed or prevented Pacific Lumber from
conducting a portion of its operations, to date such challenges
have not had a material adverse effect on Pacific Lumber's
financial position or results of operations. It is, however,
impossible to predict the future nature or degree of such
challenges or their ultimate impact on the operating results or
financial position of Pacific Lumber.
MAXXAM Inc. and Subsidiaries
Report of Independent Public Accountants
To the Stockholders and Board of Directors of MAXXAM Inc.:
We have audited the accompanying consolidated balance sheets of
MAXXAM Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated
statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of MAXXAM Inc. and subsidiaries as of December 31, 1993
and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting
principles.
As explained in Notes 5 and 6 to the consolidated financial
statements, effective January 1, 1993, the Company changed its
method of accounting for income taxes, postretirement benefits
other than pensions and postemployment benefits.
Houston, Texas
February 24, 1994
MAXXAM Inc. and Subsidiaries
Consolidated Balance Sheet
December 31,
-------------------------
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 1993 1992
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $83.9 $81.9
Marketable securities 44.7 70.6
Receivables:
Trade, net of allowance for doubtful
accounts of $3.2 and $3.5 at December
31, 1993 and 1992, respectively 175.3 196.0
Other 90.8 114.4
Inventories 503.6 503.0
Prepaid expenses and other current assets 93.3 67.3
------ ------
Total current assets 991.6 1,033.2
Property, plant and equipment, net 1,245.0 1,187.1
Timber and timberlands, net of depletion of $108.2 and $100.9 at
December 31, 1993 and 1992, respectively 338.6 383.9
Investments in and advances to unconsolidated affiliates 183.2 150.1
Real estate 113.3 182.0
Deferred income taxes 359.9 -
Long-term receivables and other assets 340.4 262.5
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $135.6 $148.5
Accrued interest 53.7 39.4
Accrued compensation and related benefits 114.2 95.4
Other accrued liabilities 161.5 147.7
Payable to affiliates 74.0 65.0
Long-term debt, current maturities 38.3 71.2
------- ------
Total current liabilities 577.3 567.2
Long-term debt, less current maturities 1,567.9 1,592.7
Accrued postretirement benefits 720.1 -
Other noncurrent liabilities 650.3 418.3
------- ------
Total liabilities 3,515.6 2,578.2
------- ------
Commitments and contingencies
Minority interests 224.3 176.7
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
------- ------
$3,572.0 $3,198.8
======= ======
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MAXXAM Inc. and Subsidiaries
Consolidated Statement of Operations
Years Ended December 31,
------------------------------------
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 1993 1992 1991
---------- ---------- ----------
Net sales:
Aluminum operations $1,719.1 $1,909.1 $2,000.8
Forest products operations 233.5 223.4 205.7
Real estate operations 78.5 70.1 48.0
------- ------- -------
2,031.1 2,202.6 2,254.5
------- ------- -------
Costs and expenses:
Costs of sales and operations (exclusive of
depreciation and depletion):
Aluminum operations 1,587.7 1,619.3 1,594.2
Forest products operations 134.6 113.8 103.3
Real estate operations 65.3 53.8 38.1
Depreciation and depletion 120.8 111.4 106.1
Selling, general and administrative expenses 183.0 173.5 177.3
Restructuring of aluminum operations 35.8 - -
------- ------- -------
2,127.2 2,071.8 2,019.0
------- ------- -------
Operating income (loss) (96.1) 130.8 235.5
Other income (expense):
Investment, interest and other income 69.8 51.6 42.8
Interest expense (169.5) (181.8) (198.8)
Amortization of deferred financing costs (15.6) (13.8) (12.1)
------- ------- -------
Income (loss) before income taxes, minority interests,
extraordinary item and cumulative effect of changes in
accounting principles (211.4) (13.2) 67.4
Credit (provision) for income taxes 82.5 9.2 (2.0)
Minority interests (3.0) (3.3) (7.9)
------- ------- -------
Income (loss) before extraordinary item and cumulative
effect of changes in accounting principles (131.9) (7.3) 57.5
Extraordinary item:
Loss on early extinguishment of debt, net of related
benefits for minority interests of $2.8 and income
taxes of $27.5 (50.6) - -
Cumulative effect of changes in accounting principles:
Postretirement benefits other than pensions and
postemployment benefits, net of related benefits
for minority interests of $64.6 and income taxes
of $240.2 (444.3) - -
Accounting for income taxes 26.6 - -
------- ------- -------
Net income (loss) $(600.2) $(7.3) $57.5
======= ======= =======
Per common and common equivalent share:
Income (loss) before extraordinary item and cumulative
effect of changes in accounting principles $(13.95) $(.77) $6.08
Extraordinary item (5.35) - -
Cumulative effect of changes in accounting principles (44.17) - -
------- ------- -------
Net income (loss) $(63.47) $(.77) $6.08
======= ======= =======
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MAXXAM Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31,
--------------------------------
(IN MILLIONS OF DOLLARS) 1993 1992 1991
--------- --------- ---------
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:
Cumulative effect of changes in accounting principles,
net 417.7 - -
Depreciation and depletion 120.8 111.4 106.1
Extraordinary loss on early extinguishment of debt, net 50.6 - -
Amortization of deferred financing costs and
discounts on long-term debt 21.7 19.9 20.3
Equity in losses of unconsolidated affiliates 4.9 1.9 19.5
Minority interests 3.0 3.3 7.9
Incurrence of financing costs (47.9) (7.1) (12.3)
Net gain on sales of real estate, mortgage loans and
other assets (45.8) (6.4) (5.8)
Net losses (gains) on marketable securities (7.1) 6.3 .7
Recognition of previously deferred income from a
forward alumina sale (.6) (25.7) (42.0)
Increase (decrease) in payable to affiliates and other
liabilities 110.5 (72.0) (25.0)
Decrease (increase) in prepaid expenses and other
assets 18.0 9.4 (47.1)
Increase (decrease) in accrued interest 14.3 (1.6) 1.8
Decrease in inventories 10.9 66.7 30.7
Decrease (increase) in receivables 5.0 (63.1) 4.7
Decrease (increase) in accrued and deferred income
taxes (96.5) (16.3) 5.8
Decrease in accounts payable (14.1) (6.1) (.7)
Other 10.9 17.2 15.1
-------- -------- --------
Net cash provided by (used for) operating
activities (23.9) 30.5 137.2
-------- -------- --------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 143.0 45.7 16.1
Net sales (purchases) of marketable securities 31.1 (7.0) (24.5)
Capital expenditures (86.2) (132.7) (130.9)
Acquisition of real estate properties and mortgages - - (16.4)
Other (12.2) 2.3 (6.8)
-------- -------- --------
Net cash provided by (used for) investing
activities 75.7 (91.7) (162.5)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,201.3 26.7 218.4
Proceeds from issuance of Kaiser Depositary Shares 119.3 - -
Redemptions, repurchase of and principal payments on long-
term debt (1,219.4) (65.3) (268.4)
Net borrowings (payments) under revolving credit agreements
and short-term borrowings (107.6) 84.1 39.7
Restricted cash deposits (33.6) - -
Redemption of preference stock (4.2) (7.3) (20.4)
Proceeds from issuance of common stock - .7 2.3
Proceeds from initial public offering of Kaiser Aluminum
Corporation common stock - - 93.2
Other (5.6) (.9) (.7)
-------- -------- --------
Net cash provided by (used for) financing
activities (49.8) 38.0 64.1
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 2.0 (23.2) 38.8
Cash and cash equivalents at beginning of year 81.9 105.1 66.3
-------- -------- --------
Cash and cash equivalents at end of year $83.9 $81.9 $105.1
======== ======== ========
Supplementary schedule of non-cash investing and financing
activities:
Acquisition of real estate properties and mortgages:
Assets acquired $135.9
Issuance of long-term debt 108.3
Notes receivable exchanged 34.2
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $149.1 $177.3 $188.8
Income taxes paid 13.2 6.3 23.8
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MAXXAM Inc. and Subsidiaries
Consolidated Statement of
Stockholders' Equity (Deficit)
Preferred Retained Pension
Stock Common Stock Additional Earnings Liability Treasury
--------------------
(IN MILLIONS OF DOLLARS AND ($.50 Par) Shares ($.50 Par) Capital (Deficit) Adjustment Stock Total
SHARES) --------- --------- --------- --------- --------- --------- ---------- -----
Balance, January 1, 1991 $.3 8.6 $5.0 $40.6 $369.2 $- $(19.8) $395.3
Net income - - - - 57.5 - - 57.5
Common stock issued
under
employee stock
option plans - .1 - 2.3 - - - 2.3
Gain from initial public
offering of Kaiser
Aluminum
Corporation
common stock - - - 28.5 - - - 28.5
Excess of fair value of
assets acquired
over affiliate's
basis - - - (24.0) - - - (24.0)
-------- -------- -------- -------- -------- -------- -------- -------
Balance, December 31, 1991 .3 8.7 5.0 47.4 426.7 - (19.8) 459.6
Net loss - - - - (7.3) - - (7.3)
Common stock issued
under
employee stock
option plans - - - .5 - - .1 .6
Additional pension
liability - - - - - (9.0) - (9.0)
-------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1992 .3 8.7 5.0 47.9 419.4 (9.0) (19.7) 443.9
Net loss - - - - (600.2) - - (600.2)
Gain from issuance of
Kaiser Aluminum
Corporation common
stock - - - 3.3 - - - 3.3
Additional pension
liability - - - - - (14.9) - (14.9)
-------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1993 $.3 8.7 $5.0 $51.2 $(180.8) $(23.9) $(19.7) $(167.9)
======== ======== ======== ======== ======== ======== ======== ========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MAXXAM Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
MAXXAM Inc. and its majority and wholly owned subsidiaries,
collectively referred to herein as the "Company." Investments in
unconsolidated affiliates are accounted for utilizing the equity
method of accounting. In connection with the implementation of
the new accounting standard for income taxes as described in Note
5, the Company has restated certain assets and liabilities
recorded in connection with its acquisition of various
subsidiaries in prior years. Additionally, certain
reclassifications have been made to prior years' financial
statements to be consistent with the presentation in the current
year.
The cumulative losses of Kaiser Aluminum Corporation ("Kaiser," a
majority owned subsidiary of the Company) in the first and second
quarter of 1993, principally due to the implementation of the new
accounting standard for postretirement benefits other than
pensions as described in Note 6, eliminated Kaiser's equity with
respect to its common stock; accordingly, the Company recorded
100% of Kaiser's losses in the third and fourth quarters of 1993,
without regard to the minority interests represented by Kaiser's
other common stockholders (as described in Note 7). The Company
will record 100% of Kaiser's losses and profits until such time
as the losses recorded by the Company with respect to Kaiser's
minority common stockholders are recovered.
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 in Note 4), MGI
(i) transferred to the Company 50 million common shares of Kaiser
held by a subsidiary of MGI, representing MGI's (and the
Company's) entire interest in Kaiser's common stock, (ii)
transferred to the Company 60,075 shares of the Company 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 (as
described in Note 7), 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. On the same day, the Company assumed approximately $17.5
of certain liabilities of MGI that were unrelated to MGI's forest
products operations or were related to operations which have been
disposed of by MGI. Additionally, on September 28, 1993, MGI
transferred to the Company its interest in the real estate
management and development operation located at Palmas del Mar in
Puerto Rico. The foregoing transactions are collectively
referred to as the "Forest Products Group Formation."
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents consist of highly liquid money market
instruments with original maturities of three months or less.
The carrying amount of these instruments approximates fair value.
Marketable Securities
On December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments
in Debt and Equity Securities ("SFAS 115"). In accordance with
the provisions of SFAS 115, marketable securities are carried at
market value on December 31, 1993. Prior to that date,
marketable securities portfolios were carried at the lower of
cost or market at the balance sheet date. The cost of the
securities sold is determined using the first-in, first-out
method. Market values are determined based on quoted prices.
The cost and market values of securities held at December 31,
1992 were $72.6 and $70.6, respectively. Included in investment,
interest and other income for each of the three years ended
December 31, 1993 were: 1993 -- net realized gains of $4.2, the
recovery of $2.0 of net unrealized losses and net unrealized
gains of $.9; 1992 -- net realized losses of $6.0 and net
unrealized losses of $.3; and 1991 -- net realized losses of $1.0
and the recovery of $.3 of net unrealized losses. Net unrealized
losses represent the amount required to reduce the short-term
marketable securities portfolios from cost to market value prior
to December 31, 1993.
Inventories
Inventories are stated at the lower of cost or market. Cost for
the aluminum and forest products operations inventories is
primarily determined using the last-in, first-out (LIFO) method.
Other inventories of the aluminum operations, principally
operating supplies and repair and maintenance parts, are stated
at the lower of average cost or market. Inventory costs consist
of material, labor and manufacturing overhead, including
depreciation and depletion.
Inventories consist of the following:
December 31,
---------------------
1993 1992
--------- --------
Aluminum Operations:
Finished fabricated products $83.7 $91.2
Primary aluminum and work in process 141.4 128.7
Bauxite and alumina 94.0 107.4
Operating supplies and repair and maintenance parts 107.8 112.6
-------- --------
426.9 439.9
-------- --------
Forest Products Operations:
Lumber 58.4 54.2
Logs 18.3 8.9
-------- --------
76.7 63.1
-------- --------
$503.6 $503.0
======== ========
The Company recorded pre-tax charges of approximately $19.4 and
$29.0 in 1993 and 1992, respectively, because of reductions in
the carrying value of its aluminum operations inventories caused
principally by prevailing lower prices for alumina, primary
aluminum and fabricated products and a reduction in LIFO
inventories which increased cost of sales by $10.2 in 1992.
Reductions in the Company's forest products operations
inventories reduced cost of sales in 1991 by $3.3.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed principally
utilizing the straight-line method at rates based upon the
estimated useful lives of the various classes of assets.
Timber and Timberlands
Depletion is computed utilizing the unit-of-production method
based upon estimates of timber values and quantities.
Deferred Financing Costs
Costs incurred to obtain financing are deferred and amortized
over the estimated term of the related borrowing.
Restricted Cash and Concentrations of Credit Risk
At December 31, 1993, cash and cash equivalents includes $20.3
reserved for debt service payments on the Company's 7.95% Timber
Collateralized Notes due 2015 (the "Timber Notes"), and long-term
receivables and other assets includes $33.6 of restricted cash
deposits held for the benefit of the Timber Note holders as
described in Note 4. Each of these deposits is held by a
different financial institution. In the event of nonperformance
by such financial institutions, the Company's exposure to credit
loss is represented by the amounts deposited plus any unpaid
accrued interest thereon. The Company mitigates its
concentrations of credit risk with respect to these restricted
cash deposits by maintaining them at high credit quality
financial institutions and monitoring the credit ratings of these
institutions.
Restructuring of Aluminum Operations
In 1993, Kaiser implemented a restructuring plan for its flat-rolled
products operation at its Trentwood plant in response to
overcapacity in the aluminum rolling industry, flat demand in the
U.S. can stock markets and declining demand for aluminum products
sold to customers in the commercial aerospace industry, all of
which have resulted in declining prices in Trentwood's key
markets. Additionally, Kaiser implemented a plan to discontinue
its casting operations, which include three facilities located in
Ohio. This entire restructuring is expected to be completed by
the end of 1995 and will affect approximately 670 employees. The
pre-tax charge for this restructuring of $35.8 includes $25.2 for
pension, severance and other termination benefits; $4.7 for a
writedown of the casting facilities to net realizable value; $3.3
for estimated 1994 casting operating losses to the expected date
of closure or sale; and $2.6 for various other items.
Investment, Interest and Other Income
Investment, interest and other income for the year ended December
31, 1993 included a fourth quarter pre-tax gain of $47.8 from the
sale of sixteen multi-family real estate properties for cash
proceeds of $113.6, and $10.8 of pre-tax charges related
principally to the establishment of additional litigation and
environmental reserves by Kaiser. Included in investment,
interest and other income for the year ended December 31, 1992
was $19.1 of pre-tax income for unrelated and non-recurring
adjustments to previously recorded liabilities and reserves.
Included in investment, interest and other income for the year
ended December 31, 1991 was the receipt of a $12.0 fee in the
first quarter from Kaiser's minority partner in consideration for
the execution of an expansion agreement for the Alumina Partners
of Jamaica ("Alpart") alumina refinery. The agreement provides
for a program of expansion and modernization of Alpart at the
existing ownership interest of 65% for Kaiser and 35% for
Kaiser's minority partner. The prior expansion agreement
provided for expansion rights of 75% for Kaiser and 25% for
Kaiser's minority partner.
Futures Contracts and Options
The Company periodically enters into forward foreign exchange,
commodity futures and commodity and currency option contracts
which are primarily accounted for as hedges of its revenues and
costs. The gains and losses on these contracts are reflected in
results of operations concurrently with the hedged revenues or
costs. The cash flows from these contracts are classified in a
manner consistent with the underlying nature of the transactions.
At December 31, 1993, the net fair market value of the Company's
position in these contracts was not material.
Foreign Currency Translation
The Company uses the United States dollar as the functional
currency for its foreign operations.
Per Share Information
Per share calculations are based on the weighted average number
of common shares outstanding in each year and, if dilutive,
weighted average common equivalent shares and common stock
options based upon the average price of the Company's common
stock during the year. The weighted average number of common and
common equivalent shares was 9,457,083 shares, 9,427,011 shares
and 9,458,253 shares for the years ended December 31, 1993, 1992
and 1991, respectively.
2. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Kaiser's investments in unconsolidated affiliates are held by its
principal operating subsidiary, Kaiser Aluminum & Chemical
Corporation ("KACC"). KACC holds a 28.3% interest in Queensland
Alumina Limited ("QAL"), a leading producer of alumina, and a 49%
interest in both Kaiser Jamaica Bauxite Company, a bauxite
supplier, and Anglesey Aluminium Limited ("Anglesey"), which
produces primary aluminum. KACC provides some of its affiliates
with services such as financing, management and engineering.
Purchases from these affiliates for the acquisition and
processing of bauxite, alumina and primary aluminum aggregated
$206.6, $219.4 and $238.7 for the years ended December 31, 1993,
1992 and 1991, respectively (see Note 10). KACC's equity in
income (loss) before income taxes of such operations is treated
as a reduction (increase) in costs of sales. At December 31,
1993 and 1992, KACC's net receivables from these affiliates were
not material.
Summarized combined financial information for KACC's investees is
as follows:
December 31,
---------------------
1993 1992
--------- ---------
Current assets $312.3 $295.0
Property, plant and equipment, net 371.1 389.4
Other assets 46.3 49.9
------- -------
Total assets $729.7 $734.3
======= =======
Current liabilities $130.4 $132.8
Long-term debt 290.0 275.0
Other liabilities 17.8 20.0
Stockholders' equity 291.5 306.5
------- -------
Total liabilities and stockholders' equity $729.7 $734.3
======= =======
Years Ended December 31,
---------------------------------
1993 1992 1991
--------- --------- ---------
Net sales $510.3 $586.6 $589.0
Costs and expenses (527.2) (586.7) (630.7)
Credit for income taxes 1.9 6.9 9.5
------- ------- --------
Net income (loss) $(15.0) $6.8 $(32.2)
======= ======= ========
KACC's equity in losses of affiliates $(3.3) $(1.9) $(19.5)
======= ======= ========
KACC's equity in losses differs from the summary net income
(loss) for unconsolidated affiliates due to various percentage
ownerships in the constituent entities and the amortization of
the excess of KACC's investment in the affiliates over its equity
in their net assets. At December 31, 1993, KACC's investment in
these affiliates exceeded its equity in their net assets by
$80.7. KACC is amortizing this amount over a twelve-year period
which results in an annual charge of approximately $11.9.
On July 8, 1993, the Company, through wholly owned subsidiaries,
acquired control of the general partner and became responsible
for the management of Sam Houston Race Park, Ltd. ("SHRP"). The
Company acquired its interest in SHRP (approximately 29.7%) and
an interest in the management contract with respect to the
facility for $9.1. Currently the track is under construction on
approximately 240 acres of land in northwest Houston and is
expected to begin operations by spring of 1994. As of December
31, 1993, SHRP had assets of $92.7 ($48.7 current), liabilities
of $90.4 ($13.9 current) and partners' equity of $2.3. SHRP
incurred losses for the year ended December 31, 1993 of $5.9.
The Company's equity in these losses was $1.6 for the period from
July 8, 1993 to December 31, 1993. The Company's investment in
SHRP exceeded its equity in SHRP's net assets at December 31,
1993 by approximately $6.5. The Company is amortizing this
amount over a period of forty years.
3. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as
follows:
December 31,
---------------------
Estimated
Useful Lives 1993 1992
------------- ---------- ---------
Land and improvements 8 -- 25 years $157.2 $139.6
Buildings 15 -- 45 years 240.1 209.4
Machinery and equipment 10 -- 22 years 1,263.9 1,108.5
Construction in progress 65.1 71.1
-------- --------
1,726.3 1,528.6
Less: accumulated depreciation (481.3) (341.5)
-------- --------
$1,245.0 $1,187.1
======== ========
Depreciation expense for the years ended December 31, 1993, 1992
and 1991 was $104.9, $90.2 and $82.4, respectively.
4. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
-----------------------------
1993 1992
----------- -----------
Corporate:
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 25.2 27.6
Other .5 1.1
Aluminum Operations:
1989 Credit Agreement:
Revolving Credit Facility 188.0 290.0
Term Loan - 36.6
Alpart CARIFA Loan 60.0 60.0
12 3/4% Senior Subordinated Notes due February 1, 2003 400.0 -
14 1/4% Senior Subordinated Notes due December 15, 1995,
net of discount - 320.5
Other 78.1 83.9
Forest Products Operations:
7.95% Timber Collateralized Notes due July 20, 2015 377.0 -
11 1/4% Senior Secured Notes due August 1, 2003 100.0 -
12 1/4% Senior Secured Discount Notes due August 1, 2003,
net of discount 73.5 -
10 1/2% Senior Notes due March 1, 2003 235.0 -
12 3/4% Notes due November 15, 1995, net of discount - 148.9
12% Series A Senior Notes due July 1, 1996, net of
discount - 159.0
12.2% Series B Senior Notes due July 1, 1996, net of - 297.3
discount
12 1/2% Senior Subordinated Debentures due July 1, 1998,
net of discount - 40.2
Other 2.9 34.3
Real Estate Operations:
Secured notes due December 31, 1997, interest at prime
plus 3% 17.2 88.4
Other notes and contracts, secured by receivables,
buildings, real estate and equipment 23.8 31.1
-------- --------
1,606.2 1,663.9
Less: current maturities (38.3) (71.2)
-------- --------
$1,567.9 $1,592.7
======== ========
CORPORATE
14% Senior Subordinated Reset Notes (the "Reset Notes")
The Reset Notes have borne interest at a rate of 14% per annum
since November 20, 1991 and, prior to such date, bore interest at
a rate of 16% per annum subsequent to May 20, 1989. Pursuant to
the terms of the indenture governing the Reset Notes, no further
adjustments to the interest rate are permitted. The Reset Notes
are redeemable at the Company's option, in whole or in part, at
par.
12 1/2% Subordinated Debentures (the "12 1/2% Debentures")
The 12 1/2% Debentures, which are net of discount of $2.4 and
$2.9 at December 31, 1993 and 1992, respectively, have mandatory
redemptions of $3.3 in December of each year through 1998. The
12 1/2% Debentures are redeemable at the Company's option, in
whole or in part, at par.
ALUMINUM OPERATIONS
The 1994 Credit Agreement
On February 17, 1994, Kaiser and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. (as agent for
itself and other lenders), Bank of America National Trust and
Savings Association and certain other lenders (the "1994 Credit
Agreement"). The 1994 Credit Agreement replaced the 1989 Credit
Agreement (as defined below) and consists of a $250.0 five-year
secured, revolving line of credit, scheduled to mature in 1999.
Kaiser is able to borrow under the facility by means of revolving
credit advances and letters of credit (up to $125.0) in an
aggregate amount equal to the lesser of $250.0 or a borrowing
base relating to eligible accounts receivable and inventory. As
of February 24, 1994, KACC had $67.4 of letters of credit
outstanding under the 1994 Credit Agreement. The 1994 Credit
Agreement is unconditionally guaranteed by Kaiser and by all
significant subsidiaries of KACC which were guarantors of KACC's
obligations under the 1989 Credit Agreement. Loans under the
1994 Credit Agreement bear interest at a rate per annum, at
KACC's election, equal to (i) a Reference Rate plus 1 1/2% or
(ii) LIBOR plus 3 1/4%. After June 30, 1995, the interest rate
margins applicable to borrowings under the 1994 Credit Agreement
may be reduced by up to 1 1/2% (non-cumulatively) based upon a
financial test, determined quarterly. KACC will record a pre-tax
extraordinary loss of approximately $8.3 in the first quarter of
1994, consisting primarily of the write-off of unamortized
deferred financing costs related to the 1989 Credit Agreement.
The 1994 Credit Agreement requires KACC to maintain certain
financial covenants and places restrictions on Kaiser's and
KACC's ability to, among other things, incur debt and liens, make
investments, pay common stock dividends, undertake transactions
with affiliates, make capital expenditures and enter into
unrelated lines of business. The 1994 Credit Agreement is
secured by, among other things, (i) mortgages on KACC's major
domestic plants (excluding the Gramercy plant); (ii) subject to
certain exceptions, liens on the accounts receivable, inventory,
equipment, domestic patents and trademarks and substantially all
other personal property of KACC and certain of its subsidiaries;
(iii) a pledge of all the stock of KACC owned by Kaiser and (iv)
pledges of all of the stock of a number of KACC's wholly owned
domestic subsidiaries, pledges of a portion of the stock of
certain foreign subsidiaries and pledges of a portion of the
stock of certain partially owned foreign affiliates.
Substantially all of the identifiable assets of the bauxite and
alumina and aluminum processing segments (see Note 11) are
attributable to KACC and collateralize the 1994 Credit Agreement
indebtedness.
The 1989 Credit Agreement
Kaiser and KACC entered into a credit agreement with a syndicate
of commercial banks and other financial institutions comprised of
a Revolving Credit Facility, a five-year Term Loan and certain
other agreements (as amended, the "1989 Credit Agreement"). The
obligations of KACC in respect of the credit facilities were
guaranteed by Kaiser, and by a number of wholly owned
subsidiaries of KACC. The five-year Revolving Credit Facility
under the 1989 Credit Agreement provided for loans not to exceed
the lesser of $350.0 or a borrowing base relating to the amount
of eligible accounts receivable and inventory of KACC and certain
of its subsidiaries. Up to $50.0 of availability under the
Revolving Credit Facility could have been used for letters of
credit. As of December 31, 1993, $113.6 of borrowing capacity
was unused under the Revolving Credit Facility of the 1989 Credit
Agreement (of which $12.8 could also have been used for letters
of credit). The five-year Term Loan component of the 1989 Credit
Agreement, which was originally to be repaid in ten equal semi-annual
installments, commencing May 31, 1990, was prepaid in June
1993 with funds provided from the issuance of the Depositary
Shares (as described in Note 7).
9 7/8% Senior Notes due 2002 (the "KACC Senior Notes")
Concurrent with the offering of the 8.255% Preferred Redeemable
Increased Dividend Equity Securities (the "PRIDES") on February
17, 1994 (see Note 7), KACC issued $225.0 of the KACC Senior
Notes. The net proceeds from the offering of the KACC Senior
Notes were used to reduce outstanding borrowings under the
Revolving Credit Facility of the 1989 Credit Agreement
immediately prior to the effectiveness of the 1994 Credit
Agreement and for working capital and general corporate purposes.
12 3/4% Senior Subordinated Notes (the "KACC Notes")
On February 1, 1993, KACC issued $400.0 of the KACC Notes. The
net proceeds from the sale of the KACC Notes were used to retire
KACC's 14 1/4% Senior Subordinated Notes due 1995, to prepay
$18.0 of the Term Loan under KACC's 1989 Credit Agreement and to
reduce outstanding borrowings under the Revolving Credit Facility
of the 1989 Credit Agreement. These transactions resulted in a
pre-tax extraordinary loss of $33.0, consisting primarily of the
payment of premiums and the write-off of unamortized discount and
deferred financing costs on the 14 1/4% Senior Subordinated
Notes.
The obligations of KACC with respect to the KACC Senior Notes and
the KACC Notes are guaranteed, jointly and severally, by certain
subsidiaries of KACC. The indentures governing the KACC
Senior Notes and the KACC Notes and the 1994 Credit Agreement
restrict, among other things, KACC's and Kaiser's ability to
incur debt, undertake transactions with affiliates and pay
dividends. At December 31, 1993, under the most restrictive of
these covenants, Kaiser was not permitted to pay dividends on its
common stock.
Alpart CARIFA Loan
In December 1991, Alpart entered into a loan agreement with the
Caribbean Basin Projects Financing Authority ("CARIFA") under
which CARIFA loaned Alpart the proceeds from the issuance of
CARIFA's Industrial Revenue bonds. The terms of the loan
parallel the bonds' repayment terms. The $38.0 aggregate
principal amount of Series A bonds matures on June 1, 2008. The
Series A bonds bear interest at a floating rate of 87% of the
applicable LIBID rate (LIBOR less 1/8 of 1%) on $37.5 of the
principal amount (2.9% at December 31, 1993) with the remaining
$.5 bearing interest at a fixed rate of 6.35%. The $22.0
aggregate principal amount of Series B bonds matures on June 1,
2007 and bears interest at a fixed rate of 8.25%. Proceeds from
the sale of the bonds were used by Alpart to refinance interim
loans from the partners in Alpart, to pay eligible project costs
for the expansion and modernization of its alumina refinery and
related port and bauxite mining facilities and to pay certain
costs of issuance. Under the terms of the loan agreement, Alpart
must remain a qualified recipient for Caribbean Basin Initiative
funds as defined by applicable laws. Alpart has agreed to
indemnify bondholders of CARIFA for certain tax payments that
could result from events, as defined, that adversely affect the
tax treatment of the interest income on the bonds. Alpart's
obligations under the loan agreement are secured by a $64.2
letter of credit guaranteed by the partners in Alpart (of which
$22.5 is guaranteed by Kaiser's minority partner).
FOREST PRODUCTS OPERATIONS
Timber Notes and 10 1/2% Senior Notes (the "Pacific Lumber Senior
Notes")
On March 23, 1993, The Pacific Lumber Company ("Pacific Lumber")
issued $235.0 of the Pacific Lumber Senior Notes and its newly-formed
wholly owned subsidiary, Scotia Pacific Holding Company
("SPHC"), issued $385.0 of the Timber Notes. Pacific Lumber and
SPHC used the net proceeds from the sale of the Pacific Lumber
Senior Notes and the Timber Notes, together with Pacific Lumber's
cash and marketable securities, to (i) retire (a) $163.8
aggregate principal amount of Pacific Lumber's 12% Series A
Senior Notes due July 1, 1996 (the "Series A Notes"), (b) $299.7
aggregate principal amount of Pacific Lumber's 12.2% Series B
Senior Notes due July 1, 1996 (the "Series B Notes") and (c)
$41.7 aggregate principal amount of Pacific Lumber's 12 1/2%
Senior Subordinated Debentures due July 1, 1998 (the
"Debentures;" the Series A Notes, the Series B Notes and the
Debentures are referred to collectively as the "Old Pacific
Lumber Securities"); (ii) pay accrued interest on the Old Pacific
Lumber Securities through the date of redemption thereof; (iii)
pay the applicable redemption premiums on the Old Pacific Lumber
Securities; (iv) repay Pacific Lumber's $28.9 cogeneration
facility loan; (v) fund the initial deposit of $35.0 to an
account held by the trustee for the Timber Notes (the "Liquidity
Account"); and (vi) pay a $25.0 dividend to a subsidiary of MGI.
These transactions resulted in a pre-tax extraordinary loss of
$38.1, consisting primarily of the payment of premiums and the
write-off of unamortized discounts and deferred financing costs
on the Old Pacific Lumber Securities.
The indenture governing the Timber Notes (the "Timber Note
Indenture") prohibits SPHC from incurring any additional
indebtedness for borrowed money and limits the business
activities of SPHC to the ownership and operation of its timber
and timberlands. The Timber Notes are senior secured obligations
of SPHC and are not obligations of, or guaranteed by, Pacific
Lumber or any other person. The Timber Notes are secured by a
lien on (i) SPHC's timber and timberlands, (ii) substantially all
of SPHC's property and equipment, (iii) SPHC's contract rights
and certain other assets and (iv) cash equivalents reserved for
debt service payments and the funds deposited in the Liquidity
Account.
The Timber Notes are structured to link, to the extent of cash
available, the deemed depletion of SPHC's timber (through the
harvest and sale of logs) to required amortization of the Timber
Notes. The actual required amount of such amortization due on
any Timber Note payment date is determined by various
mathematical formulas set forth in the Timber Note Indenture. The
minimum amount of principal which SPHC must pay (on a cumulative
basis) through any Timber Note payment date in order to avoid an
Event of Default (as defined in the Timber Note Indenture) is
referred to as rated amortization ("Rated Amortization"). If all
payments of principal are made in accordance with Rated
Amortization, the payment date on which SPHC will pay the final
installment of principal is July 20, 2015. The amount of
principal which SPHC must pay through each Timber Note payment
date in order to avoid payment of prepayment or deficiency
premiums is referred to as scheduled amortization ("Scheduled
Amortization"). If all payments of principal are made in
accordance with Scheduled Amortization, the payment date on which
SPHC will pay the final installment of principal is July 20,
2009.
Principal and interest on the Timber Notes is payable semi-annually on
January 20 and July 20. The Timber Notes are
redeemable at the option of SPHC, in whole but not in part, at
any time. The redemption price of the Timber Notes is equal to
the sum of the principal amount, accrued interest and a
prepayment premium calculated based upon the yield of like term
Treasury securities plus 50 basis points.
Interest on the Pacific Lumber Senior Notes is payable semi-annually on
March 1 and September 1. The Pacific Lumber Senior
Notes are redeemable at the option of Pacific Lumber, in whole or
in part, on or after March 1, 1998 at a price of 103% of the
principal amount plus accrued interest. The redemption price is
reduced annually until March 1, 2000, after which time the
Pacific Lumber Senior Notes are redeemable at par.
The indentures governing the Pacific Lumber Senior Notes and the
Timber Notes and Pacific Lumber's other debt contain various
covenants which, among other things, limit the payment of
dividends and restrict transactions between Pacific Lumber and
its affiliates. On February 24, 1994, Pacific Lumber paid
dividends of $5.7 which represents the entire amount permitted at
December 31, 1993.
11 1/4% Senior Secured Notes (the "MGI Senior Notes") and 12 1/4%
Senior Secured Discount Notes (the "MGI Discount Notes")
On August 4, 1993, MGI issued $100.0 aggregate principal amount
of the MGI Senior Notes and $126.7 aggregate principal amount
(approximately $70.0 net of original issue discount) of the MGI
Discount Notes (together, the "MGI Notes"). The MGI Notes are
secured by MGI's pledge of 100% of the common stock of Pacific
Lumber, Britt Lumber Co., Inc. ("Britt") and MAXXAM Properties
Inc. ("MPI," a wholly owned subsidiary of MGI) and by the
Company's pledge of 28 million shares of Kaiser's common stock it
received as a result of the Forest Products Group Formation. The
indenture governing the MGI Notes, among other things, restricts
the ability of MGI to incur additional indebtedness, engage in
transactions with affiliates, pay dividends and make investments.
At December 31, 1993, under the most restrictive of these
covenants, no dividends may be paid by MGI. The MGI Notes are
senior indebtedness of MGI; however, they are effectively
subordinate to the liabilities of MGI's subsidiaries, which
includes the Timber Notes and the Pacific Lumber Senior Notes.
The MGI Discount Notes are net of discount of $53.2 at December
31, 1993.
The MGI Senior Notes will pay interest semiannually on February 1
and August 1 of each year beginning on February 1, 1994. The MGI
Discount Notes will not pay any interest until February 1, 1999,
at which time semiannual interest payments will become due on
each February 1 and August 1 thereafter.
MGI used a portion of the net proceeds from the sale of the MGI
Notes to retire the entire outstanding balance of its 12 3/4%
Notes at 101% of their principal amount, plus accrued interest
through November 14, 1993. MGI used the remaining portion of the
net proceeds from the sale of the MGI Notes, together with a
portion of its existing cash resources, to pay a $20.0 dividend
to the Company. The Company used such proceeds to redeem, on
August 20, 1993, $20.0 aggregate principal amount of its Reset
Notes at 100% of their principal amount plus accrued interest
thereon.
The early retirement of the 12 3/4% Notes and the redemption of
$20.0 aggregate principal amount of the Reset Notes resulted in a
pre-tax extraordinary loss of $9.8 consisting of net interest
cost, the write-off of unamortized deferred financing costs,
premiums and the write-off of unamortized original issue
discount.
REAL ESTATE OPERATIONS
Secured Notes
The secured notes represent borrowings of the Company's wholly
owned partnership, MXM Mortgage L.P. ("MXM L.P."). The proceeds
from the notes were originally used by MXM Mortgage Corp., a
wholly owned subsidiary of the Company, to finance a portion of
the purchase for $122.3 of certain loans secured by real
properties and certain parcels of income producing real property
from the Resolution Trust Corporation. The notes mature on
December 31, 1997 and bear interest at the prime rate plus 3% per
annum, payable monthly. The amended loan agreement provides for
additional borrowings of up to $22.0 on or before March 31, 1994.
Upon the sale of any secured property or loan, the terms of the
loan agreement require MXM L.P. to make principal payments based
on the release price (as defined) of such property or loan. In
addition, the loan agreement requires MXM L.P. to repay the
entire outstanding balance of the notes if such balance declines
to less than $10.0 or if less than 40% of such balance is
allocated to multi-family assets. Principal payments of $60.2
were made in December 1993 in connection with the sale of multi-family
properties discussed in Note 1 -- "Investment, Interest
and Other Income."
OTHER
Repurchase of Debt
In 1991, the Company redeemed $170.9 of corporate debt and
repurchased $16.0 of its other debt. A significant portion of
the funds used to redeem the corporate debt was provided through
the sale of the MGI 12 3/4% Notes and proceeds from the initial
public offering of Kaiser's common stock as described in Note 8.
The funds used to repurchase debt were provided by operations.
Maturities
Scheduled maturities of long-term debt outstanding at December
31, 1993 are as follows:
Years Ending December 31,
---------------------------------------------------------------
There-
1994 1995 1996 1997 1998 after
--------- -------- -------- ------- ------- -------
14% Senior Subordinated Reset
Notes $- $- $- $- $- $25.0
12 1/2% Subordinated Debentures 3.3 3.3 3.3 3.3 3.3 11.1
1989 Credit Agreement - - - - - 188.0
Alpart CARIFA Loan - - - - - 60.0
12 3/4% Senior Subordinated Notes - - - - - 400.0
7.95% Timber Collateralized Notes 13.1 13.6 14.1 16.2 19.3 300.7
11 1/4% Senior Secured Notes - - - - - 100.0
12 1/4% Senior Secured Discount
Notes - - - - - 126.7
10 1/2% Senior Notes - - - - - 235.0
Secured real estate notes - - - 17.2 - -
Other 21.9 16.6 9.6 9.4 9.4 38.4
-------- -------- -------- -------- -------- --------
$38.3 $33.5 $27.0 $46.1 $32.0 $1,484.9
======== ======== ======== ======== ======== ========
Capitalized Interest
Interest capitalized during the years ended December 31, 1993,
1992 and 1991 was $4.4, $5.2 and $5.1, respectively.
Restricted Net Assets of Subsidiaries
Certain debt instruments restrict the ability of the Company's
subsidiaries to transfer assets, make loans and advances and pay
dividends to the Company. As of December 31, 1993, all of the
assets relating to the Company's aluminum and forest products
operations are subject to such restrictions. The restricted net
assets of the Company's real estate subsidiaries totaled $4.0 at
December 31, 1993. Under the most restrictive covenants
governing debt of the Company's real estate subsidiaries,
approximately $24.0 could be paid as of December 31, 1993.
Fair Value
The estimated fair value of the Company's long-term debt is based
on the quoted market prices for the publicly-traded issues
(except for the KACC 14 1/4% Senior Subordinated Notes, where
fair value is based on the amount used to retire the notes in
February 1993) and on the current rates offered for borrowings
similar to the other debt. At December 31, 1993 and 1992, the
fair value of the Company's long-term debt is estimated to be
$1,647.0 and $1,709.1, respectively.
5. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS 109"). The adoption of SFAS 109 changes the
Company's method of accounting for income taxes to an asset and
liability approach from the deferral method prescribed by
Accounting Principles Board Opinion No. 11, Accounting for Income
Taxes. The asset and liability approach requires the
recognition of deferred income tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
Under this method, deferred income tax assets and liabilities are
determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using
enacted tax rates. The cumulative effect of the change in
accounting principle, as of January 1, 1993, increased the
Company's results of operations by $26.6.
The implementation of SFAS 109 required the Company to restate
certain assets and liabilities to their pre-tax amounts from
their net-of-tax amounts originally recorded in connection with
the acquisitions of various subsidiaries in prior years. The
restatement of the assigned values with respect to assets and
liabilities recorded as a result of the acquisitions and the
recomputation of deferred income tax liabilities under SFAS 109
resulted in: (i) an increase of $101.6 in the net carrying value
of property, plant, and equipment, (ii) an increase of $47.8 in
investments in and advances to unconsolidated affiliates, (iii) a
decrease of $29.7 in the net carrying value of timber and
timberlands, (iv) an increase of $21.7 in deferred income tax
liabilities (a substantial portion of which has been netted
against deferred income tax assets on the Consolidated Balance
Sheet), (v) a decrease of $11.4 in other assets, (vi) an increase
of $56.0 in other noncurrent liabilities and (vii) an increase of
$4.3 in other liabilities. As a result of restating the assets
and liabilities as described above, the loss before income taxes,
minority interests, extraordinary item and cumulative effect of
changes in accounting principles for the year ended December 31,
1993 was increased by $5.9.
Concurrent with the adoption of SFAS 109, the Company implemented
the changes in accounting methods for postretirement and
postemployment benefits pursuant to Statement of Financial
Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions ("SFAS 106") and
Statement of Financial Accounting Standards No. 112, Employers'
Accounting for Postemployment Benefits ("SFAS 112"). The pre-tax
cumulative effect of the changes in accounting principles
relating to SFAS 106 and SFAS 112 was a charge of $684.5, net of
benefits for minority interests of $64.6. These accounting
method changes resulted in the recognition of deferred income tax
assets of $240.2, net of valuation allowances.
Income (loss) before income taxes, minority interests,
extraordinary item and cumulative effect of changes in accounting
principles by geographic area is as follows:
Years Ended December 31,
-----------------------------------
1993 1992 1991
---------- ----------- -----------
Domestic $(223.4) $(112.3) $(47.5)
Foreign 12.0 99.1 114.9
-------- -------- --------
$(211.4) $(13.2) $67.4
======== ======== ========
The credit (provision) for income taxes on income (loss) before
income taxes, minority interests, extraordinary item and
cumulative effect of changes in accounting principles consists of
the following:
Years Ended December 31,
------------------------------------
1993 1992 1991
----------- ----------- -----------
Current:
Federal $(.1) $(.4) $(.5)
State and local (1.3) 1.2 (1.3)
Foreign (7.9) (11.4) (8.9)
----- ----- --------
(9.3) (10.6) (10.7)
----- ----- --------
Deferred:
Federal 77.1 4.9 7.5
State and local 2.7 11.6 2.6
Foreign 12.0 3.3 (1.4)
----- ----- --------
91.8 19.8 8.7
----- ----- --------
$82.5 $9.2 $(2.0)
===== ===== ========
The Omnibus Budget Reconciliation Act of 1993 (the "Act"),
enacted on August 10, 1993, retroactively increased the maximum
federal statutory income tax rate from 34% to 35% for periods
beginning on or after January 1, 1993. The 1993 federal deferred
credit for income taxes of $77.1 includes $29.2 for the benefit
of operating loss carryforwards generated in 1993 and includes a
$7.0 benefit for increasing net deferred income tax assets
(liabilities) as of the date of enactment of the Act due to the
increase in the federal statutory income tax rate.
The deferred credit (provision) for income taxes results from the
following timing differences for 1992 and 1991:
Years Ended December 31,
------------------------
1992 1991
------------ ---------
Revision of prior years' tax estimates $14.9 $8.7
Undistributed earnings or losses of foreign and
unconsolidated affiliates 12.3 12.4
Inventory costing differences 4.6 (3.0)
Employee benefit plans 1.9 (.1)
Income from forward sales (9.0) (7.9)
Depreciation and depletion (7.1) (5.6)
State taxes (.4) 2.4
Change in unrealized losses on short-term marketable
securities (.2) (.5)
Other 2.8 2.3
----- ----
$19.8 $8.7
===== ====
A reconciliation between the credit (provision) for income taxes
and the amount computed by applying the federal statutory income
tax rate to income (loss) before income taxes, minority
interests, extraordinary item and cumulative effect of changes in
accounting principles is as follows:
Years Ended December 31,
---------------------------------
1993 1992 1991
--------- --------- ---------
Income (loss) before income taxes, minority interests,
extraordinary item and cumulative effect of changes in
accounting principles $(211.4) $(13.2) $67.4
======= ======= =======
Amount of federal income tax based upon the statutory rate $74.0 $4.5 $(22.9)
Increase in net deferred income tax assets due to tax rate
change 7.0 - -
Percentage depletion 6.4 6.3 6.0
Removal of Kaiser from the Company's consolidated federal
return group 3.5 - -
State and local taxes, net of federal tax benefit .9 .6 2.1
Foreign taxes, net of federal tax benefit (5.0) (8.1) (1.5)
Revision of prior years' tax estimates and other changes in
valuation allowances (.6) 14.9 8.7
Financial reporting/tax basis differences - .1 9.4
Losses and expenses for which no federal tax benefit was
recognized - (9.2) -
Other (3.7) .1 (3.8)
------- ------- -------
$82.5 $9.2 $(2.0)
======= ======= =======
As shown in the Consolidated Statement of Operations for the year
ended December 31, 1993, the Company reported an extraordinary
loss related to the early extinguishment of debt. The Company
reported the loss net of related deferred federal income taxes of
$27.5 which approximated the federal statutory income tax rate in
effect on the dates the transactions occurred. The related
deferred income tax benefits recorded by the Company in respect
of SFAS 106 and SFAS 112 were recorded at the federal statutory
rate in effect on the dates the accounting standards were adopted
before giving effect to certain valuation allowances. At
December 31, 1993 and 1992, the Company recorded a charge to
equity for additional pension liabilities pursuant to Statement
of Financial Accounting Standards No. 87, Employers' Accounting
for Pensions. The Company recorded the 1993 charge net of
related deferred federal and state income taxes of $8.7, which
approximated the federal and state statutory rate. The Company
did not record a tax benefit with respect to the 1992 charge.
The components of the Company's net deferred income tax assets
(liabilities) are as follows:
January 1,
1993
(date of
December 31, 1993 adoption)
---------------- ----------------
Deferred income tax assets:
Postretirement benefits other than pensions $288.2 $273.6
Loss and credit carryforwards 161.5 137.3
Other liabilities 116.8 75.0
Real estate 75.9 39.1
Pensions 60.7 46.2
Timber and timberlands 46.5 41.2
Foreign and state deferred income tax liabilities 33.0 44.6
Property, plant and equipment 24.1 24.5
Other 36.1 45.0
Valuation allowances (149.3) (160.4)
-------- --------
Total deferred income tax assets, net 693.5 566.1
-------- --------
Deferred income tax liabilities:
Property, plant and equipment (224.2) (215.6)
Investments in and advances to unconsolidated
affiliates (60.6) (60.9)
Inventories (33.3) (36.3)
Other (31.2) (44.2)
-------- --------
Total deferred income tax liabilities (349.3) (357.0)
-------- --------
Net deferred income tax assets $344.2 $209.1
======== ========
The valuation allowances listed above relate primarily to loss
and credit carryforwards and postretirement benefits other than
pensions. As of December 31, 1993, approximately $206.8 of the
net deferred income tax assets listed above are attributable to
Kaiser. Of this amount, approximately $82.4 relate to the
benefit of loss and credit carryforwards, net of valuation
allowances. The Company evaluated all appropriate factors to
determine the proper valuation allowances for these
carryforwards, including any limitations concerning their use,
the year the carryforwards expire and the levels of taxable
income necessary for utilization. For example, full valuation
allowances were provided for certain credit carryforwards that
expire in the near term. With regard to future levels of income,
the Company believes that Kaiser, based on the cyclical nature of
its business, its history of prior operating earnings and its
expectations for future years, will more likely than not generate
sufficient taxable income to realize the benefit attributable to
the loss and credit carryforwards for which valuation allowances
were not provided. The remaining portion of Kaiser's net
deferred income tax assets is approximately $124.4. A principal
component of this amount is the tax benefit associated with the
accrual for postretirement benefits other than pensions. The
future tax deductions with respect to the turnaround of this
accrual will occur over a thirty to forty year period. If such
deductions create or increase a net operating loss in any one
year, Kaiser has the ability to carry forward such loss for
fifteen taxable years. For these reasons, the Company believes a
long-term view of profitability is appropriate and has concluded
that this net deferred income tax asset will more likely than not
be realized despite Kaiser's recent decline in profitability. The
net deferred income tax assets listed above which are not
attributable to Kaiser are approximately $137.4, as of
December 31, 1993. This amount includes approximately $122.4
which relates to the excess of the tax basis over financial
statement basis with respect to timber and timberlands and real
estate. The Company has concluded that it is more likely than
not that these net deferred income tax assets will be realized
based in part upon the estimated values of the underlying assets
which are in excess of their tax basis.
Certain of the deferred income tax assets and liabilities listed
above are included on the Consolidated Balance Sheet in the
captions entitled prepaid expenses and other current assets,
other accrued liabilities and other noncurrent liabilities.
The Company files consolidated federal income tax returns
together with its domestic subsidiaries. As a consequence of
Kaiser's public offering of shares on June 30, 1993, as discussed
in Note 7, Kaiser and its subsidiaries are no longer included in
the consolidated federal income tax return group of the Company.
Kaiser and its subsidiaries have become members of a new
consolidated return group of which Kaiser is the common parent
corporation (the "New Kaiser Tax Group"). The New Kaiser Tax
Group will file a consolidated federal income tax return for
taxable periods beginning on or after July 1, 1993.
Income taxes are classified as either domestic or foreign based
on whether payment is made or due to the United States or a
foreign country. Certain income classified as foreign is subject
to domestic income taxes.
The following table presents the tax attributes for federal
income tax purposes at December 31, 1993 attributable to the
Company and to the New Kaiser Tax Group. The allocation of these
attributes among the companies, as well as the amounts listed,
may change based upon the final 1993 tax returns. The
utilization of certain of these tax attributes are subject to
limitations.
The Company New Kaiser Tax Group
---------------------- ------------------------
Expiring Expiring
Through Through
---------- ------------
Regular Tax Attribute Carryforwards:
Current year net operating loss $14.0 2008 $83.4 2008
Prior year net operating losses 16.0 2007 54.9 2006
General business tax credits .9 2002 41.6 2006
Foreign tax credits - - 19.8 1998
Alternative minimum tax credits 1.6 Indefinite 15.3 Indefinite
Alternative Minimum Tax Attribute
Carryforwards:
Current year net operating loss $- - $56.0 2008
Prior year net operating losses 8.5 2007 24.0 2002
Foreign tax credits - - 12.0 1998
6. EMPLOYEE BENEFIT AND INCENTIVE PLANS
Postretirement Benefits Other Than Pensions
The Company has unfunded defined postretirement benefit plans
which cover most of its employees. Under the plans, employees
are eligible for health care benefits (and life insurance
benefits for Kaiser employees) upon retirement. Retirees from
companies other than Kaiser make contributions for a portion of
the cost of their health care benefits. Kaiser amended certain
salaried retiree group insurance benefits effective January 1,
1994 to provide for additional cost-sharing features, such as
reducing certain reimbursements and requiring future retiree
contributions which will lower salaried retiree medical expenses.
The Company adopted SFAS 106 as of January 1, 1993. The costs of
postretirement benefits other than pensions are now accrued over
the period the employees provide services to the date of their
full eligibility for such benefits. Previously, such costs were
expensed as actual claims were incurred. The cumulative effect
of the change in accounting principle for the adoption of SFAS
106 was recorded as a charge to results of operations of $437.9,
net of related benefits for minority interests of $63.6 and
income taxes of $236.8.
A summary of the components of net periodic postretirement
benefit cost for the year ended December 31, 1993 is as follows:
Service cost -- benefits earned during the year $7.4
Interest cost on accumulated postretirement benefit 59.0
obligation -----
Net periodic postretirement benefit cost $66.4
=====
The adoption of SFAS 106 increased the Company's loss before
extraordinary item and cumulative effect of changes in accounting
principles by $13.3, or $1.41 per share ($19.9 before income
taxes), for the year ended December 31, 1993. Kaiser's cost of
providing postretirement health care and life insurance benefits
to retired employees was $47.2 and $40.2 for the years ended
December 31, 1992 and 1991, respectively.
The postretirement benefit liability recognized in the Company's
Consolidated Balance Sheet was:
January 1,
1993
December 31, (date of
1993 adoption)
----------- ---------
Retirees $631.2 $583.5
Actives eligible for benefits 35.1 32.7
Actives not eligible for benefits 133.2 122.1
------- -------
Accumulated postretirement benefit
obligation 799.5 738.3
Unrecognized prior service cost 35.0 -
Unrecognized net loss (66.8) -
------- -------
Postretirement benefit liability $767.7 $738.3
======= =======
The annual assumed rates of increase in the per capita cost of
covered benefits (i.e., health care cost trend rates) are
approximately 9.5% and 8.0% for retirees under age 65 and over
age 65, respectively, and are assumed to decrease gradually to
approximately 5.25% for 2006 and remain at that level thereafter.
Each one percentage point increase in the assumed health care
cost trend rate would increase the accumulated postretirement
benefit obligation as of December 31, 1993 by approximately $97.0
and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost by approximately $9.6.
The discount rate and rate of compensation increase used in
determining the accumulated postretirement benefit obligation
were 7.5% and 5.0% at December 31, 1993, respectively, and 8.25%
and 5.0% at January 1, 1993, respectively.
Retirement Plans
The Company has various retirement plans which cover essentially
all employees. Most of the Company's employees are covered by
defined benefit plans. The benefits are determined under
formulas based on years of service and the employee's
compensation. The Company's funding policy is to contribute
annually an amount at least equal to the minimum cash
contribution required by ERISA.
The Company has various defined contribution savings plans
designed to enhance the existing retirement programs of
participating employees. Under the MAXXAM Inc. Savings Plan,
employees may elect to contribute up to 16% of their compensation
to the plan. For those participants who have elected to make
voluntary contributions to the plan, the Company's contributions
consist of a matching contribution of up to 4% of the
compensation of participants for each calendar quarter. Under
the Kaiser Aluminum Savings and Retirement Plan, salaried
employees may elect to contribute from 2% to 18% of their
compensation to the plan. For those eligible participants who
have elected to make contributions to the plan, Kaiser's
contributions are determined based on earnings and net worth
formulas.
A summary of the components of net periodic pension costs for the
defined benefit plans and total pension costs for the defined
contribution plans and non-qualified retirement and incentive
plans is as follows:
Years Ended December 31,
-------------------------------------
1993 1992 1991
---------- ---------- ----------
Defined benefit plans:
Service cost-benefits earned during the year $13.0 $13.1 $11.5
Interest cost on projected benefit obligations 60.8 60.2 60.4
Return on assets:
Actual gain (73.9) (28.2) (102.4)
Deferred gain (loss) 15.9 (31.2) 49.9
Net amortization and deferral 4.7 2.9 1.9
------ ------ -------
Net periodic pension cost 20.5 16.8 21.3
Defined contribution plans 1.7 1.7 3.6
Non-qualified retirement and incentive plans 4.3 5.5 4.8
------ ------ -------
$26.5 $24.0 $29.7
====== ====== =======
The following table sets forth the funded status and amounts
recognized for the defined benefit plans in the Consolidated
Balance Sheet:
December 31,
---------------------
1993 1992
--------- ---------
Actuarial present value of accumulated plan benefits:
Vested benefit obligation $724.1 $678.2
Non-vested benefit obligation 42.2 51.4
------- -------
Total accumulated benefit obligation $766.3 $729.6
======= =======
Projected benefit obligation $816.8 $767.1
Plan assets at fair value, primarily fixed income (590.8) (588.6)
securities and common stocks ------- -------
Projected benefit obligation in excess of plan assets 226.0 178.5
Unrecognized net transition obligation (1.7) (2.7)
Unrecognized net loss (76.2) (34.9)
Unrecognized prior service cost (17.8) (17.0)
Adjustment required to recognize minimum liability 47.7 25.3
------- -------
Accrued pension cost $178.0 $149.2
======= =======
The assumptions used in accounting for the defined benefit plans were
as follows:
December 31,
-----------------------------
1993 1992 1991
--------- --------- ---------
Rate of increase in compensation levels 5.0% 5.0% 5.0%
Discount rate 7.5% 8.25% 8.25%
Expected long-term rate of return on assets 10.0% 10.0% 10.0%
The Company has recorded an additional pension liability equal to
the excess of the accumulated benefit obligation over the fair
value of plan assets. The amount of the additional pension
liability in excess of unrecognized prior service cost is
recorded as a charge to stockholders' equity. In 1993 and 1992,
the additional pension liability charged to stockholders' equity
amounted to $14.9 and $9.0, respectively.
Postemployment Benefits
The Company adopted SFAS 112 as of January 1, 1993. The costs of
postemployment benefits are now accrued over the period the
employees provide services to the date of their full eligibility
for such benefits. Previously, such costs were expensed as
actual claims were incurred. The cumulative effect of the change
in accounting principle for the adoption of SFAS 112 was recorded
as a charge to results of operations of $6.4, net of related
benefits for minority interests of $1.0 and income taxes of $3.4.
Incentive Plans
Kaiser has an unfunded Long-Term Incentive Plan (the "LTIP") for
certain key employees. All compensation vested as of December
31, 1992 under the LTIP, as amended in 1991 and 1992, has been
paid to the participants in cash or common stock of Kaiser as of
December 31, 1993. Under the LTIP, as amended, 764,092 shares of
Kaiser common stock were distributed to participants during 1993
which will generally vest at the rate of 25% per year. Kaiser
will record the related expense of approximately $6.5 over the
four-year period ending December 31, 1996.
In 1993, Kaiser adopted the Kaiser 1993 Omnibus Stock Incentive
Plan. At December 31, 1993, Kaiser had 1,151,608 shares of its
common stock reserved for awards or for payment of rights granted
under this plan. In 1993, the stockholders approved the award of
584,300 shares as "nonqualified stock options" to members of
management other than those participating in the LTIP. These
options will generally vest at the rate of 20% per year over the
next five years, commencing May 18, 1994. The exercise price of
these shares is $7.25 per share (the quoted market price at the
date of grant).
7. MINORITY INTERESTS
Minority interests represent the following:
December 31,
---------------------
1993 1992
--------- ---------
Kaiser Aluminum Corporation:
Common stock, par $.01 (Note 8) $ - $71.8
$.65 Depositary Shares 119.3 -
Subsidiary redeemable preference stock:
KACC Series A and B Cumulative Preference Stock, par $1 33.6 32.8
KACC Cumulative Convertible Preference Stock, par $100 1.8 2.0
KACC Minority Interest:
Alumina Partners of Jamaica 56.9 58.8
Volta Aluminium Company Limited 11.5 11.3
Kaiser LaRoche Hydrate Partners 1.2 -
------ ------
$224.3 $176.7
====== ======
As a result of Kaiser's public offering of its common stock in
1991, the issuance of preferred stock in 1993 and 1994 (each as
described below) and, to a lesser extent, the issuance of common
stock in connection with the LTIP (as described above), the
Company's voting interest in Kaiser has decreased to
approximately 61% on a fully diluted basis, as of February 17,
1994.
$.65 Depositary Shares
On June 30, 1993, Kaiser issued 17,250,000 of its $.65 Depositary
Shares (the "Depositary Shares"), each representing one-tenth of
a share of Series A Mandatory Conversion Premium Dividend
Preferred Stock (the "Series A Shares"). In connection with the
issuance of the Depositary Shares, Kaiser issued an additional
2,132,950 of its Depositary Shares to MGI in exchange for a $15.0
promissory note issued by KACC which evidenced a $15.0 cash loan
made by MGI to KACC in January 1993 (the "MGI Loan"). Kaiser
used approximately $81.5 of the net proceeds it received from the
sale of the Depositary Shares together with the MGI Loan to make
a capital contribution to KACC, and $37.8 of the net proceeds it
received from the sale of the Depositary Shares to make a non-interest
bearing loan to KACC (evidenced by a note) which is
designed to provide sufficient funds to make the required
dividend payments on the Series A Shares until June 30, 1996 (the
"Series A Shares Mandatory Conversion Date"). KACC used
approximately $13.7 of such funds to prepay the remaining balance
of the Term Loan under the 1989 Credit Agreement and $105.6 of
such funds to reduce outstanding borrowings under the Revolving
Credit Facility of the 1989 Credit Agreement. On June 30, 1996,
each of the outstanding Depositary Shares will automatically
convert (upon the automatic conversion of the Series A Shares)
into (i) one share of Kaiser's common stock, plus (ii) the right
to receive an amount in cash equal to the accrued and unpaid
dividends payable with respect to such Depositary Shares.
Automatic conversion of the outstanding Depositary Shares (and
the Series A Shares) will occur upon certain mergers or
consolidations of Kaiser (as defined). At any time or from time
to time prior to June 30, 1996, Kaiser may call the outstanding
Depositary Shares (by calling the Series A Shares) for
redemption, in whole or in part, at a call price per Depositary
Share initially equal to $12.46, declining by $.0018 on each day
following the date of issue to $10.624 on April 30, 1996, and
equal to $10.51 thereafter, payable in shares of common stock
having an aggregate Current Market Price (as defined) equal to
the applicable call price, plus an amount in cash equal to all
accrued and unpaid dividends payable with respect to such
Depositary Share. Holders of Depositary Shares (based on the
voting rights of the Series A Shares) have one vote for each
Depositary Share held of record, except as required by law, and
are entitled to vote with the holders of common stock on all
matters submitted to a vote of Kaiser's common stockholders. The
Depositary Shares call for the payment of quarterly dividends
(when and as declared by Kaiser's Board of Directors) of
approximately $3.2 ($.1625 per share). The Company has accounted
for Kaiser's issuance of the Depositary Shares as additional
minority interest.
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.
Subsidiary Redeemable Preference Stock
In March 1985, KACC entered into a three-year agreement with the
United Steelworkers of America ("USWA") whereby shares of a new
series of KACC Cumulative (1985 Series A) Preference Stock (the
"Series A Stock") would be issued to an employee stock ownership
plan in exchange for certain elements of wages and benefits.
Concurrently, a similar plan was established for certain
nonbargaining employees which provided for the issuance of KACC
Cumulative (1985 Series B) Preference Stock (the "Series B
Stock"). The Series A Stock and the Series B Stock ("Series A
and B Stock") each have a liquidation and redemption value of $50
per share plus accrued dividends, if any, and have a total
redemption value of $54.1 at December 31, 1993. Issuances and
redemptions of Series A and B Stock are as follows:
Years Ended December 31,
---------------------------------------
1993 1992 1991
----------- ----------- -----------
Shares:
Beginning of year 1,163,221 1,305,550 1,718,051
Issued - - 1,868
Redeemed (81,673) (142,329) (414,369)
---------- ---------- ----------
End of year 1,081,548 1,163,221 1,305,550
========== ========== ==========
No additional Series A or B Stock will be issued based on
compensation earned in 1992 or subsequent years. While held by
the plan trustee, Series B Stock is entitled to cumulative annual
dividends, when and as declared by KACC's Board of Directors,
payable in Series B Stock or in cash at the option of KACC on or
after March 1, 1991, with respect to years commencing January 1,
1990, based on a formula tied to KACC's income before tax from
aluminum operations. When distributed to plan participants
(generally upon separation from KACC), the Series A and B Stock
is entitled to an annual cash dividend of $5 per share, payable
quarterly, when and as declared by KACC's Board of Directors.
Redemption fund agreements require KACC to make annual payments
by March 31 of each year based on a formula tied to KACC's
consolidated net income until the redemption funds are sufficient
to redeem all Series A and B Stock. On an annual basis, the
minimum payment is $4.3 and the maximum payment is $7.3. In
March 1992 and 1993, KACC contributed $7.0 and $4.3 for the years
ended December 31, 1991 and 1992, respectively, and will
contribute $4.3 in March 1994 for the year ended
December 31, 1993.
Under the USWA labor contract effective November 1, 1990, KACC
was obligated to offer to purchase up to 80 shares of Series A
Stock from each active participant in 1991 at a price equal to
its redemption value of $50 per share. KACC also agreed to offer
to purchase up to an additional 40 shares from each participant
in 1994. The employees may elect to receive their shares, accept
cash or place the proceeds into KACC's 401(k) savings plan.
Under separate action, KACC also offered to purchase 80 shares of
Series B Stock from active participants in 1991 and 40 shares in
1994. Under the provisions of these contracts, in February 1994,
KACC purchased $4.6 and $.8 of the Series A Stock and Series B
Stock, respectively.
The Series A and B Stock is distributed in the event of death or
retirement of the plan participant, or in other specified
circumstances. KACC may also redeem such stock at $50 per share
plus accrued dividends, if any. At the option of the plan
participant, the trustee shall redeem stock distributed from the
plans at the redemption value to the extent funds are available
in the redemption fund. Under the Tax Reform Act of 1986, at the
option of the plan participant, KACC must purchase distributed
shares earned after December 31, 1985 at the redemption value on
a five-year installment basis with interest at market rates. The
obligation of KACC to make such installment payments must be
secured.
The Series A and B Stock is entitled to the same voting rights as
KACC common stock and to certain additional voting rights under
certain circumstances, including the right to elect, along with
other KACC preference stockholders, two directors whenever
accrued dividends have not been paid on two annual dividend
payment dates, or when accrued dividends in an amount equivalent
to six full quarterly dividends are in arrears. The Series A and
B Stock restricts the ability of KACC to redeem or pay dividends
on its common stock if KACC is in default on any dividends
payable on the Series A and B Stock.
8.255% Preferred Redeemable Increased Dividend Equity Securities
On February 17, 1994, Kaiser consummated a public offering for
the sale of 8,000,000 shares of its PRIDES. The net proceeds
from the sale of the PRIDES were approximately $90.6. Kaiser
used $30.0 of such net proceeds to make a non-interest bearing
loan to KACC (evidenced by a note) which is designed to provide
sufficient funds to make the required dividend payments on the
PRIDES until December 31, 1997 (the "PRIDES Mandatory Conversion
Date") and $60.6 of such net proceeds to make a capital
contribution to KACC. Holders of shares of PRIDES have a 4/5
vote for each share held of record and, except as required by
law, are entitled to vote together with the holders of Kaiser's
common stock and together with the holders of any other classes
or series of Kaiser's stock (including the Series A Shares) who
are entitled to vote in such manner on all matters submitted to a
vote of common stockholders. On December 31, 1997, unless either
previously redeemed or converted at the option of the holder,
each of the outstanding shares of PRIDES will mandatorily convert
into (i) one share of Kaiser's common stock, subject to
adjustment in certain events, and (ii) the right to receive an
amount in cash equal to all accrued and unpaid dividends thereon.
Shares of PRIDES are not redeemable prior to December 31, 1996.
At any time and from time to time on or after December 31, 1996,
Kaiser may redeem any or all of the outstanding shares of PRIDES.
Upon any such redemption, each holder will receive, in exchange
for each share of PRIDES, the number of shares of Kaiser's common
stock equal to (A) the sum of (i) $11.9925, declining after
December 31, 1996 to $11.75 until December 31, 1997, plus, in the
event Kaiser does not elect to pay cash dividends to the
redemption date, (ii) all accrued and unpaid dividends thereon
divided by (B) the Current Market Price (as defined) on the
applicable date of determination, but in no event less than .8333
of a share of Kaiser's common stock, subject to adjustment in
certain events. At any time prior to December 31, 1997, unless
previously redeemed, each share of PRIDES is convertible at the
option of the holder thereof into .8333 of a share of Kaiser's
common stock (equivalent to a conversion price of $14.10 per
share of Kaiser's common stock), subject to adjustment in certain
events. The number of shares of Kaiser's common stock a holder
will receive upon redemption, and the value of the shares
received upon conversion, will vary depending on the market price
of Kaiser's common stock from time to time. The PRIDES call for
the payment of quarterly dividends of approximately $1.9 ($.2425
per share). The Company will account for Kaiser's issuance of
the PRIDES as additional minority interest in 1994.
8. STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
The holders of the Company's Class A Preferred Stock are entitled
to receive, if and when declared, preferential cash dividends at
the rate of $.05 per share per annum and will participate
thereafter on a share for share basis with the holders of common
stock in all cash dividends, other than cash dividends on the
common stock in any fiscal year to the extent not exceeding $.05
per share. Stock dividends declared on the common stock will
result in the holders of the Class A Preferred Stock receiving an
identical stock dividend payable in shares of Class A Preferred
Stock. At the option of the holder, the Class A Preferred Stock
is convertible at any time into shares of common stock at the
rate of one share of common stock for each share of Class A
Preferred Stock. Each holder of Class A Preferred Stock is
generally entitled to ten votes per share on all matters
presented to a vote of the Company's stockholders.
Sale of Subsidiary Stock
On July 18, 1991, Kaiser consummated its initial public offering
of 7.25 million shares of its common stock at a price of $14 per
share. The 7.25 million shares represented approximately a 12.7%
interest in Kaiser. Kaiser received approximately $93.2, net of
related offering costs, from the sale. Seventy-five percent of
the net proceeds were used to prepay certain notes together with
accrued interest thereon to MGI, and the remaining 25% was used
to prepay a portion of the indebtedness under Kaiser's 1989
Credit Agreement. As a result of the sale of Kaiser's common
stock, the Company's equity in Kaiser's net assets immediately
after the sale was approximately $28.5 higher than its historical
cost. The Company has accounted for this difference as an
increase in additional capital.
Stock Option Plans
The 1980 Incentive Plan authorized the granting of options to
purchase up to 750,000 shares of the Company's common stock
through June 1990. Options granted were exercisable at the
market price at the date of grant and became exercisable in five
equal annual installments, commencing one year from the date of
grant, and expiring ten years from the date of grant. On July 1,
1988, pursuant to the terms of the 1980 Incentive Plan, holders
of the 1980 Incentive Plan options were granted stock
appreciation rights. During the years ended December 31, 1992
and 1991, 63,000 options and 110,000 options were exercised at
prices ranging from $7.875 to $15.75 per share resulting in the
issuance of 19,761 shares and 54,037 shares, respectively. At
December 31, 1992, all options to purchase shares under the 1980
Incentive Plan had been exercised.
In 1988, 354,000 options granted under MGI's 1976 Stock Option
Plan (the "MGI 1976 Plan"), at prices ranging from $7.875 to
$18.75 per share, were converted into the right to receive, upon
exercise of each option, $6.11 in cash, .25 shares of the
Company's common stock (88,500 shares) and $6.00 principal amount
of the Reset Notes. Options granted under the MGI 1976 Plan
generally were exercisable for a period of ten years from the
date of grant. During 1993 and 1992, 60,000 options and 100,000
options granted under the MGI 1976 Plan at prices of $10.875 and
$11.625 per share, respectively, were surrendered for a cash
payment in lieu of the consideration referred to above. At
December 31, 1993, all options granted under the MGI 1976 Plan
had been exercised.
Shares Reserved for Issuance
At December 31, 1993, the Company had 678,239 common shares
reserved for future issuance upon conversion of the Class A
Preferred Stock.
Rights
On November 29, 1989, the Board of Directors of the Company
declared a dividend to its stockholders consisting of (i) one
Series A Preferred Stock Purchase Right (the "Series A Right")
for each outstanding share of the Company's Class A Preferred
Stock and (ii) one Series B Preferred Stock Purchase Right (the
"Series B Right") for each outstanding share of the Company's
common stock. The Series A Right and the Series B Right are
collectively referred to herein as the "Rights."The Rights are
exercisable only if a person or group of affiliated or associated
persons (an "Acquiring Person") acquires beneficial ownership, or
the right to acquire beneficial ownership, of 15% or more of the
Company's common stock, or announces a tender offer that would
result in beneficial ownership of 15% or more of the outstanding
common stock. Any person or group of affiliated or associated
persons who, as of November 29, 1989, was the beneficial owner of
at least 15% of the outstanding common stock will not be deemed
to be an Acquiring Person unless such person or group acquires
beneficial ownership of additional shares of common stock
(subject to certain exceptions). Each Series A Right, when
exercisable, entitles the registered holder to purchase from the
Company one share of Class A Preferred Stock at an exercise price
of $165.00, subject to adjustment. Each Series B Right, when
exercisable, entitles the registered holder to purchase from the
Company one one-hundredth of a share of the Company's new Class B
Junior Participating Preferred Stock, with a par value of $.50
per share (the "Junior Preferred Stock"), at an exercise price of
$165.00, subject to adjustment.
Under certain circumstances, including if any person becomes an
Acquiring Person other than through certain offers for all
outstanding shares of stock of the Company, or if an Acquiring
Person engages in certain "self-dealing" transactions, each
Series A Right would enable its holder to buy Class A Preferred
Stock (or, under certain circumstances, preferred stock of an
acquiring company) having a value equal to two times the exercise
price of the Series A Right, and each Series B Right shall enable
its holder to buy common stock of the Company (or, under certain
circumstances, common stock of an acquiring company) having a
value equal to two times the exercise price of the Series B
Right. Under certain circumstances, Rights held by an Acquiring
Person will be null and void. In addition, under certain
circumstances, the Board is authorized to exchange all
outstanding and exercisable Rights for stock, in the ratio of one
share of Class A Preferred Stock per Series A Right and one share
of common stock of the Company per Series B Right. The Rights,
which do not have voting privileges, expire in 1999, but may be
redeemed by action of the Board prior to that time for $.01 per
right, subject to certain restrictions.
Voting Control
Federated Development Company ("Federated") and Mr. Charles E.
Hurwitz collectively own 97.0% of the Company's Class A Preferred
Stock and 31.3% of the Company's common stock (resulting in
combined voting control of approximately 60.0% of the Company).
Mr. Hurwitz is the Chairman of the Board, President and Chief
Executive Officer of the Company and Chairman and Chief Executive
Officer of Federated. Federated is wholly owned by Mr. Hurwitz,
members of his immediate family and trusts for the benefit
thereof.
9. RELATED PARTY TRANSACTIONS
In 1987, the Company entered into loan agreements with Federated
for up to $26.0 of nonrecourse loans, secured by real estate
located in Rancho Mirage, California ("Mirada"). In July 1991,
these loans were assumed by MCO Properties Inc. ("MCOP"), a
wholly owned subsidiary of the Company (see "Exchange" below).
The Company recorded interest income on these loans amounting to
$1.1 for the year ended December 31, 1991.
In July 1991, an exchange agreement (the "Exchange") was
consummated by and among the Company, MCOP and Federated.
Pursuant to the terms of the Exchange, MCOP paid Federated $1.4
in cash, issued to Federated 394 shares of its 7% Cumulative
Exchangeable Preferred Stock (having a liquidation value of $3.9)
and assumed liabilities of $36.2, of which $34.2 was due the
Company. The MCOP Preferred Stock is exchangeable into shares of
the Company's common stock at an exchange price of approximately
$55.40 per share, subject to various antidilution provisions.
MCOP received the Mirada real estate assets, with an appraised
value of approximately $42.9, and 801,941 common shares and
47,702 Series E preferred shares of United Financial Group, Inc.
Due to the commonality of the ownership of the Company and
Federated, the Mirada assets acquired by MCOP were valued for
financial accounting purposes at Federated's basis immediately
before the transaction of $13.6. Accordingly, the Exchange
resulted in a charge to the Company's additional capital of
approximately $24.0.
Certain affiliated parties of the Company, including Mr. Charles
E. Hurwitz, collectively hold less than an 11% equity interest in
SHRP.
10. COMMITMENTS AND CONTINGENCIES
Commitments
The Company, principally through Kaiser, has financial
commitments, including purchase agreements, tolling arrangements,
forward foreign exchange contracts and forward sales contracts,
letters of credit and other guarantees. Purchase agreements and
tolling arrangements include agreements for the supply of alumina
to, and the purchase of aluminum from, Anglesey.
Similarly, KACC has long-term agreements for the purchase and
tolling of bauxite into alumina in Australia by QAL. These
obligations expire in 2008. Under the agreements, KACC is
unconditionally obligated to pay its proportional share of debt,
operating costs and certain other costs of this joint venture.
The aggregate minimum amount of required future principal
payments at December 31, 1993 is $73.6, due in 1997. KACC's
share of payments, including operating costs and certain other
expenses under the agreement, was $86.7, $99.2 and $107.6 for the
years ended December 31, 1993, 1992 and 1991, respectively.
Minimum rental commitments under operating leases at December 31,
1993 are as follows: years ending December 31, 1994 -- $27.9;
1995 -- $27.0; 1996 -- $26.3; 1997 -- $24.6; 1998 -- $26.1;
thereafter -- $248.8. Rental expense for operating leases was
$31.3, $29.2 and $29.1 for the years ended December 31, 1993,
1992 and 1991, respectively. The minimum future rentals
receivable under noncancelable subleases at December 31, 1993
were $92.8.
Environmental Contingencies
Kaiser and KACC are subject to a wide variety of environmental
laws and regulations and to fines or penalties assessed for
alleged breaches of the environmental laws and to claims and
litigation based upon such laws. KACC is currently subject to a
number of lawsuits under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments Reauthorization Act of 1986 ("CERCLA")
and, along with certain other entities, has been named as a
potentially responsible party for remedial costs at certain
third-party sites listed on the National Priorities List under
CERCLA.
Based upon Kaiser's evaluation of these and other environmental
matters, Kaiser has established environmental accruals primarily
related to potential solid waste disposal and soil and
groundwater remediation matters. The following table presents
the changes in such accruals, which are primarily included in
other noncurrent liabilities:
Years Ended December 31,
---------------------------------
1993 1992 1991
--------- --------- ---------
Balance at beginning of year $46.4 $51.5 $57.7
Additional amounts 1.7 4.5 7.8
Less expenditures (7.2) (9.6) (14.0)
------ ------ ------
Balance at end of year $40.9 $46.4 $51.5
====== ====== ======
These environmental accruals represent Kaiser's estimate of costs
reasonably expected to be incurred based upon presently enacted
laws and regulations, currently available facts, existing
technology and Kaiser's assessment of the likely remediation
action to be taken. Kaiser expects that these remediation
actions will be taken over the next several years and estimates
that expenditures to be charged to the environmental accrual will
be approximately $4.0 to $8.0 for the years 1994 through 1998 and
an aggregate of approximately $12.8 thereafter.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of
remediation are established, or alternative technologies are
developed, changes in these and other factors may result in
actual costs exceeding the current environmental accruals by
amounts which cannot presently be estimated. While uncertainties
are inherent in the ultimate outcome of these matters and it is
impossible to presently determine the actual costs that
ultimately may be incurred, management believes that the
resolution of such uncertainties should not have a material
adverse effect upon Kaiser's consolidated financial position or
results of operations.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits in which the
plaintiffs allege that certain of their injuries were caused by
exposure to asbestos during, and as a result of, their employment
with KACC or to products containing asbestos produced or sold by
KACC. The lawsuits generally relate to products KACC has not
manufactured for at least 15 years.
At year-end 1993, the number of such lawsuits pending was
approximately 23,400 (approximately 11,400 of which were received
in 1993). The number of such lawsuits instituted against KACC
increased substantially in 1993, and management believes the
number of such lawsuits will continue at approximately the same
rate for the next few years.
In connection with such litigation, during 1993, 1992, and 1991,
KACC made cash payments for settlement and other related costs of
$7.0, $7.1 and $6.1, respectively. Based upon prior experience,
Kaiser estimates annual future cash payments in connection with
such litigation of approximately $8.0 to $13.0 for the years 1994
through 1998, and will aggregate approximately $88.4 thereafter
through 2006. Based upon past experience and reasonably
anticipated future activity, Kaiser has established an accrual
for estimated asbestos-related costs for claims filed and
estimated to be filed and settled through 2006. Kaiser does not
presently believe there is a reasonable basis for estimating such
costs beyond 2006 and, accordingly, no accrual has been recorded
for such costs which may be incurred. This accrual was
calculated based upon the current and anticipated number of
asbestos-related claims, the prior timing and amounts of
asbestos-related payments, the current state of case law related
to asbestos claims, the advice of counsel and the anticipated
effects of inflation and discounting at an estimated risk-free
rate (5.25% at December 31, 1993). Accordingly, an accrual of
$102.8 for asbestos-related expenditures is included primarily in
other noncurrent liabilities at December 31, 1993. The aggregate
amount of the undiscounted liability at December 31, 1993 of
$141.5, before considerations for insurance recoveries, reflects
an increase of $56.6 from the prior year, resulting primarily
from an increase in claims filed during 1993 and Kaiser's belief
that the number of such lawsuits will continue at approximately
the same rate for the next few years.
Kaiser believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs.
While claims for recovery from one of KACC's insurance carriers
are currently subject to pending litigation and other carriers
have raised certain defenses, Kaiser believes, based upon prior
insurance-related recoveries in respect of asbestos-related
claims, existing insurance policies and the advice of counsel,
that substantial recoveries from the insurance carriers are
probable. Accordingly, estimated insurance recoveries of $94.0,
determined on the same basis as the asbestos-related cost
accrual, are recorded primarily in long-term receivables and
other assets as of December 31, 1993.
Based upon the factors discussed in the two preceding paragraphs,
management currently believes that there is no more than a remote
possibility (under generally accepted accounting principles) that
Kaiser's 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 upon Kaiser's consolidated financial position or results
of operations.
Other Contingencies
The Company is involved in various other claims, lawsuits and
other proceedings relating to a wide variety of matters. While
there are uncertainties inherent in the ultimate outcome of such
matters and it is impossible to presently determine the actual
costs that may be incurred, management believes that the
resolution of such uncertainties and the incurrence of such costs
should not have a material adverse effect upon the Company's
consolidated financial position or results of operations.
11. SEGMENT INFORMATION
The following tables present financial information by industry
segment and by geographic area at December 31, 1993 and 1992 and
and for the three years ended December 31, 1993, 1992 and 1991. As a
result of the Forest Products Group Formation described in Note
1, the Company has restated its presentation of operating income
(loss) and identifiable assets of the forest products and
corporate segments for the years ended December 31, 1992 and
1991.
Industry Segments
Bauxite Forest Real
Years and Aluminum Products Estate
Ended Alumina Processing Operations Operations Corporate Total
------- ----------- ---------- ---------- ---------- ---------- -----------
Sales to unaffiliated
customers 1993 $423.4 $1,295.7 $233.5 $78.5 $- $2,031.1
1992 466.5 1,442.6 223.4 70.1 - 2,202.6
1991 550.8 1,450.0 205.7 48.0 - 2,254.5
Operating income (loss) 1993 (20.1) (97.3) 54.3 (13.5) (19.5) (96.1)
1992 44.6 47.0 64.1 (9.3) (15.6) 130.8
1991 127.7 88.7 55.3 (18.8) (17.4) 235.5
Effect of changes in
accounting principles on
operating income (loss):
Postretirement
benefits other
than pensions 1993 (2.3) (16.9) (.4) (.2) (.1) (19.9)
Income taxes 1993 (6.3) (5.6) .1 .7 - (11.1)
Equity in earnings
(losses) of
unconsolidated
affiliates 1993 (2.5) (.8) - - (1.6) (4.9)
1992 1.8 (3.7) - - - (1.9)
1991 (4.4) (15.1) - - - (19.5)
Depreciation and
depletion 1993 33.8 57.3 24.5 4.1 1.1 120.8
1992 29.4 49.2 28.4 3.5 .9 111.4
1991 25.8 47.0 30.4 2.2 .7 106.1
Capital expenditures 1993 35.8 31.9 11.1 7.1 .3 86.2
1992 60.0 54.4 8.7 8.1 1.5 132.7
1991 51.8 66.3 6.1 5.1 1.6 130.9
Investments in and
advances
to unconsolidated
affiliates 1993 151.9 31.3 - - - 183.2
1992 136.7 13.4 - - - 150.1
Identifiable assets 1993 930.7 1,540.5 676.8 215.7 208.3 3,572.0
1992 816.0 1,341.8 666.0 308.3 66.7 3,198.8
Sales to unaffiliated customers excludes intersegment sales
between bauxite and alumina and aluminum processing of $129.4,
$179.9 and $194.6 for the years ended December 31, 1993, 1992 and
1991, respectively. Intersegment sales are made on a basis
intended to reflect the market value of the products.
Operating losses for Corporate represent general and
administrative expenses of MAXXAM Inc. that are not allocated to
the Company's industry segments. General and administrative
expenses of subsidiary companies are allocated in the Company's
industry segment presentation based upon those segments' ratio of
sales to unaffiliated customers.
Geographical Information
Years Other
Ended Domestic Caribbean Africa Foreign Eliminations Total
--------- --------- --------- --------- --------- ----------- -----------
Sales to unaffiliated
customers 1993 $1,515.8 $123.2 $207.5 $184.6 $- $2,031.1
1992 1,625.6 120.4 263.5 193.1 - 2,202.6
1991 1,614.8 172.3 269.2 198.2 - 2,254.5
Sales and transfers among
geographic
areas 1993 - 92.3 - 79.6 (171.9) -
1992 - 111.8 - 93.5 (205.3) -
1991 - 116.4 - 112.3 (228.7) -
Operating income (loss) 1993 (125.2) (9.3) 34.1 4.3 - (96.1)
1992 21.2 12.8 78.8 18.0 - 130.8
1991 84.6 42.4 72.1 36.4 - 235.5
Equity in earnings (losses) of
unconsolidated affiliates 1993 (1.6) - - (3.3) - (4.9)
1992 - - - (1.9) - (1.9)
1991 - - - (19.5) - (19.5)
Investments in and advances
to unconsolidated
affiliates 1993 1.0 30.5 - 151.7 - 183.2
1992 1.4 29.5 - 119.2 - 150.1
Identifiable assets 1993 2,740.8 421.7 223.0 186.5 - 3,572.0
1992 2,326.1 433.3 227.5 211.9 - 3,198.8
Sales and transfers among geographic areas are made on a basis
intended to reflect the market value of the products.
Included in results of operations are aggregate foreign currency
translation and transaction gains of $4.9, $12.0 and $1.2 for the
years ended December 31, 1993, 1992 and 1991, respectively.
Export sales were less than 10% of total revenues during the
years ended December 31, 1993, 1992 and 1991. There was no
single customer which accounted for more than 10% of total net
sales for the year ended December 31, 1993. For the years ended
December 31, 1992 and 1991, the Company had bauxite and alumina
sales of $135.3 and $155.9 and aluminum processing sales of
$144.9 and $160.9 to one customer, respectively.
MAXXAM Inc. and Subsidiaries
Quarterly Financial Information (unaudited)
Summary quarterly financial information for the years ended
December 31, 1993 and 1992 is as follows:
Three Months Ended
----------------------------------------------------
(IN MILLIONS OF DOLLARS, EXCEPT SHARE March 31 June 30 September 30 December 31
AMOUNTS) ---------- ---------- ------------ ----------
1993:
Net sales $513.7 $507.9 $506.5 $503.0
Operating loss (1.8) (1.1) (10.8) (82.4)
Loss before extraordinary item
and cumulative effect of
changes in accounting
principles (25.9) (15.8) (26.8) (63.4)
Extraordinary item, net (44.1) - (6.5) -
Cumulative effect of changes in
accounting principles, net (417.7) - - -
Net loss (487.7) (15.8) (33.3) (63.4)
Per common and common equivalent
share:
Loss before extraordinary
item and cumulative effect
of changes in accounting
principles (2.74) (1.67) (2.83) (6.71)
Extraordinary item, net (4.66) - (.69) -
Cumulative effect of changes
in accounting
principles, net (44.14) - - -
Net loss (51.54) (1.67) (3.52) (6.71)
1992:
Net sales $529.5 $565.0 $531.7 $576.4
Operating income 36.5 44.9 37.7 11.7
Net income (loss) .9 1.4 .7 (10.3)
Per common and common equivalent
share .10 .15 .07 (1.09)
MAXXAM Inc. and Subsidiaries
Market for the Company's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the American, Pacific and
Philadelphia Stock Exchanges. The stock symbol is MXM. The
following table sets forth for the calendar periods indicated the
high and low sales prices per share of the Company's common stock
as reported on the American Stock Exchange Consolidated Composite
Tape.
High Low
--------- ---------
1993:
First Quarter $35 3/4 $26 5/8
Second Quarter 27 1/4 21 3/4
Third Quarter 34 25 3/8
Fourth Quarter 38 7/8 28 3/8
1992:
First Quarter $43 1/2 $29 3/8
Second Quarter 42 1/2 29 5/8
Third Quarter 33 1/4 24 1/4
Fourth Quarter 29 3/4 22 1/4
The following table sets forth the number of record holders of
the Company's publicly-owned equity securities as of
March 1, 1994.
Number of
TITLE OF CLASS Record Holders
-------------
Common Stock 6,413
Class A $.05 Non-Cumulative
Participating Convertible Preferred
Stock 44
The Company has not declared any cash dividends on its common
stock or its Class A Preferred Stock and has no present intention
of paying such dividends in the immediate future.