-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NfNYTLodcRs0B55mmALbn9qbsXnsYcu1ZpxrwYx1pZ3rMx6g+Bs63mtfpDV9QIts FmlPIxYPPMwjyPckf0UoRA== 0000900421-94-000035.txt : 19940816 0000900421-94-000035.hdr.sgml : 19940816 ACCESSION NUMBER: 0000900421-94-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXXAM INC CENTRAL INDEX KEY: 0000063814 STANDARD INDUSTRIAL CLASSIFICATION: 6552 IRS NUMBER: 952078752 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03924 FILM NUMBER: 94544208 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE STE 2600 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7132673669 MAIL ADDRESS: STREET 1: P O BOX 572887 CITY: HOUSTON STATE: TX ZIP: 77257-2887 FORMER COMPANY: FORMER CONFORMED NAME: MCO HOLDINGS INC DATE OF NAME CHANGE: 19881115 FORMER COMPANY: FORMER CONFORMED NAME: MCCULLOCH OIL CORP DATE OF NAME CHANGE: 19800630 FORMER COMPANY: FORMER CONFORMED NAME: MCCULLOCH OIL CORP OF CALIFORNIA DATE OF NAME CHANGE: 19691118 EX-4 1 EXHIBIT 4.2 Exhibit 4.2 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of May 26, 1994, is entered into by and between THE PACIFIC LUMBER COMPANY (the "Borrower") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank"). RECITALS A. The Borrower and the Bank are parties to a Credit Agreement dated as of June 23, 1993, as amended by a First Amendment to Credit Agreement dated as of October 5, 1993 (as so amended, the "Credit Agreement") pursuant to which the Bank has extended certain credit facilities to the Borrower. B. The Borrower has requested that the Bank agree to certain amendments of the Credit Agreement. C. The Bank is willing to amend the Credit Agreement subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. (a) Amendments to Section 1.01 of the Credit Agreement. (i) Clause (a) of the definition of "Revolving Termination Date" in Section 1.01 is amended to provide as follows: "(a) May 31, 1997; or" (ii) The following definitions are added to Section 1.01 in the appropriate alphabetical order: "'Adjusted Consolidated Cash Flow Coverage Ratio' means for the Company, as of any quarter end, the ratio of: "(i) the amount by which, for the four fiscal quarters for which financial information in respect thereof is available as of such quarter end, EBITDA exceeds the sum of Capital Expenditures plus Cash Taxes plus Dividends Paid; to "(ii) the aggregate Consolidated Interest Expense plus the Principal Payments on Long Term Debt for the four fiscal quarters ending as of such quarter end; "provided that if the Company or any of its Restricted Subsidiaries is a party to any Rate Contracts which would have the effect of changing the interest rate on any Indebtedness of the Company or any of its Restricted Subsidiaries for such four quarter period (or a portion thereof), the resulting rate shall be used for such four quarter period or portion thereof; and provided further that any Consolidated Interest Expense with respect to Indebtedness Incurred to refinance Old Securities retired by the Company or any of its Restricted Subsidiaries shall be calculated as if such Indebtedness was so Incurred and such Old Securities were so retired on the first day of any fiscal quarter to be included in this Adjusted Consolidated Cash Flow Coverage Ratio calculation; and provided further that if, during the four fiscal quarters referred to in clause (i) of this definition, (x) the Company or any of its Restricted Subsidiaries shall have engaged in any Asset Sale, EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive), or increased by an amount equal to the EBITDA (if negative), directly attributable to the assets which are the subject of such Asset Sale for such period calculated on a pro forma basis as if such Asset Sale and any related retirement of Indebtedness had occurred on the first day of such period or (y) the Company or any of its Restricted Subsidiaries shall have acquired any material assets out of the Ordinary Course of Business, EBITDA shall be calculated on a pro forma basis as if such asset acquisition and any related financing had occurred on the first day of such period." "'Capital Expenditures' means for the Company, as of any quarter end, capital expenditures as reported in the consolidated statement of cash flows shown in the Company's 10Q and 10K filings with the SEC covering such quarter, excluding all non cash and/or financed portions of such capital expenditures and such capital expenditures made by SPHC or any Unrestricted Subsidiary." "'Cash Taxes' means for the Company, as of any quarter end, the amount actually paid in cash in such quarter by the Company (excluding payments made by SPHC or any Unrestricted Subsidiary) to local, state, or federal taxing authorities, or to MAXXAM, Inc. under the Tax Sharing Agreement." "'Principal Payments on Long Term Debt' means for the Company, as of any quarter end, principal payments on the Company's Indebtedness (excluding amounts due under this Agreement and any principal on Indebtedness paid from the proceeds of any Asset Sale) for the four fiscal quarters ending as of such quarter end. For the purposes of this definition, the Company's Indebtedness shall exclude indebtedness of SPHC and any Unrestricted Subsidiary. "'Dividends Paid' means for the Company, as of any quarter end, dividends actually paid in such quarter by the Company as reported in the consolidated statement of cash flows shown in the Company's 10Q and 10K filings with the SEC covering such quarter." "'Salmon Creek Corporation' means Salmon Creek Corporation, a Delaware corporation, or any successor corporation, by way of merger, consolidation, purchase of all or substantially all of its assets, or otherwise, which holds the Salmon Creek Property on the date of this Agreement but which may not acquire any other assets (other than assets incidental to the operation, disposition, management and maintenance of the Salmon Creek Property or assets received in connection with a transaction described in Section 7.12(c) or any clause thereof), except in exchange for or out of the proceeds of the sale or disposition of Salmon Creek Property." "'Salmon Creek Property' means any of the property described on Exhibit D to this Agreement or any assets or Capital Stock or Redeemable Stock, in each case, held by Salmon Creek Corporation." (b) Amendment to Section 7.02(c) of the Credit Agreement. Section 7.02(c) of the Credit Agreement is amended in its entirety to provide as follows: "(c) The sale of all or part of Salmon Creek Corporation or the Salmon Creek Property; and" (c) Amendment to Section 7.12(c) of the Credit Agreement. Section 7.12(c) of the Credit Agreement is amended in its entirety to provide as follows: "(c) Declare or pay cash dividends to its stockholders and purchase, redeem, or otherwise acquire shares of its capital stock or warrants, rights or options to acquire any such shares for cash solely out of 50% of Adjusted Consolidated Net Income of the Company arising after March 1, 1993; provided that immediately after giving effect to such proposed action, (i) the Adjusted Consolidated Cash Flow Coverage Ratio as of the last quarterly calculation is not less than 1.00 to 1.00, and (ii) no Default or Event of Default would exist. The direct or indirect dividend or distribution to the stockholders of the Company of any consideration received by the Company or any of its Subsidiaries from any Person (A) in respect of all or any part of the Capital Stock or Redeemable Stock of Salmon Creek Corporation, or (B) in respect of all or any part of the real property constituting the Salmon Creek Property, or (C) otherwise in connection with Salmon Creek Corporation or the Salmon Creek Property, except in connection with the harvesting of timber located on the Salmon Creek Property, shall be exempt from the limitation contained in this clause (c) (it being understood that any Subsidiary of the Company can distribute any such consideration to the Company or to any other Subsidiary of the Company and that the Company can distribute any such consideration to its stockholders pursuant to this clause (c))." (d) Amendment of Section 7.14. Section 7.14 of the Credit Agreement is amended in its entirety to provide as follows: "7.14 Deliberately left blank." (e) Exhibit D to Credit Agreement. Exhibit D attached to this Amendment is hereby added as Exhibit D to the Credit Agreement. 3. Representations and Warranties. The Borrower hereby represents and warrants to the Bank as follows: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. (c) All representations and warranties of the Borrower contained in the Credit Agreement are true and correct. (d) The Borrower is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Bank or any other Person. 4. Effective Date. This Amendment will become effective as of May 26, 1994 (the "Effective Date"), provided that each of the following conditions precedent has been satisfied: (a) The Bank has received from the Borrower a duly executed original of this Amendment. (b) The Bank has received from the Borrower a copy of a resolution passed by the board of directors of such corporation, certified by the Secretary or an Assistant Secretary of such corporation as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Amendment. (c) The Bank has received from the Borrower the amount of $200,000, representing payment in full of a non-refundable amendment fee, which amount the Borrower hereby covenants to pay to the Bank on demand. 5. Reservation of Rights. The Borrower acknowledges and agrees that the execution and delivery by the Bank of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Bank to forbear or execute similar amendments under the same or similar circumstances in the future. 6. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 9.01 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (g) Borrower covenants to pay to or reimburse the Bank, upon demand, for all reasonable costs and expenses (including allocated costs of in house counsel) incurred in connection with the preparation, negotiation, execution and delivery of this Amendment, including without limitation appraisal, audit, search and filing fees incurred in connection therewith. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. THE PACIFIC LUMBER COMPANY By: GARY L. CLARK Name: Gary L. Clark Title: Vice President-Finance and Administration BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: MICHAEL J. BALOK Name: Michael J. Balok Title: Vice President EX-4 2 EXHIBIT 4.3 Exhibit 4.3 FOURTH MODIFICATION AGREEMENT THIS FOURTH MODIFICATION AGREEMENT (this "AGREEMENT") is executed as of March 31, 1994, by and among GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("LENDER"), MXM MORTGAGE, L.P., a Delaware limited partnership ("NEW BORROWER"), MXM MORTGAGE CORP., a Delaware corporation ("OLD BORROWER"; New Borrower and Old Borrower being herein together called "BORROWER"), on the following terms and conditions: RECITALS: A. Lender and Old Borrower entered into that Loan Agreement dated June 17, 1991, as amended by letter amendment dated August 22, 1991, as further amended by First Renewal, Extension and Modification Agreement (the "FIRST MODIFICATION") dated June 17, 1992 among Lender, Old Borrower, Maxxam Inc. and Maxxam Group Inc. (Maxxam Inc. and Maxxam Group Inc. being herein together called "GUARANTORS"), and as further amended by Loan Increase, Extension and Modification Agreement dated December 30, 1992 among Lender, Old Borrower and Guarantors (the "INCREASE MODIFICATION"; the Loan Agreement, as amended, being herein called the "LOAN AGREEMENT"), pursuant to which Lender has agreed to make a loan to Borrower (the "LOAN"), as evidenced by a $115,220,000 Promissory Note dated June 17, 1991, (the "ORIGINAL NOTE"), and a $17,740,000 Promissory Note dated December 30, 1992 (the "INCREASE NOTE"; the Original Note and the Increase Note being herein collectively called the "NOTES"), the Notes bearing interest and being payable to the order of Lender as therein provided. B. Taking into account releases of collateral, the indebtedness evidenced by the Original Note and the Increase Note is secured by, among other collateral, the following: (1) the following instruments styled First Deed of Trust and Security Agreement (collectively called the "FIRST LIEN DEED OF TRUST"): (a) that First Deed of Trust and Security Agreement of even date with the Loan Agreement, executed by Old Borrower, recorded in Volume 5091, Page 0751, et seq., of the Official Public Records of Real Property of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre Pointe, Nacon Plaza], under Film Code No. 037-12-1689 and corrected and refiled under Film Code No. 038-03-0657 of the Official Public Records of Real Property of Harris County, Texas [Spring Valley, Westminster], in Volume 727, Page 416, et seq., of the Deed of Trust Records of Midland County, Texas [Oak Ridge], and in Volume 10293, Page 1892, et seq., of the Deed of Trust Records of Tarrant County, Texas [West Lake Gardens]; (b) that First Deed of Trust and Security Agreement dated November 5, 1991, executed by Old Borrower, filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. N403252 and recorded at Film Code No. 006-52-1287, et seq., of the Official Public Records of Real Property of Harris County, Texas [Richmond Square]; (c) that First Deed of Trust and Security Agreement dated February 4, 1992, executed by Old Borrower, filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. N527998 and recorded at Film Code No. 014-55-1789, et seq., of the Official Public Records of Real Property of Harris County, Texas [Westchase]; (d) that First Deed of Trust and Security Agreement dated May 5, 1992, executed by Old Borrower and recorded at Volume 5356, Page 1511, et seq., of the Official Public Records of Real Property of Bexar County, Texas [San Antonio Imaging]; and (e) that First Deed of Trust and Security Agreement dated September 7, 1993, executed by Old Borrower, recorded at Volume 5792, Page 1933, et seq., of the Official Public Records of Real Property of Bexar County, Texas [Pipers Creek, Shadow Valley], filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. P442690 and recorded at Film Code No. 169-55-3591, et seq., of the Official Public Records of Real Property of Harris County, Texas [Westbrook, Colonies], and recorded at Volume 11231, Page 0137, et seq., of the Deed of Trust Records of Tarrant County, Texas [Bentley Village]; each such instrument encumbering the real and other property described therein (the "REAL PROPERTY"); and (2) the following instruments styled Assignment of Rents and Leases (collectively called the "RENTAL ASSIGNMENT"): (a) that Assignment of Rents and Leases dated of even date with the Loan Agreement, executed by Old Borrower and recorded in Volume 5091, Page 0826, et seq., of the Official Public Records of Real Property of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre Pointe, Nacon Plaza], under Film Code No. 037-12-1762 of the Official Public Records of Real Property of Harris County, Texas [Spring Valley, Westminster], in Volume 1085, Page 176, et seq., of the Deed Records of Midland County, Texas [Oak Ridge], and in Volume 10293, Page 1967, et seq., of the Deed of Trust Records of Tarrant County, Texas [West Lake Gardens], Texas; (b) that Assignment of Rents and Leases dated November 5, 1991, executed by Old Borrower, filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. N403253 and recorded at Film Code No. 006-52-1312, et seq., of the Official Public Records of Real Property of Harris County, Texas [Richmond Square]; (c) that Assignment of Rents and Leases dated February 4, 1992, executed by Old Borrower, filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. N527999 and recorded at Film Code No. 014-55-1816, et seq., of the Official Public Records of Real Property of Harris County, Texas [Westchase]; (d) that Assignment of Rents and Leases dated May 5, 1992, executed by Old Borrower, recorded in Volume 5356, Page 1538, et seq., of the Official Public Records of Real Property of Bexar County, Texas [San Antonio Imaging]; and (e) that Assignment of Rents and Leases dated September 7, 1993, executed by Old Borrower, recorded at Volume 5792, Page 1961, et seq., of the Official Public Records of Real Property of Bexar County, Texas [Pipers Creek, Shadow Valley], filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. P442691, and recorded at Film Code No. 169-55-3618, et seq., of the Official Public Records of Real Property of Harris County, Texas [Westbrook, Colonies], and recorded at Volume 11231, Page 0179, et seq., of the Deed Records of Tarrant County, Texas [Bentley Village] (3) that Second Deed of Trust and Security Agreement dated December 30, 1992, executed by Old Borrower and recorded in Volume 5581, Page 1347, et seq., of the Real Property Records of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre Pointe, Nacon Plaza San Antonio Imaging], at Clerk's File No. P101069 and Film Code No. ###-##-####, et seq., of the Real Property Records of Harris County, Texas [Spring Valley, Westminster, Richmond Square, Westchase], in Volume 778, Page 175, et seq., of the Deed of Trust Records of Midland County, Texas [Oak Ridge] and in Volume 10957, Page 2238, et seq., of the Real Property Records of Tarrant County, Texas [Westlake Gardens] (the "SECOND DEED OF TRUST"; the First Deed of Trust and the Second Deed of Trust\ being herein collectively called the "DEED OF TRUST"); and (4) that Security Agreement and Pledge of Mortgage Loans and Mortgage Loan Documents (the "MORTGAGE PLEDGE AGREEMENT") of even date with the Loan Agreement executed by Old Borrower and Lender and pledging to Lender, as security for the Loan, certain mortgage loans (the "MORTGAGE LOANS") [Balcones, Enfield Courts, Park North Tech, Parc Bay, Trestles] (the Loan Agreement, the Notes, the Deed of Trust, the Rental Assignment, the Mortgage Pledge Agreement, the First Modification, the Increase Modification, and all other Security Instruments (as such term is defined in the Loan Agreement) or other documents evidencing, governing, guaranteeing, securing, or otherwise pertaining to the Loan being hereinafter collectively referred to as the "LOAN DOCUMENTS"); C. Lender, Old Borrower, New Borrower and Guarantors entered into that Consent and Assumption Agreement dated December 10, 1993, under which Lender consented to the transfer and conveyance of the Real Property and the Mortgage Loans to New Borrower (and pursuant to which Old Borrower has transferred and conveyed the Real Property, the Mortgage Loans, and the rights of Old Borrower under the Loan Agreement to New Borrower), and New Borrower has assumed the obligations and liabilities of Old Borrower under the Loan and the Loan Documents; D. Lender and Borrower entered into that Third Modification Agreement (the "THIRD MODIFICATION") dated as of December 30, 1993, modifying the terms of the Notes and the other Loan Documents, and providing for the availability of $25,000,000 in Subsequent Advances under the Loan Agreement, through re-advances of principal reductions of the Original Note; and E. Borrower has requested that Lender extend until December 31, 1994 the period during which Lender may be obligated to make certain additional Subsequent Advances under the Loan Agreement, through re-advances of principal reductions of the Original Note, and Lender is agreeable to such extension on the terms of that Fifth Amendment to Loan Agreement of even date herewith between Lender and Borrower (the "FIFTH AMENDMENT"), and the further extension of the maturity of the Notes and the other Loan Documents as hereinafter set forth; AGREEMENT: NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, Lender and Borrower do hereby agree as follows: 1. MATURITY DATE. Borrower and Lender agree that the Maturity Date (as defined in the Original Note and last amended in the Increase Modification) is extended to December 31, 1999, and that the Maturity Obligations (as defined in the Original Note) shall be fully payable on that date. 2. PAYMENT TERMS. Borrower and Lender agree that from and after the date hereof, interest only on the outstanding principal balance of the Original Note shall be payable monthly on the first day of each month beginning April 1, 1994 and continuing to and including December 1, 1999, at the Contract Rate (as such rate was modified and redefined in Section 3 of the First Modification). 3. PREPAYMENT. Borrower and Lender confirm that the prepayment provisions set forth in the Third Modification continue in full force and effect. 4. RATIFICATION AND CONFIRMATION OF LOAN DOCUMENTS. Borrower and Lender agree that the Loan Agreement, the Notes, the Deed of Trust, the Rental Assignment, the Mortgage Pledge Agreement, and the other Loan Documents are hereby ratified and confirmed as valid and continuing obligations of Borrower, and that the Deed of Trust, the Rental Assignment, and the Mortgage Pledge Agreement shall continue to secure and/or provide payment for the Notes, as modified by this Agreement, and Borrower promises to pay to the order of Lender at P. 0. Box 102771, Atlanta, Georgia 30368-0771, the indebtedness evidenced by the Notes, as herein modified. 5. NO IMPAIRMENT OF SECURITY. Borrower hereby agrees that the agreements contained herein shall in no manner affect or impair the Original Note or the Increase Note, the liens or security interests securing same, and that said liens and security interests shall not in any manner be waived, altered or vitiated by such agreements, and Borrower further agrees that, as expressly modified hereby, all terms and provisions of the Loan Documents shall be and remain in full force and effect. 6. NO DEFAULT, DEFENSES, COUNTERCLAIMS, ETC. Borrower hereby covenants and warrants that none of the Loan Documents are in default; that there are no defenses, counterclaims or offsets to such Loan Documents. 7. COSTS AND EXPENSES. Borrower agrees to pay all costs incurred in connection with the execution and consummation of this Agreement, including but not limited to, all recording costs, the premium for such endorsements to the policies of title insurance insuring the Deed of Trust as may be required by Lender with respect to this Agreement, and the reasonable fees and actual expenses of Lender's counsel. Borrower further covenants and agrees to deliver or cause to be delivered such evidence of existence, capacity, authorization, qualification, or enforceability of its obligations as Lender may require. 8. LIMITATION ON INTEREST. All agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency, whether by reason of acceleration of the maturity of the Notes, or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to the holder of the Notes exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to the holder of the Notes in excess of the maximum lawful amount, the interest payable to the holder of the Notes shall be reduced to the maximum amount permitted by applicable law; and if from any circumstance the holder of the Notes shall ever receive anything of value deemed interest by applicable law in excess of the maximum amount allowed by law, an amount equal to any excessive interest shall be applied to the reduction of the principal amount owing under the Notes, and not to the payment of interest, or if such excessive interest exceeds such unpaid balance of principal of the Notes, such excess shall be refunded to Borrower. All interest paid or agreed to be paid to the holder of the Notes, shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Notes (including the period of any renewal or extension thereof) so that the interest on the Notes shall not exceed the maximum amount permitted by applicable law. This paragraph shall control all agreements between Borrower and the holder of the Notes. EXECUTED by the parties hereto as of the date and year first above written. BORROWER: OLD BORROWER: MXM MORTGAGE CORP., a Delaware corporation By: ERIK ERIKSSON, JR. Erik Eriksson, Jr., Vice President NEW BORROWER: MXM MORTGAGE, L.P., a Delaware limited partnership By: MXM GENERAL PARTNER, INC., a Delaware corporation, General Partner By: ERIK ERIKSSON, JR. Erik Eriksson, Jr., Vice President LENDER: GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation By: TY ALBRIGHT Ty Albright, Project Manager STATE OF TEXAS COUNTY OF HARRIS This instrument was acknowledged before me this 14th day of April, 1994, by ERIK ERIKSSON, JR., Vice President of MXM MORTGAGE CORP., a Delaware corporation, on behalf of said corporation. (SEAL) KARIN MARIE BELDING Notary Public in and for the State of Texas STATE OF TEXAS COUNTY OF HARRIS This instrument was acknowledged before me this 14th of April, 1994, by ERIK ERIKSSON, JR., Vice President of MXM GENERAL PARTNER, INC., a Delaware corporation and General Partner of MXM MORTGAGE, L.P., a Delaware limited partnership, on behalf of said corporation and said limited partnership. (SEAL) KARIN MARIE BELDING Notary Public in and for the State of Texas STATE OF TEXAS COUNTY OF DALLAS This instrument was acknowledged before me this 15th day of April, 1994, by TY ALBRIGHT, Project Manager of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, on behalf of said corporation. (SEAL) JAN HOWARD Notary Public in and for the State of Texas EX-4 3 EXHIBIT 4.4 EXHIBIT 4.4 FIFTH AMENDMENT TO LOAN AGREEMENT THIS FIFTH AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is executed as of March 31, 1994, by and among GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("LENDER"), MXM MORTGAGE, L.P., a Delaware limited partnership ("NEW BORROWER"), and MXM MORTGAGE CORP., a Delaware corporation ("OLD BORROWER"; New Borrower and Old Borrower being herein together sometimes called "BORROWER"), on the following terms and conditions: RECITALS: A. Lender and Old Borrower entered into that Loan Agreement dated June 17, 1991, as amended by letter amendment dated August 22, 1991, as further amended by First Renewal, Extension and Modification Agreement (the "FIRST MODIFICATION") dated June 17, 1992 among Lender, Old Borrower, and Maxxam Inc. and Maxxam Group Inc., as further amended by Loan Increase, Extension and Modification Agreement (the "INCREASE MODIFICATION") dated December 30, 1992 among Lender, Old Borrower, Maxxam Inc. and Maxxam Group Inc., and as further amended by Fourth Amendment to Loan Agreement (the "FOURTH AMENDMENT") dated as of December 30, 1993, among Lender, Old Borrower, and New Borrower (said Loan Agreement, as amended, being herein called the "LOAN AGREEMENT"), pursuant to which Lender has agreed to make a loan to Borrower (the "LOAN"), as evidenced by a $115,220,000 Promissory Note dated June 17, 1991, (the "ORIGINAL NOTE"), and a $17,740,000 Promissory Note dated December 30, 1992 (the "INCREASE NOTE"; the Original Note and the Increase Note being herein together called the "NOTES"), each of the Notes bearing interest and being payable to the order of Lender as therein provided; B. Unless otherwise defined herein, all capitalized terms in this Agreement shall have the same meanings assigned to such terms in the Loan Agreement, and, as applicable, in the First Modification, the Increase Modification, and the Fourth Amendment; C. Taking into account releases of collateral, the indebtedness evidenced by the Original Note and the Increase Note is secured by, among other collateral, the following: (1) the following instruments styled First Deed of Trust and Security Agreement (collectively called the "FIRST LIEN DEED OF TRUST"): (a) that First Deed of Trust and Security Agreement of even date with the Loan Agreement, executed by Old Borrower, recorded in Volume 5091, Page 0751, et seq., of the Official Public Records of Real Property of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre Pointe, Nacon Plaza], under Film Code No. 037-12-1689 and corrected and refiled under Film Code No. 038-03-0657 of the Official Public Records of Real Property of Harris County, Texas [Spring Valley, Westminster], in Volume 727, Page 416, et seq., of the Deed of Trust Records of Midland County, Texas [Oak Ridge] and in Volume 10293, Page 1892, et seq., of the Deed of Trust Records of Tarrant County, Texas [West Lake Gardens]; (b) that First Deed of Trust and Security Agreement dated November 5, 1991, executed by Old Borrower, filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. 403252 and recorded at Film Code No. 006-52-1287, et seq., of the Official Public Records of Real Property of Harris County, Texas [Richmond Square]; (c) that First Deed of Trust and Security Agreement dated February 4, 1992, executed by Old Borrower, filed for recording in the (office of the County Clerk of Harris County, Texas under Clerk's File No. N527998 and recorded at Film Code No. 014-55-1789, et seq., of the Official Public Records of Real Property of Harris County, Texas [Westchase]; (d) that First Deed of Trust and Security Agreement dated May 5, 1992, executed by Old Borrower and recorded at Volume 5356, Page 1511, et seq., of the Official Public Records of Real Property of Bexar County, Texas [San Antonio Imaging]; and (e) that First Deed of Trust and Security Agreement dated September 7, 1993, executed by Old Borrower, recorded at Volume 5792, Page 1933, et seq., of the Official Public Records of Real Property of Bexar County, Texas [Pipers Creek, Shadow Valley], filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. P442690 and recorded at Film Code No. 169-55-3591, et seq., of the Official Public Records of Real Property of Harris County, Texas [Westbrook, Colonies], and recorded at Volume 11231, Page 0137, et seq., of the Deed of Trust Records of Tarrant County, Texas [Bentley Village]; each such instrument encumbering the real and other property described therein (the "REAL PROPERTY"); and (2) the following instruments styled Assignment of Rents and Leases (collectively called the "RENTAL ASSIGNMENT"): (a) that Assignment of Rents and Leases dated of even date with the Loan Agreement, executed by Old Borrower and recorded in Volume 5091, Page 0826, et seq., of the Official Public Records of Real Property of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre Pointe, Nacon Plaza], under Film Code No. 037-12-1762 of the Official Public Records of Real Property of Harris County, Texas [Spring Valley, Westminster], in Volume 1085, Page 176, et seq., of the Deed Records of Midland County, Texas [Oak Rids-el, and in Volume 10293, Page 1967, et seq., of the Deed of Trust Records of Tarrant County, Texas [West Lake Gardens], Texas; (b) that Assignment of Rents and Leases dated November 5, 1991, executed by Old Borrower, filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. N403253 and recorded at Film Code No. 006-52-1312, et seq., of the Official Public Records of Real Property of Harris County, Tex,,is [Richmond Square]; (c) that Assignment of Rents and Leases dated February 4, 1992, executed by Old Borrower, filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. N527999 and recorded at Film Code No. 014-55-1816, et seq., of the Official Public Records of Real Property of Harris County, Texas [Westchase]; (d) that Assignment of Rents and Leases dated May 5, 1992, executed by Old Borrower, recorded in Volume 5356, Page 1538, et seq., of the Official Public Records of Real Property of Bexar County, Texas [San Antonio Imaging]; and (e) that Assignment of Rents and Leases dated September 7, 1993, executed by Old Borrower, recorded at Volume 5792, Page 1961, et seq., of the Official Public Records of Real Property of Bexar County, Texas [Pipers Creek Shadow Valley], filed for recording in the Office of the County Clerk of Harris County, Texas under Clerk's File No. P442691, and recorded at Film Code No. 169-55-3618, et seq., of the Official Public Records of Real Property of Harris County, Texas [Westbrook, Colonies], and recorded at Volume 11231, Page 0179, et seq., of the Deed Records of Tarrant County, Texas [Bentley Villas-e]; (3) that Second Deed of Trust and Security Agreement dated December 30, 1992, executed by Old Borrower and recorded in Volume 5581, Page 1347, et seq., of the Real Property Records of Bexar County, Texas [Southwest Medical, Redondo Place, Med Centre Pointe, San Antonio Imaging], at Clerk's File No. P101069 and Film Code No. 120-51-2685, et seq., of the Real Property Records of Harris County, Texas [Spring Valley, Westminster, Richmond Square, Westchase], in Volume 778, Page 175, et seq., of the Deed of Trust Records of Midland County Texas [Oak Rite], and in Volume 10957, Page 2238, et seq., of the Real Property Records of Tarrant County, Texas [Westlake Gardens] (the "SECOND DEED OF TRUST"; the First Deed of Trust and the Second Deed of Trust being herein collectively called the "DEED OF TRUST"); and (4) that Security Agreement and Pledge of Mortgage Loans and Mortgage Loan Documents (the "MORTGAGE PLEDGE AGREEMENT") of even date with the Loan Agreement executed by Old Borrower and Lender and pledging to Lender, as security for the Loan, certain mortgage loans (the "MORTGAGE LOANS") [Balcones, Enfield Courts, Park North Tech, Parc Ban, Trestles; (the Loan Agreement, the Notes, the Deed of Trust, the Rental Assignment, the Mortgage Pledge Agreement, the First Modification, the Increase Modification, and all other Security Instruments (as such term is defined in the Loan Agreement) or other documents evidencing, governing, guaranteeing, securing, or otherwise pertaining to the Loan being hereinafter collectively referred to as the "SECURITY INSTRUMENTS"); D. Lender, Old Borrower, New Borrower, Maxxam Inc. and Maxxam Group Inc. entered into that Consent and Assumption Agreement dated December 10, 1993, under which Lender consented to the transfer and conveyance of the Real Property, the Mortgage Loans, and the rights of Old Borrower under the Loan Agreement to New Borrower (and pursuant to) which Old Borrower has transferred and conveyed the Real Property, the Mortgage Loans, and the rights of Old Borrower under the Loan Agreement to New Borrower), and New Borrower has assumed the obligations and liabilities of Old Borrower under the Loan and the Security Instruments; E. Section 2.1 of the Loan Agreement provides that to the extent of certain principal reductions the Loan shall be a revolving line of credit and that subject to the terms of the Loan Agreement portions of the principal sum of the Original Note may be advanced, repaid, and readvanced; F. Through application of proceeds from the sale of Assets and the payment and satisfaction of Mortgage Loans: (1) the principal balance of the Loan was reduced to $15,000,000 and through one or more readvances under the Fourth Amendment is $16,108,023.57 as of March 31, 1994, and (2) the existing Funding Availability under the Loan, as amended under the Fourth Amendment, is $25,457,716.41, of which $2,730,080 is available but not yet approved for Leasing Costs, $250.000 is available as a holdback for abatement and removal of environmental hazards, $457,716.41 is available for payment of Taxes, and $22,019,920 of the $25,000,000 which was made available for readvances under the Fourth Amendment remains available for readvances for general business purposes (the "GENERAL FUNDING AVAILABILITY AMOUNT"); G. Borrower has requested that Lender extend the period during which the General Funding Availability Amount may be readvanced under the Loan Agreement and Lender is agreeable to extending such period on the terms of this Agreement and the terms of that Fourth Extension and Modification Agreement of even date herewith between Lender and Borrower (the "FOURTH MODIFICATION"); AGREEMENT: NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, including the payment by Borrower to Lender of the Funding Extension Fee (as hereinafter defined), the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: 1. ADDITIONAL RE-ADVANCES. Provided Borrower is not then in default under the Loan Documents, Lender will make available to Borrower, as Subsequent Advances to be re-advanced under the Loan, up to $25,457,716.41 of principal reductions of the Original Note. (a) $22,019,920 of which shall be available for general business purposes, which amount Borrower agrees to borrow and, subject to the applicable conditions to Subsequent Advances, Lender shall fund on or before December 31, 1994, (b) $2,730,080 of which shall be available for Subsequent Advances for Leasing Costs, (c) $250,000 of which shall be available for Subsequent Advances for abatement and removal of environmental hazards, and (d) $457,716.41 of which shall be available for Subsequent Advances for payment of Taxes. Borrower shall initiate requests for such Subsequent Advances in accordance with the application procedure set forth in Section 2.4 of the Loan Agreement and funding for such Subsequent Advances shall originate from re-advances of principal reductions of the Original Note. Borrower and Lender acknowledge and agree that the principal balance of the Loan is $16,108,023.57 as of March 31, 1994. In accordance with the foregoing, Section 2.1 of the Loan Agreement is amended and restated as follows: 2.1 Commitment of Lender; Revolving Line of Credit. Subject to the provisions of this Agreement, and provided that an Event of Default does not then exist, Lender will make Advances to Borrower subject to the conditions of this Agreement. As the first Advance hereunder, Lender shall disburse $109,864,700. Thereafter, Lender shall make Advances for, among other purposes, the Renovation of the Real Property and Leasing Costs, in accordance with Approved Budget in the amount of up to the sum of all principal reductions which actually have been paid to Lender; provided, however, (a) that the sum of all Subsequent Advances from and after December 31, 1993 shall not exceed $25,000,000 (exclusive of Subsequent Advances for Taxes under Section 2.21 of this Agreement), (b) that of said $25,000,000 which is available for Subsequent Advances after December 31, 1993, (i) $22,019,920 shall only be available to be advanced prior to December 31, 1994, but may be advanced for Borrower's general business purposes and shall not be subject to the requirements of Section 1.64 of this Agreement regarding the purpose of Subsequent Advances, Section 2.2(c) and Subsections 2.2(d)(ii) and 2.2(d)(iii) of this Agreement in connection with renovation of the Real Property, Section 2.4, Section 2.5, and Section 2.10 of this Agreement relating to Renovation Requirements and Leasing Costs, or the use requirements of Section 2.6 of this Agreement, (ii) of the remaining $2,980,080, $2.730,080 shall be available only for Leasing Costs, and $250,000 shall be available for payment of costs of abating or removing environmental hazards affecting the Real Property; and (iii) Subsequent Advances from and after December 31, 1993 shall not under any circumstances be available, except for Borrower's general business purposes, for paying costs of renovation of the Real Property. To the extent reductions of principal are made available for Subsequent Advances under this Agreement, the Loan shall be a "revolving line of credit"; that is, subject to the terms hereof, portions of the principal sum of the Note may be advanced, repaid, and readvanced. The books and records of Lender shall be prima facie evidence of all sums due Lender under the Note and the other Security Instruments. Notwithstanding the foregoing, Borrower shall continue to be entitled to Subsequent Advances for Taxes in the amount of aggregate monthly principal reductions and in accordance with Section 2.21 of this Agreement. 2. MAXIMUM LOAN AMOUNT. Borrower and Lender agree that from and after the date hereof the maximum amount which at any time can be outstanding under the Loan, whether evidenced by the Original Note or the Increase Note, is $41,565,739.98. 3. SECURITY INSTRUMENTS. Section 1.63 of the Loan Agreement is hereby modified to include in the definitions of Security Instruments under the Loan Agreement, this Amendment and the Fourth Modification. 4. PREPAYMENT CHARGES. Borrower and Lender acknowledge and agree (a) that in accordance with Section 4 of the First Modification, the prepayment of the principal of the Loan on December 15, 1993 to a remaining principal balance of $15,000,000 required a prepayment charge of $621,016.40 and (b) that Lender agreed to accept only $500,000 of the prepayment charge at that time, reserving the right to charge the remaining $121,016.40 of the prepayment charge at any time in the future. Borrower and Lender further agree that if Borrower requests and satisfies all conditions precedent for additional Subsequent Advances of $22,019,920 for general business purposes on or before December 31, 1994, and $22,019,920 of additional Subsequent Advances for general business purposes actually are made on or before December 31, 1994, Lender shall waive its right to receive any further prepayment charge as a result of the partial prepayment of the principal balance of the Loan on December 15, 1993 or any subsequent prepayment. Otherwise, on January 1, 1995, Borrower shall pay to Lender the remaining $121,016.40 portion of the prepayment charge owing as a result of the December 15, 1993 partial prepayment and the prepayment charge shall continue to be applicable to all future prepayments. 5. FUNDING EXTENSION FEE. In consideration for Lender's extension of the period during which the General Funding Availability Amount may be readvanced under the Loan Agreement, and as a condition precedent to the effectiveness of this Amendment Borrower shall pay to Lender a funding extension fee of $220,199.20 (the "FUNDING EXTENSION FEE"); provided, however, that (a) if on or before June 30, 1994 Borrower shall have requested and satisfied all conditions for the Subsequent Advance(s) of the entire General Funding Availability Amount, and Lender actually shall have made the Subsequent Advance of the entire General Funding Availability Amount, then Lender shall refund to Borrower one-half (1/2) of the Funding Extension Fee ($110,099.60) at the same time the General Funding Availability Amount is advanced; and (b) if on June 30, 1994 Borrower shall have requested and satisfied all conditions for the Subsequent Advance(s) of more than $11,009,960 of the General Funding Availability and Lender shall have made such requested Subsequent Advance(s), then Lender shall refund to Borrower a portion of the Funding Extension Fee equal to one-half percent (1/2%) of the amount of the total General Funding Availability which has been advanced and is outstanding on June 30, 1994. (For example, if the amount of the General Funding Availability which has been advanced and is outstanding on June 30, 1994 is $13,000,000, then Lender shall refund to Borrower $65,000.00 of the Funding Extension Fee [$13,000,000 x 0.005 = $65,000.001.) 6. COSTS AND EXPENSES. Borrower agrees to pay all costs incurred in connection with the execution and consummation of this Amendment and the Fourth Modification, including but not limited to, all recording costs, the premium for such endorsements to the policies of title insurance insuring the First Lien Deed of Trust and the Second Lien Deed of Trust as may be required by Lender with respect to this Amendment and the Fourth Modification and the reasonable fees and actual expenses of Lender's counsel. Borrower further covenants to deliver or cause to be delivered such evidence of existence, capacity, authorization, qualification, or enforceability of its obligations as Lender may require in connection with this Amendment and the Fourth Modification. 7. LIMITATION ON INTEREST. All agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency, whether by reason of acceleration of the maturity of the Notes or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to the holder of the Notes exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to the holder of the Notes in an amount in excess of the minimum lawful amount, the interest payable to the holder of the Notes shall be reduced to the maximum amount permitted by applicable law; and if from any circumstance the holder of the Notes shall ever receive anything of value deemed interest by applicable law in excess of the maximum amount allowed by law, an amount equal to any excessive interest shall be applied to the reduction of the principal amount owing under the Notes, and not to the payment of interest, or if such excessive interest exceeds such unpaid balance of principal of the Notes, such excess shall be refunded to Borrower. An interest paid or agreed to be paid to the holder of the Notes, shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Notes (including the period of any renewal or extension thereat) so that the interest on the Notes shall not exceed the minimum amount permitted by applicable law. This Section shall control all agreements between Borrower and the holder of the Notes. EXECUTED by the parties hereto as of the date and year first above written. BORROWER: OLD BORROWER: MXM MORTGAGE CORP., a Delaware corporation By: ERIK ERIKSSON, JR. Erik Eriksson, Jr., Vice President NEW BORROWER: MXM MORTGAGE, L.P., a Delaware limited partnership By: MXM GENERAL PARTNER, INC., a Delaware corporation, General Partner By: ERIK ERIKSSON, JR. Erik Eriksson, Jr., Vice President LENDER: GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation By: TY ALBRIGHT Ty Albright, Project Manager EX-11 4 EXHIBIT 11 EXHIBIT 11 MAXXAM INC. COMPUTATION OF NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE (In millions of dollars, except share and per share amounts)
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 1994 1993 1994 1993 ----------- ---------- ----------- ---------- Weighted average common and common equivalent shares outstanding during each period . . . . . . 9,376,703 9,376,703 9,376,703 9,376,703 Common equivalent shares attributable to stock options and convertible securities . . 71,175 86,175 71,175 86,175 ----------- ---------- ----------- ---------- Total common and common equivalent shares . . . . . . . . . . . . 9,447,878 9,462,878 9,447,878 9,462,878 =========== ========== =========== ========== Loss before extraordinary item and cumulative effect of changes in $(43.2) $(15.8) $(77.7) $(41.7) accounting principles . . . . Extraordinary item . . . . . . . . - - -5.4 (44.1) Cumulative effect of changes in accounting principles . . . . - - - (417.7) ----------- ---------- ----------- ---------- Net loss . . . . . . . . . . . . . $(43.2) $(15.8) $(83.1) $(503.5) =========== ========== =========== ========== Per common and common equivalent share: Loss before extraordinary item and cumulative effect of $(4.57) $(1.67) $(8.22) $(4.41) changes in accounting principles . . . . . . . Extraordinary item . . . . . . - - -0.57 (4.66) Cumulative effect of changes in accounting principles . . - - - (44.14) ----------- ---------- ----------- --------- Net loss . . . . . . . . . . . $(4.57) $(1.67) $(8.79) $(53.21) =========== ========== =========== =========
10-Q 5 MAXXAM INC. 6/30/94 10-Q =========================================================================== 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, 1994 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 HOUSTON, TEXAS 77057 (Address of Principal (Zip Code) 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, 1994: 8,698,464 =========================================================================== MAXXAM INC. INDEX PAGE PART I. - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet at June 30, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . 3 Consolidated Statement of Operations for the three and six months ended June 30, 1994 and 1993 . . . . . . . 4 Consolidated Statement of Cash Flows for the six months ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . 5 Condensed Notes to Consolidated Financial Statements . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 12 PART II. - OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 22 Item 5. Other Information . . . . . . . . . . . . . . . . . . 23 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 23 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1 MAXXAM INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
June 30, December 31, 1994 1993 ------------- ------------- (Unaudited) (In millions of dollars) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . $109.2 $83.9 Marketable securities . . . . . . . . . . . . . 69.8 44.7 Receivables: Trade, net of allowance for doubtful accounts of $3.9 and $3.2 at June 30, 1994 and December 31, 1993, respectively . . . . . . . . . . . . . . 176.5 175.3 Other . . . . . . . . . . . . . . . . . . . 72.2 90.8 Inventories . . . . . . . . . . . . . . . . . . 470.9 503.6 Prepaid expenses and other current assets . . . 117.7 93.3 ------------ ----------- Total current assets . . . . . . . . . . . 1,016.3 991.6 Property, plant and equipment, net of accumulated depreciation of $531.9 and $481.3 at June 30, 1994 and December 31, 1993, respectively . . . . . . . . . . . . . . . . . . 1,230.0 1,245.0 Timber and timberlands, net of depletion of $115.7 and $108.2 at June 30, 1994 and December 31, 1993, respectively . . . . . . . . . . . . . . . . . . 332.8 338.6 Investments in and advances to unconsolidated affiliates . . . . . . . . . . . . . . . . . . . 176.4 183.2 Real estate . . . . . . . . . . . . . . . . . . . . . 96.4 113.3 Deferred income taxes . . . . . . . . . . . . . . . . 407.0 359.9 Long-term receivables and other assets . . . . . . . 363.5 340.4 ------------- ----------- $3,622.4 $3,572.0 ============= =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable . . . . . . . . . . . . . . . . $125.2 $135.6 Accrued interest . . . . . . . . . . . . . . . . 61.6 53.7 Accrued compensation and related benefits . . . 126.0 114.2 Other accrued liabilities . . . . . . . . . . . 157.2 161.5 Payable to affiliates . . . . . . . . . . . . . 74.4 74.0 Long-term debt, current maturities . . . . . . . 35.1 38.3 ------------ ----------- Total current liabilities . . . . . . . . . 579.5 577.3 Long-term debt, less current maturities . . . . . . . 1,587.4 1,567.9 Accrued postretirement benefits . . . . . . . . . . . 727.3 720.1 Other noncurrent liabilities . . . . . . . . . . . . 660.9 650.3 ----------- ----------- Total liabilities . . . . . . . . . . . . . 3,555.1 3,515.6 ----------- ----------- Commitments and contingencies Minority interests . . . . . . . . . . . . . . . . . 317.4 224.3 Stockholders' deficit: Preferred stock, $.50 par value; 12,500,000 shares authorized; Class A $.05 Non- Cumulative Participating Convertible Preferred Stock; shares issued: 679,084 . . .3 .3 Common stock, $.50 par value; 28,000,000 shares authorized; shares issued: 10,063,359 . . . 5.0 5.0 Additional capital . . . . . . . . . . . . . . . 52.1 51.2 Accumulated deficit . . . . . . . . . . . . . . (263.9) (180.8) Pension liability adjustment . . . . . . . . . . (23.9) (23.9) Treasury stock, at cost (shares held: preferred - 845; common - 1,364,895) . . . . . . . . . (19.7) (19.7) ----------- ----------- Total stockholders' deficit . . . . . . . . (250.1) (167.9) ----------- ----------- $3,622.4 $3,572.0 =========== ===========
CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ------------------------- 1994 1993 1994 1993 ----------- ---------- ----------- ------------- (Unaudited) Net sales: Aluminum operations . . . . . . . $459.5 $432.2 $874.6 $874.8 Forest products operations . . . . 63.0 58.0 119.7 110.7 Real estate operations . . . . . . 21.3 17.7 38.5 36.1 ----------- ----------- ----------- ----------- 543.8 507.9 1,032.8 1,021.6 ----------- ----------- ----------- ----------- Costs and expenses: Costs of sales and operations (exclusive of depreciation and depletion): Aluminum operations . . . . . 419.0 391.0 806.8 791.1 Forest products operations . 31.0 31.6 64.2 57.9 Real estate operations . . . 15.8 13.4 28.2 32.8 Depreciation and depletion . . . . 30.0 30.3 61.2 60.0 Selling, general and administrative 41.5 42.7 80.9 82.7 expenses . . . . . . . . . . ----------- ----------- ----------- ----------- 537.3 509.0 1,041.3 1,024.5 ----------- ----------- ----------- ----------- Operating income (loss) . . . . . . . . 6.5 (1.1) (8.5) (2.9) Other income (expense): Investment, interest and other income (expense) . . . . . . (19.1) 7.2 (7.7) 16.7 Interest expense . . . . . . . . . (44.2) (46.9) (87.7) (96.2) ----------- ----------- ----------- ----------- Loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles . . . . . (56.8) (40.8) (103.9) (82.4) Credit for income taxes . . . . . . . . 19.3 22.9 35.8 37.0 Minority interests . . . . . . . . . . (5.7) 2.1 (9.6) 3.7 ----------- ---------- ----------- ----------- Loss before extraordinary item and cumulative effect of changes in accounting principles . . . . . . (43.2) (15.8) (77.7) (41.7) Extraordinary item: Loss on early extinguishment of debt, net of related benefits for minority interests of $nil and $2.8 and income taxes of $2.9 and $24.2 in 1994 and 1993, respectively . . . . . - - (5.4) (44.1) Cumulative effect of changes in accounting principles: Postretirement benefits other than pensions and postemployment benefits, net of related benefits for minority interests of $64.6 and income taxes of $240.2 . . . . . . . - - - (444.3) Accounting for income taxes . . . - - - 26.6 ----------- ----------- ----------- ----------- Net loss . . . . . . . . . . . . . . . $(43.2) $(15.8) $(83.1) $(503.5) =========== =========== =========== =========== Per common and common equivalent share: Loss before extraordinary item and cumulative effect of changes in accounting principles . . $(4.57) $(1.67) $(8.22) $(4.41) Extraordinary item . . . . . . . . - - (.57) (4.66) Cumulative effect of changes in - - - (44.14) accounting principles . . . . ----------- ----------- ----------- ----------- Net loss . . . . . . . . . . . . . $(4.57) $(1.67) $(8.79) $(53.21) =========== =========== =========== ===========
CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS OF DOLLARS)
Six Months Ended June 30, ------------------------------- 1994 1993 --------------- -------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (83.1) $ (503.5) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and depletion . . . . . . . . . . . . . . . . . 61.2 60.0 Amortization of deferred financing costs and discounts on long-term debt . . . . . . . . . . . . . . . . . . . . . 9.9 9.9 Minority interests . . . . . . . . . . . . . . . . . . . . . 9.6 (3.7) Extraordinary loss on early extinguishment of debt, net . . . 5.4 44.1 Equity in losses of unconsolidated affiliates . . . . . . . . 1.0 6.5 Incurrence of financing costs . . . . . . . . . . . . . . . . (18.7) (39.3) Cumulative effect of changes in accounting principles, net . - 417.7 Decrease in inventories . . . . . . . . . . . . . . . . . . . 33.8 2.0 Decrease in receivables . . . . . . . . . . . . . . . . . . . 10.3 22.5 Increase in accrued interest . . . . . . . . . . . . . . . . 8.0 3.1 Increase in payable to affiliates and other liabilities . . . 2.6 12.5 Increase in accrued and deferred income taxes . . . . . . . . (41.7) (40.6) Decrease in accounts payable . . . . . . . . . . . . . . . . (10.4) (8.9) Decrease (increase) in prepaid expenses and other assets . . (4.9) 8.7 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 (4.4) --------------- -------------- Net cash used for operating activities . . . . . . . . . (14.1) (13.4) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from disposition of property and investments . . . . 6.6 10.0 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (30.9) (33.3) Net sales (purchases) of marketable securities . . . . . . . . . . (26.9) 4.4 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.0) (1.0) -------------- -------------- Net cash used for investing activities . . . . . . . . . (54.2) (19.9) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt . . . . . . . . . . . . . 225.5 1,022.8 Net payments under revolving credit agreements and short-term borrowings . . . . . . . . . . . . . . . . . (193.4) (136.7) Redemptions, repurchase of and principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21.8) (951.1) Redemption of preference stock . . . . . . . . . . . . . . . . . . (8.4) (4.0) Proceeds from issuance of Kaiser capital stock . . . . . . . . . . 100.4 119.3 Restricted cash deposits . . . . . . . . . . . . . . . . . . . . . - (35.0) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.7) - -------------- -------------- Net cash provided by financing activities . . . . . . . 93.6 15.3 -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . 25.3 (18.0) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . 83.9 81.9 -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 109.2 $ 63.9 ============== ============== Supplementary schedule of non-cash investing and financing activities: Net margin borrowings (repayments) for marketable securities . . . $ (.5) $ 3.1 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid, net of capitalized interest . . . . . . . . . . . . $ 69.9 $ 83.1 Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . 6.5 7.3
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, 1993 (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, 1994, the consolidated results of operations for the three and six months ended June 30, 1994 and 1993 and consolidated cash flows for the six months ended June 30, 1994 and 1993. Certain reclassifications of prior period information have been made to conform to the current presentation. 2. CASH AND CASH EQUIVALENTS At June 30, 1994 and December 31, 1993, cash and cash equivalents includes $13.4 and $20.3, respectively, which is reserved for debt service payments on the 7.95% Timber Collateralized Notes due 2015. 3. INVENTORIES Inventories consist of the following:
June 30, December 31, 1994 1993 ------------- ------------ Aluminum Operations: Finished fabricated products . . . . . . . . . . . . . . $63.6 $ 83.7 Primary aluminum and work in process . . . . . . . . . . 149.0 141.4 Bauxite and alumina . . . . . . . . . . . . . . . . . . 77.0 94.0 Operating supplies and repair and maintenance parts . . 104.9 107.8 ------------- ------------ 394.5 426.9 ------------- ------------ Forest Products Operations: Lumber . . . . . . . . . . . . . . . . . . . . . . . . . 63.1 58.4 Logs . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 18.3 ------------- ------------ 76.4 76.7 ------------- ------------ $470.9 $ 503.6 ============= ============
4. LONG-TERM DEBT Long-term debt consists of the following:
June 30, December 31, 1994 1993 ---------------- ---------------- Corporate: 14% Senior Subordinated Reset Notes due May 20, 2000 . . . . . $ 25.0 $ 25.0 12-1/2% Subordinated Debentures due December 15, 1999, net of discount . . . . . . . . . . . . . . . . . . . . . . . . 20.7 25.2 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 .5 Aluminum Operations: 1994 Credit Agreement . . . . . . . . . . . . . . . . . . . . - - 1989 Credit Agreement: Revolving Credit Facility . . . . . . . . . . . . . . . . - 188.0 9-7/8% Senior Notes due February 15, 2002, net of discount . . 223.5 - Alpart CARIFA Loan . . . . . . . . . . . . . . . . . . . . . . 60.0 60.0 12-3/4% Senior Subordinated Notes due February 1, 2003 . . . . 400.0 400.0 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.7 78.1 Forest Products Operations: 7.95% Timber Collateralized Notes due July 20, 2015 . . . . . 368.9 377.0 11-1/4% Senior Secured Notes due August 1, 2003 . . . . . . . 100.0 100.0 12-1/4% Senior Secured Discount Notes due August 1, 2003, net of discount . . . . . . . . . . . . . . . . . . . . . . . 78.0 73.5 10-1/2% Senior Notes due March 1, 2003 . . . . . . . . . . . . 235.0 235.0 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.9 Real Estate Operations: Secured notes due December 31, 1997, interest at prime plus 3% . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 17.2 Other notes and contracts, primarily secured by receivables, buildings, real estate and equipment . . . . . . . . . . 21.8 23.8 ---------------- ---------------- 1,622.5 1,606.2 Less: current maturities . . . . . . . . . . . . . . . . . . . . . (35.1) (38.3) ---------------- ---------------- $ 1,587.4 $ 1,567.9 ================ ================
The 1994 Credit Agreement On February 17, 1994, Kaiser Aluminum Corporation ("Kaiser," a majority owned subsidiary of the Company) and its principal operating subsidiary, Kaiser Aluminum & Chemical Corporation ("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 Kaiser's previous credit agreement (as amended,the "1989 Credit Agreement") and consists of a $250.0 five-year secured revolving line of credit which matures 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 June 30, 1994, $184.2 of borrowing capacity was unused under the 1994 Credit Agreement (of which $59.2 could also have been used for letters of credit). The 1994 Credit Agreement is unconditionally guaranteed by Kaiser and by all significant subsidiaries of KACC. Loans under the 1994 Credit Agreement bear interest at a rate per annum, at KACC's election, equal to (i) a Reference Rate plus 1-1/2% or (ii) LIBOR plus 3-1/4%. After June 30, 1995, the interest rate margins applicable to borrowings under the 1994 Credit Agreement may be reduced by up to 1-1/2% based upon a financial test, determined quarterly. The 1994 Credit Agreement was amended as of July 21, 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition and Investing and Financing Activities -- Aluminum Operations." Kaiser recorded a pre-tax extraordinary loss of $8.3 for the six months ended June 30, 1994, consisting primarily of the write-off of unamortized deferred financing costs related to the 1989 Credit Agreement. 9-7/8% Senior Notes (the "KACC Senior Notes") Concurrent with the offering by Kaiser of the 8.255% Preferred Redeemable Increased Dividend Equity Securities (the "PRIDES") (see Note 5), 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. 5. MINORITY INTERESTS During the first quarter of 1994, Kaiser consummated the public offering of 8,855,550 shares of its PRIDES. The net proceeds from the sale of the PRIDES were approximately $100.4. The Company accounted for Kaiser's issuance of the PRIDES as additional minority interest. 6. INVESTMENT, INTEREST AND OTHER INCOME (EXPENSE) On May 17, 1994, the Company and The Pacific Lumber Company ("Pacific Lumber," a wholly owned indirect subsidiary of the Company) announced that an agreement in principle had been reached to settle class and related individual claims brought by former stockholders of Pacific Lumber against the Company, MAXXAM Group Inc. ("MGI," a wholly owned subsidiary of the Company), Pacific Lumber, former directors of Pacific Lumber and others concerning MGI's acquisition of Pacific Lumber. Of the pending approximately $52.0 settlement, approximately $33.0 was paid by insurance carriers of the Company and Pacific Lumber, approximately $14.8 was paid by Pacific Lumber and the balance was paid by other defendants and through the assignment of certain claims. The settlement is subject to certain contingencies, including a fairness hearing which will be held at a yet unspecified time. The above described cash payments are being held in the registry of the court pending satisfaction of these contingencies. In the second quarter of 1994, the Company recorded a pre-tax loss of $21.2 related to the settlement and associated costs. This amount is included in investment, interest and other income (expense). In February 1994, Pacific Lumber received a franchise tax refund of $7.2, the substantial portion of which represents interest, from the State of California relating to tax years 1972 through 1985. This amount is included in investment, interest and other income (expense) for the six months ended June 30, 1994. 7. 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. 8. CONTINGENCIES 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. At June 30, 1994, the balance of such accruals, which is primarily included in other noncurrent liabilities, was $42.1. 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 actions 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 $9.0 for the years 1994 through 1998 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 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 on Kaiser's consolidated financial position or results of operations. Asbestos Contingencies KACC is a defendant in a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by exposure to asbestos during, and as a result of, their employment 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, 1994, the number of such lawsuits pending was approximately 21,200. 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 an aggregate of approximately $95.4 thereafter through 2007. 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 2007. Kaiser does not presently believe there is a reasonable basis for estimating such costs beyond 2007 and, accordingly, no accrual has been recorded for such costs which may be incurred. This accrual was calculated based 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. Accordingly, an asbestos-related cost accrual of $102.6 is included primarily in other noncurrent liabilities at June 30, 1994. The aggregate amount of the undiscounted liability at June 30, 1994 is $141.9, before consideration of insurance recoveries. Kaiser believes that KACC has insurance coverage available to recover a substantial portion of its asbestos-related costs. While claims for recovery from some of KACC's insurance carriers are currently subject to pending litigation and other carriers have raised certain defenses, Kaiser believes, based 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 $97.9, determined on the same basis as the asbestos-related cost accrual, are recorded primarily in long-term receivables and other assets as of June 30, 1994. Based upon the factors discussed in the two preceding paragraphs, management currently believes that the resolution of the asbestos-related uncertainties and the incurrence of asbestos-related costs net of insurance recoveries should not have a material adverse effect on Kaiser's consolidated financial position or results of operations. Other Contingencies The Company is involved in various other claims, lawsuits and other proceedings relating to a wide variety of matters. While 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 on the Company's consolidated financial position or results of operations. 9. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS Kaiser enters into a number of financial instruments with off- balance-sheet risk in the normal course of business that are designed to reduce its exposure to fluctuations in foreign exchange rates, alumina and primary aluminum prices and the cost of purchased commodities. Kaiser has significant expenditures which are denominated in foreign currencies related to long-term purchase commitments with its affiliates in Australia and the United Kingdom, which expose Kaiser to certain exchange rate risks. In order to mitigate its exposure, Kaiser periodically enters into forward foreign exchange and currency option contracts in Australian Dollars and Pounds Sterling to hedge these commitments. The forward foreign currency exchange contracts are agreements to purchase or sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. At June 30, 1994, Kaiser had net forward foreign exchange contracts totaling approximately $23.4 for the purchase of 34.8 million Australian Dollars through May 1995. The option contracts are agreements that establish the maximum price or establish a range of prices at which the foreign currency may be acquired. At June 30, 1994, such options established a price range of $30.2 to $31.7 for the purchase of 48.0 million Australian Dollars through December 1994, and established a maximum price of $2.2 for the purchase of 1.5 million Pounds Sterling through December 1994. To mitigate its exposure to declines in the market prices of alumina and primary aluminum, while retaining the ability to participate in favorable pricing environments that may materialize, Kaiser has developed strategies which include forward sales of primary aluminum at fixed prices and the purchase or sale of options for primary aluminum. Under the principal components of Kaiser's price risk management strategy, which can be modified at any time, (i) varying quantities of Kaiser's anticipated production are sold forward at fixed prices, (ii) call options are purchased to allow Kaiser to participate in certain higher market prices, should they materialize, for a portion of Kaiser's excess primary aluminum and alumina sold forward, (iii) option contracts are entered into to establish a price range Kaiser will receive for a portion of its excess primary aluminum and alumina and (iv) put options are purchased to establish minimum prices Kaiser will receive for a portion of its excess primary aluminum and alumina. In this regard, in respect of its remaining 1994 anticipated primary aluminum and alumina production, as of June 30, 1994, Kaiser had sold forward 53,000 metric tons of primary aluminum at fixed prices and had purchased call options in respect of 30,000 metric tons of primary aluminum. Further, in respect of its 1995 anticipated primary aluminum and alumina production, as of June 30, 1994, Kaiser had sold forward 150,000 metric tons of primary aluminum at fixed prices, purchased call options in respect of 87,000 metric tons of primary aluminum and had entered into option contracts that established a price range for 54,000 metric tons of primary aluminum. Kaiser will not receive the benefit of market price increases to the extent (i) the quantity of production sold forward is greater than the tonnage covered by the purchased call options; (ii) market prices exceed the prices at which primary aluminum is sold forward, but are less than the strike price of the purchased call options, on the tonnage covered by the options; or (iii) market prices exceed the maximum of the price range on the tonnage covered by the option contracts entered to establish a price range. In addition, Kaiser enters forward fixed price arrangements with certain customers which provide for the delivery of a specific quantity of fabricated aluminum products over a specified future period of time. In order to establish the cost of primary aluminum for a portion of such sales, Kaiser may enter into forward and options contracts. In this regard, at June 30, 1994, Kaiser had 13,500 metric tons of primary aluminum forward purchase contracts at fixed prices. Kaiser has also entered into a natural gas pricing contract to fix future prices of a portion (20,000 million BTU's per day) of a plant's natural gas supply through March 1995. At June 30, 1994, the net unrealized gain on Kaiser's position in forward foreign exchange and foreign currency options was $4.3 and the net unrealized loss on aluminum forward sales and option contracts and the natural gas pricing contract was $35.8, based on dealer quoted prices. Gains and losses arising from the use of hedging instruments are reflected in Kaiser's operating results concurrently with the consummation of the underlying hedged transactions. Kaiser is exposed to credit risk in the event of non-performance by other parties to these currency and commodity contracts, but Kaiser does not anticipate non-performance by any of these counterparties. 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 MGI and its wholly owned subsidiaries; and real estate management 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. 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, 1994 and 1993. 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, ----------------------------- ----------------------------- 1994 1993 1994 1993 ------------- ------------- ------------- ------------- Shipments(1): Alumina . . . . . . . . . . . . . . . 574.2 472.3 1,042.4 931.6 Aluminum products: Primary aluminum . . . . . . . . 63.1 53.6 127.4 128.1 Fabricated products . . . . . . . 104.9 95.5 201.7 187.1 ------------- ------------- ------------- ------------- Total aluminum products . . 168.0 149.1 329.1 315.2 ============= ============= ============= ============= Average realized sales price: Alumina (per ton) . . . . . . . . . . $ 159 $ 170 $ 157 $ 172 Primary aluminum (per pound) . . . . . .55 .59 .55 .57 Net sales: Bauxite and alumina: Alumina . . . . . . . . . . . . . $ 91.3 $ 80.2 $ 163.8 $ 160.2 Other(2)(3) . . . . . . . . . . . 20.4 22.1 40.8 41.1 ------------- ------------- ------------- ------------- Total bauxite and alumina . 111.7 102.3 204.6 201.3 ------------- ------------- ------------- ------------- Aluminum processing: Primary aluminum . . . . . . . . 76.8 69.4 154.1 160.6 Fabricated products . . . . . . . 267.4 257.2 508.9 506.3 Other(3) . . . . . . . . . . . . 3.6 3.3 7.0 6.6 ------------- ------------- ------------- ------------- Total aluminum processing . 347.8 329.9 670.0 673.5 ------------- ------------- ------------- ------------- Total net sales . . . . $ 459.5 $ 432.2 $ 874.6 $ 874.8 ============= ============= ============= ============= Operating loss . . . . . . . . . . . . . . $ (12.7) $ (12.7) $ (36.8) $ (20.9) ============= ============= ============= ============= Loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles . . . . . . . . $ (33.6) $ (31.0) $ (77.0) $ (56.7) ============= ============= ============= ============= Capital expenditures . . . . . . . . . . . $ 12.1 $ 13.3 $ 21.7 $ 23.3 ============= ============= ============= ============= - -------------------- (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 $111.7 million for the second quarter of 1994 compared with $102.3 million for the second quarter of 1993 and $204.6 million for the six months ended June 30, 1994 compared with $201.3 million for the six months ended June 30, 1993. Revenues from alumina increased 14% to $91.3 million for the second quarter of 1994 from $80.2 million for the second quarter of 1993, and increased 2% to $163.8 million for the six months ended June 30, 1994, from $160.2 million for the six months ended June 30, 1993, principally due to increased shipments, offset by lower average realized prices. Aluminum processing. Revenues from net sales to third parties for the aluminum processing segment were $347.8 million for the second quarter of 1994 compared with $329.9 million for the second quarter of 1993 and $670.0 million for the six months ended June 30, 1994 compared with $673.5 million for the six months ended June 30, 1993. Revenues from primary aluminum increased 11% to $76.8 million for the second quarter of 1994 from $69.4 million for the second quarter of 1993 principally due to increased shipments, partially offset by lower average realized prices, and decreased 4% to $154.1 million for the six months ended June 30, 1994 from $160.6 million for the six months ended June 30, 1993, primarily because of lower average realized prices and, to a lesser extent, lower shipments. Shipments of primary aluminum to third parties constituted approximately 38% and 39% of total aluminum products shipments for the second quarter of 1994 and six months ended June 30, 1994, respectively, compared with approximately 36% and 41% for the second quarter of 1993 and six months ended June 30, 1993. Revenues from fabricated aluminum products increased 4% to $267.4 million for the second quarter of 1994 from $257.2 million for the second quarter of 1993 due to increased shipments, partially offset by lower average realized prices, and remained approximately the same for the six months ended June 30, 1994 compared with the six months ended June 30, 1993, as increased shipments were offset by lower average realized prices. Operating loss The operating loss for the second quarter of 1994 and the second quarter of 1993 was $12.7 million. The operating loss for the six months ended June 30, 1994 was $36.8 million, compared with $20.9 million for the six months ended June 30, 1993. Kaiser's corporate general and administrative expenses of $18.2 million and $18.3 million for the second quarter of 1994 and 1993, respectively, and $35.4 million and $37.1 million for the six months ended June 30, 1994 and 1993, 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. The bauxite and alumina segment had an operating loss of $3.9 million for the second quarter of 1994, compared with $7.9 million for the second quarter of 1993. The operating loss for the six months ended June 30, 1994 was $9.7 million, compared with $11.5 million for the six months ended June 30, 1993. These decreases in losses were principally due to increased shipments of alumina, partially offset by lower average realized prices for alumina. Aluminum processing. The aluminum processing segment had an operating loss of $8.8 million for the second quarter of 1994, compared with $4.8 million for the second quarter of 1993. This increase was principally due to lower average realized prices of primary aluminum and fabricated aluminum products, partially offset by increased shipments of these products. The operating loss for the six months ended June 30, 1994 was $27.1 million, compared with $9.4 million for the six months ended June 30, 1993. This increase was principally due to lower average realized prices of primary aluminum and fabricated aluminum products, partially offset by increased shipments of fabricated aluminum products. Loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles The loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles for the second quarter of 1994 was $33.6 million, compared with $31.0 million for the second quarter of 1993. The loss for the six months ended June 30, 1994 was $77.0 million, compared with $56.7 million for the six months ended June 30, 1993. This increase resulted from the increased operating loss previously described. FOREST PRODUCTS OPERATIONS The Company's forest products operations are conducted by MGI through its principal operating subsidiaries, Pacific Lumber and Britt Lumber Co., Inc. ("Britt"). 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, 1994 and 1993. 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, --------------------------- ---------------------------- 1994 1993 1994 1993 ------------ ------------ ------------ ------------ Shipments: Lumber(1): Redwood upper grades . . . . . . . . . . 12.8 17.0 25.7 32.8 Redwood common grades . . . . . . . . . . 55.7 48.3 105.1 93.9 Douglas-fir upper grades . . . . . . . . 1.9 3.0 4.4 6.2 Douglas-fir common grades . . . . . . . . 16.5 12.7 31.9 27.5 ------------ ------------ ------------ ------------ Total lumber . . . . . . . . . . . . 86.9 81.0 167.1 160.4 ============ ============ ============ ============ Logs(2) . . . . . . . . . . . . . . . . . . . 4.8 0.8 10.3 0.8 ============ ============ ============ ============ Wood chips(3) . . . . . . . . . . . . . . . . 64.9 34.7 95.2 71.2 ============ ============ ============ ============ Average sales price: Lumber(4): Redwood upper grades . . . . . . . . . . $ 1,469 $ 1,270 $ 1,437 $ 1,242 Redwood common grades . . . . . . . . . . 458 496 453 477 Douglas-fir upper grades . . . . . . . . 1,373 1,224 1,391 1,167 Douglas-fir common grades . . . . . . . . 426 439 445 433 Logs(4) . . . . . . . . . . . . . . . . . . . 638 714 658 709 Wood chips(5) . . . . . . . . . . . . . . . . 85 78 81 79 Net sales: Lumber, net of discount . . . . . . . . . . . $ 53.1 $ 53.4 $ 103.1 $ 102.1 Logs . . . . . . . . . . . . . . . . . . . . . 3.1 .6 6.8 .6 Wood chips . . . . . . . . . . . . . . . . . . 5.6 2.7 7.7 5.7 Cogeneration power . . . . . . . . . . . . . . .9 1.0 1.5 1.7 Other . . . . . . . . . . . . . . . . . . . . .3 .3 .6 .6 ------------ ------------ ------------ ------------ Total net sales . . . . . . . . . . $ 63.0 $ 58.0 $ 119.7 $ 110.7 ============ ============ ============ ============ Operating income . . . . . . . . . . . . . . . . . $ 23.1 $ 15.3 $ 36.5 $ 31.8 ============ ============ ============ ============ Loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles . . . . . . . $ (15.5) $ (2.9) $ (13.5) $ (6.3) ============ ============ ============ ============ Capital expenditures . . . . . . . . . . . . . . . $ 2.5 $ 4.6 $ 6.5 $ 6.6 ============ ============ ============ ============ - --------------------- (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 for the second quarter of 1994 were 86.9 million board feet, an increase of 7% from 81.0 million board feet for the second quarter of 1993. This increase was principally due to a 15% increase in redwood common lumber shipments, partially offset by a 25% decrease in shipments of upper grade redwood lumber. Log shipments for the second quarter of 1994 were 4.8 million feet (net Scribner scale), an increase from .8 million feet for the second quarter of 1993. Lumber shipments for the six months ended June 30, 1994 were 167.1 million board feet, an increase of 4% from 160.4 million board feet for the six months ended June 30, 1993. This increase was principally due to a 12% increase in redwood common lumber shipments, partially offset by a 22% decrease in shipments of upper grade redwood lumber. Log shipments for the six months ended June 30, 1994 were 10.3 million feet (net Scribner scale), an increase from .8 million feet for the six months ended June 30, 1993. Old growth trees constitute Pacific Lumber's principal source of upper grade redwood lumber. Due to the severe restrictions on Pacific Lumber's ability to harvest virgin old growth timber on its property (see "Trends" under Item 7 of the Form 10-K), Pacific Lumber's supply of upper grade lumber has decreased in some premium product categories. Pacific Lumber has been able to lessen the impact of these decreases by augmenting its production facilities to increase its recovery of upper grade lumber from smaller diameter logs and increasing the production of manufactured upper grade lumber products through its end and edge glue facility (which is currently being expanded). However, unless Pacific Lumber is able to sustain the harvest level of old growth trees it has experienced in recent years, Pacific Lumber expects that its supply of premium upper grade lumber products will decrease from current levels and that its manufactured lumber products will constitute a higher percentage of its shipments of upper grade lumber products. Net sales Revenues from net sales of lumber and logs for the second quarter of 1994 increased by approximately 4% from the second quarter of 1993. This increase was principally due to increased shipments of redwood common lumber, a 16% increase in the average realized price of upper grade redwood lumber and increased log shipments, partially offset by decreased shipments of upper grade redwood lumber and an 8% decrease in the average realized price of redwood common lumber. The increase in other sales for the second quarter of 1994 as compared to the second quarter of 1993 was attributable to increased sales of wood chips. Revenues from net sales of lumber and logs for the six months ended June 30, 1994 increased by approximately 7% from the six months ended June 30, 1993. This increase was principally due to increased log shipments, increased shipments of redwood common lumber, a 16% increase in the average realized price of upper grade redwood lumber and a 19% increase in the average realized price of upper grade Douglas-fir lumber, partially offset by decreased shipments of upper grade redwood lumber and a 5% decrease in the average realized price of redwood common lumber. The increase in other sales for the six months ended June 30, 1994 as compared to the six months ended June 30, 1993 was attributable to increased sales of wood chips. Operating income Operating income for the second quarter of 1994 increased by approximately 51% as compared to the second quarter of 1993. Operating income for the six months ended June 30, 1994 increased by approximately 15% as compared to the six months ended June 30, 1993. These increases were principally due to higher sales of logs and wood chips, improved sawmill productivity and lower purchases of lumber and logs from third parties in 1994 compared to 1993. For the six months ended June 30, 1993, cost of goods sold was reduced by $1.2 million for an additional business interruption insurance claim as a result of the April 1992 earthquake. Pacific Lumber's cost of producing lumber products has continued to increase as a result of compliance with evolving environmental regulations, litigation associated with its timber harvesting plans and greater costs attributable to processing larger numbers of smaller diameter logs and producing manufactured products. 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 increased for the second quarter of 1994 and the six months ended June 30, 1994 as compared to the same periods in 1993. These increases resulted from the loss on litigation settlement (see also "Pacific Lumber Merger Litigation" under Part II, Item 1 of this Report), partially offset by the increases in operating income and decreased interest expense. In addition, investment, interest and other income (expense) for the six months ended June 30, 1994 includes the receipt of a franchise tax refund of $7.2 million (as described in Note 6 to the Condensed Notes to Consolidated Financial Statements). The litigation settlement in the second quarter of 1994 (as described in Note 6 to the Condensed Notes to Consolidated Financial Statements) resulted in a pre-tax loss of $21.2 million which consists of Pacific Lumber's $14.8 million cash payment to the settlement fund, a $2.0 million accrual for additional contingent claims and $4.4 million of related legal fees. The Company has recorded a net benefit of approximately $6.3 million for federal and state income taxes related to the settlement. Interest expense decreased due to lower interest rates resulting from the refinancing of the long-term debt of Pacific Lumber and MGI in March and August of 1993. REAL ESTATE OPERATIONS
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 1994 1993 1994 1993 ------------ ------------ ------------ ------------ (In millions of dollars) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.3 $ 17.7 $ 38.5 $ 36.1 Operating loss . . . . . . . . . . . . . . . . . . . . . . (1.5) (.4) (3.4) (7.0) Loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles . . . . . . . . . . . . . . . . . . . . . . (.8) (1.2) (2.1) (8.4)
Net sales Revenues from net sales for the second quarter of 1994 were $21.3 million, an increase of $3.6 million from the second quarter of 1993. Net sales for the six months ended June 30, 1994 were $38.5 million, an increase of $2.4 million from the six months ended June 30, 1993. These increases were primarily due to increased lot sales at the Company's Fountain Hills development in Arizona and bulk acreage sales in New Mexico, partially offset by a decrease in rental revenues resulting from the sale of sixteen apartment complexes in December 1993. Operating loss The operating loss for the second quarter of 1994 was $1.5 million, an increase of $1.1 million from the second quarter of 1993. This increase was primarily due to higher overhead costs and decreased revenues resulting from the sale of apartment complexes, partially offset by the increased sales at Fountain Hills and the bulk acreage sales. The operating loss for the six months ended June 30, 1994 was $3.4 million, a decrease of $3.6 million from the six months ended June 30, 1993. This decrease 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 1993, the increased sales at Fountain Hills and the bulk acreage sales, partially offset by decreased revenues resulting from the sale of apartment complexes and higher 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 for the second quarter of 1994 was $.8 million, a decrease of $.4 million from the second quarter of 1993. This decrease was due to lower interest expense, partially offset by the increased operating loss discussed above. The loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles for the six months ended June 30, 1994 was $2.1 million, a decrease of $6.3 million from the six months ended June 30, 1993. This decrease was primarily attributable to the decreased operating loss discussed above, along with a decrease in interest expense. The decreases in interest expense resulted from repayments on the debt related to the RTC portfolio. OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ----------------------- 1994 1993 1994 1993 ----------- ----------- ----------- ----------- (In millions of dollars) Operating loss . . . . . . . . . . . . . $ (2.4) $ (3.3) $ (4.8) $ (6.8) Loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles . . . . . . . (6.9) (5.7) (11.3) (11.0)
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 the second quarter of 1994 was $2.4 million, a decrease of $.9 million from the second quarter of 1993. The operating loss for the six months ended June 30, 1994 was $4.8 million, a decrease of $2.0 million from the six months ended June 30, 1993. These decreases were 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 (expense) and interest expense, including amortization of deferred financing costs, that are not allocated to the Company's industry segments. The loss for the second quarter of 1994 was $6.9 million, an increase of $1.2 million from the second quarter of 1993. The loss for the six months ended June 30, 1994 was $11.3 million, an increase of $.3 million from the six months ended June 30, 1993. These increases were primarily due to the equity in losses of affiliates, partially offset by lower interest expense and the decreased operating losses discussed above. The equity in losses of affiliates is attributable to the Company's 29.7% equity interest in Sam Houston Race Park (see "--Financial Condition and Investing and Financing Activities -- Parent Company"). The decreases in interest expense resulted primarily from the redemption of $20.0 million aggregate principal amount of the Reset Notes in August 1993. Minority interests Minority interests represent the minority stockholders' interest in the Company's aluminum operations. Extraordinary item The refinancing activities of Kaiser during the first quarter of 1994, as described in Note 4 to the Condensed Notes to Consolidated Financial Statements, resulted in an extraordinary loss of $5.4 million, net of benefits for income taxes of $2.9 million. The extraordinary loss consists primarily of the write-off of unamortized deferred financing costs on the 1989 Credit Agreement. The extraordinary loss for the six months ended June 30, 1993 resulted from the refinancing activities of KACC and Pacific Lumber. FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES The Company's consolidated indebtedness increased $16.3 million to $1,622.5 million at June 30, 1994 from $1,606.2 million at December 31, 1993. The increase was primarily attributable to Kaiser's issuance of the KACC Senior Notes, offset by the repayment of outstanding borrowings under the 1989 Credit Agreement. 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. At June 30, 1994, 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 $26.2 million could be paid as of June 30, 1994. As of June 30, 1994, the Company (excluding its aluminum, forest products and real estate subsidiary companies) had cash and marketable securities of approximately $41.7 million. 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. Sam Houston Race Park, a Class 1 horse racing track located in Houston, began operations on April 29, 1994. The track has thoroughbred and quarter horse races scheduled through the end of 1994. Through various subsidiaries, the Company is the general partner of, and holds an equity interest of approximately 29.7% in, Sam Houston Race Park, Ltd. ("SHRP"), which owns the facility. SHRP's initial working capital, together with cash flows from operations, has not been sufficient to enable SHRP to meet its obligations as they become due. As of June 30, 1994, SHRP had a working capital deficiency of approximately $2.7 million and a capital deficit of approximately $8.1 million. SHRP has been able to continue its operations principally by deferring payments to certain of its vendors. There can be no assurance that such vendors will continue to permit SHRP to defer full payment of amounts due. SHRP's ability to recover its investment in Sam Houston Race Park is dependent upon its ability to raise additional capital from its partners and, ultimately, to achieve a level of cash flow from operations sufficient to enable it to meet its operating and financing obligations as they become due. In this regard, the Company has undertaken a number of steps designed to improve SHRP's current operations. These efforts include increasing its marketing and advertising programs, strengthening on-site management, renegotiating contracts for purse payments and reducing other general and administrative costs. In addition to its efforts to strengthen SHRP's current operations, the Company has determined that a cash call to the partners will be necessary. The amount, timing and terms of the cash call are to be discussed at a meeting of the partners scheduled for August 17, 1994. The Company's portion of the cash call is not expected to be significant to the Company. There can be no assurance that the operating changes referred to above, together with the cash raised from the partners, will be sufficient to enable SHRP to achieve a level of cash flow from operations sufficient to enable it to meet its future operating and financing obligations as they become due. There is a high probability that, absent significant improvements in SHRP's operating performance, additional cash calls to the partners will be required in the future. ALUMINUM OPERATIONS The offering of the PRIDES, the issuance of the KACC Senior Notes and the replacement of the 1989 Credit Agreement during the first quarter of 1994 (as described in Notes 4 and 5 to the Condensed Notes to Consolidated Financial Statements) were 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 expects that cash flows from operations and borrowings under the 1994 Credit Agreement will be sufficient to satisfy its working capital and capital expenditure requirements for the foreseeable future. The 1994 Credit Agreement was amended as of July 21, 1994, by First Amendment to Credit Agreement (the "First Amendment"). The First Amendment provided, among other things, for an increase in the revolving line of credit from $250.0 million to $275.0 million, and for an increase in the inventory sub-limit of the borrowing base from $175.0 million to $200.0 million, under the 1994 Credit Agreement. 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. REAL ESTATE OPERATIONS As of June 30, 1994, the Company's real estate subsidiaries had approximately $28.6 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. SENSITIVITY TO PRICES AND HEDGING PROGRAMS ALUMINUM OPERATIONS To mitigate its exposure to declines in the market prices of alumina and primary aluminum, while retaining the ability to participate in favorable pricing environments that may materialize, Kaiser has developed strategies which include forward sales of primary aluminum at fixed prices and the purchase or sale of options for primary aluminum. Under the principal components of Kaiser's price risk management strategy, which can be modified at any time, (i) varying quantities of Kaiser's anticipated production are sold forward at fixed prices, (ii) call options are purchased to allow Kaiser to participate in certain higher market prices, should they materialize, for a portion of Kaiser's excess primary aluminum and alumina sold forward, (iii) option contracts are entered into to establish a price range Kaiser will receive for a portion of its excess primary aluminum and alumina and (iv) put options are purchased to establish minimum prices Kaiser will receive for a portion of its excess primary aluminum and alumina. Since June 30, 1994, in addition to the positions which have expired pursuant to their terms, Kaiser has adjusted certain of its hedge positions. In respect of its remaining 1994 anticipated primary aluminum and alumina production, as of the date of this Report, Kaiser had sold forward 59,200 metric tons of primary aluminum at fixed prices and had purchased call options in respect of 25,000 metric tons of primary aluminum. Further, in respect of its 1995 anticipated primary aluminum production, as of the date of this Report, Kaiser had sold forward 42,200 metric tons of primary aluminum at fixed prices, had purchased call options in respect of 30,000 metric tons of primary aluminum, had entered into option contracts that established a price range for 90,000 metric tons of primary aluminum and had purchased put options to establish a minimum price for 181,500 metric tons of primary aluminum. In addition, since several alumina sales contracts have pricing provisions which link the selling price of alumina to the spot price of primary aluminum, Kaiser has hedged a portion of its 1995 alumina sales on the primary aluminum forward market. As of the date of this Report, Kaiser had sold 34,000 metric tons of primary aluminum forward at fixed prices. TRENDS ALUMINUM OPERATIONS In response to a power reduction imposed by the Bonneville Power Administration ("BPA") in the Pacific Northwest, Kaiser in January 1993 removed three reduction potlines from production in Washington (two at its Mead smelter and one at its Tacoma smelter). Kaiser has operated these smelters at such reduced operating rate since that time. Although full BPA power was restored as of April 1, 1994, a 25% power reduction was imposed again by the BPA as of August 1, 1994, which reduction is expected to continue through at least November 30, 1994. Kaiser cannot predict whether full power will be provided by the BPA after November 30, 1994, or whether power will otherwise become available at a price acceptable to Kaiser. Kaiser currently anticipates that it will operate its Mead and Tacoma smelters during the remainder of 1994 at a rate which does not exceed the current operating rate of 75% of full capacity for such smelters. Furthermore, after continued assessment of current market conditions, on May 15, 1994, Kaiser curtailed about 40,000 metric tons of primary aluminum-making capacity at its 90%-owned Volta Aluminium Company Limited ("VALCO") smelter in Ghana, West Africa. The tonnage accounts for about 20% of VALCO's annual capacity and about 9.3% of Kaiser's current annual production. With this cutback and those taken at Kaiser's Pacific Northwest smelters in January 1993, Kaiser is operating at an annual production rate of approximately 390,000 metric tons of primary aluminum, or 77% of its total annual rated capacity of 508,000 metric tons. During the six months ended June 30, 1994, Kaiser's average realized prices from sales of alumina, primary aluminum and fabricated aluminum products declined from their 1993 levels. 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. 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 exceed the loss for 1993 before extraordinary losses and cumulative effect of changes in accounting principles, the charges related to the restructuring of the Trentwood plant and certain other facilities, certain other charges principally related to a reduction in the carrying value of Kaiser's inventories and the establishment of additional litigation and environmental reserves. MAXXAM INC. 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, 1994 (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. KAISER ENVIRONMENTAL LITIGATION Aberdeen Pesticides Dumps Site Matter As indicated in the Form 10-K, by letters dated December 30, 1993, the EPA notified KACC of its potential liability for, and requested that KACC, along with a number of other companies, undertake or agree to finance, groundwater remediation at certain of the Sites. On June 22, 1994, the EPA issued two Unilateral Administrative Orders under Section 106(a) of CERCLA under U.S. EPA Docket No. 94-28-C and U.S. EPA Docket No. 94-27-C, respectively, ordering a number of respondents, including KACC, to design and implement the groundwater remediation remedy for two of the Sites. KACC has reached an agreement in principle with certain of the respondents to participate jointly in responding to both of the Unilateral Administrative Orders, to share costs incurred on an interim basis, and to seek to reach a final allocation of costs through agreement or to allow such final allocation and determination of liability to be made by the U.S. District Court. A definitive agreement is under negotiation by the participating respondents. The participating respondents are also in the process of notifying the EPA of their intent to comply with the Unilateral Administrative Orders to the extent consistent with applicable law. PACIFIC LUMBER MERGER LITIGATION With respect to the In re Ivan F. Boesky multidistrict securities litigation matter, on May 17, 1994, the Company and Pacific Lumber announced that an agreement in principle had been reached to settle class and related individual claims brought by former stockholders of Pacific Lumber against the Company, MGI, Pacific Lumber, former directors of Pacific Lumber and others concerning MGI's acquisition of Pacific Lumber. The settlement would resolve the Fries State, Omicini, Thompson State, Russ, Fries Federal, Thompson Federal, Boesky and American Red Cross actions described in the Form 10-K. Of the pending approximately $52.0 million settlement, approximately $33.0 million was paid by insurance carriers of the Company and Pacific Lumber, approximately $14.8 million was paid by Pacific Lumber, and the balance was paid by other defendants and through the assignment of certain claims. The settlement is subject to certain contingencies, including a fairness hearing which will be held at a yet unspecified time in the United States District Court, Southern District of New York (notice of which hearing will be furnished to claimants). The above-described cash payments are being held in the registry of the court pending satisfaction of these contingencies. Management believes the settlement of these claims is in the best interest of the Company. See also Note 6 to the Condensed Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations - - - Forest Products Operations -- Loss before income taxes, minority interests, extraordinary item and cumulative effect of changes in accounting principles" in Part I of this Report. With respect to the Russ case, the Court has scheduled a status conference for January 6, 1995, but has directed the parties to file dismissal papers with the Court in the event that the above-described Boesky settlement is approved and finalized prior to the next scheduled status conference. RANCHO MIRAGE LITIGATION With respect to the consolidated In re MAXXAM Inc./Federated Development Shareholders Litigation action, on July 6, 1994, the defendants and consolidated plaintiffs entered into a settlement agreement. Under the terms of the proposed settlement, the Company would receive $3 million, $1.5 million to be paid by defendant Federated Development Company (over 22 months) and the other $1.5 million to be paid on behalf of the individual defendants by their insurance carriers. All shareholders of record have been sent notice and information concerning the proposed settlement. A fairness hearing with respect to the proposed settlement has been scheduled for September 21, 1994. NL Industries, Inc., which filed separate actions in Delaware and Texas concerning the Mirada transactions (described in the Form 10-K) has indicated that it intends to oppose the proposed settlement. ITEM 5. OTHER INFORMATION In Part I, Item 1, "Business--Forest Products Operations-- Regulatory and Environmental Factors" of the Form 10-K, a bill is described which relates to approximately 54,000 acres of Pacific Lumber's timberlands. A similar bill has been introduced in the U.S. Senate by Senator Barbara Boxer (D-CA). Since these bills are subject to amendment, it is premature to assess the ultimate content of these bills, the likelihood of any of the bills passing, or the impact of either of these bills on the financial position or results of operations of the Company. MCO Properties Inc., a subsidiary of the Company, and the local sanitation district, an unaffiliated company, have received notification of non-compliance with certain Arizona statutes and regulations concerning the discharge and disposal of effluent and wastewater. MCOP and the unaffiliated company are working with the Arizona Department of Environmental Quality to correct this matter. This matter could delay the processing and approval of subdivision plats within the Fountain Hills development. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS: 4.1 Certificate of Designations of Class A $.05 Non-Cumulative Participating Convertible Preferred Stock of the Company, dated July 6, 1994 (incorporated herein by reference to Exhibit 4(c) to the Registration Statement of the Company on Form S-8, Registration No. 33-54479) *4.2 Second Amendment, dated as of May 26, 1994, to Pacific Lumber's Revolving Credit Agreement *4.3 Fourth Modification Agreement, dated as of March 31, 1994, by and among General Electric Capital Corporation ("GECC"), MXM Mortgage Corp. and MXM Mortgage L.P. *4.4 Fifth Amendment to Loan Agreement, dated as of March 31, 1994, by and among GECC, MXM Mortgage Corp. and MXM Mortgage L.P. 4.5 First Amendment to Kaiser's 1994 Credit Agreement (incorporated herein by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of Kaiser Aluminum Corporation for the quarter ended June 30, 1994; File No. 1-9447) 10.1 MAXXAM 1994 Omnibus Employee Incentive Plan (incorporated herein by reference to the Company's Proxy Statement dated April 29, 1994; File No. 1-3924; the "1994 Proxy Statement") 10.2 MAXXAM 1994 Non-Employee Director Plan (incorporated herein by reference to the 1994 Proxy Statement) 10.3 MAXXAM 1994 Executive Bonus Plan (incorporated herein by reference to the 1994 Proxy Statement) *11 Computation of Net Loss Per Common and Common Equivalent Share - -------------------- * Included with this filing. B. REPORTS ON FORM 8-K: On June 2, 1994, the Company filed a Current Report on Form 8-K, dated June 2, 1994, describing under Item 5 the settlement of the Pacific Lumber merger litigation (see "-- Pacific Lumber Merger Litigation" under Part II, Item 1 of this Report for a description of such settlement). 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 chief financial officer of the Registrant. MAXXAM INC. Date: August 15, 1994 By: JOHN T. LA DUC John T. La Duc Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----