===========================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
Commission File Number 1-3924
MAXXAM INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 95-2078752
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
5847 SAN FELIPE, SUITE 2600 77057
HOUSTON, TEXAS (Zip Code)
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (713) 975-7600
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding at August 1, 1995: 8,707,591
===========================================================================
MAXXAM INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1995
and December 31, 1994 3
Consolidated Statement of Operations for the three
and six months ended June 30, 1995 and 1994 4
Consolidated Statement of Cash Flows for the six
months ended June 30, 1995 and 1994 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures S-1
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1995 1994
------------- ------------
(Unaudited)
(In millions of dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 105.2 $ 84.6
Marketable securities 38.8 40.3
Receivables:
Trade, net of allowance for doubtful
accounts of $5.0 and $4.4 at June
30, 1995 and December 31, 1994,
respectively 215.1 176.8
Other 61.8 62.9
Inventories 584.5 541.4
Prepaid expenses and other current assets 110.8 185.3
------------- ------------
Total current assets 1,116.2 1,091.3
Property, plant and equipment, net of
accumulated depreciation of $629.6 and
$579.9 at June 30, 1995 and December 31,
1994, respectively 1,210.3 1,231.6
Timber and timberlands, net of depletion of
$129.8 and $123.9 at June 30, 1995 and
December 31, 1994, respectively 320.6 325.2
Investments in and advances to unconsolidated
affiliates 181.1 169.7
Deferred income taxes 436.5 425.6
Long-term receivables and other assets 475.7 447.4
------------- ------------
$ 3,740.4 $ 3,690.8
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 146.6 $ 161.8
Accrued interest 59.2 62.0
Accrued compensation and related benefits 128.1 138.3
Other accrued liabilities 165.6 200.2
Payable to affiliates 80.7 81.8
Long-term debt, current maturities 27.9 33.7
------------- ------------
Total current liabilities 608.1 677.8
Long-term debt, less current maturities 1,617.5 1,582.5
Accrued postretirement benefits 747.5 743.1
Other noncurrent liabilities 667.1 618.4
------------- ------------
Total liabilities 3,640.2 3,621.8
------------- ------------
Commitments and contingencies
Minority interests 350.4 344.3
Stockholders' deficit:
Preferred stock, $.50 par value; 12,500,000
shares authorized; Class A $.05 Non-
Cumulative Participating Convertible
Preferred Stock; shares issued:
669,957 .3 .3
Common stock, $.50 par value; 28,000,000
shares authorized; shares issued:
10,063,359 5.0 5.0
Additional capital 53.9 53.2
Accumulated deficit (278.5) (302.9)
Pension liability adjustment (11.4) (11.4)
Treasury stock, at cost (shares held:
preferred - 845; common - 1,355,768) (19.5) (19.5)
------------- ------------
Total stockholders' deficit (250.2) (275.3)
------------- ------------
$ 3,740.4 $ 3,690.8
============= ============
<FN>
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(Unaudited)
Net sales:
Aluminum operations $ 583.4 $ 459.5 $ 1,096.4 $ 874.6
Forest products operations 65.6 63.0 117.6 119.7
Real estate operations 24.3 21.3 40.6 38.5
---------- ---------- ---------- ----------
673.3 543.8 1,254.6 1,032.8
---------- ---------- ---------- ----------
Costs and expenses:
Costs of sales and
operations (exclusive
of depreciation and
depletion):
Aluminum operations 463.8 419.0 890.5 806.8
Forest products
operations 33.0 31.0 62.5 64.2
Real estate
operations 16.3 15.8 28.4 28.2
Selling, general and
administrative
expenses 47.2 41.5 89.8 80.9
Depreciation and depletion 31.1 30.0 60.9 61.2
---------- ---------- ---------- ----------
591.4 537.3 1,132.1 1,041.3
---------- ---------- ---------- ----------
Operating income (loss) 81.9 6.5 122.5 (8.5)
Other income (expense):
Investment, interest and
other income
(expense) 5.5 (19.1) 9.1 (7.7)
Interest expense (45.4) (44.2) (90.8) (87.7)
---------- ---------- ---------- ----------
Income (loss) before income
taxes, minority interests
and extraordinary item 42.0 (56.8) 40.8 (103.9)
Credit (provision) for income
taxes (10.0) 19.3 (2.8) 35.8
Minority interests (6.6) (5.7) (13.6) (9.6)
---------- ---------- ---------- ----------
Income (loss) before
extraordinary item 25.4 (43.2) 24.4 (77.7)
Extraordinary item:
Loss on early
extinguishment of
debt, net of related
benefit for income
taxes of $2.9 - - - (5.4)
---------- ---------- ---------- ----------
Net income (loss) $ 25.4 $ (43.2) $ 24.4 $ (83.1)
========== ========== ========== ==========
Per common and common
equivalent share:
Income (loss) before
extraordinary item $ 2.69 $ (4.57) $ 2.58 $ (8.22)
Extraordinary item - - - (.57)
---------- ---------- ---------- ----------
Net income (loss) $ 2.69 $ (4.57) $ 2.58 $ (8.79)
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
Six Months Ended
June 30,
--------------------------
1995 1994
----------- -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 24.4 $ (83.1)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and depletion 60.9 61.2
Minority interests 13.6 9.6
Amortization of deferred financing costs
and discounts on long-term debt 9.5 9.9
Amortization of excess investment over
equity in net assets of
unconsolidated affiliates 5.8 5.8
Equity in losses (income) of
unconsolidated affiliates (7.1) 1.0
Net losses (gains) on marketable
securities (3.8) .3
Net purchases of marketable securities (1.7) (26.9)
Incurrence of financing costs (1.0) (18.7)
Extraordinary loss on early
extinguishment of debt, net - 5.4
Decrease (increase) in prepaid expenses
and other assets 61.0 (4.9)
Increase in accrued interest .2 8.0
Decrease (increase) in inventories (45.3) 33.8
Decrease (increase) in receivables (43.2) 10.3
Decrease in accounts payable (14.6) (10.4)
Increase (decrease) in payable to
affiliates and other liabilities (12.1) 2.6
Increase in accrued and deferred income
taxes (6.3) (41.7)
Other 4.8 (3.3)
----------- -----------
Net cash provided by (used for)
operating activities 45.1 (41.1)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and
investments 11.0 6.6
Capital expenditures (33.8) (30.9)
Other (.3) (2.8)
----------- -----------
Net cash used for investing
activities (23.1) (27.1)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving
credit agreements 41.1 (193.4)
Proceeds from issuance of long-term debt 2.6 225.5
Principal payments on long-term debt (20.8) (21.8)
Dividends paid to Kaiser's minority preferred
stockholders (15.6) (8.8)
Redemption of preference stock (8.7) (8.4)
Proceeds from issuance of Kaiser preferred
stock - 100.4
----------- -----------
Net cash provided by (used for)
financing activities (1.4) 93.5
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 20.6 25.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 84.6 83.9
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 105.2 $ 109.2
=========== ===========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
REDUCTION OF MARGIN BORROWINGS FOR MARKETABLE
SECURITIES $ 6.9 $ .5
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 81.0 $ 69.9
Income taxes paid 17.1 6.5
<FN>
The accompanying notes are an integral part of these financial statements.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. GENERAL
The information contained in the following notes to the
consolidated financial statements is condensed from that which would appear
in the annual consolidated financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Annual Report on Form 10-K filed by MAXXAM Inc.
with the Securities and Exchange Commission for the fiscal year ended
December 31, 1994 (the "Form 10-K"). All references to the "Company"
include MAXXAM Inc. and its subsidiary companies unless otherwise indicated
or the context indicates otherwise. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at June 30, 1995, the
consolidated results of operations for the three and six months ended June
30, 1995 and 1994 and consolidated cash flows for the six months ended June
30, 1995 and 1994. Certain reclassifications of prior period information
have been made to conform to the current presentation.
2. CASH AND CASH EQUIVALENTS
At June 30, 1995 and December 31, 1994, cash and cash equivalents
includes $11.7 and $19.4, respectively, which is restricted for debt
service payments on the 7.95% Timber Collateralized Notes due 2015.
3. INVENTORIES
Inventories consist of the following:
June 30, December 31,
1995 1994
-------------- -------------
Aluminum Operations:
Finished fabricated products $ 62.4 $ 49.4
Primary aluminum and work in process 218.4 203.1
Bauxite and alumina 115.9 102.3
Operating supplies and repair and
maintenance parts 120.1 113.2
-------------- -------------
516.8 468.0
-------------- -------------
Forest Products Operations:
Lumber 60.4 61.3
Logs 7.3 12.1
-------------- -------------
67.7 73.4
-------------- -------------
$ 584.5 $ 541.4
============== =============
4. LONG-TERM DEBT
Long-term debt consists of the following:
June 30, December 31,
1995 1994
----------- ------------
Corporate:
14% Senior Subordinated Reset Notes due
May 20, 2000 $ 25.0 $ 25.0
12-1/2% Subordinated Debentures due
December 15, 1999, net of discount 16.3 20.9
Other .2 .2
Aluminum Operations:
1994 Credit Agreement 52.4 6.7
9-7/8% Senior Notes due February 15, 2002,
net of discount 223.7 223.6
Alpart CARIFA Loan 60.0 60.0
12-3/4% Senior Subordinated Notes due
February 1, 2003 400.0 400.0
Other 64.8 69.2
Forest Products Operations:
7.95% Timber Collateralized Notes due July
20, 2015 355.6 363.8
11-1/4% Senior Secured Notes due August 1,
2003 100.0 100.0
12-1/4% Senior Secured Discount Notes due
August 1, 2003, net of discount 87.8 82.8
10-1/2% Senior Notes due March 1, 2003 235.0 235.0
Other .8 .9
Real Estate Operations:
Secured notes due December 31, 1999,
interest at prime plus 3% 10.1 10.0
Other notes and contracts, secured by
receivables, buildings, real estate
and equipment 13.7 18.1
----------- ------------
1,645.4 1,616.2
Less: current maturities (27.9) (33.7)
----------- ------------
$ 1,617.5 $ 1,582.5
=========== ============
5. CREDIT (PROVISION) FOR INCOME TAXES
The provision for income taxes for the three and six months ended
June 30, 1995 includes a credit relating to reserves the Company no longer
believes are necessary.
6. PER SHARE INFORMATION
Per share calculations are based on the weighted average number
of common shares outstanding in each period and, if dilutive, weighted
average common equivalent shares assumed to be issued from the exercise of
common stock options based upon the average price of the Company's common
stock during the period.
7. CONTINGENCIES
Environmental Contingencies
Kaiser Aluminum Corporation ("Kaiser," a majority owned
subsidiary of the Company) and its principal operating subsidiary, Kaiser
Aluminum & Chemical Corporation ("KACC"), are subject to a wide variety of
environmental laws and regulations and to fines or penalties assessed for
alleged breaches of the environmental laws and to claims and litigation
based on such laws. KACC is currently subject to a number of lawsuits
under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments Reauthorization Act of
1986 ("CERCLA") and, along with certain other entities, has been named as a
potentially responsible party for remedial costs at certain third-party
sites listed on the National Priorities List under CERCLA.
Based on Kaiser's evaluation of these and other environmental
matters, Kaiser has established environmental accruals primarily related to
potential solid waste disposal and soil and groundwater remediation
matters. At June 30, 1995, the balance of such accruals, which is
primarily included in other noncurrent liabilities, was $41.3. These
environmental accruals represent Kaiser's estimate of costs reasonably
expected to be incurred based on presently enacted laws and regulations,
currently available facts, existing technology and Kaiser's assessment of
the likely remediation action to be taken. Kaiser expects that these
remediation actions will be taken over the next several years and estimates
that annual expenditures to be charged to these environmental accruals will
be approximately $3.0 to $11.0 for the years 1995 through 1999 and an
aggregate of approximately $11.0 thereafter.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of remediation
are established or alternative technologies are developed, changes in these
and other factors may result in actual costs exceeding the current
environmental accruals. Kaiser believes that it is reasonably possible
that costs associated with these environmental matters may exceed current
accruals by amounts that could range, in the aggregate, up to approximately
$21.0. While uncertainties are inherent in the final outcome of these
environmental matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, management currently believes
that the resolution of such uncertainties should not have a material
adverse effect on the Company's consolidated financial position or results
of operations.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits in which the
plaintiffs allege that certain of their injuries were caused by, among
other things, exposure to asbestos during, and as a result of, their
employment or association with KACC or exposure to products containing
asbestos produced or sold by KACC. The lawsuits generally relate to
products KACC has not manufactured for at least 15 years. At June 30,
1995, the number of such lawsuits pending was approximately 31,700.
Based on past experience and reasonably anticipated future
activity, KACC has established an accrual for estimated asbestos-related
costs for claims filed and estimated to be filed and settled through 2008.
KACC's accrual was calculated based on the current and anticipated number
of asbestos-related claims, the prior timing and amounts of asbestos-
related payments, the current state of case law related to asbestos claims,
and the advice of counsel. Accordingly, an asbestos-related cost accrual
of $134.6, before considerations for insurance recoveries, is included
primarily in other noncurrent liabilities at June 30, 1995. KACC estimates
that annual future cash payments in connection with such litigation will be
approximately $11.0 to $13.0 for each of the years 1995 through 1999, and
an aggregate of approximately $74.0 thereafter
through 2008. KACC does not presently believe there is a reasonable basis
for estimating such costs beyond 2008 and, accordingly, no accrual has been
recorded for such costs which may be incurred beyond 2008.
KACC believes that it has insurance coverage available to recover
a substantial portion of its asbestos-related costs. While claims for
recovery from some of KACC's insurance carriers are currently subject to
pending litigation and other carriers have raised certain defenses, KACC
believes, based on prior insurance-related recoveries in respect of
asbestos-related claims, existing insurance policies, and the advice of
counsel, that substantial recoveries from the insurance carriers are
probable. Accordingly, an estimated aggregate insurance recovery of
$120.6, determined on the same basis as the asbestos-related cost accrual,
is recorded primarily in long-term receivables and other assets at June 30,
1995.
While uncertainties are inherent in the final outcome of these
asbestos matters and it is presently impossible to determine the actual
costs that ultimately may be incurred and the insurance recoveries that
will be received, management currently believes that, based on the factors
discussed in the preceding paragraphs, the resolution of the asbestos-
related uncertainties and the incurrence of asbestos-related costs net of
related insurance recoveries should not have a material adverse effect on
the Company's consolidated financial position or results of operations.
Other Contingencies
The Company is involved in various other claims, lawsuits and
other proceedings relating to a wide variety of matters. While
uncertainties are inherent in the final outcome of such matters and it is
presently impossible to determine the actual costs that ultimately may be
incurred, management currently believes that the resolution of such
uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results
of operations.
8. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
KACC enters into primary metal hedging transactions with
off-balance sheet risk in the normal course of business. The prices
realized by Kaiser under certain sales contracts for alumina, primary
aluminum and fabricated aluminum products as well as the costs incurred by
Kaiser on certain items, such as aluminum scrap, rolling ingot, power and
bauxite, fluctuate with the market price of primary aluminum, together
resulting in a "net exposure" of earnings. The primary metal hedging
transactions are designed to mitigate the net exposure of earnings to
declines in the market price of primary aluminum, while retaining the
ability to participate in favorable environments that may materialize.
KACC has developed strategies which include forward sales of primary
aluminum at fixed prices and the purchase or sale of options for primary
aluminum. In this regard, in respect of its remaining 1995 anticipated net
exposure, at June 30, 1995, KACC had net forward sales contracts for
157,725 tons (all references to tons in this report refer to metric tons
of 2,204.6 pounds) of primary aluminum at fixed prices, purchased call
options in respect of 34,500 tons of primary aluminum, purchased put
options to establish a minimum price for 96,750 tons of primary aluminum,
and entered into option contracts that established a price range for 45,000
tons of primary aluminum. In respect of its 1996 anticipated net exposure,
at June 30, 1995, KACC had sold forward 15,000 tons of primary aluminum at
fixed prices.
KACC also enters into hedging transactions in the normal course
of business that are designed to reduce its exposure to fluctuations in
foreign exchange rates. At June 30, 1995, KACC had net forward foreign
exchange contracts totaling approximately $149.9 for the purchase of 207.0
Australian dollars through April 1997.
At June 30, 1995, the net unrealized loss on KACC's position in
aluminum forward sales and option contracts (based on a market price of
$1,808 per ton of primary aluminum) and forward foreign exchange contracts
was $3.8.
KACC has established margin accounts with its counterparties
related to aluminum forward sales and option contracts. KACC is entitled
to receive advances from counterparties related to unrealized gains and, in
turn, is required to make margin deposits with counterparties to cover
unrealized losses related to these contracts. At June 30, 1995, KACC had
$4.0, compared with $50.5 at December 31, 1994, on deposit with various
counterparties in respect of such unrealized losses. These amounts are
recorded in prepaid expenses and other current assets.
9. SUBSEQUENT EVENT
On July 21, 1995, Kaiser announced that it is calling for
redemption of all 1,938,295 of its Series A Mandatory Conversion Premium
Dividend Preferred Stock (the "Series A Shares") on September 19, 1995.
Redemption of the Series A Shares will result in the simultaneous
redemption of all 19,382,950 $.65 Depositary Shares (the "Depositary
Shares") in exchange for (i) 13,126,521 shares of Kaiser's common stock
determined by dividing the Call Price (as defined) in effect on the
redemption date ($110.218 per Series A Share) by the Current Market Price
(as defined) per share of common stock ($16.275) determined as of July 19,
1995, pursuant to the Certificate of Designations of the Series A Shares,
(ii) an amount in cash equal to all accrued and unpaid dividends to and
including the day immediately prior to the redemption date, and (iii) cash
in lieu of any fractional shares of common stock that would otherwise be
issuable.
In May of 1995, the Company sold the remaining Depositary Shares
that it owned on December 31, 1994. As a result, none of the shares of
Kaiser's common stock to be issued upon redemption of the Series A Shares
will be held by the Company. The Company has recorded 100% of the losses
attributable to Kaiser's common stock since July 1993, as Kaiser's
cumulative losses through that date had eliminated Kaiser's equity with
respect to its common stock. As of June 30, 1995, the cumulative deficit
attributable to Kaiser's common equity totaled $200.2. The redemption of
Kaiser's Series A Shares will reduce this deficit in common equity, and
decrease Kaiser's preferred equity, by $134.3 on the date of redemption.
Accordingly, the Company will record an adjustment to reduce the minority
interests reflected on its consolidated balance sheet for that same amount,
with an offsetting decrease in the Company's stockholders' deficit.
MAXXAM INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K. Any
capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.
RESULTS OF OPERATIONS
The Company operates in three industries: aluminum, through its
majority owned subsidiary Kaiser, a fully integrated aluminum producer;
forest products, through MAXXAM Group Inc. ("MGI") and its wholly owned
subsidiaries, principally The Pacific Lumber Company ("Pacific Lumber") and
Britt Lumber Co., Inc. ("Britt"); and real estate investment and
development, principally through MAXXAM Property Company and various other
wholly owned subsidiaries.
ALUMINUM OPERATIONS
Kaiser's operating results are sensitive to changes in prices of
alumina, primary aluminum and fabricated aluminum products, and also depend
to a significant degree upon the volume and mix of all products sold and on
hedging strategies. Kaiser, through its principal subsidiary KACC,
operates in two business segments: bauxite and alumina, and aluminum
processing. Aluminum operations account for a significant portion of the
Company's revenues and operating results. The following table presents
selected operational and financial information for the three and six months
ended June 30, 1995 and 1994. The information presented in the table is in
millions of dollars except shipments and prices.
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
Shipments: (1)
Alumina 576.6 574.2 1,023.1 1,042.4
Aluminum products:
Primary aluminum 63.8 63.1 111.5 127.4
Fabricated aluminum
products 99.4 104.9 193.9 201.7
-------- -------- -------- ---------
Total aluminum
products 163.2 168.0 305.4 329.1
======== ======== ======== =========
Average realized sales price:
Alumina (per ton) $ 206 $ 159 $ 202 $ 157
Primary aluminum (per pound) .83 .55 .82 .55
Net sales:
Bauxite and alumina:
Alumina $ 118.7 $ 91.3 $ 206.6 $ 163.8
Other (2) (3) 23.9 20.4 43.0 40.8
-------- -------- --------- ---------
Total bauxite and
alumina 142.6 111.7 249.6 204.6
-------- -------- --------- ---------
Aluminum processing:
Primary aluminum 116.6 76.8 201.6 154.1
Fabricated aluminum
products 319.8 267.4 636.0 508.9
Other (3) 4.4 3.6 9.2 7.0
-------- -------- --------- ---------
Total aluminum
processing 440.8 347.8 846.8 670.0
-------- -------- --------- ---------
Total net sales $ 583.4 $ 459.5 $1,096.4 $ 874.6
======== ======== ========= ==========
Operating income (loss) $ 65.0 $ (12.7) $ 99.1 $ (36.8)
======== ======== ========= ==========
Income (loss) before income taxes,
minority interests and
extraordinary item $ 40.1 $ (33.6) $ 49.9 $ (77.0)
======== ======== ========= ==========
Capital expenditures $ 13.4 $ 12.1 $ 27.1 $ 21.7
======== ======== ========= ==========
<FN>
---------------
(1) Shipments are expressed in thousands of metric tons. A metric ton is equivalent to 2,204.6 pounds.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests in consolidated subsidiaries.
Net sales
Bauxite and alumina. Revenues from net sales to third parties
for the bauxite and alumina segment were 28% higher in the second quarter
of 1995 than in the second quarter of 1994, and were 22% higher in the six
months ended June 30, 1995 than in the six months ended June 30, 1994.
Revenues from alumina increased 30% in the second quarter of 1995 from the
second quarter of 1994, and increased 26% in the six months ended June 30,
1995 from the six months ended June 30, 1994, due to higher average
realized prices.
Aluminum processing. Revenues from net sales to third parties
for the aluminum processing segment were 27% higher in the second quarter
of 1995 than in the second quarter of 1994, and were 26% higher in the six
months ended June 30, 1995 than in the six months ended June 30, 1994.
Revenues from primary aluminum increased 52% in the second quarter of 1995
from the second quarter of 1994, due to higher average realized prices, and
increased 31% in the six months ended June 30, 1995 from the six months
ended June 30, 1994, due to higher average realized prices partially offset
by decreased shipments caused by the strike by the United Steelworkers of
America ("USWA") discussed below. Shipments of primary aluminum to third
parties were approximately 39% and 37% of total aluminum products shipments
in the second quarter of 1995 and six months ended June 30, 1995,
respectively, compared with approximately 38% and 39% in the second quarter
of 1994 and six months ended June 30, 1994, respectively. Revenues from
fabricated aluminum products increased 20% in the second quarter of 1995
from the second quarter of 1994, and increased 25% in the six months ended
June 30, 1995 from the six months ended June 30, 1994, due to higher
average realized prices partially offset by lower shipments for most of
these products.
Operating income (loss)
Kaiser's corporate general and administrative expenses of $19.3
million and $18.2 million for the second quarter of 1995 and 1994,
respectively, and $37.4 million and $35.4 million for the six months ended
June 30, 1995 and 1994, respectively, were allocated by the Company to the
bauxite and alumina and aluminum processing segments based on those
segments' ratio of sales to unaffiliated customers.
Improved operating results in the six months ended June 30, 1995
were partially offset by (i) an eight-day strike at five major domestic
locations by the USWA, (ii) a six-day strike by the National Workers Union
at Kaiser's 65%-owned Alpart alumina refinery in Jamaica, and (iii) a four-
day disruption of alumina production at Alpart caused by a boiler failure.
The combined impact of these events on the results for the six months ended
June 30, 1995 was approximately $17.0 million in the aggregate (on a pre-
tax basis) principally from lower production volume and other related
costs.
Bauxite and alumina. This segment had operating income of $16.0
million for the second quarter of 1995, compared with an operating loss of
$3.9 million for the second quarter of 1994, principally due to higher
revenue. The operating income for the six months ended June 30, 1995 was
$14.2 million, compared with an operating loss of $9.7 million for the six
months ended June 30, 1994, principally due to higher revenue, partially
offset by the effect of the strikes and boiler failure.
Aluminum processing. This segment had operating income of $49.0
million for the second quarter of 1995, compared with an operating loss of
$8.8 million for the second quarter of 1994, principally due to higher
revenue. The operating income for the six months ended June 30, 1995 was
$84.9 million, compared with an operating loss of $27.1 million for the six
months ended June 30, 1994, principally due to higher revenue, partially
offset by the effect of the strike by the USWA.
Income (loss) before income taxes, minority interests and
extraordinary item
Income before income taxes, minority interests and extraordinary
item for the three and six months ended June 30, 1995, as compared to
losses for the three and six months ended June 30, 1994, resulted from the
improvement in operating income previously described.
FOREST PRODUCTS OPERATIONS
The Company's forest products operations are conducted by MGI
through its principal operating subsidiaries. MGI's business is highly
seasonal in that the forest products business has historically experienced
lower first and fourth quarter sales due largely to the general decline in
construction related activity during the winter months. Accordingly, MGI's
results for any one quarter are not necessarily indicative of results to be
expected for the full year. The following table presents selected
operational and financial information for the three and six months ended
June 30, 1995 and 1994. The information presented in the table is in
millions of dollars except shipments and prices.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1995 1994 1995 1994
-------- ----------- --------- -----------
Shipments:
Lumber: (1)
Redwood upper grades 12.8 12.8 23.5 25.7
Redwood common grades 64.8 55.7 115.9 105.1
Douglas-fir upper
grades 1.4 1.9 3.2 4.4
Douglas-fir common
grades and other 15.1 16.5 31.5 31.9
-------- ----------- --------- -----------
Total lumber 94.1 86.9 174.1 167.1
======== =========== ========= ===========
Logs (2) 1.6 4.8 2.1 10.3
======== =========== ========= ===========
Wood chips (3) 52.8 64.9 99.7 95.2
======== =========== ========= ===========
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,478 $ 1,469 $ 1,508 $ 1,437
Redwood common grades 498 458 467 453
Douglas-fir upper
grades 1,290 1,373 1,333 1,391
Douglas-fir common
grades 378 426 378 445
Logs (4) 559 638 482 658
Wood chips (5) 99 85 94 81
Net sales:
Lumber, net of discount $ 58.8 $ 53.1 $ 105.7 $ 103.1
Logs .9 3.1 1.0 6.8
Wood chips 5.2 5.6 9.4 7.7
Cogeneration power .4 .9 .8 1.5
Other .3 .3 .7 .6
-------- ----------- --------- -----------
Total net sales $ 65.6 $ 63.0 117.6 $ 119.7
======== =========== ========= ===========
Operating income $ 22.0 $ 23.1 $ 34.6 $ 36.5
======== =========== ========= ===========
Operating cash flow (6) $ 29.1 $ 28.0 $ 47.5 $ 47.2
======== =========== ========= ===========
Income (loss) before income
taxes, minority interests
and extraordinary item $ 5.1 $ (15.5) $ - $ (13.5)
======== =========== ========= ===========
Capital expenditures $ 2.6 $ 2.5 $ 4.5 $ 6.5
======== =========== ========= ===========
<FN>
---------------
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of feet, net Scribner scale.
(3) Wood chip shipments are expressed in thousands of bone dry units of 2,400 pounds.
(4) Dollars per thousand board feet.
(5) Dollars per bone dry unit.
(6) Operating income before depletion and depreciation, also referred to as "EBITDA."
Shipments
Lumber shipments to third parties for the second quarter of 1995
increased from the second quarter of 1994. Increased shipments of redwood
common lumber were partially offset by decreased shipments of
other common grade lumber. Log shipments for the second quarter of 1995
were 1.6 million feet (net Scribner scale), a decrease from 4.8 million
feet for the second quarter of 1994.
Lumber shipments to third parties for the six months ended June
30, 1995 increased from the six months ended June 30, 1994. Increased
shipments of redwood common lumber were partially offset by decreased
shipments of upper grade redwood lumber and upper grade Douglas-fir lumber.
Log shipments for the six months ended June 30, 1995 were 2.1 million feet,
a decrease from 10.3 million feet for the six months ended June 30, 1994.
Net sales
Revenues from net sales for the second quarter of 1995 increased
as compared to the second quarter of 1994. This increase was principally
due to higher shipments and average realized prices of redwood common
lumber, partially offset by decreased log shipments, a decrease in the
average realized price for common grade Douglas-fir lumber, lower sales of
electrical power and decreased sales of wood chips.
Revenues from net sales for the six months ended June 30, 1995
decreased as compared to the six months ended June 30, 1994. This decrease
was principally due to lower shipments of logs, upper grade redwood lumber
and upper grade Douglas-fir lumber, a decrease in the average realized
price for common grade Douglas-fir lumber and lower sales of electrical
power, partially offset by increased shipments of redwood common lumber,
increased sales of wood chips and increases in the average realized prices
for both upper and common grades of redwood lumber.
Operating income
Operating income for the second quarter of 1995 and the six
months ended June 30, 1995 decreased as compared to the same periods in
1994. These decreases were primarily due to lower sales of logs, partially
offset by higher gross margins on wood chip sales and higher sales of
lumber. Cost of goods sold for the second quarter of 1995 was reduced by
$1.5 million of business interruption insurance proceeds for the settlement
of claims related to the April 1992 earthquake. Costs of lumber sales for
the six months ended June 30, 1995 were favorably impacted by lower
purchases of logs from third parties and improved sawmill productivity.
Income (loss) before income taxes, minority interests and
extraordinary item
Income (loss) before income taxes, minority interests and
extraordinary item improved for the second quarter of 1995 and the six
months ended June 30, 1995 as compared to the same periods in 1994. These
improvements resulted from increased investment, interest and other income,
partially offset by the decreases in operating income as discussed above.
Investment, interest and other income (expense) for the second quarter of
1994 included a pre-tax loss on the litigation settlement of $21.2 million.
In addition, investment, interest and other income (expense) for the six
months ended June 30, 1994 included a franchise tax refund of $7.2 million
(the substantial portion of which represented interest) from the State of
California.
REAL ESTATE OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------------
1995 1994 1995 1994
-------- --------- --------- -----------
(In millions of dollars)
Net sales $ 24.3 $ 21.3 $ 40.6 $ 38.5
Operating loss (.3) (1.5) (3.6) (3.4)
Income (loss) before income taxes,
minority interests and
extraordinary item 1.2 (.8) (1.5) (2.1)
Net sales
Net sales for the second quarter of 1995 and the six months ended
June 30, 1995 increased as compared to the same periods in 1994. These
increases were primarily due to a bulk sale of acreage in Texas. Net sales
for the second quarter of 1994 included bulk acreage sales in New Mexico.
Operating loss
The operating loss for the second quarter of 1995 decreased from
the second quarter of 1994. The operating loss for the six months ended
June 30, 1995 increased from the six months ended June 30, 1994. Operating
results for both periods were favorably impacted by the bulk sale of
acreage in Texas, offset by higher overhead costs.
Income (loss) before income taxes, minority interests and
extraordinary item
Income before income taxes, minority interests and extraordinary
item for the second quarter of 1995, as compared to the loss for the second
quarter of 1994, was primarily due to the decreased operating loss. The
loss before income taxes, minority interests and extraordinary item for the
six months ended June 30, 1995 decreased from the six months ended June 30,
1994. This decrease was due to lower interest expense, partially offset by
the increased operating loss.
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------------
1995 1994 1995 1994
---------- ---------- ------------ ------------
(In millions of dollars)
Operating loss $ (4.8) $ (2.4) $ (7.6) $ (4.8)
Loss before income taxes, minority
interests and extraordinary item (4.4) (6.9) (7.6) (11.3)
Operating loss
The operating losses represent corporate general and
administrative expenses that are not allocated to the Company's industry
segments. The operating losses for the second quarter of 1995 and the six
months ended June 30, 1995 increased as compared to the same periods in
1994. These increases were primarily due to a $2.3 million accrual for
certain contingencies the Company recorded during the second quarter of
1995 and, to a lesser extent, higher overhead costs.
Loss before income taxes, minority interests and extraordinary
item
The loss before income taxes, minority interests and
extraordinary item includes operating losses, investment, interest and
other income (expense) and interest expense, including amortization of
deferred
financing costs, that are not allocated to the Company's industry segments.
The losses for the second quarter of 1995 and the six months ended June 30,
1995 decreased as compared to the same periods in 1994. These decreases
were primarily due to higher investment, interest and other income,
partially offset by the increased operating losses discussed above.
Minority interests
Minority interests represent the minority stockholders' interest
in the Company's aluminum operations.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
PARENT COMPANY
Certain of the Company's subsidiaries, principally Kaiser and
MGI, are restricted by their various debt agreements as to the amount of
funds that can be paid in the form of dividends or loaned to the Company.
KACC's 1994 Credit Agreement and the indentures governing the KACC Senior
Notes and the KACC Notes contain covenants which, among other things, limit
Kaiser's ability to pay cash dividends and restrict transactions between
Kaiser and its affiliates. Under the most restrictive of these covenants,
Kaiser is not currently permitted to pay dividends on its common stock.
The indenture governing the MGI Notes contains various covenants which,
among other things, limit the payment of dividends and restrict
transactions between MGI and its affiliates. As of June 30, 1995, under
the most restrictive of these covenants, approximately $4.9 million of
dividends could be paid by MGI. Under the most restrictive covenants
governing debt of the Company's real estate subsidiaries, approximately
$24.3 million could be paid as of June 30, 1995.
As of June 30, 1995, the Company (excluding its aluminum, forest
products and real estate subsidiary companies) had cash and marketable
securities of approximately $33.5 million and available borrowings under
its demand loan and pledge agreement of $25.0 million. See also "--Investment
in Sam Houston Race Park" below. The Company believes that its existing
cash and marketable securities (excluding its aluminum, forest products and
real estate subsidiaries), together with the funds available to it, will be
sufficient to fund its working capital requirements for the foreseeable
future.
ALUMINUM OPERATIONS
In March 1995, the 1994 Credit Agreement was amended by the
Second Amendment to Credit Agreement (the "Second Amendment"). The Second
Amendment provided, among other things, for an increase in the revolving
line of credit from $275.0 million to $325.0 million. At June 30, 1995,
$204.8 million (of which $57.2 million could have been used for letters of
credit) was available to KACC under the 1994 Credit Agreement. As of July
21, 1995, the 1994 Credit Agreement was amended by the Third Amendment to
Credit Agreement in connection with the investment by Kaiser Yellow River
Investment Limited, a subsidiary of KACC, in Yellow River Aluminum Industry
Company, an aluminum smelter joint venture in the People's Republic of
China.
Kaiser expects that cash flows from operations and borrowings
under available sources of financing will be sufficient to satisfy its
working capital and capital expenditures requirements for the foreseeable
future.
FOREST PRODUCTS OPERATIONS
MGI anticipates that cash flows from operations, together with
existing cash, marketable securities and available sources of financing,
will be sufficient to fund the working capital and capital expenditures
requirements of MGI and its respective subsidiaries for the foreseeable
future; however, due to its highly leveraged condition, MGI is more
sensitive than less leveraged companies to factors affecting its
operations, including governmental regulation affecting its timber
harvesting practices, increased competition from other lumber producers or
alternative building products and general economic conditions.
As of June 30, 1995, $19.7 million of borrowings was available
under Pacific Lumber's Revolving Credit Agreement, of which $4.7 million
was available for letters of credit. No borrowings were outstanding as of
June 30, 1995, and letters of credit outstanding amounted to $10.3 million.
Pacific Lumber has signed a commitment letter with the bank which will
amend the Revolving Credit Agreement to extend its maturity date to May 31,
1998 and provide for an additional $30.0 million of available borrowings.
REAL ESTATE OPERATIONS
As of June 30, 1995, the Company's real estate subsidiaries had
approximately $30.4 million available for use under various credit
agreements. A substantial portion of the availability was attributable to
the credit availability pursuant to the loan agreement secured by real
properties, and certain loans secured by income producing real property.
INVESTMENT IN SAM HOUSTON RACE PARK
Since July 1993, the Company has, through various subsidiaries,
controlled the general partner of, and held an equity interest in, Sam
Houston Race Park, Ltd. ("SHRP"), a Texas limited partnership, which owns
and operates a Class 1 horse racing track in northwest Houston (the "Race
Park"). On April 17, 1995 (the "Filing Date"), SHRP and its wholly owned
subsidiary SHRP Capital Corp. ("Capital"), together with SHRP Acquisition,
Inc. ("SHRP Acquisition"), a wholly owned subsidiary of the Company and
SHRP's largest limited partner, filed voluntary petitions in the United
States Bankruptcy Court for the District of Delaware. The Delaware Court
subsequently transferred the case to the United States Bankruptcy Court
for the Southern District of Texas, Houston Division (the "Bankruptcy
Court"), Jointly Administered Case number 95-43739-H3-11, each seeking to
reorganize under the provisions of Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code"). SHRP, Capital and SHRP
Acquisition (collectively, "the SHRP Debtors") filed a fifth amended
consolidated plan of reorganization (the "Plan") and disclosure statement
relating to the Plan (the "Disclosure Statement") with the Bankruptcy Court
on July 13, 1995. The Bankruptcy Court has approved the Disclosure
Statement as containing information, of a kind and in sufficient detail,
adequate to enable holders of claims and equity interests in the SHRP
Debtors, to make an informed judgement with respect to the acceptance or
rejection of the Plan. On August 7, 1995, the Bankruptcy Court commenced a
hearing concerning whether or not the Plan should be confirmed. The hearing
was continued to a date to be determined but expected to be as early as August
29, 1995. The SHRP Debtors, a committee of noteholders and a committee
of unsecured creditors have agreed to request a modification of the Plan to
expand certain release provisions thereof prior to such date as may be set for
the continuation of the hearing concerning confirmation of the Plan. It is
contemplated that the SHRP Debtors would solicit the necessary acceptances to
the Plan, as modified. Until such time as the Plan of reorganization is
consummated, each of the SHRP Debtors will continue to be operated as debtors-
in-possession under the Bankruptcy Code. For additional information regarding
the Plan, reference should be made to the Plan itself, a copy of which has
been filed as an exhibit to the SHRP Form 10-Q for the quarterly period
ended June 30, 1995.
The Plan calls for, among other things, a significant
modification of the 11-3/4% Senior Secured Notes (the "Amended SHRP
Notes"), an additional capital infusion and a reorganization of SHRP (the
"Reorganized SHRP"). The Amended SHRP Notes would have an aggregate
principal amount of $37.5 million, mature on September 1, 2001, and bear
interest at the rate of 11% per annum. The maturity date of the Amended
SHRP Notes could be extended to September 1, 2003 (with an increase in the
rate of interest to 13% percent per annum) if the Texas legislature passes
significant gaming legislation (as defined) during the 2001 legislative
session. A new investor group (the "New SHRP Investor Group") would provide
additional capital which would include a cash infusion ranging from $5.80
million to $7.55 million (the amount necessary to fund SHRP's projected
cash flow requirements for the next three years, including paying
restructuring costs and satisfying claims made during the bankruptcy
proceedings). The current SHRP partnership interests would be eliminated,
although the current partners in SHRP would be able to participate in the
New SHRP Investor Group in proportion to their pre-filing interests in
SHRP. An affiliate of the Company would contribute to SHRP (for fair
market value) an adjoining approximately 87 acre tract of land, a portion
of which the Race Park utilizes for parking by Race Park patrons. Each
member of the New SHRP Investor Group would be required to provide its pro
rata share of a $1.7 million line of credit.
TRENDS
ALUMINUM OPERATIONS
On June 15, 1995, KACC announced that it had signed an agreement
with the Washington Water Power Company (the "WWP") to purchase up to 50
megawatts of electrical energy to supply its Northwest facilities. The
agreement is for a five-year term beginning October 1, 1995. Such power
would displace a portion of KACC's interruptible power supply from the
Bonneville Power Administration (the "BPA"), and could save KACC in excess
of $7.0 million over the term of the agreement compared to current BPA
rates, assuming that KACC would purchase 50 megawatts for the entire term
of the agreement. KACC also announced that it had signed an electric power
services agreement with the WWP for the WWP to represent KACC in
discussions and solicitations with energy suppliers other than the BPA.
The BPA has formally announced its proposed rate of 22.6 mills
for power to be sold to its direct service industrial customers (the
"DSIs"), which includes KACC, beginning October 1, 1996, for a term of
either two years or five years, at the election of each of the DSIs. Such
a rate, if implemented, would represent a rate reduction of approximately
15% from the BPA rates currently in effect, and would reduce production
costs at KACC's Mead and Tacoma, Washington, smelters by approximately
$12.0 million per year based on the current operating rate of those
smelters. However, final adoption of the BPA rate for the period beginning
October 1, 1996, is subject to completion of the public rate setting
process, and there is no certainty that the proposed rate decrease, or any
rate decrease, will become effective as of October 1, 1996, or at any other
time.
FOREST PRODUCTS OPERATIONS
During the first five months of 1995, a combination of severe
weather conditions, seasonally low log inventories, the issuance of a
temporary restraining order ("TRO") (which required Pacific Lumber to cease
all timber harvesting operations on one of the few all-season harvest sites
from which it had been able to supplement its log inventories), and other
regulatory delays forced Pacific Lumber to curtail operations at one of its
four sawmills and to temporarily idle another sawmill from April 17 to May
2, 1995. During late May, the weather improved and the TRO was lifted,
thereby allowing Pacific Lumber to resume operations
on such harvesting site. Accordingly, Pacific Lumber has since been able
to secure an adequate supply of logs in order to resume normal operations
of its sawmills.
Additional judicial or regulatory actions adverse to Pacific
Lumber, further regulatory delays and inclement weather in northern
California, independently or collectively, could again impair Pacific
Lumber's ability to maintain adequate log inventories and force Pacific
Lumber to temporarily idle or curtail operations at certain of its lumber
mills from time to time.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the
estimated future cash flows expected to result from the use and eventual
disposition of an asset is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of an impairment loss is based
on the fair value of the asset. SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The Company is
required to adopt SFAS 121 no later than January 1, 1996. The Company is
currently evaluating certain of its real estate properties with respect to
application of SFAS 121; accordingly, the effect of SFAS 121 on the
Company's financial statements is not known at this time.
PAGE
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K and Part II, Item 1
of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1995 (the "Form 10-Q") for information concerning material
legal proceedings with respect to the Company. The following material
developments have occurred with respect to such legal proceedings. Any
capitalized or italicized terms used but not defined in this Item have the
same meaning given to them in the Form 10-K and the Form 10-Q.
In connection with the Kayes/Miller action, on June 15, 1995, the
U.S. Ninth Circuit Court of Appeals denied defendants' petition for
rehearing. On August 7, 1995, the defendants requested the U.S. Supreme
Court to review the case by filing a petition for writ of certiorari.
KAISER ENVIRONMENTAL LITIGATION
In connection with the Catellus Development Corporation v. Kaiser
Aluminum & Chemical Corporation and James L. Ferry & Son, Inc. action, the
trial involving this case commenced in March 1995. During the trial,
Plaintiffs settled their claims against Catellus in exchange for payment of
approximately $3.25 million. Subsequently, on June 2, 1995, the United
States District Court for the Northern District of California issued an
Order on the remaining claims finding, among other things, that KACC is
liable for various costs aggregating approximately $1.34 million, as well
as interest, fifty percent (50%) of future costs of cleaning up certain
parts of the Property, and certain fees and costs associated specifically
with the claim by Catellus against KACC. KACC has estimated the aggregate
interest payable to be approximately $.53 million. Entry of judgment is
pending.
RANCHO MIRAGE LITIGATION
In connection with the In re MAXXAM Inc./Federated Development
Shareholders Litigation, on June 23, 1995, the court denied defendants'
motion to dismiss certain of plaintiffs' claims. This matter has been set
for trial commencing January 8, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May
17, 1995, at which meeting the stockholders voted to elect management's
slate of nominees as directors of the Company. The nominees for election
are listed below, together with voting information for each nominee.
Messrs. Robert J. Cruikshank and Ezra G. Levin continued as directors of
the Company.
NOMINEE FOR ELECTION BY HOLDERS OF COMMON STOCK
Stanley D. Rosenberg - 5,911,545 votes for, -0- votes against,
48,553 votes withheld, -0- votes abstaining and -0- broker non-votes.
NOMINEE FOR ELECTION BY HOLDERS OF COMMON STOCK AND CLASS A
PREFERRED STOCK
Charles E. Hurwitz - 11,915,182 votes for, -0- votes against,
646,936 votes withheld, -0- votes abstaining and -0- broker non-votes.
ITEM 5. OTHER INFORMATION
PARENT COMPANY
On August 2, 1995, the Federal Deposit Insurance Corporation
("FDIC") filed a civil action entitled Federal Deposit Insurance
Corporation, as manager of the FSLIC Resolution Fund v. Charles E. Hurwitz
(No. H-95-3936) in the U.S. District Court for the Southern District of
Texas. Mr. Hurwitz is the Chairman of the Board and Chief Executive
Officer of the Company. This action did not name the Company as a
defendant and the applicable statute of limitations for any possible suit
by the FDIC against the Company has expired. The suit against Mr. Hurwitz
seeks damages in excess of $250 million based on the allegation that Mr.
Hurwitz was a controlling shareholder, de facto senior officer and director
of United Savings Association of Texas ("USAT"), a wholly owned subsidiary
of United Financial Group Inc. ("UFG"), and was involved in certain
decisions which contributed to the insolvency of USAT. The FDIC further
alleges, among other things, that Mr. Hurwitz was obligated to ensure that
UFG, Federated Development Company and the Company maintained the net worth
of USAT. The Company has an obligation to advance defense costs to its
officers and directors to the fullest extent permitted by Delaware law,
subject to the individual's obligation to repay such amount if it is
ultimately determined that the individual was not entitled to
indemnification. In addition, the Company's by-laws provide for
indemnification of its officers and directors under certain circumstances.
No claim for or determination regarding the appropriateness of such
indemnification in this instance has been made.
In a separate but related matter, in October 1994, the United
States Department of Treasury's Office of Thrift Supervision ("OTS")
commenced an investigation into UFG and the insolvency of USAT. In
December 1988, the Federal Home Loan Bank Board ("FHLBB") placed USAT into
receivership and appointed the Federal Savings & Loan Insurance Corp.
("FSLIC") as receiver. At the time of the receivership, the Company owned
approximately 13% of the voting stock of UFG. In November 1994, the OTS
requested that the Company sign a tolling agreement (essentially extending
any relevant statute of limitations) in connection with the OTS'
investigation. The OTS stated at that time that it was not asserting an
administrative claim or threatening a claim against the Company, but was
seeking to compel documentary and other information from the Company in
connection with and in furtherance of such investigation. The OTS,
successor to the FHLBB for some purposes, subsequently requested certain
documents from the Company which the Company has been working to provide.
The OTS also has deposed certain current and former officers and/or
directors of the Company. The OTS has indicated that its investigation
includes certain present and former officers and directors of the Company,
some of whom have also served as an officer or director of or had some
other relationship with UFG or USAT. The Company signed a second tolling
agreement with the OTS in July 1995. The OTS has not articulated the basis
for any claim against the Company to date.
FOREST PRODUCTS OPERATIONS
A variety of bills are currently pending in the California
legislature and the U.S. Congress which relate to the business of the
Company, including the protection and acquisition of old growth and other
timberlands, environmental protection and the restriction, regulation and
administration of timber harvesting practices. For example, a bill was
recently introduced in the California legislature which would, among other
things, initiate negotiations by the California Resources Agency with
Pacific Lumber for the public acquisition of approximately 4,700 acres of
Pacific Lumber's timberlands, 3,000 acres of which is a contiguous block of
virgin old growth redwood forest often referred to as the "Headwaters
Forest." Since this bill and the other bills are subject to amendment, it
is premature to assess the ultimate content of these bills, the likelihood
of any of the bills passing, or the impact of these bills on the financial
position or results of operations of Pacific Lumber or the Company.
Furthermore, any bills which are passed are subject to executive veto and
court challenge.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
4.1 Seventh Amendment to Loan Agreement, dated as
of March 31, 1995, among General Electric
Capital Corporation, MXM Mortgage Corp. And
MXM Mortgage L.P.
10.1 MAXXAM Inc. Revised Capital Accumulation Plan
of 1988, as amended December 12, 1988
11 Computation of Net Income (Loss) Per Common
and Common Equivalent Share
27 Financial Data Schedule
b. REPORTS ON FORM 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, who has signed this report on
behalf of the Registrant and as the principal accounting officer of the
Registrant.
MAXXAM INC.
Date: August 11, 1995 By: TERRY L. FREEMAN
Terry L. Freeman
Assistant Controller